-----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, LH/9O1WlPz8m/4/y9gWmBGSNxXThcg8i04vhw5413FrIAimINdUbD92qYXxWQRiA SBskIsycnGoIQiz719DgYQ== 0001130319-02-000468.txt : 20020517 0001130319-02-000468.hdr.sgml : 20020517 20020516175318 ACCESSION NUMBER: 0001130319-02-000468 CONFORMED SUBMISSION TYPE: 20FR12G PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20020517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADB SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0001079171 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20FR12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-30677 FILM NUMBER: 02655502 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 FORMER COMPANY: FORMER CONFORMED NAME: BID COM INTERNATIONAL INC DATE OF NAME CHANGE: 19990210 20FR12G 1 t07168e20fr12g.txt FORM 20-F ============================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission File No. 000-30677 ADB SYSTEMS INTERNATIONAL 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. 38,185,252 COMMON SHARES AS OF DECEMBER 31, 2001 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 ______ Item 18 X =============================================================================== ADB SYSTEMS INTERNATIONAL INC. ANNUAL REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 FORWARD LOOKING STATEMENTS From time to time, we make oral and written statements that may be considered "forward looking statements" (rather than historical facts). We are taking advantage of the "safe-harbour" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements we may make from time to time, including the forward-looking statements in this Annual Report. You can identify these statements when you see words such as "may", "expect", "anticipate", "estimate", "believe", "intend", and other similar expressions. These forward-looking statements relate, among other items to: o our future capital needs; o future expectations as to profitability and operating results; o our ability to further develop business relationships and revenues; o our expectations about the markets for our products and services; o acceptance of our products and services; o competitive factors; o our ability to attract and retain employees; o new products and technological changes; o our ability to develop appropriate strategic alliances; o protection of our proprietary technology; o our ability to acquire complementary products or businesses and integrate them into our business; and o geographic expansion of our business. We have based these forward-looking statements largely on our current plans and expectations. Forward-looking statements are subject to risks and uncertainties, some of which are beyond our control. Our actual results could differ materially from those described in our forward-looking statements as a result of the factors described in the "Risk Factors" included elsewhere in this Annual Report, including, among others: o the timing of our future capital needs and our ability to raise additional capital when needed; o our limited operating history in our current business as a combined entity; o longer sales cycles may adversely affect our cash flows; o potential fluctuations in our financial results and our difficulties in forecasting; o volatility of the stock markets and fluctuations in our market price; o the potential de-listing of our stock from the Nasdaq National Market; o our ability to compete with other companies in our business; o our ability to retain and attract key personnel; o risk of significant delays in product development; o risks relating to any requirement to correct or delay the release of products due to software bugs or errors; o risk of system failure or interruption; o problems which may arise in connection with the acquisition or integration of new businesses, products, services, technologies or other strategic relationships; o risks associated with international operations; o risks associated with protecting our intellectual property, and potentially infringing the intellectual property rights of others; o failure to timely develop or license new technologies; o uncertainty about the continued acceptance by businesses of the Internet as a viable commercial medium; and o sensitivity to the overall economic environment. We do not have, and do not undertake, any obligation to publicly update or revise any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise. Because of these risks and uncertainties, the forward-looking statements and circumstances discussed in this Annual Report might not transpire. Trademarks or trade names which we own and are used in this Annual Report include: ADB(TM); PROCUREMATE(TM); WORKMATE(TM); BID BUDDY(TM); SEARCH BUDDY(TM); DYNAMIC BUYER(TM) and DYNAMIC SELLER(TM). Each trademark, trade name, or service mark of any other company appearing in this Annual Report belongs to its holder. 2 TABLE OF CONTENTS
Page ---- ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS........................................1 ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE......................................................1 ITEM 3 - KEY INFORMATION..............................................................................1 A. Selected Financial Data...............................................................1 B. Capitalization and Indebtedness.......................................................3 C. Reasons For The Offer And Use Of Proceeds.............................................3 D. Risk Factors..........................................................................3 ITEM 4 - INFORMATION ON THE COMPANY..................................................................12 A. History and Development of the Company...............................................12 B. Business Overview....................................................................12 C. Organizational Structure.............................................................19 D. Property, Plants and Equipment.......................................................20 ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................20 ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES....................................................29 A. Directors And Senior Management......................................................29 B. Compensation.........................................................................32 C. Board Practices......................................................................35 D. Employees............................................................................36 E. Share Ownership......................................................................36 ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.............................................37 A. Major Shareholders...................................................................37 B. Related Party Transactions...........................................................37 ITEM 8 - FINANCIAL INFORMATION.........................................................................38 ITEM 9 - THE OFFER AND LISTING.........................................................................38 ITEM 10 - ADDITIONAL INFORMATION.......................................................................40 A. Share Capital........................................................................40 B. Memorandum and Articles of Association...............................................40 C. Material Contracts...................................................................43 D. Exchange Controls....................................................................45 E. Taxation.............................................................................45 F. Dividends and Paying Agents..........................................................50 G. Statements by Experts................................................................50 H. Documents on Display.................................................................50 I. Subsidiary Information...............................................................51 ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....................................51 ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN DEBT SECURITIES.........................................51 ITEM 13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES...............................................51 ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.................51 ITEM 17 - FINANCIAL STATEMENTS.........................................................................51 ITEM 18 - FINANCIAL STATEMENTS.........................................................................51 ITEM 19 - EXHIBITS.....................................................................................52
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$1.5925 to US$1.00, the noon buying rate in New York City on December 31, 2001 for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York. These translations are not intended to suggest that Canadian dollars have been or could be converted into U.S. dollars at that or any other rate. On October 11, 2001, our shareholders approved a two-for-one share consolidation. Unless otherwise indicated, all share and option figures in this Annual Report have been adjusted retroactively to reflect the share consolidation. ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS Not applicable. ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3 - KEY INFORMATION A. SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and the related notes, and the section "Operating and Financial Review and Prospects" included elsewhere in this Annual Report. The consolidated statement of operations data for the years ended December 31, 2001, 2000 and 1999 and consolidated balance sheet data as of December 31, 2001 and 2000, as set forth below, are derived from our consolidated audited financial statements and the related notes included elsewhere in this Annual Report. The consolidated statement of operations data for the years ended December 31, 1998 and 1997 and the consolidated balance sheet data as at December 31, 1999, 1998 and 1997 have been derived from our consolidated audited financial statements for those years, which are not included in this Annual Report. We have prepared our audited financial statements in accordance with Canadian generally accepted accounting principles, which differ in certain respects from accounting principles generally accepted in the United States. However, as applied to us, for all fiscal periods for which financial data is presented in this Annual Report, Canadian GAAP and U.S. GAAP were substantially identical in all material respects, except as disclosed in Note 17 of our consolidated financial statements. Historical results are not necessarily indicative of results to be expected for any future period. STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------------- 2001 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ---- (CDN$) (U.S.$) (1) (CDN$) (CDN$) (CDN$) (CDN$) (AUDITED) (IN THOUSANDS EXCEPT FOR PER SHARE DATA) Revenue.......................... 4,455 2,797 12,497 31,001 20,001 2,619 Less: Customer Acquisition Costs (60) (38) (157) - - - Net Revenue 4,395 2,759 12,340 31,001 20,001 2,619 Expenses Direct expenses.................. - - 11,460 26,696 19,361 2,916 Advertising and promotion........ - - 5,040 11,870 12,594 2,521 General and administrative....... 7,622 4,786 16,236 12,405 5,751 3,157 Sales and marketing .......... 4,040 2,537 3,161 - - - Software development and technology................... 3,691 2,318 1,802 1,001 889 661 Depreciation and amortization.... 1,572 987 1,130 621 201 122 Interest (income)................ (345) (217) (467) (767) (88) (33) Total expenses................... 16,580 10,411 38,362 51,826 38,708 9,344 Loss from operations............. (12,185) (7,651) (26,022) (20,825) (18,707) (6,725) Net Loss......................... (18,714) 11,751 (20,366) (20,825) (18,707) (6,725) Loss per common share(2)......... (0.64) (0.40) (0.76) (0.84) (1.58) (1.10) Weighted average number of common shares(2) 29,130 29,130 26,844 24,792 11,910 6,150
BALANCE SHEET DATA:(3)
As at December 31 ----------------------------------------------------------------------- 2001 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ---- (Cdn$) (U.S.$) (1) (Cdn$) (Cdn$) (Cdn$) (Cdn$) (Audited) (in thousands) Working capital...................... 3,115 1,956 13,671 21,523 17,929 5,088 Total assets......................... 10,592 6,651 20,801 36,743 21,047 6,886 Long-term Deferred Revenue........... 33 21 1,185 1,289 - - Shareholders equity.................. 8,014 5,032 15,860 28,985 18,622 5,563
- ---------- (1) Convenience translation into U.S. $. See Note 21 of our consolidated financial statements. (2) In October 2001, the Company's shareholders approved a 2 for 1 share consolidation. All per share amounts have been adjusted retroactively to reflect the consolidation. See Note 6(b) of our consolidated financial statements for a discussion regarding the calculation of common shares outstanding and loss per common share. (3) We have not paid dividends since our formation. EXCHANGE RATES The following tables set forth, for the periods indicated, certain exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York. Such rates are the number of U.S. dollars per one Canadian dollar and are the inverse of the rates quoted by the Federal Reserve Board of New York for Canadian Dollars per U.S. $1.00. On May 14, 2002, the exchange rate was US$1.00 = Cdn$1.5590. 2
Year Ended December 31, ------------------------------------------------------------- Rate 2001 2000 1999 1998 1997 - ---- ---- ---- ---- ---- ---- Last Day of year $.6279 $.6669 $.6925 $.6504 $.6999 Average (1) during year .6449 .6725 .6744 .6710 .7198 High during year .6697 .6969 .6925 .7105 .7487 Low during year .6241 .6410 .6435 .6341 .6945
(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 2001 .6363 .6241 December 2001 .6396 .6254 January 2002 .6290 .6200 February 2002 .6295 .6206 March 2002 .6342 .6266 April 2002 .6397 .6252
B. CAPITALIZATION AND INDEBTEDNESS Not applicable. C. REASONS FOR THE OFFER AND USE OF PROCEEDS. Not applicable. D. RISK FACTORS The following is a summary of certain risks and uncertainties which we face in our business. This summary is not meant to be exhaustive. These Risk Factors should be read in conjunction with other cautionary statements which we make in this Annual Report and in our other public reports, registration statements and public announcements. WE WILL NEED ADDITIONAL CAPITAL AND IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING WHEN WE NEED IT, WE MAY BE REQUIRED TO SIGNIFICANTLY CURTAIL OR CEASE OUR OPERATIONS. 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 2002. As of March 31, 2002, we had cash on hand and marketable securities of approximately $2.6 million. We have since completed a private placement resulting in gross proceeds of approximately $1.1 million. Based on current plans, we believe that current cash balances and anticipated funds from operations will be sufficient to meet our needs through 2002, however the actual amount of funds that will be required during this period 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 end of this period, we will require additional funds. We have included in footnote 2 to our financial statements, a discussion about the ability of our company to continue as a going concern. 3 We do not have any committed sources of additional financing at this time and we are uncertain whether additional funding will be available when we need it on terms that will be acceptable to us or at all. If we are not able to obtain financing when we need it, we would be unable to carry out our business plan and would have to significantly curtail or cease our operations. 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. If we incur debt, the holders of such debt may be granted security interests in our assets. Because of our potential long term capital requirements, we may seek to access the public or private equity or debt markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. WE ARE NOT PROFITABLE AND WE MAY NEVER BECOME PROFITABLE. We have accumulated net losses of approximately $89.6 million as of March 31, 2002. For the year ended December 31, 2001 our net loss was $18.7 million. We have never been profitable and expect to continue to incur losses for the foreseeable future. We cannot assure you that we will earn profits or generate positive cash flows from operations in the future. OUR LIMITED OPERATING HISTORY IN OUR CURRENT BUSINESS AS A COMBINED ENTITY MAKES EVALUATING OUR BUSINESS DIFFICULT. While we were founded in September 1995, until 1999 we operated solely as an online retailer of computer and other goods. Since 1999 we have shifted our focus to providing asset lifecycle management solutions and in 2000 we terminated our on-line retail business. Therefore, we have been involved in our current business for only a limited period of time. In October 2001 we acquired ADB Systemer ASA of Norway. While ADB Systemer has operated since 1988, we have only a limited operating history as a combined entity on which you can 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. Our business strategy may not be successful and we may not successfully address those risks. LONGER SALES CYCLES MAY ADVERSELY AFFECT OUR CASH FLOWS A significant portion of our revenue in any quarter is derived from a relatively small number of contracts. We often experience sales cycles of six to twelve months. If the length of our sales cycles increase, our quarterly results may be adversely affected. In addition, our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. If sales cycles lengthen, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any significant shortfall in revenues relative to our planned expenditures would have a material adverse effect on our business, financial condition, cash flows and results of operations POTENTIAL FLUCTUATIONS IN OUR FINANCIAL RESULTS MAKE FINANCIAL FORECASTING DIFFICULT Our operating results have varied on a quarterly basis in the past and may fluctuate significantly as a result of a variety of factors, many of which are outside our control. Factors that may affect our quarterly operating results include: o general economic conditions as well as economic conditions specific to our industry; o long sales cycles, which characterize our industry; 4 o implementation delays, which can affect payment and recognition of revenue; o any decision by us to reduce prices for our solutions in response to price reductions by competitors; o the amount and timing of operating costs and capital expenditures relating to monitoring or expanding our business, operations and infrastructure; and o the timing of, and our ability to integrate, any future acquisition, technologies or products or any strategic investments or relationships into which we may enter. Due to these factors, our quarterly revenues and operating results are difficult to forecast. We believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance. In addition, it is likely that in one or more future quarters, our operating results will fall below the expectations of securities analysts and investors. In such event, the trading price of our common shares would almost certainly be materially adversely affected. OUR SHARE PRICE HAS FLUCTUATED SUBSTANTIALLY AND MAY CONTINUE TO DO SO. The trading price of our common shares on The Toronto Stock Exchange and Nasdaq National Market has fluctuated significantly in the past and could be subject to wide fluctuations in the future. The market prices for securities of technology companies have been highly volatile, 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. In addition, fluctuations in our operating results, and concerns regarding our competitive position can have an adverse and unpredictable effect on the market price of our shares. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on our business, results of operations, cash flow, financial condition and prospects. YOUR ABILITY TO BUY OR SELL COMMON SHARES MAY BE AFFECTED IF OUR STOCK IS DELISTED FROM THE NASDAQ NATIONAL MARKET Our common shares are quoted on the Nasdaq National Market under the symbol "ADBI". In order for our common shares to continue to be quoted on the Nasdaq National 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 U.S. $1.00 per share for a specified period of time, our net tangible assets fall below U.S. $4 million, or (after November 20, 2002) our shareholders equity falls below U.S. $10 million, Nasdaq may delist our common shares from trading on the Nasdaq National 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 compliance with this requirement for ten consecutive trading days (and demonstrate an ability to sustain compliance) by May 15, 2002, our common shares will be de-listed (subject to any appeal). Nasdaq has also asked us to address how we will sustain compliance with the net tangible asset continued listing requirement. In light of these issues, we have applied to transfer the listing of our common shares from the Nasdaq National Market to the Nasdaq Small Cap Market. We cannot be certain that Nasdaq will approve our request to transfer our listing. If this transfer is refused and Nasdaq continues to pursue the delisting of our shares, we intend to appeal any determination to delist our shares. There can be no assurance that we will be able to satisfy Nasdaq in this regard. If our common shares are de-listed 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 than the Nasdaq National Market on which the shares are currently traded. In addition, if our shares are no longer listed on the Nasdaq National Market or Small Cap Market or another national securities exchange in the United States, our shares may be subject to the "penny 5 stock" regulations described below. De-listing from the Nasdaq National Market will not affect the listing of the common shares on The Toronto Stock Exchange. In 2002, the Toronto Stock Exchange has accounted for approximately 61% of the trading volume in our stock (to May 6, 2002). OUR COMMON SHARES MAY BECOME SUBJECT TO "PENNY STOCK" REGULATIONS WHICH MAY AFFECT YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES. Our common shares have traded on the Nasdaq at prices below US$5.00 since April 2000 (on a pre-consolidation basis). As a result, our shares may become characterized as "penny stocks" which could severely affect market liquidity. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than US$5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on Nasdaq or a national securities exchange and any equity security issued by an issuer that has: o net tangible assets of at least US$2,000,000, if such issuer has been in continuous operation for three years o net tangible assets of at least US$5,000,000, if such issuer has been in continuous operation for less than three years; or o average annual revenue of at least US$6,000,000, if such issuer has been in continuous operation for less than three years Unless an exception is available, the regulations require, prior to any transaction involving a penny stock, delivery of a disclosure schedule explaining the penny stock market and the risks associated therewith. The penny stock regulations would adversely affect the market liquidity of our common shares by limiting the ability of broker/dealers to trade the shares and the ability of purchasers of our common shares to sell in the secondary market. Certain institutions and investors will not invest in penny stocks. THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE. The market for asset lifecycle management solutions is rapidly evolving and intensely competitive. We face significant competition in each segment of our business (sourcing, procurement, enterprise asset management and selling). We expect that competition will further intensify as new companies enter the different segments of our market and larger existing companies expand their product lines. If the global economy continues to lag, we could face increased competition, particularly in the form of lower prices. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we. We cannot assure you that we will be able to compete effectively. If we fail to do so, this may have a material adverse effect on our business, financial condition, cash flows and results of operations. WE MAY NOT BE ABLE TO RETAIN OR ATTRACT THE HIGHLY SKILLED PERSONNEL WE NEED, IN PARTICULAR AS A RESULT OF OUR RECENT WORKFORCE REDUCTIONS. Our success is substantially dependent on the ability and experience of our senior management and other key personnel. We do not have long term employment agreements with any of our key personnel and maintain no "key person" life insurance policies. In 2001, we implemented several workforce reductions in which we eliminated a total of 44 positions. We anticipate that we may experience some attrition during 2002 as a result of these reductions. We may need to hire new or additional personnel to respond to attrition or future growth of our business. However, there is significant competition for qualified personnel, especially those with software development and other technical expertise. We cannot be certain we will be able to retain existing personnel or hire additional, qualified personnel when needed. 6 SIGNIFICANT DELAYS IN PRODUCT DEVELOPMENT WOULD HARM OUR REPUTATION AND RESULT IN LOSS OF REVENUE. If we experience significant product development delays, our position in the market would be harmed, and our revenues could be substantially reduced, which would adversely affect our operating results. As a result of the complexities inherent in our software, major new product enhancements and new products often require long development and test periods before they are released. On occasion, we have experienced delays in the scheduled release date of new or enhanced products, and we may experience delays in the future. Delays may occur for many reasons, including an inability to hire a sufficient number of developers, discovery of bugs and errors or a failure of our current or future products to conform to industry requirements. Any such delay, or the failure of new products or enhancements in achieving market acceptance, could materially impact our business and reputation and result in a decrease in our revenues. OUR BUSINESS COULD BE SUBSTANTIALLY HARMED IF WE HAVE TO CORRECT OR DELAY THE RELEASE OF PRODUCTS DUE TO SOFTWARE BUGS OR ERRORS We sell complex software products. Our software products may contain undetected errors or bugs when first introduced or as new versions are released. Our software products may also contain undetected viruses. Further, software we license from third parties and incorporate into our products may contain errors, bugs or viruses. Errors, bugs and viruses may result in any of the following: o adverse customer reactions; o negative publicity regarding our business and our products; o harm to our reputation; o loss of or delay in market acceptance; o loss of revenue or required product changes; o diversion of development resources and increased development expenses; o increased service and warranty costs; o legal action by our customers; and o increased insurance costs. SYSTEMS DEFECTS, FAILURES OR BREACHES OF SECURITY COULD CAUSE A SIGNIFICANT DISRUPTION TO OUR BUSINESS, DAMAGE OUR REPUTATION AND EXPOSE US TO LIABILITY. We host certain websites and sub-sites for our customers. Our systems are vulnerable to a number of factors that may cause interruptions in our ability to enable or host solutions for third parties, including, among others: o damage from human error, tampering and vandalism; o breaches of security; o fire and power losses; o telecommunications failures and capacity limitations; and 7 o software or hardware defects. Despite the precautions we have taken and plan to take, the occurrence of any of these events or other unanticipated problems could result in service interruptions, which could damage our reputation, and subject us to loss of business and significant repair costs. Certain of our contracts require that we pay penalties or permit a customer to terminate the contract if we are unable to maintain minimum performance levels. Although we continue to take steps to enhance the security of our systems and ensure that appropriate back-up systems are in place, our systems are not now, nor will they ever be, fully secure. OUR BUSINESS HAS UNDERGONE DRAMATIC EXPANSION AND RETRACTION PHASES OVER THE LAST TWO YEARS. WE MAY NOT BE ABLE TO MANAGE FURTHER DRAMATIC EXPANSIONS AND RETRACTIONS IN FUTURE. Our business has undergone dramatic expansion and retraction in the past two years, which has placed significant strain on our management resources. If we should grow or retract dramatically in future, there may be further significant demands on our management, administrative, operating and financial resources. In order to manage these demands effectively, we will need to expand and improve our operational, financial and management information systems and motivate, manage and retain employees. We cannot assure you that we will be able to do so, that our management, personnel or systems will be adequate, or that we will be able to achieve levels of revenue commensurate with the resulting levels of operating expenses. INTERNATIONAL SALES ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUE, WHICH EXPOSES US TO CERTAIN RISKS. We currently operate in Canada, Norway, Ireland, the United States and England. In the 2001 fiscal year, sales to customers outside North America represented approximately 37.2% of our revenues. There are risks inherent in doing business on a global level, including: o difficulties in managing and staffing an organization spread across several continents; o differing laws and regulatory requirements; o political and economic risks; o currency and foreign exchange fluctuations and controls; o tariffs, customs, duties and other trade barriers; o longer payment cycles and problems in collecting accounts receivable in certain countries; o export and import restrictions; o the need for product compliance with local language and business customs; o seasonal reductions in business activity during the summer months in Europe and elsewhere; and o potentially adverse tax consequences. Any of these risks could adversely affect the success of our global operations. ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR BUSINESS AND/OR DISTRACTIONS FOR OUR MANAGEMENT. We acquired ADB Systemer ASA of Norway in October 2001. In future, we may seek to acquire other businesses or make investments in complementary businesses or technologies. We may not be able to acquire or manage additional businesses profitably or successfully integrate any acquired businesses with our business. Businesses that we acquire may have liabilities that we underestimate or do not discover during our pre-acquisition investigations. Certain liabilities, even if we do not expressly assume them, may be imposed on us as the successor to the business. Further, each acquisition may involve other special risks that could cause the acquired businesses to fail to meet our expectations. For example: 8 o the acquired businesses may not achieve expected results; o we may not be able to retain key personnel of the acquired businesses; o we may incur substantial, unanticipated costs, delays or other operational or financial problems when we try to integrate businesses we acquire with our own; o our management's attention may be diverted; or o our management may not be able to manage the combined entity effectively or to make acquisitions and grow our business internally at the same time. The occurrence of one or more of these factors could have a material adverse effect on our business, financial condition, cash flows and results of operations. In addition, we may incur debt or issue equity securities to pay for any future acquisitions or investments, which could dilute the ownership interest of our existing shareholders. IF WE ARE UNABLE TO SUCCESSFULLY PROTECT OUR INTELLECTUAL PROPERTY OR OBTAIN CERTAIN LICENSES, OUR COMPETITIVE POSITION MAY BE WEAKENED. Our performance and ability to compete are dependent in part on our technology. We rely on a combination of patent, copyright, trademark and trade secret laws as well as confidentiality agreements and technical measures, to establish and protect our rights in the technology we develop. We cannot guarantee that any patents issued to us will afford meaningful protection for our technology. Competitors may develop similar technologies which do not conflict with our patents. Others may challenge our patents and, as a result, our patents could be narrowed or invalidated. Our software is protected by common law copyright laws, as opposed to registration under copyright statutes. Common law protection may be narrower than that which we could obtain under registered copyrights. As a result, we may experience difficulty in enforcing our copyrights against certain third parties. The source code for our proprietary software is protected as a trade secret. As part of our confidentiality protection procedures, we generally enter into agreements with our employees and consultants and limit access to, and distribution of, our software, documentation and other proprietary information. We cannot assure you that the steps 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 sue one or more third parties. While this has not been necessary to date, there can be no guarantee that we will not be required to do so in future to protect our rights. The laws of other countries may afford us little or no protection for our intellectual property. We also rely on a variety of technology that we license from third parties, including our database and Internet server software, which is used to perform key functions. These third party technology licenses may not continue to be available to us on commercially reasonable terms, or at all. If we are unable to maintain these licenses or obtain upgrades to these licenses, we could be delayed in completing or prevented from offering some products or services. OTHERS COULD CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH MAY RESULT IN COSTLY AND TIME CONSUMING LITIGATION. Our success will also depend partly on our ability to operate without infringing upon the proprietary rights of others, as well as our ability to prevent others from infringing on our proprietary rights. We may be required at times to take legal action in order to protect our proprietary rights. Also, from time to time, we may receive notice from third parties claiming that we may infringe their patent or other proprietary rights. We believe that infringement claims will increase in the electronic commerce sector as competition intensifies. Despite our best efforts, we may be sued for infringing on the patent or other proprietary rights of others. Such litigation is costly, and even if we prevail, the cost of such litigation could harm us. If we do not prevail or cannot fund a complete defense, in addition to any damages we might have to pay, we could be required to stop the infringing activity or obtain a license. We cannot be certain that any required license would be available 9 to us on acceptable terms, or at all. If we fail to obtain a license, or if the terms of a license are burdensome to us, this could have a material adverse effect on our business, financial condition, cash flows and results of operations. WE MAY HAVE TO EXPEND SIGNIFICANT RESOURCES TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE. Our industry is characterized by rapid technological change, changes in user and customer requirements, frequent new service or product introductions embodying new technologies and the emergence of new industry standards and practices. Any of these could hamper our ability to compete or render our proprietary technology obsolete. Our future success will depend, in part, on our ability to: o develop new proprietary technology that addresses the increasingly sophisticated and varied needs of our existing and prospective customers; o anticipate and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis; o continually improve the performance, features and reliability of our products in response to evolving market demands; and o license leading technologies. We may be required to make substantial expenditures to accomplish the foregoing or to modify or adapt our services or infrastructure. OUR PRODUCT STRATEGY IS PARTIALLY DEPENDENT UPON THE CONTINUED ACCEPTANCE AND USE BY BUSINESSES OF THE INTERNET AS A MEDIUM OF COMMERCE. Our success depends in part on the continued growth and reliance by businesses on the Internet. Because use of the Internet as a source of information, products and services is a relatively recent phenomenon, it is difficult to predict whether the number of users drawn to the Internet will continue to increase and whether the market for commercial use of the Internet will continue to develop and expand. The Internet may not be commercially viable for a number of reasons, including potentially inadequate development of the necessary network infrastructure, delayed development of enabling technologies and inadequate performance improvements. In addition, the Internet's viability as a commercial marketplace could be adversely affected by delays in the development of services or due to increased government regulation. Moreover, concern about the security of transactions conducted on the Internet and the privacy of users may also inhibit the growth of commerce on the Internet. If the use of the Internet does not continue to grow or grows more slowly than expected, or if the infrastructure for the Internet does not effectively support growth that may occur, our business would be materially and adversely affected. OUR BUSINESS IS SENSITIVE TO THE OVERALL ECONOMIC ENVIRONMENT. ANY SLOWDOWN IN INFORMATION TECHNOLOGY SPENDING BUDGETS COULD HARM OUR OPERATING RESULTS Any significant downturn in our customers' markets or in general economic conditions that results in reduced information technology spending budgets would likely result in a decreased demand for our products and services, longer selling cycles and lower prices, any of which may harm our business materially. WE ARE SUBJECT TO RISKS ASSOCIATED WITH EXCHANGE RATE FLUCTUATIONS. Substantially all of our revenues are in European currencies or U.S. dollars, while the majority of our operating expenses are in Canadian dollars and Norwegian kroner. We do not have any hedging programs in place to manage the potential exposure to fluctuations in the Canadian dollar or Norwegian krone exchange rates. Fluctuations in the exchange rates of these currencies or the exchange rate of other currencies against the Canadian dollar or Norwegian krone could have a material adverse effect on our business, financial condition, cash flows and results of operations. 10 OUR PREFERENCE SHARES COULD PREVENT OR DELAY A TAKEOVER THAT SOME OR A MAJORITY OF SHAREHOLDERS CONSIDER FAVORABLE. Our Board of Directors, without any further vote of our shareholders, may issue preference shares and determine the price, preferences, rights and restrictions of those shares. The rights of the holders of common shares will be subject to, and may be adversely affected by, the rights of the holders of any series of preference shares that may be issued in the future. That means, for example, that we can issue preference shares with more voting rights, higher dividend payments or more favorable rights upon distribution than those for our common shares. If we issue certain types of preference shares in the future, it may also be more difficult for a third party to acquire a majority of 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 of our shareholders. 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 2001 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, annuities, and the excess of gains over losses from the sale or exchange of property. 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. Our analysis has concluded that less than 65% of our gross income in 2001 was passive income, and less than 35% of our assets averaged over the 2001 taxable year produced or were held for the production of passive income. Accordingly, we believe that we were not a PFIC during 2001. If we are or become a PFIC, many of our U.S. shareholders will be subject to the following adverse tax consequences: o they will be taxed at the highest ordinary income tax rates in effect during their holding period on certain distributions on our capital shares, and gains from the sale or other disposition of our common shares; o they will be required to pay interest on taxes allocable to prior periods; and o 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 common 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. 11 IT MAY BE DIFFICULT FOR YOU TO ENFORCE LEGAL CLAIMS AGAINST US OR OUR OFFICERS OR DIRECTORS. We are incorporated under the laws of the Province of Ontario, Canada. Certain of our directors and officers are residents of Canada, Norway and Ireland, and substantially all of our assets and the assets of such persons are located outside the United States. As a result, it may be difficult for holders of common shares to effect service of legal process within the United States upon those directors and officers who are not residents of the United States. It may also be difficult to realize in the United States upon judgments of courts of the United States without enforcing such judgments in our home jurisdiction or the jurisdiction of residence of the director or officer concerned. ITEM 4 - INFORMATION ON THE COMPANY OVERVIEW We develop and sell software products and services that allow our customers to source, buy, track, manage and sell assets, primarily in asset intensive industries. We refer to our product and services suite as asset lifecycle management solutions. Our solutions can reduce sourcing, procurement and tracking costs, improve tracking and monitoring of asset performance and reduce downtime. For over ten years, our recently acquired Norwegian operations have provided enterprise asset management solutions to customers in Norway and Europe. For the past three years, we have provided sales solutions to customers in North America and Europe and during the past two years we have introduced sourcing and procurement solutions to customers in North America and Europe. Our customer list includes a number of leading organizations, such as BP, GE Capital, Halliburton, Dow Chemical, Irish Permanent Finance, and Forest Oil. While our asset management solutions have traditionally been found largely in the oil and gas industry, our other solutions have been implemented in a number of industries. COMPANY BACKGROUND Our business began as Internet Liquidators Inc., a business corporation formed under the laws of Ontario, Canada, in September 1995. In May 1996, Internet Liquidators International Inc., also an Ontario company, acquired all of the shares of Internet Liquidators Inc. These two companies were amalgamated in January 1997. In June 1998, we changed our name from Internet Liquidators International Inc. to Bid.Com International Inc. Prior to October 24, 2000, we operated two national business-to-consumer auction sites at www.bid.com, one in the United States and one in Canada. Following an extensive strategic review by our Board of Directors and management, we chose to close our retail operations late in 2000 and focus solely on our software business. In October 2001, we acquired ADB Systemer ASA of Sola, Norway, and changed our name from Bid.Com International Inc. to ADB Systems International Inc. We are governed by the Ontario Business Corporations Act. Our principal business offices in Canada are located at 6725 Airport Road, Suite 201, Mississauga, Ontario L4V 1V2, Canada and our telephone number is (905) 672-7467. In Norway, our principal business offices are located at Vingveien 2, 4050 Sola, Norway and our telephone number is +47 51 64 71 00. In the United States, our principal business offices are located at 3001 North Rocky Point Drive East, Suite 200, Tampa, Florida 33607 and our telephone number is (813) 281-4825. Additional information about us can be obtained at our web site - www.adbsys.com. The information contained on our web site is not part of this Annual Report. MAJOR DEVELOPMENTS 12 On October 11, 2001, we acquired substantially all of the shares of ADB Systemer ASA, a Norway-based provider of enterprise asset management and electronic procurement software. As a result of the acquisition of ADB Systemer we have significantly broadened our product offerings, customer base, and ability to penetrate new markets. The cost of the acquisition was $13.762 million, including 10,866,052 common shares and a $2.293 million cash outlay. Approximately 93 percent of the purchase price was attributed to software and related intellectual property and goodwill, valued at $3.383 million and $9.476 million respectively. In 2001, the acquisition contributed $818,000 in revenue and improved expense control through the integration and restructuring of worldwide operations. In conjunction with the acquisition of ADB Systemer, we changed our name to ADB Systems International Inc. and completed a two-for-one share consolidation. Our trading symbols on the Nasdaq National Market and The Toronto Stock Exchange changed as a result. PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES For a description of principal capital expenditures and divestitures, see Item 5 - OPERATING REVIEW AND PROSPECTS - REALIZED GAINS AND LOSSES ON MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS; and CAPITAL ASSETS. INDUSTRY BACKGROUND AND OVERVIEW Asset management software has existed for more than thirty years, initially through computerized maintenance management systems or CMMS, and more recently including more comprehensive and robust enterprise asset management, or EAM, and enterprise resource planning, or ERP, solutions. The early CMMS systems automated daily management of assets, while ERP solutions consolidate basic asset information with financial information at the corporate level. EAM solutions encompass elements of both, serving as the next evolution of CMMS solutions by bridging the gap between asset management and corporate-level planning and tracking requirements. The key value proposition for EAM solutions is that they can provide a quick and quantifiable return on investment, or ROI, and return on assets, or ROA. The latter is the most compelling for organizations. Cost and productivity improvements can immediately and measurably benefit organizations, and thus are highly desirable to potential customers, particularly in difficult economic times where the focus is increasingly bottom line oriented. In addition to EAM solutions, we offer sourcing and procurement solutions as well as sales solutions. These are natural extensions to EAM solutions, as organizations seek to extend asset management and corporate-level planning and tracking onto other elements of the asset lifecycle. OUR PRODUCTS AND OFFERINGS SOFTWARE SOLUTIONS We offer solutions for all aspects of the asset lifecycle - sourcing, buying, tracking, managing and selling. Below is a detailed description of our offerings: 13 Dynamic Buyer(TM) Our Dynamic Buyer product automates the delivery of bidding information and documentation between the user and its suppliers, and can be used to automate the decision-making process involved in sourcing goods, by providing automated analysis and selection among competing bids, based on a variety of pre-determined factors. Key features available include: o Request for quotations functionality allowing users to post an on-line offer to purchase that can be viewed by pre-qualified suppliers. Suppliers can download documentation related to the offer and then bid on-line. Users have the choice of whether to let bidders see the details of all other bids. o Sealed bid functionality allowing users to post their product or service requirements to selected vendors. The sealed bid system differs from the request for quotation in that the vendors only have one opportunity to supply a bid. Only after the close of the auction is the user able to view the vendor bids. o The ability of users to assign values to criteria involved in the purchase decision, such as price, product availability, post-sales support and certification standards. Bidders input responses to questions relating to these criteria, and responses are weighted by the software for presentation to the user. o Posting of detailed technical information, question and answer forums, and automatic e-mail notification of amended or new buyer-posted documents. o Bidders or vendors can be pre-qualified by the user and provided with access to view and download only the documentation that the user specifies. Dynamic Buyer is offered on the basis of number of seats (users). Service fees are charged separately. Dynamic Buyer Customers include DBI Logistics. ProcureMate(TM) ProcureMate is our web-based business to business e-procurement solution. Using ProcureMate, users can automatically post purchase orders from their purchasing system onto a private-labeled, dedicated web site where suppliers can examine and respond to them online. Key features available include: o Suppliers are notified automatically of new purchase orders through an email message with an embedded URL address that takes them directly to the web site and purchase order. o The system allows an online dialogue to take place between the user and its suppliers o ProcureMate includes a number of adaptors designed for direct plug-in to the supplier's enterprise resource planning (ERP) system, reducing manual efforts by the supplier and completing an electronic workflow from the person making the requisition to the suppliers staff picking items in their warehouse. o Functionality that eliminates ordering material that is in stock either locally or in remote warehouses, provides prioritized lists per location, and helps users to procure from master service agreements or direct from preferred suppliers. o Goods receiving can be performed in a distributed manner directly against the purchase order, reducing manual efforts, paperwork and the chance for error. o Facilitates the triggering of direct payment and electronic funds transfer. o Seamless integration of the customer's workflow and approvals into the procurement process. ProcureMate is offered on the basis of number of users. Service fees are charged separately. ProcureMate customers include BP Amoco (Norway), Forest Oil (USA) and Hordaland HFK County, a large local government entity in Norway. WorkMate(TM) The core product behind our suite of asset lifecycle solutions is our WorkMate EAM solution. WorkMate is a client-server solution that operates as an extension of, and can be fully integrated with, a customer's 14 existing ERP system. The WorkMate product (specifically the recently released version 2.8) incorporates asset maintenance, asset tracking, materials management and procurement functionality. WorkMate is designed for use by customers in asset intensive industries - - typically those where maintenance, repair and operations purchases outnumber raw material purchases by more than ten to one on a transaction volume basis. Examples of asset intensive industries are oil and gas, process industries (for example mining) and the utilities sector. The three main modules (procurement, materials management and maintenance functionality) may be licensed independently or together as a fully integrated system: o Procurement Module - for sophisticated domestic and international purchasing operations. Key features include: requisitioning, quotations, purchase orders, contracts, cost controls and vendor catalogues. The procurement module also monitors supplier performance in terms of accuracy, punctuality and cost. o Materials Management Module - for managing inventory and logistics operations. Key features include: inventory status, goods receipt, stock issue, reordering, packing/unpacking, transportation, goods return and equipment rentals. This Module will log all movements of an item and generates the necessary financial transactions. o Maintenance Module - for all types of maintenance, whether it is corrective, preventive or condition based. Customers can automate manual routines and track maintenance costs and equipment history. Each WorkMate module also includes workflow, asset tracking and reporting tools. WorkMate is a licensed client-server application and pricing is determined on the basis of number of users. Implementation work is estimated and offered at a fixed price or at hourly rates for consulting. WorkMate customers include: BP (Norway), Halliburton and Forest Oil (USA), as well as other industrial concerns such as Dow Chemicals (UK). Dynamic Seller(TM) Dynamic Seller is an on-line sales solution incorporating one or more of the following pricing methods - top bid (ascending) auction, dutch (declining price) auction, hybrid auction or fixed price. We develop, host and maintain customer-branded web-sites or sub-sites for customers using our sales solutions. Dynamic Seller is delivered through an application service provider model (remotely through the internet). Key features available include: o Conventional rising price auctions, under which the highest bids win the items auctioned. The rising price auction allows participants to competitively bid on available products and services by incrementally adjusting their bid positions. Our user interface allows users to easily identify current leading bidders, minimum new bids and initial bid pricing. Participants are informed of their bid status, stating whether they have won, been outbid, approved or declined via electronic mail. o Our patented Dutch (declining) auction format, in which a starting price is set and a limited time period is allocated for a fixed quantity of the product to be auctioned. As time advances, the price drops in small increments. The longer one waits, the lower the price. However, if a bidder waits too long the limited quantity of the product being auctioned may be sold out. The declining bid auction allows participants to bid in a real-time format utilizing on-screen data which provides the time and quantity remaining as well as the falling price of the items for sale. The bidders remain online and actively participate throughout the auction process. o Hybrid auction formats to meet a customer's particular needs. One example of a hybrid format is an auction which begins on a declining (Dutch Auction) basis until the first bid is received, and then converts to a rising price (Top Bid) auction to reflect demand. This format mimics the 'true auction' format seen in many off-line auctions. o Fixed price sales, under which the user posts the good or service and the price in a catalogue or directory format. The purchaser cannot bid on the price, but merely elects whether or not to purchase the good or service. 