-----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, AoFxtUpOR3DEDdTFVCbj5uPz+GJ8XLtqyb2b4ibOkT4Dzm8UWDYXDdYLjz9kTCz7 cotpgAmfVFMJ0qxersuOxQ== 0001021408-01-501289.txt : 20010524 0001021408-01-501289.hdr.sgml : 20010524 ACCESSION NUMBER: 0001021408-01-501289 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010523 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: 20-F SEC ACT: SEC FILE NUMBER: 001-14835 FILM NUMBER: 1646147 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 20-F 1 d20f.txt FORM 20-F UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 20-F [_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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. 54,638,468 Common Shares as of December 31, 2000 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 X No ______ Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 X Item 18 ______ TABLE OF CONTENTS
Page PART I........................................................................................ 4 ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS........................... 4 ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE......................................... 4 ITEM 3 - KEY INFORMATION................................................................. 4 A. Selected Financial Data........................................................ 4 B. Capitalization and Indebtedness................................................ 6 C. Reasons For The Offer And Use Of Proceeds...................................... 6 D. Risk Factors................................................................... 6 ITEM 4 - INFORMATION ON THE COMPANY...................................................... 16 A. History and Development of the Company......................................... 16 B. Business Overview.............................................................. 16 C. Organizational Structure....................................................... 24 D. Property, Plants and Equipment................................................. 25 ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 25 ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...................................... 33 A. Directors And Senior Management................................................ 33 B. Compensation................................................................... 36 C. Board Practices................................................................ 38 D. Employees...................................................................... 38 E. Share Ownership................................................................ 39 ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS............................... 39 A. MAJOR SHAREHOLDERS............................................................. 39 B. RELATED PARTY TRANSACTIONS..................................................... 40 ITEM 8 - FINANCIAL INFORMATION........................................................... 40 ITEM 9 - THE OFFER AND LISTING........................................................... 40 ITEM 10 - ADDITIONAL INFORMATION......................................................... 42 A. Share Capital................................................................. 42 B. Memorandum and Articles of Association........................................ 42 C. Material Contracts............................................................ 45 D. Exchange Controls............................................................. 45 E. Taxation...................................................................... 45 F. Dividends and Paying Agents................................................... 51 G. Statements by Experts......................................................... 51 H. Documents on Display.......................................................... 51 ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...................... 52 ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN DEBT SECURITIES........................... 52 PART II....................................................................................... 52 ITEM 13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES................................. 52 ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS... 52 PART III...................................................................................... 52 ITEM 17 - FINANCIAL STATEMENTS........................................................... 52 ITEM 18 - FINANCIAL STATEMENTS........................................................... 52 ITEM 19 - EXHIBITS....................................................................... 52
1 BID.COM INTERNATIONAL INC. Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2000 FORWARD LOOKING STATEMENTS This annual report includes forward-looking statements. You can identify these statements when you see words such as "expect", "anticipate", "estimate", "believe", "intend", "may", and other similar expressions. These forward-looking statements relate, among other items to: . our future capital needs; . our ability to further develop our business to business relationships and revenues; . our expectations about the markets for our online products and services; . acceptance of our products and services; . competitive factors; . our ability to attract and retain employees; . new products and technological changes; . our ability to develop appropriate strategic alliances; . the validity of our patents and protection of our proprietary technology; . our ability to acquire complementary products or businesses and integrate them into our business; and . geographic expansion of our business. We have based these forward-looking statements largely on our expectations. Forward-looking statements are subject to risks and uncertainties, certain of which are beyond our control. Actual results could differ materially from those anticipated as a result of the factors described in the "Risks Factors" included elsewhere in this annual report, including, among others: . our limited operating history; . the timing of our future capital needs and our ability to raise additional capital when needed; . uncertainty as to the success of our customers' e-commerce ventures and associated collection risks; . the potential delisting of our stock from the Nasdaq National Market; . volatility of the stock markets and fluctuations in our market price; . our ability to compete with other online e-commerce enablers; . our inability to attract and retain key personnel; . problems which may arise in connection with the acquisition or integration of new businesses, products, services, technologies or other strategic relationships; . risk of system failure or interruption; . uncertainty of market acceptance of our products and services; . uncertainty about the acceptance of the Internet and/or dynamic pricing as a viable commercial medium; . failure to timely develop or license new technologies; and . implementation and enforcement of government regulations. 2 We do not undertake any obligation to publicly update or revise any forward- looking statements contained in this annual report, whether as a result of new information, future events or otherwise. Because of these risks and uncertainties, the forward-looking statements and circumstances discussed in this annual report might not transpire. Trademarks or trade names of Bid.Com used in this annual report include: BID.COM(TM); POWERED BY BID.COM(TM); INTERNET LIQUIDATORS(TM); BID BUDDY(TM); SEARCH BUDDY(TM); DYNAMIC BUYER(TM) and DYNAMIC SELLER(TM). 3 PART I Unless otherwise indicated, all references in this annual report to "dollars" or "$" are references to Canadian dollars. Our financial statements are expressed in Canadian dollars. Except as otherwise noted, certain financial information presented in this annual report has been translated from Canadian dollars to U.S. dollars at an exchange rate of Cdn$1.4995 to US$1.00, the noon buying rate in New York City on December 31, 2000 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. ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS Not applicable. ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3 - KEY INFORMATION A. SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with, and are qualified by reference to, our consolidated financial statements and notes thereto, and our "Operating and Financial Review and Prospects" included elsewhere in this annual report. The consolidated statement of operations data for the years ended 2000, 1999 and 1998 and consolidated balance sheet data as of December 31, 2000 and 1999, as set forth below, are derived from our consolidated audited financial statements and the notes thereto, included elsewhere in this annual report. The consolidated statement of operations data for the years ended 1997 and 1996 and the consolidated balance sheet data as at December 31, 1997 and 1996 have been derived from our consolidated audited financial statements not included in this annual report. We have prepared our audited financial statements in accordance with accounting principles generally accepted in Canada, which differ in certain respects from generally accepted accounting principles in the United States. However, as applied to us, for all fiscal periods for which financial data are presented in this annual report, Canadian GAAP and U.S. GAAP were substantially identical in all material respects, except as disclosed in Note 18 to our consolidated financial statements. 4 Statement of Operations Data:
Year Ended December 31 ----------- 2000 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- ---- (Cdn$) (U.S.$) (Cdn$) (Cdn$) (Cdn$) (Cdn$) (Audited) (in thousands except for per share data) Revenue......................... 12,497 8,334 31,001 20,001 2,619 51 Less: Customer acquisition costs (157) (105) Net Revenue 12,340 8,229 31,001 20,001 2,619 51 Expenses Direct expenses.................. 11,460 7,642 26,696 19,361 2,916 12 Advertising and promotion........ 5,040 3,361 11,870 12,594 2,521 403 General & administrative......... 19,397 12,936 12,405 5,751 3,157 1,453 Software development and technology................... 1,802 1,202 1,001 889 661 194 Depreciation and amortization.... 1,130 754 621 201 122 100 Interest (income)................ (467) (311) (767 (88) (33) - Total expenses................... 38,362 25,584 51,826 38,708 9,344 2,162 Loss before the undernoted....... (26,022) (17,355) (20,825 (18,707) (6,725) (2,111) Non-recurring items.............. 5,656 3,772 - - - - Net (loss)....................... (20,366) (13,583) (20,825 (18,707) (6,725) (2,111) Loss per common share............ (0.38) (0.25) (0.42 (0.79) (0.55) (0.21) Weighted average number of common shares 53,688 53,688 50,682 23,819 12,297 9,598 Balance Sheet Data:/(1)/ As at December 31 ------------------------------------------------------------------------ 2000 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- ---- (Cdn$) (U.S.$) (Cdn$) (Cdn$) (Cdn$) (Cdn$) (in thousands) Working capital............................. 13,671 9,116 21,523 17,929 5,088 (559) Total assets................................ 20,801 13,871 36,743 21,047 6,886 471 Long-term Deferred Revenue.................. 1,185 790 1,289 - - - Shareholders equity......................... 15,860 10,576 28,985 18,622 5,563 (209)
____________________________ /(1)/ We have not paid dividends since our formation. EXCHANGE RATES The following tables set forth, for the periods indicated, certain exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York. Such rates are the number of U.S. dollars per one Canadian dollar and are the inverse of the rates quoted by the Federal Reserve Bank of New York for Canadian Dollars per U.S. $1.00. On May 18, 2001, the exchange rate was US$1.00 = Cdn$1.5328. 5
Year Ended December 31, -------------------------------------------------------------- Rate 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- ---- Last Day of year $ .6669 $ .6925 $.6504 $.6999 $.7301 Average(1) during year .6732 .6744 .6740 .7221 .7332 High during year .6967 .6925 .7105 .7487 .7513 Low during year .6410 .6439 .6341 .6945 .7235
(1) The average rate is the average of the exchange rates on the last day of each month during the year.
Month High during month Low during month ----- ----------------- ---------------- November 2000 $.6552 $.6410 December 2000 $.6669 $.6469 January 2001 $.6692 $.6595 February 2001 $.6696 $.6493 March 2001 $.6499 $.6336 April 2001 $.6510 $.6333
B. CAPITALIZATION AND INDEBTEDNESS Not applicable. C. REASONS FOR THE OFFER AND USE OF PROCEEDS. Not applicable. D. RISK FACTORS OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT. While we were founded in September 1995, until 1999 we operated solely as an online retailer of computer and other goods. During 1999 we began to shift our focus to our e-commerce enabling strategy and related services, and in October 2000 we terminated our on-line retail operations. Accordingly, there is only a limited operating history for you to base an evaluation of us and our business prospects. Our business and prospects must be considered in light of the risks, uncertainties and expenses frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as online commerce. Our business strategy may not be successful and we may not successfully address those risks. WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING WHEN WE NEED IT, WE MAY BE REQUIRED TO CURTAIL OUR OPERATIONS SIGNIFICANTLY, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Since we began our operations, we have been funded primarily through the sale of securities to investors in a series of private placements, sales of equity to and investments from strategic partners, gains from investments, option exercises and, to a limited extent, through cash flow from operations. At this time, funds from operations are not sufficient to meet our anticipated financial requirements beyond early 2002. As of March 31, 2001, we had cash on hand and marketable securities of approximately $14.453 million. Based on current plans and our recent implementation of cost cutting measures, including workforce reductions, we believe that current cash balances and anticipated funds from operations will be sufficient to meet 6 our needs into early 2002. However, the actual amount of funds that will be required until that time will be determined by many factors, some of which are beyond our control. As a result, we may need funds sooner or in greater amounts than currently anticipated. At the request of our auditors, we have included in footnote 2 to our financial statements, a discussion about the ability of our company to continue to operate as a going concern. We do not have any committed sources of additional financing at this time and we are uncertain whether additional funding will be available when we need it on terms that will be acceptable to us or at all. If we are not able to obtain financing when we need it, we would be unable to carry out our business plan and would have to significantly curtail our operations, which would have a material adverse effect on our business, financial condition and results of operations. Potential sources of financing include strategic relationships, public or private sales of our shares or debt or other arrangements. If we raise funds by selling additional shares, including common shares or other securities convertible into common shares, the ownership interests of our existing shareholders will be diluted. If we raise funds by selling preference shares, such shares may carry more voting rights, higher dividend payments or more favorable rights upon distribution than those for the common shares. Because of our potential long term capital requirements, we may seek to access the public or private equity markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. WE ARE NOT PROFITABLE AND WE MAY NEVER BECOME PROFITABLE. We have accumulated net losses of approximately $69.478 million as of March 31, 2001. For the year ended December 31, 2000 our net loss was approximately $20.366 million. We have never achieved profitability and expect to continue to incur losses for the foreseeable future. We cannot assure you that we will earn profits or generate positive cash flows from operations in the future. AS A RESULT OF OUR CHANGE IN BUSINESS MODEL, WE ARE NO LONGER GENERATING REVENUE FROM THE BUSINESS-TO-CONSUMER MARKET AND WE MAY NOT BE ABLE TO REPLACE THAT REVENUE WITH REVENUE FROM THE BUSINESS-TO-BUSINESS MARKET. During 1999 we began to shift our primary business focus from the business-to-consumer market to the business-to-business market. In October 2000, we closed our retail operations. During 1999 and 2000, the substantial majority of our revenues were generated from our business-to-consumer auctions and related services. We cannot assure you that we will be able to replace all lost revenue with the same level of revenue from our business-to-business services. The success of our business is dependent on our ability to attract new customers. If the market grows more slowly than anticipated or we are not able to compete, we many not be able to add new customers at a rate sufficient to replace such lost revenue. If we are unable to replace lost revenue, our business, results of operations, cash flow, financial condition and prospects could be materially adversely affected. THE E-COMMERCE INITIATIVES OF OUR CUSTOMERS MAY NOT BE SUCCESSFUL AND THIS MAY CREATE COLLECTION ISSUES FOR US AND REDUCE THE AMOUNT OF REVENUE-BASED FEES WE MAY RECEIVE There can be no assurance that our customers will be successful in their e-commerce initiatives. Success will be dependent on their willingness and ability to devote sufficient resources to such initiatives, and the demand for their products and services. If our clients are unsuccessful, they may be less willing or able to pay amounts owing to us for services. In addition, if our clients are unsuccessful they may generate less revenue, which would reduce the amount of revenue-based fees payable to us. Furthermore, a lack of success could reduce the number of clients willing or able to provide references to future prospects. POTENTIAL FLUCTUATIONS IN OUR FINANCIAL RESULTS MAKES FINANCIAL FORECASTING DIFFICULT Our operating results have varied on a quarterly basis in the past and may fluctuate significantly as a result of a variety of factors, many of which are outside our control. Factors that may affect our quarterly operating results include: 7 . general economic conditions as well as economic conditions specific to the Internet and online commerce industries; . any decision by us to reduce prices for our solutions in response to price reductions by competitors; . the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure; . the announcement or introduction of new sites, services and products by us or our competitors; and . the timing of, and our ability to integrate, any future acquisition of businesses, technologies or products or any strategic investments or relationships into which we may enter. As a result of our limited operating history, the emerging nature of the markets in which we compete and the inherent degree of variability in dynamic pricing transactions, it is difficult for us to accurately forecast our revenues, earnings, cash flow and other financial information. Our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any significant shortfall in revenues relative to our planned expenditures would have an immediate adverse effect on our business, results of operations, cash flow and financial condition. Further, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service or marketing decisions that could have a material adverse effect on our business, results of operations, financial condition and prospects. In addition, payment and recognition of revenues may be affected by implementation delays, which are not always in our control. Due to these factors, our quarterly revenues and operating results are difficult to forecast. We believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance. In addition, it is likely that in one or more future quarters, our operating results will fall below the expectations of securities analysts and investors. In such event, the trading price of our common shares would almost certainly be materially adversely affected. THE VOLATILITY OF THE STOCK MARKETS AND OUR SHARE PRICE COULD ADVERSELY AFFECT OUR SHAREHOLDERS. The market prices for securities of Internet-related and technology companies have been highly volatile, especially recently. These companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to their operating performance. Broad market and industry factors may materially and adversely affect the market price of our common shares, regardless of our operating performance. The trading price of our common shares on The Toronto Stock Exchange and Nasdaq has fluctuated significantly in the past and could be subject to wide fluctuations in the future. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on our business, results of operations, cash flow, financial condition and prospects. YOUR LIQUIDITY IN OUR COMMON SHARES MAY BE AFFECTED IF OUR STOCK IS DELISTED FROM THE NASDAQ NATIONAL MARKET Our common shares are quoted on the Nasdaq market under the symbol "BIDS". In order for our common shares to continue to be quoted on the Nasdaq market, we must satisfy various listing maintenance standards established by Nasdaq. Under these listing maintenance standards, if the closing bid price of our common shares is under US $1.00 per share for a specified period of time, Nasdaq may delist our common shares from trading on the Nasdaq market. We have received a letter from Nasdaq advising us that our common shares have not met Nasdaq's minimum bid price closing requirement for thirty consecutive trading days and that, if we are unable to demonstrate 8 compliance with this requirement for ten consecutive trading days (and our ability to sustain compliance) by June 18, 2001, our common shares will be delisted (subject to any appeal). There can be no assurance that we will be able to satisfy Nasdaq in this regard. If our common shares are delisted from Nasdaq, we may apply to have our common shares quoted on Nasdaq's Bulletin Board or in the "pink sheets" maintained by the National Quotation Bureau, Inc. The Bulletin Board and the "pink sheets" are generally considered to be less efficient markets that the Nasdaq National Market on which the shares are currently traded. Delisting from the Nasdaq National Market will not affect the listing of the common shares on The Toronto Stock Exchange. OUR MARKETS ARE HIGHLY COMPETITIVE AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY. The online commerce market is relatively new, rapidly evolving and intensely competitive. We expect that online commerce competition will further intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites and technologies at a relatively low cost. We compete with a broad range of companies, including providers of on-line solutions, on-line communities, providers of physical auctions, and catalog companies. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we. We cannot assure you that we will be able to compete effectively. WE DEPEND ON OUR KEY PERSONNEL AND WE MAY NOT BE ABLE TO ATTRACT OR RETAIN THE HIGHLY SKILLED PERSONNEL WE NEED. Our success is substantially dependent on the ability and experience of our senior management and other key personnel. We do not have long term employment agreements with any of our key personnel and maintain no "key person" life insurance policies. In April, 2001, we implemented a workforce reduction in which we eliminated 31 positions. We anticipate that during the remainder of 2001 additional employees may voluntarily elect to terminate their employment because of our workforce reductions. In the future, we may need to hire additional personnel because of attrition or growth of our business. Competition for personnel, especially those with software development and other technical expertise, is intense. We cannot be certain we will be able to retain existing personnel or hire additional, qualified personnel. Our inability to retain and attract the necessary personnel or the loss of services of any of our key personnel could have a material adverse effect on us. Stock options are an important component of the compensation of our personnel. We face a significant challenge in retaining our employees if the value of these stock options is not substantial enough. To retain our employees, we expect to continue to grant new options to motivate and retain employees, which will be dilutive to investors. WE MAY NOT BE ABLE TO MANAGE GROWTH. As our business grows, there may be significant demands on our management, administrative, operating and financial resources. In order to manage any future growth effectively, we will need to expand and improve our operational, financial and management information systems and hire, train, motivate, manage and retain additional employees. We cannot assure you that we will be able to manage future growth effectively, that our management, personnel or systems will be adequate to support such growth, or that we will be able to achieve levels of revenue commensurate with the increased levels of operating expenses associated with such growth. 9 WE PLAN TO CONTINUE TO EXPAND INTERNATIONALLY AND ARE SUBJECT TO RISKS ASSOCIATED WITH GLOBAL EXPANSION. We currently operate in the United States, Canada, Ireland, England and Australia. We plan to continue to expand our international presence. We may incur significant costs in connection with our international expansion. There are also risks inherent in doing business on a global level, including: . various laws and regulatory requirements; . tariffs, customs, duties and other trade barriers; . longer payment cycles and problems in collecting accounts receivable; . difficulties in managing foreign operations; . export and import restrictions; . political risks; . currency and foreign exchange controls; . seasonal reductions in business activity during the summer months in Europe and elsewhere; and . potentially adverse tax consequences. Any of these risks could adversely affect the success of our global operations. ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR BUSINESS AND/OR THE DISTRACTION OF OUR MANAGEMENT. As part of our business strategy, in the future we may seek to acquire or make investments in complementary businesses or technologies. We may not be able to acquire or manage additional businesses profitably or to successfully integrate any acquired businesses with our business. Businesses that we acquire may have liabilities that we underestimate or do not discover during our pre- acquisition investigations. Certain liabilities, even if we do not expressly assume them, may be imposed on us as the successor to the business. Further, each acquisition may involve other special risks that could cause the acquired businesses to fail to meet our expectations. For example: . the acquired businesses may not achieve expected results; . we may not be able to retain key personnel of the acquired businesses; . we may incur substantial, unanticipated costs, delays or other operational or financial problems when we try to integrate businesses we acquire with our own; . our management's attention may be diverted; or . our management may not be able to manage the combined entity effectively or to make acquisitions and grow our business internally at the same time. The occurrence of one or more of these factors could materially harm our business, financial condition and results of operations. In addition, we may incur debt or issue equity securities to pay for any future acquisitions or investments, which could dilute the ownership interest of our existing shareholders. IF WE ARE UNABLE TO SUCCESSFULLY PROTECT OUR INTELLECTUAL PROPERTY OR OBTAIN CERTAIN LICENSES, OUR COMPETITIVE POSITION MAY BE HARMED. Our performance and ability to compete are dependent in part on our proprietary technology. We rely on a combination of patent, copyright, trademark and trade secret laws as well as confidentiality agreements and technical measures, to establish and protect our proprietary rights. We cannot guarantee that any patents issued to us 10 will afford meaningful protection for our technology. Competitors may develop similar technologies which do not conflict with our patents. Others may challenge our patents and, as a result, our patents could be narrowed or invalidated. Our 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 we could obtain under registered copyrights. As a result, we may experience difficulty in enforcing our copyrights against certain third party infringements. The source code for our proprietary software is protected as a trade secret. As part of our confidentiality protection procedures, we generally enter into agreements with our employees and consultants and limit access to, and distribution of, our software, documentation and other proprietary information. We cannot assure you that the steps taken by us will prevent misappropriation of our technology or that agreements entered into for that purpose will be enforceable. In order to protect our intellectual property, it may be necessary for us to litigate. While this has not been necessary to date, there can be no guarantee that we will not be required to do so in future to protect our rights. The laws of other countries may afford us little or no protection for our intellectual property. We also rely on a variety of technology that we license from third parties, including our database and Internet server software, which is used to perform key functions. We cannot assure you that these third party technology licenses will continue to be available to us on commercially reasonable terms, or at all. If we are unable to maintain these licenses or obtain upgrades to these licenses, we could be delayed in completing some products or services. OTHERS COULD CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH MAY RESULT IN COSTLY AND TIME CONSUMING LITIGATION. Our success will also depend partly on our ability to operate without infringing upon the proprietary rights of others, as well as our ability to prevent others from infringing on our proprietary rights. We may be required at times to take legal action in order to protect our proprietary rights. Also, from time to time, we may receive notice from third parties claiming that we may infringe their patent or other proprietary rights. Despite our best efforts, we may be sued for infringing on the patent or other proprietary rights of others. Such litigation is costly, and even if we prevail, the cost of such litigation could harm us. If we do not prevail, in addition to any damages we might have to pay, we could be required to stop the infringing activity or obtain a license. We cannot be certain that any required license would be available to us on acceptable terms, or at all. If we fail to obtain a license, or if the terms of a license are burdensome to us, our business, financial condition and results of operations could be materially harmed. WE MAY HAVE TO EXPEND SIGNIFICANT RESOURCES TO KEEP PACE WITH 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 of these could render our proprietary technology obsolete. Our performance will depend, in part, on our ability to: . develop new proprietary technology that addresses the increasingly sophisticated and varied needs of our existing and prospective customers; . respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis; . continually improve the performance, features and reliability of our services in response to evolving market demands; and . license leading technologies. We may be required to make substantial expenditures to accomplish the foregoing and to modify or adapt our services or infrastructure. 11 SYSTEMS DEFECTS, FAILURES OR BREACHES OF SECURITY COULD CAUSE A SIGNIFICANT DISRUPTION TO OUR BUSINESS, DAMAGE OUR REPUTATION AND EXPOSE US TO LIABILITY. We believe our reputation for providing reliable and efficient services is critical to our future success. Our systems are vulnerable to a number of factors that may cause interruptions in our ability to enable or host solutions for third parties, including, among others: . damage from human error, tampering and vandalism; . breaches of security; . fire and power losses; . telecommunications failures and capacity limitations; and . software or hardware defects. Service offerings involving complex technology often contain errors or performance problems. Defects are often found during the period immediately following introduction and implementation of new services or enhancements. Errors or performance problems could result in lost revenue or cancellation of customer agreements and may expose us to litigation, potential liability and damage to our reputation. Certain of our contracts provide the customer with penalties or a right of termination in the event we are unable to maintain minimum performance levels. We have developed a redundant system and a formal disaster recovery plan. Despite the precautions we have taken and plan to take, the occurrence of any of these events or other unanticipated problems could result in service interruptions, which could damage our reputation, subject us to loss of business and significant repair costs. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the algorithms we use to protect customer transaction data, including credit card information. Security breaches could expose us to a risk of loss or litigation and possible liability for failing to secure confidential customer information. These factors could expose us to liabilities which could exceed our insurance coverage. Service disruptions could also damage our reputation, cause us to lose existing customers and make it difficult to attract new ones. Extensive repair costs could also affect our ability to operate. Although we continue to take steps to enhance the security and redundancy of our systems, our systems are not now, nor will they ever be, fully secure and redundant. IF THE WEB INFRASTRUCTURE IS UNABLE TO SUPPORT USER DEMAND OR IF OUR CONNECTION TO THE INTERNET IS INTERRUPTED OUR BUSINESS MAY BE HARMED. The success of our business-to-business offerings 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. These outages and delays could adversely affect the level of Web usage and the level of traffic and the processing of on-line transactions. In addition, we do not own a gateway onto the Internet. Instead, we rely on Internet service providers to connect our Web site to the Internet. From time to time, we have experienced temporary interruptions in our Web site connection and in our telecommunications access. Continuous or prolonged interruptions in our Web site connection or in our telecommunications access would have a material adverse effect on our operations. 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, our business, results of operations, cash flow and financial condition will be materially and adversely affected. 12 OUR LONG-TERM VIABILITY IS SUBSTANTIALLY DEPENDENT UPON THE WIDESPREAD ACCEPTANCE AND USE BY BUSINESSES AND CONSUMERS OF THE INTERNET AS A MEDIUM OF COMMERCE. Our future success depends in part on the continued growth and reliance by businesses and consumers on the Internet, particularly the growth of dynamic pricing as a basis for conducting transactions in the business-to-business and consumer markets. Because use of the Internet as a source of information, products and services is a relatively recent phenomenon, it is difficult to predict whether the number of users drawn to the Internet will continue to increase and whether the market for commercial use of the Internet will continue to develop and expand. Internet use patterns may decline as the novelty of the medium recedes. The Internet may not be commercially viable for a number of reasons, including potentially inadequate development of the necessary network infrastructure, delayed development of enabling technologies and inadequate performance improvements. In addition, the Internet's viability as a commercial marketplace could be adversely affected by delays in the development of services or due to increased government regulation. Changes in or insufficient availability of telecommunications services to support the Internet also could result in slower response times and adversely affect usage of the Internet generally and our business 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, our business would be materially and adversely affected. In addition, even if businesses and consumers accept the use of the Internet as a viable medium of commerce, we cannot assure you that dynamic pricing will develop successfully or achieve widespread acceptance. If the market for dynamic pricing fails to develop, or develops more slowly than expected or becomes saturated with competitors, our business, financial condition, results of operations, cash flow and prospects would be materially adversely affected. CHANGES IN GOVERNMENT REGULATIONS MAY RESULT IN INCREASED EXPENSES, WHICH COULD DECREASE THE DEMAND FOR OUR SERVICES AND NEGATIVELY IMPACT OUR RESULTS. We are not currently subject to direct regulation by any governmental agency, other than regulations applicable to businesses generally and laws and regulations directly applicable to access to or commerce on, the Internet. However, a number of legislative and regulatory proposals under consideration by federal, state, provincial, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of the Internet, including but not limited to, on-line content, user privacy, taxation, access charges and liability for third-party activities. Additionally, it is uncertain how existing laws governing issues such as property ownership, copyright, trade secrets, libel and personal privacy will be applied to the Internet. The adoption of new laws or the broader application of existing laws may expose us to significant liabilities and additional operational requirements and expenses and may decrease the growth in the use of the Internet, which could in turn decrease the demand for our products and increase our cost of doing business. 13 OUR BUSINESS IS SENSITIVE TO THE OVERALL ECONOMIC ENVIRONMENT, AND ANY SLOWDOWN IN E-BUSINESS GROWTH OR OTHER FACTORS IMPACTING INFORMATION TECHNOLOGY SPENDING BUDGETS COULD HARM OUR OPERATING RESULTS The primary customers for our products are enterprises seeking to launch or expand e-business initiatives. Any significant downturn in our customers' markets or in general economic conditions that results in reduced information technology spending budgets would likely result in a decreased demand for our products and services and will harm our business. Industry downturns like these have been, and may continue to be, characterized by diminished demand for products and services and subsequent erosion of average selling prices. OUR BUSINESS MAY BE AFFECTED BY EVOLVING TAX REGULATIONS. A number of proposals have been made at the U.S. 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 our opportunity to derive financial benefit from such activities. WE ARE SUBJECT TO RISKS ASSOCIATED WITH EXCHANGE RATE FLUCTUATIONS. Substantially all of our revenues are in U.S. dollars or European currencies while the majority of our operating expenses are in Canadian dollars. We do not have any hedging programs in place to manage the potential exposure to fluctuations in the Canadian dollar exchange rate. Fluctuations in the Canadian dollar exchange rate or the exchange rate of other currencies against the U.S. or Canadian dollars could have a material adverse effect on our earnings and cash flows. OUR PREFERENCE SHARES COULD PREVENT OR DELAY A TAKEOVER THAT SOME OR A MAJORITY OF SHAREHOLDERS CONSIDER FAVORABLE. Our Board of Directors, without any further vote of our shareholders, may issue preference shares and determine the price, preferences, rights and restrictions of those shares. The rights of the holders of common shares will be subject to, and may be adversely affected by, the rights of the holders of any series of preference shares that may be issued in the future. That means, for example, that we can issue preference shares with more voting rights, higher dividend payments or more favorable rights upon distribution than those for the common shares. If we issue certain types of preference shares in the future, it may also be more difficult for a third party to acquire a majority of our outstanding voting shares and may, in certain circumstances, deter or delay mergers, tender offers or other possible transactions that may be favored by some or a majority of our shareholders. OUR COMMON SHARES MAY BECOME SUBJECT TO "PENNY STOCK" REGULATIONS WHICH MAY AFFECT YOUR LIQUIDITY IN OUR COMMON SHARES. Our common shares were first quoted on the Nasdaq National Market on April 20, 1999. Since then, our common shares have traded at prices below US$5.00 from time to time. Should our common shares continue to be traded below US$5.00, our 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 US$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: . net tangible assets of at least US$2,000,000, if such issuer has been in continuous operation for three years . net tangible assets of at least US$5,000,000, if such issuer has been in continuous operation for less than three years; or . average annual revenue of at least US$6,000,000, if such issuer has been in continuous operation for less than three years 14 Unless an exception is available, the regulations require, prior to any transaction involving a penny stock, delivery of a disclosure schedule explaining the penny stock market and the risks associated therewith. The penny stock regulations would adversely affect the market liquidity of our common shares by limiting the ability of broker/dealers to trade the shares and the ability of purchasers of our common shares to sell in the secondary market. Certain institutions and investors will not invest in penny stocks. U.S. INVESTORS IN OUR COMPANY COULD SUFFER ADVERSE TAX CONSEQUENCES IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY. We may be treated as a passive foreign investment company, or PFIC, for United States federal income tax purposes during our 2000 tax year or in subsequent years. We would be a PFIC if 75% or more of our gross income in a taxable year is passive income. We would also be a PFIC if at least 50% of our assets averaged over the taxable year produce, or are held for the production of, passive income. For these purposes, the value of our assets would be calculated based on our market capitalization. Passive income includes, among other items, interest, dividends, royalties, rents and annuities. We may be deemed a PFIC because previous financings combined with proceeds of future financings may produce, or be deemed to be held to produce, passive income. If we are or become a PFIC, many of our U.S. shareholders will be subject to the following adverse tax consequences: . they will be taxed at the highest ordinary income tax rates in effect during their holding period on certain distributions on our common shares, and gains from the sale or other disposition of our common shares; . they will be required to pay interest on taxes allocable to prior periods; and . the tax basis of our common shares will not be increased to fair market value at the date of their death. If we become a PFIC, U.S. shareholders could avoid these tax consequences by making a qualified electing fund election or a mark-to-market election. These elections would need to be in effect for all taxable years during which we were a PFIC and during which they held our common shares. A U.S. shareholder who makes a qualified electing fund election, will be taxed currently on our ordinary income and net capital gain (unless a deferral election is in effect). A U.S. shareholder who makes a mark-to-market election will include as ordinary income each year an amount equal to the excess of the fair market value of our common shares over the adjusted tax basis as of the close of each year (with certain adjustments for prior years). If we become a PFIC, our U.S. shareholders will generally be unable to exchange our common shares for shares of an acquiring corporation on a tax- deferred basis under the reorganization rules of the Internal Revenue Code, and the benefits of many other nonrecognition provisions of the Internal Revenue Code will not apply to transfers of our common shares. In addition, if we become a PFIC, pledges of our common shares will be treated as sales for U.S. federal income tax purposes. U.S. citizens should note that state and local taxes may also apply if amounts are included in U.S. federal taxable income under the PFIC rules of the Internal Revenue Code. The PFIC rules are very complex. U.S. citizens are strongly encouraged to consult with their tax advisors concerning all of the tax consequences of investing in our common shares and the possible benefits of making a tax election given their circumstances. Additionally, U.S. citizens should review the section entitled "Taxation--U.S. Federal Income Tax Considerations--Tax Status of the Company--Passive Foreign Investment Companies" contained in this annual report for a more detailed description of the PFIC rules and how those rules may affect their ownership of our common shares. IT MAY BE DIFFICULT FOR YOU TO ENFORCE CIVIL LIABILITIES ON US OR OUR OFFICERS OR DIRECTORS. We are incorporated under the laws of the Province of Ontario, Canada. Certain of our directors and officers are residents of Canada and a substantial part of our assets and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may be difficult for holders of common shares to effect service of legal process within the United States upon those directors and officers who are not residents of the United States or to realize in the United States upon judgments of courts of the United States predicated upon civil 15 liability under the Securities Act of 1933, as amended, or the Exchange Act or the rules and regulations promulgated under such statutes. We believe, based on advice of our 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, we believe, 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. ITEM 4 - INFORMATION ON THE COMPANY A. HISTORY AND DEVELOPMENT OF THE COMPANY BID.COM INTERNATIONAL INC. Our business 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, we were formed as an Ontario corporation by statutory amalgamation of Internet Liquidators Inc. and Internet Liquidators International Inc. In June 1998, we changed our name from Internet Liquidators International Inc. to Bid.Com International Inc. We are governed by the Ontario Business Corporations Act. Our principal business offices are located at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, Canada and our telephone number is (905) 672-7467. In the United States, our principal business offices are located at 2701N Rocky Point Dr., Suite 930, Tampa, Florida 33607 and our telephone number is (813) 636-8025. MAJOR DEVELOPMENTS From the commencement of our business operations in 1995 through 1998, our primary business was a business-to-consumer auction service at our web site www.bid.com. Beginning in 1999, we began to focus our efforts away from retail - ----------- operations, ultimately resulting in the closure of these operations in October of 2000. During this period, we established ourselves as a provider of dynamic pricing solutions to businesses worldwide. PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES We acquired common shares of the companies listed below during 1998, 1999 and 2000. We describe the accounting adjustments we have made to reflect the reduction in value of those investments (other than Quack.com), the sale of out interest in Quack.com and other principal capital expenditures and divestitures we have made during this period in Item 5 -Liquidity and Capital Resources and Item 7 - Major Shareholders and Related Party Transactions - Related Party Transactions.
