-----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, A8AxGHCjhbgQtSRNSAWTrUPl8vLVKom9IBlhqinM2IWWD8+TEcZ6N+BSf8FiBaUJ 1ZsdYojcUORog+LmYok8dQ== 0000950116-99-001981.txt : 19991104 0000950116-99-001981.hdr.sgml : 19991104 ACCESSION NUMBER: 0000950116-99-001981 CONFORMED SUBMISSION TYPE: F-1/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19991103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: E CRUITER COM INC CENTRAL INDEX KEY: 0001095266 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: F-1/A SEC ACT: SEC FILE NUMBER: 333-87537 FILM NUMBER: 99740442 BUSINESS ADDRESS: STREET 1: 1510 - 360 ALBERT STREET CITY: OTTAWA ONTARIO BUSINESS PHONE: 6132362263 MAIL ADDRESS: STREET 1: 1510 - 360 ALBERT STREET CITY: OTTAWA ONTARIO F-1/A 1 As filed with the Securities and Exchange Commission on November 3, 1999 Registration No. 333-87537 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- Amendment No. 1 to FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------- E-Cruiter.com Inc. (Exact Name of Registrant as Specified in its Charter) Not Applicable (Translation of Registrant's Name Into English) Canada Not Applicable (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 1510-360 Albert Street Ottawa, Ontario Canada KIR-7X7 (613) 236-2263 (Address and Telephone Number of Registrant's Principal Executive Offices) CT Corporation 111 Eighth Avenue New York, NY 10011 (212) 894-8440 (Name, Address and Telephone Number of Agent for Service of Process) Copies of communications to:
Michael A. Gerrior, Esq. Norman Chirite, Esq. Robert J. Mittman, Esq. Perley-Robertson, Hill & McDougall Weil, Gotshal & Manges LLP Tenzer Greenblatt LLP 90 Sparks Street, 4th Floor 767 Fifth Avenue 405 Lexington Avenue Ottawa, Ontario KIP1E2 New York, New York 10153-0119 New York, New York 10174 (613) 238-2022 (212) 310-8000 (212) 885-5000
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering./ / If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /____________ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering. / /____________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [Inside Front Cover] E-Cruiter Posting Manager E-Cruiter makes it easy and cost effective to post job openings to multiple Internet career sites, the career opportunities section of an organization's web site, as well as the corporate human resources intranet. [GRAPHIC OMITTED: Image of E-Cruiter Enterprise 2.3 desktop showing various open windows. Photo collage along left side of page. The following text is incorporated into the graphics: o Easily manage all open positions online through the E-Cruiter Posting Manager. o The job requisition need only be written once, to be made available to multiple Internet sites. The manager is able to preview the job requisition, as it will appear on the Internet. o One click of the mouse and E-Cruiter posts the job to the corporate web site, the corporate intranet, or Internet career sites selected by the user. o Automatically post to selected newsgroups and career sites including CareerMosaic, PositionWatch and CareerMarketplace.] The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION DATED NOVEMBER 3, 1999 [GRAPHIC OMITTED] 2,131,838 Common Shares US $6.00 per Share E-Cruiter.com Inc. is offering 2,000,000 of its common shares, and the selling shareholders are offering 131,838 common shares. E-Cruiter will not receive any proceeds from the sale of shares by the selling shareholders. This is our initial public offering and there currently is no public market for our common shares. The offering price may not reflect the market price of our shares after the offering. We anticipate that our common shares will be listed on the Nasdaq SmallCap Market under the trading symbol "ECRU." --------------------- Investing in the common shares involves risks. See "Risk Factors" beginning on page 9. ---------------------
- ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Public Underwriting Proceeds Proceeds Offering Discounts and To To Price Commissions Company Selling Shareholders - ------------------------------------------------------------------------------------------------ Per Share.......... US $6.00 US $.58 US $5.42 US $5.42 - ------------------------------------------------------------------------------------------------ Total.............. US $12,791,028 US $1,236,466 US $10,840,000 US $714,562 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
--------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. We have granted the underwriter a 45-day option to purchase up to an additional 319,776 common shares to cover over-allotments. The underwriter is offering the common shares on a firm commitment basis. Whale Securities Co., L.P. expects to deliver the common shares to purchasers on , 1999. --------------------- Whale Securities Co., L.P. , 1999 PROSPECTUS SUMMARY This is a summary of the information contained in this prospectus. To understand this offering fully, you should read the entire prospectus, especially the risk factors. All dollar amounts appearing in this prospectus represent Canadian dollars, except where denoted "US dollars" or "US $". All US dollar equivalents are based on a conversion rate of $1.4725 for every US $1.00, which is the noon buying rate announced by the Federal Reserve Bank of New York on May 28, 1999, unless otherwise noted. The noon buying rate on October 29, 1999 was $1.4720 per US $1.00. Unless the context indicates to the contrary, all per share data and information relating to our common shares give effect to the recapitalization of the various classes of our shares into one class of common shares and a 1-for-.216932 reverse share split of our common shares to be effected immediately before the date of this prospectus and assumes that the underwriter's over-allotment option is not exercised. Unless the context indicates to the contrary, the terms "E-Cruiter", "we", "us" and "our" refer to E-Cruiter.com Inc. and include its wholly-owned subsidiaries, 3451615 Canada Inc. and E-Cruiter.com USA Inc. Our Business We provide Internet-based recruiting services to companies of all sizes. We began business in the Ottawa, Ontario market in May 1996 and introduced the first commercial version of our services in August 1997. Through use of our E-Cruiter Express software, our corporate clients are able to write one job advertisement that is reformatted by the software and posted in multiple job sites, that is, commercial Internet sites where organizations advertise job listings, thereby eliminating the need to reformat job postings for each site. Our E-Cruiter Enterprise service is offered on a subscription basis to clients that require more comprehensive recruiting management services. The subscription contracts are generally for one year with automatically renewable terms. We derive revenue from the provision of recruitment management services primarily from client subscriptions for our services and, to a lesser extent, for posting jobs for clients on the Internet. Our E-Cruiter Enterprise service includes the powerful posting features of E-Cruiter Express, as well as the following features: o resume processing tools which enable clients to screen, search, organize and manage resumes submitted by job seekers; o applicant communication tools, including our proprietary e-mail system which automatically keeps records of the electronic communication associated with each job opening and generates automatic messages to job seekers; o our corporate career site manager tool which enables clients to quickly set up and maintain a job site on their corporate web site that is linked with our services; and o a powerful suite of multi-user workflow features which allows for collaborative hiring between human resources personnel and hiring managers within the same organization. Our services are web-based and can be accessed with any standard web browser, requiring no additional software or hardware to be deployed by our clients. We are dependent on maintaining existing relationships with job posting boards and other online employment sources and on developing new strategic relationships with third parties, such as value-added service providers, to continue to offer our clients attractive services. 3 We believe our services enable companies of every size to take optimal advantage of the power of the Internet for recruiting, communicating with job seekers and managing the recruiting process in a cost effective manner. We believe that, by using our services, companies: o reduce their time to hire; o reduce their costs to hire; and o improve their quality of hire. Our Clients Until recently, we have marketed our services primarily in the Ontario market, including Ottawa and Toronto. Consequently, a large number of our current clients are enterprises that are based in Ontario or that seek to fill job openings in Ontario. The following is a list of our ten largest revenue-generating clients for our fiscal year ended May 31, 1999: o Bell Canada Enterprises Inc. o Dell Computer Corporation o Canadian Imperial Bank of Commerce, o Entrust Technologies Inc. known as CIBC o Loblaws Supermarkets Limited o Clearnet Communications Inc. o Performance Systematix Inc. o Compugen Systems Ltd. o Siemens Information and o Corel Corporation Communications Networks, Inc. These clients' business represented approximately 35% of our revenue. We have recently signed contracts for our E-Cruiter Enterprise service with MacKenzie Financial Corporation, a large publicly-owned Canadian company, and Fidelity Investments Canada Ltd. Our Market Opportunity We believe that Internet-based recruiting is one of the fastest growing segments of the human resources software and services industry, and we expect it to grow significantly over the next few years. Forrester Research estimates that by 2003, expenditures on Internet-based recruiting will be US $1.7 billion, a significant increase from US $105 million in 1998, representing an annualized market growth rate of 75%. We believe that our E-Cruiter services are well positioned to satisfy the needs of this growing market. Our Strategy Our strategy is to capitalize on perceived opportunities arising from the expanding online recruitment market by: o providing a comprehensive recruitment service to our clients; o expanding our E-Cruiter Enterprise sales capability into new Canadian markets and into key United States markets; o capitalizing on our reputation and success achieved in Canadian markets to develop strong relationships and maintain existing relationships with key strategic partners; o maintaining technological leadership by developing and acquiring complementary technologies; o continuing to provide high-quality and attentive client support; and o establishing and maintaining industry-wide standards for best practices methodologies. 4 Our Formation We were incorporated on May 24, 1996 under the Canada Business Corporations Act. Originally we were known as CareerBridge Corporation, and on February 23, 1999, we changed our name to E-Cruiter.com Inc. How to Contact Us Our principal executive offices are located at 1510 - 360 Albert Street, Ottawa, Ontario, Canada K1R-7X7 and our telephone number is (613) 236-2263, toll-free 1-877-ECRUITER (327-8483). We maintain a web site at http://www.ecruiter.com. Information contained in our web site does not constitute a part of this prospectus. 5 The Offering Common shares offered by E-Cruiter............... 2,000,000 shares Common shares offered by selling shareholders.. 131,838 shares Common shares to be outstanding after this offering................ 7,062,449 shares The number of common shares outstanding after this offering includes 1,198,462 common shares to be issued immediately before the closing of this offering upon conversion of outstanding convertible promissory notes, of which 131,838 common shares are being offered by the selling shareholders, assuming this offering closes on October 31, 1999. The number of common shares outstanding after this offering does not include: o 213,184 shares reserved for issuance upon exercise of the underwriter's warrants; o 516,641 shares reserved for issuance upon exercise of options granted under our option plan; o 250,000 shares reserved for issuance upon the exercise of options available for future grant under our 1999 option plan; o 319,776 shares reserved for issuance in this offering to cover over-allotments, if any by the underwriter; and o 21,693 shares reserved for issuance upon exercise of non-plan options. Use of proceeds.......... We intend to use the net proceeds of this offering for marketing and advertising, technology development and acquisition, sales, repayment of indebtedness, client support and working capital and general corporate purposes. Risk factors............. An investment in the common shares is speculative and involves a high degree of risk. You should purchase the shares only if you can afford a complete loss of your investment. You should consider carefully the risks listed in the "Risk Factors" section of this prospectus before making an investment in our shares. Proposed Nasdaq SmallCap Market Symbol........... ECRU --------------------------------- Notice to California investors: Each purchaser of our common shares in California must be an accredited investor as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, or satisfy one of the following suitability standards: o minimum gross income of $65,000 and a net worth, exclusive of home, home furnishings and automobiles, of $250,000; or o minimum net worth, exclusive of home, home furnishings and automobiles, of $500,000. Notice to Ohio, South Carolina and Washington investors: Each purchaser of our common shares in Ohio, South Carolina and Washington must be an accredited investor as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. 6 Summary Financial Information The summary financial information set out below is presented in Canadian dollars and is derived from the consolidated financial statements appearing elsewhere in this prospectus. We prepare our financial statements in accordance with Canadian generally accepted accounting principles, known as Canadian GAAP, and report in Canadian dollars. These principles conform in all material respects with U.S. generally accepted accounting principles, known as U.S. GAAP, except as described in note 14 to the consolidated financial statements. You should read the information presented below in conjunction with the consolidated financial statements and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus. The following tables include a U.S. dollar convenience translation using an exchange rate of $1.4725 per US $1.00, the noon buying rate on May 28, 1999. These translations are not necessarily representative of the amounts that would have been reported if we had historically reported in U.S. dollars, and the rate used is not necessarily indicative of the rates in effect at any other time. Statements of Loss Data
(Cdn $) Year Ended May 31, (US $) ---------------------------------------------------- Year Ended 1997 1998 1999 May 31, 1999 -------------- ---------------- ---------------- ---------------- Canadian GAAP: Revenue ......................... $ 85,524 $ 870,003 $ 1,399,557 $ 950,463 Cost of revenue ................. 57,167 386,391 848,769 576,414 ---------- ------------ ------------ ------------ Gross profit .................... 28,357 483,612 550,788 374,049 Expense ......................... 885,602 2,330,397 2,763,198 1,876,535 ---------- ------------ ------------ ------------ Net loss ........................ $ (857,245) $ (1,846,785) $ (2,212,410) $ (1,502,486) ========== ============ ============ ============ Net loss per share .............. $ (.53) $ (.58) $ (.57) $ (.39) ========== ============ ============ ============ Weighted average number of shares outstanding ................... 1,620,669 3,191,297 3,854,579 3,854,579 U.S. GAAP: Net loss ........................ $ (857,245) $ (1,846,785) $ (4,864,735) $ (3,303,725) Net loss per share .............. (.53) (.58) (1.26) (.86)
7 Balance Sheet Data In the table below, the "as adjusted" column gives effect to: (1) the conversion of convertible promissory notes with a carrying value at May 31, 1999 of $2,162,063 (US $1,468,294) into common shares; (2) the issuance of 6,508 common shares in September 1999 to satisfy a May 31, 1999 liability of $57,498 (US $39,048); and (3) our borrowing of $1,300,000 (US $882,852) under a loan which we obtained in September 1999 from Paul Champagne, a principal shareholder of E-Cruiter. The "as further adjusted" column gives effect to the receipt of estimated net proceeds from this offering of $14,527,685 (US $9,866,000) and to repayment of the $1,300,000 (US $882,852) loan.
(Cdn $) (US $) As of May 31, 1999 As of May 31, 1999 ---------------------------------------------- ----------------------------------------------- As As Further As As Further Actual Adjusted Adjusted Actual Adjusted Adjusted ---------------- ------------- ------------- ---------------- ------------- -------------- (unaudited) (unaudited) (unaudited) (unaudited) Canadian GAAP: Working capital (deficit) ............ $ (1,488,371) $ 731,190 $15,258,875 $ (1,010,778) $ 496,564 $10,362,564 Total assets ........... 2,176,210 3,476,210 16,703,895 1,477,902 2,360,754 11,343,902 Total liabilities ...... 3,416,514 2,496,953 1,196,953 2,320,213 1,695,723 812,871 Shareholders' equity (deficit) ............ (1,240,304) 979,257 15,506,942 (842,311) 665,030 10,531,030 U.S. GAAP: Working capital (deficit) ............ $ (1,956,924) $ (1,328,981) Total assets ........... 2,176,210 1,477,902 Total liabilities ...... 3,845,067 2,611,251 Shareholders' equity (deficit) ............ (1,708,857) (1,160,514)
The differences between U.S. GAAP as compared to Canadian GAAP as they affect our consolidated financial statements are explained in note 14 to notes to consolidated financial statements. Differences between U.S. GAAP and Canadian GAAP do not affect our consolidated financial statements for fiscal 1997 and fiscal 1998. 8 RISK FACTORS The shares offered by this prospectus are speculative and involve a high degree of risk. In addition to other information in this prospectus, you should consider carefully the following risks before making an investment decision. Risks Related to Our Financial Condition and Business Model We have incurred losses since commencing business and expect to incur future losses. Since our inception, we have incurred losses which have been substantial in relation to our operations. As of May 31, 1999, the end of our most recent fiscal year, we had an accumulated deficit of $4,916,440 (US $3,338,839). We expect our operating expenses to continue to increase significantly in connection with our proposed expanded activities, and consequently, it is very likely that we will continue to incur losses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." We may not become profitable. Since our inception we have generated relatively small amounts of revenue. If revenue grows slower than we anticipate or if operating expenses exceed our expectations, we may not become profitable. Even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis. Failure to achieve or maintain profitability may materially and adversely affect the market price of our common shares. We will incur non-cash compensation expenses under U.S. GAAP as options granted to employees are earned. We have granted options to purchase 65,080 shares at an exercise price of $2.30 (US $1.56) per share to some officers and a key employee which will become earned if the individual achieves specified performance targets at various times during our fiscal year ending May 31, 2000. These options will vest immediately upon being earned. To the extent any of these options are earned, we will incur a non-cash compensation expense under U.S. GAAP in the fiscal quarter in which the options are earned for the difference between the fair market value of our shares on the date they are earned and the exercise price. The effect of this expense would be to reduce our net income or increase our loss in future periods as reported under U.S. GAAP. In addition, in September 1999, options to purchase 13,016 shares at an exercise price of $2.30 (US $1.56) per share became earned. We will incur a non-cash expense during the fiscal quarter ended November 30, 1999 for the difference between the exercise price and the initial offering price per share. We may not be able to grow our client base and revenue because of the number of competitors and the variety of sources of competition we face. Our future success will depend in large part on our ability to rapidly grow and maintain our client base and revenue. This requires that we offer services that are superior to the services being offered by our competitors and that we price them competitively. We compete for a portion of employers' recruiting budgets with many types of competitors, as employers typically utilize a variety of sources for recruiting, including: o traditional offline recruiting firms; o traditional offline advertising, such as print media; o resume processing companies; o web-based recruitment companies; o Internet job posting companies; and o client-server-based software services. In addition, many employers are developing or may develop their own software to satisfy their recruitment needs. If we are unable to rapidly grow our client base and revenue, our business, operating results and financial condition could be materially adversely affected. See "Business -- Competition." 9 The increasing competition in our markets could affect our ability to expand. We expect competition to increase and intensify in the future, with increased price competition developing for our services. A number of our current and potential competitors have longer operating histories and consequently greater financial, technical and marketing resources and name recognition than we do which could give them a competitive advantage. Our competitors may develop products or services that are equal or superior to ours or that achieve greater market acceptance than ours. It is also possible that new competitors may emerge and rapidly acquire significant market share. As a result, we may not be able to expand our market share and our ability to enter new markets may be adversely affected. See "Business -- Competition." If we experience client attrition, our operating results will be adversely affected. Since we generally enter into subscription agreements with our E-Cruiter Enterprise clients for terms of one year or less, we have no assurance that a client will remain a long-term client. If we lose a high percentage of clients after the expiration of their initial subscription, our operating results will be adversely affected. Since we have only been offering this service for a short period of time, we do not know what rate of client attrition to expect. To the extent we experience significant client attrition, we must attract additional clients to maintain revenue. Because we have a short operating history, you may not be able to evaluate our business and prospects. We have only a limited operating history with which you can evaluate our business and prospects. We commenced business in May 1996 and introduced the first commercial version of our services in August 1997. You should consider our prospects in light of the uncertainties encountered by companies in the early stages of development in new and rapidly evolving markets, specifically online recruitment. The uncertainties we face include: o our ability to develop relationships with posting boards and other online employment sources to offer an attractive service to our clients; o the ability of our sources to attract and maintain job candidates; o the ability of our clients to attract candidates to their corporate web sites; o our ability to develop relationships with third parties to expand the distribution of our services; and o the emerging nature of the Internet as a medium for recruitment. As a result of our limited operating history and these uncertainties, it is difficult to forecast our revenue or operating results. We may not be able to strengthen and maintain awareness of our brand name. We believe that our success will depend to a large degree on our ability to successfully strengthen and maintain our brand recognition and reputation. In order to strengthen and maintain our brand recognition and good reputation, we will need to invest heavily in our marketing and maintain high standards for actual and perceived quality, usefulness, reliability, security and ease of use of our services. If we fail to successfully promote and maintain our brand, particularly after incurring significant expenses in promoting our brand, or encounter legal obstacles which prevent our continued use of our brand name, our business and the value of your investment could be materially adversely affected. Moreover, even if we continue to provide good service to our clients, factors outside of our control, including actions by organizations that are mistaken for us and factors generally affecting our industry, could affect our brand and the perceived quality of our services. Our success will depend on our ability to enter into strategic relationships with job posting and other online employment sources to offer an attractive service to our clients and with a variety of third parties to expand the distribution of our services. If we are unable to enter into successful strategic relationships, our business will suffer. We must maintain our existing relationships with job posting boards and other online employment sources and enter into additional similar relationships to continue to offer an attractive service. We also must enter into arrangements with third parties, such as value-added service providers, to expand the distribution of our services. Because many of these third parties compete with each other, the existence of a relationship with any particular third party may limit or preclude us from entering into a relationship with that third party's competitors. In addition, some of the third parties with which we seek to enter into relationships may view us 10 as a competitor and refuse to do business with us. The loss of existing relationships or our inability to enter into new similar relationships may adversely affect our ability to improve our services, offer an attractive service in the new markets that we enter, or expand the distribution of our services. We may not be able to expand our business successfully into new geographic markets. Until recently, we have marketed our services primarily in the Ontario market, including Ottawa and Toronto. Consequently, a large number of our current clients are enterprises that are based in Ontario or that seek to fill job openings in Ontario. Our success and ability to grow our business will depend to a significant degree on our ability to market our services successfully in new geographic markets, including additional key Canadian markets, such as Quebec and British Columbia, and key United States markets. See "Business -- Strategy." Our strategy of targeting sales to medium and large-sized clients is unproven and may not be successful. In fiscal 1999, we changed our business strategy from targeting small and medium-sized clients to targeting medium and large-sized clients. Our change in focus reduced the number of contracts signed in fiscal 1999 to 49 contracts with a total completion value of $1,184,000, from 116 contracts signed in fiscal 1998 with a total completion value of $1,170,696. As this strategy has not been tested fully, it is still possible that it may prove unsuccessful. We may lose business if we are not able to successfully develop and introduce new products, services and features. If we are unable to develop and introduce new products, services, or enhancements to, or new features for, existing services, in a timely and successful manner, we may lose sales opportunities. The market for our services is characterized by rapid and significant technological advancements, the introduction of new products and services, changes in client demands and evolving industry standards. The adoption of new technologies or new industry standards may render our products obsolete and unmarketable. The process of developing new services or technologies is complex and requires significant continuing efforts. We may experience difficulties or funding shortages that could delay or prevent the successful development, introduction and sale of enhancements or new products and services. Moreover, new products, services or features which we introduce may not adequately address the needs of the marketplace or achieve significant market acceptance. Our business could suffer if financing is not available when required or is not available on acceptable terms. Without the proceeds of this offering (or in its absence, alternative financing in a substantially equivalent amount) we would not be able to fund our working capital requirements, anticipated operating cash flow deficit and capital expenditure requirements for the next 12 months. Our future capital requirements depend on a number of factors, including our ability to grow our revenue. We believe that the proceeds from this offering together with our cash on hand and our banking arrangements will be sufficient to fund our working capital, anticipated operating cash flow deficit and capital expenditure requirements for at least 12 months following the closing of this offering. However, it is possible that we may need to raise additional funds sooner than expected in order to fund rapid expansion, develop new and enhance existing services or acquire complementary businesses or technologies. Our business could suffer if financing is not available when required or is not available on acceptable terms. Future financings may be on terms adverse to your interests. If, in the future, we issue equity or convertible debt securities to raise additional funds, you may experience significant dilution of your ownership interest and holders of those securities may have rights senior to those of the holders of our common shares. You should not rely on our quarterly operating results as an indication of our future operating results because they are subject to significant fluctuations. Fluctuations in our operating results could negatively impact our share price. Our quarterly operating results may fluctuate significantly because of several factors, many of which are beyond our control. Factors that may affect our quarterly results include: o the rate of growth of Internet usage and Internet-based recruitment advertising; o cancellation or non-renewal of existing or future key customer contracts; 11 o demand for our existing and future services; o changes in recruitment services pricing; o seasonal trends in recruiting and the hiring cycles of employers; o the recruitment advertising budgets of our existing and potential clients; o changes in our distribution relationships with recruitment advertising partners or others; o costs of acquisitions of businesses or technologies; and o changes in economic conditions. As a result, comparisons of quarterly results may not be meaningful and should not be relied upon, nor will they necessarily reflect our future performance. Fluctuations in quarterly operating results may adversely affect the trading price of our common shares if our operating results are below the expectations of public market analysts and investors. We are dependent on key management personnel. Our success will depend largely on the continuing efforts of our executive officers and senior management, especially those of John Gerard Stanton, our President and Chief Executive Officer, and Rajesh Rao, our Vice President of Research and Development. Our business may be adversely affected if the services of any of our key personnel became unavailable to us. Although several of our key management personnel, including Messrs. Stanton and Rao, have entered into employment agreements with us, there is a risk that these individuals will not continue to serve for any particular period of time. While we have obtained a key person life insurance policy on the life of Mr. Stanton in the amount of US $2,000,000, this amount may not be sufficient to offset the loss of his services. See "Management." Fluctuations between the Canadian dollar and US dollar could result in currency exchange losses which would negatively impact our operating results. The proceeds of this offering will be received in US dollars and may be invested in United States government securities. Also, as we expand our business into the United States these revenues will be billed in US dollars while we expect our costs to continue to be predominantly in Canadian dollars. The exchange rate between Canadian dollars and US dollars has fluctuated significantly over the last several years. Any strengthening in the value of the Canadian dollar against the US dollar could result in lower recorded sales and/or foreign currency translation losses charged against other income for the period incurred. Risks Related to Our Markets The Internet is an unproven medium for recruitment activities and may not become widely accepted. If the Internet does not become a widely used medium for recruiting, we will not be able to compete successfully with traditional recruiting methods, our services will not gain widespread market acceptance and our prospects will be hurt. The online recruiting market is new and rapidly evolving and is unproven, particularly for jobs in fields other than information technology. Employers and job seekers have not reached any consensus that Internet recruiting is an effective means for satisfying their recruitment needs. We may be unable to persuade a large enough number of employers and job seekers that Internet recruiting is an efficient means of recruiting or that our services satisfy their recruitment needs better than traditional methods or other Internet-based techniques. Many of our current and targeted corporate clients have only limited experience in using the Internet for recruiting purposes. They have not yet adopted corporate policies to spend a significant amount of their recruitment budgets on Internet-based recruitment or to commit to doing so over long periods. The adoption of online recruiting requires an acceptance of a new way of conducting business, exchanging information, applying for jobs and filling job openings. As a result, our sales force will have to spend a significant amount of time and resources retaining existing clients and educating potential clients about our services and the Internet recruiting market, which will require a substantial investment by us. 12 Our business could be sensitive to recessions or poor economic conditions in Canada and the United States. If a significant economic downturn or recession occurs in Canada or the United States, our business and the value of your investment could be materially adversely affected. The demand for our services may be limited to the level of economic activity and employment in Canada and the United States. A recession or declining economic conditions could cause employers to reduce or postpone their recruitment efforts and reduce their budgets for recruiting activities. There is significant competition in our industry for highly skilled employees and our failure to attract and retain technical personnel would adversely affect our business. The information technology market is characterized by a high level of employee mobility and there is strong competition for personnel with Internet and related technical experience. This competition means there are fewer highly qualified employees available to hire and the costs of hiring and retaining these individuals are high. As a result, we may not be able to attract and retain needed technical personnel. Our inability to hire or retain qualified individuals may impede our ability to develop new products, services and features, and our ability to service our clients, expand into new markets or efficiently conduct our operations, any of which could adversely affect our business. Furthermore, there is increasing pressure to provide technical employees with options and other equity interests, which may dilute earnings per share. Risks Related to the Internet and Our Technology Infrastructure Our business could be adversely affected if we are unable to protect our proprietary technologies. Our success depends to a significant degree upon the protection of our proprietary technologies and brand names. The unauthorized reproduction or other misappropriation of our proprietary technologies could provide third parties with access to our technologies without payment. If this were to occur, our proprietary technologies would lose value and our business, results of operations and financial condition could be materially adversely affected. We rely upon a combination of copyright, trade secret and trademark laws and non-disclosure and other contractual arrangements to protect our proprietary rights. The steps we have taken to protect our proprietary rights, however, may not be adequate to deter misappropriation of proprietary information or protect us if misappropriation occurs. Policing unauthorized use of our technologies and other intellectual property is difficult, particularly because of the global nature of the Internet. We may not be able to detect unauthorized use of our proprietary information and take appropriate steps to enforce our intellectual property rights. If we resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive and could involve a high degree of risk. See "Business -- Intellectual Property Rights." The inability to enter into and maintain licenses could affect our ability to offer our services. We license a portion of the technology that we use from third parties and we may license additional technologies in the future to manage our services and provide related services to our clients. We cannot assure you that third-party technology licenses will continue to be available to us on acceptable commercial terms or at all. If we are unable to enter into and maintain necessary technology licenses, we may not be able to offer our services at all or we may have to modify the services we offer or experience delays in the development or introduction of new services or enhancements. Others could claim that we infringe upon their proprietary technologies. Our products, services, content and brand names may be found to infringe valid copyrights, trademarks or other intellectual property rights held by third parties. In the event of a successful infringement claim against us and our failure or inability to modify our technologies or services, develop non-infringing technology or license the infringed or similar technology, we may not be able to offer our services. Any claims of infringement, with or without merit, could be time consuming to defend, result in costly litigation, divert management attention, require us to enter into costly royalty or licensing arrangements, modify our technologies or services or prevent us from using important technologies or services, any of which could damage our business and financial condition. 13 We may become subject to burdensome government regulation which could increase our costs of doing business, restrict our activities and/or subject us to liability. Internet regulation. Uncertainty and new regulations relating to the Internet could increase our costs of doing business, prevent us from delivering our services, slow the growth of the Internet or subject us to liability, any of which could adversely affect our business and prospects. In addition to new laws and regulations being adopted, existing laws may be applied to the Internet. There are currently few laws and regulations directly governing access to or commerce on the Internet. However, due to the increasing popularity and use of the Internet, the legal and regulatory environment that pertains to the Internet is uncertain and may change. New and existing laws may cover issues which include: o user privacy; o pricing controls; o consumer protection; o libel and defamation; o copyright and trademark protection; o characteristics and quality of services; o sales and other taxes; and o other claims based on the nature and control of Internet materials. Advertising regulation. As a web-based recruitment services provider, we may be subject to various government laws and regulations that regulate advertising in media, which may include the Internet, and require advertisers and advertising agencies to have substantiation for advertising claims before disseminating advertisements. These laws and regulations may prohibit the dissemination of false, deceptive, misleading and unfair advertising, and may grant government agencies and ministries enforcement powers to impose civil penalties, consumer redress, injunctive relief and/or other remedies on advertisers and advertising agencies that disseminate prohibited advertisements. As a web-based recruitment services provider, we may be subject to liability under these laws and regulations if we are found to have participated actively in creating the advertisement, and knew or had reason to know that the advertising was false or deceptive. Computer viruses or software errors may disrupt operations, subject us to a risk of loss and/or expose us to liability. Computer viruses may cause our systems to incur delays or other service interruptions. In addition, the inadvertent transmission of computer viruses or software errors in new services or products not detected until after their release could expose us to a material risk of loss or litigation and possible liability. Moreover, if a computer virus affecting our system is highly publicized or if errors are detected in our software after it is released, our reputation could be materially damaged and we could lose clients. We may experience reduced revenue, loss of clients and harm to our reputation in the event of system failures. We may experience reduced revenue, loss of clients and harm to our reputation in the event of unexpected network interruptions caused by system failures. Our servers and software must be able to accommodate a high volume of traffic. We have experienced minor system interruptions in the past, and we believe that system interruptions will continue to occur from time to time in the future. Any substantial increase in demands on our services will require us to spend capital and resources to expand and adapt our network infrastructure. If we are unable to add additional software and hardware to accommodate increased demand, we could experience unanticipated system disruptions and slower response times. Any catastrophic failure at our location facility could prevent us from serving our clients for a number of days, or possibly weeks, and any failure of our Internet service provider may adversely affect our network's performance. Our clients may become dissatisfied by any system failure that interrupts our ability to provide our services to them or results in slower response times. Our business interruption insurance may not adequately compensate us for any losses that may occur due to any failures in our system or interruptions in our services. 14 We face a number of risks associated with the year 2000 issue, any of which could cause a material interruption in our operations. Computer systems and software must accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, many software and computer systems may need to be upgraded in order to be year 2000 compliant. We have substantially completed our assessment of the year 2000 readiness of our systems and believe that they are year 2000 compliant. We have not made any inquiries about the year 2000 compliance of the systems of our clients. We have inquired about the year 2000 compliance of the systems of our critical vendors, and all of our critical vendors have assured us that their systems are year 2000 compliant. However, due to the significant uncertainties that exist in the software industry concerning the potential effects associated with the failure of computer systems and software to be year 2000 compliant, we cannot be certain that our systems or the systems of our clients, job seekers and critical vendors will in fact be year 2000 compliant when January 1, 2000 arrives, nor can we be certain that we have identified in our assessment all of the potential risks to our business that could result from matters related to the year 2000. We have identified the following risks of which you should be aware: o The failure of our services to be fully year 2000 compliant could result in claims by or liability to our clients. o The purchasing patterns of our clients and potential clients may be materially adversely affected by year 2000 issues because they may be required to expend significant resources on year 2000 compliance matters, rather than investing in new online recruitment services such as those we offer. In addition, as the new year approaches, employers may elect to spend a greater portion of their recruiting budgets on traditional recruitment methods rather than risk disruption in their job advertisements in the event of technical difficulties related to year 2000 problems. o The third-party job posting boards and other online employment sources with which we have relationships may face disruptions in their services to the extent they experience year 2000 problems which could prevent them from being available for our clients. o Disruptions caused by year 2000 problems could affect Internet usage generally, which could result in a decline in the use of our services. If any of these risks materialize, there could be a serious disruption of our operations, and our business, operating results and financial condition would be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Issues." Breaches of our network security could be costly. If unauthorized persons penetrate our network security, they could misappropriate proprietary information or cause interruptions in our services. We may be required to spend capital and resources to protect against or to alleviate these problems. In addition, because we host data for our clients, we may be liable to any of those clients that experience losses due to our security failures. As a result, security breaches could have a material adverse effect on our business and the value of your investment. Our business depends on Internet service providers to provide satisfactory service to our clients to enable them to use our services and access job candidates online. Failure of Internet service providers or online service providers to provide access to the Internet to our clients and job seekers would prevent them from accessing our web site, which would cause our business to suffer. Many of the Internet service providers, online service providers and other web site operators on which we depend have experienced significant service slowdowns, malfunctions, outages and capacity limitations. If users experience difficulties using our services due to the fault of third parties, our reputation could be harmed Our business depends on the development and maintenance of the Internet infrastructure. We cannot assure you that the Internet infrastructure will continue to effectively support the demands placed on it as the Internet continues to experience increased numbers of users, greater frequency of use or increased bandwidth requirements of users. In the past, the Internet has experienced a variety of outages and 15 other delays. Any future outages or delays could affect the willingness of employers to use our online recruitment offerings and of job seekers to post their resumes on the Internet. If any of these events occur, our business, results of operations and financial condition could be materially adversely affected. Risks Related to this Offering, Our Share Price and Corporate Control The offering price of our common shares was arbitrarily determined and, therefore, may not be indicative of their value. The initial public offering price of our common shares has been arbitrarily determined by negotiation between us and the underwriter and is not necessarily related to our assets, book value or potential earnings or any other recognized criteria of value. Additionally, the initial public offering price of our common shares may not be indicative of the prices that may prevail in the public market. Your investment will be subject to immediate and substantial dilution. Following this offering, the net tangible book value of a common share will be US $1.48 and you will have paid US $6.00 per share. As a result, you will experience immediate and substantial dilution of US $4.52 per share, or 75.3%, between the net tangible book value per common share after this offering and the initial public offering price per share. This dilution is due to the fact that our earlier investors paid less than the initial public offering price when they purchased their shares and because we have incurred losses since our inception. See "Dilution." The significant number of outstanding options and warrants could depress the market price of our common shares and could interfere with our ability to raise capital. Upon the closing of this offering, there will be outstanding options and warrants to purchase an aggregate of 751,518 common shares, including 213,184 common shares issuable upon exercise of the underwriter's warrants, at exercise prices ranging from US $1.56 to US $9.90 per share. To the extent that the outstanding options and warrants are exercised, dilution to the percentage of ownership of our shareholders will occur and any sales in the public market of the common shares underlying those options and warrants may adversely affect prevailing market prices for our common shares. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected since the holders of outstanding options and warrants can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than those provided in the outstanding options and warrants. Our management's broad discretion in the use of the proceeds of this offering increases the risk that they will not be used effectively or in a manner with which our shareholders agree. We have allocated $1,476,000, or 15.0% of the net proceeds of this offering, as well as all of the proceeds, if any, from the underwriter's exercise of the over-allotment option, to working capital and general corporate purposes. Additionally, the anticipated application of the net proceeds is only an estimate and may be adjusted from time to time as our management determines to be appropriate. Accordingly, our management will have broad discretion as to the net proceeds of this offering which increases the risk that the net proceeds will not be used effectively or in a manner with which our shareholders agree. A portion of the proceeds of this offering will be directed to our principal shareholder and our officers. This portion of the proceeds will not be available for other business purposes and these affiliates will receive a benefit by receipt of the funds. We intend to use approximately US $890,000 to repay a loan made to us by Mr. Paul Champagne, our largest shareholder. In addition, Mr. Champagne has granted us an option to purchase his interest and related rights in WorkLife Solutions, Inc. for the greater of US $1,000,000, which was the amount of his investment, and the fair market value of his interest and related rights in WorkLife. To the extent we exercise the option and the fair market value is greater than US $1,000,000, Mr. Champagne will realize a profit from his investment. Additionally, we will use a portion of the proceeds of this offering allocated to working capital and general corporate purposes to pay the salaries of our officers to the extent cash flow from our operations is insufficient for this purpose. Any proceeds used for the above purposes will not be available for other business purposes. 16 After this offering, a small number of shareholders, including our officers and directors, will have the ability to control shareholder votes. Upon the closing of this offering, our executive officers, directors and other principal shareholders will hold approximately 61.1% of our outstanding shares. These shareholders, if acting together, would have the ability to elect our directors and to determine corporate actions requiring shareholder approval, irrespective of how other shareholders may vote. The interests of these shareholders may differ from the interests of our other shareholders. This consolidation of voting power could also have the effect of delaying, deterring or preventing a change in our control that might be beneficial to other shareholders. See "Principal and Selling Shareholders." A public market for our common shares may not develop or be sustained. Before this offering, there has been no public trading market for our common shares. We cannot assure you that a regular trading market for our common shares will develop after this offering or that, if developed, it will be sustained. We will apply to list our shares on the Nasdaq SmallCap Market. Although we believe we meet the initial listing criteria, we cannot assure you that in the future we will be able to meet the criteria for continued listing. If, in the future, our common shares are not listed on Nasdaq and the trading price of our common shares was to fall below US $5.00 per share, trading in our common shares would become subject to the Securities and Exchange Commission's penny stock rules, which could severely limit the market liquidity of our common shares and the ability of purchasers in this offering to sell their common shares in the secondary market. The number of shares eligible for future sale could depress the market for our common shares. Sales of a substantial number of our common shares in the public market, or the perception that these sales may occur, could adversely affect the market price of our common shares. This could also impair our ability to raise additional capital through the sale of our equity securities. After this offering, we will have approximately 7,062,449 common shares outstanding or approximately 7,382,225 shares if the underwriter exercises its over-allotment option in full. The shares sold in this offering will be freely tradeable. Of the remaining 4,930,611 shares, none are restricted securities as that term is defined under Rule 144. However, approximately 3,938,171 shares are held by officers, directors and other persons who may be deemed to be our affiliates. Shares held by our affiliates will become eligible for sale in the public market 90 days after the date of this prospectus and will be subject to the limitations and other conditions of Rule 144 under the Securities Act. See "Shares Eligible for Future Sale." The existence of registration rights could depress the market for our common shares. We have granted registration rights with respect to 3,671,540 shares held by affiliates. These rights become exercisable 12 months after the date of this prospectus. These registration rights are discussed in the "Description of Common Shares -- Registration Rights" section of this prospectus. We also have granted registration rights to the underwriter for the common shares issuable upon exercise of the underwriter's warrants. These registration rights are described in the "Underwriting" section of this prospectus. We cannot predict the effect, if any, that sales of these additional securities or the availability of these additional securities for sale will have on the market prices prevailing from time to time. The market price of our common shares may be extremely volatile. The market price of our common shares may be highly volatile as a result of factors specific to us or applicable to our market and industry in general. These factors include: o variations in our annual or quarterly financial results or those of our competitors; o changes by financial research analysts in their recommendations or estimates of our earnings; o conditions in the economy in general or in the information technology service sector in particular; o announcements of technological innovations or new products or services by us or our competitors, and o unfavorable publicity or changes in applicable laws or regulations, or their judicial or administrative interpretations affecting us or the information technology service sectors. In addition, the stock market has recently been subject to extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities issued by many companies for reasons 17 unrelated to the operating performance of these companies. In the past, following periods of volatility in the market price of a company's securities, some companies have been sued by their shareholders. If we were sued, it could result in substantial costs and diversion of management's attention and resources, which could adversely affect our business. If we are deemed to be a passive foreign investment company, U.S. holders of our common shares could become subject to additional taxes. We do not believe that we are, for U.S. federal tax purposes, a passive foreign investment company, and we expect to continue to conduct our operations in a manner that we will not be a passive foreign investment company. If, however, we are or do become a passive foreign investment company, U.S. holders could be subject to additional U.S. federal income taxes on distributions or gains with respect to the common shares, plus an interest charge on taxes treated as having been deferred by the U.S. holder under the passive foreign investment company rules. We discuss the tax consequences of becoming a passive foreign investment company in the "Material Income Tax Considerations" section of this prospectus. Because we are a Canadian company, you may not be able to enforce civil liabilities under the U.S. federal securities laws against us. We are incorporated in Canada. Our registered office as well as a substantial portion of our assets are located outside the United States. All of our directors and officers, some of the selling shareholders and some of the experts named in this prospectus reside outside the United States. Furthermore, no treaty exists between the United States and Canada for the reciprocal enforcement of foreign court judgments. Consequently, it may be difficult to serve process upon us or our directors and officers in the United States and to enforce U.S. court judgments obtained against us or our directors and officers in the Province of Ontario. Perley-Robertson, Hill & McDougall, our Canadian counsel, has also advised us that there is doubt as to the enforceability of liabilities predicated on U.S. federal securities laws determined in original actions in the Province of Ontario. We have been advised by our Canadian counsel that in its opinion, a judgment of a court of the United States predicated solely upon civil liabilities under United States federal securities law may, under some circumstances, be enforceable in Ontario by an Ontario court against an Ontario resident as a foreign judgment. A foreign judgment may be enforced against an Ontario resident if the resident was served while present in the foreign jurisdiction or voluntarily submitted to the foreign court's jurisdiction by agreement, or if the foreign jurisdiction had a real and substantial connection with the subject matter of the proceedings. However, a foreign judgment is not enforceable in Ontario if obtained by fraud, if there was a failure of natural justice or if enforcing the foreign judgment would be contrary to the public policy of Ontario. Any recovery under a foreign judgment would be payable in Canadian currency. E-Cruiter, John Gerard Stanton, our Chief Executive Officer and President, Jeffery Potts, our Chief Financial Officer, Evelyn Ledsham, our Vice President of Sales, Rajesh Rao, our Vice President of Research and Development, Kimberly Layne, our Director of Marketing and Communications, Roderick Bryden, a director, John McLennan, a director, Matthew Ebbs, a director, and each of the selling shareholders have each expressly submitted to the jurisdiction of the courts of the State of New York and the United States Federal courts sitting in the City of New York for the purpose of any suit, action or proceeding arising out of this offering, and they have each appointed CT Corporation, New York, New York, as their respective agent in the United States upon which service of process against them may be made for matters relating to this offering. 18 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This prospectus includes "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by use of forward-looking terminology such as "estimates," "projects," "believes," "expects," "intends," "plans," "may," "would," "could" or "should," or the negative or other variation of these words, or other similar expressions. All forward-looking statements contained in this prospectus, including those presented with numerical specificity, however, are uncertain. Actual results may differ from those discussed in these statements and you may consider these differences important to your investment decision. Factors that could contribute to these differences include those discussed in the "Risk Factors" section and elsewhere in this prospectus. This prospectus also contains forward-looking statements attributed to third parties relating to their estimates regarding market growth. You should not place undue reliance on the forward-looking statements in this prospectus, which speak only as of the date the statement is made. 19 USE OF PROCEEDS The net proceeds to E-Cruiter from the sale of the 2,000,000 common shares being offered by E-Cruiter, after deducting underwriting discounts and other expenses of this offering, are estimated to be US $9,866,000. We will receive no proceeds from the sale of shares by selling shareholders. We expect to use the net proceeds during the 12 months following the closing of this offering as follows:
Approximate Approximate US Percentage of Application of Net Proceeds Dollar amount Net Proceeds - --------------------------- ----------------- -------------- Marketing and advertising .............................. US $3,000,000 30.4% Technology development and acquisition ................. 2,300,000 23.3 Sales .................................................. 1,500,000 15.2 Repayment of indebtedness .............................. 890,000 9.0 Client support and network infrastructure .............. 700,000 7.1 Working capital and general corporate purposes ......... 1,476,000 15.0 -------------- ----- Total ................................................. US $9,866,000 100.0% =============== =====
Marketing and advertising. We intend to increase the visibility and awareness of E-Cruiter and our services through an integrated program of marketing initiatives, including tradeshow participation, seminars, direct mail, industry analyst meetings and media interviews. We also intend to develop our web site to provide potential clients with information about E-Cruiter and our services. In addition, we intend to increase significantly our advertising efforts, primarily through radio, print and Internet advertising. Technology development and acquisition. We intend to expand our software development capability by adding new personnel to continue to enhance our services. In addition, we have identified WorkLife Solutions, Inc. as a company with distribution arrangements and technology complementary to our business. WorkLife is focused on developing and operating career services of major Internet portals such as AltaVista.com. We are currently developing services jointly with WorkLife to offer on AltaVista.com's Career Channel. We also acquired an option from Paul Champagne, our largest shareholder, to acquire his interest and related rights in WorkLife for the greater of the fair market value of his interest and related rights in WorkLife and US $1,000,000, at any time until April 13, 2000, subject to extension until October 13, 2000. As of the date of this prospectus, we have no plans, agreements, commitments, understandings or arrangements with respect to any acquisitions, other than the potential investment in WorkLife. Sales. We intend to expand our sales efforts, including hiring additional sales personnel in Canadian markets and building a sales force in key U.S. markets. We plan to add up to 20 additional sales personnel for our direct sales and for support for our indirect sales in Canada and the United States. Repayment of indebtedness. We intend to repay the principal of, and related interest on, a $1,300,000 (US $882,852) loan which we obtained from Paul Champagne, our largest shareholder, in September 1999. This loan bears interest at the Canadian prime lending rate, which was 6.25% per year on October 26, 1999, plus an additional 3% per year and is due on the earlier of March 2000 and the closing of this offering. We used the proceeds of this loan for working capital and general corporate purposes. Client support and network infrastructure. In order to expand and improve our client support and to provide around the clock services to our clients, we intend to increase the number of client support and network operations personnel and expand our network infrastructure. Investments in our infrastructure include upgrades to our network operations center, network servers and related software and computers. Working capital and general corporate purposes. We may use a portion of the proceeds allocated to working capital and general corporate purposes to pay a portion of trade payables incurred from time to time and the salaries of our officers, if cash flow from operations is insufficient for these purposes. 20 Over-allotment option. If the underwriter exercises its over-allotment option in full, after deducting underwriting discounts and other expenses of this offering, we will realize additional net proceeds of US $1,675,626 all of which will be allocated to working capital and general corporate purposes. The foregoing description represents our best estimate of the allocation of the net proceeds of this offering based upon the current status of our business. We based this estimate on assumptions, which include: a continued expansion of our client base and corresponding increases in revenue; completion of our proposed new services release; and the introduction of our new services without unanticipated delays or costs. If any of these factors changes, we may find it necessary to reallocate a portion of the proceeds within the above-described categories or use portions of the proceeds for other purposes. Our estimates may prove to be inaccurate, new programs or activities may be undertaken which will require considerable additional expenditures, or unforeseen expenses may occur. Based upon our current plans and assumptions relating to our business plan, we anticipate that the net proceeds of this offering will satisfy our capital requirements for at least 12 months following the closing of this offering. If our plans change or our assumptions prove to be inaccurate, we may need to seek additional financing sooner than currently anticipated or curtail our operations. We cannot assure you that the proceeds of this offering will be sufficient to fund our proposed expansion or that additional financing will become available if needed. We intend to invest proceeds not immediately required for the purposes described above principally in Canadian or United States government securities, short term certificates of deposit, money market funds or other short-term interest-bearing investments. 21 DILUTION The difference between the initial public offering price per share and the net tangible book value per share after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing total tangible assets less total liabilities by the number of outstanding common shares. On May 31, 1999, we had a net tangible book value of $877,557 (US $595,964) or $.17 (US $.12) per share, assuming conversion of outstanding convertible promissory notes into 1,198,462 common shares and the issuance of 6,508 common shares in September 1999 to satisfy a May 31, 1999 liability of $57,498 (US $39,048). After giving effect to the sale of the 2,000,000 common shares being offered by E-Cruiter and after deducting estimated underwriting discounts and expenses of this offering, our adjusted net tangible book value on May 31, 1999 would have been $15,405,242 (US $10,461,964) or $2.18 (US $1.48) per share, representing an immediate increase in our net tangible book value of US $1.36 per share to the existing shareholders and an immediate dilution of US $4.52 per share or, 75.3%, to new investors. The following table illustrates the foregoing information with respect to dilution to new investors on a per share basis: Initial public offering price ........................... US $6.00 Net tangible book value before offering .............. US $ .12 Increase attributable to new investors ............... US $1.36 --------- Adjusted net tangible book value after offering ......... US $1.48 -------- Dilution to new investors ............................... US $4.52 ========
As of the date of this offering, the following table illustrates a comparison of the number of common shares we issued, the percentage ownership of those shares, the total consideration paid, the percentage of total consideration paid and the average price per share.
Shares Purchased Total Consideration Paid ----------------------- ----------------------------- Average Price Number Percent Amount Percent Per Share ----------- --------- ----------------- --------- -------------- Existing shareholders ......... 5,062,449 71.7% US $ 4,319,756 26.5% US $ .85 New investors ................. 2,000,000 28.3 12,000,000 73.5 US $6.00 --------- ----- --------------- ----- 7,062,449 100.0% US $16,319,756 100.0% ========= ===== =============== =====
Sales by selling shareholders in this offering will reduce the number of common shares held by existing shareholders to 4,930,611, or approximately 69.8%, approximately 66.8% if the over-allotment option is exercised in full, and will increase the number of common shares purchased by new investors to 2,131,838, or approximately 30.2%, or 2,451,614 shares, or approximately 33.2% if the over-allotment option is exercised in full, of the total number of common shares. The above table assumes that the underwriter's over-allotment option is not exercised. If the underwriter exercises the over-allotment option in full, it is estimated that the new investors will have paid US $13,918,656 for the 2,319,776 common shares being offered by E-Cruiter, representing approximately 76.5% of the total consideration for 31.5% of the total number of common shares outstanding. The above table does not give effect to the shares issuable upon exercise of the options and warrants. 22 DIVIDENDS We have never declared or paid any dividends to the holders of our common shares and we do not anticipate paying cash dividends in the future. We currently intend to retain all earnings for use in connection with the expansion of our business and for general corporate purposes. Our board of directors will have the sole discretion in determining whether to declare and pay dividends in the future. The declaration of dividends will depend on our profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors. Our ability to pay cash dividends in the future could be limited or prohibited by regulatory requirements and the terms of financing agreements that we may enter into or by the terms of any preferred stock that we may authorize and issue. EXCHANGE RATES The following table lists the average, high, low and period-end 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 periods indicated. The average rate is the average of the exchange rates on the last day of each month during a year.
Period Year Ended December 31, End Average High Low - ----------------------- ------------ ------------ ------------ ------------ 1994 .............................. $ 1.4030 $ 1.3700 $ 1.4078 $ 1.3103 1995 .............................. 1.3655 1.3689 1.4238 1.3285 1996 .............................. 1.3697 1.3644 1.3822 1.3310 1997 .............................. 1.4288 1.3894 1.4398 1.3357 1998 .............................. 1.5375 1.4894 1.5770 1.4075 1999 (through October 29) ......... 1.4720 1.4877 1.5302 1.4512
On May 28, 1999, the noon buying rate was $1.4725 per US $1.00. We used this exchange rate to calculate the U.S. dollar equivalents provided in this prospectus, unless otherwise noted. On October 29, 1999, the noon buying rate was $1.4720 per US $1.00. 23 CAPITALIZATION The following table, based on our consolidated financial statements prepared in accordance with Canadian GAAP, shows our capitalization as of May 31, 1999 on an actual basis, an as adjusted basis, and an as further adjusted basis. The "as adjusted" column gives effect to: (1) the conversion of convertible promissory notes with a carrying value of $2,633,554 (US $1,788,492) at October 31, 1999 into 1,198,462 common shares; (2) the issuance of 6,508 common shares in September 1999 to satisfy a May 31, 1999 liability of $57,498 (US $39,048); and (3) our borrowing of $1,300,000 (US $882,852) under a loan which we obtained in September 1999 from Paul Champagne, a principal shareholder of E-Cruiter. The $471,491 (US $320,198) increase in carrying value of the promissory notes from $2,162,063 (US $1,468,294) at May 31, 1999 to $2,633,554 (US $1,788,492) at October 31, 1999 reflects additional accrued interest and amortization on the notes during that period and has been reflected as an increase in the deficit. The "as further adjusted" column gives effect to receipt of the anticipated net proceeds of $14,527,685 (US $9,866,000) from the sale of 2,000,000 common shares being offered by us and gives effect to repayment of the loan described above. The number of shares presented in the following table does not include: o the 213,184 shares reserved for issuance upon exercise of the underwriter's warrants; o the 516,641 shares reserved for issuance upon exercise of options granted under our option plan; o the 250,000 shares reserved for issuance upon exercise of options available for future grant under our 1999 option plan; o the 319,776 shares reserved for issuance in this offering to cover over-allotments, if any, by the underwriter; and o the 21,693 shares reserved for issuance upon exercise of non-plan options. The convertible promissory notes are included in the "actual" capitalization due to the equity conversion feature and our intention to convert these notes immediately before the closing of this offering. The information presented below is in Canadian dollars and includes U.S. dollar convenience translations using an exchange rate of $1.4725 per US $1.00, the noon buying rate on May 28, 1999.
