-----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, TlLmlzosj68CR0wJ4/V+MjTKYTf9C8Ym7xmlMUravZ2wSbXifblzT9CcMMfE7U5b vMwICEWQG7UBpVDebaMxjQ== 0000950130-99-001777.txt : 19990331 0000950130-99-001777.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950130-99-001777 CONFORMED SUBMISSION TYPE: 20FR12B/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BID COM INTERNATIONAL INC CENTRAL INDEX KEY: 0001079171 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20FR12B/A SEC ACT: SEC FILE NUMBER: 001-14835 FILM NUMBER: 99577254 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/A 1 AMENDMENT NO.1 TO FORM 20-F SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 20-F/A-1 [ 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. 001-14835 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. None Securities registered or to be registered pursuant to Section 12(g) of the Act. Common Shares Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 48,125,396 Common Shares as of March 23, 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..........................................................................................2 ITEM 1 - DESCRIPTION OF BUSINESS.............................................................2 RISK FACTORS..................................................................17 ITEM 2 - DESCRIPTION OF PROPERTY............................................................28 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...........................................................................32 ITEM 8 - SELECTED FINANCIAL DATA............................................................36 ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................40 ITEM 9A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........................... ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT..............................................48 ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS............................................50 ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES....................52 ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS....................................54 PART II........................................................................................56 ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED........................................56 PART III.......................................................................................57 ITEM 15 - DEFAULTS UPON SENIOR SECURITIES...................................................57 ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES AND USE OF PROCEEDS.............................................57 PART IV........................................................................................57 ITEM 17 - FINANCIAL STATEMENTS..............................................................57 ITEM 18 - FINANCIAL STATEMENTS..............................................................57 ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS.................................................57 AUDITORS' REPORT..............................................................................F-1
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 March 26, 1999, the exchange rate was $1.00 (Canadian)= US $1.5138. Certain financial information presented in this Registration Statement has been translated from Canadian dollars to U.S. dollars at an exchange rate of Cdn$1.5302 to US$1.00, the noon buying rate in New York City on December 31, 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 $.6535 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 . geographic expansion of the Company's business 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 [17], 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 1 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. The Company's financial statements are expressed in Canadian 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$1.5302 to US$1.00, the noon buying rate in New York City on December 31, 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 March 14, 1999, the Company had approximately 103,000 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 Company has received a notice of allowance from the U.S. Patent and Trademark Office ("PTO") for a patent application it filed seeking protection for the process whereby the Company conducts Dutch auctions over electronic distribution channels. 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 and businesses become familiar with this E-tailing platform. 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 Etailers 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 household 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. While the Company currently derives most of its revenues from business-to-consumer auctions, 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. o 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 March 14, 1999, the Company had approximately 103,000 registered bidders. The Company currently derives most of its revenues from business-to-consumer auctions. o 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 t 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. Management believes that its Dutch auction proprietary technology will have wide application in the business-to-business sector because it enables organizations to efficiently conduct high volume transactions. o 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. Toronto Star has not yet launched its online auction. 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. In April 1999, the Company plans to open its first European office in Dublin, Ireland, to license the Company's auction technologies and provide related support services to European-based companies. See "--Licensing Proprietary Online Platform For Private Brand Auctions." o 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." o 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 December 1998, 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 sells 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: o Forming Strategic and Marketing Alliances with Internet Service and Content Providers. The Company has initiated strategic and marketing 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. In July 1998, the Company 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 an 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 and Marketing Alliances with Major Content and Service Providers." In November, 1997, the Company entered into a non-exclusive marketing alliance 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. The terms of the alliance were amended in March 1999. AOL is the world's largest online service provider, with a subscriber base of more than 15.0 million people. See "--Marketing - Strategic and Marketing Alliances With Major Content and Service Providers" and "Risk Factors - Continuance of Existing Strategic and Marketing Alliances." o 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 pag 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." o 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 received a notice of allowance from the PTO for a patent application it filed in the United States seeking patent protection for the process of conducting its Dutch auctions over electronic distribution channels. The Company has a patent application pending in Canada covering the same technology. 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. The United States auction is conducted in U.S. dollars and the Canadian auction is conducted in Canadian dollars. 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 and businesses 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 product 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 fixed quantity of the 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 limited quantity of the product being auctioned may be sold out. The declining bid auction allows participants to bid in a real-time format utilizing on-screen data which provides the time and quantity remaining as well as the falling price of the items for sale. The bidders remain online and actively participate throughout the auction process. 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 received a notice of allowance from the PTO for a patent application it filed in the United States seeking patent protection for the process of conducting its Dutch auctions over electronic distribution channels. The Company has a patent application pending in Canada covering the same technology. 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. The Company believes that the Dutch Auction format also will have wide application in the business- to-business sector because it facilitates the efficient conduct of high volume transactions. 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. The Company believes its proprietary Dutch auction technology will be particularly well suited to this sector. In December 1998, th 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 arrangements that allow the Company to purchase merchandise only after the Company's customer has purchased and paid for the product. These arrangements typically provide that the supplier will reserve for sale by the Company specified quantities of products for a fixed period of time without obligating the Company to purchase those products until sales are made to the Company's customers. 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. Sold products are usually shipped directly from the supplier to the customer. 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. In April 1999, the Company plans to open its first European office in Dublin, Ireland, to license the Company's auction technologies and provide related support services to European-based companies. 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. Toronto Star has not yet launched its online auction. 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. The license agreement expires June 30, 2001. 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 December 1998, the Company entered into an agreement with 24/7 under which 24/7 sells 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 and marketing relationships with Rogers Media and AOL 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 and Marketing Alliances with Major Content and Service Providers The Company has developed strategic and marketing alliances with Rogers Media and AOL 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 als 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 March 14, 1999, the Company had approximately 103,000 registered bidders, representing a 412.0% 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 and marketing partners will strengthen its ability to enter into future business alliances. 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 advertisin 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." 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 a non-exclusive Interactive Marketing Agreement (the "AOL Marketing Agreement") with AOL in November 1997 under which the Company agreed to purchase $1.25 million (Cdn$1.75 million) of advertising and promotion from AOL each quarter through October 1999. The AOL Marketing Agreement provided 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 was supported by substantial online advertising. Pursuant to the AOL Marketing Agreement, the Company provided product procurement, transactional processing and order fulfillment services to AOL in connection with BID.COM The Online Auction. The agreement also provided that after the Company reached certain revenue thresholds or received a specified number of cumulative impressions on AOL Web sites, AOL would be entitled to receive 50% of the Company's excess gross profit earned from such revenues or impressions. The AOL Marketing Agreement was to expire on November 1, 1999. In March 1999, the Company and AOL terminated the AOL Marketing Agreement and entered into a new non-exclusive agreement. Under the new agreement, AOL continues to provide BID.COM with anchor tenant positioning in a number of AOL's E-Commerce offerings, plus various key words such as "Online Auctions," and the Company will continue to provide product procurement, transactional processing and order fulfillment services to AOL in connection with BID.COM The Online Auction. Under the new agreement and related arrangements, the Company's advertising payments to AOL are reduced to $3.0 million for the 13 month period of the agreement from $5.0 million annually under the old agreement. In addition, the new agreement eliminates the revenue sharing arrangement. Prior to the termination of the old agreement, the revenue sharing thresholds had not been reached. The new agreement expires on March 31, 2000. In February 1997 AOL 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." 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" tradin 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 i 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, DAAC Computers & Notebooks, Inc. ("DAAC"), a computer products supplier, provided over 30% of the Company's products and four unrelated suppliers of computer and other products, including DAAC, Bostek, Inc., Micro-Exchange Corporation and Advantage Company, accounted for up to 90% of the Company's total 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. The Company typically enters into non-exclusive agreements with its primary suppliers, which are terminable at the Company's option. The products purchased from the Company's primary suppliers generally are readily available from other sources. 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, bu 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, such as 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$889,000 for the year ended December 31, 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 merchandis 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) consumer-to-consumer 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 i 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. The Company believes that it is competitive in each of these areas. 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. Certain of the Company's competitors may also offer auction services in Canada and/or Europe. 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 patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and technical measures, to establish and protect its proprietary rights. The Company has received a notice of allowance from the PTO for a patent application it filed in the United States seeking patent protection for the process whereby the Company conducts declining price, or Dutch, auctions over electronic distribution channels. The PTO grants a notice of allowance if, after examination, it finds a patent application allowable and then it issues the patent soon after the applicant pays an issuance fee. The Company has a patent application pending in Canada covering the same technology. The Company's proprietary software is subject to common law copyright protection, but the Company does not have, and does not intend to pursue, any registered copyrights. Common law protection may be narrower than that which the Company could obtain under registered copyrights. As a result, the Company may experience difficulty in enforcing its copyrights against certain third party infringements. The source code for the Company's proprietary software is protected as a trade secret. See "Risk Factors--Protection of Intellectual Property." BID.COM, BID.COM THE ONLINE AUCTION, INTERNET LIQUIDATORS, ILUSA, $BUCK A MONTH CLUB, CLUB.R.A.D.D., ONLINE OUTLET MALL, ONLINE AUCTION, BID BUDDY, SEARCH BUDDY and EXPERIENCE ENGINE are trademarks or tradenames of the Company, all of which are the subject of pending applications for registration in either or both of the United States and Canada, except for INTERNET LIQUIDATORS, which is registered in Canada. 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. 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 . The Company's subsidiary, Internet Liquidators USA Inc., provides sales and marketing services and maintains an office 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' 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 $27.7] million as at December 31, 1998. For the year ended December 31, 1998 and the year ended December 31, 1997, the Company's net loss was Cdn $18.7 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. The Company's operating losses in 1997 and 1998 were attributable, in part, to the Company's promotional pricing strategy under which products were sold below cost or at significantly reduced profit margins. While the Company began to limit this policy during the fourth quarter of 1998, the Company continues to sell a limited number of products at significantly reduced margins and, in the future, may from time to time continue to use promotional pricing programs in connection with the introduction of new products and services, in response to competitive pressures or for other business reasons. The use of such promotional pricing strategies may have a material adverse effect on the Company's profitability. There can be no assurance that the Company will earn profits or generate positive cash flows from 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, failure or delays in connection with expansion to Europe, 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 th 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 Share 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 suppor 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 and Marketing Alliances The Company's business strategy is based, to a substantial degree, on seeking out and forming strategic and marketing 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 and marketing alliances with its marketing and distribution partners are of limited duration or may be terminated at any time. The Rogers Media Agreement may be terminated by Rogers Media at any time upon 90 days' advance written notice, subject to certain conditions. The Company's agreement with AOL expires on March 31, 2000. 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 th Company. To date, most of the strategic and marketing 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 and marketing 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 merchandis 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) consumer-to-consumer 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 companie 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. Certain of the Company's competitors may also offer auction services in Canada and/or Europe. 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 application 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 i 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, expanding operations to Europe and elsewhere, 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 b 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 proprietar 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. The Company's insurance policies do not reimburse the Company for losses caused by security breaches. 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. The Company's insurance policies carry low coverage limits which may not be adequate to reimburse the Company for losses caused by erroneous transmission of computer viruses or other defects. 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 us 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 b 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 is conducting an analysis 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. However, 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's business, results of operations, cash flow, financial condition and prospects. The Company has not yet devised a contingency plan covering the possible failure of any of its primary suppliers, service providers or marketing or advertising partners to resolve its Year 2000 problems in a timely manner. If necessary, such contingency plans could require the Company to incur significant expenses. In addition, most of the purchases fro 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 technica 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 patent, copyright, trademark and trade secret laws as well as confidentiality agreements and technical measures, to establish and protect its proprietary rights. The Company has received a notice of allowance from the PTO for a patent application it filed in the United States seeking patent protection for the process whereby the Company conducts declining price, or Dutch, auctions over electronic distribution channels. The PTO grants a notice of allowance if, after examination, it finds a patent application allowable and then it issues the patent soon after the applicant pays an issuance fee. The Company has a patent application pending in Canada covering the same technology. There can be no assurance that the patent under application in Canada will be allowed or issued in whole or in part. In addition, the Company cannot guarantee that any patents issued to it will afford meaningful protection for its technology. Competitors may develop similar technologies which do not conflict with the Company's patents, or they could challenge the Company's patents. The Company is not aware of any challenges to its patent rights or any infringement by its technology on the proprietary rights of 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 or that the Company's patents will not be challenged. 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. The Company's proprietary software is protected by common law copyright laws, as opposed to registration under copyright statutes. Common law protection may be narrower than that which the Company could obtain under registered copyrights. As a result, the Company may experience difficulty in enforcing its copyrights against certain third party infringements. The source code for the Company's proprietary software is protected as a trade secret. 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 product 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, California and Georgia, the states in which the Company has, or in the past had, 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. Risks Associated with Global Expansion The Company currently operates in the United States and Canada. However, it intends to open an office in Ireland in June 1999, and may expand to other countries thereafter. Expansion will require management attention and resources. The Company has limited experience in localizing its service, and the Company believes that many of its competitors are also undertaking expansion into foreign markets. There can be no assurance that the Company will be successful in expanding into global markets. In addition to the uncertainty regarding the Company's ability to generate revenues from foreign operations and establish a global presence, there are certain risks inherent in doing business on a global level, including, among others, regulatory requirements, legal uncertainty regarding liability, tariffs, and other trade barriers, difficulties in staffing and managing foreign operations, difficulties in protecting intellectual property rights, longer payment cycles, different accounting practices, political instability, the impact of recession and other economic conditions in local markets, seasonal reductions in business activity during the summer months in Europe and elsewhere, inability to predict foreign consumer demand and potentially adverse tax consequences, any of which could adversely affect the success of the Company's global operations. If the Company expands its foreign operations and has additional portions of its revenues denominated in foreign currencies, the Company could become subject to increased risks relating to foreign currency exchange rate fluctuations. In addition, the export of certain software from the United States and Canada is subject to export restrictions as a result of the encryption technology in such software and may give rise to liability to the extent the Company violates such restrictions. There can be no assurance that one for more of the factors discussed above will not have a material adverse effect on the Company's future global operations and, consequently, on the Company's business, results of operations, cash flow, financial condition and prospects. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 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 and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Foreign Currency Fluctuations." 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 The Company has applied for its Common Shares to be quoted for trading on The Nasdaq SmallCap Market under the symbol BIDS. The trading price of the Common Shares on The Nasdaq SmallCap 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 othe 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 Markets 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 have a negative effect on market prices of stocks generally, which could adversely affect the market price of the Common Shares even though the Company may have no customers or operations in those regions. 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; Risk of Low Priced Stock 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. In addition, historically the Company's Common Shares have frequently traded on the TSE at prices below $5.00. Should a similar trading range continue on Nasdaq after the effective date of this Registration Statement, the Common Shares could become characterized as "penny stocks" which could severely affect market liquidity. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on Nasdaq or a national securities exchange and any equity security issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for three years, (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average annual revenue of at least $6,000,000, if such issuer has been in continuous operation for less than three years. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. The penny stock regulations would adversely affect the market liquidity of the Common Shares by limiting the ability of broker/dealers to trade the stock and the ability of purchasers of the Common Stock to sell in the secondary market. Shares Eligible For Future Sale This Registration Statement registers the Company's class of Common Shares pursuant to the Exchange Act. It does not register the sale of any Common Shares by the Company or any shareholder pursuant to the Securities Act of 1933, as amended (the "Securities Act"). The Common Shares may be sold in the United States as set forth below. As of the effective date of this Registration Statement, there are ______________ Common Shares outstanding. Of these shares, ______________ Common shares will be freely tradable immediately upon the effective date of this Registration Statement, except for those shares held by "affiliates," as defined in rule 144 ("Rule 144") under the Securities Act. The remaining outstanding Common Shares may be sold from time to time in accordance with Rule 144 (such shares being referred to herein as "Restricted Shares") or, if applicable, may be sold in accordance with Rule 701 (as defined below). In addition, as of March 19, 1999, there were outstanding options and warrants to purchase an aggregate of 3,795,659 Common Shares. 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 have a materially dilutive effect on the prevailing market price of the Common Shares and the ability of the Company to raise equity capital in the future. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Registration Statement, a person (or persons whose shares are required to be aggregated) who has beneficially owned Restricted Shares for at least one year (including the holding period of any prior owner except an affiliate) would be entitled to sell within any three-month period a number of shares that does not exceed the greater of (i) 1% of the number of Common Shares then outstanding (which will equal approximately 481,250 shares immediately upon the effective date) or (ii) the average weekly trading volume of the Common Shares during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an affiliate of the Company at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner except an affiliate), is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 under the Securities Act ("Rule 701") permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Any employee, officer or director of or consultant to the Company who, prior to the effective date of this Registration Statement, purchased his or her shares or received options to purchase Common Shares, pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701 with respect to options or shares issued in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this Registration Statement before selling such shares. In addition, Rule 701 shares and shares issued upon exercise of options granted after the effective date of this Registration Statement pursuant to written compensatory plans or contracts may be sold pursuant to a short form registration statement on Form S-8 filed by the Company. This type of registration statement is automatically effective upon filing with the Securities and Exchange Commission. Certain restrictions under Rule 144 may apply to sales of shares registered on an S-8 registration statement. The Company has not entered into any commitments to file any registration statements on Form S-8, but may from time to time register shares under such registration statements as long as it is eligible to use this form under applicable rules. Enforceability of Civil Liabilities The Company is incorporated under the laws of the Province of Ontario, Canada, certain of the Company's directors and officers are residents of Canada and a substantial part of the assets of the Company and all or a substantial portion of the assets of such persons are located outside the United States. 28 As a result, it may be difficult for holders of Common Shares to effect service of legal process within the United States upon those directors and officers who are not residents of the United States or to realize in the United States upon judgments of courts of the United States predicated upon civil liability under the Securities Act of 1933, as amended, or the Exchange Act or the rules and regulations promulgated under such statutes. The Company believes, based on advice of its Canadian counsel, that a judgment of a United States court predicated solely upon civil liability under such U.S. federal securities laws would probably be enforceable in Canada if the United States court in which the judgment was obtained had a basis for jurisdiction in the matter that was recognized by a Canadian court for such purposes. However, the Company believes, based on such counsel's advice, that there is substantial doubt whether an action could be brought successfully in Canada in the first instance on the basis of liability predicated solely upon such U.S. federal securities laws. 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. In June 1999, the Company plans to open an office in Dublin, Ireland. The Company is in the process of locating suitable premises. 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 March 9, 1999 with respect to the beneficial ownership of Common Shares by the Company's executive officers and directors as a group (12 persons). Amount of Shares Beneficially Owned Percent of Class ------------------------------------------------ All Directors and Executive Officers as a Group (12 persons) 3,781,400 (1)(2) 8% - ----------------- (1) Includes an aggregate of 1,045,000 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) any Common Shares held by HDL Capital Corporation ("HDL"); Mr. Bulger is an officer and principal of HDL; (ii) 1.0 million Common Shares purchased by AOL; Mr. Singer is senior vice president of AOL Studios, a division of AOL; (iii) 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; (iv) 25,000 Common Shares held by Terri Pamenter, David Pamenter's wife; (v) options granted to Paul Hart to purchase 100,000 Common Shares which options have not yet vested; and (vi) options granted to James I. Moskos to purchase 25,000 Common Shares which options have not yet vested. 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. The Company has applied for its Common Shares to be quoted for trading on The Nasdaq SmallCap Market under the symbol BIDS. 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 (through 13.90 3.80 March 26, 1999) As of March 23, 1999, the Company had 1,095 shareholders of record holding 48,125,396 Common Shares, of which 64 shareholders holding 4,946,002 Common Shares had an address of record in the United States. Common Shares held by the principal depositary in the United States amounted to 4,740,316 or 10.0% of the issued Common Shares of BID.COM, which shares are held for participants' accounts. 30 After the effective date of this Registration Statement, BID.COM will be subject to periodic reporting obligations under Sections 13 and 15(d) of the Exchange Act and the rules and regulations promulgated thereunder. Pursuant to such statues and regulations, the Company intends to file with the Securities and Exchange Commission annual reports on Form 20-F and periodic reports on Form 6-K. BID.COM is a foreign private issuer as defined under Rule 3b-4 of the Exchange Act, and, as such, will not be subject to the proxy rules promulgated under Section 14 of the Exchange Act or the insider short-swing profit reporting rules promulgated under Section 16 of the Exchange Act for as long as it maintains its foreign private issuer status. ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS There is no law, government decree or regulation in Canada restricting the export or import of capital or affecting the remittance of dividends, interest or other payments to a non-resident holder of Common Shares, other than withholding tax requirements. See "Taxation-Canadian Federal Income Tax Considerations." There is no limitation imposed by Canadian law or by the articles or other charter documents of the Company on the right of a non-resident to hold or vote Common Shares or Preference Shares with voting rights (collectively, "Voting Shares"), other than as provided in the Investment Canada Act (the "Investment Act"), as amended by the World Trade Organization Agreement Implementation Act (the "WTOA Act"). The Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a "Canadian," as defined in the Investment Act (a "non-Canadian"), unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be a net benefit to Canada. An investment in Voting Shares of the Company by a non-Canadian (other than a "WTO Investor," as defined below) would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company, and the value of the assets of the Company were Cdn$5.0 million or more. An investment in Voting Shares of the Company by a WTO Investor would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company, and the value of the assets of the Company equaled or exceeded Cdn$184.0 million. A non-Canadian, whether a WTO Investor or otherwise, would acquire control of the Company for purposes of the Investment Act if he or she acquired a majority of the Voting Shares of the Company. The acquisition of less than a majority, but at least one-third of the Voting Shares of the Company, would be presumed to be an acquisition of control of the Company, unless it could be established that the Company was not controlled in fact by the acquirer through the ownership of Voting Shares. In general, an individual is a WTO Investor if he or she is a "national" of a country (other than Canada) thaT is a member of the World Trade Organization ("WTO Member") or has a right of permanent residence in a WTO Member. A corporation or other entity will be a WTO investor if it is a "WTO investor-controlled entity" pursuant to detailed rules set out in the Investment Act. The United States is a WTO Member. Certain transactions involving Voting Shares of the Company would be exempt from the Investment Act, including: (a) an acquisition of Voting Shares of the Company if the acquisition were made in connection with the person's business as a trader or dealer in securities; (b) an acquisition of control of the Company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Act; and (c) an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of the Company, through the ownership of voting interests, remains unchanged. ITEM 7 - TAXATION Canadian Federal Income Tax Considerations The following summary describes 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 or concern in the nature of trade which includes a transaction or transactions of the same kind and carried on in the same manner as a transaction or transactions of an ordinary trade or dealer in property of the same kind. 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. (See "U.S. Federal Income Tax Considerations - Treatment of Dividend Distributions"). 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 organisations 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 NonResident, 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 NonResident 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 U.S. Federal Income Tax Considerations The following summary describes material United States federal income tax consequences arising from the purchase, ownership and sale of Common Shares. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), final, temporary and proposed United States Treasury Regulations promulgated thereunder, and the administrative and judicial interpretations thereof, all as in effect as of the date of this Registration Statement. The consequences to any particular investor may differ from those described below by reason of that investor's particular circumstances. This summary does not address the considerations that may be applicable to particular classes of taxpayers, including financial institutions, broker-dealers, tax-exempt organizations, investors who own (directly, indirectly or through attribution) 10% or more of the Company's outstanding voting stock, persons who are not citizens or residents of the United States, or persons which are foreign corporations, foreign partnerships or foreign estates or trusts as to the United States. This summary is addressed only to a holder of Common Shares who is (i) a citizen or resident of the United States who owns less than 10% of the Company's outstanding voting stock, (ii) a corporation organized in the United States or under the laws of the United States or any state thereof, or (iii) an estate or trust, the income of which is includable in gross income for United States federal income tax purposes regardless of source (a "U.S. Holder"). Each shareholder should consult with his own tax advisor as to the particular tax consequences to him of the purchase, ownership and sale of Common Shares including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws. Treatment of Dividend Distributions Subject to the discussion below under "Tax Status of the Company -- Passive Foreign Investment Company," a distribution by the Company to a U.S. Holder in respect of the Common Shares (including the amount of any Canadian taxes withheld thereon) will generally be treated for United States federal income tax purposes as a dividend to the extent of the Company's current and accumulated earnings and profits, as determined under United States federal income tax principles. To the extent, if any, that the amount of any such distribution exceeds the Company's current and accumulated earnings and profits, as so computed, it will first reduce the U.S. Holder's tax basis in the Common Shares owned by him, and to the extent it exceeds such tax basis, it will be treated as capital gain from the sale of Common Shares. While it is not anticipated that the Company will pay dividends in the foreseeable future (see "Risk Factors -- No Dividends"), the gross amount of any distribution from the Company received by a U.S. Holder which is treated as a dividend for United States federal income tax purposes (before reduction for any Canadian tax withheld at source) will be included in such U.S. Holder's gross income, will be subject to tax at the rates applicable to ordinary income and generally will not qualify for the dividends received deduction applicable in certain cases to United States corporations. For United States federal income tax purposes, the amount of any dividend paid in Canadian dollars by the Company to a U.S. Holder will equal the U.S. dollar value of the amount of the dividend paid in Canadian dollars, at the exchange rate in effect on the date the dividend is considered to be received by the U.S. Holder, regardless of whether the Canadian dollars are actually converted into United States dollars at that time. Canadian dollars received by a U.S. Holder will have a tax basis equal to the U.S. dollar value thereof determined at the exchange rate on the date of receipt. Currency exchange gain or loss, if any, recognized by a U.S. Holder on the conversion of Canadian dollars into U.S. dollars will generally be treated as U.S. source ordinary income or loss to such holder. U.S. Holders should consult their own tax advisors concerning the treatment of foreign currency gain or loss, if any, on any Canadian dollars received which are converted into dollars subsequent to receipt. A U.S. Holder generally will be entitled to deduct any Canadian taxes withheld from dividends in computing United States taxable income, or to credit such withheld taxes against the United States federal income tax imposed on such U.S. Holder's dividend income. No deduction for Canadian taxes may be claimed, however, by a noncorporate U.S. Holder that does not itemize deductions. The amount of foreign taxes for which a U.S. Holder may claim a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual basis by each shareholder. Distributions with respect to Common Shares that are taxable as dividends will generally constitute foreign source income for purposes of the foreign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by the Company with respect to the Common Shares will generally constitute "passive income." Sale or Exchange of a Common Share Subject to the discussion below under "Tax Status of the Company -- Passive Foreign Investment Company," the sale or exchange by a U.S. Holder of a Common Share will result in the recognition of gain or loss by the U.S. Holder in an amount equal to the difference between the amount realized and the U.S. Holder's basis in the Common Share sold. Such gain or loss will be capital gain or loss provided that the Common Share is a capital asset in the hands of the holder. The gain or loss realized by noncorporate U.S. Holder on the sale or exchange of a Common Share will be long-term capital gain or loss subject to tax at a maximum tax rate of 20% if the Common Share had been held for more than one year. If the Common Share had been held by such noncorporate U.S. Holder for not more than one year, such gain will be short-term capital gain subject to tax at a maximum rate of 39.6%. Finally, gain realized by a noncorporate U.S. Holder with respect to Common Shares acquired after December 31, 2000 and held for more than five years, shall be taxed at a maximum rate of 18%. Gain realized by a corporate U.S. Holder will be subject to tax at a maximum rate of 35%. U.S. Holders should consult their own tax advisors regarding treatment of any foreign currency gain or loss on any Canadian dollars received in respect of the sale, exchange or other disposition of Common Shares. See discussion under "Taxation -- Canadian Federal Income Tax Considerations -- Disposition of Common Shares" for a discussion of taxation by Canada of capital gains realized on sales of capital assets. Tax Status of the Company Personal Holding Companies. A non-U.S. corporation may be classified as a personal holding company (a "PHC") for United States federal income tax purposes if both of the following two tests are satisfied: (i) if at any time during the last half of the Company's taxable year, five or fewer individuals (without regard to their citizenship or residency) own or are deemed to own (under certain attribution rules) more than 50% of the stock of the corporation by value (the "PHC Ownership Test") and (ii) such non-U.S. corporation receives 60% or more of its U.S. related gross income, as specifically adjusted, from certain passive sources such as dividends and royalty payments (the "PHC Income Test"). Such a corporation is taxed (currently at a rate of which are effectively connected with the conduct of a U.S. trade or business) to the extent amounts at least equal to such income are not distributed to shareholders. The Company believes that it is not currently a PHC. However, no assurance can be given that either test will not be satisfied in the future. Foreign Personal Holding Companies. A non-U.S. corporation will be classified as a foreign personal holding company (an "FPHC") for United States federal income tax purposes if both of the two following tests are satisfied: (i) five or fewer individuals who are United States citizens or residents own or are deemed to own (under certain attribution rules) more than 50% of all classes of the corporation's stock measured by voting power or value and (ii) the corporation receives at least 60% (50% in later years) of its gross income (regardless of source), as specifically adjusted, from certain passive sources. If such a corporation is classified as a FPHC, a portion of its "undistributed foreign personal holding company income" (as defined for United States federal income tax purposes) would be imputed to all of its shareholders who are U.S. Holders on the last taxable day of the corporation's taxable year, or, if earlier, the last day on which it is classifiable as a FPHC. Such income would be taxable as a dividend, even if no cash dividend is actually paid. U.S. Holders who dispose of their shares prior to such date would not be subject to tax under these rules. The Company believes that it is not currently a FPHC. However, no assurance can be given that it will not qualify as a FPHC in the future. Passive Foreign Investment Company. The Company will be a passive foreign investment company ("PFIC") if 75% or more of its gross income (including the pro rata share of the gross income of any company (United States or foreign) in which the Company is considered to own 25% or more of the shares (determined by market value)) in a taxable year is passive income. Alternatively, the Company will be considered to be a PFIC if at least 50% of the value of the Company's assets (averaged over the year) (including the pro rata share of the value of the assets of any company in which the Company is considered to own 25% or more of the shares (determined by market value)) in a taxable year are held for the production of, or produce, passive income. Passive income includes interest, dividends, royalties, rents and annuities. The Company does not believe it was a PFIC during 1998. However, there can be no assurance that the Company will not be classified as a PFIC in 1999 or thereafter. If the Company is a PFIC for any taxable year, U.S. Holders would, upon certain distributions by the Company and upon disposition of the Common Shares at a gain, be liable to pay tax at the then prevailing income tax rates on ordinary income plus interest on the tax, as if the distribution or gain had been recognized ratably over the taxpayer's holding period for the Common Shares. If the Company is treated as a PFIC for any taxable year, holders should consider whether to elect to treat the Company as a "qualified electing fund" ("QEF Election") for United States federal income tax purposes. If a holder has a QEF Election in effect for all taxable years that such holder has held the Common Shares and the Company was a PFIC, distribution and gain will not be recognized ratably over the holder's holding period or subject to an interest charge, and gain on the sale of Common Shares will be characterized as capital gain. Instead, each such holder is required for each taxable year that the Company is a PFIC to include in income a pro rata share of the undistributed ordinary earnings of the Company as ordinary income and a pro rata share of the undistributed net capital gain of the Company as long-term capital gain. As an alternative to making a QEF Election, a U.S. Holder may elect to make a mark-to- market election (the "Mark-to-Market Election") with respect to the Common Shares owned by him. Under such election, a U.S. Holder includes in income each year an amount equal to fair market value of the Common Shares owned by him as of the close of the taxable year over the shareholder's adjusted basis in such shares. The U.S. Holder would be entitled to a deduction for the excess, if any, of such holder's adjusted basis in his Common Shares over the fair market value of such shares as of the close of the taxable year; provided however, that such deduction would be limited to the extent of any net mark-to-market gains with respect to the Common Shares included by the U.S. Holder for prior taxable years. The U.S. Holder's basis in his Common Shares is adjusted to reflect the amounts included or deducted pursuant to this election. Amounts included in income pursuant to the Mark-to-Market Election, as well as gain on the sale or exchange of the Common Shares, will be treated as ordinary income. Ordinary loss treatment applies to the deductible portion of any mark-to-market loss, as well as to any loss realized on the actual sale or exchange of the Common Shares to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included with respect to such shares. The Mark-to-Market election applies to the tax year for which the election is made and all later tax years, unless the Common Shares cease to be marketable or the Internal Revenue Service ("IRS") consents to the revocation of the election. U.S. Holders are urged to consult with their own tax advisors about making a QEF Election or Mark-to-Market Election and other aspects of the PFIC rules. Back-Up Withholding and Information Reporting Under the Code, a U.S. Holder of Common Shares may be subject, under certain circumstances, to "backup withholding" at a 31% rate on cash payments in the United States of dividends on, and the proceeds of disposition of, a Common Share. Backup withholding will apply if a U.S. Holder (i) fails to furnish its social security or other taxpayer identification number ("TIN") within a reasonable time after the request therefor, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS tha it has failed to properly report receipts of interest and dividends or (iv) under certain circumstances, fails to certify, under penalty of perjury, that it has furnished a correct TIN and has not been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments. U.S. Holders should consult their tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption, if applicable. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against such holder's federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished to the IRS. 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, 1997 and 1998, 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 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 12 to the Company's consolidated financial statements and as described below. 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 year ended December 31, 1998 has been translated from Canadian dollars into U.S. dollars for convenience purposes at the representative exchange rates of Cdn$1.5302 to US$1.00, the noon buying rate in New York City on December 31, 1998 for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York. Such translation should not be construed as a representation that the Canadian dollar amount represents, or has been converted into, U.S. dollars at this or any other rate. 33 Selected Financial Data Statement of Operations Data:
Year Ended Four Months December 31 Ended Dec 31 ------------------------------------------------------------------------- 1998 1998 1997 1996 1995(1) ---- ---- ---- ---- ------ (Cdn$) (U.S.$) (Cdn$) (Cdn$) (Cdn$) (in thousands except for per share data) Revenues.................. 20,089 13,128 2,671 51 - Expenses Direct expenses......... 19,361 12,653 2,916 12 - Advertising and promotion.......... 12,594 8,230 2,521 403 12 General & administrative 5,751 3,758 3,157 1,453 112 Software development and technology......... 889 581 661 194 10 Depreciation and amortization........... 201 131 122 100 1 Total expenses........ 38,796 25,353 9,396 2,162 135 Loss from operations...... (18,707) (12,225) (6,725) (2,111) (135) Canadian GAAP Net (loss)................ (18,707) (12,225) (6,725) (2,111) (135) Loss per common share..... (0.79) (0.52) (0.55) (0.21) (0.01) Weighted average number of common shares....... 23,819 23,819 12,297 9,598 3,375 U.S. GAAP Pro forma (loss).......... (19,941) (13,031) (8,134) (2,281) (135) Pro forma loss per common share............. (0.84) (0.55) (0.66) (0.23) (0.01) Weighted average number of common shares......... 23,819 23,819 12,297 9,598 3,375
Balance Sheet Data:(2)
As at December 31 ----------------------------------------------------------------------------------- 1998 1998 1997 1996 1995 ------- ------- ------ ------ ------ (Cdn$) (U.S.$) (Cdn$) (Cdn$) (Cdn$) (in thousands) Working capital....... 17,929 11,716 5,088 (559) 62 Total assets.......... 21,047 13,754 6,886 471 145 Total long-term debt.. - - - - - Shareholders equity... 18,622 12,169 5,563 (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 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 March 14, 1999, the Company had approximately 103,000 registered bidders, representing a 412.0% increase in registered bidders from January 1, 1998. The Company has not earned profits to date and at December 31, 1998 had an accumulated deficit of Cdn$27.7 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 arrangements with its vendors. These arrangements typically provide that the supplier will reserve for sale by the Company specified quantities of products for a fixed period of time without obligating the Company to purchase these products until sales are made to the Company's customers. 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. When an auction is completed, the Company charges the successful bidder's credit card. The Company typically purchases merchandise from suppliers only after a customer has purchased and paid for the product. The Company typically does not take actual possession of goods sold because goods are shipped directly from the supplier to the customer. The Company records the gross amount as revenue upon verification of the credit card authorization and shipment of the merchandise to the customer. Inventory on the Company's balance sheets reflects sales returns in transit which are valued at the lower of cost and net realizable value and at the option of the Company are held for resale or returned to suppliers for credit. 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$3.52 million for the year ended December 31, 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, the Company continues to sell a limited number of products at significantly reduced margins and, in the future, 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 December 31, 1998 the exchange rate was US$1.00 to Cdn$1.5302. 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 12 to the financial statements of the Company included elsewhere in this Registration Statement. Results of Operations Comparison of Year Ended December 31, 1998 and December 31, 1997 Revenues. Revenues are comprised of transactional revenues from the sale of merchandise plus commissions, shipping and handling costs. Revenues increased to Cdn$20.089 million for the year ended December 31, 1998 from Cdn$2.671 million for the year ended December 31, 1997, an increase of 652.1%. The increase reflects commercial sales for the full year ending December 31, 1998 as compared to only eight months (May to December) during the period ended December 31, 1997. In addition, the increase is attributable to the introduction of the BID.COM brand name in March 1998, and a significant increase in marketing and advertising expenditures and marketing relationships during the year ending December 31, 1998 as compared to the same period in 1997. From January 1, 1998 to December 31, 1998, the Company's customer base grew substantially as reflected by a 335.0% increase in registered bidders from approximately 20,000 to over 87,000. Direct Expenses. Direct expenses reflect negotiated reserve prices with vendors for the supply of goods sold by the Company. Direct expenses were Cdn$19.361 million (96.4% of revenues) for the year ended December 31, 1998 resulting in a gross margin of Cdn$728,000 or 3.6%, as compared to Cdn$2.916 million (109.2% of revenues) for the year ended December 31, 1997, resulting in a negative gross margin of Cdn$(245,000) or (9.2)%. The increase in cost of revenues reflects the significant growth of revenues during the year ended December 31, 1998 as compared to the year ended December 31, 1997. Improvement in the gross margin for the year ended December 31 1998 reflects the commencement of the Company's efforts to change its product mix to include sales of higher margin goods. During 1998, gross margins were 2.0% in the first quarter, (0.9%) in the second quarter, 3.2% in the third quarter and 6.9% in the fourth quarter. The Company anticipates that its direct expenses 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 and marketing 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$12.594 million for the year ended December 31, 1998, as compared to Cdn$2.521 million for the year ended December 31, 1997, an increase of 399.6%. As a percentage of revenues, advertising and promotion expenses fell to 62.7% of revenues for the year ended December 31, 1998 from 94.4% during the year ended December 31, 1997. Advertising and promotion expenses for the year ended December 31, 1998 include Cdn$3.52 million (18% of revenue) attributable to loss leader promotions and Cdn$7.0 million (34.8% of revenue) paid to AOL pursuant to the AOL Marketing Agreement. 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 and Cdn$442,000 (17.0% of revenue) for payments to AOL pursuant to the AOL Marketing Agreement. 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. Under the new agreement and related arrangements with AOL, payments to AOL during the period March 1, 1999 to March 31, 2000 will decrease to $3.0 million from an anticipated $5.0 million under the old agreement. 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$5.734 million during the year ended December 31, 1998 from Cdn$3.157 million in year ended December 31, 1997, an increase of 81.6%. As a percentage of revenues, general and administrative expenses decreased to 28.5% of revenues in 1998 from 118.2% of revenues in 1997. The increase in general and administrative expenses is attributable t 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 and losses due to foreign currency exchange expenses. 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 year ended December 31, 1998. See "-Foreign Currency Fluctuations." 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 and salaries and related expenses of Company personnel engaged in these activities. Software development and technology expenses increased to Cdn$889,000 for the year ended December 31, 1998 from Cdn$661,000 for the year ended December 31, 1997, a 34.5% increase. As a percentage of revenues, software development and technology expenses decreased to 4.4% of revenues during the year ended December 31, 1998 from 24.7% during the year ended December 31, 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$201,000 for the year ended December 31, 1998 as compared to Cdn$122,000 for the year ended December 31, 1997, an increase of 64.8%. 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. Comparison of Years Ended December 31, 1996 and 1997 and Four Month Period Ended December 31, 1995 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 and marketing partners and the significant increase in Company's advertising. 37 Direct Expenses. Direct Expenses 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. Direct expenses were 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 direct expenses 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. 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 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$3.157 million and Cdn$1.453 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$194,000 for the year ended December 31, 1996 and Cdn$661,000 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 in 1997 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$52.043 million through its private offerings, including, as of March 19, 1999, an aggregate of Cdn$15.984 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 million in the form of advertising credits) from sales to and investments from Rogers Media, Toronto Star and AOL. As of March 19, 1999, the Company had cash on hand and marketable securities of approximately Cdn$20.17 million. In addition, as of March 19, 1999, the Company had outstanding 3,795,659 exercisable options and warrants which expire at various times from 1999 and to 2002 ("Exercisable Warrants"). The exercise price of the Exercisable Warrants range from Cdn$1.00 to Cdn$1.75, and on March 19, 1999, the closing sales price of the Company's Common Shares on the TSE was Cdn$13.90. See "Trading History." If all of the Exercisable Warrants are exercised prior to their expiration, the Company will receive aggregate proceeds of Cdn$7.16 million, of which Cdn$3,867,500 represents proceeds from the exercise of Exercisable Warrants expiring in 1999. At December 31, 1998, the Company had cash on hand and marketable securities of approximately Cdn$16.6 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, failure or delays in connection with expansion to Europe, 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 1998, the Company invested Cdn$351,000 in fixed assets, primarily for computer hardware, leasehold improvements and furniture and fixtures, and Cdn$68,000 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 December 31, 1998, the Company was required to maintain Cdn$1.50 million in this account. The Company has available an aggregate of approximately Cdn$27.635 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$18.7 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 March 19, 1999, 2,831,510 were exercised, resulting in proceeds to the Company of Cdn$4.672 million. The remaining 1,218,490 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, options to purchase 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 options were exercised for 860,000 Common Shares and 430,000 share purchase warrants resulting in proceeds to the Company of Cdn$1.204 million. Of the 430,000 share purchase warrants, as of March 19, 1999, 387,000 were exercised, resulting in proceeds to the Company of Cdn$638,550. The remaining 43,000 share purchase warrants are exercisable until November 4, 1999. 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 March 19, 1999, 806,250 were exercised, resulting in proceeds to the Company of Cdn$1.411 million. The remaining 622,496 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 the options for units consisting of 611,498 Common Shares and 152,875 Common Share purchas warrants, each exercisable to purchase one Common Share at Cdn$1.75 per share, resulting in proceeds to the Company of Cdn$1,070,122. As of March 19, 1999, 88,502 Common Share purchase warrants were exercised, resulting in proceeds to the Company of Cdn$154,879. 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 has hired a Year 2000 consultant to review the Company's examination and anticipates the consultant's review to be completed within the second quarter of 1999. The Company's auction site at www.bid.com has been developed to be fully Year 2000 compliant. The Company is 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 April 1999. The Year 2000 consultant will also review the Company's examination of these systems. The Company contacted significant suppliers and third-party service providers to identify Year 2000 problems and provide solutions to prevent the disruption of BID.COM business activities. The Company and its consultant are in the process of reviewing reponses from suppliers and third party providers. 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 Media, on whom the Company relies for advertising and promotion. The Company expects to complete its review of the compliance efforts by these parties in April 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, or contingency plans for, 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. Management estimates that total costs attributable to Year 2000 compliance efforts, both for past efforts and present and anticipated future efforts, will be approximately Cdn$270,000, of which the Company has incurred approximately Cdn$200,000 to date. Management's estimate includes the expense the Company will incur in reviewing whether its significant suppliers and third-party service providers have resolved their own Year 2000 problems, including the costs of the Year 2000 consultant. The Company may incur additional expenses in connection with the development and implementation of a contingency plan, should the Company learn that any of its significant suppliers or third-party service providers may fail to achieve Year 2000 compliance on a timely basis. These expenses cannot be quantified at this time. 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. Foreign Currency Fluctuations The Company purchases substantially all of its products from suppliers, and sells substantially all of its products to customers, in U.S. dollars. The Company also incurs a significant amount of advertising and marketing expenses in U.S. dollars. However, the majority of the Company's other operating expenses are in Canadian dollars. Fluctuations in the U.S./Canadian dollar exchange rate with respect to the Company's operations are a function, primarily, of: (i) the relative value of the Canadian dollar to the U.S. dollar at any given time; and (ii) the relationship between the amount of revenues and financing received by the Company in U.S. dollars and the amount of Company expenditures being paid in Canadian dollars, on the one hand, and the amount of revenues and financing received by the Company in Canadian dollars and the amount of Company expenditures being paid in U.S. dollars, on the other hand. 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. The Company incurred net losses from foreign currency exchange fluctuations of Cdn$724,000 in 1998 and Cdn$34,949 in 1997. The increase in the losses resulted from the devaluation of the Canadian dollar in 1998 as compared to 1997, the significant overall increase in Company revenue and expenditures in 1998 as compared to 1997 and, in particular, the significant increase in Company advertising and marketing expenses in 1998 as compared to 1997 See "Exchange Rates" at the forepart of this Registration and "-Results of Operation" above. 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 Charles S. Walker 62 Director Paul Hart 43 Chief Financial Officer Brent Bowes 40 Vice President, Corporate Controller and Assistant Secretary 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, 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 an officer and a partner with HDL Capital Corporation, a Toronto-based merchant bank. Mr. Bulger devotes substantially all of his business time to Company affairs. 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. Charles S. Walker has served as a Director of the Company since February 1999. Since January 1968, Mr. Walker haS served as the President and Chief Executive Officer of the Walker Group, Inc., a privately owned company involved in manufacturing, administration, fulfillment services and marketing to the automotive and consumer goods industries. 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. 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. 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 Paul Hart..................... 46,875 Nil 4,500/(2)/ 100,000 Nil Chief Financial Officer 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, Chief Financial 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. During 1998, the Company did not provide any pension, retirement or similar benefits to its directors and officers. 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 closing market price of the Common Shares on the trading day prior to 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 unde 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.
Market Value Per Share of % of Total Securities Options Underlying Securities Granted to Exercise Price Options on the Underlying Executives Per Share Date of Grant Expiration Name Options Granted in Fiscal Year (Cdn $) (Cdn $) Date - ---------------------- --------------- -------------- --------------- ---------------- ---------- Paul Godin........... 50,000 5.5% 1.40 1.40 6/30/00 Jeffrey Lymburner.... 50,000 5.5% 2.35 2.35 2/2/00 50,000 5.5% 1.40 1.40 6/30/00 T. Christopher Bulger 75,000 8.2% 2.35 2.35 2/2/00 50,000 5.5% 1.40 1.40 6/30/00 Brent Bowes.......... 25,000 2.7% 2.35 2.35 2/2/00 25,000 2.7% 1.40 1.40 6/30/00 Robert W. A. Joynt... 10,000 1.1% 1.40 1.40 6/30/00 25,000 2.7% 2.35 2.35 2/2/00 James I. Moskos...... 50,000 5.5% 2.35 2.35 2/2/00 50,000 5.5% 1.40 1.40 6/30/00
46 Options Exercised By Executive Officers During Fiscal Year Ended December 31, 1998 The following table sets forth certain information regarding stock options exercised by the Executive Officers during the fiscal year ended December 31, 1998.
Number of Value of Number of Unexercised Unexercised Securities Options at 12/31/98 in-the-Money Acquired Value Exercisable/ Options at Name on Exercise Realized Unexercisable 12/31/98 - --------------------- ------------------ ------------------ ------------------- -------- (Cdn$) (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 March 19, 1999, options and warrants to purchase 3,795,659 Common Shares were outstanding as follows: Issued Under Stock Option Plan
Optionee Number of Shares Date of Grant Exercise Price Expiry Date - -------- ----------------- ------------- ------------- ----------- Executive Officers 10,000 September 2, 1997 1.00 August 31, 1999 (7 persons) 200,000 September 2, 1997 1.25 August 31, 1999 210,000 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 50,000 September 2, 1997 1.25 August 31, 1999 Executive Officers 65,000 June 23, 1998 1.40 June 30, 2000 (3 persons) 25,000 January 25, 1999 5.05 January 24, 2002 Other 55,000 September 2, 1997 1.00 August 31, 1999 (27 persons) 97,300 February 3, 1998 2.35 February 2, 2000 90,000 June 23, 1998 1.40 June 30, 2000 35,000 January 25, 1999 5.05 January 24, 2002 --------- Total 1,437,300 =========
47 Issued Under Other Securities Exemptions
Optionee Number of Shares Date of Grant Exercise Price Expiry Date - -------- ----------------- ------------- ------------- ----------- Other 60,000 September 2, 1997 1.00 August 31, 1999 250,000 November 11, 1998 1.16 November 10, 2001 100,000 July 29, 1998 1.40 (1) 1,218,490 September 30, 1998 1.65 (2) 443,000 September 30, 1998 1.65 November 4, 1999(5) 622,496 January 28, 1999 1.75 (3) 64,373(4) January 28, 1999 1.75 December 31, 1999 --------- Total 2,358,359 =========
- ------------------ (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, which are the unexercised portion of the 4,050,000 Common Share purchase warrants issued upon exercise of Special Warrants sold in 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, which are the unexercised portion of the 1,428,746 Common Share purchase warrants issued upon exercise of Special Warrants sold in 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: 64,373 of unexercised Common Share purchase warrants issued to Yorkton representing the remainder of 152,875 Common Share purchase warrants issued upon its exercise of 611,498 options, issued in connection with the Company's November, 1998 private placement. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations- Liquidity and Capital Resources." (5) Includes: 43,000 of unexercised Common Share purchase warrants issued to Yorkton representing the remainder of 430,000 Common Shares purchase warrants issued upon its exercise of 860,000 options issued in connection with the Company's August, 1998 private placement. See "Management's Discussion and Analysis of Financial Conditions 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 marketing 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, senior vice president of AOL Studios, a division 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 officer of HDL. HDL owns options to purchase 200,000 Common Shares. The Company believes that the fees paid to HDL where comparable to fees that the Company would have been charged for similar services by an unaffiliated fiscal agent in an arms length transaction. David Pamenter, a director of the Company, is a partner in the Toronto law firm of Gowling, Strathy & Henderson, which provided legal services to the Company during 1996, 1997 and 1998 and continues to provide legal services to the Company. The Company believes that the legal fees paid to Gowling, Strathy & Henderson were comparable to fees that the Company would have been charged for similar services by an unaffiliated law firm. 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 March 23, 1999, 48,125,396 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, 1998 and 1997..................................... F-1 Consolidated Balance Sheets as at December 31, 1998 and 1997 (audited)................................ F-2 Consolidated Statements of Operations for the periods ended December 31, 1998, 1997 and 1996 (audited) F-3 Consolidated Statements of Deficit for the periods ended December 31, 1998, 1997 and 1996 (audited)... F-4 Consolidated Statements of Cash Flows for the periods ended December 31, 1998, 1997 and 1996 (audited) F-5 Notes to Financial Statements for the periods ended December 31, 1998, 1997 and 1996 (audited)........ 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. (This Agreement is filed in redacted form as it is subject to a request for confidentiality submitted to the SEC.) *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. (This Agreement is filed in redacted form as it is subject to a request for confidentiality submitted to the SEC.) *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. (This Agreement is filed in redacted form as it is subject to a request for confidentiality submitted to the SEC.) *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). (This Agreement is filed in redacted form as it is subject to a request for confidentiality submitted to the SEC.) **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. (This Agreement is filed in redacted form as it is subject to a request for confidentiality submitted to the SEC.) **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. (This Agreement is filed in redacted form as it is subject to a request for confidentiality submitted to the SEC.) *3.22 Distribution Agreement between the Company and Micra SoundCards. (This Agreement is filed in redacted form as it is subject to a request for confidentiality submitted to the SEC.) *3.23 Stock Purchase Agreement between the Company and American Interactive Media Inc. (This Agreement is filed in redacted form as it is subject to a request for confidentiality submitted to the SEC.) *3.24 Termination Agreement dated as of March 16, 1999 between the Company and AOL (terminating the Interactive Marketing Agreement dated as of November 1, 1997 between the Company and AOL). *3.25 Advertising Insertion Order dated as of March 16, 1999 between the Company and AOL (replacing the Interactive Marketing Agreement dated as of November 1, 1997 between the Company and AOL). (This Agreement is filed in redacted form as it is subject to a request for confidentiality submitted to the SEC.) *3.26 Salary Protection Letter, dated February 21, 1997, between the Company and Paul Godin. *3.27 Salary Protection Letter, dated February 12, 1997, between the Company and Jeffrey Lymburner. *3.28 Salary Protection Letter, dated February 12, 1997, between the Company and Paul Godin.
- ----------------- * Filed herewith ** Previously filed. 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, 1998 and 1997 and the consolidated statements of operations, deficit and cash flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in accordance with generally accepted accounting principles. DELOITTE & TOUCHE LLP Chartered Accountants Toronto, Ontario March 3, 1999 F-1 BID.COM INTERNATIONAL INC. (formerly Internet Liquidators International Inc.) Consolidated Balance Sheets (expressed in thousands of Canadian Dollars) - ----------------------------------------------------------------------
December 31, -------------------------------------------------- 1998 1998 1997 -------------- -------------------- ------------ Convenience translation into U.S. $ (Note 14) ASSETS CURRENT Cash $ 9,792 $ 6,399 $ 1,019 Marketable securities 6,806 4,448 1,158 Accounts receivable 1,102 720 166 Special warrants receivable (Note 5) 2,311 1,510 2,189 Inventory 169 110 201 Deposits and prepaid expenses 174 114 1,678 - ---------------------------------------------------------------------------------------------------------------- 20,354 13,301 6,411 - ---------------------------------------------------------------------------------------------------------------- CAPITAL ASSETS - AT COST 1,049 686 698 Less accumulated depreciation 404 264 223 - ---------------------------------------------------------------------------------------------------------------- 645 422 475 - ---------------------------------------------------------------------------------------------------------------- TRADEMARKS AND INTELLECTUAL PROPERTY 48 31 - - ---------------------------------------------------------------------------------------------------------------- $ 21,047 $ 13,754 $ 6,886 ================================================================================================================ LIABILITIES CURRENT Accounts payable $ 2,155 $ 1,408 $ 1,216 Accrued liabilities 133 87 107 Deferred revenue 137 90 - - ---------------------------------------------------------------------------------------------------------------- 2,425 1,585 1,323 - ---------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital (Note 4) 37,217 24,321 6,140 Special warrants (Note 5) 9,083 5,936 8,394 Deficit (27,678) (18,088) (8,971) - ---------------------------------------------------------------------------------------------------------------- 18,622 12,169 5,563 - ---------------------------------------------------------------------------------------------------------------- $ 21,047 $ 13,754 $ 6,886 ================================================================================================================
ON BEHALF OF THE BOARD ................... Director ................... Director F-2 BID.COM INTERNATIONAL INC. Consolidated Statements of Operations (expressed in thousands of Canadian Dollars) - -------------------------------------------------------------------------
December 31, ------------------------------------------------------------------- 1998 1998 1997 1996 -------------- --------------------- ------------- ------------- Convenience translation into U.S. $ (Note 14) Revenue $ 20,089 $ 13,128 $ 2,671 $ 51 - -------------------------------------------------------------------------------------------------------------------------- Direct expenses 19,361 12,653 2,916 12 Advertising and promotion (Note 10) 12,594 8,230 2,521 403 General and administrative 5,734 3,747 3,157 1,453 Software development and expense 889 581 661 194 Depreciation and amortization 201 131 122 100 Interest expense 17 11 19 - - -------------------------------------------------------------------------------------------------------------------------- 38,796 25,353 9,396 2,162 - -------------------------------------------------------------------------------------------------------------------------- NET LOSS FOR THE YEAR $(18,707) $(12,225) $(6,725) $(2,111) ========================================================================================================================== LOSS PER SHARE $(0.79) $(0.52) $(0.55) $(0.21) ==========================================================================================================================
F-3 BID.COM INTERNATIONAL INC. Consolidated Statements of Deficit (expressed in thousands of Canadian Dollars) - -------------------------------------------------------------------------
Year ended December 31, ------------------------------------------------------------------- 1998 1998 1997 1996 -------------- --------------------- ------------- ------------- Convenience translation into U.S. $ (Note 14) DEFICIT, BEGINNING OF YEAR $ (8,971) $ (5,863) $(2,246) $ (135) NET LOSS FOR THE YEAR (18,707) (12,225) (6,725) (2,111) - -------------------------------------------------------------------------------------------------------------------------- DEFICIT, END OF YEAR $(27,678) $(18,088) $(8,971) $(2,246) ==========================================================================================================================
F-4 BID.COM INTERNATIONAL INC. Consolidated Statements of Cash Flows (expressed in thousands of Canadian Dollars) - ------------------------------------------------------------------------
December 31, --------------------------------------------------- 1998 1998 1997 1996 -------------- -------------------- ------------- ------------- Convenience translation into U.S. $ (Note 14) NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES OPERATING Net loss for the year $(18,707) $(12,225) $(6,725) $(2,111) Item not affecting cash Depreciation and amortization 201 131 122 100 - ----------------------------------------------------------------------------------------------------------------------- (18,506) (12,094) (6,603) (2,011) Changes in non-cash operating working capital items (Note 9) 1,702 1,112 (1,085) 381 - ----------------------------------------------------------------------------------------------------------------------- (16,804) (10,982) (7,688) (1,630) - ----------------------------------------------------------------------------------------------------------------------- INVESTING Purchase of capital assets (351) (229) (247) (396) Acquisition of net assets of subsidiary - - - (27) Purchase of trademarks and intellectual property (68) (44) - - Marketable securities (5,648) (3,691) (1,158) - - ----------------------------------------------------------------------------------------------------------------------- (6,067) (3,964) (1,405) (423) - ----------------------------------------------------------------------------------------------------------------------- FINANCING Issuance of common shares (Note 4) 22,683 14,823 4,103 1,786 Issuance of special warrants (net of expenses) (Note 5) 9,083 5,936 8,394 - Special warrants receivable (122) (80) (2,189) - Loan payable - - (258) 258 - ----------------------------------------------------------------------------------------------------------------------- 31,644 20,679 10,050 2,044 - ----------------------------------------------------------------------------------------------------------------------- NET CASH INFLOW (OUTFLOW) DURING THE YEAR 8,773 5,733 957 (9) CASH, BEGINNING OF YEAR 1,019 666 62 71 - ----------------------------------------------------------------------------------------------------------------------- CASH, END OF YEAR $ 9,792 $ 6,399 $ 1,019 $ 62 =======================================================================================================================
F-5 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS Bid.Com International Inc. ("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 communications 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 Liquidators Inc. was incorporated under the laws of Florida. In January 1997, the Company was formed, as an Ontario corporation, by amalgamation of Internet Liquidators Inc. and Internet Liquidators International Inc. In May 1998, Bid.Com USA Inc and Lapis Group USA Inc., were incorporated as wholly owned subsidiaries. In June 1998, the Company changed its name from Internet Liquidators International Inc. to Bid.Com International Inc. The accompanying consolidated financial statements are issued under the name of "BID.COM International Inc." (formerly "Internet Liquidators International Inc.") but are considered a continuation of the financial statements of Internet Liquidators Inc. 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 12). Principals of consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material inter-company 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 and net realizable value and at the option of the Company are held for resale or returned to suppliers for credit. Advertising The Company expenses the costs of producing advertisements at the time production occurs, and expenses the costs of communicating advertising in the period in which the advertising space or airtime is used. Internet advertising expenses are recognized based on specifics of the individual agreements, but generally using the greater of (i) the ratio of the number of impressions delivered over the total number of impressions and (ii) the straight-line basis over the term of the contract. This policy complies with the Requirements of Statement of Position No. 93-7, "Reporting on Advertising Costs" issued by the American Institute of Certified Public Accountants. F-6 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 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 loss. 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. Stock based compensation Under Canadian generally accepted accounting principles, stock based compensation is not recorded in the accounts of the Company. Stock based compensation under United States GAAP is accounted for in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, under both Canadian and US GAAP no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, the net proceeds are credited to shareholders' equity. The impact of Statement of Financial Accounting Standards (SFAS) 123, "Accounting for Stock Based Compensation," is disclosed in the notes to these financial statements under Reconciliation of United States GAAP. F-7 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 3. INCOME TAXES The Company's non-capital loss carryforwards as at December 31, 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 $18,700,000 4. SHARE CAPITAL a) Authorized Unlimited number of common shares Unlimited number of preference share - issuable in series b) Common shares
December 31, -------------------------------------------------------------- 1998 1997 ------------------------------ ------------------------------ Common Common Shares Amount Shares Amount -------------- -------------- -------------- -------------- (in thousands) Opening balance 14,188 $ 6,140 9,598 $2,037 Issued for: Cash 16,375 21,068 1,577 1,531 Exercise of options 615 681 263 318 Exercise of warrants 5,989 9,328 1,750 1,254 Other - - 1,000 1,000 ------------------------------------------------------------------------------------------------------------- Closing balance 37,167 $37,217 14,188 $6,140 =============================================================================================================
c) Stock options The Company has a stock option plan which provides for the issuance to employees of incentive stock options, which may expire as much as 10 years from the date of grant, at prices not less than the fair market value of the common shares on the date of grant. The aggregate purchase price for options outstanding at December 31,1998 was approximately $2.2 million. The Stock Option Committee reserves the right to attach vesting periods to stock options granted. Certain of the stock options outstanding at the end of 1998 have vesting periods attached which range from six months to thirty-two months. The options expire between 1999 and 2002. F-8 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 4. SHARE CAPITAL (continued) c) Stock options (continued) A summary of changes in the stock option plan for the two years ended December 31, 1998 is as follows:
Number of Options Average Price -------------------------------- ------------------------------ 1998 1997 1998 1997 --------------- --------------- -------------- -------------- (in thousands) Options outstanding, beginning of year 651 424 $1.15 $1.19 Options granted 916 450 1.76 1.15 Options exercised (115) (218) 0.98 1.06 Options cancelled (11) (5) 2.35 1.25 -------------------------------------------------------------------------------------------------------------- Options outstanding, end of year 1,441 651 $1.55 $1.15 ============================================================================================================== Options exercisable, end of year 1,251 501 $1.60 $1.20 ============================================================================================================== Shares reserved for issuance under stock option plan 326 632 ==============================================================================================================
The Company also has stock options outstanding to third parties. The aggregate purchase price for third party stock options outstanding at December 31, 1998 was approximately $530,000. The options expire between 1999 and 2001. A summary of changes in the stock options to third parties for the two years ended December 31, 1998 is as follows:
Number of Options Average Price -------------------------------- ------------------------------ 1998 1997 1998 1997 --------------- --------------- -------------- -------------- (in thousands) Options outstanding, beginning of year 640 475 $1.14 $1.25 Options granted 350 210 1.06 0.90 Options exercised (500) (45) 1.14 1.25 -------------------------------------------------------------------------------------------------------------- Options outstanding, end of year 490 640 $1.08 $1.14 ============================================================================================================== Options exercisable, end of year 490 640 $1.08 $1.14 ==============================================================================================================
F-9 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 4. SHARE CAPITAL (continued) d) Compensation and share purchase warrants The Company has issued warrants to investors under private placement equity issues during 1996,1997 and 1998. A summary of changes in the warrants to investors for the two years ended December 31,1998 is as follows
1998 1997 -------------------------------- -------------------------------- Warrants Amounts Warrants Amounts --------------- --------------- --------------- --------------- (in thousands) Opening balance 4,301 $ 6,802 1,750 $ 1,400 Granted 7,797 12,829 4,301 6,802 Exercised (5,989) (9,393) (1,750) (1,400) --------------------------------------------------------------------------------------------------------------- Closing balance 6,109 $10,238 4,301 $ 6,802 ===============================================================================================================
A further 43,000 share purchase warrants exercisable at $1.65 and 152,875 share purchase warrants exercisable at $1.75 are subject to issuance upon the exercise of outstanding compensation warrants and are not included in the above table. 5. SPECIAL WARRANTS On November 30, 1998 the Company closed a private placement of $10,001,222 in equity for net proceeds of $6,863,460 with the remaining $2,311,098 of net proceeds held in trust pending the filing of a final prospectus. The Company issued 5,714,984 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 $1.75 per special warrant. Each unit consisted of one common share of the Company and one quarter of one common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one common share at a price of $1.75 per common share up to December 31, 1999. The Company also issued 611,498 compensation warrants. Each compensation warrant entitles the underwriter to purchase one unit, consisting of one common share and one quarter of one common share purchase warrant at a price of $1.75 per unit up to December 31, 1999. On January 21, 1999, the final prospectus was filed resulting in the conversion of 5,714,984 special warrants into 5,714,984 common shares and the issue of 1,428,746 common share purchase warrants. F-10 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 6. 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. 7. 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, 1998, the Company was required to maintain $1,500,000 in this reserve account (December 31, 1997 - $300,000). This arrangement was renegotiated by the Company at a reduced percentage of sales for 1999 and a corresponding reduced reserve account balance. (b) Minimum lease payments during the next five years are as follows: 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. In February 1999 the AOL Interactive Marketing Agreement was re-negotiated, resulting in a one-time payment of $1,250,000 U.S. and an insertion order of $1,750,000 U.S. These amounts are being amortized over the life of the agreement beginning February 1, 1999 and expiring March 31, 2000. F-11 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE The year 2000 Issue arises because many computerized systems use two digits rather than four to identity a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems that use certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant system failure, which could affect a company's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or third parties, will be fully resolved. 9. CHANGE IN NON-CASH OPERATING WORKING CAPITAL
Years ended December 31, ---------------------------------------------------------------- 1998 1998 1997 1996 ------------- -------------------- -------------- ----------- Convenience translation into U.S. $ (Note 14) (in thousands) Accounts receivable $ (936) $ (612) $ (117) $ 19 Inventory 32 21 (200) - Deposits and prepaid expenses 1,504 983 (1,668) 1 Accounts payable 939 614 819 361 Accrued liabilities 26 17 81 - Deferred revenue 137 89 - - -------------------------------------------------------------------------------------------------------------------- $1,702 $1,112 $(1,085) $ 381 ====================================================================================================================
10. OPERATIONS In June 1997, the Company, as part of its marketing program in conjunction with America Online Inc. ("AOL"), introduced special promotional pricing in order to stimulate new bidder registrations and first time sales. This initiative contributed to annual sales growth in 1997 of over 5,100% and 1998 of 652%. This special promotional pricing cost the Company approximately $3,520,000 in 1998 ($698,000 in 1997) and has been included in advertising and promotion. In November 1997, the Company entered into an interactive marketing agreement with AOL. Under the terms of the agreement the Company will be provided with a specific number of advertising impressions featuring it as the preferred provider of business-to-consumer auction services on AOL's service. In consideration for the impressions, the Company has committed to pay $10.0 million U.S. over the two-year term of the agreement. Of the $10.0 million U.S. total commitment, $5.0 million U.S. was paid during the first year of the contract. In February 1999, the agreement with AOL was re-negotiated, thereby significantly reducing the contractual advertising spent with AOL for 1999 in comparison to AOL advertising expenditures in 1998. The renegotiation also extended the term of the original agreement. In March 1998 the Company launched its new consumer brand "BID.COM". F-12 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 11. SUBSEQUENT EVENTS (a) Issue of Shares and Share Purchase Warrants The Company filed a final prospectus on January 21, 1999 in connection with the special warrants issued on November 30, 1998 and received the remaining $2,311,098 of the special warrants receivable. Upon the exercise of the special warrants on January 21, 1999, the Company issued 5,714,984 common shares and 1,428,746 common share purchase warrants. The Company also issued compensation warrants to the underwriter entitling the underwriter to acquire up to 611,498 units at a price of $1.75 per unit up 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 (see Note 5). (b) Stock Option Plan The Stock Option Committee of the Board of Directors approved the issue of 328,000 options to directors and employees on January 22, 1999 exercisable at $5.05 per share until January 21, 2002. (c) Nasdaq listing application and filing of Form 20 F with Securities and Exchange Commission On February 16, 1999 the Company filed a listing application with the Nasdaq SmallCap Market ("Nasdaq") as part of the process to qualify for trading on Nasdaq. Concurrently, the Company filed a Registration Statement on Form 20-F with the Securities and Exchange Commission ("SEC") in order to register its shares for trading on Nasdaq. The Nasdaq and SEC review process is expected to last approximately 45 to 60 days (d) Exercise of options During the period from January 1, 1999 to March 3, 1999, the Company issued 390,000 common shares upon the exercise of options at prices ranging from $0.80 to $2.35 per share for aggregate consideration of $514,250 and canceled 2,500 stock options at $2.35 per common share subsequent to termination of employment of an employee. (e) Exercise of compensation warrants During the period from January 1, 1999 to March 3, 1999, the Company issued 86,000 common shares upon the exercise of 86,000 compensation warrants at $1.40 per share and issued 43,000 share purchase warrants exercisable at $1.75 per share. The Company also issued 300,000 common shares upon the exercise of 300,000 compensation warrants at $1.75 per share and issued 75,000 share purchase warrants exercisable at $1.75 per share. (f) Exercise of share purchase warrants During the period from January 1, 1999 to March 3, 1999, the Company issued 1,846,312 common shares upon the exercise of 1,846,312 share purchase warrants at $1.65 per share and issued 521,250 common shares upon the exercise of 521,250 share purchase warrants at $1.75 per share. F-13 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 12. RECONCILIATION OF UNITED STATES GAAP As discussed in Note 2, the Company's accounting for its stock-based awards to employees using the intrinsic value method is in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related interpretations. SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income (loss) and earnings (loss) per share had the Company adopted the fair value method since the Company's inception. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradeable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. The Company's calculations for employee grants were made using the Cox Rubinstein Binomial Model with the following weighted average assumptions:
Years ended December 31 ------------------------------------------------- 1998 1997 1996 --------------- --------------- --------------- Dividend yield - - - Risk free interest rate 4.80% 4.90% 3.68% Expected term, in years 1.18 1.40 2.02
If the computed minimum values of the Company's stock-based awards to employees had been amortized to expense over the vesting period of the awards as specified under SFAS No. 123, the loss attributable to common shareholders and the basic and diluted loss per share on a pro forma basis (as compared to such items as reported) would have been:
Years ended December 31 ------------------------------------------------- 1998 1997 1996 --------------- --------------- --------------- Loss attributable to common shareholders (in thousands) As reported $(18,707) $(6,725) $(2,111) Pro forma $(19,941) $(8,134) $(2,281) Basic and diluted net loss per share: As reported $ (.79) $ (.55) $ (.21) Pro forma $ (.84) $ (.66) $ (.23)
Impact of new accounting pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use. This pronouncement identifies the characteristics of internal use of software and provides guidance on new cost recognition principles. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company does not expect the adoption of this pronouncement to have a material impact upon its financial statements. F-14 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements (expressed in Canadian Dollars) - ------------------------------------------------------------------------------- 13. RECLASSIFICATION OF PRIOR YEARS Certain prior year amounts have been reclassified to conform to the current year's basis of presentation. 14. CONVENIENCE TRANSLATION The financial statements as at December 31, 1998 and for the year then ended have been translated into U.S. dollars using the exchange rate of the U.S. dollar at December 31, 1998 as published by the Federal Reserve Bank of New York (U.S. $1.000 = Cdn. $1.5302). 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. F-15 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 Amendment No. 1 to the 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: March 29, 1999 EX-1.1 2 ARTICLES OF INCORPORATION OF THE COMPANY Exhibit 1.1
ONTARIO CORPORATION NUMBER MUMERO DE SOCIETE EN ONTARIO 1217515 - ----------------------------------------------------------------------------------------------------------------------------------- Form 4 ARTICLES OF AMALGAMATION Business STATUS DE FUSION Corporations Act 1. The name of the amalgamated corporation is: Denomination sociale de la societe issue de la fusion: ----------------------------------------------------------------------------------------------------------- Formula 4 I N T E R N E T L I Q U I D A T O R S La sur les ----------------------------------------------------------------------------------------------------------- Societe I N T E R N A T I O N A L I N C . per actions ----------------------------------------------------------------------------------------------------------- 2. The address of the registered office is: Address du siege social: 5915 Airport Road, Suite 330 -------------------------------------------------------------------------------------------------------- (Street & Number, or R.R. Number & if Multi-Office Building give Room No.) (Rue et numero, ou numero de la R.r. et, s'il s'agit d'un edifice a bureau, numero du bureau) Mississauga, Ontario L 4 V 1 T 1 -------------------------------------------------------------------------------------------------------- (Name of Municipality or Post Office) (Postal Code) (Nom de la municipalite ou du bureau de poste) (Code postal) 3. Number (or minimum and maximum) number of directors is: Nombere (ou nombres minimal et maximal) d'administrateurs: Minimum of 3; Maximum of 10 4. The director(s) is/are: Administratuerus: First name, initials and Residence address, giving Street & No. Resident surname or R.R. No., municipality and Canadian Prenom, initiales et nom postal code State de famile Address personelle, y compris la rue at Yes or le numbero, le numero de la R.R., No le nom de la municipalite et la code postal Resident Canadien Oui/non ------------------------------------------------------------------------------------------------------------ Paul Godin 175 Lloyd's Lane, Box 133, R.R. #2, Yes Kettleby, Ontario LOG 1JO Christopher Bulger 63 Bowmore Road, Yes Toronto, Ontario M4L 3J1
1 Duncan Copeland 862 Waterloo Street, Yes London, Ontario N6A 3W6 Jeffrey Lymburner 99 Lake Promenade, Yes Etobicoke, Ontario M8W 1A2 Frank Clegg 2365 Price John Boulevard, Yes Mississauga, Ontario L5K 2J2 (A) _____amalgamation, corporations as required by [ ] (A) _____ conformement au paragraphe 176(4) de subsection 176 (4) of the Business Corporation Act on the la loi sur les societe par acions a la date date set out below mentionee ci-dessous. Check Cocher A or A ou B (B)The amalgamation has been approved by the directors of [X] (B) Les administrateurs de chaque societe qui each amalgamating corporation by a resolution as required by fusions ont approuve la fusion par voie de section 177 of the Business Corporation Act on the date set resolution conformement a l'article 177 de la loi out below. sur les societe par acions a la date mentionee The articles of amalgamation in substance contain the ci-dessous. provisions of the articles of incorporation of: Les statuts de fusion reprennent essentiellment les dispositions des status constituts de: INTERNET LIQUIDATORS INTERNATIONAL INC. -------------------------------------------------------------------------------------------------------------------- and are more particularly set out in these Et sont enonces textuellement aux presents statuts. articles. Names of amalgamating Ontario Corporation Number Date of Adoption/Approval corporations Numero de la societe en Ontario Date d'adoption ou d'approbation Denominations sociale des societes qui fusionnent -------------------------------------------------------------------------------------------------------------------- Internet Liquidators 571083 November 25, 1996 International Inc. Internet Liquidators Inc. 1145907 November 25, 1996
2 5. The classes and any maximum number Catgegories et nombre maximal, si'l y a lieu, d'actions of shares that the corporation is authorized to issue: que la societe est autorisee a emettre: An unlimited number of common shares and an unlimited number of Preference Shares, issuable in series.
(i) the preference shares may from time to time be issued in one or more series and subject to the following provisions, and subject to the sending of articles of amendment in prescribed form, and the endorsement on them of a Certificate of amendment in respect of them, the directors may fix from time to time before such issue the number of shares that is to comprise each series and the designation, rights, privileges, restrictions and conditions attaching to each series of preference shares including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment, the redemption, purchase and/or conversion prices and terms and conditions of redemption, purchase and/or conversion, and any sinking fund or other provisions; (ii) the preference shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other return of capital or distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs, rank on a parity with the preference shares of every other series and be entitled to preference over the common shares and over any other shares of the Corporation ranking junior to the preference shares. The preference shares of fees may also be given such other preferences, not inconsistent with these any se articles, over the common shares and any other shares of the Corporation ranking junior to such preference shares as may be fixed in accordance with clause (b)(i); (iii) if any cumulative dividends or amounts payable on the return of capital in respect of a series of preference shares are not paid in full, all series of preference shares shall participate ratably in respect of such dividends and return of capital; (iv) the preference shares of any series may be voting shares, entitled to vote pari passu With the common shares at meetings of the common shareholders of e Corporation; and, (v) the preference shares of any series may be made convertible into common shares. First Series - Series "A" 7% Cumulative Preference Shares - --------------------------------------------------------- 1. creating an unlimited number of 7% cumulative preference shares with the following terms, rights, conditions and attributes: 3 (i) Liquidation- Dissolution or Winding-Up -------------------------------------- In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs: (a) the holders of the 7% cumulative preference sham 'shall be entitled to receive from the assets of the Corporation a sum equivalent to the aggregate Redemption Amount (as hereinafter defined) of all of the shares held by them respectively before any amount shall be paid or any property or assets of the Corporation distributed to the holders of any common share or shares of any other class ranking junior to the shares. After payment to the holders of the shares of the amount so payable to them as above provided they shall not be entitled to share in any further distribution of the assets or property of the Corporation. The Redemption Amount is hereby defined as $10.00 per share and the aggregate Redemption Amount shall be $10.00 times the total amount of issued and outstanding 71/6 cumulative preference shares at such time as any one of the above defined events occurs. (ii) Voting Rights ------------- (a) the holders of the 71/6 cumulative preference shares shall not be entitled to receive notice of or to attend any meeting of the shareholders of the Corporation unless the meeting is called for the purpose of authorizing the dissolution of the Corporation or the sale of its undertaking or a substantial part thereof, in which case the holders of the 7% cumulative preference shares shall be entitled to receive notice of such meeting. The holders of the 7% cumulative preference shares shall not be entitled either to vote at any meeting of the shareholders of the Corporation or to sign a resolution in writing, except a meeting called to consider, or a resolution in writing in respect of, any amendment to these Articles in respect of which the holders of the 7% cumulative preference shares would be entitled to vote separately as a class pursuant to the Act. (iii) Dividends --------- The holders of the 7% cumulative preference shares shall be entitled to receive out of the moneys of the Corporation, fixed, preferential, cumulative, cash dividends at the rate of SO. 70 per share per annum payable quarterly on dates to be fixed from time to time by the directors; such dividends shall accrue and be cumulative from the respective dates of issue of the 7% cumulative preference shares if the Corporation shall not have paid the said dividends in full on all of the 7% cumulative preference shares then issued and outstanding, such dividends on the unpaid amount thereof shall be paid on a subsequent date or dates in priority to dividends on any convertible preference shares and any shares of any other class ranking junior to the 7% cumulative preference shares; no dividend shall be declared or paid or set apart for the No cumulative preference shares and any shares of any other class ranking junior to the 7% cumulative preference shares then issued and outstanding until such dividends or the unpaid part thereof on all No cumulative preference shares then issued and outstanding shall have been declared or paid or provided for at the date of such declaration on payment or setting apart. (iv) Redemption at the Option of the Holder -------------------------------------- (a) A holder of 7% cumulative preference shares shall be entitled to require the Corporation to redeem at any time and from time to time upon giving notice as hereinafter provided, all or any number of the 7% cumulative preference shares registered in the name of such holder on the books of the Corporation at a redemption price per share of $10.00 and all unpaid cumulative dividends, whether or not declared, which shall have accrued thereon and which, for such purpose, shall be treated as accruing up to the date of such redemption (less the amount of any tax which the Corporation is required to and does withhold therefrom). (b) A holder of 7% cumulative preference shares exercising his option to have the Corporation redeem, shall give notice to the Corporation which notice shall set out the date on which the Corporation is to redeem which date shall not be less than 10 days nor more than 3 0 days from the ate of the notice and if the holder desires to have less than all the 7% cumulative preference shares registered in his name redeemed by the Corporation, the number of the holder's shares to be redeemed. The date on which the redemption at the option of the holder is to occur shall be the option redemption date. The holder of any 7% cumulative preference shares may, with the consent of the Corporation, revoke such notice prior to the option redemption date. 4 (c) Upon delivery to the Corporation of a share certificate or certificates representing the 7% cumulative preference shares which the holder desires to have the Corporation redeem, the Corporation shall on the option redemption date, to the extent permitted by applicable law, redeem such 7% cumulative preference shares by paying to the holder the redemption price therefor. (d) Upon payment of the redemption price of the 7% cumulative preference shares so redeemed by the Corporation, the holder thereof shall cease to be entitled to dividends or to exercise any rights of holders in respect thereof. (e) If the redemption by the Corporation on any option redemption date of all 7% cumulative preference shares to be redeemed on such date would be contrary to applicable law, the Corporation shall be obligated to redeem only the maximum number of 7% cumulative preference shares (rounded to the next lower multiple of 100 shares) which the Corporation determines it is then permitted to redeem., such redemptions to be made pro rata (disregarding fractions of shares) according to the number of 71/9 cumulative preference shares required by each such holder to be redeemed by the Corporation and the Corporation shall issue new certificates representing the 7% cumulative preference shares not redeemed by the Corporation and the Corporation shall redeem in the manner contemplated by paragraph (iv) on each dividend date thereafter the maximum number of such 71/6 cumulative preference shares as would then be not contrary to applicable law. (v) Redemption at the Option of the Corporation ------------------------------------------- (a) The Corporation may at its option at any time from the date of issue redeem all or from time to time any part of the outstanding 7% cumulative preference shares on payment to the holders thereof, for each share to be redeemed, an amount equal to $1. 0.00 and all unpaid cumulative dividends, whether or not declared, which shall have accrued thereon and which, for such purpose, shall be treated as accruing up to the date of such redemption (less the amount of any tax which the Corporation is required to and does withhold tax therefrom). (b) Before redeeming any 7% cumulative preference shares the Corporation shall mail to each person who, at the date of such mailing, is a registered holder of shares to be redeemed, notice of the intention of the Corporation to redeem such shares held by such registered holder; such notice shall be mailed by ordinary prepaid post addressed to the last address of such holder as it appears on the records of the Corporation or, in the event of the address of any such holder not appearing on the record of the Corporation, then to the last known address of such holder, at least 30 days before the date specified for redemption; such notice shall set out the redemption price, the date on which redemption is to take place and, if part only of the shares held by the person to whom it is addressed is to be redeemed, the number thereof so to be redeemed; on or after the date so specified for redemption the Corporation shall pay or cause to be paid the redemption price to the registered holders of the shares to be redeemed, on presentation and surrender of the certificates for the shares so called for redemption at such place or places as may be specified in such notice, and the certificates for such shares shall thereupon be cancelled, and the shares represented thereby shall thereupon be redeemed. In case a part only of the outstanding 7% cumulative preference shares is at any time to be redeemed, the shares to be redeemed shall be selected, at the option of the directors, either by lot in such manner as the directors in their sole discretion shall determine or as nearly as may be pro rata (disregarding fractions) according to the number of 7% cumulative preference shares held by each holder. In case a part only of the 7% cumulative preference shares represented by any certificate shall be redeemed, a 5 new certificate for the balance shall be issued at the expense of the Corporation. From and after the date specified for redemption in such notice, the holders of the shares called for redemption shall cease to be entitled to dividends and shall not be entitled to any rights in respect thereof, except to receive the redemption price, unless payment of the redemption price shall not be made by the Corporation in accordance with the foregoing provisions, in which case the rights of the holders of such shares shall remain unimpaired. On or before the date specified for redemption the Corporation shall have the right to deposit the redemption price of the shares called for redemption in a preference account with any chartered bank or trust company in Canada. named in the notice of redemption to be paid without interest, to or to the order of the respective holders of such shares called for redemption upon presentation and surrender of the certificates representing the same and, upon such deposit being made, the shares in respect whereof such deposit shall have been made shall be redeemed and the rights of the several holders thereof, after such deposit, shall be limited to receiving, out of the moneys so deposited, without interest, the redemption price applicable to their respective shares against presentation and surrender of the certificates representing such shares. No shareholder shall be entitled to sell, assign, transfer or otherwise dispose of any Preference Share or Shares without both: (a) the previous express sanction of the directors of the Corporation expressed by a resolution passed at a meeting of the Board of Directors of the Corporation or consented to by an instrument or instruments in writing signed by a majority of the directors; and (b) the prior written consent of the Ontario Securities Commission. 6. Other provisions, if any, are: Autres dispositions, s'il y a lieu: None 7. The statements required by subsection 178(2) of Les declarations exigees aux termes du paragaphe 178(2) de la the Business Corporations Act are attached as loi sur les societes par actions constituent l'annexe "A." Schedule "A". 8. A copy of the amalgamation agreement or directors Une copie de la convention de fusion ou les resolutions des resolutions (as the case may be) is/are attached as adminstrateurs (selon le cas) constitue(nt) l'annexe "B." Schedule "B."
6 Name of the amalgamating corporations and signatures Denomination socieale des societes qui fusionnent, signature et and descriptions of office of their proper officers fonction de leurs dirigeants requirement designees. INTERNET LIQUIDATORS, INC. INTERNET LIQUIDATORS INTERNATIONAL INC. Per: Per: ----------------------------------- ------------------------------------------- Paul Godin, President Paul Godin, President
7 SCHEDULE "A" STATEMENT IN THE MATTER OF THE AMALGAMATION OF INTERNET LIQUIDATORS INTERNATIONAL INC. AND INTERNET LIQUIDATORS INC. The undersigned, PAUL GODIN, President of INTERNET LIQUIDATORS INTERNATIONAL INC. states that: 1. there are reasonable grounds for believing that: (a) each of Internet Liquidators International In. and Internet Liquidators Inc. is and the amalgamated corporation will be able to pay its liabilities as they become due, and (b) the realizable value of the amalgamated corporation's assets will not be less than the aggregate of its liabilities and stated capital of all classes of its shares 2. there are reasonable grounds for believing that no creditor will be prejudiced by the amalgamation; and 3. with respect to paragraphs 178 (2) (c) and (d) of the Business Corporations Act, 1990, no creditors have notified Internet Liquidators International Inc. that they object to the present amalgamation. DATED the 7th day of January, 1997. -------------------------------- Paul Godin 8 SCHEDULE "A" STATEMENT IN THE MATTER OF THE AMALGAMATION OF INTERNET L.IQUIDATORS INC. AND INTERNET LIQUIDATORS INTERNATIONAL INC. The undersigned, PAUL GODIN, the President of INTERNET LIQUIDATORS INC. states that: 1. there are reasonable grounds for believing that: (a) each of Internet Liquidators Inc. and Internet liquidators International fix., is and the amalgamated corporation will be able to pay its liabilities as they become due and (b) the realizable value of the amalgamated corporation's assets will not be less than the aggregate of its liabilities and stated capital of all classes of its shares; 2. there are reasonable grounds for believing that no creditor will be prejudiced by the amalgamation; and 3. with respect to paragraphs 178 (2) (c) and (d) of the Business Corporations Act, 1990, no creditors have notified Internet Liquidators Inc. that they object to the present amalgamation. DATED the 7th day of January, 1997. ---------------------------------- Paul Godin 9 SCHEDULE "B" CERTIFIED COPY OF AN EXTRACT FROM THE MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Corporation') "Amalgamation with Internet Liquidators Inc., - --------------------------------------------- WHEREAS the Corporation wholly owns and has decided to amalgamate with Internet Liquidators Inc. pursuant to subsection (1) of Section 177 of the Business Corporations Act (Ontario); IT IS RESOLVED THAT: 1. The amalgamation of the Corporation and Internet Liquidators Inc. under the Business Corporations Act (Ontario), pursuant to subsection (1) of Section 177 thereof is approved; 2. The amalgamation shall become effective as of the opening of business on the date on which the Director, Companies Branch, endorses his certificate on the Articles of Amalgamation. 3. Upon the issuance of a Certificate of Amalgamation pursuant to Section 178 of the Business Corporations Act (Ontario), all shares in the capital of Internet Liquidators Inc., including all shares which have been issued and are outstanding at the date hereof, shall be cancelled on the amalgamation without any repayment of capital in respect thereof; 4. Upon the issuance of a Certificate of Amalgamation pursuant to Section 178 of the Business Corporations Act (Ontario), all shares in the capital of the Corporation, including all shares which have been issued and are outstanding at the date hereof, be and the same are hereby converted on a one-for-one basis into shares of the amalgamated corporation; 5. The Articles of Amalgamation of the amalgamated corporation shall be the same as the Articles of Incorporation, as amended, of the Corporation; 6. The by-laws of the amalgamated corporation shall be the same as the by-laws of the Corporation; 7. No securities shall be issued and no assets shall be distributed by the Amalgamated Corporation in connection with the amalgamation; and 8. Any officer or director of the Corporation is authorized to do all things and execute all instruments and documents necessary or desirable to carry out and give effect to the foregoing. ' CERTIFIED a true copy of a resolution passed at a Meeting of the Board of Directors of INTERNET UQUIDATORS INTERNATIONAL INC. held on the 25th day of November, 1996 and that such resolution is still in full force and effect, unamended, ------------------------------------- Paul Godin, President 10 SCHEDULE "B" CERTIFIED COPY OF AN EXTRACT FROM THE MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF INTERNET LIQUIDATORS INC. (the "Corporation') "Amalgamation with Internet Liquidators International Inc. - --------------------------------------------------------- WHEREAS the Corporation is a wholly-owned subsidiary of and has decided to amalgamate with Internet Liquidators International Inc. pursuant to subsection (1) of Section 177 of the Business Corporations Act (Ontario); IT IS RESOLVED THAT: 1. The amalgamation of the Corporation and Internet Liquidators International Inc. under the Business Corporations Act (Ontario), pursuant to subsection (1) of Section 177 thereof is approved; 2. The amalgamation shall become effective as of the opening of business on the date on which the Director, Companies Branch, endorses his certificate on the Articles of Amalgamation. 3. Upon the issuance of a Certificate of Amalgamation pursuant to Section 178 of the Business Corporations Act (Ontario), all shares in the capital of the Corporation, including all shares which have been issued and are outstanding at the date hereof, shall be cancelled on the amalgamation without any repayment of capital in respect thereof; 4. The Articles of Amalgamation of the amalgamated corporation shall be the same as the Articles of Incorporation of Internet Liquidators International Inc., as amended; 5. The by-laws of the amalgamated corporation shall be the same as the by-laws of Internet Liquidators International Inc.; 6. No securities shall be issued and no assets shall be distributed by the amalgamated corporation in connection with the amalgamation; and 7. Any officer or director of the Corporation is authorized to do all things and execute all instruments and documents necessary or desirable to carry out and give effect to the foregoing." CERTIFIED a true copy of a resolution passed at a Meeting of the Board of Directors of INTERNET LIQUIDATORS INC. held on the 25th day of November, 1996 and that such resolution is still in full force and effect, unamended, ------------------------------------- Paul Godin, President 11
ONTARIO CORPORATION NUMBER MUMERO DE SOCIETE EN ONTARIO 1217515 Form 3 ARTICLES OF AMENDMENT Business STATUS DE MODIFICATION Corporations Act 1. The present name of the corporation is: Denomination sociale actuelle de la societe: Formula 3 I N T E R N E T L I Q U I D A T O R S La sur les -------------------------------------------------------------------------------------------------------------- Societe I N T E R N A T I O N A L I N C . per actions -------------------------------------------------------------------------------------------------------------- 2. The name of the corporation is changed to (if Nouvelle denomination sociale de la societe applicable): (s'il y a lieu): Formula 3 B I D . C O M I N T E R N A T I O N A L La sur les I N C . Societe ---------------------------------------------------------------------------------------------------------- per actions 3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion: 1997 Jan 9 ------------------------------------------------------------------------------------------------------------ (Year, Month, Day) (annee, mois, jour) 4. The articles of the corporation are amended as Les statuts de la societe sont modifies de la follows: facon suivante: To change the name of the Corporation to Bid.Com International Inc. To increase the allowable maximum number of directors from ten (10) to fifteen (15). 5. The amendment has been duly authorized as La modification a ete conformement aux articles required by Sections 168 and 170 (as applicable) of 168 et 170 (selon de cas) de la loi sur les the Business Corporation Act. societes par actions.
