<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
BRAINTECH, INC.
------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Nevada 98-0168932
------------------ ---------------
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
930 WEST 1ST STREET #102, NORTH VANCOUVER, B.C., CANADA, V7P 3N4
----------------------------------------------------------------
(Address of Principal Executive offices)
Issuer's Telephone Number: (604) 986-6121
---------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
- ------------------------------------------------------------------------
None
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
- ------------------------------------------------------------------------
Common Stock, $0.001 par value
(Title of Class)
Index to Exhibits on Page 34
<PAGE>
BrainTech, Inc.
Form 10-SB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis or Plan of
Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 3. Description of Property. . . . . . . . . . . . . . . . . . . . . . . . 23
Item 4. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 5. Directors, Executive Officers, Promoters and
Control Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 6. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 7. Certain Relationships and Related Transactions . . . . . . . . . . . . 27
Item 8. Description of Securities. . . . . . . . . . . . . . . . . . . . . . . 28
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters. . . . . . . . . . . . . . . . . . . . . . . 29
Item 2. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 3. Changes in and Disagreements with Accountants. . . . . . . . . . . . . 31
Item 4. Recent Sales of Unregistered Securities. . . . . . . . . . . . . . . . 31
Item 5. Indemnification of Directors and Officers. . . . . . . . . . . . . . . 32
PART F/S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
PART III
Item 1. Index to Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
<PAGE>
This Registration Statement contains forward-looking statements which
involve risks and uncertainties. When used in this Registration Statement,
the words "believes," "anticipates," "expects" and similar expressions are
intended to identify such forward-looking statements. Actual results of the
Company (as defined below) may differ significantly from the results
discussed in the forward- looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Item 1. --
Description of Business -- Risk Factors." Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
An investment in the Company is highly speculative and involves a high
degree of risk. Prospective investors should consider the risk factors involved
in an investment in the Company, including the following: (a) that the Company
is a development stage company that has only recently generated any cash
revenues, (b) the Company's history of losses, (c) intense competition in the
industry in which the Company operates, (d) volatility of the Company's stock
price and (e) the uncertainty of future funding. Prospective investors should
carefully read each section of this registration statement which contain these
and other risk factors.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
The Company was incorporated in Nevada on March 4, 1987 under the name Tome
Capital Inc. The Company's name was changed to Nevada Manhattan Mining Inc. on
August 15, 1988, back to Tome Capital Inc. on July 5, 1990, to Offshore Reliance
Ltd. on February 19, 1993, to Cozy Financial Corporation on April 20, 1993 and
to BrainTech, Inc. on January 3, 1994. The Company did not carry on active
business between the date of its incorporation and 1993. The Company was
registered as an extraprovincial company under the British Columbia COMPANY ACT
on January 17, 1996. The Company has one wholly owned subsidiary, BrainWare
Systems Inc., incorporated in British Columbia, Canada on March 3, 1994.
BrainWare Systems Inc. carries out the Company's research and development and
product development activities, and employs the Company's technical personnel.
As used herein, the "Company" refers to BrainTech, Inc. and its subsidiary
BrainWare Systems Inc.
1
<PAGE>
The Company develops and markets solutions for the vision systems
industry. The Company's business also includes ongoing research and
development of products to be incorporated into such vision systems, and the
Odysee Development Studio, a program designed to permit efficient development
of customized vision systems. The Company competes primarily in the market
for turnkey machine vision systems as a provider of application specific
machine vision (ASMV) systems.
The Company's principal executive offices are located at 930 West 1st
Street #102, North Vancouver, British Columbia, Canada V7P 3N4. Its telephone
number is (604) 986-6121 and its Internet address is www.bnti.com.
RISK FACTORS
INVESTMENT IN SHARES OF THE COMPANY IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
REGISTRATION STATEMENT, A POTENTIAL INVESTOR SHOULD CAREFULLY CONSIDER THE
FOLLOWING FACTORS IDENTIFIED BY THE COMPANY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES ITS COMMON STOCK, $0.0001 PAR VALUE (THE
"COMMON STOCK").
DEVELOPMENT-STAGE COMPANY; EXPECTATION OF FUTURE LOSSES. The Company is a
development stage company which has only recently begun to realize revenues from
operations. The Company has had a limited operating history on which to base an
evaluation of the Company's prospects. The Company has incurred operating
losses consistently since entering the field of software development. The
Company cannot assure that it will be able to generate sufficient revenue to
achieve profitable operation, to achieve positive cash flow, or to continue its
business as a going concern.
UNPROVEN ACCEPTANCE OF THE COMPANY'S SERVICES OR PRODUCTS. The Company
does not have an established history or record of sales on which to base an
evaluation of the Company's prospects. The Company cannot assure that its
services or products will gain sufficient acceptance, or achieve sufficient
sales revenue, to allow the Company to achieve profitable operation, to achieve
positive cash flow, or to continue its business as a going concern.
EVOLVING DISTRIBUTION CHANNEL. As a result of the Company's limited
operating history and the nature of the Company's business, the Company does not
have established distribution channels for the Company's services or products.
At the present time, the Company relies principally on direct sales to end
users. In addition, management expects that vision systems developed by the
Company may be limited to single applications or to a small number of
applications. Accordingly, the Company cannot assure that any sales results
achieved by the Company will be repeatable
2
<PAGE>
or will continue for an extended period. Orders received by the Company may
fluctuate greatly between fiscal quarters or fiscal years, with resulting
volatility in sales and income.
TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT. The market for the
Company's products is characterized by rapidly changing technology. Accordingly,
the Company believes that its future success will depend upon its ability to
continue to develop and introduce new products with improved price points and
performance features. In order to develop such new products successfully, the
Company is dependent upon close relationships with customers and their
willingness to share information about their requirements and participate in
joint development efforts with the Company. The Company cannot assure that it
will be able to establish or maintain close relationships with customers to
obtain such information, or that the Company will be able to develop and market
such new products successfully and respond effectively to technological changes
or new product announcements by others. See "Description of Business--Products"
and "--Research and Development."
COMPETITION. The vision systems market is highly competitive and rapidly
changing. New entrants into the market are common. The Company competes with
other vendors of optical sensors, with vendors of machine vision systems, and
with the internal engineering efforts of the Company's current or prospective
customers, many of which may have greater financial and other resources than the
Company. The Company cannot assure that it will be able to compete successfully
in the future or that the Company will not be required to incur significant
costs in connection with its engineering research, development, marketing and
customer service efforts to remain competitive. Moreover, many of the Company's
potential customers operate within highly competitive industries and are highly
dependent upon suppliers' ability to provide high quality, cost effective
products. Competitive pressures may result in price erosion, reduced sales or
other factors which will adversely affect the Company's financial performance.
See "Description of Business--Competition."
NEED FOR ADDITIONAL FUNDING. The Company will require additional capital
to continue the development of its services and products, to pay the costs of
marketing those products, and to cover operating losses until the Company is
able to become profitable. Owing to the speculative and uncertain nature of the
Company's business, management of the Company is unable to calculate the amount
of additional capital which the Company may have to raise, though such amounts
may be substantial. The extent and timing of such capital requirements will
depend on many factors, including continued progress in the Company's service
and product development programs, the market acceptance of any of the Company's
services and products, administrative and legal expenses, competitive products
and the establishment of marketing
3
<PAGE>
arrangements. The Company will need to raise additional funds through
collaborations with corporate partners or through private or public
financings in order to support its long term product development and
commercialization programs. The ability of the Company to raise capital will
be dependant on the perceived ability of the Company to develop and bring to
the market services and products capable of generating sales revenue at
profitable levels. Any additional equity financing may be dilutive to
shareholders. If adequate funds are not available, the Company would be
required to curtail one or more of its development programs, or attempt to
obtain funds through collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or product
candidates that the Company would otherwise seek to develop itself or with
other parties. The Company cannot assure that it will be able to raise the
amount of capital it requires.
COMMON DIRECTORSHIPS. The Company is party to agreements with NetMedia
Systems Inc. and Sideware Systems Inc. Those agreements may be material to the
future profitability of the Company. Grant Sutherland and Owen Jones,
directors of the Company, are also directors of Sideware Systems Inc. James
Speros is a director of the Company and is also President and Chief Operating
Officer of Sideware Corp., a wholly owned subsidiary of Sideware Systems Inc.
The directors and shareholders of NetMedia Systems Inc. include Grant Sutherland
and Owen Jones, who are also directors of the Company. See Item 7, "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
The Company is also party to a cost sharing agreement with Sideware Systems
Inc. pursuant to which costs relating to the Company's business premises and
certain personnel are shared. Sideware Systems Inc. is a development stage
software company which has not achieved profitable operation. There can be no
assurance that Sideware Systems Inc. will be able to pay its share of the costs
for which it is responsible under the cost sharing arrangement, with the result
that the cash requirements of the Company to continue operation may be
substantially increased. See "ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
ABILITY TO MANAGE GROWTH. The Company could experience rapid growth in
orders, revenues, personnel, marketing activities, and complexity of products.
The Company cannot assure that it will be able to manage the significant strains
that future growth may place on the Company's administrative infrastructure,
systems, and controls. The Company may be unable to hire sufficiently qualified
personnel to meet the demand for the Company's services or products. If the
Company is unable to manage future growth effectively, the Company's business,
operating results and financial condition may be materially adversely affected.
4
<PAGE>
DEPENDENCE ON KEY PERSONNEL. The Company's success is substantially
dependent on the performance of its employees, most of whom have worked together
for a short period of time. The Company's work force is relatively small, and
the Company thus employs only a small number of employees in specific fields
important to the Company's business. The success of the Company's marketing
efforts is substantially dependent on the Company's President and Executive Vice
President Operations. The Company's technical work is substantially dependent
on the Company's President, Product Manager, Technical Director, Senior Software
Engineer, Senior Software Design Engineer, and Software Architect. As a result,
the departure of a single employee or a small number of employees could
materially adversely affect the Company's business. The Company cannot assure
that it will be able to attract and retain qualified personnel on acceptable
terms. The Company does not have key man insurance on any of its employees.
PROPRIETARY TECHNOLOGY. The Company relies heavily on its proprietary
hardware designs and software technology. Although the Company uses a variety of
methods to protect its technology, it relies most heavily on trade secrets. The
Company cannot assure that it has adequately protected its technology from
misappropriation. In addition, others may attempt to "reverse engineer" the
Company's products in order to determine their method of operation and introduce
competing products. Similarly, others may develop competing technology
independently. Any such adverse circumstances could have a material adverse
effect on the Company's results of operations. Further, some of the markets in
which the Company competes are characterized by the existence of a large number
of patents and frequent litigation for financial gain that is based on patents
with broad, and sometimes questionable, application. As the number of the
Company's products increases, the markets in which its products are sold
expands, and the functionality of those products grows and overlaps with
products offered by competitors, the Company believes that it may become
increasingly subject to infringement claims. Although the Company does not
believe any of its products or proprietary rights infringe the rights of third
parties, there can be no assurance that infringement claims will not be asserted
against the Company in the future or that any such claims will not require the
Company to enter into royalty arrangements or result in costly litigation.
Pursuant to a License Agreement dated January 5, 1995, the Company holds a
non-exclusive license from Willard W. Olson ("Olson") to use the Olson Reticular
Brainstem algorithm (the "ORB"). Management of the Company understands that
Olson holds a license from Motorola Corp., pursuant to which he was given the
authority and legal power to grant the license given to the Company under the
License Agreement. The Company does not have a complete copy of the license
agreement between Motorola Corp. and Olson, which has been withheld from the
Company on grounds of confidentiality. Management of the Company is thus not
able to
5
<PAGE>
confirm directly the authority and legal power of Olson to grant the license
contained in the License Agreement. However, attorneys for Willard W. Olson
have provided the Company with copies of certain provisions contained in the
license agreement between Motorola Corp. and Olson, which provisions appear to
management of the Company to authorize the license granted to the Company
pursuant to the License Agreement. In addition, the Company has made it
publicly known for over three years that it has used the ORB algorithm in the
development of the BrainTron processor, and has received no notice of any
objection from Motorola Corp. Management of the Company has no reason to
believe that its use of the ORB algorithm is not properly authorized under the
License Agreement.
ORB is the subject matter of U.S. Patent #5,390,261 and Taiwan Patent No.
62531, currently owned by Motorola Corp. To the best of the knowledge of
management of the Company, neither patent has been challenged in any form of
court proceedings, with the result that there exists no judicial confirmation of
the validity or enforceability of the patents. There can be no assurance that
any of the patents referred to herein are valid or enforceable. See "Business --
Intellectual Property."
The Company is the registered owner of the trademark "BrainTron". The
Company cannot assure that its trademark will not be challenged, invalidated,
infringed, circumvented or held unenforceable. Software code written by the
Company is protected by copyright. However, the Company has not registered
copyright in any of its existing software code. Copyright protection does not
prevent other developers of vision systems from designing or marketing other
systems which perform functions similar to, and compete directly with, the
Company's systems.
POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes that factors such
as the announcement of new products or technologies by the Company or its
competitors, market conditions in the vision systems, industrial computer
hardware, and semiconductor industries generally, and quarterly fluctuations in
financial results are expected to cause the market price of the Common Stock to
vary substantially. Further, the Company's net sales or results of operations in
future quarters may be below the expectations of public market securities
analysts and investors. In such event, the price of the Common Stock would
likely decline, perhaps substantially. In addition, in recent years the stock
market has experienced price and volume fluctuations that have particularly
affected the market prices for many high technology companies and which often
have been unrelated to the operating performance of such companies. The market
volatility may adversely affect the market price of the Common Stock. See "PART
II - Item 1. Market Price of and Dividends on the Company's Common Equity and
Other Shareholder Matters -- Market Information."
6
<PAGE>
DIVIDEND POLICY. The Company has never declared or paid cash dividends on
its capital stock. The Company currently intends to retain all its earnings to
finance the expansion and development of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. See "PART II -
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS -- Dividend Policy."
POTENTIAL LIABILITY FOR PAST STOCK TRANSACTIONS. Management of the Company
believes that during the fiscal year ending December 31, 1995, a former promoter
of the Company caused certificates representing 3,000,000 shares of the Company
to be issued without proper authorization. The 3,000,000 shares were
purportedly issued to complete a private placement in the amount of $750,000.
The Company's financial records indicate that the Company received $606,000 on
account of the purported private placement. The Company has cancelled the share
certificates purportedly issued, and has recorded the $606,000 as a liability in
its balance sheet. In June, 1998, formal demand was made on the Company for
repayment of the $606,000. As yet, no litigation has commenced as a result of
these transactions, and the Company will attempt to resolve the dispute arising
from these transactions through negotiation. If legal action is commenced
against the Company, it is the Company' intention to investigate potential
defences and counterclaims. As yet, no such investigation has been conducted.
A risk exists that the Company may have to recognize as legitimate some or all
of the 3,000,000 shares purportedly issued, or may have to repay some or all of
the $606,000 with interest. The 3,000,000 shares purportedly issued are not
included in figures stated in this Registration Statement for issued and
outstanding shares of the Company. See "PART II - ITEM 2. LEGAL PROCEEDINGS."
In December 1993 the Company issued certificates for 1,500,000 shares in
the name of Arthur Scott. The shares were to be issued in consideration for Mr.
Scott completing the design of the BrainTron processor. Mr. Scott severed his
relationship with the Company shortly after the share certificates were issued,
and did not do the design work for which the shares were to be issued. The
Company has retained possession of the certificates since the time they were
issued, and intends to cancel the certificates. It is the position of the
Company that Arthur Scott has no entitlement to the shares in question, and no
claim has been advanced in respect of the shares by Mr. Scott. The Company
assesses the risk of a successful claim against the Company in respect of the
1,500,000 shares as minimal.
INDUSTRY BACKGROUND
The term "machine vision" refers to the technology base that employs
various electro-optical or non-contact techniques to acquire image data, process
that data, and analyze it to draw
7
<PAGE>
conclusions with little or no operator intervention. In substance, machine
vision is the application of electronic imaging, image processing, and image
analysis techniques to applications in manufacturing industries for the purpose
of control (process control, quality control, machine control, robot control).
The growth of the machine vision systems industry is dictated, on the one
hand, by the technical difficulty of achieving accurate "computerized vision",
and on the other hand, by the vast theoretical scope of the potential
applications. The principal technical difficulties include the problems of
compensating for background noise that masks or distorts objects, separating
objects from their backgrounds, determining how much "similarity" must exist
before the signatures of two objects match, and comparing physical objects which
are only approximately "similar" in the first place.
As the technical difficulties are solved, the potential benefits and
applications of computerized vision are great. In industrial quality control,
computerized vision can replace (and perform inspections more accurately than)
human inspectors. In industrial automation, computerized vision can be used to
control industrial machines or robots. In security systems, computerized vision
can be used to detect human visitors or intruders in video camera images. In
military applications, computerized vision can be used in automated targeting
systems. In medical applications, it can be used to improve diagnostic
reliability.
The Automated Imaging Association ("AIA") has published extensive
statistics on the market for machine vision systems. Principal statistics
published by the AIA include the following:
- - In 1997, the North American market for merchant machine vision systems was
approximately $1.2 billion (in revenue), or approximately 25,200 units.
These figures represented increases of approximately 10% (in revenue) or
16% (in units) over corresponding figures for 1996.
- - The principal industrial applications of machine vision systems are
inspection (e.g., inspection of products for quality control purposes),
location analysis (e.g., control of industrial machines or robots, or
control of fitting and assembly of products) and pattern recognition (e.g.,
optical character recognition). In 1997, inspection applications accounted
for approximately 85% of the market by revenue, and approximately 46% by
units. Location analysis applications accounted for approximately 16% of
the market by revenue, and approximately 42% by units. Pattern recognition
applications accounted for approximately 4% of the market by revenue and
11% of the market by units.
8
<PAGE>
- - The principal end users in the North American market for visions systems
were the following industries:
<TABLE>
<CAPTION>
INDUSTRY % BY REVENUE % BY UNITS
<S> <C> <C>
Semiconductors 37% 35%
Electronics 15% 22%
Containers 3% 2%
Food 8% 4%
Wood 6% 1%
Transportation 8% 7%
Fabricated metals 3% 2%
Plastic 3% 5%
Printing 3% 6%
Medical / Pharmaceutical 4% 7%
</TABLE>
Growth in the industry market during 1997 was led principally by the
semiconductor and electronics industries whose individual markets grew,
respectively, by 16% and 35% in revenue, and 39% and 58% in units, during
1997.
- - During 1997 suppliers of application specific machine vision systems
accounted for approximately 51% of the market by revenue and 13% by units.
Suppliers of general purpose vision systems accounted for 18% of the market
by revenue and 49% by units. The remainder of the market was split among
various sectors, including 3D based vision systems, web scanners, and x-ray
vision based visions systems.
- - During 1997 approximately 83% (by revenue) of all machine vision system
sales were direct sales by suppliers. The remainder were through
distributors or manufacturers' representatives.
The AIA has projected that by the year 2002, the North American market for
vision systems is projected to increase to approximately $2.6 billion in
revenue, and approximately 56,000 units. These figures correspond to average
annual growth rates of approximately 16% for market revenue and 17% for units
during the period 1997 - 2002.
Within the classifications used by the AIA, the Company is a merchant
machine vision vendor, and the Company's business consists principally in
supplying application specific machine vision (ASMV) systems.
COMPANY STRATEGY
The Company's strategy for establishing a competitive position in the
vision systems market will be centred on the following principles.
9
<PAGE>
DEVELOPMENT OF COMPETITIVE PRODUCTS AND SERVICES USING THE ODYSEE
DEVELOPMENT STUDIO. The Odysee Development Studio is explained in detail under
the heading "Business -- Product Development". A principal purpose of the
Odysee Studio is to reduce both the cost and time required to develop customized
vision systems meeting the requirements of individual customers. Another
principal purpose of the Odysee Studio is to increase the design flexibility of
the Company's vision systems. Management of the Company expects that the Odysee
Development Studio will permit the Company to offer both competitive prices and
attractive, expeditious development schedules for customized vision systems.
EXPLOITATION OF THE BRAINTRON PROCESSOR AND THE IMPAC ACCELERATOR BOARD.
The IMPAC Accelerator Board is explained in detail under the heading "Business
- -- Product Development". A principal purpose of the IMPAC Accelerator Board is
to permit the development of high performance and sophisticated visions systems,
requiring the rapid analysis of large volumes of data. While no definitive
plans for marketing the IMPAC Accelerator Board have yet been developed, the
Company expects that it will attempt to incorporate the IMPAC Board in both
civilian and military applications.