15 Dynamic Seller is offered on the basis of monthly hosting fees, typically with some form of revenue sharing arrangements. Service fees are charged separately. Dynamic Seller customers include GE Capital (USA), ShopNBC (USA) and Irish Permanent Finance (Ireland). RELATED SERVICES In connection with our software offerings, we provide the following services to our customers: Consulting. A significant number of our customers request our advice regarding their business and technical processes, often in conjunction with a scoping exercise conducted both before and after the execution of a contract. This input can include comments with respect to the customer's sourcing or procurement processes, assisting in the development of technical specifications, and recommendations regarding internal workflow exercises. Customization and Implementation. Based generally upon the up-front scoping exercise, we are able to customize our solutions as required to meet the customer's particular needs. This process can take as little as a few days, or as long as many months, depending on the degree of customization, the resources applied by the customer and the customer's business requirements. We work closely with customers to ensure features and functionality meet their expectations. Training. Upon completion of implementation (and often during implementation), we train customer personnel to utilize our Solutions through our administrative tools. Training can be conducted one-on-one or in groups. We also conduct "train the trainer" sessions. Maintenance and Support. We provide software upgrades and ongoing support to our customers. THIRD PARTY OFFERINGS In addition to the sale of our core solutions and services, we have entered into marketing or co-marketing agreements with a number of companies that offer services that are complementary to our offerings. We market these complementary services to our customers and prospects and can earn a referral fee if these services are purchased. In some cases our marketing partner has agreed to market our solutions to its customers and prospects and can earn a referral fee. Our marketing partners include:
Partner Service or Offering --------- ------------------- Production Access, Inc. Oil and Gas Data Management Solutions Explorer Software Solutions Ltd. Oil and Gas Property Management Solutions Amec Services Limited Engineering Services ecwebworks Inc. Electronic Document Exchange Eloqua Corporation Strategic Marketing Solutions
SEASONALITY We experience some seasonal reductions in business activity in European markets during the summer months. STRATEGY Our business strategy is comprised of the following key components: STRENGTHEN OUR POSITION AS AN EAM VENDOR AND IMPROVE OUR VISIBILITY IN OTHER AREAS OF THE ASSET LIFECYCLE. Gartner Group ranked ADB Systemer ASA within their `magic quadrant' of twelve leading EAM vendors globally 16 in 2000. We believe our procurement and sourcing offerings are competitive, and will strive to improve our ranking and visibility in industry comparisons. MAINTAIN AND ENHANCE OUR TECHNOLOGY. We consider our proprietary software offerings to be competitive, however it is critical that we continue to maintain and enhance our technology. We have recently released Dynamic Buyer version 2.0 and ProcureMate version 2.8, and expect further versions of both products in 2002. ENTER INTO AND MAXIMIZE ALLIANCES. We have marketing and other relationships with AMEC, GE Capital, Production Access and a number of other leading companies in a broad range of industries. We are seeking to expand on these relationships and enter into similar relationships with other companies. We believe that these and future relationships will help provide us with access to important industry participants and will help increase our brand awareness. SEEKING ACQUISITIONS AND STRATEGIC INVESTMENTS. We plan to 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. CUSTOMERS We provide our solutions to customers in a variety of industries, including: oil and gas, public authorities, automotive, and transportation. The revenue structures and particular services provided vary depending upon the needs of the customer and the solution concerned. For licensed offerings we generally collect a license fee based on number of users, service fees for implementation and training, and support and maintenance fees. For hosted offerings, we generally collect an up-front implementation fee, monthly hosting fee, and a share of revenue or transaction volumes. The following is a representative list of some of the customers for whom we have implemented our solutions:
Customer Solution(s) Industry Segment Geographic Location - ------------------------------------------------------------------------------------------------------------- BP ProcureMate; WorkMate Oil and Gas Norway - ------------------------------------------------------------------------------------------------------------- Forest Oil WorkMate Oil and Gas Norway - ------------------------------------------------------------------------------------------------------------- Hordaland FK ProcureMate Public Authority Norway - ------------------------------------------------------------------------------------------------------------- GE Capital CEF Dynamic Seller Leasing US (financial/heavy equipment) - ------------------------------------------------------------------------------------------------------------- Skermans Dynamic Seller Manufacturing (packaging UK machinery) - ------------------------------------------------------------------------------------------------------------- Irish Permanent Finance Dynamic Seller Leasing (automotive) Ireland - ------------------------------------------------------------------------------------------------------------- ShopNBC.com Dynamic Seller Retail 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, Dublin, and Stavanger. Our marketing efforts are focussed on targeted marketing campaigns, rather than broad based "awareness" campaigns. Potential customers are identified through direct contact, responses to request for information, attendance at trade shows, and industry contacts. We principally focus on trade show participation, seminar series for specific industries or professionals, and outgoing lead generation. We use reference customers to assist us in our marketing efforts, both through direct contact with potential customers and through site branding and case studies. We also rely on our alliance partners to assist in our marketing efforts. 17 TECHNOLOGY PLATFORM ADB has devoted significant resources to developing its proprietary software technology. The technology platform is constructed using distributed software technologies which allow rapid redevelopment and deployment of new software technology in order to take advantage of emerging business opportunities. The company's technology platform is based on Microsoft core applications, including the Windows NT operating system and a SQL server relational database, all residing on scaleable hardware. The company is also making use of Microsoft's.net web services platform. The software is constructed using an advanced proprietary XML framework and resides on an N-tier architecture. The support of open systems allows integration with a large variety of existing commercial, proprietary and legacy applications. 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. RESEARCH AND DEVELOPMENT We believe that our proprietary software provides a competitive advantage, and that our future success depends, in part, on our ability to continue developing and enhancing that software. Therefore, we have focused our research and development efforts on the continued development of our proprietary software offerings. Our ongoing research and development efforts are aimed at the continued 'productization' of specific elements of our software, enhancing the features and functionality of our existing software components, the development of new software components, and the integration of superior third party technology into our environment. Productization involves the development of 'generic' applications to reduce programming time and costs for customer implementations. Our research and development expenditures were approximately $3.691 million for the year ended December 31, 2001, $1.802 million for the year ended December 31, 2000, and $1.001 million for the year ended December 31, 1999, including salaries and related expenses of our personnel engaged in research and development. Research and development activities in 2001 included the development of version 2.0 of our DYNAMIC BUYER Solutions, a new version of our PROCUREMATE solution, and development relating to our DYNAMIC SELLER solution. In 2002, we are expecting to release further versions of WorkMate, Dynamic Buyer and ProcureMate. Presently, 18 staff members are dedicated to product development. We expect to continue to focus significant resources on system development to ensure the continued reliability and competitiveness of our technology. 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. We have received patents from the U.S. Patent and Trademark Office covering the process whereby we conduct Dutch auctions over electronic distribution channels. We have patent applications pending in Canada covering the same technology. 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. 18 In an effort to protect our trade secrets, and as part of our confidentiality procedures, we generally enter into confidentiality and non-disclosure agreements with our employees and consultants and generally limit access to and distribution of our software, documentation and other proprietary information. Additionally, we limit physical access to our premises, software and hardware and employ security measures to protect against damage or theft. COMPETITION The market for each solution comprising our asset lifecycle management suite is intensely competitive. Many of the companies we compete with have much greater financial, technical, research and development resources than we. In the asset lifecycle management area, we believe only Datastream Systems, Inc. offer as broad a suite of solutions as we do. By component solution, we face a number of competitors: Sourcing - FreeMarkets, Procuri, B2E Markets, Emptoris, Moai Procurement - MRO Software, Ariba, Clarus, Commerce One, Purchase Pro EAM - related solutions - MRO Software, Inc., Indus International, Marcam Corporation, Mincom, Inc., Peregrine Systems, and broader ERP solution providers such as SAP, J.D. Edwards, and Oracle Sales solutions - Fairmarket, Ariba, Commerce One, Seibel In addition, many organizations develop their own solutions for certain elements of the asset lifecycle, or use third party exchanges or aggregations sites, such as eBay, FreeMarkets, VerticalNet or industry-specific exchanges such as Covisint. In order to remain competitive and improve our competitiveness, we will need to make continued investments in product development and improve our market visibility and financial situation. C. ORGANIZATIONAL STRUCTURE The table below lists our subsidiaries. Unless otherwise indicated, we, or one of our subsidiaries, own 100% of the outstanding capital stock of the companies listed. Name of Subsidiary Country of Incorporation ------------------ ------------------------ ADB Systemer ASA (1) Norway ADB Systems International Limited Ireland ADB Systems Limited England Bid.Com (U.K.) Limited England ADB Systems, Inc. USA (Delaware) Bid.Com USA, Inc. USA (Florida) Bid.Com International Pty. Ltd. (2) Australia Internet Liquidators USA, Inc. (2) USA (Florida) (1) As of December 31, 2001, we owned 98.3% of the outstanding voting shares of ADB Systemer ASA. Under Norwegian corporate law, we may trigger compulsory acquisition of the remaining shares at any time. The remaining shareholders each have the same right to trigger compulsory acquisition. If we acquire all or any of the remaining shares of ADB Systemer we will pay a purchase price as agreed with the shareholder, failing which the value shall be determined by arbitration. (2) Dormant. We anticipate dissolving these companies in 2002. 19 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) ------------------------------------------------------------------------------------------------- 6725 Airport Road, Executive, Administrative, 10,165 Expires Oct. 2004 Suite 201 Engineering and Marketing Mississauga, Ontario ------------------------------------------------------------------------------------------------- Vingveien 2, Executive, Administrative, 13,493 Expires July 2003 4050, Sola Norway Engineering and Marketing ------------------------------------------------------------------------------------------------- 700 South Circular Road Administrative, 2,000 Expires Jan. 2003 Kilmainham, Engineering and Marketing Dublin, Ireland ------------------------------------------------------------------------------------------------- Blenheim House, 2nd Floor Marketing 2,284 Expires Sept., 1/2 Bridge Street, 2005 (1) Guildford, Surrey, England ------------------------------------------------------------------------------------------------- 3001 North Rocky Point Drive Executive 143 Expires Dec. 2002 East, Tampa, Florida -------------------------------------------------------------------------------------------------
(1) We are presently in the process of assigning this space to a third party, following which we will be moving this office to another location in Guildford on a monthly basis. In addition, we have sub-let office space previously occupied by us in Tonsberg, Norway. This space is 2,851 square feet in size, and the lease expires in October 2005. 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, other than a single apartment unit in Sola, Norway which is used to house employees traveling to our Norwegian offices. ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH "ITEM 3.A - SELECTED FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. SEE "FORWARD-LOOKING STATEMENTS". History and Overview 20 Since 1988, ADB Systemer ASA has had a successful track record of providing enterprise asset management (EAM) solutions to organizations in the oil and gas and public sectors. In October of 2001, ADB Systemer was acquired by Bid.Com, a leading provider of dynamic pricing solutions. As a combined entity, we operate as ADB Systems International Inc. ("ADB"), with offices in Toronto (Canada), Tampa (U.S.), Dublin (Ireland), London (U.K.) and Stavanger (Norway). We deliver asset lifecycle management solutions that help companies source, manage and sell assets for maximum value. ADB works with a growing number of customers and partners in a variety of sectors including oil and gas, government, chemicals, manufacturing and financial services. Current customers and partners include BP, GE Capital, Halliburton Energy Resources, HFK, Irish Permanent Finance, ShopNBC, and Skerman Group. Our shares trade on both the Nasdaq National Market (NASDAQ: ADBI) and the Toronto Stock Exchange (TSE: ADY). See Item 4 - INFORMATION ON THE COMPANY for a broader discussion regarding our background and operations. COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000 ACQUISITION OF ADB SYSTEMER ASA. On October 11, 2001, we acquired substantially all of the shares of ADB Systemer, a Norway-based provider of enterprise asset management and electronic procurement software. The acquisition of ADB Systemer resulted in a significant broadening of our product offerings, customer base, and ability to penetrate new markets. The cost of the acquisition was $13.762 million, including a $2.293 million cash outlay. Approximately 93 per of the purchase price was attributed to software and related intellectual property and goodwill, valued at $3.383 million and $9.476 million respectively. In 2001, the acquisition contributed $818,000 in revenue and improved expense control through the integration and restructuring of worldwide operations. With the adoption of new standards in accounting for business combinations and goodwill, we were required to test the fair value of the goodwill against its carrying value. It was determined that a goodwill impairment of $9.476 million be recorded. This impairment charge represents a non-cash expense. As a result of the new accounting standards, no future goodwill amortization expense will be required to be recorded. NET INCOME (LOSS). Our net loss for the year ended December 31, 2001 was $18.714 million, an improvement of 8.1 percent over the net loss of $20.366 million reported for the year ended December 31, 2000. Excluding items outside of the normal course of operations, our loss was $12.185 million, as compared to $26.022 million in 2000, an improvement of 53.2 percent. This improvement is a result of significant cost-reduction measures as well as our exit from business-to-consumer retail activities. This year represented a full year of operations under a business-to-business model of software licensing and related services. The revised business model resulted in significantly lower revenues and lower losses from operating activities. An organization-wide restructuring plan during the year resulted in significant cost savings in general and administrative expenses, with minimal impact on revenue and technology-related activities. As compared to 2000, we experienced a net savings of $8.614 million in general and administrative expenses, largely as a result of corporate-wide restructurings. A portion of these savings were re-invested in areas that are expected to support future growth, notably $879,000 in additional sales and marketing expenses and $1.889 million in additional software development and technology expenses. REVENUE. Revenue is derived from software licensing and related services from consulting, implementation, application hosting, training, maintenance and support activities. Prior to October 24, 2000, revenue also includes on-line retail sales of merchandise and associated shipping revenue. Revenue declined to $4.455 million for the year ended December 31, 2001 from $12.497 million for the year ended December 31, 2000, representing a decline of 64.4 percent. The decline in revenue resulted from our exit from on-line retail operations in 2000. 21 Our revenue from software licensing and related services improved to $4.455 million for the year ended December 31, 2001 from $2.402 million for the year ended December 31, 2000, an increase of 85.5 percent. This improvement is attributable to our reduced focus on retail operations, the addition of the operations of ADB Systemer in October 2001, and the termination of several customer agreements during the year that resulted in the acceleration of deferred revenue. Our retail operations generated $10.095 million of total revenue for the year ended December 31, 2000. Revenue outside North America was $1.634 million for the year ended December 31, 2001, compared to $86,000 for the year ended December 31, 2000, an increase of 1800 percent. Sales penetration of our Ireland and UK operations and the acquisition of ADB Systemer contributed to the significant increase in revenue outside North America. With the acquisition of ADB Systemer, we anticipate that revenue outside North America will account for the majority of our revenue in 2002, with reliance on European clients, particularly Norwegian, lessening over time. CUSTOMER ACQUISITION COSTS. Customer acquisition costs reflect non-cash expenses incurred in securing customer agreements. Specifically, these costs represent the calculated value of share purchase warrants issued to GE Capital in return for certain contracts using the Cox-Rubinstein binomial valuation model. For the year ended December 31, 2001, these costs amounted to $60,000. In 2000, the costs amounted to $157,000. The decrease was the result of our decline in share price, which reduced the fair value of the share purchase warrants. The GE warrants have now been fully expensed. GENERAL AND ADMINISTRATIVE. General and administrative expenses include, primarily: all salaries and related expenses (including benefits and payroll taxes) other than fees to independent contractors for research and development, technology staff compensation (which is included in software development and technology expenses), and sales and marketing staff compensation (which is included in sales and marketing expenses); occupancy costs; foreign exchange gains or losses; professional fees; insurance; investor relations; regulatory filing fees; and travel and related costs. General and administrative expenses dropped to $7.622 million for the year ended December 31, 2001, as compared to $16.236 million for the year ended December 31, 2000, a decline of 53.1 percent. As indicated previously, the organization-wide restructuring plan implemented during the year resulted in substantial reductions in headcount and related office overheads. Savings from reduced headcount as a result of these measures totaled $2.725 million. A rationalization of professional fee and investor relations budgets through greater reliance on internal staff resulted in $2.245 million in savings notwithstanding reductions in headcount. A decrease in share purchase warrant and bad debt expenses resulted in an additional $1.514 million in savings. The balance of the savings were attributable to lower travel costs, occupancy costs, and the closure of the Australian, New York, and Sacramento offices. SALES AND MARKETING. Sales and marketing costs include all salaries and related expenses of sales and marketing personnel as well as business development expenses such as advertising, sales support materials, and trade show costs. For the year ended December 31, 2001, sales and marketing costs amounted to $4.040 million, as compared to $3.161 million for 2000, an increase of 27.8 percent. This increase is attributable to higher staffing levels in the sales department combined with increased tradeshow and lead generation activities in the first three quarters of 2001. SOFTWARE DEVELOPMENT AND TECHNOLOGY. Software development and technology expenses consist of costs associated with acquired and internally developed software, and research and development expenses, including fees to independent contractors and salaries and related expenses of personnel engaged in these activities. Software development and technology expenses increased to $3.691 million for the year ended December 31, 2001 from $1.802 million for the year ended December 31, 2000, an increase of 104.8 percent. The increase in software development expenses was largely attributable to the development of Dyn@mic Buyer version 2.0 (a second release 22 of our sourcing solution), custom work for clients, and development relating to Dyn@mic Seller, our sell-side solution. Salary expense for technology-related personnel increased $1.388 million over 2000, partly as a result of capitalization of $541,000 of core software development costs in 2000, and increased hiring to further software development, service clients, and decreased reliance on non-employee development consultants. The acquisition of ADB Systemer in the fourth quarter resulted in an additional $473,000 in technology-related costs. A significant portion of the 2000 software development and technology expense was borne in the fourth quarter of 2000, when virtually all of such resources were dedicated to our software and services activities. During the second and third quarters of fiscal 2000, a significant amount of time and expense was devoted to development of core technology for customer applications and as a result 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 development in the fourth quarter of 2000. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $1.572 million for the year ended December 31, 2001 as compared to $1.130 million for the year ended December 31, 2000, an increase of 39.1 percent. This increase was primarily due to the depreciation in the fourth quarter of 2001 of certain software acquired as a result of the ADB Systemer acquisition. DIRECT EXPENSES. Direct expenses related solely to our retail operations, and reflected negotiated reserve prices with vendors for the supply of goods sold by our company prior to October 24, 2000. Direct expenses were $11.460 million (113.5 percent of retail revenue) for the year ended December 31, 2000. No direct expenses were incurred in 2001. ADVERTISING AND PROMOTION. Advertising and promotion expenses related to retail operations and consisted primarily of advertising and marketing fees, promotional pricing expenses, and expenses paid to marketing partners from which we purchased advertising space. Advertising and promotional expenses did not include salaries and related expenses of our sales and marketing personnel which were included in sales and marketing costs. No advertising and promotional expenses related to retail operations were incurred in 2001. INTEREST INCOME. Interest income reflects interest from investments in cash and marketable securities. Interest income was $345,000 for the year ended December 31, 2001, as compared to $467,000 for the year ended December 31, 2000, a decline of 26.1 percent. This decline was largely attributable to lower cash and money market funds on hand in 2001 and decreasing interest rates. REALIZED GAINS AND LOSSES ON DISPOSAL OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS, AND RECOVERY OF ASSETS. Realized gains on disposal of marketable securities and strategic investments amounted to $6.722 million for the year ended December 31, 2001, compared to $20.946 million for the year ended December 31, 2000. These gains are outside of the normal course of operations but are not considered extraordinary items. The disposal of our equity position in Point2 Internet Systems Inc. (amounting to a net gain of $2.249 million) coupled with a realized gain on the disposal of America Online Inc. (AOL) shares (a net gain of $3.656 million) accounted for most of the gain in 2001. We also recovered a $811,000 receivable from Point2 that had been provided for in 2000. In 2000, the gain relates primarily to the disposal of our strategic investment in Quack.com. As a result of AOL's acquisition of Quack.com, we converted our $1.221 million investment in Quack.com into shares of AOL 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 AOL in the fourth quarter of 2000. UNREALIZED GAINS AND LOSSES ON REVALUATION OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS, AND PROVISION FOR IMPAIRMENT OF ASSETS. Unrealized gains and losses on marketable securities and strategic 23 investments, and provisions for impairment of assets are the result of an assessment by management as to the recoverability of the value of certain assets and are not realized losses. Unrealized losses are outside the normal course of operations but are not considered extraordinary. Unrealized losses for the year ended December 31, 2001 were $2.435 million, compared to $11.697 million for the year ended December 31, 2000. We conduct an assessment of our strategic investment portfolio at the end of each fiscal period by analyzing the financial performance of the companies we invested in as well as general market conditions. In 2001, we recorded impairment provisions totaling $1.528 million compared to $5.600 million in 2000. As our investments are all in companies in the technology sector, the market performance of these holdings has been dramatically affected by economic conditions. In 2000, we revalued our marketable securities, which were largely comprised of shares of AOL, resulting in an adjustment of $4.846 million to reflect market value. We also reviewed our investment in Point2 and provided $802,000 in 2000 for a receivable from Point2. In May, 2001, we sold our equity interest in Point2 to the management of Point2 for $2.603 million in cash. RESTRUCTURING CHARGES. In April and September, 2001 we implemented cost-reduction measures intended to ensure future viability. The $959,000 in restructuring charges for 2001 relate to these staff reductions and associated measures. There were no such charges in 2000. RETAIL ACTIVITIES SETTLEMENT. Although we ceased our on-line operations in October of 2000, we have since experienced a supplier issue relating to prior years. This amount totaled $381,000, all of which was disbursed in the first half of 2001. These amounts were not previously anticipated. GOODWILL IMPAIRMENT. We acquired ADB Systemer in October of 2001 for a total consideration of $13.762 million. Of this amount, we attributed $9.476 million to goodwill. With the adoption of new accounting standards for business combinations and goodwill, we were required to test the fair value of the goodwill against its carrying value. It was determined that a goodwill impairment loss of $9.476 million be recorded. This impairment charge is a non-cash expense, and no future goodwill amortization expense will be recorded. In 2000, we reviewed our investment in Point2, and determined that the goodwill associated with this investment had become impaired. As a result, we recorded a goodwill impairment provision of $3.593 million. In May, 2001, we sold our equity interest in Point2 to the management of Point2 for $2.603 million in cash. COMPARISON OF YEARS ENDED DECEMBER 31,2000 AND DECEMBER 31, 1999 NET INCOME (LOSS). Our net loss declined to $20.366 million for the year ended December 31, 2000 from $20.825 million for the year ended December 31, 1999, a reduction of 2.2 percent. Before items outside of the normal course of operations, our loss in 2000 was $26.022 million, as compared to $20.825 million in 1999, a worsening of 25.0 percent. The increase in operational loss was largely the result of investments in infrastructure, sales and marketing, and software development to support the future growth of the Company as a business-to-business software provider. REVENUE. 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 percent. The decline in revenue was the result of our planned exit from on-line retail operations, which commenced in the second quarter of 2000 and continued through to the fourth quarter. Our 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 our planned exit from on-line retail operations. Our revenue from software licensing and related services totaled $2.402 million for the year ended December 31, 2000 and $4.411 million for the year ended December 31, 1999. The higher level in 1999 was the result of two significant software licensing arrangements signed in fiscal 1999 that did not recur in fiscal 2000 and a change in 24 our software delivery model from a licensed offering to a hosted offering. Substantially all of our revenue was earned in North America in 2000, and 1999. CUSTOMER ACQUISITION COSTS. For the year ended December 31, 2000, these costs amounted to $157,000. There were no customer acquisition costs for 1999. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased to $16.236 million for the year ended December 31, 2000 from $12.405 million for the year ended December 31, 1999, an increase of 30.9 percent. The increase in general and administrative expenses included 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. We also experienced a significant increase in staffing, primarily associated with the expansion of our software licensing and related service activities. For the year ended December 31, 2000, we also recorded a non-recurring charge of $1.0 million primarily related to strategic consulting costs. SALES AND MARKETING. For the year ended December 31, 2000, sales and marketing costs amounted to $3.161 million. In 2000, we began building our sales and marketing infrastructure to support business-to-business activities, resulting in the hiring of sales and marketing personnel and the production of marketing materials. SOFTWARE DEVELOPMENT AND TECHNOLOGY. 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 percent. The increase in software development expenses was largely attributable to development of core and non-core software to improve scalability, functionality, and deployability in the software-licensing 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 percent 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 development of core technology for customer 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 development 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 percent. This increase was primarily due to a full year of amortization of goodwill as a result of our investment in Point2, amortization of capitalized core software development costs as well as a significant increase in server equipment and computers acquired to enhance the infrastructure supporting our business-to-business activities. DIRECT EXPENSES. Direct expenses were $11.460 million (113.5 percent of retail revenue) for the year ended December 31, 2000 as compared to $26.696 million (100.4 percent of retail revenue) for the year ended December 31, 1999. The decline in direct expenses was attributable to our exit from on-line retail operations in 2000. ADVERTISING AND PROMOTION. 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 percent. As a percentage of on-line retail revenue, advertising and promotion expenses were 49.9 percent of retail revenue in 2000 as compared to 44.6 percent 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 even 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 AOL, 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 AOL. INTEREST INCOME. Interest income was $467,000 for the year ended December 31, 2000, as compared to $767,000 for the year ended December 31, 1999, a decrease of 39.1 percent. This decrease was largely attributable to lower cash and money market funds on hand in 2000. 25 REALIZED GAINS AND LOSSES ON DISPOSAL OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS, AND RECOVERY OF ASSETS. Realized gains on disposal of marketable securities and strategic investments amounted to $20.946 million for the year ended December 31, 2000, with no comparative balance for the prior year. This amount includes the disposal of our strategic investment in Quack.com. As a result of AOL's acquisition of Quack.com, we converted our $1.221 million investment in Quack.com into shares of AOL 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 AOL in the fourth quarter of 2000. UNREALIZED GAINS AND LOSSES ON REVALUATION OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS, AND PROVISION FOR IMPAIRMENT OF ASSETS. Unrealized losses for the year ended December 31, 2000 were $11.697 million, with no comparative balance for the prior year. We conducted an assessment of our strategic investment portfolio at December 31, 2000 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. We also revalued our marketable securities at December 31, 2000, which were largely comprised of shares of AOL 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 AOL and realized a gain of $3.656 million. In addition, at December 31, 2000, we also reviewed our investment in Point2, and it was determined that the recoverability of funds loaned to Point2 was in doubt. As a result, a provision of $802,000 was recorded for a receivable from Point2. GOODWILL IMPAIRMENT. At December 31, 2000, the Company reviewed its investment in Point2, and it was determined that the goodwill associated with this investment had become impaired. As a result, we incurred an impairment provision of $3.593 million for the goodwill. CRITICAL ACCOUNTING POLICIES. The accounting policies followed by the Company have a critical effect on the financial reporting of the Company. These policies involve complex judgments and estimates which affect the amount of revenue recognized, the recognition and amortization of assets and liabilities and the recoverability of assets. The valuation and recoverability of assets is generally based on the projected cash flows from these assets. These significant accounting policies are discussed in Notes 2 and 17 of the financial statements. The Company does not have any off-balance sheet special purpose entities. LIQUIDITY AND CAPITAL RESOURCES FUNDING (OVERVIEW). We have been funded to date primarily through a series of private placements of equity, sales of equity to and investments from strategic partners, gains from investments, option exercises and cash flow from operations. We have received aggregate net proceeds of $78.2 million from equity financing and have realized $23.7 million in gains on investment disposals. FUNDING (1999). 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. Gross proceeds were $17,155,772 from which was deducted commission of $857,789 (five percent) and estimated expenses of approximately $250,000 to yield net proceeds of $16,047,983. The share purchase warrants expired on September 30, 2001. FUNDING (2000). In June 2000, we issued to Acqua Wellington Value Fund Ltd. a total of 900,790 common shares and common share purchase warrants to purchase 360,316 common shares, for proceeds of U.S. $2.1 million. 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 was exercisable to acquire one common share for two years at an exercise price of US$2.68 per warrant 26 (one-half warrant at U.S. $5.36 post-consolidation). The purchase price was determined based on a formula tied to the market price of common shares during the 15 day trading period ended June 8, 2000. On August 31, 2000, we exchanged our shares in Quack.com Inc., which had a cost of $1.221 million, for shares in AOL valued at $21.918 million, resulting in a gain of $20.697 million. During 2000 and 2001, we liquidated some of our shares in AOL to fund operations. In January 2002, we liquidated the remainder of our AOL holdings. FUNDING (2001). During 2001, we continued to liquidate our AOL position to fund operations. In addition, we disposed of our equity position in Point2 for $2.603 million and recovered a $811,000 receivable from Point2 that had been provided for in 2000. In October 2001, with the acquisition of ADB Systemer, we paid $2.293 million in cash to the shareholders of ADB Systemer in connection with the acquisition. As a result of that acquisition, we acquired $811,000 of cash held by ADB Systemer at the time of acquisition. FUNDING (2002). On April 24, 2002, we entered into an agreement with Stonestreet LP for a $1.1 million private placement. On April 25, 2002, we issued 3.3 million common shares at US $0.21 per share and warrants exercisable into 1 million common shares at US $0.35 per share. The warrants have a term of three years. With this additional funding in place, we anticipate that we have sufficient funds to continue operations through 2002. CAPITAL ASSETS. Additions to capital assets for the year ended December 31, 2001 were $317,000 primarily related to computer hardware and server equipment. For the year ended December 31, 2000, additions totaled $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 for computer hardware, equipment, furniture and fixtures and leasehold improvements. We currently have a capital lease obligation totaling $60,000 over the next two 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 our shift in business model, we capitalized $541,000 of software development costs as part of a core software development project in 2000. These costs will be amortized over the expected useful life of the software which is expected to be 24 months. We did not capitalize any software costs in 2001. PRESENT STATUS. We have not earned profits to date and, at December 31, 2001, we had an accumulated deficit of $87.583 million. We have generated negative cash flow from operations since inception. We have expended and expect to continue to expend substantial funds to continue to develop technology, build an infrastructure to support our business development efforts and expand other areas of our business including the acquisition of, or strategic investments in, complementary products, businesses or technologies. As a result, we expect to incur losses into 2003 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, 2001, and March 31, 2002 (unaudited), we had cash on hand and marketable securities of $4.215 million and $2.612 million, respectively. At this time, we expect that current cash balances, anticipated funds from operations and the funding from April 24, 2002 will be sufficient to meet our needs through 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 additional 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, this may have a material adverse effect on our business, financial condition, cash flows and results of operations. 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. 27 FOREIGN CURRENCY RATE FLUCTUATIONS. While our financial statements are in Canadian dollars, revenue is generated in Norwegian kroner, US dollars and other currencies. We incur the majority of our expenses in Canadian dollars and Norwegian kroner. As a result, we may suffer losses due to fluctuations in exchange rates between the Canadian dollar or Norwegian krone 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, marketable securities, and short-term interest bearing certificates. NET OPERATING LOSSES FOR TAX PURPOSES. We have available an aggregate of approximately $65 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, $1.924 million expires in 2003, $6.401 million expires in 2004, $19.828 million expires in 2005, $19.262 million expires in 2006, $1.341 million expires in 2007, $7.300 million expires in 2008, $1.576 million expires in 2009, $2.927 million expires in 2010, $1.044 million expires in 2011 and $2.967 million expires in 2012. Our net operating losses are subject to assessment of our tax returns by taxation authorities. 28 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. Jan Pedersen and Jean-Pierre Soubliere are nominees for election at our next annual meeting of shareholders, scheduled for June 12, 2002. If elected, they will replace John Reynolds and Charles Walker, who have not been included in the slate of directors being presented to the shareholders.