12 6. The resolutions authorizing the amendment was Les actionnaires (selon le cas) de la societe approved by the shareholders (as applicable) of the ont approuve la resolution autorisant la corporation on: modification le: 1998 Jun. 23 ------------------------------------------------------------------------------------------------------------ (Year, Month, Day) (annee, mois, jour) These articles are signed in Les presents status sont signes en double exemplaire. duplicate. INTERNET LIQUIDATORS INTERNATIONAL INC. ------------------------------------------------------------------ (Name of Corporation) (Denomination sociale de la societe) By: --------------------------------------------------------------
13 EX-1.2 3 BY-LAWS OF THE COMPANY Exhibit 1.2 BY-LAW NO. 5 A by-law relating generally to the transaction of the business and affairs of INTERNET LIQUIDATORS INTERNATIONAL INC. ARTICLE 1. DEFINITIONS (1) Definitions - In this by-law and in all other by-laws of the Corporation unless the context otherwise requires: (1) "Act" means the Business Corporations Act (Ontario) R.S.O. 1990 c.B. 17, as from time to time amended, and a reference to a particular provision or part of the Act shall be deemed to be a reference to such provision or part as the same may thereafter from time to time be amended or supplemented; (2) "Board" means the board of directors of the Corporation; and (3) "Corporation" means Internet Liquidators International Inc. (2) Expressions Defined in Act - Save as aforesaid, words and expressions defined in the Act have the same meanings when used herein. (3) Interpretation - Words importing the singular number include the plural and vice versa; words importing gender include the masculine, feminine and neuter genders; and words importing persons include individuals, bodies corporate, partnerships, trust and unincorporated organizations. ARTICLE 2. BOARD NUMBER Where the Articles of the Corporation provide for a minimum and maximum number of directors, the number of directors and the number to be elected at the annual meeting shall be the number fixed by special resolution of the shareholders or by resolution of the directors from time to time. ARTICLE 3. BUSINESS OF THE CORPORATION (1) Registered Office - Until changed in accordance with the Act, the registered office of the Corporation shall be at the City of Mississauga in the Province of Ontario and at such location therein as the Board may from time to time determine. (2) Financial Year - Until changed by the Board, the financial year of the Corporation shall end on the 30th day of November in each year. ARTICLE 4. MEETINGS OF SHAREHOLDERS (1) Annual Meetings - The annual meeting of shareholders shall be held at such time in each year and, subject to section 4(c), at such place as the Board, the Chairman of the Board or the President may from time to time determine, for the purpose of considering the financial statements and reports required by the Act to be placed before the annual meeting, electing directors, appointing auditors and for the transaction of such other business as may properly be brought before the meeting. (2) Special Meetings - The Board, the Chairman of the Board or the President shall have power to call a special meeting of shareholders at any time. (3) Place of Meetings - Meetings of shareholders shall be held at the registered office of the Corporation or at such other place in or outside Ontario as the directors determine. (4) Notice of Meetings - Notice of the time and place of each meeting of shareholders shall be given in the manner provided in section 6(a) not less than 21 nor more than 50 days before the date of the meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any purpose other than consideration of the financial statements and auditor's report, election of directors and reappointment of the incumbent auditor shall state the nature of such business in sufficient detail to permit the shareholders to form a reasoned judgment thereon and shall state the text of any special resolution to be submitted to the meeting. A shareholder and any other person entitled to attend a meeting of shareholders may in any manner waive notice of or otherwise consent to a meeting of shareholders. (5) List of Shareholders Entitled to Notice - For every meeting of shareholders, the Corporation shall prepare a list of shareholders entitled to receive notice of the meeting, arranged in alphabetical order and showing the number of shares entitled to vote at the meeting held by each shareholder. If a record date for the meeting is fixed pursuant to section 4(f), the shareholders listed shall be those registered at the close of business on such record date. If no record date is fixed, the shareholders listed shall be those registered at the close of business on the day immediately preceding the day on which notice of the meeting is given, or where no such notice is given, on the day on which the meeting is held. The list shall be available for examination by any shareholder during usual business hours at the registered office of the - 3 - Corporation or at the place where the securities register is maintained and at the meeting for which the list was prepared. Where a separate list of shareholders has not been prepared, the names of persons appearing in the securities register at the requisite time as the holder of one or more shares carrying the right to vote at such meeting shall be deemed to be a list of shareholders. (6) Record Date for Notice - The Board may fix in advance a date, preceding the date of any meeting of shareholders by not more than 50 days and not less than 35 days, as a record date for the determination of the shareholders entitled to notice of the meeting. If a record date is fixed, unless notice thereof is waived in writing by every holder of a share of the class or series affected whose name is set out in the share register at the close of business on the day the directors fix the record date, notice thereof shall, not less than seven days before the date so fixed, be given in the manner provided in the Act. If no record date is so fixed, the record date for the determination of the shareholders entitled to notice of the meeting shall be the close of business on the day immediately preceding the day on which the notice is given or if no notice is given, the day on which the meeting is held. (7) Meetings Without Notice - A meeting of shareholders may be held without notice at any time and place permitted by the Act: (1) if all the shareholders entitled to vote thereat are present in person or represented by proxy or if those not present or represented by proxy waive notice of or otherwise consent to such meeting being held; and (2) if the auditors and the directors are present or waive notice of or otherwise consent to such meeting being held. At such a meeting any business may be transacted which the Corporation at a meeting of shareholders may transact. If the meeting is held at a place outside Canada, shareholders not present or represented by proxy, but who have waived notice of or otherwise consented to such meeting, shall also be deemed to have consented to the meeting being held at such place. (8) Chairman, Secretary and Scrutineers - The chairman of any meeting of shareholders shall be the first mentioned of such of the following officers as have been appointed and who is present at the meeting: Chairman of the Board, President or a Vice-President who is a director. If no such officer is present within 15 minutes from the time fixed for holding the meeting, the persons present and entitled to vote shall choose one of their members to be chairman. If the Secretary of the Corporation is absent, the chairman shall appoint some person, who need not be a shareholder, to act as secretary of the meeting. If desired, one or more scrutineers, who need not be shareholders, may be appointed by a resolution or by the chairman with the consent of the meeting. - 4 - (9) Persons Entitled to be Present - The only persons entitled to be present at a meeting of shareholders shall be those entitled to vote thereat, the directors and auditors of the Corporation and others who, although not entitled to vote, are entitled or required under any provision of the Act or the articles or by-laws to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. (10) Quorum - A quorum for the transaction of business at any meeting of shareholders shall be the lesser of the number of shareholders or two persons present in person, each being a shareholder or representative duly authorized in accordance with the Act entitled to vote thereat or a duly appointed proxy for a shareholder so entitled (and together holding or representing by proxy not less than 20% of the outstanding shares of the Corporation entitled to vote at the meeting). If a quorum is present at the opening of the meeting, the shareholders present in person or by proxy may proceed with the business of the meeting even if a quorum is not present throughout the meeting. (11) Right to Vote - Subject to the provisions of the Act as to authorized representatives of any other body corporate, at any meeting of shareholders in respect of which the Corporation has prepared the list referred to in section 4(e), every person who is named in such list shall be entitled to vote the shares shown thereon opposite his name, except: (1) where the Corporation has fixed a record date in respect of such meeting pursuant to section 4(f), to the extent that any such person has transferred any of his shares after such record date and the transferee either produces properly endorsed share certificates or otherwise established that he owns such shares and demands, on or before the commencement of the meeting, that his name be included in the list before the meeting; or (2) where the Corporation has not fixed a record date in respect of such meeting pursuant to section 4(f), to the extent that any such person has transferred any of his shares after the date on which the list referred to in section 4(e) is prepared and the transferee, either produces properly endorsed share certificates or otherwise establishes that he owns such shares and demands, on or before the commencement of the meeting, that his name be included in the list before the meeting, in either of which cases the transferee is entitled to vote his shares at the meeting. In the absence of a list prepared as aforesaid in respect of a meeting of shareholders, every person shall be entitled to vote at the meeting whose name appears in the securities register as the holder of one or more shares carrying the right to vote at such meeting. (12) Proxies - Every shareholder entitled to vote at a meeting of shareholders may appoint a proxyholder, or one or more alternate proxyholders, who need not be shareholders, to - 5 - attend and act at the meeting in the manner and to the extent authorized and with the authority conferred by the proxy. A proxy shall be in writing executed by the shareholder or his attorney and shall conform with the requirements of the Act. (13) Time for Deposit of Proxies - The Board may specify in a notice calling a meeting of shareholders a time, preceding the time of such meeting by not more than 48 hours exclusive of non-business days, before which time proxies to be used at such meeting must be deposited. A proxy shall be acted upon only if, prior to the time so specified, it shall have been deposited with the Corporation or an agent thereof specified in such notice or, if no such time is specified in such notice, unless it has been received by the Secretary of the Corporation or by the chairman of the meeting or any adjournment thereof prior to the time of voting. (14) Joint Shareholders - If two or more persons hold shares jointly, any one of them present in person or represented by proxy at a meeting of shareholders may, in the absence of the other or others, vote the shares; but if two or more of those persons are present in person or represented by proxy and vote, they shall vote as one on the shares jointly held by them. (15) Votes to Govern - At any meeting of shareholders every question shall, unless otherwise required by the articles or by-laws or by law, be determined by the majority of the votes cast on the question. In case of an equality of votes either upon a show of hands or upon a poll, the chairman of the meeting shall be entitled to a second or casting vote. (16) Show of Hands - Subject to the provisions of the Act, any question at a meeting of shareholders shall be decided by a show of hands unless a ballot thereon is required or demanded as hereinafter provided. Upon a show of hands every person who is present and entitled to vote shall have one vote. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried and an entry to that effect in the minutes of the meeting shall be prima facie evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against any resolution or other proceeding in respect of the said question, and the result of the vote so taken shall be the decision of the shareholders upon the said question. (17) Ballots - On any question proposed for consideration at a meeting of shareholders, and whether or not a show of hands has been taken thereon, any shareholder or proxyholder entitled to vote at the meeting may require or demand a ballot. A ballot so required or demanded shall be taken in such manner as the chairman shall direct. A requirement or demand for a ballot may be withdrawn at any time prior to the taking of the ballot. If a ballot is taken each person present shall be entitled, in respect of the shares which he is entitled to vote at the meeting upon the question, to that number of votes provided by the Act or the articles, and the result of the ballot so taken shall be the decision of the shareholders upon the said question. - 6 - (18) Adjournment - If a quorum is not present at or within 15 minutes from the opening of a meeting of shareholders, the shareholders present may adjourn the meeting to a fixed time and place but may not transact any other business. If a meeting of shareholders is adjourned for less than 30 days, it shall not be necessary to give notice of the adjourned meeting, other than by announcement at the earliest meeting that is adjourned. If a meeting of shareholders is adjourned by one or more adjournments for an aggregate of 30 days or more, notice of the adjourned meeting shall be given as for an original meeting. (19) Resolution in Writing - Subject to the Act, a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it has been passed at a meeting of the shareholders. (20) Only One Shareholder - Where the Corporation has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or by proxy constitutes a meeting. ARTICLE 5. MEETINGS OF DIRECTORS (1) First Meeting - Immediately after the annual meeting of shareholders in each year, a meeting of such of the newly elected directors as are then present may be held (provided that they shall constitute a quorum) without notice, for the appointment of officers of the Corporation and the transaction of such other business as may come before the meeting. (2) Notice - Subject to the foregoing and to the provisions of any resolution of the Board, meetings of the Board may be called at any time by the Chairman of the Board, the President or any two directors and notice of the time and place for holding any meeting of the Board shall be given at least forty-eight hours prior to the time fixed for the meeting. Any meeting so called may be held at the registered office of the Corporation or such other place as the Board may determine in or outside Ontario. (3) Abbreviated Notice - In any case when it is considered by the Chairman of the Board or the President in his discretion to be a matter of urgency that a directors' meeting be convened, he may give notice of a meeting of directors by telegraph or telephone not less than one hour before such meeting is to be held and such notice shall be adequate for the meeting so convened. (4) Quorum - The quorum for the transaction of business of any meeting of the Board shall be a majority of the number of directors or minimum number of directors, as the case may be. (5) Chairman - The chairman of any meeting of the Board shall be the first mentioned of such of the following officers as have been appointed and who is a director and is - 7 - present at the meeting: Chairman of the Board, President or Vice-President. If all such officers be absent or unable or refuse or fail to act, the directors present may choose a chairman from among their number. The chairman at any meeting may vote as a director. (6) Votes to Govern - At all meetings of the Board every question shall be decided by a majority of the votes cast on the question. In the case of an equality of votes the chairman of the meeting shall be entitled to a second or casting vote. ARTICLE 6. NOTICES (1) Method of Giving Notice - Any notice (which term includes any communication or document) to be given (which term includes sent, delivered or served) pursuant to the Act, the regulations thereunder, the articles, the by-laws or otherwise to a shareholder, director, officer, auditor or member of a committee of the Board shall be sufficiently given if delivered personally to the person to whom it is to be given or if delivered to his recorded address or if mailed to him at his recorded address by prepaid ordinary or air mail or if sent to him at his recorded address by any means of prepaid transmitted or recorded communication. A notice so delivered shall be deemed to have been given when it is delivered personally or to the recorded address as aforesaid; a notice so mailed shall be deemed to have been given when deposited in a post office or public letter box; and a notice so sent by any means of transmitted or recorded communication shall be deemed to have been given when dispatched or delivered to the appropriate communication company or agency or its representative for dispatch. The Secretary may change or cause to be changed the recorded address of any shareholder, director, officer, auditor or member of a committee of the Board in accordance with any information believed by him to be reliable. (2) Notice to Joint Shareholder - If two or more persons are registered as joint holders of any share, any notice shall be addressed to all of such joint holders but notice to one of such persons shall be sufficient notice to all of them. (3) Computation of Time - In computing the date when notice must be given under any provision requiring a specified number of days' notice of any meeting or other event, the date of sending the notice shall be included and the date of the meeting or other event shall both be excluded. (4) Undelivered Notices - If any notice given to a shareholder pursuant to section 4(a) is returned on three consecutive occasions because he cannot be found, the Corporation shall not be required to give any further notices to such shareholder until he informs the Corporation in writing of his new address. (5) Omissions and Errors - The accidental omission to give any notice to any shareholder, director, officer, auditor or member of a committee of the Board or the non-receipt of any notice by any such person or any error in any notice not affecting the substance thereof - 8 - shall not invalidate any action taken at any meeting held pursuant to such notice or otherwise founded thereon. (6) Persons Entitled by Death or Operation of Law - Every person who, by operation of law, transfer, death of a shareholder or any other means whatsoever, shall become entitled to any share, shall be bound by every notice in respect of such share which shall have been duly given to the shareholder from whom he derives his title to such share prior to his name and address being entered on the securities register (whether such notice was given before or after the happening of the event upon which he became so entitled) and prior to his furnishing to the Corporation the proof of authority or evidence of his entitlement prescribed by the Act. (7) Waiver of Notice - Any shareholder (or his duly appointed proxyholder), director, officer, auditor or member of a committee of the Board may at any time waive the sending of any notice or waive or abridge the time for any notice, required to be given to him under any provision of the Act, the regulations thereunder, the articles, the by-laws or otherwise and such waiver or abridgement shall cure any default in the giving or in the time of such notice, as the case may be. Any such waiver or abridgement shall be in writing except a waiver of notice of a meeting of shareholders or of the Board which may be given in any manner. ARTICLE 7. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation, or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he or she is made a party by reason of being or having been a director or officer of the Corporation or body corporate, if: (a) he or she acted honestly and in good faith with a view to the best interests of the Corporation; and (1) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. ARTICLE 8. EFFECTIVE DATE This by-law shall come into force and effect when enacted by the Board, subject to the Act, whereupon this by-law shall repeal and replace By-law Number 1 of the Corporation, without prejudice to any action previously taken pursuant to such by-law. - 9 - Enacted by the Board the 16th day of September , 1996. ------------------------------------- Secretary EX-3.1 4 SUBSCRIPTION AGREEMENT DATED FEBRUARY 12, 1997 EXHIBIT 3.1 SUBSCRIPTION AGREEMENT THIS AGREEMENT is made as of the 12th day of February, 1997 (the "Effective Date") by and between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation having a principal place of business at 5915 Airport Rd., Suite 330, Mississauga, Ontario L4V 1T1 ("Issuer"), and TORONTO STAR NEWSPAPERS LIMITED, a corporation having a principal place of business at 1 Yonge Street, Toronto, Ontario, M5E 1E6 ("Subscriber" or "Torstar"). BACKGROUND 1. As more particularly described herein, Subscriber wishes to acquire, and Issuer wishes to provide, an interest in Issuer by Subscriber subscribing for previously unissued common shares in the capital of Issuer and by obtaining a warrant to acquire further common shares of Issuer. Issuer is a public company. 2. In conjunction with the subscription, the Subscriber and Issuer will enter into certain agreements which will allow Subscriber and certain related entities to use and exploit certain technology of Issuer to interface and or provide a link for certain of their on-line interactive users to an auction service provided by Issuer on the Internet. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE 1 INTERPRETATION 1.1 Definitions. In this Agreement, unless the context otherwise requires, each capitalized term shall have the meaning attributed thereto in Schedule "A". 1.2 Schedules. The following are the schedules attached to and forming part of this Agreement: Schedule A Definitions Schedule B Financial Statements Schedule C Subsidiaries Schedule D Options - 2 - Schedule E Litigation Schedule F Licences Schedule G Major Shareholder Interests Schedule H Material Contracts Schedule I Encumbrances Schedule J Intellectual Property Rights Schedule K Opinion of Issuer Counsel Schedule L E-Commerce Services Agreement Schedule M Shareholders' Agreement Schedule N Form of Warrant 1.3 Headings. The headings in this Agreement are for convenience of reference only and shall not affect the construction or interpretation hereof. 1.4 Extended Meanings. Words in the singular include the plural and vice-versa and words in one gender include all genders. 1.5 Entire Agreement. This Agreement and Schedules hereto constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, oral or written, between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgements not expressly made in this Agreement or in the agreements and other documents to be delivered pursuant hereto. 1.6 Currency. Unless otherwise indicated, all dollar amounts referred to in this Agreement are in Canadian funds. 1.7 Invalidity. If any of the provisions contained in this Agreement is found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not be in any way affected or impaired thereby. 1.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of Ontario and the federal laws of Canada applicable therein and shall be treated, in all respects, as an Ontario contract. The parties irrevocably attorn to the exclusive jurisdiction of the Courts of Ontario in respect of the subject matter hereof. 1.9 Tender. Any tender of documents or money hereunder may be made upon the Parties or their respective counsel and money shall be tendered by negotiable cheque or draft and certified by a Canadian bank. 1.10 Performance on Holidays. If anything is required to be done or any action is required to - 3 - be taken pursuant to this Agreement on or by a specified date which is not a Business Day, then such action shall be valid if taken on or by the next succeeding Business Day. 1.11 Calculation of Time. In this Agreement, a period of days shall be deemed to begin on the first day after the event which began the period and to end at midnight (Toronto time) on the last day of the period, except that if the last day of the period does not fall on a Business Day, the period shall terminate at midnight (Toronto time) on the next Business Day. ARTICLE 2 PURCHASE OF SHARES AND WARRANT 2.1 Purchase of Shares and Warrant. Subject to the terms of this Agreement, Subscriber agrees to subscribe for and purchase, and Issuer agrees to issue and sell to Subscriber, the Shares and the Warrant, all as provided in this Agreement. 2.2 Subscription Price. The purchase price for the Shares shall be $.85 per Share for an aggregate purchase price of $850,000 (the "Subscription Price"). Issuer acknowledges receipt of Subscriber's cheque for $42,500 as a deposit to be applied against the Subscription Price. 2.3 Payment of Subscription Price. The unpaid balance of the Subscription Price shall be paid by Subscriber to Issuer on the Closing. 2.4 Share and Warrant Certificate. Issuer shall deliver to Subscriber at the Closing one share certificate representing the Shares and one warrant certificate bearing appropriate legends to indicate the applicable hold period representing the Warrant registered in the name of Subscriber. On Closing, Issuer shall cause Subscriber to be entered on the books of Issuer as the holder of the Shares and Warrant. 2.5 Place of Closing. The Closing shall take place at the Closing Time at the offices of Gowling, Strathy & Henderson, Barristers & Solicitors, Commerce Court West, Suite 4900, Toronto, Ontario, or at such other place as may be agreed upon by Issuer and Subscriber. - 4 - ARTICLE 3 REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Issuer. Issuer represents and warrants to Subscriber as follows and acknowledge that Subscriber is relying upon such representations and warranties in entering into this Agreement and completing the transactions contemplated hereby. 3.1.1 Corporate Matters (a) Issuer and each of the Subsidiaries is a corporation duly incorporated, organized and validly existing in good standing under the laws of its jurisdiction of incorporation. No proceedings have been taken or authorized by any of Issuer, any Subsidiary or, to the best of Issuer's knowledge, by any other Person with respect to the bankruptcy, insolvency, liquidation, dissolution or winding up of Issuer or any of the Subsidiaries. (b) Issuer has all necessary power and capacity to execute and deliver, and to observe and perform its covenants and obligations under this Agreement and the Closing Documents to which it is a party. Issuer has taken all corporate action and caused all necessary shareholder action to authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the Closing Documents to which it is a party including, without limitation, the issuance and delivery of the Shares and Warrant. (c) Issuer and the Subsidiaries have all necessary power and authority to own or lease the Assets and to carry on the Business as at present carried on. Issuer and the Subsidiaries possess all Licences material to the conduct of the Business. Neither the nature of the Business nor the location or character of any of the Assets requires any of Issuer or the Subsidiaries to be registered, licensed or otherwise qualified as an extra-provincial or foreign corporation or to be in good standing in any jurisdiction other than jurisdictions where it is duly registered, licensed or otherwise qualified and in good standing for such purpose. (d) This Agreement has been, and each Closing Document to which Issuer is a party will on Closing be, duly executed and delivered by Issuer and this Agreement constitutes, and each Closing Document to which Issuer is a party will on Closing constitute, a valid and binding obligation of Issuer enforceable against Issuer in accordance with its terms. - 5 - (e) A true copy of the Articles and all by-laws of the Issuer each as amended to date and currently in effect have been delivered to Subscriber by Issuer. The Articles and such by-laws of the Issuer constitute all of the constating documents and by-laws of such company, are complete and correct and are in full force and effect, subject to confirmation of Issuer's new general by-laws by its shareholders. 3.1.2 Authorized and Issued Capital of Issuer. The authorized capital of Issuer consists of an unlimited number of common shares and an unlimited number of preference shares. No more than 9,700,000 common shares are outstanding and all such shares are fully paid and non-assessable shares. No preference shares are outstanding. Except as listed in Schedule B, no other Voting Securities, Convertible Securities or Rights of Issuer have been issued or are outstanding. 3.1.3 Options. Except as listed in Schedule D, no Person other than Subscriber has any oral or written agreement, option, warrant, right, privilege or any other right capable of becoming any of the foregoing (whether legal, equitable, contractual or otherwise), for the purchase, subscription or issuance of any Voting Securities, Convertible Securities or Rights of Issuer. Issuer has no agreement or obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. All of the issued and outstanding shares of capital stock of the Issuer have been offered, issued and sold by the Issuer in compliance with Applicable Law. There are no pre-emptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of the Issuer's capital stock, other than rights to which the Subscriber is entitled as set forth in this Agreement and the Closing Documents. 3.1.4 Subsidiaries. Issuer owns all of the issued shares and Voting Securities, Convertible Securities and Rights of each Subsidiary. Neither Issuer nor any Subsidiary holds or has agreed to acquire any shares, Voting Securities, Convertible Securities or Rights of any other body corporate. None of Issuer or the Subsidiaries is or has agreed to become a partner, member, owner, proprietor or equity investor of or in any partnership, joint venture or other management or business association or to acquire or lease any other business operation. 3.1.5 Insurance. Issuer and the Subsidiaries maintain valid policies of insurance with respect to its properties and business of the kinds and in the amounts not less than is customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated. There is no default under any such policy, nor, to the knowledge of Issuer, has any event occurred which with notice, lapse of time or both would constitute a material default thereunder. 3.1.6 Financial Statements. The Financial Statements: - 6 - (a) have been prepared from and in accordance with the books and records of Issuer and its Subsidiaries in accordance with Generally Accepted Accounting Principles (except as disclosed in the notes thereto) applied on a basis consistent with that of the preceding periods; (b) present fairly the assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of Issuer and the Subsidiaries and the results of the operations of Issuer and the Subsidiaries as at the date thereof and for the periods covered thereby; and (c) contain or reflect adequate reserves for all known or reasonably anticipated liabilities and obligations of Issuer and the Subsidiaries of any nature, whether absolute, contingent or otherwise, as at the date thereof. No information has come to the attention of Issuer that would render the Financial Statements incomplete or inaccurate in any material respect. 3.1.7 Undisclosed Liabilities. None of Issuer or the Subsidiaries has any known or reasonably anticipated liabilities (whether accrued, absolute, contingent or otherwise) of any kind and whether due or to become due, except: (a) liabilities disclosed or provided for in the Financial Statements; and (b) liabilities incurred in the ordinary course of business from and after the Financial Disclosure Date which are consistent with past practice, are not, in the aggregate, material and adverse to the Business, Assets, financial condition or results of operations of Issuer and the Subsidiaries, and do not violate any covenant or obligation contained in this Agreement or constitute a breach of any representation or warrant made in or pursuant to this Agreement. 3.1.8 Absence of Changes. Since the Financial Disclosure Date; (a) Issuer and each of the Subsidiaries has conducted the Business in the ordinary course, has not incurred any debt, obligation or liability out of the ordinary course of business or of an unusual or extraordinary nature and has used its best efforts to preserve the Business and the Assets; (b) there has not been any change in the condition of the Business or the Assets or the financial condition or results of operations of any of Issuer, the Subsidiaries or the Business other than changes in the ordinary course of business, and such changes have not, either individually or in the aggregate, been materially adverse or have had or may be reasonably expected to have, either before or after the Closing Time, a material adverse effect on the Business, the Assets or the future prospects of any of Issuer, any of the Subsidiaries or the Business; and - 7 - (c) to the best of Issuer's knowledge, there has not been any change in, or creation of, any Applicable Law, any revocation of any Licence or any damage, destruction, loss, labour dispute or other event, development or condition of any character (whether or not covered by insurance) materially and adversely affecting any of Issuer, any Subsidiary, the Business or the Assets or the future prospects of any of Issuer, the Subsidiaries or the Business. 3.1.9 Tax Matters. Issuer and each of the Subsidiaries has filed all Tax Returns within the times and in the manner prescribed by law. Issuer and each Subsidiary has paid all Taxes due and payable and has paid all installments and made all other remittances required to be made on account of Taxes payable by them. No Tax Return has been reassessed nor has there been any notice of reassessment by any taxing authority and there are no actions, audits, assessments, reassessments, suits, appeals, proceedings, investigations or claims now pending or, to the best of Issuer's knowledge, threatened against Issuer or any Subsidiary in respect of Taxes or governmental charges by any Governmental Agency relating to claims for additional Taxes or assessments with reference to any of Issuer, the Subsidiaries, the Assets or the Business. There is in effect no waiver of applicable limitation of liability statutes with respect to any Taxes owed by Issuer or any Subsidiary. The provision for Taxes reflected in the Financial Statements is adequate for all Tax liabilities, whether or not yet due and payable and whether or not disputed or under appeal, for the periods covered by the Financial Statements and for all prior periods and none of Issuer or the Subsidiaries has any liability for any Tax in respect thereof of any nature other than those described in the Financial Statements and those arising in the ordinary course of its business since the Financial Disclosure Date. 3.1.10 Absence of Conflicting Agreements. None of the execution and delivery of, or the observance and performance by Issuer of any covenant or obligation under this Agreement or any Closing Document to which it is a party including the issuance of Shares pursuant to the exercise of the Warrant, or the Closing, contravenes or results in, or will contravene or result in, a material violation of or a material default under (with or without the giving of notice or lapse of time, or both), or in the acceleration of any material obligation under: (a) any Applicable Law; (b) any Licence held by or for Issuer, a Subsidiary or the Business; (c) the articles, by-laws, directors' or shareholders' resolutions of Issuer or any Subsidiary; or (d) any other agreement, lease, mortgage, security document, obligation or instrument to which Issuer or any Subsidiary is a party, or by which it or its Assets are bound. The representation and warranty in Section 3.1.10(b) shall not apply to Generic Software. - 8 - 3.1.11 Consents, Approvals, Etc. Subject to those certain filings with Canadian securities authorities identified in Section 3.1.19, no consent, approval, Licence, Order or authorization, registration, declaration or filing with any Governmental Agency or other Person is required by Issuer or any Subsidiary, or with respect to the Business, in connection with (a) the Closing or (b) the execution and delivery by Issuer of, and the observance and performance by Issuer of its obligations under, this Agreement and the Closing Documents to which it is a party. 3.1.12 Restrictions on Business. Other than statutory provisions and restrictions of general application to the Business, the Issuer or the Subsidiaries, none of Issuer or any Subsidiary is a party to any agreement, lease, mortgage, security document, obligation or instrument, or subject to any restriction in its articles or by-laws or directors' or shareholders' resolutions or subject to any restriction imposed by any Governmental Agency or subject to any Applicable Law which could materially restrict or interfere with the conduct of the Business or which could materially limit or restrict or otherwise adversely affect the Assets or the financial condition of Issuer on a consolidated basis. 3.1.13 Compliance with Applicable Law. Each of Issuer and the Subsidiaries has conducted and is conducting the Business in compliance with all Applicable Law, and is not in breach of any Applicable Law except for breaches which in the aggregate are not material to Issuer and the Subsidiaries. 3.1.14 Litigation. Except as disclosed in Schedule E, there is no claim, demand, suit, action, cause of action, dispute, proceeding, litigation, investigation, grievance, arbitration, governmental proceeding or other proceeding including appeals and applications for review, in progress against or relating to Issuer or any Subsidiary or affecting the Shares, the Warrant, the Assets or the Business which, if determined adversely, would materially and adversely affect any of Issuer, any Subsidiary, the Shares, the Warrant, the Business or the or Assets or the validity of the Agreement or any of the Closing Documents, nor are any of the same pending or to the best of the knowledge of Issuer threatened. To the knowledge of Issuer, no event has occurred and no condition exists or the basis for which any of the foregoing might properly be instituted or commenced. There is not at present outstanding against Issuer or any Subsidiary any Order that materially and adversely affects Issuer, any Subsidiary, the Business or the Assets in any way or that in any way relates to this Agreement or the transactions contemplated hereby. 3.1.15 Title to Properties. Except as disclosed in the Financial Statements; Issuer and the Subsidiaries have good and marketable title to all of the Assets, free and clear of all Encumbrances. 3.1.16 Title to Shares and Warrants. The Shares and the Warrant shall be duly authorized and created upon Closing shall be validly issued and outstanding and the Shares shall be fully paid and non-assessable shares in the capital of Issuer, free and clear of all rights, liens or other Encumbrances and the shares issuable upon exercise of the Warrants upon payment of the - 9 - exercise price, will be fully paid and non-assessable Shares, free and clear of all rights, liens and Encumbrances. 3.1.17 No Expropriation. None of Issuer or any Subsidiary has received any notice of expropriation of any of the Assets. Issuer is not aware of any expropriation proceeding, pending or threatened against or affecting any of the Assets. 3.1.18 Licences. The only Licences necessary or desirable for the operation of the Business and the ownership of the Assets are listed in Schedule F and are in full force and effect unamended. Issuer or each Subsidiary, as the case may be, is in compliance in all material respects with all the terms and conditions relating to such Licences and there are no proceedings in progress, or to the best of the knowledge of Issuer, pending or threatened, which may result in revocation, cancellation, suspension or any adverse modification of any of such Licences. No Licence is void or voidable as a result of the completion of the transactions contemplated hereby or by the Closing Documents or by the exercise of the Warrant nor is any consent or approval of any Person required to assure the continued validity and effectiveness of any Licence in connection with the purchase of the Shares, this Agreement, any Closing Document or by the exercise of the Warrant or the transactions contemplated hereby or thereby. 3.1.19 Securities Legislation. Issuer is a "reporting issuer" in Ontario and is not in default under applicable securities legislation in such province. In particular, without limiting the foregoing, Issuer is in compliance with its obligations to make timely disclosure of all material changes relating to it and since the date hereof (other than in respect of material change reports filed on a confidential basis and thereafter made public or material change reports filed on a confidential basis and in respect of which the material change never came to fruition) no such disclosure has been made on a confidential basis and there is no material change relating to Issuer which has occurred and with respect to which the requisite material change statement has not been filed, except to the extent that this Agreement constitutes a material change. Issuer is not in default of any requirements of such securities legislation, and the issuance of the Shares and the Warrant to Subscriber will be made in compliance with all applicable Canadian securities legislation. Subject to the filing of a Form 27, Material Change Report, Form 20, Report of a Trade under clause 72(1)(d) and a press release following the Closing, the issuance of the Shares and Warrant to Subscriber, and any subsequent exercise of rights under the Warrant, will not result in any contravention of any applicable Canadian securities legislation or the regulations thereunder (subject to filings required on Warrant exercise). The issuance of the Shares and the Warrant is exempt from the registration and prospectus requirements of securities legislation of the Province of Ontario and no prospectus will be required and no other document must be filed, proceeding taken or approval obtained in Ontario to permit the offering, issue, sale and delivery of the Shares and the Warrant to Subscriber or for the exercise of the Warrant other than the filing of those private placement reports, undertakings and questionnaires referred to above. - 10 - The Issuer's Shares are not listed or quoted for trading on any stock exchange or other public market other than the Canadian Dealing Network. 3.1.20 Environmental Matters. To the best of Issuer's knowledge: (a) Issuer, each Subsidiary, the Business and the Assets are in full compliance with all Applicable Law in respect of environmental matters and are not the subject of any remedial or control action or Order, or any investigation or evaluation as to whether any remedial or control action or Order is needed to respond to an actual or threatened release, discharge, deposit, emission or spill of any hazardous substance, pollutant or contaminant into the environment or any facility or structure; (b) none of Issuer or the Subsidiaries is or may be liable to any Person as a result of an actual or alleged release, discharge, deposit, emission or spill of any hazardous substance, contaminant or pollutant into the environment or any facility or structure, nor has there been any release, discharge, deposit, emission or spill of any hazardous substance, contaminant or pollutant into the environment or into any facility or structure, which is the subject of or, after the giving of notice or the lapse of time would give rise to, any claim, demand, suit, action, cause of action, dispute, proceeding or Order relating to the violation of Applicable Law in respect of environmental matters, nor is there any basis for any thereof being commenced; and (c) Issuer and each Subsidiary has complied in all material respects with all environmental reporting and inspection requirements of all Governmental Agencies having jurisdiction over it. All pollution control equipment operated as part of the Business is effective in meeting applicable emissions limits and effluent pre-treatment standards. 3.1.21 Significant Shareholders. Except as set forth in Schedules "G" and "D" there are no loans, leases, licences, guarantees, contracts, transactions, understandings or other arrangements or any nature between the Issuer or any Subsidiary and any officer, director or ten percent (10%) stockholder of the Issuer or any family member or affiliate of the foregoing persons. All persons owning ten percent (10%) or more of the presently outstanding common shares to the knowledge of the Issuer, are listed as Schedule "G". 3.1.22 Material Contracts. Except as set forth in Schedule "H" and otherwise disclosed in this Agreement, neither Issuer nor any Subsidiary is a party or subject to or bound by: (a) any contract, lease or agreement creating any obligation of the Issuer or any Subsidiary to pay to any third party $50,000 or more with respect to any single such contract or agreement, except for purchase orders entered into in the ordinary course of business; (b) any contract or agreement for the sale, license, lease or disposition of products in excess of $50,000; - 11 - (c) any contract containing covenants directly or explicitly limiting the freedom of the Issuer or any Subsidiary to compete in any line of business or with any person or entity; (d) any license agreement (as licensor or licensee) other than licenses to off-the-shelf software; (e) any contract or agreement or the purchase of any leasehold improvements, equipment or fixed assets for a price in excess of $50,000; (f) any indenture, mortgage, promissory note, loan agreement, guaranty or other agreement or commitment for borrowing in excess of $50,000 or any pledge or security arrangement except as disclosed in Schedule I; (g) any material joint venture, partnership, manufacturing, development or supply agreement; (h) any employment contracts, or agreements with officers, directors, employees or stockholders of the Issuer or any Subsidiary or persons or organizations related to or affiliated with any such persons; (i) any stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of the Issuer or any Subsidiary, including without limitation any agreement relating to the capital stock of the Issuer or any Subsidiary, including without limitation any agreement relating to anti-dilution rights, registration rights, voting arrangements, operating covenants or similar provisions; (j) any pension, profit sharing, retirement or stock option plans; (k) any royalty, dividend or similar arrangement based on the sales volume of the Issuer or any Subsidiary; (l) any acquisition, merger or similar agreement; or (m) any other contract not executed in the ordinary course of business. All of such agreements and contracts are valid, binding and in full force and effect. Neither Issuer nor any Subsidiary, nor, to the knowledge of the Issuer, any other party is in material default under any of such agreements or contracts (nor, to the knowledge of the Issuer, has any event occurred which with notice, lapse of time or both would constitute a material default thereunder), except to the extent that any such default would not have a material effect on the assets, liabilities, properties, business or proposals of the Issuer or any Subsidiary, and the Issuer or any Subsidiary, has not received notice of any alleged default under any such contract, or agreement. - 12 - 3.1.23 Intellectual Property Rights. (a) Rights Schedule "J" contains a true and complete list of all Intellectual Property Rights which have been registered, or for which applications for registration have been filed in any jurisdiction. (b) Ownership Except as set forth in Schedule "J" or "Permitted Encumbrances", the Issuer is or at Closing will be the exclusive owner of the Technology and all right, title and interest in and to the Technology, free and clear of all Encumbrances, other than those Encumbrances arising in the ordinary course of Issuer's Business, and the Issuer has no knowledge of any claim of adverse ownership in any Technology. Issuer has not: (i) granted any third party license or other right to any of the Intellectual Property Rights; or (ii) made any contract or arrangement whereby it may be liable for any royalty or other compensation for the use of Intellectual Property Rights. (c) Validity The Intellectual Property Rights are in good standing and to the best of the Issuer's knowledge have not been used or enforced or failed to be used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of any of the Intellectual Property Rights. All registrations and filings necessary to preserve the rights of the Issuer in and to the Intellectual Property Rights have been made. (d) Complete The Technology is sufficient and complete to enable the Issuer to carry on the Business as currently carried on and to perform its obligations under this Agreement and any related Closing Documents including the E- Commerce Services Agreement. - 13 - (e) Infringements by Issuer Except as set forth in Schedule "J", there is no: (i) (1) claim of adverse ownership or invalidity or other opposition to or conflict with Issuer's ownership of the copyright, trade marks or trade secrets forming part of the Technology or the manner it is used in respect of the Business; or (2) to the best of the knowledge of the Issuer, pending or threatened suit, proceeding, claim, demand, action or investigation of any nature or kind of which the Issuer has received notice against Issuer relating to the Technology or the manner it is used in respect of the Business; or (ii) claim of which the Issuer has received notice (formal or informal) or is otherwise aware that any products, software or services manufactured, produced, used or sold by the Issuer or any process, method, packaging, advertising, or material that the Issuer employs in the manufacture, marketing, licensing or sale of any such product, software or service, or the use of any of the Technology breaches, violates, infringes or interferes with any rights of any Person or requires payment for the use of any copyright, trade mark or trade secret, know-how or technology of another Person or, to the best of Issuer's knowledge any other intellectual property of any Person. (f) Licenses and Covenants Not to Sue Schedule "J" sets forth a complete and correct list and brief description of all judgments, covenants of Issuer not to sue, permits, grants, franchises, licenses and other agreements and arrangements relating to any of the Technology owned by Issuer which bind, obligate or otherwise restrict it. - 14 - (g) Third Party Infringements There are no infringements of, passing-off related to, or other interference with the Technology by third parties of which the Issuer has received notice (formal or informal) or is otherwise aware.. (h) Protection of Confidentiality Issuer has taken commercially reasonable precautions and made commercially reasonable efforts to protect its trade secrets and secure the confidentiality of its customer lists, and other proprietary information. 3.1.24 Major Suppliers and Customers. To the knowledge of the Issuer, no major supplier or customer has any intention to change its relationship or any material terms upon which it will conduct business with Issuer or the Subsidiaries. There has been no interruption to or discontinuity in any customer or supplier arrangements or relationships referred to in this Section and Issuer and the Subsidiaries have not entered into any fixed price commitments (whether written or oral) which extend beyond the Closing Date. 3.1.25 Material Change Reports. Since the Financial Disclosure Date, other than in respect of material change reports filed on a confidential basis and in respect of which the material change so reported did not come to fruition and other than this Agreement: (a) there has not been any material change in the assets, liabilities or obligations (absolute, accrued, contingent or otherwise) of the Issuer or its Subsidiaries which requires disclosure under applicable securities legislation and that has not been publicly disclosed; (b) there has not been any material change in the capital stock or long-term debt of the Issuer or its Subsidiaries which requires disclosure under applicable securities legislation and that has not been publicly disclosed; and (c) there has not been any material change in the business, business prospects, condition (financial or otherwise) or results of the operations of the Issuer or its Subsidiaries which requires disclosure under applicable securities legislation and that has not been publicly disclosed. 3.1.26 Information Record. No portion of the Issuer's Information Record contained a misrepresentation as at its date of public dissemination. 3.1.27 Reportable Disagreement. There has never been any reportable disagreement (within the meaning of National Policy Statement No. 31 of the Canadian Securities Administrators) with the present or any former auditor of the Issuer. - 15 - 3.1.28 Canadian Dealing Network. The Issuer shall use its best efforts exercised in a commercially reasonable manner to ensure that the Shares will continue to be quoted on the Canadian Dealing Network upon their issue. 3.1.29 Employees. None of the employees of the Issuer or any Subsidiary is represented by any labour union, and, to the best of Issuer's knowledge, there is no labour strike or other labour trouble pending or threatened with respect to the Issuer or any Subsidiary (including, without limitation, any organizational drive). 3.1.30 Disclosure. No representation or warranty of Issuer in this Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make any such representation or warranty not misleading to a prospective buyer of the Shares or Warrant seeking full information as to the Business and the Assets. Without limiting the scope of the foregoing, none of the Issuer or any Subsidiary is aware of any change, event or occurrence related to the Business that has taken place or is pending that has, or in the future would have, a material adverse effect on the value of the Shares, the Warrant, the Assets or the Business which is not the result of general industry trends. The copies of documents concerning Issuer, the Subsidiaries, the Business and the Assets delivered to Subscriber on or prior to the date hereof are true and complete. 3.2 Representations and Warranties of Subscriber. Subscriber represents and warrants to Issuer as follows and acknowledges that Issuer is relying upon such representations and warranties in connection with entering into this Agreement and completing the transactions contemplated hereby. 3.2.1 Incorporation. Subscriber is a company duly incorporated, organized and validly existing in good standing under the laws of Ontario. 3.2.2 Power, Capacity and Authority. Subscriber has all necessary power and capacity to execute and deliver, and to observe and perform its covenants and obligations under, this Agreement and the Closing Documents to which it is a party. Subscriber has taken all corporate action necessary to authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the Closing Documents to which it is a party. 3.2.3 Enforceability of Obligations. This Agreement has been, and the Closing Documents to which Subscriber is a party will on Closing be, duly executed and delivered by Subscriber and this Agreement constitutes, and each of the Closing Documents to which Subscriber is a party will on Closing constitute, a valid and binding obligation of Subscriber enforceable against Subscriber in accordance with its terms. - 16 - 3.2.4 Absence of Conflicting Agreements. None of the execution and delivery of, or the observance and performance of, by Subscriber of, any covenant or obligation under, this Agreement or any Closing Document to which it is a party or the Closing contravenes or results in (with or without the giving of notice or lapse of time, or both) or will contravene or violate in any material respect or result in any material breach or default of, or acceleration of any obligation under: (a) any Applicable Law to Subscriber; (b) any Licence held by Subscriber; (c) the articles, by-laws, directors' or shareholders' resolutions of Subscriber; or (d) any other agreement, lease, mortgage, security document, obligation or instrument to which Subscriber is a party, or by which it or its assets are bound. 3.2.5 Consents, Approvals, Etc. No consent, approval, Licence, Order or authorization, registration, declaration or filing with any Governmental Agency is required by Subscriber in connection with (a) the Closing or (b) the execution and delivery by it of, or the observance and performance of its obligations under, this Agreement or the Closing Documents to which it is a party. 3.2.6 Relationship to Issuer. Subscriber is acting entirely at arm's length with Issuer and is purchasing the Shares and Warrant as principal. 3.2.7 Knowledge. The Subscriber has no knowledge of any material fact which would make any representation or warranty of Subscriber contained in this Agreement untrue or misleading. 3.3 Commission. Each Party represents and warrants to the other Party that the other Party will not be liable for any brokerage commission, finder's fee or other like payment in connection with the transactions contemplated hereby because of any action taken by, or agreement or understanding reached by, the first mentioned Party. 3.4 Qualification of Representations and Warranties. The representations or warranties made by a Party under Sections 3.1.1(d), 3.1.18, 3.1.22 and 3.2.3 as to the enforceability of this Agreement or the Closing Documents against such Party are subject to the following qualifications: (a) specific performance, injunctive relief and other equitable remedies are discretionary and, in particular, may not be available where damages are considered an adequate remedy; and - 17 - (b) enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors' rights. 3.5 Non-Waiver. No investigations made by or on behalf of Subscriber at any time shall waive, diminish the scope of or otherwise affect any representation or warranty made by Issuer in this Agreement or any Closing Document or any document delivered pursuant to any of them. 3.6 Survival of Issuer Representations, Warranties, Covenants and Agreements. All representations, warranties, covenants and agreements made by Issuer in or pursuant to this Agreement shall survive the Closing as follows: (a) the representations and warranties set forth in Sections 3.1.1 to 3.1.4 inclusive, 3.1.9, 3.1.16, 3.1.21, 3.1.23, 3.1.28 and Section 3.3 shall survive the Closing and continue without time limit; (b) all of the other representations and warranties contained in this Agreement or in any Closing Document shall survive only for a period of 2 years from the Closing Time. After such period, Issuer shall not have any further liability hereunder with respect to such representations and warranties except with respect to claims properly made within such period; and (c) the covenants and agreements of Issuer contained in this Agreement shall survive the Closing and continue in accordance with Applicable Law. 3.7 Survival of Subscriber Representations, Warranties, Covenants and Agreements. All representations warranties, covenants and agreements made by Subscriber in or pursuant to this Agreement shall survive the Closing as follows: (a) the representations and warranties set forth in Sections 3.2.1 to 3.2.3 inclusive and Section 3.3 shall survive the Closing and continue without time limit; (b) all of the other representations and warranties contained in this Agreement or in any Closing Document shall survive only for a period of 2 years from the Closing Time. After such period, Subscriber shall have no further liability hereunder with respect to such representations and warranties except with respect to claims properly made within such period; and (c) the covenants and agreements of Subscriber contained in this Agreement shall survive the Closing and continue in accordance with Applicable Law. - 18 - 3.8 Knowledge of Issuer. Where any representation or warranty contained in this Agreement is expressly qualified by reference to the "knowledge" of Issuer, it shall be deemed to refer to the knowledge of each of Issuer and any of the Subsidiaries and Issuer confirms that it has made due and diligent inquiry of such Persons (including without limitation appropriate officers of Issuer and the Subsidiaries) as it considers necessary as to the matters that are the subject of such representations and warranties. ARTICLE 4 OTHER COVENANTS OF THE PARTIES 4.1 Obligation of Issuer. From the date hereof to the Closing Time, Issuer shall act, and shall cause the Subsidiaries to act, as set forth in this Section 4.1. 4.1.1 Conduct Business in Ordinary Course. Except as otherwise contemplated or permitted by this Agreement, Issuer and the Subsidiaries shall conduct the Business in the ordinary course and shall not, without the prior written consent of Subscriber, enter into any transaction which, if entered into before the date hereof, could cause any representation or warranty of Issuer contained herein to be incorrect or constitute a breach of any covenant or agreement of Issuer contained herein. 4.1.2 Action by Issuer and Subsidiaries. Each of Issuer and the Subsidiaries shall at their sole cost take all action which may be necessary to ensure that the representations and warranties contained herein shall be true and correct in all material respects at the Closing Time. 4.1.3 Access for Investigation. Each of Issuer and the Subsidiaries shall permit Subscriber and its employees, agents, counsel and accountants or other representatives, without interference to the ordinary conduct of the Business, to have free and unrestricted access during business hours to the properties of Issuer and the Subsidiaries and to all the books, accounts and records relating to each of Issuer, the Subsidiaries, the Business, the Assets and to the employees of the Business. Issuer and each of the Subsidiaries shall furnish to Subscriber such financial and operating data and other information with respect to the Business and the Assets as Subscriber shall from time to time reasonably request. Issuer agrees that Subscriber may conduct such environmental investigations and tests on the properties of Issuer and the Subsidiaries as Subscriber considers necessary. 4.2 Actions to Satisfy Closing Conditions. Each of the Parties shall take all such action as is within its power to control, and shall use reasonable efforts to cause other actions to be taken which are not within its power to control, so as to ensure compliance with and satisfaction of all conditions set forth in Article 6 which are for the benefit of any Party. The Parties will cooperate in exchanging such information and providing such assistance as may be reasonably required in connection with the foregoing. - 19 - 4.3 Injunctions. If any court having jurisdiction over either Party or any of the Subsidiaries issues any injunction, decree or similar order prior to the Closing Time which would prohibit or materially restrict or hinder the Closing, the Parties shall use their respective reasonable efforts to have such injunction, decree or order delivered or otherwise eliminated as promptly as possible and, in any event, prior to the Closing Time. 4.4 Disclosure. Issuer shall forthwith disclose in writing to Subscriber in supplemental schedules any matter which has become known to it prior to the Closing Time which is inconsistent in any material respect with any of the representations and warranties contained herein. No such disclosure shall cure any misrepresentation or breach of warranty for the purposes of Section 6.1.1 hereof. 4.5 Reporting Issuer Status. Issuer shall use its best efforts exercised in a commercially reasonable manner to maintain its status as a reporting issuer not in default of any requirements of the Securities Act (Ontario) (the "Securities Act") and the regulations thereunder and shall use its best efforts exercised in a commercially reasonable manner not to be in default of any requirement of any securities laws or regulation to which Issuer is subject. 4.6 Securities Act Exemptions and Rights of Re-sale. Issuer and Subscriber agree and understand that: (a) the trades which will result from the issue of the Shares and the Warrant will be exempt from registration and prospectus filing requirements under Section 35(1)(5) and Section 72(1)(d) of the Securities Act respectively and Section 27(1) of the Regulation under the Securities Act subject only to the Issuer filing a report of the trades as required by the Securities Act and Regulation, which report the Issuer agrees to file immediately after Closing; (b) the trades which will result from the exercise of the Warrant will be exempt from registration and prospectus filing requirements under Sections 35(1)(12) and 72(1)(f)(iii) of the Securities Act respectively; and (c) the Shares issued to Subscriber and any Shares acquired by Subscriber through exercise of the Warrant are and will be subject to a hold period of at least one year from the date of the initial exempt trade as specified in Section 72(4) of the Securities Act and cannot be distributed within such period. 4.7 Licensing. The Parties acknowledge that the Issuer is negotiating with a third party for a licensing arrangement and equity injection at prices not less than that provided herein which may involve the grant of territorial rights in some or all of the Intellectual Property Rights, board of directors representation, warrants to acquire a larger proportion of voting shares, which may impact control, and source code escrow. - 20 - ARTICLE 5 INDEMNIFICATION 5.1 Definitions. As used in this Article 5: "Claim" means any act, omission or state of facts and any demand, action, suit or proceeding which may constitute or give rise to a right to indemnification under Sections 5.2 or 5.3 hereof; "Direct Claim" means any Claim by an Indemnified Party against an Indemnifier which does not result from a Third Party Claim; "Indemnified Loss" means any loss, liability, damage, cost or expense relating to, resulting from or arising out of any Claim (including, without limitation, the costs and expenses of any action, suit, proceeding, demand, assessment, judgment, settlement or compromise relating thereto and all interest, punitive damages, fines and penalties and reasonable legal fees and expenses incurred in connection therewith but excluding loss profits and consequential damages) which is suffered or incurred by an Indemnified Party and for which such Indemnified Party is entitled to indemnification under the provisions hereof; "Indemnifier" means any Party obligated to provide indemnification under this Agreement; "Indemnified Party" means any Person entitled to indemnification under this Agreement; "Indemnity Payment" means any amount of Indemnified Loss required to be paid pursuant to Sections 5.2 or 5.3 hereof; and "Third Party Claim" means any Claim asserted against the Indemnified Party by any Person who is not a Party or an Affiliate of such a Party. 5.2 Indemnification by Issuer. Subject to the limits set forth in Section 5.11, Issuer shall indemnify, defend and save harmless Subscriber and each of its directors, officers, employees, agents and representatives from and against any and all Indemnified Losses suffered or incurred by them, as a direct or indirect result of: (a) subject to Section 3.6 hereof, any misrepresentation or breach of warranty made or given by Issuer in this Agreement, any Closing Document or in any document delivered pursuant to any of them; or (b) any failure by Issuer to observe or perform any covenant or obligation contained in this Agreement, any Closing Document or in any document delivered pursuant to any of them to be observed or performed by it. - 21 - 5.3 Indemnification by Subscriber. Subject to the limits set forth in Section 5.11, Subscriber shall indemnify, defend and save harmless Issuer and its subsidiaries and each of their respective directors, officers, employees, agents and representatives from and against any and all Indemnified Losses suffered or incurred by them, as a direct or indirect result of: (a) subject to Section 3.7, any misrepresentation or breach of any warranty made or given by Subscriber in this Agreement, any Closing Document or in any document delivered pursuant to any or them; or (b) any failure by Subscriber to observe or perform any covenant or obligation contained in this Agreement, any Closing Document or in any document delivered pursuant to any of them to be observed or performed by it. 5.4 Notice of and the Defense of Third Party Claims. If an Indemnified Party receives notice of the commencement or assertion of any Third Party Claim, the Indemnified Party shall give the Indemnifier reasonably prompt written notice thereof, but in any event no later than 30 calendar days after receipt of such notice of such Third Party Claim. Such notice to the Indemnifier shall describe the Third Party Claim in reasonable detail and shall indicate, if reasonably practicable, the estimated amount of the Indemnified Loss that has been or may be sustained by the Indemnified Party. The Indemnifier shall have the right to participate in or, by giving notice to that effect to the Indemnified Party not later than 30 calendar days after receipt of such notice of such Third Party Claim and subject to the rights of any insurer or other third party having potential liability therefor, to elect to assume the defense of any Third Party Claim at the Indemnifier's own expense and by such Indemnifier's own counsel, and the Indemnified Party shall co-operate in good faith in such defense. The Indemnified Party shall have the right to participate in the defense of any Third Party Claim assisted by counsel of its own choosing. If the Indemnified Party has not received notice within such 30 calendar day period that the Indemnifier has elected to assume the defence of such Third Party Claim, the Indemnified Party may, at its option, elect to settle or compromise the Third Party Claim or assume such defence, assisted by counsel of its own choosing and the paid or incurred in connection therewith. 5.5 Assistance for Third Party Claims. In the event of any Third Party Claim, the Indemnifier and the Indemnified Party will use all reasonable efforts to make available to the Party which is undertaking and controlling the defense of such Third Party Claim, (a) those employees whose assistance, testimony or presence is necessary to assist such Party in evaluating and in defending any Party Claim; and (b) all documents, records and other materials in the possession of such Party reasonably required by such Party for its use in defending any Third Party Claim, and shall otherwise cooperate with the Party defending such Third Party Claim. The Indemnifier - 22 - shall be responsible for all expenses associated with making such documents, records and materials available and for all expenses of any employees made available by the Indemnified Party to the Indemnifier hereunder, which expense shall be equal to an amount to be mutually agreed upon per person per hour or per day for each day or portion thereof that such employees are assisting the Indemnifier but such expenses shall not exceed the actual cost to the Indemnified Party associated with such employees. 5.6 Settlement of Third Party Claims. If an Indemnifier elects to assume the defence of any Third Party Claim as provided in Section 5.4 hereof, the Indemnifier shall not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defence thereof. However, if the Indemnifier fails to take reasonable steps necessary to defend diligently such Third Party Claim within 30 calendar days after receiving notice from the Indemnified Party that the Indemnified Party bona fide believes on reasonable grounds that the Indemnifier has failed to take such steps, the Indemnified Party may, at its option, elect to assume the defence of and to compromise or settle the Third Party Claim assisted by counsel of its own choosing and the Indemnifier shall be liable for all costs and expenses paid or incurred in connection therewith. Without the prior written consent of the Indemnified Party, the Indemnifier shall not enter into any compromise or settlement of any Third Party Claim which would lead to liability or create any financial or other material obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and the Indemnifier desires to accept such offer, the Indemnifier shall give written notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent to such firm offer within 30 calendar days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and, in such event, the maximum liability of the Indemnifier with respect to such Third Party Claim shall be (a) the amount of the offer of settlement which the Indemnified Party refused to accept plus the costs and expenses of the Indemnified Party prior to the date the Indemnifier notifies the Indemnified Party of the offer of settlement and (b) the actual out-of-pocket amount the Indemnified Party is obligated to pay as a result of continuing to pursue such matter, whichever is the lesser. An Indemnifier shall be entitled to recover from the Indemnified Party any, additional expenses incurred by such Indemnifier as a result of the decision of the Indemnified Party to contest or defend such Third Party Claim. 5.7 Direct Claims. Any Direct Claim shall be asserted by giving the Indemnifier reasonably prompt written notice thereof, but in any event not later than 30 calendar days after the Indemnified Party becomes aware of such Direct Claim, and the Indemnifier shall have a period of 30 calendar days within which to respond in writing to such Direct Claim. If the Indemnifier does not so respond within such 30 calendar day period, the Indemnifier shall be deemed to have rejected such Claim, in which event the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party. - 23 - 5.8 Failure to Give Timely Notice. A failure to give timely notice as provided in this Article 5 shall not affect the rights or obligations of either Party, except and only to the extent that, as a result of such failure, any Party which was entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise directly and materially damaged as a result of such failure. 5.9 Reductions and Subrogation. If the amount of any Indemnified Loss, at any time subsequent to the making of an Indemnity Payment, is reduced by (a) any net tax benefit or (b) any recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by or against any other Person, the amount of such reduction (less any costs, expenses (including taxes) or premiums incurred in connection therewith), together with interest thereon from the date of payment thereof at the Prime Rate, shall promptly be repaid by the Indemnified Party to the Indemnifier. Upon making any Indemnity Payment, the Indemnifier shall, to the extent of such Indemnity Payment, be subrogated to all rights of the Indemnified Party against any third party that is not an affiliate (as defined in the Act) of the Indemnified Party in respect of the Indemnified Loss to which the Indemnity Payment relates but only if the Indemnifier shall then be in compliance with its obligations under this Agreement in respect of such Indemnified Loss. Until the Indemnified Party recovers full payment of its Indemnified Loss, any and all claims of the Indemnifier against any such third party on account of such Indemnity Payment shall be postponed and subordinated in right of payment to the Indemnified Party's rights against such third party. Without limiting the generality or effect of any other provision hereof, the Indemnified Party and Indemnifier shall duly execute upon request all instruments reasonably necessary to evidence and perfect the above-described postponement and subordination rights. 5.10 Interest on Indemnified Losses. All Indemnified Losses shall bear interest at a rate per annum equal to the Prime Rate, calculated and payable monthly, both before and after Judgment, with interest on overdue interest at the same rate, from the date that the Indemnified Party disbursed funds, suffered damages or losses or incurred a loss, liability or expense in respect of an Indemnified Loss, to the date of payment by the Indemnifier to the Indemnified Party. 5.11 Limitation. (a) No claims for indemnification may be made hereunder by Subscriber against Issuer in respect of any Indemnified Losses arising in connection with any misrepresentation or breach of warranty made or given by Issuer in this Agreement, any Closing Document or in any document delivered pursuant to any of them, unless and until the Indemnified Losses suffered or incurred by Subscriber and by all of its directors, officers, employees, agents or representatives collectively, in respect of all such misrepresentations or breaches of warranty, exceed Twenty-five Thousand Dollars ($25,000) in the aggregate (excluding claims each of which is less than $1,000), in which event the amount of all such Indemnified Losses including such Twenty-five Thousand Dollars ($25,000) amount (but excluding claims of less than $1,000) may be recovered by Subscriber. - 24 - (b) No claims for indemnification may be made hereunder by Issuer against Subscriber in respect of any Indemnified Losses arising in connection with any misrepresentation or breach of warranty made or given by Subscriber in this Agreement, any Closing Document or in any document delivered pursuant to any of them, unless and until the Indemnified Losses suffered or incurred by Issuer and by all of its directors, officers, employees, agents or representatives collectively, in respect of all such misrepresentations or breaches of warranty, exceed Twenty- five Thousand Dollars ($25,000) in the aggregate (excluding claims each of which is less than $1,000) in which event the amount of all such Indemnified Losses including such Twenty-five Thousand Dollars ($25,000) amount (but excluding claims of less than $1,000) may be recovered by Issuer. 5.12 Rights-in Addition. The rights of indemnity set forth in this Article 5 are in addition and supplemental to any other rights, actions, claims or causes of action which may arise in respect of this Agreement, the Closing Documents and the transactions contemplated hereby. 5.13 Determination of Indemnified Loss. In determining the amount of any Indemnified Loss hereunder the market price of any securities of Issuer held by the Indemnified Party shall be only one factor to be taken into account. ARTICLE 6 CONDITIONS PRECEDENT 6.1 Subscriber's Conditions. The obligation of Subscriber to complete the purchase of the Shares and Warrant shall be subject to the prior satisfaction of, or compliance with, at or before the Closing Time, each of the conditions precedent set out in this Section 6.1, each of which is acknowledged to be for the exclusive benefit of Subscriber and may be waived by Subscriber in whole or in part in writing and upon such terms and conditions, if any as Subscriber may require. 6.1.1 Accuracy of Representations and Performance of Covenants. All of the representations and warranties of Issuer made in or pursuant to this Agreement shall be true and correct in all respects as at the Closing Time and with the same effect as if made at and as of the Closing Time and as if any time at which such representation or warranty were accurate read the "Closing Time" (except as such representations and warranties may be affected by the occurrence of events or transactions expressly contemplated and permitted hereby) and, as at the Closing Time, Issuer shall have observed or performed in all respects, all of its covenants and obligations hereunder to be observed or performed by it at or before the Closing Time and Subscriber shall have received immediately prior to the Closing Time a certificate from the chief executive officer and the chief financial officer of Issuer confirming the foregoing to the best of his knowledge, information and belief, after due enquiry. 6.1.2 No Material Adverse Change. No material adverse change shall have occurred since - 25 - the Financial Disclosure Date with respect to any of Issuer, the Subsidiaries, the Business or the Assets or the future prospects for any of Issuer, the Subsidiaries or the Business and Subscriber shall have received immediately prior to Closing a certificate from the chief executive officer and the chief financial officer of Issuer confirming that no such material adverse change has occurred. 6.1.3 Litigation. No court order shall have been entered that enjoins, restrains, changes or prohibits the consummation of any of the transactions contemplated hereby, and no Party, or any of either Party's directors, officers, advisors, employees or agents, shall be a defendant or third party to or threatened with, any litigation or proceedings before any court or Governmental Agency which, in the opinion of the Subscriber, acting reasonably, could prevent or restrict Subscriber or Issuer from observing and performing any of their respective covenants and obligations pursuant to this Agreement or the Closing Documents. 6.1.4 Receipt of Closing Documentation. All actions and proceedings taken on or prior to the Closing in connection with the performance by Issuer of its covenants and obligations under this Agreement shall be satisfactory to Subscriber acting reasonably and Subscriber shall have received copies of the Closing Documents and all such documentation or other evidence as it may reasonably request in connection with the Closing in form (as to certification and otherwise) and substance satisfactory to Subscriber. 6.1.5 Opinion of Counsel for Issuer. Subscriber shall have received an opinion dated the Closing Date from counsel for Issuer in the form of the opinion attached hereto as Schedule K. In giving such opinion, counsel to Issuer may rely on certificates of senior officers of Issuer as to factual matters provided such certificates are attached to the opinion. Such opinion shall also cover such other matters as Subscriber or its counsel may reasonably request. 6.1.6 Closing Documents. Each of the following documents shall have been executed and delivered by the parties thereto other than Subscriber: (a) the E-Commerce Services Agreement in the form of Schedule L including the Source Code escrow agreement attached as a Schedule thereto; (b) the Shareholders' Agreement in the form of Schedule M; and (c) the Warrant Agreement in the form of Schedule N. - 26 - 6.1.7 Board Representation. The board of directors of Issuer shall have, on or prior to the Closing Date, resolved to increase the board of directors of Issuer by one and to appoint one nominee of Subscriber as a director of Issuer, such resolution to be conditional upon the Closing and to take effect immediately after the Closing, and Subscriber shall have received a copy of such resolution certified by the secretary of Issuer in form and substance satisfactory to Subscriber. 6.1.8 Cease Trade Orders. There shall be no cease trade orders in force by any securities regulatory authorities or any other impediments (other than "control block" and "hold period" restrictions) to the general free trading of the Shares, the Warrant and the shares underlying the Warrant. 6.2 Issuer's Conditions. The obligation of Issuer to complete the issuance of the Shares shall be subject to the satisfaction of or compliance with, at or before the Closing Time, each of the conditions precedent set out in this Section 6.2, each of which is hereby acknowledged to be for the exclusive benefit of Issuer and may be waived by Issuer in whole or in part in writing upon such terms and conditions, if any, as Issuer may require. 6.2.1 Accuracy of Representations and Performance of Covenants. All of the representations and warranties of Subscriber made in or pursuant to this Agreement shall be true and correct in all respects as at the Closing Time with the same effect as if made at and as of the Closing Time and as if any time at which such representation or warranty were accurate read the "Closing Time" (except as such representations and warranties may be affected by the occurrence of events or transactions expressly contemplated and permitted hereby) and, as at the Closing Time, Subscriber shall have observed or performed in all respects, all of its obligations and covenants hereunder to be observed or performed by it at or before the Closing Time and Issuer shall have received immediately prior to Closing Time a certificate from two senior officers of Subscriber confirming the foregoing to the best of their knowledge, information and belief, after due enquiry. 6.2.2 Litigation. No court order shall have been entered that enjoins, restrains, changes or prohibits the consummation of any of the transactions contemplated hereby, and no Party, nor any of either Party's directors, officers, advisors, employees or agents, shall be a defendant or third party to or threatened with any litigation or proceedings before any court or Governmental Agency which, in the opinion of Issuer, acting reasonably, could prevent or restrict Issuer or Subscriber from observing and performing any of their respective obligations and covenants pursuant to this Agreement or the Closing Documents. - 27 - 6.2.3 Receipt of Closing Documentation. All Closing Documents and all actions and proceedings taken on or prior to the Closing in connection with the performance by Subscriber of its covenants and obligations under this Agreement shall be satisfactory to Issuer and Issuer shall have received copies of the Closing Documents and all such documentation or other evidence as they may reasonably request for the Closing in form (as to certification otherwise) and substance satisfactory to it. 6.3 Waiver. Party may waive, by notice to the other Party, any condition set forth in this Article 6 which is for its exclusive benefit. No waiver by a Party of any condition, in whole or in part, shall operate as a waiver of any other condition. 6.4 Failure to Satisfy Conditions. If any condition set forth in Sections 6.1 or 6.2 is not satisfied on or before the Closing Time, the Party entitled to the benefit of such condition (the "First Party") may send notice in writing to the other Party that this Agreement is to be terminated. Upon termination, the First Party shall be released from all obligations hereunder, and unless the First Party can show that the condition or conditions which have not been satisfied and for which the First Party has terminated this Agreement are reasonably capable of being performed or caused to be performed by the other Party or have not been satisfied by reason of a default by the other Party hereunder, then the other Party shall also be released from all obligations hereunder. 6.5 Destruction or Expropriation. If, prior to the Closing Time, there occurs any material destruction or damage by fire or other cause or hazard to any of the Assets, or if the Assets or any material part of them are expropriated or forcefully taken by any Governmental Agency or if notice of intention to expropriate a material part of the Assets has been filed in accordance with Applicable Law, then Subscriber may, at its option, terminate this Agreement by notice to Issuer. ARTICLE 7 GENERAL 7.1 Expenses. Each Party shall pay all expenses it incurs in authorizing, preparing, executing and performing this Agreement and the transactions contemplated hereunder, whether or not the Closing occurs, including all fees and expenses of its legal counsel, bankers, investment bankers, brokers, accountants or other representatives or consultants. 7.2 Time. Time is of the essence of this Agreement and each of its provisions. - 28 - 7.3 Notice. Any notice or other communication (in this Section a "Notice") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered in person during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant party at the applicable address set forth below; (b) sent by prepaid first class mail; or (c) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to Subscriber addressed to it at: Toronto Star Newspapers Limited 1 Yonge Street Toronto, Ontario M4E 1E6 Attention: VP Strategic Planning & New Media Fax No.: (416) 869-4762 and in the case of a Notice to Issuer addressed to it at: Internet Liquidators International Inc. 5915 Airport Rd., Suite 330 Mississauga, Ontario L4V 1T1 Attention: Paul Godin Fax No.: (905) 672-5705 - 29 - with a copy to: Gowling, Strathy & Henderson Barristers & Solicitors Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: David Pamenter Fax No.: (416) 862-7661 Any Notice given or made in accordance with this Section 7.3 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; (b) on the fifth Business Day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof. Any Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 7.3. 7.4 Public Announcements. Before the Closing Date, neither Party shall make any public statement or issue any press release concerning the transactions contemplated by this Agreement except as may be necessary, in the opinion of counsel to the Party making such disclosure, to comply with the requirements of all Applicable Law. If any such public statement or release is so required, the Party making such disclosure shall consult with the other Party prior to making such statement or release, and the Parties shall use all reasonable efforts, acting in good faith, to agree upon a text for such statement or release which is satisfactory to both Parties. - 30 - 7.5 Assignment. None of this Agreement nor any right or obligation hereunder is assignable in whole or in part by either Party without the prior written consent of the other Party. Notwithstanding the foregoing, Subscriber may, without the consent of Issuer, assign this Agreement and its rights hereunder to any wholly-owned subsidiary on condition that Subscriber remains liable to observe and perform all of its covenants and obligations hereunder. Subject thereto, this Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors (including any successor by reason of amalgamation or statutory arrangement of either Party) and permitted assigns. 7.6 Further Assurances. Each Party shall do such acts and execute and deliver such further agreements, documents, conveyances, deeds, assignments, transfers and the like, and shall cause the doing of such acts and the execution and delivery of such further items as are within its power and as the other Party may in writing at any time and from time to time reasonably request, in order to give full effect to the provisions of this Agreement and the Closing Documents. 7.7 Dispute Resolution Process. If any dispute, disagreement, controversy or claim arising out of or relating to this Agreement including, without limitation, its application, interpretation, performance, breach, termination, enforcement or damages, or remedies arising out of the breach of or non- compliance therewith, shall be finally determined by arbitration before a single arbitrator to be commenced and conducted in the English language in Toronto in accordance with the International Commercial Arbitration Act (Ontario) which adopts the UNCITRAL Model Law on International Commercial Arbitration and the rules provided therein (the "Model Law"). The Parties hereto agree that: (a) subject to mutual agreement between the Parties to the contrary, the arbitrator shall be a person who is legally trained and trained as a professional arbitrator and who has a minimum of five (5) years experience in the licensing of computer software; (b) neither of them shall apply to the Courts of Ontario or any other jurisdiction to attempt to enjoin, delay, impede or otherwise interfere with or limit the scope of the arbitration or the powers of the arbitral tribunal provided for in the Model Law; (c) the award of the arbitral tribunal shall be a final and conclusive award and judgment with respect to all matters properly before the arbitral tribunal in accordance with the Model Law and neither Party shall appeal such award in any manner whatever to any court, tribunal or other authority; and (d) the award of the arbitral tribunal may be entered and enforced by any court in any jurisdiction having jurisdiction over the Parties hereto or the subject matter of the award or the properties or assets of either of the Parties hereto. - 31 - Notwithstanding the foregoing, either Party may apply to the courts of the Province of Ontario or any other jurisdiction for injunctive or other equitable remedies to protect its rights to Confidential Information. IN WITNESS WHEREOF the Parties have duly executed this Agreement. INTERNET LIQUIDATORS INTERNATIONAL INC. By: ------------------------------------- (Duly Authorized Officer) By: ------------------------------------- (Duly Authorized Officer) TORONTO STAR NEWSPAPERS LIMITED By: ------------------------------------- (Duly Authorized Officer) CP Doc #: 31478-1 February 12, 1997 SCHEDULE "A" DEFINITIONS In this Agreement, unless the subject matter or context is inconsistent therewith: "Act" means the Business Corporations Act (Ontario) as amended or restated and any successor legislation of comparable effect; "Advertising Credits" means a credit to purchase advertising from the Subscriber; "Agreement" means this Subscription Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof; "hereof", "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement; "Articles" means the articles of amalgamation of Issuer dated January 9, 1997; "Applicable Law" means any domestic or foreign statute, law, ordinance, rule, regulation, regulatory policy or guideline, by-law (zoning or otherwise) or Order that applies to Issuer, the Subsidiaries, the Business, the way the Business is carried on or to the Shares or Warrant; "Assets" means all of the assets and undertaking of Issuer and the Subsidiaries, both tangible and intangible, including goodwill; "Business" means collectively the businesses carried on by Issuer and the Subsidiaries including the maintenance of an internet website under the URL www.internetliquidators.com which offers consumer products for sale via credit card transactions through an auction and storefront mall format, for both retail and wholesale suppliers; "Business Day" means any day of the week other than a Saturday, Sunday or statutory or civic holiday observed in Toronto, Ontario; "Closing" means the issuance of the Shares and Warrant by Issuer to Subscriber and the completion of all other transactions contemplated in connection with the purchase of the Shares and Warrant; "Closing Date" means February 12, 1997, or such other Business Day as the Parties agree in writing as the date on which the Closing is to take place; "Closing Document" means any document delivered at or subsequent to the Closing Time as provided in or pursuant to, this Agreement; "Closing Time" means 11:00 a.m. (Toronto time) on the Closing Date or such other time on that date as the Parties agree that the Closing shall take place; "Confidential Information" means all information relating to either Party or to such Party's business, products, sales, customers, trade secrets, technology or financial position to which access is obtained or granted hereunder, which when disclosed to the other Party is marked or otherwise designated as confidential, provided, however, that Confidential Information shall not include any data or information which: (i) is or becomes publicly available through no fault of the other Party; (ii) is already in the rightful possession of the other Party prior to its receipt from the other Party; (iii) is independently developed by the other Party; (iv) is rightfully obtained by the other Party from a third party not subject to an obligation of confidentiality; (v) is disclosed with the written consent of the Party whose information it is; or (vi) is disclosed pursuant to court order or other legal compulsion; "Convertible Security" means a security of Issuer convertible into or exchangeable for one or more Voting Securities of Issuer; "Encumbrance" means any encumbrance of any kind whatever and includes a security interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge, trust or deemed trust (whether contractual, statutory or otherwise arising), adverse claim, or any other option, right or claim of others of any kind whatever affecting the Assets, Shares or Warrant, as applicable and any restrictive covenant or other agreement, restriction or limitation (registered or unregistered) on the Assets, Shares or Warrant, as applicable; "Financial Disclosure Date" means final day reviewed by any of the Financial Statements and being December 31, 1996; "Financial Statements" means the unaudited consolidated balance sheet of Issuer as at December 31, 1996 and the unaudited consolidated statement of loss of Issuer for the 12 month period ended December 31, 1996; "Generally Accepted Accounting Principles" means generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which any calculation or determination is required to be made in accordance with generally accepted accounting principles, and where the Canadian Institute of Chartered Accountants includes a recommendation in its Handbook concerning the treatment of any accounting matter, such recommendation shall be regarded as the only generally accepted accounting principle applicable to the circumstances that it covers; "Generic Software" means mass-market software which is readily substitutable by the Business with minimum cost or interruption to the Business; "Governmental Agency" means any domestic or foreign government whether federal, provincial, state or municipal and any governmental agency, authority, commission or instrumentality of any kind whatever; "Information Record" means any statement contained in any press release, material change report, financial statement or other document of Issuer or any Subsidiary which has been or is publicly disseminated pursuant to any applicable securities laws prior to the Closing Time; "Intellectual Property Rights" includes: (A) any and all proprietary rights provided under (i) patent law, (ii) copyright law, (iii) trade-mark law, (iv) design patent or industrial design law, (v) semi-conductor chip or mask work law, or (vi) any, other statutory provision or common law principle applicable to the Issuer, the Subsidiaries, the Business or Assets which may provide a right in either (a) ideas, formulae, algorithms, concepts, inventions or know- how generally, including trade law, or (b) the expression or use of such ideas, formulae, algorithm, concepts inventions or know-how; and (B) any and all applications, registrations, license, sub-licenses, franchise agreements or any other evidence of a right in any of the foregoing; "Licence" means any licence, permit, approval, right, privilege, concession or franchise; "ordinary course" when used in relation to the conduct by Issuer and the Subsidiaries of the Business means any transaction which constitutes an ordinary day-to-day business activity of Issuer and the Subsidiaries conducted in a commercially reasonable and businesslike manner consistent with the past practices of Issuer and the Subsidiaries; "Order" means any order (draft or otherwise), judgment, injunction, decree, award or writ of any, court, tribunal, arbitrator, Governmental Agency or other Person; "Parties" means Issuer and Subscriber collectively, and "Party" means any one of them; "Person" shall be broadly interpreted and includes an individual, body corporate, partnership, joint venture, trust, association, unincorporated organization, the Crown, any Governmental Agency or any other entity recognized by law; "Permitted Encumbrances" means inchoate liens and all statutory liens, charges, obligations and encumbrances not required by law to be registered; "Prime Rate" for any day means the rate of interest expressed as a rate per annum that The Royal Bank of Canada establishes at its head office in Toronto as the reference rate of interest that it will charge on that day for Canadian dollar demand loans to its customers in Canada and which it at present refers to as its prime rate; "Regulatory Filings" means all material and reports filed, or required to be filed, with applicable securities regulatory authorities and any stock exchange on which the securities of the relevant body corporate are listed; "Rights" means any options, rights, warrants or subscription privileges issued or granted by Issuer (whether or not currently exercisable or exercisable on conditions) to purchase Voting Securities or Convertible Securities of Issuer; "Shares" means the 1,000,000 common shares in the capital stock of Issuer to be subscribed hereunder by Subscriber from Issuer; "Subscription Price" has the meaning ascribed to that term in Section 2.2; "Subsidiaries" means the bodies corporate listed in Schedule C, and "Subsidiary" means any one of them; "Taxes" means all federal, provincial, local, foreign or other taxes, imposts, rates, levies, assessments and Government fees or dues lawfully levied, assessed or imposed against Issuer and the Subsidiaries or in respect of the Business, including income, premium, sales, excise, use, property, capital, goods and services, business transfer and value added taxes and custom and import duties and includes all interest, fines and penalties with respect thereto; "Tax Returns" means all reports and returns filed or required to be filed by Issuer and the Subsidiaries in respect of Taxes; "Technical Information" means all right, title and interest in and to all know- how of Issuer including (i) all information of a scientific, technical or business nature whether in oral, written, graphic, machine readable, electronic or physical form; and (ii) all patterns, plans, designs, research data, research plans, trade secrets and other proprietary know-how, processes, formulas, drawings, technology, computer software and related manuals, unpatented blue prints, flow sheets, equipment and parts lists, instructions, manuals, records and procedures; "Technology" means the Intellectual Property Rights and the Technical Information; "Voting Securities" means the common shares of Issuer and all other securities of Issuer of any kind or class having power to vote for the election of directors either under all circumstances or in certain circumstances or in certain events (whether such circumstances or events exist or have occurred); and "Warrant" means the warrant for the purchase of common shares in the capital of the Issuer to be issued to Subscriber hereunder in the form set out in Schedule "N". SCHEDULE "B" FINANCIAL STATEMENTS Unaudited consolidated financial statements of Internet Liquidators International Inc. for the twelve month period ended December 31, 1996. Incorporated by Reference. See Registration Statement (File No. 001-14835) on Form 20-F. SCHEDULE "C" SUBSIDIARIES Internet Liquidators USA, Inc. a. Articles Articles of Incorporation dated May 6, 1996 b. By-laws By-laws dated May 6, 1996 SCHEDULE "D" OUTSTANDING OPTIONS AND WARRANTS I. Option Holders: Internet Liquidators International Inc. ---------------------------------------
Optionee No. of Date of Grant Exercise Expiry Options Price Date - ------------------------------------------------------------------------------------ Paul Dodin 25, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Dr. Duncan Copeland 25, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Jeffrey Lymburner 25, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Christopher Lobb 25, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ T. Christopher Bulger 100, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Brent Bowes 100, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Rob Joynt 12, 500 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Nathan Feedman 12, 500 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Jeff Stephens 5, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Bruce Fowler 5, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Shannon McMahon 5, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ Rose Szot 5, 000 February 29, 1996 $1.25 February 28, 1999 - ------------------------------------------------------------------------------------ HDL Capital Corporation 475, 000 May 1, 1996 $1.25 April 30, 1999 - ------------------------------------------------------------------------------------ Frank Clegg 50, 000 September 16, 1996 $0.99 September 15, 1998 - ------------------------------------------------------------------------------------
CP Doc #: 29918-1 SCHEDULE "E" LITIGATION As of the date hereof, there is currently no outstanding or contemplated litigation involving or that may involve Internet Liquidators International Inc. SCHEDULE "F" LICENSES INTERNET LIQUIDATORS INTERNATIONAL INC. THIRD PARTY SOFTWARE LICENCES PURCHASED TO JANUARY 30, 1997 [confidential material filed separately with the SEC] See attached papers. CP 29729-1 March 23, 1999 SCHEDULE "G" MAJOR SHAREHOLDER INTERESTS The following is a list of shareholders owning greater than 10% of the issued and outstanding shares in the capital of Internet Liquidators International Inc.: Smythe Group Company - 1,850,000 shares 1184041 Ontario Inc. - 1,812,500 shares CP-29729-1 March 23, 1999 SCHEDULE "H" MATERIAL CONTRACTS Product Suppliers: List of Suppliers (as of January 30, 1997) Draft Supplier Agreements (Four Versions) Draft Marked-up Version of Agreement with W3 Edge Inc. Service Supplier Agreements (as of January 30, 1997): Agreement between RV Storage & Assembly Co. Ltd. and Internet Liquidators Inc. dated February 2, 1996. Automated Shipping System Letter of Agreement between United Parcel Service and Internet Liquidators Inc. dated April 2, 1996. Courier Service Agreement between Purolator Courier Ltd. and Internet Liquidators Inc. dated February 21, 1996. Premium Finance Agreement between AIG Credit Corp. of Canada and Internet Liquidators International Inc. dated October 8, 1996. Visa Agreement between the Bank of Nova Scotia and Internet Liquidators Inc. dated February 21, 1996. Mastercard Agreement between the Bank of Montreal and Internet Liquidators Inc. dated March 13, 1996. Credit Card Processing Agreement between First USA Merchant Services, Inc. and Internet Liquidators USA, Inc. dated July 17, 1996. American Express Agreement between Amex Bank of Canada and Internet Liquidators Inc. dated July 20, 1996. Employment Contractor Agreements: Employment Agreement between Paul Godin and Internet Liquidators Inc. dated January 1, 1996 Employment Agreement between Jeffrey Lymburner and Internet Liquidators Inc. dated January 1, 1996. Designated Insured Persons and Company Reimbursement Policy between Aetna and Internet Liquidators International, Inc. dated October 10, 1996. Indemnity Agreement between Frank Clegg and Internet Liquidators International Inc. dated September 16, 1996. Engagement Letter between HDL Capital Corporation Agreement and Internet Liquidators International Inc. dated August 22, 1996. Toronto Star Newspapers Limited Agreements Subscription Agreement dated February 12, 1997 between Toronto Star Newspapers Limited ("Torstar") and Internet Liquidators International Inc. ("IL"). Warrant certificate dated February 12, 1997 executed by IL evidencing the Warrant. Shareholders' Agreement dated February 12, 1997 between Torstar, IL, 1184041 Ontario Inc. ("1184041") and the Smythe Group Company ("Smythe"). E-Commerce Services Agreement dated February 12, 1997 between Torstar and IL. Master Preferred Escrow Agreement dated February 12, 1997 between Torstar, IL and Data Securities International, Inc. IP Rights and Non-Competition Agreement dated February 12, 1997 between Torstar, IL, 1184041, Smythe, Paul Godin and Jeff Lymburner. CP Doc #: 133607-1 SCHEDULE "I" ENCUMBRANCES Standard Mercantile Bancorp Limited Partnership re: Loan Agreement with Internet Liquidators International Inc. dated October 18, 196 General Security Agreement between Internet Liquidators International Inc. and Standard Mercantile Bancorp, Limited Partnership dated October 18, 1996. Indenture of Guarantee between Internet Liquidators International Inc. and Standard Mercantile Bancorp, Limited Partnership dated October 18, 1996. CP-29729-1 March 23, 1999 SCHEDULE "J" INTELLECTUAL PROPERTY RIGHTS . see attached copy of letter from MacBeth & Johnson, Barristers & Solicitors, to Brent Bowes of Internet Liquidators Inc. dated August 29, 1996. . IP Rights and Non-Competition Agreement between Toronto Star Newspapers Limited, Paul Godin, 1184041 Ontario Inc., Jeff Lymburner, Smythe Group Company and Internet Liquidators International Inc. made the 12th day of February, 1997. A copy of the agreement is contained in Schedule "H". SCHEDULE L E-COMMERCE SERVICES AGREEMENT Incorporated by reference. See Exhibit 3.2. CP-29729-1 March 23, 1999 CP Doc #: 133607-1 SCHEDULE M SHAREHOLDERS' AGREEMENT Agreement has been terminated. SCHEDULE "N" THIS WARRANT WILL BE VOID AND OF NO VALUE OR EFFECT UNLESS EXERCISED PRIOR TO THE EXPIRY TIME. COMMON SHARE PURCHASE WARRANT INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Company") (Amalgamated under the laws of Ontario) No. TS-1 Right to Purchase Common Shares THIS IS TO CERTIFY that for value received, Toronto Star Newspapers Limited ("Torstar"), the registered holder hereof, is entitled to exercise its rights under this Warrant, in whole or in part, at any time, and from time to time, from 9:00 a.m. (Toronto time) February 12, 1997 (the "Effective Date") to 4:00 p.m. (Toronto time) January 30, 1998 (the "Expiry Time"), to purchase 500,000 fully paid and non-assessable common shares without par value in the capital of the Company as provided below (the "Common Shares"), as such Common Shares are presently constituted, upon and subject to the terms and conditions hereinafter referred to and at a subscription price as provided below (the "Exercise Price"): 36. The Exercise Price for each Common Share shall be Cdn. $1.25 per Common Share. 37. The Exercise Price to be paid by Torstar to the Company under this Warrant will be paid in cash. 38. Transfer taxes and other taxes related to the issuance of Common Shares pursuant to the exercise of this Warrant, if any, and other ancillary expenses related to the issuance of such Common Shares shall be paid by the Company. 39. If at any time there shall be a reclassification of the Common Shares outstanding at any time or change of the Common Shares into other shares or securities, or any other capital reorganization affecting the Common Shares, or a consolidation, amalgamation or merger of the Company with or into any other corporation (other than a consolidation, amalgamation or merger which does not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other shares or securities), or a transfer of the undertaking or assets of the Company as an entirety or substantially as an entirety to another corporation or other entity (any of such events being called a "Capital Reorganization"), Torstar shall be entitled to receive upon the exercise of the Warrant, and shall accept for the same aggregate consideration, in lieu of the number of Common Shares to which it was theretofore entitled upon the exercise of the Warrant, the kind and amount of shares or other securities or property which it would have been entitled to receive as a result of such Capital Reorganization if, on the effective date thereof, it had been the registered holder of the number of Common Shares to which it was theretofore entitled upon such exercise. If determined appropriate by the Company, appropriate adjustments shall be made as a result of any such Capital Reorganization in the application of the provisions set forth in this paragraph with respect to the rights and interests thereafter of Torstar to the end that the provisions set forth in this paragraph with respect to the rights and interests thereafter of Torstar to the end that the provisions set forth in this paragraph shall thereafter correspondingly be made applicable as nearly as may reasonably be in relation to any shares, other securities or of the property thereafter deliverable upon the exercise of the Warrant. 40. The right to purchase Common Shares in the capital of the Company may only be exercised by Torstar within the time hereinbefore set out by: (1) duly completing in the manner indicated and executing the subscription form annexed hereto, and (2) surrendering this Warrant to the Company, at its registered office in Toronto, together with a certified cheque payable to the order of the Company at par for the subscription price of the Common Shares subscribed for. 41. Subject to the terms and conditions of this Warrant, upon such surrender and payment, Torstar shall be deemed for all purposes the holder of record of such Common Shares and the Company covenants that it will (subject to the provisions of this Warrant) cause a certificate or certificates representing such Common Shares to be personally delivered to Torstar at the address specified in such subscription form or if no specification is made then to the address appearing in the register of warrants maintained by the Company pursuant to this Warrant. 42. Torstar may subscribe for and purchase any lesser number of whole Common Shares than the number of Common Shares purchasable under this Warrant and in such event shall be entitled to receive a new Warrant in respect of the balance of the Common Shares purchasable under this Warrant not then subscribed for and purchased. To the extent that this Warrant confers the right to purchase a fraction of a Common Share, the Company shall not be required to issue such fractional Common Shares. 43. The holding of this Warrant shall not constitute Torstar a shareholder of the Company or entitle Torstar to any right or interest in respect thereof except as herein expressly provided. 44. This Warrant may be transferred or assigned by Torstar to any entity of which Torstar owns or has the right to acquire, whether directly or indirectly, 50.1% or more of the outstanding securities entitled to vote for the election of directors (or equivalent governing body) of such entity provided Torstar complies with the Securities Act (Ontario) and the Regulations thereunder, failing which any transfer or assignment shall be null and void. 45. In case this Warrant shall become mutilated or be lost, destroyed or stolen, the Company, in the reasonable exercise of its discretion, may issue a new Warrant of like date and tenor as the one mutilated, lost, destroyed or stolen in exchange for and in place of, and upon surrender and cancellation of such mutilated Warrant or in lieu of and in substitution for such lost, destroyed or stolen Warrant, and the substituted Warrant shall be in like form and shall be entitled to like benefits herewith. 46. The applicant for the issue of a new Warrant pursuant to the above paragraph shall bear the cost of the issue thereof and in case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Company such evidence of ownership and of the loss, destruction or theft of the Warrant so lost, destroyed or stolen as shall be satisfactory to the Company in the reasonable exercise of its discretion and such applicant may also be required to furnish an indemnity in amount and form satisfactory to the Company in the reasonable exercise of its discretion, and shall pay the reasonable charges of the Company in connection therewith. 47. This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada and the parties hereby irrevocably attorn to the exclusive jurisdiction of the Courts of the Province of Ontario in respect of the subject matter hereof (excluding any provisions that would result in the application of the laws of another jurisdiction). IN WITNESS WHEREOF the Company has caused this Warrant to be signed by its duly authorized officers as of the 12th day of February, 1997. INTERNET LIQUIDATORS INTERNATIONAL INC. By: --------------------------------- (Duly Authorized Officer) By: --------------------------------- (Duly Authorized Officer) SUBSCRIPTION FORM TO: INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Company") The undersigned registered holder of the within Warrant hereby exercises the right to purchase and hereby subscribes for such number of Common Shares without par value in the capital of the Company at the subscription price per share in effect on the date hereof according to the terms of the within Warrant and herewith makes payment of the subscription price in full for the said number of Common Shares. Such Common Shares are to be issued as follows: Name Address in Full Number of Shares/% ---- --------------- ------------------
DATED this ____ day of ____________, 19____. TORONTO STAR NEWSPAPERS LIMITED By: --------------------------------- (Duly Authorized Officer) Address in Full: CP Doc #: 31477-1 February 12, 1997 EX-3.2 5 E-COMMERCE SERVICES AGREEMENT Exhibit 3.2 E-Commerce Services Agreement THIS AGREEMENT is made as of the 12th day of February, 1997 (the "Effective Date") by and between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation having a principal place of business at 5915 Airport Road, Suite 330, Mississauga, Ontario, L4V 1T1 ("IL") and TORONTO STAR NEWSPAPERS LIMITED, a corporation having a place of business at 1 Yonge Street, Toronto, Ontario, M5E 1E6 ("Torstar"). BACKGROUND: 1. IL has developed, and has all applicable rights in, certain electronic auction software, technology and services (collectively, the "IL Technology"), as more particularly described herein. 2. IL uses a portion of the IL Technology in an auction and storefront on-line service over the internet provided at IL's website found at URL "www.internetliquidators.com" (the "E-Commerce Service", as more particularly described herein). 3. Torstar operates an on-line service for subscribers under the name T-O Online and operates the largest circulation newspaper in Canada. 4. As more particularly described in this Agreement, IL wishes to allow Torstar and certain related entities who provide interactive services to, and Torstar has agreed to accept such rights to: (i) use and commercially exploit the E-Commerce Service for T-O Online Users in Ontario on an exclusive basis in a Local Auction and Mall format, as specifically defined herein; and (ii) for the foregoing purposes, use the IL Technology to allow T-O Online Users to interface with the E-Commerce Service. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: -2- ARTICLE I INTERPRETATION I.1 Definitions. In this Agreement, unless the context otherwise requires, each capitalized term shall have the meaning attributed thereto in Schedule "A". I.2 Schedules. The following are the schedules attached to and forming part of this Agreement: Schedule "A" - Definitions Schedule "B" - Description of IL Technology Schedule "C" - Response Times Schedule "D" - Source Code Trust Agreement I.3 Headings. Words expressed in the singular include the plural and vice-versa and words in one gender include all genders. I.4 Extended Meanings. Words expressed in the singular include the plural and vice-versa and words in one gender include all genders. I.5 Entire Agreement. This Agreement, and any agreements and other documents to be delivered pursuant to it, constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, oral or written between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgements not expressly made in this Agreement or in the agreements and other documents to be delivered pursuant hereto. -3- I.6 Currency. Unless otherwise indicated, all dollar amounts referred to in this Agreement are in Canadian funds. I.7 Invalidity. If any of the provisions contained in this Agreement is found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not be in any way affected or impaired thereby. I.8 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 and shall be treated, in all respects, as an Ontario contract. The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of Ontario in respect of the subject matter hereof. I.9 Provision of Services. For the purposes of this Agreement, references to the sale of products through the E-Commerce Service shall be deemed to include the provision of services as well. ARTICLE II USE OF E-COMMERCE SERVICE II.1 Torstar Exclusive E-Commerce Services. Subject to the terms of this Agreement, IL grants to Torstar and Torstar Affiliates the exclusive right to use the E-Commerce Service in a Local Auction and Mall format to sell products from charitable and community organizations and local retailers to purchasers in the Territory ("T-O Online Exclusive E- Commerce"), with the E-Commerce Service functioning at a new URL chosen by Torstar. -4- II.2 Sourcing and Fulfillment for Torstar Exclusive E-Commerce. Torstar will be responsible for sourcing products, operating the content of the Local Auctions and Mall, and arranging for the fulfillment of products to the end consumer. IL will be responsible for ensuring that Local Auctions functionally take place, that credit card transactions for the Local Auctions and Mall are processed, and for providing information to Torstar of approved transactions. II.3 Torstar Sponsored Auctions. Torstar shall be allocated, at no additional cost to Torstar, on a non- cumulative basis, at least sixty minutes per day on the IL's Canadian national auction as a co-branded sponsor with IL ("Torstar Sponsored Auctions"). Torstar will have the right to determine at which times on IL's Canadian national auction the Torstar Sponsored Auctions shall occur, subject to IL's approval which shall not be unreasonably withheld. During the time that IL is conducting the Torstar Sponsored Auctions, IL will not conduct any other auctions through the E-Commerce Service in Canada, nor will it authorize or allow any third party to do so in Canada using the E-Commerce Service, other than Local Auctions. II.4 Sourcing and Fulfillment for Torstar Sponsored Auctions. For Torstar Sponsored Auctions on IL's Canadian national auction, IL will be responsible for sourcing product from manufacturers and arranging for fulfillment to the end consumer, as IL currently does with its national auctions, coordinating with product sourced by Torstar as it may occur from time to time. II.5 Allocation of Product. For Greater Clarity. All products sourced directly from manufacturers or distributors will be offered for sale though the IL national auction, and all products sourced from retailers in the Territory will be offered for sale through the Local Auction and Mall in the Territory. It is further understood that any business-to-business initiative by IL or charitable organizational work for a local chapter of a national account of IL (such as Recording Artists Against Drunk Driving) within the Territory, does not infringe on the exclusive rights of Torstar for its Local Auctions and Mall in the Territory. -5- II.6 Promotion and Avails. (a) Sales of Ad Avails. Torstar will be entitled to sell up to [Confidential Information filed separately with the SEC] of IL's banner advertisements in Canada on the first page of the E-Commerce Service's Canadian website and any page of the E-Commerce Service's website that is directly linked to the first page. All revenue collected by Torstar for sales of these banner advertisements and those of Torstar Exclusive E-Commerce in the Territory shall be allocated net of third party sales commissions and such commissions as are mutually agreed from time to time, [Confidential Information filed separately with the SEC] to IL and [Confidential Information filed separately with the SEC] to Torstar. (b) Marketing and Advertising. IL will purchase advertising from T-O Online, Torstar Exclusive E-Commerce and in The Toronto Star in an aggregate amount equal to [Confidential Information filed separately with the SEC] by January 17, 1998 (the "Required Advertising"). (c) Torstar's charges for such advertising shall not exceed the most favourable rates charged to other advertisers for comparable advertising commitments. II.7 Discounts to Third Parties. [Confidential Information filed separately with the SEC] II.8 General Revenue Splits for E-Commerce Service. (a) All Net Revenue received in connection with the sale of products and services through the E-Commerce Service will be allocated as by a Party as follows:
Torstar IL -------------- -------------- Torstar Local Auctions & Mall Sales in Ontario: (all transactions through the new URL chosen by Torstar) [XXX] [XXX] Torstar Sponsored Auctions - Ontario Residence-Based Sales through the URL www.internetliquidators.com: [XXX] [XXX] IL Auction and Mall - Ontario Residence-Based Sales through the URL www.internetliquidators.com: [XXX] [XXX] (Exclusive of Torstar Sponsored Auctions)
NOTE: [XXX] denotes Confidential Information filed separately with the SEC. (b) The same revenues splits as described above shall apply for Torstar Local Auction and Mall -6- Sales for Ontario and Non-Ontario Residence Based Sales provided that if IL grants a territorial license to an arm's length third party which would prohibit sales from such territory through the new URL chosen by Torstar, Torstar shall on notice, cease accepting sales from such territory. ARTICLE III RIGHT TO USE IL TECHNOLOGY III.1 Scope of Licence re: IL Technology (a) Subject to the terms of this Agreement, IL grants to Torstar, the right to use the IL Technology including applicable Software and Documentation to fully exploit the rights granted under Article Two. (b) IL will on request grant Torstar a non-exclusive license to use the IL Technology for non-auction related uses, including, without limitation, the operation of games and contests on terms to be mutually agreed upon by the Parties. III.2 Acknowledgement of Title. (a) Except as otherwise provided herein, Torstar acknowledges that ownership of the IL Technology shall remain with IL. (b) Torstar shall ensure that to the extent that Torstar Affiliates utilize the licence in this Article Three they do so pursuant to this Agreement. Subject to the terms of this Agreement Torstar shall indemnify, defend and hold harmless IL for any breach of this agreement by Torstar or Torstar Affiliates who have access to the IL Technology. Subject to the terms of this Agreement, IL shall indemnify, defend and hold harmless Torstar and Torstar Affiliates which are authorized by this Agreement to have access to the IL Technology for any breach of this Agreement by IL. (c) Torstar shall take all reasonable precautions to prevent third parties from using the IL Technology in its possession in any way that would constitute a breach of this Agreement including, without limitation, such precautions as it would otherwise take to protect its own proprietary technology. III.3 User Interface Branding. Using the IL Technology and in coordination with IL, Torstar will create Torstar branded user interfaces for use on T-O Online as "The Star Online Auction" or such other brand as Torstar may choose using IL's trademark "Online Auction". These branded versions of the user interfaces for the IL Technology will include the IL brand as a sub-brand (the "Sub-Branded Interfaces"). The -7- branding and look and feel of the Sub-Branded Interfaces shall be determined by Torstar subject to IL's approval which shall not be unreasonably withheld. III.4 Capability of IL Technology (a) In co-operation with IL, Torstar shall be responsible for integrating the IL Technology into T-O Online and for developing sub-branded interfaces. IL will ensure that the Sub-Branded Interfaces will have the right and capability to use all of the functionality that is used on connection with the E-Commerce Service at the same time as such functionality is used on the E-Commerce Service. (b) Any updates or upgrades and corresponding instructional materials to the IL Technology and E-Commerce Service will be provided by IL to Torstar at the same time such updates or upgrades and corresponding instructional materials are provided for the E-Commerce Service or to any third party. (c) IL will continue to update and upgrade the IL Technology and E-Commerce Service to ensure that it contains at least substantially the same functionality as its competitors as reasonably determined by IL. III.5 Support and Maintenance. (a) In cooperation with IL, Torstar will be responsible for integrating and IL will be responsible for maintaining and improving the IL Technology and the E-Commerce Service and for providing all necessary assistance, training, technical support, Software and Documentation in connection with the Torstar Interactive Services, use of the IL Technology and the E-Commerce Service. The foregoing will be provided by IL's senior software engineers at IL's offices. Without limiting the foregoing, IL will provide Torstar with no less than the most favourable support and maintenance terms (e.g., response times and training classes) provided to any third party. IL will also provide initial assistance using its marketing personnel for Torstar's sourcing of product, at no cost, as may be reasonable but without adversely affecting IL's own operations. (b) If Torstar requests the inclusion in the IL Technology or the E-Commerce Service of functionality or customization changes for a "Torstar look", IL will assist Torstar, on terms to be mutually agreed upon. Such enhancements will be assisted by IL on a cost pass through basis. -8- ARTICLE IV SERVICES AND TAXES IV.1 Additional Services. Upon the prior written consent of Torstar, those additional Services rendered by IL which are reasonably contemplated hereunder as being provided at an additional charge and the charge for which is not otherwise set out herein may be charged to Torstar at IL's standard rates then in effect plus reasonable out- of-pocket expenses approved in advance by Torstar. IV.2 Taxes. Torstar shall pay to IL those taxes, duties, and other such assessments or charges now in force or enacted in the future that are applicable to this Agreement or are measured directly by payments made under it and are required to be collected by IL or paid by IL to tax authorities. This provision includes sales, use, service, and excise taxes, whether collected by withholding or otherwise assessed, but does not include taxes based on IL's net income. ARTICLE V REPRESENTATIONS, WARRANTIES AND INDEMNITIES V.1 Warranty and Indemnity re: Authority, Title and Proprietary Rights. (a) IL represents and warrants that it has the right to grant the licence hereby granted and that IL has the right to provide the E-Commerce Service. (b) IL agrees to defend and indemnify Torstar or Torstar Affiliates and hold each harmless from all losses, claims, damages or liabilities, including court costs and attorney's fees, in connection with or arising out of any claim asserted against Torstar or Torstar Affiliates based upon a contention that the E-Commerce Service or any of the Deliverables, or any portion thereof in the form accepted by Torstar or Torstar Affiliates and used within the scope of this Agreement infringes the Intellectual Property Rights of any third party provided that: (i) Torstar or Torstar Affiliates promptly notifies IL in writing of the claim and of all material developments in connection with such claim and provides all assistance otherwise reasonably requested by IL; (ii) IL has the right to control, at its own cost, the defence and all related settlement negotiations (Torstar has the right to participate at its own expense); -9- (iii) Torstar or Torstar Affiliates does not pay or settle any such claim without the express written consent of IL; and (iv) the liability in respect of which indemnity is sought does not arise out of or in connection with any unauthorized use of the IL Technology by Torstar or Torstar Affiliates. In addition, if the E-Commerce Service, any of the Deliverables, or any portion thereof is held to constitute an infringement of another Person's rights, and use thereof is enjoined, IL shall, at its election and expense, either: (A) procure the right to use the infringing element thereof; (B) procure the right to an element which performs the same function without any material loss of functionality; or (C) replace or modify the element thereof so that the infringing portion is no longer infringing and still performs the same function without any material loss of functionality; and shall make every reasonable effort to correct the situation with minimal effect upon the operations of Torstar or Torstar Affiliates. V.2 Requirements of the E-Commerce Service. IL warrants that the E-Commerce Service and the Deliverables shall perform in conformance with Torstar's Requirements therefor provided that the IL Technology is used in accordance with the Documentation and that IL shall have no liability for performance failures due to events or causes beyond its reasonable control or due to changes made by Torstar without the prior written approval of IL.. V.3 Disabling Device. IL warrants that any Software provided hereunder shall not contain any clock, timer, counter, or other limiting or disabling code, design or routine that would cause the Software to be made inoperable or otherwise rendered incapable of performing in accordance with Torstar's Requirements or otherwise limit or restrict Torstar's or Torstar Affiliates' ability to use same or after the lapse or occurrence of any triggering prompt. V.4 Media. IL represents and warrants that the media on which any Software is provided shall be compatible with the computer system on which Torstar or Torstar Affiliates advise it is to be installed and that -10- the media, as supplied by IL, shall be free from defects and computer viruses. V.5 Representations and Warranties re: Services. IL agrees that all services to be provided by it hereunder shall be provided in a timely fashion and in a professional manner by personnel appropriately trained in the performance of such services in accordance with all applicable governmental regulations governing such services. Response times shall be as outlined in Schedule C. If IL does not meet the response time requirements for a severity (1) or severity (2) event and such failure is not due to an event beyond the reasonable control of IL, Torstar shall have the right to insist that its' own engineers and designers assist IL's personnel at IL's premises to rectify the problem and IL shall co-operate fully in this process. V.6 Compliance with Applicable Laws. IL shall comply with all laws applicable to the provision of the E-Commerce Service or any part thereof. V.7 Provision of Source Code Materials. IL agrees to enter into a trust agreement with Torstar and Data Securities International, Inc. in the form attached as Schedule D for the deposit of the Source Code Materials such that in the event of default as provided therein, Torstar will have access to the Source Code Materials. V.8 Confidentiality. Each Party covenants to the other Party that it shall keep confidential the Confidential Information of the other Party to which such Party obtains access to as a consequence of entering into this Agreement and that it will take all reasonable precautions to protect such Confidential Information from any use, disclosure or copying except as expressly authorized by this Agreement. Each Party shall implement such procedures as the other Party may reasonably require from time to time to improve the security of the Confidential Information in its possession. This Section shall survive the termination of the Agreement. For greater certainty, IL acknowledges and agrees that all information respecting subscribers to T-O Online is the Confidential Information of Torstar including e-mail addresses and personal information obtained pursuant to this Agreement. IL shall not use such information for marketing purposes without the prior written consent of Torstar. V.9 Ownership of Software, etc. Torstar acknowledges that the Software constitutes commercially valuable trade secrets and proprietary data of IL and that no term of this Agreement shall be construed to convey title in the Software or the Online Auction trademark to Torstar. Notwithstanding the foregoing, all Intellectual Property Rights in the Sub-Branded Interfaces shall vest in Torstar and the parties shall execute such documentation as may be reasonably required to confirm the foregoing. -11- V.10 Limitation on Warranties. Except for those warranties otherwise provided herein, neither Party makes any warranties or representations, and there are no conditions, express or implied, in fact or in law, including without limitation, the implied warranties or conditions of merchantable quality and fitness for a particular purpose and those arising by statute or otherwise in law or from a course of dealing or usage of trade. ARTICLE VI DEFAULT AND TERMINATION VI.1 Term. (a) The term of this Agreement (the "Term") shall commence on the Effective Date and shall continue, subject to early termination in accordance with the terms hereof, until January 31, 2000 (the "Initial Term"). Thereafter, and subject to Section 7.1(b), the Agreement shall be automatically extended for consecutive one (1) year terms (each, being a "Subsequent Term") unless sixty (60) days prior notice in writing is given by Torstar prior to the end of any of the Initial Term or any of the Subsequent Terms, stating Torstar's intention to terminate the Agreement at the end of such term. (b) The extension of the Term of the Agreement into any of the Subsequent Terms shall be conditional upon the Parties, using appropriate diligence and acting in good faith, during the sixty days prior to the end of the Initial Term and each Subsequent Term, negotiating and agreeing on reasonable Net Revenue and advertising allocations for the upcoming Subsequent Term. If the Parties cannot reach such an agreement, the Parties will submit the determination of such allocation and fees to binding arbitration unless Torstar elects to terminate within sixty (60) days before the commencement of the Subsequent Term. Pending resolution of arbitration and subject to the payment or repayment of any amount based upon the arbitrator's order, as applicable, Torstar shall continue to pay the amounts paid during the expiring term. VI.2 Termination for Cause. Subject to the time frames set out below, this Agreement may be terminated immediately by either Party on written notice upon the occurrence of an event of default by the other Party. Each of the following constitutes an event of default for the purposes of this Agreement. (i) if either Party fails to perform any material obligation set forth in this Agreement (other than a failure to pay which is considered separately in (iii)) and such default in -12- the case of a default which is remediable continues for a period of thirty (30) days after written notice of such failure has been given by the non-defaulting Party; (ii) if there is repeated and ongoing failure by a Party to comply with or perform any of the material terms, conditions, agreements and obligations imposed on it by this Agreement; (iii) if a Party should fail to pay a material amount to the other when payable hereunder (other than such portion of an amount which such Party, in good faith, disputes is owing) and such breach is not cured within sixty (60) days after written notice stating that such amount is due and owing and that non-payment may result in termination; or (iv) if a Party becomes bankrupt or insolvent or ceases the operation of its business without a successor. VI.3 Survival. For a period of 12 months after this Agreement is terminated, all operative terms of this Agreement will remain in full force and effect including the use of the Sub-Branded Interfaces, allocation of Net Revenue and rights to share revenue and advertising. Thereafter and for a period not to exceed three months, IL will on request and at Torstar's expense cooperate with Torstar to assist Torstar in transitioning to a new technology. Except as otherwise provided herein, the terms of Articles II and VII and Sections 3.2 and 3.5 shall survive any termination or expiry of this Agreement and shall continue in force thereafter for the period contemplated by the Agreement as shall any other provision of this Agreement which, by the nature of the rights or obligations set out therein, might reasonably be expected to be intended to so survive. ARTICLE VII ARBITRATION VII.1 Dispute Resolution Process. If any dispute, disagreement, controversy or claim arising out of or relating to this Agreement including, without limitation, its application, interpretation, performance, breach, termination, enforcement or damages, or remedies arising out of the breach of or non-compliance therewith, shall be finally determined by arbitration before a single arbitrator to be commenced and conducted in the English language in Toronto in accordance with the Arbitration Act (Ontario). The Parties hereto agree that: (a) subject to mutual agreement between the Parties to the contrary, the arbitrator shall be a person who is legally trained and trained as a professional arbitrator and who has a -13- minimum of five (5) years experience in the licensing of computer software; (b) the Parties shall agree on the identity of the arbitrator within 10 days of notice of reference to arbitration and in default thereof, either party may apply to a Judge of the Supreme Court of Ontario, General Division, to appoint an arbitrator with the foregoing qualifications; (c) the Parties shall be required to make written submissions to the arbitrator within 5 days of appointment and shall not be entitled to make verbal representations or further submissions unless so requested by the arbitrator. Any party who does not comply with the foregoing time period shall not be entitled to make any submissions without the written approval of the other party; (d) the arbitrator shall be required to render his decision in writing within 10 days of the period mentioned in subsection 7.1(c); (e) neither of the Partners shall apply to the Courts of Ontario or any other jurisdiction to attempt to enjoin, delay, impede or otherwise interfere with or limit the scope of the arbitration or the powers of the arbitral tribunal provided for in the Arbitration Act (Ontario) (f) the award of the arbitral tribunal shall be a final and conclusive award and judgment with respect to all matters properly before the arbitral tribunal in accordance with the Arbitration Act (Ontario) and neither Party shall appeal such award in any manner whatever to any court, tribunal or other authority; and (g) the award of the arbitral tribunal may be entered and enforced by any court in any jurisdiction having jurisdiction over the Parties hereto or the subject matter of the award or the properties or assets of either of the Parties hereto. ARTICLE VIII MANAGEMENT AND REPORTING VIII.1 Management and Reporting. The Parties each agree to designate an individual from their respective companies with adequate authority and full technical competence to deal with matters relating to the implementation of the Deliverables (each, being a "Project Manager"). Specifically, these individuals will, on behalf of their respective Parties, in accordance with the spirit of this Agreement, use reasonable efforts to coordinate the provision of the E-Commerce Service. Upon such designations, each of IL and Torstar shall concurrently provide the other with details with respect to its Project Manager, including name, address and telephone number, and each of IL and Torstar may from time to time change its Project Manager with the consent of the other which will not be unreasonably withheld. -14- VIII.2 Reports. IL will provide Torstar with a monthly usage report that tracks all elements necessary to allocate revenues. In addition IL will provide such information as is available to it as to the users of the E- Commerce Service in the Territory and how users of the E-Commerce Service are navigating through the E-Commerce Service. VIII.3 Payment. All parties shall make payments owing by them to the others within fifteen days of the end of the month in which the obligation arises. ARTICLE IX GENERAL IX.1 Notice. Any notice or other communication (in this Section a "Notice") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered in person during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant party at the applicable address set forth below; (b) sent by prepaid first class mail; or (c) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to Subscriber addressed to it at: Toronto Star Newspapers Limited 1 Yonge Street Toronto, Ontario M4E 1E6 Attention: Vice President, Strategic Planning and New Media Fax No.: (416) 869-4762 -15- and in the case of a Notice to Issuer addressed to it at: Internet Liquidators International Inc. 5915 Airport Rd., Suite 330 Mississauga, Ontario L4V 1T1 Attention: Paul Godin Fax No.: (905) 672-5705 with a copy to: Gowling, Strathy & Henderson Barristers & Solicitors Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: David Pamenter Fax No.: (416) 862-7661 Any Notice given or made in accordance with this Section 9.1 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; (b) on the fifth Business Day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof. Any Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 9.1. -16- IX.2 Assignment. The rights and obligations of IL under this Agreement shall not be assigned, in whole or in part, by IL without the prior consent in writing of Torstar and any purported assignment made without that consent is void and of no effect. No assignment of this Agreement shall relieve IL from any obligation under this Agreement or impose any liability upon Torstar, unless otherwise agreed to in writing by Torstar. Torstar may assign its rights and obligations under this Agreement to any Affiliate but no such assignment shall release Torstar from any obligation under this Agreement or impose any liability on IL, unless otherwise agreed to in writing by IL. IX.3 Binding on Successors. This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. IX.4 Further Assurances. Each Party agrees that upon the written request of the other Party, it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other Party hereto may from time to time reasonably request be done and/or executed as may be necessary or desirable to give effect to this Agreement. IX.5 Independent Contractors. It is understood and agreed that in giving effect to this Agreement, no Party shall be or be deemed a partner, agent or employee of another Party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the Parties. No Party shall have the right to enter into contracts or pledge the credit of or incur expenses of liabilities on behalf of the other Party. IX.6 Waiver. A waiver by any Party hereto of any of its rights hereunder or of the performance by another Party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the Party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other Party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations so waived. No waiver by any Party of any of its obligations hereunder shall be effective or binding upon such Party unless the same shall be expressed in writing. -17- IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. INTERNET LIQUIDATORS INTERNATIONAL INC. By: ------------------------------------- (Duly Authorized Officer) By: ------------------------------------- (Duly Authorized Officer) TORONTO STAR NEWSPAPERS LIMITED By: ------------------------------------- (Duly Authorized Officer) By: ------------------------------------- (Duly Authorized Officer) -18- SCHEDULE "A" DEFINITIONS In this Agreement, unless the context otherwise requires, the following expressions have the meanings indicated below: "Above the Fold" means, in respect of a hyperlink, the ability to view the hyperlink without having to scroll down the applicable web page; "Agreement" means this E-Commerce Services Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof, "hereof'" "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement. "Business Day" means any day from Monday to Friday inclusive, except statutory or civic holidays observed in Toronto, Ontario; "Confidential Information" means all information relating to either Party or to such Party's business, products, sales, customers, trade secrets, technology or financial position to which access is obtained or granted hereunder, which when disclosed to the other Party is marked or otherwise designated as confidential, provided, however, that Confidential Information shall not include any data or information which: (i) is or becomes publicly available through no fault of the other Party; (ii) is already in the rightful possession of the other Party prior to its receipt from the other Party; (iii) is independently developed by the other Party; (iv) is rightfully obtained by the other Party from a third party not subject to an obligation of confidentiality; (v) is disclosed with the written consent of the Party whose information it is; or (vi) is disclosed pursuant to court order or other legal compulsion; -19- "Deliverables" means the whole of the activities, services, materials, software, matters and things required to be done, delivered or performed by IL in accordance with the terms of this Agreement, including the software, documentation and services and including all other rights and things, tangible or intangible, including intellectual property rights to be provided hereunder by IL to Torstar or Torstar Affiliates including, without limitation, any of the foregoing as described in Schedule "B"; "Documentation" means user manuals and the written instructions for the Software provided by IL which describe the design, performance and functional specifications of the Software, and which facilitate the use, operation and maintenance of the Software; "E-Commerce Service" means those internet auction services and storefront online commerce services provided by or on behalf of IL or its subsidiaries on the Internet at the URL "www.internetliquidators.com" or any other comparable on- line service which IL or its subsidiaries may provide or allow third parties to provide now or at some future time using the IL Technology or otherwise; "Effective Date" has the meaning attributed thereto on the face page of this Agreement; "Intellectual Property Rights" includes: (A) any and all proprietary rights provided under (i) patent law, (ii) copyright law, (iii) trademark law, (iv) design patent or industrial design law, (v) semi- conductor ship or mask work law, or (vi) any other statutory provision or common law principle applicable to this Agreement or the Software which may provide a right in either (a) ideas, formulae, algorithms, concepts, inventions or know-how generally, including trade secret law, or (b) the expression or use of such ideas, formulae, algorithms, concepts, inventions or know-how; and (B) any and all applications, registrations, licenses, sub-licenses, franchises, agreements or any other evidence of a right in any of the foregoing; "IL Technology" means the technology and know-how known by IL or its subsidiaries in respect of the provision of on-line auction services generally (and including all Intellectual Property Rights therein), whether patented or registered, and whether domestic or foreign including patent applications and copyrighted software, as more particularly described in Schedule "C" and including that technology and know-how used in respect of the operation of the E-Commerce Service in accordance with Torstar's Requirements; "Local Auction and Mall" means an auction or other conduct of online storefront commerce using the E-Commerce Service to sell products and services of local retailers and from charitable and community organizations to consumers; "Net Revenue" means the aggregate amount of revenue (including without limitation shipping and handling) received by a Party in connection with the purchase by end users of products or services offered through the E-Commerce Service, less cost of goods sold, credit card transaction fees, ISP -20- carrier costs and revenue splits (such as America Online) all sales and use taxes, duties, the cost of shipping and credits for returned goods or services and bad debts; "Parties" means IL, Torstar and Torstar Affiliates collectively and "Party" means any of them; "Person" includes an individual, company, corporation, partnership, government or government agency, authority or entity howsoever designated or constituted; "Required Advertising" has the meaning attributed thereto in Section 2.7(b); "Services" means those services to be provided by IL to Torstar or the Torstar Affiliates hereunder; "Software" means that computer software being provided to Torstar by IL hereunder to meet Torstar's Requirements, including any modifications or improvements to the Software (whether developed by IL, Torstar or otherwise); "Source Code Materials" means: (a) a complete copy of the source code version of all software required to allow Torstar to independently operate and maintain and support an auction service in accordance with Torstar Requirements including the Software, appropriate labeled to denote the version or release thereof, and the currency date thereof, in each of: (i) machine-readable form on machine-readable storage medium suitable for long term storage and compatible with the Software as then being used by Torstar and which, when compiled, will produce the object code version of the Software; and (ii) human-readable form with annotations in the English language on bond paper suitable for long term archival storage; and (b) a complete copy, in English, printed on bond paper, suitable for long term archival storage, and appropriately labeled to describe the contents thereof, of all applicable documentation and other explanatory materials including programmer's notes, technical or otherwise, for the Software as may be required by Torstar, using a competent computer programmer possessing ordinary skills and experience, to further develop, maintain and operate such software without further recourse to IL including, but not necessarily limited to, general flow-charts, input and output layouts, field descriptions, volumes and sort sequence, data dictionary, file layouts, processing requirements and calculation formula and the details of all algorithms; "Sub-Branded Interfaces" has the meaning attributed thereto in Section 3.3; "Territory" means the Province of Ontario; -21- "Torstar Affiliate" means any entity of which Torstar owns or has the right to acquire, whether directly or indirectly, 50.1% or more of the outstanding securities entitled to vote for the election of directors (or equivalent governing body) of such entity and which provides interactive services; "Torstar Interactive Services" means interactive services provided by Torstar and Torstar Affiliates, including, without limitation, the T-O Online service; "T-O Online" has the meaning attributed thereto in the recitals; "T-O Online Exclusive E-Commerce" has the meaning attributed thereto in Section 2.2; "Torstar's Requirements" shall mean the statement of the functions and capabilities of the E- Commerce Service provided hereunder by IL to Torstar and Torstar Affiliates, as more particularly described in Schedule "B". "Torstar Sponsored Auctions" has the meaning attributed thereto in Section 2.3; and "Work" means the Software and Documentation collectively. CP Doc#: 31481-1 March 23, 1999 SCHEDULE "B" Internet Liquidators Auction and Mall Technology ------------------------------------------------ [Confidential Information filed separately with the SEC] SCHEDULE "C" RESPONSE CHART 1. IL shall respond to a report of the Software failing to meet Torstar's Requirements in accordance with the severity level. The severity shall be reasonably determined by Torstar, and communicated to IL, based on the following definitions: Severity 1: indicates total inability to use Software, resulting in a critical impact on user objectives; Severity 2: indicates ability to use Software but user operation is severely restricted; Severity 3: indicates ability to use Software with limited functions which are not critical to overall user operations; and Severity 4: indicates that the problem has been bypassed or otherwise temporarily corrected and is not affecting user operations. 2. IL shall correct the Software to cause it to perform in accordance with Torstar's Requirements as follows: Severity 1: within 48 hours of notification by Torstar; Severity 2: within 96 hours of notification by Torstar; Severity 3: within 30 days of notification by Torstar; Severity 4: within 120 days of notification by Torstar; CP Doc #: 29548-1 January 29, 1997 SCHEDULE "D" MASTER PREFERRED ESCROW AGREEMENT Master Number ---------------------- This Agreement is effective February 12, 1997 among Data Securities International, Inc.("DSI"), Internet Liquidators International Inc. ("Depositor"), and any additional party signing the Acceptance Form attached to this Agreement ("Preferred Beneficiary") who collectively may be referred to in this Agreement as "the parties." 1. Depositor and Preferred Beneficiary have entered or will enter into a license agreement in the form attached to such Preferred Beneficiary's Acceptance Form regarding certain proprietary technology of Depositor (referred to in this Agreement as "the license agreement"). 2. Depositor desires to avoid disclosure of its proprietary technology except under certain limited circumstances. 3. The availability of the proprietary technology of Depositor is critical to Preferred Beneficiary in the conduct of its business and, therefore, Preferred Beneficiary needs access to the proprietary technology under certain limited circumstances. 4. Depositor and Preferred Beneficiary desire to establish an escrow with DSI to provide for the retention, administration and controlled access of certain proprietary technology materials of Depositor. ARTICLE 2 -- DEPOSITS 2.1 Obligation to Make Deposit. Upon the signing of this Agreement by the parties, including the signing of the Acceptance Form, Depositor shall deliver to DSI the proprietary information and other materials identified on an Exhibit A. DSI shall have no obligation with respect to the preparation, signing or delivery of Exhibit A. 2.2 Identification of Tangible Media. Prior to the delivery of the deposit materials to DSI, Depositor shall conspicuously label for identification each document, magnetic tape, disk, or other tangible media upon which the deposit materials are written or stored. Additionally, Depositor shall complete Exhibit B to this Agreement by listing each such tangible media by the item label description, the type of media and the quantity. The Exhibit B must be signed by Depositor and delivered to DSI with the deposit materials. Unless and until Depositor makes the initial deposit with DSI, DSI shall have no obligation with respect to this Agreement, except the obligation to notify the parties regarding the status of the deposit account as required in Section 2.2 below. 2.3 Deposit Inspection. When DSI receives the deposit materials and the Exhibit B, DSI will give a receipt for the deposit materials to the Depositor in the form provided by the -2- Depositor and conduct a deposit inspection by visually matching the labeling of the tangible media containing the deposit materials to the item descriptions and quantity listed on the Exhibit B. In addition to the deposit inspection, Preferred Beneficiary may elect to cause a verification of the deposit materials in accordance with Section 1.6 below. 2.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI determines that the labeling of the tangible media matches the item descriptions and quantity on Exhibit B, DSI will date and sign the Exhibit B and deliver a copy thereof to Depositor and Preferred Beneficiary. If DSI determines that the labeling does not match the item descriptions or quantity on the Exhibit B, DSI will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign the Exhibit B with the exceptions noted; and (c) provide a copy of the Exhibit B to Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs upon the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to Preferred Beneficiary is Preferred Beneficiary's notice that the deposit materials have been received and accepted by DSI. 2.5 Depositor's Representations. Depositor represents as follows: (1) Depositor lawfully possesses all of the deposit materials deposited with DSI; (2) With respect to all of the deposit materials, Depositor has the right and authority to grant to DSI and Preferred Beneficiary the rights as provided in this Agreement; (3) The deposit materials are not subject to any lien or other encumbrance other than encumbrances arising in the ordinary cause of Depositor's business; (4) The deposit materials consist of the proprietary information and other materials identified in Exhibit A; and (5) The deposit materials are readable and useable in their current form or, if the deposit materials are encrypted, the decryption tools and decryption keys have also been deposited. 2.6 Verification. Preferred Beneficiary shall have the right, at Preferred Beneficiary's expense, to cause a verification of any deposit materials. A verification determines, in different levels of detail, the accuracy, completeness, sufficiency and quality of the deposit materials. If a verification is elected after the deposit materials have been delivered to DSI, then only DSI, or at DSI's election an independent person or company selected and supervised by DSI, may perform the verification. 2.7 Deposit Updates. Unless otherwise provided by the license agreement, Depositor shall update the deposit materials within 60 days of each release of a new version of the product which is subject to the license agreement. Such updates will be added to the existing deposit. All deposit updates shall be listed on a new Exhibit B and the new Exhibit B shall be signed by Depositor. Each Exhibit B will be held and maintained separately within the escrow account. -3- An independent record will be created which will document the activity for each Exhibit B. The processing of all deposit updates shall be in accordance with Sections 1.2 through 1.6 above. All references in this Agreement to the deposit materials shall include the initial deposit materials and any updates. 2.8 Removal of Deposit Materials. The deposit materials may be removed and/or exchanged only on written instructions signed by Depositor and Preferred Beneficiary, or as otherwise provided in this Agreement. ARTICLE 3 -- CONFIDENTIALITY AND RECORD KEEPING 3.1 Confidentiality. DSI shall maintain the deposit materials in a secure, environmentally safe, locked facility in the greater Toronto area which is accessible only to authorized representatives of DSI. DSI shall have the obligation to reasonably protect the confidentiality of the deposit materials. Except as provided in this Agreement, DSI shall not disclose, transfer, make available, or use the deposit materials. DSI shall not disclose the content of this Agreement to any third party. If DSI receives a subpoena or other order of a court or other judicial tribunal pertaining to the disclosure or release of the deposit materials, DSI will immediately notify the parties to this Agreement. It shall be the responsibility of Depositor and/or Preferred Beneficiary to challenge any such order; provided, however, that DSI does not waive its rights to present its position with respect to any such order. DSI will not be required to disobey any court or other judicial tribunal order. (See Section 7.5 below for notices of requested orders.) 3.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary a report profiling the account history at least semi-annually. DSI may provide copies of the account history pertaining to this Agreement upon the request of any party to this Agreement. 3.3 Audit Rights. During the term of this Agreement, Depositor and Preferred Beneficiary shall each have the right to inspect the written records of DSI pertaining to this Agreement. Any inspection shall be held during normal business hours and following reasonable prior notice. ARTICLE 4 -- GRANT OF RIGHTS TO DSI 4.1 Title to Physical Copies of Deposited Materials. (1) Depositor transfers to DSI in trust all legal title in and to the physical copies of the deposit materials provided to DSI from time to time in accordance with the terms of this Agreement. It is acknowledged by the parties hereto that such transfer by Depositor to DSI under this Section is not intended to, nor does it, transfer any intellectual property or other intangible rights in the deposit materials. DSI agrees -4- to hold the deposit materials in trust for Depositor and Preferred Beneficiary as provided in this Agreement. (2) The expression "in trust" is intended to refer strictly to the issue of ownership of the deposit materials and not to the level of care which must be taken by DSI in performing its duties under this Agreement. The duties of DSI are strictly contractual in nature and are as set out in this Agreement. It is not intended that DSI is to have the fiduciary duty of a trustee. 4.2 Right to Make Copies. DSI shall have the right to make copies of the deposit materials as reasonably necessary to perform this Agreement. DSI shall copy all copyright, nondisclosure, and other proprietary notices and titles contained on the deposit materials onto any copies made by DSI. With all deposit materials submitted to DSI, Depositor shall provide any and all instructions as may be necessary to duplicate the deposit materials including but not limited to the hardware and/or software needed. 4.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the right to transfer deposit materials to Preferred Beneficiary upon any release of the deposit materials for use by Preferred Beneficiary in accordance with Section 4.5. Except upon such a release or as otherwise provided in this Agreement, DSI shall not transfer the deposit materials. ARTICLE 5 -- RELEASE OF DEPOSIT 5.1 Release Conditions. As used in this Agreement, "Release Conditions" shall mean the following: (1) voluntary bankruptcy of Depositor; (2) involuntary bankruptcy provided that the Depositor is not in good faith diligently taking steps to contest or set aside such process; (3) if Depositor becomes insolvent and ceases to continue to carry on its business; (4) if Depositor ceases the operation of its business and the business is not continued by a successor acceptable to the Preferred Beneficiary, acting reasonably; and (5) any additional release conditions identified on the attached Acceptance Form. 5.2 Filing For Release. If Preferred Beneficiary believes in good faith that a Release Condition has occurred, Preferred Beneficiary may provide to DSI written notice of the occurrence of the Release Condition and a request for the release of the deposit materials. Upon receipt of such notice, DSI shall deliver a copy of the notice to Depositor. -5- 5.3 Contrary Instructions. From the date DSI delivers the notice requesting release of the deposit materials, if the Release Condition is one defined in 4.1(b), 4.1(d) or 4.1(e) Depositor shall have ten business days to deliver to DSI Contrary Instructions. If the Release Condition is one defined in 4.1(a) or (c), DSI shall release the deposit materials pursuant to Section 4.4 within 48 hours of giving notice to the Depositor under Section 4.2. "Contrary Instructions" shall mean the written representation by Depositor that a Release Condition has not occurred or has been cured. Upon receipt of Contrary Instructions, DSI shall deliver a copy to Preferred Beneficiary. Additionally, DSI shall notify both Depositor and Preferred Beneficiary that there is a dispute to be resolved pursuant to the Dispute Resolution section of this Agreement (Section 7.3). Subject to Section 5.2, DSI will continue to store the deposit materials without release pending (a) joint instructions from Depositor and Preferred Beneficiary, (b) resolution pursuant to the Dispute Resolution provisions, or (c) order of a court. 5.4 Release of Deposit. If DSI does not receive Contrary Instructions from the Depositor, DSI is authorized to release the deposit materials to the Preferred Beneficiary or, if more than one beneficiary is registered to the deposit materials, to release a copy of the deposit materials to the Preferred Beneficiary who gave notice under Section 4.2. However, DSI or DSI's authorized representative is entitled to receive any fees due DSI or DSI's authorized representative before making the release. This Agreement will terminate with respect to the Preferred Beneficiary giving notice under Section 4.2 upon the release of the deposit materials held by DSI. 5.5 Right to Use Following Release. Unless otherwise provided in the license agreement, upon release of the deposit materials in accordance with this Article 4, Preferred Beneficiary shall have the right to use the deposit materials for the sole purpose of continuing the benefits afforded to Preferred Beneficiary by the license agreement. Preferred Beneficiary shall be obligated to maintain the confidentiality of the released deposit materials. ARTICLE 6 -- TERM AND TERMINATION 6.1 Term of Agreement. The initial term of this Agreement is for a period of one year. Thereafter, this Agreement shall automatically renew from year-to-year unless (a) Depositor and Preferred Beneficiary jointly instruct DSI in writing that the Agreement is terminated; or (b) the Agreement is terminated by DSI for nonpayment in accordance with Section 5.2. If the Acceptance Form has been signed at a date later than this Agreement, the initial term of the Acceptance Form will be for one year with subsequent terms to be adjusted to match the anniversary date of this Agreement. If the deposit materials are subject to another escrow agreement with DSI, DSI reserves the right, after the initial one year term, to adjust the anniversary date of this Agreement to match the then prevailing anniversary date of such other escrow arrangements. 6.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to DSI or DSI's authorized representative, DSI shall provide written notice of delinquency to the parties to this Agreement affected by such delinquency. Any such party shall have the right to make the payment to DSI or DSI's authorized representative to cure the default. If the past due payment is -6- not received in full by DSI or DSI's authorized representative within one month of the date of such notice, then at anytime thereafter DSI shall have the right to terminate this Agreement to the extent it relates to the delinquent party by sending written notice of termination to such affected parties. DSI shall have no obligation to take any action under this Agreement so long as any payment due to DSI or DSI's authorized representative remains unpaid. 6.3 Disposition of Deposit Materials Upon Termination. Upon termination of this Agreement by joint instruction of Depositor and each Preferred Beneficiary, DSI shall return the deposit materials to the Depositor. Upon termination for nonpayment, DSI shall return the deposit materials to the Depositor. DSI shall have no obligation to return or destroy the deposit materials if the deposit materials are subject to another escrow agreement with DSI. 6.4 Survival of Terms Following Termination. Upon termination of this Agreement, the following provisions of this Agreement shall survive: (1) Depositor's Representations (Section 1.5); (2) The obligations of confidentiality with respect to the deposit materials; (3) The rights granted in the sections entitled Right to Transfer Upon Release (Section 3.3) and Right to Use Following Release (Section 4.5), if a release of the deposit materials has occurred prior to termination; (4) The obligation to pay DSI or DSI's authorized representative any fees and expenses due; (5) The provisions of Article 7; and (6) Any provisions in this Agreement which specifically state they survive the termination or expiration of this Agreement. 6.5 Alternative to DSI. If this Agreement terminates, Depositor and Preferred Beneficiary agree, at Preferred Beneficiary's request, to appoint a new agent by mutual agreement. If Depositor and Preferred Beneficiary cannot agree, Preferred Beneficiary shall appoint a trust company or other company specializing in the escrow business as the agent provided that such company has appropriate storage facilities located in or around Toronto and agrees to store the deposited materials there in accordance with the terms of this Agreement. The new agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named hereunder, without any further assurance, conveyance, act or deed. ARTICLE 7 -- DSI'S FEES -7- 7.1 Fee Schedule. DSI or DSI's authorized representative is entitled to be paid its standard fees and expenses applicable to the services provided. DSI or DSI's authorized representative shall notify the party responsible for payment of DSI's fees at least 90 days prior to any increase in fees. For any service not listed on DSI's standard fee schedule, DSI or DSI's authorized representative will provide a quote prior to rendering the service. 7.2 Payment Terms. DSI shall not be required to perform any service unless the payment for such service and any outstanding balances owed to DSI or DSI's authorized representative are paid in full. All other fees are due upon receipt of invoice. If invoiced fees are not paid, DSI may terminate this Agreement in accordance with Section 5.2. Late fees on past due amounts shall accrue at the rate of one and one-half percent per month (18% per annum) from the date of the invoice. ARTICLE 8 -- LIABILITY AND DISPUTES 8.1 Right to Rely on Instructions. DSI may act in reliance upon any instruction, instrument, or signature reasonably believed by DSI to be genuine. DSI may assume that any employee of a party to this Agreement who gives any written notice, request, or instruction has the authority to do so. DSI shall not be responsible for failure to act as a result of causes beyond the reasonable control of DSI, subject to Section 2.1. 8.2 Indemnification. DSI shall be responsible to perform its obligations under this Agreement and to act in a reasonable and prudent manner with regard to this escrow arrangement. Provided DSI has acted in the manner stated in the preceding sentence, Depositor and Preferred Beneficiary each agree to indemnify, defend and hold harmless DSI from any and all claims, actions, damages, arbitration fees and expenses, costs, attorney's fees and other liabilities incurred by DSI relating in any way to this escrow arrangement. 8.3 Dispute Resolution. Any dispute, difference or question arising among any of the parties concerning the construction, meaning, effect or implementation of this Agreement or any part hereof will be settled by a single arbitrator mutually agreed upon by the parties, or failing agreement, an arbitrator appointed pursuant to the Arbitration Act (Ontario) or similar legislation. The decision of such arbitrator appointed pursuant to this Agreement or such Act will be final and binding on the parties and no appeal will lie therefrom. 8.4 Controlling Law. This Agreement is to be governed and construed in accordance with the laws of the Province of Ontario except any laws which would refer any matter to the laws of another jurisdiction. All parties irrevocably attorn to the exclusive jurisdiction of the Courts of Ontario in respect of the subject matter hereof. 8.5 Notice of Requested Order. If any party intends to obtain an order from the arbitrator or any court of competent jurisdiction which may direct DSI to take, or refrain from taking any action, that party shall: -8- (1) Give DSI at least two business days' prior notice of the hearing; (2) Include in any such order that, as a precondition to DSI's obligation, DSI or DSI's authorized representative be paid in full for any past due fees and be paid for the reasonable value of the services to be rendered pursuant to such order; and (3) Ensure that DSI not be required to deliver the original (as opposed to a copy) of the deposit materials if DSI may need to retain the original in its possession to fulfill any of its other escrow duties. ARTICLE 9 -- GENERAL PROVISIONS 9.1 Entire Agreement. This Agreement, which includes the Acceptance Form and the Exhibits described herein, embodies the entire understanding between all of the parties with respect to its subject matter and supersedes all previous communications, representations or understandings, either oral or written. No amendment or modification of this Agreement shall be valid or binding unless signed by all the parties hereto, except that Exhibit A need not be signed by DSI, Exhibit B need not be signed by Preferred Beneficiary and the Acceptance Form need only be signed by the parties identified therein. 9.2 Notices. All notices, invoices, payments, deposits and other documents and communications shall be given to the parties at the addresses specified in the attached Exhibit C and Acceptance Form. It shall be the responsibility of the parties to notify each other as provided in this Section in the event of a change of address. The parties shall have the right to rely on the last known address of the other parties. Unless otherwise provided in this Agreement, all documents and communications may be delivered by First Class mail. 9.3 Severability. In the event any provision of this Agreement is found to be invalid, voidable or unenforceable, the parties agree that unless it materially affects the entire intent and purpose of this Agreement, such invalidity, voidability or unenforceability shall affect neither the validity of this Agreement nor the remaining provisions herein, and the provision in question shall be deemed to be replaced with a valid and enforceable provision most closely reflecting the intent and purpose of the original provision. 9.4 Successors. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties. However, DSI shall have no obligation in performing this Agreement to recognize any successor or assign of Depositor or Preferred Beneficiary unless DSI receives clear, authoritative and conclusive written evidence of the change of parties.