(Cdn $) As of May 31, 1999 ------------------------------------------------- As Further Actual Adjusted Adjusted --------------- --------------- --------------- (unaudited) (unaudited) Short-term debt: Short-term loan ............................ $ -- $ 1,300,000 $ -- Current portion of long-term debt .......... 84,173 84,173 84,173 ------------ ------------- ------------ Total .................................... $ 84,173 $ 1,384,173 $ 84,173 ============ ============= ============ Convertible promissory notes ................ $ 2,162,063 $ -- $ -- Long-term debt, excluding current portion ... 40,000 40,000 40,000 ------------ ------------- ------------ Total ..................................... 2,202,063 40,000 40,000 ------------ ------------- ------------ Shareholders' equity (deficit): Common shares, without par value, unlimited number authorized; 3,857,479 shares outstanding, actual; 5,062,449 shares, as adjusted (unau- dited) and 7,062,449 shares, as further adjusted (unaudited) ...................... 3,541,040 6,367,188 20,894,873 Convertible promissory notes -- equity component ................................. 135,096 -- -- Deficit .................................... (4,916,440) (5,387,931) (5,387,931) ------------ ------------- ------------ Total shareholders' equity (deficit) ................................ $ (1,240,304) $ 979,257 $ 15,506,942 ------------ ------------- ------------ Total capitalization ..................... $ 961,759 $ 1,019,257 $ 15,546,942 ============ ============= ============ (US $) As of May 31, 1999 ------------------------------------------------- As Further Actual Adjusted Adjusted --------------- --------------- --------------- (unaudited) (unaudited) Short-term debt: Short-term loan ............................ $ -- $ 882,852 $ -- Current portion of long-term debt .......... 57,163 57,163 57,163 ------------- ------------- ------------ Total .................................... $ 57,163 $ 940,015 $ 57,163 ============= ============= ============ Convertible promissory notes ................ $ 1,468,294 $ -- $ -- Long-term debt, excluding current portion ... 27,165 27,165 27,165 ------------- ------------- ------------ Total ..................................... 1,495,459 27,165 27,165 ------------- ------------- ------------ Shareholders' equity (deficit): Common shares, without par value, unlimited number authorized; 3,857,479 shares outstanding, actual; 5,062,449 shares, as adjusted (unau- dited) and 7,062,449 shares, as further adjusted (unaudited) ...................... 2,404,781 4,324,066 14,190,066 Convertible promissory notes -- equity component ................................. 91,746 -- -- Deficit .................................... (3,338,838) (3,659,036) (3,659,036) ------------- ------------- ------------ Total shareholders' equity (deficit) ................................ $ (842,311) $ 665,030 $ 10,531,030 ------------- ------------- ------------ Total capitalization ..................... $ 653,148 $ 692,195 $ 10,558,195 ============= ============= ============
Under U.S. GAAP, giving the same effect to the adjustments described above, actual, as adjusted and as further adjusted, total capitalization as of May 31, 1999 would be the same as under Canadian GAAP. 24 SELECTED FINANCIAL DATA The selected consolidated financial information below is presented in Canadian dollars and is derived from our consolidated financial statements for, and as of the end of, fiscal year ended May 31, 1999 which have been audited by PricewaterhouseCoopers, LLP, chartered accountants. The consolidated financial statements have been prepared in accordance with Canadian GAAP. These principles conform in all material respects with U.S. GAAP, except as described in note 14 to the consolidated financial statements. You should read the information presented below in conjunction with the consolidated financial statements and with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus. The following tables include a U.S. dollar convenience translation below using an exchange rate of $1.4725 per US $1.00, the noon buying rate on May 28, 1999. These translations are not necessarily representative of the amounts that would have been reported if we had historically reported in U.S. dollars, and the rate used is not necessarily indicative of the rates in effect at any other time. In the statements of loss table below, pro forma net loss per common share has been determined based on the assumption that note holders converted their notes into 1,128,045 common shares immediately upon issuance as required under Canadian and U.S. GAAP. Statements of Loss
(Cdn $) Year Ended May 31, (US $) ---------------------------------------------------- Year Ended 1997 1998 1999 May 31, 1999 -------------- ---------------- ---------------- ---------------- Canadian GAAP: Revenue .............................. $ 85,524 $ 870,003 $ 1,399,557 $ 950,463 Cost of revenue ...................... 57,167 386,391 848,769 576,414 ---------- ------------ ------------ ------------ Gross profit ......................... 28,357 483,612 550,788 374,049 ---------- ------------ ------------ ------------ Expense: Selling ............................. 125,785 652,118 818,601 555,926 Marketing ........................... 258,256 817,291 612,796 416,160 General and administrative .......... 243,304 350,014 725,713 492,844 Research and development ............ 258,257 510,974 606,088 411,605 ---------- ------------ ------------ ------------ Total expense ..................... 885,602 2,330,397 2,763,198 1,876,535 ---------- ------------ ------------ ------------ Net loss ............................. $ (857,245) $ (1,846,785) $ (2,212,410) $ (1,502,486) ========== ============ ============ ============ Net loss per share ................... $ (.53) $ (.58) $ (.57) $ (.39) ========== ============ ============ ============ Weighted average number of shares outstanding ......................... 1,620,669 3,191,297 3,854,579 3,854,579 Pro forma net loss per share ......... $ (.53) $ (.36) Pro forma weighted average number of shares outstanding .................. 3,960,964 3,960,964 U.S. GAAP: Net loss ............................. $ (857,245) $ (1,846,785) $ (4,864,735) $ (3,303,725) Net loss per share ................... (.53) (.58) (1.26) (.86)
25 Balance Sheet Data
(Cdn $) (US $) As of May 31, ----------------------------------------------- As of 1997 1998 1999 May 31, 1999 ----------- -------------- ---------------- ---------------- Canadian GAAP: Working capital (deficit) .............. $201,386 $ (167,186) $ (1,488,371) $ (1,010,778) Total assets ........................... 406,537 700,826 2,176,210 1,477,902 Total liabilities ...................... 180,252 833,816 3,416,514 2,320,213 Shareholders' equity (deficit) ......... 226,285 (132,990) (1,240,304) (842,311) U.S. GAAP: Working capital (deficit) .............. $201,386 $ (167,186) $ (1,956,924) $ (1,328,981) Total assets ........................... 406,537 700,826 2,176,210 1,477,902 Total liabilities ...................... 180,252 833,816 3,845,067 2,611,251 Shareholders' equity (deficit) ......... 226,285 (132,990) (1,708,857) (1,160,514)
The differences between U.S. GAAP as compared to Canadian GAAP as they affect our consolidated financial statements are explained in note 14 to notes to consolidated financial statements. Differences between U.S. GAAP and Canadian GAAP do not affect our consolidated financial statements for fiscal 1997 and fiscal 1998. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with the consolidated financial statements and notes to the consolidated financial statements appearing elsewhere in this prospectus. The following discussion is presented in Canadian dollars. Evolution of our Business In 1997, we launched CareerBridge.com, a regional-based job board focused on the high-technology industry in Ottawa, Canada. We believe that as a result of aggressive promotion, CareerBridge.com became the leading regional online job board for technology careers, serving as a free job search service for individuals, and as a paid posting service for organizations. Initially, we were a web-based recruitment advertiser, known in the marketplace as a job board. As a job board, our service allowed organizations to advertise their job openings on our web site and allowed individuals to review employment opportunities and apply online. However, we determined early in our existence that simply offering a web-based job board did not address all of the recruiting needs of organizations. To address these needs, in March 1999, we launched E-Cruiter Enterprise, a service designed to be a comprehensive recruitment management service. In September 1999, we entered into a letter of intent to sell our CareerBridge.com regional-based job board business to Thomson Canada Limited, owner of GlobeCareers, a large Canadian job board. As consideration for the sale, we will have the right to resell GlobeCareers' services for three years, and, for the first year after closing, we will receive favorable prices to post jobs to GlobeCareers' job board. We will also receive advertising exposure in The Globe and Mail, a national Canadian newspaper, and advertising exposure on the GlobeCareers.com and Globeandmail.com web sites. We estimate that we will receive consideration in excess of $700,000 over a three year period. We anticipate the sale will be completed by December 1999. We cannot assure, however, that this transaction will be completed on the proposed terms or at all. Results of Operations Fiscal year ended May 31, 1999 compared to fiscal year ended May 31, 1998 Our revenue for the year ended May 31, 1999 was $1,399,557, an increase of 60.9% as compared to revenue of $870,003 for the year ended May 31, 1998. Our revenue is earned principally from two web-based services: (a) E-Cruiter Enterprise, our comprehensive recruitment management service; and (b) E-Cruiter Express, our job posting service designed for organizations which just want to advertise their job requisitions on multiple sites on the Internet. Our accounting policy is to recognize recruitment services, which includes access to services, upgrades and enhancements, set up, training and support, ratably over the term of client contracts. Professional services, which are provided on a time and materials basis, are recognized as services are delivered. Revenue from clients who post their jobs on the Internet is recognized when the job requisition is posted. Nearly all of our revenue has been generated by clients operating in Canada. Revenue from E-Cruiter Enterprise services increased 41.5% to $1,094,632 in fiscal 1999 from $773,797 in fiscal 1998. Despite this upward trend, our revenue from E-Cruiter Enterprise services was less than anticipated due to our change in sales strategy in mid-fiscal 1999. We decided to target our sales efforts to medium and larger clients, a change from our original strategy of targeting sales to small and medium clients. Our change of focus reduced the number of contracts signed. In fiscal 1999, we signed 49 contracts with a total completion value of $1,184,000. In fiscal 1998, we signed 116 contracts with a total completion value of $1,170,696. However, the average size of sales contracts increased to $24,163 in fiscal 1999 from $10,092 in fiscal 1998. Revenue from the sale of E-Cruiter Express services increased from $96,165 in fiscal 1998 to $305,013 in fiscal 1999. This 217.2% increase in revenue primarily relates to the introduction in March 1998 of our new job posting software which allows organizations to use the same job requisition to post to multiple job boards at the same time without having to reformat the original posting each time. 27 Our cost of revenue in fiscal 1999 was $848,769 compared to $386,391 in fiscal 1998, an increase of 119.7%. Our cost of revenue includes the cost of client support, charges for posting to third-party job boards and our network operations. The change in each of these expenses from fiscal 1998 to fiscal 1999 is explained as follows: o Client support expenses were $333,093 in fiscal 1999 compared to $127,808 in fiscal 1988, an increase of 160.6%. This reflects an addition of three client support personnel and the associated costs of providing these personnel with computers and related work tools. Our goal is to provide better client support than any of our competitors to result in annual subscription renewals. o Charges by PositionWatch Ltd., a company that posts jobs to the Internet for us on a wholesale basis, totalled $76,932 in fiscal 1999 compared to $19,232 in fiscal 1998, an increase of 300%. This reflects the introduction of our multi-posting capability in March 1998 where clients use our services to post jobs to other job boards. o The cost of supporting our networks increased to $438,744 in fiscal 1999 from $239,351 in fiscal 1998, an increase of 83.3%. These higher costs largely reflect the addition of two personnel and increased amortization charges from the purchase of additional servers and related software. We made these investments in anticipation of additional business volume in fiscal 2000. We have established a goal of zero unplanned network down time given that our client commitment is service availability 24 hours a day, seven days a week, 365 days a year. Accordingly, we expect that expenses in this area will continue to increase as business volume increases. Total expense increased by 18.6% in fiscal 1999 to $2,763,198 from $2,330,397 in fiscal 1998. Expense consists of the following cost categories: selling, marketing, general and administrative and research and development. The change in total expenses from fiscal 1998 to fiscal 1999 is explained as follows: o Selling expense in fiscal 1999 increased to $818,601 from $652,118 in fiscal 1998. This selling expense was primarily attributable to increased selling activities during the final two quarters of fiscal 1999. Five new sales representatives were hired to provide greater direct sales coverage in Toronto, Ontario. We expect selling expense to continue to increase as we enter new markets and expand our selling efforts. o An increase in general and administrative expenses also contributed to the overall increase in expense for fiscal 1999. General and administrative expenses were $725,713 in fiscal 1999 compared to $350,014 in fiscal 1998. These costs were higher largely as a result of an increase in personnel, consulting fees and increased legal costs. Accrued interest and amortization costs associated with the issuance of promissory notes in fiscal 1999 accounted for $104,238 of the higher costs. We did not incur any of these costs in fiscal 1998. o An increase in research and development costs to $606,088 in fiscal 1999 from $510,974 in fiscal 1998. This increase reflects the addition of several new software engineering and software verification personnel during the latter part of the year. We expect that the increase in additional personnel will further increase our research and development costs in fiscal 2000 as the additional costs will be incurred for the full year. Research and development expenses were partially offset by $103,253 of Canadian federal and provincial government tax credits. o Lower marketing expenses in fiscal 1999 partially offset our increased selling, general and administrative and research and development expenses. Reflecting the change in business strategy in fiscal 1999 described above, marketing expenses decreased to $612,796 in fiscal 1999 from $817,291 in fiscal 1998. Upon changing our business focus from a job board business to a total recruitment management business, we decreased our marketing expenditures related to the job posting service. We expect that marketing expenses will increase, however, as we enter new markets. Our net loss for fiscal 1999 was $2,212,410 compared to a net loss of $1,846,785 for fiscal 1998. Fiscal year ended May 31, 1998 compared to fiscal year ended May 31, 1997 Revenue for fiscal 1998 was $870,003 compared to revenue of $85,524 for fiscal 1997, due to higher sales volume. Fiscal 1998 represented our first full year of selling our E-Cruiter services. In fiscal 1997, our business was limited to recruitment advertising through our job board, CareerBridge.com, which became commercially available in February 1997. 28 Our cost of revenue in fiscal 1998 was $386,391 compared to $57,167 for fiscal 1997. This increase primarily relates to higher business volume and the associated costs of expanding network operations, customer support activities and, in the fourth quarter of fiscal 1998, the charges for posting to third-party job boards. In fiscal 1997, our cost of revenue consisted primarily of the salary of one employee. Total expense increased to $2,330,397 in fiscal 1998 from $885,602 in fiscal 1997. In order to effectively market our services, marketing expenditures increased by $559,035 from fiscal 1997 to fiscal 1998. In addition, we established a sales force during fiscal 1998. As a result, selling costs increased by $526,333. Research and development totalled $510,974 in fiscal 1998 as compared to $258,257 in fiscal 1997. The increase reflects the addition of software engineers who were hired to develop our E-Cruiter recruitment services software. Our net loss for fiscal 1998 was $1,846,785 compared to a net loss of $857,245 for fiscal 1997. Liquidity and Capital Resources Our capital requirements have exceeded our cash flow from operations as we have been building our business. As of May 31, 1999, we had a working capital deficit of $1,488,371. As a result, we have been substantially dependent upon sales of common shares and private placements of convertible promissory notes to finance our working capital requirements. Over the period of May 1996 to October 1999, we raised a total of approximately $7,773,540 as follows: Share and note issuances o In fiscal 1997, we raised $1,083,530 through the issuance of common shares. Of this total amount, we issued 325,398 common shares to Paul Champagne at a price of approximately $2.07 per share for proceeds of $675,000. o In fiscal 1998, we raised $1,500,010 through the issuance of common shares to Paul Champagne at a price of approximately $1.84 per share for proceeds of $1,500,010. o In fiscal 1999, we raised $1,000,000 from the issuance of common shares to Paul Champagne at a price of approximately $2.30 per share. As a result of this purchase, Mr. Champagne became our largest shareholder. o Over the period of January 22, 1999 to May 26, 1999, we issued 18 senior secured convertible promissory notes totalling $2,600,000. The cost to issue the 18 promissory notes totaled $407,079, of which $330,000 was accrued and unpaid as of May 31, 1999. The notes bear interest at 12% per year, are secured by substantially all of our assets and mature on January 22, 2000. The principal and accrued interest on the notes are convertible into common shares at the rate of 0.433863 shares for every Canadian dollar of principal and accrued interest on the date of conversion, the equivalent of $2.30 per share. Borrowings from a bank o On September 25, 1997, we entered into a small business loan agreement with a bank, under which we borrowed $100,000 to finance the purchase of computers and related equipment, computer software and a voicemail system. The loan is secured by the assets purchased, bears interest at the Canadian prime lending rate plus 3% per year, and is payable in equal monthly installments over the period of January 1998 to December 31, 2000. o In April 1999, we entered into a $190,000 loan agreement with the same bank on similar terms for the purchase of computers and related software. This additional loan is repayable over the two-year period ending July 31, 2001. We have pledged the assets purchased as security for the loan. Borrowings from a shareholder o In September 1999, Paul Champagne provided us with a $1,300,000 (US $882,852) loan which bears interest at the Canadian prime lending rate plus 3% per year. This loan is due on the earlier of March 2000 and the closing of this offering. 29 Our financing practice has been to finance most of our fixed assets through bank loans and capital leases with third-party financing companies. From May 24, 1996 to May 31, 1999, we entered into 11 separate leasing arrangements with annual interest rates that range from 12.3% to 27.0% and which mature over varying periods of time. We have pledged the assets purchased as security for the leases. In fiscal 1998, we entered into capital leases totalling $100,822 to finance the purchase of computers and related equipment. In fiscal 1999, we entered into capital leases totalling $63,149 to finance the purchase of computers and related equipment. Net cash used in operating activities was $1,970,187 in fiscal 1999, $1,558,718 in fiscal 1998 and $726,348 in fiscal 1997. Net cash used resulted from operating losses and changes in accounts receivable, prepaid expenses, investment tax credits, accounts payable and accrued liabilities and deferred revenue. Net cash used in investing activities was $105,588 in fiscal 1999, $97,413 in fiscal 1998 and $60,127 in fiscal 1997. Our investing activities during these periods consisted of purchasing computers, software, office equipment and furniture. The significant increase in accounts payable and accrued liabilities at May 31, 1999 as compared to May 31, 1998 reflects the purchase of computer equipment for new personnel and new equipment and software for our network operations financed with the small business loan described above. Gross proceeds from the issuance of promissory notes and common shares totalled $3,600,000 in fiscal 1999. As discussed above, we received $2,600,000 in proceeds from the issuance of 12% senior secured convertible promissory notes and $1,000,000 from the issuance of common shares. The cost to issue the promissory notes totalled $407,079, of which $330,000 was accrued and unpaid as of May 31, 1999. We used $105,603 to make repayments on our small business loan and our capital leases during the year. We also used $30,000 to repurchase 13,016 common shares from some of our shareholders at their original issuance price of approximately $2.30 per share. These shares were subsequently cancelled. These transactions provided us with $3,387,318 of cash from financing activities. Gross proceeds from the issuance of common shares and the small business bank loan discussed above totalled $1,600,010 in fiscal 1998. We used $34,195 to make repayments on our small business loan and our capital leases. We also used $12,500 to repurchase 5,423 common shares from some of our shareholders at their original issuance price of approximately $2.30 per share. These shares were subsequently cancelled. These transactions provided us with $1,553,315 of cash from financing activities. During fiscal 1997, we raised $1,083,530 through the issuance of common shares. As of May 31, 1999, we had cash and cash equivalents of $1,505,782. In September 1999, Paul Champagne provided us with a $1,300,000 (US $882,852) loan which bears interest at the Canadian prime lending rate plus 3% per year. This loan is due on the earlier of March 2000 and the closing of this offering. We used the proceeds of this loan for working capital and general corporate purposes. We need the proceeds of this offering to expand our operations and finance our future working capital requirements. Based on our current plans and assumptions relating to our business plan, we anticipate that the net proceeds of this offering will satisfy our capital requirements for at least 12 months following the closing of this offering. If our plans change or assumptions prove to be inaccurate, we may need to seek additional financing sooner than currently anticipated or curtail our operations. We cannot assure you that the proceeds of this offering will be sufficient to fund our proposed expansion or that additional financing will become available when needed. We will be materially adversely affected if we do not obtain financing when needed. We may seek additional debt or equity financing to fund the cost of continued operations. Net Operating Loss Carryforwards Our net operating loss carryforwards totalled approximately $4,531,000 (US $3,077,080) as of May 31, 1999. Under the Income Tax Act (Canada) utilization of prior non-capital losses may be limited after an acquisition of control. This limitation ensures that non-capital losses of prior years are applied only against income from the same or similar business that gave rise to the non-capital losses, provided that such business is carried on with a reasonable expectation of profit throughout the year. Further, any such acquisition of 30 control would create a deemed year-end for tax purposes, with the result that the required time frame for the utilization of non-capital losses is moved forward by up to one year. The issuance of additional equity securities, together with our recent financings and this offering, could result in an acquisition of control, and, thus could limit our use of prior non-capital losses. In the event we achieve profitable operations, any significant limitation on the utilization of our non-capital losses would have the effect of increasing our tax liability and reducing future net income and available cash reserves. We are unable to determine the availability of these non-capital losses since the availability is dependent upon future circumstances. We have incurred scientific research and experimental development expenditures of approximately $212,000 which remain unused at May 31, 1999 for tax purposes. These expenditures can be carried forward indefinitely and applied against operating income to reduce income taxes otherwise payable in future years. Year 2000 Issues We have devised a plan and have substantially completed our review and assessment of our hardware and software and believe that our hardware and software are substantially year 2000 compliant and will continue functioning and be able to process data on a date from and after January 1, 2000. The costs of our year 2000 compliance program have not been material, and we do not expect the additional costs of completing our year 2000 review and assessment to be material. We are highly dependent upon third-party job posting partners and job posting suppliers, Internet service suppliers, and telecommunications suppliers. As part of our year 2000 compliance program, we have sent letters to our critical vendors requesting assurances of their compliance. These vendors have advised us that their reviews indicate that their operating systems are year 2000 compliant or will be year 2000 compliant in a timely manner. However, we have not made any inquiries about the year 2000 compliance of our clients' systems. Due to the significant uncertainties that exist in the software industry concerning the potential effects associated with the failure of computer systems and software to be year 2000 compliant, we cannot be certain that our systems or the systems of our clients, job seekers and critical vendors will in fact be year 2000 compliant when January 1, 2000 arrives, nor can we be certain that we have identified in our assessment all of the potential risks to our business that could result from matters related to the year 2000. We have identified the following risks of which you should be aware: o The failure of our services to be fully year 2000 compliant could result in claims by or liability to our clients. o The purchasing patterns of our clients and potential clients may be materially adversely affected by year 2000 issues because they may be required to expend significant resources on year 2000 compliance matters, rather than investing in new online recruitment services such as those we offer. In addition, as the year 2000 approaches, employers may elect to spend a greater portion of their recruiting budgets on traditional recruitment methods rather than risk disruption in their job advertisements in the event of technical difficulties related to year 2000 problems. o The third-party job posting boards and other online employment sources with which we have relationships may face disruptions in their services to the extent they experience year 2000 problems which could prevent them from being available for our clients. o Disruptions caused by year 2000 problems could affect Internet usage generally, which could result in a decline in the use of our services. If any of these risks materialize, there could be a serious disruption of our operations, and our business, operating results and financial condition would be materially adversely affected. We are currently developing a contingency plan in the event that any third parties with which we do business have any material year 2000 compliance problems. Reconciliation of Canadian GAAP to U.S. GAAP Canadian GAAP differs from U.S. GAAP, as they affect our financial statements, in the following material respects: 31 Accounting for options. Under U.S. GAAP, the difference between the exercise price of options granted to purchase common shares and the fair value of the underlying shares, generally assumed to be the estimated public offering price of US $6.00 per share, is accounted for as compensation expense and is charged against earnings over the vesting period of the options with a corresponding and equal amount recorded as paid-in-capital. Accounting for the promissory notes. Under U.S. GAAP, the proceeds from convertible debt instruments that have non-detachable conversion features where the fair value of the underlying common shares exceeds the conversion price of the debt instrument, known as beneficial conversion features, are allocated between the debt and the equity components of the instruments. The value ascribed to the beneficial conversion feature is the excess of the fair value of the underlying shares over the conversion price up to, but not exceeding, the net proceeds received by the issuer upon issuance of the convertible debt instruments. The value ascribed to the beneficial conversion feature is recorded as paid-in-capital. The discount resulting from the allocation of the proceeds is recognized as interest expense over the minimum period from the date of issuance to the date at which the debt holder can realize that return. We have allocated all of the proceeds of the convertible promissory notes to paid-in-capital. The discount resulting from the allocation was expensed upon issuance of the convertible promissory notes because the notes are immediately convertible at the note holders' option. Quantitative and Qualitative Disclosure About Market Risk Market risk is the potential risk of loss in fair values, cash flows or earnings that results from holding financial instrument positions. Our market risk as of May 31, 1999 consisted only of interest rate exposure with respect to cash equivalent investments and on our small business loans. This risk was not significant on the investments because they were highly liquid with terms to maturity of three months or less. Also, the risk was not significant on the small business loans due to the small dollar amount and their short term to maturity. We do not maintain a trading portfolio and our current trade receivables and trade payables are denominated in Canadian dollars. We do not utilize derivative financial instruments. The proceeds of this offering will be received in US dollars and may be invested in United States government securities. Also, as we expand our business into the United States these revenues will be billed in US dollars while we expect our costs to continue to be predominantly in Canadian dollars. The exchange rate between Canadian dollars and US dollars has fluctuated significantly over the last several years. Any strengthening in the value of the Canadian dollar against the US dollar could result in lower recorded sales and/or foreign currency translation losses charged against other income for the period incurred. New Accounting Pronouncements During the year ended May 31, 1999, we adopted Statement of Position 97-2 "Software Revenue Recognition", or SOP 97-2, and SOP 98-4 "Deferral of the Effective Date of a Provision of SOP 97-2" which provide guidance in recognizing revenue from software transactions. SOP 97-2 conforms with Canadian GAAP, and the adoption of it did not have a material impact on our results for the year ended May 31, 1999. In December 1998, SOP 98-9 "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions" was released. We will adopt SOP 98-9 for our fiscal year ending May 31, 2000 and do not expect it to have a material impact on our recognition of revenue. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use", or SOP 98-1, which provides guidance for determining whether computer software is internal-use software and on accounting for the proceeds of computer software generally developed or obtained for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. We will adopt SOP 98-1 for our fiscal year ending May 31, 2000 and do not expect it to have a material impact on our financial statements. 32 BUSINESS We provide Internet-based recruiting services to companies of all sizes. Through use of our E-Cruiter Express software, our corporate clients are able to write one job advertisement that is reformatted by the software and posted in multiple job sites, thereby eliminating the need to reformat job postings for each site. For clients that require more comprehensive recruiting management services, we provide our E-Cruiter Enterprise service, which includes the powerful posting features of E-Cruiter Express, as well as the following features: o resume processing tools which enable clients to screen, search, organize and manage resumes submitted by job seekers; o applicant communication tools, including our proprietary e-mail system which automatically keeps records of the electronic communication associated with each job opening and generates automatic messages to job seekers; o our corporate career site manager tool which enables clients to quickly set up and maintain a job site on their corporate web site that is linked with our services; and o a powerful suite of multi-user workflow features which allows for collaborative hiring between human resources personnel and hiring managers within the same organization. We believe our services enable companies of every size to take optimal advantage of the power of the Internet for recruiting, communicating with job seekers and managing the recruiting process in a cost effective manner. We believe that, by using our services, companies: o reduce their time to hire; o reduce their costs to hire; and o improve their quality of hire. Our business is a web-outsourced application service. The cost benefit to organizations of web-outsourcing is that all software and hardware infrastructure is physically located at the service provider location, with clients only requiring standard web browsers on their employees' workstations. Therefore, because our clients are not required to make a significant initial investment, we believe this makes our services easy to buy and implement. We believe that web application outsourcing has advantages over traditional client-server computing, including: o reduced total cost of ownership for technology; o greater flexibility for accommodating future business needs while maintaining state of the art technology deployment; and o significantly quicker service deployment, reducing the time-to-benefit cycle and the cost of adoption. We believe our key competitive advantage is our human resource background. We understand the human resource problems arising from ineffective traditional recruiting strategies. We have matched this knowledge with a web server technology to deliver web-based services. In 1998, the Society for Canadian Office Automation Professionals granted to us an Award of Excellence at Comtech, a technology conference and exhibition for corporate professionals in Canada. The award was for best implementation or innovative use of information technology. The Society for Canadian Office Automation Professionals is a non-profit organization which provides assessments of the management, use and impact of information technology. Industry Overview Our market includes any organization needing to hire employees, especially those seeking information technology skills and expertise. A 1998 study by the Information Technology Association of America and Virginia Polytechnic found that information technology worker shortages are large and growing. The study showed the number of unfilled information technology positions in the United States at the time of the study was 346,000. 33 In a survey conducted in early 1999 by CorpTech of over 4,000 United States technology companies with fewer than 1,000 employees, over 46% of the companies surveyed indicated that they planned to expand their workforce by more than 17% over the next year, and over 16% of the companies surveyed predicted growth of over 25% in the upcoming year. We believe that this survey of the United States high technology sector demonstrates significant potential for web-based recruiting services. We believe it will be difficult for companies to fill these demands cost effectively and efficiently by applying traditional recruiting practices. Responding to critical manpower requirements is now a major operations function for many organizations. This burden is resulting in a significant shift in the perceived role of corporate human resources. A recent survey by Recruiter's Network.com of 1,000 companies indicated that 34% of companies with more than 10,000 employees had at least one human resources employee dedicated to Internet advertising. The report also indicated that 10% of the companies allocated 50% of their budget to recruiting on the Internet. The Gartner Group, a technology-based industry analyst, has assessed that by 2002, human resources practices and supporting systems, will be acknowledged as distinguishing factors of highly successful organizations. According to the Gartner Group, organizations are increasing their information technology investment in supporting human resources activities and business processes. The Gartner Group estimates that 95% of skill-based enterprises will adopt Internet-based recruiting practices by 2001. We believe that many organizations are beginning to completely overhaul their human resources information systems to take advantage of both new technologies and new recruiting concepts. Forrester Research estimates the market for online jobs will reach $1.7 billion and account for one fifth of classified advertising employment budgets by 2003. In concert with this shift from print to Internet media, there will be a considerable growth in the demand for software tools, such as online screening and text searching, to take advantage of online recruiting. We anticipate that recruitment spending will shift away from the client-server human resources services to web-based media hiring processes because of their lower cost and ease of implementation. We believe that E-Cruiter Enterprise directly addresses the major challenges facing employers, namely, time to hire and the cost of hire. The July 1999 Internet Recruiting Intelligence Report, Lessons from Global 500, found that on average, online recruiting reduced the recruiting cycle by 20 days. Furthermore, the report notes that the cost associated with Internet recruiting is well below that of all other recruiting channels. Strategy Our goal is to become a leading provider of web-based recruiting services in North America. Key elements of our strategy for business development are as follows: o Provide a comprehensive recruitment service to our clients and distribution partners. Our clients range from organizations seeking a single recruitment advertisement to organizations requiring comprehensive recruitment management services. We believe that our web-enabled component-based architecture, scheduled to be released in early 2000 and discussed in the "Technology Development" section below, will position us to better serve large and small organizations by providing faster access, easy customization and other capabilities. It will also position us to enter into distribution arrangements where we operate multiple versions of our software simultaneously, scaled to distribution channel requirements. o Expand our E-Cruiter Enterprise sales capability into new Canadian and key U.S. markets. We have marketed our services in the Ottawa market since 1996. We believe that we are currently well-positioned in the Ontario market, including Ottawa and Toronto, and anticipate expanding into additional key Canadian markets, including Quebec and British Columbia, in late 1999. By early 2000, we plan to enter into our first U.S. market. Although we have not finalized plans for entering markets in the United States, we are considering entering Washington, D.C., New York City, Chicago, Boston and selected cities in California. o Capitalize on our reputation and success achieved in Canadian markets to develop strong relationships with key strategic partners. We believe that organizations are interested in entering into strategic relationships with us because we have three years experience in operating an Internet recruiting service. We believe that this interest will increase further upon our introduction of the flexible, component-based architecture of an enhanced version of E-Cruiter Enterprise which we currently 34 expect to release in early 2000, as it will provide capabilities and flexibility for original equipment manufacturer relationships and value-added resellers. In October 1999, we entered into a sales and marketing agreement with WorkLife Solutions, Inc. to jointly develop web-based recruiting services to be offered through Internet portal web sites. Under this agreement, we are the exclusive provider of Internet recruiting services to WorkLife. WorkLife specializes in the design, development and installation of Internet services for career management and manages the Career Channel for AltaVista.com. We are currently developing a web-based service which we plan to introduce on AltaVista.com in December 1999. We anticipate that strategic partners will help us develop other sources of leads to clients. For example, we anticipate that partnerships with print media, Internet companies and other media partners will provide us with discounted advertising in the media and increase our sales. We also expect that strategic relationships will help us develop direct and indirect sales channels. We anticipate that some of our strategic partners will sell our services directly to their clients and will indirectly sell our services as a component of their products or services. o Maintain technological leadership by developing and acquiring complementary technologies. One of our key objectives is to remain at the forefront of web-based service provision, with a proprietary database, independent platform which offers multi-user performance, scalability to handle thousands of client accounts, and the flexibility to transfer portions of our technology into partner networks. Another key objective is to establish clear leadership in component-based workflow architecture, enabling additional customization of our services by our clients and by our distribution partners. We will also seek to license or acquire market-leading selection technologies, such as competency tests and extraction engines, to build advanced recruitment processes into our component workflow framework. o Continue to provide high-quality and attentive client support. Internet recruiting is an emerging market where the effectiveness and the value of Internet recruiting has yet to be firmly established. In our view, our ability to continue to provide high-quality and attentive services to our clients will continue to differentiate us from other service providers and foster client loyalty. We believe that this is a key ingredient for success in our market where the cost of switching to alternative services is low. We are now deploying interactive online consultation technologies for the delivery of training and consulting services to our clients. o Establish and maintain industry-wide standards for best practices methodologies. We believe that it is important for our industry to set and maintain standards. We intend to seek to develop standards and obtain industry-recognized certification for a number of best practices methodologies to differentiate our services. E-Cruiter Services We designed our services to take advantage of the Internet and offer our clients a comprehensive recruitment management service. By linking organizations' recruiting efforts with electronic sources of applicants from the Internet and allowing them to also download resumes from paper-based sources into their applicant database, we believe that our services allow organizations of every size to significantly improve their recruiting practices. Our services can be accessed with any standard web browser and require no additional software or hardware deployment by clients. In our view, organizations purchase our services because they dramatically reduce time to hire, provide streamlined access to qualified candidates, and result in significant cost savings. Based on our knowledge of the industry, we believe that hiring cycles of large organizations employing traditional recruiting methods can extend beyond 50 days. However, the best information technology candidates are often hired within five to ten business days. Therefore, we believe that organizations which do not employ Internet-based recruiting processes will be unable to compete effectively for good information technology candidates. E-Cruiter Enterprise E-Cruiter Enterprise is a job posting and full workflow service that is sold with one or more concurrent user licenses. Each concurrent license enables another user within the organization to access the service simultaneously. One concurrent license is sufficient for small organizations that have only a few individuals actively recruiting. One or more concurrent licenses provide for additional simultaneous users and permits clients to take full advantage of multi-user functionality. 35 E-Cruiter Enterprise allows organizations to post jobs to multiple Internet sites through a posting manager function. Clients write a job requisition only once, and the job requisition is ready to be advertised on numerous Internet job boards, newsgroups and the client's own corporate web site. We intend to continue to add new job boards to our service so that clients can post job requisitions to additional locations. Our write-once-post-to-many capability saves time in re-writing job requisitions and in making arrangements with numerous job boards. Through PositionWatch Ltd., our job posting partner, we currently post job requisitions to the following job boards: PositionWatch, CAREERSpan, CareerMosaic, Internet Job Locator, JobSAT, Netjobs, GlobeCareers, HeadHunter.net and CareerMagazine. E-Cruiter Enterprise's career site manager capability allows clients to quickly set up and maintain a job site on their corporate web site posting so that job seekers can apply to open positions. Our clients' job sites link to our service to receive the benefit of E-Cruiter Enterprise workflow management features when job seekers apply. We believe that the career site manager has other features that help our clients maximize the value of their job site as a recruiting asset, including a job seeker agent that notifies registered candidates of employment opportunities and provides statistics on the volume and source of job seeker traffic to clients. E-Cruiter Enterprise provides for enhanced communication among candidates, hiring managers and human resources personnel. Clients can use a set of generic corporate messages to automatically respond to resumes or other communications using our auto acknowledge function. For example, an e-mail acknowledging receipt of resumes can be automatically sent to all candidates. This feature saves administrative costs to our clients. Our proprietary e-mail system also maintains records of all electronic communication associated with each job opening, including online interviews. We believe our E-Cruiter Enterprise's automatic screening function also improves our clients' recruiting efforts. Clients screen candidates who apply online by establishing screening criteria. When resumes are received, they are automatically compared to the screening criteria. Those job seekers who do not meet the screening criteria are placed in a rejected folder, while those job seekers who do meet the screening criteria are flagged for review by employers. Through the applicant workflow function, clients can manage their recruiting process using familiar folder hierarchies. Job folders are logically organized by job opening and can be tailored to the clients' recruiting process. For example, clients typically set up the following job folders when using E-Cruiter Enterprise: new applicant, active, rejected, set up interview, interview schedule and hired. As applications are received, employers move the applications through the folders as part of managing the recruiting process. This provides ready access to recruiting status and allows our software to generate standard reports measuring such things as time taken to hire and recruiter productivity. Our software also generates standard reports on advertising effectiveness. The E-Cruiter Enterprise applicant workflow capability allows human resources personnel and hiring managers within the same organization to share, circulate and electronically comment on resumes that have been received. In addition to permitting various levels of access among hiring managers and employers, our software allows users to optionally protect their own individual assessments of candidates. The following is a list of features that we offer with E-Cruiter Enterprise: o Create and manage job requisitions. This feature allows clients to quickly create job requisitions using a standard template that is compatible with job boards. Clients can either use the template or use job requisitions from the posting archive. o E-Cruiter posting manager. This feature allows clients to quickly post or unpost job requisitions to multiple Internet sites. Jobs are posted to regional or national job boards, newsgroups or the client's corporate job site. o Create and manage job sites. This feature allows clients to quickly set up and maintain their own job site on a corporate web site. o Applicant communication. This feature allows clients to automatically acknowledge receipt of applications, to conduct online interviews and to decline applicants both in single or multiple applicant mode. 36 o Applicant searching. This feature allows clients to search their data for resumes using powerful search criteria as defined by users. o Applicant review. This feature allows clients to review, rate and comment on applications received. Clients can move applications through job folders to reflect their status. o Applicant management. This feature allows clients to share applications among human resources personnel and hiring managers within the same organization, to e-mail resumes to remote users or to reject applicants. Applicants can be deleted in single and multi-mode. o Resume data loading. This feature allows clients to load resumes from traditional paper based sources into their applicant database to integrate their traditional recruiting activities with their Internet recruiting and more effectively manage their overall recruitment activities. o Administration -- account management. This feature allows clients to set up individual users, assign posting or hiring privileges, assign default screen layouts and modify passwords. o Generate reports. This feature allows clients to generate standard reports on advertising effectiveness, time to hire, and recruiter productivity. Our E-Cruiter Enterprise subscription contracts are generally for one year with automatic renewals, one or more simultaneous user licenses, user training and set up and a menu of Internet posting services. Clients are charged a monthly subscription fee for concurrent user access licenses, career site management, product upgrades and customer support. We charge one-time fees for initial set up and training and provide professional consultation services on a time and materials basis. Clients who use third parties' resume scanning services contract directly with them for the services. We charge a small per resume fee to input data into our clients' databases. Internet posting services are provided on a pay-per-job posting basis. We believe that our E-Cruiter Enterprise's pricing formula provides clients with a low-risk avenue to access the benefits of online recruiting at a reasonable cost compared to client-server technology. Furthermore, since the required technology infrastructure investments are nominal by comparison, clients experience lower initial costs for full access to the comprehensive service that E-Cruiter Enterprise provides. We believe that the subscription formula provides us with the opportunity to earn annuity-based returns as subscriptions are renewed. This pricing practice is consistent with similarly offered web-based services. E-Cruiter Express E-Cruiter Express is our job posting software for clients who want to use the Internet only to advertise their open positions. E-Cruiter Express is a quick, easy and affordable way for clients to post jobs to multiple Internet sites. Clients only have to write a job description once, and it is ready to be advertised on numerous Internet job boards and news groups at the same time. For example, at the click of a mouse, an advertisement could be placed on one or more of the following job boards: PositionWatch, CAREERSpan, CareerMosaic, Internet Job Locator, JobSat, Netjobs, Careershop, GlobeCareers and CareerMagazine. We intend to continue to add job boards to our service so that clients can post job requisitions to additional locations. Our write-once-post-to-many capability saves time in re-writing job requisitions and saves administrative time in making arrangements with numerous job boards. E-Cruiter Express clients can review their job seeker applications online and delete unwanted applications. Clients can also electronically communicate with job seekers using our proprietary e-mail system. E-Cruiter Express is priced on a per job posting basis and can be paid for by credit card by clients using our electronic commerce capabilities. Client Services Our client services department was formed in May 1998 in response to our recognition that building post-sales client satisfaction with and loyalty to our services is instrumental to obtain a high renewal rate for current clients, generate additional revenue from new clients and sell additional services to the same client. 37 Our client services department interacts directly with our clients and prospects. Its mission is to guarantee a maximum level of client service and responsiveness. Client services representatives foster long-term relationships with end users, their management and technical support personnel, yielding customer loyalty and valuable product feedback. Potential new value-added services to enhance our product experience are also identified through direct client feedback. The support and professional services provided by our client services team include delivering implementation planning and consulting, training, corporate career web site implementation, and general support to end users. The department undertakes routine formal client evaluations of the services to ensure a high level of client satisfaction. In response to general industry service trends and web-based service delivery trends, we anticipate that our client services department will continue to build programs using innovative technology services to provide education, demonstrations, and support to clients. We are currently using web-based online conferencing to deliver to the clients' desktop, at their convenience, online seminars, feature updates, and proactive support. This service also provides remote, interactive collaboration between clients and the professional service staff, enabling clients to deploy our services more quickly throughout their organization. Marketing and Advertising Our marketing goal is to increase the exposure and recognition of our name and to build a reputation for delivering top-quality E-Cruiter Enterprise and E-Cruiter Express services. Consistent with the deployment of sales resources, our marketing team plans to focus its efforts and lead generation activities in targeted geographic regions. We intend to strategically focus our marketing efforts in order to gain maximum benefit and the most leverage and exposure from our spending. We anticipate that our marketing efforts will consist of the following: o Advertising our brand in key industry print magazines, on radio in our target markets and in other media; o Advertising our brand and services through joint venture media partners; o Implementing a public and media relations campaign to secure positive articles on our industry, our services and our performance within it; o Forming relationships with industry analysts and human resources professional associations so they understand our services and their capabilities; o Developing partnership agreements that will facilitate delivery of our services and increase our brand awareness; o Attending key North American trade shows to build brand awareness and generate leads; o Using our client base as a strategic asset, continuing to secure top-name clients and references within the target market to continue to build our service capability; o Developing our web site as a place to obtain information on all our services and as a full service electronic commerce capability which clients access for general information and where prospective clients and potential clients obtain information and purchase our services; o Using E-Cruiter seminars and client user groups to generate sales leads; o Direct mailing of information on our services to our targeted client groups to generate sales leads; and o Developing brochures and other information for our sales representatives to leave with potential clients after sales calls. We intend to use our web site to provide potential clients information about E-Cruiter and our services. In our advertising and media references, we will direct our audiences to our web site to maximize communication from this single source. 38 Our initial marketing efforts will be concentrated in Canada. Once we have built a strong brand awareness and reputation for quality in additional key Canadian markets, we intend to launch marketing programs in key geographic regions in the United States. We will design our programs to be generic in nature so that our services benefit from market exposure at the same time we build brand awareness. We intend to begin marketing efforts in new markets before establishing a sales presence in the market to create brand recognition and visibility for our services. Sales We sell our services through the Internet, a direct sales force and telemarketers. We intend to sell our services through third-party distribution channels, including value-added sales partners and original equipment manufacturers and other strategic alliances. We also intend to devote significant resources to marketing and business development activities to expand our business to additional distribution channels. Direct sales We plan to continue to use a direct sales force to drive sales of enterprise-wide deployments of our services in organizations with 500 employees and greater. Initially, we anticipate that our direct sales will focus on the Canadian markets, which include Ontario, Quebec and British Columbia. Currently, one sales representative is located in the Ottawa market, one is in the Vancouver market and six are in the Toronto market. In early 2000, we plan to expand significantly our direct sales effort into selected United States geographic regions. We intend to hire approximately 20 additional sales representatives for the United States and Canadian markets over the 12 months after this offering. Our telemarketing team's responsibilities are to obtain sales with E-Cruiter Express prospects generated by our Internet marketing efforts, participate in telephone selling, assist the direct sales force by assessing E-Cruiter Enterprise leads and support indirect sales partners. Our goal is to have our telemarketing team turn over qualified leads to a direct sales representative or to the appropriate partner. Indirect sales One aspect of our strategy to expand our sales contemplates entering into agreements with value-added sales partners in early 2000. Because our services are outsourced web-based applications, our sales partners will not be required to carry product inventory nor incur product development and infrastructure investments. We intend that the ongoing responsibility for support and delivery of our service and infrastructure and technology investment will remain with us. As a result, our partners will not have to provide support to clients or carry product inventory as part of the on-going service to clients, as with traditional distribution models. We anticipate that end users will enter into a contract with us for our service, while our partners will provide local value-added services for training, configuration and set up and consultation, in addition to their own complementary products and services. We plan to select our value-added sales partners on the basis that they can: o extend the distribution of our services into geographical regions that we cannot economically address directly or choose not to address directly; o provide ancillary products and/or services that are complementary to our services; o provide access to important clients and/or market areas that we could not reach without their help; and/or o offer industry, human resources or technology expertise and experience that add overall value to our clients' experience using our services. 39 Clients Our clients represent a wide range of commercial enterprises, including financial, telecommunications and high technology and other industries. Our services are structured and priced to appeal to clients ranging from single users seeking recruitment advertising to organizations requiring total recruitment management. Until recently, we have marketed our services primarily in the Ontario market, including Ottawa and Toronto. Consequently, a large number of our current clients are enterprises that are based in Ontario or that seek to fill job openings in Ontario. The following is a list of our ten largest revenue-generating clients for our fiscal year ended May 31, 1999: o Bell Canada Enterprises Inc. o Dell Computer Corporation o Canadian Imperial Bank of Commerce, o Entrust Technologies Inc. known as CIBC o Loblaws Supermarkets Limited o Clearnet Communications Inc. o Performance Systematix Inc. o Compugen Systems Ltd. o Siemens Information and o Corel Corporation Communications Networks, Inc. These clients' business represented approximately 35% of our revenue. We have recently signed contracts for our E-Cruiter Enterprise service with MacKenzie Financial Corporation, a large publicly-owned Canadian company, and Fidelity Investments Canada Ltd. Technology Network infrastructure Our network consists of a series of servers, routing and Internet-networking equipment, workstations and management systems relating to hardware and software which isolates our local network from external networks, known as a firewall. We use industry standard secure socket layer encryption combined with a challenge/response authentication system to ensure data security. We also use adjustable time-out and forced-expire mechanisms to provide additional controls. We believe our network architecture provides adequate security. We believe that the network and security architectures, hardware and software tools we implement for security are very effective because they are proactively monitored and managed by experienced personnel. To ensure total network security, we have in place: o continuous monitoring by experienced security personnel and Internet engineers, 24 hours a day, seven days a week, 365 days of the year; o real-time usage and audit reporting; o maintenance and testing of software, hardware, and security modifications in a test environment before installing the software onto our network servers for use by our clients; and o use of proven, policy-based procedures along with the latest technologies to accurately track incidents, identify potential security breaches and provide rapid, appropriate response. Despite being relatively new as a service, we believe that we have a solid track record for service availability. Unplanned outages have been minor and few in number. In fiscal 1999, it became obvious to us that our services must be available 24 hours per day, 7 days per week, or a 24 x 7 basis, to attract and retain a core group of medium to large customers. We created an operations department to address this priority. Our operations department is committed to reviewing our technology infrastructure to ensure that we are using top-of-the-line technology and practices and that we are implementing a secure, fault-tolerant network infrastructure that delivers reliable 24 x 7 service to our clients. Our operations department is also committed to ensuring that backup, recovery and redundant processing capabilities are consistent with clients' expectations for outsourced services. 40 Data Handling and Disaster Recovery Procedures We provide secure electronic data handling for all our clients and have disaster recovery procedures in place in the event of a software and/or hardware failure or other unforeseen event. Our principal efforts include: o keeping all electronic versions of client data logically apart from the data of any of our other clients; o strictly limiting access to all client data to authorized users only; o storing all client data generated by the software in a single location of service operation; o implementing a full tape backup process, beginning at midnight of each day, of all client data; o shipping a tape copy of all client data offsite on a next business day basis to a dedicated media storage facility; o through use of a commercial archival and storage service, providing a dedicated media storage facility, tape backup collection, storage and delivery services; and o regularly testing our disaster recovery procedures to ensure that all client data is available in the event of a disaster. Application Technology The customer interface, or client as it is commonly called, is a standard web browser, for example, Microsoft Internet Explorer or Netscape Navigator, running on any desktop computer, for example, personal computers, MacIntosh computers, or UNIX workstations. Users can conduct all their business, from retrieving resumes to creating postings, from within this familiar browser interface by logging on to our web site. Our service was designed with a unique web application architecture to deliver significant advantages in performance, reliability, security, and enterprise scalability. E-Cruiter Enterprise was built with scalability as a prime function. We have employed various technologies that support the building of scalable applications that integrate browser, server and database technologies. Our technology is supported by an internal staff of developers and operations support specialists, 24 hours a day, seven days a week. We supplement our programming staff by a team of quality control analysts and product managers who ensure that the final service is user-friendly and dependable. In addition to supporting our web-based services, our staff continually researches new technologies, enhances the software and hardware infrastructure and develops new services. Our software is designed to be easily adaptable to new technologies and new features. Technology Development We have made a substantial investment in research and development since our inception. We are jointly developing, with WorkLife Solutions, Inc., a web-based recruiting service that can be offered through Internet portal web sites. We plan to introduce this service on AltaVista.com in December 1999. This service will allow enterprises of any size to easily purchase services with automated account set-up and credit card clearance online. In our fiscal year ended May 31, 1999, we spent 51% of our revenue on research and development before accounting for research and development tax credits provided by the Canadian federal and provincial governments. In our fiscal year ended May 31, 1998, we spent 59% of our revenue on research and development. As revenue grows, we intend to commit a significant portion of our revenue to research and development. In early 2000, we plan to launch a new component-based architecture for our E-Cruiter Enterprise service. This new architecture represents an enhancement of the E-Cruiter Enterprise service because it will allow easier scalability, higher volume in terms of concurrent users and rapid customization by our clients. We plan to continue to invest in technology development that we anticipate will lead the marketplace in terms of: 41 o application service provider architecture and reliability; o service flexibility and customization; o client services efficacy and value; and o applicant screening and selection features. Competition The market for web-based recruiting services on the Internet is highly fragmented and intensely competitive. In our view, we compete on the Internet nationally and internationally with web-based recruitment services companies, client-server resume management companies and Internet job posting companies. We believe that the principal competitive factors in our market are: o quality; o performance; o price; o timeliness; o customer support; o reputation; and o product features, such as compatibility and functionality. In our view, some of our main competitors, such as Hire Systems, WebHire and Hire.com, have introduced or are introducing services which are intended to be complete recruitment management services. We also believe that established vendors of client-server resume management systems, such as Resumix, and recruiting systems, such as Personic and SkillSet, are moving to establish web-based versions of their client-server offerings and may become serious competitors in our market. As we expand internationally, we expect that additional competitors will include job boards and posting network companies as they offer additional services to their present client base. Some of these existing and potential competitors have a stronger position in national markets, including the United States, greater name recognition, and significantly greater financial, technical and marketing resources than we do. We also indirectly compete with traditional advertising media, such as print, and traditional recruiting firms, for a share of employers' total recruitment budgets. We believe, however, that our services can be used to optimize the effectiveness of all elements of the recruiting supply chain, making an existing budget result in faster hires of a higher quality, with greater productivity of human resources and line management resources working with their suppliers. We believe that our services complement traditional methods rather than replace them. It is our belief that we do not compete directly with job posting services such as Monster, CareerMosaic, JobOptions, CareerBuilder or HotJobs; rather, our services are designed to allow companies to more efficiently access the job posting services. Our strategy is to allow our clients to use our software to post jobs on multiple job posting boards simultaneously. We anticipate that many of these job posting services will offer services for applicant management that could compete with elements of our services. We believe that our services will provide a more comprehensive service for recruitment management because we expect to continue to develop relationships with multiple job posting services to enable our clients to post to additional posting services. We believe that the barriers to entry by competitors presently in the market for Internet-based recruitment services are few. Current and new competitors can launch similar services in our markets at a relatively low-cost within a relatively short-time period. Therefore, we expect competition to persist and intensify, and the number of competitors could increase significantly in the future. 42 Intellectual Property Rights We rely on a combination of copyright, trademark and trade secrets laws and non-disclosure agreements to protect our proprietary technologies, ideas, know-how and other proprietary information. We have registered the trademark E-Cruiter in Canada and an application is pending in the United States for this trademark. We have made applications to register the trademarks, E-Cruiter Express and E-Cruiter Enterprise, in Canada and the United States. We have no patents or registered copyrights. Notwithstanding the precautions we take, third parties may copy or otherwise obtain and use our proprietary technologies, ideas, know-how and other proprietary information without authorization or independently develop technologies similar or superior to our technologies. In addition, the non-disclosure and non-competition agreements between us and some of our employees, distributors and clients may not provide meaningful protection of our proprietary technologies or other intellectual property in the event of unauthorized use or disclosure. Policing unauthorized use of our technologies and other intellectual property is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. There has been substantial litigation in the software industry involving intellectual property rights. We believe that our technologies and trading systems have been developed independent of others. Third parties may however assert infringement claims against us and our technologies and services may be determined to infringe on the intellectual property rights of others. Personnel As of October 31, 1999, we employed on a full-time basis a total of 49 persons, of whom 5 are engaged in executive management, 16 in selling and marketing activities, 7 in customer support, 17 in research and development and network operations and 4 in other functions. In addition, we retain software development services from one individual and a consulting firm. We believe our relations with our employees and consultants are generally good, and we have no collective bargaining agreements with any labor unions. Our success will depend on our ability to hire and retain additional qualified marketing, sales, technical and financial personnel. Qualified personnel are in high demand. We face considerable competition from other web-based recruitment companies, Internet job posting services and client-server recruitment companies, many of which have significantly greater resources than we have. Properties Our principal offices are located at 1510 - 360 Albert Street, Ottawa, Ontario, Canada where we occupy approximately 7,700 square feet at an annual rent cost of approximately $253,000 per year or approximately $21,070 per month. We are obligated to pay rent for these premises until December 31, 2001. By April 2000, we intend to sublet the premises we currently occupy and relocate our principal offices to larger facilities in Ottawa to accommodate a planned increase in our number of personnel. We have not yet finalized arrangements for new facilities, but believe that there is suitable office space available. Legal Proceedings We are not involved in any legal proceedings and we are not aware of any such proceedings being threatened or contemplated. 43 MANAGEMENT Executive Officers and Directors Our executive officers and directors are as follows:
Name Age Positions - ---- ----- -------- John Gerard Stanton .......... 51 President, Chief Executive Officer and Chairman of the Board Evelyn R. Ledsham ............ 43 Vice President of Sales Rajesh D. Rao ................ 31 Vice President of Research and Development Jeffery E. Potts ............. 38 Chief Financial Officer Kimberly A. Layne ............ 36 Director of Marketing and Communications Roderick M. Bryden ........... 58 Director Matthew J. Ebbs .............. 34 Director John T. McLennan ............. 53 Director
John Gerard Stanton co-founded E-Cruiter in May 1996, and he has been our President, Chairman of the Board and Chief Executive Officer since our inception. In 1986, Mr. Stanton founded an out-placement services business, Drake Beam Morin (Ottawa) Inc., which he operated until March 1998. From 1985 to 1989, he operated Stanton and Associates, a regional executive search firm that specialized in high technology searches. From 1978 to 1984, Mr. Stanton was Vice President of Human Resources for Mitel Corporation, a company that designs and sells telecommunications equipment and semiconductor devices. Mr. Stanton received his Bachelor of Arts from Carleton University in 1972. Evelyn Ledsham has been our Vice President of Sales since March 1999. From July 1996 to March 1999, Ms. Ledsham owned and operated ERL & Associates, a consulting company. From 1990 to June 1996, she was a regional manager for Kelly Services (Canada) Ltd., a recruitment company. From 1992 to June 1996, she was also a member of the Kelly Manager Committee of Canada. Ms. Ledsham was employed at Drake International from 1984 to 1990. Rajesh Rao has been our Vice President of Research and Development since January 1999. He joined us in June 1998 and has been responsible for building our research and development infrastructure, as well as streamlining our product development process. From March 1995 to June 1998, Mr. Rao was employed by Corel Corporation, a software company, where he was most recently in charge of the Paradox Group. From May 1993 to March 1995, he developed software for Boshu Technics Corporation, and from June 1992 to March 1993, he developed software for Mahindra Ugine Steel. Mr. Rao received a Masters in Computer Science from the University of Bombay, India. Jeffery Potts has been our Chief Financial Officer since November 1997. Mr. Potts joined us in August 1997 and is in charge of our financial and administrative affairs. From 1989 to August of 1997, Mr. Potts was employed by Atomic Energy of Canada Limited, a global company that designs, sells and installs nuclear power systems and research reactors, most recently as its Director of Internal Audit. He received his Bachelor of Commerce with high honors from Carleton University in 1985. Mr. Potts articled with Arthur Andersen and Company and earned his Chartered Accountant designation in 1988. Kimberly Layne has been our Director of Marketing and Communications since May 1999. From January 1994 to May 1999, Ms. Layne was employed by Necho Systems Corp, a web-based software company, where she assisted in the development and delivery of enterprise software application to the Canadian and U.S. marketplace. From October 1992 to January 1994, Ms. Layne was employed by Rider BTI, where she was a member of a small strategic team that developed automated expense report processing services. Roderick Bryden has been a member of our board since November 1997. In April 1996, Mr. Bryden co-founded World Heart Corporation and currently serves as its Chairman and Chief Executive Officer. Mr. Bryden is also the majority owner, Chairman of the Board and Governor of the Ottawa Senators hockey club, a member of the National Hockey League. In 1974, Mr. Bryden founded SHL Systemhouse, Inc., with seven senior information systems professionals. SHL Systemhouse, Inc. became a leading computer integration 44 company with over 3,000 employees and Mr. Bryden was President and Chairman of SHL Systemhouse Inc. until June of 1991. Mr. Bryden received his Bachelor of Arts from Mount Allison University in 1962, his Bachelor of Laws from the University of New Brunswick in 1965 and his Master of Laws from the University of Michigan in 1966. Matthew Ebbs has been a member of our board since October 1999. Presently, Mr. Ebbs is the Chairman, Chief Executive Officer and a director of Canshop.com Corporation, an electronic business and online catalogue company. Since January 1998, Mr. Ebbs has been a member of Perley-Robertson, Hill & McDougall, our Canadian legal counsel. From February 1993 to December 1997, Mr. Ebbs was a lawyer at the firm of Ebbs and Ebbs. Mr. Ebbs received a Bachelor of Arts from Carleton University in 1987 and his Bachelor of Laws from the University of Ottawa in 1990. John McLennan has been a member of our board since November 1997. Presently, Mr. McLennan is director of the following public companies: Hummingbird Communications Ltd., Leitch Tech Corp., MDSI Mobile Data Solutions Inc. and Teletech Holdings Inc. He is also presently a director of Architel Systems Corporation, a private company and President of Jenmark Consulting Inc. From 1993 to October 1997, Mr. McLennan was President of Bell Canada. In 1994, Mr. McLennan became Bell Canada's Chief Executive Officer. From 1983 to 1993, Mr. McLennan held a number of principal positions for other telecommunications companies. Mr. McLennan received his Bachelor of Science from Clarkson University in 1968 and his Master of Sciences from Clarkson University in 1969. Our articles of incorporation provide for a range of one to nine directors on our board of directors. Our shareholders have the statutory right to vote to increase or decrease the size of our board within this range. Our board of directors currently consists of four directors. Directors are elected at each annual meeting of our shareholders and hold office until the next annual meeting of shareholders and the election and qualification of their successors. Executive officers are elected by and serve at the discretion of the board of directors. Our by-laws provide that a quorum of our board of directors can fill a vacancy on our board, except a vacancy resulting from an increase in the minimum number of directors or from a failure of our shareholders to elect the minimum number of directors. In the absence of a quorum of our board, or if a vacancy has arisen from a failure of our shareholders to elect the minimum number of directors, then our shareholders will vote to fill the vacancy on the board. We have agreed, for a period of three years from the date of this prospectus, if so requested by the underwriter, to nominate and use our best efforts to elect a designee of the underwriter as a director of E-Cruiter or, at the underwriter's option, as a non-voting advisor to our board of directors. Our officers, directors and current shareholders have agreed to vote their shares in favor of this designee of the underwriter. The underwriter has not yet exercised its right to designate a person. Key Employees Robert Richards has been our Director of Strategic Alliances since February 1999. Mr. Richards joined us in June 1997 and has been responsible for sales, marketing and product management over the course of his employment with us. From September 1996 to June 1997, Mr. Richards was the Vice President of Technical Marketing for Noram Corporation, a design and manufacturing company, where he was the principal corporate representative in implementing a strategic joint venture between a Canadian high technology start-up and the Polish division of Daimler-Benz. From December 1994 to August 1996, Mr. Richards was the President and owner of a brand marketing company, Sursun International Inc. From January 1991 to November 1994, Mr. Richards provided consulting services to: Northern Telecom, Consumers Distributions, Statistics Canada, Revenue Canada, Canada Post and Scouts Canada. Mr. Richards received his Bachelor of Science in Co-op Applied Physics from the University of Waterloo in 1983. Robert Vainola has been our Director of Product Marketing since January 1999. Mr. Vainola joined us in November 1997. From November 1996 to October 1997, Mr. Vainola was employed by Fulcrum Technologies, a software company, where he was the head of Strategic/Competitive Intelligence. From 1993 to November 1996, he was employed by Doncor Information Systems Inc. where he was Director of Operations. Prior to this, he worked as an independent contractor. Mr. Vainola received his Bachelor of Arts from Carleton University in 1986. 45 Nancy Field has been our Director of Human Resources since June 1999. From May 1998 to May 1999, Ms. Field worked for JetForm Corporation, a software company, in the human resources department, most recently as Manager of Training where she was responsible for training and skills development. From October 1993 to May 1998, Ms. Field was employed by SHL Systemhouse, Inc. From January 1990 to September 1993, Ms. Field was employed by Geovision Systems Incorporated. Lynne Freeman has been our Director of Client Services since April 1998. She joined us in November 1997 as our Manager of Network Operations. From September 1995 to November 1997, she worked as an independent consultant for the Canadian federal government, advising on national Internet projects. From 1985 to 1995, Ms. Freeman worked for the Ontario Ministry of Education, where she held a variety of senior technical and management positions over this period. In 1976, Ms. Freeman received her Bachelor of Education from the University of Western Ontario. Board Committees Our board of directors has established an Audit Committee, comprised of Roderick Bryden, John McLennan and John Gerard Stanton. Our Audit Committee recommends to the board of directors the annual engagement of a firm of independent accountants and reviews with the independent accountants the scope and results of audits, our internal accounting controls and audit practices and professional services rendered to us by the independent accountants. Our Audit Committee also makes recommendations to the board of directors on the compensation of our Chief Executive Officer and President and administers our option plans. Compensation of Directors and Officers During the fiscal year ended May 31, 1999, we paid to all our officers and directors as a group aggregate compensation for services in all capacities of $441,228 (US $299,646) and no officer received salary and bonus compensation which exceeded US $100,000. This group includes three non-employee directors and five officers. During fiscal 1999, we also granted to our officers and directors as a group options to acquire 141,006 common shares. The exercise prices of these options range from $2.30 (US $1.56) to $8.07 (US $5.48). Of these options, 97,620 options vest as to one-third of the shares each year and expire five years from the date of grant. The remaining 43,486 options vest at various times during fiscal 2000 based on the performance of our officers and expire in March 2004. The total number of options held by our officers and directors as of the date of this prospectus is 287,778. In addition, all directors, other than employees, are reimbursed for their reasonable expenses incurred in attending meetings of the board of directors and its committees. During fiscal 1999, however, we did not pay any amounts to our directors for expenses incurred in attending meetings. On June 24, 1999, we granted non-plan options to Sandra Bryden, the spouse of our director Roderick Bryden, to purchase, on or before June 24, 2001, 21,693 common shares at a price of $2.30 (US $1.56) per share. We granted these options to Ms. Bryden in consideration for Mr. Bryden's services to us as a director. Employment Agreements On June 1, 1999, we entered into an employment agreement with John Gerard Stanton for a period of two years and seven months from June 1, 1999 to December 31, 2001. The agreement is automatically renewable for additional one-year terms. Mr. Stanton's employment agreement provides for an annual base salary of $120,000 (US $81,494) and annual bonuses based on performance in amounts to be determined by the Audit Committee. Mr. Stanton's employment agreement requires Mr. Stanton to devote his full time and efforts to our business, and the agreement contains non-competition and non-disclosure covenants of Mr. Stanton for the term of his employment and for one year after his employment ends. Mr. Stanton has also agreed that all inventions, improvements, modifications, discoveries, designs, formulae, methods and processes made by him 46 during his employment and all patents and patent applications relating to any inventions are the property of E-Cruiter and has assigned to us all his rights, title and interest in any inventions, improvements, modifications, discoveries, designs, formulae, methods and processes made by him during his employment and all patents and patent applications relating to any inventions. At any time after the one year following the closing of this offering, Mr. Stanton may terminate the agreement upon 90 days' written notice. We can terminate the agreement with cause upon 30 days' written notice and without cause upon payment to Mr. Stanton of $240,000 (US $162,988). We also have employment agreements for at will term periods with Evelyn Ledsham, Jeffery Potts, Rajesh Rao and Kimberly Layne. During the term of their employment and thereafter, each employee has agreed that he or she will not disclose our proprietary confidential information to third parties without our consent. Furthermore, each of Mr. Potts, Mr. Rao and Ms. Layne has agreed with us that during the term of his or her employment and for a period of 12 months following termination of employment, he or she will not compete, directly or indirectly, either alone or in conjunction with any individual, firm, corporation or any other entity, whether as principal, agent, shareholder, employee or in any other capacity whatsoever, with our business in any territory where we presently or in the future carry on business. Ms. Ledsham has agreed with us that during the term of her employment and for a period of six months following termination of employment, she will not compete, directly or indirectly, either alone or in conjunction with any individual, firm, corporation or any other entity, whether as principal, agent, shareholder, employee or in any other capacity whatsoever, with our business in any territory where we presently or in the future carry on business. Ms. Ledsham, Mr. Potts, Mr. Rao and Ms. Layne have also agreed that after the termination of their employment with us, they will not attempt to hire any of our employees or encourage any of our employees to leave their employ. Key-man Life Insurance We have obtained key-man life insurance in the amount of US $2,000,000 on the life of John Gerard Stanton. Option Plans 1997 Option Plan In April 1997, we established an option plan for our directors and employees. The intention of this plan was to develop interest in E-Cruiter and to provide an incentive to eligible employees and directors to help us grow and develop. Eligibility for participation in this plan is limited to our employees and directors. The number of shares that may be optioned is determined from time to time by our board of directors. The plan provides that the option price is to be fixed by the directors from time to time, but may not be lower than the fair market value of our common shares. All options under this plan are non-assignable and terminate 180 days after the death, disability or retirement of a participant. In addition, all options under this plan expire upon the termination of the employee's employment or services other than for reason of death, disability or retirement, except that the options which have vested may be exercised within 60 days following the date of termination. During our fiscal year ended May 31, 1999, no options were exercised. As of the date of this prospectus, 516,641 options granted under the plan were outstanding and the exercise price of the options ranges from $2.30 (US $1.56) to $8.85 (US $6.00). No additional options will be granted under this plan. 47 1999 Option Plan In September 1999, we established a new option plan for our directors and employees. The intention of this plan is to develop an interest in E-Cruiter and to provide an incentive to eligible employees and directors to help us grow and develop. Eligibility for participation in the plan is limited to our employees and directors. For United States directors and employees, the common shares to be optioned will be designated, at the date of grant, as either incentive stock options or non-qualified stock options. An incentive stock option is an option granted under the plan, which is designated as such and meets the definition of section 422 of the Internal Revenue Code of 1986. To meet the definition of section 422, the individual, at the time the option is granted, cannot own more than ten percent of all classes of our voting shares, unless the exercise price of the option is equal to at least 110% of the fair market value of the underlying common shares. A non-qualified stock option is an option granted under the plan, which is designated as such and does not constitute an incentive stock option within the meaning of section 422 of the Internal Revenue Code. The number of common shares that may be optioned at any time will be determined from time to time by our Audit Committee. The plan provides that the Audit Committee will fix the terms of the option and the option price, but the option price may not be lower than the fair market value of our common shares on the date of grant of the option. The options will expire five years after their grant, and unless otherwise determined by the Audit Committee, awards will vest one-third each year. In some cases, the Audit Committee may deem it appropriate to accelerate the vesting period of the options. Options issued under the plan will be non-transferable and terminate 180 days after the death, disability or retirement of a participant. Unless otherwise determined by the Audit Committee, if a participant's employment or services terminate for any reason other than death, disability or retirement, any options held by the participant will terminate, except that vested options will be exercisable for 60 days after the termination date. We have reserved 250,000 common shares for issuance upon exercise of options granted under this plan, and we have not yet granted any options to any individuals under this plan. 48 PRINCIPAL AND SELLING SHAREHOLDERS The following table presents information known to us, as of the date of this prospectus and as adjusted to reflect the sale by us of 2,000,000 common shares offered under this prospectus and 131,838 common shares to be sold by selling shareholders, relating to the beneficial ownership of common shares by: (a) each person who is known by us to be the beneficial holder of more than 5% of our common shares; (b) our directors and executive officers as a group; and (c) each selling shareholder. We believe that all persons named in the table have sole voting and investment power with respect to all common shares beneficially owned by them. A person is deemed to be to be the beneficial owner of securities that can be acquired by that person within 60 days from the date of this prospectus upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants or other convertible securities that are held by that person, but not those held by any other person, and which are exercisable within 60 days of the date of this prospectus, have been exercised and converted. The table also assumes (a) a base of 5,062,449 common shares outstanding before this offering, assuming conversion of convertible promissory notes on October 31, 1999, and (b) a base of 7,062,449 common shares outstanding immediately after this offering, before any consideration is given to outstanding options or warrants.