Approx Purchase Common Percentage of Price Company Investment Date Shares Ownership (1) [Cash or Other] Art Vault International April 4, 2000 2,500,000 14.4% $ 1,500,000 GSO Solutions Apr. 29, 1999, Nov. 10, 2000 500,000 3.5% $ 216,000 Megawheels Oct. 15, 1999 2,600,000 12.8% $ 3,000,000 Point2 Internet Systems June, 28, 1999, Aug. 25, 1999 673 51.0% $ 4,500,000 Quack.com Sept. 27,1999, Jan 18, Aug. 28, 2000 2,029,068 7.8% $ 1,221,000 SCS Solars June 30, 1999 1,500,000 3.3% $ 1,500,000 Andaurex March 30, 2000 700,000 11.6% $ 560,000
(1) Based on publicly available information regarding each of the investee companies B. BUSINESS OVERVIEW We are a global provider of dynamic pricing solutions for business-to-business (B2B) and business-to-consumer (B2C) electronic commerce. Our hosted, online, client-branded dynamic pricing solutions run on a proprietary technology platform. We develop, host and maintain client-branded web-sites or sub-sites incorporating one or more of the elements of our comprehensive suite of pricing methods, as follows:
DYNAMIC SELLER Solutions ("Sell Side") DYNAMIC BUYER Solutions ("Buy Side") -------------------------------------- ------------------------------------ . Top Bid (ascending price) Auction . Reverse Auction (RFP/RFQ) . Dutch (declining price) Auction . Sealed Bid . Hybrid Auction . Strategic Sourcing (multi-parametric) . Fixed Price
16 We believe that our broad array of dynamic pricing solutions deliver a series of business and technical benefits for our customers, as follows: . Enhanced brand equity and improved relationships with customers. Unlike public marketplace models that bring together various competitors into a single network of buyers and sellers, our client-branded approach helps strengthen, rather than dilute, our customer's brand equity. . Improved sales processes. By selling directly to their customers or dealing directly with suppliers, rather than dealing through an intermediary, our customers are able to establish and maintain long-term relationships. . Increased speed to market. Our modular and hosted solution can be implemented quickly, as the complexities of on-site implementations are avoided. . Reduced investments in technology. By providing our solutions on a hosted basis, we reduce our customers' initial costs and minimize the cost of upgrades and advancements. . Easy integration with existing information systems. By using XML standards (which are a uniform method for describing and exchanging electronic data), we are able to integrate our solutions with existing Enterprise Resource Planning (ERP), Supply Chain Management (SCM)and Customer Relationship Management (CRM)and other internal databases and applications. . Reduced procurement costs. The combination of an expanded reach through the Internet and reduced time and expense through electronic processes instead of phone, fax or face-to-face meetings can reduce procurement costs for organizations. Most of our business-to-business contracts to date have involved our DYNAMIC SELLER Solution. Our DYNAMIC BUYER Solution was introduced late in 2000. We anticipate that, in the future, demand for our Buy Side or procurement solution will be significant, and may ultimately out-weigh demand for our Sell Side solution during a downturn in the economy. Since October 24, 2000, with the termination of our retail operations, our revenues have consisted solely of license and service-related fees. Service fees (which are fixed or transaction-based) are derived from software customization and implementation, monthly operating and support, and professional services. Our dynamic pricing solutions power sites for some of the largest companies in the world, including divisions of the GE Capital group of companies and News International. We presently market our solutions through sales and marketing representatives throughout Canada, the United States, the United Kingdom, Ireland and continental Europe, and Australia, and we maintain technical support centers in Canada and Ireland. INDUSTRY BACKGROUND The Internet and E-Commerce Businesses worldwide use the Internet to communicate and transact business. Forrester Research estimates that the US business-to-business trade market will grow from an estimated US $406 billion in 2000 to US $2.7 trillion by 2004. We believe that Internet growth will continue as a result of a number of factors, including bandwidth improvements, increasing end-user acceptance, globalization and competitive pressures. Demand for Dynamic Price Solutions We believe dynamic price formats have a number of characteristics that make the sale or purchase of goods via the Internet particularly attractive. While the traditional format for conducting commercial transactions is fixed 17 pricing, many businesses apply dynamic price formats both off-line and on-line. Retailers mark-down inventories, leasing companies auction off end-of-lease goods, and purchasing departments issue Requests for Proposals where elements other than price factor into the decision-making process. All of these scenarios exist in off-line and on-line marketplaces. Dynamically changing sales formats leverage the unique characteristics of the Internet, which allows the broad, quick and efficient dissemination of information. Immediate feedback is provided to distributors, vendors and e-tailers regarding price-points that are attractive to customers. Adjustments can be made in real-time. Forrester Research estimates that the dynamic pricing segment of US business-to-business trade will grow from US $29.4 billion in 2000 to an estimated US $746 billion by 2004. IDC expects annual revenues in the procurement applications market to reach over US $8 billion by 2004, compared to US $1.4 billion in 2000. Our DYNAMIC SELLER and DYNAMIC BUYER solutions are ------- ------- offered to customers in these two markets. Demand for Hosted Solutions Customers may implement their e-commerce strategies through a variety of means, including participation in exchanges, licensing and installing third party software, internal software development efforts, and outsourcing. The key advantage for companies that outsource online solutions is the reduced need to invest in additional hardware or software or maintain significant technical resources. This is a key selling point for our offerings. In addition, a hosted solution can be implemented quickly, scaled more effectively, and upgraded and maintained with less disruption to a customer's business. These benefits are similar to those obtained by participating in an exchange operated by a third party, with the significant difference being the ability of the customer to maintain brand and control over their hosted e-commerce initiative OUR BUSINESS STRATEGY Our objective is to provide leading businesses with e-commerce enabling and related service capabilities. Our business strategy is comprised of the following key components: . Focussing on Powering Private Exchanges. We provide solutions to customer-branded exchanges, rather than industry or intermediary exchanges. We believe that customer-branded exchanges more effectively promote each customer's brand equity and strengthen customer relationships. . Productization and Verticalization. We are continuing to "productize" our offerings by developing broad "generic" applications which involve minimal additional programming, in order to reduce implementation timeframes and improve efficiencies. As part of this process, we expect to develop "productized" versions of our solutions specifically targeted at industry verticals, such as leasing companies. . Expanding our Service Offerings. We are committed to expanding our service offerings through the enhancement of our technology and through new strategic relationships and/or acquisitions. We plan to continue to enter into relationships with third party providers for various related services such as those identified under "Our Services and Offerings". . Entering into Significant Alliances with Industry Leaders. We seek to establish marketing and other significant relationships with leading companies in a broad range of industries. We believe that these relationships will help provide us with access to important industry participants and will help increase our brand awareness. . Maintaining and Enhancing Our Technology. We have developed a proprietary e-commerce platform for the operation and support of dynamic pricing solutions. We believe our proprietary technology is competitive with other enablers of business-to-business offerings. To remain competitive, we must maintain and enhance our technology. We introduced enhanced procurement or Buy Side capabilities in 2000, and are continuing to develop new transaction formats and complementary technologies. . Penetration into Global Markets. We provide our services to customers in the US, Canada, and Europe. We are continuing to expand our markets in European Community countries from our office in Ireland and through 18 additional sales and marketing offices we have opened in Continental Europe during 2000. In 2000 and early 2001, we also opened sales and marketing offices in New York and Sacramento, and retained local sales representatives in Dallas, New Jersey and Chicago. We expect the rate of growth in number of new offices to slow, as we focus on market penetration from each of these new centers. We continue to maintain a sales and marketing presence in the Asia-Pacific region, however Europe and North America will remain the principal focus of our attention in 2001. . Seeking Acquisitions and Strategic Investments - We plan to continue to expand by seeking technologies, products, and services that complement our existing business. If appropriate opportunities are available, we may acquire businesses, technologies or products or enter into strategic relationships that may further diversify revenue sources and product offerings, expand our customer base or enhance our technology platform. OUR SERVICES AND OFFERINGS We provide on-line dynamic pricing solutions under our POWERED BY BID.COM banner for the business-to-business and business-to-consumer e-commerce markets. The modular nature of our software allows us to tailor our products and services to the needs of each client. In addition, by offering our solutions primarily on a hosted or "business service provider" basis, we allow our customer to concentrate on its core competency while we manage and maintain the hardware, software and connectivity associated with the various pricing methodologies that we support. We offer a number of on-line transaction methods, and are continuing to develop new methods by which businesses can sell their products and services. Our "dynamic pricing" methods include: DYNAMIC SELLER Solutions ("Sell Side") Top Bid (Ascending 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 products and services by incrementally adjusting their bid positions. Our user interface allows users to easily identify current leading bidders, minimum new bids and initial bid pricing. Participants are informed of their bid status, stating whether they have won, been outbid, approved or declined via electronic mail. Dutch (Declining Price) Auctions. In our patented Dutch auction format, a starting price is set and a limited time period is allocated for a fixed quantity of the product to be auctioned. As time advances, the price drops in small increments. The longer one waits, the lower the price. However, if a bidder waits too long the limited quantity of the product being auctioned may be sold out. The declining bid auction allows participants to bid in a real-time format utilizing on-screen data which provides the time and quantity remaining as well as the falling price of the items for sale. The bidders remain online and actively participate throughout the auction process. In March 1999, we received a patent from the US Patent and Trademark Office covering our process for conducting Dutch auctions over electronic distribution channels. We have a patent application pending in Canada covering the same technology. Hybrid. We offer hybrid auction formats to meet clients' particular needs. One example of a hybrid format is an auction which begins on a declining (Dutch Auction) basis until the first bid is received, and then converts to a rising price (Top Bid) auction to reflect demand. This format mimics the 'true auction' format seen in many off-line auctions. Fixed Price Offerings. Our technology enables the sale of products and services on a fixed price basis. The vendor posts the good or service and the price in a catalogue or directory format. The purchaser cannot bid on the price, but merely elects whether or not to purchase the good or service. DYNAMIC BUYER Solutions ("Buy Side") 19 Our DYNAMIC BUYER Solutions are intended to help businesses automate the decision-making process involved when procuring goods, by providing automated analysis and selection of competing bids, based on a variety of factors. We offer the following DYNAMIC BUYER Solutions: Request-for-Quotation Auction. The RFQ system allows buyers to post an on-line offer to purchase such that pre-qualified suppliers may view the offer, download documentation related to it and then bid on-line. Buyers can let bidders see the details of all other bids, or alternatively customize the site for confidentiality reasons. Bidders or vendors can be pre-qualified by the buyer and provided with access to view and download only the documentation that the buyer specifies. Bidders can then request additional information from the buyer via a question and answer module which we provide. The buyer will examine the questions that the bidders post and then prepare a response document to those questions they wish to answer which is then posted online. Sealed Bid. Similar to the RFQ system, the sealed bid method allows the buyer to post its product or service requirements to a multitude of vendors. The system has the ability to incorporate such features as detailed technical information, question and answer forums, and automatic e-mail notification of amended or new buyer-posted documents. The sealed bid system differs from the RFQ in that the vendors only have one opportunity to supply a bid. Other bids placed by competing vendors are not visible to anyone during the actual auction. Only after the close of the auction is the buyer able to view the vendor bids. Strategic Sourcing (Multi-Parameter). The Strategic Sourcing solution incorporates multi-parameter measures, by which customers may assign values to criteria involved in the purchase decision, such as price, product availability, post-sales support and certification standards. Bidders input responses to questions relating to these criteria, and responses are weighted by the software for presentation to the customer. Features Our Solutions offer the following features, some of which are only applicable to certain pricing formats: Listing. Vendors upload product listings to the web-site or sub-site, either periodically or on an integrated real-time basis. The data comprising the listing is variable based on the customer's requirements, and can include price, category, graphics, and other attributes. Reporting. We are able to customize reports to capture data, such as bidding statistics, on an individual transaction or aggregated basis. Reports can be delivered by e-mail or posted for access, all encrypted to protect data. E-Mail Notification. Prior to an event, our e-mail notification system will automatically notify potential buyers of the date and specified details. Payment and Currency Capabilities. Our solutions support multi-currency transactions and a full range of on-line payment methods, including credit card, banking authorization, smart cards and cash. Multi-Language Capabilities. Our object-oriented technology enables customers to collect and deliver content in simple Roman text as well as multi-byte Asian and Arabic languages. Search and Bidding Proxy Agents. We have developed proprietary bidding agents for use in conjunction with our Dynamic Seller Solutions. Our BID BUDDY tools allow bidders to place absentee bids up to a pre-determined limit. This "intelligent" bidding agent checks bid activity at regular intervals and increases 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. Our SEARCH BUDDY search tool may be pre-programmed up to a maximum seven days in duration, to find product offerings customized to a customer's 20 specific areas of interest. If a match is found for a customer's search, the customer receives immediate notification by e-mail with a direct link to the desired product. Mobile Applications. Our solutions permit bidders to bid through wireless devices such as the RIM Blackberry pager and determine the status of their bids through voice recognition applications such as QUACK's software solution. Related Services In addition to our dynamic pricing solutions, we provide the following services to our clients: Consulting. A significant number of our customers request our input into their business and technical processes, often in conjunction with a "scoping" exercise conducted both before and after the execution of a contract. This input can include comments with respect to the customer's proposed business case for their on-line business, assisting in the development of technical specifications, and recommendations regarding branding and promotional exercises. Customization and Implementation. Based generally upon the up-front "scoping" exercise, we customize our solutions as required to meet the customer's particular needs, and develop the customer's web-site or sub-site to expectations. This process can take as little as a few days, or as long as many months, depending on the degree of customization, the resources applied by the customer and the customer's business requirements. We work closely with customers to ensure branding, features and functionality meet their expectations. Training. Upon completion of implementation (and often during implementation), we train customer personnel to manage the web-site or sub-site through our administrative tools. Customers are able to upload and alter listings and monitor site activity. Customer Service and Support. We provide telephone, e-mail and pager support for our customers, we also monitor client site performance. Third Party Offerings We have entered into marketing or co-marketing agreements with a number of companies that offer services that are complementary to our offerings. We market these complementary services to our clients and prospects and can earn a referral fee if these services are purchased. In some cases our marketing partner has agreed to market our solutions to its clients and prospects and can earn a referral fee if our services are purchased. Some of our marketing partners are:
Marketing Partner Service or Offering ----------------- ------------------- SoftCo Procurement / Document Exchange BankServ Financial Settlement Services ecwebworks Electronic Document Exchange Eloqua Strategic Marketing Solutions
Retail Operations Prior to October 24, 2000, we operated two national business-to-consumer auction sites at www.bid.com, one in the United States and one in Canada. Following an extensive strategic review by Management and our Board of Directors, we chose to close our retail operations late in 2000 and focus solely on our business-to-business e-commerce enabling operations. CUSTOMERS We provide our e-commerce solutions and related services to customers in a variety of industries, including: automotive, heavy machinery, retail and shipping and transportation. Our customers 21 typically use our technology and services to implement and operate on-line business-to-business or business-to-consumer offerings for their customers, either by converting an existing off-line solution to the on-line space or by creating a new solution for customers. We generate revenue from our business-to-business relationships in several ways. We typically receive some combination of license, consulting, customization and implementation, and hosting fees for our technology. In many cases, we also may receive a percentage of revenues or other transactional-based fees from on-line transactions. In limited cases, we may also invest in our customers, in connection with the delivery of our services. The following is a representative list of some of the customers for whom we have developed and implemented client-branded web-sites or sub-sites:
Customer Industry Segment Geographic Location - -------- ---------------- ------------------- GE Capital Commercial Equip. Finance Leasing (financial/heavy equipment) US MarineMax Consumer goods (recreational boats) US Skermans Manufacturing (packaging machinery) Europe News International Retail Europe IVenus Retail Europe ValueVision Retail US NetJewels Consumer Goods (jewelry) US
SALES AND MARKETING We market our services primarily through our direct sales force. Our sales organization is regional, with personnel located in our principal offices in Toronto and Dublin, and in our sales and marketing offices in Tampa, New York, Sacramento, Los Angeles and London, England. In addition, we have sales representatives located in other major cities such as Dallas and Chicago. Our marketing efforts are focussed on targeted marketing campaigns, rather than broad based "awareness" campaigns. Potential customers are identified through direct contact, responses to request for information, attendance at trade shows, and the efforts of our lead generation group. We have conducted limited national advertising programs, but principally focus on trade show participation, seminar series for specific industries or professionals, and outgoing lead generation. We use reference clients to assist us in our marketing efforts, both through direct contact with potential clients and through site branding and case studies. We also rely on our alliance partners to assist in our marketing efforts. TECHNOLOGY PLATFORM We have devoted significant resources to developing our proprietary software technology. The technology platform is constructed using distributed software technologies which allow rapid redevelopment and deployment of new software technology in order to take advantage of emerging business opportunities. Our technology platform is based on Microsoft core applications, including the Windows NT operating system and a SQL server relational database, all residing on scaleable hardware. We use Intel-based Hewlett Packard Netservers, which employ symmetrical multiprocessing, as the basis of our hardware systems. 22 We license commercially available technology whenever possible, rather than seek a custom-made or internally-developed solution. We believe that this strategy lowers our operating costs and increases our ability to respond to changing demands resulting from growth and technological shifts. This approach also allows us to focus our development efforts on creating and enhancing the specialized proprietary software that is unique to our business. We have embraced high performance switching technologies, including Asynchronous Transfer Mode (ATM), to provide end users with what we believe is the fastest access possible to our clients' web sites. Our access to telecommunications infrastructure is scaleable on demand and has been proven to provide reliable transactional support. In November 1998, we won three Canadian Information Productivity Awards, for our online auction technology, including an Award of Excellence, Best of Category Award for Small Business, and top honors with the Best of Show Award. Presently, 26 staff members are dedicated to technical support and operations. We expect to continue to focus significant resources on system development to ensure the continued reliability and competitiveness of our technology. RESEARCH AND DEVELOPMENT We believe that our proprietary dynamic pricing software provides a competitive advantage, and that our future success depends, in part, on our ability to continue developing and enhancing that software. Therefore, we have focused our research and development efforts on the continued development of our proprietary software offerings. Our ongoing research and development efforts are aimed at the 'productization' of specific elements of our software, enhancing the features and functionality of our existing software components, the development of new software components, and the integration of superior third party technology into our environment. Productization involves the development of 'generic' applications to reduce programming time and costs for client implementations. Our research and development expenditures were approximately $1.802 million for the year ended December 31, 2000, $1.0 million for the year ended December 31, 1999 and $889,000 for the year ended December 31, 1998, including salaries and related expenses of our personnel engaged in research and development. Research and development activities in 2000 included the preliminary development of our DYNAMIC BUYER Solutions and enhancements to our DYNAMIC SELLER Solutions. INTELLECTUAL PROPERTY We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and technical measures, to establish and protect our proprietary rights. In March 1999, we received a patent from the U.S. Patent and Trademark Office covering the process whereby we conduct Dutch auctions over electronic distribution channels. We have patent applications pending in Canada covering the same technology. We also continue to explore other patent opportunities, and will have other applications pending from time to time. We do not believe, however, that our ability to obtain patents is material to our success or results. Our proprietary software is subject to common law copyright protection, but we do not have, and do not intend to pursue, any registered copyrights. Common law protection may be narrower than that which we could obtain under registered copyrights. As a result, we may experience difficulty in enforcing our copyrights against certain third party infringements. The source code for our proprietary software is protected as a trade secret. Our major trademarks or tradenames include: BID.COM; POWERED BY BID.COM; INTERNET LIQUIDATORS; BID BUDDY, SEARCH BUDDY, DYNAMIC SELLER and DYNAMIC BUYER. Except for INTERNET LIQUIDATORS, which is registered in Canada, and DYNAMIC SELLER and DYNAMIC BUYER, 23 which are unregistered, all of these trademarks and tradenames are the subject of pending applications for registration in either or both of the United States and Canada. We also claim rights in other unregistered marks. Our competitive position is also dependent upon our unpatented trade secrets. In an effort to protect our trade secrets, and as part of our confidentiality procedures, we generally enter into confidentiality and non-disclosure agreements with our employees and consultants and generally limit access to and distribution of our software, documentation and other proprietary information. Additionally, we limit physical access to our premises, software and hardware and employ security measures to protect against damage or theft. As our technology is primarily offered to customers remotely (hosted on our servers), we believe that the risk of unauthorized use of our technology is limited. COMPETITION The online commerce market is new, rapidly evolving and intensely competitive. We expect that online commerce competition, both as an intermediary and as an enabler, will further intensify in the future. Barriers to entry are minimal, and current and new competitors can launch new sites or technologies at a relatively low cost. The online dynamic pricing solutions market is new, rapidly evolving and intensely competitive. We believe that the principal competitive factors in the dynamic pricing solutions market are flexibility and breadth of the technical solution, quality of service, reliability, technical expertise and price. We believe that we are competitive in each of these areas. The companies we compete with in this market include: . companies providing hosted services such as Fairmarket Inc., and Opensite's Concierge service; . companies providing dynamic commerce solutions such as Moai Technologies, Seibel (through Opensite Inc.), IBM's Websphere product, Ariba (through Trading Dynamics), Commerce One (through CommerceBid), Webvision, Procuri, and PurchasePro; . In-house developers of pricing applications and . Exchanges and auction aggregation sites, such as eBay, the FairMarket Network, FreeMarkets and VerticalNet and industry-specific exchanges such as Covisint, which do not compete directly, but may affect demand for our services. Many of these companies and many of our other competitors have much greater financial, technical, research and development resources than us. C. ORGANIZATIONAL STRUCTURE The table below lists our subsidiaries. Unless otherwise indicated, we, or one of our subsidiaries, owns 100% of the outstanding common shares of the companies listed. Name of Subsidiary Country of Incorporation ------------------ ------------------------ Bid.Com USA Inc. USA Bid.Com International Limited Ireland Bid.Com International Pty. Ltd. Australia Bid.Com (U.K.) Limited England Internet Liquidators USA Inc. USA Point2 Internet Systems Inc./(1)/ Saskatchewan, Canada 24 (1) We own 51% of the outstanding voting shares of Point2. We have granted an option to Point2's management to purchase our shares and assets in Point2 for $2.6 million. This option has not been exercised to date. D. PROPERTY, PLANTS AND EQUIPMENT The table below lists the locations of our facilities and summarizes certain information about each location.