Data Securities International, Inc. Internet Liquidators International Inc. By: By: ---------------------------------------- --------------------------------------- Name: Name: ---------------------------------------- --------------------------------------- Title: Title: ---------------------------------------- --------------------------------------- Date: Date: ---------------------------------------- ---------------------------------------
ACCEPTANCE FORM Account Number ---------------------- Toronto Star Newspapers Limited, hereby (i) acknowledges that it is a Preferred Beneficiary referred to in the Master Preferred Escrow Agreement effective February 12, 1997 with Data Securities International, Inc. as the escrow agent and Internet Liquidators International, Inc. as the Depositor, (ii) agrees to be bound by all provisions of such Agreement, and (iii) agrees that in addition to the Release Conditions set forth in section 4.1 of this Agreement, a further Release Condition shall exist if the Depositor is in material default of its obligations to operate or maintain its E-Commerce Services as contained in the licence agreement attached hereto as Schedule "A" and such default is not cured as provided therein. By: ------------------------------ Name: ------------------------------ Title: ------------------------------ Date: ------------------------------ Notices and communications should be addressed to: Invoices should be addressed to: Company Name: -------------------------- -------------------------------- Address: -------------------------- -------------------------------- -------------------------- -------------------------------- -------------------------- -------------------------------- -------------------------- -------------------------------- Designated Contact: Contact: -------------------------- -------------------------------- Telephone: -------------------------- -------------------------------- Facsimile: -------------------------- -------------------------------- Depositor hereby enrolls Preferred Beneficiary to the following account(s): Account Name Account Number - ------------ -------------- - ------------------------------- --------------------------------- - ------------------------------- --------------------------------- - ------------------------------- --------------------------------- - ------------------------------- Data Securities International, Inc. Depositor SCHEDULE "A" LICENSE AGREEMENT EXHIBIT A MATERIALS TO BE DEPOSITED Account Number ---------------------- Depositor represents to Preferred Beneficiary that deposit materials delivered to DSI shall consist of the following: Internet Liquidators Inc. - Code Module Listing - ----------------------------------------------- [Confidential Information filed separately with the SEC] - -------------------------------- ---------------------------------- Depositor Preferred Beneficiary By: By: -------------------------- ---------------------------- Name: Name: -------------------------- ---------------------------- Title: Title: -------------------------- ---------------------------- Date: Date: -------------------------- ---------------------------- EXHIBIT B DESCRIPTION OF DEPOSIT MATERIALS Depositor Company Name ------------------------------------------------------- Account Number ------------------------------------------------------- PRODUCT DESCRIPTION: Product Name [Confidential Information filed separately with the SEC] Version[Confidential Information filed separately with the SEC] ------------- - ---------------------------------------------------------------------------- Operating System: [Confidential Information filed separately with the SEC] -- - ---------------------------------------------------------------------------- Hardware Platform: [Confidential Information filed separately with the SEC] - - ---------------------------------------------------------------------------- DEPOSIT COPYING INFORMATION: Hardware required: [Confidential Information filed separately with the SEC] - - ---------------------------------------------------------------------------- Software required: [Confidential Information filed separately with the SEC] - - ---------------------------------------------------------------------------- DEPOSIT MATERIAL DESCRIPTION: Qty Media Type& Size Label Description of Each Separate Item (Excluding documentation) Disk 3.5" or _________ 1 X DAT tape 4 mm No Documentation - CD-ROM Data Cartridge Tape__ TK 70 or _______ tape Magnetic tape________ Documentation Other:_______________ No Documentation I certify for Depositor that the above DSI has inspected and accepted the above described deposit materials have been materials (any exceptions are noted transmitted to DSI: above) Signature: Signature: ------------------------- ---------------------------- Print Name: Print Name: ------------------------- ---------------------------- Date: Date Accepted: ------------------------------- ------------------------- Exhibit B# Send materials to: DSI, 9555 Chesapeake Drive,#200, San Diego, CA 92123 EXHIBIT C DESIGNATED CONTACT Master Number ---------------------- Notices and communications should be addressed to: Invoices should be addressed to: Company Name: Address: Designated Contact: Contact: Telephone: Facsimile: Requests to change the designated contact should be given in writing by the designated contact or an authorized employee. Contracts, deposit materials and Invoice inquiries and fee remittances notices to DSI should be addressed to: to DSI or DSI's authorized representative should be addressed to: DSI Technology Asset Management Inc. Contract Administration Accounts Receivable Suite 200 Building 8, Suite 300 9555 Chesapeake Drive 5045 Orbitor Drive San Diego, CA 92123 Mississauga, Ontario L4W 4Y4 Telephone: (619) 694-1900 Telephone: (905) 602-9292 Facsimile: (619) 694-1919 Facsimile: (905) 602-6631 Date: ADDITIONAL ESCROW ACCOUNT AMENDMENT TO MASTER PREFERRED ESCROW AGREEMENT Master Number ---------------------- New Account Number ---------------------- ("Depositor") has entered - ------------------------------------------- into a Master Preferred Escrow Agreement with Data Securities International, Inc. ("DSI"). Pursuant to that Agreement, Depositor may deposit certain deposit materials with DSI. Depositor desires that new deposit materials be held in a separate account and be maintained separately from the existing account. By execution of this Amendment, DSI will establish a separate account for the new deposit materials. The new account will be referenced by the following name: ---------------------. Depositor hereby agrees that all terms and conditions of the existing Master Preferred Escrow Agreement previously entered into by Depositor and DSI will govern this account. The termination or expiration of any other account of Depositor will not affect this account. _____________________________________ Data Securities International, Inc. Depositor By: By: ------------------------------- ------------------------------ Name: Name: ------------------------------- ------------------------------ Title: Title: ------------------------------- ------------------------------ Date: Date: ------------------------------- ------------------------------ CP Doc #: 31392-1 February 12, 1997 EX-3.3 6 INTELLECTUAL PROPERTY RIGHTS AND NON-COMPETITION A Exhibit 3.3 IP RIGHTS AND NON-COMPETITION AGREEMENT THIS AGREEMENT is made the 12th day of February, 1997. AMONG: TORONTO STAR NEWSPAPERS LIMITED, a corporation incorporated under the laws of Ontario, ("Torstar") - and - PAUL GODIN, executive, of the Town of Kettleby in the Province of Ontario ("Godin") - and - 1184041 ONTARIO INC., a corporation incorporated under the laws of Ontario ("GodinCo") - and - JEFF LYMBURNER, executive, of the City of Etobicoke in the Province of Ontario ("Lymburner") - and - SMYTHE GROUP COMPANY, a corporation incorporated under the laws of Nova Scotia ("LymburnerCo") - and - INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation amalgamated under the laws of Ontario (the "Corporation") BACKGROUND: -2- 1. Pursuant to a subscription agreement between Torstar and the Corporation dated the date hereof, Torstar is acquiring an interest in Internet Liquidators International Inc. 2. It is a condition of closing the subscription with Torstar that each of the Principals enter into this intellectual property rights and non-compete agreement with the Corporation and Torstar. 3. The Principals and the Corporation have agreed that entering into this Agreement is in their respective best interests in order (i) to clarify that the intellectual property rights in Developments made by the Principals will be owned by the Corporation and (ii) to specify the extent to which the Principals may compete with the Corporation in certain circumstances. IN CONSIDERATION of the premises and the mutual covenants contained herein and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto covenant and agree as follows: ARTICLE ONE INTERPRETATION 1.1 Definitions: In this Agreement: ------------ "Agreement" means the IP Rights and Non-Competition Agreement and all schedules annexed hereto as the same may be amended from time to time in accordance with the provisions hereof; "hereof", "hereto" and "hereunder" and similar expressions refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" refers to the specified article or section of this Agreement; "Business" has the meaning attributed thereto in Section 2.1; "Business Day" means any day other than a Saturday, Sunday, statutory holiday or civic holiday in Toronto, Ontario or Virginia; "Confidential Information" includes any of the following: (i) any and all versions of the products, software and related documentation owned or marketed by the Corporation, as well as the software and documentation owned by the Corporation's suppliers and used internally by the Corporation, including all related algorithms, concepts, data, designs, flowcharts, ideas, programming techniques, specifications and source code listings; (ii) all Developments (as defined below); (iii)information regarding the Corporation's business operations, methods and practices, including marketing strategies, product pricing, margins and hourly rates for staff and information regarding the financial affairs of the Corporation; -3- (iv) the names of the Corporation's clients and the names of the suppliers of computer services and software to the Corporation, and the nature of the Corporation's relationships with these clients and suppliers; (v) technical and business information of or regarding the clients of the Corporation obtained in order for the Corporation to provide such clients with products and services; and (vi) any other trade secret or confidential or proprietary information in the possession or control of the Corporation, but Confidential Information does not include information which is or becomes generally available to the public without fault of the Party. "Developments" include all the following which are related to the Business: (i) copyright works, software, documentation, data, designs, scripts, photographs, music, reports, flowcharts, trade-marks, specifications and source code listings, and any related works, including any enhancements, modifications, or additions to the products owned, marketed or used by the Corporation; and (ii) inventions, devices, discoveries, concepts, ideas, algorithms, formulae, know-how, processes, techniques, systems and improvements, whether patentable or not, developed, created, generated or reduced to practice by any Principal, alone or jointly with others, during the Principal's employment with the Corporation or which result from tasks assigned to any Principal by the Corporation or which result from the use of the premises or property (including equipment, supplies or Confidential Information) owned, leased or licensed by the Corporation. "employee" refers to any individual who is an employee or who has any other form of working relationship with the Corporation whereby services are provided to the Corporation for compensation whether as an independent contractor, consultant, advisor or otherwise and whether such services are provided personally or through a corporation controlled by such individual and "employment" is to be given a corresponding, broad meaning; "Party" means one of the Principals, Torstar or the Corporation and "Parties" means all of them collectively; "Person" includes an individual, corporation, partnership, joint venture, trust, unincorporated organization, government or any agency or instrumentality thereof or any other juridical entity; "Principal" has the meaning attributed thereto in Section 2.1. 1.2 Governing Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of Ontario and the federal laws of Canada applicable therein (excluding any -4- provisions that would result in the application of the law of another jurisdiction) and shall be treated, in all respects, as an Ontario contract. 1.3 Entire Agreement. This Agreement, including all schedules hereto, together ----------------- with the agreements and other documents referred to herein, constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties and there are no warranties, representations or other agreements between the Parties in connection with the subject matter hereof except as specifically set forth herein and therein. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision (whether or not similar) nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 1.4 Gender and Number. In this Agreement words in the singular include the ------------------ plural and vice-versa; words in one gender include all genders. 1.5 Headings. Article and Section headings contained herein are included --------- solely for convenience, are not intended to be full or accurate descriptions of the content thereof and shall not be considered part of this Agreement. ARTICLE TWO PROPRIETARY RIGHTS PROTECTION 2.1 Importance of Proprietary Rights Protection. Each Party acknowledges that -------------------------------------------- the Corporation is engaged in a continuous program of research and development, marketing and exploitation of on-line auction software products and related services (the "Business"). Each Party also recognizes the importance of protecting the Corporation's trade secrets, confidential information and other proprietary information and related rights acquired through the Corporation's expenditure of time, effort and money. Therefore, in the case of Godin and Lymburner or any other Party that is an employee of the Corporation (collectively, the "Principals" and individually a "Principal"), in consideration of the desire of the Principals to be employed or continue to be employed by the Corporation in a capacity in which they will receive and/or contribute to the Corporation's confidential information and in consideration of the salary, wages or other compensation the Principals will receive from the Corporation and for their employment by the Corporation, each agrees to be bound by the following terms and conditions in this Article. 2.2 Non-Disclosure of Confidential Information. At all times each Principal ------------------------------------------- shall keep the Confidential Information in confidence, taking all necessary precautions against unauthorized disclosure of the Confidential Information, and shall not directly or indirectly disclose, allow access to, transmit or transfer the Confidential Information to a third party, nor shall any Principal copy or reproduce the Confidential Information except as may be reasonably required to perform his duties for the Corporation. -5- 2.3 Restricted Use of Confidential Information. ------------------------------------------- (a) At all times each Principal shall not use the Confidential Information in any manner except as reasonably required for each Principal to perform his duties for the Corporation. (b) Without limiting his obligations under subsection (a), each Principal shall neither use nor take advantage of the Confidential Information for any purpose other than the Business. (c) Upon the request of the Corporation, each Principal shall immediately return to the Corporation all materials, including all copies in whatever form, containing the Confidential Information which are in the Principal's possession or under the Principal's control. 2.4 Ownership of Confidential Information. -------------------------------------- (a) Each Principal acknowledges and agrees that he had not and shall not acquire any right, title or interest in or to the Confidential Information. (b) Each Principal agrees to make full disclosure to the Corporation of each Development promptly after its creation. Each Principal hereby assigns and transfers to the Corporation, and agrees that the Corporation shall be the exclusive owner of, all of the Principal's right, title and interest to each Development throughout the world, including all trade secrets, patent rights, copyrights and all other intellectual property rights therein. Each Principal further agrees to cooperate fully at all times with respect to signing further documents and doing such acts and other things reasonably requested by the Corporation to confirm such transfer of ownership of rights, including intellectual property rights, effective at or after the time the Development is created and to obtain patents or copyrights or the like covering the Developments. Each Principal agrees that the obligations in this clause (b) shall continue beyond the termination of the Principal's employment with the Corporation with respect to Developments created during his employment with the Corporation. (c) Each Principal agrees that the Corporation, its assignees and their licensees are not required to designate the Principal as the author of any Developments. The foregoing sentence speaks to ownership and shall not detract from the entitlement of the Principals to personal recognition of their efforts in creating Developments. Each Principal hereby waives in whole all moral rights which the Principal may have in the Developments, including the right to the integrity of the Developments, the right to be associated with the Developments, the right to restrain or claim damages for any distortion, mutilation or other modification of the Developments, and the right to restrain use or reproduction of the Developments in any context and in connection with any product, service, cause or institution. -6- 2.5 Non-Competition. Each Principal agrees that during the time that he is an --------------- employee of the Corporation and for a period of 24 months thereafter the Principal will not become engaged, directly or indirectly as an employee, consultant, partner, principal, agent, proprietor, shareholder (other than a holding of shares listed on a stock exchange that does not exceed 5% of the outstanding shares so listed) or advisor, in a business which: (i) develops or markets products or services competitive with the products or services marketed by the Corporation, or (ii) provides consulting, maintenance, support or training services that are competitive with the consulting, maintenance, support or training services provided by the Corporation, in any country where the Corporation has shipped material amounts of product in the preceding twelve months, provided that after the Principal ceases to be an employee of the Corporation the relevant time for judging such matters as where the Corporation is conducting the Business shall be the time that the Principal ceases to be an employee of the Corporation. 2.6 Non-Solicitation of Clients. Each Principal agrees that during the time ---------------------------- that he is an employee of the Corporation and for a period of 18 months thereafter, the Principal shall not, directly or indirectly, contact or solicit any Clients of the Corporation for the purpose of selling or supplying to these Clients of the Corporation any products or services which are competitive with the products or services sold or supplied by the Corporation at the time that the Principal ceases to be an employee of the Corporation. The term "Client of the Corporation" in the preceding sentence means any business or organization that: (a) was a customer of the Corporation at the time that the Principal ceases to be an employee of the Corporation; or (b) became a customer of the Corporation within six months after the Principal ceased to be an employee of the Corporation if the Principal was significantly involved with the marketing effort in respect of such customer prior to the date of the Principal ceased to be an employee of the Corporation. The foregoing is not intended to include Persons purchasing goods or services through the Corporation's on-line auction service but does include those Persons who sell goods or services through that auction service. 2.7 Non-Solicitation of Employees. Each Principal agrees that during the time ------------------------------ that he is an employee of the Corporation and for a period of 12 months thereafter, the principal shall not directly or indirectly solicit or induce or attempt to induce any persons who were employees of or consultants to the Corporation at the time the Principal ceased to be an employee of the Corporation, to terminate their employment with the Corporation. -7- 2.8 Reasonableness of Non-Competition and Non-Solicitation Obligations. Each ------------------------------------------------------------------ Principal confirms that the obligations in Section 2.5, 2.6 and 2.7 are fair and reasonable given that, among other reasons, (i) the sustained contact the Principal will have with the clients of the Corporation will expose the Principal to Confidential Information regarding the particular requirements of these clients and the Corporation's unique methods of satisfying the needs of these clients, all of which the Principal agrees not to act upon the detriment of the Corporation; and/or (ii) the Principal will be performing important development work on the products and services marketed by the Corporation, and the Principal agrees that the obligations in Sections 2.5, 2.6 and 2.7, together with he Principal's other obligations under this Agreement, are reasonably necessary for the protection of the Corporation's proprietary interests. Each Principal further confirms that the geographic scope of the obligation in Section 2.5, 2.6 and 2.7 are in addition to the non-disclosure and other obligations provided elsewhere in this agreement. Each Principal also acknowledges that his obligations contained in this Agreement will not preclude him from becoming gainfully directly employed in the computer products industry following the date he ceases to be an employee of the Corporation given the Principal's general knowledge and experience in the computer industry. 2.9 No Conflicting Obligations. -------------------------- (a) Each Principal acknowledges and represents to the Corporation that his performance as an employee of the Corporation shall not breach any agreement or other obligation to keep confidential the proprietary information of any prior employer of such principal or any other third party. Each Principal further acknowledges and represents that he is not bound by any agreement or obligation with any third party which conflicts with any of his obligations under this Agreement. (b) Each Principal represents and agrees that he will not bring to the Corporation, and shall not use in the performance of his work with the Corporation, any trade secrets, confidential information and other proprietary information of any prior employer of the Principal or any other third party. Each Principal represents and agrees that in his work creating Developments he will not knowingly infringe the intellectual property rights, including copyright, of any third party. ARTICLE THREE REPRESENTATIONS AND WARRANTIES -8- 3.1 Representations and Warranties re Ownership. Each Principal hereby, ------------------------------------------- jointly and severally, represents and warrants to the Corporation and Torstar (and acknowledges that the Corporation and Torstar are relying upon such representations and Warranties) that except as set forth in Schedule "O" of the Subscription Agreement between Torstar and the Corporation dated February 12, 1997, to the best of his or its knowledge, information and belief, the Corporation is the exclusive owner of the Technology (as defined in such Subscription Agreement) and all right, title and interest in and to the technology, free and clear of all encumbrances except as set out therein and neither Principal has any knowledge of any claim of adverse ownership in any Technology. ARTICLE FOUR MISCELLANEOUS 4.1 Notice. Any notice or other communication (in this Section a "Notice") ------- required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered in person during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant party at the applicable address set forth below; (b) sent by prepaid first class mail; or (c) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to Subscriber addressed to it at: Toronto Star Newspapers Limited 1 Yonge Street Toronto, Ontario M4E 1E6 Attention: Vice President Strategic Planning & New Media Fax No.: (416) 869-4762 and in the case of a Notice to Issuer addressed to it at: Internet Liquidators International Inc. 5915 Airport Rd., Suite 330 Mississauga, Ontario L4V 1T1 -9- Attention: Paul Godin Fax No.: (905) 672-5705 with a copy to: Gowling, Strathy & Henderson Barristers & Solicitors Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: David Pamenter Fax No.: (416) 862-7661 Any Notice given or made in accordance with this Section 4.1 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; (b) on the fifth Business Day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof. Any Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 4.1. 4.2 Further Assurances. Each Party will execute any documents and give such ------------------- further assurances as may be necessary or appropriate in connection with performing its obligations under this Agreement and which shall be deemed to include any assurances reasonably requested by the Corporation to protect its trade secrets and any other confidential information in its possession or control. 4.3 Amendments. This Agreement may only be amended by an instrument in writing ----------- signed by all Parties. 4.4 Counterparts. This Agreement may be executed in several counterparts (by ------------- Principal Shareholders at the date hereof and by those who are by the terms hereof obligated to execute a counterpart hereof), each of which shall be deemed to be an original, but all such counterparts -10- together shall constitute one and the same instrument. Any such counterpart or other Agreement to be bound hereby shall be effectively delivered to each Party by delivery of an executed copy thereof to the secretary of the Corporation. 4.5 Severability. If any of the provisions contained in this Agreement is ------------- found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not be in any way affected impaired thereby and the rights and obligations of the Parties shall be construed as if the Agreement did not contain the particular invalid or unenforceable provision unless such invalid or unenforceable provision is material to any of the Parties, in which event the Parties shall immediately negotiate a replacement therefor to preserve their respective interests as contemplated herein, to the extent permitted under applicable law. 4.6 Time of Essence. Time is of the essence hereof. ---------------- IN WITNESS WHEREOF the parties have duly executed this Agreement. TORONTO STAR NEWSPAPERS LIMITED By: ---------------------------- 1184041 ONTARIO INC. By: ---------------------------- Paul Godin l/s ---------------------------- Paul Godin SMYTHE GROUP COMPANY By: ---------------------------- Jeff Lymburner ------------------------------- Jeff Lymburner INTERNET LIQUIDATORS INTERNATIONAL INC. By: ---------------------------- -11- By: ---------------------------- CP Doc #: 30595-3 February 12, 1997 EX-3.4 7 SUBSCRIPTION AGREEMENT DATED FEBRUARY 18, 1997 Exhibit 3.4 SUBSCRIPTION AGREEMENT THIS AGREEMENT is made the 18th day of February, 1997 (the "Effective Date") by and between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation having a principal place of business at 5915 Airport Rd, Suite 330, Mississauga, Ontario L4V 1T1 ("Issuer") and AMERICA ONLINE, INC., a corporation having a principal place of business at 22000 AOL Way, Dulles, Virginia 20166 ("AOL"). BACKGROUND: 1. As more particularly described herein, AOL wishes to acquire, and Issuer wishes to provide, an interest in Issuer by AOL subscribing for previously unissued common shares in the capital of Issuer and by obtaining a warrant to acquire further common shares of Issuer. Issuer is a public company. 2. In conjunction with the subscription, AOL and Issuer will enter into certain agreements which will allow AOL and certain related entities including Digital City, Inc. ("DCI") to use and exploit certain technology of Issuer to interface and/or provide a link for certain of their on-line interactive users to an auction service provided by Issuer on the Internet. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE ONE INTERPRETATION -------------- 1.1 Definitions. In this Agreement, unless the context otherwise requires, ------------ each capitalized term shall have the meaning attributed thereto in Schedule "A". 1.2 Schedules. The following are the schedules attached to and forming part of ---------- this Agreement: Schedule A Definitions Schedule B Financial Statements Schedule C Subsidiaries Schedule D Options Schedule E Litigation Schedule F Licences Schedule G Opinions of Counsel Schedule H Form of Certificate of Originality Schedule I Auction Services Agreement Schedule J DCI Term Sheet Schedule K Shareholders' Agreement Schedule L Registration Rights Agreement Schedule M Material Contracts Schedule N Form of Warrant Schedule O Intellectual Property Rights Schedule P Major Shareholder Interests -2- Schedule Q Encumbrances Schedule R Yankee Auction Functional Specifications 1.3 Headings. The headings in this Agreement are for convenience of reference --------- only and shall not affect the construction or interpretation hereof. 1.4 Extended Meanings. Words in the singular include the plural and vice- ------------------ versa and words in one gender include all genders. 1.5 Entire Agreement. This Agreement and Schedules hereto constitute the ----------------- entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, oral or written, between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgements not expressly made in this Agreement or in the agreements and other documents to be delivered pursuant hereto. 1.6 Currency. Unless otherwise indicated, all dollar amounts referred to in --------- this Agreement are in U.S. funds. 1.7 Invalidity. If any of the provisions contained in this Agreement is found ----------- by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not be in any way affected or impaired thereby. 1.8 Governing Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of Ontario and the federal laws of Canada applicable therein (excluding any provisions that would result in the application of the law of another jurisdiction) and shall be treated, in all respects, as an Ontario contract. Issuer submits to the non-exclusive jurisdiction of the Courts of Virginia and the U.S. Federal Court and AOL submits to the non- exclusive jurisdiction of the Courts of Ontario. 1.9 Tender. Unless otherwise indicated, any tender of documents or money ------- hereunder may be made upon the Parties or their respective counsel and money shall be tendered by wire transfer in U.S. or Canadian funds, as applicable, from a U.S. or Canadian bank or by negotiable cheque or draft and certified by a U.S. or Canadian bank. 1.10 Performance on Holidays. If anything is required to be done or any action ------------------------ is required to be taken pursuant to this Agreement on or by a specified date which is not a Business Day, then such action shall be valid if taken on or by the next succeeding Business Day. 1.11 Calculation of Time. In this Agreement, a period of days shall be deemed -------------------- to begin on the first day after the event which began the period and to end at midnight (Toronto time) on the last day of the period, except that if the last day of the period does not fall on a Business Day, the period -3- shall terminate at midnight (Toronto time) on the next Business Day. ARTICLE TWO PURCHASE OF SHARES AND WARRANT ------------------------------ 2.1 Purchase of Shares and Warrant. Subject to the terms of this Agreement, ------------------------------- AOL agrees to subscribe for and purchase, and Issuer agrees to issue and sell to AOL, the Shares and the Warrant, in two stages as follows: (a) At the First Closing, 500,000 Shares ("Stage One Shares") and the Warrant; (b) On July 1, 1997, an additional 500,000 Shares ("Stage Two Shares")(the "Second Closing"). AOL is only required to purchase the Stage Two Shares if the Stage Two Conditions are fulfilled. 2.2 Subscription Price and Payment. The purchase price for the Shares and for ------------------------------- the Warrant shall be an aggregate purchase price of $1,000,000 Cdn. (the "Subscription Price") which shall be paid in cash and Advertising Credits as follows: (a) For Stage One Shares and Warrant, $500,000 Cdn in Advertising Credits; (b) For Stage Two Shares, at AOL's option: (i) $500,000 Cdn.; or (ii) $500,000 Cdn in Advertising Credits expiring on the first anniversary of the First Closing. AOL agrees that if Issuer has (i) satisfied the Yankee Auction Condition; (ii) Cleared Title, (iii) completed the Loan Repayment and (iv) raised an additional $425,000.00 CDN in equity all within 60 days of the First Closing they may on request require AOL to pay Issuer $250,000 Cdn in return for the cancellation of $250,000 Cdn of unused Advertising Credits granted to the Issuer on the First Closing and AOL agrees to do so within 10 Business Days. Issuer covenants and agrees to purchase, in aggregate, advertising on AOL's online service at rate card rates ($60 CPM), the rate typically charged to comparable advertisers for a comparable volume of advertising, equal to the aggregate amount of all cash contributed by AOL for the Shares before (a) June 30, 1997 with respect to any cash paid for the Stage One Shares and (b) February 21, 1998 with respect to any cash paid for Stage Two Shares. 2.3 Share and Warrant Certificate. Issuer shall deliver to AOL at each of the ------------------------------ Closings, one share certificate representing the Shares and, if applicable one warrant certificate representing the -4- Warrant, bearing appropriate legends to indicate the applicable hold period and to reference the restrictions in the Shareholders' Agreement, registered in the name of AOL. On each Closing, Issuer shall cause AOL or such nominee to be entered on the books of Issuer as the holder of the applicable Shares and Warrant, if any. 2.4 Place of Closings. The Closings shall take place at the Closing Time at ------------------ the offices of Fasken Campbell Godfrey, Suite 3700, Toronto-Dominion Bank Tower, Toronto-Dominion Centre, Toronto, Ontario, or at such other place as may be agreed upon by Issuer and AOL. ARTICLE THREE REPRESENTATIONS AND WARRANTIES ------------------------------ 3.1 Representations and Warranties of Issuer. Issuer represents and warrants ----------------------------------------- to AOL as follows and acknowledges that AOL is relying upon such representations and warranties in entering into this Agreement and completing the transactions contemplated hereby. 3.1.1 Corporate Matters. ------------------ (a) Issuer and each of the Subsidiaries is a corporation duly incorporated, organized and validly existing in good standing under the laws of its jurisdiction of incorporation. No proceedings have been taken or authorized by any of Issuer, any Subsidiary or, to the best of Issuer's knowledge, by any other Person with respect to the bankruptcy, insolvency, liquidation, dissolution or winding up of Issuer or any of the Subsidiaries. (b) Issuer has all necessary power and capacity to execute and deliver, and to observe and perform their covenants and obligations under, this Agreement and the Closing Documents to which each is a party. Issuer has taken all corporate action and caused all necessary shareholder action to authorize the execution and delivery of, and the observance and performance of their covenants and obligations under, this Agreement and the Closing Documents to which each is a party including, without limitation, the issuance and delivery of the Shares and Warrant. (c) Issuer and the Subsidiaries have all necessary power and authority to own or lease the Assets and to carry on the Business as at present carried on. Issuer and the Subsidiaries possess all Licences material to the conduct of the Business. Neither the nature of the Business nor the location or character of any of the Assets requires any of Issuer or the Subsidiaries to be registered, licensed or otherwise qualified as an extra-provincial or foreign corporation or to be in good standing in any jurisdiction other than jurisdictions where it is duly registered, licensed or otherwise qualified and in good standing for such purpose. (d) This Agreement has been, and each Closing Document to which Issuer is a party will on -5- Closing be, duly executed and delivered by Issuer, and this Agreement constitutes, and each Closing Document to which Issuer is a party will on Closing constitute, a valid and binding obligation of Issuer enforceable against Issuer in accordance with its terms. (e) A true copy of the Articles and all by-laws of the Issuer each as amended to date and currently in effect have been delivered to AOL by Issuer. The Articles and such by-laws of the Issuer constitute all of the constating documents and by-laws of the Company, are complete and correct and are in full force and effect, subject to confirmation of Issuer's general by-laws by their shareholders. 3.1.2 Authorized and Issued Capital of Issuer. The authorized capital of ---------------------------------------- Issuer consists of an unlimited number of common shares and an unlimited number of preference shares issuable in series. No more than 10,700,000 common shares are outstanding and such shares are fully paid and non-assessable shares. Except as listed in Schedule D, no other Voting Securities, Convertible Securities or Rights of Issuer have been issued or are outstanding. 3.1.3 Options. -------- (a) Except as listed in Schedule "D", no Person other than AOL, has any oral or written agreement, option, warrant, right, privilege or any other right capable of becoming any of the foregoing (whether legal, equitable, contractual or otherwise), for the purchase, subscription or issuance of any Voting Securities, Convertible Securities or Rights of Issuer. Issuer has no agreement or obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. All of the issued and outstanding shares of capital stock of the Issuer have been offered, issued and sold by the Issuer in compliance with Applicable Laws. Except as set forth in Schedule "D", there are no preemptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of the Issuer's capital stock, other than rights to which AOL is entitled as set forth in this Agreement. 3.1.4 Subsidiaries. Issuer owns all of the issued shares and Voting ------------- Securities, Convertible Securities and Rights of each Subsidiary and the Subsidiaries are all of the bodies corporate of which any of Issuer or the Subsidiaries holds or has agreed to acquire any shares, Voting Securities, Convertible Securities or Rights. None of Issuer or the Subsidiaries is or has agreed to become a partner, member, owner, proprietor or equity investor of or in any partnership, joint venture or other management or business association or to acquire or lease any other business operation. 3.1.5 Insurance. Issuer and the Subsidiaries maintain valid policies of ---------- insurance with respect to its properties and business of the kinds and in the amounts not less than is customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated. There is no default under any such policy, nor, to the knowledge of Issuer or the Subsidiaries, has any event occurred which with notice, lapse of time or both would constitute a -6- material default thereunder. 3.1.6 Financial Statements. The Financial Statements: --------------------- (a) have been prepared from and in accordance with the books and records of Issuer and its Subsidiaries in accordance with Generally Accepted Accounting Principles (except as disclosed in the notes thereto) applied on a basis consistent with that of the preceding periods; (b) present fairly the assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of Issuer and the Subsidiaries and the results of the operations of Issuer and the Subsidiaries as at the date thereof and for the periods covered thereby; and (c) contain or reflect adequate reserves for all known or reasonably anticipated liabilities and obligations of Issuer and the Subsidiaries of any nature, whether absolute, contingent or otherwise, as at the date thereof. No information has come to the attention of Issuer or any Subsidiary that would render the Financial Statements incomplete or inaccurate in any material respect. 3.1.7 Undisclosed Liabilities. None of Issuer or the Subsidiaries has any ------------------------ known or reasonably anticipated liabilities (whether accrued, absolute, contingent or otherwise) of any kind and whether due or to become due, except: (a) liabilities disclosed or provided for in the Financial Statements; and (b) liabilities incurred in the ordinary course of business from and after the Financial Disclosure Date which are consistent with past practice, are not, in the aggregate, material and adverse to the Business, Assets, financial condition or results of operations of Issuer and the Subsidiaries, and do not violate any covenant or obligation contained in this Agreement or constitute a breach of any representation or warranty made in or pursuant to this Agreement. 3.1.8 Absence of Changes. Since the Financial Disclosure Date: ------------------- (a) Issuer and each of the Subsidiaries has conducted the Business in the ordinary course, has not incurred any debt, obligation or liability out of the ordinary course of business or of an unusual or extraordinary nature and has used its best efforts to preserve the Business and the Assets; (b) there has not been any change in the condition of the Business or the Assets or the financial condition or results of operations of any of Issuer, the Subsidiaries or the Business other than changes in the ordinary course of business, and such changes have not, either individually or in the aggregate, been materially adverse or have had or may be reasonably -7- expected to have, either before or after the Closing Time, a material adverse effect on the Business, the Assets or the future prospects of any of Issuer, any of the Subsidiaries or the Business; and (c) to the best of Issuer's knowledge, there has not been any change in, or creation of, any Applicable Law, any revocation of any Licence or any damage, destruction, loss, labour dispute or other event, development or condition of any character (whether or not covered by insurance) materially and adversely affecting any of Issuer, any Subsidiary, the Business or the Assets or the future prospects of any of Issuer, the Subsidiaries or the Business. 3.1.9 Tax Matters. Issuer and each of the Subsidiaries has filed all Tax ------------ Returns within the times and in the manner prescribed by law. Issuer and each Subsidiary has paid all Taxes due and payable and has paid all installments and made all other remittances required to be made on account of Taxes payable by them. No Tax Return has been reassessed nor has there been any notice of reassessment by any taxing authority and there are no actions, audits, assessments, reassessments, suits, appeals, proceedings, investigations or claims now pending or, to the best of Issuer's knowledge, threatened against Issuer or any Subsidiary in respect of Taxes or governmental charges by any Governmental Agency relating to claims for additional Taxes or assessments with reference to any of Issuer, the Subsidiaries, the Assets or the Business. There is in effect no waiver of applicable limitation of liability statutes with respect to any Taxes owed by Issuer or any Subsidiary. The provision for Taxes reflected in the Financial Statements is adequate for all Tax liabilities, whether or not yet due and payable and whether or not disputed or under appeal, for the periods covered by the Financial Statements and for all prior periods and none of Issuer or the Subsidiaries has any liability for any Tax in respect thereof of any nature other than those described in the Financial Statements and those arising in the ordinary course of its business since the Financial Disclosure Date. 3.1.10 Absence of Conflicting Agreements. None of the execution and delivery ---------------------------------- of, or the observance and performance by Issuer of any covenant or obligation under this Agreement or any Closing Document to which it is a party including the issuance of Shares pursuant to the exercise of the Warrant, or the Closing, contravenes or results in, or will contravene or result in, a material violation of or a material default under (with or without the giving of notice or lapse of time, or both), or in the acceleration of any material obligation under: (a) any Applicable Law; (b) any Licence held by or for Issuer, a Subsidiary or the Business; (c) the articles, by-laws, directors' or shareholders' resolutions of Issuer or any Subsidiary; or (d) any other agreement, lease, mortgage, security document, obligation or instrument to which Issuer or any Subsidiary is a party, or by which it or its Assets are bound. -8- The representation and warranty in Section 3.1.10(b) shall not apply to Generic Software. 3.1.11 Consents, Approvals, Etc. Subject to those certain filings with ------------------------- Canadian securities authorities identified in Section 3.1.19, no consent, approval, Licence, Order or authorization, registration, declaration or filing with any Governmental Agency or other Person is required by Issuer or any Subsidiary, or with respect to the Business, in connection with (a) the Closing or (b) the execution and delivery by Issuer of, and the observance and performance by Issuer of their obligations under, this Agreement and the Closing Documents to which either is a party. 3.1.12 Restrictions on Business. Other than statutory provisions and ------------------------- restrictions of general application to the Business or to corporations governed by the Act, none of Issuer or any Subsidiary is a party to any agreement, lease, mortgage, security document, obligation or instrument, or subject to any restriction in its articles or by-laws or directors' or shareholders' resolutions or subject to any restriction imposed by any Governmental Agency or subject to any Applicable Law which could materially restrict or interfere with the conduct of the Business or which could materially limit or restrict or otherwise adversely affect the Assets or the financial condition of Issuer on a consolidated basis. 3.1.13 Compliance with Applicable Law. Each of Issuer and the Subsidiaries has ------------------------------- conducted and is conducting the Business in compliance with all Applicable Laws, and is not in breach of any Applicable Laws except for breaches which in the aggregate are not material to Issuer and the Subsidiaries. For the purposes of this Section Applicable Laws means the laws of Canada and the Provinces therein and the laws of the United States of America and the States therein. 3.1.14 Litigation. Except as disclosed in Schedule E, there is no claim, ----------- demand, suit, action, cause of action, dispute, proceeding, litigation, investigation, grievance, arbitration, governmental proceeding or other proceeding including appeals and applications for review, in progress against or relating to Issuer or any Subsidiary or affecting the Shares, the Warrant, the Assets or the Business which, if determined adversely, might materially and adversely affect any of Issuer, any Subsidiary, the Shares, the Warrant, the Business or the Assets or the validity of the Agreement or any of the Closing Documents, nor are any of the same pending or to the best of the knowledge of Issuer threatened. To the knowledge of Issuer and the Subsidiaries, no event has occurred and no condition exists or the basis for which any of the foregoing might properly be instituted or commenced. There is not at present outstanding against any of Issuer or any Subsidiary any Order that materially and adversely affects Issuer, any Subsidiary, the Business or the Assets in any way or that in any way relates to this Agreement or the transactions contemplated hereby. 3.1.15 Title to Properties. Except as disclosed in the Financial Statements -------------------- and Schedule Q, Issuer and the Subsidiaries have good and marketable title to all of the Assets, free and clear of all Encumbrances except for Permitted Encumbrances. 3.1.16 Title to Shares and Warrant. The Shares and the Warrant shall be duly ---------------------------- authorized and created and upon the applicable Closing shall be validly issued and outstanding and the Shares shall -9- be fully paid and non-assessable shares in the capital of Issuer, free and clear of all rights, liens or other Encumbrances except Permitted Encumbrances. Upon payment of the exercise price, the shares issuable upon exercise of the Warrant will be fully paid and non-assessable, free and clear of all rights, liens and Encumbrances other than Permitted Encumbrances. 3.1.17 No Expropriation. None of Issuer or any Subsidiary has received any ----------------- notice of expropriation of any of the Assets. None of Issuer or any Subsidiary is aware of any expropriation proceeding, pending or threatened against or affecting any of the Assets. 3.1.18 Licences. The only Licences necessary or desirable for the operation of --------- the Business and the ownership of the Assets are listed in Schedule F and are in full force and effect unamended. Issuer or each Subsidiary, as the case may be, is in compliance in all material respects with all the terms and conditions relating to such Licences and there are no proceedings in progress, or to the best of the knowledge of Issuer, pending or threatened, which may result in revocation, cancellation, suspension or any adverse modification of any of such Licences. No Licence is void or voidable as a result of the completion of the transactions contemplated hereby or by the Closing Documents or by the exercise of the Warrant nor is any consent or approval of any Person required to assure the continued validity and effectiveness of any Licence in connection with the purchase of the Shares, this Agreement, any Closing Document or by the exercise of the Warrant or the transactions contemplated hereby or thereby. 3.1.19 Securities Legislation. Issuer is a "reporting issuer" in Ontario and ----------------------- is not in default under applicable securities legislation in such province. In particular, without limiting the foregoing, Issuer is in compliance with its obligations to make timely disclosure of all material changes relating to it and since the end of the Issuer's last completed fiscal year (other than in respect of material change reports filed on a confidential basis and thereafter made public or material change reports filed on a confidential basis and in respect of which the material change never came to fruition) no such disclosure has been made on a confidential basis and there is no material change relating to Issuer which has occurred and with respect to which the requisite material change statement has not been filed, except to the extent that this Agreement constitutes a material change. Issuer is not in default of any requirements of such securities legislation, and the issuance of the Shares and the Warrant to AOL will be made in compliance with all applicable Canadian securities legislation. Subject to the filing of a Form 27, Material Change Report and a press release following the execution hereof and the Closing, the issuance of the Shares and Warrant to AOL, and any subsequent exercise of rights under the Warrant, will not result in any contravention of any applicable Canadian securities legislation or the regulations thereunder (subject to filings required on Warrant exercise). The issuance of the Shares and the Warrant is exempt from the registration and prospectus requirements of securities legislation of the Province of Ontario and no prospectus will be required and no other document must be filed, proceeding taken or approval obtained in Ontario to permit the offering, issue, sale and delivery of the Shares and the Warrant to AOL or for the exercise of the Warrant other than the filing of those private placement reports, undertakings and questionnaires -10- referred to above. The Issuer's Shares are not listed or quoted for trading on any stock exchange or other public market other than the Canadian Dealing Network. 3.1.20 Environmental Matters. To the best of Issuer's knowledge: ---------------------- (a) Issuer, each Subsidiary, the Business and the Assets are in full compliance with all Applicable Laws in respect of environmental matters and are not the subject of any remedial or control action or Order, or any investigation or evaluation as to whether any remedial or control action or Order is needed to respond to an actual or threatened release, discharge, deposit, emission or spill of any hazardous substance, pollutant or contaminant into the environment or any facility or structure; (b) none of Issuer or the Subsidiaries is or may be liable to any Person as a result of an actual or alleged release, discharge, deposit, emission or spill of any hazardous substance, contaminant or pollutant into the environment or any facility or structure, nor has there been any release, discharge, deposit, emission or spill of any hazardous substance, contaminant or pollutant into the environment or into any facility or structure, which is the subject of or, after the giving of notice or the lapse of time would give rise to, any claim, demand, suit, action, cause of action, dispute, proceeding or Order relating to the violation of Applicable Laws in respect of environmental matters, nor is there any basis for any thereof being commenced; and (c) Issuer and each Subsidiary has complied in all material respects with all environmental reporting and inspection requirements of all Governmental Agencies having jurisdiction over it. All pollution control equipment operated as part of the Business is effective in meeting applicable emissions limits and effluent pre-treatment standards. 3.1.21 Significant Shareholders. Except as set forth in Schedule "P" there ------------------------- are no loans, leases, licences, guarantees, contracts, transactions, understandings or other arrangements or any nature between the Issuer or any Subsidiary and any officer, director or ten percent (10%) stockholder of the Issuer or any family member or affiliate of the foregoing persons. All persons owning ten percent (10%) or more of the presently outstanding common shares, are listed on Schedule "P". 3.1.22 Material Contracts. Except as set forth in Schedule "M" and except as ------------------- contemplated by this Agreement, neither Issuer nor any Subsidiary is a party or subject to or bound by: (a) any contract, lease or agreement creating any obligation of the Issuer or any Subsidiary to pay to any third party $50,000 or more with respect to any single such contract or agreement, except for purchase orders entered into in the ordinary course of business; -11- (b) any contract or agreement for the sale, license, lease or disposition of products in excess of $50,000; (c) any contract containing covenants directly or explicitly limiting the freedom of the Issuer or any Subsidiary to compete in any line of business or with any person or entity; (d) any license agreement (as licensor or licensee) other than licenses to Generic Software; (e) any contract or agreement for the purchase of any leasehold improvements, equipment or fixed assets for a price in excess of $50,000; (f) any indenture, mortgage, promissory note, loan agreement, guaranty or other agreement or commitment for borrowing in excess of $50,000 or any pledge or security arrangement except as disclosed in Schedule Q; (g) any material joint venture, partnership, manufacturing, development or supply agreement; (h) any employment contracts, or agreements with officers, directors, employees or stockholders of the Issuer or any Subsidiary or persons or organizations related to or affiliated with any such persons; (i) any stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of the Issuer or any Subsidiary, including without limitation any agreement relating to the capital stock of the Issuer or any Subsidiary, including without limitation any agreement relating to anti-dilution rights, registration rights, voting arrangements, operating covenants or similar provisions; (j) any pension, profit sharing, retirement or stock option plans; (k) any royalty, dividend or similar arrangement based on the sales volume of the Issuer or any Subsidiary (l) any acquisition, merger or similar agreement; or (m) any other contract not executed in the ordinary course of business. All of such agreements and contracts are valid, binding on the Issuer or Subsidiary and in full force and effect, subject to (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting the rights of creditors generally, and (ii) statutory or decisional law concerning recourse by creditors to security in the absence of notice of hearing. -12- Neither Issuer nor any Subsidiary, nor, to the knowledge of the Issuer or any Subsidiary, any other party is in material default under any of such agreements or contracts (nor, to the knowledge of the Issuer or any Subsidiary, has any event occurred which with notice, lapse of time or both would constitute a material default thereunder), except to the extent that any such default would not have a material effect on the assets, liabilities, properties, business or proposals of the Issuer or any Subsidiary, and the Issuer or any Subsidiary has not received notice of any alleged default under any such contract, or agreement. 3.1.23 Intellectual Property Rights. ----------------------------- (a) Rights Schedule "O" contains a true and complete list of all Intellectual Property Rights which have been registered, or for which applications for registration have been filed in any jurisdiction. (b) Ownership Except for Permitted Encumbrances, the Issuer is the exclusive owner of the Technology and all right, title and interest in and to the Technology, free and clear of all Encumbrances and the Issuer has no knowledge of any claim of adverse ownership in any Technology. Except as set forth in Schedule "O", Issuer has not: (i) granted any third party licence or other right to any of the Intellectual Property Rights; or (ii) made any contract or arrangement whereby it may be liable for any royalty or other compensation for the use of the Intellectual Property Rights. (c) Validity The Intellectual Property Rights are in good standing and to the best of the Issuer's knowledge have not been used or enforced or failed to be used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of any of the Intellectual Property Rights. All registrations and filings necessary to preserve the rights of the Issuer in and to the Intellectual Property Rights have been made. (d) Complete The Technology is sufficient and complete to enable the Issuer to carry on the Business as currently carried on and to perform its obligations under this Agreement and any related Closing Documents including the Auction Services Agreement. 13 (e) Infringements by Issuer Except as set forth in Schedule "O", there is no: (i) (1) claim of adverse ownership or invalidity or other opposition to or conflict with Issuer's ownership of the copyright, trade marks or trade secrets forming part of the Technology or the manner it is used in respect of the Business nor to the best of the knowledge of Issuer are there any such claims with respect to any other intellectual property forming part of the Technology; or (2) pending or threatened suit, proceeding, claim, demand, action or investigation of any nature or kind, to the best of the knowledge of Issuer, against Issuer relating to the Technology or the manner it is used in respect of the Business; or (ii) claim of which the Issuer has received notice (formal or informal) or is otherwise aware that any products, software or services manufactured, produced, used or sold by the Issuer or any process, method, packaging, advertising, or material that the Issuer employs in the manufacture, marketing, licensing or sale of any such product, software or service, or the use of any of the Technology breaches, violates, infringes or interferes with any rights of any Person or requires payment for the use of any copyright, trade mark or trade secret, know-how or technology of another Person or, to the best of Issuer's knowledge any other intellectual property of any Person. (f) Licenses and Covenants Not to Sue Schedule "O" sets forth a complete and correct list and brief description of all judgments, covenants of Issuer not to sue, permits, grants, franchises, licenses and other agreements and arrangements relating to any of the Technology owned by Issuer which bind, obligate or otherwise restrict either of them. (g) Third Party Infringements There are no infringements of, passing-off related to, or other interference with the Technology by third parties of which the Issuer has received notice (formal or informal) or is otherwise aware. -14- (h) Protection of Confidentiality Issuer has taken commercially reasonable precautions and made commercially reasonable efforts to protect their trade secrets and secure the confidentiality of their customer lists, and other proprietary information. 3.1.24 Major Suppliers and Customers. To the knowledge of the Issuer, no ------------------------------ major supplier or customer has any intention to change its relationship or any material terms upon which it will conduct business with Issuer or the Subsidiaries. There has been no interruption to or discontinuity in any customer or supplier arrangements or relationships referred to in this Section and Issuer and the Subsidiaries have not entered into any fixed price commitments (whether written or oral) which extend beyond the Closing Date of the First Closing. 3.1.25 Material Change Reports. Since the Financial Disclosure Date, ----------------------- other than in respect of material change reports filed on a confidential basis and in respect of which the material change so reported did not come to fruition and other than this Agreement and in respect of the Torstar transaction: (a) there has not been any material change in the assets, liabilities or obligations (absolute, accrued, contingent or otherwise) of the Issuer or its Subsidiaries which requires disclosure under applicable securities legislation and that has not been publicly disclosed; (b) there has not been any material change in the capital stock or long-term debt of the Issuer or its Subsidiaries which requires disclosure under applicable securities legislation and that has not been publicly disclosed; and (c) there has not been any material change in the business, business prospects, condition (financial or otherwise) or results of the operations of the Issuer or its Subsidiaries which requires disclosure under applicable securities legislation and that has not been publicly disclosed. 3.1.26 Information Record. No portion of the Issuer's Information Record ------------------- contained a misrepresentation as at its date of public dissemination. 3.1.27 Reportable Disagreement. During the last five (5) completed fiscal ------------------------ years there has never been any reportable disagreement (within the meaning of National Policy Statement No. 31 of the Canadian Securities Administrators) with the present or any former auditor of the Issuer. 3.1.28 Canadian Dealing Network. The Issuer shall use its best efforts ------------------------- exercised in a commercially reasonable manner to ensure that the Shares will continue to be quoted on the Canadian Dealing Network upon their issue. -15- 3.1.29 Employees. None of the employees of the Issuer or any Subsidiary is ---------- represented by any labour union, and, to the best of Issuer's knowledge, there is no labour strike or other labour trouble pending or threatened with respect to the Issuer or any Subsidiary (including, without limitation, any organizational drive). 3.1.30 Disclosure. No representation or warranty of the Issuer in this ----------- Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make any such representation or warranty not misleading to a prospective buyer of the Shares or Warrant seeking full information as to the Business and the Assets. Without limiting the scope of the foregoing, none of Issuer or any Subsidiary is aware of any change, event or occurrence related to the Business that has taken place or is pending that has, or in the future would have, a material adverse effect on the value of the Shares, the Warrant, the Assets or the Business which is not the result of general industry trends. The copies of documents concerning Issuer, the Subsidiaries, the Business and the Assets delivered to AOL on or prior to the date hereof are true and complete in all material respects. 3.2 Representations and Warranties of AOL. AOL represents and warrants to -------------------------------------- Issuer as follows and acknowledges that Issuer is relying upon such representations and warranties in connection with entering into this Agreement and completing the transactions contemplated hereby. 3.2.1 Incorporation. AOL is a company duly incorporated, organized and ------------- validly existing in good standing under the laws of Delaware. 3.2.2 Power, Capacity and Authority. AOL has all necessary power and capacity ------------------------------ to execute and deliver, and to observe and perform its covenants and obligations under, this Agreement and the Closing Documents to which it is a party. AOL has taken all corporate action necessary to authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the Closing Documents to which it is a party. 3.2.3 Enforceability of Obligations. This Agreement has been, and the Closing ------------------------------ Documents to which AOL is a party will on Closing be, duly executed and delivered by AOL and this Agreement constitutes, and each of the Closing Documents to which AOL is a party will on Closing constitute, a valid and binding obligation of AOL enforceable against AOL in accordance with its terms. 3.2.4 Absence of Conflicting Agreements. None of the execution and delivery ---------------------------------- of, or the observance and performance of, by AOL of, any covenant or obligation under, this Agreement or any Closing Document to which it is a party or the Closing contravenes or results in (with or without the giving of notice or lapse of time, or both) or will contravene or violate in any material respect or result in any material breach or default of, or acceleration of any obligation under: (a) any Applicable Law to AOL; (b) any Licence held by AOL; -16- (c) the articles, by-laws, directors' or shareholders' resolutions of AOL; or (d) any other agreement, lease, mortgage, security document, obligation or instrument to which AOL is a party, or by which it or its assets are bound. 3.2.5 Consents, Approvals, Etc. No consent, approval, Licence, Order or ------------------------- authorization, registration, declaration or filing with any Governmental Agency is required by AOL in connection with (a) the Closing or (b) the execution and delivery by it of, or the observance and performance of its obligations under, this Agreement or the Closing Documents to which it is a party. 3.3 Commission. Each Party represents and warrants to the other Party that ---------- the other Party will not be liable for any brokerage commission, finder's fee or other like payment in connection with the transactions contemplated hereby because of any action taken by, or agreement or understanding reached by, the first mentioned Party. 3.4 Qualification of Representations and Warranties. The representations or ------------------------------------------------ warranties made by a Party under Sections 3.1.1(d), 3.1.18, 3.1.22 and 3.2.3 as to the enforceability of this Agreement or the Closing Documents against such Party is subject to the following qualifications: (a) specific performance, injunctive relief and other equitable remedies are discretionary and, in particular, may not be available where damages are considered an adequate remedy; and (b) enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors' rights. 3.5 Non-Waiver. No investigations made by or on behalf of AOL at any time ----------- shall waive, diminish the scope of or otherwise affect any representation or warranty made by Issuer in this Agreement or any Closing Document or any document delivered pursuant to any of them. 3.6 Survival of Issuer Representations, Warranties, Covenants and Agreements. ------------------------------------------------------------------------- All representations, warranties, covenants and agreements made by Issuer in or pursuant to this Agreement shall survive the Closings as follows: (a) the representations and warranties set forth in Sections 3.1.1 to 3.1.4 inclusive, 3.1.9, 3.1.16, 3.1.21, 3.1.23, 3.1.28 and Section 3.3 shall survive beyond the Closings and continue without time limit; (b) all of the other representations and warranties contained in this Agreement or in any Closing Document shall unless expressly stated otherwise survive only for a period of 2 years from the First Closing. After such period, Issuer shall not have any further liability hereunder with respect to such representations and warranties except with respect to claims properly made within such period; and -17- (c) the covenants and agreements of Issuer contained in this Agreement shall survive the Closings and continue in accordance with Applicable Law. 3.7 Survival of AOL Representations, Warranties, Covenants and Agreements. --------------------------------------------------------------------- All representations warranties, covenants and agreements made by AOL in or pursuant to this Agreement shall survive the Closings as follows: (a) the representations and warranties set forth in Sections 3.2.1 to 3.2.3 inclusive and Sections 3.3 and 4.4 shall survive beyond the Closings and continue without time limit; (b) all of the other representations and warranties contained in this Agreement or in any Closing Document shall unless expressly stated otherwise survive only for a period of 2 years from the First Closing. After such period, AOL shall have no further liability hereunder with respect to such representations and warranties except with respect to claims properly made within such period; and (c) the covenants and agreements of AOL contained in this Agreement shall survive the Closings and continue in accordance with Applicable Law. 3.8 Knowledge of Issuer. Where any representation or warranty contained in -------------------- this Agreement is expressly qualified by reference to the "knowledge" of Issuer, it shall be deemed to refer to the knowledge of each of Issuer and any of the Subsidiaries and Issuer confirms that it has made due and diligent inquiry of such Persons (including without limitation appropriate officers of Issuer and the Subsidiaries) as it considers necessary as to the matters that are the subject of such representations and warranties. ARTICLE FOUR OTHER COVENANTS OF THE PARTIES ------------------------------ 4.1 Obligation of Issuer. From the date hereof to the First Closing, Issuer --------------------- shall act, and shall cause the Subsidiaries to act, as set forth in this Article 4.1. 4.1.1 Conduct Business in Ordinary Course. Except as otherwise contemplated or ------------------------------------ permitted by this Agreement, Issuer and the Subsidiaries shall conduct the Business in the ordinary course and shall not, without the prior written consent of AOL, enter into any transaction outside the ordinary course of business which, if entered into before the date hereof, could cause any representation or warranty of Issuer contained herein to be incorrect or constitute a breach of any covenant or agreement of Issuer contained herein. 4.1.2 Action by Issuer and Subsidiaries. Each of Issuer and the Subsidiaries ---------------------------------- shall at their sole cost take all action which may be necessary to ensure that the representations and warranties contained herein shall be true and correct in all material respects at the First Closing. -18- 4.1.3 Access for Investigation. Each of Issuer and the Subsidiaries shall ------------------------- permit AOL and its employees, agents, counsel and accountants or other representatives, without interference to the ordinary conduct of the Business, to have free and unrestricted access during business hours to the properties of Issuer and the Subsidiaries and to all the books, accounts and records relating to each of Issuer, the Subsidiaries, the Business, the Assets and to the employees of the Business. Issuer and each of the Subsidiaries shall furnish to AOL such financial and operating data and other information with respect to the Business and the Assets as AOL shall from time to time reasonably request. Issuer agrees that AOL may conduct such environmental investigations and tests on the properties of Issuer and the Subsidiaries as AOL considers necessary. 4.1.4 Disclosure. Issuer shall forthwith disclose in writing to AOL in ----------- supplemental schedules any matter arising other than in the ordinary course of business which has become known to it prior to the First Closing which is inconsistent in any material respect with any of the representations and warranties contained herein. Except as otherwise expressly agreed by AOL, no such disclosure shall cure any misrepresentation or breach of warranty for the purposes of Section 6.1.1 hereof. 4.1.5 Reporting Issuer Status. Issuer shall use its best efforts exercised in ------------------------- a commercially reasonable manner to maintain its status as a reporting issuer not in default of any requirements of the Securities Act (Ontario) and the regulations thereunder and shall use its best efforts not to be in default of any requirement of any securities laws or regulations to which Issuer is subject. 4.2 Actions to Satisfy Closing Conditions. Each of the Parties shall take ------------------------------------- all such action as is within its power to control, and shall use reasonable efforts to cause other actions to be taken which are not within its power to control, so as to ensure compliance with and satisfaction of all conditions set forth in Article 6 which are for the benefit of any Party. The Parties will cooperate in exchanging such information and providing such assistance as may be reasonably required in connection with the foregoing. 4.3 Injunctions. If any court having jurisdiction over either Party or any of ------------ the Subsidiaries issues any injunction, decree or similar order prior to the Closing Time which would prohibit or materially restrict or hinder the Closing, the Parties shall use their respective reasonable efforts to have such injunction, decree or order dissolved or otherwise eliminated as promptly as possible and, in any event, prior to the Closing Time. 4.4 Subscriber Representations AOL represents and warrants to Issuer as --------------------------- follows and acknowledges that Issuer is relying upon such representations and warranties in connection with entering into this Agreement and completing the transactions contemplated hereby. 4.4.1 Accredited Investor AOL is an accredited investor ("Accredited ------------------- investor") as defined in Rule 501(a) under the United States Securities Act of 1933 (the "1933 Act"), and is acquiring the Shares (the "Subject Securities") for its own account or for the account of an Accredited Investor as to which it exercises sole investment discretion, and not with a view to any resale, -19- distribution or other disposition of the Subject Securities in violation of the United States securities laws or applicable state securities laws; 4.4.2 Exempt Sale AOL is aware that the Subject Securities have not been and ----------- will not be registered under the 1933 Act and that the sale to it of such securities is being made in reliance on a private placement exemption from such registration, and the Subscriber certifies that: (a) it is and will be acquiring the Subject Securities for its own account or for the account of another accredited investor; and (b) it has received all information, financial and otherwise, with respect to the Issuer which it has requested and has had access to such additional information, if any, concerning the Issuer as it has considered necessary in connection with its investment decision to acquire the Subject Securities; 4.4.3 Sophisticated Investor AOL has such knowledge and experience in ----------------------- financial and business matters as to be capable of evaluating the merits and risks of its investment in the Subject Securities and is able to bear the economic risks of such investment; 4.4.4 U.S. Resident AOL and any account for which it is purchasing Subject ------------- Securities are resident in the United States; 4.4.5 Restricted Securities AOL acknowledges that the Subject Securities will --------------------- be "restricted securities" for the purposes of the 1933 Act and agrees that if it shall decide to offer, sell or otherwise transfer, pledge or hypothecate any of such securities, the same may be offered, sold or otherwise transferred, pledged or hypothecated only (a) to the Issuer, (b) outside the United States in accordance with Rule 904 of Regulation S under the 1933 Act, (c) inside the United States in accordance with Rule 144 under the 1933 Act, if available, and in compliance with any applicable state securities laws; or (d) pursuant to another exemption from registration under the 1933 Act and any applicable state securities laws; 4.4.6. Legend AOL understands that all certificates representing the Subject ------ Securities purchased by it as well as all certificates issued in exchange therefor, or in substitution thereof will bear a legend to the following effect: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS. -20- DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE BEARING NO LEGEND MAY BE OBTAINED FROM THE REGISTRAR AND TRANSFER AGENT UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE REGISTRAR AND TRANSFER AGENT AND THE CORPORATION, TO THE EFFECT THAT SUCH SALE IS BEING MADE IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE 1933 ACT."; provided that if Subject Securities are being sold outside the United -------- States in compliance with the requirements of Rule 904 of Regulation S, any such legend may be removed by providing a declaration to the registrar and transfer agent to the following effect or as the Issuer may prescribe from time to time: "The undersigned (a) acknowledges that the sale of the securities of Internet Liquidators International Inc. (the "Corporation") to which this declaration relates is being made in reliance on Rule 904 of Regulation S under the United States Securities Act of 1933, as amended (the "1933 Act") and (b) certifies that (1) the undersigned is not an affiliate of the Corporation as that term is defined in the 1933 Act, (2) the offer of such securities was not made to a person in the United States and either (A) at the time the buy order was originated, the buyer was outside the United States, or the seller and any person acting on its behalf reasonably believe that the buyer was outside the United States, or (B) the transaction was executed on or through the facilities of The Toronto Stock Exchange, The Montreal Exchange, The Alberta Stock Exchange or the Vancouver Stock Exchange and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States, (3) neither the seller nor any affiliate of the seller nor any person acting on any of their behalf has engaged or will engage in any directed selling efforts in the United States in connection with the offer and sale of such securities and (4) the transaction is not, although in technical compliance with Rule 904 of Regulation S, part of a plan or scheme to evade the registration requirements of the 1933 Act. Terms used herein have the meanings given to them by Regulation S."; and 4.4.7 Transfer Restriction AOL understands and acknowledges that the Issuer -------------------- has the right to instruct its transfer agent and registrar not to record a transfer by any person in the United States without first being notified by the Issuer that it is satisfied that such transfer is exempt from or not subject to registration under the 1933 Act and any applicable state securities laws. ARTICLE FIVE INDEMNIFICATION --------------- 5.1 Definitions. As used in this Article 5: ------------ "Affiliate" has the meaning attributed thereto in the Act; -21- "Claim" means any act, omission or state of facts and any demand, action, suit or proceeding which may constitute or give rise to a right to indemnification under Sections 5.2 or 5.3 hereof; "Direct Claim" means any Claim by an Indemnified Party against an Indemnifier which does not result from a Third Party Claim; "Indemnified Loss" means any loss, liability, damage, cost or expense relating to, resulting from or arising out of any Claim (including, without limitation, the costs and expenses of any action, suit, proceeding, demand, assessment, judgment, settlement or compromise relating thereto and all interest, punitive damages, fines and penalties and reasonable legal fees and expenses incurred in connection therewith but excluding loss profits and consequential damages) which is suffered or incurred by an Indemnified Party and for which such Indemnified Party is entitled to indemnification under the provisions hereof; "Indemnifier" means any Party obligated to provide indemnification under this Agreement; "Indemnified Party" means any Person entitled to indemnification under this Agreement; "Indemnity Payment" means any amount of Indemnified Loss required to be paid pursuant to Sections 5.2 or 5.3 hereof; and "Third Party Claim" means any Claim asserted against the Indemnified Party by any Person who is not a Party or an Affiliate of such a Party. 5.2 Indemnification by Issuer. Subject to the limits set forth in Section -------------------------- 5.11, each of Issuer shall indemnify, defend and save harmless AOL and each of its directors, officers, employees, agents and representatives from and against any and all Indemnified Losses suffered or incurred by them, as a direct or indirect result of: (a) subject to Section 3.6 hereof, any misrepresentation or breach of warranty made or given by Issuer in this Agreement, any Closing Document or in any document delivered pursuant to any of them; or (b) any failure by Issuer to observe or perform any covenant or obligation contained in this Agreement, any Closing Document or in any document delivered pursuant to any of them to be observed or performed by it. 5.3 Indemnification by AOL. Subject to the limits set forth in Section 5.11, ----------------------- AOL shall indemnify, defend and save harmless Issuer and its subsidiaries and each of its directors, officers, employees, agents and representatives from and against any and all Indemnified Losses suffered or incurred by them, as a direct or indirect result of: (a) subject to Section 3.7, any misrepresentation or breach of any warranty made or given by AOL in this Agreement, any Closing Document or in any document delivered pursuant to any or them; or -22- (b) any failure by AOL to observe or perform any covenant or obligation contained in this Agreement, any Closing Document or in any document delivered pursuant to any of them to be observed or performed by it. 5.4 Notice of and the Defense of Third Party Claims. If an Indemnified Party ------------------------------------------------ receives notice of the commencement or assertion of any Third Party Claim, the Indemnified Party shall give the Indemnifier reasonably prompt written notice thereof, but in any event no later than 30 calendar days after receipt of such notice of such Third Party Claim. Such notice to the Indemnifier shall describe the Third Party Claim in reasonable detail and shall indicate, if reasonably practicable, the estimated amount of the Indemnified Loss that has been or may be sustained by the Indemnified Party. The Indemnifier shall have the right to participate in or, by giving notice to that effect to the Indemnified Party not later than 30 calendar days after receipt of such notice of such Third Party Claim and subject to the rights of any insurer or other third party having potential liability therefor, to elect to assume the defense of any Third Party Claim at the Indemnifier's own expense and by such Indemnifier's own counsel, and the Indemnified Party shall co-operate in good faith in such defense. The Indemnified Party shall have the right to participate in the defense of any Third Party Claim assisted by counsel of its own choosing. If the Indemnified Party has not received notice within such 30 calendar day period that the Indemnifier has elected to assume the defence of such Third Party Claim, the Indemnified Party may, at its option, elect to settle or compromise the Third Party Claim or assume such defence, assisted by counsel of its own choosing and the Indemnifier shall be liable for all costs and expenses paid or incurred in connection therewith. 5.5 Assistance for Third Party Claims. In the event of any Third Party Claim, ---------------------------------- the Indemnifier and the Indemnified Party will use all reasonable efforts to make available to the Party which is undertaking and controlling the defense of such Third Party Claim, (a) those employees whose assistance, testimony or presence is necessary to assist such Party in evaluating and in defending any Third Party Claim; and (b) all documents, records and other materials in the possession of such Party reasonably required by such Party for its use in defending any Third Party Claim, and shall otherwise cooperate with the Party defending such Third Party Claim. The Indemnifier shall be responsible for all expenses associated with making such documents, records and materials available and for all expenses of any employees made available by the Indemnified Party to the Indemnifier hereunder, which expense shall be equal to an amount to be mutually agreed upon per person per hour or per day for each day or portion thereof that such employees are assisting the Indemnifier but such expenses shall not exceed the actual cost to the Indemnified Party associated with such employees. 5.6 Settlement of Third Party Claims. If an Indemnifier elects to assume the -------------------------------- defence of any Third Party Claim as provided in Section 5.4 hereof, the Indemnifier shall not be liable for any legal expenses subsequently incurred by the Indemnified Party in connection with the defence thereof. However, if the Indemnifier fails to take reasonable steps necessary to defend diligently such Third Party Claim within 30 calendar days after receiving notice from the Indemnified Party that the -23- Indemnified Party bona fide believes on reasonable grounds that the Indemnifier has failed to take such steps, the Indemnified Party may, at its option, elect to assume the defence of and to compromise or settle the Third Party Claim assisted by counsel of its own choosing and the Indemnifier shall be liable for all costs and expenses paid or incurred in connection therewith. Without the prior written consent of the Indemnified Party, the Indemnifier shall not enter into any compromise or settlement of any Third Party Claim which would lead to liability or create any financial or other material obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder and the Indemnifier desires to accept such offer, the Indemnifier shall give written notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent to such firm offer within 30 calendar days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and, in such event, the maximum liability of the Indemnifier with respect to such Third Party Claim shall be (a) the amount of the offer of settlement which the Indemnified Party refused to accept plus the costs and expenses of the Indemnified Party prior to the date the Indemnifier notifies the Indemnified Party of the offer of settlement and (b) the actual out-of-pocket amount the Indemnified Party is obligated to pay as a result of continuing to pursue such matter, whichever is the lesser. An Indemnifier shall be entitled to recover from the Indemnified Party any additional expenses incurred by such Indemnifier as a result of the decision of the Indemnified Party to contest or defend such Third Party Claim. 5.7 Direct Claims. Any Direct Claim shall be asserted by giving the -------------- Indemnifier reasonably prompt written notice thereof, but in any event not later than 30 calendar days after the Indemnified Party becomes aware of such Direct Claim, and the Indemnifier shall have a period of 30 calendar days within which to respond in writing to such Direct Claim. If the Indemnifier does not so respond within such 30 calendar day period, the Indemnifier shall be deemed to have rejected such Claim, in which event the Indemnified Party shall be free to pursue such remedies as may be available to the Indemnified Party. 5.8 Failure to Give Timely Notice. A failure to give timely notice as provided ------------------------------ in this Article 5 shall not affect the rights or obligations of either Party except and only to the extent that, as a result of such failure, any Party which was entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise directly and materially damaged as a result of such failure. 5.9 Reductions and Subrogation. If the amount of any Indemnified Loss, at any --------------------------- time subsequent to the making of an Indemnity Payment, is reduced by (a) any net tax benefit or (b) any recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by or against any other Person, the amount of such reduction (less any costs, expenses (including taxes) or premiums incurred in connection therewith), together with interest thereon from the date of payment thereof at the Prime Rate, shall promptly be repaid by the Indemnified Party to the Indemnifier. Upon making any Indemnity Payment, the Indemnifier shall, to the extent of such Indemnity Payment, be subrogated to all rights of the Indemnified Party against any third party that is -24- not an affiliate (as defined in the Act) of the Indemnified Party in respect of the Indemnified Loss to which the Indemnity Payment relates but only if the Indemnifier shall then be in compliance with its obligations under this Agreement in respect of such Indemnified Loss. Until the Indemnified Party recovers full payment of its Indemnified Loss, any and all claims of the Indemnifier against any such third party on account of such Indemnity Payment shall be postponed and subordinated in right of payment to the Indemnified Party's rights against such third party. Without limiting the generality or effect of any other provision hereof, the Indemnified Party and Indemnifier shall duly execute upon request all instruments reasonably necessary to evidence and perfect the above-described postponement and subordination rights. 5.10 Interest on Indemnified Losses. All Indemnified Losses shall bear ------------------------------- interest at a rate per annum equal to the Prime Rate, calculated and payable monthly, both before and after judgment, with interest on overdue interest at the same rate, from the date that the Indemnified Party disbursed funds, suffered damages or losses or incurred a loss, liability or expense in respect of an Indemnified Loss, to the date of payment by the Indemnifier to the Indemnified Party. 5.11 Limitation. ----------- (a) With the exception of any claims arising in connection with title to the IL Technology, no claims for indemnification may be made hereunder by AOL against Issuer in respect of any Indemnified Losses arising in connection with any misrepresentation or breach of warranty made or given by Issuer in this Agreement, any Closing Document or in any document delivered pursuant to any of them, unless and until the Indemnified Losses suffered or incurred by AOL and by all of its directors, officers, employees, agents or representatives collectively, in respect of all such misrepresentations or breaches of warranty, exceed twenty-five Thousand Dollars ($25,000) in the aggregate (excluding claims each of which is less than $1,000), in which event the amount of all such Indemnified Losses including such twenty-five Thousand Dollars ($25,000) amount may be recovered by AOL. (b) No claims for indemnification may be made hereunder by Issuer against AOL in respect of any Indemnified Losses arising in connection with any misrepresentation or breach of warranty made or given by AOL in this Agreement, any Closing Document or in any document delivered pursuant to any of them, unless and until the Indemnified Losses suffered or incurred by Issuer and by all of its directors, officers, employees, agents or representatives collectively, in respect of all such misrepresentations or breaches of warranty, exceed twenty-five Thousand Dollars ($25,000) in the aggregate (excluding claims each of which is less than $1,000), in which event the amount of all such Indemnified Losses including such twenty-five Thousand Dollars ($25,000) amount may be recovered by Issuer. 5.12 Rights in Addition. The rights of indemnity set forth in this Article 5 ------------------- are in addition and supplemental to any other rights, actions, claims or causes of action which may arise in respect of this Agreement, the Closing Documents and the transactions contemplated hereby. -25- 5.13 Determination of Indemnified Loss. In determining the amount of any ---------------------------------- Indemnified Loss hereunder the market price of any securities of Issuer held by the Indemnified Party shall be only one factor to be taken into account. ARTICLE SIX CONDITIONS PRECEDENT -------------------- 6.1 AOL's Conditions. The obligation of AOL to complete the purchase of the ----------------- Shares and Warrant shall be subject to the prior satisfaction of, or compliance with, at or before the Closing Time, each of the conditions precedent set out in this Section 6.1, each of which is acknowledged to be for the exclusive benefit of AOL and may be waived by AOL in whole or in part in writing and upon such terms and conditions, if any, as AOL may require. 6.1.1 Accuracy of Representations and Performance of Covenants. All of the --------------------------------------------------------- representations and warranties of Issuer made in or pursuant to this Agreement shall be true and correct in all respects as at the First Closing and with the same effect as if made at and as of the Closing Time of the First Closing and as if any time at which such representation or warranty were accurate read the "Closing Time" (except as such representations and warranties may be affected by the occurrence of events or transactions expressly contemplated and permitted hereby) and AOL shall have received immediately prior to the Closing Time a certificate from the chief executive officer or the chief financial officer of Issuer confirming the foregoing to the best of their knowledge, information and belief, after due enquiry. With the exception of a certificate respecting Section 3.1.16, the foregoing conditions only apply to the First Closing. As at the Closing Time, Issuer shall have observed or performed in all respects, all of its covenants and obligations hereunder to be observed or performed by it at or before the applicable Closing Time. 6.1.2 No Material Adverse Change. No material adverse change shall have --------------------------- occurred since the Financial Disclosure Date with respect to any of Issuer, the Subsidiaries, the Business or the Assets or the future prospects for any of Issuer, the Subsidiaries or the Business other than as a result of general industry trends and AOL shall have received immediately prior to Closing a certificate from the chief executive officer or the chief financial officer of Issuer confirming that no such material adverse change has occurred. This condition only applies to the First Closing. 6.1.3 Litigation. No court order shall have been entered that enjoins, ----------- restrains, changes or prohibits the consummation of any of the transactions contemplated hereby, and no Party, or any of either Party's directors, officers, advisors, employees or agents, shall be a defendant or third party to or threatened with, any litigation or proceedings before any court or Governmental Agency which, in the opinion of AOL, acting reasonably, could prevent or restrict AOL or Issuer from observing and performing any of their respective covenants and obligations pursuant to this Agreement or the Closing Documents. 6.1.4 Receipt of Closing Documentation. All actions and proceedings taken on --------------------------------- or prior to the Closing in connection with the performance by Issuer of its covenants and obligations under this Agreement shall be satisfactory to AOL acting reasonably and AOL shall have received copies of the -26- Closing Documents and all such documentation or other evidence as it may reasonably request in connection with the Closing in form (as to certification and otherwise) and substance satisfactory to AOL. 6.1.5 Opinion of Counsel for Issuer. AOL shall have received an opinion dated ------------------------------ the Closing Date from counsel for Issuer in the form of the opinion attached hereto as Schedule G. In giving such opinion, counsel to Issuer may rely on certificates of senior officers of Issuer as to factual matters provided such certificates are attached to the opinion. Such opinion shall also cover such other matters as AOL or its counsel may reasonably request. This condition only applies to the First Closing. 6.1.6 Closing Documents. Each of the following documents shall have been ------------------ executed and delivered by the parties thereto other than AOL: (a) the Auction Services Agreement in the form of Schedule I; (b) the Shareholders' Agreement in the form of Schedule K; (c) the Registration Rights Agreement in the form of Schedule L; (d) the IP Rights and Non-Competition Agreement in the form of Schedule O; and (e) DCI Term Sheet in the form of Schedule J. 6.1.7 Cease Trade Orders. There shall be no cease trade orders in force by any ------------------- securities regulatory authorities or any other impediments (other than "control block" and "hold period" restrictions) to the general free trading of the Shares and the shares underlying the Warrant. 6.1.8 Equity Injection. Issuer shall have received net proceeds of no less than ----------------- $850,000 Cdn cash from the issuance of common shares from treasury of Issuer at an issue price of no less than $0.85 Cdn per common share (the "Condition Precedent Financing"). 6.2 Issuer's Conditions. The obligation of Issuer to complete the issuance ------------------- of the Shares shall be subject to the satisfaction of or compliance with, at or before the Closing Time, each of the conditions precedent set out in this Section 6.2, each of which is hereby acknowledged to be for the exclusive benefit of Issuer and may be waived by Issuer in whole or in part in writing upon such terms and conditions, if any, as Issuer may require. 6.2.1 Accuracy of Representations and Performance of Covenants. All of the --------------------------------------------------------- representations and warranties of AOL made in or pursuant to this Agreement shall be true and correct in all respects as at the First Closing and with the same effect as if made at and as of the Closing Time of the First Closing and as if any time at which such representation or warranty were accurate read the "Closing Time" (except as such representations and warranties may be affected by the occurrence of events or transactions expressly contemplated and permitted hereby) and Issuer shall have received immediately -27- prior to the Closing Time a certificate from the chief executive officer and the chief financial officer of AOL confirming the foregoing to the best of its knowledge, information and belief, after due enquiry. The foregoing condition only applies to the First Closing. As at the Closing Time, AOL shall have observed or performed in all respects, all of its covenants and obligations hereunder to be observed or performed by it at or before the applicable Closing Time. 6.2.2 Litigation. No court order shall have been entered that enjoins, ----------- restrains, changes or prohibits the consummation of any of the transactions contemplated hereby, and no Party, nor any of either Party's directors, officers, advisors, employees or agents, shall be a defendant or third party to or threatened with any litigation or proceedings before any court or Governmental Agency which, in the opinion of Issuer, acting reasonably, could prevent or restrict Issuer or AOL from observing and performing any of their respective obligations and covenants pursuant to this Agreement or the Closing Documents. 6.2.3 Receipt of Closing Documentation. All Closing Documents and all actions --------------------------------- and proceedings taken on or prior to the Closing in connection with the performance by AOL of its covenants and obligations under this Agreement shall be satisfactory to Issuer, and Issuer shall have received copies of the Closing Documents and all such documentation or other evidence as they may reasonably request for the Closing in form (as to certification and otherwise) and substance satisfactory to them. 6.2.4 Opinion of Counsel for AOL. IL shall have received an opinion dated the --------------------------- Closing Date from counsel for AOL in the form of the opinion attached hereto as Schedule G. In giving such opinion, counsel to AOL may rely on certificates of senior officers of AOL as to factual matters provided such certificates are attached to the opinion. Such opinion shall also cover such other matters as IL or its counsel may reasonably request. This condition only applies to the First Closing. 6.2.5 Closing Documents. Each of the following documents shall have been ------------------ executed and delivered by the parties thereto other than IL: (a) the Auction Services Agreement in the form of Schedule I; and (b) the Shareholders' Agreement in the form of Schedule K. 6.3 Waiver. Any Party may waive, by notice to the other Party, any condition ------- set forth in this Article 6 which is for its exclusive benefit. No waiver by a Party of any condition, in whole or in part, shall operate as a waiver of any other condition. 6.4 Failure to Satisfy Conditions. If any condition set forth in Sections ----------------------------- 6.1 or 6.2 is not satisfied on or before the Closing Time, the Party entitled to the benefit of such condition may send notice in writing to the other Party that this Agreement is to be terminated. 6.5 Destruction or Expropriation. If, prior to the Closing Time, there ---------------------------- occurs any material destruction or damage by fire or other cause or hazard to any material part of the Assets, or if the Assets -28- or any material part of them are expropriated or forcefully taken by any Governmental Agency or if notice of intention to expropriate a material part of the Assets has been filed in accordance with Applicable Law, then AOL may, at its option, terminate this Agreement by notice to Issuer. - -29-0 ARTICLE 7 GENERAL ------- 7.1 Expenses. Each Party shall pay all expenses it incurs in authorizing, --------- preparing, executing and performing this Agreement and the transactions contemplated hereunder, whether or not the Closing occurs, including all fees and expenses of its legal counsel, bankers, investment bankers, brokers, accountants or other representatives or consultants. 7.2 Time. Time is of the essence of this Agreement and each of its ---- provisions. 7.3 Notice. Any notice or other communication (in this Section a "Notice") ------- required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered in person during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant party at the applicable address set forth below; (b) sent by prepaid first class mail; or (c) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to AOL addressed to it at: America Online, Inc. with a copy to: 22000 AOL Way America Online, Inc. Dulles, Virginia 20166 22000 AOL Way Dulles, Virginia 20166 Attention: Fred Singer, Vice-President Attention: General Counsel Fax No.: (703) 265-2409 Fax No.: (703) 265-2208 and in the case of a Notice to Corporation addressed to it at: Internet Liquidators International Inc. with a copy to: 5915 Airport Rd., Gowling, Strathy & Henderson Suite 330 Commerce Court West Mississauga, Ontario Suite 4900 L4V 1T Toronto, Ontario M5L 1J3 Attention: Paul Godin Attention: David Pamenter Fax No.: (905) 672-5705 Fax No.: (416) 862-7661 -30- Any Notice given or made in accordance with this Section 7.3 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; (b) on the fifth Business Day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof. Any Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 7.3. 7.4 Public Announcements. Before the First Closing, no Party shall make any --------------------- public statement or issue any press release concerning the transactions contemplated by this Agreement except as may be necessary, in the opinion of counsel to the Party making such disclosure, to comply with the requirements of all Applicable Law and except for press releases with respect to the execution hereof. If any such public statement or release is so required, the Party making such disclosure shall consult with the other Parties prior to making such statement or release, and the Parties shall use all reasonable efforts, acting in good faith, to agree upon a text for such statement or release which is satisfactory to all Parties. 7.5 Assignment. None of this Agreement nor any right or obligation hereunder ----------- is assignable in whole or in part by either Party without the prior written consent of the other Party. Notwithstanding the foregoing, AOL may, without the consent of Issuer, assign this Agreement and its rights hereunder to any wholly- owned subsidiary on condition that AOL remains liable to observe and perform all of its covenants and obligations hereunder. Subject thereto, this Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors (including any successor by reason of amalgamation or statutory arrangement of either Party) and permitted assigns. 7.6 Further Assurances. Each Party shall do such acts and shall execute and ------------------- deliver such further agreements, documents, conveyances, deeds, assignments, transfers and the like, and shall cause the doing of such acts and the execution and delivery of such further items as are within its power and as the other Party may in -31- writing at any time and from time to time reasonably request, in order to give full effect to the provisions of this Agreement and the Closing Documents. IN WITNESS WHEREOF the Parties have duly executed this Agreement. INTERNET LIQUIDATORS INTERNATIONAL INC. By: c/s Name: Title: AMERICA ONLINE, INC. By: c/s Name: Title: SCHEDULE "A" DEFINITIONS In this Agreement, unless the subject matter or context is inconsistent therewith: "Act" means the Business Corporations Act (Ontario) as amended or restated and any successor legislation of comparable effect; "Advertising Credits" means a credit to purchase advertising (to be used in accordance with AOL's then current advertising guidelines) on AOL's online service at rate card rates ($60 CPM). "Agreement" means this Subscription Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof; "hereof", "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement; "Articles" means the articles of amalgamation of Issuer dated January 9, 1997; "Applicable Law" means any domestic or foreign statute, law, ordinance, rule, regulation, regulatory policy or guideline, by-law (zoning or otherwise) or Order that applies to Issuer, the Subsidiaries, the Business, the way the Business is carried on or to the Shares or Warrant; "Assets" means all of the assets and undertaking of Issuer and the Subsidiaries, both tangible and intangible, including goodwill; "Business" means collectively the businesses carried on by Issuer and the Subsidiaries including the operation of an internet website which offers consumer products for sale via credit card transactions through an auction and storefront mall format for both retail and wholesale supplies; "Business Day" means any day of the week other than a Saturday, Sunday or statutory or civic holiday observed in Toronto, Ontario or Dulles, Virginia; "Cleared Title" means the execution and delivery to IL of assignments of Intellectual Property Rights and waivers of moral rights in a form acceptable to AOL's counsel, acting reasonably, by all consultants who provided development services to IL that gave rise to such rights in connection with the IL Auction Service; "Closings" means the First Closing and the Second Closing and "Closing" means either one of them; "Closing Date" means, in respect of any Closing such Business Day as the Parties agree in writing as the date on which such Closing is to take place; -2- "Closing Document" means any document delivered at or subsequent to the Closing Time as provided in or pursuant to, this Agreement; "Closing Time" means 11:00 a.m. (Toronto time) on the Closing Date or such other time on that date as the Parties agree that the Closing shall take place; "Condition Precedent Financing" has the meaning attributed thereto in Section 6.1.9; "Convertible Security" means a security of Issuer convertible into or exchangeable for one or more Voting Securities of Issuer; "Encumbrance" means any encumbrance of any kind whatever and includes a security interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge, trust or deemed trust (whether contractual, statutory or otherwise arising), adverse claim, or any other option, right or claim of others of any kind whatever affecting the Assets, Shares or Warrant, as applicable and any restrictive covenant or other agreement, restriction or limitation (registered or unregistered) on the Assets, Shares or Warrant, as applicable; "Financial Disclosure Date" means final day reviewed by any of the Financial Statements and being December 31, 1996; "Financial Statements" means the unaudited consolidated balance sheet of Issuer as at December 31, 1996 and the unaudited consolidated statement of loss and deficit of Issuer for the 12 month period ending December 31, 1996, copies of which are attached as Schedule B, together with the notes thereto; "First Closing" means the issuance of the Stage One Shares and Warrant by Issuer to AOL and the completion of all other transactions contemplated in connection with the purchase of the Stage One Shares and Warrant; "fully diluted basis" refers to the percentage interest that AOL would have in the common shares of the Issuer if all Rights and Convertible Securities or other privileges issued or granted by Issuer (whether or not currently exercisable or exercisable on conditions but not including the Warrant) to purchase common shares had been exercised; "Generally Accepted Accounting Principles" means generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which any calculation or determination is required to be made in accordance with generally accepted accounting principles, and where the Canadian Institute of Chartered Accountants includes a recommendation in its Handbook concerning the treatment of any accounting matter, such recommendation shall be regarded as the only generally accepted accounting principle applicable to the circumstances that it covers; -3- "Generic Software" means off the shelf or mass-market software which is readily substitutable by the Business with minimum cost or interruption to the Business; "Governmental Agency" means any domestic or foreign government whether federal, provincial, state or municipal and any governmental agency, authority, tribunal, commission or instrumentality of any kind whatever; "Information Record" means any statement contained in any press release, material change report, financial statement or other document of Issuer or any Subsidiary which has been or is publicly disseminated pursuant to any applicable securities laws prior to the Closing Time; "Intellectual Property Rights" includes: (A) any and all proprietary rights provided under (i) patent law, (ii) copyright law, (iii) trade-mark law, (iv) design patent or industrial design law, (v) semi-conductor chip or mask work law, or (vi) any other statutory provision or common law principle, applicable to the Issuer, the Subsidiaries,the Business or Assets which may provide a right in either (a) ideas, formulae, algorithms, concepts, inventions or know-how generally, including trade secret law, or (b) the expression or use of such ideas, formulae, algorithms, concepts, inventions or know-how; and (B) any and all applications, registrations, licenses, sub-licenses, franchises, agreements or any other evidence of a right in any of the foregoing; "Licence" means any licence, permit, approval, right, privilege, concession or franchise; "Loan Repayment" means the repayment of the $250,000.00 bridge financing with Standard Mercantile Bancorp LP dated the 18th of October, 1996 and the release of all security given in connection therewith; "ordinary course" when used in relation to the conduct by Issuer and the Subsidiaries of the Business means any transaction which constitutes an ordinary day-to-day business activity of Issuer and the Subsidiaries conducted in a commercially reasonable and businesslike manner consistent with the past practices of Issuer and the Subsidiaries; "Order" means any order (draft or otherwise), judgment, injunction, decree, award or writ of any court, tribunal, arbitrator, Governmental Agency or other Person; "Parties" means Issuer and AOL collectively, and "Party" means either of them; "Permitted Encumbrances" means: (i) any lien for taxes or other government levies not yet due or which is being contested in good faith if a reasonable reserve with respect thereto is maintained by Issuer; (ii) any construction or repair or storage lien arising in the ordinary course of the Issuer's business which is not overdue or which is being contested in good faith, if a reasonable reserve or holdback with respect thereto is maintained by the Issuer; (iii) any statutory liens incurred or deposit made in the ordinary course of the -4- Issuer's business which is not overdue in connection with Worker's Compensation, Unemployment Insurance and similar legislation; (iv) any encumbrance not in excess of the acquisition price of property acquired by Issuer, granted by Issuer to the seller of such property (but no to a party who gives value to Issuer to acquire such property) solely to secure its indebtedness for the acquisition price of such property, or any extension or renewal or replacement of such indebtedness provided that neither the principal amount of such indebtedness nor the rate of interest accruing thereon is increased and the encumbrance is not extended to apply to any other property of Issuer or any Subsidiary; (v) any encumbrance consented to in writing by AOL; (vi) any encumbrance in favour of AOL; or (vii) any encumbrance disclosed in Schedule Q. "Person" shall be broadly interpreted and includes an individual, body corporate, partnership, joint venture, trust, association, unincorporated organization, the Crown, any Governmental Agency or any other entity recognized by law; "Prime Rate" for any day means the rate of interest expressed as a rate per annum that The Royal Bank of Canada establishes at its head office in Toronto as the reference rate of interest that it will charge on that day for Canadian dollar demand loans to its customers in Canada and which it at present refers to as its prime rate; "Regulatory Filings" means all material and reports filed, or required to be filed, with applicable securities regulatory authorities and any stock exchange on which the securities of the relevant body corporate are listed; "Rights" means any options, rights, warrants or subscription privileges issued or granted by Issuer (whether or not currently exercisable or exercisable on conditions) to purchase Voting Securities or Convertible Securities of Issuer; "Second Closing" has the meaning attributed thereto in Section 2.1(b); "Shares" means the 1,000,000 common shares in the capital stock of Issuer to be subscribed hereunder by AOL from Issuer; "Stage Two Conditions" means those conditions precedent which must be fulfilled by Issuer if AOL is to be required to acquire the Stage Two Shares and being each of: (i) fulfilling the Yankee Auction Condition, (ii) completing the Loan Repayment (iii) raising an additional $425,000.00 CDN in equity, (iv) Issuer meeting the standards under the AOL Merchant Certification Program, (v) Issuer making its auction website available and fully functional, with the exception of functionality reasonably contemplated by the Parties to be implemented at a future date in accordance with the Auction Services Agreement annexed hereto as Schedule "I", for AOL's end users 97% of the time between 8:00 a.m. and 2:00 a.m. from the date of First Closing to the date of the Second Closing except for routine maintenance, (vi) Issuer making available a quantity, quality -5- and variety of merchandise at least comparable to its competitors and in any event appropriate for maintaining and confirming the reputation of AOL as a provider of quality goods and services, (vii) Issuer continuing to update the Yankee Auction Technology to ensure that it contains at least substantially the same functionality as its competitors; and (viii) Issuer having Cleared Title. "Stage Two Shares" has the meaning attributed thereto in Section 2.1(b); "Subscription Price" has the meaning ascribed to that term in Section 2.2; "Subsidiaries" means the bodies corporate listed in Schedule C, and "Subsidiary" means any one of them; "Taxes" means all federal, provincial, local, foreign or other taxes, imposts, rates, levies, assessments and government fees or dues lawfully levied, assessed or imposed against Issuer and the Subsidiaries or in respect of the Business, including income, premium, sales, excise, use, property, capital, goods and services, business transfer and value added taxes and custom and import duties and includes all interest, fines and penalties with respect thereto; "Tax Returns" means all reports and returns filed or required to be filed by Issuer and the Subsidiaries in respect of Taxes; "Technical Information" means all right, title and interest in and to all know- how of Issuer including (i) all information of a scientific, technical or business nature whether in oral, written, graphic, machine readable, electronic or physical form; and (ii) all patterns, plans, designs, research data, research plans, trade secrets and other proprietary know-how, processes, formulas, drawings, technology, computer software and related manuals, unpatented blue prints, flow sheets, equipment and parts lists, instructions, manuals, records and procedures; "Technology" means the Intellectual Property Rights and the Technical Information; "Voting Securities" means the common shares of Issuer and all other securities of Issuer of any kind or class having power to vote for the election of directors either under all circumstances or in certain circumstances or in certain events (whether such circumstances or events exist or have occurred); "Warrant" means the warrant for the purchase of common shares in the capital of the Issuer to be issued to AOL hereunder in the form set out in Schedule "N"; "Yankee Auction Condition" means Issuer causing its Yankee Auction Technology to have, by no later than sixty (60) days from the First Closing, the functionality required to be generally -6- competitive with other Yankee Auction Technologies available on the WWW and as well having that level of functionality set out in Schedule R; and "Yankee Auction Technology" has the meaning attributed thereto in AOL Auction Services Agreement. SCHEDULE "B" FINANCIAL STATEMENTS Incorporated by Reference. See Registration Statement (File No. 001-14835) on Form 20-F. SCHEDULE "C" SUBSIDIARIES Internet Liquidators USA, Inc. a. Articles Articles of Incorporation dated May 6, 1996 b. By-laws By-laws dated May 6, 1996 CP-29729-1 January 31, 1997 INTERNET LIQUIDATORS USA, INC. - ARTICLES - STATE OF FLORIDA Department of State I certify the attached is a true and correct copy of the Articles of Incorporation of INTERNET LIQUIDATORS USA, INC., a Florida corporation, filed on May 6, 1996, as shown by the records of this office. I further certify the document was electronically received under FAX audit number H96000006359. This certificate is issued in accordance with section 15. 16, Florida Statutes, and authenticated by the code noted below. The document number of this corporation is P96000038926. Given under my hand and the Great Seal of the State of Florida, at Tallahassee, the Capital, this the Sixth day of May, 1996 Authentication Code: 196AO0021979-050696-P96000038926-1/1 ___________________________ Sandra B. Mortham Secretary of State ARTICLES OF INCORPORATION OF INTERNET LIQUIDATORS USA, INC. I, the undersigned, hereby make, subscribe, acknowledge and file with the Secretary of State of the State of Florida these Articles of Incorporation for the purpose of forming a corporation for profit in accordance with the laws of the State of Florida. ARTICLE I Name ---- The name of this corporation shall be: Internet Liquidators USA, Inc. The principal business and mailing address of this corporation shall be 550 North Reo Street, Suite 300, Tampa, Florida 33609-1013. ARTICLE II Existence of Corporation ------------------------ This corporation shall, have perpetual existence. ARTICLE III Purposes -------- The corporation may engage in the transaction of any or all lawful business for which corporations may be incorporated under the laws of the State of Florida. ARTICLE IV General Powers -------------- The corporation shall have power: (a) To sue and be sued, complain, and defend in its corporate name. (b) To have a corporate seal, which may be altered at will and to use it or a facsimile of it, by impressing or affixing it or in any other manner reproducing it. (c) To purchase, receive, lease. or otherwise acquire, own, hold, improve, use, and otherwise deal with real or personal property or any legal or equitable interest in property wherever located. (d) To sell, convey, mortgage, pledge, create a security interest in, lease, exchange, and otherwise dispose of all or any part of its property. (e) To lend money to', and use its credit to assist, its officers and employees in accordance with Section 607.0833, Florida Statutes. (f) To purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of; and deal in and with shares or other interests in, or obligations of, any other entity. (g) To make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations (which may be convertible into or include the option to purchase other securities of the corporation), and secure any of its obligations by mortgage or pledge of any of its property, franchises, and income and make contracts of guaranty and suretyship which are necessary or convenient to the conduct, promotion, or attainment of the business of a corporation the majority of the outstanding stock of which is owned, directly or indirectly, by the contracting corporation; a corporation which owns, directly or indirectly, a majority of the outstanding stock of the contracting corporation; or a corporation the majority of the outstanding stock of which is owned, directly or indirectly, by a corporation which owns, directly or indirectly, the majority of th6 outstanding stock of the contracting corporation, which contracts of guaranty and suretyship shall be deemed to be necessary or convenient to the conduct, promotion, or attainment of the business of the contracting corporation, and make other contracts of guaranty and suretyship which are necessary or convenient to the conduct, promotion, or attainment of the business of the contracting corporation. (h) To lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment. (i) To conduct its business, locate offices, and exercise the powers granted by law within or without this state. (j) To elect directors and appoint officers, employees, and agents of the corporation and define their duties, fix their compensation, and lend them money and credit. (k) To make and amend bylaws, not inconsistent with its Articles of Incorporation or with the laws of the State of Florida, for managing the business and regulating the affairs of the corporation. (l) To make donations f6y the public welfare or for charitable, scientific, or educational purposes. (m) To transact any lawful business that will aid governmental policy. (n) To make payments or donations or do any other act not inconsistent with law that furthers the business and affairs of the corporation. (o) To pay pensions and establish pension plans, pension trusts, profit- sharing plans, share bonus plans, share option plans, and benefit or incentive plans for any or all of its current 2 or former directors, officers, employees, and agents and for any or all of the current or former directors, officers, employees, and agents of its subsidiaries. (p) To provide insurance for its benefit on the life of any of its directors, officers, or employees, or on the life of any shareholder for the purpose of acquiring at his or her death shares of its stock owned by the shareholder or by the spouse or children of the shareholder. (q) To be a promoter, incorporator, partner, member, associate, or manager of any corporation, partnership, joint venture, trust, or other entity. ARTICLE V Capital Stock ------------- (a) The total number of shams of capital stock authorized to be issued by the corporation shall be 10,000 shams having a par value of $1.00 per share. Each of said shares of stock shall entitle the holder thereof to one (1) vote at any meeting of the stockholders. The Board of Directors may authorize shams to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, promises to perform services evidenced by a written contract, or other securities of the corporation. Before the corporation _____ shares, the Board of Directors shall determine that the consideration received or to be received for shares to be issued is adequate. All stock when issued shall be paid for and shall be nonassessable. (b) In the election of directors of this corporation there shall be no cumulative voting of the stock entitled to vote at such election. ARTICLE VI Indemnification By Court Order ------------------------------ No director, officer, employee, or agent of the corporation who is or was a party to a proceeding may apply to the court conducting the proceeding, the circuit court, or to another court of competent jurisdiction, seeking indemnification or advancement of expenses, or both, pursuant to Section 607.0850(9), Florida Statutes, without the permission, by a majority vote of the disinterested directors, of the Board of Directors. ARTICLE VII Affiliated Transactions ----------------------- The corporation expressly elects, pursuant to Section 607.0901(5)(a) of the Florida Statutes, not to be governed by the rules pertaining to affiliated transactions contained in Section 607.0901, Florida Statutes. 3 ARTICLE VIII Control-Share Acquisitions -------------------------- The corporation exercises its right, pursuant to Section 607.0902(5) of the Florida Statutes, to avoid the provisions pertaining to control-share acquisitions contained ill Sections 607.0902, 607.1302(c) and 607.1320, Florida Statutes. ARTICLE IX Registered Office and Registered Agent -------------------------------------- The street address of the corporation's initial registered office is 501 East Kennedy Boulevard, Suite 1700, Tampa, Florida 33602, Attn: R. Alan Higbee, Esq., and the name of the corporation's initial registered agent at such address is Fowler, White, Gillen, Boggs, Villareal and Banker, P.A. The corporation may change its registered office or its registered agent or body by filing with the Department of State of the State of Florida a statement complying with Section 607.0502, Florida Statutes. ARTICLE X Initial Board of Directors -------------------------- The number of directors constituting the initial Board of Directors shall be two (2), and the name and address of each person who is to serve as a member thereof is as follows: Name Address ----- ------- Paul Godin 550 North Reo Street Suite 300 Tampa, Florida 33609-1013 Jeff Lymburner 550 North Reo Street Suite 300 Tampa, Florida 33609-1013 ARTICLE XI Incorporators ------------- The name and address of the incorporator of this corporation is as follows: Name Address - ---- ------- R. Alan Higbee Post Office Box 1438 Tampa, Florida 33601 4 ARTICLE XII Amendment of Articles or Incorporation -------------------------------------- The corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation in the manner now or. hereafter prescribed by status (e, and all rights conferred upon the stockholders herein are subject to this reservation. IN WITNESS WHEREOF, I, the undersigned, have executed these Articles for the uses and purposes therein stated. _______________________________ R. Alan Higbee, Incorporator 5 CERTIFICATE DESIGNATING PLACE OF BUSINESS OR DOMICILE FOR THE SERVICE OF PROCESS WITHIN FLORIDA, NAMING AGENT UPON WHOM PROCESS MAY BE SERVED In compliance with Section 48.091, Florida Statutes, the following is submitted: Internet liquidators USA, Inc. has named Fowler, White, Gillen, Boggs, Villareal and Banker, P.A., located at 501 East Kennedy Boulevard. Suite 1700, City of Tampa, County of Hillsborough, State of Florida, as its agent to accept service of process within Florida. ___________________________________ R. Alan Higbee, Incorporator Date:_______________________________ Having been named to accept service of process for the above-stated corporation, at the place designated in this certificate, I hereby agree to act in this capacity, and I further agree to comply with the provisions of all statutes relative to the proper and complete performance of my duties. FOWLER, WHITE, GILLEN, BOGGS, VILLAREAL AND BANKER, P.A., Registered Agent By:__________________________________ R. Alan Higbee, For the Firm Date:_________________________________ 6 INTERNET LIQUIDATORS USA, INC. - BY-LAWS - BYLAWS OF INTERNET LIQUIDATORS USA, INC. _____________________________________________________________________________ ARTICLE I Offices ------- The principal office shall be in the City of Tampa, County of Hillsborough, and State of Florida or at such other location, within or outside of Florida as the Board of Directors may elect. The corporation may also have offices at such other places both within and without the State of Florida as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II Stockholders ------------ Section 1. Annual Meeting . The annual meeting of the stockholders shall -------- -------------- be held within the three (3) month period beginning with the first day of the last month of tile fiscal year of the corporation for the purpose of electing directors and for the transaction of such other business as may come before the meeting; the actual day thereof to be set forth in the Notice of Meeting or in the Call and Waiver of Notice of Meeting. If the election of directors shall not be held at any such annual meeting of the stockholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as may be convenient. Section 2. Special Meetings. Special meetings of the stockholders --------- ---------------- for any purpose or purposes. unless otherwise prescribed by law or by the Articles of Incorporation, may be called by the President or by the Board of Directors, and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors then in office, or at the request in writing of stockholders owning not less than one-tenth (1/10th) of the entire capitol stock of the corporation issued and outstanding and entitled to vote thereat. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice thereof. Section 3. Place of Meeting. The Board of Directors may designate any --------- ---------------- place either within or without the State of Florida, unless otherwise prescribed by law or by the Articles of Incorporation, as the place of meeting for any annual meeting or for any special meeting of the stockholders. A waiver of notice signed by all stockholders entitled to vote at a meeting may designate any place either within or without the State of Florida, unless otherwise prescribed by law or by the Articles of Incorporation, as the place for the holding of such meeting. If no designation is made or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation in the State of Florida. Section 4. Notice of Meeting. Written or printed notice stating the --------- ----------------- place, day and flour of the meeting, and in the case of a special meeting, the purpose or purposes for which tile meeting is called shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either by hand delivery, express or other delivery service, telecopier, telegram, telex, mailgram, cablegram or other delivery method or by first-class mail, by or at the direction of the President or the Secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his or her business or home address or the stockholder's address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Section 5. Waiver of Notice of Meeting. Whenever any notice to a --------- --------------------------- stockholder is required pursuant to the provisions of Section 4 hereinabove, each stockholder may waive such notice in writing at any time before or after the time for the delivery of such notice, and such written waiver of notice shall be equivalent to the giving of such notice. Attendance at ally meeting by any stockholder to whom notice of such meeting must be given pursuant to the provisions of Section 4 hereinabove shall constitute a waiver of notice of such meeting by such stockholder, except when the stockholder attends such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business at the meetings because the meeting is not lawfully called or convened. Section 6. Voting List. The officer or agent having charge of the stock --------- ----------- transfer books for shares of the corporation shall make, at least ten (10) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or ally adjournment thereof arranged in alphabetical order, with the address and the number and class and series of shares held by each; which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the principal office of the corporation and shall be subject to inspection by any stockholder during the whole time of tile meeting. The original stock transfer book shall be prima facie evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at any meeting of the stockholders. Section 7. Quorum. A majority of tile outstanding shares of the --------- ------ corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, unless otherwise provided in the Articles of Incorporation, but in no event shall a quorum consist of less than one-third (1/3) of the shares entitled to vote at the meeting. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 2 Section 8. Voting of Shares. Each stockholder entitled to vote shall at --------- ---------------- every meeting of the stockholders be entitled to one (1) vote in person or by proxy, signed by him, for each share of the voting stock held by him that has been transferred on the books of the corporation prior to such meeting. Such right to vote shall be subject to the right of the Board of Directors to close the transfer books or to fix a record date for voting stockholders pursuant to the provisions of Article VIII hereinafter. Section 9. Proxies. At all meetings of stockholders, a stockholder may --------- ------- vote by proxy, executed in writing by the stockholder or by his or her duly authorized attorney-in-fact; but no proxy shall be valid after eleven (11) months from its date, unless the proxy provides for a longer period. Such proxies shall be riled with the Secretary of the corporation before or at tile time of the meeting. Section 10. Informal Action by Stockholders. ---------- -------------------------------- (a) Any action which may be taken or is required by law to be taken at any annual or special meeting of the stockholders may be taken without a meeting and without a vote, if a consent in writing, setting forth tile action so taken, shall be signed by the holders of a majority of the outstanding stock of the corporation. If ally class of stock is entitled to vote thereon as a class, such written consent shall be required of the holders of a majority of the stock of each class of stock entitled to vote as a class thereon and of tile total stock entitled to vote thereon. (b) Unless all of tile holders of tile outstanding stock of the corporation have signed a written consent to an action in accordance with the provisions of paragraph (a) hereinabove, then within ten (10) days after obtaining such written consent notice must be given to those stockholders who have not so consented in writing. The notice shall fairly summarize the material features of the authorized action, and, if the action be a merger, consolidation. or sale or exchange of assets for which dissenters' rights are provided by Florida law, the notice shall contain a clear statement of the right of stockholders dissenting therefrom to be paid the fair value of their shares upon compliance with Florida law regarding the rights of dissenting stockholders. ARTICLE III Board of Directors ------------------ Section 1. General Powers. The business and affairs of the corporation --------- -------------- shall be managed by its Board of Directors. Section 2. Number, Tenure and Qualifications. The number of directors of --------- --------------------------------- the corporation shall be not less than one (1), nor more than fifteen (15); the number of the same to be fixed by the stockholders at any annual or special meeting. Each director shall hold office until the next annual meeting of stockholders or until his or her successor has been elected, unless sooner removed by the stockholders at any general or special meeting. None of directors need be residents of the State of Florida. 3 Section 3. Annual Meeting. After each annual meeting of stockholders, --------- -------------- the Board of Directors shall hold its annual meeting at the same place as and immediately following such annual meeting of stockholders for the purpose of the election of officers and the transaction of such other business as may come before the meeting; and if a majority of the directors be present at such place and time, no prior notice of such meeting shall be required to be given to tile directors. The place and time of such meeting may also be fixed by written consent of the directors. Section 4. Regular Meetings. Regular meetings of the Board of Directors --------- ---------------- may be held without notice at such time and at such place as shall be determined from time to time by the Board of Directors. Section 5. Special Meetings. Special meetings of the Board of Directors --------- ---------------- may be called by the Chairman of the Board, if there be one, or the President or any two (2) directors. The person or persons authorized to call special meetings of the Board of Directors may fix the place, time and date for holding any special meetings of tile Board of Directors called by them. Section 6. Notice of Meeting or Waiver Thereof. Notice of any special --------- ----------------------------------- meeting shall be given at least two (2) days prior thereto by written notice delivered personally or mailed to each director at his or her business or home address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to tile telegraph company. If notice is given by cablegram. such notice shall be deemed to be delivered when the cablegram is dispatched. Any director may waive notice of such meeting either before, at or after such meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Notice need not specify the purpose of any meeting. Section 7. Quorum. A majority of the directors shall constitute a --------- ------ quorum, but a smaller number may adjourn from time to time without further notice until a quorum is secured. Section 8. Manner of Acting. The act of a majority of the directors --------- ---------------- voting for or against (disregarding any abstentions) at a meeting at which a quorum is present shall be the act of file Board of Directors. Section 9. Vacancies. Any vacancy occurring in the Board of Directors, --------- --------- including any vacancy created by reason of an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of file Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office. Section 10. Compensation. By resolution of the Board of Directors, the ---------- ------------ directors may be paid their expenses, if any, for attendance at each meeting of the Board of Directors, and may be paid a fixed sum for attendance at each meeting of the Board of Directors, or a stated salary as 4 directors. No payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 11. Presumption of Assent. A director who is present at a ---------- --------------------- meeting at which action on any corporate matter is taken shall be presumed to have assented to the action taken, unless lie votes against such action or abstains from voting in respect thereto. A director may abstain from voting on any matter in his or her sole discretion. Section 12. Informal Action by Board. Any action required or permitted ----------- ------------------------ to be taken by any provisions of law, by the Articles of Incorporation or these bylaws at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if, prior to such action, a written consent thereto is signed by all members of the Board or of such committee, as the case may be, setting forth the actions so to be taken and filed in the minutes of file proceedings of the Board or of the committee. Section 13. Telephonic Meetings. Members of file Board of Directors or an ---------- ------------------- executive committee shall be deemed present at a meeting of such Board or committee if a conference telephone, or similar communications equipment, by means of which all persons participating in the meeting can hear each other at the same time, is used. Section 14. Removal. Any director may be removed, with or without cause, ---------- ------- by the stockholders at any general or special meeting, of file stockholders whenever, in the judgment of the stockholders, the best interest of file corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person removed. This bylaw shall not be subject to change by the Board of Directors. ARTICLE IV Officers -------- Section 1. Number. The officers of the corporation shall be a --------- ------ President, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may also elect a Chairman of the Board, one or more Vice Presidents, one or more assistant secretaries and assistant treasurers and such other officers as the Board of Directors shall deem appropriate. Any two (2) or more offices may be held by the same person. Section 2. Election and Term of Office. The officers of the corporation --------- --------------------------- shall be elected annually by the Board of Directors at its first meeting after each annual meeting of stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be convenient. Each officer shall hold office until his or her successor shall have been duly elected and qualified or until his or her death or until he resigns or shall have been removed in the manner hereinafter provided. Section 3. Removal. Any officer elected or appointed by the Board of --------- ------- Directors may be removed by the Board of Directors whenever, in its judgment, the best interest of the corporation 5 will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. A vacancy in any office because of death, --------- --------- resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term. Section 5. Duties of Officers. The Chairman of the Board of the --------- ------------------ corporation, or the President if there shall not be a Chairman of the Board, shall preside over all meetings of tile Board of Directors and of the stockholders which he shall attend. The President shall be the chief executive officer of the corporation. Subject to the foregoing, the officers of the corporation shall have such powers and duties as usually pertain to their respective offices and such additional powers and duties specifically conferred by law, by the Articles of Incorporation. by these bylaws, or as may be assigned to them from time to time by the Board of Directors Section 6. Salaries. The salaries of the officers shall be fixed from --------- -------- time to time by the Board of Directors, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of tile corporation. Section 7. Delegation of Duties. In the absence of or disability of any --------- -------------------- officer of tile corporation or for any other reason deemed sufficient by the Board of Directors, the Board may delegate his or her powers or duties to any other officer or to any other director for the time being. ARTICLE V Executive and Other Committees ------------------------------ Section 1. Creation of Committee. The Board of Directors may, by --------- --------------------- resolution passed by a majority of the Board, designate an Executive Committee and one (1) or more other committees, each to consist of one (1) or more of the directors of the corporation. Section 2. Executive Committee. The Executive Committee, if there shall --------- ------------------- be one, shall consult with and advise the officers of the corporation in the management of its business all shall have and may exercise, to the extent provided in the resolution of the Board of Directors creating such Executive Committee, such powers of the Board of Directors as call be lawfully delegated by the Board. Section 3. Other Committees. Such other committees shall have such --------- ---------------- functions and may exercise the powers of the Board of Directors, as can be lawfully delegated, and to the extent provided in the resolution or resolutions creating such committee or committees. Section 4. Meetings of Committees. Regular meetings of the Executive --------- ---------------------- Committee and other committees may be held without notice at such time and at such place as shall from time to time be determined by the Executive Committee or such other committees, and special meetings of the Executive Committee or such other committees may be called by any member thereof 6 upon two (2) days' notice to each of the other members of such committee; or on such shorter notice as may be agreed to in writing by each of the other members of such committee, given either personally or in the manner provided in Section 6 of Article III of these bylaws (pertaining to notice for directors' meetings). Section 5. Vacancies on Committees. Vacancies on the Executive Committee --------- ----------------------- or on such other committees shall be filled by the Board of Directors then in office at any regular or special meeting. Section 6. Quorum of Committees. At all meetings of the Executive --------- -------------------- Committee or such other committees, a majority of the committee members then in office shall constitute a quorum for the transaction of business. Section 7. Manner of Acting of Committees. The acts of a majority of the --------- ------------------------------ members of the Executive Committee or such other committees present at any time at which there is a quorum shall be the act of such committee. Section 8. Minutes of Committees. The Executive Committee, if there --------- --------------------- shall be one, and such other committees shall keep regular minutes of their proceedings and report the same to the Board of Directors when required. Section 9. Compensation. Members of the Executive Committee and such --------- ------------ other committees may be paid compensation in accordance with the provisions of Section 10 of Article III (pertaining to compensation of directors). ARTICLE VI Indemnification and Advancement of Expenses for Directors, Officers, Employees and Agents ----------------------------------------- The corporation shall indemnify and advance expenses to any person who was or is a party to any proceeding or threatened proceeding by reason of tile fact that he is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation; subject in each instance to satisfaction of all applicable requirements under Chapter 607, Florida Statutes. Additionally, the corporation may make any other or further indemnification or advancement of expenses of any of its directors, officers, employees, or agents, as it may desire; subject, however, to the restrictions contained in Chapter 607, and in particular Section 607.0850(7), Florida Statutes. 7 ARTICLE VII Certificates or Stock --------------------- Section 1. Certificates for Shares. Every holder or stock in the --------- ----------------------- corporation shall be entitled to have a certificate, signed by the President or a Vice President and the Secretary or an assistant secretary exhibiting the holder's name and certifying the number of shares owned by him in the corporation. The certificates shall be numbered and entered in the books of the corporation as they are issued. Section 2. Transfer of Shares. Transfers of shares of [lie corporation --------- ------------------ shall be made upon its books by the holder of the shares in person or by his or her lawfully constituted representative upon surrender of the certificate of stock for cancellation. The person in whose name shares stand on the books of' the corporation shall be deemed by the corporation to be the owner thereof for all purposes, and tile corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by file laws of the State of Florida. Section 3. Facsimile Signature. Where a certificate is manually signed --------- ------------------- on behalf of a transfer agent or a registrar other than the corporation itself or an employee of the corporation, the signature of any such President, Vice President, Secretary or assistant secretary may be a facsimile. In case any officer or officers who have signed or whose facsimile signature or signatures shall cease to be such officer or officers of the corporation, such certificate or certificates may, nevertheless, be adopted by the corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. Section 4. Lost Certificates. The Board of Directors may direct that a --------- ----------------- new certificate or certificates be issued in place of any certificate or certificates theretofore issued by the corporation and alleged to have been lost or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates or his or her legal representative to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. 8 ARTICLE VIII Record Date ----------- The Board of Directors is authorized from time to time to fix in advance a date, not more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders. or not more than sixty (60) days prior to the date for the payment of any dividend or the date for the allotment of rights, or the date when any change or conversion of or exchange of stock shall go into effect, or a date in connection with the obtaining of the consent of stockholders for any purpose, as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment, or to exercise the rights in respect of any such change. conversion or exchange of stock, or to give such consent, as the case may be; and, in such case, such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of and to vote at such meeting and any adjournment thereof. or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. ARTICLE IX Dividends --------- The Board of Directors may from time to time declare and the corporation may pay dividends on its outstanding shares of capital stock in the manner and upon the terms and conditions provided by the Articles of Incorporation and by law. Dividends may be paid in cash, in property or in shares of stock, subject to the provisions of the Articles of Incorporation and to law. ARTICLE X Fiscal Year ----------- The fiscal year of the corporation shall be the twelve (12) month period selected by the Board of Directors as the taxable year of the corporation for Federal income tax purposes. ARTICLE XI Seal ---- The corporate seat shall bear the name of the corporation, which shall be between two concentric circles, and in the inside of the inner circle shall be the calendar year of incorporation; an impression of said seal appearing on the margin hereof. 9 ARTICLE XII Stock in Other Corporations --------------------------- Shares of stock in other corporations held by this corporation shall be voted by such officer or officers of this corporation as the Board of Directors shall from time to time designate for the purpose, or by a proxy thereunto duly authorized by said Board. ARTICLE XIII Amendments ---------- These bylaws may be altered, amended, or repealed in whole or in part, and new bylaws may be adopted by the Board of Directors or by the vote of stockholders owning a majority of the stock of the corporation entitled to vote thereon. 10 SCHEDULE "D" WARRANT TRANSFER REGISTER INTERNET LIQUIDATORS INTERNATIONAL INC. ---------------------------------------
- ------------------------------------------------------------------------------------------------------------------- DATE Certificates Surrendered TRANSFEROR Transfer ------------------ Class of ------------------------------------------------------------------ Number Mon. Day Yr. Shares No. Shares Transferred From - ------------------------------------------------------------------------------------------------------------------- 2 May 28 96 Comm 002 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 3 May 28 96 Comm 003 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 4 May 28 96 Comm 004 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 5 May 28 96 Comm 005 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 6 May 28 96 Comm 006 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 7 May 28 96 Comm 007 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 8 May 28 96 Comm 008 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 9 May 28 96 Comm 009 140,625 Treasury - ------------------------------------------------------------------------------------------------------------------- 10 May 28 96 Comm 010 140,625 Treasury - ------------------------------------------------------------------------------------------------------------------- 12 May 28 96 Comm 012 125,000 Treasury - ------------------------------------------------------------------------------------------------------------------- 13 May 28 96 Comm 013 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 15 May 28 96 Comm 015 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 16 May 28 96 Comm 016 56,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 17 May 28 96 Comm 017 34,375 Treasury - ------------------------------------------------------------------------------------------------------------------- 18 May 28 96 Comm 018 93,750 Treasury - ------------------------------------------------------------------------------------------------------------------- 19 May 28 96 Comm 019 109,375 Treasury - ------------------------------------------------------------------------------------------------------------------- 22 May 28 96 Comm. 022 15,625 Treasury - ------------------------------------------------------------------------------------------------------------------- 24 May 28 96 Comm 024 62,500 Treasury - ------------------------------------------------------------------------------------------------------------------- 25 May 28 96 Comm 025 31,250 Treasury - ------------------------------------------------------------------------------------------------------------------- 26 May 28 96 Comm 026 15,625 Treasury - ------------------------------------------------------------------------------------------------------------------- 29 May 28 96 Comm 001 31,250 Don & Mary Smythe - ------------------------------------------------------------------------------------------------------------------- 30 May 28 96 Comm 001 31,250 Don & Mary Smythe - ------------------------------------------------------------------------------------------------------------------- 31 July 18 96 Comm 020 46,875 Incorporated Investments Limited - ------------------------------------------------------------------------------------------------------------------- 32 July 18 96 Comm 020 46,875 Incorporated Investments Limited - ------------------------------------------------------------------------------------------------------------------- 33 July 18 96 Comm 020 46,875 Incorporated Investments Limited - ------------------------------------------------------------------------------------------------------------------- 34 July 18 96 Comm 020 46,875 Incorporated Investments Limited - ------------------------------------------------------------------------------------------------------------------- 35 July 18 96 Comm 014 132,500 Ellen Eisen - ------------------------------------------------------------------------------------------------------------------- 37 July 18 96 Comm 014 132,500 Ellen Eisen - ------------------------------------------------------------------------------------------------------------------- 38 July 18 96 Comm 011 250,000 Ennio D'Angela - ------------------------------------------------------------------------------------------------------------------- 39 July 18 96 Comm 011 250,000 Ennio D'Angela - ------------------------------------------------------------------------------------------------------------------- 40 July 18 96 Comm 011 250,000 Ennio D'Angela - ------------------------------------------------------------------------------------------------------------------- =================================================================================================================== - -------------------------------------------------------------------------------- Transfer TRANSFEREE New Certificate Issued - -------------------------------------------------------------------------------- Number Transferred To No. Shares - -------------------------------------------------------------------------------- 2 Donald & Joanne Harling - -------------------------------------------------------------------------------- 3 G.B. Stephens - -------------------------------------------------------------------------------- 4 Paul & Heather Sansom - -------------------------------------------------------------------------------- 5 William R. Dawson - -------------------------------------------------------------------------------- 6 Glen A. Mack - -------------------------------------------------------------------------------- 7 Robert C. Vogt - -------------------------------------------------------------------------------- 8 Heather Mamers - -------------------------------------------------------------------------------- 9 Wizard Holdings Inc. - -------------------------------------------------------------------------------- 10 G.L. Lozinski - -------------------------------------------------------------------------------- 12 Midland Walwyn in trust for Joel Neumark - -------------------------------------------------------------------------------- 13 Ellen Babbin in trust - -------------------------------------------------------------------------------- 15 Stephen J. Stren - -------------------------------------------------------------------------------- 16 Baker Street Limited - -------------------------------------------------------------------------------- 17 Warren Manis - -------------------------------------------------------------------------------- 18 Bribak Holdings Inc. - -------------------------------------------------------------------------------- 19 Atlantic Research Services Inc. - -------------------------------------------------------------------------------- 22 Kaufman Limited - -------------------------------------------------------------------------------- 24 TRL Investments Limited - -------------------------------------------------------------------------------- 25 Jay De Genova - -------------------------------------------------------------------------------- 26 John Scheel - -------------------------------------------------------------------------------- 29 Smythe 029 15,625 - -------------------------------------------------------------------------------- 30 Smythe 030 15,625 - -------------------------------------------------------------------------------- 31 Enannuc Holdings Inc. 031 9,375 - -------------------------------------------------------------------------------- 32 BET-MUR Investments Limited 032 11,719 - -------------------------------------------------------------------------------- 33 Permanent Developments Limited 033 11,719 - -------------------------------------------------------------------------------- 34 Incorporated Investments Limited 034 14,062 - -------------------------------------------------------------------------------- 35 Ellen Eisen 035 12,500 - -------------------------------------------------------------------------------- 37 Research Capital Corporation 037 107,500 - -------------------------------------------------------------------------------- 38 Comex Investments Ltd. 038 166,250 - -------------------------------------------------------------------------------- 39 James Canale Parola 039 25,000 - -------------------------------------------------------------------------------- 40 Rick Paolone 040 31,250 - -------------------------------------------------------------------------------- ================================================================================
- ---------------------------------------------------------------------------------------------------------- 41 July 18 96 Comm 011 250,000 Ennio D'Angela - ---------------------------------------------------------------------------------------------------------- 42 July 18 96 Comm 011 250,000 Ennio D'Angela - ---------------------------------------------------------------------------------------------------------- 44 July 18 96 Comm 021 78,k125 Donald Scott, in trust - ---------------------------------------------------------------------------------------------------------- 45 July 18 96 Comm 021 78,125 Donald Scott, in trust - ---------------------------------------------------------------------------------------------------------- 47 July 18 96 Comm 021 78,125 Donald Scott, in trust - ---------------------------------------------------------------------------------------------------------- 48 July 18 96 Comm 023 51,875 ES-LEA Holdings Limited - ---------------------------------------------------------------------------------------------------------- 49 July 18 96 Comm 023 51,875 ES-LEA Holdings Limited - ---------------------------------------------------------------------------------------------------------- 50 July 18 96 Comm 023 51,875 ES-LEA Holdings Limited - ---------------------------------------------------------------------------------------------------------- 51 96 Comm. 043 15,625 Edith Scott - ---------------------------------------------------------------------------------------------------------- 52 96 Comm. 046 15,625 Steve Cuddie - ---------------------------------------------------------------------------------------------------------- 53 96 Comm. 027 15,625 Joe Tersigni - ---------------------------------------------------------------------------------------------------------- 54 96 Comm. 027 15,625 Joe Tersigni - ---------------------------------------------------------------------------------------------------------- 55 96 Comm. 027 15,625 Joe Tersigni - ---------------------------------------------------------------------------------------------------------- 56 96 Comm. 027 15,625 Joe Tersigni - ---------------------------------------------------------------------------------------------------------- 57 96 Comm. 027 15,625 Joe Tersigni - ---------------------------------------------------------------------------------------------------------- 58 97 Comm. 036 12,500 Ellen Elsen - ---------------------------------------------------------------------------------------------------------- 59 97 Comm. 028 31,250 Peter Pristach - ---------------------------------------------------------------------------------------------------------- 60 97 Comm. 028 31,250 Peter Pristach - ---------------------------------------------------------------------------------------------------------- 61 97 Comm. 028 31,250 Peter Pristach - ---------------------------------------------------------------------------------------------------------- 62 97 Comm. 028 31,250 Peter Pristach - ----------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- 41 Jonathan Robinson 041 15,625 - ------------------------------------------------------------------------------- 42 Laurie Campbell 042 11,875 - ------------------------------------------------------------------------------- 44 Lois Smith 044 15,625 - ------------------------------------------------------------------------------- 45 Barbara Nettleton 045 15,625 - ------------------------------------------------------------------------------- 47 Catherine Moore 047 15,625 - ------------------------------------------------------------------------------- 48 Investor Company/TD/ES-LEA 048 40,000 - ------------------------------------------------------------------------------- 49 Investor Company/TD/ES-LEA 049 7,875 - ------------------------------------------------------------------------------- 50 Investor Company/TD/ES-LEA 050 4,000 - ------------------------------------------------------------------------------- 51 RBC Dominion Securities Inc. In Trust 051 15,625 for Scott - ------------------------------------------------------------------------------- 52 RBC Dominion Securities Inc. In Trust 052 15,625 for Cuddie - ------------------------------------------------------------------------------- 53 Roland Girard 053 3,125 - ------------------------------------------------------------------------------- 54 Paul Plesman 054 3,125 - ------------------------------------------------------------------------------- 55 George Soltys 055 3,125 - ------------------------------------------------------------------------------- 56 Joe Tersigni 056 3,125 - ------------------------------------------------------------------------------- 57 David Kanes 057 3,125 - ------------------------------------------------------------------------------- 58 Heather Mintz 058 12,500 - ------------------------------------------------------------------------------- 59 Copez Management Ltd. 059 3,125 - ------------------------------------------------------------------------------- 60 Fred Dalley 060 6,250 - ------------------------------------------------------------------------------- 61 Lawrence Eckert 061 18,750 - ------------------------------------------------------------------------------- 62 Peter Pristach 062 3,125 - ------------------------------------------------------------------------------- NOTE: Additional Warrant issued to Toronto Star Newspapers Limited to acquire up to 500,000 common shares. A copy of the Warrant is contained in Schedule "M." SCHEDULE "E" LITIGATION As of the date hereof, there is currently no outstanding or contemplated litigation involving or that may involve Internet Liquidates International Inc. CP-29729-1 January 29. 1997 - -------------------------------------------------------------------------------- Thursday, 07, 1996 SCHEDULE "F" LICENSES INTERNET LIQUIDATORS INTERNATIONAL INC. THIRD PARTY SOFTWARE LICENCES PURCHASED TO JANUARY 30,1997 [Confidential Information filed separately with the SEC] 2 See attached papers. CP 29729-1 January 30. 1997 Asset Tracking (FTN)
Tag # Product Description* Qty Date Vendor Inv. # Cost PC Identification Number - ------------------------------------------------------------------------------------------------------------------------------------ IL100140 1 08/28/96 Focus Technologies Networks 56267 $ 972.00 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00139 1 08/29/96 Focus Technologies Networks 56267 $ 972.00 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00137 1 05/31/96 Focus Technologies Networks 52600 $ 693.36 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00135 1 08/28/96 Focus Technologies Networks 56046 $ 327.60 6419304 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00105 1 06/11/96 Focus Technologies Networks 51916 $ 3,385.00 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00096 1 05/31/96 Focus Technologies Networks 53250 $ 5,670.00 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00o92 1 05/23/96 Focus Technologies Networks 52863 $ 4,860.00 1F00305 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00081 1 04/19/96 Focus Technologies Networks 51916 $ 2,700.00 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00079 1 04/19/96 Focus Technologies Networks 51916 $ 430.92 - ----------------------------------------------------------------------------------------------------------------------------------- ILI00071 1 03/28/96 Focus Technologies Networks 51136 $ 2,316.60 S/N HLA2000601 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00070 1 03/28/96 Focus Technologies Networks 51136 $ 4,325.40 S/N 00029231 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00062 1 03/18/96 Focus Technologies Networks 50827 $ 16,200.00 - ------------------------------------------------------------------------------------------------------------------------------------ ILI0062 1 03/18/96 Focus Technologies Networks 50827 $ 9,369.00 S/N 446F0677 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00062 1 03/18/96 Focus Technologies Networks 50827 $ 1,323.00 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00062 1 03/18/96 Focus Technologies Networks 50827 $ 1,323.00 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00060 1 03/18/96 Focus Technologies Networks 50827 $ 37,335.60 S/N CX60202274, 75,78 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00059 1 03/18/96 Focus Technologies Networks 50827 $ 5,670.00 S/N NI549R8372 - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== Thrusday, 07 November, 1996 Page 1 of 3
* Confidential Information filed separately with the SEC
Tag # Product Description* Qty Date Vendor Inv. # Cost PC Identification Number - ------------------------------------------------------------------------------------------------------------------------------------ ILI00039 1 12/14/95 Focus Technologies 48075 $ 4,860.00 S/N: 1F00286,1F00305 Networks - ------------------------------------------------------------------------------------------------------------------------------------ 1 04/19/96 Focus Technologies 51916 $ 405.00 Networks - ------------------------------------------------------------------------------------------------------------------------------------ 6 $ 0.00 - ------------------------------------------------------------------------------------------------------------------------------------ 1 $ 0.00 - ------------------------------------------------------------------------------------------------------------------------------------ 1 Bell $ 0.00 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00094 1 05/29/96 Focus Technologies Networks 53089 $ 8,559.00 1 S/N N161601Z11 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00094 1 05/31/96 Focus Technologies Networks 53250 $ 5,526.36 1 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00094 1 09/06/96 Focus Technologies Networks 56476 $ 585.00 1 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00094 1 05/29/96 Focus Technologies Networks 53089 $ 0.00 1 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00083 1 04/12/96 Focus Technologies Networks 51676 $ 18,630.00 2 S/N N161201LCA - ------------------------------------------------------------------------------------------------------------------------------------ ILI00083 1 04/12/96 Focus Technologies Networks 51676 $ 7,776.00 2 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00083 1 02/27/96 Focus Technologies Networks 50066 $ 1,225.00 2 0000F80034A9 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00083 1 04/12/96 Focus Technologies Networks 51676 $ 0.00 2 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00069 1 03/28/96 Focus Technologies Networks 51136 $ 18,630.00 3 S/N N1602018G8 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00069 1 04/12/96 Focus Technologies Networks 51676 $ 7,776.00 3 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00069 1 02/27/96 Focus Technologies Networks 50066 $ 1.225.00 3 08002BE6F63C - ------------------------------------------------------------------------------------------------------------------------------------ ILI00069 1 03/2896 Focus Technologies Networks 51136 $ 0.00 3 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00069 1 $ 0.00 3 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00069 1 $ 0.00 3 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00095 1 05/29/96 Focus Technologies Networks 53089 $ 18,630.00 4 S/N N161201KJL - ------------------------------------------------------------------------------------------------------------------------------------
*Confidential Information filed separately with the SEC 2
Tag # Product Description* Qty Date Vendor Inv. # Cost PC Identification Number - ------------------------------------------------------------------------------------------------------------------------------------ ILI00095 1 05/29/96 Focus Technologies Networks 53089 $ 5,526.36 4 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00095 1 02/27/96 Focus Technologies Networks 50066 $ 1,225.00 4 08002BE5F3A4 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00095 1 $ 0.00 4 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00095 1 $ 0.00 4 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00061 1 03/18/96 Focus Technologies Networks 50827 $ 32,880.60 5 S/N N1550R9894 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00061 1 01/31/96 Focus Technologies Networks 49219 $ 12,450.00 5 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00061 1 03/18/96 Focus Technologies Networks 50827 $ 7,776.00 5 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00061 1 03/18/96 Focus Technologies Networks 50827 $ 6,485.40 5 S/N 3D5370033 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00061 1 05/31/96 Focus Technologies Networks 53250 $ 5,250.00 5 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00061 1 03/18/96 Focus Technologies Networks 50827 $ 0.00 5 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00136 1 05/13/96 Focus Technologies Networks 52600 $ 2,399.00 6 6425318UN - ------------------------------------------------------------------------------------------------------------------------------------ ILI00138 1 03/28/96 Focus Technologies Networks 51136 $ 1,938.60 6 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00137 1 03/06/96 Focus Technologies Networks 50862 $ 2,619.00 7 3510A00872 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00137 1 04/16/96 Focus Technologies Networks 51786 $ 279.72 7 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00141 1 04/19/96 National Data Corporation $ 5,308.00 9 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00141 1 03/06/96 Focus Technologies Networks 50862 $ 2,619.00 9 - ------------------------------------------------------------------------------------------------------------------------------------ ILI00141 1 02/27/96 Focus Technologies Networks 50420 $ 189.00 9 TOTAL: $ 278,692.32 - ------------------------------------------------------------------------------------------------------------------------------------
*Confidential Information filed separately with the SEC 3 * Schedule "H" Form of Certificate of Originality ------------------------------------------------ CERTIFICATE OF ORIGINALITY -------------------------- - -------------------------------------------------------------------------------- For each item of Software and Documentation (collectively, "Software Material"), as defined in the Auction Services Agreement (the "Agreement"), you must complete a copy of this questionnaire. In addition you must provide any additional information needed for copyright registration or enforcement of legal rights relating to the Software Material. One questionnaire can cover one complete product, even if that product includes multiple modules. A separate questionnaire must be completed for code and another for its related documentation. Significant changes to the Software Material will require completion of a new questionnaire. Please do not leave any question blank. Write "not applicable" or "N/A" if a question is not relevant to the Software Material. If you need additional space to complete any question, please attach a separate sheet of paper that identifies the question number. 1.0 QUESTIONNAIRE 1. Name of the Software Material (provide complete identification including version, release and modification numbers for programs and documentation): 2. Was the Software Material or any portion thereof: (a) Written by any persons(s) other than you or your employees working within their job assignments? YES _____ NO _______ (If NO, skip to #3) (b) Did the person(s) write ALL or PART of the Software Material? ALL _______ PART _____ If PART, state the percentage written by the person(s) _________% (c) Was the Software Material provided to you by COMPANY(IES) or INDIVIDUAL(S) or both? COMPANY(IES) ______ INDIVIDUAL(S) _______ BOTH _______ (Complete (d) and (e) below) How did you acquire title to the Software Material or the right to grant the licenses in the Agreement? (d) For each COMPANY, provide the following information: Name: Address: How did the COMPANY acquire title to the Software Material? (For example, the Software Material was written by the COMPANY'S employees as part of their job assignment): Did the COMPANY have each non-US contributor to the Software Material sign a waiver of their moral rights? YES _______ NO _______ (e) For each INDIVIDUAL(S) in 2(c), provide the following: Name: Citizenship: Address: Did the INDIVIDUAL(S) create the Software Material while employed by, or under a contractual relationship with, another party? YES _______ NO _______ If YES, provide name and address of the other party: Did the INDIVIDUAL(S) create or first publish the Software Material in a country other than the US? YES _______ NO _______ If YES, did the INDIVIDUAL(S) sign a waiver of moral rights? YES _______ NO _______ (If YES, please attach a copy) (f) Was any part of the Software Material registered at any copyright office? YES _______ NO _______ (If YES, provide the following registration information:) 1) Claimant Name: 2 2) Registration Number: 3) Date of Registration: 4) Title of Work: 3. Was any part of the Software Material published? YES _______ NO _______ When and where was it published? Was there a copyright notice on the published material(s)? YES _______ NO ______ (If YES, provide the copyright notice below.) Was any part of the Software Material distributed by you to any third parties other than those contemplated in the Agreement? YES _________ NO _____ When and where was the Software Material distributed? To whom was the Software Material distributed? Why was the Software Material distributed? Under what conditions was the Software Material distributed? (for example, under a contract.) 3 4. Was any part of the Software Material derived from preexisting material(s)? YES _______ NO ________ (If YES, provide the following information for each of the preexisting materials:) (a) Name of the material: (b) Author (if known): (c) Owner (if known): (d) Copyright notice appearing on the material (if any): (e) Was any new function added to the preexisting software? YES _______ NO _______ Briefly describe the new function(s) below: ___________% of preexisting material used ___________% of preexisting material modified ___________% of preexisting material consisting of or deriving from preexisting materials (f) Briefly describe below how the preexisting material has been used: 5. Were any part of the display screens, data formats, instruction or command formats, operator messages interfaces, etc. (collectively called "External Characteristics") of the Software Material copied or derived from the External Characteristics of another program or product of yours or a third party? YES _______ NO _______ (If YES, provide the following information:) 1. Name of Developer's or third party's program or product: 2. Author (if known): 3. Owner (if known): 4 4. Copyright notice relating to the preexisting External Characteristics (if any): 5. Have the preexisting External Characteristics been modified? YES _______ NO ________ (Describe how they have been modified below:) 6. Identify below any other circumstances that might effect the execution of the terms of the Agreement: (a) confidentiality or trade secrecy of preexisting materials: (b) known or expected royalty obligations to others: (c) preexisting materials developed for another party or customer (including government) where you may not have retained full rights to the materials: (d) materials acquired from a person or company possibly having no title to them: 7. Employee Identification. You recognize that for purposes of copyright registration or enforcement of legal rights relating to the Software Material, the names, addresses and citizenships of all persons who wrote or contributed to the writing of the Software Materials is required. You agree to keep accurate records of all such information according to the IDA and to provide them as necessary to carry out the terms of the Agreement. 8. An "ICON" is generally defined as a symbol on a display screen that a user can point to with a device such as a mouse in order to select a particular operation or software application. For each ICON contained in the Software Materials, you will have its creator complete an ICON IDENTIFICATION FORM and submit them as appendices to this Certificate of Originality. 5 2.0 CERTIFICATION By signing below, you certify that all information contained in this Certificate of Originality, including any attachments or appendices to it, are accurate and complete. Developer Name: Signature: _______________________ Print name: _______________________ Title:______________________________ Date:_______________________________ 6 SCHEDULE "I" AUCTION SERVICES AGREEMENT THIS AGREEMENT is made the 21st day of February, 1997 (the "Effective Date") between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation having a principal place of business at 5915 Airport Rd, Suite 330, Mississauga, Ontario L4V 1T1 ("IL") and AMERICA ONLINE, INC., a corporation having a place of business at 22000 AOL Way, Dulles, Virginia ("AOL"). BACKGROUND: 1. IL has developed and owns all applicable rights in, certain electronic auction software, technology and services. 2. IL uses a portion of the IL Technology in an auction service provided at internetliquidators.com. 3. On the terms set out in this Agreement, IL wishes to allow AOL and certain related entities who provide interactive services to, and AOL has agreed to accept such rights to: (i) use and commercially exploit the IL Auction Service; and (ii) if AOL elects use the Software and the IL Technology to operate an AOL Auction Service with an AOL end users' interface; and 4. In connection with the AOL Auction Service, AOL wishes to have IL provide certain related services and other deliverables. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE ONE INTERPRETATION -------------- 1.1 Definitions. In this Agreement, unless the context otherwise requires, ------------ each capitalized term shall have the meaning attributed thereto in Schedule "A". 1.2 Schedules. The following are the schedules attached to and forming part of ---------- this Agreement: Schedule "A" - Definitions Schedule "B" - Revenue Sharing Schedule "C" - AOL Source Code Trust Agreement Schedule "D" - Recognized Browsers Schedule "E" - AOL Merchant Certification Program Schedule "F" - AOL/IL Auction Service Overview 1.3 Headings. The headings in this Agreement are for convenience of reference --------- only and shall not affect the construction or interpretation hereof. 1.4 Extended Meanings. Words in the singular include the plural and vice-versa ------------------ and words in one gender include all genders. 1.5 Entire Agreement. This Agreement, and any agreements and other documents ----------------- contemplated herein or to be delivered pursuant to it, constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, oral or written, between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgements not expressly made in this Agreement or in the agreements and other documents to be delivered pursuant hereto. 1.6 Currency. Unless otherwise indicated, all dollar amounts referred to in --------- this Agreement are in U.S. funds. 1.7 Invalidity. If any of the provisions contained in this Agreement is found ----------- by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not be in any way affected or impaired thereby. 1.8 Governing Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of Ontario and the federal laws of Canada applicable therein (excluding any provisions that would result in the application of the law of another jurisdiction) and shall be treated, in all respects, as an Ontario contract. IL submits to the non-exclusive jurisdiction of the Courts of Virginia and the U.S. Federal Court and AOL submits to the non-exclusive jurisdiction of the Courts of Ontario. The Parties expressly exclude the application of the United Nations Convention on Contracts for the International Sale of Goods. 1.9 Provision of Services. For the purposes of this Agreement, references to ---------------------- the sale of products through the IL Auction Service or the AOL Auction Service shall be deemed to include the provision of services as well. ARTICLE TWO USE OF IL AUCTION SERVICE ------------------------- 2.1 IL Auction Service. IL grants to AOL and AOL Affiliates, a non-exclusive ------------------- right to direct AOL Users by way of an AOL Interactive Service or otherwise to the IL Auction Service to purchase goods and services. 2.2 AOL Exclusive Auctions. AOL shall be allocated, on a non-consecutive and ----------------------- non-cumulative basis, at least sixty minutes per day on the IL Auction Service to sell products exclusively to AOL Users in the United States and Canada ("AOL Exclusive Auctions"). AOL will have the right to determine at what times such AOL Exclusive Auctions will occur, subject to IL's approval which shall not be unreasonably withheld. During the times that AOL is conducting the AOL Exclusive Auctions, IL will not conduct any other auctions through the IL Auction Service or 2 any other means nor will it authorize or allow any third party to do so, other than the Local Auctions. The Parties agree to develop mutually acceptable disclaimers, warnings and intellectual property notices to be displayed with respect to the auction service being provided thereon. 2.3 Term of Exclusive Auction. --------------------------- (a) The AOL Exclusive Auctions will continue for a period of one year from the Effective Date; provided, that AOL will have the option at any time to relinquish its rights to the AOL Exclusive Auctions. If AOL elects to relinquish it's rights in the first year it will receive the [Confidential Information filed separately with the SEC] during such period when it has relinquished its right in accordance with Schedule "B". (b) For each year after the first year beginning on the Effective Date, AOL will have the option, to be exercised by notice in writing on or before the commencement of each year, of extending the AOL Exclusive Auctions for another year or receiving the [Confidential Information filed separately with the SEC]. (c) For the first 18 months from the Effective Date, IL will not grant any third party the right to operate an exclusive auction similar to the AOL Exclusive Auctions if the effect is that any AOL User is prevented from accessing and participating in all activity on the IL Auction Service at any time. 2.4 Promotion and Avails. --------------------- (a) Hyperlinks. IL will prominently promote the AOL Interactive Services by ----------- (i) placing on the first page of the IL Auction Service website a permanent (i.e., always on the screen) Above The Fold hyperlink to a World Wide Web site selected by AOL and (ii) placing on each page of the IL Auction Service website hyperlinks to a World Wide Web site selected by AOL. The hyperlinks in the preceding sentence shall be at least as prominent and favorably positioned as any other third party hyperlink on such page, but in no event shall such hyperlink be less than 5,000 square pixels. AOL will not select a hyperlink under this section which links to the World Wide Web site of an entity which IL determines, acting reasonably, is a direct and material competitor with the IL Auction Service in the on-line auction business. (b) Sales of Ad Avails. AOL will be entitled to sell up to [Confidential ------------------- Information filed separately with the SEC] of IL's banner advertisements on the first page of the IL Auction Service's website and any page of the IL Auction Service's website that is directly linked to the first page, provided that AOL sells at least half of this entitlement within the first year of this Agreement. All revenue, net of any commercially reasonable, third party commissions for fees, collected by AOL for sales of these banner advertisements shall be allocated [Confidential Information filed separately with the SEC] to IL and [Confidential Information filed separately with the SEC] to AOL. (c) Marketing and Advertising. IL will purchase advertising from AOL in -------------------------- accordance with the Subscription Agreement. IL agrees that any such advertising on AOL Interactive Services pursuant to this Section [Confidential Information filed separately with the SEC] All 3 other advertising by IL on AOL Interactive Services may point to any entity, [Confidential Information filed separately with the SEC], except with the prior written consent of AOL. 2.5 [Confidential Information filed separately with the SEC] 2.6 General Revenue Splits For Auction Services. All Gross Margin received in --------------------------------------------- connection with the sale of products through the IL Auction Service and the AOL Auction Service will be allocated as set out in Schedule "B". 2.7 Right to Source Own Products. AOL may source, fulfill and sell products on ----------------------------- the IL Auction Service for no more than 25 Auctions during the first three months of this Agreement and no more than 150 Auctions during the first six months of this Agreement. 2.8 Improvements to the IL Auction Services. IL agrees immediately to use its ----------------------------------------- best efforts to improve its IL Auction Services as follows: a) create separate URL's for the IL Auction Services site for the U.S. and for Canada; b) modify the Software and the IL Technology to recognize the browsers listed in Schedule "D" (for the purpose of this covenant, "recognize" means that users of either browser shall have full access to the functionality of the IL Auction Services); c) ensure that IL shall support 40, 56 and 128 bit encryption technology; d) have the Yankee auction operational within 60 days of receiving the AOL approved specifications therefor as contemplated by the Subscription Agreement; and e) modify the Software and the IL Technology to initially handle 10,000 simultaneous users and thereafter within 90 days such number as AOL specifies in its quarterly "architecture and development plan" report. 2.9 User Interface Branding. Using the IL Technology and in co-ordination ------------------------ with AOL, IL will create AOL branded user interfaces for the IL Auction Service for use on the AOL Interactive Services on which the IL brand is a sub-brand (the "AOL Sub-Branded Interfaces") and will integrate the IL Technology and the IL Auction Service into the AOL Interactive Services. The branding and look and feel of the AOL Sub-Branded Interfaces shall be determined by AOL in its sole discretion. AOL shall operate or otherwise test the AOL Sub-Branded Interfaces in accordance with the acceptance testing provisions set out in Sections 3.7 to 3.10. 2.10 Reports. Once per month (or more frequently on reasonable request), IL -------- shall provide AOL with a monthly usage report that tracks all elements necessary to allocate revenues with respect to the IL Auction Service (including at a minimum sales, average order size, merchant name and address, geographic information, re: buyers, type of credit card, gross traffic) and how users of the IL Auction Service are navigating through the IL Auction Service. 4 2.11 Security. At all times during the term of this Agreement, IL will provide --------- a secure data line between AOL and IL offices acceptable to AOL acting reasonably for the transmission of credit card information at IL's expense. IL's annual expense, other than one-time charges for such matters as installation, shall not exceed the sum of $15,500 CDN and $38,200 US. IL shall cooperate with AOL's Operation Security in the performance of an initial security review of the IL Auction Service and such periodic security reviews as AOL may reasonably require. At all times during the term of this Agreement, AOL will retain ownership of all AOL's system administration tools. Access to any of the Servers in the AOL Auction Service may be given and/or denied to ILI staff at AOL's sole discretion. 2.12 International Markets. [Confidential Information filed separately with the --------------------- SEC], IL may give AOL notice that IL wishes to reserve such country for 3 months in order to permit IL to attempt to negotiate an exclusive license with a third party for such country to exploit the IL Technology. [Confidential Information filed separately with the SEC] IL shall have 3 months in which to negotiate a term sheet with a third party and an additional 2 months to conclude the exclusive transaction. [Confidential Information filed separately with the SEC]. 2.13 Network Operations Center. IL agrees to permit the AOL Network Operations -------------------------- Center to monitor the IL Auction Service and to designate a person for the Network Operations Center to contact in the event of a performance malfunction of the IL Auction Service. The AOL Network Operations Center will have full system administrative access for emergency situations when the AOL Auction is relocated to AOL Data Centers pursuant to section 3.1. 2.14 Software Service Levels. IL agrees to provide AOL with the following Service Levels in response to software, access, and hardware problems as found and assessed by AOL in its sole discretion: Severity 1: Function broken: bug fix or work around required within twenty-four (24) hours of first report to IL. Severity 2: Function impaired: bug fix or work around required within three (3) calendar days of first report to IL. Severity 3: Function change or improvement: bug fix or work around required within one (1) calendar week of first report to IL. Severity 4: Non-functional change or improvement: fix or change required within one (1) calendar month of first report to IL. 2.15 Specification of Deliverables and Implementation. IL and AOL agree that ------------------------------------------------- the architecture design for the Auction Service shall be consistent with Schedule "F" (as amended by mutual agreement from time to time). AOL shall provide IL with a written request specifying any Deliverables to be performed in connection with AOL's right to direct AOL Users by way of an AOL Interactive Service. IL, acting in good faith, shall consider and shall provide AOL with a reasonable business proposal with respect thereto. Once agreed upon, the Parties shall set out a detailed statement of work, specifications and an implementation schedule in an addendum hereto. The Parties will also agree on an implementation schedule for the Deliverables. IL will provide AOL with technical support and training in connection with AOL's use of the Software. IL shall 5 also provide all Services necessary or desirable to permit AOL to support the Deliverables without recourse to IL. ARTICLE THREE OPTION TO HOST AOL AUCTION SERVICE ---------------------------------- 3.1 AOL Auction Service. IL acknowledges and agrees that AOL may provide 90 -------------------- days notice that it wishes to establish, operate and maintain an auction service on one or more AOL servers referred to herein as the AOL auction Service. In such event, IL at its cost shall perform the modifications required to permit such a transfer. IL and AOL shall share moving and setup costs including hardware and offsite maintenance costs (other than modification costs) but IL's share shall not exceed $100,000 (US). Within these limits, IL agrees that it is responsible for taking the technical steps to permit such a transfer including providing all necessary assistance, training, technical support, Software and Documentation in connection with the AOL Auction Service and AOL's use of the IL Technology as may be reasonably required by AOL, using reasonably qualified software professionals, to achieve such objective. If AOL provides such notice, AOL shall have primary operations responsibility for AOL Auction Service with support from IL as provided for herein. IL shall grant AOL an non-exclusive, royalty free license to use the Software and Documentation in connection with the AOL Auction Service. 3.2 Specification of Deliverables. IL and AOL agree that the architecture ------------------------------ design for the Auction Service shall be consistent with Schedule "F" (as amended by mutual agreement from time to time). AOL shall provide IL with a written request specifying the Deliverables to be performed in connection with the election in section 3.1 herein. IL, acting in good faith, shall consider and shall provide AOL with a reasonable business proposal with respect thereto. Once agreed upon, the Parties shall set out a detailed statement of work, specifications and an implementation schedule in an addendum hereto. 3.3 Implementation. The Parties will agree on an implementation schedule for --------------- the Deliverables. IL will provide AOL with technical support and training in connection with AOL's use of the Software. IL shall also provide all Services necessary or desirable to permit AOL to support the Deliverables without recourse to IL. 3.4 Training. For a period of 2 months, IL shall provide suitably qualified --------- staff and appropriate documentation and manuals to train, and shall train, AOL's personnel in the proper use, operation and routine maintenance of the Software and the IL Technology (the "Training"). 3.5 Documentation. Without limiting the generality of Section 3.1, IL shall -------------- provide to AOL three (3) sets, or such other number as agreed in writing, of the Documentation in accordance with this Agreement. IL shall provide further Documentation, and revisions to current Documentation, as developed in respect of the Software from time to time for so long as AOL continues to receive Maintenance Services (as defined in Section 3.10) for such Software and covenants to AOL that for such period the Documentation furnished will be reasonably complete so as to allow AOL to provide for routine maintenance of the Software and for its operation and use as contemplated under this Agreement. AOL may, at no additional cost, make such copies of the Documentation as it may reasonably require for the contemplated uses of the Deliverables hereunder. 6 3.6 Project Management. The Parties each agree to designate an individual from ------- ----------- their respective companies with adequate authority and full technical competence to deal with matters relating to the implementation of the Deliverables (each, being a "Project Manager"). Specifically, these individuals will, on behalf of their respective Parties, in accordance with the spirit of this Agreement, use reasonable efforts to co-ordinate the delivery, installation, acceptance and maintenance and support of the Deliverables and for the provision of Services generally as contemplated herein. Upon such designations, each of AOL and IL shall concurrently provide the other with details with respect to its Project Manager, including name, address and telephone number, and each of AOL and IL may from time to time change its Project Manager with the consent of the other which will not be unreasonably withheld. 3.7 Support. IL agrees to provide support in the form of bug fixes, assistance -------- to AOL in integrating the Software with AOL's Service. IL further agrees to provide such documentation of software, bug fixes, alterations, changes, and upgrades to the Software as may be required by AOL during the development and integration of the Software with AOL's Service. 3.8 Acceptance Testing. ------------------- (a) Within a reasonable time after the completion of the installation of Software and the provision of the basic training and related Documentation provided for in this Agreement in respect of such Software, for an appropriate test period, AOL in conjunction with IL, shall operate or otherwise test the Software in accordance with agreed upon operating practices (the "Acceptance Testing"). The Software will be deemed accepted when all Severity Level 1 and 2 bugs (as set out in Section 2.14) are fixed. AOL shall notify IL in writing of any instances in which the Software has not performed in accordance to AOL's requirements. (b) If IL receives such written notification, then it shall take all such actions as are necessary to allow the Software to perform in accordance to AOL's Requirements within the time frames defined for each Severity Levels as set out in Section 2.14. (c) Notwithstanding Sections 3.8(a) and (b) above, AOL acknowledges and agrees that there may be minor deficiencies defined as Severity Level 3 and 4 bugs that do not in the aggregate have a material impact upon performance of the Software and provided that on notification thereof, IL promptly rectifies deficiencies to the satisfaction of AOL, acting reasonably, the acceptance of the Software will not be delayed thereby. 3.9 Reports. IL will provide AOL with a regular report on changes to the IL -------- Auction Service. 3.10 Maintenance and Support. ------------------------ (a) Except as otherwise provided herein, IL will be responsible for maintaining and updating the IL Technology used in the AOL Auction Service and will make available those Software maintenance and support services agreed upon by the Parties (the "Maintenance Services"), including meeting the Service Levels set out in Section 2.14. IL will provide AOL with no less than the most favorable support and maintenance terms (e.g., response times and training classes) provided by IL to any third party. (b) At least once per calendar quarter IL shall have the appropriate technical support staff physically visit the AOL website to provide maintenance and support. 7 (c) If AOL requests the inclusion in the IL Technology, the IL Auction Service, or the AOL Auction Service of functionality which IL reasonably believes to be an AOL-specific requirement or one that is not required to keep pace with IL's competition, IL will assist AOL, on terms to be mutually agreed upon, in developing or obtaining such functionality in the IL Technology and AOL Sub-Branded Interfaces. 3.11 Future Provision of Additional or Amended Deliverables. If AOL wishes ------------------------------------------------------- to have IL provide deliverables in addition to those contemplated by section 3.1 herein, whether to develop improvements for the Software or to develop similar software products, or otherwise, or to amend certain Services, AOL shall provide IL with a written request specifying the additional or amended Deliverables to be performed in connection therewith. IL, acting in good faith, shall consider and, if appropriate, shall provide AOL with a proposal with respect thereto. Once agreed upon, the Parties shall set out a detailed statement of work, specifications, the basis, if any, upon which AOL may terminate such specific additional or amended Deliverables prior to their completion, and an implementation schedule in an addendum hereto. Upon entering into such an addendum, such additional services or amended Deliverables, as applicable, shall form part of the Services. 3.12 Capability of IL Technology. ---------------------------- (a) IL will ensure that the AOL Auction Service and the AOL Sub-Branded Interfaces will have the right and capability to use all of the functionality that is used in connection with the IL Auction Service at the same time as such functionality is used on the IL Auction Service. (b) Any updates and/or upgrades and corresponding instructional materials to the IL Technology and IL Auction Service will be provided by IL to AOL at the same time such updates and/or upgrades and corresponding instructional materials are provided for the IL Auction Service or to any third party. (c) IL will continue to update and/or upgrade the IL Technology and IL Auction Service to ensure that it contains at least substantially the same functionality as its competitors. (d) IL will ensure that at all times both the IL Auction Service and the AOL Auction Service are compatible with the browsers listed in Schedule "D" and the then most popular three Internet browsers and that within a reasonable period it shall modify the IL Technology, the Software and the AOL Sub- branded Interfaces to be compatible with all AOL end users' interfaces then in use by AOL customers with browsers defined in Schedule "D". 3.13 Reports. Once per month (or more frequently on reasonable request), AOL -------- shall provide IL with a monthly usage report that tracks all elements necessary to allocate revenues with respect to the AOL Auction Service (including at a minimum sales, average order size, merchant name and address, geographic information, re: buyers, type of credit card, gross traffic) and how users of the AOL Auction Service are navigating through the AOL Auction Service. ARTICLE FOUR FEES AND REVENUE SHARING ------------------------ 8 4.1 Fees and Revenue Sharing. As consideration for all obligations, services ------------------------- and licenses provided for herein the Parties agree to share all Gross Margin received in connection with the sale of products through the IL Auction Service and the AOL Auction Service in accordance with Schedule "B". 4.2 Additional Services. Upon the prior written consent of AOL, those -------------------- additional Services rendered by IL contemplated hereunder in section 3.10(c) and section 3.11 as being provided at an additional charge may be charged to AOL at current market rates then in effect plus reasonable out-of-pocket expenses approved in advance by AOL. 4.3 Taxes. AOL shall pay to IL those taxes, duties, and other such assessments ------ or charges now in force or enacted in the future that are payable in respect of payments to be made hereunder and are required to be collected by IL under the relevant legislation. Similarly, IL shall pay to AOL those taxes, duties, and other such assessments or charges now in force or enacted in the future that are payable in respect of payments to be made hereunder and are required to be collected by AOL under the relevant legislation. This provision includes sales, use, goods and services, and excise taxes, but does not include taxes based on AOL's or IL's net income. For greater certainty, the parties hereto expressly acknowledge that any income taxes which are the debt of IL under any national or local law on any amounts to be paid to IL by AOL or under this Agreement shall be withheld by AOL to the extent required by law, and AOL shall provide proof to IL of its withholding and payment of any such taxes. 4.4 [Confidential Information filed separately with the SEC] ARTICLE FIVE REPRESENTATIONS, WARRANTIES AND INDEMNITIES ------------------------------------------- 5.1 Warranty and Indemnity re: Authority, Title and Proprietary Rights: --------------------------------------------------------------------- (a) IL represents and warrants that they each have the right to grant the licenses hereby granted and that there are not, nor will there be any lien, encumbrance, security interest or other rights against the Software and Documentation which would prohibit such license, and that IL has the right to provide the IL Auction Service, and that title to media upon which the Software and the Documentation will be provided, will be provided free and clear of all encumbrances by IL to AOL or AOL Affiliates. (b) IL agrees to indemnify AOL or AOL Affiliates and hold each harmless from all losses, claims, damages or liabilities, including court costs and attorney's fees, in connection with or arising out of any claim asserted against AOL or AOL Affiliates based upon a contention that the IL Auction Service or any of the Deliverables, or any portion thereof, in the form accepted by AOL or AOL Affiliates and used within the scope of this Agreement infringes the Intellectual Property Rights of any third party provided that: (i) AOL or AOL Affiliates promptly notifies IL in writing of the claim and of all material developments in connection with such claim and provides all assistance otherwise reasonably requested by IL; (ii) IL has the right to control, at its own cost, the defense and all related settlement negotiations (AOL has the right to participate at its own expense); and 9 (iii) AOL or AOL Affiliates does not pay or settle any such claim without the express written consent of IL. In addition, if the IL Auction Service, any of the Deliverables, or any portion thereof is held to constitute an infringement of another Person's rights, and use thereof is enjoined, IL shall, at its election and expense, either: (A) procure the right to use the infringing element thereof; (B) procure the right to an element which performs the same function without any material loss of performance or functionality; or (C) replace or modify the element thereof so that the infringing portion is no longer infringing and still performs the same function without any material loss of functionality. and shall make every reasonable effort to correct the situation with minimal effect upon the operations of AOL or AOL Affiliates. 5.2 Disabling Device. IL warrants that any Software provided hereunder shall ----------------- not contain any clock, timer, counter, or other limiting or disabling code, design or routine that would cause the Software to be made inoperable or otherwise rendered incapable of performing in accordance with AOL's Requirements or otherwise limit or restrict AOL's or AOL Affiliate's ability to use same or after the lapse or occurrence of any triggering prompt and to the best of IL's knowledge, information and belief does not contain any virus. 5.3 Media. IL represents and warrants that the media on which any Software is ------ provided shall be compatible with the computer system on which it is to be installed and that the media, as supplied by IL, shall be free from defects and computer viruses. 5.4 Representations and Warranties re: Services. IL agrees that all services --------------------------------------------- to be provided by it hereunder shall be provided in a timely fashion and in a workmanlike manner by personnel appropriately trained in the performance of such services in accordance with all applicable governmental regulations governing such services. If IL does not meet the response time requirements for a severity (1) or severity (2) event as outlined in section 2.14 herein and such failure is not due to an event beyond the reasonable control of IL, AOL shall have the right to insist that its own engineers and designers assist IL's personnel at IL's premises and rectify the problem and IL shall cooperate fully in this process. 5.5 Compliance with Applicable Laws. IL shall comply with all laws applicable -------------------------------- to the provision of the IL Auction Service or any part thereof. Evidence of compliance with such laws shall be furnished by IL to AOL's Project Manager at such times as AOL's Project Manager may reasonably request. Without limiting the generality of the foregoing, IL warrants and represents to AOL that the operation of the IL Auction Service shall comply with all consumer protection legislation and all other laws or regulations respecting the sale of goods to consumers in all jurisdictions in which goods are sold through the IL Auction Service. AOL shall comply with all laws applicable to the provision of the AOL Auction Service or any part thereof. Evidence of compliance with such laws shall be furnished by AOL to IL's Project Manager at such times as IL's 10 Project Manager may reasonably request. Without limiting the generality of the foregoing, AOL warrants and represents to IL that the operation of the AOL Auction Service shall comply with all consumer protection legislation and all other laws or regulations respecting the sale of goods to consumers in all jurisdictions in which goods are sold through the AOL Auction Service. 5.6 Manufacturer's Warranty. Each of AOL and IL agree to be responsible for ------------------------ the goods it sources for sale through either the IL Auction Service or the AOL Auction Service, including ensuring that such goods shall be sold with no less than the manufacturer's or distributor's warranty except for goods for which warranties are not generally available. The Party that sources goods for sale on either the IL Auction Service or the AOL Auction Service agrees to indemnify, defend and hold harmless the other Party for any liabilities arising from the sale of such goods. 5.7 Provision of Source Code Materials. At the written request of AOL, IL ----------------------------------- agrees to enter into a trust agreement with AOL and Data Securities International, Inc. or other mutually agreed third party for the use of the Source Code Materials. Such materials are to be released to AOL on the following conditions: (a) bankruptcy or insolvency of IL; (b) discontinuation by IL of the auction services business; or (c) failure of IL to fulfill its maintenance and support obligations. IL represents and warrants to AOL that the Source Code Materials furnished pursuant to such an agreement will be reasonably complete so as to allow AOL using a competent computer programmer possessing ordinary skills and experience, to further develop, maintain and operate the Software in the manner contemplated hereunder without further recourse to IL. At AOL's request, IL agrees to enter into, and fulfill its obligations under, the source code trust agreement attached as Schedule "C". 5.8 Confidentiality. Each Party covenants to the other Party that it shall ---------------- keep confidential the Confidential Information of the other Party to which such Party obtains access to as a consequence of entering into this Agreement and that it will take all reasonable precautions to protect such Confidential Information from any use, disclosure or copying except as expressly authorized by this Agreement. Each Party shall implement such procedures as the other Party may reasonably require from time to time to improve the security of the Confidential Information in its possession. This Section shall survive the termination of the Agreement. For greater certainty, IL acknowledges and agrees that all information respecting AOL Users is the Confidential Information of AOL including e-mail addresses and personal information obtained pursuant to this Agreement. IL shall not use such information for any purpose not specifically contemplated herein or of for marketing purposes without the prior written consent of AOL. IL shall not provide such information to third parties for any reason whatsoever without the prior written consent of AOL. 5.9 Acknowledgement of Title. ------------------------- (a) AOL acknowledges that the Software constitutes commercially valuable trade secrets and proprietary data of IL and that no term of this Agreement shall be construed to convey title in the Software to AOL. Notwithstanding the foregoing, all intellectual property rights in the 11 AOL Sub-Branded Interfaces shall vest in AOL and the Parties shall execute such documentation as may be reasonably required to confirm the foregoing. (b) AOL shall ensure that to the extent that AOL Affiliates utilize the license in Article Three they do so pursuant to this Agreement. Subject to the terms of this Agreement, AOL shall indemnify, defend and hold harmless IL for any breach of this Agreement by AOL or AOL Affiliates which are authorized by this Agreement to have access to the IL Technology. Subject to the terms of this Agreement, IL shall indemnify, defend and hold harmless AOL or AOL Affiliates which are authorized by this Agreement to have access to the IL Technology for any breach of this Agreement by IL. (c) AOL shall take all reasonable precautions to prevent third parties from using the IL Technology in its possession in any way that would constitute a breach of this Agreement including, without limitation, such precautions as it would otherwise take to protect its own proprietary technology. 5.10 AOL Merchant Certification Program. IL shall meet all standards required ---------------------------------- under the AOL Merchant Certification Program as set out in Schedule "E". 5.11 Limitation on Warranties. Except for those warranties otherwise provided ------------------------- herein, neither Party makes any warranties or representations, and there are no conditions, express or implied, in fact or in law, including without limitation, the implied warranties or conditions of merchantable quality and fitness for a particular purpose and those arising by statute or otherwise in law or from a course of dealing or usage of trade. ARTICLE SIX DEFAULT AND TERMINATION ----------------------- 6.1 Term. ----- (a) The term of this Agreement (the "Term") shall commence on the Effective Date and shall continue, subject to early termination in accordance with the terms hereof, for a period of three (3) years (the "Initial Term"). Thereafter, and subject to Section 6.1(b), the Agreement shall be automatically extended for each of three (3) additional one (1) year terms (each, being a "Subsequent Term") unless sixty (60) days' notice in writing is given by AOL prior to the end of any of the Initial Term or the first two (2) Subsequent Terms, as applicable, stating AOL's intention to terminate the Agreement at the end of such term. (b) The extension of the Term of the Agreement into any of the three Subsequent Terms shall be subject to the Parties, using appropriate diligence and acting in good faith, during the sixty days prior to the end of the Initial Term and each Subsequent Term, renegotiating the allocation of revenues described in Schedule "B" and advertising pursuant to Section 2.4(c) and agreeing on reasonable gross profit allocations and license fees, if any, for the upcoming Subsequent Term. If the Parties cannot reach such an agreement, the Parties will submit the determination of such allocation and fees to binding arbitration by a single arbitrator in New York in accordance with AAA Rules, unless AOL elects to terminate. Pending resolution of arbitration and subject to the payment or repayment of any amount based upon the 12 arbitrator's order, as applicable, AOL shall continue to pay the amounts paid during the just completed term. 6.2 Termination for Cause. Subject to the time frames set out below, this ---------------------- Agreement may be terminated immediately by either Party on written notice upon the occurrence of an event of default by the other Party. Each of the following constitutes an event of default for the purposes of this Agreement: (i) if a Party commits any material fraudulent act in the performance of any of its obligations hereunder or any material misrepresentation hereunder; or (ii) if either Party fails to perform any material obligation set forth in this Agreement (other than a failure to pay which is considered separately in (iv)) and such default in the case of a default which is remediable continues for a period of thirty (30) days after written notice of such failure has been given by the non-defaulting Party; (iii) if there is repeated and ongoing failure by a Party to comply with or perform any of the material terms, conditions, agreements and obligations imposed on it by this Agreement; (iv) if a Party should fail to pay a material amount to the other when payable hereunder (other than an amount which such Party, in good faith, disputes is owing) and such breach is not cured within sixty (60) days after written notice stating that such amount is due and owing and that non-payment shall result in termination; or (v) if a Party declares bankruptcy, becomes insolvent or ceases the operation of its business without a successor. 6.3 Survival. Upon termination of this Agreement, for a period of 12 months --------- after the date this Agreement is terminated, all operative terms of this Agreement will remain in full force and effect and AOL will be entitled to use the AOL Sub-Branded Interfaces in the same manner it was entitled to use them as of the date of termination and AOL and IL will continue to allocate revenue as set forth above. After the 12-month period, AOL will not have any right to use the AOL Sub-Branded Interfaces and IL will cooperate with AOL to assist AOL in transitioning to a new technology. Except as otherwise provided herein, the terms of Articles 5 and 6 shall survive any termination or expiry of this Agreement and shall continue in force thereafter for the period contemplated by the Agreement as shall any other provision of this Agreement which, by the nature of the rights or obligations set out therein, might reasonably be expected to be intended to so survive. ARTICLE SEVEN GENERAL -------- 7.1 Notice. Any notice or other communication (in this Section a "Notice") ------- required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered in person during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant party at the applicable address set forth below; 13 (b) sent by prepaid first class mail; or (c) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to AOL addressed to it at: America Online, Inc. 22000 AOL Way Dulles, Virginia 20166 Attention: Fred Singer, Vice-President Fax No.: (703) 265-2409 with a copy to: America Online, Inc. 22000 AOL Way Dulles, Virginia 20166 Attention: General Counsel Fax No.: (703) 265-2208 and in the case of a Notice to Corporation addressed to it at: Internet Liquidators International Inc. 5915 Airport Rd., Suite 330 Mississauga, Ontario L4V 1T1 Attention: Paul Godin Fax No.: (905) 672-5705 with a copy to: Gowling, Strathy & Henderson Barristers & Solicitors Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: David Pamenter Fax No.: (416) 862-7661 Any Notice given or made in accordance with this Section 7.1 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; 14 (b) on the fifth Business Day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof. Any Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 7.1. 7.2 Assignment. The rights and obligations of IL under this Agreement shall ----------- not be assigned, in whole or in part, by IL without the prior consent in writing of AOL and any purported assignment made without that consent is void and of no effect. No assignment of this Agreement shall relieve IL from any obligation under this Agreement or impose any liability upon AOL , unless otherwise agreed to in writing by AOL. AOL may assign its rights and obligations under this Agreement to any AOL Affiliate or to a party purchasing the part of its business by which the applicable Deliverables are primarily used, without IL's prior written consent. 7.3 Binding on Successors. This Agreement shall inure to the benefit of and be ---------------------- binding upon the Parties and their respective successors and permitted assigns. 7.4 Further Assurances. Each Party agrees that upon the written request of ------------------- the other Party, it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other Party hereto may from time to time reasonably request be done and/or executed as may be necessary or desirable to give effect to this Agreement. 7.5 Independent Contractors. It is understood and agreed that in giving effect ------------------------ to this Agreement, no Party shall be or be deemed a partner, agent or employee of another Party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the Parties. No Party shall have the right to enter into contracts or pledge the credit of or incur expenses of liabilities on behalf of the other Party. 15 7.6 Waiver. A waiver by any Party hereto of any of its rights hereunder or of ------- the performance by another Party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the Party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other Party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations so waived. No waiver by any Party of any of its obligations hereunder shall be effective or binding upon such Party unless the same shall be expressed in writing. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written above. INTERNET LIQUIDATORS INTERNATIONAL INC. By: _c/s Name: Title: By: _c/s Name: Title: AMERICA ONLINE, INC. By: _c/s Name: Title: 16 SCHEDULE "A" DEFINITIONS In this Agreement, unless the context otherwise requires, the following expressions have the meanings indicated below: "10% Share" means the payment to AOL by IL of 10% of the Gross Margin from the products sold through the IL Auction Service which IL sources and fulfills to a Person that is not an AOL User as described in Schedule "B"; "Above the Fold" means the portion of any AOL Sub-Branded Interface or a World Wide Web page, as applicable, that is designed to be visible by users upon first entering such AOL Sub-Branded Interface or World Wide Web page without requiring a user with standard configurations (currently a 640 pixel by 480 pixel display) to scroll lower through such AOL Sub-Branded Interface or World Wide Web page; "Agreement" means this Auction Services Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof; "hereof", "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement; "AOL Affiliate" means any corporation, limited liability company, joint venture, partnership or other entity (collectively an "Entity") with a principal place of business in the United States or Canada, of which AOL owns or has the contractual right to acquire, whether directly or indirectly through one or more Entities, 19.9% or more of the outstanding securities entitled to vote for the election of directors (or in the case of a partnership or joint venture, 19.9% or more of the equity interest entitled to vote for the election of the equivalent governing body no matter how such equity interest is evidenced) of such Entity; "AOL Auction Service" means AOL's online interactive auction service to be established and operated hereunder using the IL Technology (as updated, improved, enhanced or otherwise modified, and as it evolves during the term of this Agreement) accessible via America Online Service or the Internet; "America Online Service" means the primary America Online brand computer online, interactive, information, communication and transaction service offered by AOL, as that service evolves during the term of this Agreement; "AOL Interactive Services" means AOL's and any AOL Affiliates' content and services accessed through a network such as the Internet or a proprietary network, including, without limitation, the America Online Service, the AOL Canada Service, and the Digital City Service. "AOL Exclusive Auctions" has the meaning attributed thereto in Section 2.2; -2- "AOL Sub-Branded Interface" has the meaning attributed thereto in Section 2.9; "AOL User" means an end-user who pays or is obligated to pay to AOL for access to the America Online Service; "Auction" means the sale of the entire supply of single type of product on the IL Auction Service or the AOL Auction Service provided that the sale period for such product is not to extend beyond thirty (30) days; "Business Day" means any day from Monday to Friday inclusive, except statutory or civic holidays observed in Toronto, Ontario or Virginia; "Confidential Information" means any information relating to or disclosed in the course of discussing, negotiating, executing or implementing this Agreement, which is, or should be reasonably understood to be, confidential or proprietary to the disclosing party, including, but not limited to, the material terms of this Agreement, information about AOL Users, technical processes and formulas, source code, product designs, sales, cost and other unpublished financial information, product, service, and business plans, projections, marketing data and all other information that gives such party a competitive advantage but shall not include any information which: (i) is or becomes publicly available through no fault of the other Party; (ii) is already in the rightful possession of the other Party prior to its receipt from the other Party; (iii) is independently developed by the other Party; (iv) is rightfully obtained by the other Party from a third party not subject to an obligation of confidentiality; (v) is disclosed with the written consent of the Party whose information it is; or (vi) is disclosed pursuant to court order or other legal compulsion; "Deliverable" means the whole of the activities, services, materials, equipment, software, matters and things required to be done, delivered or performed by IL herein, including any hardware, the software, documentation and services and including all other rights and things, tangible or intangible, including intellectual property rights to be provided hereunder by IL to AOL or AOL Affiliates; "Documentation" means user manuals for the Software which describe the design, performance and functional specifications of the Software, and which facilitate the use, operation and maintenance of the Software; "Effective Date" has the meaning attributed thereto on the face page of this Agreement; -3- "Gross Margin" means the aggregate amount of revenue (including without limitation shipping and handling) received by a Party in connection with the purchase by end users of products offered through the IL Auction Service, less cost of goods sold, credit card transaction fees, all sales and use taxes, duties, the cost of shipping, credits for returned goods or services, reasonable deductions for bad debt and commercially reasonable fees owed by IL to a Internet service provider as a result of a purchase by a non AOL user; "IL Auction Service" means IL's online interactive auction service (as may be updated, improved, enhanced or otherwise modified, and as it evolves during the term of this Agreement) accessible via the Internet or other publicly accessible network which is carried on at internetliquidators.com and based on, among other things, IL's proprietary database engine and the database repository; "IL Technology" means the technology and know-how used by IL or its subsidiaries to operate on-line auction services generally (and including all Intellectual Property Rights therein), whether patented or registered, and whether domestic or foreign including patent applications and copyrighted software and including that technology and know-how used in respect of the operation of the IL Auction Service and, if established as contemplated herein, the AOL Auction Service; "internetliquidators.com" means any site or area accessible through the use of standard protocols associated with the worldwide network of computers commonly referred to as the Internet (or any successor thereto) or any site or area within another publicly accessible network containing IL's branded version of the IL Auction Service, specifically excluding any third party web site which points or links, through a co-branded interface or otherwise, to IL's website; "Intellectual Property Rights" includes: (A) any and all proprietary rights provided under (i) patent law, (ii) copyright law, (iii) trademark law, (iv) design patent or industrial design law, (v) semi-conductor chip or mask work law, or (vi) any other statutory provision or common law principle applicable to this Agreement or the Software which may provide a right in either (a) ideas, formulae, algorithms, concepts, inventions or know-how generally, including trade secret law, or (b) the expression or use of such ideas, formulae, algorithms, concepts, inventions or know-how; and (B) any and all applications, registrations, licenses, sub-licenses, franchises, agreements or any other evidence of a right in any of the foregoing; "Local Auction" means an online auction accessed through Torstar, Digital City, Inc. or other entity, to sell products or services to consumers, provided however that (i) the auction is aimed primarily at consumers inside the local market and (ii) the auction is promoted exclusively in such local market (for the purposes of this definition local market when used in reference to Torstar means Ontario and when used in reference to a Digital City Affiliate means the geographic area allocated to such Digital City Affiliate); "Maintenance Services" has the meaning given it in Section 3.10; "Parties" means IL and AOL collectively and "Party" means either of them; "Person" includes an individual, company, corporation, partnership, government or government agency, authority or entity howsoever designated or constituted; "Services" means those services to be provided by IL to AOL or to the AOL Affiliates hereunder; -4- "Software" means all the computer software necessary or desirable to operate the AOL Auction Service, which software is being provided to AOL by IL hereunder to meet AOL's Requirements, including any modifications or improvements to the Software (whether developed by IL, AOL or otherwise); and "Source Code Materials" means: (a) a complete copy of the source code version of all software required to allow AOL to independently operate and maintain and support an auction service in accordance with AOL's Requirements including the Software, appropriately labeled to denote the version or release thereof, and the currency date thereof, in each of: (i) machine-readable form on machine-readable storage medium suitable for long term storage and compatible with the Software as then being used by AOL and which, when compiled, will produce the object code version of the Software; and (ii) human-readable form with annotations in the English language on bond paper suitable for long term archival storage; and (b) a complete copy, in English, printed on bond paper, suitable for long term archival storage, and appropriately labeled to describe the contents thereof, of all applicable documentation and other explanatory materials including programmer's notes, technical or otherwise, for the Software as may be required by AOL, using a competent computer programmer possessing ordinary skills and experience, to further develop, maintain and operate such software without further recourse to IL including, but not necessarily limited to, general flow-charts, input and output layouts, field descriptions, volumes and sort sequence, data dictionary, file layouts, processing requirements and calculation formula and the details of all algorithms; "Torstar" means the Toronto Star Newspapers Limited. SCHEDULE "B" REVENUE SHARING 1. During the term of this Agreement, Gross Margins from the operation of the IL Auction Service or AOL Auction Service shall be divided among AOL and IL as follows:
AOL IL Revenue Description % % ------------------- --- -- 1. IL sources and fulfills product purchased on IL Auction Service by a non AOL User (i) if AOL retains its rights to AOL Exclusive Auctions or [XXX] [XXX] (ii) if AOL has elected to relinquish its rights to AOL Exclusive Auctions in exchange for its [Confidential Information filed separately with the SEC] in accordance with [XXX] [XXX] section 2.3 2. IL sources and fulfills product purchased on IL Auction [XXX] [XXX] Service or AOL Auction Service by an AOL User 3. AOL sources and fulfills product purchased on IL Auction [XXX] [XXX] Service by non AOL User 4. AOL sources product purchased on IL Auction Service or AOL [XXX] [XXX] Auction Service by an AOL User - IL fulfills 5. AOL sources and fulfills product purchased on IL Auction [XXX] [XXX Service or AOL Auction Service by an AOL User (IL handles credit card transactions)
Note: [XXX] denotes Confidential Information filed separately with the SEC With respect to the last category, IL is additionally entitled for processing and handling to the lesser of: a) [Confidential Information filed separately with the SEC] of the price at which a good or service is sold; and b) [Confidential Information filed separately with the SEC] per product. SCHEDULE "C" AOL SOURCE CODE TRUST AGREEMENT MASTER PREFERRED ESCROW AGREEMENT Master Number __________ This Agreement is effective February 12, 1997 among Data Securities International, Inc.("DSI"), Internet Liquidators International Inc. ("Depositor"), and any additional party signing the Acceptance Form attached to this Agreement ("Preferred Beneficiary") who collectively may be referred to in this Agreement as "the parties." A. Depositor and Preferred Beneficiary have entered or will enter into a license agreement in the form attached to such Preferred Beneficiary's Acceptance Form regarding certain proprietary technology of Depositor (referred to in this Agreement as "the license agreement"). B. Depositor desires to avoid disclosure of its proprietary technology except under certain limited circumstances. C. The availability of the proprietary technology of Depositor is critical to Preferred Beneficiary in the conduct of its business and, therefore, Preferred Beneficiary needs access to the proprietary technology under certain limited circumstances. D. Depositor and Preferred Beneficiary desire to establish an escrow with DSI to provide for the retention, administration and controlled access of certain proprietary technology materials of Depositor. ARTICLE 1 - DEPOSITS 1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the parties, including the signing of the Acceptance Form, Depositor shall deliver to DSI the proprietary information and other materials identified on an Exhibit A. DSI shall have no obligation with respect to the preparation, signing or delivery of Exhibit A. 1.2 Identification of Tangible Media. Prior to the delivery of the deposit materials to DS1, Depositor shall conspicuously label for identification each document, magnetic tape, disk, or other tangible media upon which the deposit materials are written or stored. Additionally, Depositor shall complete Exhibit B to this Agreement by listing each such tangible media by the item label description, the type of media and the quantity. The Exhibit B must be signed by Depositor and delivered to DSI with the deposit materials. Unless and until Depositor makes the initial deposit with DSI, DSI shall have no obligation with respect to this Agreement, except the obligation to notify the parties regarding the status of the deposit account as required in Section 2.2 below. 1.3 Deposit Inspection. When DSI receives the deposit materials and the Exhibit B, DSI will give a receipt for the deposit materials to the Depositor in the form provided by the Depositor and conduct a deposit inspection by visually matching the labeling of the tangible media containing the deposit materials to the item descriptions and quantity listed on the Exhibit B. In addition to the deposit inspection, Preferred Beneficiary may elect to cause a verification of the deposit materials in accordance with Section 1.6 below. 1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI determines that the labeling of the tangible media matches the item descriptions and quantity on Exhibit B, DSI will date and sign the Exhibit B and deliver a copy thereof to Depositor and Preferred Beneficiary. If DSI determines that the labeling does not match the item descriptions or quantity on the Exhibit B, DSI will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign the Exhibit B with the exceptions noted; and (c) provide a copy of the Exhibit B to Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs upon the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to Preferred Beneficiary is Preferred Beneficiary's notice that the deposit materials have been received and accepted by DSI. 1.5 Depositor's Representations. Depositor represents as follows: (a) Depositor lawfully possesses a of the deposit materials deposited with DSI; (b) With respect to all of the deposit materials, Depositor has the right and authority to grant to DSI and Preferred Beneficiary the rights as provided in this Agreement; (c) The deposit materials are not subject to any lien or other encumbrance other than encumbrances arising in the ordinary cause of Depositor's business; (d) The deposit materials consist of the proprietary information and other materials identified in Exhibit A; and (e) The deposit materials are readable and useable in their current form or, if the deposit materials are encrypted, the decryption tools and decryption keys have also been deposited. 1.6 Verification. Preferred Beneficiary shall have the right, at Preferred Beneficiary's expense, to cause a verification of any deposit materials. A verification determines, in different levels of detail, the accuracy, completeness, sufficiency and quality of the deposit materials. If a verification is elected after the deposit materials have been delivered to DSI, then only DSI, or at DSI's election an independent person or company selected and supervised by DSI, may perform the verification. 1.7 Removal of Deposit Materials. The deposit materials may be removed and/or exchanged only on written instructions signed by Depositor and Preferred Beneficiary, or as otherwise provided in this Agreement -3- ARTICLE 2 - CONF1DENTIALITY AND RECORD KEEPING 2.1 Confidentiality. DSI shall maintain the deposit materials in a secure, environmentally safe, locked facility in the greater Toronto area which is accessible only to authorized representatives of DSI. DSI shall have the obligation to reasonably protect the confidentiality of the deposit materials. Except as provided in this Agreement, DSI shall not disclose, transfer, make available, or use the deposit materials. DSI shall not disclose the content of this Agreement to any third party. If DSI receives a subpoena or other order of a court or other judicial tribunal pertaining to the disclosure or release of the deposit materials, DSI will immediately notify the parties to this Agreement. It shall be the responsibility of Depositor and/or Preferred Beneficiary to challenge any such order, provided, however, that DSI does not waive its rights to present its position with respect to any such order. DSI will not be required to disobey any court or other judicial tribunal order. (See Section 7.5 below for notices of requested orders.) 2.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary a report profiling the account history at least semi-annually. DSI may provide copies of the account history pertaining to this Agreement upon the request of any party to this Agreement. 2.3 Audit Rights. During the term of this Agreement, Depositor and Preferred Beneficiary shall each have the right to inspect the written records of DSI pertaining to this Agreement. Any inspection shall be held during normal business hours and following reasonable prior notice. ARTICLE 3 - GRANT OF RIGHTS TO DSI 3.1 Title to Physical Copies of Deposited Materials. (a) Depositor transfers to DSI in trust all legal title in and to the physical copies of the deposit materials provided to DSI from time to time in accordance with the terms of this Agreement It is acknowledged by the parties hereto that such transfer by Depositor to DSI under this Section is not intended to, nor does it, transfer any intellectual property or other intangible rights in the deposit materials. DSI agrees to hold the deposit materials in trust for Depositor and Preferred Beneficiary as provided in this Agreement. (b) The expression "in trust" is intended to refer strictly to the issue of ownership of the deposit materials and not to the level of care which must be taken by DSI in performing its duties under this Agreement. The duties of DSI are strictly contractual in nature and are as set out in this Agreement. It is not intended that DSI is to have the fiduciary duty of a trustee. 3.2 Right to Make Copies. DSI shall have the right to make copies of the deposit materials as reasonably necessary to perform this Agreement. DSI shall copy all copyright, nondisclosure, and other proprietary notices and titles contained on the deposit materials onto any copies made by DS1 * With all deposit materials submitted to DSI, Depositor shall provide -4- any and all instructions as may be necessary to duplicate the deposit materials including but. not limited to the hardware and/or software needed. 3.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the right to transfer deposit materials to Preferred Beneficiary upon any release of the deposit materials for use by Preferred Beneficiary in accordance with Section 4.5. Except upon such a release or as otherwise provided in this Agreement, DSI shall not transfer the deposit materials. ARTICLE 4 - RELEASE OF DEPOSIT 4.1 Release Conditions. As used in this Agreement, "Release Conditions" shall mean the following: (a) voluntary bankruptcy of Depositor; (b) involuntary bankruptcy provided that the Depositor is not in good faith diligently taking steps to contest or set aside such process; (c) if Depositor becomes insolvent and ceases to continue to carry on its business; (d) if Depositor ceases the operation of its business and the business is not continued by a successor acceptable to the Preferred Beneficiary, acting reasonably; and (e) any additional release conditions identified on the attached Acceptance Form. 4.2 Filing For Release. If Preferred Beneficiary believes in good faith that a Release Condition has occurred, Preferred Beneficiary may provide to DS1 written notice of the occurrence of the Release Condition and a request for the release of the deposit materials. Upon receipt of such notice, DSI shall deliver a copy of the notice to Depositor. 4.3 Contrary Instructions. From the date DSI delivers the notice requesting release of the deposit materials, if the Release Condition is one defined in 4. 1 (b), 4.1 (d) or 4. 1 (e) Depositor shall have ten business days to deliver to DSI Contrary Instructions. If the Release Condition is one defined in 4. 1 (a) or (c), DSI shall release the deposit materials pursuant to Section 4.4 within 48 hours of giving notice to the Depositor under Section 4.2. "Contrary Instructions" shall mean the written representation by Depositor that a Release Condition has not occurred or has been cured. Upon receipt of Contrary Instructions, DSI shall deliver a copy to Preferred Beneficiary. Additionally, DSI shall notify both Depositor and Preferred Beneficiary that there is a dispute to be resolved pursuant to the Dispute Resolution section of this Agreement (Section 7.3). Subject to Section 5.2, DSI will continue to store the deposit materials without release pending (a) joint instructions from Depositor and Preferred Beneficiary, (b) resolution pursuant to the Dispute Resolution provisions, or (c) order of a court. -5- 4.4 Release of Deposit. If DSI does not receive Contrary instructions from the Depositor, DSI is authorized to release the deposit materials to the Preferred Beneficiary or, if more than one beneficiary is registered to the deposit materials, to release a copy of the deposit materials to the Preferred Beneficiary who gave notice under Section 4.2. However, DSI or DSI's authorized representative is entitled to receive any fees due DSI or DSI's authorized representative before making the release. This Agreement will terminate with respect to the Preferred Beneficiary giving notice under Section 4.2 upon the release of the deposit materials held by DSL 4.5 Right to Use Following Release. Unless otherwise provided in the license agreement, upon release of the deposit materials in accordance with this Article 4, Preferred Beneficiary shall have the right to use the deposit materials for the sole purpose of continuing the benefits afforded to Preferred Beneficiary by the license agreement. Preferred Beneficiary shall be obligated to maintain the confidentiality of the released deposit materials. ARTICLE 5 - TERM AND TERMINATION 5.1 Term of Agreement. The initial term of this Agreement is for a period of one Year. Thereafter, this Agreement shall automatically renew from year-to- year unless (a) Depositor and Preferred Beneficiary jointly instruct DSI in writing that the Agreement is terminated; or (b) the Agreement is terminated by DSI for nonpayment in accordance with Section 5.2. If the Acceptance Form has been signed at a date later than this Agreement, the initial term of the Acceptance Form will be for one year with subsequent terms to be adjusted to match the anniversary date of this Agreement. If the deposit materials are subject to another escrow agreement with DSI, DSI reserves the right, after the initial one year term, to adjust the anniversary date of this Agreement to match the then prevailing anniversary date of such other escrow arrangements. 5.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to DSI or DSI's authorized representative, DSI shall provide written notice of delinquency to the parties to this Agreement affected by such delinquency. Any such party shall have the right to make the payment to DSI or DSI's authorized representative to cure the default. If the past due payment is not received in full by DSI or DSI's authorized representative within one month of the date of such notice, then at anytime thereafter DSI shall have the right to terminate this Agreement to the extent it relates to the delinquent party by sending written notice of termination to such affected parties. J)SI shall have no obligation to take any action under this Agreement so long as any payment due to DSI or DSI's authorized representative remains unpaid. 5.3 Disposition of Deposit Materials. Upon Termination. Upon termination of this Agreement by joint instruction of Depositor and each Preferred Beneficiary, DSI shall return the deposit materials to the Depositor. Upon termination for nonpayment, DSI shall return the deposit materials to the Depositor. DSI shall have no obligation to return or destroy the deposit materials if the deposit materials are subject to another escrow agreement with DSI. -6- 5.4 Survival of Terms Following Termination. Upon termination of this Agreement, the following provisions of this Agreement shall survive: (a) Depositor's Representations (Section 1.5); (b) The obligations of confidentiality with respect to the deposit materials; (c) The rights granted in the sections entitled Right to Transfer Upon Release (Section 3.3) and Right to Use Following Release (Section 4.5), if a release of the deposit materials has occurred prior to termination; (d) The obligation to pay DSI or DSI's authorized representative any fees and expenses due; (e) The provisions of Article 7; and (f) Any provisions in this Agreement which specifically state they survive the termination or expiration of this Agreement. 5.5 Alternative to DSI. If this Agreement terminates, Depositor and Preferred Beneficiary agree, at Preferred Beneficiary's request, to appoint a new agent by mutual agreement. if Depositor and Preferred Beneficiary cannot agree, Preferred Beneficiary shall appoint a trust company or other company specializing in the escrow business as the agent provided that such company has appropriate storage facilities located in or around Toronto and agrees to store the deposited materials there in accordance with the terms of this Agreement. The new agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named hereunder, without any further assurance, conveyance, act or deed. ARTICLE 6 - DSI'S FEES 6.1 Fee Schedule. DSI or DSI's authorized representative is entitled to be paid its standard fees and expenses applicable to the services provided. DS1 or DSI's authorized representative shall notify the party responsible for payment of DSI's fees at least 90 days prior to any increase in fees., For any service not listed on DSI's standard fee schedule, DSI or DSI's authorized representative will provide a quote prior to rendering the service. 6.2 Payment Terms. DSI shall not be required to perform any service unless the payment for such service and any outstanding balances owed to DSI or DSI's authorized representative are paid in full. All other fees are due upon receipt of invoice. If invoiced fees are not paid, DSI may terminate this Agreement in accordance with Section 5.2. Late fees on past due amounts shall accrue at the rate of one and one-half percent per month (18% per annum) from the date of the invoice. -7- ARTICLE 7 - LIABILITY AND DISPUTES 7.1 Right to Rely on Instructions. DSI may act in reliance upon any instruction, instrument, or signature reasonably believed by DSI to be genuine. DSI may assume that any employee of a party to this Agreement who gives any written notice, request, or instruction has the authority to do so. DSI shall not be responsible for failure to act as a result of causes beyond the reasonable control of DSI, subject to Section 2.1. 7.2 Indemnification. DSI shall be responsible to perform its obligations under this Agreement and to act in a reasonable and prudent manner with regard to this escrow arrangement. Provided DSI has acted in the manner stated in the preceding sentence, Depositor and Preferred Beneficiary each agree to indemnify, defend and hold harmless DSI from any and all claims, actions, damages, arbitration fees and expenses, costs, attorney's fees and other liabilities incurred by DSI relating in any way to this escrow arrangement. 7.3 Dispute Resolution. Any dispute, difference or question arising among any of the -parties concerning the construction, meaning, effect or implementation of this Agreement or any part hereof will be settled by a single arbitrator mutually agreed upon by the parties, or failing agreement, an arbitrator appointed pursuant to the Arbitration Act (Ontario) or similar legislation. The decision of such arbitrator appointed pursuant to this Agreement or such Act will be final and binding on the parties and no appeal will lie therefrom. 7.4 Controlling Law. This Agreement is to be governed and construed in accordance with the laws of the Province of Ontario except any laws which would refer any matter to the laws of another jurisdiction. All parties irrevocably attorn to the exclusive jurisdiction of the Courts of Ontario in respect of the subject matter hereof. 7.5 Notice of Requested Order. If any party intends to obtain an order from the arbitrator or any court of competent jurisdiction which may direct DSI to take, or refrain from taking any action, that party shall: (a) Give DSI at least two business days' prior notice of the hearing; (b) Include in any such order that, as a precondition to DSI's obligation, DSI or DSI's authorized representative be paid in full for any past due fees and be paid for the reasonable value of the services to be rendered pursuant to such order; and (c) Ensure that DSI not be required to deliver the original (as opposed to a copy) of the deposit materials if DSI may need to retain the original in its possession to fulfill any of its other escrow duties. ARTICLE 8 - GENERAL PROVISIONS 8.1 Entire Agreement. This Agreement, which includes the Acceptance Form and the Exhibits described herein, embodies the entire understanding between all of the parties with -8- respect to its subject matter and supersedes all previous communications, representations or understandings, either oral or written. No amendment or modification of this Agreement shall be valid or binding unless signed by all the parties hereto, except that Exhibit A need not be signed by DSI, Exhibit B need not be signed by Preferred Beneficiary and the Acceptance Form need only be signed by the parties identified therein. 8.2 Notices. All notices, invoices, payments, deposits and other documents and communications shall be given to the parties at the addresses specified in the attached Exhibit C and Acceptance Form. It shall be the responsibility of the parties to notify each other as provided in this Section in the event of a change of address. The parties shall have the right to rely on the last known address of the other parties. Unless otherwise provided in this Agreement, all documents and communications may be delivered by First Class mail. 8.3 Severability. In the event any provision of this Agreement is found to be invalid. voidable or unenforceable, the parties agree that unless it materially affects the entire intent and purpose of this Agreement, such invalidity, voidability or unenforceability shall affect neither the validity of this Agreement nor the remaining provisions herein, and the provision in question shall be deemed to be replaced with a valid and enforceable provision most closely reflecting the intent and purpose of the original provision. 8.4 Successors. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties. However, DSI shall have no obligation in performing this Agreement to recognize any successor or assign of Depositor or Preferred Beneficiary unless DSI receives clear, authoritative and conclusive written evidence of the change of parties. Data Securities International, Inc. Internet Liquidators International Inc. By:____________________ By:____________________ Name:__________________ Name:__________________ Title:_________________ Title:_________________ Date:__________________ Date:__________________ -9- ACCEPTANCE FORM Account Number __________ America Online, Inc., hereby (i) acknowledges that it is a Preferred Beneficiary referred to in the Master Preferred Escrow Agreement effective February 12, 1997 with Data Securities International, Inc. as the escrow agent and Internet Liquidators International, Inc. as the Depositor, (ii) agrees to be bound by all provisions of such Agreement, and (iii) agrees that in addition to the Release Conditions set forth in section 4.1 of this Agreement, a further Release Condition shall exist if the Depositor is in material default of its obligations to operate or maintain its E-Commerce Services as contained in the license agreement attached hereto as Schedule "A" and such default is not cured as provided therein. By:________________________ Name:______________________ Title:_____________________ Date:______________________ Notices and communications should be addressed to: Invoices should be addressed to: Company Name:_________________ ____________________________________ Address: _________________ ____________________________________ _________________ ____________________________________ Designated Contact: __________________ Contact:______________________________ Telephone __________________ _____________________________________: Facsimile: __________________ ______________________________________ Depositor hereby enrolls Preferred Beneficiary to the following account(s): Account Name Account Number - ------------ -------------- _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ Depositor _________________________ Data Securities International, Inc. -2- SCHEDULE"A" LICENSE AGREEMENT EXHIBIT A MATERIALS TO BE DEPOSITED Account Number Depositor represents to Preferred Beneficiary that deposit materials delivered to DSI shall consist of the following: [Confidential Information filed separately with the SEC] ________________________ _________________________ Depositor Preferred Beneficiary By:_____________________ By:______________________ Name:___________________ Name:____________________ Title:__________________ Title:___________________ Date:___________________ Date:____________________ EXHIBIT B DESCRIPTION OF DEPOSIT MATERL4LS Depositor Company Name_________________________________________________________ Account Number_________________________________________________________________ PRODUCT DESCRIPTION: Product Name [Confidential Information filed separately with the SEC]_Version [Confidential Information filed separately with the SEC] Operating System: [Confidential Information filed separately with the SEC] ________________________________________________________________________________ Hardware Platform:[Confidential Information filed separately with the SEC]______ DEPOSIT COPYING INFORMATION: Hardware required: [Confidential Information filed separately with the SEC]_____ -- software required:[Confidential Information filed separately with the SEC]______ -- ________________________________________________________________________________ DEPOSIT MATERIAL DESCRIPTION: Qty Media Type & Size Label Description of Each Separate Item (Excluding documentation) Disk 3.5" or __________ I X DAT tape 4 mm No Documentation CD-ROM Data Cartridge Tape _____ TK 70 or __________ tape Magnetic tape __________ Documentation No Documentation Other:_______________
I certify for Depositor that the above described DSI has inspected and accepted the above materials (any deposit materials have been transmitted to DSL exceptions are noted above): Signature: ___________________________________________
Print Name: _______________________ Date:_______________________ Date Accepted:_____________________ Exhibit B# Send materials to: DSI, 9555 Chesapeake Drive, #200, San Diego, CA 92123 -2- EXHIBIT C DESIGNATED CONTACT Master Number____________________ Notices of communications should be Invoices should be addressed to: addressed to: Company Name: _______________________ _________________________ Address: _______________________ _________________________ _______________________ _________________________ _______________________ _________________________ Designated _______________________ Contact:: _______________________ Contact:_________________ Telephone: _______________________ _________________________ Facsimile _______________________ _________________________ Requests to change the designated contact should be given in writing by the designated contact or an authorized employee.