Shares Beneficially Shares Beneficially Name of Beneficial Owner Owned Before Offering Shares Being Offered Owned After Offering - ------------------------------------- -------------------------- ---------------------- ------------------------- Number Percentage Number Percentage ----------- ------------ ----------- ----------- Paul Champagne ...................... 2,386,220 47.1% 0 2,386,220 33.8% John Gerard Stanton ................. 1,149,738 22.7 0 1,149,738 16.3 Les Kirkland ........................ 374,207 7.4 0 374,207 5.3 Matthew Ebbs ........................ 374,207 7.4 0 374,207 5.3 Roderick Bryden ..................... 36,155 * 0 36,155 * John McLennan ....................... 27,478 * 0 27,478 * Directors and executive officers as a group (8 persons) ................ 1,666,925 32.2 0 1,666,925 23.2 Clarion Finanz A.G. ................. 22,806 * 5,392 17,414 * Donald Dijkstal ..................... 22,806 * 5,392 17,414 * John Hanemaayer ..................... 22,806 * 5,392 17,414 * Hathaway II Limited Partnership ..... 93,448 1.8 22,092 71,356 1.0 William Kertes ...................... 37,927 * 8,966 28,961 * Peter Miller ........................ 71,113 1.4 16,812 54,301 * Fevzi Ogleman ....................... 69,958 1.4 16,539 53,419 * Securities Trading SA ............... 45,612 * 10,783 34,829 * SteppingStone Funding Partners I Inc. ............................... 45,612 * 10,783 34,829 * SteppingStone Funding Partners II Inc. ............................... 116,186 2.3 27,468 88,719 1.3 Farida Tavares ...................... 4,694 * 1,110 3,584 * Maurice Tavares ..................... 4,694 * 1,110 3,584 *
- ------------ * Represents less than 1% of total beneficial ownership of common shares. 49 The shares beneficially owned by Paul Champagne include 596,533 common shares issuable upon conversion of convertible promissory notes immediately before the closing of this offering, assuming a closing on October 31, 1999. The shares beneficially owned by John Gerard Stanton include 238,625 common shares owned by Mr. Stanton's spouse. The shares beneficially owned by Les Kirkland include 130,159 common shares owned by Mr. Kirkland's spouse. The shares beneficially owned by Roderick Bryden consist of options to purchase common shares, of which 21,693 are held by his spouse. The shares beneficially owned by John McLennan consist of options to purchase 27,478 common shares. The shares beneficially owned by Clarion Finanz A.G., Donald Dijkstal, John Hanemaayer, Hathaway II Limited Partnership, William Kertes, Peter Miller, Fevzi Ogleman, Securities Trading SA, SteppingStone Funding Partners I Inc., SteppingStone Funding Partners II Inc., Farida Tavares, and Maurice Tavares reflect the conversion of convertible promissory notes into common shares immediately before the closing of this offering, assuming a closing on October 31, 1999. 50 RELATED PARTY TRANSACTIONS Transactions with John Gerard Stanton and Les Kirkland Our principal offices are leased from 871484 Ontario Inc., a corporation owned and controlled by John Gerard Stanton, our President, Chief Executive Officer and shareholder. 871484 Ontario Inc., was formerly operated by Mr. Stanton as Drake Beam Morin (Ottawa) Inc., an outplacement firm. In 1994, 871484 Ontario Inc. entered into an office space lease agreement with Omers Realty Corporation for an eight-year term. We paid rent to 871484 Ontario Inc. as follows: $62,337 in fiscal 1997, $115,967 in fiscal 1998 and $190,227 in fiscal 1999. In October 1998, we agreed to occupy 100% of the premises by having the head lease arrangement assigned to us by 871484 Ontario Inc. We are obligated to pay rent at a cost of approximately $21,070 per month until December 31, 2001. In fiscal 1997, we made payments to 871484 Ontario Inc. for administrative services totalling $45,663. In fiscal 1998, we made payments to 871484 Ontario Inc. for administrative services totalling $45,804. After fiscal 1998, 871484 Ontario Inc. did not provide administrative services to us. In October 1997, we provided 871484 Ontario Inc. with a temporary advance of $106,083. In March 1998, 871484 Ontario Inc. fully repaid the principal, with accrued interest at the rate of 4% per year. Les Kirkland, our co-founder, shareholder and former director, owns and controls Daetus Consulting Inc., a software consulting company. Daetus Consulting Inc. has provided us with software design, coding and other related services since May 1996. We made the following payments to Daetus Consulting Inc.: $136,000 in fiscal 1997, $119,910 in fiscal 1998, and $130,200 in fiscal 1999. On July 22, 1999, we entered into a consulting agreement with Daetus Consulting Inc. whereby Daetus Consulting Inc. agreed to provide us with software consulting services for a specific project to be completed by February 9, 2000. Pursuant to the terms of this consulting agreement, we agreed to pay to Daetus Consulting Inc. the aggregate sum of $154,800 plus taxes for the services of the agents or employees of Daetus Consulting Inc., including the sum of $75,950 plus taxes for the services of Les Kirkland. We have agreed to reimburse Daetus Consulting Inc. for all reasonable and necessary business expenses incurred by it in performing the consulting services. Under the terms of the consulting agreement, Daetus Consulting Inc. assigned to us all right, title and interest in the services provided. In addition, Daetus Consulting Inc. waived all claims to moral rights over the work. Moral rights protect the personality or reputation of an author and are retained by an author even after he or she has assigned the copyright in a work. Transactions with Paul Champagne We have sold a total of 1,572,755 shares to Paul Champagne for total proceeds of $3,175,000 over the period of March 10, 1997 to June 11, 1998. On March 10, 1997, we issued 204,880 common shares to Paul Champagne at a price of approximately $2.07 per share for proceeds of $425,000. On May 13, 1997, we issued 120,518 common shares to Mr. Champagne at a price of approximately $2.07 per share for proceeds of $250,000. On September 19, 1997, we issued 813,494 common shares to Paul Champagne at a price of approximately $1.84 per share for proceeds of $1,500,000. On June 11, 1998, we issued 433,863 common shares to Paul Champagne at a price of approximately $2.30 per share for proceeds of $1,000,000. As a result of these purchases, Mr. Champagne became our largest shareholder. On September 23, 1998, Paul Champagne purchased from John Gerard Stanton 108,466 common shares for a total purchase price of $250,000. On September 23, 1998, Paul Champagne purchased from Les Kirkland 108,466 common shares for a total purchase price of $250,000. On May 19, 1999, Paul Champagne purchased from us a $1,305,000 principal amount convertible promissory note, on the same terms as the other purchasers of convertible promissory notes. Mr. Champagne's promissory note is convertible into approximately 596,533 common shares immediately before the closing of this offering. Mr. Champagne is not selling any of the common shares held by him in this offering. 51 In September 1999, Mr. Champagne provided to us a $1,300,000 (US $882,852) loan which bears interest at the Canadian prime lending rate plus 3% per year. This loan is due on the earlier of March 2000 and the closing of this offering. On October 13, 1999, we entered into a sales and marketing agreement with WorkLife Solutions, Inc. providing for the joint development of web-based recruiting services that can be offered through Internet portal web sites. Simultaneously, Mr. Champagne invested US $800,000 in WorkLife, bringing his total investment in WorkLife to US $1,000,000. Mr. Champagne's investment is currently in the form of secured promissory notes issued by WorkLife, but he agreed to convert the US $1,000,000 of notes into a 15% equity interest in WorkLife upon satisfaction of specified conditions by WorkLife. In connection with his investment, Mr. Champagne received the right to nominate a director to WorkLife's Board of Directors. Mr. Champagne has advised us that he intends to nominate Mr. Stanton as his designee. Mr. Champagne has the right to acquire WorkLife for an amount to be determined by an agreed upon third-party valuation if WorkLife does not receive agreed upon financing by early 2000, and a right of first refusal to acquire WorkLife on the same terms as a third-party offer. We also entered into an option agreement with Mr. Champagne which gives us the option to acquire Mr. Champagne's interest and related rights in WorkLife for the greater of the fair market value of his interest and related rights in WorkLife and US $1,000,000 at any time from April 13, 2000, subject to extension to October 13, 2000. Transactions with Roderick Bryden We entered into an advertising agreement on January 11, 1997 for a term ending June 30, 1999 with Palladium Corporation. This agreement relates to advertising placed in the Corel Centre located in Ottawa, Canada. The Corel Centre is owned and operated by Palladium Corporation, a corporation controlled by Roderick Bryden, one of our directors. During the term of the agreement we paid to Palladium Corporation a total of $119,520. We did not renew this agreement. Transactions with other Executive Officers On February 24, 1999, Jeff Potts, our Chief Financial Officer, subscribed for and purchased from us a 12% senior secured convertible promissory note in the principal amount of $10,000. Mr. Potts' promissory note is convertible into approximately 4,694 common shares immediately before the closing of this offering. Mr. Potts is not selling any of these common shares in the offering. On March 18, 1999, Evelyn Ledsham, our Vice President of Sales, subscribed for and purchased from us a convertible promissory note in the principal amount of $50,000. Ms. Ledsham's promissory note is convertible into approximately 23,312 common shares immediately before the closing of this offering. Ms. Ledsham is not selling any of these common shares in the offering. We believe that the foregoing transactions with our officers, directors and principal shareholders and their affiliates were for bona fide business purposes and were on terms no less favorable than could have been obtained from unaffiliated third parties. However, our Board of Directors did not have sufficient disinterested independent directors at the time of some of these transactions. Future Related Party Transactions All future transactions between us and our officers, directors or 5% shareholders, and their respective affiliates, will be on terms no less favorable than could be obtained from unaffiliated third parties and will be approved by a majority of our independent, disinterested directors. DESCRIPTION OF COMMON SHARES Immediately before the date of this prospectus, we filed an amendment to our articles of incorporation which converted all classes of shares to one class of common shares on a reverse share split basis of 1-for-.216932. Our authorized capital consists of an unlimited number of common shares, without nominal or par value. As of the date of this prospectus, 3,863,987 common shares were issued and outstanding as fully 52 paid and non-assessable, which are held of record by 45 shareholders. Upon the closing of this offering, after the conversion of promissory notes immediately before the closing of this offering into common shares, approximately 7,062,449 common shares will be issued and outstanding as fully paid and non-assessable. Holders of our common shares are entitled to one vote for each share held on all matters submitted to a vote of shareholders, including the election of directors. Holders of our common shares do not have any cumulative voting rights. Accordingly, holders of a majority of our common shares entitled to vote in any election of directors may elect all of the directors standing for election. Holders of our common shares are entitled to receive dividends, if any, as may be declared by the board of directors out of legally available funds. In the case of a liquidation, dissolution or winding-up of E-Cruiter, the holders of our common shares are entitled to receive ratably our net assets available after the payment of all debts and liabilities and subject to the prior rights of any outstanding preferred stock. Holders of our common shares have no pre-emptive, subscription or conversion rights. There are no redemption or sinking fund provisions applicable to our common shares. The outstanding common shares are, and the shares offered by us in this offering will be, when issued in consideration for the payment of the common shares, fully paid and non-assessable. Subject to the Canada Business Corporations Act, in the event that we were to issue a different class of our equity shares, the holders of our common shares would be entitled to vote separately as a class and to dissent on a proposal to amend our articles of incorporation to: o change the maximum number of authorized common shares; o increase the maximum number of authorized shares of any class or series of a class having rights or privileges equal or superior to our common shares; o add, change or remove the rights, privileges, restrictions or conditions attached to our common shares; o increase the rights or privileges of any class of shares having rights or privileges equal or superior to the common shares; o effect an exchange or create a right of exchange of all or part of our common shares into another class of shares; o constrain the issue, transfer or ownership of our common shares or change or remove this constraint; o effect an exchange, reclassification or cancellation of our common shares; or o create a new class or series of a class of shares equal or superior to our common shares. Limitations Affecting Holders of Our Common Shares who are not Canadian Residents There is no law or government decree or regulation in Canada that restricts the export or import of capital, or that affects the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements. Our articles of incorporation and our by-laws do not limit the right of a Canadian non-resident to hold or vote our common shares, or to directly acquire control of us. The Investment Canada Act requires Canadian government review of some acquisitions of control of Canadian businesses by non-Canadians. A direct acquisition of control by a WTO investor of a Canadian business engaged in activity similar to our activity is reviewable in situations where the gross book value of the assets of the target Canadian business equals or exceeds $184,000,000 in 1999 dollars, as indicated in the target company's most recent financial statements. A WTO investor is defined in the Investment Canada Act as an individual or other entity that is a national of, or has the right of permanent residence in, a member of the World Trade Organization, or a WTO investor controlled entity, as defined in the Investment Canada Act. Current members of the World Trade Organization include the European Union, Germany, Japan, Mexico, the United Kingdom and the United States. 53 Registration Rights We have granted registration rights under the Securities Act to Messrs. Champagne, Stanton and Kirkland, with respect to approximately 3,671,540 common shares that will be held by them on the closing of this offering. We granted these registration rights in consideration of the agreement of these shareholders to waive the registration rights to which they were entitled in connection with this offering. We have filed a copy of the registration rights agreement with Messrs. Champagne, Stanton and Kirkland as an exhibit to the registration statement of which this prospectus forms a part. Pursuant to the registration rights agreement, we have agreed that upon the request of Mr. Champagne or Mr. Stanton, we will, at our expense on two occasions, in the case of Mr. Champagne, and, on one occasion in the case of Mr. Stanton, register the common shares held by them under the Securities Act. Furthermore, whenever we propose to register any of our shares under the Securities Act for our own account or for the account of other security holders, we have agreed to promptly notify the holders of each of the registerable shares of the proposed registration. We may be required to include all registerable shares which these holders may request to be included in the registration. Each of Messrs. Champagne, Stanton and Kirkland is entitled to two piggyback registrations. The registration rights that we have granted to Messrs. Champagne, Stanton and Kirkland become exercisable 12 months following the closing of this offering, and each of them has agreed not to sell or dispose in another manner of the registerable shares for a period of 12 months following the date of this prospectus. In connection with this offering, we have agreed to grant to the underwriter registration rights in connection with the 213,184 common shares issuable upon exercise of the underwriter's warrants. These rights are described in the "Underwriting" section of this prospectus. Rights of Shareholders under the Canada Business Corporations Act In accordance with the provisions of the Canada Business Corporations Act, the following amendments of rights of holders of our common shares requires the approval of at least two-thirds of the votes cast by the holders of common shares voting at a special meeting of the holders: o an amendment to our articles of incorporation; o a reorganization of our share capital; o an amalgamation; o a transfer of all of our property to another corporation; o an exchange of our securities for money, property or other securities of that corporation or another corporation; o a liquidation or dissolution of E-Cruiter; o a continuation of E-Cruiter under the laws of another jurisdiction; o a voluntary wind-up of E-Cruiter; o a sale, lease or exchange of all or substantially all of our property other than in our ordinary course of business; and o a reduction of our stated capital account, which records the full amount of any consideration received by us for each class and series of shares. In accordance with our by-laws, the quorum requirements for a meeting of the holders of common shares are met if at least one-third of the common shares entitled to vote at a meeting are represented either in person or by proxy. Holders of our common shares will have the right under the Canada Business Corporations Act to dissent and require that we pay them the fair value of their common shares in the following circumstances: o amend our articles of incorporation to change share rights or to change our business; o amalgamate with another company; 54 o continue under the laws of another jurisdiction; or o sell, lease or exchange all or substantially all of our property other than in the ordinary course of our business. Transfer Agent The transfer agent for our common shares is American Stock Transfer and Trust Company, 40 Wall Street, New York, New York 10005. MATERIAL INCOME TAX CONSIDERATIONS In this section, we summarize the material Canadian and U.S. federal income tax consequences of the acquisition, ownership and disposition of our common shares. Readers are cautioned that this is not a complete technical analysis or listing of all potential tax effects that may be relevant to holders of our common shares. In particular, this discussion does not deal with the tax consequences applicable to all categories of investors, some of which may be subject to special rules, and does not address the tax consequences under Canadian provincial or territorial tax laws, United States state or local tax laws, or tax laws of jurisdictions outside of Canada and the United States. Accordingly, you should consult your own advisor regarding the particular tax consequences to you of an investment in our common shares. The statements of Canadian and United States federal tax laws that we make below are based upon laws, regulations and relevant interpretations of the laws and regulations in effect as of the date of this prospectus, all of which are subject to change, possibly retroactively. Material Canadian Federal Income Tax Considerations The following is a summary of the material Canadian federal income tax considerations generally applicable to a person who acquires common shares offered by this prospectus and who, for purposes of the Income Tax Act (Canada) and the Canada-United States Income Tax Convention, 1980, as applicable, and at all relevant times, is a U.S. holder. This summary is based on the advice of our Canadian counsel, Perley-Robertson, Hill & McDougall. For purposes of the Income Tax Act (Canada) and the Canada-United States Income Tax Convention, 1980, a U.S. holder is a person that: o throughout the period during which the person owns our common shares is not resident in Canada and is a resident of the United States; o holds our common shares as capital assets, that is, generally as investments; o deals at arm's length with us within the meaning of the Income Tax Act (Canada); o does not have a permanent establishment or fixed base in Canada, as defined by the Canada-United States Income Tax Convention, 1980; and o does not own and is not treated as owning, 10% or more of our outstanding voting shares. Special rules, we do not address in this discussion, may apply to a U.S. holder that is (a) an insurer that carries on an insurance business in Canada and elsewhere, or (b) a financial institution subject to special provisions of the Income Tax Act (Canada) applicable to income gain or loss arising from mark-to-market property. This discussion is based on the current provisions of the Canada-United States Income Tax Convention, 1980, the Income Tax Act (Canada) and their regulations, all specific proposals to amend the Income Tax Act (Canada) and regulations announced by the Minister of Finance (Canada) before the date of this prospectus and counsel's understanding of the current published administrative practices of Revenue Canada. This discussion is not exhaustive of all potential Canadian tax consequences to a U.S. holder and does not take into account or anticipate any other changes in law, whether by judicial, governmental or legislative decision or action, nor does it take into account the tax legislation or considerations of any province, territory or foreign jurisdiction. 55 Taxation of Dividends Dividends paid or credited or deemed to be paid or credited on common shares owned by a U.S. holder will be subject to Canadian withholding tax under the Income Tax Act (Canada) at a rate of 25% on the gross amount of the dividends. The rate of withholding tax generally is reduced under the Canada-United States Income Tax Convention, 1980 to 15% where the U.S. holder is the beneficial owner of the dividends. Under the Canada-United States Income Tax Convention, 1980, dividends paid to religious, scientific, charitable and similar tax exempt organizations and pension organizations that are resident and exempt from tax in the United States and that have complied with the administrative procedures specified in the Tax Convention are exempt from this Canadian withholding tax. Taxation of Capital Gains A gain realized by a U.S. holder on a sale, disposition or deemed disposition of our common shares generally will not be subject to tax under the Income Tax Act (Canada) unless the common shares constitute taxable Canadian property within the meaning of the Income Tax Act (Canada) at the time of the sale, disposition or deemed disposition. Our common shares generally will not be taxable Canadian property provided that: (a) they are listed on a prescribed stock exchange, and (b) at no time during the five-year period immediately preceding the sale, disposition or deemed disposition, did the U.S. holder, persons with whom the U.S. holder did not deal at arm's length, or the U.S. holder acting together with those persons, own or have an interest in or a right to acquire 25% or more of the issued shares of any class or series of our shares. A deemed disposition of common shares will occur on the death of a U.S. holder. If our common shares are taxable Canadian property to a U.S. holder, any capital gain realized on a disposition or deemed disposition of those shares will generally be exempt from tax under the Income Tax Act (Canada) by the Canada-United States Income Tax Convention, 1980, so long as the value of our common shares at the time of the sale, disposition or deemed disposition is not derived principally from real property situated in Canada, as defined by the Canada-United States Income Tax Convention, 1980. We have been advised that currently our common shares do not derive their value principally from real property situated in Canada; however, the determination as to whether Canadian tax would be applicable on a sale, disposition or deemed disposition of common shares must be made at the time of that sale, disposition or deemed disposition. Material United States Federal Income Tax Considerations The following summarizes the material United States federal income tax consequences of the acquisition, ownership and disposition of our common shares is based on the advice of our U.S. counsel, Weil, Gotshal & Manges LLP. This summary is based on current provisions of the Internal Revenue Code of 1986, known as the Code, current and proposed Treasury regulations promulgated under the Code, and administrative and judicial interpretations of the Code and Treasury regulations, all as in effect on the date of this prospectus and all of which are subject to change, possibly on a retroactive basis. This summary considers only U.S. holders who will own common shares as capital assets, that is generally as investments. For purposes of this discussion a U.S. holder is: o a citizen or resident of the United States; o a corporation organized under the laws of the United States, of any state of the United States or the District of Columbia; o an estate, the income of which is subject to United States federal income tax regardless of the source; o a trust, if a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust; or o trusts in existence on August 20, 1997 which were treated as U.S. persons under the law in effect immediately before that date and which make a valid election to continue to be treated as a U.S. person under the Code. 56 We discuss the material aspects of United States federal income taxation relevant to holders that are not U.S. holders, or non-U.S. holders, separately below. This discussion does not address all aspects of United States federal income taxation that may be relevant to any particular holder based on the holder's individual circumstances. In particular, not addressed are the potential application of the alternative minimum tax or the United States federal income tax consequences to holders that are subject to special treatment, including: o broker-dealers in securities or currencies; o insurance companies, regulated investment companies or real estate investment trusts; o banks, thrifts or other financial institutions or "financial services entities"; o taxpayers who have elected mark-to-market accounting; o tax-exempt entities; o taxpayers who hold common shares as a position in a "straddle", or as part of a "synthetic security" or "hedge", "conversion transaction" or other integrated investment; o holders owning directly, indirectly or by attribution at least 10% of our voting power; and o except to the extent discussed below under "Tax Consequences for Non-U.S. Holders of Common Shares," taxpayers whose functional currency is not the U.S. dollar. In addition, this discussion does not address any aspect of United States federal gift or estate tax, or state, local or non-United States tax laws and does not consider the tax treatment of persons who hold common shares through a partnership or other pass-through entity. Prospective investors are advised to consult their own tax advisor with respect to the specific tax consequences to them of purchasing, holding or disposing of our common shares. Taxation of Dividends Paid On Common Shares We have never paid dividends, and we currently do not intend to pay dividends in the future. In the event that we do pay a dividend, and subject to the discussion of the passive foreign investment company, or PFIC, rules below, a U.S. holder will be required to include in gross income as ordinary income the amount of any distribution paid on our common shares, including any Canadian taxes withheld from the amount paid, on the date the distribution is received to the extent the distribution is paid out of our current or accumulated earnings and profits as determined for United States federal income tax purposes. Distributions in excess of these earnings and profits will be applied against and will reduce the U.S. holder's basis in the common shares and, to the extent that basis is exceeded, will be treated as capital gain. Distributions of current or accumulated earnings and profits paid in a currency other than the U.S. dollar will be included in the income of a U.S. holder at the U.S. dollar amount calculated by reference to the exchange rate on the date the distribution is received. The amount of any distribution of property other than cash will be the fair market value of the property on the date of distribution. A U.S. holder that receives a distribution in a currency other than the U.S. dollar and converts the non-U.S. currency into U.S. dollars subsequent to its receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the non-U.S. currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss. U.S. holders will have the option of claiming the amount of any Canadian income taxes withheld at source or paid with respect to dividends either as a deduction from gross income or as a dollar-for-dollar credit against their United States federal income tax liability. Individuals who do not claim itemized deductions, but instead utilize the standard deduction, may not claim a deduction for the amount of the Canadian income taxes withheld, but those individuals may still claim a credit against their United States federal income tax liability. 57 The amount of foreign income taxes which may be claimed as a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual basis by each shareholder. The total amount of allowable foreign tax credits in any year cannot exceed the pre-credit U.S. federal income tax liability for the year attributable to foreign source taxable income, which would include any dividends paid by us but generally would not include any gain realized upon a disposition of common shares. A U.S. holder will be denied a foreign tax credit with respect to Canadian income tax withheld from dividends received on our common shares to the extent the U.S. holder has not held the common 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 the U.S. holder is under an obligation to make 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. In addition, distributions of our current or accumulated earnings and profits will, for United States foreign tax credit purposes, be foreign source passive income or, in the case of some U.S. holders, foreign source financial services income, and will not qualify for the dividends received deduction available to corporations. Taxation of the Disposition of Common Shares Subject to the discussion of the PFIC rules below, upon the sale, exchange or other disposition of our common shares, a U.S. holder will recognize capital gain or loss in an amount equal to the difference between the U.S. holder's basis in the common shares, which is usually the cost of the shares, and the amount realized on the disposition. If the shares are publically traded, as our common shares will be, a disposition of shares will be considered to occur on the trade date regardless of the holders method of accounting. Capital gain from the sale, exchange or other disposition of common shares held more than one year is long-term capital gain and is eligible for a maximum 20% rate of taxation for non-corporate holders. Gain or loss recognized by a U.S. holder on a sale, exchange or other disposition of our common shares generally will be treated as United States source income or loss for United States foreign tax credit purposes. The deductibility of a capital loss recognized on the sale, exchange or other disposition of common shares is subject to limitations. With respect to foreign currency gain or loss on the sale of our common shares, a U.S. holder that uses the cash method of accounting calculates the U.S. dollar value of the proceeds received on the sale as of the date that the sale settles, while a U.S. holder that uses the accrual method of accounting is required to calculate the value of the proceeds of the sale as of the trade date and may therefore realize foreign currency gain or loss, unless the U.S. holder has elected to use the settlement date to determine its proceeds of sale for purposes of calculating the foreign currency gain or loss. In addition, a U.S. holder that receives non-U.S. currency upon disposition of our common shares and converts the non-U.S. currency into U.S. dollars subsequent to its receipt will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the non-U.S. currency against the U.S. dollar, which will generally be U.S. source ordinary income or loss. Tax Consequences if we are a Passive Foreign Investment Company We will be a PFIC if: o 75% or more of our gross income in a taxable year, including the pro rata share of the gross income of any company, U.S. or foreign, in which we are considered to own 25% or more of the shares by value, is passive income; or o 50% or more of our assets in a taxable year, averaged over the year and ordinarily determined based on fair market value and including the pro rata share of the assets of any company in which we are considered to own 25% or more of the shares by value, are held for the production of, or produce, passive income. Passive income includes dividends, interest, rents and income equivalent to interest and would include amounts derived by reason of the temporary investment of funds raised in this offering. We believe that we will not be a PFIC for fiscal 2000. The tests for determining PFIC status, however, are applied annually, and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. Accordingly, we cannot assure you that we will not become a PFIC in the future. 58 If we were a PFIC, and a U.S. holder did not make a election to treat us as a qualified electing fund, or QEF, as described below: o Excess distributions by us to a U.S. holder would be taxed in a special way. Excess distributions are amounts received by a U.S. holder with respect to our shares in any taxable year after the taxable year in which our common shares are acquired that exceed 125% of the average distributions received by such U.S. holder from us in the shorter of either the three previous years or the U.S. holder's holding period for common shares before the present taxable year. Excess distributions must be allocated ratably to each day that a U.S. holder has held our shares. A U.S. holder must include amounts allocated to the current taxable year in its gross income as ordinary income for that year. A U.S. holder must pay tax on amounts allocated to each prior taxable year at the highest rate in effect for that year on ordinary income and the tax is subject to an interest charge at the rate applicable to deficiencies for income tax. o The entire amount of gain that is realized by a U.S. holder upon the sale or other disposition of our common shares in any taxable year after the taxable year in which the common shares were acquired will be treated as if it were an excess distribution and will be subject to tax as described above. o A U.S. holder's tax basis in our shares that were acquired from a decedent would not receive a step-up to fair market value as of the date of the decedent's death but would instead be equal to the decedent's basis, if lower. The special PFIC rules described above would not apply to a U.S. holder if the U.S. holder makes an election to treat us as a QEF in the first taxable year in which the U.S. holder owns our common shares and if we comply with the specified reporting requirements. Instead, a shareholder of a qualified electing fund is required for each taxable year to include in income a pro rata share of the ordinary earnings of the qualified electing fund as ordinary income and a pro rata share of the net capital gain of the qualified electing fund as long-term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. We have agreed to supply U.S. holders with the information needed to report income and gain pursuant to a QEF election in the event we are classified as PFIC. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the U.S. Internal Revenue Service, or IRS. 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 that 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. person must file a completed IRS Form 8621 every year. A U.S. holder of PFIC stock which is publicly traded could elect to mark the stock to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC stock and the U.S. holder's adjusted tax basis in the PFIC stock. Losses would be allowed only to the extent of net mark-to-market gain previously included by the U.S. holder under the election for prior taxable years. If the mark-to-market election were made, then the rules described above would not apply for periods covered by the election. U.S. holders who hold common shares during a period when we are a PFIC would be subject to the rules described above, even if we cease to be a PFIC, subject to some exceptions for U.S. holders who made a QEF election. We strongly urge U.S. holders to consult their tax advisors about the PFIC rules, including the consequences to them of making a mark-to-market or QEF election with respect to our common shares, in the event that we qualify as a PFIC. Tax Consequences for Non-U.S. Holders of Common Shares Except as described in "Information Reporting and Back-up Withholding" below, a non-U.S. holder of our common shares will not be subject to United States federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our common shares, unless: o the dividend or disposition proceeds are effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States and, in the case of a resident of a country which has a treaty with the United States, the dividend or disposition proceeds are attributable to a permanent establishment or, in the case of an individual, a fixed place of business, in the United States; 59 o the non-U.S. Holder is an individual who holds the common shares as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition and does not qualify for an exemption; or o the non-U.S. Holder is subject to tax pursuant to the provisions of United States tax law applicable to U.S. expatriates. Information Reporting and Back-up Withholding U.S. holders, other than corporations, generally are subject to annual information reporting requirements with respect to dividends paid in the United States on our common shares. Under existing regulations, these dividends are not subject to back-up withholding. U.S. holders are subject to information reporting and back-up withholding at a rate of 31% on proceeds paid from the disposition of our common shares unless the U.S. holder provides an IRS Form W-9 or otherwise establishes an exemption. Non-U.S. holders generally are not subject to information reporting or back-up withholding with respect to dividends paid on, or upon the disposition of, our common shares, so long as the non-U.S. holder provides a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption. Treasury regulations effective January 1, 2001 may alter the rules regarding information reporting and back-up withholding. In particular, those regulations would impose back-up withholding on dividends paid in the United States on our common shares unless the U.S. holder provides an IRS Form W-9 or otherwise establishes an exemption. Prospective investors should consult their tax advisors concerning the effect, if any, of these Treasury regulations on an investment in our common shares. The amount of any back-up withholding would be allowed as a credit against a U.S. holder's or non-U.S. holder's United States federal income tax liability and may entitle such holder to a refund, provided that the holder provides required information to the IRS. Pending Legislation In addition, there is presently pending legislation in the United States which may result in tax rate reductions for U.S. individuals and in the indexing for inflation of the adjusted bases of some assets. At present it is not possible to determine the specific effect that this legislation, if enacted, might have on holders of our common shares. In view of the uncertainty, prospective purchasers of our common shares should consult their own tax advisors. SHARES ELIGIBLE FOR FUTURE SALE After the closing of this offering, we will have approximately 7,062,449 common shares issued and outstanding of which the 2,131,838 shares offered by this prospectus will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by any affiliate of us. An affiliate of us is generally a person who has a controlling position with regard to us. Any shares purchased by our affiliates will be subject to the resale limitations of Rule 144 promulgated under the Securities Act. Of the approximately 4,930,611 remaining common shares that will be outstanding, none are restricted securities as that term is defined under Rule 144. However, approximately 3,938,171 of those shares are held by executive officers and directors and persons who hold more than 10% of our shares, all of whom may be deemed to be our affiliates. Consequently these shares will be subject to the resale limitations of Rule 144. We have also granted options and warrants to purchase 751,518 common shares, including the 213,184 common shares issuable upon exercise of the underwriter's warrants. We have granted registration rights to Paul Champagne, John Gerard Stanton and Les Kirkland with respect to 3,671,540 shares that will be held by them in the aggregate on the closing of this offering. We also have granted registration rights to the underwriter with respect to the 213,184 common shares issuable upon exercise of the underwriter's warrants. These rights become exercisable twelve months after the closing of this offering. 60 The holders of approximately 4,926,272 of our common shares, including Messrs. Champagne, Stanton and Kirkland, have agreed not to sell or dispose of any of the common shares held by them, including in accordance with Rule 144, for a period of twelve months following the date of this prospectus without the underwriter's prior written consent. For the second year following the closing, our officers, directors and principal shareholders have agreed that, without the underwriter's written consent, they will not sell common shares during any three-month period in excess of the amount they would be allowed to sell if they were deemed an affiliate of ours and the shares were deemed restricted as defined under Rule 144 of the Securities Act. This amount is the greater of: (a) 1% of the then outstanding common shares; and (b) the average weekly trading volume of the common shares during the four calendar weeks preceding a sale. In general, under Rule 144, as currently in effect, beginning 90 days after the date of this prospectus, a person or group of persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year, including the holding period of any prior owner except an affiliate of us, would be entitled to sell, within any three month period, a number of shares that does not exceed the greater of: o 1% of the then outstanding common shares; or o The average weekly trading volume of our common shares during the four calendar weeks preceding the sale, provided, that, public information about us as required by Rule 144 is then available and the seller complies with manner of sale provisions and notice requirements. The volume limitations described above, but not the one-year holding period, also apply to sales of our non-restricted securities by affiliates of us. A person who is not an affiliate, has not been an affiliate within three months before the sale and has beneficially owned the restricted securities for at least two years, is entitled to sell the restricted shares under Rule 144 without regard to any of the limitations described above. Before this offering, there has been no public market for our common shares. We can not predict the effect, if any, that market sales of common shares or the availability of additional shares for sale will have on the market price prevailing from time to time. Nevertheless, the possibility that substantial amounts of common shares may be sold in the public market may adversely affect the prevailing market price for our common shares and could impair our ability to raise capital through the sale of our equity securities. UNDERWRITING Whale Securities Co., L.P., as underwriter, has agreed, subject to the terms and conditions contained in the underwriting agreement relating to this offering, to purchase the 2,000,000 common shares offered by us and 131,838 common shares offered by the selling shareholders. The underwriting agreement provides that the obligations of the underwriter are subject to the delivery of an opinion of our counsel and to various other conditions. The underwriter is committed to purchase and pay for all of the common shares offered by this prospectus if any of those shares are purchased. The underwriter has advised us that it proposes to offer our common shares to the public at the public offering price indicated on the cover page of this prospectus. The underwriter may allow selected dealers who are members of the National Association of Securities Dealers, Inc., known as the NASD, concessions, not in excess of $. per share, of which not in excess of $. per share may be reallowed to other dealers who are members of the NASD. We have granted to the underwriter an option, exercisable not later than 45 days after the date of this prospectus, to purchase up to 319,776 common shares at the public offering price indicated on the cover page of this prospectus, less the underwriting discounts and commissions. The underwriter may exercise this option only to cover over-allotments, if any, made in connection with the sale of the common shares offered by this prospectus. If the underwriter exercises its over-allotment in full, the total price to the public would be US $14,709,684, the total underwriting discounts and commissions would be US $1,421,936 and the total proceeds to E-Cruiter, before payment of the expenses of this offering, would be US $12,573,186. 61 We have agreed to pay to the underwriter a non-accountable expense allowance equal to 3% of the gross proceeds from the sale of the shares offered by us, including any securities sold pursuant to the underwriter's over-allotment option, of which US $50,000 has been paid as of the date of this prospectus. The selling shareholders have agreed to pay the underwriter a non-accountable expense allowance equal to 3% of the gross proceeds from the sale of the shares offered by the selling shareholders. We have also agreed to pay all expenses in connection with qualifying the shares offered under the laws of the states as the underwriter may designate, including expenses of counsel retained for this purpose by the underwriter. We estimated our expenses of this offering to be US $2,134,000, including the underwriter's discounts and commission, or US $2,377,030 if the underwriter's over-allotment option is completely exercised. At the closing of this offering, we will sell to the underwriter and its designees, for an aggregate of $100, underwriter's warrants to purchase up to 213,184 common shares. The underwriter's warrants are exercisable at any time, in whole or in part, during the four-year period commencing one year from the date of this prospectus at an exercise price of US $9.90 per share, 165% of the public offering price per share. The underwriter's warrants are only assignable or transferable to the officers and partners of the underwriter and members of the selling group for one year following the date of this prospectus. During the exercise period, the holders of the underwriter's warrants will have the opportunity to profit from a rise in the market price of the common shares, which will dilute the interests of our shareholders. We expect that the underwriter's warrants will be exercised when we would, in all likelihood be able to obtain any needed capital on terms more favorable to us than those provided in the underwriter's warrants. Any profit realized by the underwriter on the sale of the underwriter's warrants or the underlying common shares may be deemed additional underwriting compensation. The underwriter's warrants contain a cashless exercise provision. We have agreed that, upon the request of the holders of the majority of the underwriter's warrants, we will, at our own expense, on one occasion during the exercise period register the underwriter's warrants and the common shares underlying the underwriter's warrants under the Securities Act. We have also agreed to include the underwriter's warrants and all underlying common shares in any appropriate registration statement which is filed by us under the Securities Act during the seven years following the date of this prospectus. We have agreed, for a period of three years from the date of this prospectus, if so requested by the underwriter, to nominate and use our best efforts to elect a designee of the underwriter as a director of E-Cruiter or, at the underwriter's option, as a non-voting advisor to our board of directors. Our officers, directors and current shareholders have agreed to vote their shares in favor of the underwriter's designee. The underwriter has not yet exercised its right to designate a person. The holders of approximately 4,926,272 common shares have agreed not to sell or dispose in another manner any of those securities in the public markets for a period of twelve months form the date of this prospectus without the underwriter's prior written consent. For the second year following the closing, our officers, directors and principal shareholders have agreed that without the underwriter's written consent they will not sell common shares during any three-month period in excess of the amount they would be allowed to sell if they were deemed an affiliate of ours and the shares were deemed restricted as defined under Rule 144 of the Securities Act. This amount is the greater of: (a) 1% of the then outstanding common shares; and (b) the average weekly trading volume of the common shares during the four calendar weeks preceding the sale. We have agreed to indemnify the underwriter against civil liabilities, including liabilities under the Securities Act. The underwriter has informed us that it does not expect sales of the securities offered to discretionary accounts to exceed 1% of the shares offered by this prospectus. Before this offering, there has been no public market for our common shares. Accordingly, the initial public offering price of the common shares has been determined by negotiation between us and the underwriter and may not necessarily be related to our asset value, net worth or other established criteria of value. Factors considered in determining this price include our financial condition and prospects, an assessment of our management, market prices of similar securities of comparable publicly-traded companies, financial and operating information of companies engaged in activities similar to our business and the general condition of the securities market. 62 In connection with this offering, the underwriter may engage in passive market making transactions in the shares on Nasdaq in accordance with Rule 103 of Regulation M promulgated under the Exchange Act. In connection with this offering, the underwriter may engage in transactions that stabilize, maintain or affect in another manner the price of our common shares. These transactions may include stabilization transactions permitted by Rule 104 of Regulation M, under which persons may bid for or purchase shares to stabilize the market price. Specifically, the underwriter may over-allot in connection with the offering, creating a short position in our common shares for its own account. In addition, to cover over-allotments or to stabilize the price of our common shares, the underwriter may bid for, and purchase, common shares in the open market. The underwriter may also reclaim selling concessions allowed to a dealer for distributing the common shares in the offering, if the underwriter repurchases previously distributed common shares in transactions to cover short positions, in stabilization transactions or in another manner. Any of these activities may stabilize or maintain the market price of our common shares above independent market levels. The underwriter is not required to engage in these activities, and may end any of these activities at any time. LEGAL MATTERS The validity of the common shares offered by this prospectus and other matters of Canadian law relating to the offering will be passed upon by Perley-Robertson, Hill & McDougall, Ottawa, Ontario, a general partnership. Legal matters relating to the offering will be passed upon for E-Cruiter.com Inc. by Weil, Gotshal & Manges LLP, New York, New York and for the underwriter by Tenzer Greenblatt LLP, New York, New York, with respect to U.S. law. Weil, Gotshal & Manges LLP and Tenzer Greenblatt LLP will rely upon the opinion of Perley-Robertson, Hill & McDougall with respect to matters governed by Canadian law. Mr. Matthew Ebbs, a director of E-Cruiter, is a member of Perley-Robertson, Hill & McDougall. Mr. Ebbs acquired 374,207 common shares from Les Kirkland and his spouse in September 1999. Mr. Ebbs continues to hold these shares. EXPERTS The consolidated financial statements as of May 31, 1999 and May 31, 1998 and for each of the three years in the period ending May 31, 1999 appearing in this prospectus and registration statement have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent Chartered Accountants, appearing elsewhere in this prospectus, given on the authority of PricewaterhouseCoopers LLP as experts in auditing and accounting. ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form F-1 under the Securities Act with respect to the common shares offered by this prospectus. This prospectus is a part of that registration statement and does not contain all of the information included in the registration statement. For further information with respect to us and our common shares, you should refer to the registration statement and its exhibits. Portions of the exhibits have been omitted as permitted by the rules and regulations of the Securities and Exchange Commission. Statements contained in this prospectus as to the content of any contract or other document referred to in this prospectus are not necessarily complete. In each instance, we refer you to the copy of the contracts or other documents filed as an exhibit to the registration statement, and these statements are hereby qualified in their entirety by reference to the contract or document. The registration statement, including all exhibits attached to it, may be inspected without charge at the Securities and Exchange Commission's Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549. You may request copies of these documents by writing to the Commission and paying a duplicating charge. For further information on the operation of the Public Reference Room, please call the Commission at 1-800-SEC-0330. In addition, the registration statement and all exhibits attached to it may be obtained at the web site maintained by the Commission at http://www.sec.gov. Upon listing of our common shares on the Nasdaq SmallCap Market, we will be subject to the information requirements of the U.S. Securities Exchange Act of 1934, known as the Exchange Act, applicable 63 to "foreign private issuers" having a class of securities registered under Section 12(g) of the Exchange Act. Accordingly, we will be required to file annual reports on Form 20-F and periodic reports on Form 6-K with the Commission. Copies of these reports may be accessed in the same manner as is indicated above for the registration statement and its exhibits. We furnish our shareholders with annual reports containing consolidated financial statements audited by an independent chartered accounting firm. We also furnish quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. These reports are prepared in accordance with Canadian generally accepted accounting principles and presented in Canadian dollars. We will be required to file copies of these reports on Form 6-K with the Commission. As a foreign private issuer, however, we will be exempt from provisions of the Exchange Act regarding the furnishing and content of proxy statements to shareholders and rules relating to short swing profits reporting and liability. 64 E-Cruiter.com Inc. Consolidated Financial Statements Years Ended May 31, 1997, 1998 and 1999 Contents Report of Independent Auditors ........................................................... F-2 Consolidated Balance Sheets as of May 31, 1998 and May 31, 1999 .......................... F-3 Consolidated Statements of Loss for the Years Ended May 31, 1997, 1998 and 1999 .......... F-4 Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended May 31, 1997, 1998 and 1999 ..................................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended May 31, 1997, 1998 and 1999 .... F-6 Notes to Consolidated Financial Statements ............................................... F-7
F-1 The share capital reorganization described in note 2(a) to the financial statements has not been consummated at November 3, 1999. When it has been consummated, we will be in a position to furnish the following reports: "Auditors' Report To the Directors of E-Cruiter.com Inc. We have audited the consolidated balance sheets of E-Cruiter.com Inc. as at May 31, 1999 and 1998 and the consolidated statements of loss, shareholders' equity (deficit) and cash flows for the years ended May 31, 1999, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at May 31, 1999 and 1998 and the results of its operations and its cash flows for the years ended May 31, 1999, 1998 and 1997 in accordance with accounting principles generally accepted in Canada. Chartered Accountants Ottawa, Canada June 18, 1999, except for note 2(a) which is as of , 1999. Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Differences In the 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 1 to the financial statements. Our report to the directors dated June 18, 1999, except for note 2(a) which is as of , 1999 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors' report when these are adequately disclosed in the financial statements. Chartered Accountants Ottawa, Canada , 1999" /s/ PricewaterhouseCoopers LLP - --------------------------------- PricewaterhouseCoopers LLP Chartered Accountants Ottawa, Canada November 3, 1999 F-2 E-Cruiter.com Inc. Consolidated Balance Sheets As at May 31, (Canadian dollars)
1998 1999 --------------- ---------------- Assets Current assets Cash and cash equivalents (note 3) ................................... $ 194,239 $ 1,505,782 Accounts receivable, net of allowance for doubtful accounts of $20,000 (1998 -- $10,000) ................................................... 370,626 211,757 Prepaid expenses ..................................................... 15,310 101,700 Investment tax credits ............................................... 20,000 68,904 ------------ ----------- 600,175 1,888,143 Capital assets (note 4) .............................................. 100,651 288,067 ------------ ----------- $ 700,826 $2,176,210 ============ =========== Liabilities and Shareholders' Equity (Deficit) Current liabilities Trade accounts payable and accrued liabilities ....................... $ 269,609 $ 411,159 Accrued compensation ................................................. 35,641 65,650 Accrued debt issue costs ............................................. -- 330,000 Deferred revenue ..................................................... 361,938 323,469 Current portion of long-term obligations (note 5) .................... 100,173 84,173 Convertible promissory notes -- debt component (note 6) .............. -- 2,162,063 ------------ ----------- 767,361 3,376,514 Long-term obligations (note 5) ....................................... 66,455 40,000 ------------ ----------- Total liabilities .................................................... 833,816 3,416,514 ------------ ----------- Commitments (note 5) Shareholders' equity (deficit) Common shares -- issued and outstanding -- 3,857,479 (1998 -- 3,436,632) (note 2a) ....................................... 2,571,040 3,541,040 Convertible promissory notes -- equity component (note 6) ............ -- 135,096 Deficit .............................................................. (2,704,030) (4,916,440) ------------ ------------ (132,990) (1,240,304) ------------ ----------- $ 700,826 $ 2,176,210 ============ ===========
(The accompanying notes are an integral part of these financial statements.) F-3 E-Cruiter.com Inc. Consolidated Statements of Loss For the years ended May 31, (Canadian dollars)
1997 1998 1999 -------------- ---------------- ---------------- Revenue ................................................ $ 85,524 $ 870,003 $ 1,399,557 Cost of revenue ........................................ 57,167 386,391 848,769 ---------- ------------ ------------ Gross profit ........................................... 28,357 483,612 550,788 ---------- ------------ ------------ Expense Selling ................................................ 125,785 652,118 818,601 Marketing .............................................. 258,256 817,291 612,796 General and administrative ............................. 243,304 350,014 725,713 Research and development ............................... 258,257 510,974 606,088 ---------- ------------ ------------ 885,602 2,330,397 2,763,198 ---------- ------------ ------------ Net loss for the year .................................. $ (857,245) $ (1,846,785) $ (2,212,410) ========== ============ ============ Basic and fully diluted loss per common share .......... $ (0.53) $ (0.58) $ (0.57) ========== ============ ============ Weighted average number of common shares outstand- ing during the year ................................... 1,620,669 3,191,297 3,854,579 ========== ============ ============
(The accompanying notes are an integral part of these financial statements.) F-4 E-Cruiter.com Inc. Consolidated Statements of Shareholders' Equity (Deficit) For the years ended May 31, (Canadian dollars)
Total Number of Convertible Shareholders' Common Common Promissory Accumulated Equity Shares Shares Notes Deficit (Deficiency) ------------- ------------- ------------- --------------- ---------------- Issuance of shares ............ 2,628,561 $1,083,530 $ -- $ -- $ 1,083,530 Net loss for the year ......... -- -- -- (857,245) (857,245) --------- ---------- -------- ------------ ------------ Balance as at May 31, 1997 . 2,628,561 1,083,530 -- (857,245) 226,285 Issuance of shares ............ 813,494 1,500,010 -- -- 1,500,010 Redemption of shares .......... (5,423) (12,500) -- -- (12,500) Net loss for the year ......... -- -- -- (1,846,785) (1,846,785) --------- ---------- -------- ------------ ------------ Balance as at May 31, 1998..... 3,436,632 2,571,040 -- (2,704,030) (132,990) Issuance of shares ............ 433,863 1,000,000 -- -- 1,000,000 Redemption of shares .......... (13,016) (30,000) -- -- (30,000) Issuance of convertible promissory notes -- equity component .................... -- -- 135,096 -- 135,096 Net loss for the year ......... -- -- -- (2,212,410) (2,212,410) --------- ---------- -------- ------------ ------------ Balance as at May 31, 1999 . 3,857,479 $3,541,040 $135,096 $ (4,916,440) $ (1,240,304) ========= ========== ======== ============ ============
(The accompanying notes are an integral part of these financial statements.) F-5 E-Cruiter.com Inc. Consolidated Statements of Cash Flows For the years ended May 31, (Canadian dollars)