PURSUIT OF HIGH PROFILE CUSTOMERS. Management of the Company is of the
opinion that the vision systems market is not at the present time dominated by
any individual company, or by a small group of dominant companies. Accordingly,
management of the Company is of the view that pursuit of orders from major,
high-profile corporate customers is both feasible, and a suitable means of
establishing both market share and a leading reputation in the market.
PRODUCT DESIGN
The Company patterns the architecture of its vision systems around the
following principal modules.
ACQUISITION AND DIGITIZATION MODULE. The acquisition and digitization
module receives input such as the signal from a video monitor, and creates a
digitized version of that input.
PREPROCESSING MODULE. The preprocessing module receives digitized output
from the Acquisition and Digitization Module and performs certain operations and
modifications on the digital data to facilitate pattern recognition. The
Preprocessing Module performs the following principal functions:
- - It filters out noise and other apparent anomalies in the digital data.
- - It segments the data by identifying subsets of the digital data which
represent candidates for physical objects that the video system is intended
to recognize.
10
<PAGE>
- - It transforms data by deriving selected numerical characteristics of the
data subsets identified as potential objects. The numerical
characteristics may include such quantities as the length of the object
(along its longest axis) or the length of its radius from midpoint to
circumference along various designated radial lines. The numerical
quantities thus derived are stored as a vector, and referred to as the
"physical signature" of the object.
TRAINING AND MATCHING MODULE. The Training and Matching Module performs
two essential functions.
- - It receives the physical signatures of potential objects and attempts to
match them to the signatures of specified objects already stored in memory.
The Training and Matching Module "classifies" physical signatures by
calculating how well they match the signatures stored in memory. Since
physical objects are unlikely to be perfectly identical, or to be described
perfectly by a digitized version of a visual input, classification
necessarily involves the comparison of uncertain quantities. The
classification of physical signatures thus requires a mathematical
algorithm for deciding how closely two signatures match. A variety of
mathematical models, including fuzzy set mathematics and standard
probability error functions, can be used to fulfil this requirement.
- - It refines the stored signatures to which future signatures can be matched,
that is it "trains" the system for more accurate object recognition in the
future. Depending on the mathematical algorithm used to identify matching
signatures, the Training and Matching Module can adjust the appropriate
memory signatures, or the mathematical parameters or functions used in
matching physical signatures to those stored in memory.
CONTROL AND FEEDBACK MODULES. The Control and Feedback Module controls
input to, and output from, the system. The Control and Feedback Module
determines the extent to which the system is being trained (or to which it is
being used exclusively to identify) objects, and also permits direct operator
participation in certain steps of the process, such as the identification of
candidate objects or new objects. Where a physical signature does not match any
of the signatures stored in memory, the Control and Feedback Module can also
initiate procedures to create a "new" signature in memory, to be used in
identify the "new" object in the future.
PRINCIPAL PRODUCTS AND SERVICES
In the first quarter of 1994 the Company entered the field of software
development. Since that time, the Company's efforts have been devoted
principally to the development of visual recognition systems. Pursuant to a
License Agreement dated January 13, 1995 the Company holds a license to use the
ORB, a set of algorithms designed to permit development of adaptive pattern
recognition systems. In June, 1995 the Company completed development of the
first generation of the BrainTron Processor, which employs ORB to
11
<PAGE>
carry out functions relating to the identification, classification and matching
of visual images. In the first half of 1998, the Company obtained its first
significant commercial contracts to supply turnkey machine vision systems to
perform quality control functions. In the first half of 1998, the Company also
commenced development of the Odysee Development Studio, a program designed to
facilitate economical development of customized machine vision systems. On
July 6, 1998 the Company also entered into a Product Development Agreement and a
Manufacturing and Sales Agreement with United Technologies Microelectronic
Systems Inc., a wholly owned subsidiary of United Technologies Corp. ("UTMC").
Under those agreements, the Company and UTMC agreed to cooperate in the
development of the Image Processor Accelerator Card("IMPAC"), which would be
manufactured by UTMC and marketed by the Company. See "--Product Development."
In addition to its ongoing development work, a principal focus of the Company's
present business is the development of customized vision systems solutions.
In developing its capability to create vision systems, the Company has
developed the BrainTron processor, which performs the functions of a Training
and Matching Module. See "Description of Business - Product Design." The
BrainTron processor is a plug-in PCI bus computer card designed to operate under
the Windows NT operating system. The BrainTron processor exists in hardware and
software versions. The software version can be used for initial testing, while
the hardware version is typically used in the final application. The BrainTron
processor has five chips performing the following functions: communication with
the host computer (bus interface), control of data movement within the processor
(state control), generation of addresses to move data in memory (address
generator), arithmetic operations (datapath) and random access memory (RAM).
Two additional datapath chips can be added for greater processing speed, and
multiple BrainTron processors can be installed within a system, permitting the
database of the system to be split among several processors operating in
parallel. The BrainTron processor uses fuzzy membership functions to match
signatures stored in memory to physical signatures. Training functions carried
out by the BrainTron processor use the ORB algorithm. The ORB algorithm
includes a set of rules for adapting fuzzy sets to reflect new data. Using the
ORB algorithm, the BrainTron processor causes the range of fuzzy membership
functions to stretch or contract to accommodate new data values.
In the first half of 1998, the Company entered the field of supplying
vision systems to perform quality control and inspection services. Key business
opportunities which the Company is pursuing at the present time include the
following:
(a) The Company has sold a prototype print quality inspection system to Epson
Portland Inc. That system is presently in operation, and the Company is in
negotiation with Epson Portland Inc. to supply additional systems.
(b) The Company has been engaged by Sunkist Growers to prepare a proposal and
feasibility study for a vision system to carry out x-ray inspection of
citrus fruit to inspect for frost damage. The Company expects to submit
its proposal and feasibility study prior to the end of September, 1998.
12
<PAGE>
(c) In May, 1998, the Company delivered a proposal relating to the application
of the Company's technology for Cordis Corp., a member of the Johnson &
Johnson group of companies, to develop a vision system to inspect for
defects in surgical stents. Stents are implants inserted into blood
vessels following angioplasty surgery to prevent the vessels from
collapsing. Following review of the Company's proposal, Cordis Corp.
entered negotiations with the Company to finalize the terms and conditions
on which the Company will build a prototype system.
PRODUCT DEVELOPMENT
The Company is in the process of developing the Odysee Development Studio
("Odysee"). Odysee is a program intended to facilitate the expeditious and
economical development of customized vision systems. Odysee will store libraries
of routines to perform the various functions which can be included within a
vision system. The contents of the libraries have not been finalized, but the
Company expects that they will include routines in the following categories:
PREPROCESSING ROUTINES. The preprocessing routines available within Odysee
will perform a variety of image preprocessing functions. Examples include
routines to convert the entire image to grey scale, to extract colour data from
individual pixels, or to smooth apparent rough edges within an image.
SEGMENTATION ROUTINES. The segmentation routines available within Odysee
will perform steps relating to the identification of potential objects and the
determination of their visual characteristics. Examples include routines to
detect the boundaries or dimensions of potential objects, to identify the
texture of potential objects, or to separate a potential object from its
background.
CLASSIFICATION ROUTINES. The classification routines to be included in
Odysee will classify or identify objects within an image. Odysee will include
the BrainTron processor as a classification tool. The Company has not yet
identified any other classification routines which it expects to include with
Odysee.
Odysee is being developed to operate with the Windows NT operating system.
Odysee permits the operator to "drag and drop" routines from the Odysee
libraries to a window opened for the vision system under development. Odysee
includes software to link the different routines being added to the system, and
to ensure that the input and output formats of the various routines are
compatible.
The Company's principal objective in developing Odysee is to enhance the
Company's competitive position as a developer of customized vision systems.
Management of the Company expects that once completed, Odysee will significantly
reduce the time and cost required to develop customized vision systems. The
Company intends to use Odysee internally in developing vision systems, rather
than to sell or license Odysee to third parties.
13
<PAGE>
Development of Odysee has funded in part by a grant from the National
Research Council of Canada. The total approved amount of the grant is $CDN.
81,269 (approximately $US 54,000), substantially all of which has been paid to
the Company. The Company expects testing of Odysee to commence in September,
1998.
The software by which Odysee links the various subroutines within its
libraries is proprietary to the Company. The BrainTron processor, which will be
included in the Odysee libraries, is also proprietary to the Company. The
Company will also include in the Odysee libraries other proprietary routines
which it develops from time to time in developing vision systems. However, the
Company expects that the majority of the individual routines within the Odysee
libraries will not be proprietary to the Company, and will either be available
in the public domain or used under license from third parties.
Pursuant to its Product Development Agreement with UTMC, the Company and
UTMC will cooperate in the development of IMPAC, which is expected to take
approximately eight months. IMPAC will be a computer board designed to allow the
development of vision systems with increased computing speed and efficiency.
IMPAC will consist of the following principal blocks:
THE COMMUNICATIONS BLOCK. The communications block will control communications
between IMPAC and the main computer within which IMPAC is installed. In
addition, the communications block will control communications between the
individual blocks of IMPAC.
THE BRAINTRON BLOCK. The BrainTron Block will contain the Company's proprietary
BrainTron processor (and, when completed, the BrainTron II processor) and
associated memory. The BrainTron processor will be able to perform
classification, matching and training functions in vision systems.
THE CAM ENGINE BLOCK. The CAM engine block will include UTMC's proprietary CAM
engine. The CAM engine is an integrated circuit which allows rapid access to
large lookup tables using associate keys rather than physical addresses. The
CAM engine creates the ability to identify exact or close matches to items
stored in memory at speeds which can not currently be achieved with PC-based
software applications.
THE MICROPROCESSOR BLOCK. The microprocessor block will include a conventional
microprocessor to perform those computing functions required by a vision system
which are not performed by the communication block, the BrainTron block or the
CAM engine block. The Company expects that the IMPAC board will incorporate the
G3 Power PC chip produced by Motorola.
Simultaneously with the Product Development Agreement, the Company entered
into a Manufacturing and Sales Agreement with UTMC. Under the Manufacturing and
Sales Agreement, UTMC will have responsibility for manufacturing IMPAC, which
the Company will purchase from UTMC. The Company will have responsibility for
marketing and sales of IMPAC. UTMC will assist in the marketing and sales of
IMPAC by referring customers to the Company, by including IMPAC on its website
and in certain catalogues of UTMC, and by such other means as UTMC considers
appropriate. UTMC will
14
<PAGE>
receive a commission of 10% on all business referred to the Company by UTMC, or
5% in cases where the Company also commenced an independent sales initiative.
A principal objective of the Company in participating in the development of
IMPAC is to acquire a product which will enhance the Company's competitive
position in the vision systems industry. Management of the Company expects that
IMPAC will permit the Company to develop vision systems with substantially
greater processing efficiency and speed, increasing the scope and number of
commercial, industrial, or military contexts in which vision systems can be
applied.
The Company has also commenced development of the BrainTron 1.1 and
BrainTron II processors. The BrainTron 1.1 processor will perform the same
essential functions as the existing BrainTron processor but with improved
robustness by detecting and compensating for systematic errors or bias in the
generation of physical signatures inputted to the processor. This improvement
will be accomplished by modifying the processor's error calculations to include
contributions from "nearest neighbours" in the vector components of physical
signatures. The Company expects that the BrainTron 1.1 processor will be
complete by December 31, 1998.
The BrainTron II processor will incorporate new classification procedures
and algorithms. The Company has commenced preliminary research for the design
of the procedures and algorithms, but has not yet commenced the preparation of
specifications. The Company expects the BrainTron II processor to be complete
prior to June 30, 1999. Both the BrainTron 1.1 and BrainTron II processors,
when complete, are intended to form part of IMPAC.
SALES AND MARKETING
The Company does not have an established record of sales revenue or profits
to evaluate how dependent the Company will be on one or more major customers.
Management of the Company is of the view that in order to achieve profitable
operation, the Company will have to develop a sufficiently wide customer base
such that the Company will not be dependent on one or a few major customers.
The Company does not have established distribution channels for its
products. The Company currently relies principally on direct sales to end users.
Market development activities of the Company include prototype
demonstrations, Internet marketing, US Department of Defence contract bids, a
technical media program, and targeted trade show participation. The Company has
retained a business development consultant based in Washington DC to pursue
contract opportunities with U.S. federal government agencies.
In addition, upon completion of IMPAC, the Company will receive marketing
assistance from UTMC under the terms of the Manufacturing and Sales Agreement
described above.
15
<PAGE>
COMPETITION
According to data published by the AIA, over 200 merchant machine vision
companies were active in the vision systems market during 1997, with over 180 of
those based in the United States. The AIA reported that for 1997, of 182 North
American companies operating in the vision systems field:
(a) 29 companies (vs. 14 in 1996) operated with revenues in the range of $5-10
million;
(b) 22 companies (vs. 20 in 1996) operated with revenues in the range of $10-20
million;
(c) 9 companies (vs. 13 in 1996) operated with revenues in the range of $20-30
million;
(d) 6 companies (vs. 2 in 1996) operated with revenues in the range of $30-40
million; and
(e) 7 companies (vs. 1 in 1996) operated with revenues in excess of $40
million.
The remaining companies operated with revenues less than $5 million.
The AIA also lists at least 6 different companies participating in the
market for ASMV systems in each of the following fields: containers,
electronics, food, pharmaceutical, printing, semiconductors, wood products, and
fasteners.
Management of the Company does not know of a reliable way to evaluate its
future competitive position within the industry. The Company has demonstrated
the capability of completing sales and successful proposals to major industrial
clients in the field of quality control. Management of the Company also expects
that completion of Odysee and IMPAC will assist the Company in being a
competitive supplier. However, the Company does not have an established track
record of sales or profits to provide any reliable indication of an ability to
attract significant market share or to operate profitably.
MANUFACTURING
The Company is not presently dependent on any particular suppliers for its
manufacturing. Upon completing of the IMPAC accelerator board, the Company
expects that UTMC will become a major supplier. The Company and UTMC have
entered into a Manufacturing and Sales Agreement which the Company believes will
ensure availability of IMPAC to the Company.
16
<PAGE>
INTELLECTUAL PROPERTY
The Company considers software and related technical data which it has
developed to constitute intellectual property of the Company. The software and
technical data over which the Company asserts intellectual property rights
includes principally the following:
(a) software written by the Company and incorporated in the Odysee Development
Studio, including the software by which Odysee links the various
subroutines within its libraries;
(b) software and design specifications incorporated in the BrainTron processor;
and
(c) software routines developed by the Company from time to time in developing
vision systems.
The Company considers itself to be the owner of copyright in the software
described above, and that the software and other technical data described above
constitute trade secrets of the Company. To date, the Company has not obtained
or applied for copyright, patent, or any other form of registration in respect
of any of the intellectual property described above.
Under the Product Development Agreement between the Company and UTMC dated
July 6, 1998, the Company and UTMC will own jointly all intellectual property
created in the development of the IMPAC accelerator board. The stipulations as
to joint ownership do not apply to existing intellectual property owned by
either the Company or UTMC, or to improvements or modifications to such
intellectual property.
Pursuant to a License Agreement dated January 13, 1995 with Olson, the
Company holds a non-exclusive license to use ORB. The term of the license is
for 10 years, expiring in January, 2005.
ORB is the subject of U.S. Patent #5,390,261 and Taiwan Patent No. 62531,
currently owned by Motorola Corp. Management of the Company understands that
Olson holds a license from Motorola Corp., pursuant to which he was given the
authority and legal power to grant the license given to the Company under the
License Agreement. The Company does not have a complete copy of the license
agreement between Motorola Corp. and Olson, which has been withheld from the
Company on grounds of confidentiality. Management of the Company is thus not
able to confirm directly the authority and legal power of Olson to grant the
license contained in the License Agreement. However, attorneys for Willard W.
Olson have provided the Company with copies of certain provisions contained in
the license agreement between Motorola Corp. and Olson, which provisions appear
to management of the Company to authorize the license granted to the Company
pursuant to the License Agreement. In addition, the Company has made it
publicly known for over three years that it has used the ORB algorithm in the
development of the BrainTron processor, and has received no notice of any
objection from Motorola Corp. Management of the Company has no reason to
believe that its use of the ORB algorithm is not properly authorized under the
License Agreement.
17
<PAGE>
The Company's ability to compete successfully is dependent in part upon its
ability to protect its proprietary technology and information. Although the
Company attempts to protect its proprietary technology through patents,
copyrights, trade secrets and other measures, there can be no assurance that
these measures will be adequate or that competitors will not be able to develop
similar technology independently. Further, there can be no assurance that claims
allowed on any patent issued to the Company will be sufficiently broad to
protect the Company's technology, that any patent will issue from any pending
application or that foreign intellectual property laws will protect the
Company's intellectual property. Litigation may be necessary to enforce or
determine the validity and scope of the Company's proprietary rights, and there
can be no assurance that the Company's intellectual property rights, if
challenged, will be upheld as valid. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and operating results, regardless of the
outcome of the litigation. In addition, there can be no assurance that any of
the patents issued to the Company will not be challenged, invalidated or
circumvented or that the rights granted thereunder will provide competitive
advantages to the Company.
There are no pending claims against the Company regarding infringement of
any patents or other intellectual property rights of others. However, the
Company may receive, in the future, communications from third parties asserting
intellectual property claims against the Company. Such claims could include
assertions that the Company's products infringe, or may infringe, the
proprietary rights of third parties, requests for indemnification against such
infringement or suggestions that the Company may be interested in acquiring a
license from such third parties. There can be no assurance that any such claim
made in the future will not result in litigation, which could involve
significant expense to the Company, and, if the Company is required or deems it
appropriate to obtain a license relating to one or more products or
technologies, there can be no assurance that the Company would be able to do so
on commercially reasonable terms, or at all.
GOVERNMENT REGULATION
The Company believes that there are no environmental or other government
regulations which currently have a material effect on the Company's operations.
The Company believes that U.S. State Department regulations governing the export
of confidential technical data may affect its operations in the future.
RESEARCH AND DEVELOPMENT
During the fiscal years ending December 31, 1996 and December 31, 1997, the
Company spent approximately $260,384 and $148,527 respectively, on research and
development activities. These figures are exclusive of performance bonuses of
$150,000 which were accrued in 1996 and paid by the issuance of stock.
18
<PAGE>
None of the research and development expenditures incurred in 1996 or 1997
were borne by customers. Development of Odysee has been funded in part by the
National Research Council of Canada grant discussed above.
EMPLOYEES
As of September 15, 1998 the Company had 5 full time officers or employees
occupying the positions of Executive Vice President Operations, Technical
Director, Senior Software Engineer, Senior Software Design Engineer, and Senior
Software Architect. In addition, the Company had 11 part time officers or
employees. The Company's part time officers or employees include the Company's
President and Chief Executive Officer, Chairman of the Board, Systems Manager,
Product Manager, and Controller. The services of these and the Company's other
part time officers or employees are provided through Techwest Management Ltd.
Techwest Management Inc. is a private management company whose shareholders
include Owen Jones and Grant Sutherland. The Company's part time officers and
employees divide their time between the Company and Sideware Systems Inc., a
software development company whose shares trade on the Vancouver Stock
Exchange. The Company and Sideware Systems Inc. share the cost of the
services of the Company's part time employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
OVERVIEW
The Company was incorporated in 1987. Since the first quarter of 1994,
the Company has been engaged in the development and marketing of solutions for
the vision systems industry, including ongoing research and development of
products to be incorporated into such vision systems, recruiting its programming
and management personnel, establishing production facilities, and raising
capital. The Company began recognizing ASMV (Application Specific Machine
Vision) system revenue in 1998.
As of June 30, 1998, the Company had incurred aggregate net losses of
approximately $3,866,130 since its inception. The Company expects to continue to
incur significant additional operating losses over the foreseeable future as its
product development, research and development, and marketing efforts continue to
expand. Operating losses may fluctuate from quarter to quarter as a result of
differences in the timing of expenses incurred and revenue recognized.
RESULTS OF OPERATIONS
The Company believes that its limited history of revenue generation and
recent business developments make the prediction of future results of operations
difficult, and, accordingly, that its operating results should not be relied
upon as an indication of future performance. The Company began recognizing
operating
19
<PAGE>
revenue during the first half of 1998. As such, comparisons of results from
prior periods may not be meaningful.
SIX MONTH PERIOD ENDED JUNE 30, 1998 COMPARED WITH SIX MONTH PERIOD ENDED JUNE
30, 1997
During the six month period ended June 30, 1998, the Company received
operating revenue of $49,519 from the sale of vision systems and related
services. The Company did not have any operating revenue during the six month
period ended June 30, 1997.
Research and development expenses decreased to approximately $48,551 for
the six month period ended June 30, 1998 from approximately $68,285 for the six
month period ended June 30, 1997. The magnitude of this decrease is such that
it cannot be attributed to any specific reason.