Invoice inquiries and fee remittances to DSI Contracts, deposit materials and notices to DSI or DSI's authorized representatives should should be addressed to: be addressed to: DSI Technology Asset Management Inc. Contract Administration Accounts Receivable Suite 2000 Building 8, Suite 300 9555 Chesapeake Drive 5045 Orbitor Drive San Diego, CA 92123 Mississauga, Ontario L4W 4Y4 Telephone: (619) 694-1900 Telephone: (905) 602-9292 Facsimile (619) 694-1919 Facsimile: (905) 602-6631
ADDITIONAL ESCROW ACCOUNT AMENDMENT TO MASTER PREFERRED ESCROW AGREEMENT Master Number ____________________ New Account Number ____________________ ____________________ ("Depositor") has entered into a Master Preferred Escrow Agreement with Data Securities International, Inc. ("DSI"). Pursuant to that Agreement, Depositor may deposit certain deposit materials with DSI. Depositor desires that new deposit materials be held in a separate account and be maintained separately from the existing account. By execution of this Amendment, DSI will establish a separate account for the new deposit materials. The new account will be referenced by the following name: ____________________. Depositor hereby agrees that all terms and conditions of the existing Master Preferred Escrow Agreement previously entered into by Depositor and DSI will govern this account. The termination or expiration of any other account of Depositor will not affect this account. ___________________________ Data Securities International, Inc. Depositor By:___________________________ By:___________________________ Name:_________________________ Name:___________________________ Title:___________________________ Title:___________________________ Date: ___________________________ Date:___________________________ ACCEPTANCE FORM Account Number America Online, Inc. hereby (i) acknowledges that it is a Preferred Beneficiary referred to in the Master Preferred Escrow Agreement effective February 12, 1997 with Data Securities International, Inc. as the escrow agent and Internet Liquidators International Inc. as the Depositor, (ii) agrees to be bound by all of the provisions of such Agreement and (iii) agrees that in addition to the Release Conditions set forth --in Section 4.1 of this Agreement, a further Release Condition shall exist if the Depositor is in material default of its obligations to operate or maintain its IL Auction Service or to maintain the AOL Auction Service as set out in the Auction Services Agreement attached hereto as Schedule "A" and such default is not cured as provided therein. Notwithstanding Section 2.1, the deposit materials for AOL shall be maintained in a DSI vault in the USA By:________________________ Name: WENDY L. BROWN _______________________ Title: VICE PRESIDENT, ELECTRONIC COMMERCE _____________________________________ Date:_______________________________________ Notices, communications and invoices should be addressed to: Company Name: America Online, Inc. Address: 22000 AOL Way Dulles, Virginia 20166 Designated Contact: Legal Department (re: Internet Liquidators) Telephone: (703)265 Facsimile: (703) 265-2208 Depositor hereby enrolls Preferred Beneficiary to the following account: Account Name Account Number - ------------ -------------- ______________________ ___________________________ Internet Liquidators International Inc. (Depositor) ____________________________________ Data Securities International, Inc. SCHEDULE "D" RECOGNIZED BROWSERS Windows: [Confidential Information filed separately with the SEC] Mac: [Confidential Information filed separately with the SEC] SCHEDULE "E" AOL MERCHANT CERTIFICATION PROGRAM The 10 Criteria for Merchant Certification The following 10 criteria are the current standards to receive the America Online Seal of Approval. We will continue to monitor and review these criteria to make sure they meet reasonable customer's expectations for ordering online. 1. Receive orders electronically to process orders within 1 business day of receipt. 2. Deliver all merchandise in professional packaging. All packages should arrive undamaged ,well packed and neat (barring any shipping disasters). 3. Dedicated Customer Service personnel to be responsible for on-line medium. In other words, there should be people whose primary concern is the on-line customer's orders. Quite often the on-line customer is given a lower priority in the fulfillment area, they need to be given as much priority as the rest of your business. 4. Receive and respond to e-mails within 1 business day of receipt via a computer available to the customer service staff. 5. Provide the customer with an order confirmation within 1 business day of receipt. Order confirmation should include any information such as order status (temporary back order or out of stock situations), and expected delivery times. 6. Ability to handle volumes in excess of 25% to 50% of your average daily order volumes. 7. Monitor on-line store to minimize/eliminate out of stock merchandise available. 8. Ship the displayed product at the price displayed without substituting. 9. Stellar Customer service policies- "The Customer is always Right, even when he/she is not". The commitment to provide each customer with a win/win experience. 10. Complete details on your customer service policies posted in your on-line customer service area including: Shipping Information, Return Policies, Warranty Information, and Contact Information. SCHEDULE "F" AOL/IL AUCTION SERVICE OVERVIEW AQL/Internet Liquidators Auction System Overview ------------------------------------------------ The architectural platform for the Top Bid and Dutch Auction system will be as follows: Hardware: - -------- [Confidential Information filed separately with the SEC] Web Server/s (scalable items) [Confidential Information filed separately with the SEC] Software: - -------- All operating systems (Excluding transaction system) [Confidential Information filed separately with the SEC] Transaction operating system [Confidential Information filed separately with the SEC] Database [Confidential Information filed separately with the SEC] Application Development languages (As required per application) [Confidential Information filed separately with the SEC] Performance [Confidential Information filed separately with the SEC] SCHEDULE "J" February 14, 1997 Ms. Ellen Kirsh VP Corporate Development, General Counsel & Secretary Digital City Inc. 1595 Spring Hill Road 5th floor, Vienna, Virginia 22182 Fax: 703-918-1198 Dear Ellen, As you know, Internet Liquidators Inc. ("ILII") remains very interested in pursuing licensing agreements with Digital City Inc. ("DCI), an affiliate of America Online, Inc. ("AOL"). In order to proceed towards this end, we have set forth immediately below the general terms upon which ILII is willing to continue to pursue negotiations and close an arrangement with DCL 1. ILII licenses its Local Auction technology to DCI on an exclusive city-by- city basis throughout the world, except in the Province of Ontario, Canada. The technology configuration will be agreed upon by the parties as soon as possible. DCI shall provide ILII with its technical specifications on or before February 25, 1997 and ILTI shall provide DCI with its cost information on or before March 5, 1997. 2. Licenses will have a term of two years with annual renewals. A mechanism will be designed to require either party to provide the other with appropriate advance notice of a planned termination of the relationship, and to permit DCI to transition to an alternative technology. 3. DCI will pay ILII an annual license and annual maintenance fee on a per city basis as mutually agreed upon. A formula to compute these fees will be designed to enable ILII to recover its incremental costs (over the costs incurred in connection with the AOL-ILII transaction ) over a reasonable time period giving effect to the number of cities planned to be launched by DCI. For example, the license and maintenance fees specified in the draft letter dated February 7, 1997 addressed to Jeff Lymburner arc based upon a rollout of 80 cities by DCI over approximately an 18 month period. Additionally, the parties will in good faith consider the revenue potential from the sale of advertising by ILII and the sale of goods sourced by ILII when agreeing on license and maintenance pricing. 4. ILII will host the Local Auction Service for DCI, and will develop a DCI- branded user interface which is customized by each local Digital City. 5. ILII will grant DCI most favored customer status. 6. Closing date for the proposed transaction shall be no later than April 12, 1997. 7. Transaction shall be subject to completion of due diligence by ILII, which has been substantially completed. ILII has not at this time discovered any information which would cause it not to proceed with the transaction as outlined in this letter. This letter is not intended to create a binding or enforceable agreement, but the parties are bound to proceed on the terms outlined above in the event they otherwise elect to proceed with this transaction. This letter is subject to the terms of the Nondisclosure Agreement between AOL and ILII dated August 8, 1996, which is intended to apply to DCI, and may not be distributed without the consent of the non -distributing party. We look forward to a mutually beneficial business relationship. Very truly yours Paul Godin President & CEO 2 SCHEDULE "K" Shareholders Agreement Agreement has been terminated. Schedule "L" Form of Registration Rights Agreement REGISTRATION RIGHTS AGREEMENT THIS AGREEMENT is made the ____ day of February, 1997 (the "Effective Date") by and between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation having a principal place of business at 5915 Airport Rd, Suite 330, Mississauga, Ontario L4V 1T1 ("Issuer") and AMERICA ONLINE, INC., a corporation having a principal place of business at 22000 AOL Way, Dulles, Virginia ("Subscriber"). BACKGROUND: 1. Issuer is a reporting issuer under the Securities Act (Ontario). 2. Pursuant to a subscription agreement between Subscriber and the Issuer dated the date hereof (the "Subscription Agreement"), Subscriber is acquiring an interest in Issuer by subscribing for previously unissued common shares in the capital of Issuer and by obtaining a warrant to acquire additional common shares in the capital of Issuer. 3. It is a condition of closing the subscription that the Subscriber and Issuer enter into this registration rights agreement. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows: ARTICLE ONE INTERPRETATION -------------- 1.1 Definitions. In this Agreement, unless otherwise defined herein, each ----------- capitalized term shall have the meaning attributed thereto in the Subscription Agreement. "Canadian Securities Acts" means the Securities Act (Ontario) and the applicable securities legislation in all other Canadian provinces, as amended, and the rules, policies, rulings, orders and regulations of all Canadian Commissions promulgated thereunder, all as the same shall be in effect from time to time. "Canadian Commissions" means the securities regulatory authorities in each of the provinces of Canada. "Commission" means the applicable Canadian Commission or the SEC with whom the Issuer shall use its best efforts to effect the Registration of any Registrable Shares pursuant to Section 2.4.1 of this Agreement. "Demand Registrations" shall have the meaning set out in Section 2.1.2 of this Agreement. "Long-Form Registration" means with respect to a Registration effected in Canada, a Registration effected by way of a long-form prospectus prepared pursuant to the applicable form prescribed under applicable securities regulations and, with respect to a Registration effected in the United States, a Registration effected by way of a registration document on Form F-1 or any similar long-form registration. "Other Shares" means at any time those common shares of the Issuer that do not constitute Primary Shares or Registrable Shares. "Person" means an individual, partnership, unincorporated association, unincorporated syndicate, or a corporation. "Primary Shares" means at any time the authorized but unissued common shares of the Issuer. "Registration" means the qualification and registration of Registrable Shares under the Securities Act (or any of them) by way of Long-Form Registration or, if available, Short Form Registration. ["Registrable Shares" means at any time, the common shares of the Issuer held (or to be held upon conversion of any Restricted Shares) by Subscriber that constitute Restricted Shares.] "Registration Document" means a prospectus, registration document or other document pursuant to which Registration may be effected. "Registration Expenses" shall have the meaning set out in Section 2.4.2 of this Agreement. "Registration Period" means each year commencing on the date hereof or the anniversary of the date hereof and ending one year later; ["Restricted Shares" means at any time, with respect to Subscriber, the common shares of the Issuer held by it on the date hereof or issuable upon exercise, exchange or conversion of the Warrant, and any shares or other securities received in respect thereof, which are held by Subscriber and which have not previously been sold to the public pursuant to a Long-Form Registration or a Short-Form Registration.] "Rule 144" means Rule 144 promulgated under the U.S. Securities Act or any successor rule thereto or any complementary rule thereto. "SEC" means the Securities and Exchange Commission or any other federal agency at the time administering the U.S. Securities Act. "Securities Act" means the applicable Canadian Securities Act or the U.S. Securities Act. 2 "Short-Form Registration" means, with respect to a Registration effected in Canada, a Registration effected by way of a short form prospectus prepared pursuant to the POP system under National Policy No. 47 or equivalent system established from time to time by the Canadian Commissions and, with respect to a Registration effected in the United States, a Registration effected by way of a registration document on Form F-2 or F-3 or any similar Short-Form registration. "U.S Securities Act" means the U.S. Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect from time to time. 1.2 Headings. The headings in this Agreement are for convenience of -------- reference only and shall not affect the construction or interpretation hereof. 1.3 Extended Meanings. Words in the singular include the plural and vice- ----------------- versa and words in one gender include all genders. 1.4 Entire Agreement. This Agreement constitutes the entire agreement ---------------- between the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, oral or written, between such parties. 1.5 Invalidity. If any of the provisions contained in this Agreement is ---------- found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not be in any way affected or impaired thereby. 1.6 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of Ontario and the federal laws of Canada applicable therein (excluding any provision that would result in the application of the law of another jurisdiction) and shall be treated, in all respects, as an Ontario contract. Issuer submits to the non-exclusive jurisdiction of the Courts of Virginia and the U.S. Federal Court and Subscriber submits to the non-exclusive jurisdiction of the Courts of Ontario. ARTICLE TWO REGISTRATION RIGHTS ------------------- 2.1.1 Registration Rights. If the Issuer makes a public offering of its ------------------- securities in the Unites States, it shall register the common shares held by Subscriber under the U.S. Securities Act. In addition, Subscriber shall have two demand registration rights after a U.S. public offering. Subscriber shall receive two similar demand registration rights with respect to a Registration in Canada, which may be exercised at any time after - months after the purchase of the common shares. Additionally, Subscriber shall have the piggyback registration rights set out herein. 2.1.2 Demand Registration Rights: Subscriber may request the Issuer to -------------------------- effect a Registration of their common shares. Subscriber when requesting such a Registration shall be entitled to choose the jurisdictions where such Registration shall be effected, [provided that the Issuer 3 shall not be required to effect any Registration in any jurisdiction where it has not completed a public offering.] Each request for a Registration shall be in writing and shall specify the approximate number of Registrable Shares requested to be qualified, the anticipated per share price range for such offering, the intended method of disposition of such Registrable Shares and the jurisdictions where Registration is to be effected. All Registrations requested pursuant to this Section 2.1.2 are referred to herein as "Demand Registrations". Notwithstanding anything contained herein to the contrary, and regardless of the number of Registrable Shares held by Subscriber, so long as Subscriber holds Registrable Shares it shall be entitled to request two Demand Registrations (regardless of the number of Registrable Shares held by Subscriber) under the applicable Canadian Securities Act, and two Demand Registrations under the U.S. Securities Act, of the Registrable Shares which the Issuer has been so requested to register, provided that to the extent that Registration Shares are included in a Registration, the number of Demand Registrations it shall be entitled to request shall be reduced by one. The Issuer shall be obligated to effect only two Demand Registrations hereunder in each of Canada and the United States in each Registration Period. A Registration will not count as one of the permitted Demand Registrations for Subscriber until it has become effective or until a receipt has been issued for the final prospectus or registration document, as the case may be (unless such Registration has not become effective or a receipt has not been issued due solely to the fault of Subscriber). The Issuer shall pay the Registration Expenses in connection with each Demand Registration to the extent permitted by applicable law, [except that Subscriber shall pay all fees and expenses of Subscriber's counsel and the underwriting discounts, commissions and similar fees, and transfer taxes applicable to the shares of Subscriber included in such Registration.] 2.1.3 Short-Form Registrations. [unlimited number but no more than once ------------------------ every six months] Demand Registrations will be Short-Form Registrations whenever the Issuer is permitted to use any such applicable Registrations. The Issuer undertakes to use its best efforts to the extent practicable to make the necessary regulatory filings to maintain its eligibility to use a Short-Form Registration from the time it initially becomes eligible to use such Registrations. 2.1.4 Priority on Demand Registrations. The Issuer will not include in any -------------------------------- Registration pursuant to a Demand Registration any securities which are not Registrable Shares without the prior written consent of Subscriber. If a Registration pursuant to a Demand Registration is an underwritten offering and the managing underwriters advise the Issuer in writing that in their opinion the number of Registrable Shares and, if permitted hereunder in accordance with the preceding sentence, the Primary Shares and the Other Shares requested to be included in such offering exceeds the number of shares of the Issuer which can be sold in an orderly manner in such offering within a price range acceptable to the Subscriber, the Issuer will include the number of Registrable Shares,- Primary Shares and Other Shares in such Registration in the following order: a) first, the Registrable Shares owned by the Subscriber at the time of such Registration; b) second, the Primary Shares; and c) third, the Other Shares. 4 2.1.5 Restrictions on Registrations. The Issuer shall not be obligated to ----------------------------- effect any registration under a Securities Act except in accordance with the following provisions: 1. the Issuer shall not be obligated to effect any Demand Registration until the later of six months after: (i) the date on which Registrable Shares are sold by Subscriber pursuant to a previous Demand Registration; and (ii) the date on which Registrable Shares are sold by Subscriber pursuant to Section 2.2.1. 2. the Issuer may postpone, for up to 180 days, the filing or effectiveness of, or issuance of a receipt for, a Registration for a Demand Registration made by Subscriber pursuant to Sections 2.1.1 or 2.1.2 if the Issuer in the good faith judgement of its Board of Directors with advice from counsel reasonably believes that such Registration would reasonably be expected to have an adverse effect on any proposal or plan by the Issuer to engage in any acquisition of assets or any merger, consolidation, takeover bid or similar transaction and subject to applicable Securities Act. In the event the Issuer postpones the filing of such registration statement or prospectus, the Issuer shall pay all Registration Expenses in connection with such Registration up to the date of postponement and such Registration shall not ______ it as a Demand Registration for purposes of Section 2.1.1. above. 3. If the filing of a Registration Document would require the disclosure of material information which the Issuer has a bona fide business purpose for preserving as confidential and for which the Issuer has filed a material change report or other like document with any of the Commissions on a confidential basis and which has not been publicly disclosed, the Issuer shall not be required to effect a Registration pursuant to a Demand Registration until the earlier of (i) the date upon which such material information is disclosed to the public or ceases to be material; and (ii) 90 days after the Issuer makes such good faith determination. In the event the Issuer postpones the filing of such registration statement or prospectus, the Issuer shall pay all Registration Expenses in connection with such Registration up to the date of postponement and such Registration shall not count as a Demand Registration for purposes of Section 2.1.1. above. 4. If the Issuer has been advised in writing (with a copy to Subscriber) by an independent investment dealer selected by the Issuer that, in such dealer's opinion, the Registration at that time and on the terms requested would adversely affect any proposed financing by the Issuer, the Issuer shall not be required to effect a Registration pursuant to a Demand Registration until the later of: (i) 90 days after completion or abandonment of such financing; and (ii) termination of any "blackout" period required by the underwriters in connection with such financing; provided such blackout period shall not be longer than 180 days. In the event the Issuer postpones the filing of such registration statement or prospectus, the Issuer shall pay all Registration Expenses in connection with such Registration up to the date of postponement and such Registration shall not count as a Demand Registration for purposes of Section 2.1.1. above. Notwithstanding anything contained herein to the contrary, in no event shall the periods during which the Issuer is not required to effect a Registration pursuant to a Demand 5 Registration as described above extend for more than 180 days. [The Subscriber shall be bound by the restrictions of this Section only if, and to the extent that, the executive officers of the Issuer owning Common Stock shall be bound by such provisions.] 2.1.6 Selection of Underwriters. The Subscriber shall have the right to ------------------------- select the investment banker(s) and manager(s) to administer the Registration, subject to the Issuer's consent, which shall not be unreasonably withheld or unduly delayed. 2.1.7 Other Registration Rights. Except as provided in this Agreement, the ------------------------- Issuer shall not grant to any Person the right to request the Issuer to qualify or register any equity shares of the Issuer or any shares convertible or exchangeable into or exercisable for such shares without the prior written consent of Subscriber. 2.2.1 Piggyback Registrations Rights. Whenever the Issuer proposes to ------------------------------ qualify or register any of its securities under any of the Securities Acts (other than pursuant to a Demand Registration) in a form and manner which would permit qualification and registration of one or more Registrable Shares (a "Piggyback Registration"), the Issuer will give prompt written notice to Subscriber of its intention to do so and will include in such qualification and registration all Registrable Shares with respect to which the Issuer has received written request for inclusion therein within 15 days after the receipt by Subscriber of the Issuer's notice. 2.2.2 Piggyback Expenses. The Registration Expenses of the Piggyback ------------------ Registration will be paid by the Issuer to the extent permitted by applicable law, except that Subscriber shall pay all fees and expenses of its counsel and the underwriting discounts, commissions and similar fees, and transfer taxes applicable to the Registrable Shares included in such Registration. 2.3.1 Priority on Piggyback Registrations. If a Piggyback Registration is ----------------------------------- an underwritten distribution or registration on behalf of the Issuer, and the managing underwriters advise the Issuer in writing that in their opinion the number of shares requested to be included in such Registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Issuer, the Issuer shall include in such Registration: (i) first, the Primary Shares the Issuer proposes to sell, (ii) second, the Registrable Shares requested to be included in such distribution or registration, pro rata based upon the number of Restricted Shares owned by Subscriber at the time of such Registration, and (iii) third, Other Shares requested to be included in such Registration. 2.3.2 Priority on Secondary Registration. If a Piggyback Registration is an ---------------------------------- underwritten secondary distribution or registration on behalf of the holders of the Issuer's shares, other than the Subscriber, and the managing underwriters advise the Issuer in writing that in their opinion the number of shares requested to be included in such Registration pursuant to Paragraph 2.2.1. exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the holders initially requesting such distribution or registration, then the Issuer's shares will be included in such registration as follows (i) first, the shares of the holders initially requesting such distribution or registration, (ii) second, the Registrable Shares requested to be included in such distribution or registration, pro rata based upon the number of Restricted Shares 6 owned by the Subscriber at the time of such registration, and (iii) third, Other Shares requested to be included in such distribution or registration. 2.3.3 Selection of Underwriters. [If any Piggyback Registration is an ------------------------- underwritten offering the Subscriber if included in such Piggyback Registration must be consulted concerning the selection of investment banker(s) and manager(s) for the offering.] 2.3.4 Other Registrations. If the Issuer has previously filed a ------------------- Registration Document with respect to Registrable Shares pursuant hereto, and if such previous Registration Document has not been withdrawn or abandoned, subject to the applicable Securities Act, the Issuer shall not file or cause to be effected any other qualification or registration of any of its equity shares or shares convertible or exchangeable into or exercisable for equity shares under any of the Securities Acts (except on Forms S-4, F-4, F-8, F-80 or S-8 or any successor forms for purposes of registration in the United States), on its own behalf, until a period of at least ninety days has elapsed from the date of closing of the sale of the Registrable Shares. 2.3.5 Holdback Agreements By Holders of Registrable Shares. Subscriber ---------------------------------------------------- agrees not to effect any public sale or distribution (including sales pursuant to any prospectus exemption under any of the Securities Acts or Rule 144 under the U.S. Act) of equity shares of the Issuer, or any shares convertible into or exchangeable or exercisable for such shares, during the seven days prior to and the 90-day period beginning on the effective date of the Registration Document, provided that Subscriber has received prior notice of such dates, in respect of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten Registration), unless the underwriters managing the underwritten Demand Registration or Piggyback Registration, as the case may be, otherwise agree. 2.3.6 Holdback Agreements By Issuer. The Issuer agrees not to effect any ----------------------------- public sale or distribution of its equity shares, or any shares convertible into or exchangeable or exercisable for such shares, during the seven days prior to and during the 90-day period beginning on the effective date of the Registration Document in respect of any [underwritten] Demand Registration or any -------------- [underwritten] Piggyback Registration (except as part of such underwritten - ------------- Registration pursuant to registrations on Forms S-4, F-4, F-8, F-80 or S-8 or any successor forms or as required under employee stock incentive plans), [unless the underwriters managing the registered public offering otherwise agree]. In addition, the Issuer will use its best efforts to obtain lock-up agreements for a period of 90 days following the date of the receipt for the final prospectus or the effective date of the Registration Document, as applicable, from holders of five percent or more of the Issuer's equity shares. 2.4.1 Preparation and Filing. If and whenever the Issuer is obligated ---------------------- pursuant to the provisions of this Agreement to use its best efforts to effect the Registration of any Registrable Shares, the Issuer shall, as expeditiously as practicable: 1. use its best efforts to cause a Registration Document to become and remain effective for the lesser of (i) a period of 180 days; (ii) until all of such Registrable Shares have been disposed of or; (iii) the maximum period permitted under the Securities Act; 7 2. furnish, at least five business days before filing a Registration Document that registers such Registrable Shares, or any amendments or supplements relating thereto, to counsel selected by Subscriber (the "Subscriber's Counsel"), copies of all such documents proposed to be filed (it being understood that such five-business-day period need not apply to successive drafts of the same document proposed to be filed so long as such successive drafts are supplied to such counsel in advance of the proposed filing by a period of time that is customary and reasonable under the circumstances); 3. prepare and file with the Commission such amendments and supplements to such Registration Document used in connection therewith as may be necessary to keep such Registration Document effective for the period contemplated in paragraph 2.4.1(1) above and to comply with the provisions of the Securities Acts with respect to the sale or other disposition of such Registrable Shares; 4. notify in writing the Subscribers' Counsel promptly (i) of the receipt by the Issuer of any notification with respect to any comments by the Commission with respect to such Registration Document or any amendment or supplement thereto or any request by the Commission for the amending or supplementing thereof or for additional information with respect thereto, (ii) of the receipt by the Issuer of any notification with respect to the issuance by the Commission of any stop order suspending the effectiveness of such Registration Document or any amendment or supplement thereto or the initiation or threatening of any proceeding for that purpose and (iii) of the receipt by the Issuer of any notification with respect to the suspension of the qualification of such Registrable Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purposes; 5. use its best efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as Subscriber reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable Subscriber to consummate the disposition in such jurisdictions of the Registrable Shares; provided, however, that the Issuer will not be required to qualify generally to do business, subject itself to general taxation or consent to general service of process in any jurisdiction where it would not otherwise be required so to do but for this paragraph 2.4.1(5); 6. furnish to Subscriber such number of copies of the Registration Document including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as Subscriber may reasonably request in order to facilitate the public sale or other disposition of such Registrable Shares; 7. use its best efforts to cause such Registrable Shares to be registered or qualified with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Issuer to enable Subscriber to consummate the disposition of such Registrable Shares; 8 8. notify on a timely basis Subscriber at any time when a Registration Document relating to such Registrable Shares is required to be delivered under the Securities Act within the appropriate period mentioned in paragraph 2.4.1(1) of this Section, of the happening of any event as a result of which the Registration Document or the prospectus included in such Registration Document, as then in effect, does not constitute full, true or plain disclosure of all material facts of the Issuer and the shares being qualified thereunder or includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and, at the request of Subscriber, prepare and furnish to Subscriber a reasonable number of copies of a supplement to or an amendment of such Registration Document as may be necessary so that, as thereafter delivered to the offerees of such shares, such Registration Document constitutes full, true and plain disclosure of all material facts of the Issuer and the securities being qualified thereunder and shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; 9. make available for inspection by Subscriber or any underwriter participating in any disposition pursuant to such Registration Document and any attorney, accountant or other agent retained by any such seller or such underwriter (collectively, the "Inspectors"), all pertinent financial and other records, pertinent corporate documents and properties of the Issuer (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Issuer's officers, directors and employees to supply all information (together with the Records, the "Information") reasonably requested by any such Inspector in connection with such Registration Document. Any of the Information which the Issuer determines in good faith to be confidential, and of which determination the Inspectors are so notified, shall not be disclosed by the Inspectors unless (i) the disclosure of such Information is necessary to avoid or correct a misstatement or omission in the Registration Document, (ii) the release of such Information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) such Information has been made generally available to the public. Subscriber agrees that it will, upon learning that disclosure of such Information is sought in a court of competent jurisdiction, give notice to the Issuer and allow the Issuer, at the Issuer's expense, to undertake appropriate action to prevent disclosure of the Information deemed confidential; 10. use its best efforts to obtain from its independent certified public accountants "comfort" letters in customary form and at customary times and covering matters of the type customarily covered by comfort letters; 11. use its best efforts to obtain from its counsel an opinion or opinions in customary form addressed and delivered to Subscriber; 12. provide a transfer agent and registrar (which may be the same entity and which may be the Issuer) for such Registrable Shares; 9 13. issue to any underwriter to which Subscriber may sell shares in such offering certificates evidencing such Registrable Shares; 14. list Registrable Shares on any Canadian or U.S. national securities exchange on which any common shares of Issuer are listed or, if the common shares are not listed on such a national securities exchange, use its best efforts to qualify such Registrable Shares for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc. (the "NASD") or such Canadian or U.S. national securities exchange as Subscriber shall request; 15. otherwise use its best efforts to comply with all applicable rules and regulations of the Securities Act and the Commission and make available to Subscriber, as soon as reasonably practicable, earnings statements (which need not be audited) covering a period of 12 months beginning within three months after the effective date of the Registration Document, which earnings statements shall satisfy the provisions of the Securities Act; and 16. use its best efforts to take all other steps necessary to effect the Registration of such Registrable Shares contemplated hereby. 2.4.2 Registration Expenses. Subject to applicable laws, all expenses --------------------- incurred by the Issuer in complying with Article Two, including, without limitation, all Registration and filing fees (including all expenses incident to filing with the NASD or a national securities exchange), fees and expenses of complying with securities and blue sky laws, printing expenses, and fees and expenses of the Issuer's counsel and accountants, and the fees and expenses of Subscriber's Counsel shall be paid by the Issuer; provided, however, that all underwriting discounts and selling commissions applicable to the Registrable Shares, and all fees and expenses of any special or interim audit for any Registration initiated by Subscriber pursuant hereto that is not otherwise required under the Securities Act in connection with such Registration, shall be borne by Subscriber, in proportion to the number of Registrable Shares. ARTICLE 3 REPRESENTATION AND INDEMNIFICATION 3.1 No Conflict of Rights. The Issuer represents and warrants to --------------------- Subscriber that the registration rights granted to Subscriber hereby do not conflict with any other registration rights granted by the Issuer. The Issuer shall not, after the date hereof, grant any registration rights which conflict with or impair the registration rights granted hereby. 3.2 Indemnification. In connection with any registration of any --------------- Registrable Shares under the Securities Act pursuant to this Agreement, the Issuer shall indemnify and hold harmless Subscriber, its officers and directors, each underwriter, broker or any other person acting on behalf of Subscriber and each other person, if any, who controls any of the foregoing persons within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint 10 or several, (or actions in respect thereof) to which any of the foregoing persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Document, any amendment or supplement thereto or any document incident to registration or qualification of any Registrable Shares, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or, with respect to any prospectus, necessary to make the statements therein in light of the circumstances under which they were made not misleading, or any violation by the Issuer of the Securities Act or state securities or blue sky laws applicable to the Issuer and relating to action or inaction required of the Issuer in connection with such registration or qualification under such state securities or blue sky laws; and shall reimburse Subscriber, such officer or director, such underwriter, such broker or such other person acting on behalf of Subscriber and each such controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Issuer shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said Registration Document, amendment, supplement or document incident to registration or qualification of any Registrable Shares (as the case may be) in reliance upon and in conformity with written information furnished to the Issuer through an instrument duly executed by Subscriber or an underwriter selected by Subscriber that states that it is specifically for use in the preparation thereof. 3.3 In connection with any Registration of Registrable Shares under the Securities Act pursuant to this Agreement, Subscriber shall indemnify and hold harmless (in the same manner and to the same extent as set forth in the preceding paragraph of this Section) the Issuer, each director of the Issuer, each officer of the Issuer-who shall sign such Registration Document, each underwriter, broker or other person acting on behalf of Subscriber, and each person who controls any of the foregoing persons within the meaning of the Securities Act with respect to any statement or omission from such Registration Document, any amendment or supplement thereto or any document incident to registration or qualification of any Registrable Shares, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Issuer or such underwriter through an instrument duly executed by Subscriber or an underwriter selected by Subscriber that states that it is specifically for use in connection with the preparation of such Registration Document or any amendment, supplement or other document relating thereto. 3.4 The indemnification required by this Article will be made by periodic payments during the course of the investigation or defense, as and when bills are received or expenses incurred, subject to prompt refund in the event any such payments are determined not to have been due and owing hereunder. 3.5 Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in the preceding Sections of this Article, such indemnified party will, if a claim in respect thereof is made against an indemnifying party, give written notice 11 to the latter of the commencement of such action. In case any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such k indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof; provided, however, that if any indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified party which are additional to or conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity agreement provided in this Article, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party and such indemnifying party shall reimburse such indemnified party and any person controlling such indemnified party for that portion of the fees and expenses of any counsel retained by the indemnified party which is reasonably related to the matters covered by the indemnity agreement pursuant hereto. 3.6 The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and will survive the transfer of securities. 3.7 If the indemnification provided for in this Article is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage or liability as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Issuer and the Subscriber agree that it would not be just and equitable if contributions pursuant to this paragraph were determined by pro rata allocation or by any other method of allocation which did not take into account the equitable considerations referred to herein. The amount paid or payable to an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to above shall be deemed to include, subject to the limitation set forth in Section 3.2, any legal or other expenses reasonably incurred in connection with investigating or defending the same. Notwithstanding the foregoing, in no event shall the amount contributed by a Subscriber exceed the aggregate net offering proceeds received by Subscriber from the sale of Subscriber's Registrable Shares. 12 ARTICLE 4 TERMINATION 4.1 Termination. This Agreement shall terminate and be of no further ----------- force or effect when there shall not be any Restricted Shares held by Subscriber. ARTICLE 5 GENERAL 5.1 Time. Time is of the essence of this Agreement and each of its ---- provisions. 5.2 Notice. Any notice or other communication (in this Section a "Notice") ------ required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered in person during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant party at the applicable address set forth below: (b) sent by prepaid first class mail; or (c) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to AOL addressed to it at: America Online, Inc. 72000 AOL Way Dulles, Virginia 20166 Attention: Fred Singer, Vice-President Fax No.: (703) 265-2409 with a copy to: America Online, Inc. 22000 AOL Way Dulles, Virginia 20166 Attention: General Counsel Fax No.: (703) 265-2208 and in the case of a Notice to Issuer, addressed to it at: 5915 Airport Road, Suite 330 Mississauga, ON 13 L4V 1T1 Attention: Paul Godin, President and Chief Executive Officer Fax No.: (905) 672-5705 and cc: David Pamenter Gowling, Strathy & Henderson Barristers and Solicitors Commerce Court West Suite 4900 Toronto, Ontario Any Notice given or made in accordance with this Section 5.3 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; (b) on the fifth Business Day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof. Any Party may from time to time change its address for notice by giving Notice to the other Party in accordance with the provisions of this Section 5.3. 5.3 Public Announcements. Neither of the parties hereto shall make any -------------------- public statement or issue any press release concerning the transactions contemplated by this Agreement except as may be necessary, in the opinion of counsel to the party making such disclosure, to comply with the requirements of all Applicable Law. If any such public statement or release is so required, the party making such disclosure shall consult with the other party prior to making such statement or release, and the parties shall use all reasonable efforts, acting in good faith, to agree upon a text for such statement or release which is satisfactory to both parties. 5.4 Assignment. None of this Agreement nor any right or obligation ---------- hereunder is assignable in whole or in part by either party without the prior written consent of the other party. [Notwithstanding the foregoing, Subscriber may, without the consent of Issuer, assign this Agreement and its rights hereunder to any whollyowned subsidiary on condition that Subscriber remains liable to observe and perform all of its covenants and obligations hereunder-] Subject thereto, this Agreement shall inure to the benefit of and be binding upon the parties and their respective successors (including any successor by reason of amalgamation or statutory arrangement of either party) and permitted assigns. 14 5.5 Further Assurances. Each party shall do such acts and shall execute ------------------ and deliver such further agreements, documents, conveyances, deeds, assignments, transfers and the like, and shall cause the doing of such acts and the execution and delivery of such further items as are within its power and as the other party may in writing at any time and from time to time reasonably request, in order to give full effect to the provisions of this Agreement. IN WITNESS WHEREOF the parties have duly executed this Agreement. INTERNET LIQUIDATORS INTERNATIONAL INC. By:___________________________________ c/s Name: Title: By:___________________________________ c/s Name: Title: AMERICA ONLINE, INC. By:___________________________________ c/s Name: Title: 15 SCHEDULE "M" MATERIAL CONTRACTS Product Suppliers: List of Suppliers (as of January 30, 1997) Draft Supplier Agreements (Four Versions) Draft Marked-up Version of Agreement with W3 Edge Inc. Service Supplier Agreements (as of January 30, 1997): Agreement between RV Storage & Assembly Co. Ltd. and Internet Liquidators Inc. dated February 2, 1996. Automated Shipping System Letter of Agreement between United Parcel Service and Internet Liquidators Inc. dated April 2, 1996. Courier Service Agreement between Purolator Courier Ltd. and Internet Liquidators Inc. dated February 21, 1996. Premium Finance Agreement between AIG Credit Corp. of Canada and Internet Liquidators International Inc. dated October 8, 1996. Visa Agreement between the Bank of Nova Scotia and Internet Liquidators Inc. dated February 21,1996. Mastercard Agreement between the Bank of Montreal and Internet Liquidators Inc. dated March 13 1996. Credit Card Processing Agreement between First USA Merchant Services, Inc. and Internet Liquidators USA, Inc. dated July 17, 1996. American Express Agreement between Amex Bank of Canada and Internet Liquidators Inc. dated July 20, 1996. Employment Contractor Agreements: Employment Agreement between Paul Godin and Internet Liquidators Inc. dated January 1, 1996 Employment Agreement between Jeffrey Lymburner and Internet Liquidators Inc. dated January 1, 1996. Designated Insured Persons and Company Reimbursement Policy between Aetna and Internet Liquidators International, Inc. dated October 10, 1996. Indemnity Agreement between Frank Clegg and Internet Liquidators International Inc. dated September 16, 1996. Engagement Letter between HDL Capital Corporation Agreement and Internet Liquidators International Inc. dated August 22, 1996. Toronto Star Newspapers Limited Agreements Subscription Agreement dated February 12, 1997 between Toronto Star Newspapers Limited ("Torstar") and Internet Liquidators International Inc. ("IL"). Warrant certificate dated February 12, 1997 executed by IL evidencing the Warrant. Shareholders' Agreement dated February 12, 1997 between Torstar, IL, 1184041 Ontario Inc. ("184041 ") and the Smythe Group Company ("Smythe"). E-Commerce Services Agreement dated February 12, 1997 between Torstar and IL. Master Preferred Escrow Agreement dated February 12, 1997 between Torstar, IL and Data Securities International, Inc. IP Rights and Non-Competition Agreement dated February 12, 1997 between Torstar, IL, 118404 1, Smythe, Paul Godin and Jeff Lymburner. CP-29729-1 February 17 1997 2 SCHEDULE "N" FORM OF WARRANT THIS WARRANT WILL BE VOID AND OF NO VALUE OR EFFECT UNLESS EXERCISED PRIOR TO THE EXPIRY TIME. COMMON SHARE PURCHASE WARRANT INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Company") (Incorporated under the laws of ONTARIO) No. W-1 Right to Purchase Common Shares THIS IS TO CERTIFY that for value received, AMERICA ONLINE, INC. ("AOL"), the registered holder hereof, is entitled to exercise its rights under this Warrant, in whole or in part, at any time, and from time to time, from 9:00 a.m. (Toronto time) February 18, 1997 (the "Effective Date") to 4:00 p.m. (Toronto time) September 1, 1999 (the "Expiry Time"), to purchase up to the number of fully paid and non-assessable common shares without par value in the capital of the Company as provided below (the "Common Shares"), as such Common Shares are presently constituted, upon and subject to the terms and conditions hereinafter referred to and at a subscription price as provided below (the "Exercise Price"): 1. Pursuant to this Warrant, AOL may purchase such number of Common Shares as will result at the time of exercise in AOL owning, on a fully diluted basis, 51% of the Common Shares. For the purposes hereof, "fully diluted basis" shall be calculated at the time of the applicable exercise of the Warrant, and refers to the percentage interest that AOL would have in the capital of the Company if all options, rights, warrants or subscription privileges issued or granted by the Company (whether or not currently exercisable or exercisable on conditions) to purchase Common Shares had been exercised and all securities of the Company convertible into, or exchangeable for, Common Shares had been converted or exchanged. 2. The Exercise Price and the exercise period for each Common Share shall be: (a) until October 15. 1997, US$1.50 per Common Share for the number of Common Shares necessary to bring AOL's ownership interest at the time of exercise, on a fully diluted basis, to 13%; (b) from October 16. 1997 up to and including February 15. 1998, LTS$2.00 per Common Share for the number of Common Shares necessary to bring AOL's ownership interest at the time of exercise, on a fully diluted basis, to 13%; (c) provided that either option (i) or (ii) above has been fully exercised, until July 1, 1998, US$3.00 per Common Share for the number of Common Shares necessary to bring AOL's ownership interest at the time of exercise, on a fully diluted basis, to 23%; (d) provided that option (iii) above has been fully exercised, until February 15, 1999, US$3.00 per Common Share for the number of Common Shares necessary to bring AOL's ownership interest at the time of exercise, on a fully diluted basis, to 33%; and (e) provided that option (iii) above has been fully exercised until September 1, 1999, or provided that option (iv) above has been fully exercised, until February 15, 2000, the greater of 75% of Fair Market Value or US$3.00 per Common Share for the number of Common Shares necessary to bring AOL's ownership interest at the time of exercise, on a fully diluted basis, to 51%. "Fair Market Value" means the weighted average closing price per Common Share on the largest exchange or public market on which such Common Shares are listed or quoted for the 30 trading days preceding the third trading day prior to the date the Warrant is exercised. 3. The cash or, at AOL's option, Exercise Price to be paid by AOL to the Company under this Warrant will be paid in (a) up to the entire Exercise Price under Section 2(i) above may be paid with an irrevocable voucher evidencing an advertising credit for advertisements on AOL's online service at AOL's then current rate card rates (being, an "Advertising Credit"); and (b) up to 50% of the Exercise Price under Sections 2(ii) and (iii) above may be paid with an Advertising Credit on the same basis. Where an Advertising Credit is provided, the Company shall use its best efforts to utilize such Advertising Credit within twelve (12) months of its issuance. In addition, where a portion of the Exercise Price may be paid with an Advertising Credit, AOL may elect to pay cash in lieu of all, or part, of the amount of the Advertising Credit provided that in such instance the Company shall contemporaneously agree to spend no less than 50% of its advertising budget on purchasing advertisements on AOL's online service until such time as the amount spent on such advertising on AOL is equal to the amount contributed by AOL that otherwise would have been paid with an Advertising Credit. 4. Transfer taxes and other taxes related to the issuance of Common Shares pursuant to the exercise of this Warrant, if any, and other ancillary expenses related to the issuance of such Common Shares shall be paid by the Company. -2- 5. This Warrant also provides that Common Shares shall not be subdivided, consolidated, reclassified or otherwise changed unless contemporaneously therewith the right of the holder of the Warrant to obtain Common Shares Is similarly subdivided, consolidated, reclassified or otherwise changed in the same proportion and the same manner. The Company will not adopt any poison pill or similar provision that would take effect upon AOL's exercise of the Warrant or otherwise limit AOL's ability to exercise the Warrant. 6. The right to purchase Common Shares in the capital of the Company may only be exercised by AOL within the time hereinbefore set out by: (a) duly completing in the manner indicated and executing the subscription form annexed hereto, and (b) surrendering this Warrant to the Company, at its registered office in the City of Toronto, together with a certified check payable to the order of the Company at par for the subscription price of the Common Shares subscribed for and/or presentation of an Advertising Credit executed by an officer of AOL. 7. Subject to the terms and conditions of this Warrant, upon such surrender and payment, AOL shall be deemed for all purposes the holder of record of such Common Shares and the Company covenants that it will (subject to the provisions of this Warrant) cause a certificate or certificates representing such Common Shares to be personally delivered to AOL at the address specified in such subscription form or if no specification is made then to the address of AOL hereof appearing in the register of warrants maintained by the Company pursuant to this Warrant. 8. AOL may subscribe for and purchase any lesser number of whole Common Shares than the number of Common Shares purchasable under this Warrant and in such event shall be entitled to receive a new Warrant in respect of the balance of the Common Shares purchasable under this Warrant not then subscribed for and purchased. To the extent that this Warrant confers the right to purchase a fraction of a Common Share, the Company shall not issue such fractional Common Shares. 9. The holding of this Warrant shall not constitute AOL a shareholder of the Company or entitle AOL to any right or interest in respect thereof except as herein expressly provided. 10. AOL may transfer this Warrant to any person to whom AOL has assigned its Common Shares. Following any such transfer, (1) references herein to AOL shall be read as references to the transferee; (2) Section 3 hereof shall be amended to delete all references to payment other than by cash; and (3) the amount of any then outstanding Advertising Credits shall be paid in cash to the Company. Subject to this condition, the transferee of this Warrant shall, subject to the requirements of this Warrant, be entitled to have such Warrant transferred to its name at the registered office of the Company in the City of Toronto under such reasonable regulations as the Company may prescribe. The person in whose name this Warrant shall be registered shall be deemed and regarded as the absolute owner hereof for all purposes and the Company shall not be affected by any notice or -3- knowledge to the contrary. The register shall at all reasonable times be open for inspection by the holder of any Warrant. 11. In case this Warrant shall become mutilated or be lost, destroyed or stolen, the Company, in the reasonable exercise of its discretion, may issue a new Warrant of like date and tenor as the one mutilated, lost, destroyed or stolen in exchange for and in place of, and upon surrender and cancellation of such mutilated Warrant or in lieu of and in substitution for such lost, destroyed or stolen Warrant, and the substituted Warrant shall be in like form and shall be entitled to like benefits herewith. 12. The applicant for the issue of a new Warrant pursuant to the above paragraph shall bear the cost of the issue thereof and in case of loss, destruction or theft shall, as a condition precedent to the issue thereof, furnish to the Company such evidence of ownership and of the loss, destruction or theft of the Warrant so lost, destroyed or stolen as shall be satisfactory to the Company in the reasonable exercise of its discretion and such applicant may also be required to furnish an indemnity in amount and form satisfactory to the Company in the reasonable exercise of its discretion, and shall pay the reasonable charges of the Company in connection therewith. 13. This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada (excluding any provisions that would result in the application of the laws of another jurisdiction). IN WITNESS WHEREOF the Company has caused this Warrant to be signed by its duly authorized officers as of the 21st day of February, 1997. INTERNET LIQUIDATORS INTERNATIONAL INC. By:______________________________________ Name: Title: By:______________________________________ Name: Title: -4- SCHEDULE "O" INTELLECTUAL PROPERTY RIGHTS . see attached copy of letter from MacBeth & Johnson, Barristers & Solicitors, to Brent Bowes of Internet Liquidators Inc. dated August 29, 1996. . IP Rights and Non-Competition Agreement between Toronto Star Newspapers Limited, Paul Godin, 1184041 Ontario Inc., Jeff Lymburner, Smythe Group Company and Internet Liquidators International Inc. made the 12th day of February, 1997. A copy of the agreement is contained in Schedule "M". [Incorporated by Reference. See Exhibit 3.3] MacBETH & JOHNSON BARRISTERS-AT-LAW & SOLICITORS PATENT AND TRADE MARK AGENTS OUR REF: TB-0-3140/File Overview August 28, 1996 Via Facsimile - ------------- Brent Bowes INTERNET LIQUIDATORS INC. 5915 Airport Road Unit 330 Mississauga, Ontario L4V 1T1 Dear Brent: Re: Internet Liquidators Inc. File Overview --------------------------------------- This is further to your telephone request yesterday. The following is our updated report to you regarding the current status of the patent, trade marks and copyright applications relating to Internet Liquidators Inc. Re: Patents - ----------- With regard to patent protection, an application was filed in Canada July 11, 1996, and in the U.S. on about August 26, 1996. Your contact on this matter is Warren Hall of our associated patent firm, Dennison Associates. Re: Trade Marks - --------------- With regard to trade marks, before the company was incorporated. an application was filed by Paul Godin in Canada as of February 17, 1995 for the trade mark "INTERNET LIQUIDATORS & Design." It was registered February 23, 1996. It was assigned to Internet Liquidators Inc. effective March 28,1996. An application for the word mark "INTERNET LIQUIDATORS" has been, or is just being, filed in Canada. As of September 27, 1995, an application was filed for the word mark "INTERNET LIQUIDATORS" in the U.S., namely SN 74/734948. As of about January 26, 1996, an application was also filed on behalf of Internet Liquidators Inc. for the trade mark "ONLINE AUCTION" in Canada, SN 802,840 and the corresponding application for the same trade mark in the U.S. was filed on March 18, 1996. On March 13, 1996 with the Canadian Trade Marks Office was an application for the trade mark "ONLINE OUTLET MALL." On March 13, 1996 an application was filed with the Canadian Trade Marks Office for the trade mark "CLUB RADD" and we filed a corresponding application for "CLUB R.A.D.D." in the U.S. on March 27, 1996. Preliminary searches for all these marks were conducted and we located no prior filings. Re: Copyrights - -------------- With regard to copyrights, we have been advised by the company that the entire computer program including any audiovisual material regarding their proposed service was authored by Paul Godin, Jeff Lymburner and Christopher J.A. Beaune as works for hire. The end product of course has not yet been finalized, but copyright attaches immediately upon creation rather than registration. Moreover, Canadian copyright registrations have already been obtained for the audiovisual and artistic elements as they appeared on the proposed display screens, A United States copyright application was filed February 9, 1996 for the "INTERNET LIQUIDATORS" collection of sample display screens. Trade Secrets - ------------- Lastly, with respect to trade secrets and confidential information, it is our understanding that no one else has adopted the idea of a reverse auction over the Internet. Thus, in addition to the protection discussed above, the idea is currently protected under the law of confidence. We trust this information meets your current deadline and we look forward to hearing from you. Yours very truly, MACBETH & JOHNSON Tony Bortolin TB:keh/ -2- SCHEDULE "P" MAJOR SHAREHOLDER INTERESTS The following is a list of shareholders owning greater than 10% of the issued and outstanding shares in the capital of Internet Liquidators International Inc.: Smythe Group Company - 1,850,000 shares 1184041ntario Inc. - 1,812,500 shares SCHEDULE "Q" ENCUMBRANCES Standard Mercantile Bancorp Limited Partnership re: Loan Agreement with Internet Liquidators International Inc. dated October 18, 1996 General Security Agreement between Internet Liquidators International Inc. and Standard Mercantile Bancorp, Limited Partnership dated October 18, 1996. Indenture of Guarantee between Internet Liquidators International Inc. and Standard Mercantile Bancorp, Limited Partnership dated October 18, 1996. SCHEDULE "R" YANKEE AUCTION FUNCTIONAL SPECIFICATIONS Overview The proposed enhancements will allow the current ILI Auction System to incorporate a Regular Type Auction format, in addition to the Dutch Auction and Mall Systems. The new applications will allow for MI control of all pages by ILI and serve, where possible, information from dynamically generated and cached.HTML pages. Template edit functions will also be included to allow global changes to be made to all pages. All items preceded with a "." and noted in italics are areas which we believe could be incorporated into the system to further enhance the functionality. The functional elements of these options are based upon the requested popular auction format currently found on the Internet. - ------------------------------------------------------------------------------- Home Page - --------- [Confidential Information filed separately with the SEC] Functional elements available from this page include: Section A Display counter with the number of bids taken to date Section B Customer service icon and link Section C About the Auction icon and link Section D How it Works icon and link Section E Auction Formats icon and link Section F - -------------------------------------------------------------------------------- Page 1 Customer Testimonials icon and link Section G E-mail request to be added to the Hot Product for Action batch mailing list Section H Bid Status Check icon and link Section J Product Categories Listing with appropriate links Section K Listing of products flagged as Hot Deals - -------------------------------------------------------------------------------- Section A - Total Bids Counter - ------------------------------ At the time of each bid, a system counter will be updated to keep track of the total number of bids received to date. The total bid counter will be available on the home page. It will be extracted and incorporated into the home page at the time of refresh of the page. - -------------------------------------------------------------------------------- Section B - Customer Service - ---------------------------- The customer service section will contain all elements as they relate to customer inquiries which can be made from the website. This section includes the following sub-elements: Section B1 - Order Status and Account Inquiry Provide an information page with an explanation of what a client can expect to see on the resulting pages. Provide capture fields for the clients user id and password plus the clients postal code for additional verification. Section BIA - Order Status and Account Inquiry Application Provide an application that will process the information supplied. In the event of full verification of the user, the following information is to be displayed: Section BIA1 - Open bids of all current auctions - -------------------------------------------------------------------------------- Page 2 To include the auction number, date the bid was placed and amount of the bid. Also to include the current bid range and a link to the specific product page(s). Section BIA2 - Recent winning bids and orders Include a list of all winning bids or orders over the last x days, where x is defined by the client. Contains a list of the products purchased and links to contact information for the specific products - for purposes of shipment verification and tracking. Section BIA3 - Recent unsuccessful bids A list of all bids placed which were not successful. Links to the specific products will be provided as well as the sale price cost range of the specific product. Section B2 - Vendor/Customer Service Contacts Provide a database built .htm. page that lists all the vendors and provides appropriate E-mail contact links. Section B3 - Setup New Account Provide an information page explaining the account setup operation. [Confidential Information filed separately with the SEC] Section B4 - Edit Current Account/Error in Bidding Provide an information page on how to correct the account information and how to change bids. Provide an E-mail link for bid changes. Section B5 - Request Additional Product Specifications Provide an information page with an E-mail link to allow a person to request additional product information. [Confidential Information filed separately with the SEC] Section B6 - Shipping Policies/International Shipping Provide an information page outlining the specific information and an E- mail link to customer support. [Confidential Information filed separately with the SEC] - -------------------------------------------------------------------------------- Page 3 Section B7 - Server and Bidding Problems Provide an information page listing the common problems and the relevant solutions. Include an E-mail link to submit additional problems and/or request other solutions. Section B8 - How to Become a Merchant Provide an information page on how to become a merchant and provide an E- mail link to the relevant contact person. Section B9 - Suggestion Box Provide an information page with instructions and an E-mail link for the submission of suggestions. - -------------------------------------------------------------------------------- Section C - About the Auction/ILI - --------------------------------- Provide an information page in the matching format outlining the auction systems and the site. Could re-use a lot of the existing information and just add new information relevant to the new auction system. - -------------------------------------------------------------------------------- Section D - How it Works - ------------------------ Provide an information page outlining the functionality of the auction system. - -------------------------------------------------------------------------------- Section E - Auction Formats - --------------------------- Provide an information page outlining the different functional elements of the auction. This page could include information about the current Auction and Mail systems, with links to the appropriate sections of the site. - -------------------------------------------------------------------------------- Section F - Customer Testimonials - --------------------------------- - -------------------------------------------------------------------------------- Page 4 Provide a dynamic page, which is updated as new testimonials are entered on the system. The order of display is controlled either automatically, based on receipt of testimonial or prioritized by ILI. - -------------------------------------------------------------------------------- Section G - Request for Hot Products E-mail - ------------------------------------------- Section G1 - Append to Database Application Provide an application to append the provided E-mail address to the database of mail recipients. This will be a common mail database, but these requests will be flagged for this function. Section G2 - Hot Products Batch Mall Application Provide an application which will mail the list of all products set as Hot Products to the persons on the mailing list. The frequency of mail out can be determined by ILI or overridden and sent on instruction by ILI. - -------------------------------------------------------------------------------- Section H - Bid Status Check - ---------------------------- Same application and systems outlined in section B I A, but linked from the Home Page. - -------------------------------------------------------------------------------- Section J - Product Categories - ------------------------------ This section is the core functional element of this section of the site. It allows for the selection of products and the placement of bids. Provide an application, working in conjunction with the Home Page application, to provide a list of all available categories, refreshed at the same frequency as the rest of the site HTML files. All categories listed will be in the form of links which will allow access to the listing of products in the specific category. Section J1 - Product Listing Provide an application which will list all products within a specific category, that are available on the auction. The auction number will be the link to the product and auction detail and the page where a bid can be placed. The application will produce standard .HTML files as output and refresh them at the refresh frequency of the site. Information about each product will be limited to one line of text and include: . The closing date of the auction - -------------------------------------------------------------------------------- Page 5 . The condition of the item ie. New, Used, Refurb, etc. . The name of the item . A brief description of the item, including main specifications . The street price of the item - -------------------------------------------------------------------------------- Section J2 - Product and Auction Status Detail Provide an application that will generate HTML detail pages for each product in the auction. The refresh will occur at the standard site refresh time. [Confidential Information filed separately with the SEC] This page will include: . A description of the item . An image of the item . The minimum acceptable bid amount . The bid increment value . Current quantity available . The auction number . The date and time at which the auction closes . The date and time of the last bid . A list of the current high bids, including the name of the bidder, the state of origin, date and time of bid, quantity and price bid . A free form area to allow the entry of specifications and other pertinent information . Warranty information, including the cost of extended warranties, if available . Sales tax policies . Maximum shipping costs In addition to this available information, this page will have the following options: Section J2A - Bid on Current Product Provide an application to prepare the bid screen for the current product. These screens will be in HTML format, refreshed at half the standard refresh rate of the site OR whenever a bid is placed on a product, whichever occurs first. This page will provide the following: . The description of the product - -------------------------------------------------------------------------------- Page 6 . The auction number . The minimum acceptable bid amount . The bid increment . The maximum US shipping charge . The maximum Canadian shipping charge . The minimum amount required to win the current item . A field to capture the new bid price . A field to capture the quantity required . Provide the user with an option to select if they will not accept a reduced quantity of the item . A field for the client's ILI user id and password If the client has not previously registered, then they will be required to complete the following fields: . First name . Last name . Company . Street address . City . County . Province/state . Postal/zip code . Country . E-mail address . Daytime phone number . Evening phone number . Fax number . Payment method (Visa, Amex, Mastercard) . Card Number . Expiry date The client will also have the option of specifying an alternate ship to address. If this is required, the following information will be captured: . Name . Street address . City . Province/state . Postal/zip code - -------------------------------------------------------------------------------- Page 7 . Country An additional comment field will also be provided so the client can enter comments regarding this bid. These comments will be listed next to the appropriate name on the list of current bids for the product. Section J2A1 - Process Bid Provide an application to place the bid, received from Section J2A, into the bids database. In addition to the placement of the new bid in the database the following functions will be performed: . The client will be e-mailed with the appropriate information regarding the bid that has been placed . If this new bid is higher than any previous bids, all the clients who have previously bid on the item will be e-mailed, informing them that they have been outbid on the specific item" Section J3 - View Next Product for Bidding Provide an application to determine the next product in sequence for bidding and allow paging to successive products using this application. The output from the application will be passed to the application building the page for Section J2A. This will allow for a link on the page which will allow the client to page through the available products in the specific category. Section J4 - Return to Index Provide an application to "remember" where the client came from and provide this information to the application building the pages for Section J2A. This will allow for the provision of a link to return the category listing page. Section J5 - Return to Home Provide a link to the home page. - ------------------------------------------------------------------------------- Section K - Hot Deals - --------------------- This section displays all products that have been flagged in the product database as Hot Deals. Provide an application to generate a list of all products that fail into this category, to be displayed on the Home Page. The output of the application will be fed to the application generating the Home Page. - -------------------------------------------------------------------------------- Page 8 Each product listing will be the name of the product, a brief description and the street price of the item. Selection of the item on the list will take the client directly to Section J2 where the client may bid on the product. - -------------------------------------------------------------------------------- Section M - Backened Processing - ------------------------------- In order for the auction system to be fully automated the following system functions will be provided. Wherever possible, they will be integrated into the existing Auction and Mall systems. Section M1 - Page Build Application The auction system will be built on the premise that all product information and bidding will be done from HTML pages. As the content of these pages will change with each bid, it is necessary to rebuild the pages at specific intervals. This application will be in the form of a system service which will run continually. It will update all bid pages at an initial 5 minute frequency. This may be lengthened or shortened depending on requirements. In addition, a portion of this application will be in the form of a reusable object which can be called by the bid placement application to allow the page to be rebuilt immediately after a bid has been placed. Section M2 - Auction Processor This application will control the final auction process to determine when the auction has officially closed. Each auction will have a closing date and time associated with it. At this appointed time the auction will close technically, however it will still remain open for a period of 5 minutes. If any bids are received during the 5 minute period, the auction will continue to remain open for another 5 minutes. This cycle will continue until a period of 5 minutes has lapsed, without bid activity, before the auction is fully closed. The full bid process, defined in Section J2A and J2B will be followed in all cases. Section M3 - Billing Processor Once the auction has closed, the Billing Processor will be activated. It will support both US and Canadian funds transactions, using the GPS payment Interface. ------------------------------------------------------------------------------- Page 9 Bids will be processed in the order of the highest bid first and will continue processing until the stock quantity has been depleted or the amount of qualifying bids has been depleted. The sequence of billing will be serialized, thus allowing for declined credit card transactions to be ignored in the quantity process and allowing for the full available quantity of items to be sold. All successful bidders will be notified by appropriate E-mail, as well as the supplier of the goods, where appropriate. Section M4 - Reporting Processor The reporting processor will, at the close of each auction, forward an E- mail based report to ILI outlining the quantity of products sold and the appropriate successful bid numbers. It will also include information such as product remaining. [Confidential Information filed separately with the SEC] Section M5 - Template Manager This application will allow for the remote editing of the structure of the various pages of the auction system. Changes will be limited to the variable content of the pages and the layout of this content section. Section M6 - System Overrides This application will allow ILI staff to override any of the time based functions, ie. the builds of the pages and the processing of the E-mail batch functions, allowing them to be executed on demand. Section M7 - Remote Management Systems All necessary changes will be made to the current Remote Management System to allow the functions of this auction format to be managed from that specific platform. Section N - Performance Optimization - ------------------------------------ In addition to the system aspect of the site which will be so designed to optimize the performance of the site, certain graphic elements will be redesigned to allow for faster downloading. At the same time we will strive to improve the look and feel of the site as well as the functionality. EX-3.5 8 INTELLECTUAL PROPERTY RIGHTS AND NON-COMPETITION A EXHIBIT 3.5 IP RIGHTS AND NON-COMPETITION AGREEMENT THIS AGREEMENT is made the 21st day of February, 1997 B E T W E E N: AMERICA ONLINE, INC., a corporation incorporated under the laws of Delaware, ("AOL") - and - PAUL GODIN, executive, of the town of Kettleby in the Province of Ontario ("Godin") - and - 1184041 ONTARIO INC., a corporation incorporated under the laws of Ontario ("GodinCo") - and - JEFF LYMBURNER, executive, of the city of Etobicoke in the Province of Ontario ("Lymburner") - and - SMYTHE GROUP COMPANY, a corporation incorporated under the laws of Nova Scotia ("LymburnerCo") - and - INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation amalgamated under the laws of Ontario (the "Corporation") BACKGROUND: 1. Pursuant to a subscription agreement between AOL and the Corporation dated the date hereof, AOL is acquiring an interest in Internet Liquidators International Inc. -2- 2. It is a condition of closing the subscription with AOL that each of the Principals enter into this intellectual property rights and non-compete agreement with the Corporation and AOL. 3. The Principals and the Corporation have agreed that entering into this Agreement is in their respective best interests in order (i) to clarify that the intellectual property rights in Developments made by the Principals is and will continue to be owned by the Corporation and (ii) to specify the extent to which the Principals may compete with the Corporation in certain circumstances. IN CONSIDERATION of the premises and the mutual covenants contained herein and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto covenant and agree as follows: ARTICLE ONE INTERPRETATION 1.1 Definitions: In this Agreement: ------------ "Agreement" means this IP Rights and Non-Competition Agreement and all schedules annexed hereto as the same may be amended from time to time in accordance with the provisions hereof; "hereof", "hereto", and "hereunder" and similar expressions refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" refers to the specified article or section of this Agreement; "Business" has the meaning attributed thereto in Section 2.1; "Business Day" means any day other than a Saturday, Sunday, statutory holiday or civic holiday in Toronto, Ontario or Virginia; "Confidential Information" includes any of the following: (i) any and all versions of the products, software and related documentation owned or marketed by the Corporation, as well as the software and documentation owned by the Corporation's suppliers and used internally by the Corporation, including all related algorithms, concepts, data, designs, flowcharts, ideas, programming techniques, specifications and source code listings; (ii) all Developments (as defined below); (iii) information regarding the Corporation's business operations, methods and practices, including marketing strategies, product pricing, margins and hourly rates for staff and information regarding the financial affairs of the Corporation; (iv) the names of the Corporation's clients and the names of the suppliers of computer services and software to the Corporation, and the nature of the -3- Corporation's relationships with these clients and suppliers; (v) technical and business information of or regarding the clients of the Corporation obtained in order for the Corporation to provide such clients with products and services; and (vi) any other trade secret or confidential or proprietary information in the possession or control of the Corporation, but Confidential Information does not include information which is or becomes generally available to the public without fault of the Party. "Developments" include all the following which are related to the Business: (i) copyright works, software, documentation, data, designs, scripts, photographs, music, reports, flowcharts, trade-marks, specifications and source code listings, and any related works, including any enhancements, modifications, or additions to the products owned, marketed or used by the Corporation; and (ii) inventions, devices, discoveries, concepts, ideas, algorithms, formulae, know-how, processes, techniques, systems and improvements, whether patentable or not, developed, created, generated or reduced to practice by any Principal, alone or jointly with others, during the Principal's employment with the Corporation or which result from tasks assigned to any Principal by the Corporation or which result from the use of the premises or property (including equipment, supplies or Confidential Information) owned, leased or licensed by the Corporation. "employee" refers to any individual who is an employee or who has any other form of working relationship with the Corporation whereby services are provided to the Corporation for compensation whether as an independent contractor, consultant, advisor or otherwise and whether such services are provided personally or through a corporation controlled by such individual and "employment" is to be given a corresponding, broad meaning; "Party" means one of the Principals, AOL or the Corporation and "Parties" means all of them collectively; "Person" includes an individual, corporation, partnership, joint venture, trust, unincorporated organization, government or any agency or instrumentality thereof or any other juridical entity; and "Principal" has the meaning attributed thereto in Section 2.1. 1.2 Governing Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of Ontario and the federal laws of Canada applicable therein (excluding any provisions that would result in the application of the law of another jurisdiction) and shall be treated, in all respects, as an Ontario contract. Godin, GodinCo, Lymburner, LymburnerCo, and the Corporation submit to the non-exclusive jurisdiction of the Courts of Virginia and the U.S. Federal Court. AOL submits to the non-exclusive jurisdiction of the Courts of Ontario. -4- 1.3 Entire Agreement. This Agreement, including all schedules hereto, ----------------- together with the agreements and other documents referred to herein, constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties and there are no warranties, representations or other agreements between the Parties in connection with the subject matter hereof except as specifically set forth herein and therein. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision (whether or not similar) nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 1.4 Gender and Number. In this Agreement words in the singular include the ------------------ plural and vice-versa; words in one gender include all genders. 1.5 Headings. Article and Section headings contained herein are included --------- solely for convenience, are not intended to be full or accurate descriptions of the content thereof and shall not be considered part of this Agreement. -5- ARTICLE TWO PROPRIETARY RIGHTS PROTECTION 2.1 Importance of Proprietary Rights Protection. Each Party acknowledges that -------------------------------------------- the Corporation is engaged in a continuous program of research and development, marketing and exploitation of on-line auction software products and related services (the "Business"). Each Party also recognizes the importance of protecting the Corporation's trade secrets, confidential information and other proprietary information and related rights acquired through the Corporation's expenditure of time, effort and money. Therefore, in the case of Godin and Lymburner or any other Party who is an employee of the Corporation (collectively, the "Principals" and individually a "Principal"), in consideration of the desire of the Principals to be employed or continue to be employed by the Corporation in a capacity in which they will receive and/or contribute to the Corporation's confidential information and in consideration of the salary, wages or other compensation the Principals will receive from the Corporation and for their employment by the Corporation, each agrees to be bound by the following terms and conditions in this Article. 2.2 Non-Disclosure of Confidential Information. At all times each Principal ------------------------------------------- shall keep the Confidential Information in confidence, taking all necessary precautions against unauthorized disclosure of the Confidential Information, and shall not directly or indirectly disclose, allow access to, transmit or transfer the Confidential Information to a third party, nor shall any Principal copy or reproduce the Confidential Information except as may be reasonably required to perform his duties for the Corporation. 2.3 Restricted Use of Confidential Information. ------------------------------------------- (a) At all times each Principal shall not use the Confidential Information in any manner except as reasonably required for each Principal to perform his duties for the Corporation. (b) Without limiting his obligations under subsection (a), each Principal shall neither use nor take advantage of the Confidential Information for any purpose other than the Business. (c) Upon the request of the Corporation, each Principal shall immediately return to the Corporation all materials, including all copies in whatever form, containing the Confidential Information which are in the Principal's possession or under the Principal's control. 2.4 Ownership of Confidential Information. -------------------------------------- (a) Each Principal acknowledges and agrees that he has not and shall not acquire any right, title or interest in or to the Confidential Information. (b) Each Principal agrees to make full disclosure to the Corporation of each Development promptly after its creation. Each Principal hereby assigns and transfers to the Corporation, and agrees that the Corporation shall be the exclusive owner of, all of the Principal's right, title and interest to each Development throughout the world, including all trade secrets, patent rights, copyrights and all -6- other intellectual property rights therein. Each Principal further agrees to cooperate fully at all times with respect to signing further documents and doing such acts and other things reasonably requested by the Corporation to confirm such transfer of ownership of rights, including intellectual property rights, effective at or after the time the Development is created and to obtain patents or copyrights or the like covering the Developments. Each Principal agrees that the obligations in this clause (b) shall continue beyond the termination of the Principal's employment with the Corporation with respect to Developments created during his employment with the Corporation. (c) Each Principal agrees that the Corporation, its assignees and their licensees are not required to designate the Principal as the author of any Developments. Each Principal hereby waives in whole all moral rights which the Principal may have in the Developments, including the right to the integrity of the Developments, the right to be associated with the Developments, the right to restrain or claim damages for any distortion, mutilation or other modification of the Developments, and the right to restrain use or reproduction of the Developments in any context and in connection with any product, service, cause or institution. Notwithstanding the foregoing, the Corporation agrees that Godin and Lymburner shall be entitled to personal recognition for their efforts in creating the Developments. 2.5 Non-Competition. Each Principal agrees that during the time that he is an --------------- employee of the Corporation and for a period of 24 months thereafter the Principal will not become engaged, directly or indirectly as an employee, consultant, partner, principal, agent, proprietor, shareholder (other than a holding of shares listed on a stock exchange that does not exceed 5% of the outstanding shares so listed) or advisor, in a business which: (i) develops or markets products or services competitive with the products or services marketed by the Corporation, or (ii) provides consulting, maintenance, support or training services that are competitive with the consulting, maintenance, support or training services provided by the Corporation, in any country where the Corporation has shipped material amounts of product in the preceding twelve months, provided that after the Principal ceases to be an employee of the Corporation the relevant time for judging such matters as where the Corporation is conducting the Business shall be the time that the Principal ceases to be an employee of the Corporation. 2.6 Non-Solicitation of Clients. Each Principal agrees that during the time ---------------------------- that he is an employee of the Corporation and for a period of 18 months thereafter, the Principal shall not, directly or indirectly, contact or solicit any Clients of the Corporation for the purpose of selling or supplying to these Clients of the Corporation any products or services which are competitive with the products or services sold or supplied by the Corporation at the time that the Principal ceases to be an employee of the Corporation. The term "Client of the Corporation" means any business or organization that: (a) was a supplier to the Corporation of goods or services offered at auction, or otherwise, for sale through the Corporation at the time that the Principal ceases to be -7- an employee of the Corporation; or (b) became a supplier of the Corporation within six months after the Principal ceased to be an employee of the Corporation if the Principal was significantly involved with the marketing effort in respect of such supplier prior to the date the Principal ceased to be an employee of the Corporation. The foregoing is not intended to include Persons purchasing goods or services through the Corporation's on-line auction service but does include suppliers to the Corporation of goods or services offered at auction, or otherwise, for sale through the Corporation. 2.7 Non-Solicitation of Employees. Each Principal agrees that during the time ------------------------------ that he is an employee of the Corporation and for a period of 12 months thereafter, the Principal shall not directly or indirectly solicit or induce or attempt to induce any persons who were employees of or consultants to the Corporation at the time the Principal ceased to be an employee of the Corporation, to terminate their employment with the Corporation. 2.8 Reasonableness of Non-Competition and Non-Solicitation Obligations. Each ------------------------------------------------------------------- Principal confirms that the obligations in Section 2.5, 2.6 and 2.7 are fair and reasonable given that, among other reasons, (i) the sustained contact the Principal will have with the clients of the Corporation will expose the Principal to Confidential Information regarding the particular requirements of these clients and the Corporation's unique methods of satisfying the needs of these clients, all of which the Principal agrees not to act upon to the detriment of the Corporation; and/or (ii) the Principal will be performing important development work on the products and services provided by the Corporation, and the Principal agrees that the obligations in Sections 2.5, 2.6 and 2.7, together with the Principal's other obligations under this Agreement, are reasonably necessary for the protection of the Corporation's proprietary interests. Each Principal further confirms that Sections 2.5, 2.6 and 2.7 are in addition to the non-disclosure and other obligations provided elsewhere in this agreement. Each Principal also acknowledges that his obligations contained in this Agreement will not preclude him from becoming gainfully directly employed in the computer products industry following the date he ceases to be an employee of the Corporation given the Principal's general knowledge and experience in the computer industry. 2.9 No Conflicting Obligations. ---------------------------- (a) Each Principal acknowledges and represents to the Corporation that his performance as an employee of the Corporation shall not breach any agreement or other obligation to keep confidential the proprietary information of any prior employer of such Principal or any other third party. Each Principal further acknowledges and represents that he is not bound by any agreement or obligation with any third party which conflicts with any of his obligations under this Agreement. (b) Each Principal represents and agrees that he will not bring to the Corporation, and -8- shall not use in the performance of his work with the Corporation, any trade secrets, confidential information and other proprietary information of any prior employer of the Principal or any other third party. Each Principal represents and agrees that in his work creating Developments he will not knowingly infringe the intellectual property rights, including copyright, of any third party. ARTICLE THREE REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties re Ownership. Each Principal hereby, -------------------------------------------- jointly and severally, represents and warrants to the Corporation and AOL (and acknowledges that the Corporation and AOL are relying upon such representations and warranties) that except as set forth in Schedule "O" of the Subscription Agreement between AOL and the Corporation dated February 18, 1997, to the best of the Principals' knowledge, information and belief after due enquiry the Corporation is the exclusive owner of the Technology (as defined in such Subscription Agreement) and all right, title and interest in and to the Technology, free and clear of all encumbrances except as set out therein and neither Principal has any knowledge of any claim of adverse ownership in any Technology. ARTICLE FOUR MISCELLANEOUS 4.1 Notice. Any notice or other communication (in this Section a "Notice") ------- required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered in person during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant party at the applicable address set forth below; (b) sent by prepaid first class mail; or (c) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to AOL addressed to it at: America Online, Inc. 22000 AOL Way Dulles, Virginia 20166 Attention: Fred Singer, Vice-President Fax No.: (703) 265-2409 with a copy to: -9- America Online, Inc. 22000 AOL Way Dulles, Virginia 20166 Attention: General Counsel Fax No.: (703) 265-2208 and in the case of a Notice to Corporation addressed to it at: Internet Liquidators International Inc. 5915 Airport Rd., Suite 330 Mississauga, Ontario L4V 1T1 Attention: Paul Godin Fax No.: (905) 672-5705 with a copy to: Gowling, Strathy & Henderson Barristers & Solicitors Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: David Pamenter Fax No.: (416) 862-7661 Any Notice given or made in accordance with this Section 4.1 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; (b) on the fifth Business Day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof. Any Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 4.1. -10- 4.2 Further Assurances. Each Party will execute any documents and give such ------------------- further assurances as may be necessary or appropriate in connection with performing its obligations under this Agreement and which shall be deemed to include any assurances reasonably requested by the Corporation to protect its trade secrets and any other confidential information in its possession or control. 4.3 Amendments. This Agreement may only be amended by an instrument in ----------- writing signed by all Parties. 4.4 Counterparts. This Agreement may be executed in several counterparts (by ------------- Principal Shareholders at the date hereof and by those who are by the terms hereof obligated to execute a counterpart hereof), each of which shall be deemed to be an original, but all such counterparts together shall constitute one and the same instrument. Any such counterpart or other Agreement to be bound hereby shall be effectively delivered to each Party by delivery of an executed copy thereof to the secretary of the Corporation. 4.5 Severability. If any of the provisions contained in this Agreement is ------------- found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein shall not be in any way affected or impaired thereby and the rights and obligations of the Parties shall be construed as if the Agreement did not contain the particular invalid or unenforceable provision unless such invalid or unenforceable provision is material to any of the Parties, in which event the Parties shall immediately negotiate a replacement therefor to preserve their respective interests as contemplated herein, to the extent permitted under applicable law. -11- 4.6 Time of Essence. Time is of the essence hereof. ---------------- IN WITNESS WHEREOF the parties have duly executed this Agreement. AMERICA ONLINE, INC. By: c/s ------------------------- Name: Fred Singer Title: Vice-President of Corporate Development 1184041 ONTARIO INC. By: c/s ------------------------- Paul Godin Title: In the presence of: ) ) ) l/s - ------------------------- ------------------------- Witness: Paul Godin SMYTHE GROUP COMPANY By: c/s ------------------------- Jeff Lymburner Title: In the presence of: ) ) ) l/s - ------------------------- ------------------------- Witness: Jeff Lymburner INTERNET LIQUIDATORS INTERNATIONAL INC. By: c/s ------------------------- Name: Title: By: c/s ------------------------- Name: Title: EX-3.6 9 INTERACTIVE MARKETING AGREEMENT Exhibit 3.6 Confidential INTERACTIVE MARKETING AGREEMENT ------------------------------- This Interactive Marketing Agreement (the "Agreement"), dated as of November 1, 1997 (the "Effective Date"), is between America Online, Inc. ("AOL"), a Delaware corporation, with offices at 22000 AOL Way, Dulles, Virginia 20166, and Internet Liquidators International, Inc. ("IL") a corporation, with offices at 5915 Airport Road, Suite 330, Mississauga, Ontario L4V 1T1. AOL and IL may be referred to individually as a "Party" and collectively as "Parties." INTRODUCTION ------------ AOL and IL each desires to modify its current contractual relationship, as set forth in the Auction Services Agreement between the parties dated February 21, 1997 (the "Prior Agreement"), to establish an interactive marketing relationship whereby AOL will promote and distribute an interactive site referred to (and further defined) herein as the Affiliated IL Site. This relationship is further described below and is subject to the terms and conditions set forth in this Agreement. Certain portions of the Prior Agreement are incorporated herein by reference; the remaining portions are terminated pursuant to the terms hereof. Defined terms used but not defined in the body of the Agreement will be as defined on Exhibit A attached hereto. Depending on the form in which the Affiliated IL Site is made available for distribution through the AOL Network, the Affiliated IL Site is referred to (and further defined in each case) herein as one of the following: a Linked IL Site (i.e., if the Affiliated IL Site promoted and distributed hereunder is a generally available IL Interactive Site), a Customized IL Site (i.e., if the Affiliated IL Site is a version of IL's Interactive Site that is customized for AOL Members) or a Rainman IL Site (i.e., if the Affiliated IL Site is an online area on the AOL Service that is created using AOL's proprietary "Rainman" technology). The first twelve-month period following the Effective Date is referred to herein as "Year One" and the second twelve-month period is "Year Two." TERMS ----- 1. PROMOTION, DISTRIBUTION AND MARKETING. - -- ------------------------------------- 1.1. AOL Promotion of Affiliated IL Site. AOL will provide IL with the ---- ----------------------------------- online promotions for the Affiliated IL Site which are listed on the "Initial Promotional Plan" attached hereto as Exhibit H (the "Promotions"). Subject to IL's reasonable approval, AOL will have the right to fulfill its promotional commitments with respect to any of the foregoing by providing IL mutually agreeable comparable promotional placements in alternative areas of the AOL Network. In addition, if AOL is unable to deliver any particular Promotion, AOL will work with IL to provide IL, as its sole remedy, a mutually agreeable comparable promotional placement. AOL reserves the right to redesign or modify the organization, structure, "look and feel," navigation and other elements of the AOL Service at any time. In the event such modifications materially and adversely affect any specific Promotion, AOL will work with IL to provide IL, as its sole remedy, a mutually agreeable comparable promotional placement. The Parties will meet quarterly to review the Initial Promotional Plan, and, if requested by IL, to mutually agree upon reallocation of certain Impressions within the promotional areas listed in Exhibit H (each, a "Promotional Area") and within new areas created by AOL (so long as AOL provides IL with reasonable prior notice of such new areas). The new placements will be provided based on AOL's then-current advertising rate card and will have total value equal to (a) the number of Impressions to be reallocated divided by [Confidential Information filed separately with the SEC] Impressions times (b) [Confidential Information filed separately with the SEC]. Reallocations pursuant to the foregoing will be subject to Impressions availability, and the cumulative number of reallocated Impressions in any year will not exceed [Confidential Information filed separately with the SEC] of the number of Impressions owed to IL for the remainder of such year. 1 Confidential 1.2. Impressions. The online promotions AOL provides pursuant to Section ---- ------------ 1.1 will result in the annual numbers of Impressions indicated for the Promotional Areas identified on Exhibit H. AOL will determine placement of these promotions in its reasonable editorial discretion. AOL will not be obligated to provide in excess of any of the foregoing target amounts of Impressions in any year. Any shortfall in Impressions at the end of a year will not be deemed a breach of the Agreement by AOL; such shortfall will be added to the Impressions target for the subsequent year. In the event there is a shortfall in the total number of Impressions across all promotional areas as of the end of the Term (a "Final Shortfall"), AOL will provide IL with one of the following, chosen by AOL in its sole discretion: (i) AOL will provide mutually agreeable promotional placements in Promotional Areas until such time as AOL has "made good" on the Final Shortfall, or (ii) AOL will provide advertising placements in mutually agreed upon areas of the AOL Network with a total value, based on AOL's then-current advertising rate card, equal to (a) the Impressions shortfall divided by [Confidential Information filed separately with the SEC] Impressions times (b) [Confidential Information filed separately with the SEC]. In the event there is a windfall in Impressions in any year, AOL's Impressions target for the subsequent year will be reduced by the amount of such windfall; provided that if AOL exceeds the Impressions target for any year by more than [Confidential Information filed separately with the SEC], the Parties will discuss in good faith an increase in the Gross Margin payable to AOL for such year. In the event that (a) during Year One, cumulative Total Revenues (as defined in Section 3.2) for such year exceed [Confidential Information filed separately with the SEC], or (b) during Year Two, cumulative Total Revenues for such year exceed [Confidential Information filed separately with the SEC], AOL's entire Impressions commitment for the remainder of the Term will be deemed satisfied; provided that AOL will continue to provide promotional placement in the Promotional Areas identified in Exhibit H as "Continuous Placements." 1.3. Content of Promotions. The specific IL Content (e.g., IL's logo) to be ---- ---------------------- contained within the Promotions will be determined by IL, subject to Section 2.4, AOL technical limitations and AOL's then generally applicable policies relating to advertising and promotions (with changes to such policies provided to IL with notice as generally provided to other parties subject to such policies). Except to the extent described herein, the specific form, placement, duration and nature of the Promotions will be as determined by AOL in its reasonable editorial discretion (consistent with the editorial composition of the applicable screens). 1.4. IL Promotion of Affiliated IL Site and AOL. As set forth in fuller ---- ------------------------------------------- detail in Exhibit B, IL will promote AOL as its preferred Interactive Service and will promote the availability of the Affiliated IL Site through the AOL Network. IL will not promote, market or distribute an Interactive Service; provided that IL will not be deemed in breach of the foregoing sentence (a) as a result of IL's performance of its obligations pursuant to existing contracts with GTE and Bell Sympatico (the "Excluded Obligations") or (b) solely by reason of IL's entering into a licensing agreement with another Interactive Service. IL represents and warrants that the Excluded Obligations are not inconsistent with the obligations owed to AOL pursuant to this Section 1.4, Section 2.8 or Section 2.11 and that IL's performance of the Excluded Obligations will not materially diminish the value to AOL of this Section 1.4, Section 2.8 or Section 2.11. 1.5. Option to Host AOL Auction Service. Article Three of the Prior ---- ----------------------------------- Agreement (and any other provision of the Prior Agreement necessary to the performance of any obligation of Article Three) is hereby incorporated by reference into the Agreement. 2. AFFILIATED IL SITE. - -- ------------------ 2 Confidential 2.1. Content. IL will make available through the Affiliated IL Site the ---- -------- offering of Products and other Content described on Exhibit C. IL will review, delete, edit, create, update and otherwise manage all Content available on or through the Affiliated IL Site in accordance with the terms of this Agreement. IL will ensure that the Affiliated IL Site does not in any respect promote, advertise, market or distribute the products, services or content of any Interactive Service. 2.2. General Sales Restrictions. Except as provided in this Section 2.2 ---- --------------------------- and Section 2.3, IL will be entitled to sell only consumer retail- oriented Products through the Affiliated IL Site and only through the format of an Online Auction ("Auction Sales"). Notwithstanding the foregoing, IL will be entitled to create a non-prominent, below-the- fold link to a limited sub-area, accessible only to a limited number of pre-qualified users possessing special IL passcodes, in which IL will conduct business-oriented Online Auctions (including business-to- business sales) (the "Business-to-Business Area"); provided that IL will not use any of the promotional placements provided hereunder or any other space on the Affiliated IL Site or the AOL Network to promote, market or advertise the Business-to-Business Area. Any changes or modifications to the consumer retail-oriented focus of the Affiliated IL Site or any material alteration to the Online Auction format (e.g., use of member-to-member auctions or fee-based membership clubs) will be subject to AOL's prior written approval. In addition, in no event will IL promote, market, distribute, sell or otherwise offer or provide through the Affiliated IL Site (or links therefrom) (other than through the Business-to-Business Area of the Affiliated IL Site) Products from any of the following categories: (a) floral or plant products, (b) long distance telecommunications products or services, (c) automobiles or other vehicles (or related buying services) ("Auto Sales") or (d) books (or book-related products such as audio-books) ("Book Sales"). The limitations in the foregoing sentence are referred to herein as the "General Sales Restrictions." In consideration of IL's agreement above with respect to Auto Sales, AOL agrees to take reasonable efforts to facilitate discussions between IL and AOL's primary automobile buying service providers so that IL may offer to license its Online Auction technology to such providers. Notwithstanding the restriction above on Book Sales, IL will be entitled to sell rare used books (i.e., books previously possessed by a consumer) in print form through the Affiliated IL Site, so long as IL does not offer more than 250 titles at any one time. AOL will be entitled to add to the list of categories subject to the General Sales Restrictions upon 30 days written notice to IL; provided that (a) IL is not then generating material revenues in the category AOL wishes to add and (b) either (i) the category is not listed as an "Auction Products" in Exhibit C or (ii) IL has no firm, written commitments or plans to offer such category within thirty (30) days following the date of such notice. 2.3. Direct Sales. Subject to the General Sales Restrictions and Section ---- ------------- 2.4, IL will be entitled to sell directly to AOL Users through the Affiliated IL Site (i.e., through a non-Online Auction format on the Affiliated IL Site) any of the "Direct Sales Products" listed on Exhibit C, so long as (a) such sales ("Direct Sales") do not constitute more than [Confidential Information filed separately with the SEC] of the Transaction Revenues generated through the Affiliated IL Site in any quarter and (b) Direct Sales in any category do not constitute [Confidential Information filed separately with the SEC] of the Transaction Revenues generated through the Affiliated IL Site in any quarter; provided that, subject to the General Sales Restrictions, IL will be entitled to sell such Direct Sales Products to AOL Users through "offline" means (e.g., direct mail) and email, subject to the terms and conditions of this Agreement (including, without limitation, Section 2.4 below and paragraphs 10, 11 and 12 of Exhibit G). Any additions to the list of Direct Sales will be subject to AOL's prior written approval. Solely for purposes of the foregoing sentence, any Transaction Revenues generated through (a) an "offline" means (e.g., direct mail but excluding email or any online fulfillment) ("Offline Revenues"), (b) certain mutually identified Special Offers created pursuant to Section 2.10 or (c) the 3 Confidential Interactive Site owned and operated by Recording Artists Against Drunk Driving (the "RAADD Site" and "RAADD Revenues") will be excluded from the calculation of Transaction Revenues; provided that IL will not promote, market or advertise the RAADD Site's availability on or through the Affiliated IL Site; provided that IL may provide a non- prominent link to such site within the Affiliated IL Site. Offline Revenues will be included in the calculation of Gross Margin and Transaction Revenues in every other instance pursuant to the Agreement, but RAADD Revenues will not be so included; provided that if RAADD Revenues constitute more than [Confidential Information filed separately with the SEC] of the Transaction Revenues generated through the Affiliated IL Site in any quarter, such revenues will be so included, except that the Parties will negotiate in good faith whether IL will pay AOL compensation relating to such revenues and the appropriate amount of such compensation; provided, further, that if RAADD Revenues constitute more than[Confidential Information filed separately with the SEC] of the Transaction Revenues generated through the Affiliated IL Site in any quarter, the Parties will negotiate in good faith only the appropriate amount of compensation due to AOL. 2.4. Promotional Limitations. Subject to the General Sales Restrictions, ---- ------------------------ IL will be entitled to promote, market and advertise its Products using the promotional placements identified on Exhibit H and any additional advertising placements on the AOL Service and/or AOL.com purchased by IL under separate agreement with AOL, subject to the following: (i) absent AOL's prior written approval, IL will not promote, market or distribute any Products other than those listed as "Auction Products" listed on Exhibit C (or those otherwise allowed pursuant to Section 2.2); (ii) all promotion, marketing and advertising for Auction Sales will indicate that the Products are being offered in an Online Auction format, (iii) all promotion, marketing and advertising on the AOL Network for Direct Sales will be subject to AOL's prior written approval; and (iv) IL will not promote, market or advertise Direct Sales within the Affiliated IL Site on any screen that is directly linked to or from any Promotion. 2.5. Production Work. Except as agreed to in writing by the Parties ---- ---------------- pursuant to the "Production Work" section of the Legal Terms & Conditions attached hereto as Exhibit G, IL will be responsible for all production work associated with the Affiliated IL Site, including all related costs and expenses (other than AOL's internal costs). 2.6. Communications. IL will be responsible for all communications costs ---- --------------- and expenses associated with the Affiliated IL Site, including, without limitation, all costs related to hosting and connectivity. In addition, IL shall provide all computer, telephone and other equipment or resources necessary for IL to access the AOL Network. IL will utilize a dedicated high speed connection to maintain quick and reliable transport of information to and from the IL data center and AOL's designated data center. IL will bear all costs and expenses associated with such communication line(s). 2.7. Technology. IL shall take all reasonable steps necessary to conform ---- ----------- its promotion and sale of Products through the Affiliated IL Site to the then-existing technologies made available to IL by AOL (the "AOL Technologies"). If the Affiliated IL Site is a Customized IL Site, IL will not use or integrate any technology or software other than the AOL Technologies in such site without AOL's prior written approval. AOL shall be entitled to require reasonable changes to the Content (including, without limitation, the features or functionality) within any Affiliated IL Site to the extent such Content will, in AOL's good faith judgment, adversely affect any operational aspect of the AOL Network. AOL reserves the right to review and test the Affiliated IL Site from time to time to determine whether the site is compatible with AOL's then-available client and host software and the AOL Network. 4 Confidential 2.8. Product Offering. Subject to the Excluded Obligations (as set forth ---- ----------------- in Section 1.4), IL will ensure that the Affiliated IL Site includes all of the Products and other Content (including, without limitation, any features, functionality or technology) that are then made available by or on behalf of IL through any Additional IL Channel; provided, however, that (a) such inclusion will not be required where it is commercially or technically impractical to either Party (i.e., inclusion would cause either Party to incur substantial incremental costs); and (b) the specific changes in scope, nature and/or offerings required by such inclusion will be subject to AOL's review and approval and the terms of this Agreement. 2.9. Online Auctions Terms and Conditions. IL will ensure that (a) the ---- ------------------------------------- pricing and the terms and conditions related to Online Auctions services in the Affiliated IL Site are no less favorable, taken as a whole, to the pricing and the terms and conditions for substantially similar Online Auctions services offered by or on behalf of IL or through any Additional IL Channel under IL's control and (b) the pricing and the terms and conditions related to Online Auctions services in the Affiliated IL Site will be reasonably competitive, taken as a whole, with the pricing and the terms and conditions for substantially similar Online Auctions services offered by any IL competitor through any online medium. 2.10. Special Offers. Subject to the Excluded Obligations, IL will (a) ----- --------------- promote through the Affiliated IL Site any special or promotional offers made available by or on behalf of IL or through any Additional IL Channel controlled by IL and (b) promote through the Affiliated IL Site a reasonable number of special or promotional offers (with reasonable best efforts to promote twelve (12) per year) which are available exclusively to AOL Members (e.g., AOL Members-only auctions for certain Products, free gift certificates to AOL Members upon the purchase of Product(s), tie-ins to AOL's reward or frequent purchaser points program) ((a) and (b) collectively, the "Special Offers"); provided that clause (a) will not apply to the extent that IL cannot make such Special Offer available in the event such offer requires specific technology or matching offers from AOL which AOL cannot or elects not to provide to IL. IL will provide AOL with reasonable prior notice of Special Offers so that AOL can market the availability of such Special Offers in the manner AOL deems appropriate in its editorial discretion, subject to the terms and conditions hereof. 2.11. Operating Standards. IL will ensure that the Affiliated IL Site ----- -------------------- complies at all times with the operating standards set forth in Exhibit E. To the extent site standards are not established in Exhibit E with respect to any aspect or portion of the Affiliated IL Site (or the Products or other Content contained therein), IL will provide such aspect or portion at a level of accuracy, quality, completeness, and timeliness which, taking such aspect or portion as a whole, meets or exceeds prevailing standards in the online auctions industry. 2.12. Customized IL Site. IL will comply with the "Customized IL Site ----- ------------------- Requirements" set forth in Exhibit D. 2.13. Advertising Sales. Both Parties will have the right to license or ----- ------------------ sell promotions, advertisements, links, pointers or similar services or rights ("Advertisements") through the Affiliated IL Site subject to the Advertising Minimum (except for special promotional sales of advertising reasonably agreed upon by the parties), AOL's then- applicable advertising policies and both Parties' reasonable prior approval. The specific advertising inventory within the Affiliated IL Site will be as reasonably determined by the Parties. In connection with the sale by IL of an Advertisement, IL will, in each instance, provide AOL with a completed standard Advertising Registration Form relating to such Advertisement. 3. PAYMENTS. - -- -------- 3.1. Guaranteed Payments. IL will pay AOL a guaranteed amount of Ten ---- -------------------- Million Dollars (US$10,000,000) as follows: (a) One Million Two Hundred Fifty Thousand Dollars (US$1,250,000) on the Effective Date and each of the 3-month, 6-month and 9-month 5 Confidential anniversaries of the Effective Date and (b) One Million Two Hundred Fifty Thousand Dollars (US$1,250,000) on each of the the first day of Year Two and the 3-month, 6-month and 9-month anniversaries of such date. 3.2. Sharing of Gross Margin. For purposes of this Section 3.2, each of ---- ------------------------ the 3-month periods associated with the payments described in Section 3.1 is a "Quarter." If during any Quarter, the amount of Transaction Revenues and Advertising Revenues (collectively, the "Total Revenues") generated during such Quarter equals or exceeds [Confidential Information filed separately with the SEC] (the "Quarterly Revenue Hurdle"), then IL will pay AOL fifty percent (50%) of the Gross Margin generated thereafter in such Quarter. Notwithstanding the foregoing, if at any time during Year One or Year Two, cumulative Total Revenues for such year equals or exceeds [Confidential Information filed separately with the SEC], then IL will pay AOL fifty percent (50%) of the Gross Margin generated thereafter during such year; further, if AOL has provided IL with [Confidential Information filed separately with the SEC] cumulative Impressions during any year or [Confidential Information filed separately with the SEC] cumulative Impressions for the Term, then IL will pay AOL fifty percent (50%) of the Gross Margin generated thereafter during the Term. IL will pay all of the foregoing amounts on a quarterly basis within thirty (30) days of the end of the quarter in which the applicable Transaction Revenues were received. [Confidential Information filed separately with the SEC] 3.3. Sharing of Advertising Revenues. IL will be entitled to all ---- -------------------------------- Advertising Revenues generated during any Quarter; provided that (a) the Total Revenues generated during any Quarter exceeds the Quarterly Revenue Hurdle, the Parties will share equally in all Advertising Revenues generated thereafter in such Quarter and (b) if at any time during the Term, Total Revenues during Year One or Year Two equals or exceeds [Confidential Information filed separately with the SEC], then the Parties will share equally in all Advertising Revenues generated thereafter during such year. Each Party will pay the other Party all Advertising Revenues received and owed to such other Party as described herein on a quarterly basis within thirty (30) days of the end of the quarter in which such amounts were received by such Party. 3.4. Alternative Revenue Streams. In the event IL or its Affiliates (a) ---- ---------------------------- receives or desires to receive, directly or indirectly, any compensation in connection with the Affiliated IL Site other than Transaction Revenues or Advertising Revenues ("Additional Revenues") or (b) restructures or desires to restructure the nature of its transactions with AOL Users in a manner that results in Transaction Revenues (e.g., establishment of club memberships) ((a) and (b), each an "Alternative Revenue Stream"), IL will promptly inform AOL in writing, and the Parties will negotiate in good faith regarding whether IL will be allowed to establish such Alternative Revenue Stream through the Affiliated IL Site, and if so, the equitable portion of Additional Revenues (if applicable) that will be shared with AOL. 3.5. Wired Payments; Late Payments. All payments required under this ---- ------------------------------ Agreement will be paid in immediately available, non-refundable U.S. funds wired to the receiving Party's's account. All amounts owed hereunder not paid when due and payable will bear interest from the date such amounts are due and payable at the prime rate plus 2% 3.6. Reports. ---- -------- 3.6.1. Sales Reports. IL will provide AOL in an automated manner ------ -------------- with a monthly report containing the information specified on Exhibit J (and any other information 6 Confidential mutually agreed upon by the Parties or reasonably required for measuring revenue activity by IL through the Affiliated IL Site). More generally, each payment to be made pursuant to this Section 3 shall be accompanied by a report containing information which supports the payment, including information identifying gross Transaction Revenues, all items deducted or excluded from gross Transaction Revenues to produce Transaction Revenues, including, without limitation, chargebacks and credits for returned or cancelled goods or services (and, where possible, an explanation of the type of reason therefor, e.g., bad credit card information, poor customer service, etc.) and all items deducted or excluded from Transaction Revenues to produce Gross Margin. 3.6.2. Fraudulent Transactions. To the extent permitted by ------ ------------------------ applicable laws, IL will provide AOL with an prompt report of any fraudulent order, including the date, screenname and amount associated with such order, following IL obtaining knowledge that the order is, in fact, fraudulent. 3.7. Other Agreements. To the extent IL enters any arrangement with AOL ---- ----------------- for distribution of the Affiliated IL Site through AOL's other properties (e.g., Digital City), the revenue sharing described above will not, unless agreed upon by the parties thereto, apply to revenues generated pursuant to such arrangement (i.e., AOL will not be entitled to "double dipping"). 4. RESERVED. - -- -------- 5. TERM; RENEWAL; TERMINATION. - -- -------------------------- 5.1. Term. Unless earlier terminated as set forth herein, the initial term ---- ----- of this Agreement will be two (2) years from the Effective Date (the "Term"). 5.2. Renewal. The Agreement may be renewed only by mutual agreement of the ---- -------- Parties.. 5.3. Termination at End of Year One. Either Party may terminate the ---- ------------------------------- Agreement as of the end of Year One upon written notice to the other Party given at least sixty (60) days prior to the end of Year One. 5.4. Termination for Breach. Except as expressly provided elsewhere in ---- ----------------------- this Agreement, either Party may terminate this Agreement at any time in the event of a material breach of the Agreement by the other Party which remains uncured after thirty (30) days written notice thereof to the other Party (or such shorter period as may be specified elsewhere in this Agreement); provided that AOL will not be required to provide notice to IL in connection with IL's failure to make any payment to AOL required hereunder (and the cure period will therefore begin upon IL's failure to make any payment when due and payable hereunder and last for thirty (30) days). Notwithstanding the foregoing, in the event of a material breach of a provision that expressly requires action to be completed within an express period shorter than 30 days (e.g., failure to provide a bug fixes within specified times pursuant to Exhibit E) (a "Short Cure Period"), either Party may terminate this Agreement if the breach remains uncured after written notice thereof to the other Party. 5.5. Termination for Bankruptcy/Insolvency. Either Party may terminate ---- -------------------------------------- this Agreement immediately following written notice to the other Party if the other Party (i) ceases to do business in the normal course without an immediate successor, (ii) becomes or is declared bankrupt, (iii) is the subject of any proceeding related to its liquidation or insolvency (whether voluntary or involuntary) which is not dismissed within ninety (90) calendar days or (iv) makes an assignment for the benefit of creditors. 7 Confidential 5.6. Linking After Termination/Expiration. Upon expiration or termination ---- ------------------------------------ hereof, the Parties will discuss in good faith an alternative linking arrangement (e.g., whereby AOL may be entitled to continue providing links on the AOL Network so that AOL Users can access the Affiliated IL Site, and, in return, IL will continue to make the revenue-sharing payments to AOL. 6. ARBITRATION. The Parties will establish a "Management Committee" made up of - -- ----------- two (2) senior executives from each of the Parties for the purpose of resolving Disputes (as defined below). If the Parties are unable to resolve any dispute, controversy or claim arising under this Agreement (excluding any disputes relating to intellectual property rights or confidentiality) (each a "Dispute"), such Dispute shall be submitted for resolution by the Management Committee. If the Management Committee is unable to resolve the Dispute within ten (10) business days after submission to them, the Dispute shall be solely and finally settled by arbitration in Washington, D.C., under the auspices of the American Arbitration Association; provided that the Federal Rules of Evidence shall apply in toto to any such Dispute and, ------- subject to the time constraints described below, the Federal Rules of Civil Procedure shall apply with respect to discovery. The arbitrator may enter a default decision against any Party who fails to participate in the arbitration proceedings. The decision of the arbitrator on the points in dispute shall be final, unappealable and binding, and judgment on any award may be entered in any court having jurisdiction thereof. Neither Party shall be excused from performing its obligations hereunder during the pendency of such arbitration. Notwithstanding the foregoing, consistent with the Parties' desire to avoid waste of time and unnecessary expense, any Dispute arising from any provision of the Agreement which provides for the Parties to reach mutual agreement as to certain terms therein (each, a "Mutual Agreement Clause") shall not be submitted to arbitration but shall be resolved in good faith by the Management Committee; provided that prior to submission of any Dispute relating to a Mutual Agreement Clause to the Management Committee, each Party will negotiate in good faith regarding the subject matter of such clause and will not unreasonably withold or delay its acceptance of the other Party's proposed terms. 7. STANDARD TERMS. The Standard Online Commerce Terms & Conditions set forth - -- -------------- on Exhibit F attached hereto and Legal Terms & Conditions set forth on Exhibit G attached hereto are each hereby made a part of this Agreement. 8 Confidential IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date. AMERICA ONLINE, INC. INTERNET LIQUIDATORS INTERNATIONAL, INC. By: _______________________________ By: _______________________________ Print Name: ________________________ Print Name: ________________________ Title: ______________________________ Title: ______________________________ 9 Confidential EXHIBIT A Definitions ----------- The following definitions will apply to this Agreement: Additional IL Channel. Any third-party distribution channel (e.g., an - --------------------- Interactive Service) through which a version or portion of the Affiliated IL Site or any IL Interactive Site (or, in each case, any of the Products or other Content contained therein) is made available. Advertising Minimum. (i) [Confidential Information filed separately with the - ------------------- SEC] per thousand entries per month by AOL Members into the Affiliated IL Site or (ii) such different rate or rates as AOL may establish based upon market conditions and publish during the Term. Advertising Revenues. The combination of AOL Advertising Revenues and Internet - -------------------- Advertising Revenues: AOL Advertising Revenues. Aggregate amounts collected plus the fair market ------------------------ value of any other compensation received (such as barter advertising) by IL, AOL or either Party's agents, as the case may be, arising from the license or sale of Advertisements, less applicable Advertising Sales Commissions; provided that, in order to ensure that AOL receives fair value in connection with Advertisements, IL will be deemed to have received no less than the Advertising Minimum in instances when IL makes an Advertisement available to a third party at a cost below the Advertising Minimum. AOL Advertising Revenues does not include amounts arising from Advertisements on any screens or forms preceding, framing or otherwise directly associated with the Affiliated IL Site, which will be sold exclusively by AOL. Internet Advertising Revenues. For each Advertisement on any IL ----------------------------- Interactive Site linked to the Affiliated IL Site, the product of: [Confidential Information filed separately with the SEC] and such amount would be subject to the revenue sharing described in Section 3.3. IL will be responsible for calculating the Internet Advertising Quotient related to Internet Advertising Revenues. For any period during which IL fails to calculate the Internet Advertising Quotient (other than as a sole result of AOL's failure to provide necessary Impressions information), such quotient will be deemed to be one hundred percent (100%). Advertising Sales Commission. In the case of an Advertisement, (i) actual - ---------------------------- amounts paid as commission to third party agencies in connection with sale of the Advertisement or (ii) [Confidential Information filed separately with the SEC], in the event the Party has sold the Advertisement directly and will not be deducting any third party agency commissions. Affiliate. (i) in the case of AOL, any agent, distributor, or franchisee of - --------- AOL, or any entity controlling, controlled by or in common control with, directly or indirectly, AOL, or in which AOL holds, directly or indirectly, at least a [Confidential Information filed separately with the SEC] equity interest and (ii) in the case of IL, any entity controlling, controlled by or in common control with, directly or indirectly, IL. Affiliated IL Site. The specific area to be promoted and distributed by AOL - ------------------ hereunder in which IL can market and complete transactions regarding its Products. Depending on the form in which the Affiliated IL Site is made available for distribution through the AOL Network, the Affiliated IL Site is referred to herein as a Linked IL Site, a Customized IL Site or a Rainman IL Site. AOL Look and Feel. The elements of graphics, design, organization, - ----------------- presentation, layout, user interface, navigation and stylistic convention (including the digital implementations thereof) which are generally associated with IL Sites within the AOL Service. 10 Confidential AOL Member. Any authorized user of the AOL Service, including any sub-accounts - ---------- using the AOL Service under an authorized master account. AOL Network. (i) The AOL Service and (ii) any other product or service owned, - ----------- operated, distributed or authorized to be distributed by or through AOL or its Affiliates worldwide through which such party elects to offer the Licensed Content (which products or services may include, without limitation, the international versions of the AOL Service, Interactive Sites promoting AOL products and services, any "offline" products or services of AOL or its Affiliates and any CD-ROM merchandising products which may be distributed by AOL or its Affiliates). AOL Purchaser. (i) Any person or entity who enters the Affiliated IL Site from - ------------- the AOL Service or AOL.com including, without limitation, from any third party area therein (to the extent entry from such third party area is traceable through both Parties' commercially reasonable efforts), and generates Transaction Revenues or Additional Revenues (regardless of whether such person or entity provides an e-mail address during registration which includes a domain other than an "AOL.com" domain); and (ii) any other person or entity who, when purchasing a product, good or service through a IL Interactive Site, provides an AOL.com domain name as part of such person or entity's e-mail address; provided that any person or entity who has previously satisfied the definition of AOL Purchaser will remain an AOL Purchaser, and any subsequent purchases by such person or entity will also give rise to Transaction Revenues and Additional Revenues hereunder (and will not be conditioned on the person or entity's satisfaction of clauses (i) or (ii) above). AOL Service. The U.S. version of the America Online brand service, specifically - ----------- excluding (a) AOL.com or any other AOL Interactive Site, (b) the international versions of the AOL Service (e.g., AOL Japan), (c) "Driveway," "NetFind," "AOL Instant Messenger" or any similar product or service offered by or through the U.S. version of the America Online brand service, (d) "Digital Cities," "WorldPlay," "Entertainment Asylum," the "Hub," or any similar "sub-service" offered by or through the U.S. version of the America Online brand service and (e) any programming or content area offered by or through the U.S. version of the America Online brand service which is provided and operationally controlled by a third-party content provider and not by AOL (or any successor to or substitute for any of the foregoing properties in clauses (a) through (e)). AOL User. Any user of the AOL Service, AOL.com or the AOL Network. - -------- AOL.com. AOL's primary Internet-based Interactive Site marketed under the - ------- "AOL.COM" brand, specifically excluding (a) the AOL Service, (b) the international versions of the AOL Service (e.g., AOL Japan), (c) "Driveway," "NetFind," "AOL Instant Messenger" or any similar product or service offered by or through such site or any other AOL Interactive Site, (d) "Digital Cities," "WorldPlay," "Entertainment Asylum," the "Hub," or any similar "sub-service" offered by or through such site or any other AOL Interactive Site and (e) any programming or content area offered by or through such site or any other AOL Interactive Site which is provided and operationally controlled by a third-party content provider and not by AOL (or any successor to or substitute for any of the foregoing properties in clauses (a) through (e)). Confidential Information. The definition of Confidential Information contained - ------------------------ in Schedule A to the Prior Agreement is incorporated herein by reference. Content. Information, materials, features, Products, advertisements, - ------- promotions, links, pointers and software, including any modifications, upgrades, updates, enhancements and related documentation. Customized IL Site. Any version or portion of IL's site on the World Wide Web - ------------------ (or any other IL Interactive Site, as expressly agreed in writing by the Parties) which is customized for AOL Members and/or AOL Users pursuant to the Agreement. Dutch Auction. An auction in which a Product is offered for sale starting a - ------------- preset price which declines incrementally over a limited, preset time period until a bidder matches the price offered, thereby completing the transaction. 