-------------------------------------------------------------------------------------------------- Location Use Square Feet Term of Lease (Approximate) -------------------------------------------------------------------------------------------------- Airport Road Executive, Administrative, 15,638 Expires October, Mississauga, Ontario (1) Engineering and Marketing 2001 (1) -------------------------------------------------------------------------------------------------- Lower Baggot Street Administrative, Engineering 1,200 Monthly Dublin, Ireland (2) and Marketing -------------------------------------------------------------------------------------------------- Rocky Point Drive Executive and Marketing 2,467 Expires April 30, Tampa, Florida 2002 -------------------------------------------------------------------------------------------------- Ninth Street Marketing 186 Expires June 18, Sacramento, Cal. 2001 -------------------------------------------------------------------------------------------------- Kilroy Airport Center Marketing 190 Monthly Long Beach, Cal. -------------------------------------------------------------------------------------------------- Penn Plaza Marketing single office Expires October 1, New York, New York 2001 -------------------------------------------------------------------------------------------------- Collins Street, Marketing single office Monthly Melbourne, Australia -------------------------------------------------------------------------------------------------- Chiswick High Road Marketing single office Expires May 31, London, England 2001 --------------------------------------------------------------------------------------------------
(1) We are presently negotiating a three year extension of this lease for approximately 10,165 square feet, on one of the two floors presently occupied, which space we anticipate will be sufficient for our requirements in light of our recent workforce reduction. (2) We are presently exploring leasing opportunities for 3,000 to 5,000 square feet of office space in the Dublin area. We believe that we have adequate space for our current needs. As we expand, we expect that suitable additional space will be available on commercially reasonable terms. We do not own any real estate nor do we currently own or lease warehouse space. ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH "ITEM 3 - SELECTED FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. SEE "FORWARD-LOOKING STATEMENTS". 25 OVERVIEW We offer e-commerce enabling technology and related services for businesses. Prior to October 24, 2000, we conducted on-line retail operations at our Web site located at www.bid.com. The closure of our on-line retail operations during the year was the final phase of our transition from an on-line retailer to an e-commerce enabling technology provider. We offer a comprehensive suite of e-commerce enabling technologies through our DYNAMIC SELLER and DYNAMIC BUYER solutions. These hosted, on-line, customer-branded dynamic pricing solutions run on a proprietary technology platform. History - ------- In September 1995, we commenced business as Internet Liquidators Inc., an Ontario corporation. In January 1997, we amalgamated with Internet Liquidators International Inc. and that name was assumed. In June 1998, we changed our name from Internet Liquidators International Inc. to Bid.Com International Inc. From incorporation through April 1996, we had no revenue as we focused on development of our proprietary technology and computer infrastructure. We launched our auction web site in April 1996 under the URL www.internetliquidators.com. Between April 1996 and May 1997, we focused on securing relationships with strategic partners, and developing an advertising and promotion plan for our business, while continuing to develop our technology infrastructure. We generated minimal revenue during this period. In May 1997, we initiated our marketing and advertising campaign and experienced a significant growth trend in on-line retailing throughout 1998, 1999, and into early 2000. During this period, we became aware of demand for our technology, and in 1999 we began to license our technology to other companies. Following an extensive strategic review by Management and the Board of Directors during the first half of 2000, we concluded that despite the revenue growth experienced, the on-line retail model was not sustainable, and that we should focus exclusively on providing dynamic pricing solutions to businesses. On June 14, 2000, we announced our decision to accelerate the transition from an on-line retailer to a business-to-business e-commerce enabler. To achieve this goal, we significantly curtailed our business-to-consumer auctions and related services over the remainder of 2000. In October 2000, our on-line retail operation was terminated. As a result, revenue and expenses associated with our retail operations were significantly reduced for fiscal year 2000, as compared to fiscal year 1999. As a result of the termination of our on-line retail operation in October 2000, substantially all of our revenue in the fourth quarter of 2000 was generated from the business-to-business e-commerce enabling business model. We concluded the year with 27 new business-to-business customers ranging from small retailers to global renowned conglomerates. Business-to-Business. As a business-to-business e-commerce enabler, our value proposition lies in the fact that we have established and proven technology as evidenced by running an on-line retail store since 1996. We also have significant flexibility in adapting our technology to individual customer business needs. We offer a wide range of services, including consulting, hosting, training and implementation services. Consulting, customization and implementation generally can take several months, depending upon the objectives of the customer, the complexity of the customer's information technology environment, and the resources directed by the customer to the implementation. The revenue structures and particular services provided vary depending upon the needs of the customer. We typically obtain an up front consulting, implementation and training fee, and a fixed monthly hosting fee. In many cases, we may also participate in a share of revenue or net revenue from transactions conducted using our software. 26 Business-to-Consumer. As an on-line retailer, we generated revenue primarily from the sale of goods through on-line auctions. The product mix of our on-line retail activities was largely comprised of computers and related peripherals, consumer electronics, sporting goods and household accessories. We did not purchase inventory for resale on our auctions at www.bid.com. Rather, we usually acquired the right to sell the merchandise under arrangements with our vendors. These arrangements typically provided that the supplier would reserve for sale by us specified quantities of products for a fixed period of time without obligating us to purchase these products until sales were made to our customers. When an auction was completed, we charged the successful bidder's credit card. We typically purchased merchandise from suppliers only after a customer had purchased and paid for the product. Title to the inventory passed to us at the time the goods were shipped to the customer. We recorded the gross amount as revenue upon verification of the credit card authorization and shipment of the merchandise to the customer. Inventory on our balance sheets reflected sales returns in transit and some inventory for resale. Both were valued at the lower of cost and net realizable value. As part of a business-to-consumer marketing program, we applied a promotional pricing strategy under which products were sold below cost or at significantly reduced profit margins. We continued that approach throughout most of 1998, 1999, and into early 2000 due to competitive pressures. As a result, earnings were significantly impacted in 1998 and 1999. We significantly curtailed this program in 2000 in anticipation of ceasing on-line retail operations. On October 24th, 2000, we held our last on-line retail auction. RESULTS OF OPERATIONS Comparison of Years Ended December 31, 2000 and December 31, 1999 - ----------------------------------------------------------------- Revenue. Revenue is comprised of business-to-business e-commerce enabling activities and on-line retail sales of merchandise and associated shipping revenue. E-commerce enabling activities include revenue from consulting, implementation, training, hosting, and licensing activities. Overall revenue declined to $12.497 million for the year ended December 31, 2000 from $31.001 million for the year ended December 31, 1999, a decline of 59.7%. The decline in revenue was the result of the planned exit from on-line retail operations, which commenced in the second quarter and continued through to the fourth quarter. Retail operations generated $10.095 million of total revenue for the year ended December 31, 2000 and $26.590 million for the year ended December 31, 1999. As stated above, this decline in revenue was the result of the planned exit from on-line retail operations. Business-to-business e-commerce enabling activities generated $2.402 million of total revenue for the year ended December 31, 2000 and $4.411 million for the year ended December 31, 1999. The higher level in 1999 was a result of two significant software licensing arrangements signed in fiscal 1999 which did not recur in fiscal 2000 and a change in our business model from a licensed offering to a hosted offering. As at December 31, 2000, we had 27 business-to-business customers compared to 4 business-to-business customers at December 31, 1999. Customer Acquisition Costs. Customer acquisition costs reflect non-cash expenses incurred in attaining business to business contracts. Specifically, these costs represent the calculated value of share purchase warrants issued to GE Capital in return for certain business to business contracts. For the year ended December 31, 2000, these costs amounted to $1.005 million. There were no customer acquisition costs for 1999. Direct Expenses. Direct expenses are related solely to retail operations, and reflect negotiated reserve prices with vendors for the supply of goods sold by our company. Direct expenses were $11.460 million (113.5% of retail revenue) for the year ended December 31, 2000 as compared to $26.696 million (100.4% of retail revenue) for the year ended December 31, 1999. The decline in direct expenses was attributable to the exit from business to consumer retailing activities, which ceased on October 24, 2000. Advertising and Promotion Expenses. Advertising and promotion expenses consist primarily of advertising and marketing fees, promotional pricing expenses, and expenses paid to marketing partners from which we purchased 27 advertising space. Advertising and promotional expenses do not include salaries and related expenses of our sales and marketing personnel which are included in general and administrative expenses. Advertising and promotion expenses were $5.040 million for the year ended December 31, 2000 as compared to $11.870 million for the year ended December 31, 1999, a decrease of 57.5%. As a percentage of on-line retail revenue, advertising and promotion expenses were 49.9% of retail revenue in 2000 as compared to 44.6% of retail revenue in 1999. The higher proportion of advertising and promotion expenses to revenues for 2000 was directly attributable to our obligation to meet fixed advertising commitments while terminating retail activities. Advertising and promotion expenses for the year ended December 31, 2000 included $558,000 attributable to promotional pricing and $946,000 for expenses related to a marketing agreement with America Online, which ceased on March 31, 2000. Advertising and promotion expenses for the year ended December 31, 1999 include $4.044 million attributable to promotional pricing expenses and $3.548 million for expenses related to America Online. General and Administrative Expenses. General and administrative expenses include, primarily: all salaries and related expenses (including benefits and payroll taxes) other than fees to independent contractors for research and development, and technology staff compensation, which is included in software and development expenses; facility costs; foreign exchange gains or losses; professional fees; insurance costs; investor relations; computing and communications expenses; regulatory filing fees, business-to-business development costs, and travel and related costs. General and administrative expenses increased to $19.397 million for the year ended December 31, 2000 from $12.405 million for the year ended December 31, 1999, an increase of 56.4%. The increase in general and administrative expenses includes additional expenses related to the opening of sales offices in Sacramento and New York and the continued build-up of operations in Ireland, which we opened in 1999. During 2000, we also experienced a significant increase in staffing, primarily associated with the expansion of business-to-business activities. We had 31 dedicated business-to-business sales and marketing staff at December 31, 2000, an increase of 1033% over December 31, 1999. For the year ended December 31, 2000, we also recorded a non-recurring charge of $1.0 million primarily related to strategic consulting costs. Software Development and Technology Expenses. Software development and technology expenses consist of costs associated with acquired and internally developed software and research and development expenses, including fees to independent contractors and salaries and related expenses of personnel engaged in these activities. Software development expenses associated with development of core software components for client applications are capitalized if they meet specific technological and economic feasibility measures. Software development and technology expenses increased to $1.802 million for the year ended December 31, 2000 from $1.001 million for the year ended December 31, 1999, an increase of 80.0%. The increase in software development expenses was largely attributable to redevelopment of core and non core software to improve scalability, functionality, and deployability in an e-commerce enabling environment. A significant portion of the 2000 software development and technology expense was borne in the fourth quarter of 2000, when virtually all of such resources were dedicated to business-to-business activities. Fourth quarter software development expenses were $817,000, or 45.3% of total software expense for the year. During the second and third quarters of fiscal 2000, a significant amount of time and expense was devoted to redevelopment of core technology for client applications and as a result we capitalized $286,000 of software development expense in the second quarter and $255,000 in the third quarter of 2000. We did not capitalize any core software redevelopment in the fourth quarter of 2000. Depreciation and Amortization. Depreciation and amortization expense was $1.130 million for the year ended December 31, 2000 as compared to $621,000 for the year ended December 31, 1999, an increase of 82.0% This increase was primarily due to a full year of amortization of goodwill as a result of our investment in Point 2 Internet Systems Inc., amortization of capitalized core software development costs as well as a significant increase in server equipment and computers acquired to enhance the infrastructure supporting business-to-business activities. Interest Income. Interest income reflects interest from investments in cash and marketable securities. Interest income was $467,000 for the year ended December 31, 2000, as compared to $767,000 for the year ended December 28 31, 1999, a decrease of 39%. This decrease was largely attributable to lower cash and money market funds on hand in 2000. Realized Gains and Losses on Disposal of Marketable Securities and Strategic Investments: Realized gains on disposal of marketable securities and strategic investments amounted to $20.946 million for the year ended December 31, 2000, with no comparative balance for the prior year. These gains are outside of the normal course of operations but are not considered extraordinary items. This amount includes the disposal of our strategic investment in Quack.com. As a result of America Online's acquisition of Quack.com, we converted our $1.221 million investment in Quack.com into shares of America Online valued at $21.918 million, effective August 31, 2000. We realized further gains of $249,000 in association with the disposal of some shares of America Online in the fourth quarter of 2000. Unrealized Gains and Losses on Revaluation of Marketable Securities and Provision for Impairments of Long Term Assets: Unrealized gains and losses on marketable securities and long term assets are the result of an assessment by management as to the recoverability of value of certain assets and are not realized losses on asset disposals. Unrealized losses are outside the normal course of operations but are not considered extraordinary. Unrealized losses for the year ended December 31, 2000 were $15.290 million, with no comparative balance for the prior year. We conducted an assessment of our long-term strategic investment portfolio at year end by analyzing the financial performance of the companies we invested in as well as general market conditions, and concluded that an impairment provision of $5.600 million was necessary. Our investments are all in companies in the technology sector. The market prices of technology companies have been significantly reduced in recent months. We also revalued our marketable securities at December 31, 2000, which were largely comprised of shares of America Online, resulting in an adjustment of $4.846 million to reflect market value. Subsequent to the end of the year, we disposed of a substantial portion of our shares in America Online and realized a gain of $3.696 million. In addition, at December 31, 2000, we also reviewed our investment in Point2 Internet Systems, and it was determined that the goodwill associated with this investment had become impaired, and the recoverability of funds loaned to Point2 was in doubt. As a result we decided to incur provisions of $3.593 million for the Point2 goodwill and $802,000 for a demand loan granted to Point2. Subsequent to year end, we granted Point2's management an option to purchase our investment and assets in Point2 for $2.6 million. This option has not been exercised to date. Comparison of Years Ended December 31, 1999 and December 31, 1998 - ----------------------------------------------------------------- Revenue. Revenue is comprised of services and auction enabling activities, and the sale of merchandise plus shipping revenue. Revenue increased to $31.001 million for the year ended December 31, 1999 from $20.001 million for the year ended December 31,1998, an increase of 55.0%. The increase was due to higher revenue from our web site and from service and auction enabling activities during the year. From January 1, 1999 to December 31,1999, our customer base grew substantially as reflected by a 106% increase in registered bidders from approximately 87,000 to almost 179,000. Quarterly revenue for 1999 was $5.015 million in the first quarter, $6.250 million in the second quarter, $8.330 million in the third quarter, and $11.406 million in the fourth quarter representing quarter over quarter growth of over 24.6% in the second quarter, 33.3% in the third quarter, and 36.9% in the fourth quarter. Retail revenue for the year ended December 31, 1999 was $26.590 million, as compared to $20.001 million for the year ended December 31, 1998, an increase of 33%. Business-to-business e-commerce enabling activities generated $4.411 million for the year ended December 31, 1999, while no revenue from business-to-business e-commerce enabling activities was generated in 1998. In 1999, we signed two significant licensing contracts. Direct Expenses. Direct expenses reflect negotiated reserve prices with vendors for the supply of goods sold by us. Direct expenses were $26.696 million (100.4% of retail revenue) for the year ended December 31, 1999, as compared to $19.361 million (96.8% of retail revenue) for the year ended December 31, 1998. The increase in direct expenses reflected the significant growth of revenue during the year ended December 31, 1999 as compared to the year ended December 31, 1998. 29 Advertising and Promotion Expenses. Advertising and promotion expenses consist primarily of advertising and marketing fees, promotional pricing expenses, and expenses paid to strategic and marketing partners and other third parties from which we purchased advertising space, but does not include salaries and related expenses of sales and marketing personnel which are included in general and administrative expenses. Advertising and promotion expenses were $11.870 million for the year ended December 31, 1999, as compared to $12.594 million for the year ended December 31, 1998, a decrease of 5.7%. As a percentage of retail revenue, advertising and promotion expenses fell to 44.6% of revenue for the year ended December 31, 1999 from 63.0% during the year ended December 31, 1998. Advertising and promotion expenses for the year ended December 31, 1999 included $4.044 million (15.2% of retail revenue) attributable to promotional pricing expenses and $3.548 million (13.3% of retail revenue) for expenses related to America Online in accordance with a marketing agreement with America Online. Advertising and promotion expenses for the year ended December 31, 1998 included $3.520 million (17.6% of retail revenue) for promotional pricing expenses and $7.0 million (35.0% of retail revenue) for expenses related to America Online in accordance with the America Online marketing agreement. The decrease in advertising and promotional pricing expenses during 1999, reflected the substantial impact of advertising and marketing which we undertook in 1998 to promote the Bid.Com brand name, attract track traffic to our Web site and our customer base. Reduction of advertising and promotion expenses as a percentage of revenue reflected the significant growth in revenues from 1999 over 1998. General and Administrative Expenses. General and administrative expenses include, primarily: all salaries and related expenses (including benefits and payroll taxes) other than fees to independent contractors for research and development, and technology staff compensation, which are included in software and development expenses; facility costs; foreign exchange gains and losses; professional fees; insurance costs; investor relations; computing and communications expenses; regulatory filing fees and travel and related costs. General and administrative expenses increased to $12.405 million for the year ended December 31, 1999 from $5.751 million for the year ended December 31, 1998, an increase of 115.7%. As a percentage of revenues, general and administrative expenses increased to 40.0% of revenues for the year ended December 31, 1999 from 28.8% of revenues for the year ended December 31, 1998. The increase in general and administrative expenses was attributable to an increase in salary and related expenses resulting from staff hired to accommodate growth and increased focus on business-to-business opportunities during 1999, increased legal and other fees relating to the attainment of a Nasdaq listing, regulatory filing fees, investor relations fees, live video streaming production expenses, rent, communication and other ancillary costs due primarily to our growth during 1999. 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 personnel engaged in these activities. Software development and technology expenses increased to $1.001 million for the year ended December 31, 1999 from $889,000 for the year ended December 31, 1998, a 12.6% increase. As a percentage of revenue, software development and technology expenses decreased to 3.2% of revenue during 1999 from 4.4% during 1998. The increase in software development and technology expenses was attributable primarily to the increased expenses incurred in connection with the redesign of our web page, development of a fixed price site and the development of business-to-business auction technology. The decrease in software development and technology expense as a percentage of revenue was attributable to the significant growth in revenue during the period. Depreciation and Amortization. Depreciation and amortization expense was $621,000 for the year ended December 31, 1999 as compared to $201,000 for the year ended December 31, 1998, an increase of 209.0%. This increase was primarily due to amortization expenses relating to goodwill as a result of the investment in Point 2 Internet Systems Inc. as well as a significant increase in equipment, computers, furniture and fixtures acquired by us during 1999 as a result of our growth. Interest Income. Interest income was $767,000 for the year ended December 31, 1999 as compared to $88,000 for the year ended December 31, 1998. Interest income reflects interest from investments in cash and marketable securities. LIQUIDITY AND CAPITAL RESOURCES 30 Funding to Date. We have been funded to date primarily through a series of private placements of equity, in one instance a convertible debenture, sales of equity to and investments from strategic partners, gains from investments, option exercises and cash flow from operations. We have received aggregate net proceeds of $78.2 million as set out below. 1998 Fiscal Year. In July 1998, we issued a common share warrant for an aggregate purchase price of $1.9 million and 1,500,000 common shares for no additional consideration to Rogers Media. The common share purchase warrant entitled Rogers Media to acquire up to 100,000 common shares at a price of $1.40 per common share. These warrants were fully exercised by September 30, 1999. In August 1998, we sold in a private placement a total of 8,100,000 special warrants at a price of $1.40 per special warrant for aggregate gross proceeds of $11.3 million. 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 $1.65 per share. These warrants were fully exercised by September 30, 1999 resulting in aggregate proceeds to our company of $6.682 million. We granted to Yorkton Securities Inc., 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 $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 of $1.204 million. These warrants were fully exercised by September 30, 1999 resulting in proceeds to our company of $709,500. On November 30, 1998, we sold in a private placement 5,714,984 special warrants at a price of $1.75 per special warrant. We received proceeds of $10.001 million. The special warrants 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 $1.75 per share. As at December 31, 1999, all remaining share purchase warrants had been exercised. Yorkton, the placement agent for this offering, was issued compensation warrants that entitled Yorkton to receive, without payment of additional consideration, options to purchase up to 611,498 units at a price of $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 purchase warrants, each exercisable to purchase one common share at $1.75 per share, resulting in proceeds of $1,070,122. These share purchase warrants were fully exercised by September 30, 1999 resulting in proceeds of $267,531. 1999 Fiscal Year. On September 30, 1999, we issued 1,854,678 special warrants at a price of $9.25 per warrant which were exchangeable into 1,854,678 common shares and 1,854,678 share purchase warrants for no additional consideration. The share purchase warrants, if and when exercised, are exercisable at a price of $10.00 per warrant until September 30, 2001 into an equivalent number of common shares. Gross proceeds were $17,155,772 from which was deducted commission of $857,789 (5%) and estimated expenses of approximately $250,000 to yield net proceeds of $16,047,983. 2000 Fiscal Year: In June 2000, Acqua Wellington Value Fund Ltd. invested U.S.$2.1 million in us. In exchange for its investment, we issued to Acqua Wellington a total of 900,790 common shares and common share purchase warrants to purchase 360,316 common shares. We sold the common shares and warrants to Acqua Wellington in units, at a purchase price of US$2.3313 per unit. Each unit was comprised of one common share and four-tenths (0.40) of a common share purchase warrant. Each whole warrant can be exercised to acquire one common share and is exercisable for two years at an exercise price of US$2.68 per warrant. The purchase price was determined based on a formula tied to the market price of common shares during the 15 day trading period ended June 8, 2000. On August 31, 2000, we exchanged our shares in Quack.com Inc., which had a cost of $1.221 million, for shares in America Online Inc. valued at $21.918 million, resulting in a gain of $20.697 million. During 2000, we began to liquidate our AOL shares to fund operations. Capital Assets. Additions to capital assets for the year ended December 31, 2000 were $1.426 million, primarily for computer hardware and server equipment associated with building infrastructure to support business-to-business activities. During 1999 we invested $693,000 in capital assets primarily 31 for computer hardware, equipment, furniture and fixtures and leasehold improvements. During 1998, we invested $351,000 in capital assets primarily for computer hardware. We currently have a capital lease obligation totaling $125,000 over the next 3 years relating to computer hardware. We anticipate that this commitment will be funded using existing funds. We do not currently have any other significant capital expenditure commitments. Intangible Assets. As a result of a shift in business model to a business-to- business e-commerce enabler, we capitalized $541,000 of software development costs as part of a core software redevelopment project. These costs will be amortized over the expected useful life of the software which is expected to be 24 months. Other. During the year ended December 31, 2000, we invested funds of $2.612 million in strategic partners including Quack.com Inc, The Art Vault, and Andaurex Industries Inc. See Item 4 - Principal Capital Expenditures and Divestitures. Present Status. We have not earned profits to date and, at December 31, 2000 and March 31, 2001, we had an accumulated deficit of $68.869 million and $69,478 million, respectively. We have generated negative cash flow from operations since inception and we have expended and expect to continue to expend substantial funds to continue to develop technology, build an infrastructure to support business-to-business activities and expand other areas of our business including the acquisition of, or strategic investments in, complementary products, businesses or technologies. As a result, we expect to incur losses for the foreseeable future and there can be no assurance that we 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 our control. As of December 31, 2000, and March 31, 2001, we had cash on hand and marketable securities of approximately $15.5 million and $ 14.4 million, respectively. At this time, funds from operations may not be sufficient to meet our anticipated financial requirements beyond early 2002. Our management has developed a business and financial plan to reduce operating costs, and refocus our efforts on more profitable elements of our business model. As a short term measure to improve operating performance, management has implemented a revised financial and business plan requiring internal restructuring and cost cutting measures. As a result, we believe that current cash balances and anticipated funds from operations will be sufficient to meet our needs into early 2002. However, the actual amount of funds that will be required during the interim period will be determined by many factors, some of which are beyond our control. As a result, we may require funds sooner or in greater amounts than currently anticipated. We do not have committed sources of financing at this time and there can be no assurance that we will be able to obtain financing when needed on commercially reasonable terms or at all. If adequate funds are not available or not available on acceptable terms when needed, our business, operations, financial condition and future prospects will be materially adversely affected. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our shareholders will be reduced, shareholders may experience additional dilution and such securities may have rights, preferences and privileges senior to those of our common shares. Foreign Currency Rate Fluctuations. While our financial statements are in Canadian dollars, revenue is generated in US dollars and other currencies. We incur the majority of our expenses in Canadian dollars. As a result, we may suffer losses due to fluctuations in exchange rates between the Canadian dollar and US dollar, and the Canadian dollar and currencies of other countries. We do not currently engage in foreign exchange hedging activities or use other financial instruments in this regard. Interest Rate and Investment Risk. The primary objective of our investment activities is to preserve principal while at the same time maximizing income received from our investments without significantly increasing risk. Our investment portfolio is primarily comprised of cash, short term interest bearing certificates and holdings in America Online Inc. Our remaining holding in America Online must remain in escrow until August 31, 2001. We are not using financial instruments to manage our exposure to risk in our holdings in America Online. Net Operating Losses for Tax Purposes. We have available an aggregate of approximately $51.3 million of net operating losses for tax purposes that may be used to reduce taxable income in future years, of which $113,000 expires in 2002, $1.9 million expires in 2003, $6.4 million expires in 2004, $19.8 million expires in 2005, $19.2 million expires in 2006, and $3.7 million expires in 2007. Our net operating losses are subject to assessment of our tax returns by taxation authorities. 32 ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. DIRECTORS AND SENIOR MANAGEMENT The following table sets forth the name, age and position of each of our directors and executive officers. This information is supplied based on our records and information furnished by our executive officers and directors.
Name Age Position ---- --- -------- Directors Pat Bourke/2/ 42 Chairman of the Board of Directors Jeffrey Lymburner 44 Director, President and Chief Executive Officer T. Christopher Bulger/2/ 43 Director Dr. Duncan Copeland/3/ 44 Director Paul Godin/2/ 48 Director Howard Koenig/3/ 48 Director Jim Moskos 38 Director, President, Bid.Com Technology Group David Pamenter/1,3/ 53 Director and Assistant Secretary Ken Sexton/1/ 47 Director Charles S. Walker/1/ 65 Director Executive Officers (other than Messrs. Lymburner and Moskos) Mark Wallace 41 Chief Operating Officer John Mackie 36 Vice President, General Counsel and Secretary David Kirkconnell 40 Vice-President, Human Resources
________________________ /(1)/ Member of Audit Committee. /(2)/ Member of the Management Resources and Compensation Committee /(3)/ Member of the Corporate Governance Committee. The business experience of each of our directors and executive officers for at least the last five years is as follows: Directors - --------- Patrick Bourke, Potomac, Maryland Director since June 14, 2000 Chairman of the Board of Directors Chairman of the Management Resources and Compensation Committee. Mr. Bourke is a private investor with over twenty-five years experience in the technology sector. From May, 1996 to April, 2000, Mr. Bourke was Vice President, Interactive Services Marketing for Merant Inc., an e-business software solutions company. Prior to this, he was an executive of Perot Systems Corporation where he held several senior executive positions from 1989 to 1996. Mr. Bourke came to Perot Data Systems from Electronic Data Systems Corporation, where he was Chief Information Officer for the General Motors Truck and Bus Group from 1984 to 1988. Mr. Bourke is a graduate of Arkansas State University. 33 Jeffrey Lymburner, Oldsmar, Florida Director since May 28, 1996 Mr. Lymburner has been President of our company since August 28, 1998 and Chief Executive Officer since August 1, 1999. Mr. Lymburner is a founding shareholder of our company. Prior to the founding of our company, Mr. Lymburner was President of Completely Mobile Inc., a cellular and wireless data company, from 1990 to 1995. In the 1980's, Mr. Lymburner held several management positions with responsibilities for advertising, purchasing, store management, sales management and strategic planning for Multitech Warehouse Direct, a national consumer electronics retail chain. Mr. Lymburner started his career as a Systems Engineer with IBM in 1978. T. Christopher Bulger, Toronto, Ontario Director since May 28, 1996 Member of the Management Resources and Compensation Committee Mr. Bulger has been President and Chief Executive Officer of eLab Technology Ventures Inc. since December, 1999. Mr. Bulger served as Executive Vice President of our company from September 1998 to December 1999 and Chief Financial Officer of our company from April 1996 to September 1998. Mr. Bulger was a partner with HDL Capital Corporation, a Toronto based merchant bank which specializes in the venture capital sector, from 1993 until 1999. Mr. Bulger is currently a director of Megawheels Inc., a company listed on the Canadian Venture Exchange and in which we own an equity interest. Mr. Bulger is a Chartered Financial Analyst (CFA) and holds an MBA from the European Institute of Business Administration (INSEAD). Dr. Duncan Copeland, Potomac, Maryland Director since May 28, 1996 Chairman of the Corporate Governance Committee Dr. Copeland has been President of Copeland & Company, a Washington D.C. based international consultancy firm providing information counsel to management, since September 1990. Dr. Copeland served as a Visiting Professor at Georgetown University from September 1997 to May 1999. He served on the faculty of the Richard Ivey School of Business at the University of Western Ontario ("Western") from July 1989 to June 1996 as a Professor of Information Management in addition to being Chief Information Officer of the institution. Dr. Copeland earned his undergraduate business degree at Western and his doctorate from The Harvard Business School. Dr. Copeland has extensive consulting experience in both the United States and Canada, and is co-author of Waves of Change: Business Evolution Through Information Technology, a Harvard Business School Press publication. Paul Godin, Kettleby, Ontario Director since May 28, 1996 Member of the Management Resources and Compensation Committee Mr. Godin is a private investor. From September 1999 to March 2001, Mr. Godin was the Chairman of The Art Vault International Limited. Mr. Godin is a founding shareholder of our company. Mr. Godin was Chief Executive Officer of our company from August 28, 1998 to August 1, 1999, and Chairman of the Board of Directors from June 17, 1996 to June 14, 2000. Prior to the founding of our company in September, 1995, Mr. Godin was Senior Vice-President, Corporate Sales and Marketing for Completely Mobile Inc., a Canadian company which designs and implements wireless data systems. He has an extensive marketing and management background spanning 20 years in retail and wholesale electronics and computer distributors. Howard Koenig, Brookside, New Jersey Director since October 31, 2000 Member of the Corporate Governance Committee Mr. Koenig has been Chief Executive Officer of Employeelife.com, a B2B internet benefits exchange and administration company, since April, 1999. Prior thereto he was Corporate Vice President, Operations/Client 34 Services of Automatic Data Processing Inc. from January, 1994 to April, 1999 and Managing Partner for Andersen Consulting from January 1990 to January 1994. Prior to that he held executive positions with Oracle Corporation and Deloitte Haskins and Sells. Mr. Koenig holds a BA in Economics and an MBA from the University of Buffalo. Jim Moskos, Toronto, Ontario Director since June 7, 1999 Mr. Moskos has been President of the Bid.Com Technology Group since October 19, 1999. Mr. Moskos served as Vice President - Technology of our company from September 1997 to October 19, 1999. From September 1994 to August 1997. Mr. Moskos was Senior Technology Manager for the Canadian Department of Indian Affairs and Northern Development responsible for setting the technical direction for all aspects of application development. Mr. Moskos was the recipient of the 1996 Canadian Information Productivity Award from Canadian Business Magazine, the 1995 Smithsonian Innovator Award for Information Technology, the 1995 Government Technology Achievement Award and is a two-time recipient of the Deputy Ministers Outstanding Achievement Award. David Pamenter, Toronto, Ontario Director since June 18, 1997 Member of the Audit Committee and the Corporate Governance Committee Mr. Pamenter has been a partner in Gowling, Lafleur, Henderson, a Canadian national law firm, since July 1, 1995. He is also a member of Gowlings' executive committee and the Toronto office management committee. Gowlings is one of the largest Canadian national law firms with a strong focus on advising technology companies. Mr. Pamenter also serves on the boards of a number of client companies and community groups. Ken Sexton, Director since October 5, 2000 Chairman of the Audit Committee Mr. Sexton has been Senior Vice President of Finance and Administration and Chief Financial Officer of Merant Inc., since December 1998. Prior thereto he was Chief Financial Officer of Intersolv, an enterprise software product company from 1991. From 1984 to 1991, he was the Controller and Chief Accounting Officer of Life Technologies Inc. Mr. Sexton is also a director of Netrex's Frontier Adjusters of America. Charles S. Walker, Vancouver, British Columbia Director since February 15, 1999 Member of the Audit Committee Mr. Walker has been 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 since 1968 . Mr. Walker is currently a director of Megawheels Inc., a company listed on the Canadian Venture Exchange, and a director of SCS Solars Computing Systems Inc. Our company owns an equity interest in both of these companies. Executive Officers (other than Messrs. Lymburner and Moskos) - ----------------------------------------- Mark Wallace became our Chief Operating Officer in November, 1999 and was previously Executive Vice-President, General Counsel and Secretary of our company. Prior to joining our company in May 1999, Mr. Wallace was Vice- President, General Counsel and Secretary of AT&T Canada Corp. In that capacity, he was principal advisor to that company on all legal, regulatory and corporate governance issues, and served as corporate secretary to its board of directors. Mr. Wallace joined AT&T Canada in 1991. Prior to joining AT&T Canada, Mr. Wallace worked for 4 years in private practice as a corporate commercial lawyer. 35 John Mackie joined us in November, 1999 as Vice President, General Counsel and Corporate Secretary. Prior to joining us, Mr. Mackie was Assistant General Counsel and Assistant Secretary for Imax Corporation. From August 1997 to June 1998, Mr. Mackie was a member of the legal department of AT&T Canada Long Distance Services Company (now AT&T Canada Corp.), serving as Associate General Counsel from January 1998 to June 1998. Prior to August 1997, Mr. Mackie was an associate with the law firm of Fraser & Beatty (now Fraser Milner Casgrain). David Kirkconnell has been our Vice President, Human Resources since February 2000. Mr. Kirkconnell has approximately fourteen years human resource management experience in a variety of industries. He acted as a consultant to various businesses on Human Resources matters from October 1998 to February 2000. Prior to that time, he served as Vice-President, Human Resources (from February 1997 to May 1998) and Director Human Resources (from October 1991 to February 1997) for Ault Foods Ltd. Mr. Kirkconnell holds an Economics degree from the University of Western Ontario and a Master of Industrial Relations from the University of Toronto. See Item 7 - Major Shareholders and Related Party Transactions - Related Party Transactions. B. COMPENSATION Summary Compensation Table The following table provides a summary of compensation earned during the most recently completed fiscal year by our Chief Executive Officer and the four highest paid executives, other than the Chief Executive Officer, who earned in excess of $100,000.