Name Age Position - ---- --- -------- Directors Jeffrey Lymburner(1) 45 Director and Chief Executive Officer Martin Bekkeheien(4),(5) 59 Director T. Christopher Bulger(3) 45 Director Paul Godin(3) 49 Director Jim Moskos 39 Director and President, ADB Technology Group David Pamenter(2),(4) 54 Director and Assistant Secretary John Reynolds(3),(5) 31 Director Ken Sexton(2) 48 Director Charles S. Walker(2) 66 Director Executive Officers (other than Messrs. Lymburner and Moskos) Mark Wallace 42 President Jan Pedersen(5) 44 President, Norwegian Operations Aidan Rowsome 41 Vice-President, Global Sales John Mackie 37 Vice President, General Counsel and Secretary
- ---------- (1) Mr. Lymburner is acting Chairman of the Board of Directors. (2) Member of Audit Committee. (3) Member of the Management Resources and Compensation Committee (4) Member of the Corporate Governance Committee. (5) Nominee of certain of the prior shareholders of ADB Systemer ASA pursuant to a Board Representation Agreement. See "Board Practices" below. The business experience of each of our directors, executive officers and director nominees for at least the last five years is as follows: Directors JEFFREY LYMBURNER, Oldsmar, Florida DIRECTOR SINCE MAY 28, 1996 Acting Chairman Mr. Lymburner has been our Chief Executive Officer since August 1, 1999 and was a founding shareholder of our company. From August 28, 1998 to October 11, 2001, he also held the title of President. Prior to the founding of our company, Mr. Lymburner was President of Completely Mobile Inc., a cellular and wireless data company, from 1990 to 1995. 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 29 consumer electronics retail chain. Mr. Lymburner started his career as a Systems Engineer with IBM in 1978. MARTIN BEKKEHEIEN, Sola, Norway DIRECTOR SINCE OCTOBER 11, 2001 Member of the Corporate Governance Committee Mr. Bekkeheien served as a member of the Board of Directors of ADB Systemer ASA from April 2000 to October 2001, acting as Chairman from September 2000. Mr. Bekkeheien is a Senior Vice-President of Statoil, the Norwegian state-owned oil company, presently in charge of leadership development. He has held several director positions within Statoil over the last twenty years. Mr. Bekkeheien is also a director of Allianse Informasjonssystemer AS. T. CHRISTOPHER BULGER, Toronto, Ontario DIRECTOR SINCE MAY 28, 1996 Chairman of the Management Resources and Compensation Committee Mr. Bulger is the Chairman and CEO of Megawheels Technologies Inc., an automotive advertising and retail technologies company. He was previously President and Chief Executive Officer of eLab Technology Ventures Inc., a venture capital firm associated with the Royal Bank of Canada, from December 1999 until December 2001. Mr. Bulger served as Executive Vice President of our company from September 1998 to December 1999 and Chief Financial Officer of our company from April 1996 to September 1998. Mr. Bulger was a partner with HDL Capital Corporation, a Toronto based merchant bank specializing in the venture capital sector from 1993 until 1999. He is currently a director of Megawheels. Mr. Bulger is a Chartered Financial Analyst (CFA) and holds an MBA from the European Institute of Business Administration (INSEAD). 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. Aside from being one of the founding shareholders 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 designed and implemented wireless data systems. He has an extensive marketing and management background spanning 20 years in retail and wholesale electronics and computer distributors. JIM MOSKOS, Toronto, Ontario DIRECTOR SINCE JUNE 7, 1999 Mr. Moskos has been President of the ADB Technology Group since October 19, 1999. Mr. Moskos served as Vice President - Technology of our company from September 1997 to October 19, 1999. From September 1994 to August 1997, Mr. Moskos was Senior Technology Manager for the Canadian Department of Indian Affairs and Northern Development responsible for setting the technical direction for all aspects of application development. Mr. Moskos was a recipient of the 1998 and 1996 Canadian Information Productivity Awards 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 Chairman of the Corporate Governance Committee and Member of the Audit Committee Mr. Pamenter has been a partner in Gowling, Lafleur, Henderson LLP, 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. 30 Mr. Pamenter also serves on the boards of a number of client companies and community groups. JOHN REYNOLDS, DIRECTOR SINCE OCTOBER 11, 2001 Member of the Management and Resources Compensation Committee Mr. Reynolds served as a member of the Board of Directors of ADB Systemer ASA from March 2000 to October 2001. Mr. Reynolds is a principal of Lime Rock Partners, a private equity firm focused on small cap opportunities in the energy sector, and a shareholder in our company. Mr. Reynolds was previously a Vice-President in the Research Department of Goldman Sachs & Co., where he was the senior analyst responsible for the oil field services and drilling sector from 1992 to 1998. Mr. Reynolds is not a nominee for re-election at our next annual meeting of shareholders, scheduled for June 12, 2002. KEN SEXTON, DIRECTOR SINCE OCTOBER 5, 2000 Chairman of the Audit Committee Mr. Sexton is a private investor. From December 1998 to February 2002, he was Senior Vice President of Finance and Administration and Chief Financial Officer of Merant, an e-business software company. Prior thereto he was Chief Financial Officer of Intersolv, an enterprise software product company from 1991. From 1984 to 1991, he was the Controller and Chief Accounting Officer of Life Technologies Inc. Mr. Sexton is a Certified Public Accountant (CPA) and holds a bachelor of science degree in business. CHUCK 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 Technologies Inc., a company listed on the Canadian Venture Exchange, and a director of SCS Solars Computing Systems Inc. Mr. Walker is not a nominee for re-election at our next annual meeting of shareholders, scheduled for June 12, 2002. JEAN-PIERRE SOUBLIERE , Ottawa, Ontario NOMINEE FOR DIRECTORSHIP Mr. Soubliere is the President of Anderson Soubliere Inc., an executive based consulting corporation. From January 1997 to March 1999, he served as President and COO of Alis Technologies, a language and translation solutions provider. Previously, Mr. Soubliere worked for 19 years with SHL Systemhouse, a provider of client/server systems integration and technology-outsourcing services, serving as President, SHL Systemhouse International from September 1993 to December 1996. He is very active in the Ottawa-Carleton region and in the high technology industry, serving as a member of several councils and boards. In 1998, he chaired the Canadian Federal Government's Ad Hoc Industry Advisory Committee on Electronic Commerce and participated in the OECD Conference on Electronic Commerce. Mr. Soubliere has been presented as a nominee for election to the Board of Directors at our annual shareholders meeting scheduled for June 12, 2002. EXECUTIVE OFFICERS (OTHER THAN MESSRS. LYMBURNER AND MOSKOS) MARK WALLACE was appointed President on October 11, 2001. From November 1999 to October 2001, Mr. Wallace served as our Chief Operating Officer. He was 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. 31 JAN PEDERSEN was appointed President of our Norwegian Operations on October 11, 2001. Prior to that , Mr. Pedersen founded and acted as CEO of ADB Systemer ASA since 1988. He has broad software experience with clients such as Saga Petroleum, Statoil, BP Norway, Elf Petroleum, and the Norwegian Petroleum Directorate. Mr. Pedersen holds a Master of Science degree in Civil Engineering from the technical university in Trondheim, Norway. Mr. Pedersen has been presented as a nominee for election to the Board of Directors at our annual shareholders meeting scheduled for June 12, 2002. AIDAN ROWSOME, our Vice-President, Global Sales, has been with our company since August 1999 when he joined as Managing Director, Europe. From June 1998 to July 1999, Mr. Rowsome was Chief Operations Officer for Nua Internet Consultancy, responsible for all project operations. Prior to that, Mr. Rowsome spent 8 years as General Manager, European Operations for Quarterdeck Corporation, now part of the Symantec Group. He previously acted as a consultant and Project Director to Telus, managing the merger of two of the largest ISPs in Alberta, Canada. 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). For a discussion of certain transactions involving directors and executive officers, see Item 7 - MAJOR SHAREHOLDERS and 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 $100,000.
AWARDS PAYOUTS ANNUAL COMPENSATION ------ ------- ------------------------------ RESTRICTED OPTIONS/ SHARES OR OTHER ANNUAL SARS RESTRICTED LTIP ALL OTHER SALARY BONUS COMPENSATION GRANTED SHARE PAYOUT COMPENSATION UNITS NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) (2) ($) ($) ($) - ------------------------------- ------- -------- ------ -------------- -------- ----------- ------------ ------------- Jeffrey Lymburner............. 2001 317,987 Nil 12,720 271,875 Nil Nil Nil CEO (3) 2000 267,815 Nil 4,498 50,000 Nil Nil Nil 1999 225,684 Nil Nil 85,000 Nil Nil Nil Mark Wallace.................. 2001 250,000 Nil 12,000 115,625 Nil Nil Nil President (4) 2000 250,000 Nil 12,000 37,500 Nil Nil Nil 1999 112,750 Nil Nil 212,500 Nil Nil Nil James Moskos.................. 2001 250,000 Nil 12,000 115,625 Nil Nil Nil President, Technology Group 2000 231,250 Nil 12,000 37,500 Nil Nil Nil 1999 188,500 Nil 12,000 112,500 Nil Nil Nil Peter Sprukulis............... 2001 205,276 2,953 4,000 37,500 Nil Nil Nil Sr. VP, Sales & Marketing (5) 2000 175,000 10,000 12,000 37,500 Nil Nil Nil 1999 9,138 Nil Nil 75,000 Nil Nil Nil Aidan Rowsome 2001 200,140 75,163 15,595 44,530 Nil Nil Nil Vice-President, Global Sales(6) 2000 164,875 30,859 Nil 33,334 Nil Nil Nil 1999 48,750 NIl Nil 50,000 Nil Nil Nil
32 John Mackie................. 2001 170,000 Nil 9,000 30,000 Nil Nil Nil VP, General Counsel and 2000 164,167 25,000 9,000 25,000 Nil Nil Nil Corporate Secretary (7) 1999 46,125 25,000 Nil 50,000 Nil Nil Nil
1. Received on account of car reimbursement expenses. 2. All numbers have been adjusted to reflect the two for one consolidation of our shares in October, 2001. 3. Mr. Lymburner's salary is U.S. $200,000. He also served as President from August, 1998 to October, 2001. 4. Joined the Corporation on May 17, 1999. Mr. Wallace was Executive Vice President, General Counsel and Corporate Secretary from May 1999 to November 1999 and Chief Operating Officer from November 1999 to October, 2001. 5. Joined the Corporation on December 13, 1999. Ceased to be an officer of our company in April, 2001. 6. Joined our company as Managing Director, Europe in August 1999. Became our Vice-President, Global Sales in October 2001. 7. Joined the Corporation on November 15, 1999. Messrs. Lymburner, Wallace, Moskos, Pedersen and Rowsome have volunteered salary reductions in the 2002 calendar year, ranging from fifteen percent to fifty percent. These salary reductions took effect January 1, 2002. The salary reductions will not affect any severance entitlement for the individuals concerned. The following table sets forth details of the option grants to our Chief Executive Officer and the four highest paid executives, other than the Chief Executive Officer, who earned in excess of $100,000, during the fiscal year ended December 31, 2001.
- -------------------------------------------------------------------------------------------------------------------- MARKET VALUE OF SECURITIES % OF TOTAL UNDERLYING SECURITIES UNDER OPTIONS/SARS OPTIONS/SARS ON OPTIONS/SARS GRANTED TO EXERCISE OR BASE THE DATE OF GRANTED EMPLOYEES IN PRICE GRANT EXPIRATION NAME (#) FINANCIAL YEAR ($/SECURITY) ($/SECURITY) DATE - -------------------------------------------------------------------------------------------------------------------- Jeffrey Lymburner 37,500 3.3% 2.62 2.62 2/6/04 234,375 20.6% 0.64 0.64 12/4/03 Mark Wallace 37,500 3.3% 2.62 2.62 2/6/04 78,125 6.9% 0.64 0.64 12/4/03 James Moskos 37,500 3.3% 2.62 2.62 2/6/04 78,125 6.9% 0.64 0.64 12/4/03 Pete Sprukulis 37,500 3.3% 2.62 2.62 2/6/04 Aidan Rowsome 44,530 3.9% 0.64 0.64 12/4/03 John Mackie 30,000 2.6% 2.62 2.62 2/6/04 - --------------------------------------------------------------------------------------------------------------------
The December 2001 option grants to these individuals (noted as expiring 12/4/03) reflect the salary reductions, and vest monthly throughout 2002. During 2001, we did not provide any pension, retirement or similar benefits to our directors and officers as a group. Our employees based in Ireland and the United Kingdom participate in a retirement savings arrangement where employee contributions to personal retirement savings accounts are matched by the Company to a maximum of six percent of salary. This arrangement does not represent a future pension obligation to the Company. Mr. Rowsome participates in this plan. Jeff Lymburner has entered into a non-competition and salary protection agreement with our company, dated February 21, 1997, which provides, among other things, that he (i) will not compete with our company for a period of 12 months, which may be extended by us to 24 months, following the termination of his employment with our company, in consideration of which we will pay his full annual salary during such period; and (ii) if his employment with us is terminated other than by reason of death, disability or cause (as such terms are defined in 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. 33 Mark Wallace 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 12 months following termination. Jan Pedersen has entered into a two year employment agreement with our company which provides for payment of 12 months salary in the event of termination of his employment before expiry of the two year term other than by death, disability or cause. Under the agreement, Mr. Pedersen is entitled to an annual retention bonus of $100,000. COMPENSATION OF DIRECTORS During the financial year ended December 31, 2001, each of the non-executive directors (Messrs. Bulger, Godin, Pamenter, Sexton and Walker, together with Duncan Copeland and Howard Koenig, who are no longer on the Board) received $20,000. Pat Bourke, who was Chair of the Board prior to October 11, 2001, received $111,506. The directors presently receive no fees for meetings of the Board or committees of the Board which they attend and no fee for the signing of any resolution of directors or documents on behalf of the Corporation. 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. 34 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 9 directors. On September 7, 2001, we entered into an agreement (the "Board Representation Agreement") with LimeRock Partners LLC ("LR"), Jan Pedersen ("Pedersen"), and Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik (together, the "Other Nominating Shareholders") in connection with the acquisition of ADB Systemer ASA of Sola, Norway. LR, Pedersen and the Other Nominating Shareholders were the largest shareholders of ADB Systemer. Pursuant to the Board Representation Agreement, LR and Pedersen were entitled, immediately following the acquisition of ADB Systemer ASA, to nominate one person each to our Board of Directors. John Reynolds and Martin Bekkeheien were nominated and have served on our Board of Directors on this basis. LR have since advised us that they are waiving their right to a nominee in light of other demands on Mr. Reynolds' time. Pedersen has advised that he will serve as his own nominee. Also pursuant to the Board Representation Agreement, the Other Nominating Shareholders as a group are entitled to nominate one person to our Board of Directors, which entitlement is effective at our annual shareholders meeting (scheduled for June 12, 2002). The Other Nominating Shareholders have indicated that their nominee for such purposes is Martin Bekkeheien. The Board representation rights conferred on LR, Pedersen and the Other Nominating Shareholders are subject to their continued ownership of at least 50% of the shares received by them upon the acquisition of ADB Systemer. These rights are also subject to the satisfaction of Canadian residency and other regulatory issues. Our Board of Directors presently consists of 9 directors. Under Canadian law, a majority of our Board of Directors and of each of our Board Committees must be residents of Canada, subject to certain exceptions. Each of our directors holds office until the next annual meeting of shareholders,until his successor has been elected and qualified, or his earlier resignation or removal. Our executive officers are appointed by our Board of Directors and serve at the discretion of our Board of Directors. 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. Jan Pedersen, who is a nominee for election to the Board at our next annual shareholders meeting, also has a salary protection agreement. 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 to the Company, 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 35 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, September and November 2001, we implemented workforce reductions in which we eliminated 29, 10 and 5 positions, respectively. As a result of our workforce reductions and cost-reduction measures, we anticipate that we may experience attrition during 2002. As of December 31, 2001 and March 31, 2002, we employed 66 full-time employees, 1 part-time employee, and 1 independent contractor, as follows:
North America Ireland and UK Norway ------------- -------------- ------ Sales and Marketing 6 4 2 Technical Services 9 2 12 Product Group 6 - 12 Finance and Admin 6 1 2 Executive 4 1 1
None of our employees is represented by a labor union, and we consider our employee relations to be good. E. SHARE OWNERSHIP The following table sets forth certain information concerning share and option ownership of each of our directors and officers as of April 26, 2002:
- --------------------------------------------------------------------------------------------------------------------- NUMBER OF COMMON PERCENTAGE OF SHARES WHICH MAY RANGE OF RANGE OF COMMON SHARES NUMBER OF COMMON BE ACQUIRED UNDER EXERCISE PRICES EXPIRATION BENEFICIALLY NAME SHARES OWNED (1) OPTION PLAN (2) OF OPTIONS DATES OF OPTIONS OWNED (3) - --------------------------------------------------------------------------------------------------------------------- Martin Bekkeheien 53,753 121,520 $0.36 12/31/04 * Christopher Bulger 9,250 87,000 $2.62 - $12.70 08/12/02 - 02/06/04 * Paul Godin 164,150 91,250 $2.62 - $12.70 08/12/02 - 02/06/04 * Jeffrey Lymburner 735,100 371,875 $0.64 - $12.70 08/12/02 - 02/06/04 2.33% Jim Moskos 21,375 240,625 $2.62 - $12.20 08/12/02 - 02/06/04 * David Pamenter 500 53,750 $2.62 - $12.70 08/12/02 - 02/06/04 * John Reynolds - 17,360 $0.36 12/31/04 * Ken Sexton - 35,000 $2.62 - $6.84 10/05/03 - 02/06/04 * Chuck Walker 2,000 62,000 $2.62 - $18.50 08/12/02 - 02/06/04 * * Mark Wallace 2,000 315,625 $0.64 - $12.20 08/12/02 - 02/06/04 * Jan Pedersen 1,664,519 78,125 $0.64 12/04/03 4.10% Aidan Rowsome - 127,864 $0.64 - $15.20 08/12/02 - 12/04/03 * John Mackie 950 105,000 $2.62 - $11.90 11/11/02 - 02/06/04 * - ---------------------------------------------------------------------------------------------------------------------
36 * Represents less than 1%. (1) All numbers adjusted to reflect the two for one consolidation of our shares in October 2001. (2) Represents shares owned beneficially by the named individual other than those shares which may be acquired under our company's option plans. Unless otherwise noted, all persons referred to above have sole voting and sole investment power. (3) Includes all shares which the named individual has the right to acquire under all vested and unvested options and warrants granted to such individual under our company's option plan. (4) This information is based on 41,583,696 common shares outstanding as of April 26, 2002. 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, other than Stonestreet Limited Partnership, which has disclosed that as of April 26, 2002 it beneficially owns 3,300,000 common shares and warrants to acquire 1,000,000 common shares of the Corporation, or 10.3% (in the aggregate) of the issued and outstanding common shares, as a result of a recent private placement by the Corporation. 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, 2001 and 2002 (through May 15, 2002) by our shareholders with the Securities and Exchange Commission. The Company's major shareholders do not have any voting rights that differ from the rights of our other shareholders. As of April 26, 2002, we had 1,538 shareholders of record holding 41,583,696 common shares, of which 551 shareholders holding 3,304,873 common shares had an address of record in the United States. Common shares held by CEDE & Co. in the United States on such date amounted to 3,200,673 or 7.70% of our issued common shares, which shares are held for participants' accounts. We are not aware of any corporation, foreign government, or other person or entity that directly or indirectly owns or controls our company, severally or jointly. We are not aware of any arrangements which may result in a change in control of our company. B. RELATED PARTY TRANSACTIONS On April 4, 2000, we completed a transaction with The Art Vault International Limited, a company then 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 these agreements. Our investment in The Art Vault was written down to zero. 37 In October 2001, we acquired ADB Systemer ASA of Norway. Jan Pedersen, John Reynolds and Martin Bekkeheien were all shareholders and officers or directors of ADB Systemer. At the time of the acquisition, none of these individuals were directors, officers or shareholders of our company. ITEM 8 - FINANCIAL INFORMATION See the Consolidated Financial Statements and notes thereto accompanying this Annual Report beginning on page F-1. LEGAL PROCEEDINGS Neither we, nor any of our subsidiaries, is a party to, or the subject of, any material legal proceedings. DIVIDEND POLICY We have not declared or paid any cash dividends on our common shares. We currently intend to retain any future earnings for use in the operation and expansion of our business. We do not anticipate paying any cash dividends on our common shares in the foreseeable future. We have not issued any preference shares. The dividend entitlement of any preference shares issued will be determined by our Board of Directors. SIGNIFICANT CHANGES None. ITEM 9 - THE OFFER AND LISTING Our common shares are 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, originally under the symbol "BIDS", and since October 18, 2001 under the symbol "ADBI". Our common shares began trading on The Toronto Stock Exchange on February 9, 1998 under the symbol "ILI" and from July 18, 1998 to October 17, 2001 under the symbol "BII". Since October 18, 2001, our common shares have traded under the symbol "ADY". From June 6, 1996 to February 9, 1998, our common shares were quoted for trading on the Canadian Dealing Network under the symbol "ILII." 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 compliance with this requirement for ten consecutive trading days (and demonstrate an ability to sustain compliance) by May 15, 2002, our common shares will be de-listed (subject to any appeal). Nasdaq has also asked us to address how we will sustain compliance with the net tangible asset continued listing requirement. In light of these issues, we have applied to transfer the listing of our common shares from the Nasdaq National Market to the Nasdaq Small Cap Market. We cannot be certain that Nasdaq will approve our request to transfer our listing. If this transfer is refused and Nasdaq continues to pursue the delisting of our shares, we intend to appeal any determination to delist our shares. There can be no assurance that we will be able to satisfy Nasdaq in this regard. See Item 3-D - Risk Factors - YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES MAY BE AFFECTED IF OUR STOCK IS DELISTED FROM THE NASDAQ NATIONAL MARKET. 38 The following tables set forth the range of high and low sales prices (rounded to the nearest hundredth) as reported by Canadian Dealing Network (through February 8, 1998), The Toronto Stock Exchange (beginning February 8, 1998) and Nasdaq (beginning April 20, 1999) during the calendar quarters indicated. Note that all numbers have been adjusted to reflect the two-for-one share consolidation completed in October 2001. THE TORONTO STOCK EXCHANGE (FROM FEBRUARY 9, 1998)
High Low ---- --- (Cdn $) (Cdn $) ANNUAL MARKET PRICES 1998 Calendar Year 12.00 1.12 1999 Calendar Year 67.30 7.30 2000 Calendar Year 26.20 1.94 2001 Calendar Year 3.40 0.29 QUARTERLY MARKET PRICES 2000 CALENDAR YEAR First Quarter 26.20 11.70 Second Quarter 18.40 6.22 Third Quarter 8.36 4.44 Fourth Quarter 7.08 1.94 2001 CALENDAR YEAR First Quarter 3.40 1.46 Second Quarter 2.42 1.02 Third Quarter 1.39 0.76 Fourth Quarter 0.80 0.29 2002 CALENDAR YEAR First Quarter 0.50 0.28 MONTHLY MARKET PRICES November 2001 0.70 0.37 December 2001 0.62 0.41 January 2002 0.50 0.38 February 2002 0.49 0.28 March 2002 0.47 0.36 April 2002 0.41 0.33
39 NASDAQ NATIONAL MARKET
High Low High Low ---- --- ---- --- (Cdn $) (Cdn $) (U.S. $) (U.S. $) ANNUAL MARKET PRICES 1999 Calendar Year 57.12 11.18 38.62 7.50 2000 Calendar Year 26.60 1.60 19.26 1.06 2001 Calendar Year 3.30 0.30 2.18 0.19 QUARTERLY MARKET PRICES 2000 CALENDAR YEAR First Quarter 26.60 11.50 19.26 7.94 Second Quarter 19.38 6.02 13.00 4.12 Third Quarter 8.10 4.44 5.50 3.00 Fourth Quarter 7.06 1.60 4.68 1.06 2001 CALENDAR YEAR First Quarter 3.30 1.48 2.18 0.94 Second Quarter 1.12 0.52 0.73 0.34 Third Quarter 0.68 0.38 0.43 0.24 Fourth Quarter 0.80 0.30 0.50 0.19 2002 CALENDAR YEAR First Quarter 0.53 0.27 0.33 0.17 MONTHLY MARKET PRICES November 2001 0.69 0.35 0.44 0.22 December 2001 0.64 0.38 0.40 0.24 January 2002 0.49 0.37 0.31 0.23 February 2002 0.53 0.27 0.33 0.17 March 2002 0.49 0.34 0.30 0.21 April 2002 0.41 0.31 0.26 0.20
United States dollar amounts are converted to Canadian dollars at the noon buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York for the date of such sales prices. ITEM 10 - ADDITIONAL INFORMATION A. SHARE CAPITAL Not applicable. B. MEMORANDUM AND ARTICLES OF ASSOCIATION 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 40 Directors of our company need not be shareholders. In accordance with our by-laws and the Ontario Business Corporations Act, a majority of our directors must be residents of Canada, subject to certain exceptions. In addition, directors must be at least 18 years of age, of sound mind, and not bankrupt. Neither our articles or by-laws, nor the Ontario Business Corporations Act, impose any mandatory retirement age for directors. A director who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract or transaction with our company shall disclose to the company the nature and extent of his interest at the time and in the manner provided by the Ontario Business Corporations Act. The Ontario Business Corporations Act prohibits such a director from voting on any resolution to approve the contract or transaction unless the contract or transaction: o is an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of the company or an affiliate; o relates primarily to his or her remuneration as a director, officer, employee or agent of the company or an affiliate; o is for indemnity or insurance; or o is with an affiliate. Our Board of Directors may, on behalf of the company and without authorization of our shareholders: o borrow money upon the credit of the company; o issue, reissue, sell or pledge bonds, debentures, notes or other evidences or indebtedness or guarantees of our company, either secured or unsecured; o subject to certain disclosure requirements of the Ontario Business Corporations Act, give, directly or indirectly, financial assistance to any person by means of a loan, a guarantee or otherwise on behalf of our company to secure performance or any present or future indebtedness, liability or obligation of any person; and o mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal property of our company, movable or immovable, including without limitation book debts, rights, powers, franchises and undertakings, to secure any bonds, debentures, notes or other evidences of indebtedness or guarantee or any other obligation of the company. Common Shares Our articles authorize the issuance of an unlimited number of common shares. The holders of the common shares of our company are entitled to receive notice of and to attend all meetings of the shareholders of our company and have one vote for each common share held at all meetings of the shareholders of our company, except for meetings at which only holders of another specified class or series of shares of the company are entitled to vote separately as a class or series. Subject to the prior rights of the holders of preference shares of our company and to any other shares ranking senior to the common shares with respect to priority in the payment of dividends, the holders of common shares are entitled to receive dividends and our company will pay dividends, as and when declared by our Board of Directors, out of moneys properly applicable to the payment of dividends, in such amount and in such form as our Board of Directors may from time to time determine, and all dividends which our Board of Directors may declare on the common shares shall be declared and paid in equal amounts per share on all common shares at the time outstanding. In the event of the dissolution, liquidation or winding-up of the company, whether voluntary or involuntary, or any other distribution of assets of the company among its shareholders for the purpose of winding up its affairs, subject to the prior rights of the holders of preference shares and to any other shares ranking senior to the common shares with respect to priority in the distribution of assets upon dissolution, liquidation or winding-up, the holders of the common shares will be entitled to receive the remaining property and assets of the company. There 41 are no redemption or sinking-fund provisions that attach to the common shares, nor are there any provisions that discriminate against existing or prospective holders of common shares as a result of owning a substantial number of shares. The holders of the common shares are not liable to further capital calls by the company. Preference Shares 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. None of our preference shares are currently issued or outstanding. Action Necessary to Change the Rights of Shareholders In order to change the rights of our shareholders, we would need to amend our articles of incorporation to effect the change. Such an amendment would require the approval of holders of two-thirds of the shares cast at a duly called special meeting. If we wish to amend the rights of holders of a specific class of shares, such approval would also be required from the holders of that class. A shareholder is entitled to dissent in respect of such a resolution and, if the resolution is adopted and the company implements such changes, demand payment of the fair value of its shares. Meetings of Shareholders An annual meeting of shareholders is held each year for the purpose of considering the financial statements and reports, electing directors, appointing auditors and for the transaction of other business as may be brought before the meeting. The President or the Board of Directors has the power to call a special meeting of shareholders at any time. Notice of the time and place of each meeting of shareholders must be given not less than 21 days, nor more than 50 days, before the date of each meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any other purpose other than consideration of financial statements and auditors' report, election of directors and reappointment of the incumbent auditor, must state the nature of the business in sufficient detail to permit the shareholder to form a reasoned judgment on and must state the text of any special resolution or by-law to be submitted to the meeting. The only persons entitled to be present at a meeting of shareholders are those entitled to vote thereat, the directors of the company, the auditor of the company and others who although not entitled to vote are entitled or required to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. If a corporation is winding-up, the Ontario Business Corporations Act permits a liquidator appointed by the shareholders, during the continuance of a voluntary winding-up, to call and attend meetings of the shareholders. In circumstances where a court orders a meeting of shareholders, the court may direct how the meeting may be held, including the parties entitled, or required, to attend the meeting. Limitations on Rights to Own Securities There is no limitation imposed by Canadian law or by the articles or other charter documents on the right of a non-resident to hold or vote common shares or preference shares with voting rights, other than as provided in the Investment Canada Act, as amended by the World Trade Organization Agreement Implementation Act. The 42 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. 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, 2000. 1. 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 (pre-consolidation) and common share purchase warrants to purchase 360,316 common shares (pre-consolidation), 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 (pre-consolidation). 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 (pre-consolidation). The purchase price was determined based on a formula tied to the market price of common shares during the 15 day trading period ended June 8, 2000. 43 2. 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 above. 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 Wellinston piggy-back registration rights. 3. Option Agreement dated February 19, 2001 between Bid.Com International Inc. and Wendell Willick, pursuant to which we granted Mr. Willick, the senior executive with Point2 Internet Systems Inc., the option to acquire our interest in Point2 for $2.6 million. 4. Amendment to Option Agreement dated May 2, 2001 between Bid.Com International Inc. and Wendell Willick, pursuant to which the expiry date for the option contained in the option agreement was extended from May 14, 2001 to May 31, 2001. 5. Board Support Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and ADB Systemer ASA. Pursuant to the terms of this agreement, Bid.Com committed to proceed with an offer to acquire all of the shares of ADB Systemer, and the Board of Directors of ADB Systemer committed to support such offer. 6. Board Representation Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and LimeRock Partners LLC ("LR"), Jan Pedersen ("Pedersen"), and Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik (together, the "Other Nominating Shareholders"). This agreement was entered into in connection with the acquisition of ADB Systemer ASA of Sola, Norway. LR, Pedersen and the Other Nominating Shareholders were the largest shareholders of ADB Systemer. Pursuant to the Board Representation Agreement, LR and Pedersen were entitled, immediately following the acquisition of ADB Systemer ASA, to nominate one person each to our Board of Directors. Also pursuant to the Board Representation Agreement, the Other Nominating Shareholders as a group are entitled to nominate one person to our Board of Directors, which entitlement is effective at our annual shareholders meeting (scheduled for June 12, 2002). The board representation rights conferred on LR, Pedersen and the Other Nominating Shareholders are subject to their continued ownership of at least 50% of the shares received by them upon the acquisition of ADB Systemer. These rights are also subject to the satisfaction of Canadian residency and other regulatory issues. 7. Employment Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and Jan Pedersen. Pursuant to the terms and conditions of this agreement, Pedersen agrees to remain in the employ of our company for a minimum of two years. The agreement provides for payment of 12 months salary in the event of termination of his employment before expiry of the two year term other than by death, disability or cause. Under the agreement, Mr. Pedersen is entitled to an annual retention bonus of $100,000. 8. Subscription Agreement, dated as of April 24, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership, whereby we agreed to issue 3.3 million common shares at a purchase price of US $0.21 per share, and warrants exerciseable into 1,050,000 common shares at an exercise price of US $0.35 per share. The warrants have a term of three years. We agreed to register the shares and warrants with the Securities and Exchange Commission. The purchase price was based on a discount to market at the time of determination, and was equal to market price at closing. 9. Warrant issued April 25, 2002 to Stonestreet Limited Partnership by ADB Systems International Inc. entitling the holder to acquire 1 million common shares of ADB at an exercise price of US $0.35 per share. The warrant has a term of three years. 10. Warrant issued April 25, 2002 to Stonestreet Corporation by ADB Systems International Inc. entitling the holder to acquire 50,000 common shares of ADB at an exercise price of US $0.35 per share. The warrant has a term of three years. 44 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 adventure or concern in the nature of trade which includes a transaction or transactions of the same kind and carried on in the same manner as a transaction or transactions of an ordinary trader or dealer in property of the same kind. This summary is based upon the current provisions of the Income Tax Act and the regulations thereunder and on an understanding of the published administrative practices of the Canadian Customs and Revenue Agency. This summary does not take into account or anticipate any possible changes in law, or the administration thereof, whether by legislative, governmental or judicial action, except proposals for specific amendment thereto which have been publicly announced by the Canadian Minister of Finance prior to the date hereof. This summary does not address all aspects of Canadian federal income tax law that may be relevant to shareholders based upon their particular circumstances, and does not deal with provincial, territorial or foreign income tax consequences, which might differ significantly from the consequences under Canadian federal income tax law. Shareholders are advised to consult their tax advisors regarding the application of the Canadian federal income tax law to their particular circumstances, as well as any Canadian provincial, territorial or other tax consequences or any U.S. federal, state or local tax consequences or other foreign income tax consequences of the acquisition, ownership and disposition of our common shares. TAXATION OF DIVIDENDS. A holder of a common share who is not resident in Canada for purposes of the Income Tax Act will be subject to Canadian withholding tax on dividends paid or credited, or deemed under the Income Tax Act to be paid or credited, to the holder of the common share. The rate of withholding tax under the Income Tax Act on dividends is 25% of the amount of the dividend. Such rate may be reduced under the provisions of an applicable international tax treaty to which Canada is a party. Under the tax treaty that Canada has entered into with the United States, the rate of Canadian withholding tax applicable in respect of dividends paid or credited by a Canadian corporation to a shareholder resident in the United States, is generally reduced to 15%, or 5% in the case of a corporate holder which owns 10% or more of the voting shares. A foreign tax credit for the tax withheld may be available under applicable US tax law to a US holder against U.S. federal income tax liability. Moreover, pursuant to Article XXI of the Canada-U.S. Treaty, an exemption from Canadian withholding tax generally is available in respect of dividends received by certain trusts, companies and other organizations whose income is exempt from tax under the laws of the United States. DISPOSITION OF COMMON SHARES. A non-resident holder of a common share will not be subject to tax under the Income Tax Act in respect of a capital gain realized on the disposition of a common share unless the common share constitutes or is deemed to constitute "taxable Canadian property" as defined in the Income Tax Act. Shares of a corporation that are listed on a prescribed stock exchange (which includes shares traded on certain U.S. stock exchanges, including the Nasdaq National Market), are generally not considered to be taxable Canadian property. However, such shares are 45 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. 