Salaries and benefits expenses increased to approximately $149,505 for the
six month period ended June 30, 1998 from approximately $106,307 for the six
month period ended June 30, 1997. The principal reason for the increase was
additional personnel hired by the Company.
General, selling, and administrative expenses decreased to approximately
$196,367 for the six month period ended June 30, 1998 from approximately
$212,505 for the six month period ended June 30, 1997. The principal reason for
the decrease was a reduction in marketing and travel expenses from approximately
$120,000 to approximately $64,000. Marketing and travel expenses were lower
principally because the Company was more selective in the industry trade shows
it attended. The decrease in marketing and travel expenses was offset in part
by an increase in professional fees from approximately $17,000 to approximately
$54,000.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
The Company did not have any sales revenue during 1997 or 1996.
Research and development expenses decreased to approximately $148,527 in
1997 from approximately $260,384 in 1996. This decrease was due primarily to
the Company doing more development work with its own personnel during 1997, as
opposed to relying on outside consultants.
Expenses for consultants and contractors decreased to approximately $17,770
in 1997 from approximately $204,114 in 1996. The principal reason for this
decrease was the inclusion of performance bonuses totalling $150,000 in 1996 to
consultants providing technical services to the Company. In addition, during
1997 the Company decreased its reliance on outside contractors and consultants.
Salaries and benefits increased to approximately $415,014 in 1997 from
approximately $134,408 in 1996. The principal reason for this increase was a
charge of $200,000 due to the granting of
20
<PAGE>
stock options at prices below prevailing market prices for the Company's stock.
In addition, the Company hired additional personnel in 1997, due to an
increased level of development and marketing activity.
Selling, general and administrative expenses increased to approximately
$348,731 in 1997 from approximately $314,839 in 1996. The magnitude of this
increase is such that it cannot be attributed to any specific reason.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Research and development increased to approximately $260,384 in 1996 from
approximately $178,659 in 1995. This decrease was primarily due to a generally
increased level of development activity in the Company.
Expenses for consultants and contractors decreased to approximately
$204,114 in 1996 from approximately $215,289 in 1995. This decrease was due
primarily to the Company ceasing to obtain management consulting services from
Cactus Consultants Inc., which provided such services to the Company prior to
November, 1995. The 1995 consulting and contractors expenses include bonuses
totalling $90,000 to consultants providing technical services to the Company
(compared with $150,000 in 1996).
Salaries and benefits increased to approximately $134,208 in 1996 from
approximately $74,484 in 1995. This increase resulted primarily from the hiring
of additional personnel, owing to a generally higher level of activity in the
Company.
Selling, general and administrative expenses increased to approximately
$315,389 in 1996 from approximately $237,689 in 1995. This increase was
primarily due to the hiring of additional personnel.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception through the sale of
equity securities. As of June 30, 1998, the Company had raised aggregate net
proceeds of approximately $3,258,731 from such financing activities, including,
$2,002,060 from the sale of Common Stock in 1997 and 1996.
In July and August, 1998 stock options granted to directors, officers,
employees, and consultants were exercised, yielding cash proceeds to the Company
of approximately $180,000. The Company has been advised by optionees that they
intend to exercise additional options which will result in additional cash
proceeds of approximately $270,000. In addition, the Company has been advised
by the National Research Council of Canada that the Company has received
preliminary approval of a grant application which, if final approval is
obtained, will result in the Company receiving approximately $120,000 in funding
for the development of the IMPAC Accelerator Board. As a result of the actual
and
21
<PAGE>
expected exercise of stock options, and the preliminary approval of the
Company's National Research Council grant application, the Company expects that
it will have sufficient cash to satisfy its cash requirements for a period of
approximately 6 months, without generating revenue from operations.
The Company's principal sources of liquidity are its cash balances which
totalled approximately $80,000 as of September 9, 1998, following exercise of
the stock options as described above.
During the next twelve months, the Company expects to perform the following
product research and development:
(a) Under the Product Development Agreement between the Company and UTMC, the
Company will spend up to $500,000 in the development of the IMPAC
Accelerator Board.
(b) The Company expects to continue development of the BrainTron 1.1 and
BrainTron II processors. The BrainTron 1.1 processor is expected to be
complete by December 31, 1998. The BrainTron II processor is expected to
be complete by June 30, 1999. A substantial portion of the cost of the
development of the BrainTron 1.1 and BrainTron II processors will be
included in the expenditures on the IMPAC Accelerator Board under the
Product Development Agreement.
(c) The Company expects to continue development of Odysee which the Company
expect to begin beta testing during September, 1998.
(d) The Company also performs research and development work which is incidental
to the development of individual vision systems.
The Company expects that virtually all of the research and development work
required in respect of the BrainTron II processor, Odysee, and the Company's
ongoing development of individual vision systems can be completed by the
Company's present personnel, without extensive use of outside contractors or the
hiring of additional employees. The Company also expects that the majority of
the research and development work which the Company expects to perform in
respect of the IMPAC board can be completed by the Company's present personnel.
The Company has received preliminary approval of a research grant from the
National Research Council of Canada to pay approximately $120,000 of the
development costs to be incurred in the development of IMPAC.
As the Company does not have an established track record from which future
revenues can be predicted, management of the Company can not predict reliably
how much additional financing, if any, the Company will be required to raise
during the next twelve months. Management of the Company expects that it will
most likely seek to raise additional financing of up to $1 million during the
next twelve months through the sale equity or debt, principally to ensure funds
will be available for both the Company's ongoing cash expenses and the Company's
ongoing research and development work.
22
<PAGE>
The Company will hire additional employees as required, and as the
Company's financial means permit. The Company has only recently begun to
generate revenue from operations, and can not predict reliably the number of
additional orders which will be received during the next twelve months. A
significant increase in the number of orders placed with the Company will
require the Company to hire additional staff.
The Company and Sideware Systems Inc. have recently increased the area of
the premises from which they operate by approximately 6,983 square feet.
Accordingly, the Company may have to acquire certain ancillary furniture and
equipment. In addition, if the Company receives significant additional orders
for vision systems, the Company may be required to purchase additional equipment
to meet production requirements. Otherwise, the Company does not expect any
significant purchases or sales of plant or equipment in the next twelve months.
ITEM 3. DESCRIPTION OF PROPERTY
The Company currently operates out of office premises in North Vancouver,
British Columbia, Canada. The premises used by the Company occupy approximately
14,867 square feet, and are shared with Sideware Systems Inc., a software
development company. The term of the lease expires August 31, 2003. The
Company operates out of the premises under a cost sharing agreement with
Sideware Systems Inc. effective November 1, 1995, pursuant to which the Company
and Sideware Systems Inc. are each responsible for one half of the rent and
other related occupation costs.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock, as of September 15, 1998 by (i) each stockholder
known by the Company to be the beneficial owner of more than 5% of its
outstanding shares of Common Stock, (ii) each of the Company's Directors and
executive officers, and (iii) all Directors and executive officers as a group:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (1)
- -------------------------------------------------------------------------------
<S> <C> <C>
Owen L.J. Jones*(2) 2,460,000 8.2%
102 - 930 W. 1st North
Vancouver, B.C., Canada
V7P 3N4
James L. Speros* Nil Nil
1111 Grand Hamptons Dr.
Herndon, Virginia
20170
23
<PAGE>
W. Grant Sutherland*(3) 1,640,000 5.5%
1600 - 777 Dunsmuir St.
Vancouver B.C.
V7Y 1K4
Willard W. Olson 2,500,000 8.6%
6021 East Huntress Dr.
Paradise, Arizona
85253
Peter MacLean(4) 480,000 1.6%
102 - 930 W. 1st North
Vancouver, B.C., Canada
V7P 3N4
All executive officers and
directors as a group (4
Persons)(5) 4,580,000 14.2%
</TABLE>
* Denotes Director of the Company
_________
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days of September 15, 1998 are deemed outstanding
for computing the percentage of the person holding such option or warrant
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned.
(2) Includes 1,000,000 options to purchase Common Stock which are exercisable
within 60 days of September 15, 1998.
(3) Includes 700,000 options to purchase Common Stock which are exercisable
within 60 days of September 15, 1998.
(4) Includes 450,000 options to purchase Common Stock which are exercisable
within 60 days of September 15, 1998.
(5) Includes 2,150,000 options to purchase Common Stock which are exercisable
within 60 days of September 15, 1998.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The directors and executive officers of the Company and their ages as of
September 15, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
Owen L.J. Jones 46 President, Chief Executive Officer and
Director
W. Grant Sutherland 52 Chairman and Director
James L. Speros 40 Director
Peter MacLean 36 Executive Vice President, Operations
</TABLE>
OWEN L.J. JONES has been the President, Chief Executive Officer and a
director of the Company since December 1993. Prior to becoming a director of the
Company, Mr. Jones was the V.P. Sales, Marketing and Technology of Evergreen
International Technology Inc. (now Sideware Systems Inc.), a software
development company whose shares trade on the Vancouver Stock Exchange. Mr.
Jones resigned from his position with Evergreen
24
<PAGE>
International Technology Inc. in December 1993. In May 1995 Mr. Jones was
elected as a director of Evergreen International Technology Inc., and shortly
thereafter assumed the responsibilities of President and Chief Executive Officer
of that company. Subsequent to May 1995 Mr. Jones has divided his time and
effort approximately equally between the affairs of the Company and the affairs
of Sideware Systems Inc. Mr. Jones is not a director of any public companies
other than the Company and Sideware Systems Inc.
W. GRANT SUTHERLAND was appointed as a director of the Company and as
Chairman of the Company's Board of Directors in November 1995. Mr. Sutherland is
a licensed lawyer in the Province of British Columbia, and has been engaged in
the private practice of law for 26 years, currently as a partner in the
Vancouver law firm Sutherland Johnston MacLean. Mr. Sutherland has also been a
director of Sideware Systems Inc. since May 1993. Since November 1995, Mr.
Sutherland has devoted the majority of his time and effort to the affairs of the
Company and Sideware Systems Inc., and presently divides his time approximately
equally between the affairs of the Company and the affairs of Sideware Systems
Inc. Mr. Sutherland is not a director of any public companies other than the
Company and Sideware Systems Inc.
JAMES L. SPEROS was appointed a Director of the Company on September 15,
1998. Mr. Speros is also President and Chief Operating Officer of Sidweware
Corporation, a wholly owned subsidiary of Sideware Systems Inc. and the
President and Chief Executive Officer of Exploration Mirandor Inc., a publicly
held mining exploration company. Mr. Speros was previously the President and
owner of two professional sports franchises, the Baltimore Stallions and
Montreal Alouettes of the Canadian Football League, and was the Vice Chairman
and a member of the Board of Governors of the Canadian Football League.
PETER MACLEAN was appointed Vice President, Business Development of the
Company in July 1996. In July 1998, Mr. MacLean was appointed Executive Vice
President, Operations, of the Company. Since July 1996, Mr. MacLean has also
held the positions of Vice President, Strategic Planning of Sideware Systems
Inc. and Senior Consultant to Techwest Management Inc. Prior to commencing his
employment with the Company, Mr. MacLean was the Director of the California
Office of British Columbia Trade and Development Corp., a company owned by the
government of the Province of British Columbia.
Owen Jones and Grant Sutherland were directors of Sideware Systems Inc. at
times when two bankruptcy petitions under the BANKRUPTCY AND INSOLVENCY ACT
(Canada) were brought against that company by former directors of that company
or private corporations controlled by them. Both bankruptcy petitions have been
dismissed.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation earned
during the Company's last three fiscal years by its Chief Executive Officer.
25
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
ANNUAL COMPENSATION SECURITIES UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION PERIOD SALARY ($) GRANTED (#)
- ------------------------------ -------------- -------------------- ------------------------------
<S> <C> <C> <C>
Owen L.J. Jones (1) December 31, 1997 $19,400 1,500,000
PRESIDENT, CEO, AND DIRECTOR
December 31, 1996 $19,400 --
December 31, 1995 $8,500 --
</TABLE>
______
(1) From August 1, 1995 until May 31, 1998, Mr. Jones received a salary of
$CDN.60,000 per year from Techwest Management Ltd., the cost of which was borne
equally between the Company and Sideware Systems Inc. Canadian funds have been
converted to US funds at an exchange rate of $1 = $CDN.0.68. Effective June 1,
1998 Mr. Jones' monthly salary was increased to $CDN.10,000 per month
(approximately US$ 6,800) with the cost of the payments to Mr. Jones shared
equally between the Company and Sideware Systems Inc.
The following table sets forth information on grants of stock options by
the Company during its last completed fiscal year:
OPTION GRANTS
<TABLE>
<CAPTION>
% OF MARKET VALUE
SHARES UNDER TOTAL EXERCISE OF SHARES
OPTIONS GRANTED OPTIONS PRICE UNDERLYING OPTIONS EXPIRY
NAME GRANTED ($/SHARE) ON THE DATE OF GRANT($/SHARE) DATE
- ------------------ --------------- ---------- ------------ -------------------------------- ----------
<S> <C> <C> <C> <C> <C>
Owen L.J.Jones 1,500,000 22.8% $.20 $.23 12/17/02
</TABLE>
No stock options were exercised during the Company's last completed fiscal
year by any director of the Company, the Company's Chief Executive Officer, or
any other executive officer earning at least $100,000 in any given fiscal year
in total annual salary and bonus.
In the Company's last completed fiscal year, no award or payment was made
by the Company under any Long Term Incentive Plan and no options were exercised
by the named executive officers.
The Company does not presently compensate its directors for services
provided as directors. The Company provides the following compensation to
directors of the Company, who are also officers of the Company, for services
rendered as officers of the Company.
Owen Jones. Effective June 1, 1998 Mr. Jones receives payments totalling $CDN.
10,000 per month (approximately US$ 6,800) from the Company and Sideware Systems
Inc. The cost of the payments to Mr. Jones is shared equally between the
Company and Sideware Systems Inc. Prior to June 1, 1998, Mr. Jones' monthly
payments (shared equally between the Company and Sideware Systems Inc.) were
$CDN. 5,000 per month. In July, 1998, pursuant to a directors' resolution dated
December 17, 1997, Mr. Jones was granted options to acquire 1,500,000 shares of
the Company at a price of $0.20 per share for a period of five years, expiring
26
<PAGE>
December 17, 2002. Mr. Jones receives no other compensation from the Company.
Grant Sutherland. Effective June 1, 1998 Mr. Sutherland receives payments
totalling $CDN. 10,000 per month (approximately US$ 6,800) from the Company and
Sideware Systems Inc. The cost of the payments to Mr. Sutherland is shared
equally between the Company and Sideware Systems Inc. Prior to June 1, 1998,
Mr. Sutherland's monthly payments (shared equally between the Company and
Sideware Systems Inc.) were $CDN. 5,000 per month. In July, 1998, pursuant to a
directors' resolution dated December 17, 1997, Mr. Sutherland was granted
options to acquire 1,500,000 shares of the Company at a price of $0.20 per share
for a period of five years, expiring December 17, 2002. In August, 1998 Mr.
Sutherland exercised 300,000 of the options. Mr. Sutherland receives no other
compensation from the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is party to an agreement with Sideware Systems Inc. effective
November 1, 1995 pursuant to which certain costs associated with the Company's
premises and operations are shared with Sideware Systems Inc. The costs subject
to the cost-sharing agreement include:
- - costs of the leasehold premises from which the Company operates;
- - personnel costs (billed through Techwest Management Ltd. - see below)
including the salary costs of the Company's President, Chairman, Systems
Manager, accounting personnel, and receptionist; and
- - miscellaneous office charges, such as office supplies and telephone and fax
charges.
Sideware Systems Inc. is a software development company whose shares trade
on the Vancouver Stock Exchange. Owen Jones is a director, the President, and
Chief Executive Officer of Sideware Systems Inc. Grant Sutherland is a director
and the Chairman of Sideware Systems Inc. James Speros is the President and
Chief Operating Officer of Sideware Corp., a wholly owned subsidiary of Sideware
Systems Inc.
As at December 31, 1997 the Company was indebted to Sideware Systems Inc.
in the approximate amount of $155,000 pursuant to the cost-sharing agreement.
Services of certain of the Company's personnel are provided to the Company
through Techwest Management Ltd., a private company whose shareholders include
Owen Jones and Grant Sutherland. The personnel whose services are provided
through Techwest Management Ltd. include Owen Jones, Grant Sutherland, and the
Company's Systems Manager, accounting personnel, and receptionist. Effective
June 1, 1998, Mr. Jones receives an annual salary of CDN.$ 120,000 per year from
Techwest Management
27
<PAGE>
Ltd. The cost of Mr. Jones' salary is divided equally between the Company and
Sideware Systems Inc.
The Company entered into a worldwide non-exclusive license agreement dated
November 2, 1995 (the "License") with NetMedia Systems Inc. ("NetMedia") under
which NetMedia was given the right to use the Company's technology to develop
and sell authoring tools for the Internet. NetMedia is a private company whose
shareholders and directors include Grant Sutherland and Owen Jones, both
directors of the Company.
Under the terms of the License, NetMedia acquired the right to combine the
Company's technology with technology held by NetMedia to create Internet
software that will enable users to link CD-ROM based video with any World Wide
Web page. NetMedia is responsible for raising the funds necessary to develop
and market this product, estimated at $3-5 million. The Company has received a
$25,000 license payment and is entitled to a 5% royalty on NetMedia's gross
revenue exceeding $10 million, up to a maximum royalty of $1 million.
As at September 15, 1998 NetMedia has not commenced operation, and has not
yet taken material steps to raise the funds it will require to commence
operation.
The Company has also joined a technology consortium consisting of Sideware
Systems Inc., NetMedia and the Company. Under the terms of the joint venture
agreement between consortium members dated November 23, 1995, the technology of
the three participants will be combined to create software applications for the
Microsoft Corporation's Windows '95 platform. The consortium will carry on
business through a private company called Concurrent Adaptive Recognition
Research Corp. ("Carr Corp."). Each of the Company, Sideware Systems Inc. and
NetMedia Systems Inc. owns one-third of the shares of Carr Corp., subject to
adjustment for funds actually provided to Carr Corp. by each participant. In
addition, each member of the consortium has the right to use technology
developed by Carr Corp. to develop specified products.
As at September 15, 1998 Carr Corp. has not commenced operation
On May 27, 1998, Grant Sutherland beneficially acquired 780,000 private
placement shares at price of $0.25.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital of the Company is 50,000,000 shares of Common Stock,
$0.001 par value, of which 26,583,333 were issued and outstanding on December
31, 1997. As at September 15, 1998 there were 29,121,333 shares of Common
Stock outstanding.
28
<PAGE>
COMMON STOCK
The shares to be registered are common shares in the capital stock of the
Company. Holders of Common Stock are entitled to one vote for each share held
of record at general meetings of the shareholders of the Company. Accordingly,
holders of a majority of the shares of Common Stock voting in any election of
directors will have the ability to elect all the directors standing for
election. All common shares participate equally in dividends paid by the
Company, and in the proceeds of any liquidation, dissolution or winding up of
the Company. There are no preemption rights and the Company's articles of
incorporation and by-laws contain no provisions that would delay, defer, or
prevent a change in control of the Company. The Company's articles of
incorporation and by-laws provide for the release and indemnification of the
Company's directors and officers as to certain liabilities arising from their
actions in such capacities to the fullest extent of permitted by law.
TRANSFER AGENT AND REGISTRAR
Colonial Stock Transfer Company of Salt Lake City, Utah, is the register
and transfer agent for the Common Stock.
PART II.
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
MARKET INFORMATION
The Company's Common Stock trades on the Over-The-Counter Bulletin Board
(OTC-BB) in the United States, having the trading symbol "BNTI-BB" and CUSIP#
105,022-10-7. The Common Stock commenced public trading on February 4, 1988
under a former name, Cozy Financial Corporation.
The following table lists the volume of trading and the high, low, and
closing sales prices on the OTC-BB for the Company's common shares for the last
10 fiscal quarters.
<TABLE>
<CAPTION>
Quarter Ended Volume High Low Close
<S> <C> <C> <C> <C>
June 30, 1998 14,182,800 $0.94 $0.43 $0.73
Mar. 31, 1998 15,264,371 0.63 0.29 0.50
Dec. 31, 1997 8,665,708 0.39 0.15 0.21
Sep. 30, 1997 5,231,530 0.48 0.20 0.34
June 30, 1997 6,816,925 0.51 0.26 0.30
Mar. 31, 1997 7,638,137 0.57 0.29 0.41
Dec. 31, 1996 5,721,355 0.48 0.25 0.34
Sep. 30, 1996 8,504,177 $0.875 $0.38 $0.34
June 30, 1996 11,258,650 1.21 0.30 0.68
Mar. 31, 1996 7,817,943 0.55 0.25 0.37
</TABLE>
29
<PAGE>
The source of the high and low bid information is the OTC-BB. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
HOLDERS
As at August 19, 1998 the shareholders' list for the Company's common
shares showed 199 registered shareholders and 29,121,333 shares outstanding,
including approximately 190 registered shareholders in the United States
(including depositories) holding approximately 26 million shares. Based on
research into the indirect holdings registered to various depositories and
financial institutions, the Company estimates that there are in excess of 4,000
beneficial shareholders in the Company.