- ---------------------------------------------------------------------------------------------------------------------- Long Term Compensation ---------------------- Awards Payouts ------ ------- Annual Compensation Restricted ------------------- Options/ Shares or Other Annual SARs Restricted LTIP All Other Salary Bonus Compensation Granted Share Units Payout Compensation Name And Principal Position Year ($) ($) ($)/(1)/ (#) ($) ($) ($) - ---------------------------------------------------------------------------------------------------------------------- Paul Godin...................... 2000 272,000 Nil Nil 57,500 Nil Nil Nil Chairman/(2)/ 1999 260,000 Nil 12,000 160,000 Nil Nil Nil 1998 178,300 Nil 12,000 50,000 Nil Nil Nil Jeffrey Lymburner............... 2000 267,815 Nil 4,498 100,000 Nil Nil Nil President & CEO 1999 225,684 Nil Nil 170,000 Nil Nil Nil 1998 170,500 Nil Nil 100,000 Nil Nil Nil Mark Wallace.................... 2000 250,000 Nil 12,000 75,000 Nil Nil Nil Chief Operating Officer/(3)/ 1999 112,750 Nil Nil 425,000 Nil Nil Nil James Moskos.................... 2000 231,250 Nil 12,000 75,000 Nil Nil Nil President, Technology Group 1999 188,500 Nil 12,000 225,000 Nil Nil Nil 1998 102,000 Nil 4,500 100,000 Nil Nil Nil Pete Sprukulis.................. 2000 175,000 10,000 12,000 75,000 Nil Nil Nil Sr. VP, Sales & Marketing/(4)/ 1999 9,138 Nil Nil 150,000 Nil Nil Nil John Mackie..................... 2000 164,167 25,000 9,000 50,000 Nil Nil Nil VP, General Counsel and 1999 46,125 25,000 Nil 100,000 Nil Nil Nil Corporate Secretary/(5)/ - ----------------------------------------------------------------------------------------------------------------------
1. Received on account of car reimbursement expenses. 2. Resigned as Chairman of the Board effective June 14, 2000. Mr. Godin was paid a lump sum equal to his salary until December 31, 2000 in consideration for his ongoing assistance in transition of the business. 3. Joined the Corporation on May 17, 1999. Mr. Wallace was Executive Vice President, General Counsel and Corporate Secretary from 36 May 1999 to November 1999. 4. Joined our company on December 13, 1999. Ceased to be an officer of our company in April, 2001. 5. Joined our company on November 15, 1999. During 1999, we did not provide any pension, retirement or similar benefits to our directors and officers. Jeff Lymburner has entered into a non-competition and salary protection agreement with our company, dated February 21, 1997, which provides, among other things, that he (i) will not compete with our company for a period of 12 months, which may be extended by us to 24 months, following the termination of his employment with our company, in consideration of which we will pay his full annual salary during such period; and (ii) if his employment with us is terminated other than by reason of death, disability or cause (as such terms are defined in such agreements), we will continue to pay his full annual salary for 12 months (or 24 months if we exercise our option to extend the non-competition restrictions for 24 months) following the date of termination. Mark Wallace, our Chief Operating Officer has entered into a written agreement with our company which provides, among other things, that in the event of termination of his employment other than by death, disability or cause, his previous 12 months salary level is guaranteed for the 12 months after termination. Compensation of Directors During the financial year ended December 31, 2000, the directors received no fees for meetings of the Board or a committee of the Board which they attended and no fee for the signing of any resolution of directors or documents on behalf of the company. For the 2001 financial year, directors, other than Messrs. Bourke, Lymburner and Moskos, will receive a fee of $20,000 per year. All directors are reimbursed for reasonable out-of-pocket travel and other expenses incurred by them in attending meetings of the Board or Committee meetings. 37 C. BOARD PRACTICES Our Articles currently provide for a Board of Directors consisting of not less than 3 and not more than 15 directors, to be elected annually. The Ontario Business Corporations Act provides that, where a minimum and maximum number of directors is provided for in the articles of a company, the directors of that company may, if empowered by special resolution of the shareholders, by a resolution determine the number of directors to be elected at each annual meeting of the shareholders. Our Board of Directors has the authority to fix the number of directors to a number within the minimum and maximum number of directors as set forth in the Articles, and has determined by resolution that the size of the Board is 10 directors. The Board of Directors presently consists of 10 directors. Under Canadian law, a majority of our board of directors and of each of our Board Committees must be residents of Canada, subject to certain exceptions. Each of our directors holds office until the next annual meeting of shareholders or until his successor has been elected and qualified. Our executive officers are appointed by our board of directors and serve at the discretion of our Board of Directors. Except for Jeff Lymburner's salary protection agreement, no director has any contract or arrangement with us entitling them to benefits upon termination of their directorship. The three committees of the Board are the Audit Committee, Management Resources and Compensation Committee, and the Corporate Governance Committee. The Audit Committee, all of whose members are unrelated, meets with Management and our auditors on a periodic basis, before the release of quarterly results and before submission of our annual financial statements to the Board. The Committee is responsible for the review and assessment of our audit practices and internal controls, inquiry of the auditors as to cooperation in access and disclosure by Management and the ultimate approval of our annual financial statements for submission to the Board and to the shareholders. The Management Resources and Compensation Committee is responsible for recommendations to the Board regarding the appointment or removal of executive officers, reviewing the performance of the executive officers and fixing their compensation. The committee is also responsible for administering our stock option plan and ensuring that salary and benefit programs are continuously suitable for acquiring, retaining and motivating employees. The Corporate Governance Committee, all of whose members are unrelated, oversees the implementation of the governance guidelines enunciated above and, where it deems appropriate, will develop modifications to same. D. EMPLOYEES In April, 2001, we implemented a workforce reduction in which we eliminated 31 positions. As of April 30, 2001, we employed 59 full-time employees, 1 part-time employees, and 2 independent contractors, as follows: . 23 in sales and marketing; . 26 in technical support and operations; . 13 in finance, administrative and senior management functions. 38 We have 45 employees based in Mississauga, Ontario, 10 in our Dublin, Ireland offices, and 7 in sales and marketing offices in the United States. None of our employees is represented by a labor union, and we consider our employee relations to be good. E. SHARE OWNERSHIP The following table sets forth certain information concerning the share ownership of our directors and executive officers as of April 20, 2001:
- ------------------------------------------------------------------------------------------------------------------------------------ Number of Common Percentage of Shares Which May Common Shares Number of Common be Acquired Under Range of Exercise Prices Range of Expiraton Beneficially Name Shares Owned (1) Option Plan (2) of Options Dates of Options Owned (3) - ------------------------------------------------------------------------------------------------------------------------------------ Patrick Bourke............... 5,000 160,000 $1.31 - $2.79 08/01/03 - 02/06/04 * T. Christopher Bulger........ 0 234,000 $1.31 - $6.35 01/22/02 - 02/06/04 * Duncan Copeland.............. 182,500 189,000 $1.31 - $6.35 01/25/02 - 02/06/04 * Paul Godin................... 328,300 242,500 $1.31 - $6.35 01/25/02 - 02/06/04 1.04% Howard Koenig................ 3,000 25,000 $1.37 01/22/03 * Jeffrey Lymburner............ 1,470,200 345,000 $1.31 - $6.35 08/12/02 - 02/06/04 3.18% Jim Moskos................... 75,000 375,000 $1.31 - $6.10 01/25/02 - 02/06/04 * David Pamenter............... 1,000 107,500 $1.31 - $6.35 08/13/02 - 02/06/04 * Ken Sexton................... 0 70,000 $1.31 - $3.42 10/05/03 - 02/06/04 * Chuck Walker................. 4,000 124,000 $1.31 - $9.25 08/12/02 - 02/06/04 * Mark Wallace................. 4,000 575,000 $1.31 - $10.00 04/22/02 - 02/06/04 * John Mackie.................. 1,900 210,000 $1.31 - $5.95 11/11/02 - 02/06/04 * David Kirkconnell............ 0 160,000 $1.31 - $6.65 08/01/03 - 02/06/04 * - ------------------------------------------------------------------------------------------------------------------------------------
* Represents less than 1% (1) Represents shares owned beneficially by the named individual other than those shares which may be acquired under our company's option plans. Unless otherwise noted, all persons referred to above have sole voting and sole investment power. (2) Includes all shares which the named individual has the right to acquire under all vested and unvested options granted to such individual under our company's option plan. (3) This information is based on 54,638,468 common shares outstanding as of April 20, 2001. Common shares subject to options exercisable within 60 days are deemed outstanding for computing the percentage ownership of the person holding the options but are not deemed outstanding for computing the percentage ownership of any other person. ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. MAJOR SHAREHOLDERS To our knowledge, no person beneficially owns, directly or indirectly, or exercises control or direction over more than 5% of our issued and outstanding common shares. This information is based on our records, information provided to us by directors and executive officers and a review of any Schedules 13D and 13G filed in 2000 and 2001 by our shareholders with the Securities and Exchange Commission. As of May 4, 2001, we had 1,416 shareholders of record holding 54,638,468 common shares, of which 389 shareholders holding 5,670,485 common shares had an address of record in the United States. Common shares held by the principal depositary in the United States on such date amounted to 5,536,074 common shares or 10.13% of our issued common shares, which shares are held for participants' accounts. 39 We are not aware of any arrangements which may result in a change in control of our company. B. RELATED PARTY TRANSACTIONS On April 4, 2000, we completed a transaction with The Art Vault International Limited, a company listed on the Canadian Venture Exchange, under which we agreed to provide our online auction technology and related services to enable the implementation of The Art Vault's online auction of art and antiquities. In consideration for our license and services, we received 2,500,000 shares of The Art Vault and a share of future profits. Paul Godin, a director of our company, was the founding shareholder, an executive officer and a director of The Art Vault. Azim Fancy, then one of our directors, was a director and shareholder of The Art Vault. Charles Walker and James Moskos, also directors of our company, were shareholders of The Art Vault. In March 2001, The Art Vault made an assignment in bankruptcy under the laws of the Province of Ontario due to economic conditions and a lack of available funding. As their license and services agreements were fully paid up, the assignment had no material economic effect on us. ITEM 8 - FINANCIAL INFORMATION See Item 17 for our audited consolidated financial statements. LEGAL PROCEEDINGS Neither we, nor any of our subsidiaries, is a party to, or the subject of, any material legal proceedings. DIVIDEND POLICY We have not declared or paid any cash dividends on our common shares. We currently intend to retain any future earnings for use in the operation and expansion of our business. We do not anticipate paying any cash dividends on our common shares in the foreseeable future. We have not issued any preference shares. The dividend entitlement of any preference shares issued will be determined by our Board of Directors. SIGNIFICANT CHANGES None. ITEM 9 - THE OFFER AND LISTING Our common shares are quoted on the Nasdaq National Market and are listed on The Toronto Stock Exchange. Our common shares have been quoted on Nasdaq since April 20, 1999 under the symbol "BIDS." Our common shares began trading on The Toronto Stock Exchange on February 9, 1998 under the symbol "ILI" and, since July 18, 1998, our common shares traded under the symbol "BII". From June 6, 1996 to February 9, 1998, our common shares were quoted for trading on the Canadian Dealing Network under the symbol "ILII." See Item 3 - Key Information - Risk Factors - YOUR LIQUIDITY IN OUR COMMON SHARES MAY BE AFFECTED IF OUR STOCK IS DELISTED FROM THE NASDAQ NATIONAL MARKET. 40 The following tables set forth the range of high and low sales prices (rounded to the nearest hundredth) as reported by Canadian Dealing Network (through February 8, 1998), The Toronto Stock Exchange (beginning February 8, 1998) and Nasdaq (beginning April 20, 1999) during the periods indicated: The Toronto Stock Exchange High Low ---- --- (Cdn $) (Cdn $) Annual Market Prices -------------------- 1998 6.00 .56 1999 33.65 3.65 2000 13.10 .97 Quarterly Market Prices ----------------------- 1998 ---- 1/st/ Quarter 3.90 1.95 2/nd/ Quarter 3.80 1.12 3/rd/ Quarter 2.08 0.65 4/th/ Quarter 4.56 0.60 1999 ---- 1/st/ Quarter 17.60 3.80 2/nd/ Quarter 33.65 30.70 3/rd/ Quarter 13.05 4.90 4/th/ Quarter 8.95 5.65 2000 ---- 1/st/ Quarter 13.10 5.85 2/nd/ Quarter 9.20 3.11 3/rd/ Quarter 4.18 2.22 4/th/ Quarter 3.54 .97 2001 ---- 1/st/ Quarter 1.70 .73 April 1 - May 18 .86 .55 Monthly Market Prices --------------------- November 2000 2.85 1.54 December 2000 1.79 .97 January 2001 1.70 .95 February 2001 1.56 1.11 March 2001 1.15 .73 April 2001 .86 .55 Nasdaq 1999 High Low High Low ---- ---- --- ---- --- (Cdn$) (Cdn$) (US$) (US$) Annual Market Prices 1999 28.56 5.59 19.31 3.75 2000 13.30 .80 9.13 .53 41 Quarterly Market Prices 1999 2/nd/ Quarter 28.56 10.72 19.31 7.13 3/rd/ Quarter 12.54 5.59 8.53 3.75 4/th/ Quarter 8.85 5.63 6.00 3.84 2000 ---- 1/st/ Quarter 13.30 5.75 9.13 3.97 2/nd/ Quarter 9.69 3.01 6.50 2.06 3/rd/ Quarter 4.05 2.22 2.75 1.50 4/th/ Quarter 3.53 .80 2.34 .53 2001 ---- 1/st/ Quarter 1.65 .74 1.09 .47 April 1-May 18 .83 .53 .54 .34 Monthly Market Prices November 2000 2.87 1.58 1.88 1.03 December 2000 1.74 .80 1.13 .53 January 2001 1.65 .94 1.09 .63 February 2001 1.58 1.06 1.06 .69 March 2001 1.11 .74 .72 .47 April 2001 .83 .53 .54 .34 ITEM 10 - ADDITIONAL INFORMATION A. Share Capital Not applicable. B. Memorandum and Articles of Association Our Articles of Amalgamation, as amended, are on file with the Ministry of Consumer and Commercial Relations for the Province of Ontario under Ontario Corporation Number 1217515. Our articles do not include a stated purpose. Directors Directors of our company need not be shareholders. In accordance with our by- laws and the Ontario Business Corporations Act, a majority of our directors must be residents of Canada, subject to certain exceptions. In addition, 42 directors must be at least 18 years of age, of sound mind, and not bankrupt. Neither our articles or by-laws, nor the Ontario Business Corporations Act, impose any mandatory retirement age for directors. A director who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract or transaction with our company shall disclose to the company the nature and extent of his interest at the time and in the manner provided by the Ontario Business Corporations Act. The Ontario Business Corporations Act prohibits such a director from voting on any resolution to approve the contract or transaction unless the contract or transaction: . is an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of the company or an affiliate; . relates primarily to his or her remuneration as a director, officer, employee or agent of the company or an affiliate; . is for indemnity or insurance; or . is with an affiliate. Our board of directors may, on behalf of the company and without authorization of our shareholders: . borrow money upon the credit of the company; . issue, reissue, sell or pledge bonds, debentures, notes or other evidences or indebtedness or guarantees of our company, either secured or unsecured; . subject to certain disclosure requirements of the Ontario Business Corporations Act, give, directly or indirectly, financial assistance to any person by means of a loan, a guarantee or otherwise on behalf of our company to secure performance or any present or future indebtedness, liability or obligation of any person; and . mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal property of our company, movable or immovable, including without limitation book debts, rights, powers, franchises and undertakings, to secure any bonds, debentures, notes or other evidences of indebtedness or guarantee or any other obligation of the company. Common Shares Our articles authorize the issuance of an unlimited number of common shares. The holders of the common shares of our company are entitled to receive notice of and to attend all meetings of the shareholders of our company and have one vote for each common share held at all meetings of the shareholders of our company, except for meetings at which only holders of another specified class or series of shares of the company are entitled to vote separately as a class or series. Subject to the prior rights of the holders of preference shares of our company and to any other shares ranking senior to the common shares with respect to priority in the payment of dividends, the holders of common shares are entitled to receive dividends and our company will pay dividends, as and when declared by our Board of Directors, out of moneys properly applicable to the payment of dividends, in such amount and in such form as our Board of Directors may from time to time determine, and all dividends which our Board of Directors may declare on the common shares shall be declared and paid in equal amounts per share on all common shares at the time outstanding. In the event of the dissolution, liquidation or winding-up of the company, whether voluntary or involuntary, or any other distribution of assets of the company among its shareholders for the purpose of winding up its affairs, subject to the prior rights of the holders of preference shares and to any other shares ranking senior to the common shares with respect to priority in the distribution of assets upon dissolution, liquidation or winding-up, the holders of the common shares will be entitled to receive the remaining property and assets of the company. Preference Shares 43 Our articles of incorporation authorize the issuance of an unlimited number of preference shares, in one or more series. The Ontario Business Corporations Act does not impose restrictions upon our Board of Directors issuing preference shares of the type authorized by our articles of incorporation. Our Board of Directors may fix, before issuing, the number of preference shares of each series, the designation, rights, privileges, restrictions and conditions attaching to the preference shares of each series, including any voting rights, any right to receive dividends (which may be cumulative or non-cumulative and variable or fixed) or the means of determining the dividends, the dates of payment, any terms and conditions of redemption or purchase, any conversion rights, and any rights on the liquidation, dissolution or winding-up of the company, any sinking fund or other provisions, the whole to be subject to the issue of a Certificate of Amendment setting forth the designation, rights, privileges, restrictions and conditions attaching to the preference shares of the series. Our articles of incorporation require that preference shares of each series must, with respect to the payment of dividends and the distribution of assets or the return of capital in the event of the liquidation, dissolution or winding-up of the company, whether voluntary or involuntary, rank on a parity with the preference shares of every other series and be entitled to preference over the common shares and over any other shares ranking junior to the preference shares. The preference shares of one series shall participate ratably with the preference shares of every other series in respect of all dividends and similar amounts. Action Necessary to Change the Rights of Shareholders In order to change the rights of our shareholders, we would need to amend our articles of incorporation to effect the change. Such an amendment would require the approval of holders of two-thirds of the shares cast at a duly called special meeting. If we wish to amend the rights of holders of a specific class of shares, such approval would also be required from the holders of that class. A shareholder is entitled to dissent in respect of such a resolution and, if the resolution is adopted and the company implements such changes, demand payment of the fair value of its shares. Meetings of Shareholders An annual meeting of shareholders is held each year for the purpose of considering the financial statements and reports, electing directors, appointing auditors and for the transaction of other business as may be brought before the meeting. The President or the Board of Directors has the power to call a special meeting of shareholders at any time. Notice of the time and place of each meeting of shareholders must be given not less than 21 days, nor more than 50 days, before the date of each meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any other purpose other than consideration of financial statements and auditor's report, election of directors and reappointment of the incumbent auditor, must state the nature of the business in sufficient detail to permit the shareholder to form a reasoned judgment on and must state the text of any special resolution or by-law to be submitted to the meeting. The only persons entitled to be present at a meeting of shareholders are those entitled to vote thereat, the directors of the company, the auditor of the company and others who although not entitled to vote are entitled or required to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. If a corporation is winding-up, the Ontario Business Corporations Act permits a liquidator appointed by the shareholders, during the continuance of a voluntary winding-up, to call and attend meetings of the shareholders. In circumstances where a court orders a meeting of shareholders, the court may direct how the meeting may be held, including the parties entitled, or required, to attend the meeting. Limitations on Rights to Own Securities There is no limitation imposed by Canadian law or by the articles or other charter documents on the right of a non-resident to hold or vote common shares or preference shares with voting rights, other than as provided in the Investment Canada Act, as amended by the World Trade Organization Agreement Implementation Act. The Investment Canada Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a "Canadian," as defined in the Investment Canada Act (a "non-Canadian"), unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be a net benefit to Canada. 44 An investment in our voting shares by a non-Canadian (other than a "World Trade Organization Investor," as defined below) would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our company, and the value of our assets were $5.0 million or more. An investment in our voting shares by a World Trade Organization Investor would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our company, and the value of our assets equaled or exceeded $209 million. A non-Canadian, whether a World Trade Organization Investor or otherwise, would acquire control of us for purposes of the Investment Canada Act if he or she acquired a majority of our voting shares. The acquisition of less than a majority, but at least one-third of our voting shares, would be presumed to be an acquisition of control of our company, unless it could be established that we were not controlled in fact by the acquirer through the ownership of voting shares. In general, an individual is a World Trade Organization Investor if he or she is a "national" of a country (other than Canada) that is a member of the World Trade Organization ("World Trade Organization Member") or has a right of permanent residence in a World Trade Organization Member. A corporation or other entity will be a World Trade Organization investor if it is a "World Trade Organization investor-controlled entity" pursuant to detailed rules set out in the Investment Canada Act. The United States is a World Trade Organization Member. Certain transactions involving our voting shares would be exempt from the Investment Canada Act, including: (a) an acquisition of our voting shares if the acquisition were made in connection with the person's business as a trader or dealer in securities; (b) an acquisition of control of our company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act; and (c) an acquisition of control of our company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of our company, through the ownership of voting interests, remains unchanged. Change of Control Our authorized capital consists of an unlimited number of preference shares. The Board of Directors, without any further vote by the common shareholders, has the authority to issue preference shares and to determine the price, preferences, rights and restrictions, including voting and dividend rights, of these shares. The rights of the holders of common shares are subject to the rights of holders of any preference shares that the Board of Directors may issue in the future. That means, for example, that we can issue preference shares with more voting rights, higher dividend payments or more favorable rights upon dissolution, than the common shares. If we issued certain types of preference shares in the future, it may also be more difficult for a third-party to acquire a majority of our outstanding voting shares. C. Material Contracts The following is a summary of our company's material contracts entered into since January 1, 1999. 1. Underwriting Agreement, dated September 30, 1999, between Canaccord Capital Corporation and Bid.Com International Inc. Pursuant to the terms and conditions of the agreement, we issued 1,854,678 special warrants at a price of $9.25 per warrant which were exchangeable into 1,854,678 common shares and 1,854,678 share purchase warrants for no additional consideration. The share purchase warrants, if and when exercised, are exercisable at a price of $10.00 per warrant until September 30, 2001 into an equivalent number of common shares. Gross proceeds were $17,155,772 from which was deducted commission of $857,789 (5%) and estimated expenses of approximately $250,000 to yield net proceeds of $16,047,983. 2. Purchase Agreement, dated as of June 16, 2000, between Bid.Com International Inc. and Acqua Wellington Value Fund Ltd. Pursuant to the terms and conditions of this agreement, Acqua Wellington Value Fund Ltd. invested U.S. $2.1 million in us. In exchange for its investment, we issued to Acqua Wellington a total of 900,790 common shares and common share purchase warrants to purchase 360,316 common shares, which we agreed to register with the Securities and Exchange Commission. We sold the common shares and warrants to Acqua Wellington in units, at a purchase price of US$2.3313 per unit. Each unit was comprised of one common share and four-tenths (0.40) of a common share purchase warrant. Each whole warrant can be exercised to acquire one common share and is exercisable for two years at an exercise price of US$2.68 per warrant. The purchase price was determined based on a formula tied to the market price of common shares during the 15 day trading period ended June 8, 2000. 3. Registration Rights Agreement, dated as of June 16, 2000, between Bid.Com International Inc. and Acqua Wellington Value Fund Ltd. Pursuant to the terms and conditions of this agreement, Acqua Wellington received registration rights for the common shares, including those common shares issuable upon exercise of the warrants, acquired by it pursuant to the Purchase Agreement referred to in No. 2. In addition we agreed that if the registration statement covering these shares was not effective by a specified date, we would be subject to monetary and other penalties. We also agreed to grant Acqua Wellington piggyback registration rights. D. Exchange Controls There is no law, government decree or regulation in Canada restricting the export or import of capital or affecting the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements. E. Taxation Canadian Federal Income Tax Considerations The following summary describes material Canadian federal income tax consequences generally applicable to a holder of our common shares who is not a resident of Canada, and who, for purposes of the Income Tax Act (Canada), (i) holds such shares as capital property and (ii) deals at arm's length with us. Generally, common shares will be considered capital property to a holder provided that such holder does not hold such securities in the course of carrying on a business and has not acquired such securities in a transaction or transactions considered to be an 45 adventure or concern in the nature of trade which includes a transaction or transactions of the same kind and carried on in the same manner as a transaction or transactions of an ordinary trader or dealer in property of the same kind. This summary is based upon the current provisions of the Income Tax Act and the regulations thereunder and on an understanding of the published administrative practices of the Canadian Customs and Revenue Agency. This summary does not take into account or anticipate any possible changes in law, or the administration thereof, whether by legislative, governmental or judicial action, except proposals for specific amendment thereto which have been publicly announced by the Canadian Minister of Finance prior to the date hereof. This summary does not address all aspects of Canadian federal income tax law that may be relevant to shareholders based upon their particular circumstances, and does not deal with provincial, territorial or foreign income tax consequences, which might differ significantly from the consequences under Canadian federal income tax law. Shareholders are advised to consult their tax advisors regarding the application of the Canadian federal income tax law to their particular circumstances, as well as any Canadian provincial, territorial or other tax consequences or any U.S. federal, state or local tax consequences or other foreign income tax consequences of the acquisition, ownership and disposition of our common shares. Taxation of Dividends. A holder of a common share who is not resident in Canada for purposes of the Income Tax Act will be subject to Canadian withholding tax on dividends paid or credited, or deemed under the Income Tax Act to be paid or credited, to the holder of the common share. The rate of withholding tax under the Income Tax Act on dividends is 25% of the amount of the dividend. Such rate may be reduced under the provisions of an applicable international tax treaty to which Canada is a party. Under the tax treaty that Canada has entered into with the United States, the rate of Canadian withholding tax applicable in respect of dividends paid or credited by a Canadian corporation to a shareholder resident in the United States, is generally reduced to 15%, or 5% in the case of a corporate holder which owns 10% or more of the voting shares. A foreign tax credit for the tax withheld may be available under applicable US tax law to a US holder against U.S. federal income tax liability. Moreover, pursuant to Article XXI of the Canada-U.S. Treaty, an exemption from Canadian withholding tax generally is available in respect of dividends received by certain trusts, companies and other organizations whose income is exempt from tax under the laws of the United States. Disposition of common shares. A non-resident holder of a common share will not be subject to tax under the Income Tax Act in respect of a capital gain realized on the disposition of a common share unless the common share constitutes or is deemed to constitute "taxable Canadian property" as defined in the Income Tax Act. Shares of a corporation that are listed on a prescribed stock exchange (which includes shares traded on certain U.S. stock exchanges, including the Nasdaq) are generally not considered to be taxable Canadian property. However, such shares are considered taxable Canadian property in the hands of a non-resident holder if, at any time during the 60-month period immediately preceding disposition by the holder, 25% or more of our issued shares of any class were owned by the non-resident holder together with persons with whom the non-resident did not deal at arm's length. An interest in or option in respect of common shares or other securities convertible into or exchangeable for common shares could constitute taxable Canadian property if the common shares that could be acquired upon the exercise of the option, the conversion or exchange rights or in which there is such interest are themselves taxable Canadian property. Taxable Canadian property also includes any common share held by a non-resident if the non-resident used the common share in carrying on a business (other than an insurance business) in Canada, or, if the non-resident is a non-resident insurer, any common share that is its "designated insurance property" for the year. A non-resident whose common shares constitute or are deemed to constitute taxable Canadian property will realize upon the disposition or deemed disposition of a common share, a capital gain (or a capital loss) to the extent that the proceeds of disposition are greater than (or less than) the aggregate of the adjusted cost base to the holder of a common share and any reasonable costs of disposition. 46 One-half of any capital gain realized by a holder (a taxable capital gain) will be included in computing the holder's income. One-half of any capital loss realized by a holder may, subject to certain restrictions applicable to holders that are corporations, normally be deducted from the holder's taxable capital gains realized in the year of disposition, the three preceding taxation years or any subsequent taxation years, subject to detailed rules contained in the Income Tax Act. A purchase by us of our common shares (other than a purchase of our common shares on the open market in a manner in which shares would normally be purchased by any member of the public in the open market) will give rise to a deemed dividend under the Income Tax Act equal to the difference between the amount we paid on the purchase and the paid-up capital of such shares determined in accordance with the Income Tax Act. The paid-up capital of such shares may be less than the cost of such shares to the holder. Any such dividend deemed to have been received by a non-resident holder will be subject to non-resident withholding tax as described above. The amount of any such deemed dividend will reduce the proceeds of disposition of the common share to the non-resident holder for the purpose of computing the amount of the non-resident holder's capital gain or loss under the Income Tax Act. Even if the common shares constitute taxable Canadian property to a non-resident holder and their disposition would give rise to a capital gain, an exemption from tax under the Income Tax Act may be available under the terms of an applicable international tax treaty to which Canada is a party. A holder resident in the United States for purposes of the Canada-U.S. Treaty will generally be exempt from Canadian tax in respect of a gain on the disposition of common shares provided that the value of the common shares is not derived principally from real property situated in Canada. Our common shares would qualify for this exception, however Article XIII paragraph 5 of the Canada-U.S. Treaty provides that the treaty exemption does not apply where the U.S. resident holder was an individual who was a Canadian resident for 120 months during any period of 20 consecutive years preceding the time of the sale and was resident in Canada at any time during the ten years immediately preceding the sale. If the exemption from such Canadian tax in respect of such gain is not available under the Canada-U.S. Treaty, a foreign tax credit may be available under applicable US tax law for U.S. federal income tax purposes. Non-residents are advised to consult their tax advisers with regard to the availability of a treaty exemption. U.S. Federal Income Tax Considerations The following summary describes material United States federal income tax consequences arising from the purchase, ownership and sale of common shares. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, final, temporary and proposed United States Treasury Regulations promulgated thereunder, and the administrative and judicial interpretations thereof, all as in effect as of the date of this annual report and all of which are subject to change, possibly on a retroactive basis. The consequences to any particular 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 any particular taxpayer based on such taxpayer's particular circumstances (including potential application of the alternative minimum tax), to particular classes of taxpayers (including financial institutions, broker-dealers, insurance companies, taxpayers who have elected mark-to-market accounting, tax-exempt organizations, taxpayers who hold ordinary shares as part of a straddle, "hedge" or "conversion transaction" with other investments, investors who own (directly, indirectly or through attribution) 10% or more of our company's outstanding voting stock, taxpayers whose functional currency is not the U.S. dollar, persons who are not citizens or residents of the United States, or persons which are foreign corporations, foreign partnerships or foreign estates or trusts as to the United States) or any aspect of state, local or non-United States tax laws. Additionally, the discussion does not consider the tax treatment of persons who hold common shares through a partnership or other pass-through entity or the possible application of United States federal gift or estate tax. This summary is addressed only to a holder of common shares who is (i) a citizen or resident of the United States who owns less than 10% of our company's outstanding voting stock, (ii) a corporation organized in the United States or under the laws of the United States or any state thereof, (iii) an estate, the income of which is includable in gross income for United States federal income tax purposes regardless of source, or (iv) a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust (a "U.S. Holder"). This summary is for general information purposes only and does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase common shares. This summary generally considers only U.S. Holders that will own their common shares as capital assets. 