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 46 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. 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, 47 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 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 38.6%. 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 38.6% 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 2001 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) 48 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 2001 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 or PFIC, if 75% or more of its gross income (including the pro rata share of the gross income of any company (United States or foreign) in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year is passive income. Alternatively, the company will be considered to be a PFIC if at least 50% of the value of the company's assets (averaged over the year) (including the pro rata share of the value of the assets of any company in which the company is considered to own 25% or more of the shares (determined by market value)) in a taxable year are held for the production of, or produce, passive income. 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 PFIC for any taxable year, a U.S. Holder, in the absence of an election by such U.S. Holder to treat our company as a "qualified electing fund" (a "QEF election"), as discussed below, would, upon certain distributions by our company and upon disposition of the common shares at a gain, be liable to pay tax at the highest tax rate on ordinary income in effect for each period to which the income is allocated, plus interest on the tax, as if the distribution or gain had been recognized ratably over the days in the U.S. Holder's holding period for the common shares during which our company was a PFIC. Additionally, if our company is a PFIC, 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 PFIC 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 PFIC, 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 PFIC. 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 PFIC 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 PFIC 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 49 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 PFIC during 2001. However, there can be no assurance that our company will not be classified as a PFIC in 2002 or thereafter because the tests for determining PFIC 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 PFIC will be subject to the foregoing rules, even if our company ceases to be a PFIC, 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 PFIC 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 30% 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. 50 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. 233 Broadway 500 West Madison Street Room 1024 New York, New York Suite 1400 Washington D.C. 20549 10279 Chicago, Illinois 60661 You can also obtain copies of this material by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally, copies of this material may also be obtained from the Securities and Exchange Commission's Internet site at http://www.sec.gov. The Commission's telephone number is 1-800-SEC-0330. I. SUBSIDIARY INFORMATION. Not applicable. ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK (a) Quantitative Information about Market Risk See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk. (b) Qualitative Information about Market Risk See Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - Foreign Currency Rate Fluctuations; Interest Rate and Investment Risk. ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN DEBT SECURITIES Not applicable. PART II ITEM 13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS None. PART III ITEM 17- FINANCIAL STATEMENTS Not applicable. ITEM 18 - FINANCIAL STATEMENTS 51 See the Index to Consolidated Financial Statements accompanying this report on page F-1. ITEM 19 - EXHIBITS EXHIBITS FILED AS PART OF THIS ANNUAL REPORT. 1.1 Articles of Incorporation of the Company.(1) 1.2 By-laws of the Company.(2) 4.1 Salary Protection Letter, dated February 12, 1997, between the Company and Jeffrey Lymburner. (3) 4.2 Form of Subscription Agreement dated October 3, 1997 between the Company and each of the Investors in the October 3, 1997 private placement. (4) 4.3 Special Warrant Indenture dated October 3, 1997 between the Company and CIBC Mellon Trust Company. (5) 4.4 Share Purchase Warrant Indenture dated October 3, 1997 between the Company and CIBC Mellon Trust Company. (6) 4.5 Underwriting Agreement dated October 3, 1997 between the Company, Yorkton Securities Inc. and First Marathon Securities Limited. (7) 4.6 Form of Subscription Agreement dated August 4, 1998 between the Company and each of the Investors in the August 4, 1998 private placement. (8) 4.7 Special Warrant Indenture dated August 4, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. (9) 4.8 Share Purchase Warrant Indenture dated August 4, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. (10) 4.9 Underwriting Agreement dated August 4, 1998 between the Company and Yorkton Securities Inc. (11) 4.10 Form of Subscription Agreement dated November 30, 1998 among the Company and the Investors in the November 30, 1998 private placement. (12) 4.11 Underwriting Agreement dated November 30, 1998 between the Company and Yorkton Securities Inc. (13) 4.12 Special Warrant Indenture dated November 30, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. (14) 4.13 Share Purchase Warrant Indenture dated November 30, 1998 among the Company, certain Selling Shareholders and CIBC Mellon Trust Company. (15) 4.14 Underwriting Agreement dated September 30, 1999, between the Company and Canaccord Capital Corporation. (16) 4.15 Warrant Indenture dated September 30, 1999, between the Company and CIBC Mellon Trust Company. (17) 4.16 Special Warrant Indenture dated September 30, 1999, between the Company and CIBC Mellon Trust Company. (18) 4.17 Purchase Agreement, dated as of June 16, 2000, between Bid.Com International Inc. and Acqua Wellington Value Fund Ltd. (19) 4.18 Registration Rights Agreement, dated as of June 16, 2000, between Bid.Com International and Acqua Wellington Value Fund Ltd. (20) 4.19 Warrant dated June 16, 2000, between Bid.Com International and Acqua Wellington Value Fund Ltd. (21) 52 4.20 Option Agreement dated February 19, 2001 between Bid.Com International Inc. and Wendell Willick. 4.21 Amendment to Option Agreement dated May 2, 2001 between Bid.Com International Inc. and Wendell Willick. 4.22 Board Support Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and ADB Systemer ASA. 4.23 Board Representation Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and LimeRock Partners LLC, Jan Pedersen, Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik. 4.24 Employment Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and Jan Pedersen. 4.25 Subscription Agreement, dated as of April 24, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership. 4.26 Warrant issued April 25, 2002 to Stonestreet Limited Partnership by ADB Systems International Inc. 4.27 Warrant issued April 25, 2002 to Stonestreet Limited Corporation by ADB Systems International Inc. 8.1 List of Subsidiaries - ---------- (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 30, 1999, except the Articles of Amendment dated October 11, 2001, which are attached. (2) Incorporated by reference from Exhibit 1.2 of Amendment No. 1 to the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999. (3) Incorporated by reference from Exhibit 3.27 of Amendment No. 1 to the Company's Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999 (4) Incorporated by reference from 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. (5) 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. (6) 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 30, 1999. (7) 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. 53 (8) 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. (9) 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. (10) 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. (11) 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. (12) 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. (13) 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. (14) 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. (15) 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. (16) 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 22, 2000. (17) 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 22, 2000. (18) 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 22, 2000. (19) Incorporated by reference from Exhibit 3.4 to the Company's Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 23, 2001. (20) Incorporated by reference from Exhibit 3.5 to the Company's Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 23, 2001. (21) Incorporated by reference from Exhibit 3.6 to the Company's Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 23, 2001. 54 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf. ADB SYSTEMS INTERNATIONAL INC. By: /s/ Jeffrey Lymburner -------------------------------- Name: Jeffrey Lymburner Title: Chief Executive Officer Dated: May 14, 2002 By: /s/ John Mackie --------------------------------- Name: John Mackie Title: Vice-President, General Counsel and Corporate Secretary 55 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Audited Consolidated Financial Statements for the years ended December 31, 2001, 2000 and 1999 Independent Auditors' Report.................................................................................. F-2 Consolidated Balance Sheets as at December 31, 2001 and 2000.................................................. F-3 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.................... F-4 Consolidated Statements of Deficit for the years ended December 31, 2001, 2000 and 1999....................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.................... F-6 Notes to Consolidated Financial Statements.................................................................... F-7
F-1 MANAGEMENT'S REPORT Preparation of the consolidated financial statements accompanying this annual report and the presentation of all other information in this report is the responsibility of management. The financial statements have been prepared in accordance with appropriate and generally accepted accounting principles and reflect management's best estimates and judgements. All other financial information in the report is consistent with that contained in the financial statements. The Company maintains appropriate systems of internal control, policies and procedures which provide management with reasonable assurance that assets are safeguarded and that financial records are reliable and form a proper basis for preparation of financial statements. The Board of Directors ensures that management fulfills its responsibilities for financial reporting and internal control through an Audit Committee which is composed of non-executive directors. The Audit Committee reviewed the consolidated financial statements with management and external auditors and recommended their approval by the Board of Directors. The consolidated financial statements have been audited by Deloitte & Touche LLP, Chartered Accountants. Their report stating the scope of their audit and their opinion on the consolidated financial statements is presented below. "Jeff Lymburner" "Mark Wallace" CEO President INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF ADB SYSTEMS INTERNATIONAL INC. (formerly Bid.Com International Inc.) We have audited the consolidated balance sheets of ADB Systems International Inc. as at December 31, 2001 and 2000, and the consolidated statements of operations, deficit and cash flows for each of the three years in the period ended December 31, 2001. 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 years ended December 31, 2001 and 2000, we conducted our audits in accordance with Canadian and United States generally accepted auditing standards. With respect to the consolidated statements of operations, deficit and cash flows for the year ended December 31, 1999, we conducted our audit 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 for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2001 and 2000 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in accordance with Canadian generally accepted accounting principles. "Deloitte & Touche LLP" Chartered Accountants Toronto, Ontario, Canada February 21, 2002 (except for Notes 2 and 20 which are as of April 24, 2002) COMMENTS BY AUDITORS ON CANADA - 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 and United States generally accepted auditing standards, our report to the Shareholders dated February 21, 2002 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. "Deloitte & Touche LLP" Chartered Accountants Toronto, Ontario, Canada February 21, 2002 (except for Notes 2 and 20 which are as of April 24, 2002) F-2 CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000 (IN THOUSANDS OF CANADIAN DOLLARS)
- ------------------------------------------------------------------------------------------------------------------------------- 2001 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------- Convenience translation into U.S.$ (Note 21) ASSETS CURRENT Cash $ 2,557 $ 1,606 $ 7,363 Marketable securities 1,658 1,041 8,124 Accounts receivable 1,288 809 701 Deposits and prepaid expenses 131 82 1,180 - ------------------------------------------------------------------------------------------------------------------------------- 5,634 3,538 17,368 CAPITAL ASSETS (Note 4) 1,332 836 1,760 STRATEGIC INVESTMENTS 173 109 1,176 CAPITALIZED SOFTWARE 202 127 473 ACQUIRED AGREEMENTS (Note 13) 149 93 - ACQUIRED SOFTWARE (Note 13) 3,102 1,948 - TRADEMARKS AND INTELLECTUAL PROPERTY (NET) - - 24 - ------------------------------------------------------------------------------------------------------------------------------- $10,592 $6,651 $20,801 =============================================================================================================================== LIABILITIES CURRENT Accounts payable $ 841 $ 528 $ 1,213 Accrued liabilities 813 511 807 Current portion of capital lease obligation 42 26 66 Current portion of deferred revenue 823 517 1,611 - ------------------------------------------------------------------------------------------------------------------------------- 2,519 1,582 3,697 DEFERRED REVENUE 33 21 1,185 CAPITAL LEASE OBLIGATION 18 11 59 - ------------------------------------------------------------------------------------------------------------------------------- 2,570 1,614 4,941 - ------------------------------------------------------------------------------------------------------------------------------- MINORITY INTEREST 8 5 - COMMITMENTS AND CONTINGENCIES (Notes 2 and 8) - - - SHAREHOLDERS' EQUITY Share capital (Note 6(c)) 93,568 58,755 83,724 Warrants (Note 6(f)) 1,349 847 1,005 Stock options (Note 6(d) and 13) 691 434 - Foreign currency translation (11) (7) - Deficit (87,583) (54,997) (68,869) - ------------------------------------------------------------------------------------------------------------------------------- 8,014 5,032 15,860 - ------------------------------------------------------------------------------------------------------------------------------- $ 10,592 $6,651 $ 20,801 ===============================================================================================================================
ON BEHALF OF THE BOARD "Ken Sexton" "Chuck Walker" ............................. Director .......................... Director See notes to consolidated financial statements. F-3 CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------------------------------------------------- 2001 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- Convenience translation into U.S.$ (Note 21) Revenue (Note 18) $ 4,455 $ 2,797 $ 12,497 $ 31,001 Less: Customer acquisition costs (60) (38) (157) - - -------------------------------------------------------------------------------------------------------------------------- Net revenue 4,395 2,759 12,340 31,001 - -------------------------------------------------------------------------------------------------------------------------- General and administrative 7,622 4,786 16,236 12,405 Sales and marketing 4,040 2,537 3,161 - Software development and technology 3,691 2,318 1,802 1,001 Depreciation and amortization 1,572 987 1,130 621 Direct expenses - - 11,460 26,696 Advertising and promotion (Note 10) - - 5,040 11,870 Interest income (345) (217) (467) (767) - -------------------------------------------------------------------------------------------------------------------------- 16,580 10,411 38,362 51,826 - -------------------------------------------------------------------------------------------------------------------------- Loss before the undernoted (12,185) (7,652) (26,022) (20,825) - -------------------------------------------------------------------------------------------------------------------------- Realized gains and losses on disposal of marketable securities and strategic investments, and recovery of assets (Note 11) 6,722 4,221 20,946 - Unrealized gains and losses on revaluation of marketable securities and strategic investments, and provision for impairment of assets (Note 12) (2,435) (1,529) (11,697) - Restructuring charges (959) (602) - - Goodwill impairment (Notes 13 and 15) (9,476) (5,950) (3,593) - Retail activities settlement (Note 10) (381) (239) - - - -------------------------------------------------------------------------------------------------------------------------- (6,529) (4,099) 5,656 - - -------------------------------------------------------------------------------------------------------------------------- NET LOSS FOR THE YEAR $(18,714) $(11,751) $ (20,366) $ (20,825) ========================================================================================================================== LOSS PER SHARE (NOTE 6(i)) $ (0.64) $ (0.40) $ (0.76) $ (0.84) ==========================================================================================================================
See notes to consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF DEFICIT YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS OF CANADIAN DOLLARS)
- --------------------------------------------------------------------------------------------------------------------- 2001 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------- Convenience translation into U.S.$ (Note 21) DEFICIT, BEGINNING OF YEAR $ (68,869) $ (43,246) $ (48,503) $ (27,678) NET LOSS FOR THE YEAR (18,714) (11,751) (20,366) (20,825) ===================================================================================================================== DEFICIT, END OF YEAR $ (87,583) $ (54,997) $ (68,869) $ (48,503) =====================================================================================================================
See notes to consolidated financial statements. F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS OF CANADIAN DOLLARS)
- ------------------------------------------------------------------------------------------------------------------------------- 2001 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- Convenience translation into U.S.$ (Note 21) NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES OPERATING Net loss for the year $ (18,714) ($ 11,751) $ (20,366) $ (20,825) Items not affecting cash Depreciation and amortization 1,572 987 1,130 621 Non cash customer acquisition costs 60 38 1,005 - Stock compensation to third parties 115 72 Realized gains and losses on disposal of marketable securities and strategic investments, and recovery of assets (Note 11) (6,722) (4,221) (20,946) - Unrealized gains and losses on revaluation of marketable securities and strategic investments, and provision for impairment of assets (Note 12) 2,435 1,529 11,697 - Goodwill impairment loss (Notes 13 and 15) 9,476 5,950 3,593 - - ------------------------------------------------------------------------------------------------------------------------------- (11,778) (7,396) (23,887) (20,204) Changes in non-cash operating working capital (Note 9) (2,917) (1,832) 822 738 - ------------------------------------------------------------------------------------------------------------------------------- (14,695) (9,228) (23,065) (19,466) - ------------------------------------------------------------------------------------------------------------------------------- INVESTING Capital assets (317) (199) (1,426) (693) Strategic investments (328) (206) (2,612) (5,386) Capitalized software, trademarks and intellectual property (5) (3) (590) (555) Marketable securities 10,142 6,369 25,676 (9,672) Acquisition of ADB Systemer ASA (Note 13) (2,244) (1,409) - - Proceeds from disposal of joint venture and strategic investments (Note 11(d)) 2,706 1,699 - - - ------------------------------------------------------------------------------------------------------------------------------- 9,954 6,251 21,048 (16,306) - ------------------------------------------------------------------------------------------------------------------------------- FINANCING Issuance of common shares (Note 6(c)) - - 4,236 28,688 Capital lease obligation - - 148 - Repayment of capital lease (65) (41) (23) - Special warrants receivable - - - 2,311 - ------------------------------------------------------------------------------------------------------------------------------- (65) (41) 4,361 30,999 - ------------------------------------------------------------------------------------------------------------------------------- NET CASH INFLOW (OUTFLOW) DURING THE YEAR (4,806) (3,018) 2,344 (4,773) CASH, BEGINNING OF YEAR 7,363 4,624 5,019 9,792 - ------------------------------------------------------------------------------------------------------------------------------- CASH, END OF YEAR $ 2,557 $ 1,606 $ 7,363 $ 5,019 - --------------------------------------------------------------- ------------- -------------------- -------------- ------------- SUPPLEMENTAL DISCLOSURE OF CASH PAYMENTS Interest expense $ - $ - $ - $ - Income taxes $ - $ - $ - $ -
F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN CANADIAN DOLLARS) 1. DESCRIPTION OF BUSINESS ADB Systems International Inc. (ADB or the Company), formerly Bid.Com International Inc. (Bid.Com), delivers asset lifecycle management solutions that enable companies to source, manage and sell assets for maximum value. ADB works with a growing number of customers and partners in a variety of sectors including the asset-intensive oil and gas industry to improve operational efficiencies. ADB also enables customers in government, manufacturing and financial services sectors to reduce purchasing costs and improve procurement processes. Bid.Com was an on-line auction service provider and e-tailer. During 2000, the Company refocused its business model to become an on-line enabler for businesses wanting to take advantage of e-commerce. In October 2000, the Company conducted its last on-line retail auction. The Company provides businesses with the use of its software and hardware technology over a specific term in addition to consulting, implementation, and training services. In October 2001, Bid.Com acquired ADB Systemer ASA, a Norway-based software vendor of enterprise asset management and electronic procurement applications. The Company changed its name to ADB Systems International Inc. to reflect its expanded product offering. 2. CONTINUATION OF THE BUSINESS While the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations, certain adverse conditions and events cast substantial doubt upon the validity of this assumption. The Company has not yet realized profitable operations and has relied on non-operational sources of financing to fund operations. The Company's ability to continue as a going concern will be dependent on management's ability to successfully execute its business plan including a further 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. As of April 24, 2002, the Company had entered into an agreement for a private placement with a third party for gross proceeds of $1.1 million. The Company will issue 3.3 million common shares at US $0.21 per share and warrants exercisable into 1 million common shares at US $0.35 per share. The warrants have a term of three years. This transaction is subject to regulatory and exchange approvals. 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 further reduce operating costs and leverage the technical and management expertise acquired from the acquisition of ADB Systemer. Combined with the latest financing commitment, management anticipates that as a result of these measures sufficient cash is on hand to fund operations through 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 and partnerships with third parties. Management also believes that additional equity or debt based financing may be required to continue its operations in addition to what has been committed to. 3. SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada, which are substantially the same as generally accepted accounting principles in the United States (U.S. GAAP), except as disclosed in Note 17. F-7 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The accompanying consolidated financial statements are prepared using accounting principles applicable to a going concern, which assumes that the Company will continue in operation for a reasonable period of time and will be able to realize its assets and discharge its liabilities in the normal course of operations (see Note 2). PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries and its proportionate share of the assets, liabilities, revenue and expenses of a jointly controlled company during the period of ownership, September 1999 to May 2001. Business acquisitions are accounted for under the purchase method and operating results are included in the consolidated financial statements as of the date of the acquisition of control. All material inter-company transactions have been eliminated. MARKETABLE SECURITIES Marketable securities include registered equity instruments, all of which are carried at the lower of cost and quoted market value. Net unrealized losses on marketable securities related to an impairment determined to be other than temporary in nature are determined on the specific identification basis and are included in the Consolidated Statements of Operations. In 2000, marketable securities included unregistered equity instruments of publicly traded companies that were not freely trading until a future date. Unregistered equity instruments were valued at freely trading market values less a discount factor. The Company did not have any unregistered equity instruments at December 31, 2001. Marketable securities also include interest-bearing certificates carried at cost plus accrued interest which approximates market value. ADVERTISING Until October 2000, the Company incurred advertising expenses related to its retail sales. The Company expensed the costs of producing advertisements at the time production occurred, and expensed the costs of communicating advertising in the period in which the advertising space or airtime was used. Internet advertising expenses were recognized based on specifics of the individual agreements, but generally using the greater of (i) the ratio of the number of impressions delivered over the total number of impressions and (ii) the straight-line basis over the term of the contract. This policy complies with the requirements of Statement of Position No. 93-7, "Reporting on Advertising Costs," issued by the American Institute of Certified Public Accountants. 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 Building 5% per year Leasehold improvements life of the lease STRATEGIC INVESTMENTS Strategic investments are carried at the lower of cost and estimated net realizable value. Management has assessed the carrying value of the investments and recorded an impairment provision based on management's best estimate of net realizable value. SOFTWARE DEVELOPMENT COSTS The cost of non-core software internally developed for client applications through e-commerce enabling agreements and software licensing has been expensed as incurred. The cost of core software internally developed for client applications through e-commerce enabling agreements has been capitalized and is being F-8 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) amortized over two years. The cost of core software internally developed for software licensing contracts has been expensed as incurred. The cost of acquired software and internally developed software for use in on-line retail operations was expensed as incurred. ACQUIRED SOFTWARE The cost of core software acquired as a result of the acquisition of ADB Systemer has been capitalized and is amortized over three years, the estimated useful life of the software. TRADEMARKS AND INTELLECTUAL PROPERTY Trademarks and intellectual property are recorded at cost and amortized on a straight-line basis over two years. Trademarks and intellectual property acquired as a result of the acquisition of ADB Systemer, and directly attributable to core software, have been capitalized and are amortized over three years, the estimated useful life of the software. GOODWILL In 2001, the Company adopted the provisions of the Canadian Institute of Chartered Accountants Handbook sections 1581 and 3062, implemented by The Canadian Institute of Chartered Accountants, whereby the purchase price of an acquired business is allocated to all assets and liabilities, including identifiable intangible assets based on their fair values. Any purchase price in excess of those fair values is recorded as goodwill. Goodwill must be tested annually for impairment on a fair value basis, and where the carrying value exceeds fair value, a goodwill impairment loss must be recorded. This new accounting policy is effective January 1, 2002 with a transition provision beginning July 1, 2001. Management assessed the carrying value of the goodwill arising from the acquisition of ADB Systemer, and determined that a permanent decline had occurred in the fair value of goodwill at December 31, 2001 based on estimated future cash flows from the business acquired. Prior to the adoption of the most recent accounting standards, the excess of the purchase price over the fair value of net assets arising on the acquisition of a jointly controlled company in 1999 was capitalized, and amortized over seven years. Management assessed the carrying value of the goodwill and recorded an impairment provision in 2000 based on estimated future cash flows. 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 and losses from foreign exchange translations are included in the statements of operations. The Company's foreign subsidiaries in the United States, Ireland, the United Kingdom, and Australia are classified as fully integrated with the functional currency being the Canadian dollar. The Company uses the temporal method of foreign currency translation for these operations. Monetary assets and liabilities are translated at the exchange rates in effect on the balance sheet date. Non-monetary assets are translated at historic exchange rates. Revenue and expense amounts are translated using the average exchange rate for the year except depreciation which is translated at historic exchange rates. Gains and losses from foreign exchange translations are included in the statement of operations. The Company's subsidiary in Norway is classified as a self-sustaining operation whereby the functional currency of the operation is the Norwegian krone. The Company uses the current rate method of translation for these operations. Assets and liabilities are translated at the rate of exchange in effect at the balance sheet date. Revenue and expenses (including depreciation and amortization) are translated using the average exchange rate for the year. Gains and losses from foreign exchange translations are included as a separate component of shareholders' equity. F-9 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LOSS PER SHARE On January 1, 2001, the Company adopted the provisions of The Canadian Institute of Chartered Accountants Handbook section 3500, "Earnings per Share," whereby the treasury stock method of calculating diluted earnings per share is used. For the years presented, all stock options and warrants are anti-dilutive, therefore diluted loss per share is equal to basic loss per share. The basic loss per share calculation is based on the weighted average number of shares outstanding during the year. REVENUE RECOGNITION a) License and related services agreements The Company has agreements to provide software licenses for client-server- based software applications. The Company adopted the provisions of Statement of Position 97-2 "Software Revenue Recognition," and Statement of Position 98-9 "Software Revenue Recognition With Respect to Certain Transactions," in its accounting for revenue recognition on delivery of software licenses. Revenue is recognized on physical delivery for software licenses when undelivered elements are not essential to the functionality of the license. When software licenses are delivered and require additional elements essential to the functionality of the license, such as consulting and implementation services, license revenue is recognized on a percentage of completion basis until all services requisite to the functionality of the license have been delivered and vendor specific objective evidence of the fair value of each component exists. Software licenses are granted for an indefinite term. The Company also has agreements to provide maintenance, support, and training services. Revenue from maintenance and support agreements is recognized over the term of the agreement. Revenue from training services is recognized when these services are provided. The Company also has agreements that principally include the provision of a software license, but also contain additional deliverable elements, such as the provision of upgrades and hosting services. For these contracts, where vendor-specific objective evidence criteria for independent recognition of revenue elements do not exist, revenue is recognized over the term of the agreement or three years when a revenue sharing arrangement exists. Revenue from net revenue sharing arrangements is recorded as received. b) E-commerce enabling agreements The Company has agreements where it has become an e-commerce enabler to various businesses. The Company adopted the provisions of Statement of Position 98-9, "Software Revenue Recognition," issued by the American Institute of Certified Public Accountants in its accounting for multiple element e-commerce enabling agreements. The Company's multiple element e-commerce enabling agreements are comprised of revenue for providing consulting, implementation, training, and hosting services. Revenue from individual elements of each contract is recognized when vendor-specific objective evidence exists to determine the fair value of individual contract elements. When vendor-specific objective evidence exists, consulting, implementation, and training elements are recognized 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. c) Sale of retail products and related activities Revenue from product sales, commission, shipping, and handling was recognized when goods were shipped to customers. The Company ceased its on-line retail operations in October 2000, and has not earned revenue related to retail activities since that date. DEFERRED REVENUE Deferred revenue is comprised of the unrecognized portion of consulting and implementation fees received in e-commerce enabling agreements, and the unrecognized portion of license, installation, and consulting revenue on the sale of software licenses and related services. F-10 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CUSTOMER ACQUISITION COSTS Customer acquisition costs are comprised of the calculated fair value of common share purchase warrants issued to customers in return for certain agreements. These amounts are deducted from gross revenue to the extent that revenue is earned, and are otherwise included in general and administrative expenses. The fair value of these warrants is calculated based on the Cox-Rubinstein binomial valuation model. 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 to employees is not recorded in the accounts of the Company. Stock-based compensation to employees under U.S. GAAP is accounted for in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, under both Canadian and United States GAAP no accounting recognition is given to stock options granted to employees 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 U.S. GAAP (Note 17). Stock-based compensation to third parties is recognized and recorded in the accounts of the Company at the fair market value of the equity instrument as determined by the Cox-Rubinstein binomial valuation model. Stock-based compensation is issued in respect of past services, and the expense is recorded at the time the equity instrument is issued which is typically the date the equity instrument vests. The Canadian Institute of Chartered Accountants implemented handbook section 3870, "Stock-based Compensation and Other Stock-based Payments," effective January 1, 2002. This standard is consistent with SFAS 123 and is not expected to further impact the Company's financial statements. 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. CAPITAL ASSETS
----------------------------------------------------------------------------------------------------------------------- 2001 2000 ----------------------------------------------------------------------------------------------------------------------- Cost Accumulated Net Book Cost Accumulated Net Book Amortization Value Amortization Value ----------------------------------------------------------------------------------------------------------------------- (in thousands) ----------------------------------------------------------------------------------------------------------------------- Computer hardware $ 2,889 $ 1,949 $ 940 $ 2,773 $ 1,217 $ 1,556 Furniture and fixtures 468 201 267 284 120 164 Leasehold improvements 151 129 22 127 87 40 Building 105 2 103 - - - ----------------------------------------------------------------------------------------------------------------------- $ 3,613 $ 2,281 $ 1,332 $ 3,184 $ 1,424 $ 1,760 -----------------------------------------------------------------------------------------------------------------------
Included in computer hardware are assets under capital lease with cost, accumulated amortization and net book value of $149,000, $67,000 and $82,000 (2000 - $149,000, $42,000, $107,000) respectively. F-11 5. INCOME TAXES Effective January 1, 2000, the Company adopted accounting for income taxes under the liability method. Under the liability method, a future tax asset is recorded based upon tax losses carried forward and differences in tax and accounting values in the Company's assets and liabilities. The tax asset is reduced by a valuation allowance to the extent that it is more likely than not that the asset would not be realized. The valuation allowance will be reviewed and adjusted as appropriate for each reporting period. At December 31, 2001 and 2000, the Company established the valuation allowance at 100% of the future tax asset.