DIVIDEND POLICY
The Company has not paid or declared dividends during the last two fiscal
years. The Company currently intends to retain all of its cash and any future
earnings to finance the growth and development of its business and therefore
does not anticipate paying any cash dividends in the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon the Company's financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant.
ITEM 2. LEGAL PROCEEDINGS
Cactus Consultants Incorporated billed the Company approximately $200,000
for consulting fees, venture capital commissions and other expenses related to
work claimed to have been done on the Company's behalf. The Company believes
that the fees, commissions and expenses were unauthorized and has not recorded
such costs as accounts payable. No litigation has been commenced.
During the fiscal year ending December 31, 1995, a total of 3,000,000
shares of Common Stock were subscribed at a price of $0.25 per share. The
Company received $606,000 of the subscription amount during the fiscal year
ending December 31, 1995. The Company has not issued any shares in respect of
the funds paid, and does not believe it is under any legal obligation to do so.
The position of the Company is that the $606,000 constitutes a debt obligation
of the Company, and it has been so recorded in the Company's financial
statements. If provided under the law of the applicable jurisdiction, interest
may also be payable on that amount. In June, 1998 formal demand was made on the
Company for repayment of the $606,000. No litigation has commenced as a result
of these transactions.
On May 7, 1997 the Company obtained judgment in the amount of $300,000 in
legal proceedings commenced in the State of Texas
30
<PAGE>
against John Kostiuk, a resident of British Columbia. On April 2, 1998 the
Company obtained a judgement of the Supreme Court of British Columbia enforcing
the Texas judgment. The Company has commenced execution proceedings to collect
the amounts owing under the Texas and British Columbia judgments, but has net
yet received any proceeds. At this time, any prospect of recovery on the
judgment is speculative.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ending December 31, 1996 the Company issued
4,683,333 shares in private placements. These shares were issued pursuant to
exemptions from registration pursuant to Rule 504 of Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"). The consideration
received by the Company was $953,790, net of legal costs. 950,000 shares were
issued January 4, 1996 at a price of $0.1895 per share (equivalent to gross
proceeds of $180,000). 733,333 shares were issued April 3, 1996 at a price of
$0.2523 per share (equivalent to gross proceeds of $185,000). 2,000,000 shares
were issued June 5, 1996 at a price of $0.20 per share (equivalent to gross
proceeds of $400,000). 1,000,000 shares were issued September 23, 1996 at a
price of $0.20 per share.
During the fiscal year ending December 31, 1996 the Company issued
1,200,000 shares at a deemed value of $240,000 to a director of the Company and
a consultant to the Company in payment of performance bonuses for technical
services rendered to the Company. 400,000 shares were issued on December 26,
1996 to Paco Nathan, then a director of the Company, at a deemed value of
$80,000. 800,000 shares were issued on December 26, 1996 to Brad Martin at a
deemed value of $160,000. Brad Martin is a principal of North Shore Circuit
Design, a software consulting firm located in Austin, Texas. North Shore
Circuit Design provided services to the Company in relation to the development
of the BrainTron processor. These shares were issued pursuant to exemptions from
registration under Section 4(2) of the Securities Act.
During the fiscal year ending December 31, 1997 the Company issued
3,000,000 shares in private placements. These shares were issued pursuant to
exemptions from registration pursuant to Rule 504 of Regulation D under the
Securities Act. The consideration received by the Company was $548,270.50, net
of legal costs. 1,000,000 shares were issued March 20, 1997 at a price of $0.20
per share (equivalent to gross proceeds of $200,000). 1,000,000 shares were
issued May 29, 1997 at a price of $0.20 per share (equivalent to gross proceeds
of $200,000). 1,000,000 shares were issued December 24, 1997 at a price of
$0.15 per share (equivalent to gross proceeds of $150,000).
In May, 1997 the Company issued 300,000 shares at a deemed value of $60,000
to Paragon Communications in consideration for
31
<PAGE>
investor relations services. These shares were issued pursuant to exemptions
from registration Section 4(2) of the Securities Act.
During the first half of 1998, the Company issued 1,600,000 shares in a
private placement. These shares were issued pursuant to exemptions from
registration pursuant to Rule 504 of Regulation D under the Securities Act. The
total consideration received by the Company was $396,870, net of legal costs.
1,200,000 shares were issued on March 27, 1998 at price of $0.25 (equivalent to
gross proceeds of $300,000). Grant Sutherland, a director of the Company, was
the beneficial purchaser of 780,000 of the 1,200,000 shares. 400,000 shares
were issued on May 4, 1998 at price of $0.25 (equivalent to gross proceeds of
$100,000).
In July and August, 1998 the Company issued 900,000 shares on the exercise
of stock options granted to directors, officers, employees and consultants of
the Company. The total consideration received by the Company was $180,000.
Directors of the Company exercised 600,000 of the 2,200,000 options exercised.
These share were issued pursuant to exemptions from registration pursuant to
Rule 504 of Regulation D under the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article VIII of the By-Laws of the Company, any past or present
director, officer, or employee of the Company (or person serving as such for
another corporation, as the request of the Company) or a testator or intestate
thereof, is entitled to be indemnified by the Company in respect of any expenses
(including without limitation attorneys' fees, judgments, fines, and penalties)
reasonably incurred by him in defending any civil, criminal or administrative
action, suit or proceeding to which he is made a party by reason of his position
with the Company (or other corporation at the Company's request).
Indemnification is not available to the extent that it is adjudged in such
action, suit or proceedings that the officer, director or employee was liable to
the Company (or such other corporation) for negligence or misconduct in the
performance of duty.
A judgment or conviction (including a conviction based on a plea of guilty
or nolo contendere or its equivalent) shall not itself be deemed an adjudication
that the director, officer or employee was liable for negligence or misconduct
in the performance of his duties. A person claiming indemnification may have
his entitlement determined by:
(a) order of the Court or administrative body having jurisdiction in the
action, suit, or proceeding;
(b) a resolution adopted by a majority of the quorum of the Board of Directors
of the Company (not counting any director who has incurred expenses in
connection with the action, suit or proceeding);
(c) a resolution of the majority of the stockholders of the Company (if there
is no quorum of directors available who
32
<PAGE>
have not incurred expenses in connection with the action, suit or
proceeding);
(d) a resolution of the majority of the directors of the Company entitled to
vote at any meeting; or
(e) any order of any Court having jurisdiction over the Company.
Any such determination that a payment by way of indemnification should be
made is binding on the Company.
The right of indemnification given under Article VIII of the By-Laws of the
Company is not exclusive of any such other right under any By-Law, agreement,
shareholders' resolution, provision of law, or otherwise. The provisions of
Article VIII apply to any member of any committee appointed by the Board of the
Company.
PART F/S
Financial Statements
Each of the following items are contained in the Company's Consolidated
Financial Statements and are set forth herein.
(i) Report of KPMG, Independent Auditors;
(ii) Balance Sheets as of December 31, 1996 and 1997;
(iii) Statements of Operations for the Years Ended December 31, 1995, 1996
and 1997;
(iv) Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1996 and 1997;
(v) Statements of Cash Flows for the Years Ended December 31, 1995, 1996
and 1997 and for the period from January 1, 1995 to December 31, 1997; and
(vi) Notes to Financial Statements.
Each of the following items are contained in the Company's Unaudited
Internal Consolidated Financial Statements and are set forth herein.
(i) unaudited Balance Sheet as of June 30, 1997 and 1998;
(ii) unaudited Statements of Operations for the six months ended June 30,
1997 and 1998;
(iii) unaudited Statement of Stockholders' Equity for the six months ended
June 30, 1997 and 1998;
(iv) unaudited Statements of Cash Flows for the six months ended June 30,
1997 and 1998; and
(v) Notes to Financial Statements.
33
<PAGE>
PART III.
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT
-------- -------
<S> <C>
3.1 Articles of Incorporation, dated February 27, 1987
3.2 Articles of Amendment, dated July 14,1998
3.3 Articles of Amendment, dated June 28, 1990
3.4 Articles Of Amendment of the Company, dated February 8, 1993
3.5 Articles of Amendment of the Company, dated April 6, 1993
3.6 Articles of Amendment of the Company, dated December 6, 1993
3.7 By-Laws of the Company
4.1 Specimen Stock Certificate
10.1 License Agreement between the Company and Willard W. Olson, dated
January 5, 1995.
10.2 Product Development Agreement between the Company and United
Technologies Microelectronic Systems Inc., dated July 6, 1998.
10.3 Manufacturing and Sales Agreement between the Company and United
Technologies Microelectronic Systems Inc., dated July 6, 1998.
10.4 Operating Agreement between the Company and Sideware Systems Inc.,
dated November 1, 1995
10.5 Worldwide Non-Exclusive License Agreement between the Company and
NetMedia Systems Inc., dated November 2, 1995.
10.6 Joint Venture Agreement by and among the Company, Sideware Systems
Inc., and NetMedia Systems Inc., dated November 23, 1995.
11.1 Computation of net loss per share
21.1 Subsidiaries of the Registrant
</TABLE>
34
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 15, 1998 BrainTech, Inc.
By: "W. GRANT SUTHERLAND"
------------------------
W. Grant Sutherland
Chairman of the Board of Directors
35
<PAGE>
Consolidated Financial Statements of
BRAINTECH, INC.
(Expressed in U.S. Dollars)
Years ended December 31, 1997, 1996 and 1995
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Braintech, Inc.
We have audited the consolidated balance sheet of Braintech, Inc. as at
December 31, 1997 and 1996 and the consolidated statements of operations,
stockholders' deficit and cash flows for each of the years in the three year
period ended December 31, 1997 and for the period from inception on January 4,
1994 to December 31, 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 audit.
We conducted our audit 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 financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1997 and
1996 and the results of its operations and the changes in its cash flows for
each of the years in the three year period ended December 31, 1997 and for
the period from inception on January 4, 1994 to December 31, 1997, in
accordance with generally accepted accounting principles in the United
States.
Chartered Accountants
Vancouver, Canada
June 23, 1998
<PAGE>
BRAINTECH, INC.
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
December 31, 1997 and 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 142,688 $ 109,843
Accounts receivable 21,462 --
Marketable securities (note 3) 3,600 3,600
Prepaid expenses 1,708 --
---------------------------------------------------------------------------------------
Total current assets 169,458 113,443
Due from related companies (note 4(b)) -- 56,440
Due from directors and officers (note 4(a)) 10,130 --
Capital assets (note 5) 13,272 --
- ------------------------------------------------------------------------------------------
Total assets $ 192,860 $ 169,883
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 20,500 $ 57,442
Due to directors and officers (note 4(a)) -- 29,751
Due to related companies (note 4(b)) 211,442 --
---------------------------------------------------------------------------------------
Total current liabilities 231,942 87,193
Subscriptions received (note 6(b)) 606,000 606,000
- ------------------------------------------------------------------------------------------
Total liabilities 837,942 693,193
Stockholders' deficit:
Common stock (note 6):
Authorized: 50,000,000 shares, with $0.001 par value
Issued: 26,583,333 shares (1996 -- 23,283,333) 26,583 23,283
Additional paid-in capital (note 5) 3,032,148 2,227,178
Accumulated deficit (58,800) (58,800)
Deficit accumulated during the development stage (3,645,013) (2,714,971)
---------------------------------------------------------------------------------------
Total stockholders' deficit (645,082) (523,310)
Contingencies (notes 1 and 7)
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' deficit $ 192,860 $ 169,883
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
Consolidated Statements of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Period from
commencement
of development
operations on
January 3, 1994 Year ended December 31,
to December 31, ----------------------------------------
1997 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Expenses:
Research and development $ 818,182 $ 148,527 $ 260,384 $ 178,659
Consulting and contractors 711,776 17,770 204,114 215,289
Salaries and benefits 623,706 415,014 134,208 74,484
Selling, general and administrative 1,342,081 348,731 314,839 237,689
Non-operating expenses:
Loss on disposal of real estate 18,248 -- -- --
Write-down of investments 96,400 -- 46,400 25,000
Write-down of capital assets 17,189 -- -- 17,189
Write-down of organization costs 17,431 -- -- --
- ---------------------------------------------------------------------------------------------------------
Net loss $ (3,645,013) $ (930,042) $ (959,945) $ (748,310)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Loss per share $ (0.04) $ (0.05) $ (0.04)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Weighted average number of shares 25,464,978 20,354,525 17,400,000
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
Consolidated Statements of Stockholders' Deficit
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Deficit
accumulated
Additional during
Common paid-in Accumulated development
Shares stock capital deficit stage
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1994 17,400,000 $ 17,400 $ 1,039,271 $ (58,800) $ --
Loss for the period -- -- -- -- (1,006,716)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 17,400,00 17,400 1,039,271 (58,800) (1,006,716)
Loss for the year -- -- -- -- (748,310)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 17,400,000 17,400 1,039,271 (58,800) (1,755,026)
Common stock transactions
(net of issue costs):
Issued for cash at $.1895 per share 950,000 950 173,440 -- --
Issued for cash at $.25 per share 733,333 733 183,167 -- --
Issued for cash at $.20 per share 3,000,000 3,000 592,500 -- --
Issued to employees for performance
bonuses at $0.20 per share 1,200,000 1,200 238,800 -- --
Loss for the year -- -- -- -- (959,945)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 23,283,333 23,283 2,227,178 (58,800) (2,714,971)
Common stock transactions
(net of issue costs):
Issued for cash at $.20 per share 2,000,000 2,000 396,991 -- --
Issued for cash at $.15 per share 1,000,000 1,000 148,279 -- --
Issued for cash at $.20 per share 300,000 300 59,700 -- --
Compensatory benefit of employee
stock options -- -- 200,000 -- --
Loss for the year -- -- -- -- (930,042)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 26,583,333 $ 26,583 $ 3,032,148 $ (58,800) $ (3,645,013)
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Period from
commencement
of development
operations on
January 3, 1994 Year ended December 31,
to December 31, ----------------------------------------
1997 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
(note 1)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,645,013) $ (930,042) $ (959,945) $ (748,310)
Items not involving cash:
Depreciation 13,320 10,287 -- --
Bad debt 75,108 -- -- --
Write-down of marketable securities 96,400 -- 46,400 25,000
Write-down of capital assets 17,189 -- -- 17,189
Write-down of organization costs 17,431 -- -- --
Loss on disposal of real estate 18,248 -- -- --
Non-cash performance bonuses 300,000 60,000 150,000 90,000
Compensatory benefit of
employee stock options 200,000 200,000 -- --
Changes in operating assets and liabilities:
Accounts receivable (21,462) (21,462) -- --
Prepaid expenses (1,708) (1,708) -- 7,202
Accounts payable and accrued liabilities 13,626 (36,942) (87,718) 55,720
- ---------------------------------------------------------------------------------------------------------
Net cash used for operating activities (2,916,861) (719,867) (851,263) (553,199)
Cash flows from investing activities:
Purchase of marketable securities (100,000) -- -- --
Purchase of capital assets (43,781) (23,559) -- --
Proceeds from notes receivable (130,181) -- -- --
Proceeds from disposal of real estate 306,752 -- -- --
------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing
activities 32,790 (23,559) -- --
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Bank indebtedness -- -- -- (35,863)
Notes receivable 55,073 -- 55,073 --
Borrowings to (from) directors and officers (21,130) (39,881) -- 40,000
Due to (from) related companies 211,442 267,882 (58,144) 1,704
Mortgages payable (207,739) -- -- --
Common shares issued for cash 2,745,001 548,270 953,790 --
Share subscriptions received -- -- -- 556,000
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,782,647 776,271 950,719 561,841
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (101,424) 32,845 99,456 8,642
Cash and cash equivalents, beginning of period 244,112 109,843 10,387 1,745
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 142,688 $ 142,688 $ 109,843 $ 10,387
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Supplemental information:
Interest paid $ 747 $ 747 $ -- $ --
Taxes paid $ -- $ -- $ -- $ --
Non-cash financing activities:
Shares issued to employees for
performance bonuses $ 300,000 $ 60,000 $ 240,000 $ --
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION:
Braintech, Inc. (the "Company") was incorporated on March 4, 1987 under the
laws of the State of Nevada as Tome Capital, Inc.
The Company initially was in the business of real estate development. On
January 3, 1994 the Company changed its name to Braintech Inc. and began
operations as a high tech development company, developing advanced video
recognition software.
During the year ended December 31, 1997, the Company incurred a loss of
($930,042) and used cash for operating activities of ($719,867). From
inception of the business on January 3, 1994, the Company has incurred
cumulative losses of ($3,645,013) and used cash for operating activities of
($2,916,861).
These consolidated financial statements have been prepared on the going
concern basis under which an entity is considered to be able to realize its
assets and satisfy its liabilities in the ordinary course of business.
Operations to date have been primarily financed by equity transactions.
The Company's future operations are dependent upon continued support by
shareholders, the achievement of profitable operations and the successful
completion of management's plan to obtain additional equity financing,
although there can be no assurances that the Company will be successful.
The consolidated financial statements do not include any adjustments
relating to the recoverability of assets and classification of assets and
liabilities that might be necessary should the Company be unable to
continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States
and present the financial positions, results of operations and cash
flows of the company and its wholly owned subsidiary Brainware
Systems Inc., incorporated under the Company Act of British
Columbia on March 30, 1994. All material intercompany balances and
transactions have been eliminated.
Through December 31, 1997, the consolidated financial statements of
the Company issued to shareholders were presented in accordance
with generally accepted accounting principles in Canada. The
application of United States accounting principles to these
consolidated financial statements has been made on a retroactive
basis. In addition, to December 31, 1997, for United States
accounting and reporting purposes the Company was considered to be
in development stage as it was devoting substantial efforts to
developing its business operations. If Canadian accounting
principles had been applied in the preparation of these
consolidated financial statements there would be no material
differences to total assets, shareholders' equity or loss for the
year.
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, Page 2
(Expressed in U.S. Dollars)
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) Cash and cash equivalents:
Cash and cash equivalents include highly liquid investments, such as
term deposits, having original maturities of three months or less at
the date of acquisition, that are readily convertible to contracted
amounts of cash.
(c) Research and development costs:
Research and development costs are expensed as incurred.
(d) Marketable securities:
Marketable securities are comprised of equity securities available for
sale and are stated at market value. Decreases in market value that
are considered to be other than temporary are recognized as a loss.
(e) Capital assets:
Capital assets are stated at cost less accumulated depreciation.
Depreciation is provided for on the following basis:
Computer equipment 30% declining balance
Computer software 50% straight-line
(f) 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 at the date of the financial statements and the reported
amount of expenses during the reporting period. Actual results could
differ from these estimates.
(g) Foreign currency:
The Company's functional currency is the U.S. dollar. Foreign
exchange gains and losses are recognized in income.
(h) Stock-based compensation:
The Company has elected to apply Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
related interpretations in accounting for its stock options. Under
APB 25, compensation expense is only recorded to the extent that the
exercise price is less than fair value on the date of grant. The
Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards 123, "Accounting for Stock-Based
Compensation" ("SFAS 123").
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, Page 3
(Expressed in U.S. Dollars)
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) Income taxes:
The Company follows the asset and liability method of accounting
for income taxes. Deferred tax assets and liabilities are
recognized based on the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
(j) Concentration of credit risk:
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash equivalents.
The Company maintains cash equivalents with various financial
institutions located in Canada and the United States. The
Company's policy is to limit the exposure at any one financial
institution and to invest solely in highly liquid investments that
are readily convertible to contracted amounts of cash.
(k) Comparative figures:
Certain items in the prior year's financial statements have been
reclassified to conform with the current year's financial statement
presentation.
3. MARKETABLE SECURITIES:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
1997 1996
---------------------------------------------------------------------------
<S> <C> <C>
400,000 shares of Trans Pacific Group Inc., at market $3,600 $50,000
---------------------------------------------------------------------------
</TABLE>
In December, 1996, Trans Pacific Group Inc. was delisted from trading and
was subsequently consolidated into Beverage Store (BEUG) on a 250:1 share
reverse stock split basis. The Company has recorded losses in 1994, 1995
and 1996 of $25,000, $25,000 and $46,400, respectively, for permanent
decreases in value.