11 Confidential Gross Margin. Transaction Revenues less cost of goods sold, cost of shipping - ------------ and reasonable deductions for bad debts. Impressions. Any access by a user to the file representing the page containing - ----------- the applicable advertisement, promotion or other similar placement required under this Agreement. Interactive Service. Any entity (other than AOL) that offers online or Internet - ------------------- connectivity (or any successor form of connectivity), aggregates and/or distributes third-party interactive Content, or provides interactive navigational services (including, without limitation, any online service providers, Internet service providers, WebTV, @Home or other broadband providers, search or directory providers, "push" product providers such as the Pointcast Network or providers of interactive environments such as Microsoft's "Active Desktop"). Interactive Site. Any interactive site or area (other than the Affiliated IL - ---------------- Site) which is managed, maintained or owned by IL or its agents or to which IL provides and/or licenses information, content or other materials, including, by way of example and without limitation, (i) an IL site on the World Wide Web portion of the Internet or (ii) a channel or area delivered through a "push" product such as the Pointcast Network or interactive environment such as Microsoft's proposed "Active Desktop." Licensed Content. All Content offered through the Affiliated IL Site pursuant - ---------------- to this Agreement, including any modifications, upgrades, updates, enhancements, and related documentation. Linked IL Site. Any version or portion of the Affiliated IL Site that consists - -------------- of IL's site on the World Wide Web (or any other IL Interactive Site, as expressly agreed in writing by the Parties). Online Auction. A Yankee Auction (as defined in the Prior Agreement) or a Dutch - -------------- Auction. Product. Any product, good or service which IL offers, sells or licenses to AOL - ------- Users through (i) the Affiliated IL Site (including through any Interactive Site linked thereto), (ii) an "offline" means (e.g., toll-free number) for receiving orders related to specific offers within the Affiliated IL Site requiring purchasers to reference a specific promotional identifier or tracking code, including, without limitation, products sold through surcharged downloads (to the extent expressly permitted hereunder) or (iii) any email solicitations sent to AOL Users. Rainman IL Site. Any version or portion of the Affiliated IL Site that is - --------------- created using AOL's proprietary "Rainman" technology. Transaction Revenues. Aggregate amounts paid by AOL Purchasers in connection - -------------------- with the sale, licensing, distribution or provision of any Products, including, in each case, handling, shipping, service charges, and excluding, in each case, (a) amounts collected for sales or use taxes or duties, (b) credits and chargebacks for returned or cancelled goods or services and (c) credit card transaction fees. 12 Confidential EXHIBIT B IL Cross-Promotion ------------------ Online - ------ In each Interactive Site controlled by IL, IL will include: . A prominent promotional banner linking to AOL-designated Content on AOL.com or the AOL Service (if feasible) appearing "above the fold" on the first screen of the IL Interactive Site . A prominent "Try AOL" feature elsewhere in the site where users can obtain promotional information about AOL products and services and, at AOL's option, download or order AOL's then-current version of client software for the AOL Service or software for any other AOL products or services (e.g., AOL's Instant Messenger service)/1/; and . To the extent IL offers or promotes any products or services similar to AOL's "component" products and services (e.g., Netfind or other search/directory service, NetMail or free/discount email service, Instant Messenger, yellow/white pages, "My AOL"-type personalized information, classifieds, etc.), prominent offers or promotions related to such AOL-designated products or services. Offline - ------- In IL's television, radio and print advertisements and in any publications, programs, features or other forms of media over which IL exercises at least partial editorial control, IL will include: . Specific references or mentions (verbally where feasible) of the Affiliated IL Site's availability through America Online(R) prior to, and at least as prominent as, any reference to any IL Interactive Site; and . For instance, listing of the "URL(s)" the IL Interactive Site will be accompanied by the AOL "keyword" for the Affiliated IL Site. In addition, the Parties will discuss (a) opportunities to bundle AOL software with IL fulfillment packages and other mailings and (b) terms by which AOL will have access to IL customer lists. - --------------------- /1/ AOL will pay ILI a standard bounty for each person who registers for the AOL Network using ILI's special identifier for this promotion and subsequently pays AOL at least three monthly usage fees for the use of the AOL Network. Note that if this promotion is delivered through Microsoft's Active Desktop or any other "push" product (an "Operating System"), such feature will link users directly to AOL software within the Operating System or direct users without Internet access to an AOL application setup program within the Operating System (all subject to any standard policies of the Operating System). 13 Confidential EXHIBIT C Description of Products and Other Content ----------------------------------------- Direct Sales Products - --------------------- 1. Computers and Computer-Related Products Desktop Computers Notebook Computers Monitors Upgrades & Accessories 2. Printers, Scanners & Copiers 3. Games 4. Consumer Electronics 5. Cameras 6. Sporting Goods 7. Jewelry 8. Appliances 9. Gifts 10. Rare Books 11. Collectibles 12. Toys 13. Memorabilia - sports, entertainment & other 14. Housewares 15. Apparel and Wearables Auction Products - ---------------- 1. Computers and Computer-Related Products Desktop Computers Notebook Computers Monitors Upgrades & Accessories 2. Printers, Scanners & Copiers 3. Games 4. Consumer Electronics 5. Cameras 6. Sporting Goods 7. Jewelry 8. Travel 9. Appliances 10. Gifts 11. Rare Books 12. Collectibles 13. Toys 14. Memorabilia - sports, entertainment & other 15. Housewares 16. Apparel and Wearables 14 Confidential EXHIBIT D Customized IL Site Requirements ------------------------------- Competitive Content. The Customized IL Site will not contain advertisements, - ------------------- promotions, links, sponsorships or similar content (i) on behalf of any Interactive Service or (ii) otherwise in conflict with AOL's standard advertising policies or any AOL agreements with third parties in existence as of the Effective Date. Traffic Flow. IL will take reasonable efforts, as agreed by the Parties, to - ------------ insure that AOL traffic is either kept within the Customized IL Site or channelled back into the AOL Network (with the exception of advertising links sold and implemented pursuant to the Agreement). In no event will traffic link to an Interactive Service. The Parties will work together on mutually acceptable links (including links back to the AOL Service and AOL.com) within the Customized IL Site in order to create a robust and engaging AOL User experience. Hosting. IL will provide all computer servers, routers, switches and - ------- associated hardware in an amount reasonably necessary to meet anticipated traffic demands, adequate power supply (including generator back-up) and HVAC, adequate insurance, adequate service contracts and all necessary equipment racks, floor space, network cabling, and power distribution to support the Customized IL Site. In the event IL requests AOL to assume any of the foregoing responsibilities (e.g., providing floor space for a server at AOL facilities) and AOL agrees to do so, IL will pay AOL's then-standard hosting fees. Technical Performance. IL will perform the following technical obligations (and - --------------------- any reasonable updates thereto from time to time by AOL): [Confidential Information filed separately with the SEC] 15 Confidential EXHIBIT E Operating Standards ------------------- General. IL will take all reasonable efforts to ensure that the Affiliated IL - ------- Site (including the Products and other Content contained therein) will be in the top three (3) in the Online Auctions industry with respect to performance and to quality averages or standards, as follows. The (i) scope and selection of Products, (ii) quality of Products, (iii) customer service and fulfillment associated with the marketing and sale of Products and (iv) ease of use of the Affiliated IL Site will, with respect to each measure, be reasonably competitive in all respects taken as a whole with that which is offered by any IL competitors. In addition Parties to agree on certain additional metrics specifically related to the Affiliated IL Site. IL Capacity. IL will maintain sufficient servers, software and other technical - ----------- infrastructure necessary for IL to receive and support traffic from the AOL Service on a timely basis, without producing material delays. In the event IL fails to satisfy this requirement AOL will have the right (in addition to any other remedies available to AOL hereunder) to defer the promotions it provides to IL hereunder, as mutually agreed, to the extent necessary to minimize user delays until such time as IL corrects its infrastructure deficiencies. To the extent AOL fails to make necessary adjustments to the AOL technical infrastructure for capacity increases, IL will not be penalized pursuant to the foregoing. Speed; Accessibility. IL will ensure that the performance and availability of - -------------------- the Affiliated IL Site (a) is monitored on a continuous, 24/7 basis and (b) remains competitive in all material respects taken as a whole with the performance and availability of other similar sites based on similar form technology. If any or all portions of the Affiliated IL Site are contained within HTML-based World Wide Web forms (or any other forms created using a technology other than AOL's proprietary form technology) ("Web Forms") (i.e., if the Affiliated IL Site is a Linked IL Site or a Customized IL Site), IL will take all commercially reasonable steps to ensure that: (i) the functionality and features within the Web Forms are optimized for the AOL client software then in use by AOL Members; and (ii) the Web Forms are designed and populated in a manner that minimizes delays when AOL Members and AOL Users attempt to access such Web Forms. User Interface. IL will maintain a graphical user interface within the - -------------- Affiliated IL Site that is competitive in all material respects with interfaces of other similar sites based on similar form technology. AOL reserves the right to conduct focus group testing to assess IL's competitiveness in this regard. The parties also incorporate herein by reference Section 2.9 of the Prior Agreement. Service Level Response. The parties incorporate herein by reference Section - ---------------------- 2.14 of the Prior Agreement. Improvements. IL will perform any unfinished improvements required pursuant to - ------------ Section 2.8 of the Prior Agreement. Fraud. IL will diligently monitor the Affiliated IL Site for fraud and abuse - ----- and will provide adequate staffing for maintenance of both "Rainman" forms and Web Forms to the extent contained in the Affiliated IL Site. In the event that fraudulent activity associated with use of the Affiliated IL Site exceeds two times AOL's average occurrence of fraud (weighted by number of transactions) for a similar time frame across its credit card transaction activities through the AOL Service (as measurable by AOL) (the "Average Fraud Level"), then the Parties will make such modifications to any and all applicable operations, systems, information flows related to fraud prevention and billing as are necessary to reduce such fraudulent activity to no greater than two times the Average Fraud Level. Customer Support Services: - ------------------------- IL will: 16 Confidential 1. Provide customer support assistance to customers of the Affiliated IL Site by electronic mail and through a dedicated 800 number during normal business hours and will provide and manage the 800 number service, including a customized script, which will be developed in conjunction with AOL prior to the commencement of customer support services being provided. 2. Answer product related questions and provide related online direction. 3. Manage account authorization issues 4. Provide assistance on transaction activity 5. Pass via warm transfer to an AOL support center (to be designated by AOL) customers calls to the extent required under the circumstances (and as instructed by AOL customer care representatives) and provide the information within IL's possession related to transaction activity necessary to service such customers calls. 6. Maintain the following service level: (a) Calls must be routed to a responsible support representative in as efficient a manner as possible, preferably with no more than one transfer after the call is answered. (b) IL Support Call personnel will conduct their services in a friendly and responsive manner, with the intention of providing a high level of member satisfaction. (c) IL will provide AOL the appropriate telephone number for warm transfer to the IL Support Center of customers that have inadvertently called the AOL Technical Support Call Center regarding inquiries relating to services provided by IL. (d) As of January 1, 1998, IL will provide reports to track usage of IL customer service, including areas of support requested by customer and service, number of email and phone queries and resolution of problems 7. IL will also work with AOL in developing policies (not otherwise addressed herein) that are designed to combat any repeated customer service complaints and to prevent deceptive selling practices. 24x7 Monitoring. AOL Network Operations Center (NOC) will work with a IL- - --------------- designated technical contact in the event of any performance malfunction or other emergency related to the Affiliated IL Site and will either assist or work in parallel with IL's contact using IL tools and procedures, as applicable. The Parties will develop a process to monitor performance and member behavior with respect to access, capacity, security and related issues both during normal operations and during special promotions/events. Telecommunications. The Parties agree to explore encryption methodology to - ------------------ secure data communications between the Parties' data centers. The network between the Parties will be configured such that no single component failure will significantly impact AOL Users. The network will be sized such that no single line runs at more than 70% average utilization for a five minute peak in a daily period. Security Review. IL and AOL will work together to perform any appropriate - --------------- ongoing security reviews of, and to perform tests of, the IL system, network, and service security in order to evaluate the security risks and provide recommendations to IL. IL will use commercially reasonable best efforts to fix any security risks or breaches of security as may be identified by AOL's Operations Security to be performed on behalf of IL will be as determined by AOL in its sole discretion. 17 Confidential EXHIBIT F Standard Online Commerce Terms & Conditions ------------------------------------------- 1. AOL Network Distribution. IL will not authorize or permit any third party to ------------------------ distribute or promote the Affiliated IL Site through the AOL Network absent AOL's prior written approval. 2. Provision of Other Content. Except with respect to the Products provided in -------------------------- Exhibit C, IL will not include third party products, services, content or programming ("Third Party Content") or links to Third Party Content (excluding advertising links pursuant to the Agreement) in the Affiliated IL Site without AOL's prior written approval. IL will be entitled to provide additional Products or other Content in addition to the Products and other Content specifically described in Exhibit C (the "Additional Content"); provided that IL's provision of any Additional Content will be subject to AOL's prior written approval. Except as expressly agreed in writing by AOL, AOL will have no promotional obligations with respect to any Additional Content or Third Party Content. 3. Contests. IL will take all steps necessary to ensure that any contest, -------- sweepstakes or similar promotion conducted or promoted through the Affiliated IL Site (a "Contest") complies with all applicable federal, state and local laws and regulations. 4. Navigational Icons. Subject to the prior consent of IL, which consent will ------------------ not be unreasonably withheld, AOL will be entitled to establish navigational icons, links and pointers connecting the Affiliated IL Site (or portions thereof) with other content areas on or outside of the AOL Network. 5. Links to Other Sites. Except as otherwise expressly allowed hereunder, IL -------------------- will not establish any links between the Affiliated IL Site and any other area on or outside of the AOL Network, including, without limitation, sites on the World Wide Web portion of the Internet or other Interactive Sites, without the prior written approval of AOL. In the event that AOL approves any such links or pointers, such approval will, in each case, be subject to IL's compliance with the then-current terms and conditions for such links or pointers, as such terms and conditions may be amended by AOL from time to time, acting reasonably. 6. Disclaimers. Upon AOL's request, IL agrees to include within the Rainman ----------- Screens a product disclaimer (the specific form and substance to be mutually agreed upon by the Parties) indicating that transactions are solely between IL and AOL Users purchasing products from IL. 7. AOL Look and Feel. IL acknowledges and agrees that AOL will own all right, ----------------- title and interest in and to the elements of graphics, design, organization, presentation, layout, user interface, navigation and stylistic convention (including the digital implementations thereof) which are generally associated with online areas contained within the AOL Network ("the AOL Look and Feel"), subject to IL's ownership rights in any IL trademarks or copyrighted material within the Affiliated IL Site and the IL Look and Feel. 8. Management of the Affiliated IL Site. IL will manage, review, delete, edit, ------------------------------------ create, update and otherwise manage all Products available on or through the Affiliated IL Site, in a timely and professional manner and in accordance with the terms of this Agreement. IL will ensure that each Affiliated IL Site is current, accurate and well-organized at all times. IL warrants that the Affiliated IL Site, including all Products and Contents available therein: (i) will not infringe on or violate any copyright, trademark, U.S. patent or any other third party right; and (ii) will not contain any Product which violates any applicable law or regulation. AOL will have no obligations with respect to the Products available on or through the Affiliated IL Site, including, but not limited to, any duty to review or monitor any such Products. 9. Removal of Content. AOL will have the right to remove, or direct IL to ------------------ remove, any Content in the Affiliated IL Site which, as reasonably determined by AOL (i) violates AOL's then-standard Terms of Service (as set forth on the AOL Service) or the terms of this Agreement or (ii) is inconsistent in any material manner with the terms of the Agreement or the scope and purpose of the Affiliated IL Site as described in Exhibit C (including, without limitation, with respect to both (i) and (ii), any features, functionality or technology) or (iii) is otherwise in conflict with AOL's programming objectives or its existing contractual commitments to third parties. In addition, in the event that AOL reasonably believes that software, technology or other technical components of the Affiliated IL Site will materially affect AOL network or other operations, IL will work in good faith with AOL to limit access to such components from the AOL Service. If the Affiliated IL Site is a Linked IL Site and such site contains any Content which AOL desires to remove or have removed pursuant to the foregoing, then IL will take all commercially reasonable steps to block access by AOL Users to such Content using IL's then-available technology. In the event that IL cannot, through such 18 Confidential efforts, block access to the Content in question, then IL will provide AOL prompt written notice of such fact no later than five (5) days after AOL notifies IL of AOL's objection to such Content. AOL may then, at its option, either (i) restrict access from the AOL Network to the Content in question using technology available to AOL or (ii) terminate all links, promotions and advertisements for the Affiliated IL Site until such time as the Content in question are no longer displayed. IL will cooperate with AOL's reasonable requests to the extent AOL elects to implement any of the foregoing access restrictions. 10. Duty to Inform. IL will promptly inform AOL of any information related to -------------- the IL Service or Affiliated IL Site which could reasonably lead to a claim, demand, or liability of or against AOL and/or its affiliates by any third party. 11. Customer Service. It is the sole responsibility of IL to provide customer ---------------- service to persons or entities purchasing Products through the AOL Network ("Customers"). IL will bear full responsibility for all customer service, including without limitation, order processing, billing, fulfillment, shipment, collection and other customer service associated with any Products offered, sold or licensed through the Affiliated IL Site, and AOL will have no obligations whatsoever with respect thereto. IL will receive all emails from Customers via a computer available to IL's customer service staff and generally respond to such emails within one business day of receipt. IL will receive all orders electronically and generally process all orders within one business day of receipt, provided Products ordered are not advance order items. IL will ensure that all orders of Products are received, processed, fulfilled and delivered on a timely and professional basis. IL will offer AOL Users who purchase Products through such Affiliated IL Site a money back satisfaction guarantee. IL will bear all responsibility for compliance with federal, state and local laws in the event that Products are out of stock or are no longer available at the time an order is received. IL will also comply with the requirements of any federal, state or local consumer protection or disclosure law. Payment for Products will be collected by IL directly from customers. IL's order fulfillment operation will be subject to AOL's reasonable review. 12. Production/Technical Work. In the event that IL requests AOL's production ------------------------- or technical assistance in connection with (i) ongoing programming and maintenance related to the Affiliated IL Site, (ii) a redesign of or addition to the Affiliated IL Site (e.g., a change to an existing screen format or construction of a new custom form), (iii) production to modify work performed by a third party provider or (iv) any other type of production work, IL will work with AOL to develop a detailed production plan for the requested production assistance (the "Production Plan"). Following receipt of the final Production Plan, AOL will notify IL of (i) AOL's availability to perform the requested production work, (ii) the proposed fee or fee structure for the requested production and maintenance work and (iii) the estimated development schedule for such work. To the extent the Parties reach agreement regarding implementation of agreed-upon Production Plan, such agreement will be reflected in a separate work order signed by the Parties. To the extent IL elects to retain a third party provider to perform any such production work, work produced by such third party provider must generally conform to AOL's production Standards & Practices (a copy of which will be supplied by AOL to IL upon request). The specific production resources which AOL allocates to any production work to be performed on behalf of IL will be as determined by AOL in its sole discretion. 13. Overhead Accounts. To the extent AOL has granted IL any overhead accounts ----------------- on the AOL Network, IL will be responsible for the actions taken under or through its overhead accounts, which actions are subject to AOL's applicable Terms of Service and for any surcharges, including, without limitation, all premium charges, transaction charges, and any applicable communication surcharges incurred by any overhead Account issued to IL, but IL will not be liable for charges incurred by any overhead account relating to AOL's standard monthly usage fees and standard hourly charges, which charges AOL will bear. Upon the termination of this Agreement, all overhead accounts, related screen names and any associated usage credits or similar rights, will automatically terminate. AOL will have no liability for loss of any data or content related to the proper termination of any overhead account. 14. Merchant Certification Program. IL will participate in any generally ------------------------------ applicable "Certified Merchant" program operated by AOL or its authorized agents or contractors. Such program may require merchant participants on an ongoing basis to meet certain reasonable standards relating to provision of electronic commerce through the AOL Service and may also require the payment of certain reasonable certification fees to the applicable entity operating the program. 19 Confidential EXHIBIT G Legal Terms & Conditions ------------------------ 1. Promotional Materials/Press Releases. Each Party will submit to the other ------------------------------------ Party, for its prior written approval, which will not be unreasonably withheld or delayed, any marketing, advertising, press releases, and all other promotional materials related to the Affiliated IL Site and/or referencing the other Party and/or its trade names, trademarks, and service marks (the "Materials"); provided, however, that either Party's use of screen shots of the Affiliated IL Site for promotional purposes will not require the approval of the other Party so long as the AOL Network is clearly identified as the source of such screen shots. Each Party will solicit and reasonably consider the views of the other Party in designing and implementing such Materials. Once approved, the Materials may be used by a Party and its affiliates for the purpose of promoting the Affiliated IL Site and the content contained therein and reused for such purpose until such approval is withdrawn with reasonable prior notice. In the event such approval is withdrawn, existing inventories of Materials may be depleted. Notwithstanding the foregoing, either Party may issue press releases and other disclosures as required by law or as reasonably advised by legal counsel without the consent of the other Party and in such event, prompt notice thereof will be provided to the other Party. 2. License. ------- 2.1. IL hereby grants AOL a non-exclusive license to market, license, distribute, reproduce, display, perform, transmit and promote the Affiliated IL Site and the Products contained therein (or any portion thereof) through such areas or features of the AOL Network as AOL deems appropriate, subject to Section 2.2. AOL Users will have the right to access and use the Affiliated IL Site. 2.2. For any country in which AOL is not operating (i.e., AOL is not then offering IL's Online Auction service and physically shipping product to consumers in such country), IL may give AOL written notice that IL wishes to reserve such country for 3 months in order to permit IL to attempt to negotiate an exclusive license with a third party for such country to exploit the IL Online Auction technology. Upon receiving such notice AOL will have 30 business days to demonstrate to IL that AOL has expended significant effort to prepare to operate in such country and has firm, written commitments to operate in such country within the next year. Failing such demonstration, IL shall have 3 months in which to negotiate a term sheet with a third party and an additional 2 months to conclude the exclusive transaction. If IL is unable to obtain such term sheet or to conclude the exclusive transaction within applicable period, AOL shall be free to operate on a non-exclusive basis in such country. 3. Trademark License. In designing and implementing the Materials and subject ----------------- to the other provisions contained herein, IL will be entitled to use the following trade names, trademarks, and service marks of AOL: the "America Online" brand service, "AOL" service/software and AOL's triangle logo; and AOL and its Affiliates will be entitled to use the trade names, trademarks, and service marks of IL (collectively, together with the AOL marks listed above, the "Marks"); provided that each Party: (i) does not create a unitary composite mark involving a Mark of the other Party without the prior written approval of such other Party; and (ii) displays symbols and notices clearly and sufficiently indicating the trademark status and ownership of the other Party's Marks in accordance with applicable trademark law and practice. 4. Ownership of Trademarks. Each Party acknowledges the ownership of the other ----------------------- Party in the Marks of the other Party and agrees that all use of the other Party's Marks will inure to the benefit, and be on behalf, of the other Party. Each Party acknowledges that its utilization of the other Party's Marks will not create in it, nor will it represent it has, any right, title, or interest in or to such Marks other than the licenses expressly granted herein. Each Party agrees not to do anything contesting or impairing the trademark rights of the other Party. 5. Quality Standards. Each Party agrees that the nature and quality of its ----------------- products and services supplied in connection with the other Party's Marks will conform to quality standards set by the other Party. Each Party agrees to supply the other Party, upon request, with a reasonable number of samples of any Materials publicly disseminated by such Party which utilize the other Party's Marks. Each Party will comply with all applicable laws, regulations, and customs and obtain any required government approvals pertaining to use of the other Party's marks. 6. Infringement Proceedings. Each Party agrees to promptly notify the other ------------------------ Party of any unauthorized use of the other Party's Marks of which it has actual knowledge. Each Party will have the sole right and discretion to bring proceedings alleging infringement of its Marks or unfair competition related thereto; provided, however, that each Party agrees to provide the other Party with its reasonable cooperation and assistance with respect to any such infringement proceedings. 7. Representations and Warranties. The representations ------------------------------ 20 Confidential and warranties ontained in Sections 5.1(a), 5.2, 5.3, 5.4, 5.5, 5.6, 5.7 and 5.9 of the Prior Agreement are hereby incorporate by reference into this Agreement. In addition, each Party represents and warrants to the other Party that: (i) such Party has the full corporate right, power and authority to enter into this Agreement and to perform the acts required of it hereunder; (ii) the execution of this Agreement by such Party, and the performance by such Party of its obligations and duties hereunder, do not and will not violate any agreement to which such Party is a party or by which it is otherwise bound; (iii) when executed and delivered by such Party, this Agreement will constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms; and (iv) such Party acknowledges that the other Party makes no representations, warranties or agreements related to the subject matter hereof that are not expressly provided for in this Agreement. 8. Confidentiality. Each Party acknowledges that Confidential Information may --------------- be disclosed to the other Party during the course of this Agreement. Each Party agrees that it will take reasonable steps, at least substantially equivalent to the steps it takes to protect its own proprietary information, during the Term of this Agreement, and for a period of three years following expiration or termination of this Agreement, to prevent the duplication or disclosure of Confidential Information of the other Party, other than by or to its employees or agents who must have access to such Confidential Information to perform such Party's obligations hereunder, who will each agree to comply with this section. Notwithstanding the foregoing, either Party may issue a press release or other disclosure containing Confidential Information without the consent of the other Party, to the extent such disclosure is required by law, rule, regulation or government or court order. In such event, the disclosing Party will provide at least five (5) business days prior written notice of such proposed disclosure to the other Party. Further, in the event such disclosure is required of either Party under the laws, rules or regulations of the Securities and Exchange Commission or any other applicable governing body, such Party will (i) redact mutually agreed-upon portions of this Agreement to the fullest extent permitted under applicable laws, rules and regulations and (ii) submit a request to such governing body that such portions and other provisions of this Agreement receive confidential treatment under the laws, rules and regulations of the Securities and Exchange Commission or otherwise be held in the strictest confidence to the fullest extent permitted under the laws, , rules or regulations of any other applicable governing body. 9. Limitation of Liability; Disclaimer; Indemnification. ---------------------------------------------------- 9.1. Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE --------- OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR INABILITY TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED IL SITE, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS ("COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION 9.3. EXCEPT AS PROVIDED IN SECTION 9.3, NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR MORE THAN $1,000,000; PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY PURSUANT TO SECTION 4. 9.2. No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS ------------------------ AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED IL SITE, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY OF THE AFFILIATED IL SITE. 9.3. Indemnity. Either Party will defend, indemnify, save and hold harmless --------- the other Party and the officers, directors, agents, affiliates, distributors, franchisees and employees of the other Party from any and all third party claims, demands, liabilities, costs or expenses, including reasonable attorneys' fees ("Liabilities"), resulting from the indemnifying Party's material breach of any duty, representation, or warranty of this Agreement, except where Liabilities result from the gross negligence or knowing and willful misconduct of the other Party. 9.4. Claims. Each Party agrees to (i) promptly notify the other Party in ------ writing of any indemnifiable claim and give the other Party the opportunity to defend or negotiate a settlement of any such claim at such other Party's expense, 21 Confidential and (ii) cooperate fully with the other Party, at that other Party's expense, in defending or settling such claim. AOL reserves the right, at its own expense, to assume the exclusive defense and control of any matter otherwise subject to indemnification by IL hereunder, and in such event, IL will have no further obligation to provide indemnification for such matter hereunder. 9.5. Acknowledgment. AOL and IL each acknowledges that the provisions of this -------------- Agreement were negotiated to reflect an informed, voluntary allocation between them of all risks (both known and unknown) associated with the transactions contemplated hereunder. The limitations and disclaimers related to warranties and liability contained in this Agreement are intended to limit the circumstances and extent of liability. The provisions of this Section 6 will be enforceable independent of and severable from any other enforceable or unenforceable provision of this Agreement. 10. Solicitation of AOL Users. During the Term of this Agreement, and for the ------------------------- two-year period following the expiration or termination of this Agreement, neither IL nor its agents will use the AOL Network to (i) solicit, or participate in the solicitation of AOL Users when that solicitation is for the benefit of any Interactive Service which could reasonably be construed to be or become in competition with AOL or (ii) promote any services which could reasonably be construed to be in competition with AOL including, but not limited to, services available through the Internet. In addition, IL may not send AOL Users e-mail communications promoting IL's Products through the AOL Network without a "Prior Business Relationship." For purposes of this Agreement, a "Prior Business Relationship" will mean that the AOL User has either (i) engaged in a transaction with IL through the AOL Network or (ii) voluntarily provided information to IL through a contest, registration, or other communication, which included notice to the AOL User that the information provided by the AOL User could result in an e-mail being sent to that AOL User by IL or its agents. A Prior Business Relationship does not exist by virtue of an AOL User's visit to an Affiliated IL Site (absent the elements above). More generally, IL will be subject to any standard policies regarding e-mail distribution through the AOL Network which AOL may implement. 11. Collection of User Information. IL is prohibited from collecting AOL ------------------------------ Member screennames and AOL User email addresses from public or private areas of the AOL Network, except as specifically provided below. IL will ensure that any survey, questionnaire or other means of collecting AOL Member screennames or AOL User email addresses, names, addresses or other identifying information ("User Information"), including, without limitation, requests directed to specific AOL Member screennames or AOL User email addresses and automated methods of collecting screennames (an "Information Request") complies with (i) all applicable laws and regulations and (ii) any privacy policies which have been issued by AOL in writing during the Term and of which IL has been given reasonable prior notice (the "AOL Privacy Policies"); provided that AOL's periodic publication and announcement of such policies generally to the AOL Member base shall qualify as reasonable for purposes of the foregoing. Each Information Request will clearly and conspicuously specify to the AOL Users at issue the purpose for which User Information collected through the Information Request will be used (the "Specified Purpose"). 12. Use of User Information. IL will restrict use of the User Information ----------------------- collected through an Information Request to the Specified Purpose. In no event will IL (i) provide User Information to any third party (except to the extent specifically (a) permitted under the AOL Privacy Policies or (b) authorized by the members in question), (ii) rent, sell or barter User Information, (iii) identify, promote or otherwise disclose such User Information in a manner that identifies AOL Users as end-users of the AOL Network or (iv) otherwise use any User Information in contravention of Section 10 above. Notwithstanding the foregoing, in the case of AOL Purchasers who purchase Products from IL, IL will be entitled to use User Information from such Purchasers as part of IL's aggregate list of Customers; provided that IL's use does not in any way identify, promote or otherwise disclose such User Information in a manner that identifies Purchasers as end-users of the AOL Network. In addition, IL will not use any User Information for any purpose (including any Specified Purpose) not directly related to the business purpose of the Affiliated IL Site. 13. Excuse. Neither Party will be liable for, or be considered in breach of or ------ default under this Agreement on account of, any delay or failure to perform as required by this Agreement as a result of any causes or conditions which are beyond such Party's reasonable control and which such Party is unable to overcome by the exercise of reasonable diligence. 14. Independent Contractors. The Parties to this Agreement are independent ----------------------- contractors. Neither Party is an agent, representative or partner of the other Party. Neither Party will have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, the other Party. This Agreement will not be interpreted or construed to create an association, agency, joint venture or partnership between the Parties or to impose any liability attributable to such a relationship upon either Party. 15. Notice. Section 7.1 of the Prior Agreement is incorporated herein by ------ reference. 16. No Waiver. The failure of either Party to insist upon or enforce strict --------- performance by the other Party of any 22 Confidential provision of this Agreement or to exercise any right under this Agreement will not be construed as a waiver or relinquishment to any extent of such Party's right to assert or rely upon any such provision or right in that or any other instance; rather, the same will be and remain in full force and effect. 17. Return of Information. Upon the expiration or termination of this --------------------- Agreement, each Party will, upon the written request of the other Party, return or destroy (at the option of the Party receiving the request) all confidential information, documents, manuals and other materials specified the other Party. 18. Survival. Sections 3.1, 3.2, 3.4, 3.5 and 6 of the body of the Agreement -------- and Paragraphs 4, 6, 8, 9, 10, 11, 12, 15, 16, 17, 18, 24 and 25 of this Exhibit F, will survive the completion, expiration, termination or cancellation of this Agreement. 19. Entire Agreement. This Agreement sets forth the entire agreement and ---------------- supersedes any and all prior agreements of the Parties with respect to the transactions set forth herein, including, without limitation, the Prior Agreement. Neither Party will be bound by, and each Party specifically objects to, any term, condition or other provision which is different from or in addition to the provisions of this Agreement (whether or not it would materially alter this Agreement) and which is proffered by the other Party in any correspondence or other document, unless the Party to be bound thereby specifically agrees to such provision in writing. 20. Amendment. No change, amendment or modification of any provision of this --------- Agreement will be valid unless set forth in a written instrument signed by the Party subject to enforcement of such amendment, and in the case of AOL, by an executive of at least the same standing to the executive who signed the Agreement. 21. Further Assurances. Each Party will take such action (including, but not ------------------ limited to, the execution, acknowledgment and delivery of documents) as may reasonably be requested by any other Party for the implementation or continuing performance of this Agreement. 22. Assignment. Section 7.2 of the Prior Agreement is incorporated herein by ---------- reference 23. Construction; Severability. In the event that any provision of this -------------------------- Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid by a court with jurisdiction over the Parties to this Agreement, (i) such provision will be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law, and (ii) the remaining terms, provisions, covenants and restrictions of this Agreement will remain in full force and effect. 24. Remedies. Except where otherwise specified, the rights and remedies -------- granted to a Party under this Agreement are cumulative and in addition to, and not in lieu of, any other rights or remedies which the Party may possess at law or in equity; provided that, in connection with any dispute hereunder, IL will be not entitled to offset any amounts that it claims to be due and payable from AOL against amounts otherwise payable by IL to AOL. 25. Applicable Law; Jurisdiction. This Agreement will be interpreted, construed ---------------------------- and enforced in all respects in accordance with the laws of the Commonwealth of Virginia except for its conflicts of laws principles. IL consents to the non- exclusive jurisdiction of the courts of the Commonwealth of Virginia and the federal courts situated in the Commonwealth of Virginia, and AOL consents to the non-exclusive jurisdiction of the Courts of Ontario, each in connection with any action to enforce the provisions of this Agreement, to recover damages or other relief for breach or default under this Agreement, or otherwise arising under or by reason of this Agreement. 26. Export Controls. Both Parties will adhere to all applicable laws, --------------- regulations and rules relating to the export of technical data and will not export or re-export any technical data, any products received from the other Party or the direct product of such technical data to any proscribed country listed in such applicable laws, regulations and rules unless properly authorized. 27. Headings. The captions and headings used in this Agreement are inserted -------- for convenience only and will not affect the meaning or interpretation of this Agreement. 28. Counterparts. This Agreement may be executed in counterparts, each of ------------ which will be deemed an original and all of which together will constitute one and the same document. 29. Approvals. Any provision of the Agreement which conditions certain actions --------- or rights on the approval of a Party will mean that the approving Party will not unreasonably withold or delay its approval in such instance. 23 Confidential EXHIBIT H Initial Promotional Plan - ------------------------ Shopping Channel Placement Impressions - -------------------------------------- 1. "Hot" Savings Anchor Tenancy (Continuous Placement) 2. Computer Hardware Tenant (Continuous Placement) 3. Home Office Tenant (Continuous Placement) Computing Channel Placement Impressions - --------------------------------------- 1. Computing Superstore Button (Auctions Category button on CSS Main Screen) (Continuous Placement) 2. Sponsors Package in Chat, Message Boards, Live Events (integrated branding and promotion) (Continuous Placement) 3. Monthly Live Event Promotion (Live Auction) (Rotation) (300,000 annual Impressions) WorkPlace Channel Sponsors Package Impressions - ---------------------------------------------- 1. Main Screen Banner Sponsors Package Rotation (Continuous Placement) 2. "Your Business" Department Main Screen Sponsors Package (Continuous Placement) 3. "Products & Services" Department Main Screen Sponsors Package (Continuous Placement) 4. WorkPlace Sub-Screen Banners Sponsors Package (Rotation) (4,000,000 annual Impressions) AOL.com Targeted Promotion (91mm annual Impressions) - ---------------------------------------------------- 1. Shopping NetChannel Tenancy (placement on Auctions & Bargains Dept. screen) (Continuous Placement) 2. Holiday Blitz Program (rotation on aol.com site during gift giving season) (Rotation) 3. AOL Instant Messenger (advertising window on Buddy List; 60 sec. banner rotation) (Rotation) 4. General Advertising (various AOL.com screens) (Rotation) AOL Service Advertising Package (33.8mm annual Impressions) - ----------------------------------------------------------- 1. Banner advertising in Sports, Travel, Computing and Interest Channels as well as other areas of the Service (comprehensive ad plan to be determined in conjunction with AOL Interactive Marketing) (Rotation) 2. Superbowl Event Sponsors Package (runs 1/14/98-1/27/98; 500,000 annual Impressions for Year One) In addition, AOL will (a) provide ILI with keywords "Online Auction" [Confidential Information filed separately with the SEC] and (b) take best efforts to provide at least six (6) special promotions from time to time as mutually agreed. This may include but is not limited to promotion in AOL Live, Welcome Screen, and Run-of-Service advertising. [Confidential Information filed separately with the SEC] 24 Confidential EXHIBIT J Transaction Information ----------------------- In its monthly reports, IL will detail the following information (items marked with asterisk to be provided as of the first calendar quarter of 1998): . total items ordered (and by category) . gross sales (as a whole and by category) . margin percentage . main page traffic levels (page views) . category page traffic levels (page views)* . average order size . number of e-mail addresses signed up for newsletter . credit card usage (type of card) (e.g. 60% visa, 20% MC, 20% Amex and other) . winning bid per Product (on a best efforts basis) . ranking of categories by dollar sales . ranking of categories by number of bids* . ranking of categories by user traffic* . number of site registrations per week . number of unique accounts/screennames registering per week 25 EX-3.9 10 SHARES PURCHASE WARRANT INDENTURE Exhibit 3.9 INTERNET LIQUIDATORS INC. - and - CIBC MELLON TRUST COMPANY ---------------------------------- ---------------------------------- Warrant Indenture Providing for the Issue of Common Share Purchase Warrants dated as of October 3, 1997 ARTICLE 1...............................................................INTERPRETATION 1 1.1 Definitions................................................................... 1 1.2 Entire Indenture.............................................................. 4 1.3 Headings...................................................................... 4 1.4 Extending Meanings............................................................ 4 1.5 References.................................................................... 4 1.6 Business Day.................................................................. 4 1.7 Meaning of.................................................................... 5 1.8 Time.......................................................................... 5 1.9 Choice of Language............................................................ 5 1.10 Applicable Law:............................................................... 5 ARTICLE 2...............................................ISSUE AND PURCHASE OF WARRANTS 5 2.1 Form and Terms of Warrants:................................................... 5 2.2 Transfer and Ownership of Warrants: (1)....................................... 6 2.3 Warrantholders not Shareholders:.............................................. 7 2.4 Signing of Warrants:.......................................................... 7 2.5 Countersigning:............................................................... 7 2.6 Loss, Mutilation, Destruction or Theft of Warrants:........................... 8 2.7 Issue of Warrants:............................................................ 8 2.8 Warrants to Rank Pari Passu:.................................................. 8 2.9 Exchange of Warrants:......................................................... 8 2.10 Recognition of Registered Holder:............................................ 9 ARTICLE 3.................................................COVENANTS OF THE CORPORATION 9 3.1 Covenants of the Corporation:................................................. 9 3.2 Securities Qualification Requirements:........................................ 11 ARTICLE 4............................................ADJUSTMENT TO SUBSCRIPTION RIGHTS 11 4.1 Adjustment to Subscription Rights:............................................ 11 4.2 Adjustment of Purchase Price:................................................. 16 4.3 Adjustment Rules:............................................................. 17 4.4 Proceedings Prior to any Action Requiring Adjustment:......................... 19 4.5 Certificate of Adjustment:.................................................... 19 4.6 Notice of Special Matters:.................................................... 19 4.7 No Action after Notice:....................................................... 20 4.8 Protection of Agent:.......................................................... 20 ARTICLE 5........................................EXERCISE AND CANCELLATION OF WARRANTS 20 5.1 Exercise of Warrants:......................................................... 20 5.2 Effect of Exercise of Warrants................................................ 22 5.3 Postponement of Delivery of Certificates:..................................... 22 5.4 Cancellation of Warrants:..................................................... 23 5.5 Warrants Void after Expiry Time:.............................................. 23 5.6 Fractions of Common Shares:................................................... 23 5.7 Subscription for Less than Entitlement:....................................... 23 ARTICLE 6...............................................................NON-REDEMPTION 23 6.1 Non-Redemption of Warrants:................................................... 23 ARTICLE 7...................................................MEETINGS OF WARRANTHOLDERS 23 7.1 Convening of Meeting:......................................................... 24 7.2 Notice:....................................................................... 24 7.3 Chairman:..................................................................... 24
7.4 Quorum:....................................................................... 24 7.5 Show of Hands:................................................................ 24 7.6 Poll:......................................................................... 25 7.7 Regulations:.................................................................. 25 7.8 Minutes:...................................................................... 25 7.9 Powers Exercisable by Extraordinary Resolution:............................... 26 7.10 Meaning of.................................................................... 27 7.11 Powers Cumulative:............................................................ 28 7.12 Corporation, Warrantholders and Agent May be Represented:..................... 28 7.13 Binding Effect of Resolutions:................................................ 28 7.14 Holdings by the Corporation or Subsidiaries of the Corporation Disregarded:... 28 ARTICLE 8...................................SUPPLEMENTAL INDENTURES, MERGER, SUCCESSORS 28 8.1 Provision for Supplemental Indentures for Certain Purposes:.................... 28 8.2 Corporation May Consolidate, etc. on Certain Terms:............................ 29 8.3 Successor Body Corporate Substituted:.......................................... 30 8.4 Amendments for Listing:........................................................ 30 ARTICLE 9..........................................................CONCERNING THE AGENT 30 9.1 Trust Indenture Legislation:.................................................. 31 9.2 Rights and Duties of Agent:................................................... 31 9.3 Evidence, Experts and Advisers:............................................... 32 9.4 Documents, Monies, etc. Held by Agent:....................................... 33 9.5 Action by Agent to Protect Interests:........................................ 33 9.6 Agent Not Required to Give Security:.......................................... 34 9.7 Protection of Agent:......................................................... 34 9.8 Replacement of Agent:........................................................ 34 9.9 Conflict of Interest:......................................................... 35 9.10 Acceptance of Trusts:......................................................... 36 9.11 Agent Not to be Appointed Receiver:........................................... 36 9.12 Authorization to Carry on Business:........................................... 36 9.13 Liability of Agent:.......................................................... 36 ARTICLE 10......................................................................NOTICES 36 10.1 Notice to Corporation:........................................................ 37 10.2 Notice to Warrantholders:..................................................... 37 10.3 Notice to Agent:.............................................................. 37 10.4 Mail Service Interruption:.................................................... 38 ARTICLE 11..................................................POWER OF BOARD OF DIRECTORS 38 11.1 Board of Directors:........................................................... 38 ARTICLE 12..........................................FORMAL EXECUTION AND EFFECTIVE DATE 38 12.1 Suits by Warrantholders:...................................................... 38 12.2 Waiver of Default............................................................. 39 12.3 Further Assurances:........................................................... 39 12.4 Severability:................................................................. 39 12.5 Satisfaction and Discharge of Indenture....................................... 39 12.6 Formal Date and Execution Date:............................................... 40 12.7 Counterparts:................................................................. 40 12.8 Enurement:.................................................................... 40
ii THIS Warrant Indenture dated as of the 3rd day of October, 1997, is made B E T W E E N: INTERNET LIQUIDATORS INC., a company incorporated under the laws of the Province of Ontario (hereinafter called the "Corporation") - and - CIBC MELLON TRUST COMPANY, a trust company incorporated under the laws of Canada (hereinafter called the "Agent") WHEREAS the Corporation proposes to create and issue up to 3,832,675 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 Corporation 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: 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: -2- (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 October 3, 1997, being the date of the closing of the completion of the issue and sale by the Corporation 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 January 3, 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; -3- (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) "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; (p) "Purchase Price" means $1.65 per Common Share; (q) "Qualifying Provinces" means the Province of Ontario and such other jurisdictions in Canada in which purchasers of Special Warrants are resident; (r) "Special Warrants" means collectively the special warrants of the Corporation issued pursuant to a Special Warrant Indenture dated as of October 3, 1997 (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 120 days after the Closing Date, each Unit shall consist of 1.1 Common Shares and 0.55 Warrants (in lieu of one Common Share and one-half a Warrant); (s) "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; (t) "Warrant Certificate" means a warrant certificate in the form of warrant certificate attached hereto as Schedule "A"; (u) "Warrantholder" or "holder" means the registered holder of a Warrant hereunder; (v) "Warrants" means collectively, the Common Share purchase 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; and -4- (w) "Weighted Average Price" in respect of a Common Share at any date means the weighted average closing price of the Common Shares, as quoted on the Canadian Dealing Network, or, on any 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 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. -5- 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. 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 3,832,675 Warrants are hereby authorized to be created by the Corporation 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 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 Corporation and the Agent and as otherwise provided by this Indenture, and shall be numbered in such -6- manner as the Corporation, 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 Corporation 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 Corporation, furnish the Corporation 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: (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 Corporation. Forthwith after receiving written notice from the Agent as aforesaid, the Corporation shall, in accordance with the provisions of Section 2.7, cause a new Warrant -7- 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 the Corporation 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 the Corporation 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 and may, but need not be, under the corporate seal of the Corporation. 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 at the date of this Indenture or at the date 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 Corporation 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 Corporation 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 -8- 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 Corporation 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 Corporation 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 Corporation and the Agent in their discretion, and shall pay the reasonable charges of the Corporation and the Agent in connection therewith. 2.7 Issue of Warrants: Warrant Certificates shall be signed by the ----------------- Corporation as aforesaid and delivered to the Agent from time to time. The Agent shall countersign any Warrant Certificate delivered by the Corporation 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 Corporation to the Agent and signed by the President, Secretary or Assistant Secretary of the Corporation) or mail to such person or persons at their respective addresses specified in the written order from the Corporation the Warrant Certificate for the appropriate number of Warrants. 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 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 Corporation for any and all taxes or governmental or other charges required to be paid shall be -9- made by the party requesting such exchange as a condition precedent to such exchange. 2.10 Recognition of Registered Holder: The Corporation 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 Corporation and the Agent shall not be affected by any notice or knowledge to the contrary except where the Corporation 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 the Corporation 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 Corporation and the Agent for the same and neither the Corporation nor the Agent shall be bound to inquire into the title of any such holder except where the Corporation or the Agent is required to take notice by statute or by order of a court of competent jurisdiction. ARTICLE 3 COVENANTS OF THE CORPORATION ---------------------------- 3.1 Covenants of the Corporation: The Corporation represents, warrants, ---------------------------- covenants and agrees with the Agent for the benefit of the Agent and the Warrantholders as follows: (a) To Issue Warrants and Reserve Common Shares: That it is duly ------------------------------------------- authorized to create and issue the Warrants and that the Warrant Certificates, when issued and countersigned as herein provided, will be valid and enforceable against the Corporation and that, subject to the provisions of this Indenture, the Corporation 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 accordance with the terms hereof and of the Warrant Certificates. At all times prior to and including the Expiry Time, while any of the 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 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 it will pay the Agent 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 -10- 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 it 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 Corporation shall fail to --------------------------------- perform any of its covenants contained in this Indenture, the Agent may notify the Warrantholders of such failure on the part of the Corporation or may itself perform any of the said covenants capable of being performed by it, but, subject to Section 9.3, 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 Corporation of any default hereunder or its continuing obligations hereunder. (f) Performance of Indenture: It will well and truly perform and carry ------------------------- out all of the acts or things to be done by it as provided in this Indenture. (g) Corporate Existence: It will maintain its corporate existence and -------------------- will carry on and conduct its business in accordance with good business practice. (h) Quotation From Canadian Dealing Network: 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. (i) Action During Period of Notice: It 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. -11- 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). 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; -12- (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 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 -13- (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 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 -14- 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 for Common Shares determined as of the record date for such distribution; (iii) evidences of indebtedness; or (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 for 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 for 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, -15- 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 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 -16- 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 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; -17- 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: (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. -18- (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 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 Corporation shall take any corporate action -19- which may, in the opinion of counsel, be necessary in order that the Corporation shall have allotted and reserved for issue in its authorized capital and enabling the Corporation 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. 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 -20- 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 Corporation 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 Corporation of any of the representations, warranties or covenants herein contained or of any acts of the agents or servants of the Corporation. 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 Corporation 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 -21- 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 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 Corporation 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, 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 Corporation. (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: -22- (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 Corporation shall not be ---------------------------------------- required to deliver certificates in respect of Common Shares during the period when the stock transfer books of the 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 Corporation in writing, the Agent shall furnish the Corporation 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 Corporation shall make an appropriate cash adjustment. However, in respect of any holder, the Corporation 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. -23- 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 -------------------------- Corporation. Any Warrants not exercised on or before the Expiry Time shall be void and of no value. 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 Corporation 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 Corporation, the Agent will be indemnified against all costs, charges, expenses and liabilities by the Corporation. 7.2 Notice: At least fifteen (15) days' prior notice of a meeting of ------ Warrantholders shall be given to all Warrantholders, the Agent and the Corporation 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 -24- 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. 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 Corporation 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. -25- (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 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 Corporation 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 Corporation 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 Corporation, 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 Corporation contained in this Indenture or the Warrants or to enforce any of the rights of the Warrantholders in any manner -26- 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 Corporation for the enforcement of the covenants on the part of the Corporation 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 Corporation in complying with any of the provisions of this Indenture or the Warrants either unconditionally or upon any conditions specified in such Extraordinary Resolution; (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 Corporation; 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 Corporation 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 -27- 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. 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 Corporation, Warrantholders and Agent May be Represented: The -------------------------------------------------------- Corporation 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 Corporation as soon as it is reasonably practicable. 7.14 Holdings by the Corporation or Subsidiaries of the Corporation -------------------------------------------------------------- Disregarded: In determining whether Warrantholders holding a sufficient number of Warrants are present at a -28- 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 Corporation or any subsidiary of the Corporation shall be disregarded. The Corporation shall provide to the Agent upon request a Certificate of the Corporation detailing the exact registrations of any warrants owned legally or beneficially by the Corporation or any subsidiary of the Corporation. ARTICLE 8 SUPPLEMENTAL INDENTURES, MERGER, SUCCESSORS ------------------------------------------- 8.1 Provision for Supplemental Indentures for Certain Purposes: From time ----------------------------------------------------------- to time the Corporation (when authorized by a resolution of its directors) 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, 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 Corporation and the assumption by any successor of the covenants of the Corporation 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 -29- of its counsel, the rights of the Agent and of the Warrantholders are in no way prejudiced thereby. 8.2 Corporation 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 the Corporation 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 the Corporation 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 the Corporation 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 the Corporation 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. 8.3 Successor Body Corporate Substituted: In case the Corporation, ------------------------------------ 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 assets of the Corporation as an entirety to another body corporate or person, the successor body corporate or person formed by such consolidation, reorganization, arrangement or amalgamation or into which the Corporation shall have been merged or which shall have received a conveyance or transfer as aforesaid shall succeed to and be substituted for the Corporation 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 Corporation 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 -30- 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 Corporation 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. (c) The Corporation 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 Corporation under this Indenture unless and until it shall have received 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 -31- 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 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. -32- 9.3 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 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 Corporation. (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 Corporation, certificates of the Corporation 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 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 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: -------------------------------------- -33- 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 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 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 -34- understood and agreed that this indemnification shall survive the termination of this Indenture or the resignation of the Agent. 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 Corporation not less than 45 days' prior notice in writing or such shorter prior notice as the Corporation 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 Corporation shall forthwith appoint a new warrant agent unless a new warrant agent has already been appointed by the Warrantholders; failing such appointment by the Corporation, the retiring Agent or any 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 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 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 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 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 Corporation 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. -35- (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: -------------------- (a) The Agent represents to the Corporation 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 Corporation. 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 Corporation 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: ------------------- -36- 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 Corporation: Unless and until the Corporation notifies the --------------------- Agent of a change of address, any notice or communication required or permitted to be given to the Corporation under the provisions of this Indenture shall be valid and effective if delivered to the Corporation 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 communication to such address. Any notice to the Corporation 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 ------------------------ Corporation 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 Corporation 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 -37- 393 University Avenue, 5th Floor, Toronto, Ontario, M5G 2M7, or sent by telecopier to telecopier number (416) 813-4555 (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 393 University Avenue, 5th Floor, Toronto, Ontario, M5G 2M7. 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. (2) Surrender of a Warrant Certificate and evidence relating thereto pursuant to Section 2.2 shall be valid and effective if delivered or mailed by prepaid mail to 393 University Avenue, 5th Floor, Toronto, Ontario, M5G 2M7, 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 Corporation 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 Corporation is ------------------ required or empowered to exercise any acts, all such acts may be exercised by the directors of the Corporation or by those officers of the Corporation 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 -38- 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 the Corporation 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 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. -39- 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 Corporation 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 October 3, 1997 which shall be the date on which this Indenture shall become effective between the parties hereto, irrespective of the actual date of execution hereof. 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 3rd day of October, 1997. INTERNET LIQUIDATORS INTERNATIONAL INC. 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 JANUARY 3, 1999. INTERNET LIQUIDATORS 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 January 3, 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. 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 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 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 -2- so as to be entitled to acquire a whole number of Common Shares, the Corporation shall make an appropriate cash adjustment. However, in respect of any holder, the Corporation 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)). The Warrants represented by this certificate are issued under and pursuant to a Warrant Indenture (the "Indenture") made as of October 3, 1997 between the Corporation 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 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 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; (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. -3- 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 addition, any Warrants that are exercised or Common Shares received on such exercise prior to the issuance of a receipt for the (final) prospectus by the securities regulatory authority in the jurisdiction in which the Warrantholder is resident may be subject to statutory resale restrictions. IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate to be signed by its duly authorized officer as of October 3, 1997 INTERNET LIQUIDATORS INTERNATIONAL INC.. Per:______________________c/s Countersigned CIBC MELLON TRUST COMPANY Per: ---------------------------------- Authorized Signing Officer EXERCISE INSTRUCTIONS TO WARRANTHOLDER The registered holder hereof may exercise his right to subscribe for Common Shares of INTERNET LIQUIDATORS 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: 393 University Avenue 5th Floor Toronto, Ontario M5G 2M7 If by hand or courier: 393 University Avenue Lower Level Toronto, Ontario M5G 2M7 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. EXERCISE FORM TO: INTERNET LIQUIDATORS INTERNATIONAL INC. The undersigned hereby exercises the right to subscribe for _________ Common Shares in the capital of INTERNET LIQUIDATORS 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 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, constitute and appoint and do(es) hereby irrevocably ________________________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. EX-3.15 11 SUBCRIPTION AGREEMENT DATD JULY 29, 1998 EXHIBIT 3.15 BID.COM INTERNATIONAL INC. SUBSCRIPTION AGREEMENT FOR A SERIES B SPECIAL WARRANT FOR 1,500,000 COMMON SHARES AND A WARRANT FOR A SHARE PURCHASE WARRANT FOR UP TO 100,000 COMMON SHARES OF BID.COM INTERNATIONAL INC. TO: BID.COM INTERNATIONAL INC. 1. Subscription The undersigned Rogers Media Inc. (the "Purchaser") hereby irrevocably agrees to subscribe for and agrees to purchase, on and subject to the terms and conditions set forth herein from Bid.Com International Inc. (the "Corporation") a Series B Special Warrant for 1,500,000 common shares in the capital of the Corporation (the "Special Warrant") at a price of $1,875,000 and a warrant ("Warrant") for an underlying share purchase warrant (the "Common Share Warrant") exercisable for up to 100,000 common shares in the capital of the Corporation as set forth in section 2. Certain terms used but not defined in this Agreement shall have the meaning attributed thereto in Exhibit "A". 2. Description of the Special Warrant and Warrant The Special Warrant and the Warrant shall be created and issued with the rights, privileges, conditions and restrictions as set out in the Special Warrant Certificate and the Warrant Certificate (in each case, as defined below), respectively. The specific attributes of the Special Warrant will provide, among other things, that the holder of the Special Warrant shall be entitled to receive, subject to adjustments and additions as set out in the Special Warrant, without payment of any consideration therefor, 1,500,000 common shares in the capital of the Corporation upon the earlier of: (i) the issuance of a receipt for a (final) prospectus of the Corporation (the "Prospectus") in Ontario qualifying the Common Shares issuable upon deemed exercise of the Special Warrant and the Common Share Warrant; and (ii) 5:00 p.m. (Toronto time) on the 5th Business Day following the day that is 130 days following the Closing Date (defined below) (the "Qualification Deadline"). The Warrant will provide, among other things, that the holder of the Warrant shall be entitled to receive, without payment of any consideration therefor, the Common Share Warrant until the earlier of (i) 5:00 p.m. (Toronto Time) on the date which is five Business Days after the date on which a receipt for the Prospectus is issued to the Corporation by the Ontario Securities Commission (the "OSC"); and (ii) 5:00 p.m. (Toronto Time) on the date which is the earlier of July 31, 1999 and the date which is ten Business Days following the date on which a notice is provided to the holder confirming the filing of a registration statement or preliminary -2- prospectus in respect of an initial public offering of the common shares of the Corporation in the United States of America for proceeds of at least $7,000,000 (Cdn.). The Common Share Warrant will provide, among other things, that the holder of the Common Share Warrant shall be entitled to subscribe for all or any part of a total of 100,000 Common Shares at a subscription price of $1.40 per share exercisable at any time up to the earlier of 5:00 p.m. (Toronto time): (i) on July 31, 1999; and (ii) the 10th business day following the date on which the Corporation delivers a notice to the Purchaser confirming it has filed a registration statement or preliminary prospectus for an initial public offering of shares of the Corporation in the United States for proceeds of at least $7,000,000. In this Agreement, the Common Shares issuable on the conversion of the Special Warrant and the Common Share Warrant are referred to collectively as the "Underlying Securities". In the event that the Corporation is unable to obtain a receipt for the Prospectus from the OSC, the Special Warrant, the Warrant, the Common Share Warrant, and the Underlying Securities may be subject to statutory resale restrictions under the applicable securities legislation of Ontario. 100% of the gross proceeds from the private placement of the Special Warrant and the Warrant shall be paid to the Corporation on the Closing Date (as defined below). All dollar amounts referred to herein are in Canadian dollars. 3. Payment The aggregate amount payable by the Purchaser in respect of the Special Warrant and the Warrant (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 Corporation. 4. Conditions of Closing As a condition of Closing (defined below): (a) the Corporation must obtain the approval of The Toronto Stock Exchange (the "TSE") in respect of the issue of the Special Warrant, the Warrant, the Common Share Warrant and the Underlying Securities and in respect of the listing of the Underlying Securities on the TSE. The Purchaser agrees to promptly execute and deliver the TSE Private Placement Questionnaire and Undertaking and all such other documents and other instruments as the TSE may require; (b) execution and delivery of the E-Commerce Agreement, the AOL Agreement and the Toronto Star Agreement; -3- (c) the Purchaser shall receive a favourable opinion from counsel for the Corporation as to matters the Purchaser may reasonably request. 5. Closing Delivery and payment for the Special Warrant and the Warrant will be completed (the "Closing") at the offices of counsel to the Corporation, Gowling, Strathy & Henderson, Suite 4900, Commerce Court West, Toronto, Ontario, M5L 1J3 at 11:00 am. (Toronto time) (the "Closing Time") on or before July 29, 1998 (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 will be forwarded to the Purchaser promptly after acceptance has been made. Certificates representing the Special Warrant (the "Special Warrant Certificate") and a certificate evidencing the Warrant (the "Warrant Certificate") will be available for delivery against payment of the Subscription Price in the manner specified above. 6. Representations, Warranties and Covenants of the Purchaser The Purchaser hereby represents, warrants and covenants to and with the Corporation (which representations, warranties and covenants shall survive Closing) that: (A) The distribution of the Special Warrant and the Warrant is being effected pursuant to the exemption from prospectus and registration requirements contained in Section 72(1)(d) and 35(1)5 of the Securities Act (Ontario) (the "Securities Act"). (B) 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 Warrant or the Warrant and the issuance is exempt from the prospectus and registration 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 it under the Securities Legislation; and (iii) the Corporation is relieved from certain obligations that would otherwise apply under the Securities Legislation; and (C) 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 -4- from a registered person other than the Corporation or an affiliate thereof, and is able to bear the economic loss of its investment. 7. Reliance Upon Representations, Warranties and Covenants The Purchaser acknowledges that the representations and warranties and covenants contained in this Agreement are made with the intent that they may be relied upon by the Corporation and counsel to, among other things, determine its eligibility or (if applicable) the eligibility of others on whose behalf it is contracting hereunder to purchase the Special Warrant and Warrant. The Purchaser further agrees that by accepting the Special Warrant and Warrant, 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 Special Warrant and Warrant and shall continue in full force and effect notwithstanding any subsequent disposition by it of the Special Warrant, the Warrant, the Common Share Warrant or the Underlying Securities, as the case may be. 8. Representations and Warranties of the Corporation The Corporation hereby represents, warrants and covenants to the Purchaser (which representations, warranties and covenants shall survive the issuance of the Common Shares) as follows and acknowledges that the Purchaser is relying upon such representations and warranties in entering into this Agreement and completing the transactions contemplated hereby: (a) the Corporation is a corporation amalgamated in Ontario and existing pursuant to the Business Corporations Act (Ontario) (the "Act"), is an offering corporation within the meaning of such term in the Act, and is in compliance with all applicable filing and reporting requirements of the Act; (b) the issued and outstanding Common Shares of the Corporation are listed and posted for trading on the TSE and the Corporation is in all respects in compliance with its listing agreement with the TSE and the bylaws and policies of the TSE applicable to the Corporation; (c) the Corporation is a reporting issuer within the meaning of such term in the Securities Act, is not on the list of defaulting reporting issuers maintained under the Securities Act, and is in compliance with all filing and reporting requirements of the Securities Act; and (d) as provided in Schedule I hereto. 9. Covenants of the Corporation (a) The Corporation undertakes to file or cause to be filed, at its sole expense, all forms or undertakings required to be filed by the Corporation in connection with this transaction so that the distribution of the Special Warrant and Warrant may -5- lawfully occur without the necessity of filing a prospectus or offering memorandum as described in the Regulation made under the Securities Act. (b) The Corporation will use its best commercial efforts to (a) qualify the distribution of the Common Share Warrant, and the Underlying Securities issuable upon the deemed exercise of the Special Warrant and the exercise of the Common Share Warrant by filing and obtaining a receipt for the Prospectus in accordance with securities legislation in Ontario on or before the day that is 130 days following the Closing Date; and (b) obtain a listing of the Underlying Securities as soon as practicable. (c) The Corporation shall not declare or pay any dividend or make any distribution in respect of the Common Shares. (d) On or prior to the Closing Date, the Corporation shall deliver to the Purchaser a copy of all correspondence with the TSE, the OSC or any other Governmental Agency (as defined in Exhibit "A") relating to the issuance of the Special Warrant, the Warrant, the Common Share Warrant and the Underlying Securities or to the listing of the Underlying Securities on the TSE. (e) The Corporation covenants and agrees that all Underlying Securities issuable upon the deemed exercise of the Special Warrant and the exercise of the Common Share Warrant will, upon issuance, be fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. (f) The Corporation covenants and agrees to use all reasonable efforts to: (i) preserve and maintain its corporate existence; and (ii) preserve and maintain its status as a reporting issuer, not in default in the Province of Ontario or any other jurisdiction in which it becomes a reporting issuer. (g) The Corporation shall, so long as the Special Warrant or the Warrant or the Common Share Warrant are outstanding, at all times ensure that there are sufficient number of Common Shares authorized to be issued upon the exercise or deemed exercise thereof to enable the Special Warrant, the Warrant and Common Share Warrant to be exercised or deemed to be exercised upon the basis and upon the terms and conditions herein provided; provided that nothing herein contained shall affect or restrict the right of the Corporation to issue Common Shares from time to time. 10. Costs -6- 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 purchase and sale of the Special Warrant and Warrant to the Purchaser shall be borne by the Purchaser. The Corporation shall be responsible for all costs associated with the issue of the Underlying Securities and the Common Share Warrant. The Corporation will also be responsible for all costs of qualifying the Common Share Warrant and the Common Shares issuable upon deemed exercise of the Special Warrant for sale to the public including the filing of a prospectus, any printing costs and costs of transfer agent. 11. Governing Law This Agreement is governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein. The Purchaser irrevocably attorns to the jurisdiction of the courts of the Province of Ontario. 12. Survival This 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 parties hereto notwithstanding the completion of the purchase of the Special Warrant and the Warrant by the Purchaser pursuant hereto and any subsequent disposition by the Purchaser of the Special Warrant, the Warrant, the Common Share Warrant or the Underlying Securities. 13. Assignment This Agreement is not transferable or assignable by the parties hereto. 14. Counterparts This 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. -7- 15. Schedules and Exhibits Schedule I (Representations and Warranties) and Exhibit "A" to Schedule I (Definitions) form part of this Agreement. 16. Subscription Particulars Subscription. One Warrant for a Common Share Warrant to acquire up to 100,000 Common Shares and a Special Warrant for 1,500,000 Common Shares, the aggregate price being $1,875,000. Registration. The Underlying Securities are to be registered in the name of: Rogers Media Inc. ---------------------- Delivery. This certificate representing the Underlying Securities are to be delivered to: (name) (address) (contact name and number) DATED July 29, 1998 Rogers Media Inc. ------------------ Name of Purchaser (please type or print) By: (Address of Purchaser) -8- 17. Acceptance ---------- The above subscription is hereby accepted and agreed to by the Corporation. DATED July 29, 1998. BID.COM INTERNATIONAL INC. By: ------------------------------------ Authorized Signing Officer SCHEDULE I ---------- SCHEDULE I REPRESENTATIONS AND WARRANTIES 1.1 Representations and Warranties of the Corporation. The Corporation hereby represents and warrants to the Purchaser as follows and acknowledges that the Purchaser is relying upon such representations and warranties in entering into this Agreement and completing the transactions contemplated hereby. The definitions contained in the main body of the Agreement and Exhibit A hereto form part of this Schedule I. 1.1.1 Corporate Matters (1) The Corporation and each of the Subsidiaries is a corporation duly incorporated, organized and validly existing in good standing under the laws of its jurisdiction of incorporation. None of the Corporation or the Subsidiaries (i) is an insolvent person within the meaning of The Bankruptcy Act (Canada), or (ii) has made any assignment for the benefit of its creditors or a proposal in bankruptcy. No proceedings have been taken or authorized by any of the Corporation, any Subsidiary or, to the best of the Corporation's knowledge, by any other Person with respect to the bankruptcy, insolvency, liquidation, dissolution or winding up of the Corporation or any of the Subsidiaries. (2) The Corporation has all necessary power and capacity to execute and deliver, and to observe and perform its covenants and obligations under this Agreement and the Closing Documents to which it is a party. The Corporation has taken all corporate action and caused all necessary shareholder action to authorize the execution and delivery of, and the observance and performance of its covenants and obligations under, this Agreement and the Closing Documents to which it is a party including, without limitation, the issuance and delivery of the Special Warrant, the Warrant, the Common Share Warrant and the issue of the Underlying Securities. (3) The Corporation and the Subsidiaries have all necessary power and authority to own or lease the Assets and to carry on the Business as carried on. The Corporation and the Subsidiaries possess all Licences material to the conduct of the Business. Neither the nature of the Business nor the location or character of any of the Assets requires any of the Corporation or the Subsidiaries to be registered, licensed or otherwise qualified as an extra-provincial or foreign corporation or to be in good standing in any jurisdiction other than jurisdictions where it is duly registered, licensed or otherwise qualified and in good standing for such purpose. (4) This Agreement has been, and each Closing Document to which the Corporation is a party will on Closing be, duly executed and delivered by the Corporation and this Agreement constitutes, and each Closing Document to which the Corporation is a party will on Closing constitute, a valid and binding obligation of the Corporation enforceable against the Corporation in accordance with its terms. -2- (5) A true copy of the Articles and by-laws of the Corporation each as amended to date and currently in effect have been delivered to the Purchaser by the Corporation. The Articles and by-laws of the Corporation constitute all of the constating documents and by-laws of the Corporation, are complete and correct and are in full force and effect and no amendments are being made to same. 1.1.2 Authorized and Issued Capital of the Corporation. The authorized capital of the Corporation consists of an unlimited number of Common Shares, of which approximately 22,000,000 common shares are outstanding as fully paid and non- assessable shares, an unlimited number of preference shares issuable in series, and an unlimited number of 7% cumulative preference shares. No preference shares are outstanding. Except as listed in Schedule D, no other Voting Securities, or Rights of the Corporation have been issued or are outstanding. 1.1.3 Options. Except as listed in Schedule D, no Person other than the Purchaser has any oral or written agreement, option, warrant, right, privilege or any other right capable of becoming any of the foregoing (whether legal, equitable, contractual or otherwise), for the purchase, subscription or issuance of any Voting Securities, securities convertible into voting securities, or Rights of the Corporation. True and complete copies of the agreements and other Rights disclosed in Schedule D have been provided to the Purchaser except for the Authority Agreement with Yorkton Securities Inc. dated July 9, 1998. The Corporation has no agreement or obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. All of the issued and outstanding shares of capital stock of the Corporation have been offered, issued and sold by the Corporation in compliance with Applicable Law. There are no pre-emptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of the Corporation's capital stock, other than rights to which the Purchaser is entitled as set forth in this Agreement and the Closing Documents. 1.1.4 Subsidiaries. The Corporation is the registered and beneficial owner of all of the issued and outstanding shares of each Subsidiary with good and valid title thereto, free and clear of all encumbrances. Neither the Corporation nor any Subsidiary holds or has agreed to acquire any shares, equity securities or other securities convertible into equity securities of, or ownership interests in, any Person. None of the Corporation or the Subsidiaries is or has agreed to become a partner, member, owner, proprietor or equity investor of or in any partnership, joint venture or other management or business association or to acquire or lease any other business operation. 1.1.5 Insurance. Each of the Corporation and the Subsidiaries maintains valid policies of insurance with respect to its properties and business of the kinds and in the amounts not less than is customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated. There is no default under any such policy, nor, to the knowledge of the Corporation, has any event occurred which with notice, lapse of time or both would constitute a material default thereunder. -3- 1.1.6 Financial Statements. The Audited Financial Statements and the Interim Financial Statements, true and complete copies of which have been provided to the Purchaser are attached as Schedule B: (1) have been prepared from and in accordance with the books and records of the Corporation and its Subsidiaries in accordance with Generally Accepted Accounting Principles (except as disclosed in the notes thereto) applied on a basis consistent with that of the preceding periods; (2) present fairly the assets, liabilities (whether accrued, absolute, contingent or otherwise) and financial condition of the Corporation and the Subsidiaries and the results of the operations of the Corporation and the Subsidiaries as at the date thereof and for the periods covered thereby; and (3) contain or reflect adequate reserves for all known or reasonably anticipated liabilities and obligations of the Corporation and the Subsidiaries of any nature, whether absolute, contingent or otherwise, as at the date thereof. No information has come to the attention of the Corporation that would render the Audited Financial Statements or the Interim Financial Statements incomplete or inaccurate in any material respect. 1.1.7 Undisclosed Liabilities. None of the Corporation or the Subsidiaries has any known or reasonably anticipated liabilities (whether accrued, absolute, contingent or otherwise) of any kind and whether due or to become due, except: (1) liabilities disclosed or provided for in the Audited Financial Statements; and (2) liabilities incurred in the ordinary course from and after the Financial Disclosure Date which are consistent with past practice, are not, in the aggregate, material and adverse to the Business, Assets, financial condition or results of operations of the Corporation and the Subsidiaries, and do not violate any covenant or obligation contained in this Agreement or constitute a breach of any representation or warranty made in or pursuant to this Agreement. 1.1.8 Absence of Changes. Since the Financial Disclosure Date; (1) The Corporation and each of the Subsidiaries has conducted the Business in the ordinary course, has not incurred any debt, obligation or liability out of the ordinary course or of an unusual or extraordinary nature and has used its best efforts to preserve the Business and the Assets; (2) the Corporation has not declared or paid any dividend or made any distribution in respect of any of its shares or repurchased, redeemed or otherwise acquired any of its securities; -4- (3) there has not been any change in the condition of the Business or the Assets or the financial condition or results of operations of any of the Corporation, the Subsidiaries or the Business other than changes in the ordinary course, and such changes have not, either individually or in the aggregate, been materially adverse or have had or may be reasonably expected to have, either before or after the Closing Time, a material adverse effect on the Business, the Assets or the future prospects of the Corporation, any of the Subsidiaries or the Business; and (4) to the best of the Corporation's knowledge, there has not been any change in, or creation of, any Applicable Law, any revocation of any Licence or any damage, destruction, loss, labour dispute or other event, development or condition of any character (whether or not covered by insurance) materially and adversely affecting the Corporation, any Subsidiary, the Business or the Assets or the future prospects of any of the Corporation, the Subsidiaries or the Business. 1.1.9 Tax Matters. The Corporation and each of the Subsidiaries has filed with all appropriate Governmental Agencies all Tax Returns within the times and in the manner prescribed by law and all tax returns are correct and complete in all material respects and no material fact has been omitted therefrom. The Corporation and each Subsidiary has paid all Taxes due and payable and has paid all installments, has collected or withheld all amounts required to be collected or withheld by it and has made all other remittances required to be made on account of Taxes payable by it. No Tax Return has been reassessed nor has there been any notice of reassessment by any taxing authority and there are no actions, audits, assessments, reassessments, suits, appeals, proceedings, investigations or claims now pending or, to the best of the Corporation's knowledge, threatened against the Corporation or any Subsidiary in respect of Taxes or governmental charges by any Governmental Agency relating to claims for additional Taxes or assessments with reference to any of the Corporation, the Subsidiaries, the Assets or the Business. There are no outstanding waivers of any limitation period or agreements providing for an extension of time during which any governmental agency may issue an assessment or re-assessment with respect to any Taxes owed by the Corporation or any Subsidiary. The provision for Taxes reflected in the Financial Statements is adequate for all Tax liabilities, whether or not yet due and payable and whether or not disputed or under appeal, for the periods covered by the Financial Statements and for all prior periods and none of the Corporation or the Subsidiaries has any liability for any Tax in respect thereof of any nature other than those described in the Financial Statements and those arising in the ordinary course since the Financial Disclosure Date. 1.1.10 Absence of Conflicting Agreements. None of the execution and delivery of, or the observance and performance by the Corporation of any covenant or obligation under this Agreement or any Closing Document to which it is a party including the issuance of the Special Warrant, the Warrant, the Common Share Warrant or the Underlying Securities or the Closing, contravenes or results in, or will contravene or result in, a material violation of or a material default under (with or without the giving of notice or lapse of time, or both), or in the acceleration of any material obligation under: -5- (1) any Applicable Law; (2) any Licence held by or for the Corporation, a Subsidiary or the Business; (3) the articles, by-laws, directors' or shareholders' resolutions of the Corporation or any Subsidiary; or (4) any other agreement, lease, mortgage, security document, obligation or instrument to which the Corporation or any Subsidiary is a party, or by which either is bound. The representation and warranty in Section 1.1.10(b) shall not apply to Generic Software. 1.1.11 Consents, Approvals, Etc. Subject to those Required Filings identified in Section 1.1.18, no consent, approval, Licence, Order or authorization, registration, declaration or filing with any Governmental Agency or other Person is required by the Corporation or any Subsidiary, or with respect to the Business, in connection with (a) the Closing or (b) the execution and delivery by the Corporation of, and the observance and performance by the Corporation of its obligations under, this Agreement and the Closing Documents to which it is a party. 1.1.12 Restrictions on Business. Other than statutory provisions and restrictions of general application to the Business, the Corporation or the Subsidiaries, none of the Corporation or any Subsidiary is a party to any agreement, lease, mortgage, security document, obligation or instrument, or subject to any restriction in its articles or by-laws or directors' or shareholders' resolutions or subject to any restriction imposed by any Governmental Agency or subject to any Applicable Law which could materially restrict or interfere with the conduct of the Business or which could materially limit or restrict or otherwise adversely affect the Assets or the financial condition of the Corporation on a consolidated basis. 1.1.13 Compliance with Applicable Law. Each of the Corporation and the Subsidiaries has conducted and is conducting the Business in compliance with all Applicable Law, and is not in breach of any Applicable Law except for breaches which in the aggregate are not material to the Corporation and the Subsidiaries. 1.1.14 Litigation. Except as disclosed in Schedule E, there is no claim, demand, suit, action, cause of action, dispute, proceeding, litigation, investigation, grievance, arbitration, governmental proceeding or other proceeding including appeals and applications for review, in progress against or relating to the Corporation or any Subsidiary or affecting the Common Shares, the Special Warrant, the Warrant, the Assets or the Business which, if determined adversely, would materially and adversely affect any of the Corporation, any Subsidiary, the Special Warrant, the Warrant, the Business or the Assets or the validity of the Agreement, any of the Common Shares or any of the Closing Documents, nor are any of the same pending or to the best of the knowledge of the Corporation threatened. There is not at present outstanding against the Corporation or any Subsidiary any Order that materially and adversely affects the -6- Corporation, any Subsidiary, the Business or the Assets in any way or that in any way relates to this Agreement or the transactions contemplated hereby. 1.1.15 Title to Properties. Except as disclosed in the Audited Financial Statements or the Interim Financial Statements, the Corporation and the Subsidiaries have good and marketable title to all of the Assets, free and clear of all Encumbrances. There is no agreement, option or other right or privilege outstanding in favour of any person for the purchase from the Corporation or a Subsidiary of the Business or any of the Assets, except in the ordinary course. Neither the Corporation nor any Subsidiary owns or has agreed or otherwise become committed to acquire real property. 1.1.16 No Expropriation. None of the Corporation or any Subsidiary has received any notice of expropriation of any of the Assets. The Corporation is not aware of any expropriation proceeding, pending or threatened against or affecting any of the Assets. 1.1.17 Licences. The only Licences necessary or desirable for the operation of the Business and the ownership of the Assets are listed in Schedule F and are in full force and effect unamended. the Corporation or each Subsidiary, as the case may be, is in compliance in all material respects with all the terms and conditions relating to such Licences and there are no proceedings in progress, or to the best of the knowledge of the Corporation, pending or threatened, which may result in revocation, cancellation, suspension or any adverse modification of any of such Licences. No Licence is void or voidable as a result of the completion of the transactions contemplated hereby or by the Closing Documents or the exercise or the deemed exercise of the Special Warrant or the Warrant or the Common Share Warrant nor is any consent or approval of any Person required to assure the continued validity and effectiveness of any Licence in connection with the purchase of the Special Warrant or the Warrant, this Agreement, any Closing Document or by the exercise of the Common Share Warrant or the transactions contemplated hereby or thereby. 1.1.18 Securities Legislation. The Corporation is a "reporting issuer" in Ontario and is not in default under applicable securities legislation in such province. In particular, without limiting the foregoing, the Corporation is in compliance with its obligations to make timely disclosure of all material changes relating to it and since the date hereof (other than in respect of material change reports filed on a confidential basis and thereafter made public or material change reports filed on a confidential basis and in respect of which the material change never came to fruition) no such disclosure has been made on a confidential basis and there is no material change relating to the Corporation which has occurred and with respect to which the requisite material change statement has not been filed, except to the extent that this Agreement constitutes a material change. The Corporation is not in default of any requirements of such securities legislation, and the issuance of the Special Warrant, the Warrant, the Common Share Warrant and the Underlying Securities to the Purchaser will be made in compliance with all applicable Canadian securities legislation. Subject to the filing of (i) a Form 27, Material Change Report (ii) Form 20, Report of a Trade under clause 72(1)(d) and (iii) a press release following the Closing (together, the "Required Filings"), the issuance of the Special Warrant, the Warrant, the Common Share Warrant and Underlying Securities to the Purchaser will not result in any -7- contravention of any applicable Canadian securities legislation or the regulations thereunder (subject to filings required on Warrant exercise). The issuance of the Special Warrant and the Warrant is exempt from the registration and prospectus requirements of securities legislation of the Province of Ontario and no prospectus will be required and no other document must be filed, proceeding taken or approval obtained in Ontario to permit the offering, issue, sale and delivery of the Special Warrant and the Warrant to the Purchaser or for the exercise of the Warrant other than the Required Filings. 1.1.19 Environmental Matters. To the best of the Corporation's knowledge: (1) The Corporation, each Subsidiary, the Business and the Assets are in full compliance with Applicable Law in respect of environmental matters and are not the subject of any remedial or control action or Order, or any investigation or evaluation as to whether any remedial or control action or Order is needed to respond to an actual or threatened release, discharge, deposit, emission or spill of any hazardous substance, pollutant or contaminant into the environment or any facility or structure; (2) Since the date of lease by the Corporation or a Subsidiary, no premises leased by the Corporation or any Subsidiary have been or are being used as a landfill or waste disposal site, nor has any hazardous substance or contaminant been deposited in or disposed of on, in or at such leased premises. (3) none of the Corporation or the Subsidiaries is or may be liable to any Person as a result of an actual or alleged release, discharge, deposit, emission or spill of any hazardous substance, contaminant or pollutant into the environment or any facility or structure, nor has there been any release, discharge, deposit, emission or spill of any hazardous substance, contaminant or pollutant into the environment or into any facility or structure, which is the subject of or, after the giving of notice or the lapse of time would give rise to, any claim, demand, suit, action, cause of action, dispute, proceeding or Order relating to the violation of Applicable Law in respect of environmental matters, nor is there any basis for any thereof being commenced; and (4) the Corporation and each Subsidiary has complied in all material respects with all environmental reporting and inspection requirements of all Governmental Agencies having jurisdiction over it. All pollution control equipment operated as part of the Business is effective in meeting applicable emissions limits and effluent pre-treatment standards. 1.1.20 Significant Shareholders. Except as set forth in Schedule G there are no loans, leases, licences, guarantees, contracts, transactions, understandings or other arrangements or any nature between the Corporation or any Subsidiary and any officer, director, of the Corporation or person not dealing with it at arm's length (within the meaning of The Income Tax Act (Canada)) or affiliate of the foregoing persons. All persons owning ten percent (10%) or more of the presently outstanding Common Shares to the knowledge of the Corporation, are listed as Schedule G. -8- 1.1.21 Material Contracts. Except as set forth in Schedule H and otherwise disclosed in this Agreement neither the Corporation nor any Subsidiary is a party or subject to or bound by: (1) any contract, lease or agreement creating any obligation of the Corporation or any Subsidiary to pay to any third party $200,000 or more with respect to any single such contract or agreement, except for purchase orders entered into in the ordinary course the existing contracts with America OnLine, Inc. and the Agreement and the E-Commerce Agreement; (2) any contract or agreement for the sale, license, lease or disposition of products in excess of $200,000; (3) any contract containing covenants directly or explicitly limiting the freedom of the Corporation or any Subsidiary to compete in any line of business or with any person or entity, except for the existing contracts with America OnLine, Inc., Toronto Star Newspapers Limited and the E- Commerce Agreement; (4) any license agreement (as licensor or licensee) other than Generic Software; (5) any contract or agreement or the purchase of any leasehold improvements, equipment or fixed assets for a price in excess of $200,000; (6) any indenture, mortgage, promissory note, loan agreement, guaranty or other agreement or commitment for borrowing in excess of $200,000 or any pledge or security arrangement except as disclosed in Schedule H; (7) any material joint venture, partnership, manufacturing, development or supply agreement; (8) any employment contracts, or agreements with officers, directors, employees or stockholders of the Corporation or any Subsidiary or persons or organizations related to or affiliated with any such persons; (9) any stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of the Corporation or any Subsidiary, including without limitation any agreement relating to the capital stock of the Corporation or any Subsidiary, including without limitation any agreement relating to anti-dilution rights, registration rights, voting arrangements, operating covenants or similar provisions; (10) any pension, profit sharing, retirement or stock option plans; (11) any royalty, dividend or similar arrangement based on the sales volume of the Corporation or any Subsidiary; (12) any acquisition, merger or similar agreement; or -9- (13) any other contract not executed in the ordinary course. All of such agreements and contracts are valid, binding and in full force and effect. Neither the Corporation nor any Subsidiary, nor, to the knowledge of the Corporation, any other party is in material default under any of such agreements or contracts (nor, to the knowledge of the Corporation, has any event occurred which with notice, lapse of time or both would constitute a material default thereunder), except to the extent that any such default would not have a material effect on the assets, liabilities, properties, business or prospects of the Corporation or any Subsidiary, and the Corporation or any Subsidiary, has not received notice of any alleged default under any such contract, or agreement. There is no written contract currently under negotiation by the Corporation which has not been disclosed to the Purchaser: (i) as to which the Corporation believes negotiations are substantially complete; and (ii) which, when entered into, could reasonably be expected to have a material affect on the condition (financial or otherwise), business, property, results of operations, assets or liabilities of the Corporation or the Subsidiary taken as a whole. 1.1.22 Intellectual Property Rights. (1) Rights Schedule J contains a true and complete list of all Intellectual Property Rights which have been registered, or for which applications for registration have been filed in any jurisdiction. (2) Ownership Except as set forth in Schedule I or "Permitted Encumbrances", and except for Generic Software, the Corporation is or at Closing will be the exclusive owner of the Technology and all right, title and interest in and to the Technology, free and clear of all Encumbrances, other than those Encumbrances arising in the ordinary course of Corporation's Business, and the Corporation has no knowledge of any claim of adverse ownership in any Technology. Except as previously disclosed to the Purchaser, the Corporation has not: (1) granted any third party a license or other right to any of the Intellectual Property Rights; or (2) made any contract or arrangement whereby it may be liable to pay any royalty or other compensation for the use of Intellectual Property Rights. (3) Validity -10- The Intellectual Property Rights are in good standing and to the best of the Corporation's knowledge have not been used or enforced or failed to be used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of any of the Intellectual Property Rights. All registrations and filings necessary to preserve the rights of the Corporation in and to the Intellectual Property Rights have been made. (4) Complete The Technology is sufficient and complete to enable the Corporation to carry on the Business as currently carried on and to perform its obligations under this Agreement and any related Closing Documents including the E-Commerce Agreement. (5) Infringements by Purchaser The representations, warranties and covenants contained in Section 9.1 of the E-Commerce Agreement, together with all defined terms used therein (for the purpose only of those representation, warranty and covenant), are hereby incorporated by reference herein and shall be deemed to form part of this Agreement; provided that references therein to "perform its obligations hereunder" shall be substituted by "carry on the Business" and references to "the performance of this Agreement" shall be substituted by "operation of the Business". (6) Licenses and Covenants Not to Sue The representations, warranties and covenants contained in Section 9.1 of the E-Commerce Agreement, together with all defined terms used therein (for the purpose only of those representation, warranty and covenant), are hereby incorporated by reference herein and shall be deemed to form part of this Agreement. (7) Third Party Infringements There are no infringements of, passing-off related to, or other interference with the Technology by third parties of which the Corporation has received notice (formal or informal) or is otherwise aware. (8) Protection of Confidentiality The Corporation and each Subsidiary has taken commercially reasonable precautions and made commercially reasonable efforts to protect its trade secrets and secure the confidentiality of its customer lists, and other proprietary information. 1.1.23 Major Suppliers and Customers. To the knowledge of the Corporation, no major supplier or customer has any intention to change its relationship with the Corporation or the -11- Subsidiaries. There has been no material interruption to or discontinuity in customer or supplier arrangements or relationships referred to in this Section. 1.1.24 Year 2000 Compliance. The representations, warranties and covenants contained in section 9.9 of the E-Commerce Agreement, together with all defined terms used therein (for the purpose only of those representation, warranty and covenant), are hereby incorporated by reference herein and shall be deemed to form part of this Agreement. 1.1.25 Material Change Reports. Since the Financial Disclosure Date, other than in respect of material change reports filed on a confidential basis and in respect of which the material change so reported did not come to fruition and other than this Agreement: (1) there has not been any material change in the assets, liabilities or obligations (absolute, accrued, contingent or otherwise) of the Corporation or its Subsidiaries which requires disclosure under applicable securities legislation and that has not been publicly disclosed; (2) there has not been any material change in the capital stock or long-term debt of the Corporation or its Subsidiaries which requires disclosure under applicable securities legislation and that has not been publicly disclosed; and (3) there has not been any material change in the business, business prospects, condition (financial or otherwise) or results of the operations of the Corporation or its Subsidiaries which requires disclosure under applicable securities legislation and that has not been publicly disclosed. 1.1.26 Information Record. No portion of the Corporation's Information Record contained a misrepresentation as at its date of public dissemination. 1.1.27 Reportable Disagreement. There has never been any reportable disagreement (within the meaning of National Policy Statement No. 31 of the Canadian Securities Administrators) with the present or any former auditor of the Corporation. 1.1.28 TSE. The Corporation shall use its best efforts exercised in a commercially reasonable manner to ensure that the Common Shares will continue to be listed on the TSE following the issue of the Underlying Securities. 1.1.29 Employees. None of the employees of the Corporation or any Subsidiary is represented by any labour union, and, to the best of the Corporation's knowledge, there is no labour strike or other labour trouble pending or threatened with respect to the Corporation or any Subsidiary (including, without limitation, any organizational drive). The Corporation has no written employment agreement with any employees who are also directors except as disclosed in Schedule H hereto. No payments have been made to officers or directors except in ordinary course and at regular rates payable to them, as approved by the Corporation's Compensation Committee. -12- 1.1.30 Disclosure. No representation or warranty of the Corporation in this Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make any such representation or warranty not misleading to a prospective buyer of the Common Shares, the Special Warrant or the Warrant seeking full information as to the Business and the Assets. Without limiting the scope of the foregoing, none of the Corporation or any Subsidiary is aware of any change, event or occurrence related to the Business that has taken place or is pending that has, or in the future would have, a material adverse effect on the value of the Common Shares, the Special Warrant, the Warrant, the Common Share Warrant, the Assets or the Business which is not the result of general industry trends. 1.2 Qualification of Representations and Warranties. The representations or warranties made by a Party under as to the enforceability of these agreements against such Party are subject to the following qualifications: (1) specific performance, injunctive relief and other equitable remedies are discretionary and, in particular, may not be available where damages are considered an adequate remedy; and (2) enforcement may be limited by bankruptcy, insolvency, liquidation, reorganization, reconstruction and other similar laws generally affecting enforceability of creditors' rights. 1.3 Survival of the Corporation's Representations, Warranties, Covenants and Agreements. All representations, warranties, covenants and agreements made by the Corporation in or pursuant to this Agreement shall survive the Closing as follows: (1) the representations and warranties set forth in Sections 1.1.1 to 1.1.4 inclusive, 1.1.9, 1.1.20, 1.1.22, 1.1.24, and 1.1.27 shall survive the Closing and continue without time limit; (2) all of the other representations and warranties contained in this Agreement or in any Closing Document shall survive only for a period equal to the later of the first anniversary of the Closing Date and the end of the expiration of any applicable hold period mandated by any securities regulatory authority exercising jurisdiction in respect of the Underlying Securities from the Closing Time. After such period, the Corporation shall not have any further liability hereunder with respect to such representations and warranties except with respect to claims properly made within such period; and (3) the covenants and agreements of the Corporation contained in this Agreement shall survive the Closing and continue in accordance with Applicable Law. EXHIBIT A --------- EXHIBIT "A" DEFINITIONS In this Agreement, unless the subject matter or context is inconsistent therewith: "Act" means the Business Corporations Act (Ontario) as amended or restated and any successor legislation of comparable effect; "Agreement" means this subscription agreement and all exhibits and schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof; "hereof", "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article", "Section", "Exhibit" or "Schedule" means and refers to the specified article, section, exhibit or schedule of this Agreement; "AOL Agreement" means the letter agreement dated as of July 29, 1998 among America Online, Inc. and the Purchaser; "Applicable Law" means any domestic or foreign statute, law, ordinance, rule, regulation, regulatory policy or guideline, by-law (zoning or otherwise) or Order that applies to the Corporation, the Subsidiaries, the Business, the way the Business is carried on or to the Common Shares, the Special Warrant or the Warrant; "Articles" means the articles of amalgamation of the Corporation dated January 9, 1997; "Assets" means all of the assets and undertaking of the Corporation and the Subsidiaries, both tangible and intangible, including goodwill; "Audited Financial Statements" means the audited consolidated balance sheet of the Corporation and the Subsidiaries as at December 31, 1997 and the audited consolidated statement of loss of the Corporation and its Subsidiaries for the year ended December 31, 1997. "Business" means collectively the businesses carried on by the Corporation and the Subsidiaries including the maintenance of an internet website under the URL www.bid.com which offers consumer products for sale via credit card transactions through an auction format; "Business Day" means any day of the week other than a Saturday, Sunday or statutory holiday or any other day on which banks are generally closed in Toronto, Ontario; "Closing Documents" means any document delivered at or subsequent to the Closing Time as provided in or pursuant to, this Agreement or the E-Commerce Agreement; "Common Shares" means common shares in the capital of the Corporation; -2- "E-Commerce Agreement" means the E-Commerce and Promotion Services Agreement dated as of July 28, 1998 between the Purchaser and the Corporation. "Encumbrance" means any encumbrance of any kind whatever and includes a security interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge, trust or deemed trust (whether contractual, statutory or otherwise arising), adverse claim, or any other option, right or claim of others of any kind whatever affecting the Assets, the Common Shares, the Special Warrant or the Warrant, as applicable and any restrictive covenant or other agreement, restriction or limitation (registered or unregistered) on the Assets, the Common Shares, the Special Warrant or Warrant, as applicable; "Financial Disclosure Date" means December 31, 1997; "Generally Accepted Accounting Principles" means generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which any calculation or determination is required to be made in accordance with generally accepted accounting principles, and where the Canadian Institute of Chartered Accountants includes a recommendation in its Handbook concerning the treatment of any accounting matter, such recommendation shall be regarded as the only generally accepted accounting principle applicable to the circumstances that it covers; "Generic Software" means off-the-shelf software which is readily substitutable by the Business with minimum cost or interruption to the Business; "Governmental Agency" means any domestic or foreign government whether federal, provincial, state or municipal and any governmental agency, authority, commission or instrumentality of any kind whatever; "Information Record" means any statement contained in any press release, material change report, financial statement or other document of the Corporation or any Subsidiary which has been or is publicly disseminated pursuant to any applicable securities laws prior to the Closing Time; "Intellectual Property Rights" means: (A) any and all proprietary rights of the Corporation or any Subsidiary provided under (i) patent law, (ii) copyright law, (iii) trade-mark law, (iv) design patent or industrial design law, (v) semi- conductor chip or mask work law, or (vi) any, other statutory provision or common law principle applicable to the Corporation, the Subsidiaries, the Business or Assets which may provide a right in either (a) ideas, formulae, algorithms, concepts, inventions or know-how generally, including trade law, or (b) the expression or use of such ideas, formulae, algorithm, concepts inventions or know-how; and (B) any and all applications, registrations, license, sub-licenses, franchise agreements or any other evidence of a right in any of the foregoing; -3- "Interim Financial Statements" means the unaudited consolidated balance sheet of the Corporation and its Subsidiaries as at March 31, 1998 and the unaudited consolidated statement of loss of the Corporation and its Subsidiaries for the 3 month period ended March 31, 1998; "Licence" means any licence, permit, approval, right, privilege, concession or franchise; "Order" means any order (draft or otherwise), judgment, injunction, decree, award or writ of any, court, tribunal, arbitrator, Governmental Agency or other Person; "ordinary course" when used in relation to the conduct by the Corporation and the Subsidiaries of the Business means any transaction which constitutes an ordinary day-to-day business activity of the Corporation and the Subsidiaries conducted in a commercially reasonable and businesslike manner consistent with the past practices of the Corporation and the Subsidiaries; "Permitted Encumbrances" means inchoate liens and all statutory liens, charges, obligations and encumbrances not required by law to be registered; "Parties" means the Corporation and the Purchaser collectively, and "Party" means any one of them; "Person" shall be broadly interpreted and includes an individual, body corporate, partnership, joint venture, trust, association, unincorporated organization, the Crown, any Governmental Agency or any other entity recognized by law; "Regulatory Filings" means all material and reports filed, or required to be filed, with applicable securities regulatory authorities and any stock exchange on which the securities of the relevant body corporate are listed; "Rights" means any options, rights, warrants or subscription privileges issued or granted by the Corporation (whether or not currently exercisable or exercisable on conditions) to purchase Voting Securities, Common Shares or any other equity securities of the Corporation; "Subsidiaries" means the bodies corporate listed in Schedule C, and "Subsidiary" means any one of them; "Taxes" means all federal, provincial, local, foreign or other taxes, imposts, rates, levies, assessments and Government fees or dues lawfully levied, assessed or imposed against the Corporation or the Subsidiaries or in respect of the Business, including income, premium, sales, excise, use, property, capital, goods and services, business transfer and value added taxes and custom and import duties and includes all interest, fines and penalties with respect thereto; "Tax Returns" means all reports and returns filed or required to be filed by the Corporation or the Subsidiaries in respect of Taxes; "Technical Information" means all right, title and interest in and to all know- how of the Corporation including -4- 1) all information of a scientific, technical or business nature whether in oral, written, graphic, machine readable, electronic or physical form; and 2) all patterns, plans, designs, research data, research plans, trade secrets and other proprietary know-how, processes, formulas, drawings, technology, computer software and related manuals, unpatented blue prints, flow sheets, equipment and parts lists, instructions, manuals, records and procedures; "Technology" means the Intellectual Property Rights and the Technical Information; "Toronto Star Agreement" means the letter agreement dated July 22, 1998 among Toronto Star Newspapers Limited and the Purchaser; "Voting Securities" means the Common Shares of the Corporation and all other securities of the Corporation of any kind or class having power to vote for the election of directors either under all circumstances or in certain circumstances or in certain events (whether such circumstances or events exist or have occurred). "Warrant" means the warrant to purchase 100,000 Common Shares to be issued hereunder to the Purchaser. EX-3.16 12 E-COMMERCE AND PROMOTIONAL SERVICES AGREEMENT Exhibit 3.16 E-Commerce and Promotion Services Agreement THIS AGREEMENT is made as of the 28th day of July, 1998 (the "Effective Date") by and between BID.COM INTERNATIONAL INC. ("BID.COM"), a corporation having a principal place of business at 5915 Airport Road, Suite 330, Mississauga, Ontario, L4V 1T1 and ROGERS MEDIA INC. ("Rogers"), a corporation having a place of business at 156 Front Street West, Suite 400, Toronto, Ontario M5J 2L6. BACKGROUND: 1. BID.COM has developed, and has all necessary rights in, certain electronic auction software, technology and services (collectively, the "BID.COM Technology", as that term is more fully defined below). 2. BID.COM uses the BID.COM Technology to operate an on-line auction service over the Internet provided at BID.COM's Web site found at the URL "www.bid.com" (the "E-Commerce Service", as that term is more fully defined below). 3. As more particularly described in this Agreement, BID.COM and Rogers wish to enter into an exclusive relationship whereby, in part, BID.COM shall operate the Canadian E-Commerce Service (defined below) in the Territory in accordance with the provisions of this Agreement, and Rogers shall have exclusive responsibility for the promotion of the Canadian E-Commerce Service. 4. BID.COM possesses all necessary intellectual property rights and other rights to enter into the relationship with Rogers described herein. NOW THEREFORE, in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows: ARTICLE ONE INTERPRETATION 1.1 Definitions. In this Agreement, unless the context otherwise requires, ------------ each capitalized term shall have the meaning indicated below. (1) "Above the Fold" means, in respect of a hyperlink, the ability of a user using a screen resolution of 640 by 480 pixels to view a hyperlink without having to scroll down the applicable Web page; (2) "Affiliate" means any person, corporation, or entity that controls, is controlled by or is under common control with a party, as the context indicates; (3) "Agreement" means this E-Commerce and Promotion Services Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof; (4) "BID.COM Marks" means the trade-marks, trade names, service marks, design marks, logos and other distinctive brand elements set out in Schedule "M" to this Agreement (as amended from time to time) owned by BID.COM or its Affiliates and used in association with the E-Commerce Service or the BID.COM Site (whether registered or not); (5) "BID.COM Site" means the Web site at which BID.COM operates the E-Commerce Service, currently found at the URL "www.bid.com"; (6) "BID.COM Technology" means: (i) all software (including cybermall software), hardware, firmware, trade secrets, and know-how used and/or developed by BID.COM or its Affiliates prior to and during the Term of this Agreement (and including all Intellectual Property Rights therein); and (ii) all Third Party Technology. BID.COM Technology includes, without limitation, all technology used to create, modify, operate, distribute, update, maintain and permit Internet access to the BID.COM Site, the E- Commerce Service and any other on-line auction services developed or offered by BID.COM, and all updates, modifications, revisions, additions, customizations and enhancements to the BID.COM Technology. The BID.COM Technology is more particularly described in Schedule "A", as may be amended and updated from time to time; (7) "Canadian BID.COM Site" means the pages of the BID.COM Site through which BID.COM operates the Canadian E-Commerce Service; (8) "Canadian E-Commerce Service" means an auction E-Commerce Service operated by BID.COM which sells products and services to retail customers who provide a billing address in the Territory (including, without limitation, "small office home office" customers ("SOHO")); (9) "Confidential Information" means all information relating to either party or to such party's business, products, sales, customers, trade secrets, technology or financial position to which access is obtained or granted hereunder, which is treated by the disclosing party as being confidential provided, however, that Confidential Information of the disclosing party shall not include any data or information which the receiving party can demonstrate: (i) is or becomes publicly available through no fault of the receiving party; (ii) is already in the rightful possession of the receiving party prior to its receipt from the other party; (iii) is independently developed by the receiving party; (iv) is rightfully obtained by the receiving party from a third party not subject to an obligation of confidentiality; 2 (v) is disclosed with the written consent of the disclosing party whose information it is; or (vi) is disclosed pursuant to court order or other legal compulsion, provided the receiving party gives the disclosing party prompt notice of any such requirement to afford the disclosing party an opportunity to obtain a protective order; (10) "Contra" means the provision of advertising and sponsorship space on the Canadian BID.COM Site to desired advertisers in return for the provision by such advertisers of useful content, promotion and advertising services, products, and other services for the Canadian E-Commerce Service; (11) "Customer Profile" means all information and data relating to a customer of the Canadian E-Commerce Service, including, without limitation: (i) name, address, e-mail address, telephone number, and any other personal or demographic information relating to such customer; (ii) all information and data relating to the purchase of goods and services by such customer; and (iii) any other information relating to such customer's behavior collected while such customer accesses the Canadian E-Commerce Service; (12) "Customer Service Standards" means the customer service performance standards to which BID.COM shall adhere in operating the Canadian E-Commerce Service hereunder, as set out in detail in Schedule "C" to this Agreement; (13) "E-Commerce Service" means the on-line auction services and any storefront on-line commerce services provided by or on behalf of BID.COM or its Affiliates on the Internet using the BID.COM Technology, at the BID.COM Site, or any other comparable on-line auction service which BID.COM or its Affiliates may directly or indirectly provide now or at some future time during the Term, using the BID.COM Technology or otherwise, which is similar in functionality and quality to the current services. Without limiting the generality of the foregoing, the E-Commerce Service includes, without limitation, the Canadian E-Commerce Service and the U.S. E-Commerce Service; (14) "Evaluation Period" means: (i) the period commencing on the Effective Date hereof and ending three years after the Effective Date; and (ii) each subsequent contiguous three year period following the previous Evaluation Period; (15) "Intellectual Property Rights" means (A) any and all proprietary rights provided under (i) patent law, (ii) copyright law, (iii) trade-mark law, (iv) design patent or industrial design law, (v) semi-conductor chip or mask work law, or (vi) any other statutory provision or common law principle applicable to this Agreement or the BID.COM Technology, including trade secret law, which may provide a right in either (a) ideas, formulae, algorithms, concepts, inventions or know-how generally, or (b) the expression or use of such ideas, formulae, algorithms, concepts, inventions or know-how; and (B) any and all applications, registrations, licenses, sub-licenses, franchises, agreements or any other evidence of a right in any of the foregoing; 3 (16) "Net E-Commerce Revenue" means the sum of: (i) revenue earned by BID.COM in connection with the operation of the Canadian E-Commerce Service (including all shipping costs paid by such retail customer to BID.COM), net of sales, use, goods and services, and other similar taxes imposed by any federal, provincial, municipal or other governmental authority; and (ii) revenue earned by BID.COM in connection with the purchase of products and services offered for sale by BID.COM to retail customers in the Territory as part of BID.COM's database marketing operations, and not through the Canadian E-Commerce Service (including all shipping costs paid by such retail customer to BID.COM), net of sales, use, goods and services, and other similar taxes imposed by any federal, provincial, municipal or other governmental authority, less cost of goods or services sold (as invoiced by the supplier of such products or services, but net of all taxes invoiced by such supplier), credit card transaction fees paid to or deducted by third parties, duties, the cost of shipping, and credits for returned goods, services or bad debts (including shipping and restocking costs, if applicable), calculated in accordance with generally accepted accounting principles applied in Canada on a consistent basis; (17) "Net Promotional Revenue" means revenue earned by Rogers from sales of advertising and sponsorship for the Canadian BID.COM Site, net of all taxes collected by Rogers on such revenue (including, without limitation, goods and services tax), agency commissions and bad debts. Net Promotional Revenue shall be calculated in accordance with generally accepted accounting principles applied in Canada on a consistent basis, provided that Net Promotional Revenue shall not include any value attributed by the parties to Contra; (18) "New Canadian Auction" means: (i) any business-to-business or other form of on-line auction in which both a buyer and a seller are located in the Territory; or (ii) any other business-to-business or other form of on-line auction in respect of which Rogers presents to BID.COM an analysis demonstrating that the business case in support of the operation of such on-line auction in the Territory is no less favourable than the business case supporting other on-line auction opportunities in which BID.COM has engaged in the Territory during the Term; (19) "Reasonable Best Efforts" means that a party shall comply with the obligation to which the covenant to use Reasonable Best Efforts applies in all cases where such party has the ultimate discretion, control and ability to do so, and that such party shall use commercially reasonable efforts to comply with such obligation in cases where such party does not have such ultimate discretion, control and ability; (20) "Rogers E-Commerce Portal" means an e-commerce Web site marketed by Rogers which aggregates an array of e-commerce content and services on-line; (21) "Rogers New Media" means the division of Rogers which develops and operates businesses on the Internet and which derives revenues from the sale of Internet advertising, Internet sponsorships, Internet subscriptions and from the completion of transactions on-line; 4 (22) "Rogers's Requirements" means the statement of the technical, operational, performance, process and functional specifications and capabilities of the BID.COM Technology, the Canadian BID.COM Site and the Canadian E-Commerce Service, as described in Schedule "B"; (23) "Source Code Materials" means: (i) a complete copy of the source code version of all software required to allow Rogers to independently operate, maintain and support the Canadian E-Commerce Service and the Canadian BID.COM Site in accordance with Rogers's Requirements, appropriately labeled to denote the version or release thereof, and the currency date thereof, in each of: (a) machine-readable form on machine-readable storage medium suitable for long term storage and compatible with the software as then being used by Rogers and which, when compiled, will produce the object code version of the software; and (b) human-readable form with annotations in English on bond paper suitable for long term archival storage; and (ii) a complete copy, in English, on bond paper, suitable for long term archival storage, and appropriately labeled to describe the contents thereof, of all applicable documentation and other explanatory materials including programmer's notes, technical or otherwise, for the software as may be required by Rogers, using a competent computer programmer possessing ordinary skills and experience, to further develop, maintain and operate such software without further recourse to BID.COM including, but not necessarily limited to, general flow-charts, input and output layouts, field descriptions, volumes and sort sequence, data dictionary, file layouts, processing requirements and calculation formula and the details of all algorithms; (24) "Term" shall have the meaning ascribed thereto in Section 7.1; (25) "Territory" means Canada as presently constituted; (26) "Third Party Technology" means all software (including cybermall software), hardware, firmware, trade secrets, and know-how licensed by BID.COM from third parties prior to and during the Term of this Agreement (and including all Intellectual Property Rights therein) including, without limitation, all third party technology used to create, modify, operate, distribute, update, maintain and permit Internet access to the BID.COM Site, the E- Commerce Service and any other on-line auction services developed or offered by BID.COM, and all updates, enhancements, modifications, revisions, additions, customizations and enhancements to the BID.COM Technology. The Third Party Technology is more particularly described in Schedule "A"; (27) "Torstar" means Toronto Star Newspapers Limited; 5 (28) "Transition Plan" means the process, procedures, time periods, and obligations of the parties upon termination or expiration of this Agreement, as set out in detail in Schedule "L" hereto; and (29) "U.S. E-Commerce Service" means an auction E-Commerce Service operated by BID.COM which sells products and services only to retail customers who provide a billing address in the United States (including, without limitation, SOHO customers). 