2001 2000 ------------------------------------------ (in thousands) ------------------------------------------ Future tax asset Tax losses carried forward (i) $ 25,398 $ 18,571 Difference in tax and accounting valuations for capital assets and investments (i) 4,241 5,281 ------------------------------------------------------------------------------------------------------------ 29,639 23,852 Valuation allowance (29,639) (23,852) ------------------------------------------------------------------------------------------------------------ Future tax asset $ - $ - ============================================================================================================ Provision for income taxes Income taxes at statutory rate $ (7,062) $ (7,739) Tax losses carried forward 4,455 1,423 Difference in tax and accounting valuations for capital assets and investments (1,178) 4,569 Permanent differences for tax and accounting income 3,785 1,747 ------------------------------------------------------------------------------------------------------------ Provision for income taxes $ - $ - ============================================================================================================
(i) Included in future tax asset tax losses carried forward for 2001 are $2.372 million obtained on the acquisition of ADB Systemer. Included in future tax asset differences in tax and accounting valuations for capital assets and investments for 2001 are $138,000 acquired on acquisition of ADB Systemer. The Company's tax loss carryforwards at December 31, 2001 expire as follows: (in thousands) 2002 $ 113 2003 1,924 2004 6,401 2005 19,828 2006 19,262 2007 1,341 2008 7,300 2009 1,576 2010 2,927 2011 1,044 2012 2,967 ------------------------------------- $64,683 ===================================== F-12 6. SHARE CAPITAL a) Authorized Unlimited number of common shares Unlimited number of preference shares - issuable in series b) Share consolidation On October 11, 2001, the Company's shareholders approved a two-for-one share consolidation. All share and option figures contained in these financial statements have been adjusted retroactively to reflect the share consolidation. c) Common shares
------------------------------------------------------------------------------------------------------ 2001 2000 ------------------------------------------------------------------------------------------------------ Common Common Shares Amount Shares Amount ------------------------------------------------------------------------------------------------------ (in thousands of shares and dollars) Opening balance 27,319 $83,724 26,323 $ 77,488 Issued for Cash: Exercise of options (Notes 6(d)) - - 274 1,116 Issuance of shares (Note 6(e)) - - 450 3,120 Issuance of shares on acquisition of ADB Systemer ASA (Note 13) 10,866 9,844 - - Exercise of Point2 warrants (Note 6 (g)) - - 272 2,000 ------------------------------------------------------------------------------------------------------ Closing balance 38,185 $93,568 27,319 $83,724 ------------------------------------------------------------------------------------------------------
d) Stock Options (i) The Company has a stock option plan which provides for the issuance of stock options to employees, which may expire as much as 10 years from the date of grant, at prices not less than the fair market value of the common shares on the date of grant. The aggregate purchase price for employee options outstanding at December 31, 2001 was approximately $15 million (2000 - $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 outstanding at the end of 2001 are exercisable immediately, while the remainder have vesting periods attached which range from six months to 36 months. The options expire between 2002 and 2004. F-13 6. SHARE CAPITAL (CONTINUED) A summary of changes in the stock option plan for the two years ended December 31, 2001 is as follows:
NUMBER OF OPTIONS AVERAGE PRICE ---------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 ---------------------------------------------------------------------------------------------------- (IN THOUSANDS) Opening balance 1,924 1,360 $11.08 $11.02 Granted 1,138 1,040 1.42 10.20 Granted as replacement options in the acquisition of ADB Systemer ASA (Note 13) 773 - 0.36 - Exercised - (249) - 4.00 Cancelled (951) (227) 8.82 11.36 ---------------------------------------------------------------------------------------------------- Closing balance 2,884 1,924 $ 5.19 $11.08 ---------------------------------------------------------------------------------------------------- Exercisable, end of year 1,391 1,385 $ 9.62 $11.22 ---------------------------------------------------------------------------------------------------- Options remaining for issuance under stock option plan 1,005 1,188 ----------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED NUMBER OUTSTANDING AVERAGE AVERAGE NUMBER EXERCISABLE WEIGHTED RANGE OF AT REMAINING EXERCISE AT AVERAGE EXERCISE DECEMBER 31, 2001 CONTRACTUAL PRICE DECEMBER 31, 2001 EXERCISE PRICE PRICES (IN THOUSANDS) LIFE (OUTSTANDING) (IN THOUSANDS) (EXERCISABLE) ------------------------------------------------------------------------------------------------------------ $.36-$.50 773 3.0 years $0.36 64 $ 0.36 $.50-$2 656 1.9 years $0.64 -- $ -- $2-$4 250 2.8 years $2.60 190 $ 2.62 $4-$8 275 1.8 years $5.62 237 $ 5.54 $8-$12 347 0.6 years $11.26 347 $11.26 $12-$23 583 0.8 years $14.00 553 $13.74 ------------------------------------------------------------------------------------------------------------ 2,884 1,391 ------------------------------------------------------------------------------------------------------------
(ii) The Company also had stock options outstanding to third parties at December 31, 2001. The aggregate purchase price for third-party stock options outstanding at December 31, 2001 was $1,484,000 (2000 - $1,096,000). These options expire between 2003 and 2004. A summary of changes in the stock options to third parties for the two years ended December 31, 2001 is as follows:
NUMBER OF OPTIONS AVERAGE PRICE ------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 ------------------------------------------------------------------------------------------------- (IN THOUSANDS) Opening balance 71 73 $15.48 $ 14.66 Granted 223 33 1.74 12.08 Exercised - (25) - 4.84 Cancelled - (10) - 24.90 ------------------------------------------------------------------------------------------------- Closing balance 289 71 $ 5.13 $ 15.48 ------------------------------------------------------------------------------------------------- Exercisable, end of year 282 54 $ 5.14 $ 16.52 -------------------------------------------------------------------------------------------------
F-14 6. SHARE CAPITAL (CONTINUED) e) Private Common Share Placement On June 16, 2000, the Company issued 450,395 common shares at a price of $6.98 per share in a private placement. The Company received net proceeds of $3.12 million (after deducting costs of issue of approximately $21,000). Pursuant to the agreement to issue common shares, the Company issued 0.4 share purchase warrants for each common share, entitling the investee to 180,158 additional shares at a price of US$5.36 per share. These share purchase warrants were outstanding at December 31, 2001 and are exercisable until June 16, 2002. f) Share Purchase Warrants under Private Placement Equity Issues A summary of changes in the warrants issued to investors for the two years ended December 31, 2001 is as follows:
2001 2000 ------------------------------------------------------------------------------------------------------ Warrants Amounts Warrants Amounts ------------------------------------------------------------------------------------------------------ (in thousands) Opening balance 1,620 $ 28,074 928 $ 18,550 Granted (Notes 6(e) and (f(ii))) - - 692 9,524 Granted as replacement warrants on acquisition of ADB Systemer ASA (Notes 6(f(i) and 13)) 608 219 - - Cancelled (Note 6(f(iii))) (928) (18,550) - - ------------------------------------------------------------------------------------------------------ Closing balance 1,300 $ 9,743 1,620 $ 28,074 ------------------------------------------------------------------------------------------------------
i) Acquisition of ADB Systemer On October 11, 2001, the Company acquired 98.3% of the outstanding common shares of ADB Systemer. As a result of the acquisition, the Company issued 607,600 share purchase warrants with a strike price of two Norwegian kroner, in exchange for 700,000 share purchase warrants in ADB Systemer. These warrants retain all of the characteristics of the original warrants and have specific exercise dates of March 31, 2002 and March 31, 2003, expiring March 31, 2003 (see Note 13). ii) Strategic Marketing Agreement On March 28, 2000, pursuant to a strategic marketing agreement with one of its key customers, the Company issued 512,500 common share purchase warrants at a price of $15.80 per warrant. Each common share purchase warrant entitles the holder to acquire one common share. These warrants are fully vested and expire March 27, 2003. iii) Special Warrants Pursuant to a special warrant financial placement in September 1999, the Company issued 927,339 warrants at an exercise price of $20.00. These warrants expired on September 30, 2001. g) Point 2 Warrants During 2000, two share purchase warrants were exercised into 271,405 common shares having a value of $2 million for no additional consideration (see Note 14). h) Compensation Warrants Under Private Placement Equity Issue Pursuant to a 1999 private placement, 92,734 compensation warrants were issued to the underwriter. These warrants expired on September 30, 2001. F-15 6. SHARE CAPITAL (CONTINUED) i) Earnings per share The following table sets forth the computation of basic earnings (loss) per share.
------------------------------------------------------------------------------------------------------ 2001 2000 1999 ------------------------------------------------------------------------------------------------------ (in thousands, except per share amounts) NUMERATOR: ------------------------------------------------------------------------------------------------------ Net Loss (numerator for basic loss $ (18,714) $ (20,366) $ (20,825) per share applicable to common shares) ------------------------------------------------------------------------------------------------------ DENOMINATOR: ------------------------------------------------------------------------------------------------------ Weighted average shares (denominator for basic 29,130 26,844 24,792 loss per share) ------------------------------------------------------------------------------------------------------ Basic loss per share $ (0.64) $ (0.76) $ (0.84) ------------------------------------------------------------------------------------------------------
For each year ended, the Company excluded the effect of all stock options and warrants as their impact would have been anti-dilutive. 7. FINANCIAL INSTRUMENTS Foreign exchange risk The Company's revenue from software licensing and related services, and e-commerce enabling agreements is transacted in various currencies including Canadian dollar, U.S. dollar, UK pound, Irish pound, and Norwegian Krone. Correspondingly, operating expenses related to these activities are transacted in the above denoted currencies. The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations. Prior to the ceasing of its on-line retail operations, the Company transacted the majority of its retail product sales and purchases in U.S. dollars. Interest rate risk The Company has limited exposure to fluctuations in interest rates. The Company does not use derivative instruments to reduce its exposure to interest rate risk. Credit risk Credit risk arises from the potential that a customer will fail to meet its contractual obligations under a software licensing and related services agreement or an e-commerce enabling agreement. Fair value Fair value of assets and liabilities approximate amounts at which they would be exchanged between knowledgeable and unrelated persons. The amounts recorded in the financial statements approximate fair value. Equity Instruments During 2001, the Company was exposed to fair value fluctuations of publicly-traded common shares received in connection with the disposal of one of its strategic investments. To mitigate this risk, the Company engaged in the purchase of call and the sale of put options. The Company did not engage in the sale of call or put options exceeding the number of shares held. As at January 31, 2002, all common shares and related call and put options had been disposed. F-16 8. COMMITMENTS AND CONTINGENCIES (a) Minimum payments under operating leases during the next three years are as follows: (in thousands) ------------------------------------- 2002 $ 1,083 2003 497 2004 236 (b) As a result of a review of statutory reporting obligations regarding employee benefits, the Company has identified a potential for non-compliance. The employees and regulators concerned have been notified. The probability and amount of any potential liability relating to this situation is presently not determinable. (c) The Company has entered into compensation arrangements with certain of its employees. In the event of involuntary termination, the Company may be liable for potential payment of $610,000 to these employees. (d) As a condition of the agreement with a financial institution to settle sales transactions through pre-authorized credit card payments, the Company maintained 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. The Company did not have any such commitment at December 31, 2001. 9. CHANGE IN NON-CASH OPERATING WORKING CAPITAL
-------------------------------------------------------------------------------------- 2001 2000 1999 -------------------------------------------------------------------------------------- (IN THOUSANDS) Accounts receivable $ (12) $ 210 $ (543) Inventory - 155 14 Deposits and prepaid expenses 251 3,399 (4,289) Accounts payable (1,040) (2,391) 1,913 Accrued liabilities 5 (1,093) 1,525 Deferred revenue (2,121) 542 2,118 -------------------------------------------------------------------------------------- $ (2,917) $ 822 $ 738 --------------------------------------------------------------------------------------
10. RETAIL ACTIVITIES The Company ceased its on-line retail activities in October 2000, however it was required to settle certain amounts payable relating to product sales of previous years. These amounts were not previously anticipated. In June 1997, the Company introduced special promotional pricing to stimulate new bidder registrations and first-time sales. This special promotional pricing cost the Company approximately $558,000 in 2000, and $4,044,000 in 1999, and was included in advertising and promotion. As the Company ceased its online retail operations in October 2000, no promotional pricing expense was incurred in 2001. F-17 11. REALIZED GAINS AND LOSSES ON DISPOSAL OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS, AND RECOVERY OF ASSETS
2001 2000 1999 -------------------------------------------------------------------------------------------------------- (IN THOUSANDS) -------------------------------------------------------------------------------------------------------- Gain on disposal of strategic investment $ 6 $20,697 $ - (Note 11 (a) and (b)) Gain on disposal of marketable securities (Note 11 (c)) 3,656 249 - Gain on disposal on Point 2 (Note 11(d)) 2,249 - - Recovery of Point2 receivable (Note 11(d)) 811 - - -------------------------------------------------------------------------------------------------------- $6,722 $20,946 $ - --------------------------------------------------------------------------------------------------------
(a) During 2001, the Company disposed of its strategic investments that resulted in cash proceeds of $103,000 and a realized gain of $6,000. (b) During 1999 and 2000 the Company acquired common shares in Quack.com Inc. directly and through convertible debentures for aggregate cost of $1.221 million. In August 2000 the Company's investment in Quack.com Inc. was acquired by America Online Inc. (AOL). In exchange for its shares in Quack.com Inc., the Company received 278,027 unregistered shares of AOL valued at $21.9 million, resulting in a gain of $20.7 million. (c) The Company disposed of 120,000 of its AOL shares in November 2000, and recognized a gain of $249,000. In January 2001, the Company's unregistered AOL shares became freely trading and the Company sold 122,801 shares for gross proceeds of $10.0 million, realizing a gain of $3.7 million. In August of 2001, the remaining shares were released from escrow and became freely trading. At December 31, 2001 the Company held 30,000 shares in AOL. (d) In May 2001, the Company sold its interest in Point2 Internet Systems Inc. (Point2) for $2.6 million in cash. The Company realized a gain of $2.2 million, and recovered a receivable from Point2 that had been provided for in 2000. 12. UNREALIZED GAINS AND LOSSES ON REVALUATION OF MARKETABLE SECURITIES AND STRATEGIC INVESTMENTS AND PROVISON FOR IMPAIRMENT OF ASSETS
2001 2000 1999 -------------------------------------------------------------------------------------------------------------- (IN THOUSANDS) -------------------------------------------------------------------------------------------------------------- Revaluation of strategic investments (Note 12(a)) $(1,510) $ (5,600) $ - Revaluation of marketable securities (Note 12(b)) - (4,846) - Provision for impaired assets (Note 12(c)) (925) - - Provision for receivable from joint venture (Note 12(d)) - (802) - Provision for impaired intangible asset (Note 12(e)) - (401) - Provision for non-trade receivable - (48) - -------------------------------------------------------------------------------------------------------------- $(2,435) $ (11,697) $ - --------------------------------------------------------------------------------------------------------------
F-18 (a) The Company reviewed the carrying value of each of its strategic investments and determined that in light of recent financial performance of each investment and market conditions, the decline in value of these investments was other than temporary, and a revaluation was required. (b) The Company reviewed the market value of its shares in America Online Inc. at December 31, 2001 and 2000, and determined that a mark to market adjustment was required. At December 31, 2001 the Company held 30,000 shares in AOL. (c) The Company reviewed the carrying value of a prepaid advertising asset during the first quarter and determined the future value of this asset has been significantly reduced as a result of recent market conditions and changes to the Company's business-to-business marketing strategy. (d) As a result of reviewing the carrying value of its investment in Point2, the Company determined that a portion of the receivable from that investee was not recoverable as at December 31, 2000. (e) The Company determined that the intangible assets of Point2 had become permanently impaired as at December 31, 2000. 13. ACQUISITION OF ADB SYSTEMER ASA On October 11, 2001, the Company acquired 98.3 per cent of the outstanding shares of ADB Systemer of Sola, Norway. ADB Systemer was a publicly-traded software vendor focused on enterprise asset management and integrated electronic procurement. ADB Systemer has wholly-owned subsidiaries in the United States and in the United Kingdom. The purchase price for 12,518,493 of the outstanding ADB Systemer common shares was $13.762 million. The purchase price was comprised of $2.293 million in cash, $9.844 million of common stock issued from treasury, acquisition costs of $765,000, employee stock options with a fair market value of $576,000 granted to ADB Systemer employees as replacement options and warrants with a fair market value of $284,000 issued to ADB Systemer warrant holders as replacement warrants. Common stock issued from treasury totaled 10,866,052 shares (21,732,104 pre-consolidation) with a value of $9.844 million based on a five-day trading average before and after September 10, 2001, the date the acquisition was announced to the general public. The purchase price for ADB Systemer did not include any contingent payments, options, or commitments. The purchase price of $13.762 million was allocated as follows:
--------------------------------------------------------------------------------- 2001 --------------------------------------------------------------------------------- (IN THOUSANDS) --------------------------------------------------------------------------------- Net monetary assets (including cash - $814) $ 418 Capital assets 308 Contractual agreements 177 Acquired software and related intellectual property 3,383 Goodwill 9,476 --------------------------------------------------------------------------------- Total purchase price $13,762 ---------------------------------------------------------------------------------
ADB Systemer's operations were consolidated after the effective date of the acquisition, October 11, 2001. The amortization period for contractual agreements and acquired software and related intellectual property will be 12 and 36 months respectively. Goodwill will not be amortized, but will be subject to an impairment test where the carrying value of goodwill would be compared to its fair value. In the event the carrying value of goodwill exceeds its fair value, a goodwill impairment will be recorded. At December 31, 2001, the carrying value of goodwill was tested for impairment, and it was determined that a goodwill impairment of $9.476 million was required. Goodwill is not deductible for tax purposes. F-19 14. INVESTMENT IN A JOINTLY CONTROLLED COMPANY In 1999 the Company acquired a 51 percent interest in Point2 Internet Systems Inc. ("Point2") by issuing $2,500,000 of common shares and common share purchase warrants to acquire $2,000,000 of common shares for no additional consideration. The warrants were exercised in 2000. The Company acquired 51 percent of the shares of Point2 but only elected 50 percent of the board of directors. The investment was accounted for on a proportionate consolidation basis and the Company recorded its proportionate share of revenue and expenses, assets and liabilities from the date of acquisition. Of the total purchase price, $134,000 was allocated to current assets, $521,000 to non-current assets and $28,000 to current liabilities resulting in goodwill of $2,044,000. An additional $2 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 15). In May 2001, the Company sold its equity interest in Point2 for $2.6 million in cash. The Company realized a gain of $2.2 million, and recovered a receivable from Point2 provided for in 2000. Condensed balance sheet information for Point2 as at December 31, 2000 was as follows: ----------------------------------------------------------------- 2000 ----------------------------------------------------------------- (IN THOUSANDS) Current assets $ 117 Capital assets 205 Current liabilities 775 Shareholder advances 1,633 Shareholders' deficiency (2,086) Condensed income statement and cash flow information for Point2 for the five month period ended May 31, 2001, the year ended December 31, 2000, and the four month period ended December 31, 1999 is as follows:
----------------------------------------------------------------------------------- 2001 2000 1999 ----------------------------------------------------------------------------------- (IN THOUSANDS) Revenue $192 $ 348 $ 221 Net loss 293 3,003 222 Change in cash resources - (14) (185)
15. GOODWILL IMPAIRMENT The Company reviewed the carrying value of goodwill acquired in connection with the acquisition of ADB Systemer. The carrying value of goodwill was tested against its fair value and it was determined that a goodwill impairment of $9.476 million was required. The permanent decline in the fair value arose on a downturn in economic conditions resulting in lower than previously anticipated cash flows. The Company determined that the carrying value of goodwill acquired in connection with the acquisition of Point2 had become permanently impaired at December 31, 2000 (Note 14). 16. RELATED PARTY F-20 In February 2000, the Company entered into an agreement, valued at $1.5 million in shares in Art Vault Limited, plus a hosting fee and a share of net on-line auction revenues, under which it would provide its on-line auction technology and related services to Art Vault in which certain Directors of the Company, in aggregate, had a controlling interest. During 2001 the Company recorded $1 million (2000-$500,000) in revenue relating to this agreement by drawing down its deferred revenue. In April 2001, Art Vault went into receivership, and the Company's investment in Art Vault was written down to zero (2000-$281,000). 17. RECONCILIATION OF UNITED STATES GAAP The financial statements of the Company have been prepared in accordance with generally accepted accounting principles as applied in Canada, which conform in all material respects with generally accepted accounting principles in the United States, except as noted below. (a) Stock-based Compensation to Employees Under Canadian generally accepted accounting principles, stock based compensation is not recorded in the accounts of the Company. Stock-based compensation under U.S. GAAP is accounted for in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, under both Canadian and United States GAAP no accounting recognition is given to stock options granted at fair market value until they are exercised. SFAS No. 123, "Accounting for Stock-Based Compensation," requires the disclosure of pro forma net income (loss) and earnings (loss) per share had the Company adopted the fair value method since the Company's inception. Under SFAS No. 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. The Company's calculations for employee grants were made using the Cox-Rubinstein binomial model with the following weighted average assumptions: 2001 2000 1999 ------------------------------------------------------------------------- Dividend yield - - - Risk free interest rate 4.02% 6.20% 5.50% Expected term, in years 2.77 3.11 2.51 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:
2001 2000 1999 ----------------------------------------------------------------------------------------------------- (IN THOUSANDS) ----------------------------------------------------------------------------------------------------- Loss attributable to common shareholders under U.S. GAAP As calculated (Note 17(f)) $ (18,728) $ (20,352) $ (20,825) Pro forma $ (20,329) $ (26,470) $ (30,626) Basic and diluted net loss per share: As calculated $ (0.64) $ (0.76) $ (0.84) Pro forma $ (0.70) $ (0.99) $ (1.24)
F-21 (b) Comprehensive Income Financial Accounting Standards Board Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," requires disclosure of comprehensive income, which includes reported net earnings adjusted for other comprehensive income. Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. (c) Marketable Securities U.S. GAAP requires that the Company disclose marketable securities into one of three categories: held to maturity; available for sale; or trading. As at December 31, 2001 and 2000, the marketable securities held were classified as follows: 2001 2000 -------------------------------------------------------------------- (in thousands) -------------------------------------------------------------------- Trading $ 1,462 $ 8,081 Held to maturity 196 43 Available for sale 173 1,176 (d) Translation of Foreign Currency Under Canadian GAAP, gains and losses from foreign exchange translations of subsidiaries classified as fully integrated are included in the statements of operations. Under U.S. GAAP, these gains and losses are included as a component of comprehensive income. (e) Additional disclosures as required in accordance with United States GAAP U.S. GAAP requires the disclosure of accrued liabilities that exceed five percent of current liabilities. Included in accrued liabilities at December 31, 2001 are accrued compensation expenses (severance and unpaid vacation) of $454,000 (2000 - $225,000). (f) The effect of the above differences (Note 17(d)) on the Company's financial statements is set out below: Consolidated Balance Sheets
- ---------------------------------------------------------------------------------------------- 2001 2000 - ---------------------------------------------------------------------------------------------- (in thousands) Deficit as reported under Canadian GAAP $ (87,583) $ (68,869) Adjustments: Translation of foreign currency - 14 - ---------------------------------------------------------------------------------------------- Deficit under U.S. GAAP (87,583) (68,855) Accumulated Other Comprehensive Income (Loss) - (14) - ---------------------------------------------------------------------------------------------- Deficit and accumulated Other Comprehensive income (loss) under US GAAP $ (87,583) $ (68,869) - ----------------------------------------------------------------------------------------------
Consolidated Statements of Operations
- ------------------------------------------------------------------------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------- (in thousands) Net loss for the year as reported under Canadian GAAP $ (18,714) $ (20,366) $(20,825) Adjustments: Translation of foreign currency (14) 14 - - ------------------------------------------------------------------------------------------------------- Net loss for the year as reported under (18,728) (20,352) (20,825) U.S. GAAP Translation of foreign currency 14 (14) - - ------------------------------------------------------------------------------------------------------- Comprehensive Income (Loss) as reported under U.S. GAAP $ (18,714) $ (20,366) $(20,825) - -------------------------------------------------------------------------------------------------------
F-22 (g) Financial instruments impact of new accounting pronouncements Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires that, effective for all fiscal years beginning after June 15, 2000, 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 has not had any significant effect upon the Company's financial statements. The Canadian Institute of Chartered Accountants implemented Accounting Guideline 13 - "Hedging Relationship", effective July 1, 2002, which establishes certain conditions for when hedge accounting may be applied. As the Company does not establish hedging relationships, the adoption of this guideline is not expected to have any significant effect on the Company's financial statements. (h) Operating Loss U.S. GAAP requires that the Company disclose operating loss. Operating loss of the Company for the year was $20.866 million, comprised of net loss of $18.714 million less realized gains and losses and unrealized losses on marketable securities and strategic investments of $2.152 million (2000 - $30.866 million, comprised of net loss of $20.366 million less $10.500 million; 1999 -$ 20.825 million). 18. SEGEMENTED INFORMATION The Company operates in several reportable geographic segments: North America, Ireland and the United Kingdom, and Norway. The Company has also earned revenue from both retail and non-retail customers. Net revenue by Geographic Region
------------------------------------------------------------------------------ 2001 2000 1999 ------------------------------------------------------------------------------ (in thousands) North America $2,761 $12,254 $31,001 Ireland & U.K. 893 86 - Norway 741 - - ------------------------------------------------------------------------------ $4,395 $12,340 $31,001 ------------------------------------------------------------------------------
Assets by Geographic Region
-------------------------------------------------------------------------------------------------------- 2001 2000 -------------------------------------------------------------------------------------------------------- (in thousands) -------------------------------------------------------------------------------------------------------- Capital Assets Intangible and Other Capital Assets Intangible and Other Assets Assets North America $ 588 $ 588 $1,179 $1,673 Ireland & U.K. 449 - 581 - Norway 295 3,251 - - -------------------------------------------------------------------------------------------------------- $1,332 $3,626 $1,760 $1,673 --------------------------------------------------------------------------------------------------------
F-23 Net revenue by Source
----------------------------------------------------------------------------------------------- 2001 2000 1999 ----------------------------------------------------------------------------------------------- (in thousands) ----------------------------------------------------------------------------------------------- Non-retail revenue $4,455 $ 2,402 $ 4,411 Retail revenue - 10,095 26,590 Customer acquisition costs (60) (157) - ----------------------------------------------------------------------------------------------- $4,395 $12,340 $31,001 -----------------------------------------------------------------------------------------------
For the year ended December 31, 2001, one customer accounted for 22% of net revenue. For the years ended December 31, 2000 and 1999 no customers accounted for more than 10% of net revenue. 19. RECLASSIFICATION OF PRIOR YEARS Certain prior years amounts have been reclassified to conform to the current year basis of presentation. 20. SUBSEQUENT EVENT As of April 24, 2002, the Company had entered into an agreement for a private placement with a third party for gross proceeds of $1.1 million. The Company will issue 3.3 million common shares at US $0.21 per share and warrants exercisable into 1 million common shares at US $0.35 per share. The warrants have a term of three years. This transaction is subject to regulatory and exchange approvals. 21. CONVENIENCE TRANSLATION The financial statements as at December 31, 2001 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, 2001 as published by the Federal Reserve Bank of New York (U.S. $1.000 = Cdn. $1.5925). 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-24 EX-4.1 3 t07168ex4-1.txt SALARY PROTECTION LETTER Exhibit 4.1 For Ministry Use Only | Ontario Corporation Number | 1. A l'usage exclusif du ministere | Numero de la societe en Ontario | | | [MINISTRY STAMP] | 1217515 | ----------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ | ARTICLES OF AMENDMENT Form 3 | STATUTS DE MODIFICATION Business | Corporations|1. The name of the corporation is: Denomination sociale de la societe: Act | |----------------------------------------------------------------------------------------------------------------------- || B | I | D | . | C | O | M | | I | N | T | E | R | N | A | T | I | O | N | A | L | | I | N | C | . | | | | | Formule 3 |----------------------------------------------------------------------------------------------------------------------- Loi sur les || | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | societes par|---------------------------------------------------------------------------------------------------------- --- --- --- actions || | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |---------------------------------------------------------------------------------------------------------- --- --- --- || | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |---------------------------------------------------------------------------------------------------------- --- --- --- | | | 2. The name of the corporation is changed to Nouvelle denomination sosociale de la | (if applicable): societe (s'il y a lieu): | |---------------------------------------------------------------------------------------------------------------------- || A | D | B | | S | Y | S | T | E | M | S | | I | N | T | E | R | N | A | T | I | O | N | A | L | | I | N | C | . | |------------------------------------------------------------------------------------------------------------- -------- || | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |---------------------------------------------- -------------------------------------------------------------- --- --- || | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |---------------------------------------------- -------------------------------------------------------------- --- --- || | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |--------------------------------------------------------------------------------------------------------------------- | | |3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion: | | 1997 01 09 |--------------------------------------------------------------------------------------------------------------------- | (Year, Month, Day) | (annee, mois, jour) | | |4. The articles of the corporation are amended as Les statuts de la societe sont modifies de la | follows: facon suivante: | | | | |To consolidate all of the common shares of the Corporation presently issued and outstanding on the basis of |1 consolidated common share for each 2 common shares presently outstanding with any fractional shares arising as |a result of such consolidation being adjusted to the nearest whole share. | |To change the name of the Corporation to ADB Systems International Inc. | | | | | | | | | | | |
| 5. The amendment has been duly authorized as required La modification a ete dument autorisee | by Sections 168 & 170 (as applicable) of the conformement aux articles 168 et 170 (selon le | Business Corporations Act. cas) de la Loi sur les societes par actions. | | | | 6. The resolution authorizing the amendment was approved Les actionnaires ou les administrateurs (selon le | by the shareholders/directors (as applicable) of the cas) de la societe ont approuve la resolution | corporation on autorisant la modification le | | | 2001 10 10 | --------------------------------------------------------------------------------------------------------------------- | (Year, Month, Day) | (annee, mois, jour) | | | These articles are signed in duplicate. Les presents statuts sont signes en double | exemplaire. | | | | | | | Bid.Com International Inc. | ----------------------------------------------- | (Name of Corporation) | (Denomination sociale de la societe) | | | | By:/Par: [SIGNATURE] Secretary | ----------------------------------------------- | (Signature) (Description of Office) | (Signature) (Fonction) | | | |