1997 1998 1999 --------------- ----------------- ----------------- Cash flows from (used in) Operating activities Net loss for the year ......................... $ (857,245) $ (1,846,785) $ (2,212,410) Amortization of capital assets ................ 35,228 122,484 117,150 Non-cash interest on convertible promissory notes ........................................ -- -- 104,238 Net change in operating component of working capital (note 10) .................... 95,669 165,583 20,835 ----------- ------------- ------------- (726,348) (1,558,718) (1,970,187) ----------- ------------- ------------- Investing activities Purchase of capital assets .................... (60,127) (97,413) (105,588) Advance to related company (note 7) ........... -- (106,083) -- Repayment of advance to related company ....... -- 106,083 -- ----------- ------------- ------------- (60,127) (97,413) (105,588) ----------- ------------- ------------- Financing activities Proceeds from share issuance .................. 1,083,530 1,500,010 1,000,000 Redemption of shares .......................... -- (12,500) (30,000) Proceeds from issuance of convertible promissory notes, net of issue costs ......... -- -- 2,522,921 Proceeds from small business loan ............. -- 100,000 -- Repayment of small business loan .............. -- -- (50,000) Capital lease payments ........................ -- (34,195) (55,603) ----------- ------------- ------------- 1,083,530 1,553,315 3,387,318 ----------- ------------- ------------- Increase (decrease) in cash and cash equivalents .................................. 297,055 (102,816) 1,311,543 Cash and cash equivalents -- Beginning of year ...................................... -- 297,055 194,239 ----------- ------------- ------------- Cash and cash equivalents -- End of year $ 297,055 $ 194,239 $ 1,505,782 =========== ============= ============= Supplementary non-cash information: Purchase of capital assets under capital lease -- $ (100,822) $ (63,149) Proceeds from capital leases .................. -- 100,822 63,149 Interest paid ................................. -- (17,332) (20,313)
(The accompanying notes are an integral part of these financial statements.) F-6 E-Cruiter.com Inc. Notes to Consolidated Financial Statements (Canadian dollars) 1. Continuing operations These financial statements have been prepared using generally accepted accounting principles that are applicable to a going concern, which assumes E-Cruiter.com Inc. (the "Company") will realize its assets and discharge its liabilities in the normal course of business. As such, the financial statements do not reflect adjustments in the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used, that would be necessary if the going concern assumption were not appropriate, and such adjustments could be material. The Company incurred operating losses during the years ended May 31, 1999, 1998 and 1997 and, therefore, there is substantial doubt about the Company's ability to continue. The Company needs to secure additional equity or debt financing. Management is currently pursuing an initial public offering or additional private placements of its shares to be completed within the next six months, and is therefore of the opinion that the Company will be able to obtain sufficient equity financing to meet its liabilities and commitments as they become payable. 2. Significant accounting policies a) Basis of presentation These financial statements have been prepared by management in accordance with generally accepted accounting principles in Canada ("Canadian GAAP") and include the accounts of E-Cruiter.com Inc. and its wholly-owned subsidiary, 3451615 Canada Inc. These principles also conform in all material respects with accounting principles generally accepted in the United States ("U.S. GAAP") except as described in Note 14. As at May 31, 1999, the share capital of the Company consisted of authorized Class A, B and C common shares and Class A, B, C and D special shares of which Class A common and Class D special shares were issued. All per share amounts and number of common shares in these consolidated financial statements, for all periods presented, have been restated to give retroactive effect to the filing of Articles of Amendment to (i) create an unlimited number of a single class of common shares; (ii) convert the outstanding Class A common and Class D special shares into common shares on the basis of one Class A common share and one Class D special share into .216932 of a common share; (iii) cancel all authorized Class A, B, and C common shares and Class A, B, C, and D special shares; and (iv) convert all of the options to purchase Class D special shares into options to purchase the converted number of common shares at converted exercise prices, which are to become effective in October 1999. The holders of the common shares will be entitled to one vote at meetings of shareholders for each common share held and to receive dividends as and when declared by the Board of Directors. b) Use of 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. c) Cash equivalents Cash equivalents are defined as highly liquid investments with terms to maturity at acquisition of three months or less. d) Investment tax credits Investment tax credits, which are earned as a result of qualifying research and development expenditures, are recognized when the expenditures are made and their realization is reasonably assured and are applied to reduce the related research and development capital costs and expenses in the year. F-7 E-Cruiter.com Inc. Notes to Consolidated Financial Statements -- (Continued) (Canadian dollars) 2. Significant accounting policies -- (Continued) e) Capital assets Capital assets are recorded at cost. Amortization is based on the estimated useful life of the asset and is recorded as follows: Furniture, equipment and leaseholds 20% declining balance Office equipment 33% declining balance Computers and software 60% declining balance f) Income taxes Income taxes are provided for using the liability method whereby deferred tax assets and liabilities are recognized using current tax rates on the difference between the financial statement carrying amounts and the respective tax basis of assets and liabilities. g) Financing issue costs Issue costs of convertible debt instruments are allocated between the debt and equity components of the instruments in the same ratio as the gross proceeds. These costs are netted against the proceeds and the portion allocated to the debt component is amortized against earnings over the term of the instruments. h) Capital stock Capital stock is recorded as the net proceeds received on issuance after deducting all share issue costs. i) Revenue recognition E-Cruiter Enterprise subscription contracts are recognized ratably over the term of the contract. E-Cruiter Enterprise and E-Cruiter Express internet posting services are recognized when the job requisition is posted. Other client services are recognized as services are provided. j) Research and development costs The Company expenses all research costs as incurred. Development costs are expensed in the year incurred unless a development project meets the criteria under generally accepted accounting principles for deferral and amortization. No amounts have been capitalized to date. k) New accounting pronouncement The Company has adopted the Canadian Institute of Chartered Accountants' new recommendations on the presentation of the statement of cash flows. The Company has restated prior years to conform to the new recommendations. 3. Cash equivalents The Company's cash equivalents of $1,000,000 as at May 31, 1999 consist of guaranteed investment certificates of a Canadian Chartered Bank. These cash equivalents represent the Company's only significant concentration of credit risk. F-8 E-Cruiter.com Inc. Notes to Consolidated Financial Statements -- (Continued) (Canadian dollars) 4. Capital assets
1998 1999 ----------- ---------------------------------------- Accumulated Net Cost amortization Net ----------- ---------- -------------- ---------- Furniture, equipment and leaseholds ......... $ 3,629 $ 25,632 $ 15,505 $ 10,127 Office equipment ............................ 23,100 58,858 32,595 26,263 Computers and software ...................... 73,922 484,945 233,268 251,677 -------- -------- -------- -------- $100,651 $569,435 $281,368 $288,067 ======== ======== ======== ========
As at May 31, 1998 accumulated amortization was $157,712. As at May 31, 1999, capital assets include assets under capital lease of $81,573 (1998 -- $57,501) net of accumulated amortization of $83,122 (1998 -- $44,045). 5. Long-term obligations and other commitments In 1998, the Company entered into a $100,000 small business loan agreement with a Canadian Chartered Bank to finance the purchase of certain capital assets. The balance of the loan at May 31, 1999 was $50,000 (1998 -- $100,000). An additional facility was arranged in April 1999 for $190,000, but was not drawn as at May 31, 1999. Under both agreements, the principal is repaid over a 24-month period and interest is accrued at the rate of prime plus 3%. Assets financed by the loans are pledged as collateral. As at May 31, 1999 capital lease obligations totalled $74,173 including the current portion of $34,173 which is due in 1999. The leases were for office equipment, computers and software and bear interest at rates varying from 12.3% to 27.0% per annum, and mature at varying times from June 2000 to June 2003. The Company has also committed to operating leases for its office facilities and vehicles. Future minimum payments for both operating and capital leases are as follows:
2000 2001 2002 2003 ----------- ----------- ----------- -------- Operating leases .......... $255,000 $245,500 $141,000 $ -- Capital leases Principal ................ 34,173 29,020 8,200 2,780 Interest ................. 11,658 5,261 907 200 -------- -------- -------- ------ Total payments ............ $300,831 $279,781 $150,107 $2,980 ======== ======== ======== ======
Rent expense for the year ended May 31, 1999 was $207,085 (1998 -- $134,858, 1997 -- $62,496). F-9 E-Cruiter.com Inc. Notes to Consolidated Financial Statements -- (Continued) (Canadian dollars) 6. Convertible promissory notes The Company issued 12% convertible promissory notes (the "Notes") as follows: Debt Equity Month issued Face Value Component Component - ------------ -------------- ------------- ------------ January, 1999 ............. $ 300,000 $ 268,800 $ 31,200 March, 1999 ............... 400,000 359,498 40,502 April, 1999 ............... 200,000 184,319 15,681 May, 1999 ................. 1,700,000 1,627,209 72,791 ---------- ---------- --------- 2,600,000 2,439,826 160,174 Less: Issue costs ......... (407,079) (382,001) (25,078) ---------- ---------- --------- 2,192,921 2,057,825 135,096 Accrued interest .......... -- 104,238 -- ---------- ---------- --------- $2,192,921 $2,162,063 $ 135,096 ========== ========== ========= The Notes, which mature January 22, 2000, are convertible at any time at the Note holders' option into 0.434 common shares for every dollar of the face value plus accrued interest to the date of conversion without payment of additional consideration, the equivalent of $2.30 per share. The Notes are convertible at the Company's option immediately prior to a public offering of the Company's common shares using the same conversion factor. The Company has executed a general security agreement against all its assets as collateral for the Notes. The Notes are being accounted for in accordance with their substance and are presented in the financial statements in their component parts, measured at their respective fair values at the time of issue. The debt component has been calculated as the present value of the required principal and interest payments discounted at 25%, approximating the interest rate that would have been applicable to non-convertible debt at the time the Notes were issued. Interest expense is determined on the debt component as the amount necessary to increase the debt component to its face amount at maturity. The difference between the debt component and the face value of the Notes has been classified as equity. 7. Related party transactions The Company was charged $190,227 for office space and administrative services (1998 -- $161,771, 1997 -- $108,000) and $130,200 for research, development and other consulting services (1998 -- $119,910, 1997 -- $136,000) by companies controlled by shareholders of the Company. The Company was charged $50,200 (1998 -- $47,520, 1997 -- $21,800) for advertising by a company controlled by a director of the Company. These transactions are in the normal course of operations and are measured at the amounts of consideration paid which management believes approximates fair market value. As at May 31, 1998 and 1997 respectively, $23,218 and $49,359 was payable to these related companies. During 1998 a related company was provided with a temporary advance in the amount of $106,083. The full amount, with interest, was repaid in March of 1998. As at May 31, 1999, no amount was payable to related parties. F-10 E-Cruiter.com Inc. Notes to Consolidated Financial Statements -- (Continued) (Canadian dollars) 8. Income taxes
1997 1998 1999 ------------ ------------ ------------ Combined Canadian federal and provincial income tax rate 44.6% 44.6% 44.6% Income tax recovery based on combined Canadian federal and provincial rate ................................... $ 382,000 $ 824,000 $ 948,000 Non-deductible amounts ................................. (49,000) (4,000) (5,000) Valuation allowance .................................... (333,000) (820,000) (943,000) ---------- ---------- ---------- Provision for income taxes ............................. $ -- $ -- $ -- ========== ========== ==========
As at May 31, 1999, the Company has unclaimed Scientific Research and Experimental Development (SR&ED) expenditures of approximately $212,000 (1998 - -- $127,000, 1997 -- $43,000) and income tax loss carryforwards of approximately $4,531,000 (1998 -- $2,470,000, 1997 -- $733,000). The SR&ED expenditures can be carried forward indefinitely and applied to reduce income taxes otherwise payable in future years. The income tax loss carryforwards will expire beginning in the year 2004. 9. Share capital a) Employee stock option plan The Company has an employee and directors stock option plan (the "1997 Plan"). Under the terms of the 1997 Plan, the options to purchase common shares generally vest ratably over a period of three years and expire five years from the date of grant. The 1997 Plan provides that the number of options and the option exercise price are to be fixed by the Board of Directors, but the exercise price may not be lower than the fair value of the underlying common shares on the date of grant. The Board of Directors has the right to accelerate the vesting date for any options granted. In the event of a third party offer to acquire control of the Company that is accepted by a majority of the shareholders, any options that are not exercisable at that time, become fully exercisable. Weighted Average Number of Exercise Options Price ----------- --------- Granted ..................................... 39,048 $ 2.30 ------ Balance outstanding -- May 31, 1997 ......... 39,048 Granted ..................................... 154,672 2.30 Cancelled ................................... (21,693) 2.30 ------- Balance outstanding -- May 31, 1998 ......... 172,027 Granted ..................................... 351,972 3.07 Cancelled ................................... (71,805) 2.30 ------- Balance outstanding -- May 31, 1999 ......... 452,194 2.77 ======= F-11 E-Cruiter.com Inc. Notes to Consolidated Financial Statements -- (Continued) (Canadian dollars) 9. Share capital -- (Continued) Stock options outstanding as at May 31, 1999 are set out below, of which 41,579 were exercisable immediately at a price of $2.30 per share and a further 65,080, also with an exercise price of $2.30 per share, become exercisable upon the achievement of various performance objectives in the year ending May 31, 2000. Number Weighted Exercise price Outstanding Average Life ---------------- ------------- ------------- ESOP options ......... $ 2.30 418,027 4.11 $ 8.07 19,524 4.96 US$6.00 14,643 4.91 ------- ---- 452,194 4.29 ======= From May 31, 1999 to August 31, 1999, 86,140 options were granted under the 1997 Plan with an exercise price of US $6.00 per share and 21,693 options outstanding as at May 31, 1999 were cancelled. On September 15, 1999 the Board of Directors approved the immediate vesting of 13,016 options held by a director at May 31, 1999. (Unaudited) Options granted under the 1997 Plan will remain outstanding; however, no new options will be granted under that plan. On September 15, 1999, the Board of Directors approved the 1999 Employee Stock Option Plan (the "1999 Plan") pending shareholder approval. The 1999 Plan is similar to the 1997 Plan but includes provisions for directors and employees who reside in the United States. The 1999 Plan will replace the 1997 Plan. The Board of Directors reserved 250,000 options to be granted under the 1999 Plan. (Unaudited) In addition, subsequent to May 31, 1999, 21,693 options were granted outside the ESOP to the spouse of a director of the Company. These non-plan options, which have an exercise price of $2.30 per share, vest immediately and expire two years from the date of grant. (Unaudited) b) Earnings per share For all of the years presented, fully diluted loss per share equals basic loss per share due to the anti-dilutive effect of employee stock options and convertible promissory notes. The following outstanding instruments could potentially dilute basic earnings per share in the future.
Number Outstanding at May 31 ----------------------------------- 1997 1998 1999 -------- --------- ------------ Employee stock options ............................. 39,048 172,027 363,252 Convertible promissory notes ....................... -- -- 1,141,328 ------ ------- --------- Potential increase in number of shares from dilutive instruments ....................................... 39,048 172,027 1,504,580 ====== ======= =========
10. Net change in operating components of working capital
1997 1998 1999 ------------- -------------- ------------- Accounts receivable ..................................... $ (60,818) $ (309,808) $ 158,869 Prepaid expenses ........................................ (3,765) (11,545) (86,391) Investment tax credits .................................. (20,000) -- (48,904) Trade accounts payable and accrued liabilities .......... 137,449 136,160 141,550 Accrued compensation .................................... -- 31,641 30,009 Deferred revenue ........................................ 42,803 319,135 (38,469) --------- ---------- ---------- 95,669 165,583 156,664 Less: amounts included in accounts payable at year end related to fixed asset purchases ....................... -- -- (135,829) --------- ---------- ---------- $ 95,669 $ 165,583 $ 20,835 ========= ========== ==========
F-12 E-Cruiter.com Inc. Notes to Consolidated Financial Statements -- (Continued) (Canadian dollars) 11. Financial instruments The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and the convertible promissory notes. It is management's opinion that the Company is not exposed to significant interest, currency or concentrations of credit risks arising from these financial instruments other than as disclosed in note 3. The fair values of these financial instruments approximate their carrying values, unless otherwise noted. The fair value of the convertible promissory notes is not determinable at May 31, 1999 because the underlying common shares were not publicly traded. On May 31, 1999, based on an estimated initial public offering price of the Company's shares of US $6.00 per share, the fair value of the converted promissory notes is calculated as $10,620,770 (unaudited). 12. Uncertainty due to the Year 2000 Issue The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems when using certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure, which could affect the Company's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. 13. Segmented information In the opinion of management, the Company operates solely in the software industry and all of its sales consist of web centric recruiting products and related services. Accordingly, management has determined that it does not have any separately reportable business segments. To date the Company's operations, assets and substantially all of its sales have been in Canada. 14. United States accounting principles The financial statements have been prepared in accordance with Canadian GAAP. These principles differ, as they affect the Company, in the following material respects from U.S. GAAP: a) Statements of loss
Year ended Year ended Year ended May 31, 1997 May 31, 1998 May 31, 1999 -------------- ---------------- ---------------- Net loss in accordance with Canadian GAAP ................... $ (857,245) $ (1,846,785) $ (2,212,410) Compensation expense adjustment for options issued below fair value(1) ........................................ -- -- (125,947) Expense adjustment for convertible promissory notes with conversion price below the fair value of the shares(2) ..... -- -- (2,526,378) ---------- ------------ ------------ Net loss in accordance with U.S. GAAP ....................... $ (857,245) $ (1,846,785) $ (4,864,735) ========== ============ ============ Basic and diluted loss per common share -- U.S. GAAP ........ $ (0.53) $ (0.58) $ (1.26) ========== ============ ============ Weighted average number of common shares outstanding during the year ............................................ 1,620,669 3,191,297 3,854,579 ========== ============ ============
F-13 E-Cruiter.com Inc. Notes to Consolidated Financial Statements -- (Continued) (Canadian dollars) 14. United States accounting principles -- (Continued) b) Balance sheets
May 31, May 31, 1998 1999 --------------- --------------- Total assets ........................................... $ 700,826 $ 2,176,210 ============ ============ Convertible promissory notes -- debt(2) ................ $ -- $ 2,630,616 Other current liabilities .............................. 767,361 1,214,451 ------------ ------------ 767,361 3,845,067 Long-term obligations .................................. 66,455 40,000 ------------ ------------ Total liabilities ...................................... 833,816 3,885,067 ------------ ------------ Capital stock .......................................... 2,571,040 3,541,040 Additional paid-in-capital(1)(2) ....................... -- 2,318,868 Deficit(1)(2) .......................................... (2,704,030) (7,568,765) ------------ ------------ Shareholders' equity (deficit) ......................... (132,990) (1,708,857) ------------ ------------ Liabilities and shareholders' equity (deficit) ......... $ 700,826 $ 2,176,210 ============ ============
- ------------ (1) Under U.S. GAAP, the difference between the exercise price of options and the fair value of the underlying shares, generally assumed to be the estimated public offering price of US $6.00 per share, is accounted for as compensation and is charged against earnings over the vesting period of the options with a corresponding and equal amount recorded as paid-in-capital. (2) Under U.S. GAAP, the proceeds from convertible debt instruments that have non-detachable conversion features where the fair value of the underlying common shares exceeds the conversion price of the debt instrument ("beneficial conversion features") are allocated between the debt and the equity components of the instruments. The value of the beneficial conversion feature is measured by the excess of the fair value of the underlying shares over the conversion price up to, but not exceeding, the net proceeds received upon issuance of the convertible debt instruments. The value ascribed to the beneficial conversion feature is recorded as paid-in-capital. The discount resulting from the allocation of the proceeds is recognized as interest expense over the minimum period from the date of issuance to the date at which the debt holder can realize that return. The Company has allocated all of the proceeds of the convertible promissory notes to paid-in-capital. The discount resulting from the allocation was expensed upon issuance of the convertible promissory notes as they are immediately convertible at the Note holders' option. c) Share based compensation The Company has adopted the disclosure-only provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). Had compensation cost for options been determined based on the Black-Scholes option pricing model at the grant date as prescribed by SFAS No. 123, the Company would have reported a greater compensation expense related to these options than recorded under APB 25, increasing the Company's net loss as follows:
Year ended Year ended Year ended May 31, 1997 May 31, 1998 May 31, 1999 -------------- ---------------- ---------------- Net loss under U.S. GAAP ............................... $ (857,245) $ (1,846,785) $ (4,864,735) Estimated incremental share based compensation expense . -- (20,000) (45,288) ---------- ------------ ------------ Pro forma net loss ..................................... $ (857,245) $ (1,866,785) $ (4,910,023) ========== ============ ============ Pro forma basic loss per share ......................... $ (0.53) $ (0.58) $ (1.27) ========== ============ ============
F-14 E-Cruiter.com Inc. Notes to Consolidated Financial Statements -- (Continued) (Canadian dollars) 14. United States accounting principles -- (Continued) The weighted average fair value of the options issued during the year ended May 31, 1999, as calculated using the Black-Scholes option pricing model was $5.35 (1998 -- $0.45, 1997 -- $0.45). Of the options issued during the year ended May 31, 1999, 280,927 were issued with exercise prices below the fair value at the date of grant. The weighted average fair value of these options was $6.50 and the weighted average exercise price was $2.93. The remaining 71,045 options were issued with exercise prices equal to fair value. The weighted average fair value of these options was $0.78 and the weighted average exercise price was $3.65. The fair value of each option granted during 1997 to 1999 is estimated on the date of the grant using the minimum value method with the following weighted average assumptions: 1997 1998 1999 -------- -------- -------- Expected option life, in years .......... 4.5 4.5 4.5 Risk free interest rate ................. 5.0% 5.0% 5.0% Dividend yield .......................... nil nil nil d) Revenue recognition During the year ended May 31, 1999, the Company adopted Statement of Position ("SOP") 97-2 "Software Revenue Recognition" and SOP 98-4 "Deferral of the Effective Date of a Provision of SOP 97-2" which provide guidance in recognizing revenue from software transactions. SOP 97-2 conforms with Canadian GAAP and the adoption of it did not have a material impact on the Company's results for the year ended May 31, 1999. In December 1998, SOP 98-9 "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions" was released. The Company will adopt SOP 98-9 for its fiscal year ending May 31, 2000 and does not expect it to have a material impact on its revenue recognition. e) Other recent accounting pronouncements In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1") which provides guidance for determining whether computer software is internal-use software and on accounting for the proceeds of computer software originally developed or obtained for internal use and then subsequently sold to the public. It also provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company will adopt SOP 98-1 for its fiscal year ending May 31, 2000 and does not expect it to have a material impact on its financial statements. 15. Subsequent events (Unaudited) a) Initial public offering In September 1999, the Company filed a registration statement with the United States Securities and Exchange Commission for a public offering by the Company of 2,000,000 common shares at a price of US $6.00 per share (the "Offering"). In connection with the Offering, the Company will provide to the underwriter an underwriting discount and commission of US $.58 per share and the Company will also pay a 3% non-accountable expense allowance to the underwriter plus all other expenses of the Offering. At the time of closing, for an aggregate of $100 the Company will issue warrants to the underwriter for up to 213,184 common shares which are exercisable for a four year period commencing one year after the date of the registration statement at US $9.90 per share. In addition, for the purposes of covering over-allotments, the underwriter will have an option to purchase from the Company up to an additional 319,776 common shares for a period of 45 days after the closing of the Offering. Such over-allotment option shall be exercisable on the same terms and conditions as the initially offered common shares. F-15 E-Cruiter.com Inc. Notes to Consolidated Financial Statements -- (Continued) (Canadian dollars) 15. Subsequent events (Unaudited) -- (Continued) b) Pro-forma EPS assuming conversion of convertible promissory notes Immediately prior to filing the registration statement, the Company plans to convert the Notes into common shares of the Company. If the Notes had been converted into common shares immediately upon issue, the weighted average number of common shares outstanding for the year ended May 31, 1999 would have been 3,960,964 and the number of shares outstanding at May 31, 1999 would have been 4,985,524. In addition, the non-cash interest expense on the Notes of $104,238 and $30,616 under Canadian GAAP and U.S. GAAP respectively would not have been incurred, resulting in a pro-forma basic and fully diluted loss per common share for the year ended May 31, 1999 as follows: Canadian GAAP...............................................$(0.53) U.S. GAAP...................................................$(1.22) F-16 [Inside Back Cover] E-Cruiter Applicant Manager E-Cruiter's Applicant Manager enables recruiters to track and manage all job applicants through the recruiting process. [GRAPHIC OMITTED: Image of E-Cruiter Enterprise 2.3 desktop showing various open windows. The following text is incorporated into the graphics: o E-Cruiter enables a more effective hiring process by allowing recruiters to easily search, share, transfer, annotate, decline, e-mail and export applicant files. o All applications for a specific job opening flow, in real-time, directly to the human resource professional's desktop in a standard format for review and comment. o Throughout the hiring process, E-Cruiter manages all communication between job seekers, hiring managers and human resources. Communication with job applicants via e-mail is significantly enhanced through resume auto-acknowledgment, interview scheduling and automatically sending decline messages to multiple applicants.] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or any other person to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information. This prospectus does not offer to sell or buy any shares in any jurisdiction where it is unlawful. ----------------------------------- TABLE OF CONTENTS Prospectus Summary ................................. 3 Risk Factors ....................................... 9 Cautionary Statement Regarding Forward- Looking Statements .............................. 19 Use of Proceeds .................................... 20 Dilution ........................................... 22 Dividends .......................................... 23 Exchange Rates ..................................... 23 Capitalization ..................................... 24 Selected Financial Data ............................ 25 Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................... 27 Business ........................................... 33 Management ......................................... 44 Principal and Selling Shareholders ................. 49 Related Party Transactions ......................... 51 Description of Common Shares ....................... 52 Material Income Tax Considerations ................. 55 Shares Eligible for Future Sale .................... 60 Underwriting ....................................... 61 Legal Matters ...................................... 63 Experts ............................................ 63 Additional Information ............................. 63 Index to Consolidated Financial Statements ......... F-1 ----------------------------------- Until _________ 1999, all dealers effecting transactions in the registered securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] 2,131,838 Common Shares ---------------------------------------- Prospectus ---------------------------------------- Whale Securities Co., L.P. , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table lists the expenses that are payable by E-Cruiter.com Inc. in connection with the offering described in the registration statement, other than underwriting discounts and commissions. All amounts are estimates except the SEC registration fee, the NASD and the Nasdaq listing fee. SEC fee ................................................. US$4,089.29 NASD filing fee ......................................... 1,971.00 Nasdaq listing fee ...................................... 7,500.00 Blue sky fees and expenses .............................. 50,000.00 Printing and engraving expenses ......................... 125,000.00 Legal fees and expenses ................................. 255,000.00 Accounting fees and expenses ............................ 95,000.00 Transfer Agent fees ..................................... 3,500.00 Underwriter's non-accountable expense allowance ......... 360,000.00 Miscellaneous ........................................... 71,939.71 ----------- TOTAL ................................................ US$974,000.00 =========== Item 14. Indemnification of Directors and Officers Limitation on Liability and Indemnification Matters Under the Canada Business Corporations Act, except with respect to an action by us or on behalf of us to procure a judgment in our favor, we have a right to indemnify any of our officers or directors or any former officers or directors, who act or have acted at our request as officers or directors against any costs, charges or expenses for amounts paid by him to settle an action in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of having been our director if: (a) he has acted honestly and in good faith with a view toward our best interests; and (b) in the case of a criminal or administrative action or proceeding that is enforced by monetary penalty, he had reasonable grounds for believing his conduct was lawful. We make the determination in (a) and (b) above. Further, we may, with the approval of a court, indemnify a person who is a director, officer or former director or officer with respect to an action by or on behalf of us to procure a judgment in our favor to which he is made a party by reason of having been our officer or director, against all costs, charges and expenses reasonably incurred by him in connection with that action if: (a) he has acted honestly and in good faith with a view toward our best interests; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty he had reasonable grounds for believing his conduct was lawful. A director, officer or former director or officer of ours is also entitled to indemnification from us with respect to all costs, charges and expenses reasonably incurred by him in connection with the defense of any civil, criminal or administrative action or proceeding to which he is a party by reason of being or having been a director or officer of ours, if he: (a) was substantially successful on the merits in his defense of the action or proceeding; (b) acted honestly and in good faith with a view toward our best interests; and (c) in the case of a criminal or administrative action or proceeding that was enforced by a monetary penalty, had reasonable grounds for believing that his conduct was lawful. II-1 In addition, our by-laws provide that no director or officer is liable for the acts of any other director or officer or employee or for any loss or damage to us unless it is caused by his own willful neglect or default. However, the limitation against liability does not extend or grant any director or officer protection against the breach of any law. The by-laws also provide for an indemnity similar to the provisions contained in the Canada Business Corporations Act and subject to the same limitations. Our by-laws provide that, subject to the Canada Business Corporations Act, we can purchase and maintain indemnity insurance for the benefit of our directors and officers as may be determined from time to time by our directors. We maintain a policy of insurance under which our directors and officers are insured, subject to the limits of the policy, against certain losses arising from claims made against them as officers and directors and by reason of any acts or omissions covered under the policy, in their respective capacities as directors or officers, including liability under the Securities Act of 1933. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons in relation to the above provisions, or permitted in any other circumstance, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. Item 15. Recent Sales of Unregistered Securities Described below are all securities which E-Cruiter.com Inc. has issued during the prior 3 years in transactions not involving public offerings. All issuances have been made in reliance on Rule 903 of Regulation S promulgated under the Securities Act of 1933, in offers or sales to non-U.S. persons which occurred outside the United States within the meaning of Rule 901 of the Securities Act. All amounts in this Item 15 are given in Canadian dollars. (a) On August 1, 1996, we issued 6 million Class A Common Shares to John Gerard Stanton, our president and Chief Executive Officer, and members of his family, for aggregate consideration of $60,030. (b) On December 1, 1996, we issued 4 million Class A Common Shares to Les Kirkland, a former director, and members of his family, for aggregate consideration of $40,010. (c) In December 1996, we issued 557,000 Class D Special Shares to 29 individuals for aggregate consideration of $278,500. (d) On February 28, 1997, we issued 60,000 Class D Special Shares to 6 individuals for aggregate consideration of $30,000. (e) On March 10, 1997, we issued 944,444 Class D Special Shares to Paul Ebbs for aggregate consideration of $425,000, and on May 13, 1997, we issued an additional 555,556 Class D Special Shares to Paul Ebbs for aggregate consideration of $250,000. (f) On June 16, 1997, we issued 10,000 Class D Special Shares to an individual for aggregate consideration of $5,000. (g) On September 19, 1997, we exchanged 1,500,000 Class D Special Shares held by Paul Ebbs into an equal number of Class A Common Shares, and issued an additional 3,750,000 Class A Common Shares to him. We received no additional consideration for the shares exchanged and received aggregate consideration of $1.5 million for the additional shares issued. (h) On June 11, 1998, we issued 2 million Class A Common Shares to Paul Champagne for aggregate consideration of $1 million. (i) On September 13, 1999, we issued 30,000 Class D Special Shares to SteppingStone Capital Corporation in consideration of consulting services rendered to E-Cruiter.com Inc.. (j) Between January 22, 1999 and May 27, 1999, we issued $2.6 million principal amount of 12% senior secured convertible promissory notes to 18 investors, including some of our officers and key II-2 employees. We received aggregate consideration of $2.6 million for these notes. We paid SteppingStone Capital Corporation a success fee for assisting us in structuring the notes. These notes bear interest at 12% per year and their principal and interest is convertible to shares of our common stock at the rate of 2 shares per dollar. No brokers or underwriters were included in any of the above issuances, except in connection with the issuance of our 12% senior secured convertible promissory notes where we engaged SteppingStone Capital Corporation as our financial advisor to structure the notes and paid it a success fee upon completion of the issuance. The share certificates issued above have the following restrictive legend: "There are restrictions on the right to transfer the shares represented by this certificate." The share certificates for the new class of common shares will not have any restrictive legends. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits 1.1 Form of Underwriting Agreement.* 1.2 Form of Underwriter's Warrant Agreement.* 3.1 Articles of Incorporation, as amended. 3.2 By-laws.* 4.1 Specimen common share certificate. 4.2 Article 3 and Schedule "A" of the Articles of Incorporation, as amended (filed as part of Exhibit 3.1). 5.1 Opinion of Perley-Robertson, Hill & McDougall as to the legality of the common shares. 10.1 Registration Rights Agreement among E-Cruiter.com Inc., Paul Champagne, John Gerard Stanton and Les Kirkland, dated September 21, 1999. 10.2 Consulting Agreement between Daetus Consulting Inc. and E-Cruiter.com Inc., dated July 22, 1996. 10.3 Stock Option Agreement between Sandy Bryden and E-Cruiter.com Inc., dated June 24, 1999.* 10.4 Lease Agreement between Drake Beam Morin (0ttawa) Inc. and Omers Realty Corporation, dated November 16, 1993. 10.5 Head Lease Assignment Agreement between 871484 Ontario Inc. and E-Cruiter.com Inc., dated August 1, 1999.* 10.6 Service Agreement between Positionwatch Limited and E-Cruiter.com Inc., dated February 23, 1999.** 10.7 E-Cruiter.com Inc. 1997 Key Employee Stock Option Plan.* 10.8 E-Cruiter.com Inc. 1999 Employee and Director Stock Option Plan. 10.9 Sales and Marketing Agreement between WorkLife Solutions, Inc. and E-Cruiter.com Inc., dated October 13, 1999. 10.10 Option Agreement between WorkLife Solutions, Inc. and E-Cruiter.com Inc., dated October 13, 1999. 21.1 Subsidiaries of E-Cruiter.com Inc.* 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Perley-Robertson, Hill & McDougall (contained in the opinion filed as Exhibit 5.1). 23.3 Consent of Weil, Gotshal & Manges LLP. 24.1 Power of Attorney (included in signature page).*
- ------------ * previously filed ** to be filed by amendment II-3 (b) Financial Statement Schedules E-Cruiter.com Inc. Valuation and Qualifying Accounts
Balance at Provision Balance at Beginning for Doubtful End of of Period Accounts Deductions Period $ $ $ $ ------------ -------------- ------------ ----------- For the year ended May 31, 1997 Allowance for doubtful accounts .......................... -- 10,000 -- 10,000 ------ ------ ------ ------ For the year ended May 31, 1998 Allowance for doubtful accounts .......................... 10,000 450 (450) 10,000 ------ ------ ------- ------ For the year ended May 31, 1999 Allowance for doubtful accounts .......................... 10,000 40,742 (30,742) 20,000 ------ ------ ------- ------
Item 17. Undertakings 1. E-Cruiter.com Inc. hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. 2. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of E-Cruiter.com Inc. pursuant to the foregoing provisions, or otherwise, E-Cruiter.com Inc. has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by E-Cruiter.com Inc. of expenses incurred or paid by a director, officer or controlling person of E-Cruiter.com Inc. in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, E-Cruiter.com Inc. will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 3. E-Cruiter.com Inc. hereby undertakes that, for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by E-Cruiter.com Inc. pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. 4. E-Cruiter.com Inc. hereby undertakes that, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this Amendment No. 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Ottawa, province of Ontario, Canada, on the 3rd day of November, 1999. E-Cruiter.com Inc. By: /s/ John Gerard Stanton -------------------------------- John Gerard Stanton Chief Executive Officer and President Pursuant to the requirement of the Securities Act of 1933, this Amendment No. 1 to the registration statement has been signed by the following officers and directors of the registrant in the indicated capacities and on the dates indicated.
Signature Title Date - --------------------------------- ---------------------------------------- ----------------- /s/ John Gerard Stanton Chairman of the Board, Chief Executive November 3, 1999 -------------------------------- Officer and President John Gerard Stanton /s/ Jeffery E. Potts Chief Financial Officer and Principal November 3, 1999 -------------------------------- Accounting Officer Jeffery E. Potts * Director November 3, 1999 -------------------------------- Roderick M. Bryden * Director November 3, 1999 -------------------------------- John McLennan * Director November 3, 1999 -------------------------------- Matthew J. Ebbs *By /s/ Jeffery E. Potts -------------------------------- Jeffery E. Potts Attorney-in-Fact
II-5 Authorized Representative in the United States E-Cruiter.Com USA Inc. By: /s/ Jeffery E. Potts ---------------------------------- Name: Jeffery E. Potts Title: Secretary II-6 EXHIBIT INDEX
Exhibit No. Description - -------- ----------- 1.1 Form of Underwriting Agreement.* 1.2 Form of Underwriter's Warrant Agreement.* 3.1 Articles of Incorporation, as amended. 3.2 By-laws.* 4.1 Specimen common share certificate. 4.2 Article 3 and Schedule "A" of the Articles of Incorporation, as amended (filed as part of Exhibit 3.1). 5.1 Opinion of Perley-Robertson, Hill & McDougall as to the legality of the common shares. 10.1 Registration Rights Agreement among E-Cruiter.com Inc., Paul Champagne, John Gerard Stanton and Les Kirkland, dated September 21, 1999. 10.2 Consulting Agreement between Daetus Consulting Inc. and E-Cruiter.com Inc., dated July 22, 1996. 10.3 Stock Option Agreement between Sandy Bryden and E-Cruiter.com Inc., dated June 24, 1999.* 10.4 Lease Agreement between Drake Beam Morin (Ottawa) Inc. and Omers Realty Corporation, dated November 16, 1993. 10.5 Head Lease Assignment Agreement between 871484 Ontario Inc. and E-Cruiter.com Inc., dated August 1, 1999.* 10.6 Service Agreement between Positionwatch Limited and E-Cruiter.com Inc., dated February 23, 1999.** 10.7 E-Cruiter.com Inc. 1997 Key Employee Stock Option Plan.* 10.8 E-Cruiter.com Inc. 1999 Employee and Director Stock Option Plan. 10.9 Sales and Marketing Agreement between WorkLife Solutions, Inc. and E-Cruiter.com Inc., dated October 13, 1999. 10.10 Option Agreement between WorkLife Solutions, Inc. and E-Cruiter.com Inc., dated October 13, 1999. 21.1 Subsidiaries of E-Cruiter.com Inc.* 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Perley-Robertson, Hill & McDougall (contained in the opinion filed as Exhibit 5.1). 23.3 Consent of Weil, Gotshal & Manges LLP. 24.1 Power of Attorney (included in signature page).*
- ------------ * previously filed ** to be filed by amendment EX-3.1 2 EXHIBIT 3.1 CANADA BUSINESS CORPORATIONS ACT FORM 7 RESTATED ARTICLES OF INCORPORATION (SECTION 180) - -------------------------------------------------------------------------------- 1. - Name of corporation Corporation No. E-CRUITER.COM INC. 326278-2 - -------------------------------------------------------------------------------- 2. - The place in Canada where the registered office is to be situated Regional Municipality of Ottawa-Carleton - -------------------------------------------------------------------------------- 3. - The classes and any maximum number of shares that the Corporation is authorized to issue an unlimited number of Common Shares which shall have attached thereto the rights, restrictions, conditions and limitations set out in Schedule "A" attached hereto. - -------------------------------------------------------------------------------- 4. - Restrictions, if any, on share transfers None - -------------------------------------------------------------------------------- 5. - Number (or minimum and maximum number) of directors Minimum 1, maximum 9. - -------------------------------------------------------------------------------- 6. - Restrictions, if any, on business the corporation may carry on None - -------------------------------------------------------------------------------- 7. - Other provisions, if any 7.1 Without in any way restricting the powers of the Corporation, the board of directors may from time to time and without authorization of the shareholders: 7.1.1 borrow money on the credit of the Corporation; 7.1.2 issue, reissue, sell or pledge debt obligations of the Corporation; 2 7.1.3 give a guarantee on behalf of the Corporation to secure performance of an obligation of any person; and 7.1.4 mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Corporation, owned or subsequently acquired, to secure any obligation of the Corporation. 7.2 The board of directors may from time to time delegate any or all of the foregoing powers to such officers or directors of the Corporation to such extent and in such manner as the board of directors may from time to time determine. - -------------------------------------------------------------------------------- The foregoing restated articles of incorporation correctly set out, without substantive change, the corresponding provisions of the articles of incorporation as amended and supersede the original articles of incorporation. - -------------------------------------------------------------------------------- Signature Date - -------------------------------------------------------------------------------- Title President - -------------------------------------------------------------------------------- FOR DEPARTMENTAL USE ONLY Filed SCHEDULE "A" The Common Shares of the Corporation shall have attached thereto the following rights, restrictions, conditions and limitations: 1. Voting The holders of the Common Shares shall be entitled to receive notice of and to attend and shall be entitled to one (1) vote at any meeting of the shareholders of the Corporation for each Common Share held, except meetings at which only holders of a specified class of shares are entitled to vote. 2. Dividends The holders of the Common Shares shall be entitled to receive non-cumulative dividends as and when the directors shall in their discretion declare dividends on the Common Shares and pay the same. The directors may declare and pay dividends on the Common Shares to the exclusion of any other class of shares. 3. Dissolution Subject to the rights of the holders of shares ranking prior to or on a parity with the Common Shares, the holders of the Common Shares shall be entitled to receive the remaining property of the Corporation in the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of assets of the Corporation among its shareholders for the purpose of winding up its affairs. EX-4.1 3 EXHIBIT-4.1 No. INCORPORATED UNDER THE CANADA BUSINESS CORPORATIONS ACT Shares - -------------------------------------------------------------------------------- E-CRUITER.COM INC. - -------------------------------------------------------------------------------- This is to Certify that is the registered holder of shares of E-CRUITER.COM INC. The class or series of shares represented by this Certificate has rights, privileges, restrictions or conditions attached thereto and the Corporation will furnish to the holder, on demand and without charge, a full copy of the text of, (i) the rights, privileges, restrictions and conditions attached to the said shares and to each class authorized to be issued and to each series insofar as the same have been fixed by the directors, and (ii) the authority of the directors to fix the rights, privileges, restrictions and conditions of subsequent series, if applicable. IN WITNESS WHEREOF the Corporation has caused this Certificate to be signed by its duly authorized officers this day of , . NO PAR VALUE ================================================================================ CERTIFICATE FOR shares of E-CRUITER.COM INC. ISSUED TO Date ================================================================================ FOR VALUE RECEIVED, the undersigned hereby assigns and transfers unto_____________________________________________________________________ __________________________________________________________________ shares represented by the within Certificate. DATED ________________________ ________________________________ In the presence of ________________________ NOTICE: the signature of this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement or any change whatever. EX-5.1 4 EXHIBIT 5.1 PERLEY-ROBERTSON, HILL & McDOUGALL Lawyers/Patent & Trade-Mark Agents Avocats/Agents de brevets cr de marquas de commerce November 3, 1999 E-Cruiter.com Inc. 360 Albert Street, Suite 1510 Ottawa, ON K1R 7X7 Dear Sirs: We have acted as counsel to E-Cruiter.com Inc. (the "Company"), a corporation organized under the laws of Canada, in connection with the preparation of a registration statement on Form F-1, File No. 333-87537 (as the same may be amended, the "Registration Statement") relating to the offer and sale of 2,131,838 shares (the "Shares") of common stock of the Company, par value $6.00 per share (the "Common Shares). We have examined originals or copies (certified or otherwise identified to our satisfaction) of the restated Articles of Incorporation filed with Industry Canada following stockholder approval, a copy of which has been filed as an exhibit to the Registration Statement, the By-laws of the Company, the Registration Statement, all resolutions adopted by the Company's Board of Directors (the "Board"), consents of the Board and other records and documents that we have deemed necessary for the purpose of this opinion. We have also examined such other documents, papers, statutes and authorities as we have deemed necessary to form a basis for the opinion hereinafter expressed. We have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. As to various questions of fact material to our opinion, we have relied on statements and certificates of officers and representatives of the Company and others. The opinion expressed herein assumes: 1. the conversion, prior to the time on which the Registration Statement is declared effective, of all classes of shares of the Company into one class of Common Shares on a reverse share split basis of 0.216932 to 1; and 90 rue Sparks Street, Ottawa, Ontario, Canada K1P 1E2 Tel.: (613) 238-2022, Fax: (613) 238-8775 1 800 268-8292, Internet: http://www.perlaw.ca PERLEY-ROBERTSON, HILL & McDOUGALL 2 2. the conversion, prior to the time on which the Registration Statement is declared effective, of all outstanding convertible promissory notes of the Company into Common Shares. We give no opinion as to the application of the laws of any jurisdiction other than the province of Ontario. Based on the foregoing and subject to the assumptions and qualifications stated herein, we are of the opinion that: 1. The Shares have been duly authorized by all necessary corporate action of the Company and, when issued and paid for as provided in the Registration Statement, will be validly issued, fully paid and non-assessable. The opinions expressed herein are provided solely for the benefit of the addressee in connection with the Registration Statement described above. This opinion letter may not be relied upon by or disclosed (other than as required by applicable law) to anyone else or used for any other purpose, without our prior written consent. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to any and all references to our firm in the prospectus which is a part of the Registration Statement. In giving such consent we do not thereby admit that we are within the category of persons whose consent is required under section 7 of the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Yours very truly, Perley-Robertson, Hill & McDougall EX-10 5 EXHIBIT 10.1 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of September 16, 1999, by and among E-Cruiter.com Inc., a Canadian corporation (the "Company"), Paul Champagne ("Champagne"), John Gerard Stanton ("Stanton") and Les Kirkland ("Kirkland", and together with Champagne and Stanton, the "Shareholders"), each of whom is a current shareholder of the Company. RECITALS A. The Company proposes to offer and sell 1,700,000 of its common shares in an initial public offering (the "IPO") in the United States to be underwritten by Whale Securities Co., L.P. For that purpose, the Company will file a registration statement under the United States Securities Act of 1933 (the "Securities Act") with the United States Securities and Exchange Commission (the "SEC"). B. Each of the Shareholders currently is entitled by contract to piggyback registration rights in the event that the Company effects an IPO of its equity securities. At the request of the Company, each of the Shareholders has waived all his registration rights in connection with the IPO in consideration for the Company's agreement to register common shares owned by him pursuant to the terms and conditions contained in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the parties agree as follows: SECTION 1 Demand Registration Rights 1.1 Right to Demand. At any time after 12 months after the IPO, Champagne and Stanton may each make a written request of the Company for registration with the SEC under and in accordance with the provisions of the Securities Act, of all or part of his Registrable Securities (a "Demand Registration"); provided, however, that (i) the Company need not effect a Demand Registration unless the Demand Registration includes at least 50% of the Registrable Securities held by the demanding Shareholder on the date the request is made and 3% of the issued and outstanding common shares of the Company, (ii) the Company may, if its Board of Directors determines in the exercise of its reasonable judgment that effecting such Demand Registration at such time would have a material adverse effect on the Company, defer such Demand Registration for a period not to exceed 90 days, and (iii) if the Company elects to defer any Demand Registration pursuant to (ii) above, no Demand Registration will be deemed to have occurred for purposes of this Agreement. The demanding Shareholder's request will specify the aggregate number of Registrable Securities requested to be registered and the intended methods of disposition of such Registrable Securities. 1.2 Number of Demand Registrations. Champagne will be entitled to two Demand Registrations. Stanton will be entitled to one Demand Registration. A Demand Registration will not be counted as a Demand Registration under this Agreement until the registration statement related to such Demand Registration has been declared effective by the SEC and maintained continuously effective for a period of at least six months or such shorter period when all Registrable Securities included in the Demand Registration have been sold in accordance with such Demand Registration. If the Company elects to issue and sell any equity securities pursuant to any Registration Statement filed in connection with a Demand Registration or if the number of Registrable Securities that the demanding Shareholder is entitled to sell in a Demand Registration is reduced in accordance with Section 1.3 below, then such registration will be deemed not to be a Demand Registration solely for purposes of determining the number of Demand Registrations to which the demanding Shareholder is entitled under this Agreement. 1.3 Priority on Demand Registrations. If the managing underwriter or underwriters of the Demand Registration (or in the case of a Demand Registration not being underwritten, in the opinion of the demanding Shareholder), advise the Company in writing that in its/their/his reasonable opinion the number of securities proposed to be sold in the Demand Registration is inconsistent with that which can be sold in such offering without having a material effect on the success of the offering (including, without limitation, an impact on the selling price or the number of Registrable Securities that the demanding Shareholder may sell), the Company will include in such registration only the number of securities that, in the reasonable opinion of such underwriter or underwriters (or the demanding Shareholder as the case may be) can be sold without having a material adverse effect on the success of the offering as follows: (i) first, the Registrable Securities requested to be included in such Demand Registration by the demanding Shareholder(s), provided, however that if it shall be necessary to reduce the number of Registrable Securities requested to be included in the Demand Registration by demanding Shareholders, the Company will first reduce the number of Registrable Securities included by Stanton and only after that number is reduced to zero, reduce the number of Registrable Securities included by Champagne; (ii) second, any securities being issued and sold by the Company; and (iii) third, any securities held by other shareholders of the Company and being registered pursuant to Piggyback Registration rights. 1.4 Selection of Underwriters. If the Demand Registration is an underwritten offering, the Company, subject to the demanding Shareholder's consent (not to unreasonably withheld) will: (i) select a managing underwriter or underwriters to administer the offering; and (ii) determine the terms under which the underwriting will take place. SECTION 2 Piggyback Registration Rights 2.1 Right to Piggyback. Subject to Sections 2.2 and 2.3 whenever the Company proposes to register any common shares with the SEC under the Securities Act on its own behalf and/or on behalf of any of its security holders (the "demanding security holders"), other than pursuant to a registration on Forms S-4, F-4 or S-8, or any successor forms to those forms (a "Piggyback Registration"), the Company (i) will give written notice to all Shareholders who hold Registrable Securities at least 30 days prior to the anticipated filing date, of its intention to effect such a registration, specifying the proposed offering price, the number of securities proposed to be registered, the distribution arrangements and such other information that at the time would be appropriate to include in such notice, and (ii) will, subject to Section 2.3 below, include in such Piggyback Registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 20 days after the date of the Company's notice. Except as otherwise may be provided in this Agreement, Registrable Securities with respect to which such request for registration has been received will be registered by the Company and offered to the public in a Piggyback Registration on terms and conditions at least as favorable as those applicable to the registration of the common shares to be sold by the Company and/or the demanding security holders and any other person selling under such Piggyback Registration. 2.2 Number of Piggyback Registrations. Each Shareholder will be entitled to two Piggyback Registrations. A Piggyback Registration will not be counted as a Piggyback Registration under this Agreement until the registration statement related to such Piggyback Registration has been declared effective by the SEC and maintained continuously effective for a period of at least six months or such shorter period when all Registrable Securities included in the Piggyback Registration have been sold in accordance with such Piggyback Registration. 2.3 Priority on Piggyback Registrations. If the managing underwriter or underwriters, if any, advise the selling Shareholders in writing that in its or their reasonable opinion (or in the case of a Piggyback Registration not being underwritten the demanding security holders, if any, or if there are no demanding security holders, the Company, shall reasonably determine and notify the selling Shareholders of such determination), that the number or kind of securities proposed to be sold in such registration (including Registrable Securities to be included pursuant to Section 2.1 above) is inconsistent with that which can be sold in such registration without having a material effect on the success of the offering (including, without limitation, an impact on the selling price or the number of securities that any participant may sell), the Company will include in such registration the number of securities, if any, which, in the opinion of such underwriter or underwriters, or the demanding security holders, or the Company, as the case may be, can be sold as follows: (i) first, the securities the demanding security holders propose to sell, (ii) second, the securities the Company proposes to sell, and (iii) third, the Registrable Securities requested to be included in such registration by the Shareholders and any other holder of securities of the Company entitled to Piggyback Registration rights. To the extent that the privilege of including Registrable Securities in any Piggyback Registration pursuant to clause (iii) above must be allocated among the selling Shareholders and any other holder of securities of the Company entitled to Piggyback Registration rights, the allocation will be made pro rata based on the number of Registrable Securities that each holder entitled to Piggyback Registration rights shall have requested to include therein. 