4. RELATED PARTY BALANCES AND TRANSACTIONS:
The Company is party to agreements with NetMedia Systems Inc. and Sideware
Systems Inc., companies with common directors, which may be material to
future profitability. The Company is also party to a cost sharing
agreement with Sideware Systems Inc.
(a) Due from (to) directors and officers:
The amounts due from (to) directors and officers represent cash
advances provided to (by) current directors and officers of the
Company. These amounts are unsecured, payable on demand and bear
no interest.
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, Page 4
(Expressed in U.S. Dollars)
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
4. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED):
(b) Due to (from) related companies:
The amount due to (from) related companies under common control
results from intercompany expense allocations and cash advances.
(c) Transactions with directors and officers:
During the year, the Company was charged $Nil (1996 - $138,705; 1995 -
$359,667) for management and consulting services provided by directors
and officers.
5. CAPITAL ASSETS:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
DECEMBER 31,
1997
------------------------------------------------------------------------
<S> <C>
Computer equipment $ 4,032
Computer software 19,527
------------------------------------------------------------------------
23,559
Less accumulated depreciation (10,287)
------------------------------------------------------------------------
$ 13,272
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
6. COMMON STOCK:
(a) Of the shares outstanding, 6,830,000 shares (1996 - 6,830,000) are
subject to trading restrictions. These shares are restricted for a
two year period.
(b) 5,500,000 shares were issued for technology in 1993 and recorded at
par value of $5,500. 1,500,000 shares have been retained by the
Company because the development of the technology had not been
completed.
(c) In addition, the Company may be obligated to issue 3,000,000 shares,
as described in note 7(b).
(d) Additional paid-in capital arises on the issuance of common shares at
a price in excess of par value.
(e) Stock options which vest immediately were granted to directors,
officers and employees to acquire 5,000,000 common shares at an
exercise price of $0.20 and an expiry date of November 28, 2002.
As permitted by FAS 123, the Company has chosen to continue accounting
for stock options at their intrinsic value. Included in expenses for
1997 is $200,000 representing compensatory benefit (1996 and 1995 -
$Nil). This benefit has been calculated by reference to the
difference between the option exercise price and the fair value of the
Company's common shares at the date upon which the options receive all
shareholder and other approvals that are required for the options to
become exercisable in accordance with their terms.
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, Page 5
(Expressed in U.S. Dollars)
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
6. COMMON STOCK (CONTINUED):
(e) (continued)
Had the fair value method of accounting been applied to the Company's
existing stock options, the impact would be as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss for the year, as reported $ (930,042) $(959,945) $(748,310)
Estimated fair value of option grants (983,740) -- --
Less compensatory benefit included in loss 200,000 -- --
-------------------------------------------------------------------------------------------
Pro forma loss $(1,713,782) $(959,945) $(748,310)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
The fair value of option grants has been estimated using the
Black-Scholes Option-Pricing model with the following assumptions:
<TABLE>
<S> <C>
Dividend yield 0%
Risk-free interest rate 5.6%
Expected option life 5 years
Expected volatility 108%
</TABLE>
(f) During the calculation of loss per share. This adoption has not
resulted in any material change to loss per share for the years ended
December 31, 1996 and 1995.
7. Contingencies:
The Company is engaged in the following legal disputes:
(a) Cactus Consultants Incorporated ("CCI") claim:
CCI has claims against the Company of approximately $200,000 for
consulting fees, venture capital commissions and other expenses
that have not been included in accounts payable. Current
management believes that the consulting fees and venture capital
commissions were unauthorized. If CCI is successful with its
claims the Company will record the amount payable and related
expense in income in the year it is determined.
(b) During the year ended 1995, a total of 3,000,000 shares of the
Company were subscribed at $0.25 per share. The Company received
$606,000 of the total subscription amount during 1995. Management
believes that the three parties who subscribed to the shares are
related to CCI and therefore the subscriptions were not legally
made. The Company does not intend to issue any of these shares and
has accrued this amount as a liability.
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, Page 6
(Expressed in U.S. Dollars)
Years ended December 31, 1997, 1996 and 1995
- --------------------------------------------------------------------------------
8. INCOME TAXES:
To December 31, 1996, the Company has incurred losses for income tax
purposes in Canada and the United States of approximately $25,000, which
are available to reduce income for tax purposes through the year 2000.
The unrecorded benefit of these loss carry forwards is approximately
$12,500. Under the provisions of the Statement 109, the effect of this
benefit has been fully offset by a valuation allowance due to the
uncertainty of the realization of the benefits.
9. SUBSEQUENT EVENTS:
Subsequent to year end the Company:
(a) Issued 1,600,000 common shares for cash proceeds of $396,870 net of
legal costs.
(b) Granted an additional 1,420,000 options to purchase common shares at
an exercise price of $0.20 per share and expiring on May 14, 2003; and
(c) Issued 2,200,000 on exercise of options for cash proceeds of $440,000.
<PAGE>
Consolidated Financial Statements of
BRAINTECH, INC.
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Six months ended June 30, 1998 and 1997
<PAGE>
BRAINTECH, INC.
Consolidated Balance Sheet
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
June 30, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,665 $ 167,161
Accounts receivable 4,724 1,525
Marketable securities (note 4) 3,600 3,600
Prepaid expenses 16,451 -
---------------------------------------------------------------------------------------
Total current assets 46,440 172,286
Due from related companies (note 5(b)) - 22,746
Due from directors and officers (note 5(a)) 10,130 10,249
Capital assets (note 6) 8,489 1,547
- ------------------------------------------------------------------------------------------
Total assets $ 65,059 $ 206,828
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank indebtedness $ - $ -
Accounts payable and accrued liabilities 28,289 34,676
Due to directors and officers (note 5(a)) - 17,568
Due to related companies (note 5(b)) 38,169 -
---------------------------------------------------------------------------------------
Total current liabilities 66,458 52,244
Subscriptions received (note 8(b)) 606,000 606,000
- ------------------------------------------------------------------------------------------
Total liabilities 672,458 658,244
Stockholders' deficit:
Capital stock (note 7):
Authorized: 50,000,000 shares, with $0.001 par value
Issued: 26,983,333 shares (1997 - 25,583,333) 26,983 25,583
Additional paid-in capital (note 7) 3,231,748 2,683,869
Accumulated deficit (3,866,130) (3,160,868)
---------------------------------------------------------------------------------------
Total stockholders' deficit (607,399) (451,416)
Contingencies (note 8)
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' deficit $ 65,059 $ 206,828
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
Consolidated Statement of Operations and Deficit
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Six months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Sales $ 49,519 $ -
Cost of sales 1,250 -
-----------------------------------------------------------------------------
Gross margin 48,269 -
Expenses:
Research and development 48,551 68,285
Consulting and contractors 16,163 -
Salaries and benefits 149,505 106,307
Selling, general and administrative 196,367 212,505
-----------------------------------------------------------------------------
410,586 387,097
Net loss 362,317 387,097
Deficit, beginning of period 3,503,813 2,773,771
- --------------------------------------------------------------------------------
Deficit, end of period $ 3,866,130 $ 3,160,868
- --------------------------------------------------------------------------------
Loss per share $ ( ) $ ( )
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
Consolidated Statement of Cash Flow
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Six months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (362,317) $ (387,097)
Items not involving cash:
Depreciation 5,733 391
Non-cash performance bonuses - 60,000
Change in operating assets and liabilities:
Accounts receivable 16,738 (1,525)
Prepaid expenses (14,743) -
Accounts payable and accrued liabilities 7,789 (22,766)
--------------------------------------------------------------------------------
Net cash used for operating activities (346,800) (350,997)
Cash flows from investing activities:
Purchase of capital assets (950) (1,938)
--------------------------------------------------------------------------------
Net cash used for investing activities (950) (1,938)
Cash flows from financing activities:
Borrowing from directors and officers - (22,432)
Due to (from) related companies (173,273) 33,694
Common shares issued for cash 400,000 398,991
--------------------------------------------------------------------------------
226,727 410,253
Increase (decrease) in cash and cash equivalents (121,023) 57,318
Cash and cash equivalents, beginning of period 142,688 109,843
- -----------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 21,665 $ 167,161
- -----------------------------------------------------------------------------------
Supplemental information:
Interest paid $ 2,155 $ -
Non-cash financing activities:
Shares issued to employees for performance bonuses $ -- $ 60,000
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 1
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Six months ended June 30, 1998
- -------------------------------------------------------------------------------
1. ORGANIZATION:
The Company was incorporated on March 4, 1987 under the laws of the State
of Nevada as Tome Capital, Inc. The Company sold 1,500,000 shares to the
public on May 11, 1987, pursuant to Rule 504 of the Security Act of 1933 as
amended.
On January 3, 1994 the Company changed its name to Braintech, Inc. and
began operations as a high tech development company.
2. GOING CONCERN:
These financial statements have been prepared on the basis that the Company
will continue to operate as a going concern, notwithstanding significant
losses in 1998 and 1997. The Company's ability to continue as a going
concern is dependent upon its ability to obtain adequate financing and to
reach profitable levels of operation. It is not possible to predict
whether financing efforts will be successful or if the Company will attain
profitable levels of operation.
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These consolidated financial statements include the accounts of the
parent company and its wholly owned subsidiary Brainware
Systems Inc., incorporated under the Company Act of British Columbia
on March 30, 1994.
(b) Research and development costs:
Research and development costs are expensed as incurred unless
certain criteria for deferral have been met. As at June 30,1998 no
development costs have been deferred.
(c) Cash and cash equivalents:
Cash and cash equivalents consist of highly liquid investments that
are readily convertible to known amounts of cash and generally have
initial maturities of three months or less.
(d) Marketable securities:
Marketable securities are comprised of equity securities available
for sale and are stated at the lower of aggregate cost or market
value.
(e) Capital assets:
Capital assets are stated at cost less accumulated depreciation.
Depreciation is provided for on the following basis:
Computer equipment 30% declining balance
Computer software 50% straight-line
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Six months ended June 30, 1998
- -------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) 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 at the date of the financial statements and the reported
amount of expenses during the reporting period. A significant area
requiring the use of estimates is accounts receivable. Actual
results could differ from these estimates.
(g) Financial instruments:
The carrying amounts of cash and cash equivalents, accounts
receivable, marketable securities, accounts payable and accrued
liabilities due from (to) directors and officers, and due from (to)
related companies approximate fair values, due to the short-term
maturity of these instruments.
(h) Income taxes:
The Company accounts for income taxes on the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(i) Loss per share:
Loss per share is computed based on the weighted average number of
shares outstanding in 1998 - (1997 - ), after
excluding issued but unreleased shares described in note 7(a)).
4. MARKETABLE SECURITIES:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1998 1997
------------------------------------------------------------------------------
<S> <C> <C>
400,000 shares of Trans Pacific Group Inc., at cost $ 100,000 $ 100,000
Less write-down 96,400 96,400
------------------------------------------------------------------------------
$ 3,600 $ 3,600
------------------------------------------------------------------------------
</TABLE>
In December, 1996, Trans Pacific Group Inc. was delisted from trading and
was subsequently consolidated into Beverage Store (BEUG) on a 250:1 share
reverse stock split basis. The Company recorded a loss of $46,400 in 1996
as a result of a permanent decrease in value.
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Six months ended June 30, 1998
- -------------------------------------------------------------------------------
5. RELATED PARTY BALANCES AND TRANSACTIONS:
(a) Due to (from) directors and officers:
The amounts due to (from) directors and officers represent cash
advances provided by (to) current directors and officers of the
Company. These amounts are unsecured, payable on demand and bear
no interest.
(b) Due to (from) related companies:
The amounts due to (from) related companies result from inter-company
expense allocations and cash advances and are unsecured, payable on
demand and bear no interest.
(c) Transactions with directors and officers:
During the period, the Company was charged $nil (1997 - $nil) for
management and consulting fees.
6. CAPITAL ASSETS:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------
<S> <C> <C>
Computer equipment $ 4,563 $ -
Computer software 19,946 1,938
--------------------------------------------------------------------------
24,509 1,938
Less accumulated depreciation (16,020) (391)
--------------------------------------------------------------------------
$ 8,489 $ 1,547
--------------------------------------------------------------------------
</TABLE>
7. CAPITAL STOCK:
Authorized:
50,000,000 common shares, with $0.001 par value
Issued:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Contributed
Number Paid-in
of shares Par value capital
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance December 31, 1995 17,400,000 $ 17,400 $ 1,039,271
Shares issued for cash 4,683,333 4,683 960,317
Share issue costs (11,210)
Shares issued to employees for
performance bonuses 1,200,000 1,200 238,800
-----------------------------------------------------------------------------------------
Balance December 31, 1996 - carried forward 23,283,333 23,283 2,227,178
</TABLE>
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Six months ended June 30, 1998
- -------------------------------------------------------------------------------
7. CAPITAL STOCK (CONTINUED):
Issued:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Contributed
Number Paid-in
of shares Par value capital
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance December 31, 1996 - brought forward 23,283,333 23,283 2,227,178
Shares issued for cash 2,000,000 2,000 398,000
Share issue costs (1,009)
Shares issued for services 300,000 300 59,700
------------------------------------------------------------------------------------------
Balance June 30, 1997 25,583,333 25,583 2,683,869
Shares issued for cash 1,000,000 1,000 149,000
Share issue costs (721)
------------------------------------------------------------------------------------------
Balance December 31, 1997 26,583,333 26,583 2,832,148
Shares issued for cash 400,000 400 399,600
------------------------------------------------------------------------------------------
Balance June 30, 1998 26,983,333 $ 26,983 $ 3,231,748
------------------------------------------------------------------------------------------
</TABLE>
(a) 5,500,000 shares were issued for technology in 1993 and recorded at
par value of $5,500. 1,500,000 of the issued shares are held in
treasury because the technology due in exchange has not been received.
(b) Of the shares outstanding, 6,830,000 shares (1996 - 6,830,000) are
subject to trading restrictions. These shares are restricted until an
application is made by the holder and proper share certificates are
received.
(c) In addition, the company may be obligated to issue 3,000,000 shares,
as described in note 8(b).
(d) Stock options were granted to directors, officers and employees to
acquire 5,000,000 common shares at an exercise price of $.20 and an
expiry date of November 28, 2002.
(e) On May 14, 1998 an additional 1,420,000 options to purchase common
shares were granted at an exercise price of $.20 and expiring on
May 14, 2003.
<PAGE>
BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Six months ended June 30, 1998
- -------------------------------------------------------------------------------
8. CONTINGENCIES:
The Company is engaged in the following litigation:
(a) Cactus Consultants Incorporated ("CCI") claim:
CCI has claims against the Company of approximately $200,000 for
consulting fees, venture capital commissions and other expenses that
have not been included in accounts payable. Current management
believes that the consulting fees and venture capital commissions
were unauthorized. If CCI is successful with its claims the Company
will record the amount payable and related expense in income in the
year it is determined.
(b) During the year ended 1995, a total of 3,000,000 shares of the Company
were subscribed at $0.25 per share. The Company received $606,000 of
the total subscription amount during 1995. Management believes that
the three parties who subscribed to the shares are related to CCI and
therefore the subscriptions were not legally made. The Company does
not intend to issue any of these shares and has accrued this amount as
a liability.
9. INCOME TAXES:
The Company has income tax losses available of approximately $25,000,
expiring from 1996 to 2000. Deferred income tax asset balances, net of a
valuation allowance of $7,500, are nil.
<PAGE>
FILING FEE: $100.00
BY: CONDER AND NIELSON
275 E. SO. TEMPLE #303
SALT LAKE CITY, UT 84111
[STAMP]
ARTICLES OF INCORPORATION
OF
TOME CAPITAL, INC.
We, the undersigned; natural persons of the age of eighteen years or more,
acting as incorporators of a corporation under the laws of the State of Nevada,
adopt the following Articles of Incorporation for such corporation.
ARTICLE I
Name
The name of this corporation is Tome Capital, Inc.
ARTICLE II
Duration
The duration of this corporation is perpetual.
ARTICLE III
Purpose
The purpose or purposes for which this corporation is organized are:
(a) To engage in any lawful act or activity for which the corporation may
be organized under the general corporation law of Nevada.
(b) To cause to be formed, merged, reorganized, or liquidated, and to
promote, take charge of, and aid in any way permitted by law the formation,
merger, liquidation, or reorganization of any corporation, association, or
organization of any kind, domestic or foreign; and to form, organize, promote,
manage, control and maintain, and to dissolve, merge, or consolidate one or more
corporations in the stock or other
<PAGE>
securities of which this corporation may be or become interested, for such
purpose or purposes as may aid or advance the objects and purposes of this
corporation.
(c) To do each and every thing necessary suitable or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the subjects herein enumerated or which at any time may appear conductive to or
expedient for the protection or benefit of this corporation and to do said acts
as fully and to the same extent as natural persons might or could do in any part
of the world; as principals, agents, partners, trustees or otherwise, either
alone or in conjunction with any other person, association or corporation.
ARTICLE IV
Stock
The Corporation shall have the authority to issue fifty million
(50,000,000) shares of common stock with a par value of $.001 per share, all
stock of the corporation shall be of the same class common and shall have the
same rights and preferences, fully paid stock of this corporation shall not be
liable to any further call or assessment.
ARTICLE V
Amendment
These Articles of incorporation may be amended by the affirmative vote of a
majority of the shares entitled to vote on each such amendment.
<PAGE>
ARTICLE VI
Shareholder Rights
The authorized and treasury stock of this corporation may be issued at such
time, upon such terms and conditions and for such consideration as the Board of
Directors shall determine. Shareholders shall not have pre-emptive rights to
acquire unissued shares of the stock of this corporation and cumulative voting
is denied.
ARTICLE VII
Capitalization
This corporation will not commence business until at least $1,000.00 has
been received by it as consideration for the issuance of shares.
ARTICLE VIII
Initial Office and Agent
The address of the initial registered office of the corporation is 4888
Billman Ave Las Vegas Nevada 89121 and the name of the corporation's initial
registered agent at such address is Gerry A. Okuda.
ARTICLE IX
Directors
The number of Directors constituting the initial Board of directors of this
corporation is three. the names and addresses of persons who are to serve as
directors until the first annual meeting of stockholders, or until their
successors are elected and qualified are:
Tony Ladakis
1292 4th Ave.
Salt Lake City, Utah 84103
<PAGE>
Barbara T. Ladakis
1291 4th Ave.
Salt Lake City, Utah 84103
Gerry A. Okuda
4888 Billman Ave.
Las Vegas, Nevada 89121
ARTICLE X
Incorporators
The name and address of each incorporator is:
Tony Ladakis
1292 4th Ave.
Salt Lake City, Utah 84103
Barbara T. Ladakis
1292 4th Ave.
Salt Lake City, Utah 84103
Gerald M. Conder
275 East South Temple #303
Salt Lake City, Utah 84111
ARTICLE XI
Common Directors - Transactions Between Corporations
No contract or other transaction between this corporation and one or more
of its directors or any other corporation, firm, association or entity in which
one or more of its directors or officers are financially interested, shall be
either void or voidable because of such relation or interest, or because such
director or directors are present at the meeting of the Board of Directors, or a
committee thereof which authorizes, approves or ratifies such contract or
transaction, or because his or their votes are counted for such purpose if: (a)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves, or ratifies
<PAGE>
the contract or transaction by vote or consent sufficient for the purpose
without counting the votes or consents of such interested directors; or (b) the
fact of such relationship or interest is disclosed or known to the shareholders
entitled to vote and they authorize, approve, or ratify such contract or
transaction by vote or written consent; or (c) the contract or transaction is
fair and reasonable to the corporation.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board or Directors or committee thereof which
authorizes, approves or ratifies such contract or transaction.
DATED this 27 day of Feb, 1987.
/s/ Tony Ladakis
---------------------------
/s/ Barbara T. Ladakis
---------------------------
/s/ Gerald M. Conder
---------------------------
STATE OF UTAH )
) ss
COUNTY OF SALT LAKE)
I hereby certify that on the 27 day of Feb, 1987, Tony Ladakis, Barbara T.
Ladakas and Gerald M. Conder personally appeared before me who, being by me
first duly sworn, severally declared that they are the incorporators and that
the statements therein contained are true.
DATED this 27 day of Feb, 1987.
/s/ [ILLEGIBLE]
---------------------------
NOTARY PUBLIC
My Commission Expires: Residing in:
11/15/88
- ----------------------
<PAGE>
ARTICLE OF AMENDMENT
OF
TOME CAPITAL, INC.
Pursuant to Nevada Statutes, Tome Capital, Inc. adopts the following
Article of Amendment to its Articles of Incorporation:
1. The name of the corporation is Tome Capital, Inc.
2. The following amendment of the Articles of Incorporation was adopted
by the stockholders of the corporation on July 1, 1988 in the manner prescribed
by the laws of the State of Nevada and the Articles of Incorporation of Tome
Capital, Inc.