47 Each shareholder should consult with such shareholder's own tax advisor as to the particular tax consequences to such shareholder of the purchase, ownership and sale of their common shares including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws. Treatment of Dividend Distributions Subject to the discussion below under "Tax Status Of The Company - Passive Foreign Investment Companies," a distribution by our company to a U.S. Holder in respect of the common shares (including the amount of any Canadian taxes withheld thereon) will generally be treated for United States federal income tax purposes as a dividend to the extent of our company's current and accumulated earnings and profits, as determined under United States federal income tax principles. To the extent, if any, that the amount of any such distribution exceeds our company's current and accumulated earnings and profits, as so computed, it will first reduce the U.S. Holder's tax basis in the common shares owned by him, and to the extent it exceeds such tax basis, it will be treated as capital gain from the sale of common shares. While it is not anticipated that our company will pay dividends in the foreseeable future, the gross amount of any distribution from our company received by a U.S. Holder which is treated as a dividend for United States federal income tax purposes (before reduction for any Canadian tax withheld at source) will be included in such U.S. Holder's gross income, will be subject to tax at the rates applicable to ordinary income and generally will not qualify for the dividends received deduction applicable in certain cases to United States corporations. For United States federal income tax purposes, the amount of any dividend paid in Canadian dollars by our company to a U.S. Holder will equal the U.S. dollar value of the amount of the dividend paid in Canadian dollars, at the exchange rate in effect on the date of the distribution, regardless of whether the Canadian dollars are actually converted into United States dollars at that time. Canadian dollars received by a U.S. Holder will have a tax basis equal to the U.S. dollar value thereof determined at the exchange rate on the date of the distribution. Currency exchange gain or loss, if any, recognized by a U.S. Holder on the conversion of Canadian dollars into U.S. dollars will generally be treated as U.S. source ordinary income or loss to such holder. U.S. Holders should consult their own tax advisors concerning the treatment of foreign currency gain or loss, if any, on any Canadian dollars received which are converted into dollars subsequent to distribution. A U.S. Holder generally will be entitled to deduct any Canadian taxes withheld from dividends in computing United States taxable income, or to credit such withheld taxes against the United States federal income tax imposed on such U.S. Holder's dividend income. No deduction for Canadian taxes may be claimed, however, by 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 our company with respect to the common shares will generally constitute "passive income." Foreign income taxes exceeding a shareholder's credit limitation for the year of payment or accrual of such tax can be carried back for two taxable years and forward for five taxable years, subject to the credit limitation applicable in each of such years. Additionally, the foreign tax credit in any taxable year may not offset more than 90% of a shareholder's liability for United States individual or corporate alternative minimum tax. The total amount of allowable foreign tax credits in any year generally cannot exceed regular U.S. tax liability for the year attributable to foreign source taxable income. A U.S. Holder will be denied a foreign tax credit with respect to Canadian income tax withheld from dividends received on the common shares to the extent such U.S. Holder has not held the ordinary shares for at least 16 days of the 30-day period beginning on the date which is 15 days before the ex-dividend date or to the extent such U.S. Holder is under an obligation to make certain related payments with respect to substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the common shares are not counted toward meeting the 16 day holding period required by the statute. Sale or Exchange of a Common Share 48 Subject to the discussion below under "Tax Status Of The Company - Passive Foreign Investment Companies," the sale or exchange by a U.S. Holder of a common share generally will result in the recognition of gain or loss by the U.S. Holder in an amount equal to the difference between the amount realized and the U.S. Holder's basis in the common share sold. Such gain or loss will be capital gain or loss provided that the common share is a capital asset in the hands of the holder. The gain or loss realized by a 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%. Gains recognized by a U.S. Holder on a sale, exchange or other disposition of common shares generally will be treated as United States source income for United States foreign tax credit purposes. A loss recognized by a U.S. Holder on the sale, exchange or other disposition of common shares generally is allocated to U.S. source income under recently finalized regulations. However, those regulations require such loss to be allocated to foreign source income to the extent certain dividends were received by the taxpayer within the 24-month period preceding the date on which the taxpayer recognized the loss. The deductibility of a capital loss recognized on the sale, exchange or other disposition of common shares is subject to limitations. A U.S. Holder that receives foreign currency upon disposition of common shares and subsequently converts the foreign currency into U.S. dollars generally will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar. U.S. Holders should consult their own tax advisors regarding treatment of any foreign currency gain or loss on any Canadian dollars received in respect of the sale, exchange or other disposition of common shares. Tax Status of the Company Personal Holding Companies. A non-U.S. corporation may be classified as a personal holding company for United States federal income tax purposes if both of the following two tests are satisfied: (i) if at any time during the last half of the company's taxable year, five or fewer individuals (without regard to their citizenship or residency) own or are deemed to own (under certain attribution rules) more than 50% of the stock of the corporation by value and (ii) 60% or more of such non-U.S. corporation's gross income derived from U.S. sources or effectively connected with a U.S. trade or business, as specifically adjusted, is from certain passive sources such as dividends and royalty payments. Such a corporation generally is taxed (currently at a rate of 39.6% of "undistributed personal holding company income") on the amounts of such passive source income, after making adjustments such as deducting dividends paid and income taxes, that are not distributed to shareholders. We believe that our company was not a personal holding company in 1999 and is not currently a personal holding company. However, no assurance can be given that either test will not be satisfied in the future. Foreign Personal Holding Companies. A non-U.S. corporation will be classified as a foreign personal holding company for United States federal income tax purposes if both of the two following tests are satisfied: (i) five or fewer individuals who are United States citizens or residents own or are deemed to own (under certain attribution rules) more than 50% of all classes of the corporation's stock measured by voting power or value and (ii) the corporation receives at least 60% (50% if previously an foreign personal holding company) of its gross income (regardless of source), as specifically adjusted, from certain passive sources. If such a corporation is classified as a foreign personal holding company, a portion of its "undistributed foreign personal holding company income" (as defined for United States federal income tax purposes) would be imputed to all of its shareholders who are U.S. Holders on the last taxable day of the corporation's taxable year, or, if earlier, the last day on which it is classifiable as a foreign personal holding company. Such income would be taxable as a dividend, even if no cash dividend is actually paid. U.S. Holders who dispose of their shares prior to such date would not be subject to tax under these rules. We believe that our company was not a personal holding company in 1999 and is not currently a personal holding company. However, no assurance can be given that our company will not qualify as a foreign personal holding company in the future. Passive Foreign Investment Companies. A company will be a passive foreign investment company if 75% or more of its gross income (including the pro rata share of the gross income of any company (United States or foreign) in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year is passive income. Alternatively, the company will be considered to be a passive foreign investment 49 company if at least 50% of the value of the company's assets (averaged over the year) (including the pro rata share of the value of the assets of any company in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year are held for the production of, or produce, passive income. For these purposes, the value of our assets is calculated based on our market capitalization. Passive income generally includes, among others, interest, dividends, royalties, rents and annuities. If our company is a passive foreign investment company for any taxable year, a U.S. Holders, in the absence of an election by such U.S. Holder to treat our company as a "qualified electing fund" (a "QEF election"), as discussed below, would, upon certain distributions by our company and upon disposition of the common shares at a gain, be liable to pay tax at the highest tax rate on ordinary income in effect for each period to which the income is allocated, plus interest on the tax, as if the distribution or gain had been recognized ratably over the days in the U.S. Holder's holding period for the common shares during which our company was a passive foreign investment company. Additionally, if our company is a passive foreign investment company, U.S. Holders who acquire ordinary shares from decedents would be denied the normally available step-up of the income tax basis for such common shares to fair market value at the date of death and instead would have a tax basis equal to the decedent's basis, if lower. If our company is treated as a passive foreign investment company for any taxable year, U.S. Holders should consider whether to make a QEF election for United States federal income tax purposes. If a U.S. Holder has a QEF election in effect for all taxable years that such U.S. Holder has held the common shares and our company was a passive foreign investment company, distributions and gain will not be recognized ratably over the U.S. Holder's holding period or subject to an interest charge, gain on the sale of common shares will be characterized as capital gain and the denial of basis step-up at death described above would not apply. Instead, each such U.S. Holder is required for each taxable year that our company is a qualified electing fund to include in income a pro rata share of the ordinary earnings of our company as ordinary income and a pro rata share of the net capital gain of our company as long-term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. Consequently, in order to comply with the requirements of a QEF election, a U.S. Holder must receive from our company certain information. We intend to supply U.S. Holders with the information needed to report income and gain pursuant to a QEF election in the event our company is classified as a passive foreign investment company. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service. A shareholder makes a QEF election by attaching a completed IRS Form 8621 (including the passive foreign investment company annual information statement) to a timely filed United States federal income tax return and by filing such form with the IRS Service Center in Philadelphia, Pennsylvania. Even if a QEF election is not made, a shareholder in a passive foreign investment company who is a U.S. Holder must file a completed IRS Form 8621 every year. As an alternative to making a QEF election, a U.S. Holder may elect to make a mark-to-market election with respect to the common shares owned by him. If the mark-to-market election were made, then the rules set forth above would not apply for periods covered by the election. Under such election, a U.S. Holder includes in income each year an amount equal to fair market value of the common shares owned by such U.S. Holder as of the close of the taxable year over the U.S. Holder's adjusted basis in such shares. The U.S. Holder would be entitled to a deduction for the excess, if any, of such U.S. Holder's adjusted basis in his common shares over the fair market value of such shares as of the close of the taxable year; provided however, that such deduction would be limited to the extent of any net mark-to-market gains with respect to the common shares included by the U.S. Holder under the election for prior taxable years. The U.S. Holder's basis in his common shares is adjusted to reflect the amounts included or deducted pursuant to this election. Amounts included in income pursuant to the mark-to-market election, as well as gain on the sale or exchange of the common shares, will be treated as ordinary income. Ordinary loss treatment applies to the deductible portion of any mark-to-market loss, as well as to any loss realized on the actual sale or exchange of the common shares to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included with respect to such common shares. The mark-to-market election applies to the tax year for which the election is made and all later tax years, unless the common shares cease to be marketable or the IRS consents to the revocation of the election. We do not believe our company was a passive foreign investment company during 1999. However, there can be no assurance that our company will not be classified as a passive foreign investment company in 2000 or 50 thereafter because the tests for determining passive foreign investment company status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. U.S. Holders who hold common shares during a period when our company is a passive foreign investment company will be subject to the foregoing rules, even if our company ceases to be a passive foreign investment company, subject to certain exceptions for U.S. Holders who made a QEF election. U.S. Holders are urged to consult with their own tax advisors about making a QEF election or mark-to-market election and other aspects of the passive foreign investment company rules. Back-Up Withholding and Information Reporting U.S. Holders generally are subject to information reporting requirements and back-up withholding with respect to dividends paid in the United States on common shares. Back-up withholding will not apply if a U.S. holder provides an IRS Form W-9 or otherwise establishes an exemption. U.S. holders are subject to information reporting and back-up withholding at a rate of 31% on proceeds paid from the disposition of common shares unless the U.S. holder provides IRS Form W-9 or otherwise establishes an exemption. Non-U.S. holders generally are not subject to information reporting or back-up withholding with respect to dividends paid on, or the proceeds from the disposition of, common shares, provided that such non-U.S. holder provides a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption. The amount of any back-up withholding will be allowed as a credit against a U.S. or non-U.S. holder's U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the IRS. F. Dividends and Paying Agents Not applicable. G. Statements by Experts Not applicable. H. Documents on display. We have filed this Annual Report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Statements made in this annual report as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to this annual report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. We are subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission. Reports and other information which we file with the Securities and Exchange Commission, including this Annual Report on Form 20-F, may be inspected and copied at the public reference facilities of the Securities and Exchange Commission at: 450 Fifth Street N.W. 7 World Trade Center 500 West Madison Street Room 1024 New York, New York 10048 Suite 1400 Washington D.C. 20549 Chicago, Illinois 60661
You can also obtain copies of this material by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally, copies of this material may also be obtained from the Securities and Exchange Commission's Internet site at http://www.sec.gov. The Commission's telephone number is 1-800- SEC-0330. 51 ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK (a) Quantitative Information about Market Risk See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk. (b) Qualitative Information about Market Risk See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk. ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN DEBT SECURITIES Not applicable. PART II ITEM 13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS There were no material modifications effecting the rights of securities holders made during the fiscal year ended December 31, 2000. PART III ITEM 17- FINANCIAL STATEMENTS See the Index to Consolidated Financial Statements accompanying this report on page F-1. ITEM 18 - FINANCIAL STATEMENTS Not applicable. ITEM 19 - EXHIBITS Exhibits filed as part of this Annual Report. 1.1 Articles of Incorporation of the Company.(1) 1.2 By-laws of the Company.(2) 3.1 Underwriting Agreement dated September 30, 1999, between the Company and Canaccord Capital Corporation. (3) 3.2 Warrant Indenture dated September 30, 1999, between the Company and CIBC Mellon Trust Company. (4) 3.3 Special Warrant Indenture dated September 30, 1999, between the Company and CIBC Mellon Trust Company. (5) 3.4 Purchase Agreement, dated as of June 16, 2000, between Bid.Com International Inc. and Acqua Wellington Value Fund Ltd. 3.5 Registration Rights Agreement, dated as of June 16, 2000, between Bid.Com International and Acqua Wellington Value Fund Ltd. 3.6 Warrant dated June 16, 2000, between Bid.Com International and Acqua Wellington Value Fund Ltd. 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. (6) 3.8 Special Warrant Indenture dated October 3, 1997 between the Company and CIBC Mellon Trust Company. (7) 3.9 Share Purchase Warrant Indenture dated October 3, 1997 between the Company and CIBC Mellon Trust Company. (8) 3.10 Underwriting Agreement dated October 3, 1997 between the Company, Yorkton Securities Inc. and First Marathon Securities Limited. (9) 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. (10) 3.12 Special Warrant Indenture dated August 4, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. (11) 3.13 Share Purchase Warrant Indenture dated August 4, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. (12) 3.14 Underwriting Agreement dated August 4, 1998 between the Company and Yorkton Securities Inc. (13) 3.15 Form of Subscription Agreement dated November 30, 1998 among the Company and the Investors in the November 30, 1998 private placement. (14) 3.17 Underwriting Agreement dated November 30, 1998 between the Company and Yorkton Securities Inc. (15) 3.18 Special Warrant Indenture dated November 30, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. (16) 3.19 Share Purchase Warrant Indenture dated November 30, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. (17) 3.20 Salary Protection Letter, dated February 12, 1997, between the Company and Jeffrey Lymburner. (18) -------------------- (1) Incorporated by reference from Exhibit 1.1 of Amendment No. 1 to the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 29, 1999. (2) Incorporated by reference from Exhibit 1.2 of Amendment No. 1 to the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 29, 1999. (3) Incorporated by reference from Exhibit 3.1 to the Company's Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 19, 2000. (4) Incorporated by reference from Exhibit 3.2 to the Company's Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 19, 2000. (5) Incorporated by reference from Exhibit 3.3 to the Company's Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 19, 2000. (6) Incorporated by reference from Exhibit 3.7 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (7) Incorporated by reference from Exhibit 3.8 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (8) Incorporated by reference from Exhibit 3.9 of Amendment No. 1 to the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 29, 1999. (9) Incorporated by reference from Exhibit 3.10 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (10) Incorporated by reference from Exhibit 3.11 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (11) Incorporated by reference from Exhibit 3.12 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (12) Incorporated by reference from Exhibit 3.13 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (13) Incorporated by reference from Exhibit 3.14 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (14) Incorporated by reference from Exhibit 3.17 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (15) Incorporated by reference from Exhibit 3.18 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (16) Incorporated by reference from Exhibit 3.19 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (17) Incorporated by reference from Exhibit 3.20 of the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on February 16, 1999. (18) Incorporated by reference from Exhibit 3.27 of Amendment No. 1 to the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 29, 1999. 52 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual on its behalf. BID.COM INTERNATIONAL INC. By: /s/ Jeffrey Lymburner ------------------------------------ Name: Jeffrey Lymburner Title: President and Chief Executive Officer Dated: May 18, 2001 By: /s/ John Mackie ------------------------------------ Name: John Mackie Title: Vice-President, General Counsel and Corporate Secretary 53 Bid.Com International Inc. Consolidated Financial Statements INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Audited Consolidated Financial Statements for the years ended December 31, 2000, 1999 and 1998 Independent Auditors' Report............................................................................ F-2 Consolidated Balance Sheets as at December 31, 2000 and 1999............................................ F-3 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998.............. F-4 Consolidated Statements of Deficit for the years ended December 31, 2000, 1999 and 1998................. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998.............. F-6 Notes to Consolidated Financial Statements.............................................................. F-7
F-1 Auditors' Report To the Shareholders of Bid.Com International Inc. We have audited the consolidated balance sheets of Bid.Com International Inc. as at December 31, 2000 and 1999, and the consolidated statements of operations, deficit and cash flows for each of the three years in the period ended December 31, 2000. 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. With respect to the consolidated financial statements for the year ended December 31, 2000, we conducted our audit in accordance with Canadian generally accepted auditing standards and United States generally accepted auditing standards. With respect to the consolidated balance sheet as at December 31, 1999 and the consolidated statements of operations, deficits and cash flows for each of the two years in the period ended December 31, 1999, we conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis of opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in accordance with Canadian generally accepted accounting principles. Effective January 1, 2000, the Company adopted the liability method of accounting for income taxes for reporting under Canadian generally accepted accounting principles. The change, which had no effect on the financial statements of the Company, is explained in Note 6. /s/ Deloitte & Touche LLP Chartered Accountants Toronto, Ontario, Canada February 9, 2001 Comments by Auditors for U.S. readers on Canadian - United States Reporting Differences United States reporting standards for auditors require the addition of an explanatory paragraph following the opinion paragraph when the financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in Note 2 to the financial statements. Although we conducted our audits in accordance with both Canadian generally accepted auditing standards and United States generally accepted auditing standards, our report to the Shareholders dated February 9, 2001 is expressed in accordance with Canadian reporting standards which do not permit a reference to such conditions and events in the auditors' report when these are adequately disclosed in the financial statements. F-2 BID.COM INTERNATIONAL INC. Consolidated Balance Sheets December 31, 2000 and 1999 (in thousands of Canadian dollars) ================================================================================
December 31, - --------------------------------------------------------------------------------------------------------------------- 2000 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Convenience translation into U.S. $ (Note 21) ASSETS CURRENT Cash $ 7,363 $ 4,910 $ 5,019 Marketable securities 8,124 5,418 16,478 Accounts receivable 701 467 1,761 Inventory (Note 4) - - 155 Deposits and prepaid expenses 1,180 787 4,579 - ---------------------------------------------------------------------------------------------------------------------- 17,368 11,582 27,992 CAPITAL ASSETS (Note 5) 1,760 1,174 977 STRATEGIC INVESTMENTS 1,176 784 5,386 CAPITALIZED SOFTWARE 473 315 - TRADEMARKS AND INTELLECTUAL PROPERTY (NET) 24 16 503 GOODWILL - (at cost less accumulated amortization 2000 - $ 4,045, US $2,698; 1999 - $160) - - 1,885 - ---------------------------------------------------------------------------------------------------------------------- $20,801 $13,871 $36,743 ====================================================================================================================== LIABILITIES CURRENT Accounts payable $ 1,213 $ 809 $ 3,604 Accrued liabilities 807 538 1,900 Current portion of capital lease obligation 66 44 - Current portion of deferred revenue 1,611 1,075 965 - ---------------------------------------------------------------------------------------------------------------------- 3,697 2,466 6,469 DEFERRED REVENUE 1,185 790 1,289 CAPITAL LEASE OBLIGATION 59 39 - - ---------------------------------------------------------------------------------------------------------------------- 4,941 3,295 7,758 ====================================================================================================================== Commitments and Contingencies [Notes 2 and 10] SHAREHOLDERS' EQUITY Share capital (Note 7) 83,724 55,835 77,488 Warrants (Note 7(h)) 1,005 670 - Deficit (68,869) (45,929) (48,503) - ---------------------------------------------------------------------------------------------------------------------- 15,860 10,576 28,985 - ---------------------------------------------------------------------------------------------------------------------- $ 20,801 $ 13,871 $ 36,743 ======================================================================================================================
F-3 BID.COM INTERNATIONAL INC. Consolidated Statements of Operations Years ended December 31, 2000, 1999 and 1998 (in thousands of Canadian dollars, except per share amount) ================================================================================
Year ended December 31, - -------------------------------------------------------------------------------------------------------------------------------- 2000 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Convenience translation into U.S. $ (Note 21) Revenue (Note 19) $ 12,497 $ 8,334 $ 31,001 $ 20,001 Less: Customer acquisition costs (157) (105) - - - -------------------------------------------------------------------------------------------------------------------------------- Net revenue 12,340 8,229 31,001 20,001 - -------------------------------------------------------------------------------------------------------------------------------- Direct expenses 11,460 7,642 26,696 19,361 Advertising and promotion (Note 12) 5,040 3,361 11,870 12,594 General and administrative 19,397 12,936 12,405 5,751 Software development and technology expense 1,802 1,202 1,001 889 Depreciation and amortization 1,130 754 621 201 Interest income (467) (311) (767) (88) - -------------------------------------------------------------------------------------------------------------------------------- 38,362 25,584 51,826 38,708 - -------------------------------------------------------------------------------------------------------------------------------- Loss before the undernoted (26,022) (17,355) (20,825) (18,707) - -------------------------------------------------------------------------------------------------------------------------------- Realized gains on disposal of marketable securities and strategic investments (Note 13) 20,946 13,969 - - Unrealized losses on revaluation of marketable securities and provision for impairment of long term assets (Note 14) (15,290) (10,197) - - - -------------------------------------------------------------------------------------------------------------------------------- 5,656 3,772 - - - -------------------------------------------------------------------------------------------------------------------------------- NET LOSS FOR THE YEAR $ (20,366) $ (13,583) $ (20,825) $ (18,707) ================================================================================================================================ LOSS PER SHARE $ (0.38) $ (0.25) $ (0.42) $ (0.79) ================================================================================================================================
F-4 BID.COM INTERNATIONAL INC. Consolidated Statements of Deficit Years ended December 31, 2000, 1999 and 1998 (in thousands of Canadian dollars) ================================================================================
Year ended December 31, - -------------------------------------------------------------------------------------------------------------------------------- 2000 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Convenience translation into U.S. $ (Note 21) DEFICIT, BEGINNING OF YEAR $ (48,503) $ (32,346) $ (27,678) $ (8,971) NET LOSS FOR THE YEAR (20,366) (13,583) (20,825) (18,707) ================================================================================================================================ DEFICIT, END OF YEAR $ (68,869) $ (45,929) $ (48,503) $ (27,678) ================================================================================================================================
F-5 BID.COM INTERNATIONAL INC. Consolidated Statements of Cash Flows Years ended December 31, 2000, 1999 and 1998 (in thousands of Canadian Dollars) ================================================================================
Year ended December 31, - -------------------------------------------------------------------------------------------------------------------------------- 2000 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Convenience NET INFLOW (OUTFLOW) OF CASH translation RELATED TO THE FOLLOWING ACTIVITIES into U.S. $ (Note 21) OPERATING Net loss for the year $ (20,366) $ (13,583) $ (20,825) $ (18,707) Items not affecting cash Depreciation and amortization 1,130 754 621 201 Non cash customer acquisition costs 1,005 670 - - Realized gains on disposal of marketable securities and Strategic investments (Note 13) (20,946) (13,969) - - Unrealized losses on revaluation of marketable securities and provision for impairment of long term assets (Note 14) 15,290 10,197 - - - --------------------------------------------------------------------------------------------------------------------------------- (23,887) (15,931) (20,204) (18,506) Changes in non-cash operating working capital (Note 11) 822 548 738 1,702 - --------------------------------------------------------------------------------------------------------------------------------- (23,065) (15,383) (19,466) (16,804) - --------------------------------------------------------------------------------------------------------------------------------- INVESTING Capital assets (1,426) (951) (693) (351) Strategic investments (2,612) (1,742) (5,386) - - Capitalized Software, trademarks and intellectual property (590) (393) (555) (68) Marketable securities 25,676 17,123 (9,672) (5,648) - --------------------------------------------------------------------------------------------------------------------------------- 21,048 14,037 (16,306) (6,067) - --------------------------------------------------------------------------------------------------------------------------------- FINANCING Issuance of common shares (Note 7) 4,236 2,825 28,688 31,077 Capital lease obligation 148 99 - - Repayment of capital lease (23) (15) - - Issuance of special warrants (net of expenses) - - - 689 Special warrants receivable - - 2,311 (122) - --------------------------------------------------------------------------------------------------------------------------------- 4,361 2,909 30,999 31,644 - --------------------------------------------------------------------------------------------------------------------------------- NET CASH INFLOW (OUTFLOW) DURING THE YEAR 2,344 1,563 (4,773) 8,773 CASH, BEGINNING OF YEAR 5,019 3,347 9,792 1,019 ================================================================================================================================ CASH, END OF YEAR $ 7,363 $ 4,910 $ 5,019 $ 9,792 ================================================================================================================================ SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS Interest expense $ - $ - $ - $ - Income taxes $ - $ - $ - $ -