EX-4.20 4 t07168ex4-20.txt OPTION AGREEMENT EXHIBIT 4.20 THIS AGREEMENT MADE THE 19TH DAY OF FEBRUARY, 2001. BETWEEN: WENDELL WILLICK, an individual resident in the province of Saskatchewan, (Hereinafter referred to as the "Optionee") -and- BID.COM INTERNATIONAL INC., a corporation existing under the laws of Ontario, (Hereinafter referred to as the "Optionor") OPTION AGREEMENT WHEREAS the Optionor desires to grant to the Optionee an irrevocable option to purchase all of the shares owned by the Optionor in Point2 Internet Systems Inc. and all debt of Point2 Internet Systems Inc. held by the Optionor, on the terms and conditions set out herein; NOW THEREFORE, in consideration of the mutual promises contained herein and the payment of $10.00 by each party hereto to the other and for good and other valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows: ARTICLE 1 - INTERPRETATION 1.1 Definitions In this Agreement and the recitals hereto, unless the context otherwise requires, the following words and expressions shall have the following meanings: (a) "Expiry Date" means the 14th day of May, 2001. (b) "Option" means the option granted to the Optionee under Section 2.1; (c) "Option Notice" means the notice indicating that the Optionee is exercising the option; (d) "Option Price" means the sum of $2,600,000.00 (e) "Optioned Shares" means all of the shares of the Optionor in Point2 Internet Systems Inc. namely, 481.41 Class A shares and 191.79 Class B shares of the capital stock of Point2 Internet Systems Inc.; (f) "Shareholders Loan" means all of the Optionor's outstanding loans to or equity in Point2 Internet Systems Inc. existing as at the date of this Agreement, including all principal and interest owing thereon. 1.2 Sections and Headings The division of this Agreement into Articles and Sections and the insertion of headings are for the convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms "this Agreement", "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof and include any agreement or instrument supplemental or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections in this Agreement. 1.3 Time Periods When calculating the period of time within which or following which any act is to be done or step taken pursuant to this Agreement, the date which is the reference date in calculating such a period shall be excluded. 1.4 Extended Meetings Words importing the singular number only shall include the plural and vice versa and words importing gender shall include masculine, feminine and neuter genders. 1.5 Canadian Dollars Unless otherwise provided herein, all monetary amounts set forth in this Agreement are in Canadian dollars. ARTICLE 2 - OPTION 2.1 The Optionor hereby grants to the Optionee the irrevocable option (the "Option") to purchase the Optioned Shares and Shareholders Loan, at the Option Price, subject to the terms and provisions of this Agreement. The Option Price shall be allocated as follows: (a) such of the Option Price as equals the principal and interest owing on the Shareholder Loan at the date of exercise of the Option, to the Shareholder Loan; and (b) the balance to the Optioned Shares. 2.2 The Option may be exercised at any time and from time to time up to and including the Expiry Date, and must be exercised in whole and not in part.. The Option may be exercised by the Optionee giving to the Optionor an Option Notice accompanied by a solicitors trust cheque or bank draft representing the Option Price payable to Gowling Strathy Henderson, Suite 4900 Commerce Court West, Toronto, Ontario M5L 1J3, to be held in trust pending delivery to the Optionee of the Optioned Shares, free and clear of all encumbrances. 2.3 The said money shall be released to the Optionor when delivery is effected as described above. 2.4 This Option shall not be exerciseable until and unless the Optionee provides to the Optionor a certificate of a duly authorized officer of Point2 Internet Systems Inc. representing and warranting to the Optionor that: (a) all necessary corporate action has been taken and will be taken to permit the Optioned Shares to be transferred and the Shareholders Loan to be repaid in accordance with the terms of this Agreement; (b) neither Point2 Internet Systems Inc. nor its senior management have any knowledge of an intent by a third party (other than the present shareholders of the Optionee) to acquire more than 20% of the equity of the Optionee at the time of the grant of this Option. ARTICLE 3 - GENERAL 3.1 Amendments and Waivers No modification, variation, amendment or termination by mutual consent of this Agreement and no waiver of the performance of any of the responsibilities of any of the parties hereto shall be effected unless such action is taken in writing and is signed by all parties. No amendment to this Agreement shall be valid or binding unless set forth in writing and duly executed by all of the parties hereto. No waiver of any breach of any provision of this Agreement shall be effective or binding unless made in writing and signed by the party purporting to give the same and, unless otherwise provided in the written waiver, shall be limited to the specific breach waived. 3.2 Severability Each of the covenants, provisions, Articles and Sections, subsections and other subdivisions hereof is severable from every other covenant, provision, Article, Section, subsection and the invalidity or unenforceability of any one or more covenants, provisions, Articles, Sections, subsections or subdivisions of this Agreement shall not affect the validity or enforceability of the remaining covenants, provisions, Articles, Section, subsections and subdivisions hereof. 3.3 Time of Essense Tim shall be of the essence in this Agreement. 3.4 Notice (1) Any notice or other written communication required or permitted hereunder shall be in writing and: (a) sent by registered mail, postage prepaid, return receipt requested; and (b) sent by facsimile. (2) All such notices shall be addressed to the party to whom it is directed at the following addresses: If to the Optionee: 500 - 3301 8th Street East SASKATOON, SK S7H 5K5 Fax No.: (306) 955-0471 If to the Optionor: Bid.Com International Inc. 6725 Airport Road, Suite 201 Mississauga, Ontario L4V 1V2 Attention: Mr. John Mackie Fax No. (905) 672-7514 With a copy to: Gowlings Suite 4900 Commerce Court West Toronto, Ontario M5L 1J3 Attention: Mr. David Pamenter Fax No. (416) 862-7661 (3) Any party may at any time change its address hereunder by giving notice of such change of address to the other party or parties in the manner specified in this section. Any such notice or other written communication shall, if mailed, be effective on the day it is first attempted to be delivered to such party at such address (whether or not such delivery takes place). 3.5 Application of Agreement This Agreement shall be binding upon and enure to the benefit of the parties hereto and their respective heirs, administrators, executors, successors and assigns. 3.6 Confidentiality All public announcements concerning this Agreement will be jointly planned and coordinated and no party will act unilaterally in this regard without the prior approval of the other party except where required do so by law or by the applicable regulations or policies of any governmental or other regulatory agency of competent jurisdiction or any stock exchange in circumstances where prior consultation with others is not practicable. 3.7 Assignment This Agreement shall enure to the benefit of and be binding upon the parties and their respective successors and permitted assigns. The Optionee may assign this Option, in whole or in part, to any party, provided that notwithstanding such assignment, the Option may only be exercised in whole by all holders thereof. 3.8 Further Assurances Each Party agrees that upon the written request of the other party, it will do all such acts and execute all such further documents, conveyances, deeds, assignments, transfers and the like, and will cause the doing of all such acts and will cause the execution of all such further documents as are within its power to cause the doing or execution of, as the other party hereto may from time to time reasonably request be done and/or executed as may be necessary or desirable to give effect to this Agreement. 3.9 Governing Law This Agreement shall be governed by and construed in accordance with the laws of the Province of Saskatchewan and the laws of Canada applicable therein. IN WITNESS WHEREOF the parties have executed this Agreement the day and year first above written. BID.COM INTERNATIONAL INC. Per: ------------------------------------- Per: ------------------------------------- - ---------------------------------------- ------------------------------------- Witness Wendell Willick EX-4.21 5 t07168ex4-21.txt AMENDMENT TO OPTION AGREEMENT EXHIBIT 4.21 THIS AGREEMENT MADE THE 2ND DAY OF MAY, 2001. BETWEEN: WENDELL WILLICK, an individual resident in the province of Saskatchewan, (Hereinafter referred to as the "Optionee") -and- BID.COM INTERNATIONAL INC., a corporation existing under the laws of Ontario, (Hereinafter referred to as the "Optionor") AMENDMENT TO OPTION AGREEMENT In consideration of the mutual promises contained herein and the payment of $10.00 by each party hereto to the other and for good and other valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows: 1. The Option Agreement between the parties dated February 19, 2001 is hereby amended by deleting the definition of the term "Expiry Date" contained therein, and replacing same with the following: (a) "Expiry Date" means the 31st day of May, 2001. 2. All other terms and conditions of the Option Agreement remain in full force and effect. IN WITNESS WHEREOF the parties have executed this Agreement the day and year first above written. BID.COM INTERNATIONAL INC. Per: - ------------------------------------ ------------------------------------ Witness Wendell Willick EX-4.22 6 t07168ex4-22.txt BOARD SUPPORT AGREEMENT EXHIBIT 4.22 BOARD SUPPORT AGREEMENT BETWEEN BID.COM INTERNATIONAL INC. A COMPANY ORGANIZED AND EXISTING UNDER THE LAWS OF ONTARIO, CANADA HEREUNDER REFERRED TO AS BII AND ADB SYSTEMER ASA A COMPANY ORGANIZED AND EXISTING UNDER THE LAWS OF NORWAY HEREUNDER REFERRED TO AS ADB WHEREAS A. BII intends to submit an offer to the shareholders of ADB relating to the purchase of all of the shares, options and warrants in ADB; B. ADB's share capital is NOK 12,732,000 consisting of 12,732,000 outstanding shares, in addition to 701,000 warrants and 880,000 options to acquire shares of ADB; C. BII's share capital consists of an unlimited number of common shares, of which 54,638,468 are issued and outstanding (61,242,127 on a fully diluted basis); D. BII and ADB signed on 18 July 2001 a letter of intent, which, in broad terms, sets out the basis upon which BII proposes and ADB agrees to complete the acquisition; E. BII intends to offer the shareholders of ADB as compensation for its acquisition of shares in ADB both shares in BII and cash payment, and will offer options and warrants in BII for options and warrants in ADB; F. BII intends to submit to the shareholders of BII an offer relating to the purchase of shares in ADB, together with a prospectus relating to the issuance of shares in BII as partial compensation for the acquisition of shares in ADB; G. BII intends to submit the terms of the proposed acquisition to the shareholders of BII for approval at a special meeting called for such purpose, hereafter referred to as the Special Meeting; H. The Board of Directors of ADB has reviewed and approved the following documents (the "Documents") in connection with this proposed transaction: 1. A draft of the above-mentioned purchase offer (with prospectus), hereafter referred to as the Offer. 2. A draft responsibility statement in favour of BII, detailing certain representations and warranties regarding ADB, hereafter referred to as the Responsibility Statement. 3. A draft board representation agreement providing for the nomination of two individuals representing ADB and its shareholders to the board of directors of BII, hereafter referred to as the Board Representation Agreement. 4. A draft employment agreement for Jan Pedersen, hereafter referred to as the Employment Agreement. 5. Draft lock-up agreements, committing certain shareholders to tender their shares to the Offer and regulating their trading in shares of BII following completion of the Offer, hereafter referred to as the Lock-Up Agreements. 6. A draft information circular in respect of the Special Meeting, hereafter referred to as the Circular. I. The current drafts of the Documents are attached as Appendices 1 to 6. J. In order to successfully acquire the shares of ADB, BII needs the strong support, both in principle and in practice, of the board of directors of ADB. NOW, THEREFORE, BII AND ADB HAVE AGREED AS FOLLOWS: PART A - BII OBLIGATIONS A.1. Subject to the terms and conditions contained herein, BII agrees to proceed with the Offer and to call the Special Meeting by no later than September 12, 2001 (the "Expiration Date"). This shall involve BII mailing to its shareholders by the Expiration Date the necessary management information circular regarding the Offer, which circular shall include a recommendation to proceed with the Offer. A.2 The Board of Directors and management of BII shall support the Offer in all communications with shareholders of BII. Such support shall continue while the Offer remains outstanding, provided that in the event that there have been any events, changes, developments or circumstances related to the business or affairs of ADB, which in the opinion of the board of directors of BII materially and adversely affect the value, business or prospects of ADB, such support may be withdrawn. A.3 The obligation to proceed with the Offer and the Special Meeting shall be subject to the satisfaction of the following conditions by no later than September 7, 2001: i. Delivery by ADB to BII of the Responsibility Statement, executed by the members of the board of directors and management of ADB. ii. Delivery by Jan Pedersen to BII of the Employment Agreement, executed by Mr. Pedersen. iii. Delivery by ADB to BII of Lock-Up Agreements executed by by all members of the board of directors, Jone Skaara, and Riverside Investment/LimeRock Ventures, Jan Pedersen, AIG Private Bank Ltd, Sandnes Investering and Rogaland Investering. iv. Delivery by ADB to BII of a certified copy of the Support Resolution (as defined below). v. BII being satisfied, acting reasonably, that all of the conditions contained in the Offer are likely to be satisfied on or before Closing (as defined below). A.4 The conditions to the Offer shall be as contained in the draft attached hereto. A.5 BII's obligations to complete the Offer shall be as set out therein. BII agrees that it shall use all reasonable efforts to complete the Offer by no later than October 31, 2001, and to take up and pay for all shares, warrants and options tendered to the Offer before such time (the "Closing"). PART B - ADB OBLIGATIONS B.1 The obligations of ADB contained in this Part B are subject to the satisfaction of the following conditions on or before the delivery of the Offer to the shareholders of ADB: a. Delivery by BII to ADB of a certified resolution of the board of directors of BII stating that the BII shareholder meeting circular shall provide for the appointment of Martin Bekkeheien and John Reynolds in place of Patrick Bourke, Duncan Copeland and Howard Koenig, and that Jan Pedersen shall be granted observer status, in accordance with the terms of the Board Representation Agreement. b. Delivery by BII to ADB of the Board Representation Agreement, signed by BII. B.2 The board of directors of ADB shall approve a resolution, hereafter referred to as the Support Resolution, stating that the board unanimously supports the Offer from BII relating to the purchase of all shares in ADB, including all terms and conditions thereto, and the form of all of the Documents, subject to such changes as may be accepted by an officer of ADB Such resolution is not to be rescinded or amended while the Offer remains outstanding, provided that in the event that there have been any events, changes, developments or circumstances related to the business or affairs of BII, which in the opinion of the board of directors of ADB materially and adversely affect the value, business or prospects of BII (a "Material Adverse Event"), the Support Resolution may be rescinded. B.3 ADB, ADB management, and the individual members of the board of directors shall: a) actively promote the transactions as described in the Offer to the shareholders of ADB, customers, suppliers and other interested third parties, by inter alia disclosing that those board members and members of management who are shareholders in ADB have committed themselves to sell the shares in ADB which they control directly or indirectly to BII on similar conditions to those stated in the Offer of share purchase in the prospectus, and otherwise in a way as agreed with BII, or any other legal entity which has been given the authority to represent BII, all with the express intent of ensuring the successful acquisition by BII of all of the shares of ADB. b) not permit the occurrence of any of the following events: (i) the alteration of any of the provisions of the constituent documents of ADB or of any subsidiary of ADB so as to: (A) increase its share capital by the creation of new shares; or (B) consolidate or divide all or any of its share capital, or convert shares of one class into shares of another class; (ii) ADB or any subsidiary of ADB resolving to reduce its share capital in any way; (iii) ADB or any subsidiary of ADB making an allotment of, or granting an option to subscribe for, any of its shares, or agreeing to make such an allotment or grant such an option; (iv) ADB or any subsidiary of ADB issuing or agreeing to issue convertible securities; (v) ADB or any subsidiary of ADB disposing or agreeing to dispose of the whole or a substantial part of its business or property; (vi) ADB or any subsidiary of ADB charging or agreeing to charge subsequent to the date hereof the whole or a substantial part of its business or property, other than in the ordinary course of business; (vii) ADB or any subsidiary of ADB resolving that it be wound up; (viii) the appointment of a liquidator, receiver or trustee in bankruptcy for ADB or a subsidiary of ADB or in relation to the assets of either; (ix) the making of an order by a court for the winding up or dissolution of ADB or any subsidiary of ADB; or (x) the declaration of dividends or the making of any other payment or distribution to shareholders of ADB. B.4 ADB agrees to continue to make available to representatives of BII, its advisors, counsel and other professionals, such financial, business and other information, in written, printed, graphic and other tangible form and in oral form including, but not limited to access to senior management, financial and technical staff, senior programmers and major customers, suppliers and distributors of ADB and also written, printed, graphic, electronic and other tangible form, concerning the business of ADB as may be requested for the purpose of enabling BII to determine compliance with the Offer and develop a post-acquisition integration plan for the companies. B.5 ADB agrees to work with BII to complete all necessary analyses, reviews, discussions and assessments that will be necessary to finalize the Offer by no later than the Expiration Date or such other date mutually agreed to by the parties. B.6 ADB acknowledges that BII has and will continue to incur substantial costs, directly and indirectly, in evaluating and investigating the business of ADB. In consideration of BII's commitment hereunder, ADB agrees to not enter into, or continue, any negotiation or discussions with or provide any information to any third party in respect of a subscription for shares by any person and ADB will not enter into, or continue, any negotiations or discussions with or provide any information to any third party in respect of the sale of the business of ADB or any part thereof in any manner whatsoever to any person or in respect of the acquisition, merger or combination of ADB and the business of any person or in any manner which would be inconsistent with the matter contemplated by this agreement unless BII previously agrees, in writing, to allow such activity or abandons the Offer, provided that nothing herein shall be construed as to prevent the board of directors of ADB, on notice to BII, from responding to an unsolicited bona fide offer or purchase proposal made by a third party in relation to the foregoing where such offer or purchase proposal is reasonably believed to provide more favourable consideration to the holders of ADB securities, provided that in such event ADB shall advise BII of all material terms of such bona fide offer or purchase proposal. B.7 ADB agrees that in the event that the ADB board elects not to support or recommend the Offer subsequent to the execution of this agreement (which shall only be permitted in the event of the receipt of an unsolicited bona fide offer or purchase proposal as described in B.6 above), ADB will promptly pay BII a break-up fee of CAD $ 1 Million, provided that if such support is withdrawn as a result of a Material Adverse Event pursuant to B.2 hereof, the above-mentioned break-up fee shall not apply. PART C - MISCELLANEOUS C.1 BII and ADB agree that all press releases and corporate communication by the companies with respect to the Offer or which may reasonably be considered to have a material effect on the perception of value of ADB, the marketplace for the shares of ADB or the ability of ADB to conduct business shall be agreed upon, in advance of release, by the companies, such approvals not to be unreasonably withheld and subject to applicable law and regulatory requirements. The companies acknowledge they will promptly issue a press release and announce the fact of the Offer in conjunction with the execution and delivery of this agreement unless either of them is otherwise required to make a prior announcement by applicable law or pursuant to the requirements of any securities regulatory authority having jurisdiction. C.2 The companies agree that all information provided hereunder or pursuant to the letter of intent dated 18 July 2001 will be treated as confidential information ("Confidential Information") and that the Confidential Information received by them will not be disclosed to any person except such persons, officers and directors to whom disclosure is necessary in connection with the due diligence contemplated in the letter of intent, the execution of this agreement and the completion and delivery of the Offer, and who are themselves made aware of and subject to this obligation of confidence. C.3 Except as otherwise stated hereing, each party shall be responsible for and pay for their respective professional and financial advisory fees incurred in the Offer. C.4 In the event that the Offer has not been delivered to the shareholders of ADB by the Expiration Date or such other date mutually agreed to by the parties in writing, then all of the terms of this agreement relating to ADB's obligations to support the Offer, save and except for the provisions relating to confidentiality, will be terminated and of no further force and effect. C.5 This agreement has prior to its signing been approved by the board of directors of ADB. C.6 This agreement is governed by Norwegian law. Stavanger City Court is the legal venue of any possible disputes. C.7 This agreement and the Offer replace and supersede the letter of intent dated 18 July 2001 between the parties. This agreement is entered into in 2 - two - originals, one to each party. 5 September, 2001 Bid.Com International Inc ADB Systemer ASA - ------------------------ ------------------------ Jeff Lymburner Martin Bekkehein President & CEO Chairman Approved by the members of board of directors of ADB Systemer ASA, both in their capacities as directors and individually: ----------------------- Martin Bekkeheien ----------------------- Leon Tveit ----------------------- John Thomas Reynolds ----------------------- Hakon Ulltveit-Moe Approved by the members of management of ADB Systemer ASA, both in their capacities as officers and individually: ----------------------- Jan Pedersen ----------------------- Jone Skaara EX-4.23 7 t07168ex4-23.txt BOARD SUPPORT AGREEMENT EXHIBIT 4.23 BOARD REPRESENTATION AGREEMENT BETWEEN BID.COM INTERNATIONAL INC. A COMPANY ORGANIZED AND EXISTING UNDER THE LAWS OF ONTARIO, CANADA HEREUNDER REFERRED TO AS BII AND LIME ROCK, PEDERSEN AND THE OTHER SHAREHOLDERS, AS IDENTIFIED BELOW WHEREAS H. BII and ADB have entered into an agreement dated September 7, 2001 whereby BII has agreed to submit an offer to the shareholders of ADB relating to the purchase of all of the shares, warrants and options in ADB (the "Offer"); I. The Offer is subject to the approval of the shareholders of BII, such approval to be sought at a special meeting of shareholders presently scheduled for October 10, 2001 (the "Special Meeting") J. In the event the Offer is successful, the shareholders of ADB as a group will hold approximately 30% of the shares of BII post-acquisition; K. As a result of the significant holdings of Lime Rock Partners LLC ("LIME ROCK"), Jan Edvin Pedersen ("PEDERSEN") and Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik (together the "OTHER SHAREHOLDERS") in BII post-acquisition, they have requested that they be entitled to nominate individuals to the board of directors of BII, for inclusion in a slate of directors to be put before the shareholders of BII at the Special Meeting and at the Annual General Meeting of shareholders; NOW, THEREFORE, BII, LIME ROCK, PEDERSEN AND THE OTHER SHAREHOLDERS HAVE AGREED AS FOLLOWS: PART A - NOMINATIONS A.1. Subject to the terms and conditions contained herein, Management and the Board of Directors of BII agree to include nominees of LIME ROCK and PEDERSEN in the slate of directors for the Special Meeting, for appointment following the Special Meeting, upon successful completion of the Offer. A.2 The nominees of each party shall be as follows: LIME ROCK - John Reynolds PEDERSEN - Martin Bekkeheien Each nominee must, prior to his or her nomination, provide a detailed five year biography for inclusion in public disclosure materials and execute all required consents and disclosure documents required pursuant to regulatory and exchange requirements. In the event that either nominee cannot participate in a meeting of the Board of Directors of BII during their term as directors, Pontus Wilfors (for John Reynolds) or Jone Skaara (for Martin Bekkeheien) shall be entitled to observer status at such meeting entitling such person to notice of such meeting, to be copied with all materials in respect of such meeting, and to attend such meeting. Such observer rights shall be subject to the Board of Directors' right to in camera sessions as and when determined by the Board. A.3 No more than once each twelve months (on a rolling basis), LIME ROCK shall be entitled to replace their nominee (either prior to election to the Board of Directors of BII or following election) on no less than ten business days prior written notice to the Chairman and Secretary of the Board of Directors, and the Board of Directors shall as promptly as practical act to elect such new nominee in the stead of the resigning nominee. LIME ROCK understand and agree that new nominees to the Board of Directors may be required to satisfy applicable Canadian residency or other regulatory requirements to be eligible for appointment. A.4 PEDERSEN agrees that he shall not be entitled to nominate any individual other than Martin Bekkeheien, until the next Annual General Meeting of the shareholders of BII or such time as Mr. Bekkeheien indicates he no longer wishes to serve on the Board of Directors of BII, whatever comes first. At such time, PEDERSEN shall be entitled to nominate himself or another person on the same basis as described above. Prior to such time as PEDERSEN becomes a member of the Board of Directors of BII, PEDERSEN shall be entitled to observer status at all BII Board of Directors meetings, entitling him to notice of all such meetings, to be copied with all materials in respect of such meetings, and to attend such meetings. Such observer rights shall be subject to the Board of Directors' right to in camera sessions as and when determined by the Board. A.5 In addition, at the next Annual General Meeting of the shareholders of BII, the OTHER SHAREHOLDERS shall be entitled to a nominee to the Board of Directors of BII. The OTHER SHAREHOLDERS understand and agree that such new nominee to the Board of Directors may be required to satisfy applicable Canadian residency or other regulatory requirements to be eligible for appointment. BII shall be entitled to rely on a statement in writing from Oddvar Fosse as to the identity of the nominee. A.6 The Board of Directors and management of BII agree that the rights of nomination herein shall apply for the periods set out below: LIME ROCK - until such time as LIME ROCK and other entities controlled by LIME ROCK should hold less than 2.5% of the outstanding shares of BII; PEDERSEN - until such time as PEDERSEN and other entities controlled by PEDERSEN should hold less than 2.5% of the outstanding shares of BII. OTHER SHAREHOLDERS - until such time as the OTHER SHAREHOLDERS as a group and other entities controlled by the OTHER SHAREHOLDERS should hold less than 50% of the shares of BII which they receive pursuant to the Offer, provided that any OTHER SHAREHOLDER which individually holds less than 50% of the shares of BII which they receive pursuant to the Offer shall no longer be entitled to participate in such nomination process. A.6 LIMEROCK, PEDERSEN and the OTHER SHAREHOLDERS hereby understand and agree that the rights of nomination herein do not guarantee election of such nominees, and that the Board of Directors and management of BII do not hold sufficient shares to ensure such elections. A.7 In addition to the Board positions contemplated above, each nominee who is elected or appointed to the Board hereunder shall be entitled to hold a seat on a Committee, subject to Canadian residency requirements and any applicable independence or member expertise requirements. BII agrees that it shall use its best efforts to ensure that LIME ROCK's nominee holds a seat on the Management Resource and Compensation Committee or the Audit Committee of the Board, and at a minimum has observer status (on the same terms as described above) with respect to the Audit Committee of the Board; and that PEDERSEN's nominee holds a seat on the Corporate Governance Committee of the Board, for so long as Martin Bekkeheien is such nominee. PART B - MISCELLANEOUS B.1 No public announcement concerning this agreement shall be made by a party hereto without the consent of the others or except as may be required by law. B.2 This agreement shall not be assignable by any party hereto. B.3 This agreement will be binding upon, enure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. B.4 All notices and other communications provided for or permitted hereunder shall be made by hand delivery or by fax as follows: (a) if to BII, at: 6725 Airport Road, Suite 201 Mississauga Ontario CANADA, L4V 1V2 Attention: Corporate Secretary Fax No: (905) 672-7514 (b) if to LIME ROCK, at: Lime Rock Management LP 518 Riverside Avenue Westport CT 06880, USA Attention: John T. Reynolds Fax No: +1 (203) 293 2760 (c) if to PEDERSEN, at: ADB Systemer ASA Vingv. 2 4050 Sola, Norway Attention: Jan Edvin Pedersen Fax No: +47 51 64 71 40 (d) if to the OTHER SHAREHOLDERS, at Sandnes Investering ASA Folkvordv. 11 4318 Sandnes Attention: Oddvar Fosse Fax No: +47 51 68 69 82 or to such other address or person as either party may specify by notice in writing to the other. All such notices or communications shall be deemed to have been duly given or made: (i) when delivered by hand, or (ii) if sent by fax, when receipt is acknowledged. B.5 This agreement is governed by Ontario law. The courts of Ontario shall serve as the legal venue of any possible disputes. This agreement is entered into in 3 - three - originals, one to each party. 7 September, 2001 BID.COM INTERNATIONAL INC LIME ROCK PARTNERS LLC - ------------------------ ------------------------ Jeff Lymburner John Reynolds President & CEO Principal SANDNES INVESTERING - ------------------------ ------------------------ JAN EDVIN PEDERSEN Name: Title: ROGALAND INVESTERING AIG PRIVATE BANK LTD. - ------------------------ ------------------------ Name: Name: Title: Title: - ------------------------ KARSTEIN GJERSVIK EX-4.24 8 t07168ex4-24.txt EMPLOYMENT AGREEMENT EXHIBIT 4.24 September 18, 2001 PRIVATE AND CONFIDENTIAL Mr. Jan Edvin Pedersen Vingveien 2, N - 4050 Sola Norway Dear Jan: On behalf of Bid.Com International Inc. ("Bid.Com"), I am pleased to confirm our offer of employment on the following terms, subject to completion of our acquisition (the "Acquisition") of ADB Systemer ASA ("ADB"): The position is President, European Operations, reporting directly to me. You agree by your execution of this offer of employment to remain in the employ of Bid.Com for a minimum of two years from the date of the Acquisition. During the second year of the term, the parties shall discuss any renewal, provided that Bid.Com shall provide at least six months notice of any intent not to renew your employment at the end of such two year term. In the event of termination of your employment by Bid.Com prior to the end of such two year period for any reason other than death, disability or for cause, Bid.Com shall continue to pay your base salary for a period of twelve months from such date. This salary protection shall not apply in the event of non-renewal of the terms hereof. Your salary will remain at NOK 850,000, and will be paid with the normal payroll run for the Norwegian operations. On each of the first and second anniversary date of the Acquisition, you will be paid a fixed bonus of Cdn. $100,000. You will participate in the Management Incentive Plan (MIP). The purpose of the MIP is to motivate and reward efforts that maximize our financial success. At target levels of organizational performance you will receive a bonus payment under the MIP equal to a fixed percentage of your base salary, as determined annually by the Board of Directors. In ongoing years you will participate in the Company's Stock Option plan at a level determined by the Board of Directors as appropriate for the Management Team, with consideration given to your performance. The current 2001 MIP targets were based on a previous revenue plan which has proven unattainable. These targets have not yet been revised. The terms of your existing employment arrangements with ADB will continue to apply, except to the extent revised hereunder. We are enclosing a copy of this letter and request that you sign, indicating your acceptance of this offer and its conditions, including any company policies and procedures as established by Bid.Com. Jan, I look forward to working with you on this exciting opportunity. Yours truly, Mark Wallace Chief Operating Officer I, Jan Edvin Pedersen, have read, understood and hereby accept the foregoing offer of employment on the above terms and conditions. Dated: ______________________ Signature: ____________________________ EX-4.25 9 t07168ex4-25.txt SUBSCRIPTION AGREEMENT EXHIBIT 4.25 SUBSCRIPTION AGREEMENT TO: ADB SYSTEMS INTERNATIONAL INC., An Ontario, Canada based Corporation (the "COMPANY") Dear Sirs: Stonestreet Limited Partnership (the "SUBSCRIBER") understands that the Company is offering 3,300,000 common shares (the "COMPANY SHARES") and 1,000,000 common share purchase warrants (the "WARRANTS"), each Warrant entitling the holder to purchase one common share of the Company at $0.35 per share exercisable during a period of three years from the Closing Date (as defined hereinafter) (the Company Shares, the Warrants and the common shares issuable upon the exercise of the Warrants (the "WARRANT SHARES") are collectively referred to in this Agreement as the "SECURITIES"). The Subscriber hereby subscribes for the purchase of the 3,300,000 Company shares at $0.21 per share, and for the purchase of the 1,000,000 Warrants for the aggregate price of $1.00, for a total subscription price of $693,000 (the "PURCHASE PRICE"). The form of Warrant (the "WARRANT CERTIFICATE") is annexed hereto as EXHIBIT A. Upon acceptance of this Agreement by the Company, the Company shall issue the Company Shares and the Warrants and deliver a share certificate representing the Company Shares and the Warrant Certificate to the Subscriber, against payment by federal funds wire transfer of the Purchase Price. The following terms and conditions shall apply to this subscription. 1. Subscriber's Representations and Warranties. The Subscriber hereby represents and warrants to and agrees with the Company that: (a) Information on Company. The Subscriber has been furnished with the Company's Form 20-F for the year ended December 31, 2000 as filed with the United States Securities and Exchange Commission (the "COMMISSION") together with all subsequently furnished forms 6-K and other publicly available filings made with the Commission (hereinafter collectively referred to as the "REPORTS"). (b) Information on Subscriber. The Subscriber is an "accredited investor", as such term is defined in Regulation D promulgated by the Commission under the United States Securities Act of 1933, as amended (the "1933 Act"), is experienced in investments and business matters, has made investments of a speculative nature and has purchased securities of publicly-owned companies in private placements in the past and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable the Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment. The Subscriber has the authority and is duly and legally qualified to purchase and own the Securities. The Subscriber is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof. The information set forth on the signature page hereto regarding the Subscriber is accurate. The Subscriber qualifies as an "accredited investor" pursuant to Rule 45-501 (Exempt Distributions) of the Ontario Securities Commission (the "OSC") promulgated under the 1 Securities Act of Ontario ("RULE 45-501") as evidenced by the Accredited Investor Certificate attached hereto as Schedule 1(b) completed and signed by the Subscriber. (c) The Subscriber is acquiring the Securities as principal for its own account for investment purposes and not with a view to resale or distribution. (d) Compliance with Securities Laws. The Subscriber understands and agrees that (A) the Securities have not been registered under the 1933 Act, by reason of their issuance in a transaction that does not require registration under the 1933 Act (based in part on the accuracy of the representations and warranties of Subscriber contained herein), and that such Securities must be held unless a subsequent disposition is registered under the 1933 Act or is exempt from such registration, (B) pursuant to the securities laws in the province of Ontario, Canada in which the Subscriber is a resident or otherwise subject, the Subscriber may be required to file a report with the applicable securities commission in the required form within 10 days of each disposition of all or any of the Securities is such disposition occurs before the expiry of any restricted period as prescribed by Ontario securities law and, if so required, the Subscriber undertakes to file the required report or to provide particulars of such resale to permit the Company to file such report on the Subscriber's behalf and (C) the Subscriber shall complete, sign and return to the Company the Questionnaire and Undertaking Form attached as EXHIBIT C hereto and required by The Toronto Stock Exchange (the "TSE") on or before Closing as hereinafter defined. (e) Company Shares Legend. The Subscriber acknowledges that certificates representing the Company Shares and the Warrant Shares, shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADB SYSTEMS INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED." (f) Warrants Legend. The Subscriber acknowledges that the Warrant Certificate shall bear the following legend: "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADB SYSTEMS 2 INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED." (g) Canadian Shares and Warrants Legend. The Subscriber acknowledges that certificates representing the Company Shares and the Warrants, and the Warrant Shares purchased upon exercise of the Warrants prior to August o 2002, will contain the following legend required pursuant to Multilateral Instrument 45-102 (Resale of Securities) of the Canadian Securities Administrators adopted as a Rule by the OSC ("MI 45-102"), and the Subscriber agrees to comply with the terms of such legend: "UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL NOT TRADE THE SECURITIES BEFORE AUGUST 26, 2002." (h) Subscriber not a U.S. Resident. The Subscriber is not a U.S. Person (as defined in Rule 902(o) of Regulation S promulgated by the Commission, (which definition includes, but is not limited to, any natural person resident in the United States, any corporation or partnership incorporated or organized under the laws of the United States, or any estate or trust of which any executor, administrator or trustee is a U.S. Person or any partnership or corporation organized under the laws of a foreign jurisdiction and formed by a U.S. Person principally for the purpose of investing in securities not registered under the 1933 Act)), is not purchasing the Securities for the account or benefit of any U.S. Person or for offering, resale or delivery for the account or benefit of any U.S. Person or for the account of any person in any jurisdiction other than the jurisdiction set out in the name and address of the Subscriber on the signature page of this Subscription Agreement, was not offered the Securities in the United States and was outside the United States at the time of execution and delivery of this Subscription Agreement. (i) Communication of Offer. The offer to sell the Securities was directly communicated to the Subscriber. At no time was the Subscriber presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of "general advertising" or "general solicitation" as those terms are used in Rule 501 promulgated under the 1933 Act or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such communicated offer. (j) The Subscriber is a limited partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and it has the requisite power and authority to enter into and perform this Agreement. This Agreement has been duly authorized, executed and delivered by the Subscriber and constitutes the valid and binding agreement of the Subscriber, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity and except that the indemnification provisions herein may be void as against public policy. (k) The Subscriber is neither a broker-dealer registered with the Commission nor an affiliate of a broker-dealer registered with the Commission. (l) Correctness of Representations. The Subscriber represents that the foregoing representations and warranties are true and correct as of the date hereof and, unless the Subscriber otherwise notifies the Company prior to the Closing Date (as hereinafter defined), shall be true and 3 correct as of the Closing Date. The foregoing representations and warranties shall survive the Closing Date for a period of three years. 2. Company Representations and Warranties. The Company represents and warrants to and agrees with the Subscriber that: (a) Due Incorporation. The Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the respective jurisdictions of their incorporation and have the requisite corporate power to own their properties and to carry on their business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a material adverse effect. "Material Adverse Effect" shall mean any effect on the business, operations, properties, prospects, or financial condition of the Company that is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise interfere with the ability of the Company to enter into and perform its obligations under this Agreement or the Warrant Certificate, in any material respect (the "MATERIAL ADVERSE EFFECT"). (b) Outstanding Stock. All issued and outstanding shares of capital stock of the Company and each of its subsidiaries has been duly authorized and validly issued and are fully paid and non-assessable. (c) Authority; Enforceability. This Agreement, the Warrant and other agreements delivered together with this Agreement or in connection herewith have been duly authorized, executed and delivered by the Company and are valid and binding agreements enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity and except that the indemnification provisions herein may be void as against public policy and that either party's rights to seek specific performance may be limited by applicable law; and the Company has full corporate power and authority necessary to enter into this Agreement and such other agreements and to perform its obligations hereunder and under all other agreements entered into by the Company relating hereto. (d) Additional Issuances. Except as publicly disclosed, there are no outstanding agreements or preemptive or similar rights affecting the Company's common stock or equity and no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of any shares of common stock or equity of the Company or other equity interest in any of the subsidiaries of the Company except as described in the Reports or otherwise publicly disclosed. (e) Consents. No consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company, or any of its affiliates, the National Association of Securities Dealers, Inc. ("NASD"), NASDAQ, the TSE or the Company's shareholders is required for execution of this Agreement excepting only the consent of the TSE, which will be obtained prior to Closing, and all other agreements entered into by the Company relating thereto, including, without limitation the issuance and sale of the Securities, 4 and the performance of the Company's obligations hereunder and under all such all such other agreements. (f) No Violation or Conflict. Assuming the representations and warranties of the Subscriber in Paragraph 1 are true and correct and the Subscriber complies with its obligations under this Agreement, neither the issuance and sale of the Securities nor the performance of the Company's obligations under this Agreement and all other agreements entered into by the Company relating thereto by the Company will: (i) violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (A) the certificate and articles of incorporation, charter or bylaws of the Company, (B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation or determination applicable to the Company of any court, governmental agency or body, or arbitrator having jurisdiction over the Company or any of its subsidiaries or over the properties or assets of the Company or any of its subsidiaries, (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company or any of its subsidiaries is a party, by which the Company or any of its subsidiaries is bound, or to which any of the properties of the Company or any of its subsidiaries is subject, or (D) the terms of any "lock-up" or similar provision of any underwriting or similar agreement to which the Company, or any of its subsidiaries is a party except the violation, conflict, breach, or default of which would not reasonably be expected to have a Material Adverse Effect on the Company and its subsidiaries taken as a whole; or (ii) result in the creation or imposition of any lien, charge or encumbrance upon the Securities or any of the assets of the Company or any of its subsidiaries. (g) The Securities. The Securities upon issuance: (i) are, or will be, free and clear of any security interests, liens, claims or other encumbrances, subject to restrictions upon transfer under the 1933 Act and State laws or applicable Canadian securities laws or the requirements of the TSE; (ii) have been, or will be, duly and validly authorized and on the date of issuance and on the Closing Date, as hereinafter defined, and the date the Warrants are duly exercised, the Securities will be duly and validly issued, fully paid and nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant to an effective registration statement to a purchaser who is not an affiliate of the Company will be free trading and unrestricted in the United States, provided that the Subscriber complies with the Prospectus delivery requirements); (iii) will not have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of the Company; and (iv) will not subject the holders thereof to personal liability by reason of being such holders. (h) Resale of the Securities in Canada will be unrestricted provided: 5 (i) four months have elapsed from the Closing Date; (ii) certificates representing the Company Shares, the Warrants, and the Warrant Shares purchased upon exercise of the Warrants prior to August o 2002, were issued with a legend stating the prescribed restricted period in accordance with section 2.5 of MI 45-102; (iii) such trade is not a "control distribution" as defined in MI 45-102; and (iv) no unusual effort is made to prepare the market or to create a demand for the Securities; and (v) no extraordinary commission or consideration is paid to a person or company in respect of such trade. (i) Litigation. There is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its subsidiaries that would affect the execution by the Company or the performance by the Company of its obligations under this Agreement, and all other agreements entered into by the Company relating hereto. Except as disclosed in the Reports or otherwise publicly disclosed, there is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company, or any of its subsidiaries which litigation if adversely determined is reasonably likely to have a Material Adverse Effect. (j) Reporting Company. The Company is a publicly-held company subject to reporting obligations of Section 13 of the Securities Exchange Act of 1934, as amended (the "1934 ACT") and has a class of common shares registered pursuant to Section 12(g) of the 1934 Act. The Company's common shares are listed for trading on the Nasdaq National Market System ("NMS"). Pursuant to the provisions of the 1934 Act, the Company has timely filed all reports and other materials required to be filed thereunder with the Commission during the preceding twelve months. The Company is now and has been a reporting issuer under the Securities Act of Ontario for the four months immediately preceding the date hereof and is not in default thereunder and it is a "qualifying issuer" as defined in MI 45-102 as of the Closing Date. (k) No Market Manipulation. The Company has not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the common shares of the Company to facilitate the sale or resale of the Securities or affect the price at which the Securities may be issued or resold. (l) Information Concerning Company. As of the date of their filing, the Reports contain all material information relating to the Company and its operations and financial condition is required to be disclosed therein. Since the date of the financial statements included in the Reports, and except as publicly disclosed, there has been no material adverse change in the Company's business, financial condition or affairs of the Company and its subsidiaries taken 6 as a whole not disclosed in the Reports. As of their date of filing, the Reports did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made not misleading. The Company represents and warrants that the Company has not provided to the Subscriber any information that constitutes a material change (as defined in the Securities Act of Ontario) with respect to the Company that has not been generally disclosed. (m) Stop Transfer. The Securities are restricted securities as of the date of this Agreement. The Company will not issue any stop transfer order or other order impeding the sale, resale or delivery of the Securities, except as may be required by United States federal or state securities laws or Canadian provincial securities laws. (n) Defaults. Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or ByLaws. Neither the Company nor any of its subsidiaries is (i) in default under or in violation of any other material agreement or instrument to which it is a party or by which it or any of its properties are bound or affected, which default or violation would reasonably be likely to have a Material Adverse Effect, (ii) in default with respect to any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters, or (iii) to its knowledge in violation of any statute, rule or regulation of any governmental authority which default or violation would be reasonably likely to have a Material Adverse Effect. (o) No Integrated Offering. Neither the Company, nor any of its subsidiaries, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offer of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the NMS, or the TSE nor will the Company or any of its subsidiaries take any action or steps that would cause the offer of the Securities to be integrated with other offerings. The Company has not conducted and will not conduct any offering other than the transactions contemplated hereby that will be integrated with the offer or issuance of the Securities. (p) No General Solicitation. Neither the Company, nor any of its subsidiaries, nor to its knowledge, 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 1933 Act) in connection with the offer or sale of the Securities. (q) Listing. The Company's common shares are quoted on, and listed for trading on the NMS and the TSE. Except as (i) disclosed in Schedule 2(p) of the Company Disclosure Schedule which does not contain any material change or material fact (as defined in the Securities Act of Ontario) with respect to the Company, or (ii) as publicly disclosed, the Company has not received any oral or written notice that its common stock will be delisted from the NMS or the TSE or that the Company's common shares do not meet all requirements for the continuation of such listing. (r) No Undisclosed Liabilities. The Company has no liabilities or obligations which are material, individually or in the aggregate, which are not disclosed in the Reports or otherwise publicly disclosed, other than those incurred in the ordinary course of the Company's businesses since 7 December 31, 2000 and which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. (s) No Undisclosed Events or Circumstances. Since December 31, 2000, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the Reports. (t) Capitalization. The authorized and outstanding capital stock of the Company as of the date of this Agreement and the Closing Date are set forth on Schedule 2(s) of the Company Disclosure Schedule hereto. (u) F-3 Eligibility. The Company currently meets, and will take all necessary action to continue to meet, the "registrant requirements" set forth in the general instruction 1A to Form F-3. (v) Correctness of Representations. The Company represents that the foregoing representations and warranties are true and correct as of the date hereof in all material respects, will be true and correct as of the Closing Date in all material respects, and, unless the Company otherwise notifies the Subscriber prior to the Closing Date, shall be true and correct in all material respects as of the Closing Date. The foregoing representations and warranties shall survive the Closing Date for a period of three years. 3. Exempt Offering. This Offering is being made pursuant to the exemption from the prospectus and registration requirements of the Securities Act of 1933 and the Securities Act of Ontario, as amended, afforded respectively by Rule 506 of Regulation D and Rule 45-501. On the Closing Date, the Company will provide an opinion reasonably acceptable to Subscriber and the Subscriber's counsel from the Company's legal counsel opining on the availability of such exemptions as they relate to the offer and issuance of the Securities and applicable resale restrictions. A form of the legal opinion is annexed hereto as EXHIBIT B. The Company will provide, at the Company's expense, such other legal opinions in the future as are reasonably necessary for the exercise of the Warrants. 4. Reissuance of Securities. (a) The Company agrees to reissue certificates representing the Securities without the legends set forth in Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted to and disposes of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the 1933 Act in the opinion of counsel reasonably satisfactory to the Company, provided that the disposition is to a person or entity who is not an affiliate of the Company, or (b) assuming compliance by the seller with the prospectus delivery requirements of the 1933 Act, upon resale subject to an effective registration statement after the Securities are registered under the 1933 Act, provided that the disposition is to a person or entity who is not an affiliate of the Company. The Company agrees to reissue certificates representing the Securities without the legend set forth in Section 1(g) after the expiry of the restricted period set out in the legend on the certificates representing the Securities. (b) The Company agrees to cooperate with the Subscriber in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and upon compliance with Rule 45-501 and MI 45-102 and provide legal opinions necessary to allow such resales provided the Company and its counsel 8 receive reasonably requested written representations from the Subscriber and selling broker which are in form and substance reasonably satisfactory to the Company and its counsel, if reasonably appropriate. (c) Provided (i) the Subscriber has complied with all applicable securities laws in connection with offer and sale of the Securities so as to enable the purchaser to receive freely trading stock, (ii) the purchaser of the Securities is not an affiliate of the Company, and (iii) the Subscriber has provided to the Company certifications, representation letters and other instruments reasonably required by the Company, if any, if the Company fails to remove any legend as required by this Section 4 (a "LEGEND REMOVAL FAILURE"), then beginning on the tenth (10th) day following the date that the Subscriber has requested the removal of the legend and delivered all items reasonably required by the Company to be delivered by the Subscriber, the Company continues to fail to remove such legend, the Company shall pay to each Subscriber or assignee holding shares subject to a Legend Removal Failure an amount equal to one percent (1%) of the Purchase Price of the shares subject to a Legend Removal Failure per day that such failure continues. If during any twelve (12) month period, the Company fails to remove any legend as required by this Section 4 for an aggregate of thirty (30) days, each Subscriber or assignee holding Securities subject to a Legend Removal Failure may, at its option, require the Company to purchase all or any portion of the Securities subject to a Legend Removal Failure held by such Subscriber or assignee at a price per share equal to 120% of the applicable Purchase Price. 5. Fees. (a) The Company shall pay to Grushko & Mittman, P.C., U.S. counsel to the Subscriber, its fees of $15,000 (the "ESCROW AGENT FEE") for services rendered to Subscriber in connection with this Agreement for the Offering and acting as escrow agent for the Offering. The Escrow Agent Fee must be paid out of funds held pursuant to an Escrow Agreement to be entered into by the Company, Subscriber and Grushko & Mittman, P.C., as escrow agent (the "ESCROW AGENT AGREEMENT"). (b) In consideration for agreeing to conduct due diligence on the Company and to review the Reports, the Company will pay due diligence fees (the "DUE DILIGENCE FEES") as follows: (i) to YMP Consultants Inc. (the "CONSULTANT") a due diligence payment equal to three percent (3%) of the Purchase Price (the "FEE PAYMENT"), which must be paid on the Closing Date and payable out of funds held pursuant to the Escrow Agent Agreement, and (ii) to Stonestreet Corporation (the "GENERAL PARTNER") warrants to purchase 50,000 shares of the Company's common shares, each warrant entitling the holder to purchase one common share of the Company at $0.35 per share on or before April 25, 2005 (the "FEE WARRANTS"). (c) The Fee Warrants shall be evidenced in a certificate (the "FEE WARRANT CERTIFICATE") in the form of Exhibit A, and shall be issued and delivered to the General Partner on the Closing Date. The General Partner agrees that the legending requirements set out in Sections 1(e), (f) and (g) herein also apply to the Fee Warrant Certificate. (d) The General Partner hereby represents that it is an "accredited investor" pursuant to Rule 45-501 as evidenced by the Accredited Investor Certificate attached hereto as Schedule 1(b) 9 completed and signed by the General Partner, and is acquiring the Fee Warrants as principal for its own account for investment purposes and not with a view to resale or distribution. (e) All the representations, covenants, warranties, undertakings, remedies, liquidated damages, indemnification, and other rights including but not limited to registration rights made or granted to or for the benefit of the Subscriber are hereby also made and granted to the assignees of the Warrants and the Warrant Shares, and to the General Partner and its successors and assigns in respect to the Fee Warrants and common shares issuable upon exercise of the Fee Warrants (the "FEE WARRANT SHARES"). (f) The Company on the one hand, and the Subscriber on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any persons claiming brokerage commissions or Due Diligence Fees other than the General Partner on account of services purported to have been rendered on behalf of the indemnifying party in connection with this Agreement or the transactions contemplated hereby and arising out of such party's actions. The Company and the Subscriber each represents that, to its knowledge, there are no parties entitled to receive commissions or similar payments in connection with the Offering. 6. Covenants of the Company. The Company covenants and agrees with the Subscriber as follows: (a) The Company will advise the Subscriber, promptly after it receives notice of issuance by the Commission, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose. (b) The Company shall promptly secure the listing of the Company Shares, and common shares stock issuable upon the exercise of the Warrants upon each national securities exchange, or automated quotation system, if any, upon which shares of common share stock are then listed (subject to official notice of issuance). The Company will use all reasonable commercial efforts to maintain the listing of its Common Stock on the NMS and the TSE (each a "PRINCIPAL MARKET"), and will comply in all respects with the Company's reporting, filing and other obligations, if any, under the bylaws or rules of the TSE and, for so long as the Company's common shares are traded on the NMS, of the National Association of Securities Dealers ("NASD") and such exchanges, as applicable. The Company will provide the Subscriber copies of all notices it receives notifying the Company of the threatened and actual delisting of the Company's common shares stock from any Principal Market. (c) The Company shall notify the Commission, NASD, the Principal Market and applicable state, United States and Canadian provincial authorities, in accordance with their requirements, if any, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to the Subscriber and promptly provide copies thereof to Subscriber, including without limitation, to complete and OSC Form 45-501F1 and Form 45-102F2 and to file such forms with the OSC within 10 days of the Closing together with all applicable filing fees to be paid by the Company. (d) From the Closing Date and until at least two (2) years after the effectiveness of the Registration Statement on Form F-3 or such other Registration Statement described in Section 10 8 hereof, the Company will (i) cause its common stock to continue to be registered under Section 12(g) of the 1934 Act, (ii) comply in all respects with its reporting and filing obligations under the 1934 Act, (iii) comply with all reporting requirements that is applicable to an issuer with a class of Shares registered pursuant to Section 12(g) of the 1934 Act, and (iv) comply with all requirements related to any registration statement filed pursuant to this Agreement. The Company will use its best efforts not to take any action or file any document (whether or not permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Acts until the later of two (2) years after the actual effective date of the Registration Statement on Form F-3 or such other Registration Statement described in Section 8 hereof. Until the later of the resale of the Company Shares by the Subscriber or at least two (2) years after the Warrants have been exercised, the Company will use its best efforts to continue the listing of the common stock on the NMS and TSE and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the NMS and the TSE. (e) The Company undertakes to use the proceeds of the Subscriber's funds for the purposes set forth on SCHEDULE 6(E) hereto. (f) The Company undertakes to reserve, on behalf of each holder of a Warrant, from its authorized but unissued common shares, at all times that Warrants remain outstanding, one common share for each common share issuable upon exercise of the Warrants. 7. Covenants of the Company and Subscriber Regarding Indemnification. (a) From and after the Closing Date, the Company agrees to indemnify, hold harmless, reimburse and defend Subscriber, the General Partner, the limited partners of the Subscriber, the officers, directors, agents, affiliates, control persons and principal shareholders of the Subscriber, the General Partner and limited partners of the Subscriber, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon Subscriber or any such person which results, arises out of or is based upon (i) any misrepresentation by Company or breach of any warranty by Company in this Agreement or in any Exhibits or Schedules attached hereto, or other agreement delivered pursuant hereto; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by the Company of any covenant or undertaking to be performed by the Company hereunder, or any other agreement entered into by the Company and Subscribers relating hereto. (b) From and after the Closing Date, Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company's officers, directors, agents, affiliates, control persons against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company or any such person which results, arises out of or is based upon (i) any material misrepresentation by Subscriber in this Agreement or in any Exhibits or Schedules attached hereto, or other agreement delivered pursuant hereto; or (ii) after any applicable notice and/or cure periods, any breach or default in performance by Subscriber of any covenant or undertaking to be performed by Subscriber hereunder, or any other agreement entered into by the Company and Subscribers relating hereto. (c) The procedures set forth in Section 8.6 shall apply to the indemnifications set forth in Sections 7(a) and 7(b) above. 11 8.1. Registration Rights. The Company hereby grants the following registration rights to holders of the Securities. (i) On one occasion, for a period commencing 121 days after the Closing Date, but not later than three years after the Closing Date ("REQUEST DATE"), the Company, upon a written request therefor from any record holder or holders of more than 50% of the Company Shares then outstanding (the Company Shares and the Warrant Shares are referred to collectively the "REGISTRABLE SECURITIES"), shall prepare and file with the Commission a registration statement under the 1933 Act covering the Registrable Securities which are the subject of such request, unless such Registrable Securities are the subject of an effective registration statement or included for registration in a pending registration statement. In addition, upon the receipt of such request, the Company shall promptly give written notice to all other record holders of the Registrable Securities that such registration statement is to be filed and shall include in such registration statement Registrable Securities for which it has received written requests within 10 days after the Company gives such written notice. Such other requesting record holders shall be deemed to have exercised their demand registration right under this Section 8.1(i). As a condition precedent to the inclusion of Registrable Securities, the holder thereof shall provide the Company with such information as the Company reasonably requests. The obligation of the Company under this Section 8.1(i) shall be limited to one registration statement. (ii) If the Company at any time proposes to register any of its securities under the 1933 Act for sale to the public, whether for its own account or for the account of other security holders or both, except with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public, provided the Registrable Securities are not otherwise registered for resale by the Subscriber or Holder pursuant to an effective registration statement, each such time it will give at least 25 days' prior written notice to the record holder of the Registrable Securities of its intention so to do. Upon the written request of the holder, received by the Company within 15 days after the giving of any such notice by the Company, to register any of the Registrable Securities, the Company will cause such Registrable Securities as to which registration shall have been so requested to be included with the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent required to permit the sale or other disposition of the Registrable Securities so registered by the holder of such Registrable Securities (the "SELLER"). In the event that any registration pursuant to this Section 8.1(ii) shall be, in whole or in part, an underwritten public offering of common stock of the Company, the number of shares of Registrable Securities to be included in such an underwriting may be reduced by the managing underwriter if and to the extent that the Company and the underwriter shall reasonably be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein; provided, however, that the Company shall notify the Seller in writing of any such reduction. Notwithstanding the foregoing provisions, or Section 8.4 hereof, the Company may withdraw or delay or suffer a delay of any registration statement referred to in this Section 8.1(ii) without thereby incurring any liability to the Seller. (iii) Reserved. (iv) The Company shall file with the Commission not later than sixty (60) days after the Closing Date (the "FILING DATE"), and use its reasonable commercial efforts to cause to be declared effective within one hundred and twenty (120) days after the Closing Date, a Form F-3 registration statement (or such other form that it is eligible to use) in order to register the Registrable Securities for resale and distribution under the 1933 Act. The registration statement described in this paragraph must be declared effective by the Commission not later than one hundred and twenty (120) days after the Closing Date ("EFFECTIVE DATE"). The Company will register not less than a number of common shares in the aforedescribed registration statement that is equal to the number of Company Shares and one common share for each of the common shares issuable upon exercise 12 of the Warrants. The Registrable Securities shall be reserved and set aside exclusively for the benefit of the Subscriber, and not issued, employed or reserved for anyone other than the Subscriber, the General Partner or its successors and assigns. Such registration statement will immediately be amended or additional registration statements will be immediately filed by the Company as necessary to register additional Company Shares to allow the public resale of all Common Stock included in and issuable by virtue of the Registrable Securities. No securities of the Company other than the Registrable Securities will be included in the registration statement described in this Section 8.1(iv) except as described on SCHEDULE 8.1 or in any other registration prior to 120 days after the Closing Date, without the written consent of the Subscriber, which consent will not be unreasonably withheld. 8.2. Registration Procedures. If and whenever the Company is required by the provisions hereof to effect the registration of any shares of Registrable Securities under the 1933 Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as herein provided), and promptly provide to the Sellers copies of all filings and Commission letters of comment; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until the latest of: (i) until six months after all the Company Shares are eligible for resale pursuant to Rule 144(k) of the 1933 Act; or (ii) until such registration statement has been effective for a period of not less than 365 days, and comply with the provisions of the 1933 Act with respect to the disposition of all of the Registrable Securities covered by such registration statement in accordance with the Seller's intended method of disposition set forth in such registration statement for such period; provided, however, that notwithstanding anything to the contrary herein contained, the Company shall have no obligation to keep any such registration statement effective after all of the Company Shares and the shares of Common Stock issuable upon exercise of the Warrants have been disposed of by the Subscriber to a transferee in whose possession the Company Shares are not subject to any restrictions on transfer; (c) furnish to the Seller, such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request in order to facilitate the public sale or their disposition of the securities covered by such registration statement; (d) use its best efforts to register or qualify the Seller's Registrable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the Seller, provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify the Seller when a prospectus relating thereto is required to be delivered under the 1933 Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; 13 (g) make available for inspection by the Seller, and any attorney, accountant or other agent retained by the Seller or underwriter, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the seller, attorney, accountant or agent in connection with such registration statement. 8.3. Provision of Documents. At the request of the Seller, provided a demand for registration has been made pursuant to Section 8.1(i) or a request for registration has been made pursuant to Section 8.1(ii), the Registrable Securities will be included in a registration statement filed pursuant to this Section 8. In connection with each registration hereunder, the Seller will furnish to the Company in writing such information and representation letters with respect to itself and the proposed distribution by it as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws. In connection with each registration pursuant to Section 8.1(i) or 8.1(ii) covering an underwritten public offering, the Company and the Seller agree to enter into a written agreement with the managing underwriter in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. In connection with any sales by the Subscriber pursuant to a registration statement filed pursuant to this Agreement, the Subscriber agrees to comply with the prospectus delivery requirements of the 1933 Act. The Subscriber further agrees to refrain from selling Securities pursuant to any registration statement filed pursuant to this Agreement in the event that the Company has notified it that the prospectus included in such registration statement needs to be updated to reflect events not described therein or is inaccurate in any way. 8.4. Non-Registration Events. The Company and the Subscriber agree that the Seller will suffer damages if any registration statement required under Section 8.1(i) or 8.1(ii) above is not filed within 30 days after written request by the Holder and not declared effective by the Commission within 90 days after such request [or the Filing Date and Effective Date, respectively, in reference to the Registration Statement on Form F-3 or such other form described in Section 8.1(iv)], and maintained in the manner and within the time periods contemplated by Section 8 hereof, and it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (i) the Registration Statement described in Sections 8.1(i) or 8.1(ii) is not filed within 30 days of such written request, or is not declared effective by the Commission on or prior to the date that is 90 days after such request, or (ii) the registration statement on Form F-3 or such other form described in Section 8.1(iv) is not filed on or before the Filing Date or not declared effective on or before the sooner of the Effective Date, or within five business days of receipt by the Company of a written or oral communication from the Commission that the registration statement described in Section 8.1(iv) will not be reviewed, or (iii) any registration statement described in Sections 8.1(i), 8.1(ii) or 8.1(iv) is filed and declared effective but shall thereafter cease to be effective (without being succeeded immediately by an additional registration statement filed and declared effective) for a period of time which shall exceed 30 days in the aggregate per year but not more than 20 consecutive calendar days (defined as a period of 365 days commencing on the date the Registration Statement is declared effective) (each such event referred to in clauses (i), (ii) and (iii) of this Section 8.4 is referred to herein as a "Non-Registration Event"), then, for so long as such Non-Registration Event shall continue, the Company shall pay in cash as Liquidated Damages to each holder of any Registrable Securities an amount equal to one (1%) percent for the first thirty (30) days or part thereof and two (2%) percent per month for each month or part thereof thereafter during the pendency of such Non-Registration Event (subject to any maximum imposed by the TSE), of the Purchase Price of the Registrable Securities owned of record by such holder as of or subsequent to the occurrence of such Non-Registration Event. Payments to be made pursuant to this Section 8.4 shall be due and payable within ten (10) business days after demand in immediately available funds. 14 8.5. Expenses. All expenses incurred by the Company in complying with Section 8, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs of insurance are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Seller, are called "Selling Expenses". The Seller shall pay the fees of its own additional counsel, if any. The Company will pay all Registration Expenses in connection with the registration statement under Section 8. All Selling Expenses in connection with each registration statement under Section 8 shall be borne by the Seller and may be apportioned among the Sellers in proportion to the number of shares sold by the Seller relative to the number of shares sold under such registration statement or as all Sellers thereunder may agree. 8.6. Indemnification and Contribution. (a) In the event of a registration of any Registrable Securities under the 1933 Act pursuant to Section 8, the Company will indemnify and hold harmless the Seller, each general partner and limited partner of the Seller, each officer of the Seller, each director of the Seller, each officer and director of a general partner or limited partner of the Seller, each underwriter of such Registrable Securities thereunder and each other person, if any, who controls such Seller or underwriter within the meaning of the 1933 Act, against any losses, claims, damages or liabilities, joint or several, to which the Seller, or such underwriter or controlling person may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities were registered under the 1933 Act pursuant to Section 8, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances when made, and will subject to the provisions of Section 8.1(c) reimburse the Seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable to the Seller to the extent that any such damages arise out of or are based upon an untrue statement or omission made in any preliminary prospectus if (i) the Seller failed to send or deliver a copy of the final prospectus delivered by the Company to the Seller with or prior to the delivery of written confirmation of the sale by the Seller to the person asserting the claim from which such damages arise, (ii) the final prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (iii) to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by any such Seller, or any such controlling person in writing specifically for use in such registration statement or prospectus. (b) In the event of a registration of any of the Registrable Securities under the 1933 Act pursuant to Section 8, the Seller will indemnify and hold harmless the Company, and each person, if any, who controls the Company within the meaning of the 1933 Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the 1933 Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Securities were registered under the 1933 Act pursuant to Section 8, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact 15 required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such Seller, as such, furnished in writing to the Company by such Seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of the Seller hereunder shall be limited to the gross proceeds received by the Seller from the sale of Registrable Securities covered by such registration statement. (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, claim or proceeding, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 8.6(c) and shall only relieve it from any liability which it may have to such indemnified party under this Section 8.6(c), except and only if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 8.6(c) for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there are reasonable defenses available to it which conflict with different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified parties shall have the right to select one separate counsel reasonably satisfactory to the indemnifying party and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. (d) In order to provide for just and equitable contribution in the event of joint liability under the 1933 Act in any case in which either (i) the Seller, or any controlling person of the Seller, makes a claim for indemnification pursuant to this Section 8.6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 8.6 provides for indemnification in such case, or (ii) contribution under the 1933 Act may be required on the part of the Seller or controlling person of the Seller in circumstances for which indemnification is provided under this Section 8.6; then, and in each such case, the Company and the Seller will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Seller is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the registration statement bears to the public offering price of all securities offered by such registration statement, provided, however, that, in any such case, (y) the Seller will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such registration statement; and (z) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the 1933 Act) will be entitled to contribution from any person or entity 16 who was not guilty of such fraudulent misrepresentation. 8.7. Delivery of Unlegended Shares. (a) Within three (3) business days (such third business day, the "DELIVERY DATE") after the business day on which the Company has received a notice that Company Shares have been sold to a person or entity who is not an affiliate of the Company pursuant to an effective registration statement and in compliance with the prospectus delivery requirements of the 1933 Act (such notice to be in a form reasonably satisfactory to the Company and made by facsimile or other delivery or at any time commencing 121 days after the Closing Date after the Company has received notice that the Company Shares have been sold and the original Company Share certificate, together with such other instruments as the Company may reasonably request, the Company at its expense, (i) shall deliver, and shall cause legal counsel selected by the Company to deliver, to its transfer agent (with copies to Subscriber) an appropriate instruction and shall cause legal counsel selected by the Company to deliver to such transfer agent (with copies to the Subscriber) an opinion of such counsel, for the delivery of unlegended Company Shares issuable pursuant to any effective and current registration statement described in Section 8 of this Agreement (the "Unlegended Shares"); and (ii) transmit the certificates representing the Unlegended Shares, with a certificate representing the balance of the unsold Company Shares to the Subscriber at the address specified in the notice of sale, via express courier, by electronic transfer or otherwise. (b) In lieu of delivering physical certificates representing the Unlegended Shares, if the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the Subscriber and its compliance with the provisions contained in this paragraph, so long as the certificates therefore do not bear a legend and the Subscriber is not obligated to return such certificate for the placement of a legend thereon, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Unlegended Shares by crediting the account of Subscriber's prime Broker with DTC through its Deposit Withdrawal Agent Commission system. (c) The Company understands that a delay in the delivery of the Unlegended Shares pursuant to Section 8 hereof beyond the Delivery Date could result in economic loss to the Subscriber. As compensation to the Subscriber for such loss, the Company agrees to pay late payments to the Subscriber for late delivery of Unlegended Shares in the amount of $100 per business day after the Delivery Date for each $10,000 of Purchase Price of the Company Shares delivered to the Company for reissuance as Unlegended Shares. The Company shall pay any payments incurred under this Section in immediately available funds upon demand. (d) In addition to any other rights available to the Subscriber, if the Company fails to deliver to the Subscriber Unlegended Shares within ten (10) calendar days after the Delivery Date and the Subscriber purchases (in an open market transaction or otherwise) common shares to deliver in satisfaction of a sale by such Subscriber of the Company Shares which the Subscriber anticipated receiving from the Company (a "Buy-In"), then the Company shall pay in cash to the Subscriber (in addition to any remedies available to or elected by the Subscriber) the amount by which (A) the Subscriber's total purchase price (including brokerage commissions, if any) for the common shares so purchased exceeds (B) the aggregate Purchase Price of the Company Shares delivered to the Company for reissuance as Unlegended Shares, together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if the Subscriber purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to $10,000 of Purchase Price of Company Shares delivered to the Company for reissuance as Unlegended Shares, the Company shall be required to pay the Subscriber $1,000, plus interest. The Subscriber shall provide the Company written notice indicating the amounts payable to the Subscriber in respect of the Buy-In. 9. Offering Restrictions. Except as (i) disclosed in the Reports or otherwise publicly disclosed, and 17 except for (ii) stock or stock options granted to employees or directors of the Company pursuant to a plan which has been approved by the shareholders of the Company and issuances of stock pursuant to such stock options, (iii) stock issued upon the exercise of options or warrants which are outstanding as of the date of this Agreement (these exceptions hereinafter referred to as the "EXCEPTED ISSUANCES"), the Company will not, without the consent of the Subscriber (which consent shall not be unreasonably withheld or delayed), issue any equity, convertible debt or other securities convertible into common shares until the registration statement described in Section 8.1(iv) hereof has been effective without interruption for ninety (90) days. 10. Miscellaneous. (a) Notices. All notices or other communications given or made hereunder shall be in writing and shall be personally delivered or deemed delivered the first business day after being telecopied (provided that a copy is delivered by first class mail) to the party to receive the same at its address set forth below or to such other address as either party shall hereafter give to the other by notice duly made under this Section: (i) if to the Company, to ADB Systems International Inc., 6725 Airport Road, Suite 201, Mississauga, Ontario, Canada L4V 1V2, Attn: John Mackie, Esq., telecopier number (905) 672-7514, with a copy to Gowling Lafleur Henderson, Suite 5800, Scotia Plaza, 40 King Street West, Toronto, Ontario, M5H 3Z7, Attn: Neil Steenberg, telecopier number (416) 863-3540, and a copy to Steven S. Pretsfelder, Brown Raysman Millstein Felder & Steiner, LLP, 900 Third Avenue, New York, New York 10022, telecopier number (212) 895-2900, and (ii) if to the Subscriber, to the name, address and telecopy number set forth on the signature page hereto, with a copy by telecopier to Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212) 697-3575. (b) Closing. (i) The consummation of the transactions contemplated herein shall take place at the offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, on the day this Agreement is executed by both parties (or such other date as they may agree) upon the satisfaction of all conditions to Closing set forth in this Agreement. The closing date shall be deemed to be April 25, 2001 notwithstanding the date that subscriber funds representing the net amount due the Company from the Purchase Price of the Offering is transmitted by wire transfer or certified check to the Company (the "CLOSING DATE"). (ii) Conditions to Closing. The following are conditions to the Subscriber's obligation to purchase the Company Shares and the Warrants, which conditions must be fulfilled at or prior to the Closing Date and which conditions are for the sole benefit of the Subscriber and may be waived in writing in whole or in part by the Subscriber: (A) the board of directors of the Company shall have approved the issuance of the Securities and the Fee Warrants and all matters relating thereto; (B) the TSE shall have accepted notice of the issuance of the Securities and the Fee Warrants and shall have conditionally approved the listing of the Company Shares, the Warrant Shares and the Fee Warrant Shares on such exchange subject to the fulfillment by the Company of certain conditions; and (C) the Company's representations and warranties stated in Section 2 herein are true as of the Closing Date. 18 (c) Company's Costs in General. In addition to any fees payable by the Company referred to elsewhere in this Agreement, the Company shall be solely responsible for all fees, costs and expenses incurred by the Company with respect to this Offering, including and not limited to, the Company's legal fees for its U.S. and Canadian counsel, accountants' fees, filing fees, listing fees and application fees. (d) Entire Agreement; Assignment. This Agreement represents the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by both parties. No right or obligation of either party shall be assigned by that party without prior notice to and the written consent of the other party. (e) Execution. This Agreement may be executed by facsimile transmission, and in counterparts, each of which will be deemed an original. (f) Law Governing this Agreement. 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 laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts located in the State of New York, City of New York or in the federal courts located in the City of New York, State of New York. Both parties and the individuals executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. (g) Specific Enforcement, Consent to Jurisdiction. The Company and Subscriber acknowledge and agree that irreparable damage may occur in the event that any of the provisions of this 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 an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Subject to Section 10(e) hereof, each of the Company and Subscriber hereby waives, and agrees not to assert in any such suit, action or proceeding, 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. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law. (h) Confidentiality. The Company agrees that it will not disclose publicly or privately the identity of the Subscriber unless expressly agreed to in writing by the Subscriber or only to the extent required by law, by NASDAQ or by the requirements of any stock exchange on which the common shares of the Company are listed. (i) Automatic Termination. This Agreement shall automatically terminate without any further action of either party hereto if the Closing Date shall not have occurred by the tenth (10th) business day following the date this Agreement is accepted by the Subscriber. (j) Applicable Currency. All references to dollars and cents in this Agreement shall, unless specifically stated otherwise, refer to lawful money of the United States of America. 