3. That Article I of the Articles of Incorporation filed on March 4, 1987
should be amended by amending the first Article to read as follows:
The name of the corporation is "Nevada Manhattan Mining, Inc."
4. The number of shares of Tome Capital, Inc. outstanding at the time of
such adoption was Two Million (2,000,000) shares and the number of shares
entitled to vote thereon was Two Million (2,000,000) shares and there is no
other class of share or security authorized by the corporation other than
common.
5. The corporation at the time of the stockholders meeting had
outstanding Two Million (2,000,000) shares entitled to vote on said proposal.
At said shareholders meeting, 1,275,000 shares voted in favor of changing the
name of the corporation to Nevada Manhattan Mining, Inc. with no shares voting
against the proposal; all shares are of one kind and class.
<PAGE>
6. The proposed amendment will not affect a change in the amount of
stated capital of the corporation.
Executed by the undersigned President and Secretary of Tome Capital, Inc.
in duplicate on the ___ day of _____ 1988.
BY: /s/ Tony Ladakis
-------------------------
TONY LADAKIS
President
BY: /s/ Barbara T. Ladakis
-------------------------
BARBARA T. LADAKIS
Secretary
* * * * * * * *
STATE OF UTAH )
)ss
COUNTY OF SALT LAKE )
I, Gerald M. Conder, a Notary Public, hereby certify that on the 14 day
of July 1988, personally appeared before me, Tony Ladakis and Barbara T.
Ladakis, who being by me first duly sworn, severally declared that they are
the president and secretary of Tome Capital, Inc. and that they are the
persons who signed the foregoing Articles of Amendment as Officers of Tome
Capital, Inc. and that the statements therein contained are true.
/s/ Gerald M. Conder
---------------------------
NOTARY PUBLIC
Residing at Salt Lake
[STAMP]
My Commission Expires:
[ILLEGIBLE]
- -----------------------
<PAGE>
FILING FEE- 75.00 TS
REC. #C56543
NEVADA MANHATTAN MINING, INC.
24007 VENTURA BLVD. #260
CALABASSA, CA 91302
ATTN: CHRISTOPHER D. MICHAELS
ARTICLE OF AMENDMENT
[STAMP]
OF
NEVADA MANHATTAN MINING, INC.
Pursuant to Nevada Statutes, Nevada Manhattan Mining, Inc. adopts the
following Article of Amendment to its Articles of Incorporation:
1. The name of the corporation is Nevada Manhattan Mining, Inc.
2. The following Amendment of the Articles of Incorporation was adopted
by the stockholders of the corporation on May 7, 1990 in the manner prescribed
by the laws of the State of Nevada and the Articles of Incorporation of Nevada
Manhattan Mining, Inc.
3. That Article I of the Articles of Incorporation filed on March 4,
1987, and amended on August 19, 1988, should be amended by amending the first
Article to read as follows:
"The name of the corporation is Tome Capital, Inc."
4. The number of shares of Nevada Manhattan Mining, Inc. outstanding at
the time of such adoption was Two Million (2,000,000) shares and the number of
shares entitled to vote thereon was Two Million (2,000,000) shares and there is
no other class of share or security authorized by the corporation other than
common.
5. The corporation at the time of the stockholders meeting had
outstanding Two Million (2,000,000) shares entitled to vote on said proposal.
At said shareholders meeting 1,055,000 shares voted in favor of changing the
name of the corporation to Tome Capital, Inc. with no shares voting against the
proposal; all shares are of one kind and class.
<PAGE>
6. Executed by the undersigned President and Secretary of Nevada
Manhattan Mining, Inc. in duplicate on the 28 day of June, 1990.
BY: /s/ CHRISTOPHER MICHAELS
-----------------------------------
CHRISTOPHER MICHAELS/PRESIDENT
BY: /s/ JEFFREY STEVEN KRAMER
-----------------------------------
JEFFREY STEVEN KRAMER/SECRETARY
* * * * * * * *
STATE OF CALIFORNIA )
)SS
COUNTY OF LOS ANGELES )
I, Rosanne Knippenberg, a Notary Public, hereby certify that on the 28
day of June, 1990, personally appeared before me Christopher Michaels and
Jeffrey Steven Kramer, who being by me first duly sworn, severally declared
that they are the President and Secretary of Nevada Manhattan Mining, Inc.
and that they are the persons who signed the foregoing Articles of Amendment
as Officers of Nevada Manhattan Mining, Inc. and that the statements therein
contained are true.
/s/ Rosanne Knippenberg
------------------------------------
NOTARY PUBLIC
Residing at Newbury Park, California
My Commission Expires
March 22, 1991
<PAGE>
FILING FEE: $75.00 DF C70680
EXPEDITE #EO34178
GERALD M. CONDER
466 SO. 500 EAST
SALT LAKE CITY, UT 84102
[STAMP]
ARTICLES OF AMENDMENT
OF
TOME CAPITAL, INC.
The Articles of Amendment to the original Articles of Incorporation of Tome
Capital, Inc. a Nv. Corporation are set forth as follows:
A. ARTICLE - NAME
The name of this corporation is Tome Capital, Inc.
AMENDMENT - ARTICLE I - NAME
The name of the corporation is amended to:
OFFSHORE RELIANCE, LTD.
B. As of the date of the Special Shareholders Meeting, the corporation
had issued and outstanding, two million (2,000,000) shares of $.001 par value
stock, all of which were entitled to vote as a class.
C. At the Special Stockholders Meeting held February 8, 1993, one million
fifty thousand (1,050,000) shares voted in favor of the amendment and zero (0)
voted against the amendment. None of the shares were entitled to vote as a
class.
Dated February 8, 1993
/s/ [ILLEGIBLE]
----------------------------
Secretary
/s/ [ILLEGIBLE]
----------------------------
President
NOTARY.
<PAGE>
FILING FEE: $75.00 DF C00154
TRANS PACIFIC GROUP, INC.
ATTN: LINDA M. BRYSON
9625 BLACK MTN. RD., #307
SAN DIEGO, CA 92126
[STAMP]
ARTICLES OF AMENDMENT
OF
OFFSHORE RELIANCE, LTD.
The Articles of Amendment to the original Articles of Incorporation of
Offshore Reliance, Ltd., a Nevada Corporation are set forth as follows:
A. ARTICLE - NAME
The name of the corporation is OFFSHORE RELIANCE, LTD.
AMENDMENT - ARTICLE I - NAME
The name of the corporation is amended to: COZY FINANCIAL, CORPORATION.
B. As of the date of the Special Shareholders' Meeting, the corporation had
issued and outstanding, two million (2,000,000) shares of $.001 par value stock,
all of which were entitled to vote as a class.
C. At the Special Stockholders' Meeting held April 6, 1993, one million one
hundred thousand (1,100,000) shares voted in favor of the amendment and zero (0)
voted against the amendment. None of the shares were entitled to vote as a
class.
Dated this 6th day of April 1993.
/s/ Patrick Flynn
-------------------------
President
/s/ Brenda Coulombe
-------------------------
Secretary
/s/ Mary I. Kaufman
- ----------------------
Notary
[STAMP]
[STAMP]
<PAGE>
STATE OF California
-------------
COUNTY OF San Diego
-------------
On Apr. 13, 1993, personally appeared before me, a notary public, who
acknowledged that Brenda Coulombe & Patrick Flynn executed the above instrument.
/s/ Mary I. Kaufman
-----------------------
Signature of Notary
[STAMP]
<PAGE>
FILING FEE - $75.00TS REC. #C00583 24 HR
TRANS PACIFIC GROUP, INC.
9625 BLACK MOUNTAIN RD. #307
SAN DIEGO, CA. 92126
ATTN: LINDA BRYSON
[STAMP]
ARTICLES OF AMENDMENT
OF
COZY FINANCIAL CORPORATION
The Articles of Amendment to the Articles of Incorporation of Cozy
Financial Corporation, a Nevada corporation are set forth as follows:
A. ARTICLE I - NAME
The name of the corporation is Cozy Financial Corporation.
AMENDMENT - ARTICLE I - NAME
The name of the corporation is amended to: BrainTech, Inc.
B. Date of Adoption: The aforesaid Amendment to the Articles of
Incorporation were adopted at a special meeting of Shareholders held December 6,
1993.
C. As of the date of the Special Meeting the corporation had issued and
outstanding eight million four hundred thousand (8,400,000) of $.001 par value
stock, all of which were entitled to vote on the proposed amendment. None of
the shares of the corporation were entitled to vote as a class.
D. At the Special Stockholders Meeting held December 6, 1993, six million
three hundred thousand (6,300,000) shares voted in favor of the Amendment to
Article I and zero (0) voted against the Amendment. None of the shares were
entitled to vote as a class.
Dated this 6th day of December 1993
/s/ Owen Jones
-------------------------
President
/s/ Patrick Flynn
--------------------------
Secretary
NOTARY
/s/ [ILLEGIBLE]
<PAGE>
STATE OF Washington
------------
COUNTY OF Whitcom
------------
On December 27, 1993, personally appeared before me, a notary public, who
acknowledged that Owen Jones executed the above instrument.
/s/ [ILLEGIBLE]
------------------------------
Signature of Notary
NOTARY STAMP OF SEAL
<PAGE>
BY-LAWS
OF
TOME CAPITAL, INC.
OFFICES
Section 1. The principal office of the Corporation shall be located at 4888
Billman Avenue, Las Vegas, Nevada 89121. The Corporation may have such other
offices, either within or without the state of Nevada as the Board of Directors
may designate or as the business of the Corporation may require from time to
time.
The registered office of the Corporation required by the Nevada Business
Corporation Act to be maintained in the State of Nevada may be, but need not be,
identical with the principal offices in the State of Nevada, and the address of
the registered office may be changed, from time to time, by the Board of
Directors.
ARTICLE II
STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of stockholders shall be
held at the principal office of the Corporation at 4888 Billman Avenue, Las
Vegas Nevada or at such other places on the 3rd Friday in March or at such other
times as the Board of Directors may, from time to time, determine. If the day
so designated falls upon a legal holiday then the meeting shall be held upon the
first business day thereafter. The Secretary shall serve personally or by mail
a written notice thereof, not less than ten (10) nor more than fifty (50) days
previous to such meeting, addressed to each stockholder at his address as it
appears on the stock book; but at any meeting at
<PAGE>
which all stockholders not present have waived notice in writing, the giving of
notice as above required may be dispensed with.
Section 2. SPECIAL MEETINGS. Special meeting of stockholders other than
those regulated by statute, may be called at any time by a majority of the
Directors. Notice of such meeting stating the place, day and hour and the
purpose for which it is called, shall be served personally or by mail, not less
than ten (10) days before the date set for such meeting. If mailed, it shall be
directed to a stockholder at his address as it appears on the stock book; but at
any meeting at which all stockholders not present have waived notice in writing,
the giving of notice as above described may be dispensed with. The Board of
Directors shall also, in like manner, call a special meeting of stockholders
whenever so requested in writing by stockholders representing not less than ten
percent (10%) of the capital stock of the Corporation entitled to vote at the
meeting. The President may in his direction call a special meeting of
stockholders upon ten (10) days notice.
Section 3. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining stockholders entitled to receive notice of or to vote at
any meeting of stockholders or any adjournment thereof, or stockholders entitled
to receive payment of any dividend; or in order to make a determination of
stockholders for nay other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for at
least ten (10) days immediately preceding such meeting. In lieu of closing the
stock transfer books, the
<PAGE>
board of Directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than thirty
(30) days, and in case of a meeting of stockholders, not less than ten (10) days
prior to the date on which the particular action, requiring such determination
of stockholders, is to be taken, If the stock transfer books are not closed, and
no record date is fixed for the determination of stockholders entitled to
receive notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination as to stockholders. When a determination of stockholders
entitled to vote at any meeting of stockholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
Section 4. VOTING. At all meetings of the stockholder of record having the
right to vote, subject to the provisions of Section 3, each stockholder of the
Corporation is entitled to one (1) vote for each share of stock having voting
power standing in the name of such stockholder on the books of the Corporation.
Votes may be cast in person or by written authorized proxy.
Section 5. PROXY. Each proxy must be executed in writing by the
stockholder of the Corporation or his duly authorized attorney. Such proxy
shall be filed with the Secretary of the Corporation before or at the time of
the meeting. No proxy shall be valid after the expiration of eleven (11) months
from the date
<PAGE>
of its execution unless it shall have specified therein its duration.
Every proxy shall be revocable at the discretion of the person executing it
or of his personal representatives or assigns.
Section 6. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence o such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him either in person or by proxy without a transfer of such shares into
his mane. Shares tending in the name of a trustee may be voted by him either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name.
Shares standing in the mane of a receiver may be bored by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the Court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the Corporation or held
<PAGE>
by it in a fiduciary capacity shall not be voted, directly or indirectly, at any
meeting, and shall not be counted in determining the total number of outstanding
shares at any given time.
Section 7. ELECTION OF DIRECTORS. At each election for Directors, every
stockholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him for as many persons as
there are Directors to be elected and for whose cumulative voting.
Section 8. QUORUM. A majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of the stockholders.
If a quorum shall not be present or represented, the stockholders entitled
to vote thereat, present in person or by proxy, shall have the power to adjourn
the meeting, from time to time, until a quorum shall be present or represented.
At such rescheduled meeting at which a quorum specified item of business may be
transacted which might have been transacted at the meeting as originally
notified.
The number of votes or consents of the holders of any class of stock having
voting power which shall be necessary for the transactioon of any business or
any specified item of business at any meeting of stockholders, or the giving of
any consent, shall be a majority of the outstanding shares of the Corporation
entitled to vote, represented in person or by proxy.
Section 9. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be
taken at a meeting of the stockholders, or any
<PAGE>
other action which may be taken at a meeting of the stockholders, may be taken
at a meeting if a consent in writing setting forth the action so taken shall be
signed by all of the stockholders entitled to vote with respect to the subject
matter thereof.
ARTICLE III
DIRECTORS
Section 1. NUMBER. The affairs and business of this Corporation shall be
managed by a Board of Directors. The first Board of Directors shall consist of
three (3) members. Thereafter the number of directors may be increased to not
more than nine (9) by resolution of the Board of Directors. Directors need not
be residents of the State of Utah and need not be stockholders of the
Corporation.
Section 2. ELECTION. The Directors shall be elected at each annual meeting
of the stockholders, but if any such annual meeting is not held, or the
Directors are not elected thereat, the Directors may be elected at any special
meeting of the Stockholders held for that purpose.
Section 3. TERM OF OFFICE. the term of office of each of the Directors
shall be one (1) year, which shall continue until his successor has been elected
and qualified.
Section 4. DUTIES. The Board of Directors shall have the control and
general management of the affairs and business of the Corporation. Such
Directors shall in all cases act as a Board, except as herein provided in
Section 1, regularly convened, by a majority, and may adopt such rules and
regulations for the conduct of meetings and the management of the Corporation,
as
6
<PAGE>
may be deemed proper, so long as it is not inconsistent with these Bylaws and
the Laws of the State of Utah.
Section 5. DIRECTORS' MEETINGS. Regular meetings of the Board of Directors
shall be held immediately following the annual meeting of the stockholders, and
at such other time and places as the Board of Directors may determine. Special
meetings of the Board of Directors may be called by the President or the
Secretary upon the written request of two (2) Directors.
Section 6. NOTICE OF MEETINGS. Notice of meetings other than the regular
annual meeting shall be given by service upon each Director in person, or by
mailing to him at his last known address, at least three (3) days before the
date therein designated for such meeting, including the day of mailing, of a
written or printed notice thereof specifying the time and place of such meeting,
and the business to be brought before the meeting, and no business other than
that specified in such notice shall be transacted at any special meeting. At
any Directors' meeting at which a quorum of the Board of Directors shall be
present (although held without notice), any and all business may be transacted
which might have been transacted in the meeting had been duly called if a quorum
of the Directors waive or are willing to waive the notice requirements of such
meeting.
Any Directors may waive notice of any meeting under the provisions of
article XII. The attendance of a Director at a meeting shall constitute a
waiver of notice of such meeting except where a Director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully convened or called.
7
<PAGE>
Section 7. VOTING. At all meetings of the Board of Directors, each
Director is to have one (1) vote. the act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 8. VACANCIES. Vacancies in the board occurring between annual
meetings shall be filled for the unexpired portion of the term by a majority of
the remaining Directors.
Section 9. REMOVAL OF DIRECTORS. Any one or more of the Directors may be
removed, with or without cause, at any time, by a vote of the stockholders
holding a majority of the stock, at any special meeting called for that purpose.
Section 10. QUORUM. the number of Directors who shall be present at any
meeting of the board of directors in order to constitute a quorum for the
transaction of any business or any specified item of business shall be a
majority.
The number of votes of directors that shall be necessary for the
transaction of any business of any specified item of business at any meeting of
the Board of Directors shall be a majority.
If a quorum shall not be present at any meeting of the board of Directors,
those present may adjourn the meeting, from time to time, until a quorum shall
be present.
Section 11. EXECUTIVE COMMITTEE. By resolution of the Board of Directors
and at their option, the Directors may designate an Executive Committee which
includes at least three (3) Directors, to manage and direct the daily affairs of
the Corporation. Said Executive Committee shall have and may exercise all of
the authority that is vested in the Board of
8
<PAGE>
Directors as if the Board of Directors were regularly convened, except that the
Executive Committee shall not have authority to amend these By-laws.
At all meetings of the Executive Committee, each member of said committee
shall have one (1) vote and the act of a majority of the members present at a
meeting at which a quorum is present shall be the act of the Executive
Committee.
The number of Executive Committee members who shall be present at any
meeting of the Executive Committee in order to constitute a quorum for the
transaction of business or any specified item of business shall be a majority.
The number of votes of Executive Committee members that shall be necessary
for the transaction of any business or any specified item of business at any
meeting of the Executive Committee shall be a majority.
Section 12. COMPENSATION. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors or each may be paid a stated salary as Director. No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 13. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent is entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the Secretary of the
meeting before the adjournment thereof or shall
9
<PAGE>
forward such dissent by registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a Director who voted in favor of such action.
ARTICLE IV
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be: President,
Vice-President, Secretary, and Treasurer, and such assistant Secretaries as the
President shall determine. An officer may hold more than one (1) office.
Section 2. ELECTION. All officers of the Corporation shall be elected
annually by the Board of directors at its meeting held immediately following the
meeting of stockholders, and shall hold office for the term of one (1) year or
until their successors are duly elected. Officers need not be members of the
Board of Directors.
The Board may appoint such other officers, agents and employees as it shall
deem necessary who shall have such authority and shall perform such duties as,
from time to time, shall be prescribed by the Board.
Section 3. DUTIES OF OFFICERS. The duties and powers of the officers of
the Corporation shall be as follows:
PRESIDENT
The President shall, when present, preside at all meetings of the
stockholders and Directors. He shall present at each annual meeting of the
stockholders and Directors, a report of the condition of the business of the
Corporation. He shall cause to
10
<PAGE>
be called regular and special meetings of the stockholders and Directors in
accordance with these Bylaws. He shall appoint and remove, employ and
discharge, and fix the compensation of all agents, employees, and clerks of the
corporation other than the duly appointed officers, subject to the approval of
the Board of Directors. He shall sign and make all contracts and agreements in
the name of the Corporation, subject to the approval of the Board of Directors.
He shall see that the books, reports, statements and certificates required by
the statutes are properly kept, made and filed according to law. He shall sign
all certificates of stock, notes, drafts, or bills of exchange, warrants or
other orders for the payment of money duly drawn by the Treasurer; and he shall
enforce these By-laws and perform all the duties incident to the position and
office, and which are required by law.
VICE-PRESIDENT
During the absence or inability of the President to render and perform his
duties or exercise his powers, as set forth in these Bylaws or in the acts under
which the Corporation is organized, the same shall be performed and exercised by
the Vice-President; and when so acting, he shall have all the powers and be
subject to all the responsibilities hereby given to or imposed upon such
President.
SECRETARY
The Secretary shall keep the minutes of the meetings of the Board of
Directors and of the stockholders in appropriate books, provided for that
purpose. He shall give and serve all notices of the Corporation. He shall be
custodian of the records and of
11
<PAGE>
the corporate seal and affix the latter when required. He shall keep the stock
and transfer books in the manner prescribed By-laws, so as to show at all times
the amount of capital stock issued and outstanding; the manner and the time
compensation for the same was paid; the names of the owners thereof,
alphabetically arranged; the number of shares owned by each; the time at which
each person became such owner; and the amount paid thereon; and keep such stock
and transfer books open daily during the business hours of the office of the
corporation, subject to the inspection of any stockholder of the corporation,
and permit such stockholder to make extracts from said books to the extent
prescribed by law. He shall sign all certificates stock. He shall present to
the Board of Directors a their stated meetings all communications addressed to
him officially by the President or any officer or stockholder of the
Corporation; and he shall attend to all correspondence and perform all the
duties incident to the office of Secretary.