F-6 BID.COM INTERNATIONAL INC. Years ended December 31, 2000, 1999 and 1998 Notes to the Consolidated Financial Statements ================================================================================ 1. DESCRIPTION OF BUSINESS Since inception, Bid.Com International Inc. ("Bid.Com") was an on-line auction service and e-tailer. During 2000, the Company refocused its business model to become an on-line enabler for businesses desiring to take advantage of e-commerce. In October 2000, the Company conducted its last on-line retail auction. As an e-commerce enabler the Company provides businesses with the use of its software and hardware technology over a specific term in addition to consulting, implementation, and training services. The Company is constituted under the laws of Ontario by Articles of Amalgamation dated January 9, 1997, which amalgamated Internet Liquidators Inc., and Internet Liquidators International Inc. Internet Liquidators Inc. was incorporated by Articles of Incorporation under the laws of Ontario on September 1, 1995. The business of the Company was developed and carried on by Internet Liquidators Inc. prior to the formation of Internet Liquidators International Inc. Internet Liquidators International Inc. changed its name to Bid.Com International Inc. pursuant to Articles of Amendment dated June 25, 1998. 2. CONTINUATION OF THE BUSINESS While the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations, certain adverse conditions and events cast substantial doubt upon the validity of this assumption. The Company has not yet realized profitable operations and has relied on non-operational sources of financing to fund operations. The Company's ability to continue as a going concern will be dependent on management's ability to successfully execute its business plan which includes a reduction of operating costs and increase in revenue. The Company may seek additional forms of debt or equity financing, but cannot provide assurance that it will be successful in doing so. These financial statements do not include adjustments or disclosures that may result from the Company's inability to continue as a going concern. If the going concern assumption is not appropriate for these financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, and the reported net losses and balance sheet classifications used. The Company's management has developed a business and financial plan to reduce operating costs, and refocus its efforts on more profitable elements of its business model. As a short term measure to improve operating performance, management has implemented a revised financial and business plan requiring internal restructuring and cost cutting measures. Management anticipates that as a result of these measures sufficient cash is on hand to fund operations into early 2002. Management believes that continued existence beyond this time period is dependent on its ability to increase revenue from existing products, and to expand the scope of its product offering which entails a combination of internally developed software, partnerships with third parties, and/or the acquisition of certain independent products or product components developed by third parties. Management also believes that additional equity or debt based financing may be required to continue its operations. F-7 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada, which are substantially the same as generally accepted accounting principles in the United States (United States GAAP) (see Note 18). The accompanying consolidated financial statements were prepared using accounting principles applicable to a going concern, which assumes that the Company will continue in operation for a reasonable period of time and will be able to realize its assets and discharge its liabilities in the normal course of operations (see Note 2). Principles of consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and its proportionate share of the assets, liabilities, revenue and expenses of a jointly controlled company. All material inter-company transactions have been eliminated. Marketable securities Marketable securities include unregistered equity instruments of publicly traded companies that are not freely trading until a future date. Unregistered equity instruments have been valued at freely trading market values less a discount factor (see Notes 13 and 17). Marketable securities also include interest bearing certificates carried at cost plus accrued interest which approximates market value. Inventory The Company's operating policy is to purchase products and arrange for shipment directly from suppliers to customers by third party freight carriers. Title to the inventory passes to the Company at the time that the goods are shipped to the customer. Inventory of sales returns are valued at the lower of cost and net realizable value and are held for resale or returned to suppliers for credit. Inventory purchased for resale is valued at the lower of cost determined on the first-in first-out basis and net realizable value. 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-8 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Capital assets and depreciation Capital assets are carried at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis in amounts sufficient to amortize the cost of capital assets over their estimated useful lives as follows: Computer hardware 30% per year Furniture and fixtures 20% per year Leasehold improvements life of the lease Strategic Investments Strategic investments are carried at the lower of cost and estimated net realizable value. Management has assessed the carrying value of the investments and recorded an impairment provision based on management's best estimate of net realizable value. Software development costs The cost of acquired software and internally developed software for use in on-line retail operations are expensed as incurred. The cost of core software internally developed for client applications through e-commerce enabling agreements and software licensing contracts has been capitalized and is being amortized over two years. The cost of non-core software internally developed for client applications through e-commerce enabling agreements and software licensing contracts has been expensed as incurred. Trademarks and intellectual property Trademarks and intellectual property are recorded at cost and amortized on a straight-line basis over two years. Goodwill The excess of the cost over the net assets arising on the acquisition of the jointly controlled company acquired in 1999 was being amortized over seven years. Management assessed the carrying value of the goodwill and recorded an impairment provision based on management's best estimate of future cashflow expectations. 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 revenue and expenses at the average monthly rate. Gains or losses from exchange translations are included in the statements of operations. F-9 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (continued) The Company accounts for foreign currency transactions in its subsidiaries on a temporal basis, based on management's determination that all operations of foreign subsidiaries are fully integrated. Loss per share The basic loss per share calculation is based on the weighted average number of shares outstanding during the year. No fully diluted calculation is included, as it would reduce the loss per share. Revenue Recognition a) Sale of products and related activities Revenue from product sales, commissions, shipping and handling are recognized when the goods are shipped to customers. b) License revenue License revenue consists primarily of revenue from software license agreements and is amortized over the term of the agreement or three years when a revenue sharing arrangement exists. Revenue from net revenue sharing arrangements is recorded as received. c) E-commerce enabling agreements The Company has entered into agreements where it has become an e-commerce enabler to various businesses. The Company adopted the provisions of Statement of Position 98-9, "Software Revenue Recognition" issued by the American Institute of Certified Public Accountants in its accounting for multiple element e-commerce enabling agreements. The Company's multiple element e-commerce enabling agreements are comprised of revenue for providing consulting, implementation, training, and hosting services. Revenue from individual elements of each contract are recognized when vendor specific objective evidence exists to determine the fair value of individual contract elements. When vendor specific objective evidence exists, consulting, implementation, and training elements are recognized on a percentage of completion basis and the hosting element is recognized ratably over the term of the contract. In the absence of vendor specific objective evidence, the Company defers and amortizes all revenue from individual contract elements ratably over the term of the contract. Deferred revenue Deferred revenue is comprised of payments received on goods which have not been shipped to customers, the unrecognized portion of license fees, and the unrecognized portion of consulting and implementation fees received but not earned in e-commerce enabling agreements F-10 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Customer acquisition costs Customer acquisition costs are comprised of the calculated value of common share purchase warrants issued to customers in return for certain business to business contracts. These amounts are deducted from gross revenue to the extent that revenue is earned, and are otherwise included in general and administrative expenses. 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 United States 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. Income taxes The Company accounts for income taxes in accordance with the liability method. The determination of future tax assets and liabilities is based on the differences between financial statement and income tax bases of assets and liabilities, using substantively enacted tax rates in effect for the period in which the differences are expected to reverse. Future tax assets are recorded to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. 4. INVENTORY - -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- (in thousands) Inventory purchased for resale $ - $ 14 Inventory held for resale or refund - 141 - -------------------------------------------------------------------------------- $ - $155 - -------------------------------------------------------------------------------- F-11 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 5. CAPITAL ASSETS
- ----------------------------------------------------------------------------------------------------------------------- 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- Cost Accumulated Net Book Cost Accumulated Net Book Amortization Value Amortization Value - ----------------------------------------------------------------------------------------------------------------------- (in thousands) - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Computer hardware $ 2,773 $ 1,217 $ 1,556 $ 1,373 $ 671 $ 702 Furniture and fixtures 284 120 164 267 67 200 Leasehold improvements 127 87 40 118 43 75 - ----------------------------------------------------------------------------------------------------------------------- $ 3,184 $ 1,424 $ 1,760 $ 1,758 $ 781 $ 977 - -----------------------------------------------------------------------------------------------------------------------
6. INCOME TAXES The Company has adopted accounting for income taxes under the liability method in accordance with Section 3465 of the Canadian Institute of Chartered Accountants' Handbook. This new accounting policy, which was adopted as of January 1, 2000, was applied retroactively without restatement of comparative figures, as the adoption of the liability method of tax allocation had no significant effect on opening deficit. Prior to January 1, 2000, the Company had not recorded any deferred tax asset with respect to the tax loss carried forward of approximately $47.5 million, and the undepreciated capital cost for tax purposes in excess of the capital assets and investments of approximately $53,000. Under the liability method, a future tax asset would be recorded as of January 1, 2000 only to the extent that, based on available evidence, it is more likely than not that a future tax asset would be realized. The tax asset is reduced by a valuation allowance to the extent that it is more likely than not that the asset would not be realized. The valuation allowance will be reviewed and adjusted, as appropriate for each reporting period. At January 1, 2000 and December 31, 2000, the Company established the valuation allowance at 100% of the future tax asset.
December 31, January 1, 2000 2000 ------------------------------------------ (in thousands) ------------------------------------------ Future tax asset Tax losses carried forward $ 19,483 $ 18,060 Difference in tax and accounting valuations for capital assets and investments 4,344 (20) - ----------------------------------------------------------------- ------------------ ---- ------------------ 23,827 18,040 Valuation allowance 23,827 18,040 - ----------------------------------------------------------------- ------------------ ---- ------------------ Future tax asset $ - $ - - ----------------------------------------------------------------- ------------------ ---- ------------------ Provision for income taxes Income taxes at statutory rate (5,787) Tax losses carried forward 1,423 Difference in tax and accounting valuations for capital assets and investments 4,364 - ----------------------------------------------------------------- ------------------ ---- ------------------ Provision for income taxes $ - - ----------------------------------------------------------------- ------------------ ---- ------------------
F-12 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 6. INCOME TAXES (continued) The Company's tax loss carryforwards at December 31, 2000 expire as follows: (in thousands) 2002 $ 113 2003 1,924 2004 6,401 2005 19,828 2006 19,262 2007 3,744 ----- $51,272 ------- 7. SHARE CAPITAL a) Authorized Unlimited number of common shares Unlimited number of preference shares - issuable in series b) Common shares
--------------------------------------------------------------------------------------------------------- 2000 1999 --------------------------------------------------------------------------------------------------------- Common Common Shares Amount Shares Amount --------------------------------------------------------------------------------------------------------- (in thousands of shares and dollars) Opening balance 52,647 $ 77,488 37,167 $37,217 Issued for Cash: Exercise of options (Notes 7(c)) 548 1,116 1,434 2,164 Issuance of shares (Note 7(d)) 901 3,120 - - Exercise of warrants (Note 7(e)) - - 6,262 10,521 Exercise of special warrants (Note 8) - - 7,570 25,086 Acquisition of Point 2 (Note 15(a)) - - 214 2,500 Exercise of Point2 warrants (Note 7 (f)) 543 2,000 - - --------------------------------------------------------------------------------------------------------- Closing balance 54,639 $83,724 52,647 $ 77,488 =========================================================================================================
F-13 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 7. SHARE CAPITAL (continued) c) Stock options (i) The Company has a stock option plan which provides for the issuance to employees of 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, 2000 was approximately $21.3 million. The Management Resources and Compensation Committee of the Board of Directors reserves the right to attach vesting periods to stock options granted. Certain of the stock options out-standing at the end of 2000 are exercisable immediately, while the remainder have vesting periods attached which range from six months to thirty-six months. The options expire between 2001 and 2004. A summary of changes in the stock option plan for the two years ended December 31, 2000 is as follows:
Number of Options Average Price ------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 ------------------------------------------------------------------------------------------------- (in thousands) Opening balance 2,719 1,441 $5.51 $1.55 Granted 2,081 2,290 5.10 5.91 Exercised (498) (1,004) 2.00 1.69 Cancelled (453) (8) 5.68 1.72 ------------------------------------------------------------------------------------------------- Closing balance 3,849 2,719 $ 5.54 $ 5.51 ------------------------------------------------------------------------------------------------- Exercisable, end of year 2,769 1,575 $ 5.61 $ 5.11 ------------------------------------------------------------------------------------------------- Options remaining for issuance 2,376 410 under stock option plan -------------------------------------------------------------------------------------------------
Number Outstanding Weighted Number Exercisable at Average Weighted at WeightedAverage Range of December 31, 2000 Remaining Average December 31, 2000 Exercise Exercise (in thousands) Contractual Exercise (in thousands) Price Prices Life Price - --------------------------------------------------------------------------------------------------------- $1-$3 974 2.8 years $2.78 541 $2.70 $3-$6 911 1.9 years $5.23 747 $5.40 $6-$10 1,696 2.1 years $6.53 1,345 $6.45 $10-$13 268 1.9 years $10.38 136 $10.12 - --------------------------------------------------------------------------------------------------------- 3,849 2,769 ==========================================================================================================
F-14 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 7. SHARE CAPITAL (continued) (ii) The Company also had stock options outstanding to third parties at December 31, 2000. The aggregate purchase price for third party stock options outstanding at December 31, 2000 was $1,096,000. These options expire in 2003. A summary of changes in the stock options to third parties for the two years ended December 31, 2000 is as follows:
Number of Options Average Price ------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- ------------------------------------------------------------------------------------------------- (in thousands) Opening balance 145 540 $ 7.33 $1.20 Granted 67 95 6.04 9.92 Exercised (50) (430) 2.42 1.10 Cancelled (20) (60) 12.45 1.00 ------------------------------------------------------------------------------------------------- Closing balance 142 145 $ 7.74 $ 7.33 ------------------------------------------------------------------------------------------------- Exercisable, end of year 108 145 $8.26 $ 7.33 =================================================================================================
d) Private common share placement On June 16, 2000, the Company issued 900,790 common shares at a price of $3.49 per share in a private placement. The Company received net proceeds of $3.12 million (after deducting costs of issue of approximately $21,000). Pursuant to the agreement to issue common shares, the Company issued 0.4 share purchase warrants for each common share, entitling the investee to 360,316 additional shares at a price of US$2.68 per share. These share purchase warrants were outstanding at December 31, 2000 and are exerciseable until June 16, 2002. e) Share purchase warrants under private placement equity issues A summary of changes in the warrants to investors for the two years ended December 31, 2000 is as follows:
2000 1999 ------------------------------------------------------------------------------------------------------ Warrants Amounts Warrants Amounts ------------------------------------------------------------------------------------------------------ (in thousands) Opening balance 1,855 $ 18,550 6,135 $10,305 Granted 1,385 9,524 1,855 18,550 Cancelled - - (69) (121) Exercised - - (6,066) (10,184) ------------------------------------------------------------------------------------------------------ Closing balance 3,240 $ 28,074 1,855 $ 18,550 ======================================================================================================
As at December 31, 1998 a further 43,000 share purchase warrants exercisable at $1.65, and 152,875 share purchase warrants exercisable at $1.75 were subject to issuance upon the exercise of outstanding compensation warrants and are not included in the above table. As of December 31, 1999 these share purchase warrants have been exercised. F-15 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 7. SHARE CAPITAL (continued) f) Point 2 Warrants During 2000, two share purchase warrants were exercised into 542,810 common shares having a value of $2 million for no additional consideration (see Note 15 (a)). g) Compensation Warrants under private placement equity issues As of December 31, 2000, there were 185,468 outstanding compensation warrants, which were issued to the underwriter for the September 30, 1999 private placement (see Note 8 (b)). These compensation options entitle the underwriter to acquire up to 185,468 units at a price of $9.25 per unit at any time until September 30, 2001. Each unit consists of one common share and one share purchase warrant. h) Strategic Marketing Agreement On March 28, 2000, pursuant to a strategic marketing agreement with one its key customers, the Company issued 1,025,000 common share purchase warrants at a price of $7.90 per warrant. Each common share purchase warrant entitles the holder to acquire one common share. These warrants expire March 27, 2003. 8. SPECIAL WARRANTS (a) On November 30, 1998 the Company closed a private placement of $10,001,000 in equity for net proceeds of $6,863,000 with the remaining $2,311,000 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 entitled the holder to purchase one common share at a price of $1.75 per common share 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. The Company also issued 611,498 compensation warrants. Each compensation warrant entitled 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. (b) On September 30, 1999, the Company issued 1,854,678 special warrants at a price of $9.25 per warrant for total net proceeds of $16,047,000 (after deducting the costs of issue estimated to be $251,000). Pursuant to the issuance of the special warrants, the Company agreed to pay the underwriter a fee of $858,000, being 5% of the issue price of the special warrants. Each special warrant entitled the holder to acquire one unit for no additional consideration. Each unit consisted of one common share and one share purchase warrant. Each whole share purchase warrant can be exercised to acquire one additional common share at an exercise price of $10.00 up until September 30, 2001. F-16 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 8. SPECIAL WARRANTS (continued) (b) On December 9, 1999, the final prospectus for this offering was filed resulting in the conversion of 1,854,678 special warrants into 1,854,678 common shares and the issue of 1,854,678 common share purchase warrants. On September 30, 1999, the Company also issued compensation warrants to the underwriter entitling the underwriter to receive compensation options. The compensation options entitled the underwriter to acquire up to 185,468 units at a price of $9.25 per unit at any time until September 30, 2001. Each unit consists of one common share and one share purchase warrant. 9. FINANCIAL INSTRUMENTS Foreign exchange risk The Company transacts the majority of its retail product sales and purchases in United States dollars and certain operating expenditures are in United States dollars. E-commerce enabling and licensing activities are transacted in United States dollars and other currencies. 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 retail product 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. Credit risk from receivables of e-commerce enabling activities arises from the potential that a customer will fail to meet their contractual obligations. 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. F-17 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 10. COMMITMENTS AND CONTINGENCIES (a) As a condition of the agreement with a financial institution to settle sales transactions through pre-authorized credit card payments, the Company must maintain a cash reserve account based on a percentage of sales for the preceding six months. At December 31, 2000, the Company was required to maintain $143,000 in this reserve account (December 31, 1999- $1,520,000). (b) Minimum payments under operating leases during the next three years are as follows: 2001 $ 548,000 2002 261,000 2003 32,000 (c) As a result of a review of statutory reporting obligations regarding employee benefits, the Company has identified a potential non compliance. The employees and regulators concerned have been notified. The probability and amount of any potential liability relating to this situation is presently not determinable. (d) The Company has entered into compensation arrangements with certain of its employees. In the event of involuntary termination, the Company may be liable for potential payment of $562,000 to these employees. 11. CHANGE IN NON-CASH OPERATING WORKING CAPITAL - --------------------------------------------------- ------------ ------------ 2000 1999 1998 ---- ---- ---- - ----------------------------------------------------------------------------- (in thousands) Accounts receivable $ 210 $ (543) $ (936) Inventory 155 14 32 Deposits and prepaid expenses 3,399 (4,289) 1,504 Accounts payable (2,391) 1,913 939 Accrued liabilities (1,093) 1,525 26 Deferred revenue 542 2,118 137 - ----------------------------------------------------------------------------- $ 822 $ 738 $ 1,702 - ----------------------------------------------------------------------------- 12. OPERATIONS In June 1997, the Company introduced special promotional pricing in order to stimulate new bidder registrations and first time sales. This special promotional pricing cost the Company approximately $558,000 in 2000, $4,044,000 in 1999, and $3,520,000 in 1998 and has been included in advertising and promotion. F-18 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 13. REALIZED GAINS ON DISPOSAL OF STRATEGIC INVESTMENTS AND MARKETABLE SECURITIES 2000 1999 1998 - -------------------------------------------------------------------------------- (in thousands) - -------------------------------------------------------------------------------- Gain on disposal of strategic investment $ 20,697 $ - $ - in Quack.com Inc Gain on disposal of marketable securities 249 - - - -------------------------------------------------------------------------------- $ 20,946 $ - $ - - -------------------------------------------------------------------------------- On August 31, 2000 the Company's investment in Quack.com Inc. was acquired in whole by America Online Inc. In exchange for its shares in Quack.com Inc., the Company received 278,027 unregistered shares of America Online Inc. valued at $21.9 million. The Company disposed of a portion of its unregistered shares in November 2000, and recognized a gain of $249,000. At December 31, 2000, 158,027 shares were held as part of marketable securities of which 35,226 shares must remain in escrow until August 31, 2001 to satisfy any indemnification claims arising from the transaction. To date, there have been no significant claims made under the indemnification provisions of the original agreement. 14. UNREALIZED LOSSES ON REVALUATION OF MARKETABLE SECURITIES AND PROVISON FOR IMPAIRMENT OF LONG TERM ASSETS
2000 1999 1998 - -------------------------------------------------------------------------------------------------------------- (in thousands) - -------------------------------------------------------------------------------------------------------------- Revaluation of impaired $ (5,600) $ - $ - strategic investments (Note 14(a)) Revaluation of marketable securities (Note 14(b)) (4,846) - - Provision for impaired goodwill (Note 14(c)) (3,593) - - Provision for receivable from joint venture (Note 14(d)) (802) - - Provision for impaired intangible asset (Note 14(e)) (401) - - Provision for non trade receivable (48) - - - -------------------------------------------------------------------------------------------------------------- $ (15,290) $ - $ - - --------------------------------------------------------------------------------------------------------------
(a) The Company reviewed the carrying value of each of its strategic investments and determined that in light of the recent financial performance of each investment and market conditions, the decline in value of these investments was other than temporary, and a revaluation was required. 14. UNREALIZED LOSSES ON REVALUATION OF MARKETABLE SECURITIES AND PROVISON FOR IMPAIRMENT OF LONG TERM ASSETS (continued) (b) The Company reviewed the market value of its unregistered shares in America Online Inc, at December 31, 2001, and determined that a mark to market adjustment was required. F-19 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ (c) The Company determined that the carrying value of goodwill acquired in connection with the acquisition of a jointly controlled company in 1999 had become permanently impaired as at December 31, 2000 (Note 15 (a)). (d) As a result of reviewing the carrying value of its investment in a jointly controlled company, the Company determined that a portion of the receivable from that investee may not be recoverable. (e) The Company determined that intangible assets of a proportionately consolidated jointly controlled company had become permanently impaired as at December 31, 2000. 15. ACQUISITION, LICENSING AND SERVICE AGREEMENTS (a) In June, 1999 and August, 1999 the Company issued $2,500,000 of common shares and exercised an option to acquire a 51% interest in Point2 Internet Systems Inc. ("Point2"). Under the agreement, two warrants for shares in the Company were issued each of which is exercisable into $1,000,000 of common shares of Bid.Com for no additional consideration and are exercisable by the shareholders of Point2, These two warrants were exercised during 2000 in exchange for 542,810 Common Shares of the Company with a value of $2 million. Pursuant to the shareholders agreement among the Company and the shareholders of Point2, the Company acquired 51% of the shares but can only elect 50% of the board of directors. The investment in the jointly controlled company is accounted for on a proportionate consolidation basis and the Company has recorded its proportionate share of revenue and expenses since the date of acquisition. Of the total purchase price, $134,000 was allocated to current assets, $521,000 to non-current assets and $28,000 to current liabilities resulting in goodwill of $2,044,000. An additional $2 million of goodwill arose on the exercise of two warrants during 2000. At December 31, 2000, the Company provided $3,593,000 for the unamortized portion of goodwill (Note 14(c)). Condensed balance sheet information for Point2 as at December 31, 2000 and December 31, 1999 is as follows: ---------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------- (in thousands) Current assets $ 117 $ 131 Capital assets 205 102 Intellectual property - 905 Current liabilities 775 141 Shareholder advances 1,633 80 Shareholder equity (2,086) 917 Condensed income statement and cash flow information for Point2 for the twelve month period ended December 31, 2000, and the four month period ended December 31, 1999 is as follows: F-20 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 15. ACQUISITION, LICENSING AND SERVICE AGREEMENTS (continued) ---------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------- (in thousands) Revenue $ 348 $ 221 Net loss 3,003 222 Change in cash resources (14) (185) (b) In September, 1999 the Company invested $735,400 (US $500,000) to acquire 490,909 common shares of Quack.com Inc., a California based company. Quack.com is focused on leading edge applications of voice recognition technology and advanced Internet spidering technology to make the information of the Internet accessible via the telephone. On January 18, 2000 the Company entered into an agreement to purchase a convertible subordinated debenture due January 18, 2001 for U.S. $182,000. Under the terms of the debenture the outstanding principal and all accrued and unpaid interest could be converted into shares of Class A or Class B common stock at $0.01 par value per share. The Company converted this debenture into common shares in August 2000. On August 31, 2000, the Company disposed of its investment in Quack.com Inc. and realized a gain of $20.697 million (See Note 13). 16. RELATED PARTY In February 2000, the Company entered into an agreement, valued at $1.5 million in shares in Art Vault Limited, plus a hosting fee and a share of net on-line auction revenues, under which it will provide its on-line auction technology and related services to Art Vault in which certain Directors of Bid.Com, in aggregate, have a controlling interest. During the year the Company recorded $500,000 in revenue relating to this agreement. As a result of a revaluation of its strategic investments (Note 14), the carrying value of the Company's investment in Art Vault was $281,000. 17. SUBSEQUENT EVENT On January 11, 2001, the Company's unregistered shares in America Online Inc. became registered and freely trading. Between January 19, 2001 and January 26, 2001, the Company sold 122,801 freely trading shares in America Online Inc. for gross proceeds of $10.0 million and a realized gain of $3.7 million. The remaining 35,226 shares of America Online must remain in escrow until August 31, 2001. 18. RECONCILIATION OF UNITED STATES GAAP 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 United States GAAP no accounting recognition is given to stock options granted at fair market value until they are exercised. F-21 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 18. RECONCILIATION OF UNITED STATES GAAP (continued) SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income (loss) and earnings (loss) per share had the Company adopted the fair value method since the Company's inception. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. The Company's calculations for employee grants were made using the Cox Rubinstein Binomial Model with the following weighted average assumptions: 2000 1999 1998 ---------------------------------------------------------------------- Dividend yield - - - Risk free interest rate 6.20% 5.50% 4.80% Expected term, in years 3.11 2.51 1.18 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:
2000 1999 1998 ------------------------------------------------------------------------------------------------------ (in thousands) ------------------------------------------------------------------------------------------------------ Loss attributable to common shareholders As reported $ (20,366) $ (20,825) $ (18,707) Pro forma $ (26,865) $ (34,191) $ (19,941) Basic and diluted net loss per share: As reported $ (0.38) $ (0.42) $ (0.79) Pro forma $ (0.50) $ (0.69) $ (0.84)
Impact of new accounting pronouncements Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"): The Financial Accounting Standards Board ("FASB") has issued FAS 133 to be effective for all fiscal years beginning after June 15, 2000. FAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative will depend on the intended use of the derivative and the resulting designation. Management has determined that the adoption of the pronouncement will not have any significant effect upon the Company's financial statements. F-22 BID.COM INTERNATIONAL INC. Notes to the Consolidated Financial Statements ================================================================================ 19. REVENUE FORM EXTERNAL CUSTOMERS Revenue is comprised of business to business e-commerce enabling activities including consulting, implementation, training and hosting fees combined with on-line retail sales of merchandise and associated shipping revenue. Retail operations generated $10.095 million of total revenue for the year ended December 31, 2000, $26.590 million for the year ended December 31, 1999 and $20.001 million for the year ended December 31,1998. Business to business e-commerce enabling activities generated $2.402 million of total revenue for the year ended December 31, 2000 and $4.411 million for the year ended December 31, 1999. 20. RECLASSIFICATION OF PRIOR YEARS Certain prior years amounts have been reclassified to conform to the current year basis of presentation. 21. CONVENIENCE TRANSLATION The financial statements as at December 31, 2000 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, 2000 as published by the Federal Reserve Bank of New York (U.S. $1.000 = Cdn. $1.4995). 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-23 EX-3.4 2 dex34.txt THE PURCHASE AGREEMENT Exhibit 3.4 PURCHASE AGREEMENT This PURCHASE AGREEMENT (this "Agreement"), dated as of June 16, 2000, --------- is entered into by and between Bid.com International Inc., a corporation organized under the laws of Ontario, Canada (the "Company"), with offices at ------- 6725 Airport Road, Suite 301, Mississauga, Ontario, Canada, L4V1V2 and Acqua Wellington Value Fund Ltd., a limited liability company organized under the laws of the Commonwealth of the Bahamas, with offices c/o Mees Pierson Fund Services (Bahamas) Ltd., Montague Sterling Centre, East Bay Street, P. O. Box SS-6238, Nassau, Bahamas (the "Buyer"), for the purchase and sale of shares of the common shares, no par value per share (the "Common Stock"), of the Company by the ------------ Buyer, in the manner, and upon the terms, provisions and conditions set forth in this Agreement. WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Buyer and Buyer shall purchase shares of Common Stock and warrants to purchase additional shares of Common Stock (the "Warrants"); and -------- WHEREAS, such purchase and sale will be made in reliance upon the provisions of Section 4(2) and Rule 506 of Regulation D ("Regulation D") of the ------------ United States Securities Act of 1933, as amended and regulations promulgated thereunder (the "Securities Act"), or upon such other exemption from the -------------- registration requirements of the Securities Act as may be available with respect to any or all of the purchases of Common Stock to be made hereunder. NOW, THEREFORE, in consideration of the representations, warranties and agreements contained herein and other good and valuable consideration, the receipt and legal adequacy of which is hereby acknowledged by the parties, the Company and the Buyer hereby agree as follows: 1. Purchase Price. -------------- (a) Upon the following terms and subject to the conditions contained herein, the Buyer hereby purchases 900,790 shares of the Company's Common Stock (the "Shares") and Warrants to purchase 360,316 shares of Common ------ Stock (the "Warrants"; together with the shares "Units") at a per Unit price of -------- ----- $2.3313 and for an aggregate purchase price for all Units of $2,100,000 (the "Purchase Price"). -------------- (b) The Company has authorized and has reserved and covenants to continue to reserve, free of preemptive rights and other similar contractual rights of stockholders, a sufficient number of its authorized but unissued shares of its Common Stock, to effect the issuance of the Shares and exercise of the Warrants. Any shares of Common Stock issuable upon exercise of the Warrants (and such shares when issued) are herein referred to as the "Warrant Shares". The Shares, the Warrants and the Warrant Shares are sometimes collectively referred to as the "Securities". -1- (c) The closing under this Agreement shall take place at the offices of the Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New York, New York 10174 at 1:00 p.m. (eastern time) upon the satisfaction of each of the conditions set forth in Section 5 hereof (the "Closing Date"). ------------ 2. Representations, Warranties and Covenants of the Buyer. The Buyer ------------------------------------------------------ represents and warrants to the Company, and covenants for the benefit of the Company, as follows: (a) This Agreement has been duly authorized, validly executed and delivered by the Buyer and is a valid and binding agreement and obligation of the Buyer enforceable against the Buyer in accordance with its terms, subject to limitations on enforcement by general principles of equity and by bankruptcy or other laws affecting the enforcement of creditors' rights generally, and the Buyer has full power and authority to execute and deliver this Agreement and the other agreements and documents contemplated hereby and to perform its obligations hereunder and thereunder; (b) The Buyer has received and carefully reviewed copies of the Public Documents (as hereinafter defined). The Buyer understands that no Federal, state, local or foreign governmental body or regulatory authority has made any finding or determination relating to the fairness of an investment in any of the Securities and that no Federal, state, local or foreign governmental body or regulatory authority has recommended or endorsed, or will recommend or endorse, any investment in any of the Securities. The Buyer, in making the decision to purchase the Shares and the Warrants, has relied upon independent investigation made by it and has not relied on any information or representations made by third parties; (c) The Buyer understands that the Shares and the Warrants are being offered and sold to it in reliance on specific provisions of Federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein for purposes of qualifying for exemptions from registration under the Securities Act, and applicable state securities laws; (d) The Buyer is an "accredited investor" as defined under Rule 501 of Regulation D promulgated under the Securities Act; (e) The Buyer (i) is and will be acquiring the Shares and the Warrants for such Buyer's own account, and not with a view to any resale or distribution of the Shares or the Warrants in whole or in part, in violation of the Securities Act or any applicable securities laws and (ii) has not offered or sold any of the Securities and has no present intention or agreement to divide any of the Securities with others for purposes of selling, offering, distributing or otherwise disposing of any of the Securities; (f) The offer and sale of the Securities is intended to be exempt from registration under the Securities Act, by virtue of Section 4(2) and Regulation D promulgated under the Securities Act. The Buyer understands that the Shares and the Warrants purchased -2- hereunder have not been, and may never be, registered under the Securities Act; that none of the Securities can be sold, transferred, assigned, pledged or subjected to any lien or security interest unless they are first registered under the Securities Act and such state and other securities laws as may be applicable or in the opinion of counsel for the Company an exemption from registration under the Securities Act is available (and then the Securities may be sold, transferred, assigned, pledged or subjected to a lien or security interest only in compliance with such exemption and all applicable state and other securities laws); and that the following legends will be placed upon the certificate for the Securities: " THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON, OR SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR BID.COM INTERNATIONAL INC. (THE "COMPANY") SHALL HAVE RECEIVED AN OPINION, IN FORM, SCOPE AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, OF COUNSEL WHO IS REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN QUALIFIED FOR DISTRIBUTION AND SALE WITHIN THE PROVINCE OF ONTARIO, CANADA AND MAY NOT BE DISTRIBUTED OR SOLD IN SUCH PROVINCE OR TO A RESIDENT THEREOF FOR A PERIOD OF NINETY (90) DAYS FOLLOWING THE DATE OF ISSUANCE OF THIS CERTIFICATE EXCEPT (A) PURSUANT TO A PROSPECTUS FOR WHICH A RECEIPT HAS BEEN ISSUED BY THE ONTARIO SECURITIES COMMISSION OR (B) PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH PROSPECTUS REQUIREMENT." (g) The Buyer (i) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Company; and (ii) recognizes that such Buyer's investment in the Company involves a high degree of risk; -3- (h) The Buyer is capable of evaluating the risks and merits of an investment in the Securities by virtue of its experience as an investor and its knowledge, experience, and sophistication in financial and business matters and such Buyer is capable of bearing the entire loss of its investment in the Securities; and (i) The Buyer is neither a registered broker-dealer nor an affiliate of a registered broker-dealer. 