2.4 Selection of Underwriters. If any Piggyback Registration is an underwritten offering, the Company will: (i) select a managing underwriter or underwriters to administer the offering, and (ii) determine the terms under which such underwriting will take place. SECTION 3 Registration Procedures 3.1 Registration Procedures. With respect to any Demand Registration or Piggyback Registration (generically, a "Registration"), the Company will, subject to Sections 1.3 and 2.3, as promptly as practicable: 3 (a) prepare and file with the SEC, a registration statement or registration statements (the "Registration Statement") relating to the applicable Registration on any appropriate form under the Securities Act that is available for the sale of the Registrable Securities in accordance with the intended method or methods of distribution thereof; provided, however, that the Company will include in any Registration Statement on a form other than Form S-1 all information that the selling Shareholders shall reasonably request and shall include all financial statements required by the SEC to be filed therewith, cooperate and assist in any filings required to be made with the National Association of Securities Dealers, Inc. ("NASD"), and use its best efforts to cause such Registration Statement to become effective; provided further, that before filing a Registration Statement or prospectus related to the Registration Statement (a "Prospectus") or any amendments to the Registration Statement or any supplements to a Prospectus, the Company will furnish to the selling Shareholders and the underwriters, if any, copies of all such documents proposed to be filed, which documents will be subject to the reasonable review of such selling Shareholders and underwriters and their respective counsel, and the Company will not file any Registration Statement, or amendment to the Registration Statement, or any Prospectus, or any supplement to a Prospectus to which the holders of a majority of the Registrable Securities covered by such Registration Statement or the underwriters, if any, shall reasonably object; (b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period, or such shorter period which will terminate when all Registrable Securities covered by the Registration Statement have been sold; cause each Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof specified in such Registration Statement or supplement to the Prospectus; the Company will not be deemed to have used its best efforts to keep a Registration Statement effective during the applicable period if it voluntarily takes any action that would result in selling Shareholders not being able to sell such Registrable Securities during that period unless such action is required under applicable law, provided that the foregoing will not apply to actions taken by the Company in good faith and for valid business reasons, including, without limitation, the acquisition or divestiture of assets, so long as the Company promptly thereafter complies with the requirements of Section 3.1(k) below, if applicable; (c) notify the selling Shareholders and the managing underwriters, if any, promptly, and (if requested by any such person or entity) confirm such advice in writing: (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (B) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information; (C) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (D) if at any time the representations and warranties of the Company contemplated by Section 3.1(n) below cease to be true and correct; (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (F) of the happening of any event which makes any statement made in the Registration Statement, the Prospectus or any document incorporated by reference in the Registration Statement or Prospectus untrue or which requires the making of any changes in the Registration Statement, the Prospectus or any document incorporated by reference in the Registration Statement or Prospectus in order to make the statements therein not misleading; 4 (d) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (e) if requested by the managing underwriter or underwriters or a holder of Registrable Securities being sold in connection with an underwritten offering, promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters and the holders of a majority of the Registrable Securities being sold agree should be included therein relating to the plan of distribution with respect to such Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid for the Registrable Securities by such underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (f) furnish to each managing underwriter and, upon request, to each selling Shareholder, without charge, one signed copy of the Registration Statement and any amendment to the Registration Statement, including financial statements and schedules, all documents incorporated by reference in the Registration Statement and all exhibits (including those incorporated by reference); (g) deliver to each selling Shareholder and the underwriters, if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement to the Prospectus as such Shareholder and underwriters may reasonably request; the Company consents to the use of each Prospectus or any amendment or supplement to the Prospectus by each of the selling Shareholders and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement to the Prospectus; (h) prior to any public offering of Registrable Securities, register or qualify or cooperate with the selling Shareholders, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or "Blue Sky" laws of such jurisdictions as any selling Shareholder or underwriter reasonably requests in writing, considering the amount of Registrable Securities proposed to be sold in each such jurisdiction, and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided, however, that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject; 5 (i) cooperate with the selling Shareholders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of Registrable Securities to the underwriters; (j) use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the selling Shareholders or the underwriters, if any, to consummate the disposition of the Registrable Securities; (k) upon the occurrence of any event contemplated by Section 3.1(c)(F) above, prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated by reference in the Registration Statement or Prospectus or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements in the Prospectus not misleading; (l) cause all Registrable Securities covered by any Registration Statement to be authorized for trading or listed, as appropriate, on the Nasdaq Small Cap Market and/or any other automatic quotation system or securities exchange on which the common shares are then authorized for trading or listed, as appropriate; (m) provide a CUSIP number for the Registrable Securities, not later than the effective date of the applicable Registration Statement; (n) enter into such agreements (including an underwriting agreement) and take all such other actions in connection therewith as shall be reasonably necessary to facilitate the disposition of the Registrable Securities, and in connection therewith: (A) make such representations and warranties to the selling Shareholders and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings; (B) obtain opinions of counsel to the Company and updates of those opinions (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority of the Registrable Securities being sold) addressed to each selling Shareholder and the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Shareholders and underwriters; (C) obtain "cold comfort" letters and updates of such letters from the Company's independent certified public accountants addressed to the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with primary underwritten offerings; (D) if an underwriting agreement is entered into, it shall set forth in full the indemnification provisions and procedures set forth in Section 3.2 below with respect to all parties to be indemnified pursuant to said Section; and (E) the Company shall deliver such documents and certificates as may be requested by the holders of a majority of the Registrable Securities being sold and the managing underwriters, if any, to evidence compliance with Section 3.1(c)(F) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above will be done at each closing under such underwriting or similar agreement or as and to the extent required under such agreement; 6 (o) make available for inspection during normal business hours by a representative of the holders of a majority of the Registrable Securities, any underwriter participating in any disposition pursuant to such Registration, and any attorney or accountant retained by the representative or underwriter, all financial and other records, and pertinent corporate documents of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such representative, underwriter, attorney or accountant in connection with such Registration Statement; provided, however, that any records, information or documents that are designated by the Company in writing as confidential shall be kept confidential by such persons unless disclosure of such records, information or documents is required by court or administrative order or any regulatory body having jurisdiction (in which case such persons will notify the Company in writing no less than 5 business days in advance of making the disclosure); (p) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC; and (q) promptly prior to the filing of any document that is to be incorporated by reference into any Registration Statement or Prospectus (after initial filing of the Registration Statement), provide copies of such document to counsel to the selling Shareholders and to the managing underwriters, if any, make the Company's representatives available for discussion of such document and make such changes in such document prior to its filing as counsel for such selling Shareholders or underwriters may reasonably request. 3.2 Obligation of Selling Shareholders to Furnish Information. (a) The Company may require each seller of Registrable Securities as to which any Registration is being effected to furnish to the Company such information regarding the proposed distribution of such securities as the Company may from time to time reasonably request in writing. (b) Each Shareholder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.1(c)(F), such Shareholder will forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement until such Shareholder's receipt of copies of the supplemented or amended Prospectus as contemplated by Section 3.1(k), or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus, and, if so directed by the Company, such Shareholder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Shareholder's possession, of the Prospectus covering such Registrable Securities. In the event the Company shall give any such notice, the six-month time period referred to in Sections 1.2 and 2.2 shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 3.1(c)(F) or the Advice. 7 3.3 Rule 144. The Company agrees that at all times after it has filed a registration statement pursuant to the requirements of the Securities Act relating to any class of equity securities of the Company, it will file in a timely manner all reports required to be filed by it pursuant to the Securities Act and the Exchange Act and will take such further action as any Shareholder may reasonably request in order that such Shareholder may effect sales of Registrable Securities pursuant to Rule 144. At any reasonable time and upon request of a Shareholder, the Company will furnish such Shareholder and others with such information as may be necessary to enable the Shareholder to effect sales of common shares pursuant to Rule 144 under the Securities Act and will deliver to such Shareholder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, the Company may deregister any class of its equity securities under Section 12 of the Exchange Act or suspend its duty to file reports with respect to any class of its equity securities under Section 12 of the Exchange Act or suspend its duty to file reports with respect to any class of its securities pursuant to Section 15(d) of the Exchange Act if it is then permitted to do so pursuant to the Exchange Act and the rules and regulations thereunder. 3.4 Participation in Underwritten Registrations. No Shareholder may participate in any underwritten registration hereunder unless such Shareholder (i) agrees to sell his Registrable Securities on the basis provided in any underwriting arrangements approved by the Company, and (ii) accurately completes in a timely manner and executes all questionnaires, powers of attorney, underwriting agreements and other documents customarily required under the terms of such underwriting arrangements. SECTION 4 Restrictions on Public Sale 4.1 Public Sale by Shareholders. To the extent not inconsistent with applicable law, each Shareholder whose Registrable Securities are included in a Registration Statement pursuant to this Agreement, if requested by the managing underwriter or underwriters for such Registration, shall agree not to effect any public sale or distribution of Registrable Securities, including a sale pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, during the 15 business days prior to, and during the 90-day period (or such shorter period as may be agreed to by such underwriter or underwriters) following the effective date of a Registration Statement pursuant to such Demand Registration or Piggyback Registration (except as part of such Demand or Piggyback Registration). 4.2 Public Sale by the Company. If requested by the managing underwriter or underwriters for any underwritten Registration, or by the holders of a majority of the Registrable Securities being registered in a Demand Registration that is not being underwritten, (i) the Company will not effect any public sale or distribution of common shares (or securities convertible into or exchangeable or exercisable for common shares) for its own account during the 15 business days prior to, and during the 90-day period following the effective date of such Registration, and (ii) the Company will use its best efforts to cause each other holder of common shares (or securities convertible into or exchangeable for, or options to purchase, common shares) purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution of any such securities during the period described in (i) above (except as part of such Registration, if otherwise permitted). 8 SECTION 5 Registration Expenses 5.1 Generally. Except as provided in Section 5.2 below, all expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company, including, without limitation, all registration and filing fees, the fees and expenses of the counsel and accountants for the Company (including the expenses of any "cold comfort" letters and special audits required by or incident to the performance of such persons), all other costs and expenses of the Company incident to the preparation, printing and filing under the Securities Act of the Registration Statement (and all amendments and supplements to the Registration Statement) and furnishing copies of the Registration Statement and of the Prospectus included therein, the costs and expenses incurred by the Company in connection with the qualification of the Registrable Securities under the state securities or "Blue Sky" laws of various jurisdictions, the costs and expenses associated with filings required to be made with the NASD (including, if applicable, the fees and expenses of any "qualified independent underwriter" and its counsel as may be required by the rules and regulations of the NASD), the costs and expenses of authorizing the Registrable Securities for trading on the Nasdaq Small Cap Market or of listing them for trading on a national securities exchange and all other costs and expenses incurred by the Company in connection with any Registration under this Agreement. 5.2 Excluded Costs and Expenses, The Company shall not bear the costs and expenses of any selling Shareholder for underwriters' commissions, discounts and nonaccountable expense allowances, brokerage fees or transfer taxes, nor the fees and expenses of any counsel, accountants or other representative retained by any selling Shareholder. SECTION 6 Indemnification 6.1 Indemnification by the Company. The Company agrees to indemnify, to the full extent permitted by law, each Shareholder, against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or preliminary Prospectus, or any omission or alleged omission to state therein a material fact necessary to make the statements therein (in the case of a Prospectus or any preliminary Prospectus, in light of the circumstances under which they were made) not misleading, except to the extent that such untrue statement or omission is caused by any information with respect to such Shareholder furnished in writing to the Company by such Shareholder or its representative expressly for use therein. The Company will also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each person who controls such persons (within the meaning of the Securities Act) to the same extent as provided above with respect to Shareholders; provided, however, that if pursuant to an underwritten public offering of Registrable Securities, the Company and any underwriters enter into an underwriting or purchase agreement relating to such offering that contains provisions relating to indemnification and contribution between the Company and such underwriters, such provisions shall be deemed to govern indemnification and contribution as between the Company and such underwriters. 9 6.2 Indemnification by Shareholders. In connection with any Registration, each Shareholder participating in such Registration will furnish to the Company in writing such information with respect to the Shareholder as the Company reasonably requests for use in connection with any Registration Statement, Prospectus or preliminary Prospectus, and agrees to indemnify, to the full extent permitted by law, the Company, the directors and officers of the Company signing the Registration Statement and each person who controls the Company (within the meaning of the Securities Act and the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements in the Registration Statement, Prospectus or preliminary Prospectus (in the case of the Prospectus or any preliminary Prospectus, in light of the circumstances under which they were made) not misleading, to the extent, and only to the extent, that such untrue statement or omission is caused by any information with respect to the Shareholder furnished in writing by the Shareholder or its representative specifically for inclusion therein. In no event shall the liability of any selling Shareholder hereunder be greater in amount than the dollar amount of the proceeds received by such Shareholder upon the sale of the Registrable Securities giving rise to such indemnification obligation. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, to the same extent as provided above with respect to information with respect to such persons or entities so furnished in writing by such persons or entities or their representatives specifically for inclusion in any Registration Statement, Prospectus or preliminary Prospectus. 6.3 Conduct of Indemnification Proceedings. Any person or entity entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party after the receipt by the indemnified party of a written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such indemnified party will claim indemnification or contribution pursuant to this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding Section 6.1 or 6.2, as applicable, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice and (ii) unless in such indemnified party's reasonable judgment a conflict of interest may exist between such indemnified and indemnifying parties with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Whether or not such defense is assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will be required to consent to the entry of any judgment or to enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff of a release from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel in any one jurisdiction for all parties indemnified by such indemnifying party with respect to such claim unless a conflict of interest exists between the indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of the additional counsel or counsels. 10 6.4 Contribution. If for any reason the indemnification provided for in the preceding Section 6.1 or 6.2, as applicable, is unavailable to an indemnified party as contemplated by such Section, then the indemnifying party, in lieu of indemnification, shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage, liability or expense in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations; provided, however, that no selling Shareholder shall be required to contribute in an amount greater than the difference between the net proceeds received by the Shareholder with respect to the sale of Registrable Securities and all amounts already contributed by the Shareholder with respect to such claims, including amounts paid for any legal or other fees or expenses incurred by the Shareholder. SECTION 7 Definitions 7.1 Certain Definitions. As used in this Agreement, the following terms have the following meanings: "Exchange Act" means the United States Securities Exchange Act of 1934. "Permitted Transferee" with respect to any Shareholder means such Shareholder's issue, spouse, or any trust, partnership or limited liability company for the exclusive benefit of such Shareholder's issue or spouse. "Registrable Securities" means: (i) the common shares of the Company held by the Selling Shareholders on the date of this Agreement, which in the case of Champagne is ___________ common shares, in the case of Stanton is ________ common shares and in the case of Kirkland is _____________ common shares, and (ii) any common shares or other equity securities of the Company issued or issuable in respect of the common shares referred to in clause (i) upon any stock split, stock dividend, recapitalization, or similar event; provided, however, that common shares or other securities will only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(l) of the Securities Act so that all transfer restrictions and any restrictive legends with respect to those transfer restrictions are removed upon the consummation of such sale. 11 7.2 Terms Defined in the Agreement. The following terms are defined in the Agreement: Term Section ---- ------- Advice 3.2 Agreement Preamble Champagne Preamble Company Preamble Demand Registration 1.1 demanding security holders 2.1 IPO Recitals Kirkland Preamble NASD 3.1(a) Piggyback Registration 2.1 Prospectus 3.1(a) Registration 3.1 Registration Statement 3.1(a) SEC Recitals Securities Act Recitals Stanton Preamble SECTION 8 Miscellaneous 8.1 Assignment. (a) No transferee of common shares from a Shareholder or a subsequent transferee, other than a Permitted Transferee shall be entitled to the registration rights provided in this Agreement. (b) Before a Permitted Transferee is entitled to the registration rights provided in this Agreement, such Permitted Transferee shall execute a letter agreement in form and substance reasonably satisfactory to the Company, agreeing to be bound by the terms and conditions of this Agreement to the same extent as the Transferor of the common shares so transferred was bound. (c) Upon the transfer of Registrable Securities to a Permitted Transferee, the registration rights of the Shareholder transferring the Registrable Securities shall thereafter be exercised by action of holders of a majority of the Registrable Securities of the transferring Shareholder's class. 8.2 Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties to this Agreement, and their Permitted Transferees, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 12 8.3 Governing Law. This Agreement will be governed by and construed under the laws of the State of New York in the United States of America without giving effect to the conflicts of laws principles thereof. 8.4 Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 8.5 Notices. Any notice required or permitted by this Agreement will be in writing and sent by prepaid registered or certified mail return receipt requested, delivered by hand or by messenger, or delivered by Federal Express or other reputable overnight delivery service, or by facsimile followed with a copy by first class mail and addressed to the other party at the address shown below or at such other address for which such party gives notice under this Agreement. Such notice will be deemed to have been given when delivered if delivered personally, if sent by mail, at the earlier of its receipt or three (3) business days after deposit in the mail, if sent by Federal Express or another reputable overnight delivery service two (2) business days after delivery to such service, or, if by facsimile, upon confirmation that the transmission was sent successfully. (a) If to the Company: E-Cruiter.com Inc. 1510-360 Albert Street Ottawa, Ontario Canada, KIR-7X7 Attention:______________ Telephone: 613-236-2263 Facsimile: 613- (b) If to Champagne, to: Paul Champagne [ ] [ ] Canada Telephone: Facsimile: (c) If to Stanton, to John Gerard Stanton [ ] [ ] Canada Telephone: Facsimile 13 (d) If to Kirkland, to: Les Kirkland [ ] [ ] Canada Telephone: Facsimile: 8.6 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, portions of such provisions, or such provisions in their entirety, to the extent necessary, shall be severed from this Agreement, and the balance of this Agreement shall be enforceable in accordance with its terms. 8.7 Entire Agreement; Amendments and Waivers. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties to this Agreement. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers of or consents to departures from the provisions of this Agreement may not be given unless approved in writings by the Company and each Shareholder; provided, however, that no Shareholder consent shall be required to amend this Agreement to include any Permitted Transferee of a Shareholder. No action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, will be deemed to constitute a waiver by the party taking such action. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as waiver of any preceding or succeeding breach and no failure by any party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder. 8.8 Termination. This Agreement shall terminate and cease to be of any further force or effect upon the earlier to occur of: (i) the date on which all Registrable Securities cease to be treated as Registrable Securities by reason of the proviso contained in the definition of "Registrable Securities;" (ii) the exercise by all Shareholders of the registration rights to which they are entitled under this Agreement; and (iii) the Company's merger with and into another corporation where, in connection with the merger, the common shares are exchanged exclusively for cash and/or shares of capital stock or other securities that are publicly traded on a national securities exchange or authorized for trading on the NASDAQ National Market System. 8.9 Recapitalizations, Exchange, Etc. Affecting the Company's Common Shares. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the common shares, to any and all shares of capital stock of the Company that may be issued in respect of, in exchange for, or in substitution of the common shares referred to in the definition of "Registrable Securities" and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date of this Agreement. 14 8.10 Headings. The headings of the Sections of this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written., E-CRUITER.COM INC., By: --------------------------------- Name: Title: THE SHAREHOLDERS: ------------------------------------- Paul Champagne ------------------------------------- John Gerard Stanton ------------------------------------- Les Kirkland 16 TABLE OF CONTENTS
Page SECTION 1 Demand Registration Rights.....................................................................1 1.1 Right to Demand....................................................................................1 1.2 Number of Demand Registrations.....................................................................1 1.3 Priority on Demand Registrations...................................................................2 1.4 Selection of Underwriters..........................................................................2 SECTION 2 Piggyback Registration Rights..................................................................2 2.1 Right to Piggyback.................................................................................2 2.2 Number of Piggyback Registrations..................................................................3 2.3 Priority on Piggyback Registrations................................................................3 2.4 Selection of Underwriters..........................................................................3 SECTION 3 Registration Procedures........................................................................3 3.1 Registration Procedures............................................................................3 3.2 Obligation of Selling Shareholders to Furnish Information..........................................7 3.3 Rule 144...........................................................................................7 3.4 Participation in Underwritten Registrations........................................................8 SECTION 4 Restrictions on Public Sale....................................................................8 4.1 Public Sale by Shareholders........................................................................8 4.2 Public Sale by the Company.........................................................................8 SECTION 5 Registration Expenses..........................................................................9 5.1 Generally..........................................................................................9 5.2 Excluded Costs and Expenses........................................................................9 SECTION 6 Indemnification................................................................................9 6.1 Indemnification by the Company.....................................................................9 6.2 Indemnification by Shareholders...................................................................10 6.3 Conduct of Indemnification Proceedings............................................................10 6.4 Contribution......................................................................................11 SECTION 7 Definitions...................................................................................11 7.1 Certain Definitions...............................................................................11 7.2 Terms Defined in the Agreement....................................................................12 SECTION 8 Miscellaneous.................................................................................12 8.1 Assignment........................................................................................12 8.2 Third Parties.....................................................................................12 8.3 Governing Law.....................................................................................12 8.4 Counterparts......................................................................................13 8.5 Notices...........................................................................................13 8.6 Severability......................................................................................14 8.7 Entire Agreement; Amendments and Waivers..........................................................14 8.8 Termination.......................................................................................14 8.9 Recapitalizations, Exchange, Etc. Affecting the Company's Common Shares...........................14 8.10 Headings..........................................................................................14
Registration Rights Agreement by and among E-Cruiter-Com Inc., Paul Champagne, John Gerard Stanton and Les Kirkland dated as of September 16th, 1999 EX-10.2 6 EXHIBIT-10.2 THIS CONSULTING AGREEMENT is made as of the 22nd day of July, 1999. B E T W E E N: E-CRUITER.COM INC., a corporation incorporated under the laws of Canada (hereinafter called "E-Cruiter") -and- DAETUS CONSULTING INC., a corporation incorporated under the laws of Ontario (hereinafter called the "Consultant") WHEREAS: 1. The Consultant is familiar with the business and operations of E-Cruiter and E-Cruiter desires to retain and the Consultant desires to provide to E-Cruiter professional services with respect to such business and operations in accordance with the terms and conditions herein set forth. NOW THEREFORE in consideration of the premises and other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by each of the parties) and the covenants herein contained the parties hereto covenant and agree as follows: 1 1. DEFINITIONS 1.1 Unless the context otherwise specifies or requires, in this Agreement the following terms shall have the meanings specified in this paragraph 1.1. Certain other capitalized terms are defined elsewhere in this Agreement. 1.1.1 "Agreement", "hereto", "herein", "hereof", "hereunder" and similar expressions refer to this Consulting Agreement and not any particular paragraph or any particular portion of this agreement and includes all schedules attached to this agreement; 1.1.2 "Engagement Letter" has the meaning ascribed thereto in paragraph 2.1 hereof; 1.1.3 "Proposal" has the meaning ascribed thereto in paragraph 2.1 hereof; 1.1.4 "Services" has the meaning ascribed thereto in paragraph 2.1 hereof; 1.1.5 "Term" has the meaning ascribed thereto in paragraph 3.1 hereof; 1.1.6 "Work Product" means everything that is produced by the Consultant in the course of this Agreement, including, without limitation, notes, reports, documentation, drawings, computer programs (source code, object code and listings), customer lists, inventions, creations, works, devices, work-in-progress and deliverables described in Schedule "A" attached hereto. 2. SERVICES RETAINED 2.1 E-Cruiter retains and the Consultant agrees to provide the professional services set forth in the letter dated July 22, 1999 from Les Kirkland to 2 Gerry Stanton (the "Engagement Letter") and the proposal dated July 27, 1999 from the Consultant to E-Cruiter (the "Proposal"), both of which are attached hereto as Schedule "A" and which form part of this Agreement (the Engagement Letter and the Proposal are collectively hereinafter referred to as the "Services"). 3. TERM 3.1 The Consultant's engagement hereunder shall commence on the date hereof and shall continue until February 9th, 2000 (the "Term") except as modified by change requests. Thereafter, the Term may be renewed, on such terms and conditions as E-Cruiter and the Consultant may agree. 4. PERSONNEL 4.1 The Consultant shall execute, on a best efforts basis, an agreement similar to this CONSULTING AGREEMENT, with qualified personnel of its choice, whom it shall have the right to replace at its discretion. 4.2 E-Cruiter may require the Consultant to immediately replace a person who, in E-Cruiter's opinion, acting reasonably, does not perform in a satisfactory manner. E-Cruiter acknowledges that it has met with Tim Goss and that any change of this individual would delay the project schedule and the new milestone dates would be renegotiated by E-Cruiter.com and the Consultant. 4.3 The parties agree that, during the term of this Agreement and for twelve months thereafter, they will not solicit the services of any staff member or consultant of the other party. 3 5. PREMISES AND COMPUTERS 5.1 The Consultant shall be responsible for providing its own computers and software applications for software development and testing. If E-Cruiter requires the Consultant to employ computers other than IBM compatible computers and/or an operating system other than Windows NT Workstation and/or development software other than Microsoft Visual Basic, C++ , ATL and Access, then E-Cruiter shall make computers and/or an operating system and/or development software available to the Consultant. 5.2 The Consultant acknowledges that it is currently in possession of certain property including computer equipment and a cellular phone owned by E-Cruiter. The Consultant agrees to lease the computer equipment for $200.00 per month and pay for the monthly costs of using the cellular phone during the Term of this Agreement and to return this property to E-Cruiter at the end of this Agreement. While E-Cruiter may arrange Internet services for the Consultant, the Consultant agrees to pay for usage of Internet connection (ADSL). While E-Cruiter may arrange health benefit coverage for certain employees or agents of the Consultant under E-Cruiter's benefits program with ManuLife Financial, the Consultant agrees to pay for such coverage. E-Cruiter has no obligation to the Consultant, its employees and agents for medical benefits, disability insurance, life insurance or other such coverage. 6. CONSULTING FEE 6.1 E-Cruiter shall pay to the Consultant the fixed sum of Seventy-Eight Thousand, Eight Hundred and Fifty Dollars ($78,850.00) plus goods and services tax ("GST") for the services of the agents or employees of the Consultant, other than Les Kirkland. Monthly milestone payments are due as follows: o July 31, 1999 $ 8,350.00 o August 31, 1999 $11,750.00 o September 30, 1999 $11,750.00 o October 31, 1999 $11,750.00 4 o November 30, 1999 $11,750.00 o December 31, 1999 $11,750.00 o January 31, 2000 $11,750.00 6.2 E-Cruiter shall also pay to the Consultant the fixed sum of Seventy Five Thousand Nine Hundred and Fifty Dollars ($75,950) plus GST for the services of Les Kirkland. These payments will be made at the end each month starting with July 1999 and ending with January 2000. The Consultant agrees to deductions by E-Cruiter for cellular phone usage, computer rental, Internet service provider fees (ADSL) and benefit premiums of the Consultant's employees or agents. 6.3 E-Cruiter shall reimburse the Consultant for all reasonable and necessary business expenses upon presentation to E-Cruiter of appropriate written documentation and receipts therefor. The Consultant must receive prior written approval from E-Cruiter for any single expense in excess of Two Hundred and Fifty Dollars ($250.00). 7. DELIVERY OF SERVICES 7.1 Subject to paragraph 7.2 herein, the Consultant shall provide to E-Cruiter the Services on the dates described in Schedule "A". 7.2 At the M3 milestone (as described in the Proposal), representing presentation of the system design documents, the parties shall establish the schedule for all subsequent deliverables in milestones. The Consultant shall use best efforts to ensure that the dates as originally presented to E-Cruiter remain unchanged. Any change in milestones or deliverables shall not result in any additional cost to E-Cruiter, other than if such cost is as a result of E-Cruiter requesting a functionality that was not specified in Schedule "A" attached hereto. 5 7.3 In the event that the Consultant has not met any one or all of the major milestones, being M3, M8, and M14 (as described in the Proposal) as of 8:00 a.m. on the sixth business day following the established milestone date, E-Cruiter may charge the Consultant a one time late penalty fee of Two Thousand Dollars ($2,000.00) for each of the three major milestones missed by the Consultant. E-Cruiter may deduct such penalty from amounts otherwise due to the Consultant. 7.4 If , by the eleventh business day following the milestone due date, the deliverables remains undelivered, E-Cruiter has the right to terminate this Agreement without any further obligations to the Consultant. Upon such termination, E-Cruiter shall pay to the Consultant any fees owing for the Services delivered up to and including the milestone date, on the condition that all work in progress is delivered to E-Cruiter. 8. INTELLECTUAL PROPERTY 8.1 All Work Product created by the Consultant under this Agreement is "work for hire" and is the property of E-Cruiter. The Consultant assigns to E-Cruiter all right, title and interest in and to the Work Product. The Consultant expressly waives any claim to moral rights over any Work Product created by the Consultant under this Agreement, and the Consultant shall ensure that any agent or employee of the Consultant shall have waived all moral rights over any Work Product created under this Agreement. 8.2 The Consultant warrants that the provision of the Services and materials called for hereunder shall not infringe any third party "Intellectual Property Rights" (patents, trademarks, copyrights, trade secrets) and agrees to fully defend and indemnify E-Cruiter, at the Consultant's expense, against all claims relating to any Intellectual Property Rights arising out of the Consultant's fault or negligence. 6 9. WARRANTIES AND LIMITATION OF LIABILITY 9.1 The parties recognize that Consultant's exclusive warranty with regard to the Services and materials provided under this Agreement is to provide the Services and materials of professional quality conforming to generally accepted practices in the field of information management and technology. 9.2 The Consultant warrants that the deliverables resulting from the Services shall meet the contractual requirement so that the deliverables (as evidenced during acceptance tests, as applicable) accurately and automatically process date and date-related data including, but not limited to calculating, comparing, and sequencing of such data from, into and between the twentieth and twenty-first centuries, including leap year calculations when used in accordance with the documentation provided by the Consultant and accepted by E-Cruiter, provided that all hardware, software and firmware products used with the deliverables properly exchange accurate date and date-related data with them. To that end, the Consultant also warrants that date-related processing will not, in any way, prevent hardware, software or firmware from conforming to the requirement of the Agreement prior to, during, or after the year 2000. E-Cruiter may, at no additional cost, require the Consultant prior to the performance of the Services, to reasonably demonstrate compliance and/or compliance techniques and test procedures it intends to follow in order to comply with all of the obligations contained herein. 9.3 The warranties contained in paragraph 9.2 herein shall not apply where a modification has been made to a deliverable provided under this Agreement by a party other than the Consultant or a party approved in writing by either of them. 9.4 In no event shall the Consultant be liable to E-Cruiter for indirect, special, incidental or consequential damages (including, but not limited to, damages for lost profits, lost sales, lost business opportunity, or injury to 7 person or property), which exceed $75,950, arising out of any breach of this Agreement or the use of the products and/or services provided under this Agreement. 10. CONFIDENTIALITY 10.1 The Consultant shall require each of its agents and employees who work under this Agreement to execute and deliver to E-Cruiter a non-disclosure agreement, the form of which is attached hereto as Schedule "B" 11. NON-COMPETITION 11.1 The Consultant shall require each of its employees and agents who work under this Agreement to execute and deliver to E-Cruiter a non-competition agreement, the form of which is attached hereto as Schedule "C1 and C2". 12. TERMINATION 12.1 E-Cruiter shall have the right to terminate this Agreement at any time without notice to the Consultant. Upon termination, E-Cruiter shall: 12.1.1 pay all amounts owing to the Consultant on the date of termination; 12.1.2 pay the Consultant a termination penalty of Fifteen Thousand Dollars ($15,000.00), provided that: (1) the Consultant returns to E-Cruiter all work in progress; and (2) the Consultant is not in default of any of its obligations under this Agreement; and 12.1.3 pay to the Consultant the monthly fee of Ten Thousand Eight Hundred and Fifty Dollars ($10,850.00), less monthly charges for 8 computer lease, cellular phone, health benefits and internet access, for each remaining month or part thereof, up to and including January 31st, 2000, provided that the Consultant provides services to E-Cruiter, as agreed upon by the parties, between the date of termination and January 31st, 2000. 13. STATUS OF PARTIES 13.1 The Consultant's relationship with E-Cruiter shall be that of an independent contractor and not that of an employee or agent. Without limiting the generality of the foregoing, the Consultant shall not be entitled to participate in any pension plans and employee benefit plans of E-Cruiter nor will the Consultant be entitled to receive any health, life, disability or other insurance provided from time to time to the employees of E-Cruiter. Further, as an independent contractor, the Consultant will be responsible for remitting such amounts as may be required by municipal, provincial or federal authorities, including, without limiting the generality of the foregoing payments to Revenue Canada, the Employment Insurance Commission, Workers Compensation and the Canada Pension Plan. In the event that E-Cruiter is required to make any such remittances on behalf of the Consultant, such payments shall be deducted from the fee at that time owing to the Consultant by E-Cruiter. Before making such deductions, E-Cruiter will use reasonable commercial efforts to ensure that the Consultant is aware of and participates in any discussions with Revenue Canada. 14. ARBITRATION 14.1 All questions, controversy or claims arising out of or relating to this Agreement shall be settled by arbitration in accordance with the Arbitrations Act, Ontario, as amended, by one (1) arbitrator (the "Arbitrator") appointed by the parties. 14.2 The arbitration will take place in the City of Ottawa unless otherwise agreed by the parties. 9 14.3 The Arbitrator has the right to grant legal and equitable relief including injunctive relief and the right to grant permanent and interim injunctive relief. The Arbitrator shall not amend or otherwise alter the terms and conditions of this Agreement. The Arbitrator shall render a decision within 60 days after his or her appointment as Arbitrator. 14.4 Any claim arising out of or relating to the terms of this Agreement shall be made in writing and shall be served upon the party against whom the claim is made not more than twelve (12) months from the date of the alleged breach and any such claim not made within such twelve (12) month period shall be deemed to have been abandoned and shall be absolutely barred. 14.5 The final award of the Arbitrator shall be a condition precedent to an action in any court, and such award shall be final and binding on the parties with no appeal to any court. The parties hereby agree to carry out any decision or order of the Arbitrator in good faith. 15. NOTICES 15.1 Any notice or other written communication required or permitted hereunder shall be in writing and: 15.1.1 delivered personally to the party or, if the party is a corporation, an officer of the party to whom it is directed; 15.1.2 sent by registered mail, postage prepaid, return receipt requested (provided that such notice or other written communication shall not be forwarded by mail if on the date of mailing there exists 10 an actual or imminent postal service disruption in the city from which such communication is to be mailed or in which the address of the recipient is found); or 15.1.3 sent by confirmed facsimile. 15.2 All such notices shall be addressed to the party to whom it is directed at the following addresses: if to : E-Cruiter.com Inc. by mail or personal delivery: 360 Albert Street, Suite 1510 Ottawa, ON K1R 7X7 Attention: Jeff Potts by facsimile: (613) 236-1541 if to : Daetus Consulting Inc. by mail or personal delivery: 80 John Street Ottawa, ON K1M 1N4 Attention: Lester Kirkland 15.3 Any such notice or other written communication shall, if mailed as aforesaid be effective five (5) days from the date of posting; if given by facsimile, shall be effective on the first business day after the sending thereof; and if given by personal delivery shall be effective on the day of delivery. 11 15.4 Either party may at any time change its address by giving notice of such change of address to the other party in the manner specified in this paragraph. 16. FURTHER ASSURANCES The parties hereto shall do all further acts and things and execute all further documents reasonably required in the circumstances to effect the provisions and intent of this Agreement. 17. AMENDMENT OF AGREEMENT This Agreement can only be altered, amended or annulled at any time by the mutual consent in writing of the parties hereto. For greater certainty, all changes in scope and milestone deliverables require the written consent of both parties. 18. TIME OF ESSENCE Time shall be of the essence hereof. 19. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. 20. CURRENCY All payments under and amounts of money referred to in this Agreement are expressed in Canadian Dollars unless otherwise stated. 21. HEADINGS The headings appearing throughout this Agreement are inserted for convenience only and form no part of the Agreement. 12 22. SEVERABILITY The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision hereof and any such invalid or unenforceable provision will be deemed to be severable. 23. ENTIRE AGREEMENT 23.1 This Agreement together with the schedules attached hereto constitutes the entire agreement between the parties and supersedes all prior and contemporaneous agreements, understandings and discussions, whether oral or written, and there are no other warranties, agreements or representations between the parties except as expressly set forth herein. 23.2 The following schedules are attached hereto and form an integral part of this Agreement: Schedules A - Letter dated July 22, 1999 to Gerry Stanton from Les Kirkland; and Proposal dated July 27, 1999 B - Non-disclosure Agreement C - Non-competition Agreement 24. WAIVERS No amendment, waiver or termination of this Agreement will be binding unless executed in writing by the parties to be bound hereby. No waiver of any provision of this Agreement will be deemed or will constitute a waiver of any other provision, nor will any such waiver constitute a continuing waiver unless expressly provided. 13 25. AGREEMENT BINDING This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective personal representative, executors, administrators, successors and assigns. 26. COUNTERPARTS 26.1 This Agreement may be executed in several counterparts, each of which together shall constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the parties may adopt signatures receiving by a fax machine as original signatures of the parties; provided, however, that either party providing its signature in such manner shall promptly forward to the other party an original of the signed copy of this Agreement which was so faxed. SIGNED, SEALED AND DELIVERED this day of ,1999. E-CRUITER.COM INC. Per: ___________________________________ Title: DAETUS CONSULTING INC. Per: ___________________________________ Title: 14 SCHEDULE "A" The Engagement Letter Daetus Consulting Inc. 80 John Street, Ottawa, Ontario, K1M 1N4 Canada Telephone: (613) 747-1719 Fax: (613) 747-1431 July 22, 1999 Gerry Stanton President and CEO E-Cruiter.com Inc. Constitution Square, 360 Albert Street, Suite 1510 Ottawa, Ontario K1R 7X7 Subject: Slingshot Job Launcher Proposal Dear Gerry, It is with pleasure that I submit for your review and purchase approval the following proposal Here are some highlights of Slingshot's capabilities... o The ability to rapidly add new job sites without programming. o Automatic verification that each job posted is, in fact, actually posted. o High capacity and robust - run-time code is written in C++. o Support for job sites using FTP, HTTP, Email o Newsgroup support o Component based technology. o Full reporting capabilities. o E-cruiter 2.x and Helius compatible. I am committed to having two job sites operational by the end of August 1999 and a further eight sites by the end of the contract. If you have any questions or concerns please do not hesitate to contact me. Yours sincerely, Les Kirkland 15 Proposal for the Development of Slingshot: Job Launcher Software prepared for: E-Cruiter.com Inc. prepared by: Daetus Consulting Inc. date prepared: July 27, 1999 16 UNDERSTANDING OF REQUIREMENTS The core functionality of Slingshot consist of a set of job oriented commands, including the ability to post a job, un-post a job and verify a job posting. Additional tools will be provided for controlling and monitoring the system and producing reports. Slingshot commands can be directed to a single site or multiple sites. The target site or sites for a job posting will be identified by the existing E-Cruiter service code field. When posting a job Slingshot will automatically convert the job data to a format that is acceptable by the target site, this may also include some data translation to accommodate site specific fields etc. For sites that permit URL links, Slingshot will automatically add a hot-link back to the E-Cruiter job application page to the posting. When this is not possible, Slingshot will provide the job site with the appropriate E-Cruiter email address. Each job posting will trigger an automatic verification. There are two stages to the verification process: verifying the job transmission and verifying the actual posting. Job transmission verification takes place as Slingshot communicates with the site. Detection of job transmission failures are immediate because failures of this nature will be due to a site being down or an internet communications problem. When a job transmission failure occurs additional attempts will be scheduled for another time. An error will only be generated after a number of transmission failures have occurred. For the posting verification, Slingshot will re-contact the site to determine the success or failure of the posting. The result of the verification can be included in a report or cause a notification email to be generated. A prerequisite for posting verification is that the site must provide an HTTP based search capability. Slingshot will provide an un-post job command. It is possible that some job sites may not be able to support an un-post capability. Slingshot will provide a mechanism for identifying site capabilities. A prerequisite for un-posting is that the site must provide an HTTP based search capability and additionally a means to delete a specified job. There are thousands of job posting sites on the internet and new ones are constantly being created. Slingshot will take advantage of the fact that most of these sites employ one of four possible posting mechanisms: FTP, Email, HTTP or Junglee. Slingshot will define and implement a site gateway component as a means to abstract the task of communicating with a job site. Initially, gateways will be provided to support the FTP, Email, HTTP, Junglee and NNTP posting mechanisms as well as posting verification and un-post operations. The job site gateways will make possible the rapid addition of new sites by non-programmers. Slingshot will provide this capability by delivering a Site Configuration utility for FTP, Email, HTTP, Junglee and NNTP sites. In addition to the site configuration utility, a sophisticated Site Assistant utility will allow the user to teach Slingshot how to post jobs to a specific HTTP based site to facilitate the creation of the initial site configuration file. The Slingshot System Administrator will provide unrestricted access to all Slingshot tables and some powerful high level functions for manipulating Slingshot tables. Since the usual safeguards to insure data integrity will not be present, this tool is intended for use by system administrators. The User Control Panel will provide controlled access to the Slingshot tables and data files. From the Control Panel, users will be able to create new job sites, edit job site configurations, create and edit job site lists, maintain userids and passwords for transparent site access, view the status of any job posting, and other routine tasks. 17 All Slingshot components will be created using Visual C++ 6.0 and ATL 3.0. Since ATL defines all interfaces as Dual, by default, all Slingshot interfaces will be available to Helius. Interaction with the Slingshot system will be handled by tools developed in Visual Basic 6.0. Ultimately Helius will provide the primary user interface to Slingshot. 18 IMPLEMENTATION PLAN The core Slingshot functionality will be complete by 15 October 1999. At this point the system could be put into limited production with some assistance from Daetus to add new sites and modify system parameters. The completion date for the last Slingshot deliverable is 26 January 2000, then after a 2 week transition period the final project approval would fall on 9 February 2000.. E-Cruiter.com has identified a need to post jobs to 2 job sites by 23 August 1999 and a further 8 sites to be delivered at a rate of approximately 1 per week. Initially, E-Cruiter will continue to directly manage job postings to PositionWatch and to CareerBridge.com. The only way to achieve results by the specified dates is to develop an interim, shortcut solution in parallel with Slingshot. In addition to the five standard site gateways (FTP, HTTP, NNTP, Email and Junglee), Slingshot will support a custom gateway to facilitate the implementation of the interim solution. Slingshot will ignore any task created for a job site that uses a custom gateway. These tasks would be handled by a separate application. The interim solution will be the implementation of a system to process tasks using custom gateways. The interim solution will use the same tables and system files as the production Slingshot system and will obey all rules for accessing those tables, allowing the two systems to co-exist peacefully. As the real site gateways are made available, sites can be converted from custom gateways. The interim solution is intended to meet E-Cruiter's short term goals only. It will not support any of the Slingshot features for reporting, administration, verification or a facility for adding new job sites. The interim solution will support only a limited number of job sites and each one will be hard coded. Support for the interim solution will be discontinued as soon as the Slingshot system is complete. Note: The life of the interim solution could be extended indefinitely to provide an option for posting to sites that do not support any of the standard site gateway protocols (FTP, HTTP, NNTP, Email or Junglee). Some components from Slingshot may be used to speed the development of the interim solution. Slingshot components will be released to the team developing the interim solution as they become available as long as such cross-project code sharing does not impact the scheduled delivery of Slingshot. The same 10 job sites identified for the interim solution will be used to test Slingshot during development and will be fully ported to Slingshot as part of the final implementation at E-Cruiter. Once this task has been completed, support for the interim solution can be discontinued. Initially, placebo components will be developed for all of the site gateways and for the verification engine. These components will implement all of the required interfaces, methods and properties of the target component but will provide only minimal functionality (if any). This will allow testing of the Slingshot user interfaces and infrastructure to begin before all of the more complicated gateway code is fully functional. Once the final deliverable has been accepted, Slingshot will be put into full production at E-Cruiter.com. A resource from Daetus will be on-site for a transition period of 2 weeks to assist with setup and installation and provide any necessary system maintenance. 19 After the transition period has ended, the warranty period (90 days) will begin. E-Cruiter.com will receive unlimited phone/email during this period. Any bugs found and reported during this period will be fixed at no additional cost. Site visits to correct problems will be made as required or requested. 20 PROJECT MANAGEMENT The responsibilities of Daetus are clearly defined by the list of deliverables and milestones, but in order for the project to be successful E-Cruiter must agree to meet certain responsibilities as well. E-Cruiter Responsibilities To appoint an individual (or individuals) to act as the project authority. The project authority must be empowered to make decisions that may affect the project scope, cost and schedule. To provide acceptance (sign-off) of project deliverables within the timelines described in the milestones and deliverables schedule. To provide acceptance or to reject any change request to the scope of the project. To make knowledgeable resource(s) available for consultation for the duration of the project. Change Requests Although the cost and scope of the project have been "fixed", it would be unwise to believe that every contingency has been considered. The Change Request Form exists to allow the scope of work to be changed to meet unforseen requirements or merely to add or remove functionality. All change requests are assigned a unique number and become a permanent part of the project history. A change request may be submitted by Daetus or by E-Cruiter. When created, the change request must be assigned a priority of High, Medium or Low. The creator of the change request will set the priority intially but the Project Authority can adjust the priority of any change request.
- ------------------------------------------------------------------------------------------------------------------------------- Priority Meaning - ------------------------------------------------------------------------------------------------------------------------------- High High priority changes are those changes that must be implemented because they are considered imperative to the success of the project. - ------------------------------------------------------------------------------------------------------------------------------- Medium Medium priority changes are "nice to have" features that will be implemented if they can be completed without seriously affecting the project delivery (at the discretion of the Project Authority). - ------------------------------------------------------------------------------------------------------------------------------- Low Low priority changes are "wish list" features that will be logged but not implemented until the core project has been completed. - -------------------------------------------------------------------------------------------------------------------------------
In response to a change request, Daetus will propose a solution and perform an impact analysis. The impact analysis will determine whether the change will affect the schedule and/or the project cost. Once this information is available the Project Authority will decide whether the request will be approved or rejected. If the change request is approved, the Milestones and Deliverables schedule and the project cost will be updated as per the impact analysis. Problem Reports The Problem Report Form is a formal method anyone involved with Slingshot can use to report bugs in the software. All problem reports are assigned a unique number and become a permanent part of the project history. 21 Once a problem has been reported a solution will be proposed and an impact analysis performed to determine whether fixing the problem will affect the schedule. A problem report may be submitted by Daetus or by E-Cruiter. When created, the problem request must be assigned a severity of High, Medium or Low. The creator of the problem report will set the severity intially but the Project Authority can adjust the severity of any problem report.