TREASURER
The Treasurer shall have the care and custody of and be responsible for all
the funds and securities of the Corporation, and deposit all such funds in the
name of the Corporation in such bank or banks, trust company or trust companies
or safe deposit vaults as the Board of Directors may designate. He shall
exhibit at all reasonable times his books and accounts to any Director or
stockholder of the Corporation upon application at the office of the Corporation
during business hours. He shall render a statement of the conditions of the
finances of the Corporation at
12
<PAGE>
each regular meeting of the board of Directors, and at such other times as shall
be required of him, and a full financial report at the annual meeting of the
Stockholders. He shall keep, at the office of the Corporation, correct books of
account of all its business and transactions and such other books of account as
the Board of Directors may require. He shall do and perform all duties
appertaining to the office of Treasurer. The Treasurer shall, if required by
the Board of Directors, give to the Corporation such security or bond for the
Faithful discharge of his duties as the Board may direct. He shall perform such
other duties as from time to time may be assigned to him by the President or by
the Directors.
Section 4. BOND. The Treasurer shall, if required by the Board of
Directors, give to the Corporation such security for the faithful discharge of
his duties as the board my direct.
Section 5. VACANCIES, HOW FILLED. All vacancies in any office shall be
filled by the Board of Directors without undue delay, either at its regular
meeting or at a meeting specifically called for that purpose. In the case of
the absence of any officer of the Corporation or for any reason that the Board
of Directors may deem sufficient, the Board my, except as specifically otherwise
provided in these By-laws, delegate the power or duties of such officers to any
other officer or Director for the time being; provided, a majority of the entire
Board concur therein.
Section 6. COMPENSATION OF OFFICERS. The officers shall receive such
salary or compensation as may be determined by the Board of Directors.
13
<PAGE>
Section 7. REMOVAL OF OFFICERS. The Board of directors may remove any
officer, by a majority vote, at any time with or without cause.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. DESCRIPTION OF STOCK CERTIFICATES. The certificates of stock
representing shares shall be in such form as shall be determined by the
Directors and shall be numbered and registered in the order in which they are
issued. They shall be bound in a book and shall be issued in consecutive order
therefrom, and in the margin thereof shall be entered the name of the person
owning the shares therein represented, with the number of shares and the date
thereof. Such certificates shall exhibit the holder's name, number of shares
and date of issue. They shall be signed by the President or Vice-President, and
countersigned by the Secretary or Treasurer and sealed with the Seal of
Corporation.
Section 2. TRANSFER OF STOCK The stock of the Corporation shall be
assignable and transferable on the books of the Corporation only by the person
in whose name it appears on said books, his legal representatives or by his duly
authorized agent. In case of transfer by attorney, the power of attorney, duly
executed and acknowledged, shall be deposited with the secretary. In all cases
of transfer, the former certificate must be surrendered up and cancelled before
a new certificate may be issued. No transfer shall be made upon the books of
the corporation within ten (10) days next preceding the annual
14
<PAGE>
meeting of the stockholders.
Section 3. LOST CERTIFICATES. If a stockholder shall claim to have lost or
destroyed a certificate or certificates of stock issued by the Corporation, the
Board of Directors may, at its discretion, direct a new certificate or
certificates to be issued, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed, and upon the
deposit of a bond or other indemnity in such form and with such securities if
any that the Board may require.
ARTICLE VI
SEAL
Section 1. SEAL. The seal of the Corporation shall be as follows:
ARTICLE VII
DIVIDENDS
Section 1. WHEN DECLARED. The Board of Directors shall by vote declare
dividends from the surplus profits of the Corporation whenever, in their
opinion, the condition of the Corporation's affairs will render it expedient for
such dividends to be declared.
Section 2. RESERVE. The Board of Directors may set aside, out of the net
profits of the Corporation available for dividends, such sum or sums (before
payment of any dividends) as the Board, in their absolute discretion, think
proper as a reserve fund, to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive
15
<PAGE>
to the interest of the Corporation, and they may abolish or modify any such
reserve in the manner which it was created.
ARTICLE VIII
INDEMNIFICATION
Section 1. Any person made a party to or involved in any civil, criminal or
administrative action, suit or proceeding by reason of the fact that he or his
testator or intestate is or was a Director, officer, or employee of the
Corporation, or of any corporation which he, the testator, or intestate served
as such at the request of the Corporation, shall be indemnified by the
Corporation against expenses reasonably incurred by him or imposed on him in
connection with or resulting from the defense of such action, suit, or
proceeding and in connection with or resulting from any appeal thereon, except
with respect to matters as to which it is adjudged in such action, suit or
proceeding that such officer, Director, or employee was liable to the
Corporation, or to such other corporation, for negligence of misconduct in the
performance of his duty. As used herein the term "expense" shall include all
obligations incurred by such person for the payment of money, including without
limitation, attorney's fees, judgments, awards, fines, penalties, and amounts
paid in satisfaction of judgment or in settlement of any such action, suit, or
proceedings, except amounts paid to the Corporation or such other corporation by
him.
A judgment or conviction whether based on plea of guilty or nolo contendere
or its equivalent, or after trial, shall not of itself be deemed an adjudication
that such Director, officer or
16
<PAGE>
employee is liable to the Corporation, or such other corporation, for negligence
of misconduct in the performance of his duties. Determination of the rights of
such indemnification and the amount thereof may be made at the option of the
person to be indemnified pursuant to procedure set forth, form time to time, in
the By-laws or by any of the following procedures:
a) order of the Court or administrative body or agency having
jurisdiction on the action, suit, or proceeding
b) resolution adopted by a majority of the quorum of the Board of
Directors of the Corporation without counting in such majority any
Directors who have incurred expenses in connection with such action,
suit or proceeding
c) if there is no quorum of Directors who have not incurred expense in
connection with such action, suit, or proceeding, then by resolution
adopted by a majority of the committee of stockholders and Directors
who have not incurred such expenses appointed by the Board of
Directors
d) resolution adopted by a majority of the quorum of the Directors
entitled to vote at any meeting; or
e) order of any Court having jurisdiction over the Corporation.
Any such determination that a payment by way of indemnification should be
made will be binding upon the Corporation. Such right of indemnification shall
not be exclusive of any other right which such Directors, officers and employees
of the Corporation and other person above mentioned may have or hereafter
acquire, and without limiting the generality of such statement, the shall be
entitled to their respective rights of indemnification under any By-law,
Agreement, vote of stockholders, provision of law, or otherwise in addition to
their rights under this Article. The provisions of this Article shall apply to
any member of any committee appointed by the Board of
17
<PAGE>
Directors as fully as though each person had been Director, officer or employee
of the Corporation.
ARTICLE X
AMENDMENTS
Section 1. HOW AMENDED. These By-laws may be altered, amended, repealed or
added to by the vote of the Board of Directors of the Corporation at any regular
meeting of said Board, or at a special meeting of Directors called for that
purpose, provided a quorum of the Directors as provided by law and by the
Articles of Incorporation, are present at such regular meeting or special
meeting. These By-laws and amendments thereto and new By-laws added by the
Directors may be amended, altered or replaced by the stockholders at any annual
or special meeting of the stockholders.
ARTICLE XI
FISCAL YEAR
Section 1. FISCAL YEAR. The fiscal year shall begin January 1 and end
December 31.
ARTICLE XII
WAIVER OF NOTICE
Section 1. Whenever any notice is required to be given to any shareholders
or Directors of the Corporation under the provisions of these By-laws or under
the Articles of Incorporation under the provisions of the Nevada Business
Corporation Act, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time state therein, shall
be deemed equivalent to the
18
<PAGE>
giving of such notice.
ADOPTED this 4th day of March 1987.
Tome Capital, Inc.
a Nevada Corporation
BY: /s/ Tony Ladakis
---------------------------
Tony Ladakis
President
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Tome Capital, Inc.,
a Nevada corporation; and
2. That the foregoing By-Laws, comprising 19 pages, constitute the
By-Laws of said Corporation as duly adopted at a meeting of the Board of
Directors thereof duly held on the 4th day of March 1987.
/s/ Barbara T. Ladakis
----------------------------------
Barbara T. Ladakis
Secretary
(Seal)
19
<PAGE>
INCORPORATED UNDER THE LAWS OF THE
STATE OF NEVADA
NUMBER SHARES
CUSIP NO. 105022 107
BRAINTECH, INC.
50,000,000 AUTHORIZED SHARES $.001 PAR VALUE NON-ASSESSABLE
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
BRAINTECH, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Patrick M. Flynn [Corporate Seal] /s/ [ILLEGIBLE]
- --------------------- ---------------------
SECRETARY PRESIDENT
COUNTERSIGNED
COLONIAL STOCK TRANSFER
440 EAST 400 SOUTH, #1
Salt Lake City, Utah 84111
By
-------------------------
Authorized Signature
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________ Custodian ______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, __________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------
---------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________
____________________________________________________________________________
NOTICE: SIGNATURE MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE
OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
BANK BROKER OR ANY OTHER ELIGIBLE GUARANTOR INSTITUTION THAT IS
AUTHORIZED TO DO SO UNDER THE SECURITIES TRANSFER AGENTS MEDALLION
PROGRAM (STAMP) UNDER RULES PROMULGATED BY THE U.S. SECURITIES AND
EXCHANGE COMMISSION.
<PAGE>
LICENSE AGREEMENT
This AGREEMENT is effective as of January 13, 1995:
The parties are identified as follows: Willard W. Olson, residing at 3300
Skyline Blvd., Reno NV 89509 (hereafter sometimes referred to as "Licensor") and
BRAINTECH, INC., a Nevada corporation (hereafter referred to as "BrainTech").
BACKGROUND
WHEREAS:
A. Braintech is a start-up company formed for the purpose of acquiring,
developing and marketing products and services which utilize Proprietary Pattern
Recognition Technology (as hereinafter defined).
B. Except as specifically noted herein, Licensor has received from a major
semi-conductor manufacturer an unrestricted royalty-free paid-up license to use
the Proprietary Pattern Recognition Technology and wishes to license the same to
BrainTech.
C. BrainTech desires to acquire from Licensor a license to use the
Proprietary Pattern Recognition Technology, and a license under any patents and
copyrights (including any and all applications therefor) relating thereto
existing on the date of this Agreement, to the extent of Licensor's interest
therein.
D. The license granted herein is subject in all respects to the rights of
the owner of the Proprietary Pattern Recognition Technology.
<PAGE>
E. BrainTech is not assuming and shall not be responsible for any
liabilities or obligations of Licensor.
F. The parties desire to provide herein for such license and related
matters as hereinafter set forth.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
The following definitions shall govern the interpretation of this
Agreement:
(a) "Pattern Recognition Technology" or "Technology" means that branch
of artificial intelligence which is directed to pattern recognition by means of
the cooperative action of a fuzzy logic program and a neural network processor.
(b) "Technical Information" means oral and written information
(whether human or machine readable) including but not limited to prototypes,
designs, drawings, manufacturing know-how, specifications, experimental data,
flow charts, source and object codes, programmers notes and masks which relates
to said Technology.
(c) "Proprietary Pattern Recognition Technology" or "Proprietary
Technology" means the Technology described in the following items of Technical
Information: Taiwan Patent No. 62531, issued October 15, 1993, International
Patent Application No. PCT/US92/03944, U.S. Patent Application S.N. 07/699321
Application filed May 13, 1991, and the corresponding Canadian Patent
Application.
2
<PAGE>
(d) "Improvements and Modifications" means versions of fuzzy logic
programs and/or neural network processors which differ from those identified in
(c) above, but which utilize circuit architectures and/or algorithms which are
similar in principle to those identified in (c) above.
(e) "Products and Services" means hardware and software products and
services which utilize the Proprietary Technology or Improvements and
Modifications thereof.
2. LICENSE OF RIGHTS TO TECHNOLOGY.
Licensor hereby grants to BrainTech, a non-exclusive, royalty-free paid-up
license, without the right to grant sub-licenses, for a term of 10 years to: (a)
the Proprietary Technology, (b) the interest and license rights, which Licensor
may now have under U.S. and foreign patents, and copyrights (including
applications therefor) relating to the Proprietary Technology, and (c)
non-proprietary Technical Information relating to Pattern Recognition Technology
which is in Licensor's possession on the date hereof.
3. RETAINED RIGHTS.
Licensor retains a non-exclusive right to all technology covered hereby,
and the right to further license and assign, to the extent not inconsistent with
the grants made herein.
4. CONSIDERATION.
As full consideration for the license to BrainTech of the rights,
properties and information set forth in Section 2 of this Agreement and for
Licensor's other covenants and agreements contained herein, BrainTech has paid
to Licensor the sum of $10,000
3
<PAGE>
and has issued to Licensor 2.5 million shares of the common stock of BrainTech.
5. LICENSOR'S EXPRESS COVENANTS AND AGREEMENTS RELATING TO THE
PROPRIETARY TECHNOLOGY.
Licensor shall, upon request by BrainTech, and at BrainTech's sole cost and
expense, provide assistance to BrainTech in connection with the preparation or
filing of all patent, copyright and mask registration applications by BrainTech
relating to Improvements and Modifications to the Proprietary Technology and/or
Products and Services based thereon. BrainTech shall reimburse Licensor for all
expenses reasonably incurred by Licensor in providing such services to
BrainTech.
6. MARKETING AT SOLE DISCRETION OF BRAINTECH.
(a) Licensor agrees that:
(i) BrainTech may license, manufacture, and/or sell products and
services using Pattern Recognition Technology which may be in competition
with Products and Services based on the Proprietary Pattern Recognition
Technology subject, of course, to the rights of owner of the Proprietary
Pattern Recognition Technology;
(ii) in the event that BrainTech develops Pattern Recognition
Technology which does not utilize Proprietary Pattern Recognition
Technology and which does not fall within the meaning of Improvements and
Modifications of Proprietary Technology, the owners of BrainTech shall have
the right to form a separate corporation to exploit such Pattern
4
<PAGE>
Recognition Technology without issuing stock in the last mentioned
corporation to Licensor or otherwise compensating Licensor; and
(iii) BrainTech shall have the absolute right, in its sole
discretion, to terminate at any time the marketing of Products and
Services, in which event, the licenses granted herein to BrainTech shall
terminate, and all rights under such licenses and in the Proprietary
Technology shall revert back to Licensor.
(b) Licensor understands that the exercise of the rights set forth in
(a) above by Braintech may materially and adversely affect the value of
Licensor's stock issued in consideration of the transfer of the Proprietary
Technology.
7. TERMINATION.
Licensor may, at his option, terminate this Agreement at any time upon or
during the bankruptcy, receivership or insolvency of BrainTech, or the
appointment of a receiver or trustee for its property, or upon or after an
assignment for the benefit of creditors, or upon the filing of a petition,
either voluntary or involuntary, for financial reorganization of BrainTech or
other adjustment of its indebtedness. Upon the occurrence of any of the above,
BrainTech shall promptly notify Licensor. Upon termination of this Agreement by
Licensor, for any reason whatsoever, BrainTech shall deliver to Licensor any
materials, programs, documentation, equipment, and other materials delivered to
BrainTech by Licensor
5
<PAGE>
hereunder, or which may relate to the licensed subject matter hereof.
8. FURTHER ASSURANCES.
Each party shall take, at the expense of the party making the request, such
actions and execute such instruments including, without limitation, instruments
of license, as the other party may reasonably request in order to evidence the
grant to BrainTech of the license described herein and otherwise to effectuate
the purposes of this Agreement.
9. ARBITRATION.
Except as provided below, all disputes arising out of or relating to this
Agreement or any breach of this Agreement which cannot be settled by the parties
shall promptly be submitted to one arbitrator and determined in arbitration in
Wichita, Kansas, pursuant to the current rules and regulations of the American
Arbitration Association. The decision of the arbitrator shall be final and
binding upon the parties, and judgment upon such decision may be entered in any
court of competent jurisdiction. Each party shall be entitled to no more than
five (5) depositions, unless otherwise agreed. Nothing herein contained shall
preclude BrainTech from seeking injunctive or other equitable relief in any
court of competent jurisdiction in the event of an actual or threatened breach
by Licensor, his employees or others of the covenants contained in Section 6
hereof.
6
<PAGE>
10. ASSIGNMENT AND BENEFIT.
This agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective permitted successors and assigns; provided
that the rights and obligations of BrainTech under this Agreement shall not be
assigned without the prior written consent of the Licensor (which consent shall
not be unreasonably withheld), except that BrainTech may, without such consent,
make such an assignment to a parent or subsidiary entity, or to the successor of
substantially all of BrainTech's Pattern Recognition Technology business
(whether by merger, sale of assets or otherwise), but not to a corporation
formed in accordance with Section 7(a) (ii) of this Agreement.
11. NOTICES.
All notices, demands or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given to a
party if delivered to the person or if mailed (postage prepaid) or if sent by
fax, telex, or telecopy, confirmed in writing by mail, to the person at the
address or number set forth below, or to such other person or address or number
as either party may specify to the other, from time to time, all such notices to
be effective upon receipt:
If to BrainTech:
--------------------------
--------------------------
--------------------------
Attention: Owen Jones
----------------
Telecopy: (604) 980-7121
----------------
Telephone: (604) 986-6721
----------------
7
<PAGE>
and
If to Licensor:
Mr. Willard W. Olson
3300 Skyline Boulevard, No. 123
Reno, Nevada 89509
Attention:_____________________
Telecopy:______________________
Telephone:_____________________
with a copy to:
Mr. Ken M. Peterson
Morris, Laing, Evans, Brock & Kennedy, Chartered
200 West Douglas, 4th Floor
Wichita, KS 67202-3084
Telecopy: (316) 262-5991
Telephone: (316) 262-2671
12. SEVERABILITY.
If any portion of this Agreement shall be held to be illegal, invalid or
unenforceable, the validity of the remaining portion of this Agreement shall be
unaffected, provided the purpose of the Agreement can be effectuated, and this
Agreement shall remain in full force and effect as if it had been executed with
the illegal, invalid or unenforceable portion omitted.
13. ENTIRE AGREEMENT.
This Agreement contains the entire understanding and agreement of the
parties. There are no other understandings or agreements, written or oral,
between the parties which are not expressed herein.
8
<PAGE>
14. CAPTIONS.
The captions of the sections herein are inserted as a matter of convenience
only and in no way define, limit or describe the scope of this Agreement or any
provisions hereof.
LICENSOR: BRAINTECH, INC.
By: /s/ Willard W. Olson By: /s/ Owen Jones
--------------------- ------------------------
Its: Willard W. Olson Its: Owen Jones
--------------------- ------------------------
9
<PAGE>
Exhibit 10.2
PRODUCT DEVELOPMENT AGREEMENT
This agreement (the "Agreement") is entered into as of June ___, 1998 by and
between UTMC MICROELECTRONIC SYSTEMS INC., a Delaware corporation, with offices
located at 4350 Centennial Boulevard, Colorado Springs, CO 80907 ("UTMC") and
BRAINTECH, INC. a Nevada corporation, with offices located at 102-930 West 1st
Street, North Vancouver, British Columbia, Canada V7P 3N4 ("BrainTech")
(BrainTech together with UTMC being, collectively, the "Parties" and each,
individually, a "Party").
1. PURPOSE
Each of BrainTech and UTMC possesses proprietary information, technologies and
capabilities that together are anticipated to permit the development of products
for the commercial vision systems market. This Product Development Agreement
sets out the agreement of the Parties with respect to the development,
manufacture, marketing, distribution and sale of the initial product, being an
image processing accelerator card (the "IMPAC Product") for use in vision
systems.
2. JOINT DEVELOPMENT
The Parties agree to endeavour to jointly develop the IMPAC Product in
accordance with the terms of this Agreement. The IMPAC Product shall be
developed by the Parties in accordance with the Statement of Work ("SOW")
attached hereto as Schedule A and each of the Parties agrees to use all
commercially reasonable efforts to perform their respective tasks described in
the SOW diligently, carefully and in a timely and workmanlike manner. No
amendment or modification to the SOW shall be effective or binding unless such
amendment or modification is recorded in writing and signed by the authorised
representatives of each Party. The Parties shall reduce to writing a
description of the technical specifications of the IMPAC Product as soon as it
is reasonably practical to do so, but in any event not later than the time of
delivery of the prototypes pursuant to Section 2 of the SOW.