1.2 Schedules. The following are the schedules attached to and forming part --------- of this Agreement: Schedule "A" - BID.COM Technology (including Third Party Technology) Schedule "B" - Rogers's Requirements Schedule "C" - Customer Service Standards Schedule "D" - Response Times Schedule "E" - Source Code Trust Agreement Schedule "F" - Site Activity Reporting Requirements Schedule "G" - Prohibited Products and Services Schedule "H" - Prohibited Rogers Assignees Schedule "I" - Net E-Commerce Revenue Reports Schedule "J" - Net Promotional Revenue Reports Schedule "K" - Rogers Performance Metrics Schedule "L" - Transition Plan Schedule "M" - BID.COM Marks Schedule "N" - Torstar Letter Schedule "O" - AOL Letter ARTICLE TWO OPERATION OF CANADIAN E-COMMERCE SERVICE 2.1 Operation of Canadian E-Commerce Service. BID.COM shall operate the ----------------------------------------- Canadian E-Commerce Service in accordance with the provisions of this Agreement. Except for those obligations which Rogers shall perform set out in Article 3 hereof, BID.COM shall be responsible for all aspects of operating the Canadian E-Commerce Service. Without limiting the generality of the foregoing, BID.COM shall, at its expense: (i) have sole responsibility for supplying the inventory of products and services which will be offered as part of the Canadian E-Commerce Service. At Rogers's request, BID.COM agrees to use commercially reasonable efforts to offer products and services supplied by Rogers as part of the Canadian E-Commerce Service. Rogers acknowledges and agrees that BID.COM shall maintain ultimate discretion with respect to the choice of products and services which will be included as part of the Canadian E-Commerce Service; provided, however, that BID.COM shall not offer any of the prohibited products or services identified in Schedule "G" hereto without the prior written consent of Rogers; 6 (ii) comply with Rogers's Requirements attached as Schedule "B" hereto; (iii) comply with the Customer Service Standards attached as Schedule "C" hereto; (iv) support and maintain the Canadian E-Commerce Service, the BID.COM Technology and the BID.COM Site in accordance with Schedule "D" hereto; (v) use commercially reasonable efforts to upgrade, enhance, and improve the Canadian E-Commerce Service, the BID.COM Technology and the BID.COM Site; (vi) be responsible for the fulfillment of all purchases of products and services sold through the Canadian E-Commerce Service; (vii) be responsible for the processing of all credit card purchases of products and services through the Canadian E-Commerce Service; (viii) comply with the site activity reporting requirements set out in Schedule "F" hereto; (ix) during each of the first three years of the Term, pay a minimum cash amount of [Confidential Information filed separately with the SEC] annually to Rogers to purchase the equivalent rate card value of advertising for the Canadian E-Commerce Service on a selection of media properties owned by Rogers and its Affiliates. Rogers will provide a report to BID.COM within thirty (30) days of the end of each calendar quarter during which BID.COM is obligated to make payment pursuant to this subsection 2.1(ix) summarizing the advertising purchased by Rogers pursuant to this subsection 2.1(ix). Unless otherwise mutually agreed by the parties in writing, BID.COM shall pay this amount in four (4) equal installments on the last day of each calendar quarter during the Term. The parties agree that Rogers shall not include the cash amount paid by BID.COM to Rogers pursuant to this subsection 2.1(ix) in the calculation of whether Rogers has fulfilled the performance metric set out in paragraph K.1(3)(i) of Schedule "K" hereto; (x) provide a complete list of all Customer Profiles to Rogers within thirty (30) days of the Effective Date, and thereafter provide Rogers with an updated list of all Customer Profiles on a calendar monthly basis; and (xi) work exclusively with Rogers to negotiate exclusive national arrangements with suppliers to supply products and services for the Canadian E-Commerce Service. 2.2 Equal Treatment. BID.COM represents, warrants and covenants that at ---------------- all times during the Term, it will perform its obligations set out in Section 2.1 and otherwise ensure that the Canadian E-Commerce Service is competitive to the U.S. E-Commerce Service. Without limiting the generality of the foregoing, BID.COM shall ensure that, unless Rogers otherwise agrees: 7 (i) the BID.COM Technology used in the operation of the Canadian E-Commerce Service shall at all times be identical to the BID.COM Technology used in the U.S. E-Commerce Service; (ii) all updates, enhancements, modifications, improvements, and new features owned by BID.COM or any Affiliate of BID.COM and incorporated into the U.S. E-Commerce Service during the Term (including, without limitation, new GUIs, branding and other creative material incorporated into the U.S. E-Commerce Service) are incorporated into the Canadian E-Commerce Service. For updates, enhancements, modifications, improvements, and new features incorporated into the U.S. E-Commerce Service during the Term but not owned by BID.COM or any Affiliate of BID.COM ("Third Party Enhancements"), BID.COM shall use Reasonable Best Efforts to obtain all rights necessary to incorporate such Third Party Enhancements into the Canadian E-Commerce Service. BID.COM shall comply with the obligations set out in this subsection 2.2(ii) as soon as commercially practicable, provided that the time for performance of BID.COM's obligations set out in this subsection 2.2(ii) shall not exceed ninety (90) days without the prior written consent of Rogers, which consent will not be unreasonably withheld; (iii) the Customer Service Standards to which BID.COM adheres in its operation of the Canadian E-Commerce Service are equal to the Customer Service Standards to which BID.COM adheres in its operation of the U.S. E- Commerce Service; (iv) BID.COM supports and maintains the Canadian E-Commerce Service at a level and with a priority that is equal to the level at which it maintains the U.S. E-Commerce Service; (v) the products and services offered as part of the Canadian E-Commerce Service are comparable to the products and services offered as part of the U.S. E-Commerce Service with respect to quality and proportionate quantity (based on the relative volume of traffic on the Canadian E- Commerce Service and the U.S. E-Commerce Service). In addition, unless otherwise mutually agreed in accordance with the process set out in Article 10 of this Agreement, BID.COM shall offer a minimum of five (5) categories of products and services as part of the Canadian E-Commerce Service, and shall ensure that the selection of products and services offered as part of the Canadian E-Commerce Service is competitive to the selection of products and services available through any comparable Canadian on-line auction; and (vi) the database of Customer Profiles is equal in quality, accuracy, completeness and integrity to the database of customer profiles for the U.S. E-Commerce Service. 2.3 Exclusivity to Rogers. ---------------------- (i) During the Term hereof, neither BID.COM nor any Affiliate of BID.COM may, directly or indirectly, use, operate, distribute, sell, licence, market, promote, offer, or grant to any third party any right to use, operate, distribute, sell, licence, market, promote, or offer: 8 (a) all or any part of the BID.COM Technology, the BID.COM Site or the E- Commerce Service in the Territory; (b) any BID.COM Mark or any trade-mark confusingly similar to any BID.COM Mark in the Territory, provided that BID.COM may use the BID.COM Marks to the extent permitted by and in accordance with the specifications set out in the marketing strategy and trade-mark guidelines for such use mutually agreed to by the parties; or (c) any business-to-retail consumer on-line auction service in which either or both of the participating businesses and the participating consumers are located in the Territory, except as expressly contemplated in this Agreement, without the prior written consent of Rogers, which consent will not be unreasonably withheld. For greater certainty, the parties acknowledge that nothing in this subsection 2.3(i) shall preclude BID.COM from using or operating the BID.COM Technology, the BID.COM Site or the E-Commerce Service in the Territory in connection with BID.COM's operations outside of the Territory. (ii) Exceptions. Notwithstanding the foregoing, Rogers acknowledges that Rogers's rights of exclusivity in this Section 2.3 shall be subject to the existing contractual arrangement between BID.COM and Torstar, as amended by Schedule "N" hereto. BID.COM represents, warrants and covenants that: (a) the performance by BID.COM and Rogers of their respective rights and obligations as set out in this Agreement shall not contravene, breach or infringe any rights granted by BID.COM to Torstar; (b) BID.COM has not granted any right to Torstar to use any BID.COM Marks; (c) the rights granted to Torstar are restricted to the right to sell products and services offered by charitable organizations, community organizations and retail stores with operations in Ontario to retail customers with a billing address inside of Ontario; (d) BID.COM shall not, directly or indirectly, extend, enhance, expand or enlarge the scope of the rights granted to Torstar without Rogers's prior written consent; and (e) the services provided by BID.COM to Torstar during the Term hereof shall be restricted to the licence, operation, support and maintenance of the BID.COM Technology. Without limiting the generality of the foregoing, BID.COM covenants that, during the Term, it shall not assist Torstar with the marketing of Torstar's on-line auction nor with the sourcing of products and services for sale through Torstar's on-line auction. 9 (iii) America Online, Inc. Rogers acknowledges that BID.COM has entered into an agreement with America Online, Inc. ("AOL") dated November 1, 1997 (the "AOL Agreement"). BID.COM represents, warrants and covenants that: (a) the terms and conditions set out in the AOL Agreement do not apply to the Canadian E-Commerce Service or the Canadian BID.COM Site; (b) the rights granted to AOL in the AOL Agreement do not include any rights in the Territory, except to the extent that AOL may, in the exercise of its rights set out in the AOL Agreement, engage in activity in the Territory in connection with AOL's operations outside of the Territory; (c) BID.COM has not granted to AOL any right to sell advertisements or sponsorship for the Canadian BID.COM Site; (d) BID.COM has not granted to AOL any right to use the BID.COM Technology to establish, operate or maintain an on-line auction service for purchasers with a billing address in Canada; (e) the letter attached as Schedule "O" hereto has been executed by an executive of AOL with authority to bind AOL; and (f) BID.COM shall not renew, amend or enter into any new agreement with AOL which relates to the use, operation, distribution, sale, licence, marketing, promotion, or other offer of the BID.COM Technology, the E-Commerce Service, the BID.COM Marks or the BID.COM Site in the Territory without Rogers's prior written consent. (iv) Non-Profit Support. Notwithstanding the foregoing, Rogers acknowledges that BID.COM currently provides assistance to the following organizations in the hosting, production and promotion of their Web sites: Recording Artists Against Drinking and Driving, Students Against Drinking and Driving, Ontario Community Council on Impaired Driving, Association of Campus Hospitality Managers, and BACCHUS and their affiliates (collectively, the "Charities"). Rogers agrees that such assistance shall not constitute a breach of BID.COM's obligations of exclusivity to Rogers hereunder. BID.COM agrees that it shall consult with Rogers prior to expanding the scope of the services it provides for the Charities and prior to providing similar services for any other registered charities. 2.4 Right to Participate in Additional On-Line Auction Initiatives. During the --------------------------------------------------------------- Term, BID.COM shall make available to Rogers, and Rogers shall have the first right to participate in, any New Canadian Auction on an exclusive basis as follows: (i) BID.COM shall provide written notice to Rogers specifying the major terms and conditions which BID.COM proposes shall apply to Rogers's right to participate with 10 BID.COM in the operation of such New Canadian Auction. The terms proposed by BID.COM shall be reasonable, consistent with this Agreement and consistent with industry standards; (ii) Rogers shall provide written notice to BID.COM of whether or not it wishes to exercise its right to participate with BID.COM in the operation of such New Canadian Auction within fourteen (14) days of the date Rogers receives the notice referred to in subsection 2.4(i). If Rogers does not respond to BID.COM within such fourteen (14) day period, Rogers shall be deemed to have rejected its option to participate in such New Canadian Auction pursuant to subsection 2.4(v) and BID.COM shall be governed by the provisions of subsection 2.4(vi); (iii) if Rogers provides written notice to BID.COM that it wishes to exercise its right to participate with BID.COM in the operation of such New Canadian Auction in accordance with subsection 2.4(ii), then, for a period of up to sixty (60) days following the date upon which Rogers receives the notice referred to in subsection 2.4(i), Rogers and BID.COM shall negotiate exclusively respecting the terms upon which Rogers shall be entitled to participate with BID.COM in the operation of such New Canadian Auction. The parties may extend this sixty (60) day exclusive negotiating period upon mutual agreement; (iv) if Rogers and BID.COM agree in writing upon terms and conditions pursuant to which Rogers shall participate with BID.COM in the operation of such New Canadian Auction, then BID.COM shall grant to Rogers such exclusive rights; (v) if Rogers and BID.COM fail to agree in writing upon terms and conditions pursuant to which Rogers shall participate with BID.COM in the operation of such New Canadian Auction, or if Rogers notifies BID.COM in writing that it does not wish to exercise its right to participate with BID.COM in the operation of such New Canadian Auction, then Rogers shall be deemed to have rejected its option; and (vi) if Rogers is deemed to have rejected its option to participate with BID.COM in the operation of such New Canadian Auction in accordance with subsection 2.4(v), BID.COM may either: (1) operate such New Canadian Auction on its own; or (2) grant the right to participate in the operation of such New Canadian Auction to a third party on terms and conditions no more favourable than those offered to Rogers, provided that BID.COM may not grant such rights to a third party later than one hundred and eighty (180) days after the date that Rogers is deemed to have rejected its option to participate with BID.COM in the operation of such New Canadian Auction without Rogers's prior written consent. If BID.COM wishes to grant to a third party the right to participate with BID.COM on an exclusive basis in the operation of such New Canadian Auction on terms and conditions which are more favourable than those offered to Rogers, BID.COM must first offer such more favourable terms to Rogers on an exclusive basis, and the parties shall again attempt to negotiate the right to participate with BID.COM on an exclusive basis in the operation of such New Canadian Auction in accordance with the procedure provided in this Section 2.4. 11 ARTICLE THREE PROMOTION OF CANADIAN E-COMMERCE SERVICE 3.1 Promotion and Advertising of the Canadian E-Commerce Service. BID.COM ------------------------------------------------------------- grants to Rogers the exclusive, worldwide right to advertise and promote the Canadian E-Commerce Service. Rogers will have responsibility for the purchase of all advertising and promotional activity in connection with the Canadian E- Commerce Service in both electronic and traditional media. Rogers shall, at its expense, use Reasonable Best Efforts to prominently display the BID.COM Marks and to prominently advertise the Canadian E-Commerce Service on Rogers's national media properties (including, but not limited to, Yahoo! Canada). Such Reasonable Best Efforts shall include efforts to: (i) facilitate the integration of the Canadian E-Commerce Service with Rogers's media properties and other communications products and services; (ii) display a user interface to the Canadian E-Commerce Service Above the Fold on the home page of the Rogers E-Commerce Portal, and frequently and prominently display the BID.COM Marks Above the Fold on other Rogers on-line properties; (iii) point such key words as "auction" and "online auction" only to the Canadian E-Commerce Service; and (iv) thread advertisements for the Canadian E-Commerce Service throughout the Rogers E-Commerce Portal and on other Web sites operated by Rogers. The equivalent rate card value of the performance by Rogers of the covenants set out in this Section 3.1 shall be included in the calculation of Rogers's actual performance for the purpose of evaluating whether Rogers has achieved the performance metrics set out in Schedule "K". 3.2 Sale of Advertising for the Canadian E-Commerce Service. -------------------------------------------------------- (i) Right to Sell Advertising. BID.COM grants to Rogers the exclusive right to sell all advertising and sponsorship for the Canadian E-Commerce Service. Rogers shall be responsible for generating advertising and sponsorship revenues from the Canadian BID.COM Site, including the sale of banner advertisements on the Canadian BID.COM Site and the sale of sponsorships to specific auctions within the Canadian E-Commerce Service. Notwithstanding the foregoing, Rogers agrees that, if BID.COM requests that Rogers sell advertising to advertisers or advertising sales agents in order to assist BID.COM with the merchandising of the Canadian E-Commerce Service, Rogers will reasonably consider and pursue such advertising opportunities. Any revenue earned by Rogers from advertising sales made by Rogers as a result of such requests by BID.COM shall be included in the calculation of Net Promotional Revenue. 12 (ii) Contra and Free Advertising. Rogers shall be entitled to place Contra and free advertising on the Canadian BID.COM Site in its sole discretion, provided that the total amount of free advertising and Contra allocated in each year during the Term may not exceed: (a) [Confidential Information filed separately with the SEC] of the total advertising inventory available on the Canadian BID.COM Site during each year of the first Evaluation Period; and (b) [Confidential Information filed separately with the SEC] of the total advertising inventory available on the Canadian BID.COM Site during each subsequent year, without the prior consent of BID.COM. For the purposes of this subsection, the first "year" shall commence on the Effective Date and each subsequent year shall commence on each anniversary of the Effective Date. 3.3 Rogers E-Commerce Portal. Rogers shall have the right, in its ------------------------- sole discretion, to create, operate, distribute, and promote user interfaces to the Canadian E-Commerce Service from the Rogers E-Commerce Portal. 3.4 Licence of BID.COM Marks. BID.COM grants to Rogers an exclusive, worldwide ------------------------- right to use, copy, display, and distribute the BID.COM Marks in connection with the advertising, marketing and promotion of the Canadian E-Commerce Service and in connection with the operation of the Rogers E-Commerce Portal in accordance with the terms of this Agreement. Such use shall include the right to use the BID.COM Marks as part of a co-brand with a trade-mark, trade name, design mark, logo or tag line owned or licenced by Rogers (a "Rogers Co-brand"). BID.COM shall have opportunity to contribute to the selection of any such Rogers Co- brand; provided, however, that Rogers shall maintain ultimate discretion with respect to the choice of any Rogers Co-brand. 3.5 Exclusivity to BID.COM. ----------------------- (i) During the Term of this Agreement, Rogers agrees that: (a) except as otherwise permitted in accordance with subsections 3.5(ii) and 3.5(iii) below, the Canadian E-Commerce Service shall be the only on-line auction service displayed on the home page of the Rogers E- Commerce Portal; and (b) Rogers New Media shall use Reasonable Best Efforts not to actively solicit advertising from or actively promote an on-line auction technology or Web site competitive to the Canadian E-Commerce Service or the BID.COM Technology (a "BID.COM Competitor"). Without limiting the generality of the foregoing, in the event that any Rogers media property independently receives advertising from a BID.COM Competitor, at BID.COM's request, Rogers will place advertising for the Canadian E-Commerce Service in Rogers's media properties to provide 13 advertising exposure comparable to that provided to such BID.COM Competitor. The cost of such advertising shall be included in the calculation of the amount spent by Rogers in order to meet the performance metric set out in paragraph K.1(3)(i) of Schedule "K". The amount deemed to be spent by Rogers pursuant to this paragraph 3.5(i)(b) shall be equal to [Confidential Information filed separately with the SEC] of Rogers's standard rate card price. (ii) Exceptions. Notwithstanding the foregoing, BID.COM acknowledges that Rogers shall have the unrestricted right to advertise, market, promote, and operate an on-line auction which is limited to the sale of products and services offered by charitable organizations, community organizations and retail stores with operations in Ontario to customers with a billing address inside of Ontario (a "Local Auction") using technology other than the BID.COM Technology. At Rogers's request, BID.COM will provide services to assist Rogers to build, implement and operate such Local Auction on terms and conditions to be mutually agreed. (iii) Nothing in this Agreement shall restrict, inhibit or otherwise interfere with: (a) the ability of Rogers (including, without limitation, Rogers New Media) or any Affiliate of Rogers to sell advertising to any third party including, without limitation, a BID.COM Competitor; (b) the ability of Rogers (including, without limitation, Rogers New Media) to advertise, distribute, offer, market or promote the on-line activities of any Affiliate of Rogers (including, without limitation, The Shopping Channel), on the home page of the Rogers E-Commerce Portal or otherwise; or (c) the ability of any Affiliate of Rogers (including, without limitation, The Shopping Channel), to engage in on-line activities which may be competitive to those of BID.COM, use technology which may be competitive to the BID.COM Technology, or enter into any commercial arrangement with any BID.COM Competitor. ARTICLE FOUR ADDITIONAL SERVICES 4.1 Future Rogers Initiatives. During the Term of this Agreement, Rogers -------------------------- agrees to use commercially reasonable efforts to facilitate the use of the BID.COM Technology by Rogers and its Affiliates in connection with any future Rogers on-line auction initiatives. BID.COM will licence the BID.COM Technology and provide related services to Rogers and its Affiliates [Confidential Information filed separately with the SEC]. 4.2 Rogers-Specific Enhancements. If Rogers requests the inclusion of specific ----------------------------- functionality or customization changes to the BID.COM Technology (a "Rogers- Specific Enhancement"), BID.COM will use commercially reasonable efforts to assist Rogers in the 14 development of such Rogers-Specific Enhancements. Ownership of Rogers-Specific Enhancements shall be determined in accordance with Section 6.3 hereof. ARTICLE FIVE PAYMENT TERMS 5.1 Allocation of Revenue. ---------------------- (i) BID.COM shall pay Rogers fifty percent (50%) of the Net E-Commerce Revenue. BID.COM shall invoice and collect all Net E-Commerce Revenue. Net E-Commerce Revenue shall be aggregated on a calendar quarterly basis, and BID.COM shall pay Rogers fifty percent (50%) of the Net E-Commerce Revenue within thirty (30) days of the end of each calendar quarter. For greater certainty, BID.COM agrees that it shall not deduct any portion of the Net E-Commerce Revenue payable by BID.COM to a third party (including, without limitation, any portion payable to Torstar or to AOL) from the calculation of the total Net E-Commerce Revenue of which BID.COM shall pay Rogers fifty percent (50%). BID.COM shall complete a Net E-Commerce Revenue Report in the form attached hereto as Schedule "I" for each applicable payment period and shall remit each such report along with each payment due hereunder. (ii) Rogers shall pay BID.COM fifty percent (50%) of the Net Promotional Revenue. Rogers shall invoice and collect all Net Promotional Revenue. Net Promotional Revenue shall be aggregated on a calendar quarterly basis, and Rogers shall pay BID.COM fifty percent (50%) of the Net Promotional Revenue within thirty (30) days of the end of each calendar quarter. Rogers shall complete a Net Promotional Revenue Report in the form attached hereto as Schedule "J" for each applicable payment period and shall remit each such report along with each payment due hereunder. 5.2 Audit. Rogers shall keep accurate books and records of all revenues ------ received by Rogers and all information regarding deductions made to calculate Net Promotional Revenues. BID.COM shall keep accurate books and records of all revenues received by BID.COM and all information regarding deductions made to calculate Net E-Commerce Revenues. Each party has the right, acting reasonably, to audit the books and records of the other party during normal business hours in respect of financial obligations under this Agreement. If such audit discloses underpayment by the other party, the other party shall pay such underpayment forthwith, together with interest from the date the payment was due until such amount is paid. If an audit discloses an underpayment of 5% or more, the party in default shall reimburse the other party on demand for the reasonable out of pocket costs incurred in conducting such audit. 5.3 Most Favoured Terms. BID.COM represents, warrants, and covenants that: -------------------- 15 (i) the prices, terms and conditions contained in this Agreement are at least as favourable as the prices, terms and conditions made available by BID.COM to any other party who has entered into a commercial transaction with BID.COM relating to the operation of a business-to-retail customer E- Commerce Service in the Territory; and (ii) between the Effective Date and August 31, 1998, BID.COM shall not grant to any third party prices, terms or conditions more favourable than those contained in the Share Subscription Agreement between BID.COM and Rogers dated July 28, 1998 (the "Share Subscription Agreement"). Without limiting the generality of the foregoing, in the event that BID.COM enters into a similar commercial transaction with a third party relating to the operation of a business-to-retail customer E-Commerce Service in the Territory on prices, terms or conditions that are more favourable than the prices, terms and conditions made available to Rogers hereunder, or grants to any third party prices, terms or conditions more favourable than those contained in the Share Subscription Agreement between the Effective Date and August 31, 1998, then BID.COM agrees to make such more favourable prices, terms or conditions available to Rogers. Rogers may, in its sole discretion, retain an independent third party auditor to audit the books and records of BID.COM in order to verify BID.COM's compliance with this representation, warranty and covenant. ARTICLE SIX OWNERSHIP RIGHTS 6.1 Rogers Intellectual Property and Customer Profiles. --------------------------------------------------- (i) Rogers Intellectual Property. Notwithstanding Section 6.2 hereof, Rogers and BID.COM each agree that all right, title and interest in all content, technology, software, and other intellectual property owned or created entirely by Rogers, its licensors or its assignees, including, without limitation, all Intellectual Property Rights therein, and all modifications, revisions, additions, customizations and enhancements made by Rogers hereunder related thereto, shall be owned by Rogers (and its licensors, as the case may be). (ii) Customer Profiles. BID.COM acknowledges that ownership of the Customer Profiles shall at all times remain with Rogers, and BID.COM assigns all right, title and interest in and to such Customer Profiles to Rogers. Except as otherwise expressly permitted hereunder, BID.COM shall not use any Customer Profiles other than in the performance of its obligations under this Agreement. Notwithstanding the foregoing, Rogers acknowledges and agrees that BID.COM shall have the unrestricted right to retain and use information: (a) received by BID.COM from customers of the Canadian E- Commerce Service prior to the Effective Date; or (b) provided to BID.COM during the Term by customers of the Canadian E-Commerce Service as a result of a special voluntary registration process with BID.COM, and not as a result of the purchase by such customer of products or services from the Canadian E-Commerce Service. 16 6.2 BID.COM Intellectual Property, BID.COM Marks and BID.COM URL. ------------------------------------------------------------- (i) BID.COM Intellectual Property. Subject to Sections 6.1 and 6.3 hereof, Rogers acknowledges that ownership of the BID.COM Technology, the BID.COM Site and any customization or enhancements as used in the Canadian E- Commerce Service shall remain with BID.COM. (ii) BID.COM Marks and BID.COM URL. Rogers acknowledges that ownership of the BID.COM Marks and the BID.COM URL shall remain with BID.COM. 6.3 Rogers-Specific Enhancements. If Rogers requests that BID.COM develop a ----------------------------- Rogers-Specific Enhancement, the parties will mutually agree in writing to terms and conditions respecting the development of such Rogers-Specific Enhancement, including, without limitation, terms and conditions relating to each parties' respective ownership and exploitation rights in such Rogers-Specific Enhancement. The parties acknowledge and agree that their respective ownership and exploitation rights in each Rogers-Specific Enhancement shall be determined in accordance with the following principles: (i) if a Rogers-Specific Enhancement can be used as a severable, standalone component, then Rogers shall own all right, title and interest in and to such Rogers-Specific Enhancement, and BID.COM shall be granted perpetual, royalty-free license rights to use and reproduce such Rogers-Specific Enhancement internally, provided that BID.COM may not transfer or license such Rogers-Specific Enhancement to any third party (other than its Affiliates) without the prior written consent of Rogers; (ii) if a Rogers-Specific Enhancement is integrated into the BID.COM Technology, the BID.COM Site or the Canadian E-Commerce Service in such a way that it cannot reasonably be used as a severable, standalone component, then BID.COM shall own all right, title and interest in and to such Rogers-Specific Enhancement, and Rogers shall be granted perpetual, royalty-free license rights to use and reproduce such Rogers-Specific Enhancement internally, provided that Rogers may not transfer or license such Rogers-Specific Enhancement to any third party (other than its Affiliates) without the prior written consent of BID.COM; and (iii) notwithstanding anything else in this Agreement, BID.COM shall not use any Rogers-Specific Enhancement to provide services or technology to any competitor to Rogers, nor sub-licence any Rogers-Specific Enhancement to any competitor to Rogers, without the prior written consent of Rogers. ARTICLE SEVEN TERM, TERMINATION AND TRANSITION 17 7.1 Term. This Agreement shall commence on the Effective Date and shall ----- continue unless and until terminated in accordance with the provisions hereof. 7.2 Reporting. Within thirty (30) days of: (i) the one-year anniversary of the ---------- Effective Date; and (ii) each one-year anniversary thereafter, Rogers shall provide a report to BID.COM summarizing Rogers's performance statistics based on the categories of performance metrics set out in Schedule "K" hereto. 7.3 Termination by BID.COM. If, during any Evaluation Period, Rogers fails to ----------------------- meet the performance requirements set out in Schedule "K", BID.COM may, at its option, elect to terminate this Agreement upon thirty (30) days written notice to Rogers, provided that, to be effective, BID.COM must exercise the option to terminate set out in this Section 7.3 within sixty (60) days of receipt by BID.COM of the report provided by Rogers pursuant to Section 7.2 hereof. 7.4 Termination by Rogers. Rogers may terminate this Agreement at any time ---------------------- upon ninety (90) days advance written notice to BID.COM. In the event that Rogers terminates this Agreement other than as a result of a breach by BID.COM of this Agreement, the following terms shall apply in addition to those set out in Schedule "L": (i) BID.COM shall have a perpetual, non-exclusive license to use all Customer Profiles; and (ii) at BID.COM's request, Rogers shall maintain the user interface for the Canadian E-Commerce Service on the Rogers E-Commerce Portal for a period of up to ninety (90) days from the effective date of such termination. 7.5 Transition. Upon the termination of this Agreement, the parties shall ----------- comply with the applicable portion of the Transition Plan, and each party will bear its respective costs incurred in respect of such transition. 7.6 Survival. Except as otherwise provided herein, the terms of Article 1, --------- Section 5.2, Section 5.3, Article 6, Article 7, Article 9, and Article 11 shall survive any termination or expiry of this Agreement and shall continue in force thereafter for the period contemplated by the Agreement. Other provisions of this Agreement which, by the nature of the rights or obligations set out therein, might reasonably be expected to be intended to so survive, shall survive termination or expiry of this Agreement until they are satisfied or by their nature expire. ARTICLE EIGHT APPOINTMENT TO BOARD OF DIRECTORS BID.COM hereby covenants with Rogers to use its Reasonable Best Efforts to forthwith cause one nominee of Rogers to be appointed to the board of directors of BID.COM to hold office as a director until the next annual meeting of the shareholders of BID.COM and to recommend that a 18 nominee of Rogers be elected as a director at each annual meeting of the shareholders of BID.COM during the Term of this Agreement. ARTICLE NINE REPRESENTATIONS, WARRANTIES AND INDEMNITIES 9.1 Warranty and Indemnity re: Authority, Title and Proprietary Rights. -------------------------------------------------------------------- (i) BID.COM represents, warrants and covenants that it has all Intellectual Property Rights and other rights necessary to perform its obligations hereunder including, without limitation, the right to operate the BID.COM Technology, the BID.COM Site and the Canadian E-Commerce Service, and that the execution and performance of the terms of this Agreement by BID.COM and Rogers shall not in any manner interfere with, infringe, breach, contravene, harm, or damage any rights or interests of any other person, including without limitation any Intellectual Property Rights, moral rights (or the equivalent or comparable rights in any other jurisdiction), personality rights, confidentiality rights, equitable rights or statutory rights whatsoever. (ii) BID.COM agrees to defend, indemnify and hold harmless Rogers, its Affiliates, and their respective officers, directors, employees and agents from all losses, claims, damages or liabilities, including court costs and legal fees, incurred in connection with or arising out of any claim asserted against Rogers based upon a contention that the E-Commerce Service, the BID.COM Technology, the BID.COM Site, the BID.COM Marks, the Customer Profiles, or any portion thereof infringe the Intellectual Property Rights of any third party provided that: (a) Rogers or its Affiliates promptly notify BID.COM in writing of the claim and of all material developments in connection with such claim and provides all assistance otherwise reasonably requested by BID.COM; (b) BID.COM has the right to control, at its own expense, the defence and all related settlement negotiations (Rogers has the right to participate at its own expense); (c) Rogers or its Affiliates do not pay or settle any such claim without the express written consent of BID.COM; and (d) the claim in respect of which indemnity is sought does not arise out of or in connection with any unauthorized use of the BID.COM Technology by Rogers. In addition, if the E-Commerce Service, the BID.COM Technology, the BID.COM Site, the BID.COM Marks, the Customer Profiles, or any portion thereof is held to constitute an infringement of another person's rights, and use thereof is enjoined, or BID.COM 19 enters into a settlement of the claim which includes an agreement to refrain from the use thereof, BID.COM shall, at its election and expense, either: (1) procure the right to use the infringing element thereof; (2) procure the right to an element which performs the same function without any material loss of functionality; or (3) replace or modify the element thereof so that the infringing portion is no longer infringing and still performs the same function without any material loss of functionality; and shall make every reasonable effort to correct the situation with minimal effect upon the operations of Rogers and its Affiliates. 9.2 General Limitation on Liability. UNDER NO CIRCUMSTANCES WILL EITHER -------------------------------- PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) ARISING FROM BREACH OF THE AGREEMENT, THE USE OR INABILITY TO USE THE BID.COM TECHNOLOGY, THE BID.COM SITE, THE BID.COM MARKS, THE CUSTOMER PROFILES, OR THE CANADIAN E-COMMERCE SERVICE, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT BID.COM WILL REMAIN LIABLE TO ROGERS TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SUBSECTION 9.1(ii) ABOVE. EXCEPT AS PROVIDED IN SUBSECTION 9.1(ii), NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR MORE THAN [Confidential Information filed separately with the SEC] PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY. 9.3 Requirements of the Canadian E-Commerce Service. BID.COM represents, ------------------------------------------------ warrants and covenants that the Canadian E-Commerce Service, the BID.COM Technology and the BID.COM Site shall perform in conformance with Rogers's Requirements therefor, provided that BID.COM shall have no liability for performance failures due to events or causes beyond its reasonable control or due to changes made by Rogers without the prior written approval of BID.COM. 9.4 Disabling Device. BID.COM represents, warrants and covenants that the ----------------- BID.COM Site, any software, BID.COM Technology, Customer Profiles and other deliverables provided hereunder shall not contain any virus, clock, timer, counter, bomb, trojan horse, worm, or other limiting or disabling code, design or routine that would cause the BID.COM Site, any software, BID.COM Technology, Customer Profiles or other deliverables to be made inoperable or otherwise rendered incapable of performing in accordance with Rogers's Requirements or 20 otherwise limit or restrict Rogers's or its Affiliates' ability to use same after the lapse or occurrence of any triggering prompt. 9.5 Media. BID.COM represents and warrants that the media on which any ------ BID.COM Technology, Customer Profiles or other software is provided shall be compatible to the greatest extent possible with the majority of industry standard browsers and that the media, as supplied by BID.COM, shall be free from defects and computer viruses. 9.6 Representations and Warranties re: Services. BID.COM agrees that it shall -------------------------------------------- perform all of its obligations hereunder in a timely fashion and in a professional manner by personnel appropriately trained in the performance of such obligations. Response times shall be as outlined in Schedule "D". If BID.COM does not meet the response time requirements for a severity (1) or severity (2) event and such failure is not due to an event beyond the reasonable control of BID.COM, Rogers shall have the right to insist that its own engineers and designers assist BID.COM's personnel at BID.COM's premises to rectify the problem and BID.COM shall co-operate fully in this process. 9.7 Provision of Source Code Materials. Rogers may subscribe, at its own ----------------------------------- expense, to the existing Source Code Escrow Agreement attached as Schedule "E" and deposited with Data Securities International, Inc. (the "Escrow Agreement"). BID.COM shall deposit updated Source Code Materials as required by Section 1.7 of the Escrow Agreement. In addition to the requirements set out in Section 1.7 of the Escrow Agreement, BID.COM shall deposit updated, current Source Code Materials with Data Securities International, Inc. on a calendar quarterly basis. The parties agree that in addition to the "Release Conditions" specified in Section 4.1 of the Escrow Agreement, a further Release Condition shall exist if BID.COM is in continuing material breach of this Agreement. Upon the release of the Source Code Materials to Rogers in accordance with the Escrow Agreement, Rogers shall have a perpetual, worldwide, royalty-fee licence to use, copy, and modify the Source Code Materials and to permit third parties to use, copy and modify the Source Code Materials for purposes solely related to the use, operation and distribution of the Canadian E-Commerce Service and the Canadian BID.COM Site by Rogers in the Territory and in accordance with the provisions of this Agreement. 9.8 Confidentiality. Each party (hereinafter in this Section, the "Receiving ---------------- Party") covenants with the other party (hereinafter in this Section, the "Disclosing Party") that it shall keep confidential the Confidential Information of the Disclosing Party to which the Receiving Party obtains access as a consequence of entering into this Agreement and that it will take all reasonable precautions to protect such Confidential Information from any use, disclosure or copying except as expressly authorized by this Agreement. The Receiving Party shall implement such procedures as the Disclosing Party may reasonably require from time to time to improve the security of the Confidential Information of the Disclosing Party in its possession. This Section shall survive the termination of the Agreement. Upon termination of this Agreement, the Receiving Party shall, at the choice of the Disclosing Party, either return to the Disclosing Party or destroy all copies or partial copies of Confidential Information of the Disclosing Party in any 21 form which is in the possession of the Receiving Party or under its control, and certify that all such Confidential Information has been returned or otherwise destroyed. 9.9 Year 2000 Compliance. BID.COM represents, warrants and covenants that --------------------- all BID.COM Technology other than the Third Party Technology, the Canadian E- Commerce Service, the BID.COM Site, and all other software, hardware, firmware, and other technology used by BID.COM in performing its obligations hereunder shall be able to accurately process date data including, but not limited to, calculating, comparing, and sequencing from, into, and between the twentieth and twenty-first centuries, including leap year calculations, and are fully capable of operating as required to accommodate the year 2000 and beyond (the "Year 2000 Warranty"). With respect to the Third Party Technology, BID.COM represents, warrants and covenants that it shall make appropriate inquiries to satisfy itself that such Third Party Technology shall comply with the Year 2000 Warranty. BID.COM shall use Reasonable Best Efforts to repair or replace any Third Party Technology which does not comply with the Year 2000 Warranty to the extent necessary to ensure that the Canadian E-Commerce Service and the BID.COM Site comply with the Year 2000 Warranty. 9.10 Compliance With Laws. Each party represents, warrants and covenants that --------------------- its performance of this Agreement shall comply with (and shall neither contravene, breach nor infringe) any laws or regulations of Canada or any laws or regulations of any province or territory of Canada (including, without limitation, all laws respecting the protection of personal information). 9.11 Limitation on Warranties. Except for those warranties otherwise provided ------------------------- herein, neither party makes any warranties or representations, and there are no conditions, express or implied, in fact or in law, including without limitation, the implied warranties or conditions of merchantable quality and fitness for a particular purpose and those arising by statute or otherwise in law or from a course of dealing or usage of trade. ARTICLE TEN CONTRACT MANAGEMENT AND DISPUTE RESOLUTION 10.1 Contract Governance. The parties agree to utilize the process set out in -------------------- this Article 10 to consult and render decisions relating to this Agreement, including, but not limited to, the following matters: (i) the number, frequency and cost of loss leader promotions; (ii) the use by BID.COM of the BID.COM Marks in the Territory; (iii) the co-ordination of BID.COM's investor relations and public relations strategies; 22 (iv) the compliance by BID.COM with the covenant set out in subsection 2.2(v) of this Agreement; (v) the sale by Rogers of advertising to advertisers and advertising agents identified by BID.COM in order to assist BID.COM with its merchandising of the Canadian E-Commerce Service; (vi) the overall operating plans, business plans, budgets and revenue strategies for the Canadian E-Commerce Service, including the relative emphasis to be placed on Net Promotional Revenue earnings and Net E- Commerce Revenue earnings; (vii) the terms and conditions relating to the introduction and operation of New Canadian Auctions; (viii) the development and ownership of Rogers-Specific Enhancements; and (ix) the effectiveness of Rogers's advertising sales, marketing and promotional activities. Unless otherwise mutually agreed, the parties shall meet to discuss the above issues no less frequently than once every calendar quarter. Unless otherwise agreed, all decisions relating to the above matters shall require the mutual written agreement of the parties. 10.2 Contacts and Contact Meetings. The parties agree that each shall ------------------------------ designate no more than two (2) principal contacts for day-to-day liaison and management of the relationship during the Term ("Contacts"). Unless otherwise mutually agreed, the Contacts shall meet on a regular basis in person or by telephone, but in any event no less than once per month, in order to review the parties' respective performance under this Agreement, discuss relevant issues, and resolve or, upon mutual agreement, escalate issues as necessary. The Contacts shall not have any authority or right to either amend or revise this Agreement, nor to waive any obligations, duties or responsibilities of either party under this Agreement. Each party shall pay its own costs associated with its respective Contacts. 10.3 Joint Management Committee. BID.COM and Rogers shall form a management --------------------------- committee (the "Committee") composed of two or more senior representatives of BID.COM and two or more senior representatives of Rogers who shall, from time to time, meet to review and discuss matters related to this Agreement. The number of representatives of Rogers and BID.COM on the Committee shall at all times be equal. The Committee in its discretion may invite the participation of the Contacts or others in its deliberations. The Committee shall have the right to implement the Agreement and make decisions of an interpretive nature (including without limitation decisions regarding issues to be put before the Committee as set forth herein), but the Committee shall not have the authority or right to either amend or revise this Agreement, or to waive any obligations, duties or responsibilities of either party under this Agreement. Each party shall pay its own costs associated with its respective Committee representatives. 23 10.4 Dispute Resolution and Applicable Law. BID.COM and Rogers expressly agree -------------------------------------- to the following exclusive internal dispute escalation provisions governing all performance and disputes under this Agreement: (i) In the event that BID.COM and Rogers cannot resolve a dispute under the Agreement in the normal course of performance (including through recourse to the Contacts), then each party's designated Committee members shall confer immediately and use reasonable efforts to resolve the dispute within fifteen (15) days of their initial conference. No dispute shall be considered resolved until both parties have agreed to the resolution in writing. The designated Committee members shall mutually agree on the methods by which they attempt to resolve any dispute such as, for example, telephone and/or video conferences, e-mail and fax communications, and/or face to face meetings. The costs under this subsection 10.4(i) shall be shared equally by the parties. (ii) In the event that each party's designated Committee members cannot resolve a dispute under the Agreement as specified in subsection 10.4(i) above, then each party's respective Presidents (or an equivalent or higher position) having responsibility for this Agreement shall confer immediately and use reasonable efforts to resolve the dispute within fifteen (15) days of their initial conference. No dispute shall be considered resolved until both parties have agreed to the resolution in writing. The respective Presidents (or equivalents) shall mutually agree on the methods by which they attempt to resolve any dispute such as, for example, telephone and/or video conferences, e-mail and fax communications, and/or face to face meetings. The costs under this subsection 10.4(ii) shall be shared equally by the parties. (iii) In the event that each party's respective Presidents (or equivalents) cannot resolve a dispute under the Agreement as specified in subsection 10.4(ii) above, then the parties shall each be free to submit the dispute to arbitration in accordance with Section 10.5 hereof. 10.5 Arbitration. Other than with respect to one party's violation or alleged ------------ violation of the other party's (or its licensors') Intellectual Property Rights or a breach of the confidentiality provisions of this Agreement, any dispute, disagreement, controversy or claim arising out of or relating to this Agreement that cannot be resolved by the parties pursuant to the provisions of Section 10.4 including, without limitation, any dispute relating to its application, interpretation, performance, breach, termination, enforcement or damages, or remedies arising out of the breach of or non-compliance therewith, shall be finally determined by arbitration before a single arbitrator to be commenced and conducted in the English language in Toronto in accordance with the Arbitration Act (Ontario). All arbitration proceedings shall be conducted in private and all documentation and information pertaining to any arbitration shall be Confidential Information. The parties hereto agree that: (i) subject to mutual agreement between the parties to the contrary, the arbitrator shall be a person who is legally trained and trained as a professional arbitrator and who has a minimum of five (5) years experience in the Internet and electronic commerce; 24 (ii) the parties shall agree on the identity of the arbitrator within ten (10) days of notice of reference to arbitration and in default thereof, either party may apply to a Judge of the Supreme Court of Ontario, General Division, to appoint an arbitrator with the foregoing qualifications; (iii) the parties shall be required to make written submissions to the arbitrator within seven (7) days of appointment and shall not be entitled to make verbal representations or further submissions unless so requested by the arbitrator. Any party who does not comply with the foregoing time period shall not be entitled to make any submissions without the written approval of the other party; (iv) the arbitrator shall be required to render his decision in writing within ten (10) days of the period mentioned in subsection 10.5(iii); (v) neither of the parties shall apply to the Courts of Ontario or any other jurisdiction to attempt to enjoin, delay, impede or otherwise interfere with or limit the scope of the arbitration or the powers of the arbitrator provided for in the Arbitration Act (Ontario); (vi) the award of the arbitrator shall be a final and conclusive award and judgment with respect to all matters properly before the arbitral tribunal in accordance with the Arbitration Act (Ontario) and neither party shall appeal such award in any manner whatever to any court, tribunal or other authority; and (vii) the award of the arbitral tribunal may be entered and enforced by any court in any jurisdiction having jurisdiction over the parties hereto or the subject matter of the award or the properties or assets of either of the parties hereto. Notwithstanding the submission of any dispute to arbitration under this Agreement, the parties shall continue to cooperate and act in good faith to perform their respective obligations under this Agreement during any such arbitration. ARTICLE ELEVEN GENERAL 11.1 Notice. Any notice or other communication (a "Notice") required or ------- permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (i) delivered in person during normal business hours on a business day and left with a receptionist or other responsible employee of the relevant party at the applicable address set forth below; (ii) sent by prepaid first class mail; or 25 (iii) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to Rogers addressed to it at: Rogers Media Inc. 156 Front Street West Suite 400 Toronto, Ontario M5J 2L6 Attention: Mr. Mike Abramsky President, New Media Fax No.: (416) 340-6541 with a copy to: Rogers Communications Inc. 333 Bloor Street East 10th Floor Toronto, Ontario Attention: David P. Miller Vice President, General Counsel Fax No.: (416) 935- 3548 and in the case of a Notice to BID.COM addressed to it at: BID.COM International Inc. 5915 Airport Road., Suite 330 Mississauga, Ontario L4V 1T1 Attention: Paul Godin Fax No.: (905) 672-7514 with a copy to: 26 Gowling, Strathy & Henderson Barristers & Solicitors Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: David Pamenter Fax No.: (416) 862-7661 Any Notice given or made in accordance with this Section 11.1 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; (b) on the fifth business day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a business day and, if not, then on the first business day after the sending thereof. Either party may from time to time change its address for notice by giving Notice to the other party in accordance with the provisions of this Section 11.1. 11.2 Assignment. Except as otherwise permitted by this Section 11.2, neither ----------- party may assign its rights and obligations under this Agreement, in whole or in part, without the prior consent in writing of the other party, and any purported assignment made without that consent is void and of no effect (save and except for an assignment as an incident of security taken in a normal course financing transaction). Notwithstanding the foregoing, Rogers may assign its rights and obligations under this Agreement, in whole or in part, to: (i) any Affiliate; or (ii) a joint venture in which Rogers has an interest with any party or parties other than those listed in Schedule "H" hereto, without the prior written consent of BID.COM, provided that such assignee shall agree to be bound by the terms and conditions of this Agreement to the extent that such terms and conditions are assigned to such assignee. 11.3 Binding on Successors. This Agreement shall enure to the benefit of and be ---------------------- binding upon the parties and their respective successors and permitted assigns. 11.4 Further Assurances. Each party agrees that upon the written request of the ------------------- other party, it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other 27 party hereto may from time to time reasonably request be done and/or executed as may be necessary or desirable to give effect to this Agreement. 11.5 Independent Contractors. It is understood and agreed that in giving effect ------------------------ to this Agreement, no party shall be or be deemed a partner, agent or employee of another party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the parties. No party shall have the right to enter into contracts or pledge the credit of or incur expenses of liabilities on behalf of the other party. 11.6 Waiver. A waiver by a party hereto of any of its rights hereunder or of ------- the performance by the other party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations so waived. No waiver shall be effective or binding upon a party unless the same shall be expressed in writing and executed by the party to be bound. 11.7 Entire Agreement. This Agreement, and any agreements and other documents ----------------- to be delivered pursuant to it, constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, oral or written between the parties. The execution of this Agreement has not been induced by, nor do either of the parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgments not expressly made in this Agreement or in the agreements and other documents to be delivered pursuant hereto. 11.8 Currency. Unless otherwise indicated, all dollar amounts referred to in --------- this Agreement are in Canadian funds. 11.9 Invalidity. If in any jurisdiction a provision contained in this Agreement ----------- is found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein, or of such provision in any other jurisdiction shall not be affected or impaired thereby. 11.10 No Announcement. Except as required by applicable law, neither party ---------------- shall, in any manner, disclose, advertise or publish the terms of, or any information concerning, this Agreement without the prior written consent of the other party. 11.11 Regulatory Requirements. Notwithstanding any provisions herein to the ------------------------ contrary, the obligations, duties and covenants of Rogers shall be subject to all present and future laws and regulations in Canada concerning telecommunications content and access, the rulings or decisions of the Canadian Radio-television and Telecommunications Commission ("CRTC"), and all policies or rules that are either promulgated or formally adopted by the CRTC. Any act or omission of Rogers that is inconsistent with the provisions of this Agreement in order to make such act or omission consistent with any such laws, regulations, rulings, decisions, policies or 28 rules shall not constitute Rogers in breach, infringement or contravention of this Agreement, provided that Rogers promptly gives BID.COM notice of the need to conform such act or omission to law. If any such laws, regulations, rulings, decisions, policies or rules require that the parties make a material change to the terms and conditions of this Agreement, the parties will use commercially reasonable efforts to negotiate a mutually acceptable amendment to this Agreement. If the parties are unable to negotiate a mutually acceptable amendment, then this Agreement shall terminate and neither party shall have any liability to the other, other than liability for payment obligations which have accrued prior to the effective date of such termination. 11.12 Compliance With Law. Each party shall, in the performance of this -------------------- Agreement, fully comply with, and abide by, all laws, regulations, regulatory rulings or directives, court orders, and decisions of administrative tribunals of competent jurisdiction, that may, in any manner or extent, concern, govern, or affect either party's respective performance of, and obligations under, this Agreement. 11.13 Interpretation. This Agreement has been negotiated by the parties hereto --------------- and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which party drafted the Agreement being applied in favor or against either party. 11.14 Effective Date. This Agreement shall not become a valid and binding --------------- contract unless and until each party has duly executed and delivered two copies of this Agreement. For greater certainty, there shall be no agreement, whether oral, written, express, implied or otherwise notwithstanding any performance between the parties concerning the subject matter of this document, including, without limitation, by course of conduct, doctrine of part performance, or otherwise. 11.15 Amendment. No amendment of any provision of this Agreement shall be ---------- effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by two authorized signing officers of Rogers and an authorized officer of BID.COM. For greater certainty, the parties acknowledge and agree that no representations, warranties, conditions, covenants or other statements or commitments, whether made orally, in writing, by course of conduct or otherwise, and whether made prior to the Effective Date of this Agreement or thereafter, shall be binding on either of the parties. 11.16 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 and shall be treated, in all respects, as an Ontario contract. The parties hereby: (i) irrevocably submit to the exclusive jurisdiction of the courts of Ontario in respect of the subject matter hereof; (ii) consent to service of process being effected upon the other party by registered mail sent to the address set forth in Section 11.1 hereof; (iii) agree not to seek, request, claim or pursue trial by jury; and (iv) agree not to seek, request, claim or pursue any right, claim, or entitlement to any punitive or exemplary damages whatsoever. 29 IN WITNESS WHEREOF this Agreement is executed by the parties as of the Effective Date. BID.COM INTERNATIONAL INC. By:_____________________________ By:______________________________ (Duly Authorized Officer) (Duly Authorized Officer) ROGERS MEDIA INC. By:_____________________________ By:______________________________ (Duly Authorized Officer) (Duly Authorized Officer) 30 SCHEDULE "A" BID.COM Technology (including Third Party Technology)
ILI Bid.com Modules - -------------------------------------------------------------------------------------------------------- Databases: [Confidential Information filed separately with the SEC] Business Services: [Confidential Information filed separately with the SEC] Data Services: [Confidential Information filed separately with the SEC] Dynamic Export: [Confidential Information filed separately with the SEC] Order Processing Administrator: [Confidential Information filed Credit Card: separately with the SEC] Order Business Services: Utilities: Category Builder: [Confidential Information filed AdrotatorGenerator separately with the SEC] AssetMgmt: DB Services: Notification: Supporting S/W: [Confidential Information filed separately with the SEC] Web: [Confidential Information filed separately with the SEC] ILI Bid.com Modules (Dutch) - -------------------------- Business Services: [Confidential Information filed separately with the SEC] Data Services: [Confidential Information filed separately with the SEC] Dutch Server: [Confidential Information filed separately with the SEC] Dutch Client: [Confidential Information filed separately with the SEC] Internet Web: [Confidential Information filed separately with the SEC] Admin Web: [Confidential Information filed separately with the SEC]
Top Bid Auction --------------- [Confidential Information filed separately with the SEC] Dutch Auction ------------- [Confidential Information filed separately with the SEC] Bid.Com Commerce Site List Of Third Party Tools Incorporated Into Application [Confidential Information filed separately with the SEC] SCHEDULE "B" Rogers's Requirements B.1 Preparation and Delivery of Rogers's Requirements. Rogers and BID.COM covenant and agree to negotiate in good faith to execute an amendment to this Agreement (the "Amendment") with thirty (30) days of the Effective Date in order to complete this Schedule "B" in a manner acceptable to both parties. The Amendment shall contain detailed performance requirements and specifications for the Canadian BID.COM Site, the Canadian E-Commerce Service and the BID.COM Technology. Without limiting the generality of the foregoing, the Amendment shall include: (a) performance metrics relating to the quality of the user experience on the Canadian BID.COM Site; (b) a description of the required functional capabilities and performance specifications for the Canadian E-Commerce Service and the BID.COM Technology; (c) minimum availability and up-time requirements for the Canadian BID.COM Site and the Canadian E-Commerce Service; (d) technical and operational requirements relating to the serving of advertisements for the Canadian BID.COM Site; and (e) other technical, operational and functional specifications mutually agreed by the parties. B.2 Escalation. In the event that the Amendment has not been executed within thirty (30) days of the Effective Date, the Committee shall review disputes and use its good faith efforts to complete the Amendment within an additional thirty (30) day period. If the Amendment has not been completed within such additional thirty (30) day period, outstanding disputes or issues relating to the Amendment shall be submitted to dispute resolution in accordance with Section 10.4 of this Agreement. SCHEDULE "C" Customer Service Standards BID.COM shall, at a minimum, comply with the following customer service standards in its operation of the Canadian E-Commerce Service: C.1 Logistics BID.COM shall: 1. appoint the equivalent of one full-time employee to provide online customer service; 2. receive and respond to email and customer inquiries within one (1) business day of receipt; 3. install a toll free phone line and communicate the toll free phone number in the online "Customer Service" area of the Canadian BID.COM Site; 4. ensure the ability to handle customer service volumes in excess of 25% to 50% of average daily order volumes; 5. monitor the Canadian E-Commerce Service to minimize and/or eliminate out of stock merchandise; 6. post all customer service policies in an online "Customer Service" area of the Canadian BID.COM Site which includes the following information and policies: shipping information, return policies, product warranties and contact information; and 7. post security and privacy policies in an online "Customer Service" area of the Canadian BID.COM Site. C.2 Process and Fulfillment In fulfilling purchases by customers of the Canadian E-Commerce Service, BID.COM shall: 1. process electronic orders within one (1) business day of receipt; 2. provide customers with an order confirmation which includes order status (in stock, temporary back order or out of stock), expected delivery time and total cost (including all shipping and taxes) within one (1) business day of receipt; 3. ship products at the price displayed and without substitutions, unless such substitutions are authorized by the customer; 4. deliver all merchandise in professional packaging; 5. ensure all packages arrive undamaged, well packed and neat (barring shipping disasters); 6. permit the return of defective or damaged goods to the manufacturers under warranty; and 7. permit the return of other goods within 30 days of delivery, less a 15% restocking fee with chronic abuse exclusions. SCHEDULE "D" Response Times D.1 BID.COM shall respond to any report that the BID.COM Technology, the Canadian E-Commerce Service or the Canadian BID.COM Site is failing to meet Rogers's Requirements, and shall correct such failure, within the time frames set out in Section D.2 of this Schedule "D". The severity of any particular failure shall be reasonably determined by Rogers, and communicated to BID.COM, based on the following definitions: Severity 1: total inability to use any material part of the BID.COM Technology, the Canadian E-Commerce Service or the Canadian BID.COM Site, resulting in a critical impact on user objectives. Severity 2: ability to use the BID.COM Technology, the Canadian E-Commerce Service or the Canadian BID.COM Site, but user operation is severely restricted. Severity 3: ability to use the BID.COM Technology, the Canadian E-Commerce Service or the Canadian BID.COM Site; failures relate to functions which are not critical to overall user operations. Severity 4: failure has been bypassed or temporarily corrected and is not affecting customer operations. D.2 BID.COM shall correct failures of the BID.COM Technology, the Canadian E- Commerce Service and the Canadian BID.COM Site in order to comply with Rogers's Requirements within the following time frames: Severity 1: within 12 hours of notification by Rogers. Severity 2: within 48 hours of notification by Rogers. Severity 3: within 15 days of notification by Rogers. Severity 4: within 120 days of notification by Rogers. SCHEDULE "E" Source Code Trust Agreement MASTER PREFERRED ESCROW AGREEMENT Master Number __________ This Agreement is effective February 12, 1997 among Data Securities International, Inc.("DSV), Internet Liquidators International Inc. ("Depositor"), and any additional party signing the Acceptance Form attached to this Agreement ("Preferred Beneficiary") who collectively may be referred to in this Agreement as "the parties." A. Depositor and Preferred Beneficiary have entered or will enter into a license agreement in the form attached to such Preferred Beneficiary's Acceptance Form regarding certain proprietary technology of Depositor (referred to in this Agreement as "the license agreement"). B. Depositor desires to avoid disclosure of its proprietary technology except under certain limited circumstances. C. The availability of the proprietary technology of Depositor is critical to Preferred Beneficiary in the conduct of its business and, therefore, Preferred Beneficiary needs access to the proprietary technology under certain limited circumstances. D. Depositor and Preferred Beneficiary desire to establish an escrow with DSI to provide for the retention, administration and controlled access of certain proprietary technology materials of Depositor. ARTICLE 1 -DEPOSITS 1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the parties, including the signing of the Acceptance Form, Depositor shall deliver to DSI the proprietary information and other materials identified on an Exhibit A. DSI shall have no obligation with respect to the preparation, signing or delivery of Exhibit A. 1.2 Identification of Tangible Media. Prior to the delivery of the deposit -------------------------------- materials to DSI, Depositor shall conspicuously label for identification each document, magnetic tape, disk, or other tangible media upon which the deposit materials are written or stored. Additionally, Depositor shall complete Exhibit B to this Agreement by listing each such tangible media by the item label description, the type of media and the quantity. The Exhibit B must be signed by Depositor and delivered to DSI with the deposit materials. Unless and until Depositor makes the initial deposit with DSI, DSI shall have no obligation with respect to this Agreement, except the obligation to notify the parties regarding the status of the deposit account as required in Section 2.2 below. 1.3 Deposit Inspection. When DSI receives the deposit materials and the Exhibit B, DSI will give a receipt for the deposit materials to the Depositor in the form provided by the Depositor and conduct a deposit inspection by visually matching the labeling of the tangible media containing the deposit materials to the item descriptions and quantity listed on the Exhibit B. In addition to the deposit inspection, Preferred Beneficiary may elect to cause a verification of the deposit materials in accordance with Section 1.6 below. 1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI determines that the labeling of the tangible media matches the item descriptions and quantity on Exhibit B, DSI will date and sign the Exhibit B and deliver a copy thereof to Depositor and Preferred Beneficiary. If DSI determines that the labeling does not match the item descriptions or quantity on the Exhibit B, DSI will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign the Exhibit B with the exceptions noted, and (c) provide a copy of the Exhibit B to Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs upon the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to Preferred Beneficiary is Preferred Beneficiary's notice that the deposit materials have been received and accepted by DSI. 1.5 Depositor's Representations. Depositor represents as follows: (a) Depositor lawfully possesses all of the deposit materials deposited with DSI; (b) With respect to all of the deposit materials Depositor has the right and authority to grant to DSI and Preferred Beneficiary the rights as provided in this Agreement; (c) The deposit materials are not subject to any lien or other encumbrance other than encumbrances arising in the ordinary cause of Depositor's business; (d) The deposit materials consist of the proprietary information and other materials identified in Exhibit A; and (e) The deposit materials are readable and useable in their current form or, if the deposit materials are encrypted, the decryption tools and decryption keys have also been deposited. 1.6 Verification. Preferred Beneficiary shall have the right, at Preferred Beneficiary's expense. to cause a verification of any deposit materials. A verification determines, in different levels of detail, the accuracy, completeness. sufficiency and quality of the deposit materials. If a verification is elected after the deposit materials have been delivered to DSI, then only DSI, or at DSI's election an independent person or company selected and supervised by DSI, may perform the verification. 1.7 Deposit Updates. Unless otherwise provided by the license agreement, Depositor shall update the deposit materials within 60 days of each release of a new version of the product which is subject to the license agreement. Such updates will be added to the existing deposit. All deposit updates shall be listed on a new Exhibit B and the new Exhibit B shall be signed by Depositor. Each Exhibit B will be held and maintained separately within the escrow account. An independent record will be created which will document the activity for each Exhibit B. The processing of all deposit updates shall be in accordance with Sections 1.2 through 1.6 above. All references in this Agreement to the deposit materials shall include the initial deposit materials and any updates. 1.8 Removal of Deposit Materials. The deposit materials may be removed and/or exchanged only on written instructions signed by Depositor and Preferred Beneficiary, or as otherwise provided in this Agreement. ARTICLE 2 --CONFIDENTIALITY AND RECORD KEEPING 2.1 Confidentiality. DSI shall maintain the deposit materials in a secure, environmentally safe, locked facility in the greater Toronto area which is accessible only to authorized representatives of DSI. DSI shall have the obligation to reasonably protect the confidentiality of the deposit materials. Except as provided in this Agreement, DSI shall not disclose, transfer, make available, or use the deposit materials. DSI shall not disclose the content of this Agreement to any third party. If DSI receives a subpoena or other order of a court or other judicial tribunal pertaining to the disclosure or release of the deposit materials, DSI will immediately notify the parties to this Agreement. It shall be the responsibility of Depositor and/or Preferred Beneficiary to challenge any such order; provided, however, that DSI does not waive its rights to present its position with respect to any such order. DSI will not be required to disobey any court or other judicial tribunal order. (See Section 7.5 below for notices of requested orders.) 2.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary a report profiling the account history at least semi-annually. DSI may provide copies of the account history pertaining to this Agreement upon the request of any party to this Agreement. 2.3 Audit Rights. During the term of this Agreement, Depositor and Preferred Beneficiary shall each have the right to inspect the written records of DSI pertaining to this Agreement. Any inspection shall be held during normal business hours and following reasonable prior notice. ARTICLE 3 - GRANT OF RIGHTS TO DSI 3.1 Title to Physical Copies of Deposited Materials. (a) Depositor transfers to DSI in trust all legal title in and to the physical copies of the deposit materials provided to DSI from time to time in accordance with the terms of this Agreement. It is acknowledged by the parties hereto that such transfer by Depositor to DSI under this Section is not intended to, nor does it, transfer any intellectual property or other intangible rights in the deposit materials. DSI agrees to hold the deposit materials in trust for Depositor and Preferred Beneficiary as provided in this Agreement. (b) The expression "in trust" is intended to refer strictly to the issue of ownership of the deposit materials and not to the level of care which must be taken by DSI in performing its duties under this Agreement. The duties of DSI are strictly contractual in nature and are as set out in this Agreement. It is not intended that DSI is to have the fiduciary duty of a trustee. 3.2 Right to Make Copies. DSI shall have the right to make copies of the deposit materials as reasonably necessary to perform this Agreement. DSI shall copy all copyright, nondisclosure. and other proprietary notices and titles contained on the deposit materials onto any copies made by DSI. With all deposit materials submitted to DSI, Depositor shall provide any and all instructions as may be necessary to duplicate the deposit materials including but not limited to the hardware and/or software needed. 3.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the right to transfer deposit materials to Preferred Beneficiary upon any release of the deposit materials for use by Preferred Beneficiary in accordance with Section 4.5. Except upon such a release or as otherwise provided in this Agreement, DSI shall not transfer the deposit materials. ARTICLE 4 - RELEASE OF DEPOSIT 4.1 Release Conditions. As used in this Agreement, "Release Conditions" shall mean the following: (a) voluntary bankruptcy of Depositor; (b) involuntary bankruptcy provided that the Depositor is not in good faith diligently taking steps to contest or set aside such process, (c) if Depositor becomes insolvent and ceases to continue to carry on its business; (d) if Depositor ceases the operation of its business and the business is not continued by a successor acceptable to the Preferred Beneficiary, acting reasonably; and (e) any additional release conditions identified on the attached Acceptance Form. 4.2 Filing For Release. If Preferred Beneficiary believes in good faith that a Release Condition has occurred, Preferred Beneficiary may provide to DSI written notice of the occurrence of the Release Condition and a request for the release of the deposit materials. Upon receipt of such notice, DSI shall deliver a copy of the notice to Depositor. 4.3 Contrary Instructions. From the date DSI delivers the notice requesting release of the deposit materials, if the Release Condition is one defined in 4. 1 (b), 4. 1 (d) or 4. 1 (e) Depositor shall have ten business days to deliver to DSI Contrary Instructions. If the Release Condition is one defined in 4. 1 (a) or (c), DSI shall release the deposit materials pursuant to Section 4.4 within 48 hours of giving notice to the Depositor under Section 4.2. "Contrary Instructions" shall mean the written representation by Depositor that a Release Condition has not occurred or has been cured. Upon receipt of Contrary Instructions, DSI shall deliver a copy to Preferred Beneficiary. Additionally, DSI shall notify both Depositor and Preferred Beneficiary that there is a dispute to be resolved pursuant to the Dispute Resolution section of this Agreement (Section 7.3). Subject to Section 5.2, DSI will continue to store the deposit materials without release pending (a) joint instructions from Depositor and Preferred Beneficiary, (b) resolution pursuant to the Dispute Resolution provisions, or (c) order of a court. 4.4 Release of Deposit. If DSI does not receive Contrary Instructions from the Depositor, DSI is authorized to release the deposit materials to the Preferred Beneficiary or, if more than one beneficiary is registered to the deposit materials, to release a copy of the deposit materials to the Preferred Beneficiary who gave notice under Section 4.2. However, DSI or DSI's authorized representative is entitled to receive any fees due DSI or DSI's authorized representative before making the release. This Agreement will terminate with respect to the Preferred Beneficiary giving notice under Section 4.2 upon the release of the deposit materials held by DSI. 4.5 Right to Use Following Release. Unless otherwise provided in the license agreement, upon release of the deposit materials in accordance with this Article 4, Preferred Beneficiary shall have the right to use the deposit materials for the sole purpose of continuing the benefits afforded to Preferred Beneficiary by the license agreement. Preferred Beneficiary shall be obligated to maintain the confidentiality of the released deposit materials. ARTICLE 5 - TERM AND TERMINATION 5.1 Term of Agreement. The initial term of this Agreement is for a period of one year. Thereafter, this Agreement shall automatically renew from year-to-year unless (a) Depositor and Preferred Beneficiary jointly instruct DSI in writing that the Agreement is terminated, or (b) the Agreement is terminated by DSI for nonpayment in accordance with Section 5.2. If the Acceptance Form has been signed at a date later than this Agreement, the initial term of the Acceptance Form will be for one year with subsequent terms to be adjusted to match the anniversary date of this Agreement. If the deposit materials are subject to another escrow agreement with DSI, DSI reserves the right, after the initial one year term, to adjust the anniversary date of this Agreement to match the then prevailing anniversary date of such other escrow arrangements. 5.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to DSI or DSI's authorized representative, DSI shall provide written notice of delinquency to the parties to this Agreement affected by such delinquency. Any such party shall have the right to make the payment to DSI or DSI's authorized representative to cure the default. If the past due payment is not received in full by DSI or DSI's authorized representative within one month of the date of such notice, then at anytime thereafter DSI shall have the right to terminate this Agreement to the extent it relates to the delinquent party by sending written notice of termination to such affected parties. DSI shall have no obligation to take any action under this Agreement so long as any payment due to DSI or DSI's authorized representative remains unpaid. 5.3 Disposition of Deposit Materials Upon Termination. Upon termination of this Agreement by joint instruction of Depositor and each Preferred Beneficiary, DSI shall return the deposit materials to the Depositor. Upon termination for nonpayment, DSI shall return the deposit materials to the Depositor. DSI shall have no obligation to return or destroy the deposit materials if the deposit materials are subject to another escrow agreement with DSI. 5.4 Survival of Terms Following Termination. Upon termination of this Agreement, the following provisions of this Agreement shall survive: (a) Depositor's Representations (Section 1.5); (b) The obligations of confidentiality with respect to the deposit materials; (c) The rights granted in the sections entitled Right to Transfer Upon Release (Section 3.3) and Right to Use Following Release (Section 4.5), if a release of the deposit materials has occurred prior to termination; (d) The obligation to pay DSI or DSI's authorized representative any fees and expenses due; (e) The provisions of Article 7; and (f) Any provisions in this Agreement which specifically state they survive the termination or expiration of this Agreement. 5.5 Alternative to DSI. If this Agreement terminates, Depositor and Preferred Beneficiary agree, at Preferred Beneficiary's request, to appoint a new agent by mutual agreement. If Depositor and Preferred Beneficiary cannot agree, Preferred Beneficiary shall appoint a trust company or other company specializing in the escrow business as the agent provided that such company has appropriate storage facilities located in or around Toronto and agrees to store the deposited materials there in accordance with the terms of this Agreement. The new agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named hereunder, without any further assurance, conveyance, act or deed. ARTICLE 6 - DSI'S FEES 6.1 Fee Schedule. DSI or DSI's authorized representative is entitled to be paid its standard fees and expenses applicable to the services provided. DSI or DSI's authorized representative shall notify the party responsible for payment of DSI's fees at least 90 days prior to any increase in fees. For any service not listed on DSI's standard fee schedule, DSI or DSI's authorized representative will provide a quote prior to rendering the service. 6.2 Payment Terms. DSI shall not be required to perform any service unless the payment for such service and any outstanding balances owed to DSI or DSI's authorized representative are paid in full. All other fees are due upon receipt of invoice. If invoiced fees are not paid, DSI may terminate this Agreement in accordance with Section 5.2. Late fees on past due amounts shall accrue at the rate of one and one-half percent per month (18% per annum) from the date of the invoice. ARTICLE 7 - LIABILITY AND DISPUTES 7.1 Right to Rely on Instructions. DSI may act in reliance upon any instruction, instrument, or signature reasonably believed by DSI to be genuine. DSI may assume that any employee of a party to this Agreement who gives any written notice. request, or instruction has the authority to do so. DSI shall not be responsible for failure to act as a result of causes beyond the reasonable control of DSI, subject to Section 2. 1. 7.2 Indemnification. DSI shall be responsible to perform its obligations under this Agreement and to act in a reasonable and prudent manner with regard to this escrow arrangement. Provided DSI has acted in the manner stated in the preceding sentence, Depositor and Preferred Beneficiary each agree to indemnify, defend and hold harmless DSI from any and all claims, actions, damages, arbitration fees and expenses, costs, attorney's fees and other liabilities incurred by DSI relating in any way to this escrow arrangement. 7.3 Dispute Resolution. Any dispute, difference or question arising among any of the parties concerning the construction, meaning, effect or implementation of this Agreement or any part hereof will be settled by a single arbitrator mutually agreed upon by the parties, or failing agreement, an arbitrator appointed pursuant to the Arbitration Act (Ontario) or similar legislation. The decision of such arbitrator appointed pursuant to this Agreement or such Act will be final and binding on the parties and no appeal will lie therefrom. 7.4 Controlling Law. This Agreement is to be governed and construed in accordance with the laws of the Province of Ontario except any laws which would refer any matter to the laws of another jurisdiction. All parties irrevocably attorn to the exclusive jurisdiction of the Courts of Ontario in respect of the subject matter hereof. 7.5 Notice of Requested Order. If any party intends to obtain an order from the arbitrator or any court of competent jurisdiction which may direct DSI to take, or refrain from taking any action, that party shall: (a) Give DSI at least two business days' prior notice of the hearing; (b) Include in any such order that, as a precondition to DSI's obligation, DSI or DSI's authorized representative be paid in full for any past due fees and be paid for the reasonable value of the services to be rendered pursuant to such order: and (c) Ensure that DSI not be required to deliver the original (as opposed to a copy) of the deposit materials if DSI may need to retain the original in its possession to fulfill any of its other escrow duties. ARTICLE 8 - GENERAL PROVISIONS 8.1 Entire Agreement. This Agreement, which includes the Acceptance Form and the Exhibits described herein, embodies the entire understanding between all of the parties with respect to its subject matter and supersedes all previous communications. representations or understandings, either oral or written. No amendment or modification of this Agreement shall be valid or binding unless signed by all the parties hereto, except that Exhibit A need not be signed by DSI, Exhibit B need not be signed by Preferred Beneficiary and the Acceptance Form need only be signed by the parties identified therein. 8.2 Notices. All notices, invoices, payments, deposits and other documents and communications shall be given to the parties at the addresses specified in the attached Exhibit C and Acceptance Form. It shall be the responsibility of the parties to notify each other as provided in this Section in the event of a change of address. The parties shall have the right to rely on the last known address of the other parties. Unless otherwise provided in this Agreement, all documents and communications may be delivered by First Class mail. 8.3 Severability. In the event any provision of this Agreement is found to be invalid, voidable or unenforceable, the parties agree that unless it materially affects the entire intent and purpose of this Agreement, such invalidity, voidability or unenforceability shall affect neither the validity of this Agreement nor the remaining provisions herein, and the provision in question shall be deemed to be replaced with a valid and enforceable provision most closely reflecting the intent and purpose of the original provision. 8.4 Successors. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties. However, DSI shall have no obligation in performing this Agreement to recognize any successor or assign of Depositor or Preferred Beneficiary unless DSI receives clear, authoritative and conclusive written evidence of the change of parties. Data Securities International, Inc. Internet Liquidators International Inc. By:__________________________________ By:________________________________ Name:________________________________ Name:______________________________ Title:_______________________________ Title______________________________ Date:________________________________ Date:______________________________ By:__________________________________ By:________________________________ Name:________________________________ Name:______________________________ Title:_______________________________ Title______________________________ Date:________________________________ Date:______________________________ ACCEPTANCE FORM Account Number _____________________ Rogers Media Inc., hereby (i) acknowledges that it is a Preferred Beneficiary referred to in the Master Preferred Escrow Agreement effective February 12, 1997 with Data Securities International, Inc. as the escrow agent and Bid.Com International Inc. (formerly Internet Liquidators International, Inc.) as the Depositor, (ii) agrees to be bound by all provisions of such Agreement, and (iii) agrees that in addition to the Release Conditions set forth in section 4.1 of this Agreement, a further Release Condition shall exist if the Depositor is in continuing material breach of the E-Commerce and Promotion Services Agreement attached hereto as Schedule "A". Rogers Media Inc. By:___________________________________ Name:_________________________________ Title:________________________________ Date:_________________________________ Notices and communications should Invoices should be addressed to: be addressed to: Company Name: Rogers Media Inc. Rogers Media Inc. Address: 156 Front Street West 156 Front Street West Suite 400 Suite 400 Toronto, Ontario Toronto, Ontario M5J2L6 M5J2L6 Designated Contact: Mike Abramsky Mike Abramsky Telephone: (416) 340-0264 (416) 340-0264 Facsimile: (416) 340-6541 (416) 340-6541 SCHEDULE "A" LICENSE AGREEMENT EXHIBIT A MATERIALS TO BE DEPOSITED Account Number __________________ Deposit represents to Preferred Beneficiary that deposit materials delivered to DSI shall consist of the following: [Confidential Information filed separately with the SEC]
BID.COM International Inc. Rogers Media Inc. - ---------------------------------------------- ------------------------------------------------- Depositor Preferred Beneficiary By: Chris Bulger -------------------------------------- -------------------------------------------------- Name: -------------------------------------- ------------------------------------------------- Title: Chief Financial Officer Vice President Finance, CEO -------------------------------------- ------------------------------------------------- Date: July , 1998 July 29, 1998 I certify for Depositor that the above DSI has inspected and accepted the above desceribed deposit materials have been materials (any exceptions are noted above): transmitted to DSI: Signature: Signature: -------------------------------------- Print Name: Print Name: -------------------------------------- --------------------------------------
Date: Date: Exhibit B# Send materials to: DSI, 9555 Chesapeake Drive, #200, San Diego, CA 92123 EXHIBIT "B" DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name: Bid.com International Inc. ------------------------------------------------------- Account Number: PRODUCT DESCRIPTION: [Confidential Information Product Name: filed separately with the Version: [Confidenti SEC] al Information filed separately with the SEC] [Confidential Information filed separately with the Operating System: SEC] ------------------------------------------------------- [Confidential Information filed separately with the Hardware Platform: SEC] ------------------------------------------------------- DEPOSIT COPYING INFORMATION: [Confidential Information filed separately with the Hardware required: SEC] [Confidential Information filed separately with the Software required: SEC]
DEPOSIT MATERIAL DESCRIPTION: Qty Media Type & Size Label Description of Each Separate Item - --------------------------------------------------------------------------------------------------- (Excluding documentation 1X Disk 3.5" or ________ No Documentation DAT tape 4mm CD-ROM Data Cartridge Tape DAT 24I TK 70 or _______ tape Magnetic tape _______ Documentation Other: ____________
Listing of Bid.Com Source Components ILI Bid.com Modules - ------------------------------------------------ Database: [Confidential Information filed separately with the SEC] Business Services: [Confidential Information filed separately with the SEC] Data Service: [Confidential Information filed separately with the SEC] Dynmic Export: [Confidential Information filed separately with the SEC] Order Processing [Confidential Information filed Administrator: Credit Card: separately with the SEC] Order Business Services: Utilities [Confidential Information filed Category Builder: separately with the SEC] AdRotatorGenerator: AssetMgmt DB Services: Notification: Supporting S/W: [Confidential Information filed separately with the SEC] Web: [Confidential Information filed separately with the SEC]
ILIBid.com Modules (Dutch) - --------------------------- Business Services: [Confidential Information filed separately with the SEC] Data Services: [Confidential Information filed separately with the SEC] Dutch Server: [Confidential Information filed separately with the SEC] Dutch Client: [Confidential Information filed separately with the SEC] Internet Web: [Confidential Information filed separately with the SEC] Admin Web: [Confidential Information filed separately with the SEC]
SCHEDULE "F" Site Activity Reporting Requirements Pursuant to subsection 2.1(viii) of this Agreement, BID.COM shall deliver the following site activity information to Rogers with the frequency indicated below: F.1 Daily Reports 1. number of page views. F.2 Monthly Reports 1. number of unique visitors; 2. top 15 domain names from which traffic to the Canadian BID.COM Site originated; 3. number of unique visits by province; 4. number of unique visits by product category offered; 5. average visit duration; 6. number of transactions; 7. average transaction value; 8. number of transactions by category; 9. number of transactions by product; and 10. percentage of server uptime/availability. F.3 Additional Reports In addition, BID.COM shall deliver the following site activity information as indicated below: 1. purchase history of repeat visitors on a semi annual basis; 2. advertising statistical reports at the request of Rogers; and 3. other statistics as mutually agreed by the parties. -2- SCHEDULE "G" Prohibited Products and Services Pursuant to subsection 2.1(i) of this Agreement, BID.COM shall not offer any of the categories of products or services set out below without the prior written consent of Rogers: 1. cellular, paging or PCS hardware, services or packages; 2. cable hardware, services or packages; 3. broadband hardware, services or packages; 4. set-top box, WebTV and wireless cable hardware, services or packages; 5. satellite hardware, services or packages; 6. pornographic or obscene materials or services; and 7. firearms. -3- SCHEDULE "H" Prohibited Rogers Assignees Pursuant to subsection 11.2(ii) of this Agreement, Rogers may not, without the prior written consent of BID.COM, assign its rights and obligations under this Agreement, in whole or in part, to a joint venture in which Rogers has an interest with a party which operates an on-line auction site which is competitive to BID.COM, including the on-line auction sites currently operating at the following URLs: [Confidential Information filed separately with the SEC] -4- SCHEDULE "I" Net E-Commerce Revenue Reports
SUMMARY Month 1 Month 2 Month 3 Quarter Total ------------------------------------------- (a) Sales Revenues XXX XXX XXX XXX (b) Sales Returns and Allowances (XXX) (XXX) (XXX) (XXX) (c) Cost of Goods Sold (XXX) (XXX) (XXX) (XXX) Shipping and Handling Costs (XXX) (XXX) (XXX) (XXX) Credit Card Fees (XXX) (XXX) (XXX) (XXX) ------------------------------------------- Gross Margin XXX XXX XXX XXX Less Revenue Share (XXX) (XXX) (XXX) (XXX) ------------------------------------------- Net Margin XXX XXX XXX XXX ------------------------------------------- TOP BID AUCTION DETAIL Product Sales Top Bid Auction XXX XXX XXX XXX (a) Shipping & Handling Sales Top Bid Auction XXX XXX XXX XXX (a) Sales Return & Allowances Top Bid Auction (XXX) (XXX) (XXX) (XXX) (b) Cost of Goods Sold Top Bid Auction (XXX) (XXX) (XXX) (XXX) (c) ------------------------------------------- Gross Margin XXX XXX XXX XXX ------------------------------------------- DUTCH AUCTION DETAIL Product Sales Dutch Auction XXX XXX XXX XXX (a) Shipping & Handling Sales Dutch Auction XXX XXX XXX XXX (a) Sales Returns & Allowances Dutch Auction (XXX) (XXX) (XXX) (XXX) (b) ------------------------------------------- Cost of Goods Sold Dutch Auction (XXX) (XXX) (XXX) (XXX) (c) ------------------------------------------- DIRECT SALES DETAIL Product Sales Direct XXX XXX XXX XXX (a) Shipping & Handling Sales Direct XXX XXX XXX XXX (a) Sales Returns & Allowances Direct (XXX) (XXX) (XXX) (XXX) (b) Cost of Goods Sold Direct (XXX) (XXX) (XXX) (XXX) (c) ------------------------------------------- Gross Margin XXX XXX XXX XXX
-5- SCHEDULE "J" Net Promotional Revenue Reports Pursuant to subsection 5.1(ii) of this Agreement, Rogers shall provide a report of Net Promotional Revenue to BID.COM in a format similar to the following: For the calendar quarter beginning ____________, 19___ and ending ____________, 19___. Advertiser Status Amount Paid - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total Advertising Revenue $xx,xxx.xx $ xxx.xx - -------------------------------------------------------------------------------- Total Net Promotional Revenue earned by Rogers $xx,xxx.xx Share of Net Promotional Revenue due to BID.COM $ xxxx.xx -6- SCHEDULE "K" Rogers Performance Metrics K.1 Performance Metrics. Rogers shall achieve three of the following metrics: 1. during the last [Confidential Information filed separately with the SEC] of the Evaluation Period, the aggregate site traffic on the Canadian BID.COM Site shall be at least [Confidential Information filed separately with the SEC] of the aggregate site traffic on the U.S. E-Commerce Service site during such three (3) month period. 2. Aggregate Net Promotional Revenue during the Evaluation Period shall be greater than or equal to [Confidential Information filed separately with the SEC]. If the aggregate Net Promotional Revenue during the Evaluation Period is less than [Confidential Information filed separately with the SEC], Rogers may, at its sole option, fulfill this metric by paying to BID.COM [Confidential Information filed separately with the SEC] of the difference between the [Confidential Information filed separately with the SEC] metric and the actual aggregate Net Promotional Revenue earned by Rogers during such Evaluation Period. 3. Rogers shall spend a minimum of [Confidential Information filed separately with the SEC] annually during the Evaluation Period in respect of advertising, and promotion of the Canadian E-Commerce Service, allocated as follows: (i) the equivalent rate card value of [Confidential Information filed separately with the SEC]in media properties operated by Rogers and its Affiliates; and (ii) [Confidential Information filed separately with the SEC] in non-Rogers media properties. This amount shall include, without limitation: (a) amounts paid by Rogers to advertising agencies; (b) amounts paid by Rogers to employees and consultants who provide services relating, to the advertising and promotion of the Canadian E-Commerce Service in non-Rogers media properties; and (c) [Confidential Information filed separately with the SEC] of the value of Contra transactions involving any non-Rogers media property, as such value is attributed to such Contra transactions by mutual agreement of the parties 4. Rogers shall retain, at a minimum, the equivalent of [Confidential Information filed separately with the SEC] full-time staff to provide services related to the Canadian E-Commerce Service. K.2 Amendments to Performance Metrics. At either party's request, the parties will negotiate reasonable amendments to the performance metrics set out above for a subsequent Evaluation Period. If the parties are unable to reach such an agreement on such amended performance metrics, the parties agree that they will submit -7- the determination of such amended performance metrics to dispute resolution in accordance with Section 10.5 of this Agreement. In choosing new performance metrics, the arbitrator shall take into account the following: (a) the arbitrator may choose new numbers for the categories of metrics set out in Section K. I above, but the arbitrator may not establish new categories of performance metrics; (b) actual performance in each of the above categories for the U.S. E-Commerce Service; (c) computer penetration in Canada compared to computer penetration in the United States; (d) Internet use in Canada compared to Internet use in the United States; (e) use of the Internet to purchase products and services in Canada compared to such use in the United States, measured both by number of transactions and dollar value; (f) performance of the Canadian E-Commerce Service during the previous Evaluation Period; and (g) the existence of BID.COM Competitors in Canada. K.3 Default Metrics. If the parties are unable to agree upon new performance metrics, and if an arbitrator falls to render a decision pursuant to Section K.2 hereof which is mutually acceptable to the parties, the performance metrics applicable for each year during the following Evaluation Period shall be equal to the actual performance achieved by Rogers in the immediately preceding year in each of the categories set out in Section K. I above. -8- SCHEDULE "L" Transition Plan Pursuant to Section 7.5 of this Agreement, the parties agree that upon termination of this Agreement, there will be a transition period of such duration as will be mutually agreed upon, during which the parties will co- operate and work together in good faith to effect a smooth and orderly transition from the facilities, networks, technology, Web sites and services provided by each of the parties hereunder to the separate facilities, networks, technology, Web sites and services required by each of the parties after the end of the transition period. Without limiting the generality of the foregoing, the parties agree to co-operate and work together in good faith to address transition issues relating to the following: 1. linking of the Canadian BID.COM Site and the Rogers E-Commerce Portal; 2. delivery up of a complete, updated list of Customer Profiles to Rogers; 3. continued service to and support of customers of the Canadian E-Commerce Service; 4. continued fulfillment of all obligations to advertisers on the Canadian BID.COM Site; 5. branding strategy; and 6. any technical or operational requirements. -9- SCHEDULE "M" BID.COM Marks The BID.COM Marks licensed to Rogers pursuant to Section 3.4 of this Agreement include: 1. BID.COM; 2. BID.COM + Design; 3. any derivations or modified versions incorporating the word BID.COM; and 4. any other marks mutually agreed between the parties. -10- SCHEDULE "N" Torstar Amending Letter VIA FACSIMILE July 22, 1998 Mr. Rocco Rossi Vice President Strategic Planning and New Media Toronto Star Newspapers Limited One Yonge Street, 9th Floor Toronto, Ontario M5E 1E6 Dear Rocco; Re: E-Commerce Services Agreement between Internet Liquidators Internatiors4 Inc. ("IL") and Toronto Star Newspapers Limited ("Torstar") dated February 12, 1997 (the "Torstar Agreement") ------------------------- Following the introduction of Rogers Media Inc. ("Rogers") to IL for the purpose of creating a Canadian national partnership for e-commerce, the following areas require clearer definition so that the rights granted to Torstar under the Torstar Agreement do not conflict with the rights to be granted to Rogers in an agreement to form a national partnership with IL (the "Rogers Agreement"). Unless otherwise defined in this letter, capitalize terms will have the meaning set out in the Torstar Agreement, as clarified and amended by this letter. 1. The Torstar Agreement grants to Torstar the exclusive right to use the E-Commerce Service "in a Local Auction and Mall format to sell products from charitable and community organizations and local retailers to purchasers in the Territory", Torstar agrees that the exclusive rights granted in the Torstar Agreement are to use the IL Technology (not the E-Commerce Service) in a Local Auction and Mall format. In addition, Torstar agrees that the charitable and community organizations and local retailers; from whom Torstar has the right to sell products in a Local Auction and Mall format are restricted to charitable organization, community organizations and local retailers located in Ontario. The Torstar Agreement also extends rights to sell products from Ontario based retailers to purchasers Outside of the Territory only until such time as IL ------- may grant exclusive rights for such non-Ontario territory to another party. Torstar acknowledges that following the execution of the Rogers Agreement, Torstar will have no further right to sell products to purchaser located outside of Ontario, provided that Torstar may accept sales from purchasers located outside of Ontario, which are incidental to the Ontario focus of its event (i.e. representing less than five percent of the total Net Revenue received by Torstar from the Torstar Online Auction in any calendar quarter). 2. Torstar agrees that the Torstar Agreement grants the right to Torstar to use the IL Technology to sell products in a Local Auction and Mall format only at a new URL chosen by Torstar, and that this does not extend to any other URL owned or used by IL now or in the future including, for greater certainty, the URL www.bid.com. 3. The branding of such an auction is at Torstar's discretion, with IL granting the use of its "Online Auction" trademark to facilitate a "Torstar Online Auction" branding if so desired by Torstar. Torstar may, in its discretion, use the IL trademark "Online Auction" as a sub-brand. Torstar agrees that it does not have any right to any IL trademark other than the trademark "Online Auction". For greater certainty, Torstar agrees that it does not have the right to use the trademark BID.COM or any trademark related to the trademark BID.COM. 4. Torstar agrees that Torstar's rights to require BID.COM to make functionality and customization changes to the IL Technology or the E-Commerce Service to implement a "Torstar look" is restricted to the right to require charges to the look and feel of the Torstar Online Auction operating at the URL chosen by Torstar and to the branding of the user interface on the Torstar Online Auction, and not to changes to the IL Technology or the E-Commerce Service. 5. The Torstar Agreement granted to Torstar the right to participate in a co- branded Torstar Sponsored Auction on IL's "Canadian national auction" for a minimum of one hour per day. In addition, The Torstar Agreement provided that while each Torstar Sponsored Auctions are operating, IL may not conduct or allow any third party to conduct other online auctions through the E-Commerce Service. Torstar and IL contemplated that the Canadian national auction and any Torstar Sponsored Auctions would be operated at the URL www.internetliquidators.com. --------------------------- The URL www.internetliquidators.com no longer has any consumer based --------------------------- traffic and IL will no longer have an "IL Canadian national auction" through which Torstar would operate Torstar Sponsored Acutions within the meaning of the Torstar Agreement. As such, Torstar agrees that it no longer has any right to participate in a Torstar Sponsored Auction on any IL Canadian national auction, including, for greater certainty, the Canadian national auction on the URL www.bid.com without the prior written consent ----------- of Rogers. If Rogers, in its sole discretion consents to such daily one hour Torstar Sponsored Auction, the daily one hour Torstar Sponsored Auction need not be the only auction operated at such time, but shall have at least equal prominence with any other auction functioning at that time. Should Rogers refuse to grant such consent, Torstar shall be at liberty to operate another Torstar Sponsored Auction on a competing auction platform. 6. The Torstar Agreement granted to Torstar the right to call up to [Confidential Material filed separately with the SEC] of the advertising on IL's "Canadian national auction". Torstar agrees that since IL will no longer have a "Canadian national auction" at the URL www.internetliquidators.com within the meaning of the Torstar Agreement, Torstar will have no right to sell any advertisments for any Web site owned or operated by IL or its affiliates, including any linked pages and including for greater certainty the URL www.bid.com, IL will pay Torstar [Confidential Material filed separately with the SEC] of the revenue received by IL form the sale of banner advertisement on its Canadian business to consumer on-line auction in accordance with the terms of the Rogers Agreement. 7. IL will pay a Net Revenue split to Torstar of [Confidential Material filed separately with the SEC] (which equates to [Confidential Material filed separately with the SEC] of the total) of the Net Revenue received by IL from sales to consumers who provide a billing address in Ontario through the URL www.bid.com as this component of the Torstar Agreement had the intent of comprising Torstar for assistance in building a national presence for IL. 8. Torstar agrees that IL and Rogers are not restricted from sourcing goods and services from retailers who have a presence which is not restricted to Ontario, as long as such products and services are offered on a national presence for IL. 9. It is understood that nothing in the Rogers Agreement will prevent Torstar from operating the Torstar Online Auction in the territory or prevent Torstar from selling advertising on the Torstar Online Auction in the Territory. The mutually agreed terms required for any rights by Torstar to a non-exclusive license of the IL Technology for non-auction related uses such as the operation of games and contests will require the additional prior written agreement of Rogers. Kindly acknowledge your agreement to the amendments to the Torstar Agreement contained herein by signing a copy of this letter and returning it to the undersigned to be used as a schedule in the Rogers Agreement. Please accept our sincere gratitude for being a catalyst in forming our national partnership with Rogers. We look forward to facilitating a successful launch of the Torstar Online Auction whenever you deem the timing to be opportune. Yours very truly, BID-COM International Inc. Per: ___________________________ Chris Bulger Chief Financial Officer Acknowledged and agreed to this ____ day of July, 1998. TORONTO STAR NEWSPAPER LIMITED By:_________________________________ Rocco Rossi (duly authorized signatory) -11- SCHEDULE "O" AOL Amending Letter VIA FACSIMILE July 29, 1998 Mike McGowan America Online, Inc 22000 AOL Way Dulles, Virginia 20166-9323 Dear Mike: Re: Interactive Marketing Agreement between America Online, Inc. ("AOL") and Internet Liquidators International, Inc. ("IL") dated November 1, 1997 (the "AOL Agreement") The purpose of this letter is to confirm our understanding that: 1. the right of AOL provided in Section 2.13 of the AOL Agreement to "license or sell promotions advertisements, links, promoters or similar services or rights ("Advertisements") through the Affiliated IL Site" does not include the right of AOL to Sell Advertisements, through those pages of the Affiliated IL Site through which IL conducts on-line auctions for purchasers with a billing address in Canada; and 2. the rights of AOL to establish, operate and maintain an auction service on one or more AOL servers in accordance with Article Three of the agreement between IL and AOL dated February 21, 1997, which is incorporated into the ht AOL Agreement pursuant to Section 1.5 does not include any right to establish, operate and maintain an on-line auction service using the IL Technology for purchasers with a billing address Canada. Kindly acknowledge your agreement to the above by signing a copy of this letter and return it to the undersigned. Yours very truly, BID.COM International Inc. Per: ________________________________ David Pamenter Director and Assistant Secretary Acknowledged and agreed to this 29th day of July, 1998 AMERICA ONLINE, INC. By:_____________________________ (duly authorized signatory) EX-3.21 13 LICENSE AGREEMENT Exhibit 3.21 AIM License Agreement THIS AGREEMENT is made as of the 30th day of December, 1998 (the "Effective Date") by and between BID.COM INTERNATIONAL INC., ("BID.COM"), a corporation having a principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario, L4V 1V2 and AMERICAN INTERACTIVE MEDIA, INC. ("AIM"), a corporation having a place of business at Suite 308, 611 Broadway, New York, NY, 10012. BACKGROUND: 1. BID.COM has developed, and has all necessary rights in, certain electronic auction software, technology and services (collectively, the "BID.COM Technology" as that term is more fully described in Article I). 2. BID.COM uses a portion of the BID.COM Technology to operate an online auction service over the Internet provided at BID.COM's website found at URL "www.bid.com". 3. AIM wishes to acquire from BID.COM a non-exclusive license to use and commercially exploit the BID.COM Technology to permit cable and broadcast network television customers and certain affinity group members and in-house networks produced and distributed by AIM in the United States and (subject to the prior written consent of Rogers Media Inc.) in Canada to access a co- branded online auction for retail consumers, as more specifically described herein. NOW THEREFORE in consideration of the premises, the mutual covenants contained in this Agreement, and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the Parties agree as follows: ARTICLE I INTERPRETATION 1.1 Definitions. In this Agreement, unless the context otherwise requires, each capitalized term shall have the meanings indicated below. "Agreement" means this Licence and Services Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof, "hereof'" "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement; "AIM E-Commerce Service" means the service to be operated pursuant to this Agreement which will permit retail consumers in the Territory including, without limitation, "small office home office" customers ("SOHO") to access an online auction as currently operated by BID.COM or its subsidiaries at the BID.COM site by using their cable modems or other television based on line enabling devices (or by way of any method of internet access in the case of members of certain affinity groups and in house networks produced and distributed by AIM) to participate in on-line auctions of consumer goods and services, but excluding business to business and liquidation applications; "BID.COM Site" means the Web site at which BID.COM will operate its online auction service provided for the AIM E-Commerce Service as currently found at the URL "www.bid.com"; "BID.COM Technology" means the technology (including cybermall software) and know-how owned by BID.COM in respect of the provision of on-line auction services generally (and including all Intellectual Property Rights therein), as more particularly described in Schedules "A"and "I"; "Business Day" means any day from Monday to Friday inclusive, except statutory or civic holidays observed in Toronto, Ontario; "Confidential Information" means all information relating to either Party or to such Party's business, products, sales, customers, trade secrets, technology or financial position to which access is obtained or granted hereunder, which is treated by the disclosing Party as being confidential provided, however, that Confidential Information of the disclosing Party shall not include any data or information which the receiving Party can demonstrate: (1) is or becomes publicly available through no fault of the receiving Party; (2) is already in the rightful possession of the receiving Party prior to its receipt from the other Party; (3) is independently developed by the receiving Party; (4) is rightfully obtained by the receiving Party from a third party not subject to an obligation of confidentiality; (5) is disclosed with the written consent of the disclosing Party whose information it is; or -3- (6) is disclosed pursuant to court order or other legal compulsion, provided the receiving Party gives the disclosing Party prompt notice of any such requirement to afford the disclosing Party an opportunity to obtain a protective order; "Customer Profile"means all information and data relating to a customer of the AIM E-Commerce Service, including, without limitation: (i) name, address, e-mail address, telephone number, and any other personal or demographic information relating to such customer; (ii) all information and data relating to the purchase of goods and services by such customer; and (iii) any other information relating to such customer's behavior collected while such customer accesses the AIM E-Commerce Service; "Data" has the meaning attributed to such term in Section 5.5; "Deliverables" means the whole of the activities, services, materials, software, matters and things required to be done, delivered or performed by BID.COM in accordance with the terms of this Agreement, including the Software, Documentation and Services and including all other rights and things, tangible or intangible, including Intellectual Property Rights to be provided hereunder including, without limitation, any of the foregoing as described in Schedule "A"; "Effective Date" has the meaning attributed thereto on the face page of this Agreement; "Intellectual Property Rights" means (A) any and all proprietary rights provided under (i) patent law, (ii) copyright law, (iii) trademark law, (iv) design patent or industrial design law, (v) semi- conductor chip or mask work law, or (vi) any other statutory provision or common law principle applicable to this Agreement or the BID.COM Technology including trade secret law, which may provide a right in either (a) ideas, formulae, algorithms, concepts, inventions or know-how generally, or (b) the expression or use of such ideas, formulae, algorithms, concepts, inventions or know-how; and (B) any and all applications, registrations, licenses, sub-licenses, franchises, agreements or any other evidence of a right in any of the foregoing; "Joint Venture" means the Delaware company to be established and owned by AIM to provide the AIM E-Commerce Service to third parties on the terms provided in this Agreement; "Net Revenue" means the sum of: (i) aggregate revenue earned by the Parties and the Joint Venture in connection with the operation of the AIM E- Commerce Service (including all shipping and handling costs paid by retail customers), net of sales, use, goods and services, and other similar taxes imposed by any federal, provincial, municipal or other governmental authority; and (ii) aggregate revenue earned by the Parties and the Joint Venture in connection with the sale of products and services by them to customers of the AIM E-Commerce -4- Service as part of its database marketing operations, and not through the AIM E-Commerce Service (including all shipping costs paid by retail customers), net of sales, use, goods and services, and other similar taxes imposed by any federal, state, provincial, municipal or other governmental authority, less cost of goods or services sold (as invoiced by the supplier of such products or services, but net of all taxes invoiced by such supplier), ISP carrier costs, credit card transaction fees paid to or deducted by third parties, duties, the cost of shipping and handling, and credits for returned goods, services or bad debts (including shipping and restocking costs, if applicable). Net Revenue shall be calculated in accordance with generally accepted accounting principles applied in Canada on a consistent basis; "Net Promotional Revenue" means aggregate revenue and benefits earned by the Parties and the Joint Venture from sales of advertising or sponsorship, licensing fees, use of Data or from any other source whatsoever, directly or indirectly related to the AIM E-Commerce Service, net of all sales, use, goods and services and other similar taxes imposed by any federal, state, provincial, municipal or other governmental authority, agency commissions and bad debts. Net Promotional Revenue shall be calculated in accordance with generally accepted accounting principles applied in Canada on a consistent basis; "Parties" means BID.COM and AIM collectively and "Party" means either of them; "Person" includes an individual, company, corporation, partnership, government or government agency, authority or entity howsoever designated or constituted; "Reasonable Best Efforts" means that a party shall comply with the obligation to which the covenant to use Reasonable Best Efforts applies in all cases where such party has the ultimate discretion, control and ability to do so, and that such party shall use commercially reasonable efforts to comply with such obligation in cases where such party does not have such ultimate discretion, control and ability; "Software" means that computer software being provided to AIM by BID.COM hereunder to meet AIM's Requirements, including any modifications or improvements to the Software (whether developed by BID.COM, AIM, the Joint Venture or otherwise); "Source Code Materials" means: (1) a complete copy of the source code version of all software required to allow AIM to independently operate, maintain and support the AIM E-Commerce Service including the Software, appropriately labeled to denote the version or release thereof, and the currency date thereof, in each of: -5- (1) machine-readable form on machine-readable storage medium suitable for long term storage and compatible with the Software as then being used by AIM and which, when compiled, will produce the object code version of the Software; and (2) human-readable form with annotations in English on bond paper suitable for long term archival storage; and (2) a complete copy, in English, on bond paper, suitable for long term archival storage, and appropriately labeled to describe the contents thereof, of all applicable Documentation and other explanatory materials including programmer's notes, technical or otherwise, for the Software as may be required by AIM, using a competent computer programmer possessing ordinary skills and experience, to further develop, maintain and operate such software without further recourse to BID.COM including, but not necessarily limited to, general flow-charts, input and output layouts, field descriptions, volumes and sort sequence, data dictionary, file layouts, processing requirements and calculation formula and the details of all algorithms; "Term", "Initial Term" and "Subsequent Term" have the meanings ascribed in Section 6.1(a); "Territory" means the United States of America as presently constituted. 2. Schedules. The following are the schedules attached to and forming part of this Agreement: Schedule "A" - BID.COM Technology (including Third Party Technology) Schedule "B" - AIM's Requirements Schedule "C" - Customer Service Standards Schedule "D" - Response Times Schedule "E" - Source Code Trust Agreement Schedule "F" - Site Activity Reporting Requirements Schedule "G" - Net Revenue Reports Schedule "H" - Net Promotional Revenue Reports Schedule "I" - BID.COM Marks 3. Headings. The use of headings in this Agreement is for convenience of reference only and shall not affect its interpretation. 4. Extended Meanings. -6- Words expressed in the singular include the plural and vice-versa and words in one gender include all genders. 5. Entire Agreement. This Agreement, and any agreements and other documents to be delivered pursuant to it constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, oral or written between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgments not expressly made in this Agreement or in the agreements and other documents to be delivered pursuant hereto. 6. Currency. Unless otherwise indicated, all dollar amounts referred to in this Agreement are in Canadian funds. 7. Invalidity. If in any jurisdiction a provision contained in this Agreement is found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein, or of such provision in any other jurisdiction affected or impaired thereby. 8. 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 and shall be treated, in all respects, as an Ontario contract. The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of Ontario in respect of the subject matter hereof. 9. Provision of Services. For the purposes of this Agreement, references to the sale of products through the AIM E-Commerce Service shall be deemed to include the provision of services as well. 10. Consent Wherever any Party is required to obtain consent from another Party, such consent shall not be unreasonably withheld or delayed. ARTICLE II. -7- USE OF AIM E-COMMERCE SERVICE 11. AIM E-Commerce Service Subject to the terms of this Agreement, BID.COM hereby grants to AIM the non- exclusive right to use and commercially exploit the BID.COM Technology to operate the AIM E-Commerce Service through the Joint Venture for customers of cable and television broadcast networks, for subscribers to its own cable and television broadcast networks, for customized auctions exclusive to affinity groups, and for the same applications, to launch a video streaming version thereof. BID.COM may in its discretion, on request and subject to such further or other terms as may be appropriate in the view of BID.COM, permit AIM to offer all or any of such services to retail cable and television broadcast network users in Canada. AIM and BID.COM acknowledge that the prior written consent of Rogers Media Inc. may be required to operate any part of the AIM E-Commerce Service or to use some or all of the BID.COM Technology (including the BID.COM Marks) in Canada. AIM shall exercise the rights granted hereunder solely through the Joint Venture unless: (i) BID.COM breaches its obligations to operate the AIM E-Commerce Service following the acquisition by AIM of the Joint Venture by the exercise of its option to purchase the Joint Venture; or (ii) BID.COM prevents the Joint Venture from exercising the rights granted hereunder on behalf of AIM following the acquisition by AIM of the Joint Venture by the excercise of its option to purchase the Joint Venture; or (iii) there is an occurence of a Release Condition within the meaning given to that phrase in the Source Code Trust Agreement. 12. BID.COM/AIM Auction Network AIM through the Joint Venture, will create new BID.COM branded user interfaces for the AIM E-Commerce Service. The interfaces shall feature a BID.COM trademark or brand as BID.COM may elect which shall appear on all screen views and promotional material as a sub-brand. 13. Operation of AIM E-Commerce Service. BID.COM shall operate the AIM E-Commerce Service for the Joint Venture in accordance with the provisions of this Agreement. Except for those obligations which AIM shall perform set out in Article 3 hereof, BID.COM shall be responsible for all aspects of operating the AIM E-Commerce Service. Without limiting the generality of the foregoing, BID.COM shall, at its expense: 1. have sole responsibility for supplying the inventory of products and services which will be offered as part of the AIM E-Commerce Service. BID.COM acknowledges that affinity groups may wish to offer unique goods or service. AIM acknowledges and agrees -8- that BID.COM shall maintain ultimate discretion with respect to the choice of products and services which will be included as part of the AIM E- Commerce Service. 2. comply with AIM's Requirements attached as Schedule "B" hereto; 3. comply with the Customer Service Standards attached as Schedule "C" hereto; 4. provide tracking reports in accordance with Schedule "D" hereto; 5. be responsible for the fulfillment of all purchases of products and services sold by it through the AIM E-Commerce Service; 6. be responsible for the processing of all credit card purchases of products and services through the AIM E-Commerce Service; and 7. comply with the site activity reporting requirements set out in Schedule "F" hereto. 14. Joint Venture Forthwith after execution of this Agreement, AIM shall incorporate a Delaware corporation as a wholly owned subsidiary which shall thereupon execute an addendum to this Agreement in form and content satisfactory to BID.COM whereby the Joint Venture and AIM shall agree to be jointly and severally responsible to BID.COM for the performance of AIM's obligations and liabilities under the Agreement. 15. Promotion of Auction E-Commerce Service AIM shall operate the Joint Venture in accordance with the provisions of this Agreement. AIM shall be responsible for content, creation, advertising, promotional activity, distribution and sales of the AIM E-Commerce Service. Without limiting the generality of the foregoing, AIM shall: 1. have sole responsibility for promoting the AIM E-Commerce and securing cable and television broadcast network and affinity group customers; 2. support and finance the operations of the Joint Venture as required under this Agreement; 3. sell up to 100% of the banner advertisements on the AIM E-Commerce Service; -9- 4. in co-ordination with BID.COM, integrate the BID.COM Technology into the Joint Venture interfaces including developing all necessary links to the BID.COM Site; and 5. be responsible for the ongoing creative and entertainment content of the Joint Venture interfaces, on a cost pass through basis. 16. Management of Joint Venture AIM shall ensure that the Joint Venture is managed in accordance with the following: 1. the business of the Joint Venture shall be restricted to the functions provided for in this Agreement; 2. no transfer, assignment, mortgage, charge or pledge shall be permitted or any equity securities, warrants, options or other rights to acquire equity or other voting rights in respect of the Joint Venture without the prior written consent of BID.COM which may be withheld in its absolute discretion, except for any of the foregoing which are necessary for AIM to comply with its present agreements with Hollinger Digital Inc.; 3. BID.COM is (or in the event BID.COM exercises its option to purchase the Joint Venture, BID.COM and AIM are) granted a security interest (second in priority only to the existing security interest in favour of Hollinger Digital Inc.) in form and content satisfactory to BID.COM in all assets of the Joint Venture to secure the performance of the Joint Venture's obligations hereunder; 4. each of BID.COM and AIM shall have equal representation on the board of directors of the Joint Venture, which shall be chaired by an arm's length person mutually satisfactory to AIM and BID.COM; 5. key financial and management decisions shall require the prior written approval of both AIM and BID.COM including without limitation any issue or transfer of stock or rights or options to acquire stock; all borrowing whether secured or not; the implementation and any changes to an annual business plan; the terms and conditions for acquiring goods or services from persons not at arm's length to the parties; the terms and conditions of retaining senior employees or consultants; the terms and conditions of contracts with users of the AIM E-Commerce Service and any other transaction which is or may be material to the operations of the Joint Venture (BID.COM acknowledges that certain decisions may also require approval of Hollinger Digital Inc or Pioneer Ventures Associates Limited Partnership pursuant to existing agreements): 6. BID.COM shall fund the Joint Venture to the extent of [Confidential Information filed separately with the SEC] in above the line costs (meaning talent, director and line -10- producers) and AIM shall fund the Joint Venture for [Confidential Information filed separately with the SEC] below the line costs (meaning all infrastructure costs required to get the job done) and [Confidential Information filed separately with the SEC] above the line costs to create a promotional tape of the AIM E-Commerce Service; and 7. additional agreed ongoing promotional costs of the Joint Venture shall be funded [Confidential Information filed separately with the SEC] by the parties. 17. Payment and Effective Date In consideration for the grant of the License herein, AIM agrees to share the Net Promotional Revenue and Net Revenue as provided in Section 4.2. The parties agree this Agreement is effective December 30,1998 ARTICLE III. RIGHT TO USE BID.COM TECHNOLOGY 18. Acknowledgment of Title. (1) AIM acknowledges that ownership of the BID.COM Technology and any customization or enhancements as used in the AIM E-Commerce Service shall remain with BID.COM. (2) AIM shall take all reasonable precautions to prevent third parties from using the BID.COM Technology in any way that would constitute a breach of this Agreement. 19. Restriction on Business During the Term of this Agreement AIM agrees that neither it nor any entity which controls, is controlled by or is under common control with it will directly or indirectly use, promote, invest in, or otherwise support in any manner, any cable or television broadcast network auction properties for the Term or any renewal thereof. ARTICLE IV. SERVICES 20. Additional Services. -11- If AIM requests the inclusions of specific functionality or customization changes to the BID.COM Technology, BID.COM will use reasonable efforts to assist AIM, on terms to be mutually agreed upon by the Parties. Such AIM-specific enhancements will be provided by BID.COM on a cost pass through basis, plus reasonable out-of pocket expenses and all applicable taxes. 21. Allocation of Revenue. 1. BID.COM shall pay AIM [Confidential Information filed separately with the SEC] of the Net Revenue. BID.COM shall invoice and collect all Net Revenue. Net Revenue shall be aggregated on a monthly basis, and BID.COM shall pay AIM [Confidential Information filed separately with the SEC] of the Net Revenue within fifteen (15) days of the end of each month. BID.COM shall complete a Net Revenue Report in the form attached hereto as Schedule "G" for each applicable payment period and shall remit each such report along with each payment due hereunder. 