3. Representations, Warranties and Covenants of the Company. The Company -------------------------------------------------------- represents and warrants to the Buyer, and covenants for the benefit of the Buyer, as follows: (a) The Company has been duly incorporated and is validly existing and in good standing under the laws of the province of Ontario, Canada, with full corporate power and authority to own, lease and operate its properties and to conduct its business as currently conducted, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure to register or qualify is not reasonably anticipated to have a Material Adverse Effect. For purposes of this agreement, "Material Adverse Effect" shall mean any effect on the business, results of operations, prospects, assets or financial condition of the Company that is material and adverse to the Company and its subsidiaries, taken as a whole and/or any condition, circumstance, or situation that would prohibit the Company from entering into and performing any of its obligations under this Agreement in any material respect; (b) The Company has furnished the Buyer with copies of the Company's most recent Annual Report on Form 20-F (the "Form 20-F") filed with the --------- Commission, its Form 6-K for the quarterly period ended March 30, 2000 (the "Form 6-K"; collectively with the Form 20-F, the "Public Documents"). The -------- ---------------- Public Documents at the time of their filing did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading provided, however, that the Form 6-K -------- ------- does not contain, and is not required to contain, a "Management's Discussion and Analysis of Financial Condition and Results of Operations" section; (c) The Shares have been duly authorized by all necessary corporate action and, when paid for by the Buyer and issued in accordance with the terms hereof, the Shares shall be validly issued, will be fully paid and non- assessable. The Warrant and the Warrant Shares have been duly authorized by all necessary corporate action and, when the Warrant Shares are issued in accordance with the terms of the Warrant, such Warrant Shares shall be validly issued, fully paid and non-assessable, and the Buyer shall be entitled to all rights accorded to a holder of Common Stock; (d) This Agreement has been duly authorized, validly executed and delivered on behalf of the Company and is a valid and binding agreement and obligation of the Company enforceable against the Company in accordance with its terms, subject to limitations on -4- enforcement by general principles of equity and by bankruptcy or other laws affecting the enforcement of creditors' rights generally, and the Company has full power and authority to execute and deliver this Agreement and the other agreements and documents contemplated hereby and to perform its obligations hereunder and thereunder; (e) The execution and delivery of this Agreement and the Registration Rights Agreement, the issuance of any of the Securities and the consummation of the transactions contemplated by this Agreement and the Registration Rights Agreement by the Company, will not (i) conflict with or result in a breach of or a default under any of the terms or provisions of, (A) the Company's certificate of incorporation or by-laws, or (B) of any material provision of any indenture, mortgage, deed of trust or other material agreement or instrument to which the Company is a party or by which it or any of its material properties or assets is bound, any material provision of any law, statute, rule, regulation, or any existing applicable decree, judgment or order by any court, Federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company, or any of its material properties or assets or (ii) result in the creation or imposition of any material lien, charge or encumbrance upon any material property or assets of the Company or any of its subsidiaries pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of their property or any of them is subject except in the case of clauses (i)(B) or (ii) for any conflict, breach, or default or any lien, charge, or encumbrance which is reasonably likely to have a Material Adverse Effect; (f) The sale and issuance of the Shares in accordance with the terms and on the basis of the representations and warranties set forth in this Agreement will be exempt from the registration requirements of the Securities Act. (g) Except as disclosed on Schedule 4(g) hereto, and based upon the ------------- representations and warranties of the Buyer set forth herein, no authorization, approval, filing with or consent of any governmental body is required for the issuance and sale of the Securities to the Buyer pursuant to this Agreement; (h) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending against or affecting the Company, or any of its properties, which would reasonably be anticipated to result in a Material Adverse Effect; (i) Subsequent to the dates as of which information is given in the Public Documents, except as contemplated herein, the Company has not incurred any material liabilities or material obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business; (j) The Company has sufficient title and ownership of all trademarks, service marks, trade names, copyrights, patents, trade secrets and other proprietary rights ("Intellectual Property") necessary for its business as now --------------------- conducted and as proposed to be conducted as described in the Public Documents except for any of the foregoing, the absence of which would -5- not reasonably be likely to result in a Material Adverse Effect and, to its knowledge without any conflict with or infringement of the rights of others. Except as set forth in the Public Documents, there are no material outstanding options, licenses or agreements of any kind relating to the Intellectual Property, nor is the Company bound by or party to any material options, licenses or agreements of any kind with respect to the Intellectual Property of any other person or entity; (k) The Company has complied and will comply with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Shares and the Warrants hereunder. Neither the Company nor anyone acting on its behalf, directly or indirectly, has or will sell, offer to sell or solicit offers to buy any of the Securities, or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any person, or has taken or will take any action so as to bring the issuance and sale of any of the Securities under the registration provisions of the Securities Act and any other applicable federal and state securities laws. Neither the Company nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with any of the Securities; (l) Neither this Agreement or the Schedules hereto nor the Registration Rights Agreement or Warrant contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein or therein, in the light of the circumstances under which they were made herein or therein, not misleading. (m) The authorized capital stock of the Company and the shares thereof issued and outstanding as of May 31, 2000 are set forth on Schedule 3(m) ------------- attached hereto. All of the outstanding shares of the Company's Common Stock have been duly and validly authorized, and are fully paid and non-assessable. Except as set forth in this Agreement, the Public Documents or on Schedule 3(m) ------------- attached hereto, as of May 31, 2000, no shares of Common Stock are entitled to preemptive rights or registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to, call or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set forth in this Agreement, in the Public Documents or on Schedule 3(m) as of the date hereof, ------------- there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company. Except for customary transfer restrictions contained in agreements entered into by the Company in order to sell restricted securities, as of the date hereof, the Company is not a party to any agreement granting registration rights to any person with respect to any of its equity or debt securities. The Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company. The offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Closing complied with all applicable federal and state securities laws, and no stockholder has a right of rescission or damages with respect thereto which is reasonably likely to have a Material Adverse Effect. The Company has furnished or made available to the Buyer true and correct copies of the -6- Company's Certificate of Incorporation as in effect on the date hereof (the "Certificate"), and the Company's Bylaws as in effect on the date hereof (the "Bylaws"). 4. Conditions Precedent: The obligations hereunder of both the Company -------------------- and the Buyer to enter into this Agreement is subject to their satisfaction or waiver, at or before the Closing, of each of the conditions set forth below. These conditions are for the Company's and the Buyer's sole benefit respectively, and they may waive their own rights at any time in their sole discretion. (a) The parties shall have executed and delivered this Agreement and the Registration Rights Agreement. (b) The Company shall have delivered certificates evidencing the Shares and the Warrants to the Buyer. (c) The Buyer shall have delivered to the Company immediately available funds as payment in full of the Purchase Price for the Shares and the Warrants. (d) The Buyer shall have received a legal opinion in substantially the form annexed hereto as Exhibit A. 5. Indemnification. --------------- (a) The Company hereby agrees to indemnify and hold harmless the Buyer and its officers, directors, shareholders, employees, agents and attorneys against any and all losses, claims, damages, liabilities and reasonable expenses incurred by each such person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to such person, to which any such indemnified party may become subject, insofar as such losses, claims, demands, liabilities and expenses arise out of or are based upon any breach of any representation or warranty made by the Company in this Agreement. (b) The Buyer hereby agrees to indemnify and hold harmless the Company and its officers, directors, shareholders, employees, agents and attorneys against any and all losses, claims, damages, liabilities and expenses incurred by each such person in connection with defending or investigating any such claims or liabilities, whether or not resulting in any liability to such person, to which any such indemnified party may become subject under the Securities Act, or under any other statute, at common law or otherwise, insofar as such losses, claims, demands, liabilities and expenses arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact made by the Buyer, (ii) any omission or alleged omission of a material fact with respect to the Buyer or (iii) any breach of any representation, warranty or agreement made by the Buyer in this Agreement. 6. Governing Law; Consent to Jurisdiction. This Agreement shall be -------------------------------------- governed by and interpreted in accordance with the laws of the State of New York without giving effect to the rules governing the conflicts of laws. Each of the parties consents to the exclusive jurisdiction of -7- the Federal courts whose districts encompass any part of the County of New York located in the City of New York in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. Each party waives its right to a trial by jury. Each party to this Agreement irrevocably consents to the service of process in any such proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party at its address set forth herein or its agent. Nothing herein shall affect the right of any party to serve process in any other manner permitted by law. 7. Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand delivery, express overnight courier, registered first class mail, or telecopier, initially to the address set forth below, and thereafter at such other address, notice of which is given in accordance with the provisions of this Section. (a) if to the Company: Bid.com International Inc. 6725 Airport Road, Suite 301 Mississauga, Ontario L4V1V2 Tel. No.: (905) 672-7467 Fax No.: (905) 672-7514 Attn: Jeff Lymburner with a copy to: Gowlings Commerce Court West, Suite 4900 Toronto, Canada M5L 1J3 Attn: Neil J.F. Steenberg, Esq. Fax No.: (416) 862-7661 Baer Marks & Upham LLP 805 Third Avenue New York, New York 10022 Attn: Steven S. Pretsfelder, Esq. Fax No.: (212) 702-5941 (b) if to the Buyer: Acqua Wellington Value Fund Ltd. c/o Mees Pierson Fund Services (Bahamas) Ltd. Montague Sterling Centre -8- East Bay Street, P. O. Box SS-6238 Nassau, Bahamas Attention: Anthony L.M. Inder Rieden Tel. No.: (242) 394-2700 Fax No.: (242) 394-9667 with a copy to: Parker Chapin LLP The Chrysler Building 405 Lexington Avenue New York, New York 10174 Attention: Christopher S. Auguste Tel. No.: (212) 704-6000 Fax No.: (212) 704-6288 All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; when receipt is acknowledged, if telecopied; or when actually received or refused if sent by other means. 8. Entire Agreement. This Agreement, the Registration Rights Agreement ---------------- and the Warrants, when issued, constitutes the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior and/or contemporaneous oral or written proposals or agreements relating thereto all of which are merged herein. This Agreement may not be amended or any provision hereof waived in whole or in part, except by a written amendment signed by both of the parties. 9. Counterparts. This Agreement may be executed by facsimile signature ------------ and in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [end of page] -9- IN WITNESS WHEREOF, this Agreement was duly executed on the date first written above. BID.COM INTERNATIONAL INC. By:_______________________________________ Name: Jeff Lymburner Title: Director, CEO and President ACQUA WELLINGTON VALUE FUND LTD. By:_______________________________________ Name: Title: -10- SCHEDULE 3(m) ------------- Authorized Capital Stock - An unlimited number of common shares, no par value per share Issued and Outstanding Capital Stock - 53,078,854 common shares Total Options and Warrants Outstanding - 6,700,986/1/ The Company has issued certain warrants that contain anti-dilution provisions, and as a result of these anti-dilution provisions, the Company may become bound to issue additional shares of capital stock. ______________________ /1/ In addition, there is a warrant outstanding exercisable into an aggregate of $1,000,000 of the Company's common shares, based on the market price of the shares upon exercise of the warrant. -11- EX-3.5 3 dex35.txt REGISTRATION RIGHTS AGREEMENT Exhibit 3.5 REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement is made and entered into as of June 16, 2000 (this "Agreement"), by and between Bid.com International Inc., a corporation organized under the laws of Ontario, Canada (the "Company"), and Acqua Wellington Value Fund Ltd., a limited liability company organized under the laws of the Commonwealth of the Bahamas (the "Purchaser") This Agreement is being entered into pursuant to the Purchase Agreement, dated as of the date hereof, by and between the Company and the Purchaser (the "Purchase Agreement"). ------------------ The Company and the Purchaser hereby agree as follows: 1. Definitions. ----------- Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "Advice" shall have the meaning set forth in Section 3(m). ------ "Affiliate" means, with respect to any Person, any other Person that --------- directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with ------- respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated," "controlling" and "controlled" have meanings ---------- ----------- ---------- correlative to the foregoing. "Blackout Period" shall have the meaning set forth in Section 3(n). --------------- "Board" shall have the meaning set forth in Section 3(n). ----- "Business Day" means any day except Saturday, Sunday and any day which ------------ shall be a legal holiday or a day on which banking institutions in the state of New York generally are authorized or required by law or other government actions to close. "Commission" means the Securities and Exchange Commission. ---------- "Common Stock" means the Company's Common Stock, no par value. ------------ "Effectiveness Date" means with respect to the Registration Statement ------------------ the earlier of the 90/th/ day following the Closing Date, before which the Company will use its best efforts to cause the registration statement to become effective, and the date which is within five (5) days of the date on which the Commission informs the Company that the Commission (i) will not review the Registration Statement or (ii) that the Company may request the acceleration of the effectiveness of the Registration Statement. "Effectiveness Period" shall have the meaning set forth in Section 2. -------------------- "Event" shall have the meaning set forth in Section 7(e). ----- "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Filing Date" means the date the Registration Statement is filed or ----------- confidentially submitted which date shall be no later than the 5/th/ business day following the Closing Date. "Holder" or "Holders" means the holder or holders, as the case may be, ------ ------- from time to time of Registrable Securities including, including without limitation, the Purchaser and its assignees. "Indemnified Party" shall have the meaning set forth in Section 5(c). ----------------- "Indemnifying Party" shall have the meaning set forth in Section 5(c). ------------------ "Liquidated Damages" shall have the meaning set forth in Section 7(e). ------------------ "Losses" shall have the meaning set forth in Section 5(a). ------ "Nasdaq" shall mean the Nasdaq National Market. ------ "Person" means an individual or a corporation, partnership, trust, ------ incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "Proceeding" means an action, claim, suit, investigation or proceeding ---------- (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "Prospectus" means the prospectus included in the Registration ---------- Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus. -2- "Registrable Securities" means (i) the shares of Common Stock (A) ---------------------- issued pursuant to the Purchase Agreement (the "Common Shares") and (B) issuable upon exercise of the Warrants (the "Warrant Shares") and upon any stock split, stock dividend, recapitalization or similar event with respect to such Common Shares or Warrant Shares, and (ii) any other dividend or other distribution with respect to, conversion or exchange of, or in replacement of, Registrable Securities. "Registration Statement" means the registration statement and any ---------------------- additional registration statements contemplated by Section 2, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement. "Rule 144" means Rule 144 promulgated by the Commission pursuant to -------- the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Rule 158" means Rule 158 promulgated by the Commission pursuant to -------- the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Rule 415" means Rule 415 promulgated by the Commission pursuant to -------- the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "Securities Act" means the Securities Act of 1933, as amended. -------------- "Special Counsel" means any special counsel to the Holders, for which --------------- the Holders will be reimbursed by the Company pursuant to Section 4. "Warrants" means the warrants to purchase shares of Common Stock -------- issued in connection with the Purchase Agreement, and any other warrants of like tenor issued in substitution or exchange thereof. 2. Registration. On or prior to the Filing Date the Company shall ------------ prepare and file with the Commission a "shelf" Registration Statement covering all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form F-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form F-3, in which case such registration shall be on another appropriate form in accordance herewith). The Company shall (i) not permit any securities other than the Registrable Securities to be included in the Registration Statement, (ii) use its best efforts to cause the Registration Statement to be declared effective under the Securities Act (including filing with the Commission a request for acceleration of effectiveness in accordance with Rule 12dl-2 promulgated under the Exchange Act within five (5) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not be subject to further review) as soon as possible after the filing thereof, but in any event prior to the Effectiveness Date, and to keep such -3- Registration Statement continuously effective under the Securities Act until such date as is the earlier of (x) the date when all Registrable Securities covered by such Registration Statement have been sold or (y) the date on which the Registrable Securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect (the "Effectiveness Period"). -------------------- 3. Registration Procedures. In connection with the Company's registration obligations hereunder, the Company shall: (a) Prepare and file with the Commission on or prior to the Filing Date, a Registration Statement on Form F-3 (or if the Company is not then eligible to register for resale the Registrable Securities on Form F-3 such registration shall be on another appropriate form in accordance herewith) in accordance with the method or methods of distribution thereof as specified by the Holders (except if otherwise directed by the Holders), and use its best efforts to cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than three (3) -------- ------- Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated therein by reference), the Company shall (i) furnish to the Holders and any Special Counsel, copies of all such documents proposed to be filed, which documents (other than those incorporated by reference) will be subject to the review of such Holders and such Special Counsel, and (ii) at the request of any Holder cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of counsel to such Holders, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto containing information about the Holders or the distribution of securities owned by the Holders ("Holder Information") if the Holders of a majority of the Registrable Securities or any Special Counsel shall reasonably object in writing within three (3) Business Days of their receipt thereof to any of the Holder Information unless the Company has received an opinion of counsel to the effect that such disclosure is required by applicable law, rules or regulations (including Nasdaq regulations). (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as practicable to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as practicable provide the Holders true and complete copies of all correspondence from and to the Commission relating to -4- the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. (c) Notify the Holders of Registrable Securities to be sold and any Special Counsel as promptly as practicable (and, in the case of (i)(A) below, not less than three (3) Business Days prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Business Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information with respect to the Registration Statement or the Prospectus; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company shall promptly furnish to Special Counsel, without charge, (i) any correspondence from the Commission or the Commission's staff to the Company or its representatives relating to any Registration Statement and (ii) promptly after the same is prepared and filed with the Commission, a copy of any written response to the correspondence received from the Commission. (d) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of, (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment. (e) If requested by the Holders of a majority in interest of the Registrable Securities, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post- -5- effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment. (f) Furnish to each Holder and any Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) as soon as practicable after the filing of such documents with the Commission. (g) Promptly deliver to each Holder and any Special Counsel, without charge, as many copies of the Registration Statement, Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders and any Special Counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by a Registration Statement; provided, however, that the Company shall not be required to qualify generally - -------- ------- to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or subject the Company to any tax in any such jurisdiction where it is not then so subject. (i) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates shall be free of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any Holder may request at least two (2) Business Days prior to any sale of Registrable Securities. (j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as promptly as practicable, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain 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, in the light of the circumstances under which they were made, not misleading. -6- (k) Use its best efforts to cause all Registrable Securities relating to such Registration Statement to be listed on Nasdaq and any other securities exchange, quotation system, market or over-the-counter bulletin board, if any, on which the same securities issued by the Company are then listed as and when required pursuant to the Purchase Agreement, and will comply in all respect with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers, Inc. and the Nasdaq system or any other applicable market or system. (l) Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than forty-five (45) days after the end of any twelve (12)-month period (or ninety (90) days after the end of any twelve (12)-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158. The Purchaser and each selling Holder whose shares are covered by a Registration Statement shall furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law to be disclosed in the Registration Statement, and the Company may exclude from such registration the Registrable Securities of any such Holder who fails to furnish such information within a reasonable time prior to the filing of each Registration Statement, supplemented Prospectus and/or amended Registration Statement. If any Registration Statement or Prospectus refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall promptly notify the company of any fact of which the Holder becomes aware and the happening of any event which relates to the Holder or distribution of such securities owned by such Holder which results in the Registration Statement or the Prospectus included in such Registration Statement containing an untrue statement of material fact or omitting to state a material fact required to be stated therein or necessary to make the statements therein not misleading and shall provide to the Company such information as shall be necessary to enable the Company to prepare a supplement or post-effective Amendment to such Registration Statement or Prospectus or any document incorporated therein by reference or file any other document required so that the Registration Statement or Prospectus will not contain an untrue statement of material fact or omit to state a material fact required to be stated therein. If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder covenants and agrees that (i) it will not sell any Registrable Securities under the Registration Statement until it has received copies of the Prospectus as then amended or supplemented as contemplated in Section 3(g) and notice from the Company that such Registration Statement and any post-effective amendments thereto have become effective -7- as contemplated by Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will comply with the prospectus delivery requirements of the Securities Act as applicable to them in connection with sales of Registrable Securities pursuant to the Registration Statement. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the "Advice") ------ by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. (m) If (i) there is material non-public information regarding the Company which the Company's Board of Directors (the "Board") reasonably ----- determines not to be in the Company's best interest to disclose and which the Company is not otherwise required to disclose, or (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board reasonably determines not to be in the Company's best interest to disclose and which the Company would be required to disclose under the Registration Statement, then the Company may suspend effectiveness of a registration statement and suspend the sale of Registrable Securities under a Registration Statement for a period not to exceed twenty (20) consecutive days, provided that the Company may not suspend its obligation under this Section 3(n) for more than forty-five (45) days in the aggregate during any twelve (12) month period (each, a "Blackout Period"); provided, however, that no such suspension --------------- -------- ------- shall be permitted for consecutive twenty (20) day periods, arising out of the same set of facts, circumstances or transactions. (n) Within two (2) business days after the Registration Statement which includes the Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Holders whose Registrable Securities are included in such Registration Statement) confirmation that the Registration Statement has been declared effective by the Commission in the form attached hereto as Exhibit A. --------- 4. Registration Expenses All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation the following: (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Nasdaq and each other securities exchange or market on which Registrable Securities are required hereunder to be listed, (B) with respect to filings required to be made with the -8- Commission, and (C) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of one counsel for the Holders in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may designate subject to the maximum fee set forth in clause (iv))), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and Special Counsel for the Holders, in the case of the Special Counsel, to a maximum amount of $10,000 (including all fees incurred by counsel pursuant to clause (i)), (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company's independent public accountants (including the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. 5. Indemnification (a) Indemnification by the Company. The Company shall, ------------------------------ notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, and the respective successors, assigns, estate and personal representatives of each of the foregoing, to the fullest extent permitted by applicable law, from and against any and all claims, losses, damages, liabilities, penalties, judgments, costs (including, without limitation, costs of investigation) and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively, "Losses"), as incurred, arising out ------ of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any preliminary prospectus or in any amendment or supplement thereto, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or preliminary prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, which information was reasonably relied on by the Company for use therein or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in -9- writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto; and provided, further, that with respect to any amended or supplemented Prospectus, the foregoing indemnity agreement shall not apply or inure to the benefit of any Holder from whom the Person asserting any Loss, purchased shares, or any Person controlling such Holder, if, copies of an amended or supplemented Prospectus were timely delivered to the Holder pursuant to this Agreement and a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendment or supplements thereto) was not sent or given by or on behalf of such Holder to such Person, if required by law so to have been delivered, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such Loss. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an Indemnified Party (as defined in Section 5(c) hereof) and shall survive the transfer of the Registrable Securities by the Holders. (b) Indemnification by Holders. Each Holder shall, notwithstanding -------------------------- any termination of this Agreement, severally and not jointly, indemnify and hold harmless the Company, and its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, and the respective successors, assigns, estate and personal representatives of each of the foregoing, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising out of, relating to, or based upon any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any preliminary prospectus or in any amendment or supplement thereto, or arising out of, relating to, or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or preliminary prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in or omitted from any information so furnished in writing by such Holder to the Company specifically for inclusion in the Registration Statement or such Prospectus and that such information was reasonably relied upon by the Company for use in the Registration Statement, such Prospectus or such preliminary prospectus or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such preliminary Prospectus Supplement. Notwithstanding anything to the contrary contained herein, the Holder shall be liable under this Section 5(b) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement. (c) Conduct of Indemnification Proceedings. If any Proceeding shall -------------------------------------- be brought or asserted against any Person entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party promptly shall notify the Person ----------------- from whom indemnity is sought (the "Indemnifying Party) in writing, and the ------------------ Indemnifying Party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of -10- its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel reasonably acceptable to the Indemnifying Party that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof on behalf of the Indemnified Party and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld), effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnifying Party may require -------- such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder). (d) Contribution. If a claim for indemnification under Section 5(a) ------------ or 5(b) is unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or -11- relates to information supplied by, such Indemnifying, Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. Notwithstanding anything to the contrary contained herein, the Holder shall be liable or required to contribute under this Section 5(c) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties 6. Rule 144. As long as any Holder owns Common Shares, Warrants or Warrant Shares, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders with true and complete copies of all such filings. As long as any Holder owns Common Shares, Warrants or Warrant Shares, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Common Shares and Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including providing any legal opinions of counsel to the Company referred to in the Purchase Agreement. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements. 7. Miscellaneous. -12- (a) Remedies. In the event of a breach by the Company or by a Holder, -------- of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor any of its -------------------------- subsidiaries has, as of the date hereof entered into and currently in effect, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Neither the Company nor any of its subsidiaries has previously entered into any agreement currently in effect granting any registration rights with respect to any of its securities to any Person. Without limiting the generality of the foregoing, without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement. (c) No Piggyback on Registrations. Neither the Company nor any of its ----------------------------- security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the Registration Statement. (d) Piggy-Back Registrations. If at any time when there is not an ------------------------ effective Registration Statement covering (i) Common Shares or (ii) Warrant Shares, the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form F-4 or Form F-8 (each as promulgated under the Securities Act) or its then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, the Company shall send to each holder of Registrable Securities written notice of such determination and, if within ten (10) days after receipt of such notice, any such holder shall so request in writing (which request shall specify the Registrable Securities intended to be disposed of by the Holders), the Company will use its best efforts to cause the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holder, to the extent requisite to permit the disposition of the Registrable Securities so to be registered, provided that if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to such holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable -13- Securities in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4 hereof), and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities being registered pursuant to this Section 7(d) for the same period as the delay in registering such other securities. The Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered; provided, however, that the -------- ------- Company shall not be required to register any Registrable Securities pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such registration statement, then if the Company after consultation with the managing underwriter should reasonably determine that the inclusion of such Registrable Securities, would materially adversely affect the offering contemplated in such registration statement, and based on such determination recommends inclusion in such registration statement of fewer or none of the Registrable Securities of the Holders, then (x) the number of Registrable Securities of the Holders included in such registration statement shall be reduced pro-rata among such Holders (based upon the number of Registrable Securities requested to be included in the registration), if the Company after consultation with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y) none of the Registrable Securities of the Holders shall be included in such registration statement, if the Company after consultation with the underwriter(s) recommends the inclusion of none of such Registrable Securities; provided, however, that if securities are being offered -------- ------- for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Registrable Securities intended to be offered by the Holders than the fraction of similar reductions imposed on such other persons or entities (other than the Company). (e) Failure to File Registration Statement and Other Events. The ------------------------------------------------------- Company and the Holders agree that the Holders will suffer damages if the Registration Statement is not filed or confidentially submitted on or prior to the Filing Date and not declared effective by the Commission on or prior to the Effectiveness Date and maintained in the manner contemplated herein during the Effectiveness Period or if certain other events occur. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (I) the Registration Statement is not filed or confidentially submitted on or prior to the Filing Date, or is not declared effective by the Commission on or prior to the Effectiveness Date (or in the event an additional Registration Statement is filed or confidentially submitted because the actual number of Common Shares and Common Stock into which the Warrants are exercisable exceeds the number of shares of Common Stock initially registered is not filed and declared effective within the time periods set forth in Section 2), or (II) the Company fails to file with the Commission a request for acceleration in accordance with Rule 12dl-2 promulgated under the Exchange Act within five (5) days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not subject to further review, or (III) the Registration Statement is filed with and declared effective by the Commission but thereafter ceases to be effective as to all Registrable Securities at any time prior to the expiration of the Effectiveness Period, without being succeeded by a subsequent Registration Statement filed with and declared effective by the Commission, or (IV) trading in the Common Stock shall be suspended for any reason for more than three (3) Business Days in the aggregate, or (V) the Company has breached -14- Section 3(n) of this Agreement (any such failure or breach being referred to as an "Event"), the Company shall pay as liquidated damages for such failure and ----- not as a penalty (the "Liquidated Damages") to each Holder: ------------------ (i) an amount equal to $63,000 for each thirty (30) day period (a "Period"), up to a maximum of $189,000 or three (3) Periods, until the - ------- applicable Event has been cured, which amount shall be pro rated for any portion of such Period; (ii) if an Event continues for more than three (3) Periods, the Company shall immediately reduce the Warrant Price under (and as defined in) the Warrant from $2.68 to $2.4922 per share; and (iii) if an Event continues for more than four (4) Periods, the Company shall immediately issue to the Purchaser an additional Warrant to purchase 90,079 shares of Common Stock for each Period the Event continues, up to a maximum of six (6) such Warrants or six (6) Periods, until the applicable Event has been cured, which amount of shares of Common Stock issuable upon exercise of such Warrants shall be pro rated for any portion of a Period. Payments in cash to be made pursuant to this Section 7(e) shall be due and payable immediately upon demand at the option of the Holders. The reduction of the Warrant Price in Section 7(e)(ii) shall occur immediately upon demand at the option of the Holders. The additional Warrants shall be issued immediately upon demand of the option of the Holders. The parties agree that these Liquidated Damages represent a reasonable estimate on the part of the parties, as of the date of this Agreement, of the amount of damages that may be incurred by the Holders if the Registration Statement is not filed on or prior to the Filing Date or has not been declared effective by the Commission on or prior to the Effectiveness Date and maintained in the manner contemplated herein during the Effectiveness Period or if any other Event as described herein has occurred. (f) Specific Enforcement, Consent to Jurisdiction. --------------------------------------------- (i) The Company and the Holders acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Registration Rights Agreement or the Purchase Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to enforce specifically the terms and provisions of the Registration Rights Agreement or the Purchase Agreement.; provided, however, that with respect to any provision with respect -------- ------- to which the Buyer entitled to receive Liquidated Damages, the sole remedy of the Buyer will be to enforce specifically its right to receive such Liquidated Damages. (ii) Both the Company and the Purchaser (i) hereby irrevocably submits to the jurisdiction of the United States District Court for the Southern District of New York and the courts of the State of New York located in New York county for the purposes of any suit, action or proceeding arising out of or relating to this Agreement or the Purchase Agreement and (ii) hereby waives, and agrees not to assert in any such suit, action or proceeding, -15- any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Both the Company and the Purchaser consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7(f) shall affect or limit any right to serve process in any other manner permitted by law. (g) Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and each of the Holders. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, - -------- ------- modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (h) Notices. Any and all notices or other communications or ------- deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed to have been duly given: when delivered by hand, if personally delivered; when receipt is acknowledged, if telecopied; or when actually received or refused if sent by other means. (x) if to the Company: Bid.com International Inc. 6725 Airport Road, Suite 301 Mississauga, Ontario L4V1V2 Tel. No.: (905) 672-7467 Fax No.: (905) 672-7514 Attn: Jeff Lymburner with a copy to: Gowlings Commerce Court West, Suite 4900 Toronto, Canada M5L 1J3 Attn: Neil J.F. Steenberg, Esq. Fax No.: (416) 862-7661 Baer Marks & Upham LLP 805 Third Avenue New York, New York 10022 Attn: Steven S. Pretsfelder, Esq. -16- Fax No.: (212) 702-5941 (y) if to the Purchaser: Acqua Wellington Value Fund Ltd. c/o Mees Pierson Fund Services (Bahamas) Ltd. Montague Sterling Centre East Bay Street, P. O. Box SS-6238 Nassau, Bahamas Tel. No.: (242) 394-2700 Fax No.: (242) 394-9667 Attention: Anthony L.M. Inder Rieden or to such other address or addresses or facsimile number or numbers as any such party may most recently have designated in writing to the other parties hereto by such notice. (i) Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of the parties and their successors and permitted assigns and shall inure to the benefit of each Holder and its successors and assigns. The Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each Holder which consent will not be unreasonably withheld. Each Purchaser may assign its rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement. (j) Assignment of Registration Rights. The rights of each Holder --------------------------------- hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by each Holder to any transferee of such Holder of all or a portion of the shares of Registrable Securities if: (i) the Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing (in form and substance reasonably satisfactory to the Company) with the Company to be bound by all of the provisions of this Agreement, and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement. In addition, each Holder shall have the right to assign its rights hereunder to any other Person with the prior written consent of the Company, which consent shall not be unreasonably withheld. The rights to assignment shall apply to the Holders (and to subsequent) successors and assigns. (k) Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which when so executed shall be deemed to be an original and, all of which -17- taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (l) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of New York, without regard to principles of conflicts of law thereof. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted. (m) Severability. If any term, provision, covenant or restriction of ------------ this Agreement is held to be invalid, illegal, void or unenforceable in any respect, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (n) Headings. The headings herein are for convenience only, do not -------- constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -18- IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed by their respective authorized persons as of the date first indicated above. BID.COM INTERNATIONAL INC. By:____________________________________ Name: Jeff Lymburner Title: Director, CEO and President ACQUA WELLINGTON VALUE FUND LTD. By:____________________________________ Name: Title: EXHIBIT A FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT [TRANSFER AGENT] [ADDRESS] Attn: _________ Re: Bid.com International Inc. -------------------------- Ladies and Gentlemen: We are counsel to Bid.com International Inc., a corporation organized under the laws of Ontario, Canada (the "Company"), and have represented the Company in connection with that certain Common Stock and Warrants Purchase Agreement (the "Purchase Agreement"), dated as of _____, 2000, by and between the Company and the Purchaser named therein pursuant to which the Company issued to the Purchaser shares (the "Common Shares") of its Common Stock, no par value (the "Common Stock"), and issued warrants (the "Warrants") to purchase shares of the Company's Common Stock. Pursuant to the Purchase Agreement, the Company has also entered into a Registration Rights Agreement with the Purchaser (the "Registration Rights Agreement"), dated as of ______, 2000, pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the Common Shares and the shares of Common Stock issuable upon exercise of the Warrants, under the Securities Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligations under the Registration Rights Agreement, on _________, 2000, the Company filed a Registration Statement on Form ___ (File No. 333- ________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the resale of the Registrable Securities which names each of the present Holders as a selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and, accordingly, the Registrable Securities are available for resale under the 1933 Act in the manner specified in, and pursuant to the terms of the Registration Statement for so long as such Registration Statement remains effective and current. Very truly yours, By: cc: [LIST NAMES OF HOLDERS] EX-3.6 4 dex36.txt WARRENT Exhibit 3.6 WARRANT THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON, OR SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR BID.COM INTERNATIONAL INC. (THE "COMPANY") SHALL HAVE RECEIVED AN OPINION, IN FORM, SCOPE AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, OF COUNSEL WHO IS REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN QUALIFIED FOR DISTRIBUTION AND SALE WITHIN THE PROVINCE OF ONTARIO, CANADA AND MAY NOT BE DISTRIBUTED OR SOLD IN SUCH PROVINCE OR TO A RESIDENT THEREOF FOR A PERIOD OF NINETY (90) DAYS FOLLOWING THE DATE OF ISSUANCE OF THIS CERTIFICATE EXCEPT (A) PURSUANT TO A PROSPECTUS FOR WHICH A RECEIPT HAS BEEN ISSUED BY THE ONTARIO SECURITIES COMMISSION OR (B) PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH PROSPECTUS REQUIREMENT. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF BID.COM INTERNATIONAL INC. Expires June 16, 2002 No.: W-A-1 Number of Shares: 360,316 Date of Issuance: June 16, 2000 FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the undersigned, Bid.com International Inc., a corporation organized under the laws of Ontario, Canada (together with its successors and assigns, the "Issuer"), hereby certifies that Acqua Wellington Value Fund Ltd., a limited liability company organized under the laws of the Commonwealth of the Bahamas, or its registered assigns, is entitled to subscribe for and purchase, during the period specified in this Warrant, up to 360,316 shares (subject to adjustment as hereinafter provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 7 hereof. 1. Term. The right to subscribe for and purchase shares of Warrant Stock ---- represented hereby shall commence on the date of issuance of this Warrant and shall expire two (2) years from the date of issuance, at 5:00 p.m., eastern time, on June 16, 2002 (such period being the "Term"). 2. Method of Exercise Payment; Issuance of New Warrant; Transfer and ----------------------------------------------------------------- Exchange. - -------- (a) Time of Exercise. The purchase rights represented by this Warrant may ---------------- be exercised in whole or in part at any time and from time to time during the Term. (b) Method of Exercise. The Holder hereof may exercise this Warrant, in ------------------ whole or in part, by the surrender of this Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder's election (i) by certified or official bank check or (ii) by surrender to the Issuer for cancellation of a portion of this Warrant representing that number of unissued shares of Warrant Stock which is equal to the quotient obtained by dividing (A) the product obtained by multiplying the Warrant Price by the number of shares of Warrant Stock being purchased upon such exercise by (B) the difference obtained by subtracting the Warrant Price from the Per Share Market Value as of the date of such exercise, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant. In any case where the consideration payable upon such exercise is being paid in whole or in part pursuant to the provisions of clause (ii) of this subsection (b), such exercise shall be accompanied by written notice from the Holder of this Warrant specifying the manner of payment thereof and containing a calculation showing the number of shares of Warrant Stock with respect to which rights are being surrendered thereunder and the net number of shares of Common Stock to be issued after giving effect to such surrender. (c) Issuance of Stock Certificates. In the event of any exercise of the ------------------------------ rights represented by this Warrant in accordance with and subject to the terms and conditions hereof, (i) certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the Holder of the shares of Warrant Stock so purchased as of the date of such exercise, and (ii) unless this Warrant has expired, a new Warrant representing the number of shares of Warrant Stock, if any, with respect to which this Warrant shall not then have been exercised (less any amount thereof which shall have been canceled in payment or partial payment of the Warrant Price as -2- hereinabove provided) shall also be issued to the Holder hereof at the Issuer's expense within such time. (d) Transferability of Warrant. Subject to Section 2(e), this Warrant may -------------------------- be transferred by a Holder without the consent of the Issuer. If transferred pursuant to this subsection and subject to the provisions of subsection (e) of this Section 2, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax imposed upon such transfer. This Warrant is exchangeable at the principal office of the Issuer for Warrants for the purchase of the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant hereto. (e) Compliance with Securities Laws. -------------------------------- (i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant or the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws. (ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form: THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON, OR SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR BID.COM INTERNATIONAL INC. (THE "COMPANY") SHALL HAVE RECEIVED AN OPINION, IN FORM, SCOPE AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, OF COUNSEL WHO IS REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION OF SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN QUALIFIED FOR DISTRIBUTION AND SALE WITHIN THE PROVINCE OF ONTARIO, CANADA AND MAY NOT BE DISTRIBUTED OR SOLD IN SUCH PROVINCE OR TO A -3- RESIDENT THEREOF FOR A PERIOD OF NINETY (90) DAYS FOLLOWING THE DATE OF ISSUANCE OF THIS CERTIFICATE EXCEPT (A) PURSUANT TO A PROSPECTUS FOR WHICH A RECEIPT HAS BEEN ISSUED BY THE ONTARIO SECURITIES COMMISSION OR (B) PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH PROSPECTUS REQUIREMENT. (iii) The restrictions imposed by this subsection (e) upon the transfer of this Warrant or the shares of Warrant Stock to be purchased upon exercise hereof shall terminate (A) when such securities shall have been resold pursuant to being effectively registered under the Securities Act or (B) upon the Issuer's receipt of an opinion of counsel to the Issuer, in form and substance reasonably satisfactory to the Issuer, addressed to the Issuer to the effect that such restrictions are no longer required to ensure compliance with the Securities Act and state securities laws. Whenever such restrictions shall cease and terminate as to any such securities, the Holder (unless the Holder is then an Affiliate of the Company) thereof shall be entitled to receive from the Issuer (or its transfer agent and registrar), without expense (other than applicable transfer taxes, if any), new Warrants (or, in the case of shares of Warrant Stock, new stock certificates) of like tenor not bearing the applicable legend required by paragraph (ii) above relating to the Securities Act and applicable state securities laws. 3. Stock Fully Paid; Reservation and Listing of Shares; Covenants. -------------------------------------------------------------- (a) Stock Fully Paid. The Issuer represents, warrants, covenants and ---------------- agrees that all shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise hereunder will, upon issuance in accordance with the terms of the Warrant, be duly authorized, validly issued, fully paid and non- assessable and free from all taxes and liens, security interest, charges and encumbrances of any nature whatsoever created by or through the Issuer. The Issuer further represents, warrants, covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of the issue upon exercise of this Warrant a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. (b) Reservation. If any shares of Common Stock required to be reserved ----------- for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any governmental authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified. If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder, and, to the extent permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed. The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer. -4- (c) Covenants. The Issuer shall not by any action including, without --------- limitation, amending the Certificate of Incorporation or the by-laws of the Issuer, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms or provisions of this Warrant, but will at all times in good faith carry out all such terms or provisions and take all such actions as may be necessary or appropriate to protect the rights of the Holder hereof against dilution (to the extent specifically provided herein) or impairment. Without limiting the generality of the foregoing, the Issuer will (i) not permit the par value, if any, of its Common Stock to exceed the then effective Warrant Price, (ii) take all such action as may be reasonably necessary in order that the Issuer may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, security interests, charges, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (iii) obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Issuer to perform its obligations under this Warrant. (d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence ------------------------------------ satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock. (e) Rights and Obligations under the Registration Rights Agreement. The -------------------------------------------------------------- shares of Warrant Stock are entitled to the benefits and subject to the terms of the Registration Rights Agreement dated as of even date herewith between the Issuer and the Holders listed on the signature pages thereof (as amended from time to time, the "Registration Rights Agreement"). The Issuer shall keep or cause to be kept a copy of the Registration Rights Agreement, and any amendments thereto, at its chief executive office and shall furnish, without charge, copies thereof to the Holder upon request. 4. Adjustment of Warrant Price and Warrant Share Number. The number and ---------------------------------------------------- kind of Securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the happening of certain events as follows: (a) Recapitalization, Reorganization, Reclassification, Consolidation, ------------------------------------------------------------------ Merger or Sale. - -------------- (i) In case the Issuer after the Original Issue Date shall do any of the following (each, a "Triggering Event"): (a) consolidate with or merge into any other Person and the Issuer shall not be the continuing or surviving Person of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of -5- each such Triggering Event, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled, at the option of such Holder, (x) upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price in effect at the time immediately prior to the consummation of such Triggering Event in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities, cash and property to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto, subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for in Section 4 hereof. (ii) Notwithstanding anything contained in this Warrant to the contrary, the Issuer will not effect any Triggering Event unless, prior to the consummation thereof, each Person (other than the Issuer) which may be required to deliver any Securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such shares of Securities, cash or property as, in accordance with the foregoing provisions of this subsection (a), such Holder shall be entitled to receive. (b) Subdivision or Combination of Shares. If the Issuer, at any time ------------------------------------ while this Warrant is outstanding, shall subdivide or combine any shares of Common Stock, (i) in case of subdivision of shares, the Warrant Price shall be proportionately reduced (as at the effective date of such subdivision or, if the Issuer shall take a record of holders of its Common Stock for the purpose of so subdividing, as at the applicable record date, whichever is earlier) to reflect the increase in the total number of shares of Common Stock outstanding as a result of such subdivision, or (ii) in the case of a combination of shares, the Warrant Price shall be proportionately increased (as at the effective date of such combination or, if the Issuer shall take a record of holders of its Common Stock for the purpose of so combining, as at the applicable record date, whichever is earlier) to reflect the reduction in the total number of shares of Common Stock outstanding as a result of such combination. (c) Certain Dividends and Distributions. If the Issuer, at any time while ----------------------------------- this Warrant is outstanding, shall: (i) Stock Dividends. Pay a dividend in, or make any other --------------- distribution to its stockholders (without consideration therefor) of, shares of Common Stock, the Warrant Price shall be adjusted, as at the date the Issuer shall take a record of the holders of the Issuer's Capital Stock for the purpose of receiving such dividend or other distribution (or if no such record is taken, as at the date of such payment or other distribution), to that price determined by multiplying the Warrant Price in effect immediately prior to such record date (or if no such record is taken, then immediately prior to such payment or -6- other distribution), by a fraction (1) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (2) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution (plus in the event that the Issuer paid cash for fractional shares, the number of additional shares which would have been outstanding had the Issuer issued fractional shares in connection with said dividends); or (ii) Other Dividends. Pay a dividend on, or make any distribution of --------------- its assets upon or with respect to (including, but not limited to, a distribution of its property as a dividend in liquidation or partial liquidation or by way of return of capital), the Common Stock (other than as described in clause (i) of this subsection (c) or a cash dividend or distribution), or in the event that the Company shall offer options or rights to subscribe for shares of Common Stock, or issue any Common Stock Equivalents, to all of its holders of Common Stock, then on the record date for such payment, distribution or offer or, in the absence of a record date, on the date of such payment, distribution or offer, the Holder shall receive what the Holder would have received had it exercised this Warrant in full immediately prior to the record date of such payment, distribution or offer or, in the absence of a record date, immediately prior to the date of such payment, distribution or offer (d) Other Action Affecting Common Stock. In case after the Original Issue ----------------------------------- Date the Issuer shall take any action affecting its Common Stock, other than an action described in any of the foregoing subsections (a) through (d) of this Section 4, inclusive, and the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principle of this Section 4, then the Warrant Price shall be adjusted in such manner and at such time as the Board may in good faith determine to be equitable in the circumstances. (e) Adjustment of Warrant Share Number. Upon each adjustment in the ---------------------------------- Warrant Price pursuant to any of the foregoing provisions of this Section 4, the Warrant Share Number shall be adjusted, to the nearest one hundredth of a whole share, to the product obtained by multiplying the Warrant Share Number immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately before giving effect to such adjustment and the denominator of which shall be the Warrant Price immediately after giving effect to such adjustment. If the Issuer shall be in default under any provision contained in Section 3 of this Warrant so that shares issued at the Warrant Price adjusted in accordance with this Section 4 would not be validly issued, the adjustment of the Warrant Share Number provided for in the foregoing sentence shall nonetheless be made and the Holder of this Warrant shall be entitled to purchase such greater number of shares at the lowest price at which such shares may then be validly issued under applicable law. Such exercise shall not constitute a waiver of any claim arising against the Issuer by reason of its default under Section 3 of this Warrant. (f) Form of Warrant after Adjustments. The form of this Warrant need not --------------------------------- be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant. -7- 5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share --------------------- Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment. Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to one of the national accounting firms currently known as the "big five" selected by the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer shall have no such right of objection. The firm selected by the Holder of this Warrant as provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute. Such opinion shall be final and binding on the parties hereto. The fees and expenses of such accounting firm shall be paid by the Issuer. 6. Fractional Shares. No fractional shares of Warrant Stock will be ----------------- issued in connection with and exercise hereof, but in lieu of such fractional shares, the Issuer shall make a cash payment therefor equal in amount to the product of the applicable fraction multiplied by the Per Share Market Value then in effect. 7. Definitions. For the purposes of this Warrant, the following terms ----------- have the following meanings: "Additional Shares of Common Stock" means all shares of Common Stock issued by the Issuer after the Original Issue Date, and all shares of Other Common, if any, issued by the Issuer after the Original Issue Date, except the Warrant Stock. "Board" shall mean the Board of Directors of the Issuer. "Capital Stock" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type. "Certificate of Incorporation" means the Certificate of Incorporation, as amended, of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law. "Common Stock" means the Common shares, no par value, of the Issuer and any other Capital Stock into which such stock may hereafter be changed. -8- "Common Stock Equivalent" means any Convertible Security or warrant, option or other right to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Security. "Convertible Securities" means evidences of Indebtedness, shares of Capital Stock or other Securities which are or may be at any time convertible into or exchangeable for Additional Shares of Common Stock. The term "Convertible Security" means one of the Convertible Securities. "Governmental Authority" means any governmental, regulatory or self- regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign. "Holders" mean the Persons who shall from time to time own any Warrant. The term "Holder" means one of the Holders. "Independent Appraiser" means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant. "Issuer" means Bid.com International Inc., a corporation organized under the laws of Ontario, Canada, and its successors. "Majority Holders" means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the Warrants at the time outstanding. "Original Issue Date" means June 16, 2000. "Other Common Stock" means any other Capital Stock of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount. "OTC Bulletin Board" means the over-the-counter electronic bulletin board. "Person" means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature. "Per Share Market Value" means on any particular date (a) the closing bid price per share of the Common Stock on such date on the Nasdaq SmallCap Market, Nasdaq National Market or other registered national stock exchange on which the Common Stock is then listed or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date, or (b) if the -9- Common Stock is not listed then on the Nasdaq SmallCap Market, Nasdaq National Market or any registered national stock exchange, the closing bid price for a share of Common Stock in the over-the-counter market, as reported by NASDAQ or in the National Quotation Bureau Incorporated or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if the Common Stock is not then reported by NASDAQ or the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the relevant conversion period, as determined in good faith by the holder, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Independent Appraiser selected in good faith by the Majority Holders; provided, however, that the -------- ------- Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided, further -------- ------- that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period. Subject to the foregoing, the determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties. In determining the fair market value of any shares of Common Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights. "Purchase Agreement" means the Purchase Agreement dated as of June 16, 2000 among the Issuer and the investor a party thereto. "Registration Rights Agreement" has the meaning specified in Section 3(e) hereof. "Securities" means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for securities or a security, and any option, warrant or other right to purchase or acquire any security. "Security" means one of the Securities. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute then in effect. "Subsidiary" means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries. "Term" has the meaning specified in Section 1 hereof. "Trading Day" means (a) a day on which the Common Stock is traded on the Nasdaq SmallCap Market, Nasdaq National Market or other registered national stock -10- exchange on which the Common Stock has been listed, or (b) if the Common Stock is not listed on the Nasdaq SmallCap Market, Nasdaq National Market or other registered national stock exchange on which the Common Stock has been listed, a day on which the Common Stock is quoted in the over-the- counter market, as reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided, however, that in -------- ------- the event that the Common Stock is not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close. "Voting Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening of a contingency. "Warrants" means the warrants issued in connection with the sale and issuance of Common Stock pursuant to Purchase Agreement, including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants. "Warrant Price" means 115% of the per Unit Purchase Price as set forth in Section 1 of the Purchase Agreement. "Warrant Share Number" means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof. "Warrant Stock" means Common Stock issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants. 8. Other Notices. In case at any time: ------------- (A) the Issuer shall make any distributions to all of the holders of its Common Stock; or (B) the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or of any Common Stock Equivalents or Convertible Securities or other rights; or (C) there shall be any reclassification of the Capital Stock of the Issuer; or (D) there shall be any capital reorganization by the Issuer; or -11- (E) there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer's property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly-owned Subsidiary); or (F) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock; then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given at least ten (10) days prior to the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer's transfer books are closed in respect thereto. 9. Amendment and Waiver. Any term, covenant, agreement or condition in -------------------- this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Majority Holders; provided, however, that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may be exercised or modify any provision of this Section 9 without the consent of the Holder of this Warrant. 10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. THIS WARRANT SHALL NOT BE INTERPRETED OR CONSTRUED WITH ANY PRESUMPTION AGAINST THE PARTY CAUSING THIS WARRANT TO BE DRAFTED. 11. Notices. Any and all notices or other communications or deliveries ------- required or permitted to be provided hereunder shall be in writing and shall be deemed to have been duly given: when delivered by hand, if personally delivered; when receipt is acknowledged, if telecopied; or when actually received or refused if sent by other means. The addresses for such communications shall be with respect to the Holder of this Warrant or of Warrant Stock issued pursuant hereto, addressed to such Holder at its last known address or facsimile number appearing on the books of the Issuer maintained for such purposes, or with respect to the Issuer, addressed to: Bid.com International Inc. -12- 6725 Airport Road, Suite 301 Mississauga, Ontario L4V1V2 Tel. No.: (905) 672-7467 Fax No.: (905) 672-7514 Attn: Jeff Lymburner or to such other address or addresses or facsimile number or numbers as any such party may most recently have designated in writing to the other parties hereto by such notice. Copies of notices to the Issuer shall be sent to Gowlings, Commerce Court West, Suite 4900, Toronto, Ontario, Canada, M5L 1J3, Attention: Neil J.F. Steenberg, Esq., Facsimile no.: (416) 862-7661, Baer Marks & Upham LLP, 805 Third Avenue, New York, New York 10022, Attention: Steven S. Pretsfelder, Esq., Facsimile no.: (212) 702-5941. Copies of notices to the Holder shall be sent to Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New York, New York 10174, Attention: Christopher S. Auguste, Esq., Facsimile no.: (212) 704-6288. 12. Warrant Agent. The Issuer may, by written notice to each Holder of ------------- this Warrant, appoint an agent having an office in New York, New York or Toronto, Canada for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 13. Remedies. The Issuer stipulates that the Holder of this Warrant in -------- the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant may, to the fullest extent permitted by law, specifically enforce such terms by a decree for the specific performance of any agreement contained herein and may enforce specifically the terms and provisions hereof and in the Purchase Agreement; provided, however, that with respect to any provision with respect to which any - -------- ------- Holder or other party is entitled to receive Liquidated Damages, the sole remedy of such Holder or other party will be to enforce specifically its right to receive such Liquidated Damages. 14. Successors and Assigns. This Warrant and the rights evidenced hereby ---------------------- shall inure to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such party. 15. Modification and Severability. If, in any action before any court or ----------------------------- agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency. If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein. -13- 16. Headings. The headings of the Sections of this Warrant are for -------- convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -14- IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and year first above written. BID.COM INTERNATIONAL INC. By:_____________________________________ Name: Jeff Lymburner Title: Director, CEO and President -15- EXERCISE FORM BID.COM INTERNATIONAL INC. The undersigned __________________________________, pursuant to the provisions of the within Warrant, hereby elects to purchase _________shares of Common Stock of Bid.com International Inc. covered by the within Warrant. Dated: _____________________ Signature ________________________________ Address ________________________________ ________________________________ ASSIGNMENT FOR VALUE RECEIVED, ___________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation. Dated: ______________________ Signature ________________________________ Address ________________________________ ________________________________ PARTIAL ASSIGNMENT FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation. Dated: ________________________ Signature ________________________________ Address ________________________________ ________________________________ -16- FOR USE BY THE ISSUER ONLY: This Warrant No. W-A-1 cancelled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No. W-A-1 issued for ____ shares of Common Stock in the name of _______________. -17- -----END PRIVACY-ENHANCED MESSAGE-----