19 (k) Any remedies herein conferred are in addition to and not in derogation from any other right or remedy available at law to the Subscriber. [THIS SPACE INTENTIONALLY LEFT BLANK] 20 DATED as of April _____, 2002. Please acknowledge your acceptance of the foregoing Subscription Agreement by signing and returning a copy to the undersigned whereupon it shall become a binding agreement between us. STONESTREET LIMITED PARTNERSHIP - Subscriber C/o Canaccord Capital Corporation 320 Bay Street, Suite 1300 Toronto, ON M5H 4A6, Canada Fax: 416-956-8989 By:__________________________________ STONESTREET CORPORATION General Partner of the Subscriber executing this Agreement only with respect to Sections 5(b)(ii), 5(c), 5(d) and 5(e) herein. By:__________________________________ YMP CONSULTANTS INC. Consultant to the Subscriber executing this Agreement only with respect to Section 5(b)(i) herein. By:__________________________________ ACCEPTED: Dated as of April ____, 2002 ADB SYSTEMS INTERNATIONAL INC. An Ontario, Canada based Corporation By:_________________________________ Name: Title: 21 LIST OF SCHEDULES AND EXHIBITS Exhibit A Form of Warrant Exhibit B Form of Legal Opinion Exhibit C TSE Questionnaire and Undertaking Form COMPANY DISCLOSURE SCHEDULE Schedule 1(b) Accredited Investor Certificate Schedule 2(p) Listing Issues Schedule 2(s) Capitalization Schedule 6(e) Use of Proceeds Schedule 8.1 Other Securities to be Registered 22 COMPANY DISCLOSURE SCHEDULE Schedule 1(b) Accredited Investor Certificate ACCREDITED INVESTOR CERTIFICATE FORM The Investor certifies that it/he/she is an "accredited investor" as defined in Ontario Securities Commission Rule 45-5011 (the "Rule") promulgated under the Securities Act (Ontario) (the "Act") by virtue of qualifying as one of more of the following (PLEASE INSERT A CHECKMARK IN THE BRACKETED AREA BESIDE EACH APPLICABLE PARAGRAPH): INDIVIDUAL INVESTORS [ ] (a) An individual who owns or beneficially owns, or who together with a spouse beneficially own, financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1,000,000. [ ] (b) An individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of those years and who, in either case, has a reasonable expectation of exceeding the same net income level in the current year. [ ] (c) An individual who has been granted registration under the Act or securities legislation in another jurisdiction as a representative of a person or company registered under the Act or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer, whether or not the individual's registration is still in effect. [ ] (d) A person registered under the Act or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer. [ ] (e) A person that is recognized by the Ontario Securities Commission as an accredited investor. [ ] (f) A spouse, parent, grandparent or child of an officer, director or promoter of the issuer. [ ] (g) A person that, in relation to the issuer, is a person referred to in clause (c) of the definition of distribution in subsection 1(1) of the Act. [ ] (h) A promoter of the issuer or an affiliated entity of a promoter of the issuer. NON-INDIVIDUAL INVESTORS [ ] (i) A person or company registered under the Act or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer. [ ] (j) A registered charity under the Income Tax Act (Canada). [ ] (k) A company, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least $5,000,000 as reflected in its most recently prepared financial statements. [ ] (l) A person or company that is recognized by the Ontario Securities Commission as an accredited investor. [ ] (m) A person or company in respect of which all of the owners of interests, direct or indirect, legal or beneficial, are persons or companies that are accredited investors. [ ] (n) A person or company that, in relation to the issuer, is an affiliated entity. [ ] (o) A person or company that, in relation to the issuer, is a person or company referred to in clause (c) of the - --------------- 1 The Rule defines the term (i) "financial assets" as cash, securities, or any contract of insurance or deposit or evidence thereof that is not a security for the purposes of the Act, (ii) "related liabilities" as liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets and liabilities that are secured by financial assets, (iii) "managed account" as an investment portfolio account of a client established in writing with a portfolio adviser who makes investment decisions for the account and has full discretion to trade in securities of the account without requiring the client's express consent to a transaction, and (iv) "spouse" as, in relation to an individual, another individual to whom that individual is married, or another individual of the opposite sex or the same sex with whom that individual is living in a conjugal relationship outside marriage. Terms used herein which are defined in National Instrument 14-101 (the "National Instrument") as adopted by the Ontario Securities Commission have the meaning given to them in the National Instrument and terms used herein which are defined in the Act have the meaning given to them in the Act. Reference should be made to the Rule itself for the complete text of the Rule, including other definitions, and to the Companion Policy to the Rule for matters of interpretation and application. 23 definition of distribution in subsection 1(1) of the Act. INSTITUTIONAL INVESTORS [ ] (p) A bank listed in Schedule I or II of the Bank Act (Canada), or an authorized foreign bank listed in Schedule III of that Act or a subsidiary of the bank where the bank owns all of the voting shares of the subsidiary. [ ] (q) The Business Development Bank incorporated under the Business Development Bank Act (Canada) or a subsidiary of the bank where the bank owns all of the voting shares of the subsidiary. [ ] (r) A loan corporation or trust corporation registered under the Loan and Trust Corporations Act (Ontario) or under the Trust and Loan Companies Act (Canada), or under comparable legislation in any other jurisdiction or a subsidiary of the corporation where the corporation owns all of the voting shares of the subsidiary. [ ] (s) A co-operative credit society, credit union central, federation of caisses populaires, credit union or league, or regional caisse populaire, or an association under the Cooperative Credit Associations Act (Canada), in each case, located in Canada, or a subsidiary of the entity where the entity owns all of the voting shares of the subsidiary. [ ] (t) A company licensed to do business as an insurance company in any jurisdiction or a subsidiary of the company where the company owns all of the voting shares of the subsidiary. [ ] (u) A pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority. [ ] (v) A mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities only to persons or companies that are accredited investors. [ ] (w) A mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities under a prospectus for which a receipt has been granted by the Director of the Ontario Securities Commission. [ ] (x) A managed account if it is acquiring a security that is not a security of a mutual fund or non-redeemable investment fund. [ ] (y) An account that is fully managed by a trust corporation registered under the Loan and Trust Corporations Act (Ontario). [ ] (z) An entity that is organized outside of Canada that is analogous to any of the entities referred to in paragraphs (i), (p), (q), (r), (s), (t), or (u). GOVERNMENT ORGANIZATIONS [ ] (aa) The government of Canada or of any jurisdiction, or any crown corporation, instrumentality or agency of a Canadian federal, provincial or territorial government. [ ] (bb) Any Canadian municipality or any Canadian provincial or territorial capital city. [ ] (cc) Any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency or instrumentality thereof. Dated April , 2002 ----------------------------------------------- Signature of the Investor or authorized signatory of the Investor STONESTREET LIMITED PARTNERSHIP By: ------------------------------------------------- Name of Investor STONESTREET LIMITED PARTNERSHIP ------------------------------------------------- Address of Investor 320 Bay Street, Suite 1300 Toronto, ON 24 ------------------------------------------------- Canada M5H 4A6 25 ACCREDITED INVESTOR CERTIFICATE FORM The Investor certifies that it/he/she is an "accredited investor" as defined in Ontario Securities Commission Rule 45-5012 (the "Rule") promulgated under the Securities Act (Ontario) (the "Act") by virtue of qualifying as one of more of the following (PLEASE INSERT A CHECKMARK IN THE BRACKETED AREA BESIDE EACH APPLICABLE PARAGRAPH): INDIVIDUAL INVESTORS [ ] (a) An individual who owns or beneficially owns, or who together with a spouse beneficially own, financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1,000,000. [ ] (b) An individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of those years and who, in either case, has a reasonable expectation of exceeding the same net income level in the current year. [ ] (c) An individual who has been granted registration under the Act or securities legislation in another jurisdiction as a representative of a person or company registered under the Act or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer, whether or not the individual's registration is still in effect. [ ] (d) A person registered under the Act or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer. [ ] (e) A person that is recognized by the Ontario Securities Commission as an accredited investor. [ ] (f) A spouse, parent, grandparent or child of an officer, director or promoter of the issuer. [ ] (g) A person that, in relation to the issuer, is a person referred to in clause (c) of the definition of distribution in subsection 1(1) of the Act. [ ] (h) A promoter of the issuer or an affiliated entity of a promoter of the issuer. NON-INDIVIDUAL INVESTORS [ ] (i) A person or company registered under the Act or securities legislation in another jurisdiction as an adviser or dealer, other than a limited market dealer. [ ] (j) A registered charity under the Income Tax Act (Canada). [ ] (k) A company, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least $5,000,000 as reflected in its most recently prepared financial statements. [ ] (l) A person or company that is recognized by the Ontario Securities Commission as an accredited investor. [ ] (m) A person or company in respect of which all of the owners of interests, direct or indirect, legal or beneficial, are persons or companies that are accredited investors. [ ] (n) A person or company that, in relation to the issuer, is an affiliated entity. [ ] (o) A person or company that, in relation to the issuer, is a person or company referred to in clause (c) of the definition of distribution in subsection 1(1) of the Act. INSTITUTIONAL INVESTORS - --------------- 2 The Rule defines the term (i) "financial assets" as cash, securities, or any contract of insurance or deposit or evidence thereof that is not a security for the purposes of the Act, (ii) "related liabilities" as liabilities incurred or assumed for the purpose of financing the acquisition or ownership of financial assets and liabilities that are secured by financial assets, (iii) "managed account" as an investment portfolio account of a client established in writing with a portfolio adviser who makes investment decisions for the account and has full discretion to trade in securities of the account without requiring the client's express consent to a transaction, and (iv) "spouse" as, in relation to an individual, another individual to whom that individual is married, or another individual of the opposite sex or the same sex with whom that individual is living in a conjugal relationship outside marriage. Terms used herein which are defined in National Instrument 14-101 (the "National Instrument") as adopted by the Ontario Securities Commission have the meaning given to them in the National Instrument and terms used herein which are defined in the Act have the meaning given to them in the Act. Reference should be made to the Rule itself for the complete text of the Rule, including other definitions, and to the Companion Policy to the Rule for matters of interpretation and application. 26 [ ] (p) A bank listed in Schedule I or II of the Bank Act (Canada), or an authorized foreign bank listed in Schedule III of that Act or a subsidiary of the bank where the bank owns all of the voting shares of the subsidiary. [ ] (q) The Business Development Bank incorporated under the Business Development Bank Act (Canada) or a subsidiary of the bank where the bank owns all of the voting shares of the subsidiary. [ ] (r) A loan corporation or trust corporation registered under the Loan and Trust Corporations Act (Ontario) or under the Trust and Loan Companies Act (Canada), or under comparable legislation in any other jurisdiction or a subsidiary of the corporation where the corporation owns all of the voting shares of the subsidiary. [ ] (s) A co-operative credit society, credit union central, federation of caisses populaires, credit union or league, or regional caisse populaire, or an association under the Cooperative Credit Associations Act (Canada), in each case, located in Canada, or a subsidiary of the entity where the entity owns all of the voting shares of the subsidiary. [ ] (t) A company licensed to do business as an insurance company in any jurisdiction or a subsidiary of the company where the company owns all of the voting shares of the subsidiary. [ ] (u) A pension fund that is regulated by either the Office of the Superintendent of Financial Institutions (Canada) or a provincial pension commission or similar regulatory authority. [ ] (v) A mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities only to persons or companies that are accredited investors. [ ] (w) A mutual fund or non-redeemable investment fund that, in Ontario, distributes its securities under a prospectus for which a receipt has been granted by the Director of the Ontario Securities Commission. [ ] (x) A managed account if it is acquiring a security that is not a security of a mutual fund or non-redeemable investment fund. [ ] (y) An account that is fully managed by a trust corporation registered under the Loan and Trust Corporations Act (Ontario). [ ] (z) An entity that is organized outside of Canada that is analogous to any of the entities referred to in paragraphs (i), (p), (q), (r), (s), (t), or (u). GOVERNMENT ORGANIZATIONS [ ] (aa) The government of Canada or of any jurisdiction, or any crown corporation, instrumentality or agency of a Canadian federal, provincial or territorial government. [ ] (bb) Any Canadian municipality or any Canadian provincial or territorial capital city. [ ] (cc) Any national, federal, state, provincial, territorial or municipal government of or in any foreign jurisdiction, or any agency or instrumentality thereof. Dated April , 2002 ------------------------------------------------- Signature of the Investor or authorized signatory of the Investor STONESTREET CORPORATION By: ------------------------------------------------- Name of Investor STONESTREET CORPORATION ------------------------------------------------- Address of Investor 320 Bay Street, Suite 1300 Toronto, ON Canada M5H 4A6 27 COMPANY DISCLOSURE SCHEDULE Schedule 2(p) Listing Issues Reference clause 2(p) Listing. The Company's common shares are quoted on, and listed for trading on, the NMS and TSE. Except as disclosed on Schedule 2(p) of the Company Disclosure Schedule, the Company has not received any oral or written notice that its Common Stock will be delisted from the NMS or TSE or that the Company's common shares do stock does not meet all requirements for the continuation of such listing. Disclosure The Company has received a letter dated February 14, 2002 indicating that if it does not achieve compliance with Marketplace Rule 4450(a)(5) by May 15, 2002, Nasdaq Staff will provide written notification that its securities will be delisted. If the Company is advised that its securities will be delisted from the NASDAQ market, it will appeal Staff's determination to a Listing Qualifications Panel. 29 COMPANY DISCLOSURE SCHEDULE Schedule 2(s) Capitalization Reference clause (t) Capitalization. The authorized and outstanding capital stock of the Company as of the date of this Agreement and the Closing Date are set forth on Schedule 2(s) of the Company Disclosure Schedule hereto. Disclosure Authorized - an unlimited number of common shares, without par value - an unlimited number of preference shares, issuable in series Outstanding - 38,283,628 common shares (non-diluted) - done under Schedule 2(d) 30 COMPANY DISCLOSURE SCHEDULE Schedule 6(e) - Use of Proceeds Reference clause (e) The Company undertakes to use the proceeds of the Subscriber's funds for the purposes set forth on SCHEDULE 6(E) hereto. Disclosure General working capital purposes 31 COMPANY DISCLOSURE SCHEDULE Schedule 8.1 Other Securities to be Registered Reference clause 8.1 (iv) The Company shall file with the Commission not later than sixty (60) days after the Closing Date (the "Filing Date"), and use its reasonable commercial efforts to cause to be declared effective within one hundred and twenty (120) days after the Closing Date ("Effective Date"). The Company will register not less than a number of common shares in the aforedescribed registration statement that is equal to the number of Company Shares and one common share for each of the common shares issuable upon exercise of the Warrants. The Registrable Securities shall be reserved and set aside exclusively for the benefit of the Subscriber, and not issued, employed or reserved for anyone other than the Subscriber and Finder. Such registration statement will immediately be amended or additional registration statements will be immediately filed by the Company as necessary to register additional Company Shares to allow the public resale of all Common Stock included in and issuable by virtue of the Registrable Securities. No securities of the Company other than the Registrable Securities will be included in the registration statement described in this Section 8.1(iv) except as described on Schedule 8.1 or in any other registration prior to 120 days after the Closing Date, without the written consent of the Subscriber which consent will not be unreasonably withheld. Disclosure None 32 EX-4.26 10 t07168ex4-26.txt WARRANT EXHIBIT 4.26 "UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL NOT TRADE THE SECURITIES BEFORE AUGUST 26, 2002." THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADB SYSTEMS INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. - -------------------------------------------------------------------------------- Right to Purchase 1,000,000 common shares of Common Stock of ADB Systems International Inc. (subject to adjustment as provided herein) - -------------------------------------------------------------------------------- COMMON SHARE STOCK PURCHASE WARRANT No. 2002-1 Issue Date: April 25, 2002 ADB SYSTEMS INTERNATIONAL INC., a corporation organized under the laws of Ontario, Canada (the "Company"), hereby certifies that, for value received, STONESTREET LIMITED PARTNERSHIP (the "Holder"), or assigns, is entitled, subject to the terms set forth below, to purchase from the Company from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through three (3) years after such date (the "Expiration Date"), up to 1,000,000 fully paid and non assessable shares of Common Stock (as hereinafter defined), no par value per share, of the Company at a per share purchase price of $.35. (All references to dollars and cents in this Warrant shall refer to lawful money of the United States.) The aforedescribed purchase price per share, as adjusted from time to time as herein provided, is referred to herein as the "Purchase Price". The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include ADB Systems International Inc. and any corporation which shall succeed or assume the obligations of ADB Systems International Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Shares, no par value per share, as authorized on the date of the Subscription Agreement referred to in Section 9 hereof, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even if the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities -2- into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 3 or otherwise. 1. Exercise of Warrant. 1.1. Number of Shares Issuable upon Exercise. From and after the date hereof through and including the Expiration Date, the holder hereof shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of subsection 1.2 or upon exercise of this Warrant in part in accordance with subsection 1.3, shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2. Full Exercise. This Warrant may be exercised in full by the holder hereof by delivery of an original or facsimile copy of the form of subscription attached as Exhibit A hereto (the "Subscription Form") duly executed by such holder and surrender of the original Warrant within seven (7) days of exercise, to the Company at its principal office or at the office of its Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire transfer or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect. 1.3. Partial Exercise. This Warrant may be exercised in part (but not for a fractional share) by surrender of this Warrant in the manner and at the place provided in subsection 1.2 except that the amount payable by the holder on such partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock designated by the holder in the Subscription Form by (b) the Purchase Price then in effect. On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, the number of shares of Common Stock for which such Warrant may still be exercised. 1.4. Fair Market Value. Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean the Fair Market Value of a share of the Company's Common Stock. Fair Market Value of a share of Common Stock as of a Determination Date shall mean: (a) If the Company's Common Stock is traded on an exchange or is quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the American Stock Exchange, Inc., then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on an exchange or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the American Stock Exchange, Inc., but is traded on the Toronto Stock Exchange or in the over-the-counter market, then the mean of the closing bid and asked prices or closing price, as applicable, reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as determined by the board of directors of the Company. -3- (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding at the Determination Date. 1.5. Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.6. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2.1 Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within seven (7) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and non assessable shares of Common Stock (or Other Securities) to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise. Notwithstanding anything to the contrary herein contained, (a) in no event shall the Company be obligated to issue shares upon the exercise of this Warrant until this Warrant certificate (or the instruments and security contemplated by Section 8 hereof) has been delivered to the Company and (b) the shares issuable upon exercise of this Warrant shall bear the legend provided for in Section 1(e) of the Subscription Agreement referred to in Section 9 hereof. 2.2. Cashless Exercise. (a) Payment of the Purchase Price for this Warrant may be made either in (i) cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon exercise of the Warrants in accordance with Section (b) below or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such form (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the holder per the terms of this Warrant) and the holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. -4- (b) Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, upon consent of the Company, the holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Subscription Form in which event the Company shall issue to the holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) A Where X = the number of shares of Common Stock to be issued to the holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation) A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation) B = Purchase Price (as adjusted to the date of such calculation) (c) The Holder may not employ the cashless exercise feature described above at any time that the Warrant Stock to be issued upon exercise is included for unrestricted resale in an effective registration statement. 3. Adjustment for Reorganization, Consolidation, Merger, etc. 3.1. Reorganization, Consolidation, Merger, etc. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the holder of this Warrant, on the exercise hereof as provided in Section 1, at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant -5- to this Section 3 to a bank or trust company having its principal office in New York, NY, as trustee for the holder or holders of the Warrants. 3.3. Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 3. In the event this Warrant does not continue in full force and effect after the consummation of the transaction described in this Section 3, then only in such event will the Company's securities and property (including cash, where applicable) receivable by the holders of the Warrants be delivered to the Trustee as contemplated by Section 3.2. 4. Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased or decreased to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Purchase Price in effect on the date of such exercise. 5. Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding and (b) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant Agent of the Company (appointed pursuant to Section 12 hereof). 6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements. From and after the Issue Date of this Warrant, the Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. -6- 7. Assignment; Exchange of Warrant. Subject to compliance with applicable securities laws and the receipt of an opinion of counsel, in form and substance reasonably satisfactory to the Company [see the legend on page 1], this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") with respect to any or all of the Warrants. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, the Company at its expense, but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. Registration Rights. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in a Subscription Agreement entered into by the Company and a Subscriber of the Company's Common Stock at or prior to the issue date of this Warrant. The terms of the Subscription Agreement are incorporated herein by this reference. Upon the occurrence of a Non-Registration Event, as defined in the Subscription Agreement, in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in a Registration Statement described in Section 8.1 of the Subscription Agreement, within the time periods described in the Subscription Agreement, which Registration Statement must be effective for the periods set forth in the Subscription Agreement, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing price of the Company's Common Stock on the Principal Market (as defined in the Subscription Agreement) or such other principal trading market for the Company's Common Stock on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder. 10. Maximum Exercise. The Holder shall not be entitled to exercise this Warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this limitation is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 9.99%. The restriction described in this paragraph may be revoked upon seventy-five (75) days prior notice from the Holder to the Company. The Holder may allocate which of the equity of the Company deemed beneficially owned by the Subscriber shall be included in the 9.99% amount described above and which shall be allocated to the excess above 9.99%. The Company shall not be responsible for any exercise of this Warrant in violation of this Section 10. -7- 11. Warrant Agent. The Company may, by written notice to the each holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, 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. 12. Transfer on the Company's Books. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. Notices. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 14. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action concerning this Warrant shall be brought only in the state courts located in the City of New York, State of New York or in the federal courts located in the City of New York, State of New York. The Company and each holder of this Warrant agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. - -------------------------------------------------------------------------------- ADB SYSTEMS INTERNATIONAL INC. Witness: By:_______________________________ - --------------------------- - -------------------------------------------------------------------------------- -8- EXHIBIT A FORM OF SUBSCRIPTION (to be signed only on exercise of Warrant) TO: ADB SYSTEMS INTERNATIONAL INC. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ___ ________ shares of the Common Stock covered by such Warrant; or ___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ___ $__________ in lawful money of the United States; and/or ___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _____________________________________________________ whose address is ______________________________________________________________ _______________________________________________________________________________ The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from registration under the Securities Act. Dated: --------------------------- -------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) -------------------------------------------- -------------------------------------------- (Address) -9- EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of ADB SYSTEMS INTERNATIONAL INC. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of ADB SYSTEMS INTERNATIONAL INC. with full power of substitution in the premises. Transferees Percentage Transferred Number Transferred ----------- ---------------------- ------------------ - ----------------------- ---------------------------- ------------------------ - ----------------------- ---------------------------- ------------------------ - ----------------------- ---------------------------- ------------------------ - ----------------------- ---------------------------- ------------------------ Dated: , ---------------- ------------ ----------------------------------------- (Signature must conform to name of holder as specified on the face of the warrant) Signed in the presence of: - ----------------------------------- ----------------------------------------- (Name) ----------------------------------------- (address) ACCEPTED AND AGREED: ----------------------------------------- [TRANSFEREE] ----------------------------------------- (address) - ----------------------------------- (Name) EX-4.27 11 t07168ex4-27.txt WARRANT EXHIBIT 4.27 "UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL NOT TRADE THE SECURITIES BEFORE AUGUST 26, 2002." THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADB SYSTEMS INTERNATIONAL INC. THAT SUCH REGISTRATION IS NOT REQUIRED. - -------------------------------------------------------------------------------- Right to Purchase 50,000 common shares of Common Stock of ADB Systems International Inc. (subject to adjustment as provided herein) - -------------------------------------------------------------------------------- COMMON SHARE STOCK PURCHASE WARRANT No. 2002-1 Issue Date: April 25, 2002 ADB SYSTEMS INTERNATIONAL INC., a corporation organized under the laws of Ontario, Canada (the "Company"), hereby certifies that, for value received, STONESTREET CORPORATION (the "Holder"), or assigns, is entitled, subject to the terms set forth below, to purchase from the Company from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through three (3) years after such date (the "Expiration Date"), up to 50,000 fully paid and non assessable shares of Common Stock (as hereinafter defined), no par value per share, of the Company at a per share purchase price of $.35. (All references to dollars and cents in this Warrant shall refer to lawful money of the United States.) The aforedescribed purchase price per share, as adjusted from time to time as herein provided, is referred to herein as the "Purchase Price". The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include ADB Systems International Inc. and any corporation which shall succeed or assume the obligations of ADB Systems International Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Shares, no par value per share, as authorized on the date of the Subscription Agreement referred to in Section 9 hereof, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even if the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities -2- into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 3 or otherwise. 1. Exercise of Warrant. 1.1. Number of Shares Issuable upon Exercise. From and after the date hereof through and including the Expiration Date, the holder hereof shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of subsection 1.2 or upon exercise of this Warrant in part in accordance with subsection 1.3, shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2. Full Exercise. This Warrant may be exercised in full by the holder hereof by delivery of an original or facsimile copy of the form of subscription attached as Exhibit A hereto (the "Subscription Form") duly executed by such holder and surrender of the original Warrant within seven (7) days of exercise, to the Company at its principal office or at the office of its Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire transfer or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price then in effect. 1.3. Partial Exercise. This Warrant may be exercised in part (but not for a fractional share) by surrender of this Warrant in the manner and at the place provided in subsection 1.2 except that the amount payable by the holder on such partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock designated by the holder in the Subscription Form by (b) the Purchase Price then in effect. On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, the number of shares of Common Stock for which such Warrant may still be exercised. 1.4. Fair Market Value. Fair Market Value of a share of Common Stock as of a particular date (the "Determination Date") shall mean the Fair Market Value of a share of the Company's Common Stock. Fair Market Value of a share of Common Stock as of a Determination Date shall mean: (a) If the Company's Common Stock is traded on an exchange or is quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the American Stock Exchange, Inc., then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on an exchange or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the American Stock Exchange, Inc., but is traded on the Toronto Stock Exchange or in the over-the-counter market, then the mean of the closing bid and asked prices or closing price, as applicable, reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as determined by the board of directors of the Company. -3- (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of all of the Warrants are outstanding at the Determination Date. 1.5. Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.6. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2.1 Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within seven (7) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and non assessable shares of Common Stock (or Other Securities) to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise. Notwithstanding anything to the contrary herein contained, (a) in no event shall the Company be obligated to issue shares upon the exercise of this Warrant until this Warrant certificate (or the instruments and security contemplated by Section 8 hereof) has been delivered to the Company and (b) the shares issuable upon exercise of this Warrant shall bear the legend provided for in Section 1(e) of the Subscription Agreement referred to in Section 9 hereof. 2.2. Cashless Exercise. (a) Payment of the Purchase Price for this Warrant may be made either in (i) cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon exercise of the Warrants in accordance with Section (b) below or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in such form (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the holder per the terms of this Warrant) and the holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. -4- (b) Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, upon consent of the Company, the holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being cancelled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Subscription Form in which event the Company shall issue to the holder a number of shares of Common Stock computed using the following formula: X=Y (A-B) A Where X = the number of shares of Common Stock to be issued to the holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation) A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation) B = Purchase Price (as adjusted to the date of such calculation) (c) The Holder may not employ the cashless exercise feature described above at any time that the Warrant Stock to be issued upon exercise is included for unrestricted resale in an effective registration statement. 3. Adjustment for Reorganization, Consolidation, Merger, etc. 3.1. Reorganization, Consolidation, Merger, etc. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the holder of this Warrant, on the exercise hereof as provided in Section 1, at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant -5- to this Section 3 to a bank or trust company having its principal office in New York, NY, as trustee for the holder or holders of the Warrants. 3.3. Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 3. In the event this Warrant does not continue in full force and effect after the consummation of the transaction described in this Section 3, then only in such event will the Company's securities and property (including cash, where applicable) receivable by the holders of the Warrants be delivered to the Trustee as contemplated by Section 3.2. 4. Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased or decreased to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Purchase Price in effect on the date of such exercise. 5. Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding and (b) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant Agent of the Company (appointed pursuant to Section 12 hereof). 6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements. From and after the Issue Date of this Warrant, the Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. -6- 7. Assignment; Exchange of Warrant. Subject to compliance with applicable securities laws and the receipt of an opinion of counsel, in form and substance reasonably satisfactory to the Company [see the legend on page 1], this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") with respect to any or all of the Warrants. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, the Company at its expense, but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. Registration Rights. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in a Subscription Agreement entered into by the Company and a Subscriber of the Company's Common Stock at or prior to the issue date of this Warrant. The terms of the Subscription Agreement are incorporated herein by this reference. Upon the occurrence of a Non-Registration Event, as defined in the Subscription Agreement, in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in a Registration Statement described in Section 8.1 of the Subscription Agreement, within the time periods described in the Subscription Agreement, which Registration Statement must be effective for the periods set forth in the Subscription Agreement, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing price of the Company's Common Stock on the Principal Market (as defined in the Subscription Agreement) or such other principal trading market for the Company's Common Stock on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder. 10. Maximum Exercise. The Holder shall not be entitled to exercise this Warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this limitation is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 9.99%. The restriction described in this paragraph may be revoked upon seventy-five (75) days prior notice from the Holder to the Company. The Holder may allocate which of the equity of the Company deemed beneficially owned by the Subscriber shall be included in the 9.99% amount described above and which shall be allocated to the excess above 9.99%. The Company shall not be responsible for any exercise of this Warrant in violation of this Section 10. -7- 11. Warrant Agent. The Company may, by written notice to the each holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, 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. 12. Transfer on the Company's Books. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. Notices. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 14. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action concerning this Warrant shall be brought only in the state courts located in the City of New York, State of New York or in the federal courts located in the City of New York, State of New York. The Company and each holder of this Warrant agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. - -------------------------------------------------------------------------------- ADB SYSTEMS INTERNATIONAL INC. Witness: By: ---------------------------------- - --------------------------- - -------------------------------------------------------------------------------- -8- EXHIBIT A FORM OF SUBSCRIPTION (to be signed only on exercise of Warrant) TO: ADB SYSTEMS INTERNATIONAL INC. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ___ ________ shares of the Common Stock covered by such Warrant; or ___ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ___ $__________ in lawful money of the United States; and/or ___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ___ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _____________________________________________________ whose address is ______________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from registration under the Securities Act. Dated: ---------------------- ------------------------------------------ (Signature must conform to name of holder as specified on the face of the Warrant) ------------------------------------------ ------------------------------------------ (Address) -9- EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of ADB SYSTEMS INTERNATIONAL INC. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of ADB SYSTEMS INTERNATIONAL INC. with full power of substitution in the premises. Transferees Percentage Transferred Number Transferred ----------- ---------------------- ------------------ - --------------------- ---------------------------- --------------------------- - --------------------- ---------------------------- --------------------------- - --------------------- ---------------------------- --------------------------- Dated: , -------------- ----------- ----------------------------------------- (Signature must conform to name of holder as specified on the face of the warrant) Signed in the presence of: - ---------------------------------- ----------------------------------------- (Name) ----------------------------------------- (address) ACCEPTED AND AGREED: ----------------------------------------- [TRANSFEREE] ----------------------------------------- (address) - ---------------------------------- (Name) EX-8.1 12 t07168ex8-1.txt LIST OF SUBSIDIARIES EXHIBIT 8.1 LIST OF SUBSIDIARIES Name of Subsidiary Country of Incorporation ------------------ ------------------------ ADB Systemer ASA (1) Norway ADB Systems International Limited Ireland ADB Systems Limited England Bid.Com (U.K.) Limited England ADB Systems Inc. USA (Delaware) Bid.Com USA, Inc. USA (Florida) -----END PRIVACY-ENHANCED MESSAGE-----