2. AIM shall pay BID.COM [Confidential Information filed separately with the SEC] of the Net Promotional Revenue. AIM shall invoice and collect all Net Promotional Revenue. Net Promotional Revenue shall be aggregated on a monthly basis, and AIM shall pay BID.COM [Confidential Information filed separately with the SEC] of the Net Promotional Revenue within fifteen (15) days of the end of each month. AIM shall complete a Net Promotional Revenue Report in the form attached hereto as Schedule "H" for each applicable payment period and shall remit each such report along with each payment due hereunder. 3. Notwithstanding the foregoing provisions of Section 4.2 at such time as the AIM stock issued to BID.COM pursuant to the AIM Stock Agreement of even date herewith (the "AIM Stock") becomes freely trading on a United States exchange satisfactory to BID.COM in the hands of BID.COM or its assigns and maintains an aggregate market value of not less than [Confidential Information filed separately with the SEC] for a minimum of 30 consecutive trading days on such exchange (as measured by the average trading price of stock traded on each of such trading days), AIM shall become entitled to a [Confidential Information filed separately with the SEC] share of future Net Revenue and Net Promotional Revenue until the aggregate of cumulative Net Revenue and Net Promotional Revenue received by AIM from the Effective Date equals [Confidential Information filed separately with the SEC] whereupon all such revenues thereafter shall be shared [Confidential Information filed separately with the SEC]. 4. All other gross margin derived by AIM or the Joint Venture from marketing BID.COM services in the cable and television broadcast network industry in the Territory, including without limitation, from marketing to affinity groups, shall be shared between AIM and BID.COM on a [Confidential Information filed separately with the SEC] basis net of -12- mutually agreed out of pocket and third party costs, and paid monthly within fifteen (15) days of the end of each month. 22. Audit. AIM shall keep accurate books and records of all revenues received by AIM and all information regarding deductions made to calculate Net Promotional Revenues. BID.COM shall keep accurate books and records of all revenues received by BID.COM and all information regarding deductions made to calculate Net Revenues. Each party has the right, acting reasonably, to audit the books and records of the other party during normal business hours in respect of financial obligations under this Agreement. If such audit discloses underpayment by the other party, the other party shall pay such underpayment forthwith, together with interest from the date the payment was due until such amount is paid. If an audit discloses an underpayment of 5% or more, the party in default shall reimburse the other party on demand for the reasonable out of pocket costs incurred in conducting such audit. ARTICLE V. REPRESENTATIONS, WARRANTIES AND INDEMNITIES 23. Warranty and Indemnity re: Authority, Title and Proprietary Rights. (1) BID.COM represents and warrants that it has the right to grant the licence hereby granted and that BID.COM has the right to provide the AIM E-Commerce Service. (2) BID.COM agrees to defend and indemnify AIM and hold it harmless from all losses, claims, damages or liabilities, including court costs and legal fees, in connection with or arising out of any claim asserted against AIM based upon a contention that the AIM E-Commerce Service, the BID.COM Technology or the Software or any of the Deliverables, or any portion thereof used by AIM or the Joint Venture within the scope of this Agreement infringe the Intellectual Property Rights of any third Party provided that: (1) AIM or the Joint Venture promptly notify BID.COM in writing of the claim and of all material developments in connection with such claim and provides all assistance otherwise reasonably requested by BID.COM; (2) BID.COM has the right to control, at its own expense, the defence and all related settlement negotiations (AIM has the right to participate at its own expense); (3) AIM or the Joint Venture does not pay or settle any such claim without the express written consent of BID.COM; and (4) the claim in respect of which indemnity is sought does not arise out of or in connection with any unauthorized use of the BID.COM Technology by AIM. -13- In addition, if the BID.COM Technology, any of the Deliverables, or any portion thereof is held to constitute an infringement of another Person's rights, and use thereof is enjoined, or BID.COM enters into a settlement of the claim which includes an agreement to refrain from the use thereof, BID.COM shall, at its election and expense, either: 1) procure the right to use the infringing element thereof; 2) procure the right to an element which performs the same function without any material loss of functionality; or 3) replace or modify the element thereof so that the infringing portion is no longer infringing and still performs the same function without any material loss of functionality; and shall make every reasonable effort to correct the situation with minimal effect upon the operations of AIM or AIM affiliates. 24. General Limitation on Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) ARISING FROM BREACH OF THE AGREEMENT, THE USE OR INABILITY TO USE THE BID.COM TECHNOLOGY, THE AIM E-COMMERCE SERVICE, THE SOFTWARE, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH SUCH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION 5.1(2) ABOVE. EXCEPT AS PROVIDED IN SECTION 5.1(2), NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR MORE THAN $250,000 PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY. 25. Provision of Source Code Materials. AIM may subscribe, at its own expense, to the existing Source Code Escrow Agreement attached as Schedule "D" and deposited with Data Securities International, Inc. which provides for the release to AIM of the source code for the BID.COM Technology for use as provided in Section 2.1 if (i) BID.COM voluntarily declares bankruptcy, becomes insolvent or ceases the operation of its business; or (ii) BID.COM materially fails to maintain or operate the BID.COM -14- Technology or the AIM E-Commerce Service; or (iii) BID.COM is in continuing material breach of this Agreement. 26. Confidentiality. Each Party (hereinafter in this Section, the "Receiving Party") covenants with the other Party (hereinafter in this Section, the "Disclosing Party") that it shall keep confidential the Confidential Information of the Disclosing Party to which the Receiving Party obtains access as a consequence of entering into this Agreement and that it will take all reasonable precautions to protect such Confidential Information from any use, disclosure or copying except as expressly authorized by this Agreement. The Receiving Party shall implement such procedures as the Disclosing Party may reasonably require from time to time to improve the security of the Confidential Information of the Disclosing Party in its possession. This Section shall survive the termination of the Agreement. Upon termination of this Agreement, the Receiving Party shall, at the choice of the Disclosing Party, either return to the Disclosing Party or destroy all copies or partial copies of Confidential Information of the Disclosing Party in any form which is in the possession of the Receiving Party or under its control, and certify that all such Confidential Information has been returned or otherwise destroyed. 27. Use of Data. (1) BID.COM retains ownership of the BID.COM Technology, but to the extent permitted by applicable law and subject to any restrictions imposed by customers of the Joint Venture or subscribers agrees to allow AIM access to and, subject to the restrictions below, use of any and all Data pertaining to the purchase and sale of goods or services by United States Television subscribers (the "Data"). All Data is the property of BID.COM. (2) BID.COM shall provide AIM with monthly usage reports that tracks all elements necessary to allocate revenues in the forms set out in Schedule "E" and will make all payments required pursuant to such reports within 15 days of each month end. BID.COM agrees that it also provide, on a best efforts basis, information as to how cable and television broadcast network users of the BID.COM Technology are navigating through the BID.COM Online Auction. (3) AIM covenants that: (1) it will not use the Data to operate a competitive auction service during the Term of this Agreement or any extension thereof or for one year thereafter; and (2) it will not allow third parties to use the Data for any purpose without the prior written approval of BID.COM. 28. Ownership of the Software and Online Auction Trade-mark. -15- AIM acknowledges that the Software constitutes commercially valuable trade secrets and proprietary data of BID.COM and is Confidential Information and that no provision of this Agreement shall be construed to convey title in the Software, any of BID.COM's Intellectual Property Rights or the BID.COM URL. 29. AIM-Specific Enhancements. If AIM requests that BID.COM develop an AIM-Specific Enhancement, the parties will mutually agree in writing to terms and conditions respecting the development of such AIM-Specific Enhancement, including, without limitation, terms and conditions relating to each parties' respective ownership and exploitation rights in such AIM-Specific Enhancement. The parties acknowledge and agree that their respective ownership and exploitation rights in each AIM- Specific Enhancement shall be determined in accordance with the following principles: 1. if an AIM-Specific Enhancement can be used as a severable, standalone component, then AIM shall own all right, title and interest in and to such AIM-Specific Enhancement, and BID.COM shall be granted perpetual, royalty- free license rights to use sub-license, exploit and reproduce such AIM- Specific Enhancement, provided that BID.COM may not transfer or license such AIM-Specific Enhancement to any third party (other than its Affiliates) without the prior written consent of AIM. 2. if an AIM-Specific Enhancement is integrated into the BID.COM Technology, the BID.COM Site or the AIM E-Commerce Service in such a way that it cannot reasonably be used as a severable, standalone component, then BID.COM shall own all right, title and interest in and to such AIM-Specific Enhancement, and AIM shall be granted perpetual, royalty-free license rights to use, sub-license, exploit and reproduce such AIM-Specific Enhancement internally, provided that AIM may not transfer or license such AIM-Specific Enhancement to any third party without the prior written consent of BID.COM. 30. Limitation on Warranties. Except for those warranties otherwise provided herein, neither Party makes any warranties or representations, and there are no conditions, express or implied, in fact or in law, including without limitation, the implied warranties or conditions of merchantable quality and fitness for a particular purpose and those arising by statute or otherwise in law or from a course of dealing or usage of trade. ARTICLE VI. DEFAULT AND TERMINATION -16- 31. Term. (1) This Agreement shall commence on the Effective Date and shall continue, subject to early termination in accordance with the terms hereof, until June 30, 2001 (the "Initial Term"). Thereafter, the Agreement may be renewed at the option of AIM (at the end of the Initial Term and the next following two subsequent Terms, for additional one year periods ("Subsequent Terms") provided the last of the Term and Subsequent Terms shall expire no later than June 30, 2003. All Renewals shall be subject to agreement or allocation of Net Revenue and Net Promotional Revenue for the ensuing Subsequent Term and in default of agreement, the parties shall submit the determination of such allocation to arbitration pursuant to Article VII unless either party elects to terminate at least 90 days before the end of the then current Term. (2) The extension of the Term of the Agreement into a Subsequent Term shall be conditional upon the Parties, during the ninety (90) days prior to the end of the Initial Term, negotiating and agreeing on reasonable values for renewal metrics for the upcoming Subsequent Term. If the Parties are unable to reach such an agreement, the Parties agree that they will submit the determination of such allocation to binding arbitration in accordance with the terms of Article VII unless either party elects to terminate this Agreement unless by providing written notice to the other party at least ninety (90) days prior to the end of the then current term, stating its intention to terminate the Agreement at the end of such term. 32. Termination. Subject to the time frames set out below, this Agreement may be terminated forthwith by notice to the either Party on written notice upon the occurrence of an event of default by the other Party. Each of the following constitutes an event of default for the purposes of this Agreement: (1) if a Party fails to perform any material obligation set forth in this Agreement and such default, in the case of a default which is remediable, continues for a period of thirty (30) days after written notice of such failure has been given by the non-defaulting Party; (2) if a Party declares bankruptcy or becomes insolvent or ceases the operation of its business without a successor acceptable to the other Party; (3) if a Party decides to permanently exit the on line auction business; or (4) AIM or the Joint Venture fails to establish the AIM E-Commerce Service as a viable business or if the AIM Stock does not become freely trading in the hands of BID.COM or its assigns within twelve (12) months of the Effective Date. -17- 33. Survival. For a period of ninety (90) days after this Agreement is terminated or expires, all operative terms of this Agreement with respect to the allocation of Net Revenue and Net Promotional Revenue will remain in full force and effect and (except for termination as provided in section 6.2 (ii), (iii) or (iv) in which event there shall be no survival period) AIM shall retain the right to use the AIM E-Commerce Service and the BID.COM Technology in the same manner it was entitled to use them as of the date of termination. At the end of a period of ninety (90) days, AIM will cease to have any right to use the BID.COM Technology or the AIM E-Commerce Service and BID.COM will cooperate with AIM in a mutually agreed transition schedule to a new technology. Except as otherwise provided herein, the terms of Articles II, III and VII shall survive any termination or expiry of this Agreement and shall continue in force thereafter for the period contemplated by the Agreement. Other provisions of this Agreement which, by the nature of the rights or obligations set out therein, might reasonably be expected to be intended to so survive, shall survive termination or expiry of this Agreement until they are satisfied or by their nature expire. ARTICLE VII. ARBITRATION 34. Dispute Resolution Process. If any dispute, disagreement, controversy or claim arising out of or relating to this Agreement including, without limitation, its application, interpretation, performance, breach, termination, enforcement or damages, or remedies arising out of the breach of or non-compliance therewith, shall be finally determined by arbitration before a single arbitrator to be commenced and conducted in the English language in Toronto in accordance with the Arbitration Act (Ontario). The Parties hereto agree that: (1) subject to mutual agreement between the Parties to the contrary, the arbitrator shall be a person who is legally trained and trained as a professional arbitrator and who has a minimum of five (5) years experience in the licensing of computer software; (2) the Parties shall agree on the identity of the arbitrator within 10 days of notice of reference to arbitration and in default thereof, either Party may apply to a Judge of the Supreme Court of Ontario, General Division, to appoint an arbitrator with the foregoing qualifications; (3) the Parties shall be required to make written submissions to the arbitrator within 7 days of appointment and shall not be entitled to make verbal representations or further -18- submissions unless so requested by the arbitrator. Any Party who does not comply with the foregoing time period shall not be entitled to make any submissions without the written approval of the other Party; (4) the arbitrator shall be required to render his decision in writing within 10 days of the period mentioned in Subsection 7.1(c); (5) neither of the Parties shall apply to the Courts of Ontario or any other jurisdiction to attempt to enjoin, delay, impede or otherwise interfere with or limit the scope of the arbitration or the powers of the arbitrator provided for in the Arbitration Act (Ontario) (6) the award of the arbitrator shall be a final and conclusive award and judgment with respect to all matters properly before the arbitral tribunal in accordance with the Arbitration Act (Ontario) and neither Party shall appeal such award in any manner whatever to any court, tribunal or other authority; and (7) the award of the arbitral tribunal may be entered and enforced by any court in any jurisdiction having jurisdiction over the Parties hereto or the subject matter of the award or the properties or assets of either of the Parties hereto. ARTICLE VIII. MANAGEMENT AND REPORTING 35. Management. The Parties each agree to designate an individual known as a Project Manager from their respective companies with adequate authority and full technical competence to deal with matters relating to the implementation of the Deliverables. Specifically, Project Managers will, on behalf of their respective Parties, in accordance with the spirit of this Agreement, use reasonable efforts to coordinate the provision of the AIM E-Commerce Service. Upon such designations, each of BID.COM and AIM shall concurrently provide the other with details with respect to its Project Manager, including name, address and telephone number, and each of BID.COM and AIM may from time to time change its Project Manager with the consent of the other which will not be unreasonably withheld or delayed. 36. Reports. (1) Subject to Section 5.5, Data obtained in connection with the AIM E-Commerce Service will be shared with AIM by BID.COM to generate co-marketing opportunities with BID.COM, such as (i) customer name; (ii) address; (iii) e-mail address; (iv) registered credit card information; and (v) purchase history. -19- (2) To the extent permirred by applicable law and subject to any restrictions imposed by contract, Data and information obtained by the Joint Venture and AIM in promoting the Joint Venture and the AIM E-Commerce Service shall be shared with BID.COM for the purposes described in the preceeding section. (3) BID.COM will maintain its ownership of the BID.COM Technology, databases and customer information provided on a voluntary basis to AIM. (4) The Parties further agree that they will, on request, provide such information as to weekly or other periodic activity relating to the AIM E- Commerce Service as is readily available and as can be generated without unreasonable disruption of business. ARTICLE IX. GENERAL 37. Notice. Any notice or other communication (a "Notice") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (1) delivered in person during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant Party at the applicable address set forth below; (2) sent by prepaid first class mail; or (3) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to AIM addressed to it at: American Interactive Media, Inc. Suite 308, 611 Broadway New York, New York 10012 Attention: Mark Graff Fax No.: (212) 358-0189 with a copy to: -20- Curtis, Mallet-Prevost, Colt & Mosle 101 Park Avenue, New York, New York, 101780061 Attention: Jeffrey N. Ostrager Fax No.: (212) 697-1559 and in the case of a Notice to BID.COM addressed to it at: BID.COM International Inc. 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: Paul Godin Fax No.: (905) 672-7514 with a copy to: Gowling, Strathy & Henderson Barristers & Solicitors Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: David Pamenter Fax No.: (416) 862-7661 Any Notice given or made in accordance with this Section 9.1 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; (b) on the fifth Business Day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and -21- (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof. Either Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 9.1. 38. Assignment. Neither Party may assign its rights and obligations under this Agreement, in whole or in part, without the prior consent in writing of the other and any purported assignment made without that consent is void and of no effect (save and except for an assignment as an incident of security taken in a normal course financing transaction). No assignment of this Agreement shall relieve either party from any obligation under this Agreement. 39. Binding on Successors. This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. 40. Further Assurances. Each Party agrees that upon the written request of the other Party, it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other Party hereto may from time to time reasonably request be done and/or executed as may be necessary or desirable to give effect to this Agreement. 41. Independent Contractors. It is understood and agreed that in giving effect to this Agreement, no Party shall be or be deemed a partner, agent or employee of another Party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the Parties. No Party shall have the right to enter into contracts or pledge the credit of or incur expenses of liabilities on behalf of the other Party. 42. Waiver. A waiver by a Party hereto of any of its rights hereunder or of the performance by the other Party of any of its obligations hereunder shall be without prejudice to all of the other rights hereunder of the Party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other Party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations so -22- waived. No waiver shall be effective or binding upon a Party unless the same shall be expressed in writing and executed by the Party to be bound. 43. Compliance With Law. Each party shall, in the performance of this Agreement, fully comply with, and abide by, all laws, regulations, regulatory rulings or directives, court orders, and decisions of administrative tribunals of competent jurisdiction, that may, in any manner or extent, concern, govern, or affect either party's respective performance of, and obligations under, this Agreement. 44. Interpretation. This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which party drafted the Agreement being applied in favour or against either party. 45. Effective Date. This Agreement shall not become a valid and binding contract unless and until each party has duly executed and delivered this Agreement. For greater certainty, there shall be no agreement, whether oral, written, express, implied or otherwise notwithstanding any performance between the parties concerning the subject matter of this document, including, without limitation, by course of conduct, doctrine of part performance, or otherwise. 46. Amendment. No amendment of any provision of this Agreement shall be effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by two authorized signing officers of AIM and an authorized officer of BID.COM. For greater certainty, the parties acknowledge and agree that no representations, warranties, conditions, covenants or other statements or commitments, whether -23- made orally, in writing, by course of conduct or otherwise, and whether made prior to the Effective Date of this Agreement or thereafter, shall be binding on either of the parties. 47. 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 and shall be treated, in all respects, as an Ontario contract. The parties hereby: (i) irrevocably submit to the exclusive jurisdiction of the courts of Ontario in respect of the subject matter hereof; (ii) consent to service of process being effected upon the other party by registered mail sent to the address set forth in section 8.1 hereof; (iii) agree not to seek, request, claim or pursue trial by jury; and (iv) agree not to seek, request, claim or pursue any right, claim, or entitlement to any punitive or exemplary damages whatsoever. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. BID.COM INTERNATIONAL INC. By:____________________________________ (Duly Authorized Officer) By:____________________________________ (Duly Authorized Officer) AMERICAN INTERACTIVE MEDIA, INC. By:____________________________________ (Duly Authorized Officer) -24- By:____________________________________ (Duly Authorized Officer) CP Doc #: 124859-1 SCHEDULE A BID.COM Technology (including Third Party Technology)
ILI Bid.com Modules - -------------------------------------------------------------------------------------------------------- Databases: [Confidential Information filed separately with the SEC] Business Services: [Confidential Information filed separately with the SEC] Data Services: [Confidential Information filed separately with the SEC] Dynamic Export: [Confidential Information filed separately with the SEC] Order Processing Administrator: [Confidential Information filed Credit Card: separately with the SEC] Order Business Services: Utilities: Category Builder: [Confidential Information filed AdrotatorGenerator separately with the SEC] AssetMgmt: DB Services: Notification: Supporting S/W: [Confidential Information filed separately with the SEC] Web: [Confidential Information filed separately with the SEC] ILI Bid.com Modules (Dutch) - -------------------------- Business Services: [Confidential Information filed separately with the SEC] Data Services: [Confidential Information filed separately with the SEC] Dutch Server: [Confidential Information filed separately with the SEC] Dutch Client: [Confidential Information filed separately with the SEC] Internet Web: [Confidential Information filed separately with the SEC] Admin Web: [Confidential Information filed separately with the SEC]
Top Bid Auction --------------- [Confidential Information filed separately with the SEC] 2 Dutch Auction ------------- [Confidential Information filed separately with the SEC] 3 Bid.Com Commerce Site List Of Third Party Tools Incorporated Into Application [Confidential Information filed separately with the SEC] 4 SCHEDULE "B" AIM's Requirements B.1 Preparation and Delivery of AIM's Requirements. AIM and BID.COM covenant and agree to negotiate in good faith to execute an amendment to this Agreement (the "Amendment") within thirty (30) days of the Effective Date in order to complete this Schedule "B" in a manner acceptable to both parties. The Amendment shall contain detailed performance requirements and specifications for the Television E-Commerce Service. B.2 Escalation. In the event that the Amendment has not been executed within thirty (30) days of the Effective Date, the parties shall review disputes and use their good faith efforts to complete the Amendment within an additional thirty (30) day period. If the Amendment has not been completed within such additional (30) day period, outstanding disputes or issues relating to the Amendment shall be submitted to dispute resolution in accordance with Article VII of this Agreement. 5 SCHEDULE "C" Customer Service Standards BID.COM shall, at a minimum, comply with the following customer service standards in its operation of the Television E-Commerce Service: C.1 Logistics BID.COM shall: 1. appoint sufficient numbers of dedicated employees to provide e-mail online customer service; 2. receive and respond to email and customer inquiries within two (2) business days of receipt; 3. install a toll free phone line and communicate the toll free phone number in the online "Customer Service" area of the BID.COM Site; 4. ensure the ability to handle customer service volumes in excess of 25% of average daily order volumes; 5. monitor the Television E-Commerce Service to minimize out of stock merchandise; 6. post all customer service policies in an online "Customer Service" area of the BID.COM Site which includes the following information and policies: shipping information, return policies, product warranties and contact information; and 7. post security and privacy policies in an online "Customer Service" area of the BID.COM Site. C.2 Process and Fulfilment In fulfilling purchases by customers of the Television E-Commerce Service, BID.COM shall abide by its "USA Terms and Conditions" as published and amended by it from time to time. A copy of the current USA Terms and Conditions is attached as Schedule "C-1". SCHEDULE "D" Response Times D.1 BID.COM shall respond to any report that the BID.COM Technology, the Television Commerce Service or the BID.COM Site is failing to meet AIM's Requirements, and shall correct such failure, within the time frames set out in Section D.2 of this Schedule"D". The severity of any particular failure shall be reasonably determined by AIM, and communicated to BID.COM, based on the following definitions: Severity 1: total inability to use any material part of the BID.COM Technology, the E-Commerce Service or the BID.COM Site, resulting in a critical impact on user objectives. Severity 2: ability to use the BID.COM Technology, the Television E-Commerce Service or the BID.COM Site, but user operation is severely restricted. Severity 3: ability to use the BID.COM Technology, the Television E-Commerce Service or the BID.COM Site; failures relate to functions which are not critical to overall user operations. Severity 4: failure has been bypassed or temporarily corrected and is not affecting customer operations. D.2 BID.COM shall correct failures of the BID.COM Technology, the Television E- Commerce Service and the BID.COM Site in order to comply with AIM's Requirements within the following time frames: Severity 1: within 24 hours of notification by AIM Severity 2: within 48 hours of notification by AIM Severity 3: within 15 days of notification by AIM Severity 4: within 120 days of notification by AIM SCHEDULE "E" Source Code Trust Agreement MASTER PREFERRED ESCROW AGREEMENT Master Number __________ This Agreement is effective February 12, 1997 among Data Securities International, Inc.("DSV), Internet Liquidators International Inc. ("Depositor"), and any additional party signing the Acceptance Form attached to this Agreement ("Preferred Beneficiary") who collectively may be referred to in this Agreement as "the parties." A. Depositor and Preferred Beneficiary have entered or will enter into a license agreement in the form attached to such Preferred Beneficiary's Acceptance Form regarding certain proprietary technology of Depositor (referred to in this Agreement as "the license agreement"). B. Depositor desires to avoid disclosure of its proprietary technology except under certain limited circumstances. C. The availability of the proprietary technology of Depositor is critical to Preferred Beneficiary in the conduct of its business and, therefore, Preferred Beneficiary needs access to the proprietary technology under certain limited circumstances. D. Depositor and Preferred Beneficiary desire to establish an escrow with DSI to provide for the retention, administration and controlled access of certain proprietary technology materials of Depositor. ARTICLE 1 -DEPOSITS 1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the parties, including the signing of the Acceptance Form, Depositor shall deliver to DSI the proprietary information and other materials identified on an Exhibit A. DSI shall have no obligation with respect to the preparation, signing or delivery of Exhibit A. 1.2 Identification of Tangible Media. Prior to the delivery of the deposit -------------------------------- materials to DSI, Depositor shall conspicuously label for identification each document, magnetic tape, disk, or other tangible media upon which the deposit materials are written or stored. Additionally, Depositor shall complete Exhibit B to this Agreement by listing each such tangible media by the item label description, the type of media and the quantity. The Exhibit B must be signed by Depositor and delivered to DSI with the deposit materials. Unless and until Depositor makes the initial deposit with DSI, DSI shall have no obligation with respect to this Agreement, except the obligation to notify the parties regarding the status of the deposit account as required in Section 2.2 below. 1.3 Deposit Inspection. When DSI receives the deposit materials and the Exhibit B, DSI will give a receipt for the deposit materials to the Depositor in the form provided by the Depositor and conduct a deposit inspection by visually matching the labeling of the tangible media containing the deposit materials to the item descriptions and quantity listed on the Exhibit B. In addition to the deposit inspection, Preferred Beneficiary may elect to cause a verification of the deposit materials in accordance with Section 1.6 below. 1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI determines that the labeling of the tangible media matches the item descriptions and quantity on Exhibit B, DSI will date and sign the Exhibit B and deliver a copy thereof to Depositor and Preferred Beneficiary. If DSI determines that the labeling does not match the item descriptions or quantity on the Exhibit B, DSI will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign the Exhibit B with the exceptions noted, and (c) provide a copy of the Exhibit B to Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs upon the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to Preferred Beneficiary is Preferred Beneficiary's notice that the deposit materials have been received and accepted by DSI. 1.5 Depositor's Representations. Depositor represents as follows: (a) Depositor lawfully possesses all of the deposit materials deposited with DSI; (b) With respect to all of the deposit materials Depositor has the right and authority to grant to DSI and Preferred Beneficiary the rights as provided in this Agreement; (c) The deposit materials are not subject to any lien or other encumbrance other than encumbrances arising in the ordinary cause of Depositor's business; (d) The deposit materials consist of the proprietary information and other materials identified in Exhibit A; and (e) The deposit materials are readable and useable in their current form or, if the deposit materials are encrypted, the decryption tools and decryption keys have also been deposited. 1.6 Verification. Preferred Beneficiary shall have the right, at Preferred Beneficiary's expense. to cause a verification of any deposit materials. A verification determines, in different levels of detail, the accuracy, completeness. sufficiency and quality of the deposit materials. If a verification is elected after the deposit materials have been delivered to DSI, then only DSI, or at DSI's election an independent person or company selected and supervised by DSI, may perform the verification. 1.7 Deposit Updates. Unless otherwise provided by the license agreement, Depositor shall update the deposit materials within 60 days of each release of a new version of the product which is subject to the license agreement. Such updates will be added to the existing deposit. All deposit updates shall be listed on a new Exhibit B and the new Exhibit B shall be signed by Depositor. Each Exhibit B will be held and maintained separately within the escrow account. An independent record will be created which will document the activity for each Exhibit B. The processing of all deposit updates shall be in accordance with Sections 1.2 through 1.6 above. All references in this Agreement to the deposit materials shall include the initial deposit materials and any updates. 2 1.8 Removal of Deposit Materials. The deposit materials may be removed and/or exchanged only on written instructions signed by Depositor and Preferred Beneficiary, or as otherwise provided in this Agreement. ARTICLE 2 --CONFIDENTIALITY AND RECORD KEEPING 2.1 Confidentiality. DSI shall maintain the deposit materials in a secure, environmentally safe, locked facility in the greater Toronto area which is accessible only to authorized representatives of DSI. DSI shall have the obligation to reasonably protect the confidentiality of the deposit materials. Except as provided in this Agreement, DSI shall not disclose, transfer, make available, or use the deposit materials. DSI shall not disclose the content of this Agreement to any third party. If DSI receives a subpoena or other order of a court or other judicial tribunal pertaining to the disclosure or release of the deposit materials, DSI will immediately notify the parties to this Agreement. It shall be the responsibility of Depositor and/or Preferred Beneficiary to challenge any such order; provided, however, that DSI does not waive its rights to present its position with respect to any such order. DSI will not be required to disobey any court or other judicial tribunal order. (See Section 7.5 below for notices of requested orders.) 2.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary a report profiling the account history at least semi-annually. DSI may provide copies of the account history pertaining to this Agreement upon the request of any party to this Agreement. 2.3 Audit Rights. During the term of this Agreement, Depositor and Preferred Beneficiary shall each have the right to inspect the written records of DSI pertaining to this Agreement. Any inspection shall be held during normal business hours and following reasonable prior notice. ARTICLE 3 - GRANT OF RIGHTS TO DSI 3.1 Title to Physical Copies of Deposited Materials. (a) Depositor transfers to DSI in trust all legal title in and to the physical copies of the deposit materials provided to DSI from time to time in accordance with the terms of this Agreement. It is acknowledged by the parties hereto that such transfer by Depositor to DSI under this Section is not intended to, nor does it, transfer any intellectual property or other intangible rights in the deposit materials. DSI agrees to hold the deposit materials in trust for Depositor and Preferred Beneficiary as provided in this Agreement. (b) The expression "in trust" is intended to refer strictly to the issue of ownership of the deposit materials and not to the level of care which must be taken by DSI in performing its duties under this Agreement. The duties of DSI are strictly contractual in nature and are as set out in this Agreement. It is not intended that DSI is to have the fiduciary duty of a trustee. 3 3.2 Right to Make Copies. DSI shall have the right to make copies of the deposit materials as reasonably necessary to perform this Agreement. DSI shall copy all copyright, nondisclosure. and other proprietary notices and titles contained on the deposit materials onto any copies made by DSI. With all deposit materials submitted to DSI, Depositor shall provide any and all instructions as may be necessary to duplicate the deposit materials including but not limited to the hardware and/or software needed. 3.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the right to transfer deposit materials to Preferred Beneficiary upon any release of the deposit materials for use by Preferred Beneficiary in accordance with Section 4.5. Except upon such a release or as otherwise provided in this Agreement, DSI shall not transfer the deposit materials. ARTICLE 4 - RELEASE OF DEPOSIT 4.1 Release Conditions. As used in this Agreement, "Release Conditions" shall mean the following: (a) voluntary bankruptcy of Depositor; (b) involuntary bankruptcy provided that the Depositor is not in good faith diligently taking steps to contest or set aside such process, (c) if Depositor becomes insolvent and ceases to continue to carry on its business; (d) if Depositor ceases the operation of its business and the business is not continued by a successor acceptable to the Preferred Beneficiary, acting reasonably; and (e) any additional release conditions identified on the attached Acceptance Form. 4.2 Filing For Release. If Preferred Beneficiary believes in good faith that a Release Condition has occurred, Preferred Beneficiary may provide to DSI written notice of the occurrence of the Release Condition and a request for the release of the deposit materials. Upon receipt of such notice, DSI shall deliver a copy of the notice to Depositor. 4.3 Contrary Instructions. From the date DSI delivers the notice requesting release of the deposit materials, if the Release Condition is one defined in 4. 1 (b), 4. 1 (d) or 4. 1 (e) Depositor shall have ten business days to deliver to DSI Contrary Instructions. If the Release Condition is one defined in 4. 1 (a) or (c), DSI shall release the deposit materials pursuant to Section 4.4 within 48 hours of giving notice to the Depositor under Section 4.2. "Contrary Instructions" shall mean the written representation by Depositor that a Release Condition has not occurred or has been cured. Upon receipt of Contrary Instructions, DSI shall deliver a copy to Preferred Beneficiary. Additionally, DSI shall notify both Depositor and Preferred Beneficiary that there is a dispute to be resolved pursuant to the Dispute Resolution section of this Agreement (Section 7.3). Subject to Section 5.2, DSI will continue to store the deposit materials without release pending (a) joint instructions from Depositor and Preferred Beneficiary, (b) resolution pursuant to the Dispute Resolution provisions, or (c) order of a court. 4 4.4 Release of Deposit. If DSI does not receive Contrary Instructions from the Depositor, DSI is authorized to release the deposit materials to the Preferred Beneficiary or, if more than one beneficiary is registered to the deposit materials, to release a copy of the deposit materials to the Preferred Beneficiary who gave notice under Section 4.2. However, DSI or DSI's authorized representative is entitled to receive any fees due DSI or DSI's authorized representative before making the release. This Agreement will terminate with respect to the Preferred Beneficiary giving notice under Section 4.2 upon the release of the deposit materials held by DSI. 4.5 Right to Use Following Release. Unless otherwise provided in the license agreement, upon release of the deposit materials in accordance with this Article 4, Preferred Beneficiary shall have the right to use the deposit materials for the sole purpose of continuing the benefits afforded to Preferred Beneficiary by the license agreement. Preferred Beneficiary shall be obligated to maintain the confidentiality of the released deposit materials. ARTICLE 5 - TERM AND TERMINATION 5.1 Term of Agreement. The initial term of this Agreement is for a period of one year. Thereafter, this Agreement shall automatically renew from year-to-year unless (a) Depositor and Preferred Beneficiary jointly instruct DSI in writing that the Agreement is terminated, or (b) the Agreement is terminated by DSI for nonpayment in accordance with Section 5.2. If the Acceptance Form has been signed at a date later than this Agreement, the initial term of the Acceptance Form will be for one year with subsequent terms to be adjusted to match the anniversary date of this Agreement. If the deposit materials are subject to another escrow agreement with DSI, DSI reserves the right, after the initial one year term, to adjust the anniversary date of this Agreement to match the then prevailing anniversary date of such other escrow arrangements. 5.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to DSI or DSI's authorized representative, DSI shall provide written notice of delinquency to the parties to this Agreement affected by such delinquency. Any such party shall have the right to make the payment to DSI or DSI's authorized representative to cure the default. If the past due payment is not received in full by DSI or DSI's authorized representative within one month of the date of such notice, then at anytime thereafter DSI shall have the right to terminate this Agreement to the extent it relates to the delinquent party by sending written notice of termination to such affected parties. DSI shall have no obligation to take any action under this Agreement so long as any payment due to DSI or DSI's authorized representative remains unpaid. 5.3 Disposition of Deposit Materials Upon Termination. Upon termination of this Agreement by joint instruction of Depositor and each Preferred Beneficiary, DSI shall return the deposit materials to the Depositor. Upon termination for nonpayment, DSI shall return the deposit materials to the Depositor. DSI shall have no obligation to return or destroy the deposit materials if the deposit materials are subject to another escrow agreement with DSI. 5.4 Survival of Terms Following Termination. Upon termination of this Agreement, the following provisions of this Agreement shall survive: 5 (a) Depositor's Representations (Section 1.5); (b) The obligations of confidentiality with respect to the deposit materials; (c) The rights granted in the sections entitled Right to Transfer Upon Release (Section 3.3) and Right to Use Following Release (Section 4.5), if a release of the deposit materials has occurred prior to termination; (d) The obligation to pay DSI or DSI's authorized representative any fees and expenses due; (e) The provisions of Article 7; and (f) Any provisions in this Agreement which specifically state they survive the termination or expiration of this Agreement. 5.5 Alternative to DSI. If this Agreement terminates, Depositor and Preferred Beneficiary agree, at Preferred Beneficiary's request, to appoint a new agent by mutual agreement. If Depositor and Preferred Beneficiary cannot agree, Preferred Beneficiary shall appoint a trust company or other company specializing in the escrow business as the agent provided that such company has appropriate storage facilities located in or around Toronto and agrees to store the deposited materials there in accordance with the terms of this Agreement. The new agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named hereunder, without any further assurance, conveyance, act or deed. ARTICLE 6 - DSI'S FEES 6.1 Fee Schedule. DSI or DSI's authorized representative is entitled to be paid its standard fees and expenses applicable to the services provided. DSI or DSI's authorized representative shall notify the party responsible for payment of DSI's fees at least 90 days prior to any increase in fees. For any service not listed on DSI's standard fee schedule, DSI or DSI's authorized representative will provide a quote prior to rendering the service. 6.2 Payment Terms. DSI shall not be required to perform any service unless the payment for such service and any outstanding balances owed to DSI or DSI's authorized representative are paid in full. All other fees are due upon receipt of invoice. If invoiced fees are not paid, DSI may terminate this Agreement in accordance with Section 5.2. Late fees on past due amounts shall accrue at the rate of one and one-half percent per month (18% per annum) from the date of the invoice. ARTICLE 7 - LIABILITY AND DISPUTES 7.1 Right to Rely on Instructions. DSI may act in reliance upon any instruction, instrument, or signature reasonably believed by DSI to be genuine. DSI may assume that any employee of a party to this Agreement who gives any written notice. request, or instruction has the authority to 6 do so. DSI shall not be responsible for failure to act as a result of causes beyond the reasonable control of DSI, subject to Section 2. 1. 7.2 Indemnification. DSI shall be responsible to perform its obligations under this Agreement and to act in a reasonable and prudent manner with regard to this escrow arrangement. Provided DSI has acted in the manner stated in the preceding sentence, Depositor and Preferred Beneficiary each agree to indemnify, defend and hold harmless DSI from any and all claims, actions, damages, arbitration fees and expenses, costs, attorney's fees and other liabilities incurred by DSI relating in any way to this escrow arrangement. 7.3 Dispute Resolution. Any dispute, difference or question arising among any of the parties concerning the construction, meaning, effect or implementation of this Agreement or any part hereof will be settled by a single arbitrator mutually agreed upon by the parties, or failing agreement, an arbitrator appointed pursuant to the Arbitration Act (Ontario) or similar legislation. The decision of such arbitrator appointed pursuant to this Agreement or such Act will be final and binding on the parties and no appeal will lie therefrom. 7.4 Controlling Law. This Agreement is to be governed and construed in accordance with the laws of the Province of Ontario except any laws which would refer any matter to the laws of another jurisdiction. All parties irrevocably attorn to the exclusive jurisdiction of the Courts of Ontario in respect of the subject matter hereof. 7.5 Notice of Requested Order. If any party intends to obtain an order from the arbitrator or any court of competent jurisdiction which may direct DSI to take, or refrain from taking any action, that party shall: (a) Give DSI at least two business days' prior notice of the hearing; (b) Include in any such order that, as a precondition to DSI's obligation, DSI or DSI's authorized representative be paid in full for any past due fees and be paid for the reasonable value of the services to be rendered pursuant to such order: and (c) Ensure that DSI not be required to deliver the original (as opposed to a copy) of the deposit materials if DSI may need to retain the original in its possession to fulfill any of its other escrow duties. ARTICLE 8 - GENERAL PROVISIONS 8.1 Entire Agreement. This Agreement, which includes the Acceptance Form and the Exhibits described herein, embodies the entire understanding between all of the parties with respect to its subject matter and supersedes all previous communications. representations or understandings, either oral or written. No amendment or modification of this Agreement shall be valid or binding unless signed by all the parties hereto, except that Exhibit A need not be signed by DSI, Exhibit B need not be signed by Preferred Beneficiary and the Acceptance Form need only be signed by the parties identified therein. 7 8.2 Notices. All notices, invoices, payments, deposits and other documents and communications shall be given to the parties at the addresses specified in the attached Exhibit C and Acceptance Form. It shall be the responsibility of the parties to notify each other as provided in this Section in the event of a change of address. The parties shall have the right to rely on the last known address of the other parties. Unless otherwise provided in this Agreement, all documents and communications may be delivered by First Class mail. 8.3 Severability. In the event any provision of this Agreement is found to be invalid, voidable or unenforceable, the parties agree that unless it materially affects the entire intent and purpose of this Agreement, such invalidity, voidability or unenforceability shall affect neither the validity of this Agreement nor the remaining provisions herein, and the provision in question shall be deemed to be replaced with a valid and enforceable provision most closely reflecting the intent and purpose of the original provision. 8.4 Successors. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties. However, DSI shall have no obligation in performing this Agreement to recognize any successor or assign of Depositor or Preferred Beneficiary unless DSI receives clear, authoritative and conclusive written evidence of the change of parties. Data Securities International, Inc. Internet Liquidators International Inc. By:_________________________________ By:________________________________ Name:_______________________________ Name:______________________________ Title:______________________________ Title______________________________ Date:_______________________________ Date:______________________________ By:_________________________________ By:________________________________ Name:_______________________________ Name:______________________________ Title:______________________________ Title______________________________ Date:_______________________________ Date:______________________________ 8 ACCEPTANCE FORM Account Number _____________________ American Interactive Media, Inc., hereby (i) acknowledges that it is a Preferred Beneficiary referred to in the Master Preferred Escrow Agreement effective February 12, 1997 with Data Securities International, Inc. as the escrow agent and Bid.Com International Inc. (formerly Internet Liquidators International, Inc.) as the Depositor, (ii) agrees to be bound by all provisions of such Agreement, and (iii) agrees that in addition to the Release Conditions set forth in section 4.1 of this Agreement, a further Release Condition shall exist if the Depositor is in continuing material breach of the E-Commerce and Promotion Services Agreement attached hereto as Schedule "A". American Interactive Media, Inc. By:__________________________________ Name:________________________________ Title:_______________________________ Date:________________________________ Notices and communications Invoices should be addressed should be addressed to: to: Company Name: Address: Designated Contact: Telephone: Facsimile: SCHEDULE "A" LICENSE AGREEMENT EXHIBIT A MATERIALS TO BE DEPOSITED Account Number __________________ Deposit represents to Preferred Beneficiary that deposit materials delivered to DSI shall consist of the following: Internet liquidators Inc. - Code Module Listing - ----------------------------------------------- [Confidential Information filed separately with the SEC] BID.COM International Inc. - -------------------------- -------------------------------- Depositor Preferred Beneficiary By: Chris Bulger -------------------------------- -------------------------------- Name: -------------------------------- -------------------------------- Title: Chief Financial Officer -------------------------------- -------------------------------- Date: July , 1998 I certify for Depositor that the above DSI has inspected and desceribed deposit materials have been accepted the above transmitted to DSI: materials (any exceptions are noted above):
Signature: Signature: -------------------------------- -------------------------------- Print Name: Print Name: -------------------------------- -------------------------------
Date: Date: Exhibit B# Send materials to: DSI, 9555 Chesapeake Drive, #200, San Diego, CA 92123 EXHIBIT "B" DESCRIPTION OF DEPOSIT MATERIALS Depositor Company Name: Bid.com International Inc. ------------------------- Account Number:
PRODUCT DESCRIPTION: [Confidential Information Product Name: filed separately with the Version: [Confidenti SEC] al Information filed separately with the SEC] Operating System: [Confidential Information filed separately with the SEC] --------------------------------------------------- Hardware Platform: [Confidential Information filed separately with the SEC] --------------------------------------------------- DEPOSIT COPYING INFORMATION: [Confidential Information filed separately with the Hardware required: SEC] Software required: [Confidential Information filed separately with the SEC]
DEPOSIT MATERIAL DESCRIPTION:
Qty Media Type & Size Label Description of Separate Item - ------------------------------------------------------------------------------------------------------ (Excluding documentation 1X Disk 3.5" or ________ No Documentation DAT tape 4mm CD-ROM Data Cartridge Tape DAT 24I TK 70 or _______ tape Magnetic tape _______ Documentation Other: ____________
Listing of Bid.Com Source Components ILI Bid.com Modules - ---------------------------------------- Database: [Confidential Information filed separately with the SEC] Business Services: [Confidential Information filed separately with the SEC] Data Service: [Confidential Information filed separately with the SEC] Dynmic Export: [Confidential Information filed separately with the SEC] Order Processing [Confidential Information filed Administrator: separately with the SEC] Credit Card: Order Business Services: Utilities [Confidential Information filed Category Builder: separately with the SEC] AdRotatorGenerator: AssetMgmt DB Services: Notification: Supporting S/W: [Confidential Information filed separately with the SEC] Web: [Confidential Information filed separately with the SEC] ILIBid.com Modules (Dutch) - ------------------------- Business Services: [Confidential Information filed separately with the SEC] Data Services: [Confidential Information filed separately with the SEC] Dutch Server: [Confidential Information filed separately with the SEC] Dutch Client: [Confidential Information filed separately with the SEC] Internet Web: [Confidential Information filed separately with the SEC] Admin Web: [Confidential Information filed separately with the SEC] SCHEDULE "F" Site Activity Reporting Requirements Pursuant to subsection 2.3(VII) of this Agreement, BID.COM shall deliver the following site activity information to AIM with the frequency indicated below: F.1 Daily Reports 1. number of page views. F.2 Monthly Reports 1. Number of unique visitors; 2. top 15 domain names from which television traffic to the BID.COM Site originated; 3. number of unique visits by product category offered; 4. average visit duration; 5. number of transactions; 6. average transaction value; 7. number of transactions by category; 8. number of transactions by product. F.3 Additional Reports In addition, BID.COM shall deliver the following site activity information as indicated below: 1. purchase history of repeat visitors on a semi-annual basis; 2. advertising statistical reports at the request of AIM; and 3. other statistics as mutually agreed by the parties. SCHEDULE "G" Net Revenue Reports
SUMMARY Month 1 Month 2 Month 3 Quarter Total ------------------------------------------- (a) Sales Revenues XXX XXX XXX XXX (b) Sales Returns and Allowances (XXX) (XXX) (XXX) (XXX) (c) Cost of Goods Sold (XXX) (XXX) (XXX) (XXX) Shipping and Handling Costs (XXX) (XXX) (XXX) (XXX) Credit Card Fees (XXX) (XXX) (XXX) (XXX) ------------------------------------------- Gross Margin XXX XXX XXX XXX Less Revenue Share (XXX) (XXX) (XXX) (XXX) Net Margin XXX XXX XXX XXX ------------------------------------------- TOP BID AUCTION DETAIL Product Sales Top Bid Auction XXX XXX XXX XXX (a) Shipping & Handling Sales Top Bid Auction XXX XXX XXX XXX (a) Sales Return & Allowances Top Bid Auction (XXX) (XXX) (XXX) (XXX) (b) Cost of Goods Sold Top Bid Auction (XXX) (XXX) (XXX) (XXX) (c) Gross Margin XXX XXX XXX XXX ------------------------------------------- DUTCH AUCTION DETAIL Product Sales Dutch Auction XXX XXX XXX XXX (a) Shipping & Handling Sales Dutch Auction XXX XXX XXX XXX (a) Sales Returns & Allowances Dutch Auction (XXX) (XXX) (XXX) (XXX) (b) Cost of Goods Sold Dutch Auction (XXX) (XXX) (XXX) (XXX) (c) ------------------------------------------- DIRECT SALES DETAIL Product Sales Direct XXX XXX XXX XXX (a) Shipping & Handling Sales Direct XXX XXX XXX XXX (a) Sales Returns & Allowances Direct (XXX) (XXX) (XXX) (XXX) (b) Cost of Goods Sold Direct (XXX) (XXX) (XXX) (XXX) (c) ------------------------------------------- Gross Margin XXX XXX XXX XXX
SCHEDULE "H" Net Promotional Revenue Reports Pursuant to subsection 5.1(ii) of this Agreement, AIM shall provide a report of Net Promotional Revenue to BID.COM in a format similar to the following: For the calendar quarter beginning ____________, 19_____ and ending ___________, 19 ____.
Advertiser Status Amount Paid - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- Total Advertising Revenue $ XX,XXX.XX - -------------------------------------------------------------------------------------------------
Total Net Promotional Revenue earned by AIM $ XX,XXX.XX Share of Net Promotional Revenue due to BID.COM $ XXX.XX SCHEDULE "I" BID.COM Marks The BID.COM Marks licensed to AIM pursuant to this Agreement include: 1. BID.COM; 2. BID.COM + Design; 3. any derivations or modified versions incorporating the word BID.COM; and 4. any other marks mutually agreed between the parties. EX-3.22 14 DISTRIBUTION AGREEMENT Exhibit 3.22 DISTRIBUTION AGREEMENT THIS AGREEMENT made as of the 17th day of November, 1998 between Micra Soundcards Inc., a corporation incorporated under the laws of' the Province of Ontario ("MICRA"), and Bid.Com International Inc., a corporation incorporated under the laws of the Province of Ontario ("BID.COM"). WHEREAS MICRA has developed a card (the "SoundCard") which will carry (i) an image of an athlete or other notable person, and (ii) an audio of video recording concerning that person. MICRA has also developed a playback unit (the "Player") with the ability to play back the audio recording on the SoundCard; AND WHEREAS through the registration of patents and other means of protecting intellectual property, MICRA has taken such steps as it has deemed necessary to ensure that (i) it has all necessary intellectual property rights to make and distribute the SoundCard and Player, and (ii) the SoundCard and Player do not offend or infringe any other person's intellectual property rights; AND WHEREAS MICRA will use its commercially reasonable efforts to ensure that all licenses and rights it deems necessary are obtained for the use of the intellectual and proprietary property embodied in all SoundCards distributed pursuant to this agreement. NOW THEREFORE IN CONSIDERATION of the premises and mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Distributorship MICRA grants to BID.COM: (a) the exclusive, world-wide right to market, distribute and sell the Player (or any other player using technology owned or controlled by MICRA) through the Internet and any other form of computer-assisted electronic commerce, whether via cable, satellite and other means through televisions, computers and other receivers (collectively, "Electronic Distribution"); (b) the exclusive, world-wide right to market, distribute and sell selected SoundCards through Electronic Distribution (the parties intend to jointly agree on the series and individual SoundCards most likely to be successful for the. purposes of this provision); and (c) the right of first opportunity to negotiate, on a case by case basis, the non-exclusive, world-wide right to market, distribute and sell the Player (or any other player using technology owned or controlled by MICRA) and selected SoundCards manufactured by MICRA through means of trade or distribution other than Electronic Distribution; provided that, for greater certainty, this paragraph (c) shall not impact, limit, restrict or otherwise affect MICRA's ability to consummate any marketing, distribution or sales arrangements or agreements entered into or being pursued by MICRA as of the date hereof. Subject to the terms of this agreement, MICRA will offer for sale to BID.COM all SoundCards which are available for distribution or sale except certain "proprietary" SoundCards manufactured for the exclusive use of specific customers of MICRA for the purpose of promoting their products or services and BID.COM hereby acknowledges and agrees that such SoundCards will not be offered to it for sale. 2. No Rights of Ownership The grant of the right to market, distribute and sell the Player and SoundCards contemplated by Section 1 shall not include or create any right or interest of BID.COM in the Player or SoundCards or give BID.COM the right to modify or make alterations or improvements thereto or otherwise reverse engineer or disassemble the Player or SoundCards. 3. Term of Agreement Subject to the provisions of Section 8 of this agreement, the rights granted to BID.COM under this agreement will continue until December 31, 2001. This agreement shall be automatically renewed for consecutive terms of two years subject to notice of intention not to renew given by either party at least six months prior to the expiration of the original or any renewal term. 4. Purchase by BID.COM (1) BID.COM will: (a) within 30 days of receipt of notification from MICRA that such SoundCards have been approved for distribution, purchase at least [Confidential Information filed separately with the SEC] Players and [Confidential Information filed separately with the SEC] SoundCards, with the image of and a recording about Michael Jordan; (b) place orders for additional Players and other SoundCards at the earliest appropriate opportunity following the completion by MICRA of arrangements necessary to manufacture and market those SoundCards; (c) meet with MICRA every three months during the first year of the initial term of this agreement and every six months thereafter to determine and establish commercially reasonable quarterly sales targets; (d) not remove or allow any employee or agent of BID.COM to remove any of MICRA's product identifications or copyright, trademark or patent notifications; (e) give prominence to the MICRA trademark notice on all marketing materials it produces as part of its promotional efforts; and 2 (f) not market, distribute or sell or offer to market, distribute or sell any other "talking trading card" or product reasonably similar to or competitive with the SoundCards. (2) MICRA will: (a) Ensure that all licenses and rights as it deems necessary are obtained for the manufacture and marketing of the Players and SoundCards; (b) provide a minimum one year replacement or full refund warranty on all SoundCards and Players; (c) make the necessary arrangements to ensure the availability of the SoundCards and Players in sufficient quantities to meet BID.COM's orders promptly; (d) sell Players to BID.COM at U.S. [Confidential Information filed separately with the SEC] per unit and sell SoundCards at commercially reasonable prices to be negotiated between BID.COM and MICRA in good faith based on the guidelines set forth. in the attached Schedule "A"; and (e) not sell or offer to sell the Players and SoundCards to other purchasers at prices and on terms that are materially lower or more favorable than the price and terms offered to BID.COM for the same products and similar quantities thereby resulting in a competitive disadvantage. The quantities ordered by BID.COM will be in commercially reasonable amounts given the methods of marketing used by it. BID.COM understand that (i) there will be a minimum order quantity of [Confidential Information filed separately with the SEC] SoundCards for each order of SoundCards, unless mutually agreed as per Schedule "A" attached (ii) delivery and payment will be F.O.B. MICRA's Toronto facility or such other location as BID.COM may reasonably request, and (iii) payment shall be made as to [Confidential Information filed separately with the SEC] of the purchase price, by cash, certified cheque, bank draft or money order, and as to the balance, by irrevocable, transferable letter of credit, in each case delivered with the order. 5. BID.COM Promotion BID.COM will actively market and promote the sale of the Players and the SoundCards in a commercially reasonable fashion with a view to maximizing the profit earned by BID.COM on the sale of Players and SoundCards and maximizing the volume of Players and SoundCards ordered from MICRA, subject to BID.COM's merchandising, inventory control and promotional techniques. BID.COM shall consult with and advise MICRA of its proposed pricing policy and any changes thereto. 6. MICRA 3 Notwithstanding any other provision of this agreement, nothing herein shall restrict, impair or otherwise limit MICRA's right and ability to market, distribute and sell the Players and SoundCards to any customer which markets, distributes or sells or intends to market, distribute or sell its products and services through Electronic Distribution, provided that: (a) such customer is not engaged primarily in the business of marketing, distributing and selling products and services through Electronic Distribution; (b) MICRA advises such customers of the rights held by BID.COM and uses its reasonable commercial best efforts to introduce BID.COM to such customers to facilitate negotiations by BID.COM of exclusive sales by way of Electronic Distribution; and (c) MICRA takes all action it reasonably deems necessary to prevent an infringement of the rights held by BID.COM by any of MICRA's customers. 7. Rights of Other Parties Except in respect of any SoundCards which may be manufactured from time to time at the specific request of BID.COM, MICRA shall be responsible for obtaining all consents, licenses, rights or permits required to manufacture and to sell the SoundCards and the Players throughout the world and shall ensure that all royalties, fees and any other expenses are accounted for and paid. MICRA's aggregate liability for costs or damages under this agreement shall be limited to the purchase price for the Players and SoundCards purchased hereunder. MICRA shall not be liable for any indirect, incidental, special or consequential damages in connection with or arising out of the sale or use of the Player and SoundCards. 8. Termination Either MICRA or BID.COM (the "Terminating Party") may terminate this agreement: (a) on [Confidential Information filed separately with the SEC] written notice provided that: (i) the other party has committed a material breach of its obligations under this agreement including, for greater certainty, the failure to satisfy any sales targets established by MICRA and BID.COM pursuant to subsection 4(1)(e); (ii) the Terminating Party has given written notice to the other party of the material breach together with sufficient information about the breach to permit the other party to respond to the notice; and (iii) the other party has not cured the breach within [Confidential Information filed separately with the SEC] of the date of the receipt of the notice by the order party, or 4 (b) immediately, if the other party is declared bankrupt or insolvent or files for voluntary bankruptcy, insolvency or similar creditor protection or otherwise causes to carry on its business. 9. Intellectual Party (a) All patents, trade secrets, copyright, trademarks, trade names, service marks, quality designations and other proprietary words, symbols and technology of MICRA (collectively, "Intellectual Property") are and remain. the exclusive property of MICRA, whether or not specifically registered or recognized under applicable law. BID.COM will not take any action that jeopardizes MICRA's rights in, or acquire any right to, the Intellectual Property except the limited rights specified below in paragraph 9(b). (b) BID.COM may use the trademarks, tradenames, service marks and quality designations (collectively, the "Trademarks") exclusively to advertise and promote the Player and Soundcards. All advertisements and promotional materials shall (i) clearly identify MICRA as the owner of the Trademarks, (ii) conform to MICRA's current trademark and logo type guidelines, and (iii) otherwise comply with any applicable notice or marking requirement. (c) Before publishing or disseminating any advertisement or promotional material bearing a Trademark, BID.COM shall deliver a copy of the advertisement or promotional materials to MICRA for approval. If MICRA gives notice within five (5) business days of delivery that the proposed use of its Trademark is inappropriate, BID.COM shall refrain from placing the advertisement or promotional materials in circulation. (d) BID.COM shall immediately notify MICRA if it learns (i) of any potential infringement of MICRA's right in and to the Intellectual Property by a third party, or (ii) the use of Intellectual Property may infringe the proprietary rights of a third party. 10. Confidentiality (a) Each party acknowledges that it may disclose to the other, in connection to the performance of this agreement, data or other information which is confidential or proprietary, the disclosure of which to or use by any unauthorized party may be damaging (collectively, the "Confidential Information"). No Confidential Information of a party shall be disclosed by the other party to any person, except those of its employees or agents having a need to know for the purposes contemplated by this agreement. If either party discloses any of its Confidential Information to the other party, the party receiving the Confidential Information shall (i) maintain it in confidence; (ii) use at least the same degree of care in maintaining its secrecy as it uses in maintaining the secrecy of its own proprietary confidential and trade secret information, but in no event with less care than is reasonable given the nature of the information; (iii) use it only to fulfill its obligations under this agreement unless hereinafter agreed in writing by the other party; and (iv) return all copies, notes, packages, diagrams, computer memory media and other materials containing any portion of the Confidential Information to the disclosing party upon its reasonable request given the rights and obligations of the parties hereunder. 5 (b) Neither party shall have any obligations of non-disclosure concerning any portion of the Confidential Information of the other party of which (i) is known or independently developed by the non-disclosing party before receipt, directly or indirectly, from the disclosing parity; (ii) is lawfully obtained, directly or indirectly, by the non-disclosing party under no obligation of confidentiality from a third party acting in good faith; or (iii) is or become publicly available other than its result to act or failure to act by the non-disclosing party, its agent or employees. 11. General (a) This agreement shall be governed by the laws of the Province of Ontario and the parties hereby irrevocably attorn to the exclusive jurisdiction of the Courts of the Province of Ontario in respect of the subject matter hereof. (b) MICRA and BID.COM are independent contractors and neither is the agent, representative, partner or joint venturer of the other. (c) If any provision of this agreement is deemed to be invalid or unenforceable, that provision shall be severed from this agreement and the remainder of this letter agreement shall remain in full force and effect. If such severed provision is fundamental to the relationship governed by this agreement, then either party shall have the right to terminate the distributorship and related rights as if the severance of such provision was a material breach of this letter agreement and such termination may only be effected in accordance with Section 8 above. (d) This agreement contains the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous written or oral negotiations and agreements. This agreement may be amended only in writing signed by both parties. (e) Neither party may transfer or assign this agreement, or any part hereof, without the prior written approval of the other, not to be unreasonably withheld; provided, however, that MICRA may transfer or assign this agreement to a third party without the prior written consent of BID.COM so long as the assignment or transfer is in connection with the sale or transfer of all or substantially all of the assets of MICRA and the assignee agrees in writing to be bound by the terms and conditions of this agreement. (f) This agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors and permitted assigns. (g) The provisions of Sections 7, 9, 10 and 11(a) shall survive any termination of this agreement. (h) Any notice required or permitted hereunder shall be deemed given when personally delivered or sent by facsimile properly addressed to the party to receive the notice at the following address or any other address given to the other party as provided in this paragraph: 6 If to BID.COM: Bid.Com International Inc. 2701 North Rocky Point Drive Suite 510 Tampa, Florida 33607-5917 Attention: Jeff Lymburner Facsimile: (813) 636-8026 Bid.Com International Inc. 6725 Airport Road Suite 201 Mississauga, Ontario L4V 1V2 Attention: Paul Godin Facsimile: (905) 672-7514 if to MICRA: Micra Soundcards 135 West Beaver Creek Road Richmond Hills, Ontario 1AB 1C6 Attention: Dieter Doederlein Facsimile: (905) 889-4124 IN WITNESS WHEREOF, the parties have executed this agreement as of the day and year first written above. MICRA SOUNDCARDS INC. Per: --------------------------------- Dieter Doederlein BID.COM INTERNATIONAL INC. Per: --------------------------------- Jeff Lymburner 7 SCHEDULE "A" Pricing Guidelines and Technical Specifications for Soundcards ----------------------------- ($ in U.S. funds and for 12 second message only) [Confidential Information filed separately with the SEC]. Set forth below are the parameters if BID.COM wishes to produce its own licensed SoundCards. Required materials: [Confidential Information filed separately with the SEC] Timing: [Confidential Information filed separately with the SEC] Other Specifications: [Confidential Information filed separately with the SEC] 8 EX-3.23 15 AIM STOCK AGREEMENT Exhibit 3.23 AIM STOCK AGREEMENT THIS AGREEMENT is made as of the 30th day of December, 1998 (the "Effective Date") by and between BID.COM INTERNATIONAL INC., ("BID.COM"), a corporation having a principal place of business at 6725 Airport Road, Suite 201, Mississauga, Ontario, L4V 1V2 and AMERICAN INTERACTIVE MEDIA, INC. ("AIM"), a corporation having a place of business at Suite 308, 611 Broadway, New York, NY, 10012. BACKGROUND: 1. BID.COM has expertise in designing and operating online auctions. 2. AIM retained BID.COM to provide advice on establishing an AIM E-Commerce Service as described below. 3. BID.COM has completed an assessment of AIM's network and infrastructure in order to support the e-commerce technology of Bid.Com and set up a demonstration site, at the request of AIM. ARTICLE I INTERPRETATION 1.1 In this Agreement, unless the context otherwise requires, each capitalized term shall have the meanings indicated below. "Agreement" means this Agreement and all schedules annexed to this Agreement as the same may be amended from time to time in accordance with the provisions hereof or thereof, "hereof'" "hereto" and "hereunder" and similar expressions mean and refer to this Agreement and not to any particular article or section; except where the context specifically requires, "Article" or "Section" means and refers to the specified article or section of this Agreement; "AIM E-Commerce Service" means the service which will permit retail consumers in the Territory including, without limitation, "small office home office" customers ("SOHO") to access an online auction as currently operated by BID.COM or its subsidiaries at the BID.COM Site by using their cable modems or other television based on line enabling devices (or by way of any method of internet access in the case of members of certain affinity groups and in house networks produced and distributed by AIM) to participate in on-line auctions of consumer goods and services, but excluding business to business and liquidation applications; - 2 - "AIM Stock" means that number of common shares in the capital of AIM which has an aggregate value of [Confidential Information filed separately with the SEC] valued at the average trading price of AIM stock on each of the twenty-one (21) trading days prior to December 31,1998; "BID.COM Site" means the Web site at which BID.COM will operate its online auction service provided for the AIM E-Commerce Service as currently found at the URL "www.bid.com"; "Business Day" means any day from Monday to Friday inclusive, except statutory or civic holidays observed in Toronto, Ontario; "Effective Date" has the meaning attributed thereto on the face page of this Agreement; "Joint Venture" means the Delaware company to be established and owned by AIM to provide the AIM E-Commerce Service; "Parties" means BID.COM and AIM collectively and "Party" means either of them; "Person" includes an individual, company, corporation, partnership, government or government agency, authority or entity howsoever designated or constituted; "Reasonable Best Efforts" means that a party shall comply with the obligation to which the covenant to use Reasonable Best Efforts applies in all cases where such party has the ultimate discretion, control and ability to do so, and that such party shall use commercially reasonable efforts to comply with such obligation in cases where such party does not have such ultimate discretion, control and ability; "Registration Rights Agreement" means the agreement to be entered into between the Parties providing for registration of the AIM stock; "Territory" means the United States of America as presently constituted. 1.2 Headings. The use of headings in this Agreement is for convenience of reference only and shall not affect its interpretation. 1.3 Extended Meanings. Words expressed in the singular include the plural and vice-versa and words in one gender include all genders. - 3 - 1.4 Entire Agreement. This Agreement, and any agreements and other documents to be delivered pursuant to it (including without limitation the Registration Rights Agreement), constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, oral or written between the Parties. The execution of this Agreement has not been induced by, nor do either of the Parties rely upon or regard as material, any representations, warranties, conditions, other agreements or acknowledgments not expressly made in this Agreement or in the agreements and other documents to be delivered pursuant hereto. 1.5 Currency. Unless otherwise indicated, all dollar amounts referred to in this Agreement are in Canadian funds. 1.6 Invalidity. If in any jurisdiction a provision contained in this Agreement is found by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained herein, or of such provision in any other jurisdiction affected or impaired thereby. 1.7 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 and shall be treated, in all respects, as an Ontario contract. The Parties hereby irrevocably submit to the exclusive jurisdiction of the courts of Ontario in respect of the subject matter hereof. 1.8 Consent. Wherever any Party is required to obtain consent from another Party, such consent shall not be unreasonably withheld or delayed. ARTICLE II 1.9 Acknowledgment. - 4 - AIM acknowledges that BID.COM has completed the initial consulting feasibility assessment and set up a demonstration site for the AIM E- Commerce Service in accordance with its agreement in respect thereof and to the satisfaction of AIM in all respects. 1.10 Aim Stock. [Confidential Information filed separately with the SEC] ARTICLE III 1.11 Option to Purchase. Until the AIM Stock becomes freely trading on a United States Stock Exchange (satisfactory to BID.COM) in the hands of BID.COM or its assigns and maintains an aggregate market value of not less than [Confidential Information filed separately with the SEC] for a minimum of 30 consecutive trading days on such exchange (as measured by the average trading price of stock traded on each trading day) BID.COM shall have an option to acquire [Confidential Information filed separately with the SEC] of the issued stock of the Joint Venture for [Confidential Information filed separately with the SEC]. Notwithstanding the foregoing, if BID.COM elects to exercise the option, AIM shall have the ability to pay BID.COM [Confidential Information filed separately with the SEC] in which event the option of BID.COM under this Section shall be at an end and BID.COM shall forthwith surrender the AIM Stock for cancellation. ARTICLE IV 1.12 Confidentiality. Each Party (hereinafter in this Section, the "Receiving Party") covenants with the other Party (hereinafter in this Section, the "Disclosing Party") that it shall keep confidential the Confidential Information of the Disclosing Party to which the Receiving Party obtains access as a consequence of entering into this Agreement and that it will take all reasonable precautions to protect such Confidential Information from any use, disclosure or copying except as expressly authorized by this Agreement. The Receiving Party shall implement such procedures as the Disclosing Party may reasonably require from time to time to improve the security of the Confidential Information of the Disclosing Party in its possession. This Section shall survive the termination of the Agreement. Upon termination of this Agreement, the Receiving Party shall, at the choice of the Disclosing Party, either return to the Disclosing Party or destroy all copies or partial copies of Confidential Information of the Disclosing Party in any form which is in the possession - 5 - of the Receiving Party or under its control, and certify that all such Confidential Information has been returned or otherwise destroyed. ARTICLE V ARBITRATION 1.13 Dispute Resolution Process. If any dispute, disagreement, controversy or claim arising out of or relating to this Agreement including, without limitation, its application, interpretation, performance, breach, termination, enforcement or damages, or remedies arising out of the breach of or non-compliance therewith, shall be finally determined by arbitration before a single arbitrator to be commenced and conducted in the English language in Toronto in accordance with the Arbitration Act (Ontario). The Parties hereto agree that: (a) subject to mutual agreement between the Parties to the contrary, the arbitrator shall be a person who is legally trained and trained as a professional arbitrator and who has a minimum of five (5) years experience in the licensing of computer software; (b) the Parties shall agree on the identity of the arbitrator within 10 days of notice of reference to arbitration and in default thereof, either Party may apply to a Judge of the Supreme Court of Ontario, General Division, to appoint an arbitrator with the foregoing qualifications; (c) the Parties shall be required to make written submissions to the arbitrator within 7 days of appointment and shall not be entitled to make verbal representations or further submissions unless so requested by the arbitrator. Any Party who does not comply with the foregoing time period shall not be entitled to make any submissions without the written approval of the other Party; (d) the arbitrator shall be required to render his decision in writing within 10 days of the period mentioned in Subsection 5.1(c); (e) neither of the Parties shall apply to the Courts of Ontario or any other jurisdiction to attempt to enjoin, delay, impede or otherwise interfere with - 6 - or limit the scope of the arbitration or the powers of the arbitrator provided for in the Arbitration Act (Ontario) (f) the award of the arbitrator shall be a final and conclusive award and judgment with respect to all matters properly before the arbitral tribunal in accordance with the Arbitration Act (Ontario) and neither Party shall appeal such award in any manner whatever to any court, tribunal or other authority; and (g) the award of the arbitral tribunal may be entered and enforced by any court in any jurisdiction having jurisdiction over the Parties hereto or the subject matter of the award or the properties or assets of either of the Parties hereto. ARTICLE VI GENERAL 1.14 Notice. Any notice or other communication (a "Notice") required or permitted to be given or made hereunder shall be in writing and shall be well and sufficiently given or made if: (a) delivered in person during normal business hours on a Business Day and left with a receptionist or other responsible employee of the relevant Party at the applicable address set forth below; (b) sent by prepaid first class mail; or (c) sent by any electronic means of sending messages, including facsimile transmission, which produces a paper record (an "Electronic Transmission"), charges prepaid and confirmed by prepaid first class mail; in the case of a Notice to AIM addressed to it at: American Interactive Media, Inc. Suite 308, 611 Broadway New York, New York 10012 Attention: Mark Graff Fax No.: (212) 358-0189 with a copy to: - 7 - Curtis, Mallet-Prevost,Colt & Mosle 101 Park Avenue, New York, New York, 101780061 Attention: Jeffrey N. Ostrager Fax No.: (212) 697-1559 and in the case of a Notice to BID.COM addressed to it at: BID.COM International Inc. 201 - 6725 Airport Road Mississauga, Ontario L4V 1V2 Attention: Paul Godin Fax No.: (905) 672-7514 with a copy to: Gowling, Strathy & Henderson Barristers & Solicitors Commerce Court West Suite 4900 Toronto, Ontario M5L 1J3 Attention: David Pamenter Fax No.: (416) 862-7661 Any Notice given or made in accordance with this Section 6.1 shall be deemed to have been given or made and to have been received: (a) on the day it was delivered, if delivered as aforesaid; (b) on the fifth Business Day (excluding each day during which there exists any general interruption of postal services due to strike, lockout or other cause) after it was mailed, if mailed as aforesaid; and - 8 - (c) on the day of sending if sent by Electronic Transmission during normal business hours of the addressee on a Business Day and, if not, then on the first Business Day after the sending thereof. Either Party may from time to time change its address for notice by giving Notice to other Party in accordance with the provisions of this Section 6.1. 1.15 Assignment. Neither Party may assign its rights and obligations under this Agreement, in whole or in part, without the prior consent in writing of the other and any purported assignment made without that consent is void and of no effect (save and except for an assignment as an incident of security taken in a normal course financing transaction). No assignment of this Agreement shall relieve either party from any obligation under this Agreement. 1.16 Binding on Successors. This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns. 1.17 Further Assurances. Each Party agrees that upon the written request of the other Party, it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as any other Party hereto may from time to time reasonably request be done and/or executed as may be necessary or desirable to give effect to this Agreement. 1.18 Independent Contractors. It is understood and agreed that in giving effect to this Agreement, no Party shall be or be deemed a partner, agent or employee of another Party for any purpose and that their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the Parties. No Party shall have the right to enter into contracts or pledge the credit of or incur expenses of liabilities on behalf of the other Party. 1.19 Waiver. A waiver by a Party hereto of any of its rights hereunder or of the performance by the other Party of any of its obligations hereunder shall be without prejudice to all of the - 9 - other rights hereunder of the Party so waiving and shall not constitute a waiver of any such other rights or, in any other instance, of the rights so waived, or a waiver of the performance by the other Party of any of its other obligations hereunder or of the performance, in any other instance, of the obligations so waived. No waiver shall be effective or binding upon a Party unless the same shall be expressed in writing and executed by the Party to be bound. 1.20 Compliance With Law. Each party shall, in the performance of this Agreement, fully comply with, and abide by, all laws, regulations, regulatory rulings or directives, court orders, and decisions of administrative tribunals of competent jurisdiction, that may, in any manner or extent, concern, govern, or affect either party's respective performance of, and obligations under, this Agreement. 1.21 Interpretation. This Agreement has been negotiated by the parties hereto and their respective counsel and shall be fairly interpreted in accordance with its terms and without any rules of construction relating to which party drafted the Agreement being applied in favour or against either party. 1.22 Effective Date. This Agreement shall not become a valid and binding contract unless and until each party has duly executed and delivered this Agreement. For greater certainty, there shall be no agreement, whether oral, written, express, implied or otherwise notwithstanding any performance between the parties concerning the subject matter of this document, including, without limitation, by course of conduct, doctrine of part performance, or otherwise. 1.23 Amendment. No amendment of any provision of this Agreement shall be effective unless such amendment is embodied in a written agreement which is: (i) expressly stated to be intended to amend this Agreement; and (ii) executed by two authorized signing officers of AIM and an authorized officer of BID.COM. For greater certainty, the parties acknowledge and agree that no representations, warranties, conditions, covenants or other statements or commitments, whether made orally, in writing, by course of conduct or - 10 - otherwise, and whether made prior to the Effective Date of this Agreement or thereafter, shall be binding on either of the parties. 1.24 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 and shall be treated, in all respects, as an Ontario contract. The parties hereby: (i) irrevocably submit to the exclusive jurisdiction of the courts of Ontario in respect of the subject matter hereof; (ii) consent to service of process being effected upon the other party by registered mail sent to the address set forth in section 6.1 hereof; (iii) agree not to seek, request, claim or pursue trial by jury; and (iv) agree not to seek, request, claim or pursue any right, claim, or entitlement to any punitive or exemplary damages whatsoever. IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date first written, above. BID.COM INTERNATIONAL INC. By: --------------------------------- (Duly Authorized Officer) By: --------------------------------- (Duly Authorized Officer) AMERICAN INTERACTIVE MEDIA, INC. By: --------------------------------- (Duly Authorized Officer) By: --------------------------------- (Duly Authorized Officer) CP Doc #: 124790-1 EX-3.24 16 TERMINATION AGREEMENT Exhibit 3.24 TERMINATION AGREEMENT --------------------- This Termination Agreement (the "Termination Agreement"), dated as of March __, 1999, is made and entered into by and between America Online, Inc. ("AOL"), with offices located at 22000 AOL Way, Dulles, Virginia 20166, and Internet Liquidators International, Inc. ("IL"), a _______ corporation with offices located at 2701 Rocky Point Drive, Suite 510, Tampa, FL 33607 (AOL and IL are referred to herein individually as a "Party" and collectively as the "Parties"). INTRODUCTION ------------ WHEREAS, AOL and IL are parties to an Interactive Marketing Agreement dated as of November 1, 1997 (the "Agreement"); and WHEREAS, IL has requested that AOL agree to terminate the Agreement and enter into a new contract with IL with substantially different terms; and WHEREAS, AOL and IL will enter into an Advertising Insertion Order reflecting such substantially different terms simultaneously with execution of this Termination Agreement; NOW, THEREFORE, in consideration of the terms and conditions set forth in this Termination Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, AOL and IL hereby agree to terminate the Agreement in accordance with the following terms and conditions: TERMS ----- 1. TERMINATION. ----------- AOL and IL hereby agree to terminate the Agreement as of March ___, 1999. This termination shall be subject to survival of those terms expressly identified for survival in the Agreement. This Termination Agreement shall not constitute a waiver by either Party of any claims which may exist, now or in the future, pursuant to the Agreement. 2. GENERAL PROVISIONS. ------------------ 2.1 Further Assurances. Each party shall take such further action ------------------ (including, but not limited to, the execution, acknowledgment and delivery of documents) as may reasonably be requested by the other party in order to facilitate the implementation and performance of this Termination Agreement. 2.2 Confidentiality. Neither party shall disclose the existence of this --------------- Termination Agreement or the terms hereof without the prior approval of the other party except: (i) as may be required by law, regulation, or court order, or rules or regulations of any securities exchange; or (ii) in the case of confidential disclosures on a need to know basis to employees, consultants, counsel, accountants, investors or other professional advisers of the party and its affiliates. 2.3 Entire Agreement. This Termination Agreement is the entire agreement ---------------- between the parties regarding the subject matter contained herein. It supersedes, and its terms govern, all prior proposals, agreements, or other communications between the parties, oral or written, regarding the subject matter contained herein. This Termination Agreement shall not be modified or amended unless done so in a writing signed by authorized representatives of both parties. 2.4 Applicable Law. This Termination Agreement shall be interpreted, -------------- construed and enforced in all respects in accordance with the laws of the Commonwealth of Virginia, except for its conflicts of laws principles. 2.5 Construction. In the event that any provision of this Termination ------------ Agreement conflicts with the law under which this Termination Agreement is to be construed or if any such provision is held invalid by a court with jurisdiction over the parties to this Agreement, such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the parties in accordance with applicable law, and the remainder of this Termination Agreement shall remain in full force and effect. 2.6 Counterparts. This Termination Agreement may be executed in ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. IN WITNESS WHEREOF, the Parties have executed this Termination Agreement as of the date first above written. AMERICA ONLINE, INC. INTERNET LIQUIDATORS INTERNATIONAL, INC. By: _______________________________ By: _______________________________ Print Name: ________________________ Print Name: ________________________ Title: ______________________________ Title: ______________________________ EX-3.25 17 AOL ADVERTISING INSERTION ORDER EXHIBIT 3.25 [AOL ADVERTISING INSERTION ORDER] [LOGO] AMERICA ONLINE Contract #: -------------------- AOL Salesperson: Credit approval received --------------- Sales Coordinator: ------------- Date: --------------------------
Advertiser Advertising Agency - -------------------------------------------------------------------------------------------------- Contact Person Jeff Lymburner - -------------------------------------------------------------------------------------------------- Company Name Internet Liquidators International, Inc. - -------------------------------------------------------------------------------------------------- Address Line 1 2701 Rocky Point Drive, Ste. 510 - -------------------------------------------------------------------------------------------------- Address Line 2 Tampa, FL 33607 - -------------------------------------------------------------------------------------------------- Phone # 888-750-7467 - -------------------------------------------------------------------------------------------------- Fax # - -------------------------------------------------------------------------------------------------- Email Jlilusa@aol.com - ------------------------------------------------------------------------------ SIC Code - ------------------------------------ Advertiser IAB Category - -------------------------------------------------------------------------------------------------- Billing Information - -------------------------------------------------------------------------------------------------- Send Invoices to (choose one): Advertiser Agency Advertiser or Agency Billing Contact Person - -------------------------------------------------------------------------------------------------- Company Name Same as above - -------------------------------------------------------------------------------------------------- Billing Address Line 1 - -------------------------------------------------------------------------------------------------- Billing Address Line 2 - -------------------------------------------------------------------------------------------------- Billing Phone # - -------------------------------------------------------------------------------------------------- Billing Fax # - -------------------------------------------------------------------------------------------------- Billing Email Address - -------------------------------------------------------------------------------------------------- P.O. #, if applicable - --------------------------------------------------------------------------------------------------
Payments: Advertiser shall pay AOL One Million Seven Hundred Fifty Thousand Dollars (US$1,750,000) as follows: a. Three Hundred Fifty Thousand Dollars (US$350,000) on execution of this Insertion Order; b. Three Hundred Fifty Thousand Dollars (US$350,000) on April 1, 1999; c. Three Hundred Fifty Thousand Dollars (US$350,000) on July 1, 1999; d. Three Hundred Fifty Thousand Dollars (US$350,000) on October 1, 1999; and e. Three Hundred Fifty Thousand Dollars (US$350,000) on January 1, 2000. Late Payments; Wired Payments. All amounts owed hereunder not paid when due and payable will bear interest from the date such amounts are due and payable at the prime rate in effect at such time. All payments required hereunder will be paid in immediately available, non-refundable U.S. funds wired to the "America Online" account, Account Number 323070752 at The Chase Manhattan Bank, 1 Chase Manhattan Plaza, New York, NY 10081 (ABA: 021000021). In the event of nonpayment, AOL reserves the right to immediately terminate this Insertion Order Agreement with written notice to Advertiser. - --------------------------------------------------------------------------------------------- Inventory Type (choose one): [ ] AOL Service only [ ] AOL Affiliate only (e.g. AOL.com) [ ] AOL Service & AOL Affiliate - ---------------------------------------------------------------------------------------------
AOL Service - -------------------------------------------------------------------------------------------------------------------- Inventory - -------------------------------------------------------------------------------------------------------------------- AOL Inventory/Demographic* Purchased Display Display Total Gross Price Start Stop Ad Type Date Date - -------------------------------------------------------------------------------------------------------------------- Shopping Channel Auctions & Outlets 2/1/99 3/31/00 Anchor Tenant $ 416,000 Department - -------------------------------------------------------------------------------------------------------------------- Shopping Channel Computing Products 2/1/99 3/31/00 Tenant $ 47,500 More Hardware Department - -------------------------------------------------------------------------------------------------------------------- Shopping Channel Computing Products 2/1/99 3/31/00 More Stores Listbox Entry $ 60,000 Department - -------------------------------------------------------------------------------------------------------------------- Shopping Channel Office Products & 2/1/99 3/31/00 Tenant $ 140,000 Services Department - -------------------------------------------------------------------------------------------------------------------- Computing Superstore Auctions 2/1/99 3/31/00 Continuous Placement $1,000,000 Department - -------------------------------------------------------------------------------------------------------------------- Sports Channel 2/1/99 3/31/00 Banner Advertising $ 90,000 (Total of 1,500,000 Impressions) - -------------------------------------------------------------------------------------------------------------------- * Attach completed AOL Demographic Total: $1,750,000 Profile Worksheet - --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- Art - -------------------------------------------------------------------------------------------------------------------- All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date. Artwork required from Advertiser/Agency: ---------------------------------------- [ ] 234x60 IAB Standard /10k Max [ ] 145x30 Old Standard /10k Max [ ] 120x60 Shopping/10k Max [ ] 175x45 Chat/Mail in-box/10k Max [ ] 197x40 PF Area/10k Max [ ] Special_____ * Static banners only, no animation* Linking URL: The HTTP/URL address to be connected to the Advertisement shall be: http://www.bid.com (the "Affiliated Advertiser Site"). Advertiser shall be responsible for any hosting or communication costs associated with the Affiliated Advertiser Site. Please send artwork and URL to (choose one): [ ] AOLARTWEST@aol.com [ ] AOLARTEAST@aol.com ------------------ ------------------ AOL reserves the right to immediately cancel any advertising flight in the event of a material change to the nature or content of the site linked to the Advertisement.
- -------------------------------------------------------------------------------------------------------------------- AOL Affiliate (e.g., AOL.com) - -------------------------------------------------------------------------------------------------------------------- Inventory - -------------------------------------------------------------------------------------------------------------------- AOL Affiliate Display Display Inventory/Demographic* Start Stop Ad Type Total Gross Price Purchased Date Date - -------------------------------------------------------------------------------------------------------------------- N/A - -------------------------------------------------------------------------------------------------------------------- * See attached package description for any AOL.com package purchases
2
- -------------------------------------------------------------------------------------------------------------------- Art - -------------------------------------------------------------------------------------------------------------------- All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date. Artwork required from Advertiser/Agency : ----------------------------------------- [ ] 468x60 NF Reviews, Search Terms, My News & Hometown/10k Max/animation OK [ ] 100x70 AOL.com Home Page/3k Max/No animation [ ] 120x60 NF Home Page/2k Max/No animation [ ] 120x60 Shopping/4k Max/No animation [ ] 234x60 NF Kids Only & Hometown/5k Max/animation OK [ ] 120x60 Instant Messenger/7.5k Max/animation OK Linking URL: The HTTP/URL address to be connected to the Advertisement shall be the same address as that of the Advertiser Site. Please send artwork and URL to (choose one): [ ] AOLWEBWEST@aol.com [ ] AOLWEBEAST@aol.com ------------------ ------------------ AOL reserves the right to immediately cancel any advertising flight in the event of a material change to the nature or content of the site linked to the Advertisement. - --------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------- Advertising Purchase Summary - -------------------------------------------------------------------------------------------------------------------- Total Price - -------------------------------------------------------------------------------------------------------------------- AOL Networks $1,750,000 - -------------------------------------------------------------------------------------------------------------------- AOL Affiliate N/A - -------------------------------------------------------------------------------------------------------------------- Total Purchase Price $1,750,000 - -------------------------------------------------------------------------------------------------------------------- (Less Agency Discount) N/A - -------------------------------------------------------------------------------------------------------------------- Net Purchase Price ------------------------------------------------------- $1,750,000 -------------------------------------------------------
The products and/or services to be offered or promoted by Advertiser in the Advertisements are as follows: consumer retail-oriented products, as more specifically described on Exhibit A. Navigation. Advertiser shall provide continuous navigational ability for AOL or - ----------- users to return to an agreed-upon point on the AOL Service (for which AOL shall supply the proper address) from the Affiliated Advertiser Site (e.g., the point on the AOL Service from which the Affiliated Advertiser Site is linked), which, at AOL's option, may be satisfied through the use of a hybrid browser format. Additional Terms. The Parties shall comply with the terms set forth on Exhibits - ----------------- A, B, and C attached hereto and incorporated herein by reference. Standard Terms and Conditions. This Insertion Order incorporates by reference - ----------------------------- AOL's standard advertising terms and conditions (the "Standard Terms"), including terms related to advertising material, payment modifications, cancellation rights, usage data, limitations of liability, disclaimers, indemnifications, use of AOL member information and miscellaneous legal terms. Among other things, the Standard Terms provide AOL the right to cancel this Insertion Order Agreement on thirty days notice to Advertiser (or upon such shorter notice as may be designated by AOL in the event that AOL believes that further display of the Advertisement will expose AOL to liability or other adverse consequences), in which case Advertiser shall only be responsible for the pro-rata portion of payments attributable to the period preceding such termination. The Standard Ad Terms appear at keyword "Standard Ad Terms3" on the U.S.-based America Online brand service and at "http://mediaspace.aol.com/adterms3.html." A hard copy of the Standard Ad Terms will be provided to advertiser upon request. Advertiser acknowledges that it has been provided an opportunity to review the Standard Terms and agrees to be bound by them. AUTHORIZED SIGNATURES In order to bind the parties to this Insertion Order Agreement, their duly authorized representatives have signed their names below on the dates indicated. This Agreement (including Exhibits A and B and the Standard Terms incorporated by reference) shall be binding on both parties when signed on behalf of each party and delivered to the other party (which delivery may be accomplished by facsimile transmission of the signature pages hereto). 3 AOL ADVERTISER By: _________________________________ By:__________________________________ (signature) (signature) Print Name: __________________________ Print Name:___________________________ Title: ________________________________ Title:________________________________ (Print or Type) (Print or Type) Date: _______________________________ Date:________________________________ 4 EXHIBIT A --------- 1. General Sales Restrictions. Except as provided in paragraphs 1 and 2 of -------------------------- this Exhibit A, Advertiser will be entitled to sell only consumer retail- oriented products through the Affiliated Advertiser Site and only through the format of an Online Auction ("Auction Sales"). Notwithstanding the foregoing, Advertiser will be entitled to create a non-prominent, below- the-fold link to a limited sub-area, accessible only to a limited number of pre-qualified users possessing special Advertiser passcodes, in which Advertiser will conduct business-oriented Online Auctions (including business-to-business sales) (the "Business-to-Business Area"); provided that Advertiser will not use any of the promotional placements provided hereunder or any other space on the Affiliated Advertiser Site or the AOL Network to promote, market or advertise the Business-to-Business Area. Any changes or modifications to the consumer retail-oriented focus of the Affiliated Advertiser Site or any material alteration to the Online Auction format (e.g., use of member-to-member auctions or fee-based membership clubs) will be subject to AOL's prior written approval. In addition, in no event will Advertiser promote, market, distribute, sell or otherwise offer or provide through the Affiliated Advertiser Site (or links therefrom) products from any category in which AOL has granted an exclusivity to a third party. The limitations in the foregoing sentence are referred to herein as the "General Sales Restrictions." Notwithstanding any restriction on general book sales, Advertiser will be entitled to sell rare used books (i.e., books previously possessed by a consumer) in print form through the Affiliated Advertiser Site, so long as Advertiser does not offer more than [Confidential Information filed separately with the SEC] titles at any one time. For the purposes of this insertion order, "Online Auctions" shall mean a traditional or "Yankee" auction format where bidders compete for a single item over a period of time until the highest bidder purchases the product, or a "Dutch" auction format where a group of identical products are offered for a period of time and the price is slowly lowered until all of the available items have been purchased. 2. Direct Sales. Subject to the General Sales Restrictions and paragraph 3 ------------ below, Advertiser will be entitled to sell directly to AOL users through the Affiliated Advertiser Site (i.e., through a non-Online Auction format on the Affiliated Advertiser Site) any of the Auction Products listed in paragraph 12 below, so long as (a) such sales ("Direct Sales") do not constitute more than [Confidential Information filed separately with the SEC] of the transaction revenues generated through the Affiliated Advertiser Site in any quarter and (b) Direct Sales in any category do not constitute [Confidential Information filed separately with the SEC] of the transaction revenues generated through the Affiliated Advertiser Site in any quarter; provided that, subject to the General Sales Restrictions, Advertiser will be entitled to sell such Auction Products to AOL users through "offline" means (e.g., direct mail) and email, subject to the terms and conditions of this Agreement. Any additions to the list of Auction Products will be subject to AOL's prior written approval. 3. Promotional Limitations. Subject to the General Sales Restrictions, ----------------------- Advertiser will be entitled to promote, market and advertise its products using the promotional placements described in this insertion order, subject to the following: (i) absent AOL's prior written approval, Advertiser will not promote, market or distribute any products other than those listed as Auction Products in Paragraph 12 below (or those otherwise allowed pursuant to Paragraph 1 of this Exhibit A); and (ii) all promotion, marketing and advertising for Auction Sales will indicate that the products are being offered in an Online Auction format. 4. Product Offering. Advertiser will ensure that the Affiliated Advertiser ---------------- Site includes all of the products and other Content (including, without limitation, any features, functionality or technology) that are then made available by or on behalf of Advertiser through any distribution channel; provided, however, that (a) such inclusion will not be required where it is commercially or technically impractical to either Party (i.e., inclusion would cause either Party to incur substantial incremental costs); and (b) the specific changes in scope, nature and/or offerings required by such inclusion will be subject to AOL's review and approval and the terms of this Agreement. 5. Online Auctions Terms and Conditions. Advertiser will ensure that (a) the ------------------------------------ pricing and the terms and conditions related to Online Auctions services in the Affiliated Advertiser Site are no less favorable, taken as a whole, to the pricing and the terms and conditions for substantially similar Online Auctions services offered by or on behalf of Advertiser or through any Additional Advertiser Channel under Advertiser's control and (b) the pricing and the terms and conditions related to Online Auctions services in the Affiliated Advertiser Site will be reasonably competitive, taken as a whole, with the pricing and the terms and conditions for substantially similar Online Auctions services offered by any Advertiser competitor through any online medium. 5 6. Special Offers. Advertiser will (a) promote through the Affiliated -------------- Advertiser Site any special or promotional offers made available by or on behalf of Advertiser or through any Additional Advertiser Channel controlled by Advertiser and (b) promote through the Affiliated Advertiser Site special or promotional offers during the term of this insertion order which are available exclusively to AOL users (e.g., AOL users-only auctions for certain products, free gift certificates to AOL users upon the purchase of product(s), tie-ins to AOL's reward or frequent purchaser points program) ((a) and (b) collectively, the "Special Offers"). Advertiser shall notify AOL in advance of each Special Offer. In the event that AOL does not promote a Special Offer from one or more locations on the AOL Service within a reasonable time after the offer is first made available, Advertiser may discontinue such Special Offer.. Advertiser will provide AOL with reasonable prior notice of Special Offers so that AOL can market the availability of such Special Offers in the manner AOL deems appropriate in its editorial discretion, subject to the terms and conditions hereof. 7. AOL Quick Checkout. Advertiser will take all reasonable steps necessary to ------------------ conform its promotion and sale of products through the Advertiser Site to the then-existing commerce technologies made available to Advertiser by AOL, including without limitation AOL's "quick checkout" tool which allows AOL users to enter payment and shipping information which is then passed from AOL's centralized server unit to Advertiser for order fulfillment ("AOL Quick Checkout"). AOL will make all reasonable efforts to provide the tools for the Advertiser to enable the Advertiser Site with the AOL Quick Checkout technology and functionality. Collection, storage and disclosure of information which Advertiser provides to AOL, will be subject to AOL's privacy policy and all confidentiality requirements hereunder. To the extent that the Advertiser Site includes AOL's Quick Checkout, Advertiser will ensure that the AOL Quick Checkout is of equal placement and promotion prominence to other available payment options. 8. Merchant Certification Program. Advertiser will participate in any ------------------------------ generally applicable "Certified Merchant" program operated by AOL or its authorized agents or contractors. Such program may require Advertiser participants on the Shopping Channel on an ongoing basis to meet certain reasonable standards relating to provision of electronic commerce through the AOL Service, AOL.com and the CompuServe Service and may also require the payment of certain reasonable certification fees to AOL or its authorized agents or contractors operating the program. 9. BizRate Survey. Advertiser agrees to (i) participate in the BizRate -------------- Program, a service offered by Binary Compass Enterprises, Inc. (BCE), which provides opt-in satisfaction surveys to Users who purchase products through such Advertiser Site or such other provider of such services as AOL may designate or approve from time to time, and (ii) provide a link to BizRate's then-current standard survey forms, or such other survey forms offered by any other party that AOL may reasonably designate or approve from time to time. Advertiser's participation shall be based upon a separate written agreement which Advertiser will enter into with BCE, or other such party reasonably designated or approved by AOL. Advertiser hereby authorizes BCE to provide to AOL any and all reports provided to Advertiser by BCE, or other third party providing such services, and agrees to provide written notice of such authorization to BCE, or such other third party. 10. Specific Customer Service Requirements. Advertiser will receive all emails -------------------------------------- from Customers via a computer available to Advertiser's customer service staff and generally respond to such emails within one business day of receipt. Advertiser will receive all orders electronically and generally process all orders within one business day of receipt, provided products ordered are not advance order items. Advertiser will ensure that all orders of products are received, processed, fulfilled and delivered on a timely and professional basis. Advertiser will offer AOL users who purchase products through such the Advertiser Site a money-back satisfaction guarantee. Advertiser will bear all responsibility for compliance with federal, state and local laws in the event that products are out of stock or are no longer available at the time an order is received. Advertiser will also comply with the requirements of any federal, state or local consumer protection or disclosure law. Payment for products will be collected by Advertiser directly from customers. Advertiser's order fulfillment operation will be subject to AOL's reasonable review. 11. Reports to AOL. Advertiser will provide AOL with monthly reports, in a -------------- form reasonably satisfactory to AOL, which detail the following information for the previous month: (a) categories of products offered for sale through the Advertiser Site, (b) percentage of total transaction revenues derived from Direct Sales through the Advertiser Site, and (c) percentage of transaction revenues derived from Direct Sales through the Advertiser Site in each category. 6 12. Auction Products. "Auction Products" shall consist of products in the ----------------- following categories: Computers and Computer-Related Products (Desktop Computers, Notebook Computers, Monitors, Upgrades & Accessories) Printers, Scanners, Copiers, Games, Consumer Electronics, Cameras, Sporting Goods, Jewelry, Travel, Appliances, Gifts, Rare Books, Collectibles, Toys, Memorabilia (sports, entertainment & other), Housewares, Apparel and Wearables. EXHIBIT B --------- Operations ---------- 1. Affiliated Advertiser Site Infrastructure. Advertiser will be responsible ----------------------------------------- for all communications, hosting and connectivity costs and expenses associated with the Affiliated Advertiser Site. Advertiser will provide all hardware, software, telecommunications lines and other infrastructure necessary to meet traffic demands on the Affiliated Advertiser Site from the AOL Network. Advertiser will design and implement the network between the AOL Service and Affiliated Advertiser Site such that (i) no single component failure will have a materially adverse impact on AOL Members seeking to reach the Affiliated Advertiser Site from the AOL Network and (ii) no single line will run at more than 70% average utilization for a 5-minute peak in a daily period. In this regard, Advertiser will provide AOL, upon request, with a detailed network diagram regarding the network infrastructure supporting the Affiliated Advertiser Site. In the event that Advertiser elects to create a custom version of the Affiliated Advertiser Site in order to comply with the terms of this Agreement, Advertiser will bear responsibility for all aspects of the implementation, management and cost of such customized site. 2. Optimization; Speed. Advertiser will use commercially reasonable efforts to ------------------- ensure that: (a) the functionality and features within the Affiliated Advertiser Site are optimized for the client software then in use by AOL Members; and (b) the Affiliated Advertiser Site is designed and populated in a manner that minimizes delays when AOL Members attempt to access such site. At a minimum, Advertiser will ensure that the Affiliated Advertiser Site's data transfers initiate within fewer than fifteen (15) seconds on average. Prior to commercial launch of any material promotions described herein, Advertiser will permit AOL to conduct performance and load testing of the Affiliated Advertiser Site (in person or through remote communications), with such commercial launch not to commence until such time as AOL is reasonably satisfied with the results of any such testing. 3. User Interface. Advertiser will maintain a graphical user interface within -------------- the Affiliated Advertiser Site that is competitive in all material respects with interfaces of other similar sites based on similar form technology. AOL reserves the right to review and approve the user interface and site design prior to launch of the Promotions and to conduct focus group testing to assess compliance with respect to such consultation and with respect to Advertiser's compliance with the preceding sentence. 4. Technical Problems. Advertiser agrees to use commercially reasonable ------------------ efforts to address material technical problems (over which Advertiser exercises control) affecting use by AOL Members of the Affiliated Advertiser Site (a "Advertiser Technical Problem") promptly following notice thereof. In the event that Advertiser is unable to promptly resolve a Advertiser Technical Problem following notice thereof from AOL (including, without limitation, infrastructure deficiencies producing user delays), AOL will have the right to regulate the promotions it provides to Advertiser hereunder until such time as Advertiser corrects the Advertiser Technical Problem at issue. 5. Monitoring. Advertiser will ensure that the performance and availability of ---------- the Affiliated Advertiser Site is monitored on a continuous basis. Advertiser will provide AOL with contact information (including e-mail, phone, pager and fax information, as applicable, for both during and after business hours) for Advertiser's principal business and technical representatives, for use in cases when issues or problems arise with respect to the Affiliated Advertiser Site. 6. Telecommunications. The Parties agree to explore encryption methodology to ------------------ secure data communications between the Parties' data centers. The network between the Parties will be configured such that no single component failure will significantly impact AOL Users. The network will be sized such that no single line runs at more than 70% average utilization for a 5- minute peak in a daily period. 7. Security. Advertiser will utilize Internet standard encryption technologies -------- (e.g., Secure Socket Layer SSL) to provide a secure environment for conducting transactions and/or transferring private member information (e.g. credit card numbers, banking/financial information, and member address information) to and from the Affiliated Advertiser Site. Advertiser will facilitate periodic reviews of the Affiliated Advertiser Site by AOL in order to evaluate the security risks of such site. Advertiser will promptly remedy any security risks or breaches of security as may be identified by AOL's Operations Security team. 8. Technical Performance. --------------------- i. [Confidential Information filed separately with the SEC] ii. Prior to releasing material, new functionality or features through the Affiliated Advertiser Site ("New Functionality"), Advertiser will use commercially reasonable efforts to either (i) test the New Functionality to confirm its compatibility with AOL Service client software or (ii) provide AOL with written notice of the New Functionality so that AOL can perform tests of the New Functionality to confirm its compatibility with the AOL Service client software. 7 9. AOL Internet Services Advertiser Support. AOL will provide Advertiser with ---------------------------------------- access to the standard online resources, standards and guidelines documentation, technical phone support, monitoring and after-hours assistance that AOL makes generally available to similarly situated web- based partners. AOL support will not, in any case, be involved with content creation on behalf of Advertiser or support for any technologies, databases, software or other applications which are not supported by AOL or are related to any Advertiser area other than the Affiliated Advertiser Site. Support to be provided by AOL is contingent on Advertiser providing to AOL demo account information (where applicable), a detailed description of the Affiliated Advertiser Site's software, hardware and network architecture and access to the Affiliated Advertiser Site for purposes of such performance and load testing as AOL elects to conduct. 10. 8 EXHIBIT C --------- Cross-Promotion --------------- Online - ------ In each Interactive Site controlled by Advertiser, Advertiser will include: . A prominent promotional banner linking to AOL-designated Content on AOL.com or the AOL Service (if feasible) appearing "above the fold" on the first screen of the Advertiser Interactive Site . A prominent "Try AOL" feature elsewhere in the site where users can obtain promotional information about AOL products and services and, at AOL's option, download or order AOL's then-current version of client software for the AOL Service or software for any other AOL products or services (e.g., AOL's Instant Messenger service)/1/; and . AOL will pay Advertiser a standard bounty for each person who registers for the AOL Network using Advertiser's special identifier for this promotion and subsequently pays AOL at least three monthly usage fees for the use of the AOL Network. Note that if this promotion is delivered through Microsoft's Active Desktop or any other "push" product (an "Operating System"), such feature will link users directly to AOL software within the Operating System or direct users without Internet access to an AOL application setup program within the Operating System (all subject to any standard policies of the Operating System). . To the extent Advertiser offers or promotes any products or services similar to AOL's "component" products and services (e.g., Netfind or other search/directory service, NetMail or free/discount email service, Instant Messenger, yellow/white pages, "My AOL"-type personalized information, classifieds, etc.), prominent offers or promotions related to such AOL- designated products or services. Offline - ------- In Advertiser's television, radio and print advertisements and in any publications, programs, features or other forms of media over which Advertiser exercises at least partial editorial control, Advertiser will include: . Specific references or mentions (verbally where feasible) of the Affiliated Advertiser Site's availability through America Online(R) prior to, and at least as prominent as, any reference to any Advertiser Interactive Site; and . For instance, listing of the "URL(s)" the Advertiser Interactive Site will be accompanied by the AOL "keyword" for the Affiliated Advertiser Site. - ---------- /1/AOL will pay Advertiser a standard bounty for each person who registers for the AOL Network using Advertiser's special identifier for this promotion and subsequently pays AOL at least three monthly usage fees for the use of the AOL Network. Note that if this promotion is delivered through Microsoft's Active Desktop or any other "push" product (an "Operating System"), such feature will link users directly to AOL software within the Operating System or direct users without Internet access to an AOL application setup program within the Operating System (all subject to any standard policies of the Operating System). 9 EX-3.26 18 SALARY PROTECTION Exhibit 3.26 February 21,1997 Paul Godin c/o Internet Liquidators International Inc. 5195 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Dear Paul: Re: Sa1ary Protection In consideration of your agreeing to the non-competition provisions contained in the Intellectual Property Rights Agreement between America Online, Inc., Paul Godin, 1184011 Ontario Inc., Jeff Lymburner, Smythe Group Company and Internet Liquidators International Inc. ("ILII") dated February, 1997 and a similar agreement with the Toronto Star Newspaper Limited (collectively the "IP Rights Agreement") for a period of 24 months following termination of your employment as a condition to their investments in ILII, and in consideration of your agreement to waive and release ILII from the performance bonus and option provisions as set out in the January 1, 1996 employment letter (the "1996 Letter") with you, ILII agrees that in the event your employment is terminated by ILII for any reason other than death, disability or cause (cause to be defined as gross negligence or willful misconduct or illegal activity) and you are not released from the non-competition provisions contained in the IP Rights Agreement, ILII will provide you with income continuation for a period of 24 months following termination of your employment at the same level enjoyed by you in the 12 months prior to your termination, inclusive of bonuses, the continuation of your employee benefits and car allowance (but not long term disability), but exclusive of stock options. It is expressly understood and agreed that such payments are in full and final satisfaction of any claims or entitlements that you may have under any employment related legislation and under the common law arising out of your employment with ILII and the termination thereof. For your part and as a conditions to ILII's obligation to you above, you agree; 1. At the time of termination, you will execute a full and final release in a form and content satisfactory to ILII and yourself, on behalf of yourself and your heirs and executors in favour of ILII, its officers, directors, employees and agents from any and all actions, causes of actions, representations, warranties, or demands for any loss or damage whatsoever in relation to your employment with ILII, termination of such employment or all related matters (excluding any matter for which you are entitled to be indemnified under the Business Corporations Act (Ontario) or the by-laws or articles of ILII). 2. You agree not to make any claim or take proceedings against any person or corporation who might claim contribution or indemnity from ILII under the provisions of any statute or otherwise, with respect to any matter arising up to the time of termination (subject to the exclusion noted above in subparagraph 1). 3. You agree to indemnify, defend and save ILII harmless from all claims, actions, causes of actions or demands under the Income Tax Act in respect of withholding tax, income tax, interest or penalties relating to your employment or the termination thereof. 4. You agree that ILII's obligation to continue all or any portion of your income shall terminate (i) on the breach by you of the IP Rights Agreement, or (ii) on notice from ILII that you shall be released from the non-competition provisions of the IP Rights Agreement provided that in no event shall your notice period (ie. the period of your income continuance) be less than twelve months. 5. Finally, you agree that in the event that you are able to secure employment at a comparable income level at any time within the two year period, ILII's obligation under this letter shall immediately cease and you agree that you will advise ILII properly upon the commencement of any such employment. This Agreement supersedes sections 3, 5, 6 and 7 contained in the 1996 Letter. The 1996 Letter as amended by this Agreement together with the IP Rights Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations and discussion, whether oral or written in respect of the subject matter hereof, including without limitation the letter agreement between you and ILII dated February 12, 1997. The parties hereby agree to execute any and all necessary documentation to give full force and effect to this Agreement This Agreement shall be govern by the laws of the Province of Ontario, and the federal laws of Canada applicable therein. Please signify you agreement to the forgoing by signing and returning the enclosed duplicate copy of this letter. Yours truly, Internet Liquidators International Inc. By: ------------------------------------ Duly Authorized Officer By: ------------------------------------ Duly Authorized Officer I acknowledge and agree to the foregoing this _____ day of February. 1997. - --------------------------------- Paul Godin EX-3.27 19 SALARY PROTECTION Exhibit 3.27 February 12,1997 Jeffrey Lymburner c/o Internet Liquidators International Inc. 5195 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Dear Jeffrey: Re: Sa1ary Protection In consideration of your agreeing to execute non-competition agreements, one with Internet Liquidators International Inc. ("ILII") and Toronto Star Newspaper Limited and one with ILII and America Online, Inc, both for a period of 24 months following termination of your employment as a condition to their investments in ILII, and in consideration of your agreement to waive and release ILII from the performance bonus and option provisions as set out in the January 1, 1996 employment letter with you. ILII agrees that in the event your employment is terminated by ILII for any reason other than death, disability or cause (cause to be defined as gross negligence or willful misconduct or illegal activity) and you are not released from the non-competition provisions contained in the said Agreements, ILII will provide you with income continuation for a period of 24 months following termination of your employment at the same level enjoyed by you in the 12 months prior to your termination, inclusive of bonuses, but exclusive of stock options, but including the continuation of your employee benefits and car allowance (but not long term disability). For your part and as a conditions to ILII's obligation to you above, you agree; 1. At the time of termination, you will execute a full and final release in a form and content satisfactory to ILII and yourself, on behalf of yourself and your heirs and executors in favour of ILII, its officers, directors, employees and agents from any and all actions, causes of actions, representations, warranties, or demands for any loss or damage whatsoever in relation to your employment with ILII, termination of such employment or all related matters (including any legal breach by ILII, its officers, directors or employees under the provisions of any statutes or otherwise). 2. You agree not to make any claim or take proceedings against any person or corporation who might claim contribution or indemnity from ILII under the provisions of any statute or otherwise, with respect to any matter arising up to the time of termination (subject to the exclusion noted above in subparagraph 1). 3. You agree to indemnify, defend and save ILII harmless from all claims, actions, causes of actions or demands under the Income Tax Act in respect of withholding tax, income tax, interest or penalties relating to your employment or the termination thereof. 4. You agree that ILII's obligation to continue all or any portion of your income shall terminate on the breach by you of your non- competition agreements. 5. Finally, you agree that in the event that you are able to secure employment at a comparable income level at any time within the two year period, ILII's obligation under this letter shall immediately cease and you agree that you will advise ILII properly upon the commencement of any such employment. This letter supersedes any like conditions contained in the January 1996 employment letter with you. Please signify you agreement to the forgoing by signing and returning the enclosed duplicate copy of this letter. Yours truly, Internet Liquidators International Inc. By: ------------------------------------------- Duly Authorized Officer By: ------------------------------------------- Duly Authorized Officer I acknowledge and agree to the foregoing this _____ day of February. 1997. - ------------------------------------- Jeffrey Lymburner EX-3.28 20 SALARY PROTECTION Exhibit 3.28 February 12,1997 Paul Godin c/o Internet Liquidators International Inc. 5195 Airport Road Suite 330 Mississauga, Ontario L4V 1T1 Dear Paul: Re: Sa1ary Protection In consideration of your agreeing to execute non-competition agreements, one with Internet Liquidators International Inc. ("ILII") and Toronto Star Newspaper Limited and one with ILII and America Online, Inc, both for a period of 24 months following termination of your employment as a condition to their investments in ILII, and in consideration of your agreement to waive and release ILII from the performance bonus and option provisions as set out in the January 1, 1996 employment letter with you. ILII agrees that in the event your employment is terminated by ILII for any reason other than death, disability or cause (cause to be defined as gross negligence or willful misconduct or illegal activity) and you are not released from the non-competition provisions contained in the said Agreements, ILII will provide you with income continuation for a period of 24 months following termination of your employment at the same level enjoyed by you in the 12 months prior to your termination, inclusive of bonuses, but exclusive of stock options, but including the continuation of your employee benefits and car allowance (but not long term disability). For your part and as a conditions to ILII's obligation to you above, you agree; 1. At the time of termination, you will execute a full and final release in a form and content satisfactory to ILII and yourself, on behalf of yourself and your heirs and executors in favour of ILII, its officers, directors, employees and agents from any and all actions, causes of actions, representations, warranties, or demands for any loss or damage whatsoever in relation to your employment with ILII, termination of such employment or all related matters (including any legal breach by ILII, its officers, directors or employees under the provisions of any statutes or otherwise). 2. You agree not to make any claim or take proceedings against any person or corporation who might claim contribution or indemnity from ILII under the provisions of any statute or otherwise, with respect to any matter arising up to the time of termination (subject to the exclusion noted above in subparagraph 1). 3. You agree to indemnify, defend and save ILII harmless from all claims, actions, causes of actions or demands under the Income Tax Act in respect of withholding tax, income tax, interest or penalties relating to your employment or the termination thereof. 4. You agree that ILII's obligation to continue all or any portion of your income shall terminate on the breach by you of your non- competition agreements. 5. Finally, you agree that in the event that you are able to secure employment at a comparable income level at any time within the two year period, ILII's obligation under this letter shall immediately cease and you agree that you will advise ILII properly upon the commencement of any such employment. This letter supersedes any like conditions contained in the January 1996 employment letter with you. Please signify you agreement to the forgoing by signing and returning the enclosed duplicate copy of this letter. Yours truly, Internet Liquidators International Inc. By: --------------------------------------- Duly Authorized Officer By: --------------------------------------- Duly Authorized Officer I acknowledge and agree to the foregoing this _____ day of February. 1997. - --------------------------------- Paul Godin -----END PRIVACY-ENHANCED MESSAGE-----