- --------------------------------------------------------------------------------------------------------------------------------- Severity Meaning - --------------------------------------------------------------------------------------------------------------------------------- High Problem renders software unusable, untestable, or unstable and must be resolved immediately. - --------------------------------------------------------------------------------------------------------------------------------- Medium Problem is obvious but does not seriously affect the operation of the software. - --------------------------------------------------------------------------------------------------------------------------------- Low Minor annoyance, fix as time permits. - ---------------------------------------------------------------------------------------------------------------------------------
All problems that are reported and verified as problems will be fixed. High severity problems will be fixed immediately, medium and low severity problems will be fixed during the transition period at the end of the project or as time permits (at the discrection of Daetus). Quality Assurance All tests described in the System Test Plan will be carried out by a qualified test engineer, working directly with the development team. No deliverable will be presented for approval until it has passed the quality assurance test(s) as specified in the Test Plan. This may require more than one test cycle as high severity bugs are found and fixed. A deliverable may be presented for approval with outstanding low or medium severity bugs (see the previous section on Problem Reports). E-Cruiter may decide to raise the severity of any unresolved problem report and reject the associated deliverable until the problem is resolved. All unresolved problem reports and a report of the test results will be presented with each deliverable (or group of deliverables). 22 DESCRIPTION OF MILESTONES M1 Meeting to present project proposal: This purpose of this meeting is to present the final draft of the Slingshot proposal and address any outstanding questions or concerns. M2 Approval of D1 required: The project proposal must be approved. before any design/development work begins. M3 Meeting to present system design documents: The actual design documents will be delivered to E-Cruiter in advance of this meeting (as they become available) to avoid creating a review bottle-neck.. The purpose of this meeting will be to present the documents and address any immediate questions or concerns. M4 Approval of D2..D5 required: After M3, E-Cruiter has 5 days to review and ask for changes to the design then the system design documents must be approved for development to begin. Note: the designs can still be changed via a change request in the future if necessary. M5 Status Meeting: It will not be possible to demonstrate the system at this point but the status meeting will be held to provide updates on the progress of the interim solution and Slingshot development. M6 Site Information Required: E-Cruiter: E-Cruiter must provide information for the 10 target job sites. It is expected that E-Cruiter will have already established accounts with these sites and can provide the site technical contact as well as any required userids and passwords to facilitate testing. At least one site of each type (FTP, HTTP, NNTP, Email, and Junglee) must be provided. M7 Demo and delivery of D6..D14: Daetus will deliver D6..D15 and install the system at E-Cruiter on a stand-alone test machine in order to provide a brief system demo. M8 Approval of D6..D14 required: After M6, E-Cruiter has 5 days to review and approve the deliverables, D6..D14, in order for development to continue. M9 Meeting to present gateway and verification components: All of the site gateway and verification engines, D15..D22, will be presented at this meeting along with the results of the QA tests for these components. M10 Approval of D15.. D22 required: After M8, E-Cruiter has 5 days to review and approve the deliverables, D15..D22, in order for development to continue. At this point, the system could be put into limited production if necessary. Some extra effort would be required to set up sites and install the software because none of the UI components will be ready. M11 Meeting to present Slingshot UI applications: The Slingshot UI applications, D23..D27 will be presented at this meeting along with the results of the QA tests. M12 Approval of D23..D27 required: After M10, E-Cruiter has 5 days to review and approve the deliverables, D23..D27, in order for development to continue. M13 Report specifications required from E-Cruiter: E-Cruiter must deliver the specifications and layouts for the 4 system rpeorts so development of the reports can begin. M14 Meeting to present reports, source, doc and demo working job sites: The final set of deliverables D28, D29 and D30 will be provided in this meeting and a demonstration will be provided of the fully functional system. 23 M15 Transition period begins: A resource from Daetus will be on-site for a period of 2 weeks. During this time the resource will install the software in the E-Cruiter production environment, train E-Cruiter staff in the use of the system, answer any questions about the software and provide any necessary system maintenance. M16 Approval of D28..D30 required: After the transition period has ended, approval of the final set of deliverables D28..D30 is required before the final project approval can be given. M17 Final project approval required: Once the Final Project Approval Form has been signed the warranty period can begin. M18 Warranty Period Begins: The warranty period will be 90 days. During the warranty period any bugs found and reported will be fixed at no cost. Site visits to correct problems will be made as required or requested. 24 DESCRIPTION OF DELIVERABLES D1 Project Proposal: Acceptance of this proposal and all the terms and conditions stated herein is required before development can begin. Changes to the project can be made in the future by presenting a completed change request form signed by the project authority. D2 Tables and Files: This deliverable will consist of the SQL tables and system files themselves as well as a document describing each in detail. Initially the SQL tables will be developed in Access 97. Ultimately the SQL tables will be imported into SQL server. D3 Functional Specification: This will serve as the design document for all of the Slingshot programs that contain interactive elements. The functional specification will consist of screen snapshots and detailed descriptions of all user interface elements. This document will be used to produce the QA Test Plan. D4 System Architecture: This document will describe all of the Slingshot components, the interfaces they implement and their relationships. D5 Test Plan: This document will consist of a set of manual test cases to be performed to ensure the product performs as described in the functional specification and that the system is robust and reliable. D6 Job Creator: This is an application that allows users to create jobs for submission directly, bypassing the inbound Email and Helius gateways. This will be used primarily to facilitate testing but also to get the interim solution off to a fast start. D7 Inbound Email Gateway Component: This component retrieves job posting emails from a specified POP server and populates the Slingshot job database and task list databases. D8 Inbound Helius Gateway Component: This component retrieves job posting date from Helius and populates the Slingshot job database and task list databases. D9 Task Manager Component: This component is responsible for scheduling and carrying out posting, un-posting and verification tasks, loading the appropriate gateways to carry out site operations and dealing with gateway responses. D10 Placebo Site Gateway Component: This component provides a minimal implementation of the Site Gateway interfaces. All methods and properties required by the Site Gateway design will be present but not fully implemented. D11 Placebo Verification Engine Component: This component that provides a minimal implementation of the Verification Engine interfaces. All methods and properties required by the Verification Engine design will be present but not fully implemented. D12 System Startup and Control: This deliverable consists of the System Monitor application and necessary startup code to load the inbound gateway, task manager and system monitor component. D13 Initial System Test (QA): This will be the first test of all of the system components. Although the gateways and verification engines will not be functional it will allow the infrastructure to be tested to make sure the components are loaded properly, that tasks are scheduled properly and that the system monitor works. A report containing the results of the testing as well as problem reports for any unfixed bugs will be provided. D14 First System Demonstration: This demo is based on D13, the system testing. The purpose of the demo is not to show a fully functional system but to show that all of the components work properly. Part of this deliverable will be the creation of an installation procedure. 25 D15 FTP Site Gateway Component: This component implements the site gateway interface for sites that support posting through FTP. D16 Email Site Gateway Component: This component implements the site gateway interface for sites that support posting through Email. D17 Junglee Site Gateway Component: This component implements the site gateway interface for sites that support posting using the Junglee method. D18 NNTP Site Gateway Component: This component implements the site gateway interface for Newgroup posting. D19 HTTP Site Gateway Component: This component implements the site gateway interface for posting using HTTP. D20 HTTP Verification Engine Component: This component is a full implementation of the HTTP verification engine and will replace the placebo component for verifying postings for all posting methods (except NNTP). D21 NNTP Verification Engine Component: This component is a full implementation of the NNTP verification engine and will replace the placebo component for verifying NNTP postings. D22 Gateway and Verification Testing: This phase of testing focuses on the site gateways for FTP, Email, Junglee, NNTP and HTTP and the verification engines. Gateway testing will be done using one site for each posting method, chosen from the 10 target sites identified by E-Cruiter. If not all posting methods are represented, alternate testing sites will be chosen. Tests will be performed to ensure that verification is working properly and that the engines are not reporting false positives or failures for successful postings. A report containing the results of the testing as well as problem reports for any unfixed bugs will be provided. D23 Site Assistant: This application will allow users to teach Slingshot how to post jobs to new job sites. The Site Assistant will require some user input during the posting process but will be as automated as possible. D24 Slingshot Administrator: This application provides privileged access to all Slingshot tables. See the functional specification for details. D25 Site Configuration Tool: This application allows users to create and modify site configuration files. See the functional specification for details. D26 User Control Panel: This application provides system users with their primary interface to Slingshot. The control panel application allows users to carry out the day to day tasks of posting jobs, setting up new job sites, etc. See the functional specification for details. D27 User Interface Testing (QA): This final phase of testing focuses on the user interface components of Slingshot, which necessarily also covers the underlying components and infrastructure. A report containing the results of the testing as well as problem reports for any unfixed bugs will be provided. D28 Reports: Four summary or status reports. The specific details of these reports must be provided by the project authority. D29 Create 10 Job Sites: Set up the 10 job sites identified for the interim solution and get them working with Slingshot. Once this has been done and tested, support for the interim solution can be discontinued. 26 D30 Source and Documentation: The final deliverable will consist of the complete source code for the project, all the documentation and the results of QA tests on user interface components. 27 MILESTONES/DELIVERABLES SCHEDULE
Milestone/ Target Revised Deliverable Description Date Date D1 Project Proposal M1 Meeting to present project proposal 12 Jul 99 M2 Approval of D1 required 21 Jul 99 D2 Tables and Files D3 Functional Specification D4 System Architecture D5 Test Plan 27 Aug 99 M3 Meeting to present system design documents 17 Aug 99 23 Aug 99 M4 Approval of D2..D5 required 24 Aug 99 30 Aug 99 D6 Job Creator D7 Inbound Email Gateway D8 Inbound Helius Gateway D9 Task Manager Component M5 Status Meeting 17 Sep 99 D10 Placebo Site Gateway Component D11 Placebo Verification Engine Component D12 System Startup and Control D13 Initial System Test (QA) D14 First System Demonstration M6 Site Information Required 8 Oct 99 M7 Demo and delivery of D6..D14 8 Oct 99 M8 Approval of D6..D14 required 15 Oct 99 D15 FTP Site Gateway Component D16 Email Site Gateway Component D17 Junglee Site Gateway Component D18 NNTP Site Gateway Component D19 HTTP Site Gateway Component D20 HTTP Verification Engine Component D21 NNTP Verification Engine Component D22 Gateway and Verification Testing (QA) M9 Meeting to present gateway and verification components 1 Dec 99 M10 Approval of D15.. D22 required 8 Dec 99 D23 Site Assistant D24 Slingshot Administrator D25 Site Configuration Tool D26 User Control Panel D27 User Interface Testing (QA)
28
M11 Meeting to present Slingshot UI applications 12 Jan 00 M12 Approval of D23..D27 required 19 Jan 00 M13 Report specifications required from E-Cruiter D28 Reports D29 Create 10 Job Sites D30 Source and Documentation M14 Meeting to present reports, source, doc and demo working job sites 26 Jan 00 M15 Transition period begins 27 Jan 00 M16 Approval of D28..D30 required 9 Feb 00 M17 Final project approval required 9 Feb 00 M18 Warranty period begins 9 Feb 00
29 SCHEDULE "B" NON-DISCLOSURE AGREEMENT TO: E-CRUITER.COM INC I acknowledge that in the course of the duties of Daetus Consulting Inc. with E-Cruiter.com Inc that I will have access to and be entrusted with confidential information and trade secrets relating to the business of E-Cruiter.com Inc. The disclosure of any of which confidential information and trade secrets to competitors, customers or to the general public, would be highly detrimental to the best interests of E-Cruiter.com Inc. Accordingly, in consideration of the appointment of Daetus Consulting Inc. to provide consulting services for E-Cruiter.com Inc and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, I hereby agree that I will not at any time, either during the time Daetus Consulting Inc. is retained by E-Cruiter.com Inc or thereafter disclose any of such confidential information and trade secrets to any person nor use the same for any other purpose other than for E-Cruiter.com Inc. Without limiting the generality of the foregoing, I hereby covenant and agree that I will not at any time either during the time Daetus Consulting Inc. is retained by E-Cruiter.com Inc or thereafter: i) divulge to any person, firm or corporation or make use of the name of any client of Ecruiter.com Inc. ; (ii) divulge to any person, firm or corporation or make use of any information received or generated by us during the course of our work with regard to the affairs of either of you including, without limitation, any information concerning your methods of business operation; or (iii) use any program materials developed by E-Cruiter.com Inc, except as in my capacity of providing services for E-Cruiter.com Inc. I acknowledge that upon request of E-Cruiter.com Inc I will return all proprietary information of the company and all copies thereof in my possession or control. I will also furnish proof that additional materials kept by me have been destroyed to the satisfaction of E-Cruiter.com Inc. I acknowledge that the information given to me by E-Cruiter.com Inc is the sole property of E-Cruiter.com Inc and that I am holding such information in trust for the benefit of E-Cruiter.com Inc. It is also acknowledged that information gathered and reports generated for E-Cruiter.com Inc is sole property of E-Cruiter.com Inc and is to be considered confidential information. I acknowledge that all confidential information will be stored under strict control and in a secure environment. DATED the day of 1999. SIGNED, SEALED AND DELIVERED ) ____________________________ in the presence of ) ) 30 SCHEDULE "C1" NON-COMPETITION AGREEMENT (LES KIRKLAND AND THE CONSULTANT) TO: E-CRUITER.COM INC. ("E-Cruiter") I (we) acknowledge that during the term of the consulting agreement dated as of July 22, 1999 between E-Cruiter and Daetus Consulting Inc. and for a period of twelve (12) months thereafter, I (we) will not compete, directly or indirectly, either alone or in conjunction with any individual, firm, corporation or any other entity, whether as principal, agent, shareholder, employee or in any other capacity whatsoever, with the then current business of E-Cruiter in any territory where E-Cruiter presently or in the future carries on business. The business of E-Cruiter may include, but is not limited to, placing job advertisements on the Internet, employment recruiting workflow, resume database searching and data extraction, candidate screening, candidate assessment and other human resources products or services. I (we) agree that all of the restrictions contained herein are reasonable and valid and properly required for the adequate protection of E-Cruiter's business. I (we) agree that the remedy at law for any breach or threatened breach by me (it) of the provisions hereof may be inadequate and that in the event of a breach or threatened breach, E-Cruiter shall, in addition to and not in limitation of any other rights, remedies or damages available to E-Cruiter at law or in equity, be entitled to make an application to the appropriate court granting E-Cruiter temporary and/or permanent injunctive relief against me(it). I(we) acknowledge that I(we) have read and understood this Non-competition Agreement and acknowledge that I(we) have had the opportunity to obtain legal advice regarding this Non-competition Agreement. 31 IN WITNESS WHEREOF this Non-competition Agreement has been executed this day of 1999. SIGNED, SEALED AND DELIVERED LESTER KIRKLAND ____________________________ ____________________________________ Witness DAETUS CONSULTING INC. Per:________________________________ Title: 32 SCHEDULE "C2" NON-COMPETITION AGREEMENT (AGENTS AND EMPLOYEES OF THE CONSULTANT) TO: E-CRUITER.COM INC. ("E-Cruiter") I acknowledge that during the term of the consulting agreement dated as of July 22, 1999 between E-Cruiter and Daetus Consulting Inc (the "Consulting Agreement") and for a period of twelve (12) months thereafter, I will not provide the same or similar services, as those provided to E-Cruiter pursuant to the terms of the Consulting Agreement, either alone or in conjunction with any individual, firm, corporation or any other entity, whether as principal, agent, shareholder, employee or in any other capacity whatsoever, to any business that competes, directly or indirectly, with E-Cruiter in any territory where E-Cruiter presently or in the future carries on business. The business of E-Cruiter may include, but is not limited to, placing job advertisements on the Internet, employment recruiting workflow, resume database searching and data extraction, candidate screening, candidate assessment and other human resources products or services. I agree that all of the restrictions contained herein are reasonable and valid and properly required for the adequate protection of E-Cruiter's business. I agree that the remedy at law for any breach or threatened breach by me of the provisions hereof may be inadequate and that in the event of a breach or threatened breach, E-Cruiter shall, in addition to and not in limitation of any other rights, remedies or damages available to E-Cruiter at law or in equity, be entitled to make an application to the appropriate court granting E-Cruiter temporary and/or permanent injunctive relief against me. 33 I acknowledge that I have read and understood this Non-competition Agreement and acknowledge that I have had the opportunity to obtain legal advice regarding this Non-competition Agreement. IN WITNESS WHEREOF this Non-competition Agreement has been executed this day of 1999. SIGNED, SEALED AND DELIVERED ______________________________ _________________________________ Witness Name: 34 EX-10.4 7 EXHIBIT 10.4 NOVEMBER 16, 1993 NOVEMBER 25, 1993 NOVEMBER 29, 1993 DECEMBER 7,1993 JANUARY 4,1994 MAY 2, 1994 OMERS REALTY CORPORATION LANDLORD - and - DRAKE, BEAM, MORIN (OTTAWA) INC. TENANT LEASE Part of 15th Floor 360 Albert Street Constitution Square, Phase I Ottawa, Ontario Osler, Hoskin & Harcourt 146960 File No. 8822725 ARTICLE 1 DEFINITIONS .................................................. 1 1.1 Definitions: ...................................................... 1 ARTICLE 2 GENERAL COVENANTS ............................................ 5 2.1 Tenant's Covenants: ............................................... 5 2.2 Landlord's Covenants: ............................................. 5 ARTICLE 3 DEMISE AND TERM .............................................. 5 3.1 Demise of Premises: ............................................... 5 3.2 License Over Certain Common Facilities: ........................... 5 3.3 Term: ............................................................. 5 3.4 Overholding: ...................................................... 6 3.5 Leasehold Improvements: ........................................... 6 ARTICLE 4 RENT ......................................................... 6 4.1 Basic Rent: ....................................................... 6 4.2 Additional Rent: .................................................. 7 4.3 Payment of Additional Rent: ....................................... 7 4.4 Adjustment of Additional Rent: .................................... 7 4.5 Apportionment of Rent: ............................................ 8 4.6 No Right of Set-off: .............................................. 8 4.7 Additional Rent Deemed Rent: ...................................... 8 4.8 Interest on Arrears: .............................................. 8 4.9 Net Lease to Landlord: ............................................ 8 ARTICLE 5 TAXES ........................................................ 8 5.1 Landlord's Taxes: ................................................. 8 5.2 Tenant's Taxes and Sales Taxes: ................................... 9 5.3 Tenant's Contribution to Taxes: ................................... 9 5.4 Payments: ......................................................... 9 ARTICLE 6 SERVICES, COMMON FACILITIES .................................. 9 6.1 Tenant's Contribution to Operating Costs: ......................... 9 6.2 Operation of Regular HVAC System: ................................. 10 6.3 Additional HVAC: .................................................. 10 6.4 Electricity and Other Utilities: .................................. 10 6.5 Operation of Common Facilities: ................................... 11 6.6 Janitorial Services: .............................................. 11 6.7 Security Services: ................................................ 11 6.8 Interruption in Services: ......................................... 12 6.9 Energy Conservation: .............................................. 12 6.10 Pest Control by Tenant: ........................................... 12 ARTICLE 7 USE AND OCCUPANCY OF PREMISES ................................ 12 7.1 Use of Premises: .................................................. 12 7.2 Waste and Nuisance: ............................................... 12 7.3 No Overloading of Premises or Common Use Equipment: ............... 13 7.4 Insurance Cancellation or Increase: ............................... 13 7.5 Observance of Law by Tenant: ...................................... 13 7.6 Rules and Regulations: ............................................ 13 7.7 Signs: ............................................................ 14 7.8 Name of Development/Project: ...................................... 14 ARTICLE 8 ALTERATIONS .................................................. 14 8.1 Alterations by Tenant: ............................................ 14 8.2 Air-Balancing: .................................................... 15 8.3 No Financing by Tenant of Leasehold Improvements: ................. 15 8.4 Liens: ............................................................ 15 8.5 Alterations by Landlord: .......................................... 15 ARTICLE 9 REPAIRS ...................................................... 16 9.1 Landlord's Repairs: ............................................... 16 9.2 Tenant's Repairs: ................................................. 16 9.3 Entry by Landlord to View State of Repair: ........................ 16 9.4 Notice of Defects: ................................................ 16 9.5 Termination or Abatement after Damage: ............................ 16 9.6 No claim by Tenant: ............................................... 18 9.7 Tenant to Leave Premises in Good Repair: .......................... 18 9.8 No Hazardous Substances: .......................................... 18 ARTICLE 10 INSURANCE AND LIABILITY ...................................... 18 10.1 Landlord's Insurance: ............................................. 18 10.2 Tenant's Insurance: ............................................... 19 10.3 Form of Tenant's Insurance: ....................................... 19 10.4 Release of Landlord by Tenant: .................................... 20 10.5 Indemnity of Landlord by Tenant: .................................. 20 ARTICLE 11 ASSIGNMENTS, ETC. BY TENANT AND TRANSFERS ETC. BY LANDLORD ... 20 11.1 Assignments, Subleases, Charges by Tenant: ........................ 20 11.2 Landlord's Rights of Cancellation: ................................ 22 11.3 Continuing Obligations of Tenant: ................................. 22 11.4 Dealings by Landlord: ............................................. 22 11.5 Subordination and Attornment: ..................................... 22 ARTICLE 12 ESTOPPEL CERTIFICATES, REGISTRATION .......................... 23 12.1 Estoppel Certificates: ............................................ 23 ARTICLE 13 UNAVOIDABLE DELAYS ........................................... 23 13.1 Unavoidable Delays: ................................................ 23 ARTICLE 14 LANDLORD'S ACCESS TO PREMISES ................................ 24 14.1 Inspection and Repair: ............................................ 24 14.2 Right to Exhibit Premises: ........................................ 24 ARTICLE 15 DEFAULT ...................................................... 24 15.1 Events of Default: ................................................ 24 15.2 Remedies by Landlord: ............................................. 25 15.3 Additional Self-help Remedy of Landlord: .......................... 26 15.4 Legal Costs: ...................................................... 26 15.5 Remedies Cumulative: .............................................. 26 15.6 Non-Waiver: ....................................................... 26 ARTICLE 16 GENERAL PROVISIONS ........................................... 26 16.1 Entire Agreement: ................................................. 26 16.2 Schedules: ........................................................ 27 16.3 Planning Act: ..................................................... 27 16.4 Survival of Obligations: .......................................... 27 16.5 Severability of Illegal Provisions: ............................... 27 16.6 Governing Law: .................................................... 27 16.7 No Partnership: ................................................... 27 16.8 Number, Gender, Joint and Several Liability: ...................... 27 16.9 Captions: ......................................................... 27 16.10 Time of Essence: .................................................. 27 16.11 Landlord's Agent: ................................................. 28 16.12 Successors and Assigns: ........................................... 28 16.13 Accounting Principles: ............................................ 28 16.14 Other Leases in Building: ......................................... 28 16.15 Notices and Consents, etc.: ....................................... 28 16.16 No Consent During Default: ........................................ 29 16.17 Further Assurances: ............................................... 29 16.18 Tenant's Notice to Vacate: ........................................ 29 16.19 Landlord's Right to Relocate: ..................................... 29 16.20 Other Construction and Shared Common Facilities: .................. 30 ARTICLE 17 ADDITIONAL PROVISIONS ........................................ 31 17.1 Leasehold Allowance ............................................... 31 17.2 License for Parking: .............................................. 31 17.3 Tenant's First Right to Lease Extra Space: ........................ 32 LANDLORD ................................................................... 33 SCHDULES ................................................................... 34 SCHEDULE A Legal Description of Lands and Project ....................... 34 Part 1 - Development ....................................................... 34 360 Albert Street, Ottawa, being Phase I of Constitution Square ......... 34 SCHEDULE B Definition Of Operating Costs ................................ 35 SCHEDULE C RULES AND REGULATIONS ........................................ 38 SCHEDULE D ................................................................. 41 THIS LEASE entered into this 16th day of November, 1993 IN PURSUANCE of the Short Forms of Leases Act of Ontario BETWEEN: OMERS REALTY CORPORATION (hereinafter called the "Landlord") THE PARTY OF THE FIRST PART - - and - DRAKE, BEAM, MORIN (OTTAWA) INC. (hereinafter called the ATenant@) THE PARTY OF THE SECOND PART In consideration of the premises and the mutual covenants, agreements and conditions herein contained, it is hereby covenanted, agreed and declared between the parties as follows: ARTICLE 1 DEFINITIONS 1.1 Definitions: The terms defined herein shall have, for all purposes of this Lease and all instruments supplemental hereto, the following meanings unless the context expressly or by necessary implication otherwise requires: "Additional Rent" means all sums of money, other than Basic Rent, which are required to be paid by the Tenant pursuant to any provision of this Lease. "Additional Service" means any service identified as such in this Lease or which is requested by the Tenant in addition to those supplied by the Landlord as part of the normal Development service and which the Landlord is prepared to supply at an additional cost to the Tenant. "Additional Service Cost" means the additional amount identified as such in this Lease or payable by the Tenant to the Landlord for any Additional Service. "Basic Rent" means the rent payable by the Tenant pursuant to Asection 4.1. "Building" means the building and all other fixed improvements situate at any time on the Lands, all of which are municipally known as 360 Albert Street, Ottawa, Ontario. "Building Common Facilities" means those Common Facilities serving only the Development. "Building Standard" means the building standard established by the Landlord including matters of design, construction, signage and/or installation to be observed by the tenants in the Building, including the Tenant, in connection with Leasehold Improvements, tenant fixtures, signage and chattels, as amended from time to time by the Landlord, acting reasonably. "Building Proportionate Share" means a fraction, the numerator of which is the Total Rentable Area in the Building and the denominator of which is the Total Rentable Area in that part or those parts of the Project which share a Shared Common Facility, or such other fraction as the Landlord in its sole discretion acting reasonably determines is appropriate. "Business Day" means any day which is not a Saturday, Sunday or a statutory holiday. "Business Hours" means the period from 7:00 a.m. to 6:00 p.m. on any Business Day (subject to change by the Landlord). "Capital Tax" means any tax or taxes payable under the Corporations Tax Act (Ontario) or under any existing or proposed federal legislation based upon or computed by reference to the paid-up capital or place of business of the Landlord and/or the owners of the Development as determined for the purposes of such tax or based upon or computed by reference to the taxable capital employed in Canada, or any similar tax levied, imposed or assessed in the future in lieu thereof or in addition thereto by any municipal, legislative or parliamentary authority. "Common Facilities" means those areas and facilities of the Project or any part thereof which from time to time serve the Project or any part thereof including, without limitation, the landscaped areas, sidewalks, public entrance doors, halls, management offices, public lobbies, lavatories, stairways, passageways, elevators, service ramps and common loading and receiving facilities, the Parking Garage and the Common Use Equipment, and which are designated from time to time by the Landlord for the common use and enjoyment of tenants, including the Tenant, and their agents, invitees, servants, employees and licensees, or for use by the public, but excluding rentable premises and other portions of the Project which are from time to time designated by the Landlord for private use by one or a limited group of tenants. "Common Use Equipment" means all mechanical, plumbing, electrical, life safety, vertical transportation and HVAC equipment, pipes, ducts, wiring, machinery and equipment and other integral services, utility connections and the like providing services to the Project or any part thereof. "Development" means the Lands and the Building. "Insured Damage" means that part of any damage occurring to the Development, including the Premises, of which the entire cost of repair (except as to any deductible amount provided for in the applicable policy or policies of insurance) is actually recovered by the Landlord under a policy or policies of insurance from time to time effected by the Landlord pursuant hereto. "Lands" means the lands described in Part I of Schedule A attached hereto, as the boundaries thereof may be varied from time to time by additions functionally integrated therewith or by deletions for road widening or other public purposes. "Landlord's Taxes" means the aggregate of: (a) Taxes; and (b) Other Taxes. -2- "Lease" means this Lease including any Schedules, as amended from time to time pursuant hereto. "Leasehold Improvements" means all items generally considered as leasehold improvements, including, without limitation, all fixtures, equipment, improvements, installations, alterations and additions from time to time made, erected or installed by or on behalf of the Tenant, or any previous occupant of the Premises, in the Premises and by or on behalf of other tenants in other premises in the Building, including all partitions, however affixed and whether or not movable, and all wall-to-wall carpeting; but excluding trade fixtures, furniture, unattached or free standing partitions and equipment not of the nature of fixtures. "Operating Costs" means operating costs as defined in Schedule B attached hereto. "Other Taxes" means all taxes, rates, duties, levies, fees charges and assessments whatsoever, imposed, assessed, levied or charged now or in the future by any municipal, regional, provincial, federal, parliamentary or other government body, corporate authority, agency or commission against the Project and/or the Landlord and/or the owners of the Project in connection therewith (including without limitation, business or similar taxes or licence fees in respect of the business of the Landlord which pertains to the management, operation and maintenance of the Project) but excluding (unless specifically referred to above): (a) such of the foregoing amounts as have been included in Taxes; (b) income or profit taxes upon the income of the Landlord to the extent such taxes are not levied in substitution or in lieu of any of the foregoing; (c) business or similar taxes or licence fees in respect of any business carried on by tenants and occupants (including the Tenant) of the Development; and (d) Capital Tax (which is included in Operating Costs). "Parking Garage" means those portions of the Project which are designated from time to time by the Landlord for parking purposes including, without limitation, parking spaces and the vehicular ramps and other entrances and exits thereto and all services, facilities and systems contained exclusively within and serving such parking facilities, as the same may from time to time be altered, expanded or reconstructed. "Premises" means the premises demised to the Tenant under this Lease consisting of those portions of the 15th floor of the Building: (a) shown cross-hatched on Schedule D attached hereto, the Gross Rentable Area of which is deemed by the Landlord and the Tenant to be 3,730.64 square feet (the "Initial Premises") and (b) shown hatched on the said Schedule D (the "Additional Premises"), the Gross Rentable Area of which is deemed by the Landlord and the Tenant to be 4,004 square feet. "Present Value" means the value determined by using an annual discount rate equal to the annual rate of interest, in effect as of such date of default, announced by the Canadian Imperial Bank of Commerce as its prime rate, being the reference rate used by it to determine interest for loans in Canadian dollars to Canadian customers, less 3%. "Project" means the lands more particularly described in Part II of Schedule A attached hereto together with all buildings and all other fixed improvements situate at any time thereon. "Rate of Interest" means the annual rate of interest announced from time to time by the Canadian Imperial Bank of Commerce as the reference rate of interest then in effect for loans to customers of varying degrees of credit-worthiness plus 5%, adjusted from time to time to reflect changes in such rate. "Rent" means Basic Rent and Additional Rent. -3- "Rentable Area", "Gross Rentable Area" and "Net Rentable Area" mean the number of square feet of floor area determined in accordance with the Landlord's standard of floor measurement. "Sales Taxes" means all business transfer, multi-stage sales, sales, use, consumption, value-added or other similar taxes imposed by the Government of Canada or any provincial or local government upon the Landlord, or the Tenant or in respect of this Lease, or the payments made by the Tenant hereunder or the goods and services provided by the Landlord hereunder including, without limitation, the rental of the Premises and the provision of administrative services to the Tenant hereunder. "Shared Common Facilities" means those Common Facilities serving the Development and also another part or parts of the Project. "Taxes" means all taxes, rates, duties, levies, fees, charges, sewer levies, local improvement rates, and assessments whatsoever, imposed, assessed, levied or charged now or in the future by any school, municipal, regional, provincial, federal, parliamentary or other governmental body, corporate authority, agency or commission (including, without limitation, school boards and utility commissions), against the Development and/or the Landlord in connection therewith, but excluding (unless specifically referred to above): (a) income or profit taxes upon the income of the Landlord to the extent such taxes are not levied in substitution or in lieu of any of the foregoing; (b) business or similar taxes or licence fees in respect of the business of the Landlord which pertains to the management, operation and maintenance of the Development (which are included in Other Taxes); (c) business or similar taxes or licence fees in respect of any business carried on by tenants and occupants (including the Tenant) of the Development; and (d) Capital Tax (which is included in Operating Costs). "Tenant's Proportionate Share" means a fraction having as its numerator the Gross Rentable Area of the Premises and as its denominator the Total Rentable Area of the Building. "Tenant's Taxes" means the aggregate of: (a) all taxes which are attributable to the personal property, furnishings, fixtures and Leasehold Improvements installed in the Premises; and (b) all taxes imposed upon the Tenant which are attributable to the business, income or occupancy of the Tenant or any other occupant of the Premises and to the use of any of the Common Facilities by the Tenant or other occupant of the Premises. "Term" means the term of this Lease as specified in section 3.3. "Total Rentable Area of the Building" means the aggregate of all Gross Rentable Area (including the Premises) of the Building excluding the Parking Garage and all storage areas outside any premises. "Total Rentable Area of the Project" means the aggregate of all Gross Rentable Area (including the Premises) in the Project excluding the Parking Garage and all storage areas outside any premises. "Work" has the meaning ascribed thereto in section 8.1. -4- ARTICLE 2 GENERAL COVENANTS 2.1 Tenant's Covenants: The Tenant covenants with the Landlord: (a) to pay Rent; and (b) to observe and perform all the covenants and obligations of the Tenant here in. 2.2 Landlord's Covenants: The Landlord covenants with the Tenant: (a) for quiet enjoyment; and (b) to observe and perform all the covenants and obligations of the Landlord herein. ARTICLE 3 DEMISE AND TERM 3.1 Demise of Premises: The Landlord hereby demises and leases unto the Tenant, and the Tenant hereby leases from the Landlord, the Premises for the Term and subject to the provisions of this Lease. 3.2 License Over Certain Common Facilities: The Landlord hereby grants to the Tenant, its agents, employees, invitees and other persons transacting business with it, in common with all others entitled thereto, a license to have the use of certain of the Common Facilities as designated from time to time by the Landlord, including without limitation the entrances to the Building, the elevators, stairways, corridors, foyers, lobbies and lavatories; provided, however, that such use shall be subject to all other provisions contained in this Lease and to the Landlord's rules and regulations referred to in section 7.6. 3.3 Term: TO HAVE AND TO HOLD: (a) the Initial Premises for a term of eight (8) years (the "Initial Premises Term") commencing on the 1st day of February, 1994 (the "Initial Commencement Date") provided that if the Tenant has not completed its fit-up by the 1st day of January, 1994, the Tenant can delay the Initial commencement Date by up to thirty (30) days, and, (b) the Additional Premises for a term of four (4) years (the "Additional Premises Term") commencing on the 1st day of January, 1998 (the "Additional Commencement Date") and ending in both instances on the 31st day of December, 2001. The Initial Term and the Additional Term collectively shall be the "Term". The Initial Commencement Date and the Additional Date shall collectively be the "Commencement Date". -5- 3.4 Overholding: If the Tenant occupies any part of the Premises after the expiration or sooner termination of the Term without the written agreement of the Landlord, the Tenant shall be deemed to be only a monthly tenant at a monthly basic rent payable in advance and equal to three times the monthly Basic Rent payable immediately prior to the overholding plus additional rent equivalent to Additional Rent hereunder and otherwise on the same terms as herein contained, except for any rights of the Tenant contained in Article 18, if any; and such tenancy may be terminated by the Tenant on not less than 20 Business Days= notice to the Landlord and may be terminated by the Landlord on not less than one Business Day=s notice to the Tenant. Nothing herein shall limit the liability of the Tenant in damages or otherwise. 3.5 Leasehold Improvements: (a) Subject to subsections (b) and (c), upon the determination of this Lease, all Leasehold Improvements in the Premises, including all fixed partitions (including floor to ceiling partitions which, although demountable, involve attachment to any floor, ceiling or permanent wall such that they cannot be removed without damage to the Premises but excluding the Tenant's movable partitions such as free-standing partitions or partial height partitions which can be removed without damage to the Premises and which shall be deemed to be removable trade fixtures) shall remain upon and be surrendered with the Premises as a part thereof without disturbance, molestation or injury, and the same and any trade fixtures not removed by the Tenant are the property of the Landlord absolutely, free of any liens or encumbrances and without payment therefor to the Tenant. (b) The Landlord may, by notice to the Tenant prior to or promptly after the determination of this Lease, require the removal forthwith, at the expense of the Tenant, of any or all of the Tenant's trade fixtures and Leasehold Improvements and the repair forthwith of any damage to the Premises or the Development caused by such removal, such work to be done forthwith by or at the direction of the Landlord and at the expense of the Tenant. If such notice is given prior to the determination of this Lease, such removal and repair shall be completed by such determination. (c) Notwithstanding anything herein contained, provided the Tenant has paid the Rent hereby reserved and performed and observed all the covenants and conditions herein contained, the Tenant shall have, at the determination of this Lease, the right to remove its trade fixtures, provided that the Tenant repairs by the determination of this Lease, at its own expense, any damage to the Premises or the Development caused by such removal, such work to be done by or at the direction of the Landlord and at the expense of the Tenant. ARTICLE 4 RENT 4.1 Basic Rent: The Tenant shall pay to the Landlord, yearly and every year during the Term, without any set-off, compensation or deduction whatsoever, a Basic Rent in Canadian dollars as follows: (a) from the 1st day February of 1994 to the 30th day of April, 1994 zero dollars, and -6- (b) from the 1st day of May 1994 to the 31st day of December, 1997 $52,228.96 annually payable in advance in equal consecutive monthly instalments of $4,352.41 on the first day of each and every month during such period, and (c) from the 1st day of January, 1998 to the 31st day of December, 2001 $139,223.52 annually payable in advance in equal consecutive monthly instalments of $11,601.96 on the first day of each and every month during such period. Basic Rent has been calculated on the basis that the rental rate for the Initial Premises is $14.00 per annum during the first four (4) years of the Term (except for the period January 1st, 1994 to March 30, 1994) and for the Premises is $18.00 per annum during the balance of the Term per square foot of Gross Rentable Area in the Premises. If there are changes to the Gross Rentable Area of the Premises, Basic Rent shall be adjusted accordingly. 4.2 Additional Rent: The Tenant shall pay to the Landlord, during the Term, when due, as Additional Rent and without duplication: (a) that portion of Taxes payable by the Tenant pursuant to section 5.3; (b) the Tenant's Proportionate Share of Operating Costs pursuant to section 6.1; (c) all Additional Service Costs payable by the Tenant; and (d) all other amounts payable by the Tenant pursuant to this Lease. 4.3 Payment of Additional Rent: The Additional Rent specified in subsections 4.2(a), (b) and (c) shall be paid and adjusted with reference to a fiscal period of 12 calendar months, which shall be the 12 month period ending on December 31st in each year during the Term unless the Landlord, by notice to the Tenant, shall from time to time have selected a fiscal period which ends on a different date (but which shall be a 12 month period except where a shorter broken fiscal period occurs at the commencement or end of the Term or is necessary to accommodate a change in the fiscal period made during the Term). From time to time throughout the Term, the Landlord shall give notice to the Tenant of the Landlord's estimate of such Additional Rent to be paid by the Tenant during the next ensuing fiscal period. Each estimate shall be reasonable. Such Additional Rent payable by the Tenant shall be paid in monthly instalments in advance at the same time as payment of Basic Rent is due hereunder and shall be based on the Landlord's estimate as aforesaid. From time to time the Landlord may re-estimate, on a reasonable basis, the amount of such Additional Rent for any fiscal period in which case the Landlord shall give notice to the Tenant of such re-estimate and fix new monthly instalments for the remaining balance of such fiscal period so that, after giving credit for the instalments paid by the Tenant on the basis of the previous estimate or estimates, all the Additional Rent as estimated or re-estimated will have been paid during such fiscal period. All Additional Service Costs shall be paid by the Tenant within five days after receipt by it from time to time of invoices from the Landlord specifying the amounts thereof. -7- 4.4 Adjustment of Additional Rent: After the end of each fiscal period referred to in section 4.3, the Landlord shall deliver to the Tenant a statement of the Landlord as to the actual Additional Rent payable to the Landlord pursuant to subsections 4.2(a), (b) and (c) in respect of such fiscal period and a calculation of the amount by which such Additional Rent payable by the Tenant varies from the aggregate instalments paid by the Tenant on account of such Additional Rent for such fiscal period. Within 30 days after the receipt of such statement, either the Tenant shall pay to the Landlord any amount by which the amount found payable by the Tenant with respect to such fiscal period exceeds the aggregate of the monthly payments made by it on account thereof or the Landlord shall pay to the Tenant any amount by which the amount found payable as aforesaid is less than the aggregate of such monthly payments. The Tenant shall have the right, exercisable by notice to the Landlord given within 30 days after receipt of any statement of such Additional Rent submitted by the Landlord as aforesaid, to verify the accuracy of any amount shown on any statement by requiring the Landlord to give to the Tenant appropriate explanations related to such statement. In the event of any dispute by the Tenant as to the amount of such Additional Rent payable, a letter of the Landlord's auditors shall be conclusive. 4.5 Apportionment of Rent: Rent shall be considered as accruing from day to day hereunder. If it is necessary to calculate Rent for a period of less than one year or less than one calendar month, an appropriate apportionment and adjustment on a pro rata daily basis shall be made. Where the calculation of Additional Rent cannot be made until after the expiration or earlier termination of this Lease, the obligation of the Tenant to pay such Additional Rent shall survive the expiration or earlier termination hereof, and such amount shall be paid by the Tenant to the Landlord forthwith upon demand. If the Term commences on any day other than the first day of the month, Rent for such fraction of a month shall be adjusted, as aforesaid, and paid by the Tenant on the commencement date of the Term. 4.6 No Right of Set-off: The Tenant expressly waives the benefits of section 35 of the Landlord and Tenant Act R.S.0 1980, Chapter 232 and any amendments thereto and any present or future enactment of the Province of Ontario permitting the Tenant to claim a set-off against Rent for any cause whatsoever. 4.7 Additional Rent Deemed Rent: All Additional Rent shall be deemed to be rent and the Landlord shall have all rights against the Tenant for default in payment of Additional Rent as for default in the payment of Basic Rent. 4.8 Interest on Arrears: If the Tenant fails to pay Rent when due, the Tenant shall pay interest on the unpaid amount at the Rate of Interest from the date due until the date paid, without prejudice to and in addition to any other remedy available to the Landlord under this Lease or at law. -8- 4.9 Net Lease to Landlord: This Lease and the Rent payable hereunder shall be absolutely net to the Landlord, except as expressly provided herein. Any obligation which is not stated to be that of the Landlord shall be deemed to be that of the Tenant. ARTICLE 5 TAXES 5.1 Landlord's Taxes: The Landlord shall pay when due to the taxing authority or authorities having jurisdiction all Landlord's Taxes. 5.2 Tenant's Taxes and Sales Taxes: (a) The Tenant shall pay when due, to the taxing authority or authorities having jurisdiction, all Tenant's Taxes. (b) The Tenant shall pay to the Landlord when due all Sales Taxes imposed on the Landlord or the Tenant with respect to Rent payable by the Tenant hereunder or in respect of the rental of space under this Lease. 5.3 Tenant's Contribution to Taxes: (a) The Tenant shall, in respect of each calendar year included in whole or in part within the Term, pay to the Landlord an amount to cover the Taxes that are fairly attributable to the Premises for such calendar year, such amount to be determined by the Landlord acting reasonably. If there are separate assessments (or, in lieu thereof, calculations made by authorities having jurisdiction from which separate assessments may, in the Landlord's opinion, be readily determined) for the Premises for tax purposes, the Landlord shall use same for purposes of determining the amount payable by the Tenant pursuant to this subsection (a). The Tenant shall provide the Landlord with a copy of any separate notices of assessment for the Premises which the Tenant has received. If there are no such separate assessments or calculations, the Tenant shall pay the Tenant's Proportionate Share of all taxes attributable to the development provided that if the Landlord acting reasonably determines that another method of calculating the Tenant's contribution to Taxes is appropriate, such other method shall be used. (b) The Tenant shall, in respect of each calendar year included in whole or in part within the Term, pay to the Landlord the amount by which Taxes are increased above the Taxes which would have otherwise been payable as a result of the Premises or the Tenant or any other occupant of the Premises being taxed or assessed in support of separate schools. (c) Payment by the Tenant of all amounts on account of Taxes shall be governed by sections 4.3 and 4.4. -9- 5.4 Payments: (a) The Landlord may postpone any payment payable by it pursuant to section 5.1, and the Tenant may postpone any payment payable by it directly to a taxing authority (but not to the Landlord) pursuant to this Article in each case to the extent permitted by law and if prosecuting in good faith any appeal against the imp sition thereof, but provided that in the case of a postponement by the Tenant which involves any risk of the Development or any part thereof or the Landlord becoming liable to assessment, prosecution, fine or other liability, the Tenant shall have given security in a form and of an amount satisfactory to the Landlord in respect of such liability and such undertakings as the Landlord may reasonably require to ensure payment thereof. (b) Whenever requested by the Landlord, the Tenant shall deliver to the Landlord receipts for payment of all amounts owing by the Tenant pursuant to section 5.2 and furnish such other information in connection therewith as the Landlord may reasonably require. ARTICLE 6 SERVICES, COMMON FACILITIES 6.1 Tenant's Contribution to Operating Costs: (a) The Tenant shall, throughout the Term, pay to the Landlord the Tenant's Proportionate Share of Operating Costs. (b) Payment by the Tenant of all amounts on account of the Tenant's Proportionate Share of Operating Costs shall be governed by sections 4.3 and 4.4. 6.2 Operation of Regular HVAC System: The Landlord shall operate the heating, ventilating and air-conditioning equipment and systems serving the Premises so as to provide conditions of adequate comfort in the Premises during Business Hours except during the making of repairs, inspections, overhauling or replacement. If such equipment or systems are damaged or destroyed, or, in the opinion of the Landlord, require repair, inspection, overhauling or replacements the Landlord shall carry out such work with all reasonable diligence. The Landlord shall not be responsible for any loss, damages or costs arising from the failure of such equipment or systems to perform their function. In addition, the Landlord shall not be responsible for the failure of such equipment and systems to perform their function if the number of persons in the Premises at any one time exceeds a reasonable number or if the electrical load from lights and power in the Premises is excessive or if such failure results from any arrangement of partitioning in the Premises or change or alteration thereto or if the window covering on exterior windows is not kept fully closed while the windows are exposed to direct sunlight or if any use of mechanical or electrical equipment installed in the Premises generates heat in excess of amounts specified in the Building Standard, all as determined by the Landlord acting reasonably. The Landlord shall not be liable for direct, indirect or consequential damage or damages for personal discomfort or illness of the Tenant or its employees, invitees or other persons transacting business with it by reason of the operation or non-operation of such systems and equipment. In no event shall Rent abate during any non-operation. -10- 6.3 Additional HVAC: The Tenant may, upon two days' prior notice to the Landlord, request the Landlord to provide any service mentioned in section 6.2 to the Premises or any portion or portions thereof during such non Business Hours as the Tenant specifies. The Landlord may provide such service and charge the Tenant, as an Additional Service Cost, the reasonable hourly rate for each hour or part thereof that such service is provided, such hourly rate to be determined by the Landlord and to comprise all additional costs incurred in providing such service. 6.4 Electricity and Other Utilities: (a) The Landlord shall furnish to the Premises electricity for lighting and for office equipment capable of operating from the circuits available and standard to the Building. The Landlord shall also replace, maintain and repair as and when required all electric light bulbs, fluorescent tubes and ballasts initially supplied in the Premises and provide the necessary maintenance and repair of fluorescent and other Building Standard lighting fixtures located in the Premises. (b) The Tenant shall pay all charges for excess electricity and other excess utilities provided to the Premises. The charges for excess electricity and other excess utilities used in the Premises shall be determined by the Landlord or its agent using a reasonable method of calculation which has been communicated to the Tenant. (c) At the option of the Landlord, the Landlord shall have the right to install, at the Tenant's sole expense, separate meters as specified by the Landlord for measuring consumption of energy in the Premises. 6.5 Operation of Common Facilities: Except as otherwise provided in this Article, the Landlord shall operate, maintain, clean, light, heat, ventilate and air-condition and supervise and regulate the Building Common Facilities and the Shared Common Facilities as a reasonably prudent owner would do having regard to the type and age of the Development. All Building Common Facilities and Shared Common Facilities shall be subject at all times to the exclusive control and management of the Landlord. The Landlord shall be entitled to operate and police the same, to change the area and location thereof, to employ all personnel and to make all rules and regulations necessary for the proper operation and maintenance thereof, and to do such other acts with respect thereto as the Landlord, acting reasonably, shall determine to be advisable; provided, however, that the Tenant, unless deprived by reasons beyond the Landlord's control, shall have the use of such of the Building Common Facilities as are reasonably necessary for the use of the Premises. -11- 6.6 Janitorial Services: (a) The Landlord shall provide to the Premises normal office cleaning services of a standard (both as to extent and frequency) as a reasonably prudent owner would do having regard to the type and age of the Development, the cost of which is to form a part of Operating Costs. Such services shall include, but not be limited to, causing periodically as may be appropriate or necessary in keeping with such standard the floors of the Premises to be swept, the interior surface of the exterior windows of the Premises to be cleaned, the desks, tables, other furniture and venetian blinds, if any, in the Premises to be dusted and any broadloom in the Premises to be vacuumed. Cleaning in the Premises in addition to the foregoing standard (such as, for example, the washing of carpets and the dry-cleaning of drapes) shall be the responsibility of the Tenant, although the Landlord shall have the right to elect to provide such additional cleaning at the Tenant's expense, as provided in subsection (c). (b) The Tenant acknowledges that the Landlord will be relieved from its cleaning obligation as provided in subsection (a) in respect of any part of the Premises to which access is not granted to the person or persons retained to perform such work. (c) If the Tenant desires any janitor or cleaning services for the Premises in addition to those contemplated by subsection (a) and if the Landlord from time to time elects, acting reasonably, to provide exclusively (either directly or through agents or contractors designated by it) such additional services or if the Landlord supervises the moving of furniture or equipment of the Tenant or the making of deliveries to or from the Premises, such additional services referred to in this subsection shall be treated as Additional Services and all reasonable Additional Service Costs shall be paid by the Tenant to the Landlord forthwith after demand. (d) The Tenant acknowledges that the Landlord shall not be responsible for any omission or act of commission on the part of the person or persons employed or retained to perform the cleaning services referred to in this section or for any loss thereby sustained by the Tenant, the Tenant's employees, agents, invitees or others. 6.7 Security Services: (a) The Landlord may provide security services for the Building so as to use best efforts to ensure that access to the Building during other than Business Hours shall be restricted to those persons entitled to be allowed entry to the Building, provided they comply with the requirements established by the Landlord. (b) The Tenant acknowledges that the Landlord shall not be responsible for any omission or act of commission on the part of any person employed or retained to provide security service pursuant to this section or for any loss thereby sustained by the Tenant, the Tenant's employees, agents, invitees or others. 6.8 Interruption in Services: The Landlord has the right to stop the use of any facilities and the supply of any services when necessary by reason of accident or during the making of repairs, replacements, alterations or improvements, in the judgment of the Landlord necessary or desirable to be made, until the repairs, replacements, alterations or improvements have been completed to the satisfaction of the Landlord provided that all reasonable steps shall be taken to minimize any interference with the Tenant's use and enjoyment of the Premises, both as to the extent and duration of such interference. The Landlord shall have no responsibility or liability for failure to operate any facilities or supply any services when the use of the facility is stopped as aforesaid or when the Landlord is prevented from using the facility or supplying the service by strike, or by orders or regulations of any governmental authority or agency or by failure of the electric current, gas, steam or water supply necessary to the operation of any facility or by the failure to obtain such a supply or by any other cause beyond the Landlord's reasonable control. -12- 6.9 Energy Conservation: The Tenant shall comply with any measures the Landlord or any governmental authority may from time to time introduce to conserve or to reduce consumption of energy or to reduce or control other Operating Costs or pay as Additional Rent the cost, to be estimated by the Landlord acting reasonably, of the additional energy consumed by reason of such non-compliance. The Tenant shall also convert to whatever system or units of measurement of energy consumption in the Premises that the Landlord may from time to time adopt. 6.10 Pest Control by Tenant: The Tenant agrees to institute and carry out and maintain, at its own expense, such pest control measures in the Premises as the Landlord reasonably requires. Upon notice from the Landlord, such pest control measures in the Premises shall be carried out by the Landlord at the Tenant's expense. ARTICLE 7 USE AND OCCUPANCY OF PREMISES 7.1 Use of Premises: The Tenant shall use the Premises solely for the business office purpose being carried on at the commencement of the Term, namely: * (*General Business Office) Tenant shall not use or permit the Premises to be used for any other purpose. Without limiting the generality of the foregoing, the Tenant shall not use or permit the Premises to be used such that the number of persons entering the Premises is likely to exceed that of ordinary business offices. 7.2 Waste and Nuisance: The Tenant shall not carry on any business or do or suffer any act or thing which may constitute or result in a nuisance to the Landlord or to other tenants of the Development, or do or suffer any waste or damage to the Premises or the Development. 7.3 No Overloading of Premises or Common Use Equipment: The Tenant shall not permit or allow any overloading of the floors of the Premises or the bringing into any part of the Premises of any articles or fixtures that by reason of their weight or size might damage or endanger the structure of the Premises or the Building. The Tenant shall not permit or allow anything that might result in any overloading of or damage to any of the Common Use Equipment. -13- 7.4 Insurance Cancellation or Increase: The Tenant shall not do or omit to do or permit to be done or omitted to be done in the Premises anything which would cause any policy of insurance on the Project or the Development to be subject to cancellation or non-renewal or which would cause an increase in the cost of any insurance which the Landlord is obligated by this Lease to maintain. Upon any default by the Tenant which would result in cancellation or non-renewal or an increased cost which the Tenant does not pay, the Landlord may, at its option, terminate this Lease on 10 days= notice to the Tenant. Without limiting the foregoing, the Tenant shall pay to the Landlord, forthwith upon demand, the amount of any such increase in cost. If any insurance policy is cancelled or threatened by the insurer to be cancelled or the coverage thereunder is altered in any way because of the use or occupation of the Premises by the Tenant or by any person for whom the Tenant is in law responsible, and if the Tenant fails to remedy the condition giving rise to the cancellation, threatened cancellation or alteration in coverage within 48 hours (or such lesser period as the Landlord acting reasonably may determine, having regard to the urgency of the situation) after notice to ~he Tenant of such cancellation or proposed cancellation or alteration, the Landlord may, (but shall not be obligated to), without further notice or any liability to the Tenant or any other occupant of the Premises, enter the Premises arid attempt to remedy such condition or obtain or attempt to obtain insurance coverage in replacement of the coverage cancelled, threatened to be cancelled or altered in coverage; and the Tenant shall pay to the Landlord, forthwith upon demand, the costs associated therewith. 7.5 Observance of Law by Tenant: The Tenant shall, at its expense, promptly comply with and conform to the requirements of every applicable statute, law, by-law, regulation, ordinance and order at any time or from time to time in force during the Term affecting the Tenant's use of the Premises or any part thereof and/or the business carried on therein and/or the Leasehold Improvements, trade fixtures, furniture, machinery, equipment and other facilities located in the Premises and/or any other part of the Development affected by the Tenant's actions in the Premises. 7.6 Rules and Regulations: The Tenant shall observe and perform, and shall cause its employees, agents, invitees and others over whom the Tenant can reasonably be expected to exercise control to observe and perform the Rules and Regulations attached hereto as Schedule C and such other rules and regulations or amendments as may be made from time to time by the Landlord acting reasonably and of which notice has been given by the Landlord to the Tenant. The Tenant acknowledges that the Rules and Regulations, as from time to time amended or replaced, are not necessarily of uniform application but may be waived in whole or in part in respect of other tenants without affecting their enforceability with respect to the Tenant and the Premises, and may be waived in whole or in part with respect to the Premises without waiving them as to future application to the Premises, and the imposition of such Rules and Regulations shall not create or imply any obligation of the Landlord to enforce them. -14- In any conflict between a provision of this Lease and any of the Rules and Regulations, the provision of this Lease shall govern. 7.7 Signs: The Tenant shall not erect any sign or advertising material or inscribe anything upon any part of the exterior of the Building, or upon the exterior or interior surfaces of any exterior window or door to the Premises or upon the exterior of any demising walls, or upon any Common Facilities of the Building, except the usual tenant identification on the directory board as designated by the Landlord and except for a sign on the door leading to the Premises which sign shall be consented to by the Landlord, acting reasonably and all of which are in accordance with the Building Standard. All such signage shall be installed by the Landlord at the Tenant's expenses. 7.8 Name of Development/Project: The Tenant shall, in referring to the Development or the Project, use only the name AConstitution Square@ or such other name as is designated from time to time by the Landlord and of which notice has been given by the Landlord to the Tenant. ARTICLE 8 ALTERATIONS 8.1 Alterations by Tenant: (a) The Tenant shall not, without the prior consent of the Landlord, make, erect, alter or install any Leasehold Improvements or other alterations or installations to the Premises (the AWork@). (b) If the Tenant wishes to have any Work done in the Premises, the Tenant shall apply for the Landlord's consent and furnish such plans, specifications and designs as shall be necessary to fully describe the Work. The Landlord's consent thereto shall not be unreasonably withheld or delayed; provided that, without limitation, any refusal to grant consent based on grounds that such Work is not in compliance with the Building Standard or that the Tenant has not posted security with the Landlord shall be conclusively deemed not to be an unreasonable withholding of consent. (c) Subject to the Landlord's consent having been obtained and the Landlord's reasonable requirements (including the posting of reasonable security, if requested) being met, the Landlord recognizes the right of the Tenant to install such interior partitions and other Leasehold Improvements as are necessary or appropriate to its use and occupancy of the Premises. (d) Any Work shall, if the Landlord so elects, be performed by the Landlord or by contractors who have been designated by the Landlord and who have contracted directly with the Tenant and agreed to carry out such Work in a good and workmanlike manner and at a cost to the Tenant equal to the Landlord's or contractor=s cost plus 10% for supervision and 10% for profit. In the absence of any such election by the Landlord, such Work may be performed by contractors retained by the Tenant pursuant to written contracts which have been approved by the Landlord (such approval not to be unreasonably withheld) and are subject to all reasonable conditions which the Landlord imposes. In either event, the Landlord shall have the right to inspect such Work and require any Work not being properly done to be corrected, and to approve on a reasonable basis (which may include considerations involving trade union affiliations or the lack of them and work jurisdiction, where in the opinion of the Landlord there is a risk of labour disputes which might adversely affect the Landlord) the contractors, tradesmen or the Tenant's own employees (as the case may be) employed by the Tenant in connection therewith. -15- (e) The Tenant shall pay to the Landlord, within 10 days after the receipt of the Landlord's invoice, the Landlord's reasonable out-of-pocket costs incurred in examining and approving the Tenant's plans, specifications and designs and in inspecting the Work and any additional expenses actually incurred by the Landlord in connection with such Work together with a coordination and supervision fee equal to 10% of the total cost to the Tenant of such Work. (f) On each anniversary of the first day of the Term, the Tenant shall provide to the Landlord a complete set of up-to-date drawings of the Premises including without limitation all electrical, mechanical and architectural drawings. 8.2 Air-Balancing: The Tenant agrees that it will, at the commencement of the Term and periodically throughout the Term including, without limitation, whenever any alterations are made to the Premises, balance the air movement in the Premises at the Tenant's expense and for this purpose use the air-balancer designated by the Landlord. 8.3 No Financing by Tenant of Leasehold Improvements: The Tenant shall not create any lien, mortgage, charge, conditional sale agreement or other encumbrance in respect of its Leasehold Improvements or, without the consent of the Landlord, with respect to its trade fixtures; nor shall the Tenant take any action as a consequence of which any such prohibited lien, mortgage, charge, conditional sale agreement or other encumbrance would attach to the Premises or to the Development. 8.4 Liens: (a) In connection with the making, erection, installation or alteration of Leasehold Improvements and trade fixtures and all other work or installations or alterations made by or for the Tenant in the Premises, the Tenant shall comply with every applicable statute, law, by-law, regulation, ordinance and order affecting the same and affecting the Development as a result of the actions of the Tenant including, without limitation, the Construction Lien Act of Ontario, and any other statutes from time to time applicable thereto (including any provision requiring or enabling the retention by way of holdback of portions of any sums payable) and, except as to any such holdback, shall promptly pay all accounts relating thereto. (b) Whenever any construction or other lien for work, labour, services or materials supplied to or for the Tenant or for the cost of which the Tenant may be in any way liable or claims therefor shall arise or be filed or any prohibited mortgage, charge, conditional sale agreement or other encumbrance shall attach, the Tenant shall within five days after receipt of notice thereof procure and register the discharge thereof, including any certificate of action registered in respect of any lien, by payment or in such other manner as may be required or permitted by law, and failing which the Landlord may make any payments required to procure and register the discharge of any such liens or encumbrances, including any certificate of action registered in respect of any lien, and shall be entitled to be reimbursed by the Tenant as provided in section 15.3, and its right to reimbursement shall not be affected or impaired if the Tenant shall then or subsequently establish or claim that any lien or encumbrance so discharged was without merit or excessive or subject to any abatement, set-off or defence. -16- (c) The Landlord and the Tenant agree that any Work done in the Premises during the Term by or on behalf of the Tenant shall not be done and shall be deemed not to have been done at the request of the Landlord. If any contractor with respect to any Work gives notice to the Landlord pursuant to section 19 of the Construction Lien Act of Ontario, the Landlord shall have the right to refuse to assume responsibility. 8.5 Alterations by Landlord: The Landlord may from time to time at its own expense make alterations to the Project or any part thereof including the Premises and alterations to or relocations of the Common Facilities provided that: (a) the Premises shall not be altered or interfered with in any material way; (b) access and services to or benefiting the Premises shall not be reduced or interrupted (except to the extent which is temporary, reasonable and unavoidable during the making of repairs or renovations); and (c) any alteration shall be such that a reasonably prudent owner of the Project would make having regard to the type and age of the Project. ARTICLE 9 REPAIRS 9.1 Landlord's Repairs: Subject to section 9.5 and except as provided in section 9.2, the Landlord shall repair and maintain and may, if it so chooses, replace: (a) the Building including all the external and structural parts of the Building but excluding any parts thereof which comprise the whole or a part of the Premises or premises leased to others; (b) Insured Damage; and (c) the Common Facilities; all reasonable dispatch and in a good and workmanlike manner, and so as to keep the same in good condition and repair. 9.2 Tenant's Repairs: Subject to section 9.5, the Tenant shall, at its expense and throughout the Term, keep the Premises and the Leasehold Improvements and trade fixtures therein and all electrical and telephone outlets and conduits and all mechanical and electrical equipment within the Premises in good condition and repair, Insured Damage and repairs which the Landlord is otherwise obliged to repair only excepted. The Tenant shall also reimburse the Landlord for the cost of making good any damage to the Development caused by the Tenant. All repairs by the Tenant shall be subject to section 8.1. -17- 9.3 Entry by Landlord to View State of Repair: The Landlord shall be entitled to enter and view the state of repair of the Premises. The Tenant will repair, according to notice, as specified in section 9.2. 9.4 Notice of Defects: The Tenant shall give to the Landlord prompt notice of any defect in the plumbing or utility systems and equipment or any damage to the Premises or any part thereof howsoever caused; provided that nothing herein shall be construed so as to require repairs to be made by the Landlord except as expressly provided in this Lease. 9.5 Termination or Abatement after Damage: (a) If and whenever the Premises are destroyed or damaged by any cause to the extent that, in the Landlord's reasonable opinion to be given in writing to the Tenant within 60 days after the occurrence of such damage or destruction, they are unable to be repaired or rebuilt within 180 days after such destruction or damage, then either the Landlord or the Tenant may terminate this Lease by notice to the other, to be given within 30 days after the giving of the Landlord's written opinion above referred to, and the Tenant shall immediately thereupon surrender the Premises and this Lease to the Landlord and Rent shall be apportioned to the date of such destruction or damage (subject to the payment of Rent from the date of such destruction or damage to the date of surrender in the same proportion that the part of the occupiable area of the Premises fit for occupancy by the Tenant until such surrender is to the total occupiable area of the Premises). (b) If and whenever all or any portion of the Building is destroyed or damaged by reason of any cause (whether or not such portion includes all or any part of the Premises) to such extent that: (i) in the Landlord's reasonable opinion to be given to the Tenant in writing within 60 days after the occurrence of such damage or destruction, it is unable to be repaired or rebuilt within 180 days after such destruction or damage; or (ii) the estimated cost (as estimated by the Landlord) of repairing or rebuilding the Building exceeds the proceeds of insurance available to the Landlord for such purpose (or which would have been available if the Landlord had insured in compliance with section 10.1); the Landlord may terminate this Lease upon not less than 30 days' prior written notice to the Tenant, given within 60 days after the happening of such destruction or damage, and the Tenant shall immediately thereupon surrender the Premises and this Lease to the Landlord; and (iii) if and to the extent that such destruction or damage has rendered the Premises in whole or in part unfit for occupancy by the Tenant, Rent shall abate from the date of such destruction or damage to the date of surrender in the same proportion that the part of the occupiable area of the Premises unfit for occupancy is to the total occupiable area of the Premises; and (iv) otherwise Rent shall be apportioned to the date of surrender. -18- (c) If and whenever the Premises are destroyed or damaged by reason of any cause and this Lease shall not have been terminated, the Landlord shall, with all reasonable diligence, make the repairs specified in section 9.1 and the Tenant shall, with all reasonable diligence and in compliance with section 8.1, make all repairs to the Premises specified in section 9.2 and complete the Premises for occupancy for the purpose described in section 7.1 and in compliance with subsection 7.5(b). If as a result of any destruction or damage to the Premises which the Landlord is obligated to repair pursuant to section 9.1, and which is not the fault of the Tenant or those for whom it is in law responsible and which does not consist of merely a temporary interruption of or interference with any utility, service or access, the Premises are rendered in whole or in part unfit for occupancy by the Tenant, then during the period commencing on the occurrence of such destruction or damage and ending upon the earlier of: (i) the date when both the repairs to the Premises which the Landlord is obligated to make as aforesaid are completed sufficiently to enable the Tenant to commence its repairs, and the Tenant has been allowed a reasonable period of time which is sufficient for the completion by it of the repairs it is obligated to make as aforesaid with due diligence; and (ii) the date upon which no insurance proceeds are available to the Landlord under its loss of rental income insurance coverage in respect of the Premises (other than by reason of the Landlord not carrying the insurance as set out in section 10.1); Rent shall from time to time abate in the same proportion that the part of the occupiable area of the Premises from time to time rendered unfit for such occupancy by reason of such destruction or damage is to the total occupiable area of the Premises. 9.6 No claim by Tenant: Except in respect of abatement of Rent as provided for in this Article, no claim for compensation or damages, direct or indirect shall be made by the Tenant by reason of the loss of use, inconvenience or otherwise arising from the necessity of repairing any portion of the Development however the necessity may arise so long as any such repair to be carried out by the Landlord is carried out with reasonable diligence. 9.7 Tenant to Leave Premises in Good Repair: The Tenant shall leave the Premises and (subject to section 3.5) the Leasehold Improvements, at the expiration or other termination of the Term, in the condition and repair required of the Tenant under section 9.2. 9.8 No Hazardous Substances: The Tenant agrees not to install or use in the Premises any hazardous substances including, without limitation, asbestos, PCBs or propane. -19- ARTICLE 10 INSURANCE AND LIABILITY 10.1 Landlord's Insurance: Subject to its general availability, the Landlord shall effect and maintain during the Term: (a) "all risks" property insurance which shall insure the Development (other than any Leasehold Improvements) on a full replacement cost basis against loss or damage by perils now or hereafter from time to time embraced by or defined in a standard all risks insurance policy; (b) boiler and machinery insurance on objects defined in a standard comprehensive boiler and machinery policy against accidents as defined therein; (c) loss of rental income insurance in an amount sufficient to replace all Basic Rent and Additional Rent payable under the provisions of this Lease for an indemnity period determined by the Landlord; (d) comprehensive general liability insurance covering claims for personal injury and property damage arising out of all operations in connection with the management and administration of the Development; and (e) such other coverage, or increases in the amount of coverage, as the Landlord may consider necessary. For greater certainty, the Tenant acknowledges that the Landlord is not obligated to insure Leasehold Improvements in the Premises. The insurance to be maintained by the Landlord shall be that which would be carried by reasonably prudent owners of properties similar to the Development, all as from time to time determined by insurance advisers selected by the Landlord, and whose opinion shall be conclusive. In the alternative, the Landlord shall have the option of self-insuring. Notwithstanding the above, the Tenant acknowledges that the Tenant shall remain responsible for its negligence and the negligence of all persons for whom it is at law responsible and that no insurable interest is conferred upon the Tenant under any of the Landlord's insurance policies and that the Tenant shall have no right to recover any proceeds thereunder or claim any right or title to such proceeds. 10.2 Tenant's Insurance: The Tenant shall, at its own expense, take out and keep in force during the Term and such other times as the Tenant is in occupation or possession of the Premises or any part thereof: (a) comprehensive insurance of the type commonly called general public liability, which shall include coverage for personal injury, broad blanket contractual liability, employer's liability, owner's protective liability, all risks Tenant's legal liability, non-owned automobile liability, bodily injury, death and property damage, all on an occurrence basis with respect to the business carried on in the Premises and the Tenant's use and occupancy of the Premises and its use of the Common Facilities or of any other part of the Building, with coverage for any one occurrence or claim of not less than $5,000,000 or such other amount as the Landlord may from time to time reasonably require upon not less than 30 days' notice at any time during the Term, which insurance shall contain a severability of interest clause and a cross-liability clause; (b) "all-risks" property insurance covering the Leasehold Improvements and other items excluded from the definition of Leasehold Improvements, trade fixtures, and the furniture and equipment in the Premises on a full replacement basis, with an agreed amount co-insurance clause and by-law endorsement and which insurance shall provide that any proceeds recoverable with respect to Leasehold Improvements shall be payable to the Landlord (but the Landlord agrees to make available such proceeds toward the repair or replacement of the insured property if this Lease is not terminated pursuant to any other provisions hereof); and -20- (c) insurance against such other perils and in such amounts as the Landlord or any mortgagee of the Landlord or the Tenant may from time to time reasonably require upon not less than 60 days' notice, such requirement to be made on the basis that the required insurance is customary at the time in the City of Ottawa for tenants of buildings similar to the Building. 10.3 Form of Tenant's Insurance: All insurance required to be maintained by the Tenant hereunder shall be on terms and with insurers to which the Landlord has no reasonable objection. Each policy shall (a) contain a waiver by the insurer of any rights of subrogation or indemnity or any other claim to which the insurer might otherwise be entitled against the Landlord or the directors, officers, agents or employees of the Landlord, (b) name the Landlord and its directors, officers, agents and employees as additional insureds, (c) be primary, noncontributory with and not excess of any insurance available to the Landlord and (d) contain an undertaking by the insurer that no material change adverse to the Landlord or the Tenant will be made and the policy will not lapse or be cancelled or not be renewed, except after not less than 30 days' prior written notice by registered mail to the Landlord of the intended change, lapse, cancellation or non-renewal. The Tenant shall furnish to the Landlord certified copies of the policies of insurance from time to time effected by the Tenant -and its renewal or continuation in force, together with evidence as to the method of determination of full replacement cost of the Tenant's Leasehold Improvements and other items excluded from the definition of Leasehold Improvements, trade fixtures, furniture and equipment. If the Landlord reasonably concludes that the full replacement cost has been underestimated, the Tenant shall forthwith arrange for any consequent increase in coverage required under section 10.2. If the Tenant fails to take out, renew or keep in force such insurance, or if the policies submitted to the Landlord pursuant to the preceding sentence are unacceptable to the Landlord (or no such policies are submitted within a reasonable period after request therefor by the Landlord), then the Landlord may give to the Tenant notice requiring compliance with this section and specifying the respects in which the Tenant is not then in compliance with this section. If the Tenant does not, within 72 hours (or such lesser period as the Landlord may reasonably require having regard to the urgency of the situation), provide appropriate evidence of compliance with this section, the Landlord may (but shall not be obligated to) obtain some or all of the additional coverage or other insurance which the Tenant shall have failed to obtain, without prejudice to any other rights of the Landlord under this Lease or otherwise, and the Tenant shall pay all premiums and other costs incurred by the Landlord forthwith upon demand. 10.4 Release of Landlord by Tenant: The Tenant agrees that neither the Landlord nor its directors, officers, agents, employees or any others for whom the Landlord is at law responsible shall be liable to any extent for any personal injury or death of, or loss or damage to any property belonging to the Tenant or its employees, invitees or licensees or any other person in, on or about the Development unless resulting from the actual gross negligence of the Landlord (but only to the extent of such actual gross negligence). Notwithstanding the foregoing, in no event shall the Landlord or its directors, officers, agents, employees or any others for whom the Landlord is at law responsible be liable for (and the Tenant hereby releases the Landlord and its directors, officers, agents, employees and any others for whom the Landlord is at law responsible from): (a) any damage which is caused by steam, water, rain or snow which may leak into, issue or flow from any part of the Development or from the pipes or plumbing works, including the sprinkler system, thereof, or from any other place or quarter, or for any damage caused by or attributable to the condition or arrangement of any electric or other wiring or of sprinkler heads, or for any damage caused by anything done or omitted by any other tenant; -21- (b) any act or omission (including theft, malfeasance or negligence) on the part of any. agent, contractor or person from time to time employed by it to perform janitorial services, security services, supervision or any other work in or about the Premises or the Development; (c) loss or damage, however caused, to money, securities, negotiable instruments, papers or other valuables of the Tenant; or (d) loss or damage for which the Tenant does or is required to carry insurance. 10.5 Indemnity of Landlord by Tenant: The Tenant shall indemnify and save harmless the Landlord and its directors, officers, agents and employees against and from any and all expenses, costs, damages, suits, actions or liabilities arising or growing out of any default by the Tenant hereunder, and from all claims and demands of every kind and nature made by any person or persons to or against the Landlord and/or its directors, officers, agents and employees, for all and every manner of costs, damages or expenses incurred by or injury or damage to such person or persons or his, her or their property, which claims or demands may arise howsoever out of the use and occupation of the Premises by the Tenant or any subtenant or occupant authorized by the Tenant or by any assignee or sublessee thereof or any of the above-mentioned or his, her or their servants, agents, assistants, employees, invitees or other persons entering into the Building to go to the Premises or any part thereof, and from all costs, counsel fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon. ARTICLE 11 ASSIGNMENTS, ETC. BY TENANT AND TRANSFERS ETC. BY LANDLORD 11.1 Assignments, Subleases, Charges by Tenant: (a) The Tenant shall not assign this Lease or sublet all or any part of the Premises or in any way charge, encumber or pledge this Lease or its interest therein without the consent of the Landlord which shall not be unreasonably withheld. Without limiting the foregoing, it shall institute reasonable grounds for any withholding of consent by the Landlord that, in the Landlord's opinion, (i) the proposed assignee or subtenant does not have a satisfactory financial condition having regard to the obligations which it will assume as assignee or subtenant, or (ii) the proposed assignee or subtenant is a tenant or subtenant of other space in the Project or (iii) the proposed assignee or subtenant does not have an established good reputation in the business community, or (iv) the proposed assignee or subtenant is a Consulate, Embassy, Trade Commission or other representative of a foreign government, or (v) where the Premises are intended to be used as medical, dental, government or quasi government offices, or (vi) it is reasonably anticipated by the Landlord that the number of persons visiting the Premises will substantially increase as a result of the proposed assignment or subletting, or (vii) it is intended or likely that it will use any part of the Premises for purposes which are not permitted by this Lease or which are not acceptable to the Landlord, acting reasonably, or which are not compatible with the other businesses or activities which are being carried on in the Development or which contravene any restriction on use in the Building or (viii) where the return to the Tenant on any proposed assignment or subletting is greater than the amounts payable by the Tenant hereunder and the Tenant has not agreed to pay such excess to the Landlord. The Landlord shall be entitled to withhold consent to assign or sublet arbitrarily where it exercises its right to termination pursuant to section 11.2. -22- (b) Without limitation, the Tenant shall be deemed to have assigned or sublet in any case where it permits the Premises or any portion thereof to be occupied by a person or persons other than the Tenant, its employees and others engaged in carrying on the business of the Tenant, whether pursuant to assignment, subletting, license or other right, and shall also include any case where any of the foregoing occurs by operation of law and, so often as same shall occur, the Tenant shall give notice to the Landlord and the provisions of this section and section 11.2 shall apply, mutatis mutandis. (c) If the Tenant (or any permitted assignee thereof) is a corporation, then the Tenant shall be deemed to have assigned or sublet in any case where such number of shares of such corporation or of any parent or affiliate of such corporation are issued or transferred, whether by operation of law or otherwise, so as to result in a change in the effective control of such corporation then, and so often as such a change of control shall occur, the Tenant shall give notice to the Landlord and the provisions of this section and section 11.2 shall apply, mutatis mutandis. (d) The Landlord shall also have the right of approval prior to any marketing of space by the Tenant, including prior approval of all advertising. Without limitation, such marketing shall not state or refer rental rates. (e) If the Landlords consent is given, the Tenant shall assign or sublet, as the case may be, but only upon the terms set out in the offer submitted to the Landlord pursuant to section 11.2 and not otherwise. Such assignment or subletting shall occur within 90 days after the Tenant's request for consent and only upon any assignee or subtenant entering into an agreement directly with the Landlord and in a form satisfactory to the Landlord acting reasonably to perform, observe and keep each and every covenant, proviso, condition and agreement in this Lease on the part of the Tenant to be performed, observed and kept, including payment of Rent. (f) The Tenant shall have the right to assign or sublet to a corporation affiliated (as that term is defined in the Ontario Business Corporations Act) with the Tenant without the consent of the Landlord (and the provisions of subsection 11.2(b) shall not apply), provided that the Tenant has first given notice to the Landlord and further provided that the Tenant and its affiliate have first entered into an agreement directly with the Landlord in a form satisfactory to the Landlord acting reasonably, whereby the affiliate agrees to perform, observe and keep each and every covenant, proviso, condition and agreement in this Lease on the part of the Tenant to be performed, observed and kept, including payment of Rent and whereby the Tenant and the affiliate agree to remain affiliated to one another, a breach of which agreement would constitute a breach of this Lease. (g) All reasonable costs of the Landlord incurred with respect to this section shall be paid by the Tenant forthwith after demand. 11.2 Landlord's Rights of Cancellation: (a) The Tenant shall not assign this Lease or sublet the whole or any part of the Premises unless: (i) it shall have received or procured a bona fide written offer therefor to take an assignment or sublease which is not inconsistent with, and the acceptance of which would not breach, any provisions of this Lease if this section is complied with and which the Tenant has determined to accept subject to this section being complied with, and (ii) it shall have requested and obtained the consent in writing of the Landlord thereto. Any request for such consent shall be in writing and accompanied by a true copy of such offer, and the Tenant shall furnish to the Landlord all information available to the Tenant or any additional information requested by the Landlord, as to the responsibility, reputation, financial standing and business of the proposed assignee or sublessee. (b) Within 15 days after the receipt by the Landlord of such request for consent and of all information which the Landlord shall have requested hereunder (and if no such information has been requested, within 15 days after receipt of such request for consent), the Landlord shall have the -23- right upon notice to the Tenant, if the request is to assign this Lease or sublet the whole of the Premises, to terminate this Lease or, if the request is to sublet a part of the Premises only, to delete from the Lease such part of the Premises as are requested to be sublet, in each case as of a date of the proposed assigning or subletting, as the case may be. In such event, the Tenant shall surrender the whole or part, as the case may be, of the Premises in accordance with such notice and Rent shall be apportioned and paid to the date of surrender and, if a part only of the Premises is surrendered, Rent shall thereafter be recalculated. If the Landlord shall not exercise the foregoing right of termination or deletion, then the provisions of section 11.1 shall apply. 11.3 Continuing Obligations of Tenant: (a) No assignment or subletting shall release or relieve the Tenant from any of its obligations hereunder. (b) No consent by the Landlord to any assignment or subletting shall be construed to mean that the Landlord has consented or will consent to any further assignment or subletting which shall remain subject to the provisions of this Article. 11.4 Dealings by Landlord: The Landlord may sell, transfer, charge, encumber or otherwise deal with the Project or any portion thereof or any interest of the Landlord therein, in every case without the consent of the Tenant, and without restriction. To the extent that any purchaser or transferee from the Landlord has become bound by the covenants and obligations of the Landlord under this Lease, the Landlord shall, without further written agreement, be freed and relieved of liability with respect to such covenants and obligations. 11.5 Subordination and Attornment: The Tenant acknowledges that this Lease is, at the option of any mortgagee or chargee, subject and subordinate to any and all ground leases, mortgages or charges (including deeds of trust and mortgage securing bonds, all indentures supplemental thereto or any other instruments of financing, refinancing or collateral financing) which may now or hereafter affect the Project, or any part thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. The Tenant agrees to execute promptly any certificate or instrument in confirmation of such subordination and will, if requested, attorn to such mortgagee or chargee and the Tenant hereby constitutes the Landlord its agent and attorney for the purpose of executing any such certificate or instrument. ARTICLE 12 ESTOPPEL CERTIFICATES, REGISTRATION 12.1 Estoppel Certificates: Each of the Landlord and the Tenant agrees that it will at any time and from time to time upon not less than ten days' notice, execute and deliver to the other (and, if required, to any prospective purchaser or mortgagee of the -24- Development) a certificate in writing as to the status at that time of this Lease, including as to whether this Lease is unmodified and in full force and effect (or, if modified, stating the modification and that the same is in full force and effect as modified), the amount of the Rent then being paid hereunder, the dates on which the same, by instalments or otherwise, and other charges hereunder, have been paid, whether or not there is any existing default on the part of the other of which it has notice, and any other matters pertaining to this Lease as to which the other shall request a statement. If any such certificate requested by the Landlord is not returned to the Landlord within ten days after its request therefor, the Landlord shall have the right and is hereby appointed by the Tenant as its agent and attorney to prepare and execute such certificate. 12.2 Registration on Title: The Tenant shall not register this Lease in full on the title to the Development or the Project. If the Tenant wishes to register a notice of this Lease or, if required, a short form thereof, on title to the Development, the Tenant may do so provided that the Landlord has first approved such notice and the Tenant has reimbursed the Landlord for the Landlord's costs (including legal costs) of same. In the event of any conflict between the terms of this Lease and the terms of such notice or short form, the terms of this Lease shall prevail. The Tenant agrees that it will, at its sole expense, discharge and withdraw from title any such registration within 30 days after the expiration or sooner termination of this Lease. If such registration is not discharged and withdrawn during the aforesaid time, the Landlord shall have the right and is hereby appointed by the Tenant as its agent and attorney to prepare, execute and register such documentation as is required to discharge and withdraw any such registration. ARTICLE 13 UNAVOIDABLE DELAYS 13.1 Unavoidable Delays: Whenever and to the extent that either the Landlord or the Tenant is unable to fulfill, or is delayed or restricted in the fulfillment of, any obligation hereunder in respect of the supply or provision of any service or utility or the doing of any work or the making of any repairs, by reason of being unable to obtain the material, goods, equipment, service, utility or labour required to enable it to fulfill such obligation, or by reason of any statute, law, by-law or order-in-council or any regulation or order passed or made pursuant thereto, or by reason of the order or direction of any legislative, administrative or judicial body, controller or board, or any governmental department or any governmental officer or other authority having jurisdiction, or by reason of its inability to procure any licence or permit required therefor, or by reason of not being able to obtain any permission or authority required therefor, or by reason of any strikes, lockouts, slow-downs or other combined action of workmen, or shortages of material, or any other cause beyond its control, other than any insolvency, lack of funds or other financial cause of delay, the Landlord or the Tenant, as the case may be, shall be relieved from the fulfillment of such obligation so long as such cause continues provided always that (except as may be expressly provided in this Lease) the Tenant shall not be entitled to any compensation for any inconvenience, or nuisance or discomfort thereby occasioned, or to cancel or terminate this Lease or to any abatement of Rent. -25- ARTICLE 14 LANDLORD'S ACCESS TO PREMISES 14.1 Inspection and Repair: The Landlord and its authorized agents and employees shall have the right, at any time and from time to time, to enter the Premises for the purpose of inspection, providing janitor service, maintenance, making repairs, alterations or improvements to the Premises or the Project or to have access to utilities and services, and the Tenant shall provide free and unhampered access for such purpose and shall not be entitled to compensation for any inconvenience, nuisance or discomfort caused thereby. The Landlord in exercising its rights hereunder shall proceed to the extent reasonably possible so as to minimize interference with the Tenants use and enjoyment of the Premises. 14.2 Right to Exhibit Premises: The Landlord and its authorized agents and employees shall have the right to exhibit the Premises to prospective tenants at all reasonable hours during the last 18 months of the Term. The Landlord and its authorized agents and employees shall also have the right to enter upon the Premises at all reasonable hours during the Term for the purpose of exhibiting the Development to any prospective purchaser or mortgagee thereof. ARTICLE 15 DEFAULT 15.1 Events of Default: Each of the following shall be an event of default of the Tenant: (a) whenever the Tenant defaults in the payment of any Rent and such default continues for two Business Days after notice to the Tenant; or (b) whenever the Tenant defaults in the performance of any of its other obligations hereunder and such default can be remedied by the Tenant but is not remedied within a period next after notice and which period shall be: (i) if the default could reasonably be remedied within 30 days after notice and provided the Tenant has commenced to remedy such failure within 10 days after notice and proceeds thereafter diligently and continuously to remedy it, 30 days; and (ii) if the default could not reasonably be remedied within 30 days after notice and provided the Tenant has commenced to remedy such failure not later than ten days after notice and proceeds thereafter diligently and continuously to remedy it, that number of days after notice which would reasonably suffice for the remedying of such default if the Tenant had commenced to remedy such default within ten days after notice and proceeded thereafter diligently and continuously to remedy it; and (iii) in any case where the Tenant does not commence to remedy such default within ten days after notice, ten days; or (c) whenever the Tenant defaults in the performance of any of its other obligations hereunder and such default cannot be remedied by the Tenant; or (d) if the Tenant is adjudicated to be insolvent or makes an assignment for the benefit of creditors or in bankruptcy, or is declared bankrupt, or takes the benefit of any legislation that may be in force for bankrupt or insolvent debtors or if any proceedings are taken by or against the Tenant under any winding-up legislation, and such adjudication, assignment, declaration or proceedings are not set aside -26- or revoked within 60 days after the making or taking of the same, or if the Tenant makes any sale of its assets under the Bulk Sales Act of Ontario, except to a successor in conjunction with a permitted assignment of this Lease; or (e) if the Premises or a substantial part thereof are abandoned or become vacant or not used or occupied while capable of use and occupancy, and remain so for a period of 15 days (which does not include temporary vacancy or non-use for a longer period when necessary to accommodate the carrying out of renovations in the Premises or a change in use of the Premises), or if the Premises are used by any other person or persons other than the Tenant or for any other purpose than that for which the same were let, in each case without the prior written consent of the Landlord. 15.2 Remedies by Landlord: Upon any event of default of the Tenant, in addition to any remedy which the Landlord may have by this Lease or at law or in equity, the Landlord may, at its option: (a) provide, by notice to the Tenant, that the current month=s Rent and Rent for the next ensuing three months shall thereupon become immediately due and payable; and/or (b) terminate this Lease and re-enter and take possession of the Premises; and/or (c) enter the Premises as agent of the Tenant, either by force or otherwise, without being liable for any prosecution therefor, and without being deemed to have terminated this Lease, and relet the Premises or any part thereof as the agent of the Tenant, and receive the rent therefor to be applied on account of the Rent; and/or (d) exercise its right of distress and the Tenant hereby waives any present or future limitation on the Landlord's right of distress; and/or (e) terminate this Lease and re-enter and take possession of the Premises and provide, by notice to the Tenant, for an immediate payment by the Tenant of an amount equal to the Present Value, as of the date of an event of default by the Tenant, of Rent due under this Lease from such date to the last day of the Term of this Lease. If any part of such Rent cannot be absolutely determined as of such date, the Landlord shall estimate same on a reasonable basis. After receipt by the Landlord of such payment and after the Landlord relets the Premises, the Landlord shall remit to the Tenant, as and when rent is received therefor, an amount equal to (i) the lesser of (1) the amount received by the Landlord for any period and (2) the amount that would have been payable by the Tenant under this Lease for the same period, less (ii) 10% of such sum in (i) as an administration fee to the Landlord; and/or (f) without terminating this Lease, demand immediate payment from the Tenant of an amount equal to the Present Value, as of the date of an event of default by the Tenant, of Rent due under this Lease from such date to the last day of the Term of the Lease. If any part of such Rent cannot be absolutely determined, as of such date, the Landlord shall estimate same on a reasonable basis. Upon payment of such amount by the Tenant to the Landlord, the Tenant shall be entitled to occupancy of the Premises for the remainder of the Term in accordance with this Lease; and/or (g) suspend the supply to the Premises of any benefit, service, utility or Additional Service furnished by the Landlord until the default is cured. -27- 15.3 Additional Self-help Remedy of Landlord: In addition to all other remedies the Landlord may have by this Lease, at law or in equity, if the Tenant does not perform any of its obligations hereunder, the Landlord, may at its option, perform any of such obligations, after five days= notice to the Tenant or in the event of an emergency without notice, and in such event the cost of performing any of such obligations plus an administrative charge of 15% of such cost shall be payable by the Tenant to the Landlord forthwith on demand together with interest at the Rate of Interest from the date of the performance of any of such obligations by the Landlord to the date of payment by the Tenant. 15.4 Legal Costs: The Tenant hereby agrees to pay to the Landlord, within 5 days after demand, all legal fees, on a solicitor and his own client basis, incurred by the Landlord for the enforcement of any rights of the Landlord under this Lease or in the enforcement of any of the provisions of this Lease or in the obtaining of possession of the Premises or for the collection of any monies from the Tenant or for any advice with respect to any other matter related to this Lease. 15.5 Remedies Cumulative: The Landlord may from time to time resort to any or all of the rights and remedies available to it in the event of any default hereunder by the Tenant, either by any provision of this Lease, or by statute, or at law or in equity, all of which rights and remedies are intended to be cumulative and not alternative, and the express provisions hereunder as to certain rights and remedies are not to be interpreted as excluding any other or additional rights and remedies available to the Landlord at law or in equity. 15.6 Non-Waiver: Any condoning, excusing or overlooking by either the Landlord or the Tenant of any default by the other at any time or times in respect of any obligation of the other herein shall not operate as a waiver of the non-defaulting party=s rights hereunder in respect of such default or so as to defeat or affect in any way the rights of the non-defaulting party in respect of any such continuing or subsequent default by the defaulting party. No waiver shall be implied by anything done or omitted by a party. Any waiver of a particular default shall not operate as a waiver of any subsequent or continuing default. ARTICLE 16 GENERAL PROVISIONS 16.1 Entire Agreement: This Lease contains all of the terms and conditions of the agreement between the Landlord and the Tenant relating to the matters herein provided and supersedes all previous agreements or representations of any kind, written or spoken, made by anyone in reference thereto. There shall be no amendment hereto unless in writing and signed by the party to be bound. -28- 16.2 Schedules: The Schedules to this Lease form a part of this Lease. 16.3 Planning Act: This Lease is subject to compliance, if necessary, with the Planning Act of Ontario. 16.4 Survival of Obligations: Any obligation of a party which is unfulfilled on the termination of this Lease shall survive until fulfilled. 16.5 Severability of Illegal Provisions: If any provision of this Lease which has no direct financial impact is or becomes illegal or unenforceable, it shall during such period that it is illegal or unenforceable be considered separate and severable from the remaining provisions of this Lease which shall remain in force and be binding as though the said provision had never been included. 16.6 Governing Law: This Lease shall be governed by the laws applicable in the Province of Ontario. 16.7 No Partnership: Nothing contained herein shall be deemed to create any relationship between the parties hereto other than the relationship of landlord and tenant. 16.8 Number, Gender, Joint and Several Liability: The word "Tenant", the word "assignee" and the word "sublessee" and personal pronouns relating thereto and used in conjunction therewith shall be read and construed as "Tenant" or "Tenants", "assignee" or "assignees" and "sublessee" or "sublessees" respectively and "his", "her", "it", "its" and "their" as the number and gender of the party or parties referred to in each case require and the number of the verb agreeing therewith shall be considered as agreeing with the said word or pronoun so substtuted. If at any time there is more than one Tenant together or in succession, they shall be jointly and severally liable for all of the obligations of the Tenant hereunder. -29- 16.9 Captions: The captions for Articles and sections of this Lease are for convenience only and are not to be considered a part of this Lease and do not in any way limit or amplify the terms and provisions of this Lease. 16.10 Time of Essence: Time shall be of the essence of this Lease. 16.11 Landlord's Agent: The Landlord may perform any of its obligations or exercise any of its rights hereunder through such agent as it may from time to time determine by notice to the Tenant and the Tenant shall, as from time to time directed by the Landlord, pay to any such agent any moneys payable hereunder to the Landlord. 16.12 Successors and Assigns: Except as otherwise specifically provided, the covenants, terms and conditions contained in this Lease shall apply to and bind and enure to the benefit of the parties hereto and their respective successors and assigns. 16.13 Accounting Principles: All calculations referred to herein shall be made in accordance with generally accepted accounting principles and practices applicable to the real estate development industry and applied on a consistent basis. 16.14 Other Leases in Building: If the Tenant leases any other space in the Building pursuant to any other lease or leases, the following provisions shall apply: (a) any default under this Lease shall constitute a default under each of such other lease or leases and any default under each of such other lease or leases shall constitute a default under this Lease enabling the Landlord to exercise any of its remedies hereunder or thereunder; and -30- (b) any right of renewal under one lease may only be exercised in conjunction with any similar right of renewal in any other lease. 16.15 Notices and Consents, etc.: Except as otherwise specifically provided herein, any notice or consent (including any invoice, statement or request or other communication) herein required or permitted to be given by either party to the other shall be in writing and shall be delivered or sent by registered mail (except during a postal disruption or threatened postal disruption) or telegram or other electronic communication or other means of prepaid recorded communication to the applicable address set forth below: (a) in the case of the Landlord, to: c/o Canderel Management Services Ltd. Constitution Square Suite 200 350 Albert Street Ottawa, Ontario K1R 1A4 Attn: Vice-President fax: (613) 594-0112 with a copy to: Canderel Management Services Ltd. 2000 Rue Peel Suite 900 Montreal, Quebec H3A 2W5 Attn: President fax: (514) 284-1054 (b) in the case of the Tenant, to the Premises. fax: (613) ____________________ Any notice delivered shall be deemed to have been validly and effectively given on the day of such delivery provided same is a Business Day. Any notice sent by registered mail shall be deemed to have been validly and effectively given on the third Business Day following the date of mailing. Any notice sent by telegram or other electronic communication or other means of prepaid recorded communication shall be deemed to have been validly and effectively given on the Business Day next following the day on which it was sent and confirmation of transmittal is received. Either party may from time to time by notice to the other change its address for service hereunder provided that such address shall be in the City of Ottawa or Montreal. 16.16 No Consent During Default: It shall not be unreasonable for the Landlord to withhold its consent at any time when the Tenant is in default hereunder. -31- 16.17 Further Assurances: Each party agrees to make such further assurances as may be reasonably required from time to time by the other to more fully implement the true intent of this Lease. 16.18 Tenant's Notice to Vacate: The Tenant shall give the Landlord not less than 12 months notice prior to the last day of the Term of this Lease or any renewal thereof of the Tenant's intention to vacate the Premises on or before such date, provided that if the Tenant does not give such notice, the Landlord shall have the right, at the Landlord's sole option, by giving notice to the Tenant not less than 60 days prior to such date, to extend this Lease for a further term of one year from such date on the same terms of this Lease as they exist on such date other than Basic Rent which shall be the Basic Rent payable during the year prior to such date plus 20% and except for any rights of the Tenant contained in Article 18, if any. If the Tenant gives the aforesaid notice or, if not, if the Landlord does not give the aforesaid notice, this Lease shall terminate on such date without notice or demand. 16.19 Landlord's Right to Relocate: The Landlord shall have the right, at any time during the Term, to relocate the Premises to other premises (the "New Premises") in the Project on the same terms and conditions as are set out in this Lease provided that: (a) the Landlord shall first have given not less than 90 days notice to the Tenant; (b) the Landlord shall endeavour that the New Premises be of comparable size and quality to the Premises; (c) the Landlord shall pay the reasonable costs incurred by the Tenant for: (i) its physical move; (ii) the reconnection of existing communication lines; and (iii) the reordering of new printed material plates and the printing of an equal quantity and quality of printed material the Tenant has in stock as the time of the relocation; (d) if the Gross Rentable Area of the New Premises is not the same as the Gross Rentable Area of the Premises, the Basic Rent payable under this Lease shall be adjusted accordingly; and (e) upon such relocation, the Landlord and the Tenant shall execute a supplement to this Lease amending the definition of "Premises" and making any other necessary changes as aforesaid. The exercise of the Landlord's right to relocate as aforesaid shall not entitle the Tenant to any claims against the Landlord. -32- 16.20 Other Construction and Shared Common Facilities: The Tenant acknowledges that the Building comprises one of a multi-phase development in the Project which includes other buildings and/or structures whether now constructed or to be hereafter constructed. The Tenant acknowledges and agrees that: (a) the Landlord has the right at any time and from time to time to construct one or more other buildings or structures within the Project and to make such modifications, alterations, additions or subtractions to the Building to accommodate the new construction including, without limitation, the blocking of light, the blocking up of windows, the elimination of views, the creation of easements or rights of way or other rights as may be necessary or desirable in connection with such new construction together with the usual noise and dust during the construction period; (b) no such construction or modifications, alterations, additions or subtractions shall be alleged or deemed as an eviction or disturbance of the Tenant's enjoyment of the Premises nor render the Landlord liable in damages to the Tenant nor entitle the Tenant to claim any diminution in Rent; (c) the Landlord shall have the right at any time and from time to time to modify, alter, add or subtract from the Common Facilities as the Landlord considers necessary or desirable including, without limitation, the sharing by certain of the tenants within the Project (as determined by the Landlord) of certain common areas and facilities within the Project such as, without limitation, parking areas, parking decks, underground parking garages, loading and shipping/receiving facilities, a plaza, an atrium, daycare facilities, a conference centre(s), conference rooms, security systems, central cafeteria, fitness, exercise or health facilities, passageways and other connections in which event the Landlord, acting reasonably, may adjust the Gross Rentable Area of the Premises; (d) the Landlord shall have the right, at any time and from time to time, to do what the Landlord, acting reasonably, determines to be necessary or desirable for the more efficient and proper operation and use of the Project; (e) where expenses are incurred or taxes are imposed which relate to the Development and also another part or parts of the Project or to shared facilities which are made available to some or all of the occupants of the Development and some or all of the occupants of one or more other part or parts of the Project, the Landlord, acting reasonably, shall have the right to allocate such expenses or taxes among the various parts of the Project and such expenses or taxes so allocated to the Development shall form part of Operating Expenses; (f) nothing herein contained shall be deemed to constitute any obligation on the part of the Landlord to proceed with any construction of or to provide any such common areas or facilities; and (g) the Tenant acknowledges that, since the Tenant is entitled to share the use of the conference centre(s) in the Project, the Gross Rentable Area of the Premises includes the Tenants share, as determined by the Landlord acting reasonably, of the area of such conference centre(s). ARTICLE 17 ADDITIONAL PROVISIONS 17.1 Leasehold Allowance The Landlord shall pay to the Tenant, as an inducement to the Tenant to enter into this Lease, an amount equal to $30.00 per square foot of Gross Rentable Area of the Initial Premises provided that all of the following have occurred: -33- (a) the Tenant's right under this section is personal to the original Tenant and does not extend to any assignee or subtenant so that the right under this section terminates upon any assignment of this Lease or upon any subletting the whole of the Premises; (b) the Tenant is not in default under this Lease; (c) the Tenant has provided evidence satisfactory to the Landlord that the Tenant has completed all of the Tenant's Work in the Premises and all material and labour with respect to the Tenant's Work has been paid for in full and that all rights to liens which could arise in respect of the Tenant's Work have expired without any such liens having been registered against the title to the Development; (d) the Tenant has executed the Lease and delivered it to the Landlord; (e) the Commencement Date has occurred and the Tenant has occupied the Premises and opened for business; and (f) if the Landlord is performing any work for the Tenant in the Premises, all of such work has been paid for by the Tenant or the amount owing to the Landlord in respect of same has been offset against such inducement. The Tenant agrees that, if the Landlord terminates the Term as a result of default by the Tenant, the Landlord shall be entitled to a rebate of an amount equal to the product obtained by multiplying such inducement by a fraction the denominator of which is the total number of months in the Term and the numerator of which is the number of months in the Term following such default. 17.2 License for Parking: (a) The Landlord grants to the Tenant the license to park two (2) automobiles (and, after December 31, 1997 two (2) additional automobiles) on an unreserved basis in the Parking Garage during the Term and, after December 31, 1997, one additional automobile on a reserved basis at the monthly rate per automobile as established from time to time by the Landlord or the operator of the Parking Garage. The initial monthly rate per automobile (unreserved) is $125.00 plus taxes. (b) The Tenant agrees to comply with the parking rules governing the use of the Parking Garage as may be established from time to time by the Landlord or the operator of the Parking Garage (the "Parking Rules") and of which notice has been given to the Tenant or of which notice has been posted in the Parking Garage. (c) The Tenant agrees to indemnify the Landlord and the operator of the Parking Garage against all liability, claims, damages or expenses due to or arising out of any act, omission or neglect by the Tenant or those for whom it is at law responsible in or about the Parking Garage or due to or arising out of any breach by the Tenant of the provisions of the Parking Rules. (d) Neither the Landlord nor the operator of the Parking Garage shall be liable for any loss, injury or damage caused to persons using the Parking Garage or to automobiles or their contents or any other property thereon, however caused, and the Tenant agrees that such vehicles, contents and property shall be in the Parking Garage at the sole risk of the Tenant and agrees to indemnify the Landlord and the operator of the Parking Garage against all claims, damages or expenses due to or arising out of the foregoing. -34- 17.3 Tenant's First Right to Lease Extra Space: The Tenant shall have the first right to lease the vacant space adjacent to the Premises (the "Extra Space") in the area shown cross-hatched on Schedule E attached hereto upon the following terms and conditions: (a) the Tenant's right under this section is personal to the original Tenant and does not extend to any assignee or subtenant so that the right under this section terminates upon any assignment of this Lease or upon any subletting of all or any part of the Premises; (b) the Tenant's right in this section is subject to prior rights granted from time to time by the Landlord with respect to the Extra Space; (c) the Tenant shall not have any right to lease the Extra Space if, at the time the Landlord would be obligated to give the Landlord's Notice to the Tenant as hereafter provided, the Tenant is in default hereunder or has been in default hereunder on a consistent basis; (d) if at any time during the Term (but not in any renewal), the Extra Space becomes or is about to become vacant and the provisions of subsections (a) and (b) are not in effect, the Landlord shall give notice to the Tenant (the "Landlord's Notice") setting forth the rental rate which the Landlord is prepared to accept for the extra Space (which rate shall be the then current rate for such space in the Building under similar lease terms), the occupancy date for the Extra Space, the length of the term of lease proposed for the Extra Space and other terms and conditions required by the Landlord. If the Tenant wishes to acquire the Extra Space, it shall give notice to the Landlord within 5 days following receipt of the Landlord's Notice. If the Tenant does not so give such notice, the Landlord shall be free to Lease the Extra Space at any time during the Term to any other party. Unless the Landlord otherwise agrees, the Tenant shall be obligated to acquire all and not less than all of the Extra Space. This right to acquire the Extra Space, if the Extra Space is presently vacant, shall not apply until the Extra Space has been leased out and again becomes vacant in the future; and (e) if the Tenant exercises its right to lease the Extra Space, the Landlord shall deliver the Extra Space to the Tenant on the date, at the rental rate and for the term and subject to any other terms and conditions specified in the Landlord's Notice and the Extra Space shall be added to this Lease and shall be subject to all the other terms hereof. -35- IN WITNESS WHEREOF the parties hereto have duly executed this Lease as of the date first above written. LANDLORD OMERS REALTY CORPORATION Per: /s/ Paul D. Colangelo --------------------------- Name: Paul D. Colangelo Title: Executive Vice President Per: /s/ John R. Morrison --------------------------- Name: John R. Morrison Title: Senior Vice President Properties We have authority to bind the Corporation. TENANT DRAKE, BEAM, MORIN (OTTAWA), INC. Per: Name: John Gerry Stanton Title: President Per: Name: Title: We have authority to bind the corporation. -36- SCHDULES SCHEDULE A Legal Description of Lands and Project Lands Part 1 - Development 360 Albert Street, Ottawa, being Phase I of Constitution Square Part of Lots 18, 19, 20 and 21 on the south side of Albert Street and part of Lots 18, 19, 20 and 21 on the north side of Slater Street, all on Plan 3922, City of Ottawa, designated as Parts 1 and 3 on Plan 4R-4412 subject to an easement in favour of The Regional Municipality of Ottawa, Carleton as in 552200 over Part 3 on Plan 4R-4412. Part II - Project The block bounded by Albert Street, Kent Street, Slater Street and Lyon Street in the City of Ottawa which is legally described as: Parcel 18-7, in the Register for Section 3922, Land Titles Division of Ottawa-Carleton No. 4. -37- SCHEDULE B Definition of Operating Costs 1. Inclusions "Operating Costs" mean the aggregate of (a) all of the Landlord's expenses, costs and charges which are incurred in respect of the operation, maintenance, repair, replacement, management, administration and supervision of the Development including the Building Common Facilities and (b) the Building Proportionate Share of all such costs with respect to each of the Shared Common Facilities which is shared by the Development. Such expenses, costs and charges include, without limitation or duplication: (a) the cost of providing the operation, maintenance, repair, replacement, management, administration and supervision including, without limitation, wages, salaries, placement fees and severance costs or other compensation for employees, agents or contractors of the Landlord performing services rendered in connection therewith and a building manager and other supervisory personnel, in each case whether on or off site, elevator operators, porters, cleaners and other janitorial staff, watchmen and other security personnel, carpenters, engineers and all other maintenance personnel; (b) the cost of repairs and maintenance and the cost of acquiring or renting supplies and equipment; (c) the annual amortization including interest on the unamortized amount, (on a straight-line basis over the useful life or such other period as reasonably determined by the Landlord) of the capital cost of any modifications, replacements or additions and/or the machinery and equipment where in the reasonable opinion of the Landlord such modifications, replacements or additions may reduce Operating Costs or result in energy savings or result in increased security, or any additional equipment or improvements required by legal requirements and not to remedy any construction inadequacy or non-compliance with legal requirements in effect at the time of constructions, or which in the Landlord's reasonable opinion are for the benefit or safety of users of the Development; (d) straight-line amortization including interest on the unamortized amount, based on manufacturers' recommended life of capitalized machinery and equipment; (e) premiums and other charges incurred by the Landlord with respect to insurance including, without limitation, fire and "All Risk" perils insurance, public liability and property damage insurance, boiler and machinery insurance, and loss of rental income insurance, elevator liability insurance, workmen's compensation insurance for the employees specified in subsection (a) above and other casualties against which the Landlord may reasonably insure provided that if the Landlord self insures the Landlord shall include a deemed amount equal to the amount that would have been included if the Landlord had placed insurance with a third party; (f) costs incurred in connection with inspection and servicing of elevators, electrical distribution and mechanical equipment and the costs of supplies and equipment used in connection therewith; (g) costs incurred for fuel or other energy for heating and air-conditioning and operating the heating and air-conditioning systems, for electricity, steam or other power required in connection with lighting, use and operation together with the costs of replacement, maintenance and repair of the electrical systems and lighting but excluding costs for power for lighting and office equipment that are charged directly by the Landlord to the Tenant as excess consumption costs pursuant to subsection 6.4(b) of this Lease; (h) the costs of water, sewer and service charges, garbage and waste removal and gardening, landscaping and snow removal; (i) unemployment insurance expenses, pension plan and any other payments payable in connection with the employment of any of the employees referred to in subsection (a) above; -B2- (j) sales and excise taxes on goods and services provided by the Landlord; (k) fees and expenses of accountants, lawyers and other professionals; (1) all costs and expenses (including legal and other professional fees) incurred in good faith in verifying the reasonableness of, or in contesting, resisting or appealing, assessments and levies for Taxes or taxes charged against the business of the Landlord; (m) costs of telephone, stationery, office supplies and other materials; (n) that part of Other Taxes attributable by the Landlord to the Development; (o) Sales Taxes payable by the Landlord on the purchase of goods and services included in Operating Costs (excluding any such Sales Taxes as are available to an claimed by the Landlord as a credit in determining the Landlord's net tax liability on account of Sales Taxes but only to the extent that such Sales Taxes are included in Operating Costs); (p) that part of Taxes which is attributable to space which would otherwise be rentable if it were not utilized and reasonably needed~ by the Landlord in connection with the management, operation and maintenance; (q) Taxes to the extent attributable to the Common Facilities that are separately assessed and not included as part of the assessed value of premises occupied or to be occupied by tenants (including the Tenant) (but only if and to the extent that such Taxes have not been taken into account by the Landlord in making any attribution or calculation for the purpose of determining the Tenant's contribution to Taxes); (r) such other direct operating costs, charges and expenditures of a like nature as may be incurred in respect of the proper preservation, protection, maintenance and operation; (s) Capital Tax; and (t) a management fee equal to the management fee charged to the Landlord by the third party manager from time to time of the Building or, if none, a management fee equal to the management fee charged by landlords of buildings similar to the Building, provided that, with respect to costs of repair, replacement, modifications, additions and/or equipment which are included in Operating Costs, the Landlord shall have the right, notwithstanding the forgoing, either to include the whole of such costs in Operating Costs in the year such costs were incurred or to amortize such costs over such period as the Landlord, acting reasonably, determines is reasonable in the circumstances. - B3 - 2. Adjustment to Costs Those items of Operating Costs which vary with the use and occupancy of rentable premises shall be adjusted and calculated as if 100% occupied and operational for the entire operating year so that those items of Operating Costs (which shall include, without limitation, items such as cleaning costs, garbage removal and utility costs) shall be adjusted to what they would have been in the Landlord's reasonable estimation if 100% occupied and operational for the entire operating year, and such adjusted amount shall be included in the Operating Costs. 3. Exclusions Operating Costs shall exclude, except where expressly included above: (a) all costs normally attributed to capital account under generally accepted accounting principles; (b) costs which are unreasonably or imprudently incurred (to the extent of the excess of such costs over the amount thereof if reasonably and prudently incurred); (c) costs incurred in leasing premises to other tenants; and (d) debt service including interest. 4. Reductions Costs which are reimbursed to the Landlord from tenants or others corresponding to expenses incurred by the Landlord, (such as Additional Service Costs, insurance recoveries and recoveries pursuant to damage or indemnity claims), otherwise than by a general contribution by tenants of shares of Operating Costs, shall, to the extent the expenses pertaining thereto are included in Operating Costs, be applied in reduction of Operating Costs. - B4 - SCHEDULE C RULES AND REGULATIONS 1. The sidewalk, entry passages, elevators, fire escapes, common stairways and Common Facilities shall not be obstructed by any of the tenants or used by them for any other purpose other than for ingress and egress to and from their respective premises. Tenants will not place or allow to be placed in the Building corridors or public stairways any waste paper, dust, garbage, refuse or anything whatever that would tend to make them unclean or untidy. 2. The skylights and windows that reflect or admit light into passageways and Common Facilities of the Development shall not be covered or obstructed by any of the tenants, and no awnings shall be put up, without the written consent of the Landlord. 3. The water-closets and other water apparatus shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, ashes or other substances shall be thrown therein. Any damage resulting by misuse shall be borne by the tenant by whom or by whose agents, servants or employees the same is caused (save in respect of Insured Damage). Tenants shall not let the water run unless in actual use, nor shall they deface any part of the Common Facilities or the Development. 4. Tenants shall not do or permit anything to be done in their premises or bring or keep anything therein which will in any way increase the risk of fire, or obstruct or interfere with the rights of other tenants, or violate or ct at variance with the laws relating to fires or with the regulations of the Fire Department or the Board of Health. 5. No tenant, its clerks or servants, shall make or commit any improper noises in the Building, lounge about doors or corridors or interfere in any way with other tenants or those having business with them. 6. Nothing shall be thrown by any tenant, its clerks or servants, out of windows or doors, or down the passages, elevator shafts or skylights of the Building. 7. No birds or animals shall be kept in or about the premises of any tenant nor shall any tenant operate, or permit to be operated, any musical or sound producing instruments or device inside or outside the premises of any tenant which may be heard outside such premises. 8. No one shall use the premises of any tenant for sleeping apartments or residential purposes, or for the storage of personal effects or articles other than those required for business purposes, nor shall the tenant permit any cooking on the premises. 9. The Landlord shall have the right: (a) to require all persons entering or leaving the Building during such hours as the Landlord may reasonably determined, to identify themselves to a watchperson or security officer by registration or otherwise to establish their right to enter or leave; and (b) to exclude or expel any peddlar or beggar at any time from any premises or the Building. 10. Any injury or damage caused to the Common Facilities or other areas of the Building or heating and other appliances, or to any other tenant or to the premises occupied by any other tenant, by interference with or neglect of the heating appliances, or any other person or servant subject to it, shall be made good by the tenant in whose premises the neglect, interference or misconduct arose (save in respect of Insured Damage). 11. It shall be the duty of each tenant to assist and co-operate with the Landlord in preventing injury to such Tenant's premises, and premises demised to other tenants. 12. No inflammable oils or other inflammable, dangerous or explosive materials shall be kept or permitted to be kept in any premises. Nothing shall be placed on the outside of window sills or projections. 13. Furniture, effects and supplies shall not be taken into or removed from any premises, except at such time and ii= such manner as may be previously approved by the Landlord. 14. No bicycles or other vehicles shall be brought within the Building except in the Parking Garage, and then only in accordance with the Landlord's or Parking Garage operator's direction. 15. Business machines, filing cabinets, heavy merchandise or other articles liable to overload, injure or destroy any part of the Building shall not be taken into it without the written consent of the Landlord and the Landlord shall in all cases retain the right to prescribe the weight and proper position of all such articles and the ways, means and times and routes for moving them into or out of the Building; the cost of repairing any damage done to the Building by such moving or by keeping any such articles on any premises shall be paid by the tenant causing such damage (save in respect of Insured Damage). 16. Tenants shall not place any additional lock upon any door of the Building without the written consent of the Landlord (except in the case of vaults or other security areas which the Tenant may reasonably designate). 17. Tenants shall give the Landlord prompt notice of any accident to or any defect in the plumbing, heating, air-conditioning, mechanical or electrical apparatus or any other part of the Building. 18. Only persons authorized by the Landlord, acting reasonably, shall be permitted to deliver or to use the elevators in the Building for the purpose of delivering food or beverages to any premises. 19. The lining of all window drapes facing the interior surface of exterior windows shall be subject to the prior approval of the Landlord as to colour and material and a tenant shall not hang and will remove any draperies which in the Landlord's opinion do not conform to any uniform scheme of window coverings established for the Building. 20. In order to maintain the high character and uniqueness of the Development, the Landlord shall have the absolute right to designate the kind, type and colour of any interior drapes or wall coverings or hangings which the tenants desire to place on any wall or window and to designate the locations, kind and colour of any partitions which are visible from outside the premises. 21. Each Tenant shall take all steps as reasonably required by the Landlord from time to time to ensure that no employees of the Tenant or others on the Premises from time to time use any Common Facilities for the purpose of smoking. 22. The Landlord shall have the exclusive right to supply and sell or caused to be supplied and sold all coffee, soft drinks, cigarettes, sandwiches, confections and other food and to install or caused to be installed all vending machines within the Project, provided that the Tenant shall have the right to prohibit all such sales and installations in its Premises by giving written notice to the Landlord to this effect. 23. The Landlord shall have the right to make such other and further reasonable rules and regulations, not inconsistent with the provisions of this Lease, as in its reasonable judgment may from time to time be necessary for the safety, care, cleanliness and appearance of any premises and the Development in keeping with the existing standards in and of the Development, and for the preservation of good order therein, and the same shall be kept and observed by all tenants, their clerks and servants. SCHEDULE D Intentionally left blank. EX-10 8 EXHIBIT 10.8 E-CRUITER.COM INC EMPLOYEE AND DIRECTOR STOCK OPTION PLAN 1. Purpose of the Plan The purpose of the E-Cruiter.com Inc Employee and Director Stock Option Plan is to develop the interest of and provide an incentive to eligible employees and directors of E-Cruiter.com Inc (the "Corporation") in the Corporation's growth and development by granting to eligible employees and directors from time to time options to purchase Common Shares of the Corporation, thereby advancing the interests of the Corporation and its shareholders. 2. Definitions In this Plan: a) "Audit Committee" means the Audit Committee of the Corporations Board of Directors; b) "Board of Directors" means the Board of Directors of the Corporation; c) "Common Shares" means the Common Shares of the Corporation; d) "Corporations Act" means the Canada Business Corporations Act, as amended, and the regulations promulgated thereunder. e) "Date of Grant" means, for any Option, the date specified by the Audit Committee, or its designate, at the time it grants the Option, (provided, however, that such date shall not be prior to the date the Audit Committee effects the Plan with approval of a majority of the Corporations shareholders). The Option must be granted within five years from the date the Plan is approved by shareholders. f) "Disability" means permanent and total disability as determined under procedures established by the Audit Committee for the purposes of the Plan; g) "Exercise Date" means the date the Corporation receives from a Participant a completed Notice of Exercise form with payment for the Option Shares being purchased; h) "Exercise Period" means, with respect to any Option Shares, the period during which a Participant may purchase such Option Shares; i) "Incentive Stock Option" means an Option granted under this Plan, and designated as such, and meeting the definition of section 422 of the United States Internal Revenue Code so that an individual may receive favourable tax treatment. The individual, at the time at the Option is granted, cannot own more than 10% of all classes of voting shares of the Corporation, unless the Exercise Price of the Option is equal to at least 110% of the fair market value of the Common Shares, for the Option to be designated as an Incentive Stock Option. j) "Non-Qualified Stock Option" means an option designated as a Non-Qualified Stock Option; k) "Option" means a non-assignable and non-transferable option to purchase Common Shares granted pursuant to the Plan; k) "Optionee" means a Participant who has been granted one or more Options; l) "Option Shares" means Common Shares which are subject to purchase upon the exercise of outstanding Options; m) "Participant" means a current or former full-time permanent employee, or director of the Corporation; n) "Plan" means the E-Cruiter.com Inc Employee and Director Stock Option Plan as set out herein and approved by majority of shareholders; o) "Plan Shares" means 250,000 Common Shares for issuance pursuant to the exercise of Options. The Plan shares may be granted as Incentive Stock Options, Non-Qualified Options, or have no designation. p) "Retirement" means retirement from active employment with the Corporation at or after age 65, or with the consent for purposes of the Plan of such officer of the Corporation as may be designated by the Audit Committee, at or after such earlier age and upon the completion of such years of service as the Committee may specify. 3. Operation of the Plan The Plan Has been designed for both Canadian and United States employees. For United States employees, the Option shall be designated, at the Date of Grant, as Incentive Stock Options or Non-Qualified Stock Options. For Canadian Employees, no such designation shall be made. 4. Currency All dollar amounts referred to in this Plan are in Canadian or United States funds as specified. 5. Extended Meanings In this Plan, words importing the singular number include the plural and vice versa and words importing the masculine gender include the feminine and neuter genders. 6. Headings Article headings are not to be considered part of the Plan and are included solely for convenience of reference and are not intended to be full or accurate descriptions of the contents thereof. 2 7. Eligibility All Participants shall be eligible to participate in the Plan. Eligibility to participate shall not confer upon any Participant any right to be granted Options pursuant to the Plan. The extent to which any Participant shall be entitled to be granted Options pursuant to the Plan shall be determined in the sole and absolute discretion of the Audit Committee. 8. Number of Option Shares Available for Grants No Option may be granted by the Audit Committee which would have the effect of causing the total number of all Option Shares subject to purchase under outstanding Options to exceed the number of Plan Shares. Upon the expiration, surrender, cancellation or termination, in whole or in part, of an unexercised Option, the Option Shares subject to such Option shall be available for other Options to be granted from time to time. 9. Granting of Options The Audit Committee may from time to time grant Options to Participants to purchase a specified number of Option Shares at a specified exercise price per share. The number of Option Shares to be granted, the exercise price, the Date of Grant, and such other terms and conditions of the Option shall be as determined by the Audit Committee. 10. Exercise Price The exercise price per Common Share purchasable under an Option shall be determined by the Audit Committee but in any event shall not be lower than the fair market value of a Common Share on the Date of Grant. Fair market value shall be determined in good faith using common practices for such determination without regard to any restriction on the Common Shares. 11. Exercise Period Unless otherwise specified by the Audit Committee at the time of granting an Option, and except as otherwise provided in the Plan, each Option shall be exercisable in the following installments: Percentage of Total Number of Option Shares Which May be Purchased Exercise Period ---------------- --------------- 33 1/3% From the first anniversary of the Date of Grant to and including the fifth anniversary of the Date of Grant 33 1/3% From the second anniversary of the Date of Grant to and including the fifth anniversary of the Date of Grant 33 1/3% From the third anniversary of the Date of Grant to and including the fifth anniversary of the Date of Grant 3 Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Audit Committee. Each Option or installment may be exercised at any time or from time to time, in whole or in part, for up to the total number of Common Shares with respect to which it is then exercisable. The Audit Committee shall have the right to accelerate the date which any installment of any Option is exercisable. 12. Term of Options Subject to accelerated termination as provided for in the Plan, each Option shall, unless otherwise specified by the Audit Committee, expire on the fifth anniversary of the Date of Grant. 13. Exercise of Options An Optionee may at any time within the Exercise Period elect to purchase all or a portion of the Option Shares which such Optionee is then entitled to purchase by delivering to the Corporation a completed Notice of Exercise, specifying the Date of Grant of the Option being exercised, the exercise price of the Option and the number of Option Shares the Optionee desires to purchase. The Notice of Exercise shall be accompanied by payment in full of the purchase price for such Option Shares. Payment can be made by cash, certified cheque, bank draft, money order or the equivalent payable to the order of the Corporation or by such other means as may be specified by the Audit Committee. 14. Withholding of Tax If the Corporation determines that under the requirements of applicable taxation laws it is obliged to withhold for remittance to a taxing authority any amount upon exercise of an Option, the Corporation may, prior to and as a condition of issuing the Option Shares, require the Optionee exercising the Option to pay to the Corporation, in addition to and in the same manner as the purchase price for the Option Shares, such amount as the Corporation is obliged to remit to such taxing authority in respect of the exercise of the Option. Any such additional payment shall, in any event, be due no later than the date as of which any amount with respect to the Option exercised first becomes includable in the gross income of the Optionee for tax purposes. 15. Share Certificates Upon exercise of an Option and payment in full of the purchase price and any applicable tax withholdings, the Corporation shall cause to be issued and delivered to the Optionee within a reasonable period of time a certificate or certificates in the name of or as directed by the Optionee representing the number of Common Shares the Optionee has purchased. 4 16. Termination of Employment Unless otherwise determined by the Audit Committee, if an Optionee's employment or services terminate for any reason other than death, Disability or Retirement, any Option held by such Optionee shall thereupon terminate, except that each such Option, to the extent then exercisable, may be exercised for the lessor of 60 days or the balance of such Option's term. Options shall not be affected by any change of employment within or among the Corporation, its Subsidiaries or an Other Related Company, or unless otherwise determined by the Audit Committee, so long as the Participant continues to be an employee of the Corporation, a Subsidiary or an Other Related Company. 17. Termination by Reason of Death, Disability or Retirement If an Optionee's employment or services terminate by reason of death, Disability or Retirement, any Option held by such Optionee may thereafter be exercised, to the extent then exercisable or to such other extent as the Audit Committee may determine, for a period of 180 days (or such other period as the Audit Committee may specify) from the date of such death, Disability or Retirement or until the expiration of the stated term of such Option, whichever period is the shorter. 18. Transfer and Assignment Options granted under the Plan are not assignable or transferable by the Optionee or subject to any other alienation, sale, pledge or encumbrance by such Optionee except by will or by the laws of descent and distribution. During the Optionee's lifetime Options shall be exercisable only by the Optionee. The obligations of each Optionee shall be binding on his/her heirs, executors and administrators. 19. No Right to Employment The granting of an Option to a Participant under the Plan does not confer upon the Participant any right to expectation of employment by, or to continue in the employment of, the Corporation, or to be retained as a consultant by the Corporation. 20. Rights as Shareholders The Optionee shall not have any rights as a shareholder with respect to Option Shares until full payment has been made to the Corporation and a share certificate or share certificates have been duly issued. 5 21. Administration of the Plan The Plan shall be administered by the Audit Committee which shall have the authority to: a) determine the individuals and entities (from among the class of individuals and entities eligible to receive Options) to whom Options may be granted; b) determine the number of Option Shares to be subject to each Option; c) determine the terms and conditions of any grant of Option, including but not limited to o the time or times at which Options may be granted; o the exercise price at which Option Shares subject to each Option may be purchased; o the time or times when each Option shall be come exercisable and the duration of the Exercise Period but, in case excess of five years from the Date of Grant; o whether restrictions or limitations are to be imposed on Option Shares, and the nature of such restrictions or limitations, if any; and o any acceleration of exercisability or waiver of termination regarding any Option, based on such factors as the Audit Committee may determine; d) interpret the Plan and prescribe and rescind rules and regulations relating to the Plan. The interpretation and construction by the Audit Committee of any provisions of the Plan or of any Option granted under it shall be final and binding on all persons. Nothing in the Plan shall be interpreted, amended or altered in such a manner as to disqualify the plan under section 422 of the United States Internal Revenue Code. No members of the Audit Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. The day-to-day administration of the Plan may be delegated to such officers and employees of the Corporation or any Subsidiary as the Audit Committee shall determine. 22. Recapitalization and Reorganization The number of Option Shares subject to each outstanding Option and the purchase price for such Option Shares shall be appropriately adjusted for any subdivision, redivision, consolidation or any similar change affecting the Common Shares. 23. Conditions The Plan and each Option shall be subject to the requirement that, if at any time the Audit Committee determines that the listing, registration or qualification of the Common Shares subject to such Option upon any securities exchange or under any provincial, state or federal law, or the consent or approval of any governmental body, securities exchange, or the holders of the Common Shares generally, is necessary or desirable, as a condition of, or in connection with, the granting of such Option or the issue or purchase of Common Shares thereunder, no such Option may be granted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been affected or obtained free of any conditions not acceptable to the Audit Committee. 6 24. Notices All written notices to be given by the Optionee to the Corporation shall be delivered personally or by registered mail, postage prepaid, addressed as follows: E-Cruiter.com Inc 360 Albert Street, Suite 1510 Ottawa, ON K1R 7X7 Attention: Secretary - Treasurer Any notice given by the Optionee pursuant to the terms of an Option shall not be effective until actually received by the Corporation at the above address. 25. Corporate Action Nothing contained in the Plan or in an Option shall be construed so as to prevent the Corporation from taking corporate action which is deemed by the Corporation to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Option. 26. Amendments The Board of Directors, with approval of a majority of Common shareholders, shall have the right, in its sole discretion, to alter, amend, modify or terminate the Plan or any Option granted under the Plan at any time without notice. The Plan shall not, however, be altered, amended or modified more often than once every six months other than to comport with changes to applicable tax and employee benefit laws and the respective rules and regulations thereunder. No such amendment, however, may, without the consent of the Optionee, alter or impair any rights or increase any obligations with respect to an Option previously granted under the Plan. 27. Third Party Offer In the event of a Third Party Offer which is accepted by a majority of the shareholders of the Corporation as defined below, unless otherwise determined by the Board of Directors prior to the occurrence of such Third Party Offer, any options outstanding as of the date of the Third Party Offer and then not exercisable shall become fully exercisable at the Exercise Price, provided that Optionees are not required to exercise the options if the Third Party Offer is not for all the Corporation's securities or the offer price per share is less than the Exercise Price. For the purposes of the Plan, "Third Party Offer" means the happening of any of the following: a) When a third party, acting at arm's length, as defined in the Income Tax Act (Canada), as amended, makes an offer to acquire the "beneficial ownership", as defined in the Corporations Act, directly or indirectly, of securities of the Corporation representing 50.1 percent or more of the combined voting power of the Corporation's then outstanding securities; or b) When a third party, acting at arm's length, as defined in the Income Tax Act (Canada), as amended, makes an offer to acquire the Corporation through the purchase of assets, by amalgamation or otherwise. "Exercise Price" shall mean the price per share as determined herein from time to time. 7 28. Termination of Plan Except as otherwise provided herein, Options may be granted only within the five year period from the date the Plan has been approved by a majority of common shareholders. The termination of the Plan shall have no effect on outstanding Options, which shall continue in effects in accordance with their terms and conditions and the terms and conditions of the Plan, provided that no Option may be exercised after the fifth anniversary of its Date of Grant. 29. Further Assurances Each Participant shall, when requested to do so by the Corporation, sign and deliver all such documents relating to the granting or exercise of Options deemed necessary or desirable by the Corporation. 30. Governing Law The Plan is established under the laws of the Province of Ontario, and the rights of all parties and the construction and effect of each provision of the Plan shall be according to the laws of the Province of Ontario. DATED this 22nd day of October, 1999. E-CRUITER.COM INC President _______________________ J. Gerard Stanton Secretary _______________________ J. Potts 8 EX-10 9 EXHIBIT 10.9 SALES & MARKETING AGREEMENT THIS AGREEMENT is made and entered into as of October 13, 1999, ("the Effective Date") by and between WorkLife Solutions, Inc., a Delaware corporation ("WorkLife"), and E-Cruiter.com, Inc., a corporation incorporated under the laws of Canada ("E-Cruiter"). WHEREAS, WorkLife specializes in the design, development and installation of Internet solutions for career management and maintains a site on the World Wide Web located at www.worklife.com, and manages the Career Channel for AltaVista, located at www.altavista.com; WHEREAS, E-Cruiter is a leading provider of Web-based job posting and applicant management solutions that allow companies to utilize Internet-based recruiting and manage the hiring process; WHEREAS, WorkLife and E-Cruiter desire to enter into a Sales and Marketing Agreement (the "Agreement") by which they share certain technology and jointly promote, develop, and distribute certain services and products; NOW, THEREFORE, in consideration of the mutual promises and conditions set forth in this Agreement, the parties hereby agree as follows: 1. Definitions. 1.1 "E-Cruiter Code Base" shall mean E-Cruiter's current and future shipping product set. 1.2 "E-Cruiter Solutions" shall mean (i) E-Cruiter Express, targeted to individual recruiters on a single user basis, providing features such as job posting, applicant response, communications with applicants, and administration of accounts; and (ii) E-Cruiter Enterprise, targeted to corporations or workgroups and other multiple users, providing various of the above features as well as sharing of candidate files, job descriptions, and similar material. 1.3 "Helius Platform" shall mean the NT, SQL-Server7, COM-based architecture and software that may be incorporated into future E-Cruiter products. 1.4 "Party's Brand Features" shall mean a party's trademarks, trade names, service marks, service names and distinct brand elements that appear from time to time in connection with their properties, products, ventures and services worldwide and are protected under state, United States or other jurisdiction's trademark or copyright law or as to which the party has established trademarks or trade dress rights, including any modifications to the foregoing, that may be created during the term of this Agreement. 1 1.5 "Party's Brand Guidelines" means the guidelines for use of a Party's Brand Features, which may be prescribed by that party from time to time. 1.6 "Precision Matching Technology" shall mean technology and software designs, implementation, data schema and plans for matching a description to another description, including the matching of candidate skills and competencies with job descriptions or requisitions. 1.7 "WorkLife Corporate Career Portal Solutions" ("CCPS") shall mean career channels developed by WorkLife that provide career development tools to employees and recruiting tools for Human Resources departments and hiring management personnel. CCPS can be hosted by either WorkLife as an Application Service Provider (ASP) or by the corporate customer. 1.8 "WorkLife Internet Career Portal Solutions" ("ICPS") shall mean career channels developed by WorkLife that are deployed via Internet portal companies such as AltaVista. 1.9 "Sales" shall mean customer billings excluding billings attributable to professional services or technical support services, irrespective of the revenue recognition policies of either party. 1.10 "Hosts" shall mean to be responsible for systems backups, technical support and necessary updates. 2. Term. 2.1 Initial Term. The initial term of this Agreement shall be three (3) years from the Effective Date. 2.2 Renewal. The term of this Agreement shall automatically renew for successive terms of one (1) year each; provided, however, that either party may elect not to renew this Agreement by providing written notice of its intent not to renew at least ninety (90) days prior to the commencement of the renewal term. 2.3 Termination. Either party may terminate this Agreement in the event that the other party is in material breach provided the terminating party provides thirty (30) days written notice specifying the breach and the breach is not cured within those thirty (30) days, or if the breach is not curable in a commercially reasonable manner within that time frame, the party in breach commits sufficient resources to the remedial effort to effect a remedy as soon as reasonably possible. 3. Technology Sharing. The parties agree to disclose to the other during the term of this Agreement their respective technologies and capabilities, including but not limited to E-Cruiter's Helius Platform, in the context of joint exploration of licensing and cross-licensing opportunities of such technologies and capabilities on mutually beneficial terms. 2 4. Grant of License; Distribution. 4.1. WorkLife Corporate Career Portal Solutions. WorkLife hereby grants E-Cruiter a fully paid, irrevocable, non-exclusive, non-transferable, worldwide license for the term of this Agreement to use, copy and distribute CCPS through E-Cruiter's Website or in connection with E-Cruiter's other products as provided in this Agreement, in joint promotion with WorkLife. 4.2. (a) E-Cruiter Solutions. E-Cruiter hereby grants WorkLife a fully paid, irrevocable, non-exclusive, non-transferable, worldwide license for the term of this Agreement to use, copy and distribute E-Cruiter Solutions including but not limited to in connection with ICPS and CCPS created by WorkLife and in connection with joint promotion efforts with E-Cruiter. 4.3 Brand Features. Each party hereby grants to the other an irrevocable, non-exclusive, non-transferable worldwide license for the term of this Agreement to use the other Party's Brand Features in connection with the party's performance of their promotional obligations as set forth in this Agreement, provided such use is consistent with the Party's Brand Guidelines. Notwithstanding the foregoing, each party shall promptly cease any use of the other Party's Brand Features to which the latter objects at any time. (a) Sales Sharing. E-Cruiter shall pay royalties to WorkLife and WorkLife shall pay royalties to E-Cruiter as described in paragraphs 4.5 through 4.7 of this Agreement. (b) Accounting. An accounting of each month's sales by both parties, in the currency of the individual sales transactions for which sales sharing is provided for under this Agreement, shall be made within 30 days of the end of each month, and payments shall be made, based on appropriate currency conversions, in US Dollars ("USD") within 30 days of the end of the month in which the sales were billed to customers of either party. (c) Pricing. Each party shall sell the other Party's products, as provided in this Agreement, at no less than the minimum prices set forth in the Minimum Acceptable Price Schedules attached hereto as Appendix A. 4.4 Intentionally Omitted. 4.5 E-Cruiter Selling WorkLife Corporate Career Portal Solutions. (a) WorkLife Hosts CCPS Components. E-Cruiter shall pay WorkLife 65% of CCPS Net Sales for the first year of the customer contract and 75% of CCPS Net Sales for subsequent years of the customer contract. CCPS Net Sales shall mean CCPS Gross Sales, less fees to third-party service providers (which may include providers of training or development services) paid by E-Cruiter. CCPS Gross Sales shall mean all billings derived from the sale of WorkLife products through E-Cruiter's Web site, or other direct or indirect selling efforts. 3 (b) E-Cruiter Hosts CCPS components. E-Cruiter shall pay WorkLife 50% of CCPS Net Sales. (c) E-Cruiter Authorized Reseller Sells CCPS Components. WorkLife shall pay E-Cruiter 5% of CCPS Net Sales, concurrent to E-Cruiter paying to WorkLife royalties payable under paragraphs 4.5(a) and/or 4.5(b) of this Agreement. Payments to the reseller shall be made by E-Cruiter. 4.6 WorkLife Selling CCPS Bundled Together with E-Cruiter Solutions. (a) E-Cruiter Hosts E-Cruiter Solution Components. Where WorkLife sells its CCPS bundled together with E-Cruiter Solutions and E-Cruiter Hosts the E-Cruiter Solutions component of the CCPS, WorkLife shall pay E-Cruiter 65% of E-Cruiter Solutions Net Sales in the first year of the customer contract and 75% in subsequent years of the customer contract. E-Cruiter Net Sales is defined as gross sales attributable to E-Cruiter Solutions components less any third-party fees (such as job postings or selection testing services). E-Cruiter and WorkLife agree to price their respective components of the bundled solution separately in their respective sales contracts (the "Sales Contract"). Sales attributable to either party shall be determined on the basis of the Sale Contracts. (b) WorkLife Hosts E-Cruiter Solution Components. WorkLife shall pay E-Cruiter 50% of E-Cruiter Net Sales in all years of the customer contract. (c) WorkLife Authorized Reseller Sells E-Cruiter Solution Components. E-Cruiter shall pay WorkLife 5% of E-Cruiter Net Sales, concurrent to WorkLife paying to E-Cruiter royalties payable under paragraphs 4.6(a) or 4.6(b) of this Agreement. Payments to the authorized reseller shall be made by of WorkLife. 4.7 WorkLife Selling Internet Career Portals with E-Cruiter Solution Components. (a) WorkLife shall pay to E-Cruiter 50% of Internet Career Portal E-Cruiting Net Net Sales ("ICPS E-Cruiting Net Net Sales"). ICPS E-Cruiting Net Net Sales shall mean ICPS E-Cruiting Net Sales minus Marketing Channel Fees. Marketing Channel Fees means fees paid to Internet portals, including but not limited to AltaVista, strategic advertisers, or institutions in connection with the distribution of WorkLife's ICPS. Marketing Channel Fees shall not exceed 30% of ICPS E-Cruiting Net Sales. ICPS E-Cruiting Net Sales equals all sales derived from all customers, whether corporate or individual, who employ E-Cruiter Solutions within ICPS built by WorkLife, minus: 4 (i) Third party fees, including fees paid to job boards; (ii) Cost of Goods; provided, however, E-Cruiter shall pay the cost of goods associated with the Hosting of E-Cruiter Solutions by the parties ("Cost of Goods") unless otherwise agreed. Cost of Goods shall be equal to 15% of sales derived from all customers deploying E-Cruiter Solutions within ICPS built by Worklife ("ICPS Gross Sales"); (b) Selling Costs. The cost of sales, including the cost of handling customer accounts, collections and disbursements, e-commerce transactions, and telesales ("Cost of Sales"), shall be paid by E-Cruiter unless otherwise agreed by the parties. Cost of Sales shall be equal to 20% of ICPS Gross Sales in year one of this Agreement and 15% of ICPS Gross Sales in subsequent years of this Agreement. (c) Administration of Accounts. E-Cruiter will directly administer the number of recruiter bundles sold and sales collection from recruiters and/or employers. WorkLife or E-Cruiter, in any combination, may administer the set-up and maintenance of accounts to individuals, recruiters or employers in the event that such services are developed during the term of this Agreement. 4.8 Other Business Model(s). In the event that WorkLife and E-Cruiter agree upon another model for selling and hosting E-Cruiter Solutions components, the parties will at that time mutually agree upon fair and reasonable terms with respect to revenue sharing. 4.9 Audit Rights. Each party shall maintain accounting and administrative records of its sales transactions, Cost of Goods, Cost of Sales and other costs during the term of this Agreement and for a period of one year thereafter. At any time during the term of this Agreement, and for a period of one year thereafter, either party may initiate an independent financial audit ("Audit") of the other party's calculations and payments made in connection with the terms of this Agreement. The cost of the Audit is to be borne by the initiating party. The party under audit shall, at such times and in such places as shall be mutually convenient to the parties, permit auditors to make photocopies of all documents relating to the Audit. 5. Milestones. The parties agree to use commercially reasonable efforts to reach the following milestones: ----------------------------------------------------------------------- Alta Vista Launch. Complete the project Oct 8th, 1999 plan and schedule. Identify resources ----------------------------------------------------------------------- ----------------------------------------------------------------------- Deliver a joint Technology Plan for Future Dec 17th, 1999 Co-Development ----------------------------------------------------------------------- 6. Content Partner Program Purchase. E-Cruiter agrees to purchase the Employment Classifieds category in WorkLife's Content Partner Program at the time of the launch of the new E-Cruiting portion of the WorkLife Career Portal for a minimum of 1,000,000 monthly page impressions on WorkLife's careers home page on Alta Vista at WorkLife's preferred pricing terms (the "Content Partner Program Purchase"), for a period of one year; provided, however, that E-Cruiter may terminate its obligations under this paragraph 6 at any time after three months after the date of the Content Partner Program Purchase by providing 30 days written notice to WorkLife. Preferred pricing shall not exceed $15,000 USD per month. Additional impressions in excess of 1,000,000 per month will be charged at $15 USD per month per thousand, with the total monthly charge not to exceed $30,000 USD per month. 5 7. Promotion; Cooperation. The parties shall engage in the following individual and joint promotional activities and joint development projects. 7.1 Joint. (a) Any public announcement relating to this Agreement or the parties' relationship shall be subject to the parties' mutual written approval, which shall not be unreasonably withheld or delayed. (b) The parties shall, within fifteen (15) days of the Effective Date, meet to prepare a joint promotion campaign publicizing this Agreement, and make commercially reasonable efforts to include Alta Vista in the public relations campaign. (c) The parties shall introduce each other to potential business customers or partners, including WorkLife's introduction of E-Cruiter to Alta Vista as soon as is practicable after the Effective Date and WorkLife's introduction of E-Cruiter to MSN.com upon a determination by WorkLife that the contributions of E-Cruiter can add value to the existing WorkLife-MSN.com endeavor. (d) The parties shall hold joint monthly business development meetings at mutually convenient locations. (e) The Parties may refer publicly to this Agreement as a "Strategic Alliance." (f) The parties agree to explore mutually beneficial development projects that may include but are not limited to the following: (i) Inclusion of Precision Matching technology from WorkLife, with or without modifications or extensions by either party, into the E-Cruiter Code Base. (ii) Development of bridging software to include WorkLife CCPS components into the E-Cruiter Code Base. (iii) Examination of Helius Platform as the architecture on which to develop future releases of WorkLife CCPS or ICPS products and services. 6 (iv) Development of ideas and intellectual property of either party to add features, such as advanced competency analysis, assessment, testing and resume building modules into the E-Cruiter Code Base. 7.2 E-Cruiter. E-Cruiter agrees to promote this Agreement in accordance with a promotional plan to be developed in consultation with WorkLife. E-Cruiter will work with WorkLife to create badge and content for the co-branded pages of the ICPS. Other promotional activities may include advertising in trade publications and career/recruiting Web sites, participation in trade shows, direct mail campaigns and the hosting of chat sessions for recruiters. 7.3 WorkLife. WorkLife agrees to promote this strategic alliance in accordance with a promotional plan to be developed in consultation with E-Cruiter. The plan may include strategies to create awareness with analysts, press briefings, press releases, work with AltaVista to promote the new E-Cruiting offering on the AltaVista home page and the Careers Channel home page, lead generating activities including chat sessions hosted by and discussions led by E-Cruiter, and support for E-Cruiter led marketing efforts as appropriate. 8. Customer Data. The parties agree to promptly share all user and customer data acquired through any promotional efforts or sales under this Agreement and both parties shall be considered owners of such data and may make such use of it as the law allows. The parties agree that they will not resell this data or share this data with third parties unless mutually agreed and as permitted by law. The parties shall work together to make appropriate disclosures to users regarding the use of such data. 9. Exclusivity. Except as otherwise set forth herein, the parties agree to deal exclusively with the other in the development and sale of Internet career portals during the term of this Agreement. 10. Intentionally Omitted. 11. Confidentiality and Proprietary Information; Non-disclosure. The parties acknowledge that during the term of this Agreement they will acquire proprietary and confidential information about the other, potentially including but not limited to, business methods, trade secrets, know-how, inventions, techniques, processes, algorithms, software, source code, designs, schematics, contracts, customer lists, financial information, sales and marketing information, and other business information, relating to the operation of their respective businesses ("Confidential Information"). Confidential Information includes but is not limited to all material identified in this Agreement as the material shared, to be shared, licensed, or to be licensed, to or from E-Cruiter or WorkLife to the other. Each agrees (i) that it will protect the other's Confidential Information from unauthorized use or disclosure; (ii) that it will not disclose the other's Confidential Information to any third party without the other's prior written consent; (iii) that it will take reasonable steps to ensure that no unauthorized person has access through it to the other's Confidential Information; (iv) that it will promptly return all tangible or electronic copies of the other's Confidential Information to such other upon its request; and (v) that it will only use the other party's Confidential Information for the purposes set forth in this Agreement. Notwithstanding the foregoing, Confidential Information does not include any information that (a) is acquired by a party from any source other than the other party without restriction as to its use or disclosure; or (b) is or becomes available to the public other than through a breach of this Agreement by the acquiring party. This non-disclosure obligation shall survive the termination of this Agreement for a period of two (2) years. 7 12. Ownership. 12.1 Reserved Rights. Each party reserves all rights other than those expressly granted in this Agreement, and no ownership is transferred or licenses granted except as expressly set forth in this Agreement. 12.2 Jointly Developed Products. With respect to any technology developed by either WorkLife or E-Cruiter that either (a) adds new features to the products of the non-developing party, (b) is software needed to incorporate WorkLife's products into E-Cruiter's Code Base or E-Cruiter's services into WorkLife's products or services, or (c) is technology needed to imbed the Precision Matching Technology into E-Cruiter's products or services, such technology shall be the property of the party developing it (the "Developing Party"); provided, however, that upon request, the Developing Party shall execute in favor of the non-developing party a fully paid, irrevocable, non-exclusive, non-transferable, worldwide license for the term of this Agreement to use, copy and distribute such technology. 13. Representations and Warranties. The parties represent and warrant for themselves as follows: (a) That it is duly organized and validly existing as a corporation and is in good standing under the laws of its organization and that it has the power and authority to enter into this Agreement. (b) That it has the corporate power and authority to transact the business in which it is engaged and holds all necessary federal, state, and local permits, licenses or approvals, including exemptions, where applicable, to perform its business and its obligations under this Agreement, and that it is in good standing under such permits, licenses and approvals. (c) That neither the Party's Brand Features nor any intellectual property underlying any technology licensed under paragraph 4 hereof infringes, misappropriates or otherwise violates any intellectual property right of a third party. 14. Indemnification. 14.1 Indemnity. Each party (the "Indemnifying Party") agrees to defend, indemnify, and hold the other party, its officers, directors, employees and agents (the "Indemnified Party"), harmless from any obligations, costs, claims, judgments, losses, expenses and liabilities (including reasonable attorneys' fees) incurred as a result of any claim by a third party to the extent caused by (i) a breach of the Indemnifying Party's obligations, representations or warranties under this Agreement; (ii) a material act or material failure to act by the Indemnifying Party related directly or indirectly to the activities contemplated by this Agreement if taken at the direction or request of the Indemnifying Party; (iii) an alleged misrepresentation, negligent or otherwise, made by the Indemnifying Party to a third party concerning the service or products of the Indemnified Party; or (iv) a fraudulent act, willful misconduct or gross negligence committed by any officer, director, employee or agent of the Indemnifying Party (whether or not within the scope of his or her employment or agency) related directly or indirectly to the activities contemplated by this Agreement . 8 14.2 Notice. In the event either party becomes aware of any action proceeding, claim or demand (collectively, an "Action") that may result in a claim for indemnification hereunder, the Indemnified Party shall promptly notify the Indemnifying Party of the Action. The Indemnifying Party may assume the sole responsibility for defense of the Action (at its sole cost and expense) if it so notifies the Indemnified Party within thirty (30) calendar days after receiving the above notice of the Action. If the Indemnifying Party fails to notify the Indemnified Party of the former's desire to assume responsibility for defense of the Action, the Indemnified Party may defend the Action at the cost and expense of the Indemnifying Party, in which case the Indemnifying Party shall periodically reimburse the Indemnified Party of such costs and expenses within thirty (30) calendar days of receiving a demand for reimbursement, provided such demand includes detailed backup of such costs and expenses. No Action may be settled without the Indemnifying Party's consent, which consent shall not be unreasonably withheld. 15. Waiver of Consequential Damages. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOSS OF USE, LOSS OF PROFIT, INTERRUPTION OF BUSINESS, ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, EVEN IF THAT PARTY HAS BEEN ADVISED OR SHOULD HAVE BEEN AWARE OF THE POSSIBILITY OF SUCH DAMAGES. 16. Notices. All notices and other communications provided for hereunder shall be in writing and may be sent by facsimile, overnight courier or e-mail (provided e-mail delivery is confirmed by facsimile or overnight courier) to the following authorized representative of the parties (or to such other address or person as the parties may notify each other), and will be effective on the earlier of (a) two (2) days after being deposited in registered or certified mail; (b) one day after being sent by overnight courier; or (c) when received: WorkLife Solutions, Inc. 20770 Monte Sunset Drive San Jose, CA 95120 Attention: President E-Cruiter.com, Inc. Suite 1510 360 Albert Street Ottowa, Ontario Canada K1R7X7 Attention: President 9 17. General. 17.1 Final Agreement. This Agreement is the entire agreement between the parties regarding the subject matter hereof and supersedes all prior and contemporaneous agreements, verbal or written. This Agreement may only be amended by a writing executed by both parties. 17.2 Governing Law. This Agreement shall be governed by the laws of California without application of its conflicts of law principles. 17.3 Attorneys' Fees. In any action to enforce this Agreement, the prevailing party shall be entitled to recover its court costs and expenses, and its reasonable attorneys' fees, in addition to any other relief to which it may be entitled. 17.4 No Waiver. No waiver of any right hereunder shall be deemed to be a waiver of the same or any other right on any other occasion. 17.5 Assignment. Neither party may assign this Agreement or any of its rights or obligations hereunder (whether voluntarily or by operation of law) without the prior written consent of the other party, except that (i) E-Cruiter may assign this Agreement to its subsidiary E-Cruiter.com USA Inc. and (ii) either party may assign this agreement to an entity that acquires all or substantially all of its assets, or that has all or substantially all of its assets controlled by that party. 17.6 Change in Control. A purchaser of substantially all of the assets of WorkLife or a successor to the business of WorkLife shall be required to assume the terms of this Agreement. 17.7 Severability. If any provision of this Agreement is held illegal or unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall remain in effect and the invalid provision deemed modified to the least degree necessary to remedy such invalidity. 17.8 Survivability. Sections 8, 11, 12, 13 and 14 shall survive the termination or expiration of this Agreement. 17.9 Relationship of Parties. The parties hereto are independent contractors and nothing in this Agreement is intended to or should be construed to create a partnership, joint venture, or employment relationship between E-Cruiter and WorkLife, nor to permit either party to create binding agreements on behalf of the other. 10 17.10 No Third Party Beneficiaries. Nothing express or implied in this Agreement is intended to confer, nor shall anything herein confer, upon any person other than the parties and the respective successors or permitted assigns of the parties, any rights, remedies, obligation or liabilities whatsoever. 17.11 Subject Headings. The subject headings of this Agreement are included for the purpose of convenience only, and shall not affect the construction or interpretation of any of its provisions. 17.12 Force Majeure. Nonperformance by either party shall be excused to the extent that performance is rendered impossible by strike, fire, flood, state of war (declared or undeclared), earthquake, governmental acts or orders, failure of suppliers, natural or manmade disaster, or any other reason where failure to perform is wholly beyond the control and not caused by the negligence of the nonperforming party; provided that any such nonperformance will be cause for termination of this Agreement by the other party if nonperformance covered by this subsection continues for more than sixty (60) days. 17.13 Counterparts; Facsimiles. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts copy or copies executed by it. For purposes hereof, a facsimile copy of this agreement, including the signature page thereof, shall be deemed to be an original. 11 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the Effective Date. WORKLIFE SOLUTIONS, INC. E-CRUITER.COM, INC. By: By: ---------------------------- ----------------------------- Sunir K. Kapoor Gerry Stanton Chairman and CEO President and CEO Appendix A Minimum Acceptable Price Schedule Section A1: E-Cruiter Solutions Minimum Acceptable Price Schedule Schedule to be completed by October 31st 1999. Section A2: WorkLife Solutions Minimum Acceptable Price Schedule Schedule to be completed by October 31st 1999. EX-10 10 EXHIBIT 10.10 1 OPTION AGREEMENT THIS AGREEMENT is made as of the 13th day of October 1999. BETWEEN: PAUL CHAMPAGNE, of the Regional Municipality of Ottawa Carleton, Province of Ontario (hereinafter referred to as "Champagne") AND: E-CRUITER.COM INC., a corporation incorporated under the laws of Canada (hereinafter referred to as "E-Cruiter") WHEREAS: A. Champagne and Worklife Solutions, Inc. ("Worklife") entered into a letter agreement dated as of October 13, 1999 (the "Letter Agreement"), a copy of which is attached hereto as Schedule "A"; and B. The parties wish to set forth herein the terms by which Champagne may assign to E-Cruiter all of his right, title and interest in the Letter Agreement and all documents referenced therein. NOW THEREFORE in consideration of the premises and the mutual covenants herein and other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by each of the parties) the parties hereto covenant and agree as follows: 2 1. DEFINITIONS 1.1 "Agreement" "hereto", "herein", "hereof", "hereunder" and similar expressions refer to this Assignment Agreement and not any particular paragraph or any particular portion of this agreement and includes all schedules attached to this agreement. 2. OPTION ------ 2.1 E-Cruiter shall have an option, with the consent of Champagne, to acquire all of the rights granted by the Letter Agreement and all of the shares issued to Champagne pursuant to that Letter Agreement at a price to be the greater of: the fair market value of the rights and shares granted by the Letter Agreement or US$1,000,000. The term of this option shall be for a period of six (6) months effective this date. The option may be extended by mutual consent for a further six (6) months. 3. FURTHER ASSURANCES ------------------ 3.1 The parties hereto shall do all further acts and things and execute all further documents reasonably required in the circumstances to effect the provisions and intent of this Agreement. 4. ENTIRE AGREEMENT ---------------- 4.1 This Agreement together with the Schedule attached hereto constitutes the entire agreement between the parties and supersedes all prior and contemporaneous agreements, understandings and discussions, whether oral or written, and there are no other warranties, agreements or representations between the parties except as expressly set forth herein. 5. PROPER LAW ---------- 5.1 This Agreement shall be governed by and interpreted in accordance with the laws of the Province of Ontario, and the laws of Canada applicable therein. 3 6. AMENDMENT OF AGREEMENT ---------------------- 6.1 This Agreement may be altered, amended or annulled at any time by the mutual consent in writing of the parties hereto. 7. HEADINGS -------- 7.1 The headings appearing throughout this Agreement are inserted for convenience only and form no part of the Agreement. 8. SEVERABILITY ------------ 8.1 The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision hereof and any such invalid or unenforceable provision will be deemed to be severable. 9. WAIVERS ------- 9.1 No amendment, waiver or termination of this Agreement will be binding unless executed in writing by the parties to be bound hereby. No waiver of any provision of this Agreement will be deemed or will constitute a waiver of any other provision, nor will any such waiver constitute a continuing waiver unless expressly provided. 10. COUNTERPARTS ------------ 10.1 This Agreement may be executed in several counterparts, all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile with originally executed documents to follow by courier thereafter and shall be as binding as if originally executed. IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the date first set forth above. 4 SIGNED, SEALED AND DELIVERED --------------------------- Witness PAUL CHAMPAGNE E-CRUITER.COM INC. Per: ----------------------- Title: 5 SCHEDULE "A" LETTER AGREEMENT Paul Champagne 141 Kerry Hill Crescent Dunrobin, Ontario Canada K0A 1T0 October 13, 1999 Sunir K. Kapoor Chairman & CEO WorkLife Solutions, Inc. 20770 Monte Sunset Drive San Jose, CA 95120 Re: Upcoming Transactions Dear Mr. Kapoor: I am writing this letter (the "Letter") in reference to that Secured Promissory Note ("First Note") and Security Agreement ("Security Agreement") dated as of September 30, 1999 by and between WorkLife Solutions, Inc., a Delaware corporation ("WorkLife") and Paul Champagne ("Champagne"). In connection with the transactions contemplated in the above-referenced documents, I am writing to clarify certain agreements and understandings of the parties that are not fully memorialized in such documents. We now agree as follows: 1. Second Secured Promissory Note. Following WorkLife's execution of the Secured Promissory Note ("Second Note") attached hereto as Exhibit A, and the Amendment to the Security Agreement, attached hereto as Exhibit B, Champagne shall transfer to WorkLife a principal amount of Eight Hundred Thousand U.S. Dollars ($800,000). In connection with the above and that Inter-Creditor Agreement dated as of October 6, 1999 by and between WorkLife, Champagne, and Minority Enterprise Fund, L.P., a California limited partnership ("MEF"), WorkLife shall also promptly obtain for Champagne an original counterpart of the Amendment to the Inter-Creditor Agreement, attached hereto as Exhibit C, duly executed by an authorized MEF representative. 6 2. Board Position. WorkLife shall make every effort to ensure that Champagne's designee is appointed or elected as a member of WorkLife's Board. Such effort shall include taking all actions to increase the size of the Board and electing Champagne's designee to fill such vacancy, all in accordance with Article 3 of the WorkLife Bylaws. In addition, WorkLife shall promptly procure for Champagne counterparts of the Voting Agreement attached hereto as Exhibit D, duly executed by WorkLife stockholders holding a sufficient number of shares to ensure the election of Champagne's designee to the Board on an ongoing basis. 3. Acquisition of WorkLife. If WorkLife does not raise at least Two Million U.S. Dollars ($2,000,000) in new capital through its Series C Preferred Stock financing, such amount not to include any amounts received from Champagne ("Series C Financing"), after the date hereof and on or prior to December 31, 1999, or at least Four Million U.S. Dollars ($4,000,000) after the date hereof and on or prior to January 31, 2000, Champagne shall have the option to purchase WorkLife for a price determined by an independent business valuation professional mutually agreeable to WorkLife and Champagne (each an "Acquisition Option," and collectively the "Acquisition Options"). If WorkLife and Champagne are unable to agree on such a professional within 10 days after Champagne's exercise of an Acquisition Option, either party may apply to Arthur Andersen for such independent valuation, which valuation shall be final for the purposes of such Acquisition Option. Any valuation of WorkLife under this paragraph shall be based upon the likely value of what an independent party would pay to purchase all of the outstanding capital stock or assets of WorkLife, on a fully diluted basis, given the financial condition of WorkLife at the time of such valuation. In the event that WorkLife receives a bonafide offer to be acquired by a third party prior to the effective date of either Acquisition Option, Champagne shall have the right to acquire WorkLife on the same terms as the third party offer ("Third Party Option"). If Champagne fails to exercise its Third Party Option within 10 days after receiving written notice of the third party's offer, WorkLife may accept the third party's offer, and Champagne's Acquisition Options shall be terminated. Notwithstanding the foregoing, Champagne's Acquisition Options shall continue in force if either (a) WorkLife and the third party do not enter into a binding agreement regarding the consummation of the acquisition contemplated by the third party's offer within 30 days of such offer, or (b) such acquisition by the third party is not consummated within 180 days of such offer. 7 The Acquisition Options and the Third Party Option shall be exercised by the delivery of written notice from Champagne to WorkLife within ten (10) days after the date the option becomes effective evidencing his desire to exercise such option. Upon Champagne's exercise of any option, WorkLife shall cooperate with Champagne to determine the form of acquisition that will be most beneficial to Champagne, such determination to include review of tax issues and corporate approval procedures. Champagne shall make the final determination as to the form of the acquisition, and WorkLife shall make every effort to ensure that all necessary approvals are received in order to effect the acquisition. In order to give effect to Champagne's options, promptly following the execution of this Letter, WorkLife shall procure counterparts of the Voting Agreement attached hereto as Exhibit D, duly executed by WorkLife stockholders holding a sufficient number of shares to ensure the approval of any acquisition of WorkLife by Champagne. 4. Conversion of Notes. Following the execution of the Voting Agreement as outlined in Sections 2 and 3 above, and following written confirmation of MEF's agreement to simultaneously convert its outstanding debt from WorkLife, whether fixed or contingent, into shares of WorkLife's capital stock, Champagne shall immediately tender the First Note and the Second Note for shares of WorkLife's Series C Preferred Stock ("Series C Shares"). The amount of Series C Shares issued to Champagne shall be equal to the principal value of the notes together with any accrued interest thereon, divided by the lowest price paid for the purchase of one Series C Share of WorkLife by outside investors (currently $1.50 per share). Notwithstanding the above and any provisions currently contained in any Series C Financing documents, Champagne shall receive Series C Shares on conditions no less favorable than those granted to any other recipient of Series C Shares. Following Champagne's receipt of any Series C Shares, Champagne shall have the right to freely transfer all or a portion of such Series C Shares to a designee. Upon the conversion of all outstanding amounts owed under the First Note and the Second Note into Series C shares of WorkLife, Champagne or his designee shall take all actions necessary to release all of his liens on the assets of WorkLife, including filing UUC-3 termination statements. 5. Issuance of Common Stock. Champagne has entered into a strategic partnership with WorkLife under which Champagne, as a principal shareholder of E-Cruiter.com, Inc., a corporation incorporated under the laws of Canada ("E-Cruiter"), shall cause E-Cruiter to enter into that Sales & Marketing Agreement with WorkLife dated as of October 13, 1999. As an inducement to cause E-Cruiter to enter into such agreement, WorkLife shall issue to Champagne an amount of shares of WorkLife's Common Stock equal to 11% of WorkLife's capital stock then outstanding. At the closing of the Series C Financing, but in no event later than January 31, 2000, WorkLife shall issue to Champagne an additional amount of shares of WorkLife's Common Stock sufficient to provide Champagne with an aggregate of at least 15% of the shares of WorkLife's capital stock on a fully diluted basis, such percentage to also include any Series C Shares already received or to be received by Champagne as a result of the tender or proposed tender of the First Note and Second Note under Section 4 above. 8 6. Assignment. Champagne shall have the right to assign to E-Cruiter any rights under this Letter and the related agreements, in whole or in part, by giving written notice to Worklife. Champagne shall also have the right to assign all of his rights under this Letter and the related agreements, in whole but not in part, to an assignee other than E-Cruiter, by giving written notice to WorkLife. Contemporaneously with any assignment under this Letter, the assignee must agree in writing to be bound by the relevant terms of this Letter. 7. Governing Law. This Letter shall be governed by and construed in accordance with the laws of California, without regard to its principles of conflicts of laws. 8. Counterparts. This Letter may be executed in one or more counterparts for the convenience of the parties hereto, all of which together shall constitute one and the same Letter. Facsimile copies of this Letter and the Exhibits hereto, as well as any signatures received by facsimile, shall be treated as originals. 9. Supremacy. In the event of any discrepancy between the terms of this Letter and the terms of the documents referred to herein, the terms set forth herein shall control. If the foregoing accurately reflects the agreements and understandings between us, please so acknowledge by signing and returning the enclosed copy of this Letter. Very truly yours, Paul Champagne ACKNOWLEDGED AND AGREED AS OF OCTOBER 13, 1999: Sunir K. Kapoor Chairman & CEO WorkLife Solutions, Inc. 9 Exhibit A SECURED PROMISSORY NOTE US$800,000 October 13, 1999 San Jose, California FOR VALUE RECEIVED, WorkLife Solutions, Inc.("Maker"), promises to pay to Paul Champagne, or order (collectively, the "Holder"), at 141 Kerry Hill Crescent, Dunrobin, Ontario, Canada K0A 1T0, or such other place as Holder may from time to time designate, in lawful money of the United States, the principal sum of Eight Hundred Thousand Dollars ($800,000), plus interest thereon, in the manner set forth below. 1. Interest. Interest on the principal sum of this Secured Promissory Note (the "Note") will accrue at the rate of seven percent (7 1/8%) per annum based on a 360 day year and the actual number of days elapsed. 2. Payment. The entire principal sum and all accrued interest and any other sums payable hereunder (collectively, the "Payment") will be due and payable in full on November 15, 1999 (the "Maturity Date"). 3. Default Interest. If Maker fails to make the Payment by the Maturity Date, whether or not Holder has declared a default hereunder, interest will accrue on the delinquent Payment at the rate of eleven percent (11%) per annum (the "Default Rate") commencing on the Maturity Date and continuing until all sums due and owing under this Note are received by Holder. 4. Prepayment. This Note may be prepaid in whole or in part, at any time. 5. Application of Payments. All payments received by Holder will be applied first to all fees, costs, and expenses incurred by Holder with respect to this Note or any other document executed by Maker in connection herewith; second, to accrued and unpaid interest; and third, to the unpaid principal balance of this Note. 6. Security. This Note is secured by a Security Agreement dated as of September 30, 1999 and amended as of even date herewith(the "Security Agreement"), pursuant to which Maker granted to Holder a blanket first lien and security interest in all of Maker's assets (collectively, the "Collateral"). 10 7. Default and Remedies. 7.1 Default. Maker will be in default under this Note if: (i) Maker fails to make the Payment by the Maturity Date, (ii) Maker breaches any other covenant or agreement under this Note, (iii) Maker agrees to or does sell, convey, encumber, hypothecate or otherwise alienate the Collateral, or any part thereof, or any interest therein, or is divested of its title to the Collateral or any interest therein in any manner or in any way, whether voluntarily or involuntarily, without the prior written consent of Holder, or (iv) an event of default occurs under the Security Agreement. 7.2 Remedies. Upon Maker's default, Holder may: (i) upon written notice to Maker, declare the entire principal sum and all accrued and unpaid interest hereunder immediately due and payable and (ii) exercise any and all of the remedies provided in the Security Agreement and by law. 8. Waivers. Maker, and any endorsers or guarantors hereof, severally waive diligence, presentment, protest and demand and also notice of protest, demand, dishonor, acceleration, intent to accelerate, and nonpayment of this Note, and expressly agree that this Note, or any payment hereunder, may be extended from time to time without notice, and consent to the acceptance of further security or the release of any security for this Note, all without in any way affecting the liability of Maker or any endorsers or guarantors hereof. No extension of time for the payment of this Note, or any installment hereof, agreed to by Holder with any person now or hereafter liable for the payment of this Note, will affect the original liability of Maker under this Note, even if Maker is not a party to such agreement. Holder may waive its right to require performance of or compliance with any term, covenant or condition of this Note only by express written waiver. 9. Maximum Legal Rate of Interest. All agreements between Maker and Holder, whether now existing or hereafter arising, are hereby limited so that in no event will the interest charged hereunder or agreed to be paid to Holder exceed the maximum amount permissible under applicable law. Holder will be entitled to amortize, prorate and spread throughout the full term of this Note all interest paid or payable so that the interest paid does not exceed the maximum amount permitted by law. If Holder ever receives interest or anything deemed interest in excess of the maximum lawful amount, an amount equal to the excessive interest will be applied to the reduction of the principal, and if it exceeds the unpaid balance of principal hereof, such excess will be refunded to Maker. If interest otherwise payable to Holder would exceed the maximum lawful amount, the interest payable will be reduced to the maximum amount permitted under applicable law. This paragraph will control all agreements between Maker and Holder in connection with the indebtedness evidenced hereby. 3 11 10. Representations and Warranties. Maker represents and warrants to Holder that it has full power, authority and legal right to execute, deliver and comply with this Note and any other document or instrument relating to this Note to be executed by it. All corporate actions of Maker that are necessary or appropriate for the execution and delivery of and compliance with this Note and such other documents and instruments have been taken. Upon its execution and delivery, this Note will constitute the valid and legally binding obligation of Maker, enforceable against it in accordance with its terms, subject only to bankruptcy, insolvency, reorganization, moratorium and other laws applicable to creditors' rights or the collection of debtors' obligations generally. 11. Successors and Assigns. The terms of this Note will inure to the benefit of and bind Maker and Holder and their respective heirs, executors, administrators, legal representatives, successors, assigns, agents, representatives, spouses, and all persons claiming by or through them. 12. Time. Time is of the essence with respect to all of the provisions of this Note. 13. Replacement Note. If this Note is destroyed, lost or stolen, Maker will deliver a new secured promissory note to Holder on the same terms and conditions as this Note, with a notation of the unpaid principal and accrued and unpaid interest in substitution of the prior Note. Holder will furnish to Maker reasonable evidence that the Note was destroyed, lost or stolen and any security or indemnity that may be reasonably required by Maker in connection with the replacement of this Note. 14. Governing Law; Arbitration; Venue; Equitable Relief. 14.1 Governing Law. This Note will be governed by and construed and enforced in accordance with the laws of the State of California, without regard to principles of conflicts of laws. 14.2 Initiation of arbitration proceeding. Maker agrees that all disputes, claims and controversies between Maker and Holder concerning the interpretation or enforcement of this Note, or any other matter arising out of or relating to this Note, will be arbitrated pursuant to the provisions of this paragraph. Either Maker or Holder may initiate an arbitration proceeding by making a written demand for arbitration and serving a notice of said demand upon the adverse party by hand delivery or overnight, express carrier, and upon the San Francisco regional office of J.A.M.S ("JAMS"). A written response to the demand must be served upon the initiating party and JAMS within ten (10) days of the adverse party's receipt of the demand. 4 12 14.3 Selection of arbitrator. The arbitration will be conducted by a single arbitrator who is a retired judge associated with the San Francisco regional office of JAMS. The arbitrator will be selected in accordance with the JAMS Rules of Practice & Procedure for Arbitration then in effect (the "JAMS Rules") within fourteen (14) days of the service of the written demand for arbitration. If Maker and Holder cannot so agree upon the selection of the arbitrator within the fourteen (14) day period, then the arbitration will be conducted by a single arbitrator who will be a retired judge associated with the San Francisco regional office of JAMS, and who will be selected by JAMS within five (5) days of the service of a written request that JAMS select the arbitrator. 14.4 Venue. Maker covenants and agrees that any arbitration proceeding instituted under the provisions of this Note will be conducted in San Francisco through the San Francisco regional office of JAMS. Maker acknowledge to Holder that its agreement to abide by the specific provisions of this paragraph is a material inducement to Holder to make the loan evidenced by this Note, and that Holder is reasonably relying upon Maker's representation. 14.5 Arbitration hearing and award. The arbitration hearing will be conducted within thirty (30) days of the appointment of the arbitrator. The arbitration will be conducted in accordance with the JAMS Rules. The arbitrator's award will be conclusive and binding upon Maker and Holder. The arbitrator's award will provide, among other things, that the prevailing party in the arbitration is entitled to recover from the adverse party its costs and expenses incurred in connection therewith including, without limitation, attorneys' fees as determined by the arbitrator, the costs of the arbitration, and actual out-of-pocket expenses including, without limitation, expert witness and consultants' fees, if any. Judgment upon the arbitrator's award may be entered in any court of competent jurisdiction. 14.6 Equitable Relief. The Arbitrator has the authority to grant Holder or Maker equitable relief on such terms and conditions as it deems reasonably necessary or appropriate. 13 IN WITNESS WHEREOF, Maker has executed this Note as of the date and year first above written. Maker: WORKLIFE SOLUTIONS, INC. By:___________________________ Sunir Kapoor Chairman & Chief Executive Officer 14 Exhibit B FIRST AMENDMENT TO SECURITY AGREEMENT THIS FIRST AMENDMENT TO security AGREEMENT ("Amendment") is made and entered into as of the 13th day of October, 1999, by and between WorkLife Solutions, Inc., a Delaware corporation ("Borrower"), and Paul Champagne ("Lender"). R E C I T A L S A. On or about September 30, 1999, Lender and Borrower entered into a Security Agreement dated as of September 30, 1999 (the "Agreement"), pursuant to which Borrower granted to Lender a security interest in all of Borrower's assets, as security for the payment and performance of Borrower's obligations under a secured promissory note dated September 30, 1999, in the principal face amount of $200,000 (the "Note"), which Borrower made, executed, and delivered to Lender, and which evidences a $200,000 loan to Borrower by Lender. B. On or about October 13, 1999, Lender loaned Borrower the sum of Eight Hundred Thousand Dollars ($800,000). This $800,000 loan is evidenced by a secured promissory note dated October 13, 1999, in the principal face amount of $800,000 (the "Second Note"), which Borrower made, executed, and delivered to Lender. C. As security for the payment and performance of its obligations to Lender under the Second Note, Borrower desires to grant to Lender a security interest in all of Borrower's assets. Borrower and Lender wish to amend the Agreement to expand the definition of "Obligations" to include the Second Note and any other document or instrument evidencing any other loan made at any time, now or in the future, by Lender to Borrower. NOW, THEREFORE, in consideration of the foregoing Recitals, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Lender and Borrower agree as follows: 1. Paragraph 1 of the Agreement is amended as follows: the definition of "Obligations" is amended to read as follows: 6 15 "Obligations" means all debts, liabilities, obligations, covenants and duties owing to Lender by Borrower, arising under the Note, and/or that certain secured promissory note dated October 13, 1999, in the principal face amount of $800,000 (the "Second Note")and/or this Agreement and/or any other document or instrument evidencing any other loan made at any time, now or in the future, by Lender to Borrower, and all extensions, amendments, modifications, restructurings and/or refinancings of any of the same. 2. Except as is explicitly set forth in this Amendment, the Agreement remains unmodified and in full force and effect. IN WITNESS WHEREOF, the parties to this Agreement have executed and delivered this Agreement as of the date and year first above written. WORKLIFE SOLUTIONS, INC. By:_____________________________ _______________________________ Sunir Kapoor, Chairman & CEO PAUL CHAMPAGNE 16 Exhibit C FIRST AMENDMENT TO INTER-CREDITOR AGREEMENT THIS FIRST AMENDMENT TO INTER-CREDITOR AGREEMENT ("Amendment") is made and entered into as of October 13, 1999, by and among Minority Enterprise Fund, L.P., a California limited partnership ("MEFLP"), Paul Champagne, an individual ("Lender"), and WorkLife Solutions, Inc., a Delaware corporation ("Borrower"). RECITALS A. On or about October 6, 1999, the parties entered into an Inter-Creditor Agreement, pursuant to which MEFLP and Lender agreed to share, pari passu, a first lien and security interest in the Borrower's Collateral. B. On or about October 13, 1999 Lender loaned Borrower an additional sum of Eight Hundred Thousand Dollars ($800,000). NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Lender and Borrower agree as follows: 1. The amount of the Bridge Loan referred to in the second line of Recital E of the Inter-Creditor Agreement is hereby amended from "$200,000" to read "$1,000,000". 17 IN WITNESS WHEREOF, the parties to this Agreement have executed and delivered this Agreement as of the date and year first above written. WORKLIFE SOLUTIONS, INC. MINORITY ENTERPRISE FUND, L.P. By:____________________________ By:____________________________ Sunir Kapoor Rodney M. White Chairman & Chief Managing Partner Executive Officer ____________________________ PAUL CHAMPAGNE 18 Exhibit D VOTING AGREEMENT This Voting Agreement (the "Agreement") is made and entered into as of October 13, 1999, by and among Paul Champagne ("Champagne"), Sunir Kapoor, and the undersigned stockholders (each a "Stockholder" and collectively the "Stockholders"), and WorkLife Solutions, Inc., a Delaware corporation (the "Corporation"). WHEREAS, as of the Effective Date, as defined below, each Stockholder holds of record and beneficially certain shares of the Corporation's stock; and WHEREAS, the Stockholders have agreed to act and to provide for the future voting of their shares of the Corporation's stock as set forth below. NOW THEREFORE, in consideration of the mutual covenants and undertakings given by the Stockholders to each other, the Stockholders agree as follows: 1. Effective Date. This Agreement shall become effective ("Effective Date") at the earlier of the date on which either Champagne or Champagne's designee receive in any manner any share of the Corporation's stock. 2. Agreement to Vote for Champagne's Nominee. So long as either Champagne or Champagne's designee shall continue to own any of the Corporation's shares, the Stockholders hereby agree to vote all shares of the Corporation now or hereafter owned by them, whether beneficially or otherwise, at any regular or special meeting of the Corporation, or, in lieu of any such meeting, to give their written consent, to elect Champagne's nominee as a member of the Corporation's Board of Directors. Champagne shall provide each Stockholder with the name of the nominee as selected by Champagne from time to time. 3. Agreement to Vote for Acquisition. As contemplated by that Letter dated as of October 13, 1999 by and between the Corporation and Champagne, Champagne has been granted certain options to acquire the Corporation (the "Purchase Option"). The Stockholders hereby agree to vote all shares of the Corporation now or hereafter owned by them, whether beneficially or otherwise, at any regular or special meeting of the Corporation, or, in lieu of any such meeting, to give their written consent, to approve any sale of the Corporation's assets to Champagne or Champagne's designee pursuant to the Purchase Option, whether or not such sale shall constitute a sale of all or substantially all of the Corporation's assets, and to approve any merger, consolidation or other form of acquisition of the Corporation by Champagne or Champagne's designee pursuant to the Purchase Option. The Stockholders further agree to enter into any subscription agreement or other agreements that may be necessary to effect such acquisition. 19 4. Successors in Interest. The provisions of this Agreement shall be binding upon the successors in interest of any of the shares of the Corporation now or hereafter owned by the Stockholders. The Corporation shall not permit the transfer of any of the Stockholders' shares on its books or issue a new certificate representing any such shares unless and until the person to whom such security is transferred shall have executed a written agreement pursuant to which such person becomes subject to the provisions of this Agreement and agrees to be bound by all the provisions hereof. 5. Termination. This Agreement shall terminate at the earlier to occur of (a) the closing date of an initial public offering of the Corporation's shares pursuant to a registration statement filed, and declared effective under the United States Securities Act of 1933, as amended, (b) the date on which neither Champagne nor any of his affiliates shall remain a stockholder of the Corporation, or (c) the consummation of an acquisition by Champagne or Champagne's designee of shares representing more than 50% of the votes in the Corporation, or an acquisition of all or substantially all of the Corporation's assets. 6. Specific Enforcement. The parties agree and understand that monetary damages cannot adequately compensate for a breach of this Agreement, that this Agreement shall be specifically enforceable, and that any breach or threatened breach shall be the proper subject of a temporary or permanent injunction or restraining order. 7. Amendment. This Agreement may be amended only by a writing signed by the parties hereto. 8. Notices. All notices and communications under this Agreement shall be in writing and shall be: (a) delivered in person; or (b) sent by fax; or (c) mailed, postage prepaid, either by certified mail, return receipt requested, or by overnight express carrier, addressed in each case to the relevant party at the address of such party shown on the Corporation's records. 9. Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Delaware, without regard to its principles of conflicts of laws. 10 20 10. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument, but only one of which need be produced. 11. Separability; Severability. Any invalidity, illegality or limitation on the enforceability of this Agreement with respect to any party shall not affect the validity, legality or enforceability of this Agreement with respect to any other party. If any provision of this Agreement is judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired. [Intentionally left blank.] 21 IN WITNESS WHEREOF, the Corporation and the Stockholders have executed this Agreement on the day and year first set above. __________________________________ Sunir K. Kapoor Chairman & CEO WorkLife Solutions, Inc. __________________________________ _______________________________ Paul Champagne Sunir K. Kapoor __________________________________ _______________________________ Name:_____________________________ Name:__________________________ Number, Class, Series of Shares: Number, Class, Series of Shares: __________________________________ _______________________________ __________________________________ _______________________________ Name:_____________________________ Name:__________________________ Number, Class, Series of Shares: Number, Class, Series of Shares: __________________________________ _______________________________ __________________________________ _______________________________ Name:_____________________________ Name:__________________________ Number, Class, Series of Shares: Number, Class, Series of Shares: __________________________________ _______________________________ EX-23.1 11 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to us under the heading "Experts" in Amendment No. 1 to the Registration Statement (Form F-1) and related Prospectus of E-Cruiter.com Inc. PricewaterhouseCoopers LLP Ottawa, Canada Chartered Accountants November 3, 1999 EX-23.3 12 EXHIBIT 23.3 Exhibit 23.3 November 3, 1999 E-Cruiter.com Inc. 360 Albert Street, Suite 1510 Ottawa, ON K1R7X7 Dear Sirs: We hereby consent to the references to our firm under the headings "Material Income Tax Considerations" and "Legal Matters" in the prospectus which is a part of E-Cruiter.com Inc's registration statement on Form F-1, File No. 333-87537. In giving this consent we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Yours very truly, Weil, Gotshal & Manges LLP -----END PRIVACY-ENHANCED MESSAGE-----