3. COMMUNICATIONS
Each of the Parties will make reasonable efforts to consult with the other Party
and to keep the other Party informed during its development efforts under this
Agreement and will provide the other Party with copies of all documents relating
to such efforts as are reasonably requested by the other Party and which
documents will be subject to the provisions of Section 8 of this Agreement.
4. PERIOD OF PERFORMANCE
The term of this Agreement shall be as described in the IMPAC PC-Board & Support
S/W Development Schedule set out in the SOW. The Parties recognize the need for
flexibility in
<PAGE>
developing new products such as the IMPAC Product. Consequently, the Parties
agree to evaluate progress and modify the schedule contained in the SOW as is
reasonably necessary from time to time. Notwithstanding the foregoing
provisions of this Section 4, neither party shall have any obligation
hereunder upon the expiration of twelve (12) months from the date of this
Agreement, except only pursuant to the provisions of Section 8, which shall
remain in effect.
5. FUNDING AND PAYMENTS
Each Party shall bear the labour and other internal costs of performing their
respective obligations under this Agreement. Further, each Party shall bear all
out of pocket expenses incurred by it in connection with the development of the
IMPAC Product pursuant to this Agreement including, but not limited to, the
purchase of layout boards, third party software licenses and components. The
maximum amount of all labour and other internal costs and all out of pocket
expenses that each Party is obliged to incur shall be the sum of (U.S.)
$500,000.
6. OWNERSHIP OF IMPAC PRODUCT AND OTHER INTELLECTUAL PROPERTY
(a) The Parties agree that rights to the Intellectual Property created by
either Party in performing its requirements set out in the SOW in respect of
the IMPAC Product shall be owned jointly and equally by BrainTech and UTMC as
set out in this Section 6. From time to time, at the request of either Party,
the Parties shall identify in writing the Intellectual Property created by each
Party in performing its requirements set out in the SOW in sufficient detail to
accurately describe such Intellectual Property and shall insert such written
description on Schedule B attached to this Agreement. At the time of insertion
of such written description on Schedule B such Intellectual Property shall
thereupon be owned jointly and equally by BrainTech and UTMC (the "Jointly Owned
Intellectual Property"), and the Parties shall execute all such assignments as
necessary in order to evidence and/or document the same.
(b) For purposes of this Agreement, "Intellectual Property" means all patents,
patent applications, patent rights, copyright registrations, copyrights, trade
secrets, know-how, mask works, discoveries, research data, inventions,
manufacturing methods, industrial designs, processes, technology, technical
information, and any rights under license to any of the foregoing, whether or
not subject to statutory registration or protection and whether protected,
created, or arising under the laws of the United States or Canada or any state
or province thereof or under the laws of any other jurisdiction.
(c) In the event the Parties identify any other Intellectual Property in
respect of any products, inventions or processes in addition to the IMPAC
Product which they desire to jointly develop, they shall denominate the same in
writing as Jointly Owned Intellectual Property and such Jointly Owned
Intellectual Property will, unless otherwise agreed in writing, be owned jointly
and equally by the Parties, and the Parties shall execute all such assignments
as necessary in order to evidence and/or document the same.
(d) Each Party agrees, at the request of the other Party, to meet and discuss
the identification of Jointly Owned Intellectual Property in addition to the
Intellectual Property created pursuant to the SOW in respect of the IMPAC
Product, to establish procedures for identification and
-2-
<PAGE>
protection of the same, and to take such reasonable actions as may be required
to preserve and protect such Jointly Owned Intellectual Property for the
benefit of both Parties.
(e) The Parties agree to take such actions as are necessary with each Party's
respective employees to secure ownership of any and all Jointly Owned
Intellectual Property. Each Party will cooperate with the other Party in the
prosecution of patents, copyright registrations, and all other registrations or
other forms of legal protection for the Jointly Owned Intellectual Property, and
in protecting the same in order to maintain trade secret protection for such
property. The Parties shall share equally the expenses associated with filings
for patents, copyright registrations or any other form of intellectual property
protection.
(f) During the term of this Agreement and during the term of the Manufacturing
and Sales Agreement entered into between the Parties as of the date of this
Agreement in respect of the exploitation of the IMPAC Product (the
"Manufacturing and Sales Agreement") each Party agrees to recognize and respect
the Intellectual Property of the other. It is understood and agreed by the
Parties that, except as expressly set out in this Agreement or in the
Manufacturing and Sales Agreement, neither Party is granted any license or other
right whatsoever to use any Intellectual Property or any other proprietary
information, technologies or capabilities of the other, whether for development,
manufacture, distribution or sale of the IMPAC Product or otherwise. For
greater certainty, and without limitation of the foregoing:
(i) it is understood and agreed by UTMC that, except as set out in Section
4.3(b) of the Manufacturing and Sales Agreement, no right is granted
by BrainTech to UTMC to use, for any purpose, any of the Intellectual
Property of BrainTech described in Part I of Schedule C hereto and any
improvements or other modifications thereto (the "BrainTech
Technology"), nor will any improvements or other modifications to the
BrainTech Technology made pursuant to the SOW or otherwise (including,
without limitation, any improvements or other modifications made to
the BrainTech Odysee Development Studio as described in item 4(a)(x)
of the SOW and any improvements or other modifications to the Vision
Recognition System made in connection with the preparation of that
system as described in item 4(a)(xi) of the SOW, and any applications
built with the Odysee Development Studio) comprise any part of the
IMPAC Product or of any Jointly Owned Intellectual Property; and
(ii) it is understood and agreed by BrainTech that, except as set out in
Section 4.1 of the Manufacturing and Sales Agreement, no right is
granted by UTMC to BrainTech to use, for any purpose, any of the
Intellectual Property of UTMC described in Part 2 of Schedule C hereto
and any improvements or other modifications thereto (the "UTMC
Technology"), nor will the UTMC Technology or any improvements or
other modifications to the UTMC Technology made pursuant to the SOW or
otherwise (and in particular, any improvements or other modifications
made to the UTMC CAM) comprise any part of the IMPAC Product or any
Jointly Owned Intellectual Property.
-3-
<PAGE>
(g) Each Party represents to the other that the activities to be carried on by
it pursuant to the SOW and the resulting Jointly Owned Intellectual Property
created by such activities will not, to the knowledge of such Party (upon
completion of reasonable due diligence investigations in respect thereof)
infringe upon nor violate any patent, copyright, trade secret, industrial design
or any other proprietary right of any person not a party to this Agreement.
7. MANUFACTURE AND SALE OF THE IMPAC PRODUCT
The Parties agree that, following the successful development of the IMPAC
Product, the IMPAC Product shall be manufactured, marketed, distributed and sold
pursuant to the terms of the Manufacturing and Sales Agreement. Except as
otherwise provided in this Agreement or in the Manufacturing and Sales
Agreement, neither Party may manufacture, market, distribute, sell or otherwise
exploit the IMPAC Product or any Jointly Owned Intellectual Property other than
pursuant to the Manufacturing and Sales Agreement or as otherwise agreed to in
writing by both Parties.
8. CONFIDENTIALITY
(a) Neither Party may disclose Confidential Information received from any other
Party without the prior written consent of the disclosing Party and then only to
the extent specified in such consent. Both Parties shall maintain the
confidentiality of the Confidential Information received from the other Party
with the same degree of care it uses to protect its own confidential and
proprietary information of like importance, but in no event less than a
reasonable degree of care. Each Party shall limit access to the Confidential
Information received hereunder to those employees and independent contractors
who have a business need for such access and have entered into appropriate
confidentiality agreements or if they have enforceable professional obligations
to maintain the confidentiality of the applicable information. Confidential
Information may only be copied and disseminated within a receiving Party's own
organization on a need to know basis. Confidential Information maybe used only
for the purposes outlined in this agreement.
(b) "Confidential Information" shall consist of any written, audible, visual or
oral information or physical items disclosed by a Party that is either
(i) marked with a restrictive legend or (ii) identified as confidential or
proprietary at the time of disclosure and is confirmed in writing by the
disclosing Party as such within fifteen (15) days after its disclosure, provided
that any proprietary software disclosed hereunder (including all written
materials provided in connection with such software) shall be deemed to be
"Confidential Information" until the commercial release thereof, whether or not
such software is legended or otherwise identified as confidential.
(c) The restrictions on disclosure of Confidential Information described in
Section 8(a) above shall not extend to any item of information which (i) is
publicly known at the time of its disclosure, (ii) is lawfully received from a
third party not bound in a confidential relationship to the other Party,
(iii) is published or otherwise made known to the public by the disclosing
Party, or (iv) is generated independently without reference to Confidential
Information received from the other Party. A Party may disclose Confidential
Information to the extent required by law,
-4-
<PAGE>
provided that the Party so required must give the original disclosing Party
prompt notice and shall reasonably cooperate with any effort by such
disclosing Party to obtain a protective order.
(d) The Parties are independent contractors, and no Party is the employee,
agent or customer of any other Party absent a separate binding written agreement
to that effect. Nothing contained in this agreement or any discussion between
the Parties, including without limitation any disclosure of Confidential
Information hereunder, will impair the rights of either Party to make, procure
and market products or services, now or in the future, which may be competitive
with those offered by the other Party.
(e) Each Party acknowledges that a violation of this Section 8 could cause
irreparable harm to the other Party for which no adequate remedy at law exists
and each Party therefore agrees that, in addition to any other remedies
available, a Party shall be entitled to seek injunctive relief to enforce the
nondisclosure obligations set forth in this section, without having to post a
bond.
(f) Upon demand of the disclosing Party, the recipient Party shall promptly
return any written Confidential Information of the other and all physical media
on which Confidential Information was received, including any copies thereof,
with a letter confirming that the Confidential Information has in no way been
reproduced or copied or that all copies have been returned. The obligations set
forth herein to hold Confidential Information disclosed by the other Party in
confidence expire three (3) years after the date of disclosure thereof, provided
that, with respect to an software disclosed in source code form, such
obligations shall be perpetual.
9. NO-HIRE
During the term of this Agreement, and for a period of two (2) years following
the date of delivery of the prototypes pursuant to Section 2 of the SOW, neither
Party shall employ or seek to employ any person who is at the time employed by
the other or by its subsidiary or affiliate, or otherwise induce any such person
to leave his or her employment, without the prior written consent of such
person's employer.
10. WARRANTIES AND REPRESENTATIONS OF BRAINTECH
BrainTech warrants and represents to UTMC that:
(i) it, or its wholly-owned subsidiary Brainware Systems Inc.
("Brainware), is the owner or licensee of the BrainTech Technology;
(ii) neither it nor Brainware has licensed the BrainTech Technology in a
manner which conflicts or would conflict with the terms of this
Agreement; and
(iii) it will conduct itself in the future, and will cause Brainware to
so conduct itself in the future, so as to protect and preserve,
for both Parties, the Jointly Owned Intellectual Property and,
for UTMC, the UTMC Technology, and UTMC's rights hereunder.
-5-
<PAGE>
11. WARRANTIES AND REPRESENTATIONS OF UTMC.
UTMC warrants and represents to BrainTech that:
(i) it is the owner of the UTMC Technology;
(ii) it has not licensed the UTMC Technology in a manner which conflicts
or would conflict with the terms of this Agreement; and
(iii) it will conduct itself in the future so as to protect and preserve,
for both Parties, the Jointly Owned Intellectual Property and, for
BrainTech, the BrainTech Technology, and BrainTech's rights
hereunder.
12. NOTICES
All notices required to be provided pursuant to this Agreement shall be written
and shall be delivered by personal delivery or facsimile to:
BrainTech, Inc. UTMC
102 - 930 West 1st Street 4350 Centennial Boulevard
North Vancouver, BC Colorado Springs, CO 80907
Canada V7P 3N4 USA
Attention: The President Attention: The President
Facsimile: (604) 980-7121 Facsimile: (719) 594-5541
Either Party may appoint another person or change the address to which notices
shall be delivered by providing written notice to the other Party.
13. RELATIONSHIP OF THE PARTIES
The relationship between the Parties established under this Agreement shall be
that of independent contractors. Nothing in this Agreement shall render either
Party responsible for any loss, expense, obligation, liability or debt of the
other Party. Neither Party will be required to develop or introduce any product
or perform any effort not expressly described in this Agreement. This Agreement
does not restrict either Party from pursuing independently other business
opportunities or selling its products.
14. NON-ASSIGNABILITY
Neither this Agreement nor any obligation contained herein may be assigned to or
transferred in any way by either Party without the express written consent of
the other Party, provided that some or all of the obligations of BrainTech
hereunder may be performed by Brainware Systems Inc., a British Columbia company
and a wholly-owned subsidiary of BrainTech.
-6-
<PAGE>
15. GENERAL
(a) The headings contained in this Agreement are included for convenience only
and are not to be used in construing or interpreting this Agreement.
(b) Whenever any event delays or threatens delay of performance under this
Agreement, BrainTech and/or UTMC shall promptly give written notice of such
event to each other, including all relevant information and its plan to address
such delay in an expeditious manner.
(c) The failure of either Party to insist, in one or more instances, upon the
performance of any of the terms, covenants or conditions of this Agreement and
the failure of either to exercise any right hereunder, shall not be construed as
a waiver or relinquishment of the future performance of any such term, covenant,
or condition or the exercise of such right, and the obligation of the other
Party with respect to such future performance shall continue in full force and
effect.
(d) This Agreement is made under and shall be construed under the laws of the
state of Colorado and constitutes the entire understanding of the Parties hereto
with respect to the subject matter of this Agreement. This Agreement and the
Manufacturing and Sales Agreement supersede all previous communications,
understandings and representations between the Parties with respect to the
subject matter hereof, including without limitation the letter of understanding
made between the Parties dated as of April 1, 1998. This Agreement may be
modified solely by a formal written amendment, executed by authorized
representatives of the Parties.
(e) The failure of either Party to perform its obligations delineated in this
Agreement shall constitute a default if not corrected within a reasonable period
of time from receipt of written notice by the defaulting Party from the non-
defaulting Party. Upon failure to cure the event of default, the defaulting
Party shall license to the other Party that intellectual property necessary to
complete development of the IMPAC Product. This license shall be irrevocable,
exclusive (for a period of five (5) years from the completion of the IMPAC
Product development), worldwide and bear a royalty at 10% of the net sales price
of the IMPAC Product developed under this Agreement. Royalties shall accrue and
become payable once the licensed Party recovers its costs of product development
and product introduction.
(f) The Parties both covenant to abide by all applicable federal, provincial,
state, local, and municipal laws and regulations ("Regulatory Requirements")
governing the types of activities contemplated by this Agreement. Each Party
shall indemnify and hold harmless the other for any damages, expenses,
liabilities, costs and fines suffered by one Party as a result of the other
Party's non-compliance with such Regulatory Requirements.
(g) In the event either Party declares there to be a claim against the other or
a dispute as to the performance of the other, the provisions of Article 6 of the
Manufacturing and Sales Agreement respecting dispute resolutions shall apply.
(h) Neither Party will use the other Party's name, logo or other proprietary
mark without the prior written consent of the other Party.
-7-
<PAGE>
(i) Each Party agrees that it shall take such action with its employees,
officers, directors, owners, agents, customers and suppliers as are necessary to
comply with the other Party's reasonable security and safety requirements while
such individuals are on the other Party's premises.
(j) This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
(k) Each party agrees to treat the terms of this Agreement and the
Manufacturing and Sales Agreement entered into pursuant to Section 7 as
Confidential Information. Any public announcement or press release regarding
this Agreement or the Manufacturing and Sales Agreement shall be limited to
general disclosure of the existence of the agreement, but not the terms thereof,
and shall be made at a time and place, and shall contain such information, as
the parties hereto may mutually agree.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the date first
above written.
BRAINTECH, INC. UTMC MICROELECTRONIC SYSTEMS INC.
/s/ OWEN JONES /s/ C.H. IDE
- ------------------------------ -----------------------------------
Name: Owen Jones Name: C.H. Ide
Title: President Title: President
-8-
<PAGE>
SCHEDULE A
STATEMENT OF WORK
1. INTRODUCTION
This statement of work defines the tasks, responsibilities and schedule required
of BrainTech and UTMC for the development and generation of a limited number of
prototypes of an Image Processing Accelerator Card (IMPAC) for use in vision
system applications. The scope of work defined in this document is limited to
development and prototype generation of the IMPAC and does not include any
integrated circuit development or any support activities beyond those specified.
Any requests for work considered outside the scope of this SOW will only be
considered as additions and may require a new statement of work. Agreement of
both parties is required to modify the schedules or scope of this SOW.
2. SCOPE
This statement of work covers BrainTech and UTMC tasks relating to the design
and fabrication of the IMPAC. Description of the IMPAC design is included as
Supplement 1, BrainTech Odysee System: Image Processing Accelerator Card
(IMPAC). North Shore Circuit Design, dated June 26, 1998. Development of the
IMPAC requires refinement of the conceptual IMPAC design, including final
component selection and acquisition, board organization and engineering
analysis, printed circuit board design and fabrication, pc board assembly and
test/debug, acquisition of development software and development of software
modules, and board and system checkout. Ten (10) IMPAC prototype boards will be
produced, five each for UTMC & BrainTech. The activities listed above are
shared by both parties and are defined later in this document. Development,
acquisition and checkout of the BrainTron Engine (R-II) and its associated
memory is not included in the scope of this SOW. The pc board will include
footprints for the BrainTron Engine and its associated memory, which may be
inserted at a later date. As defined in the Product Development Agreement, both
parties shall bear the cost of their own out-of-pocket expenses incurred in
performance of this SOW.
3. GENERAL RESPONSIBILITIES - BRAINTECH AND UTMC
Several of the activities to be performed are identified to a single party.
However, some activities are jointly shared or may be treated somewhat
differently and are not identified to a single party. The following definition
and general responsibility description is included to define the activities of
each party.
Page 2 of Supplement 1 (IMPAC design description) defines the IMPAC block
diagram. It is composed of the major components and their conceptual placement
on the pc board. For purposes of definition in this SOW the IMPAC block diagram
on page 2 is annotated to define
<PAGE>
four logical blocks: the Microprocessor block, the CAM engine block, the
BrainTron block and the Interface block.
All blocks are timing sensitive. The Microprocessor and the BrainTron blocks
are best understood by BrainTech and will in general be handled by BrainTech.
Detailed directions on pc-board component placement and trace placement will be
provided for this section of the IMPAC by BrainTech to UTMC. The CAM engine and
the Interface blocks are best understood by UTMC and will in general be handled
by UTMC. CAM engine memory requirements, etc. will be determined by UTMC.
BrainTech and UTMC will mutually agree on a Power PC software development
environment which both will purchase. Each will develop Power PC applications
software using the software development environment as outlined below. Each
will develop host software (pc-based) as outlined below.
4. DELIVERABLES - BRAINTECH & UTMC
(a) BrainTech will:
(i) complete engineering analysis of the design (including all blocks)
(ii) provide parts lists
(iii) provide schematic diagrams
(iv) provide termination, test point, and pc board layout information
(v) provide program files for programmable components
(vi) develop host IMPAC interface software
(vii) acquire Power PC development software
(viii) develop IMPAC Power PC applications software
(ix) perform board and system checkout of the completed IMPAC boards
(x) modify BrainTech Odysee Development Studio to operate with the
IMPAC (utilizing the CAM engine)
(xi) prepare BrainTech's Video Recognition System to operate with the
IMPAC (utilizing the CAM engine)
(xii) attend the architectural review (AR), the preliminary design review
(PDR), the critical design review (CDR) and the Odysee IMPAC
demonstration
(b) UTMC will:
(i) complete engineering analysis and component selection for the CAM
engine memory requirements
(ii) design and fabricate the pc board
(iii) acquire all components
(iv) program the programmable components
(v) assemble the pc boards
(vi) develop host CAM engine test software
(vii) develop host CAM interface software
-2-
<PAGE>
(viii) acquire Power PC development software
(ix) develop CAM engine Power PC applications software (if required)
(x) develop test software for the CAM engine block, and perform testing
of the CAM portion of the pc board
(xi) assist BrainTech as required in preparing the Odysee/IMPAC
demonstration
(xii) host the architectural review (AR), the preliminary design review
(PDR), the critical design review (CDR) and the Odysee IMPAC
demonstration
Both parties will cross-check each other's information at various points during
the design process. An architectural review (AR) will be held within a month of
project start. A preliminary design review (PDR) will be held before pc board
layout. A critical design review (CDR) will be held before pc board
fabrication, programming of programmable components and pc board assembly.
After board and system checkout and debug, a demonstration of Odysee/IMPAC in a
vision system application will be held. All reviews and the Odysee/IMPAC
demonstration are shown in the attached schedule. Reasonable support will be
provided by each party to the other during the debug and checkout activities.
It is expected that limited modifications (jumper wires, etc.) may be required
to correct minor pc board anomalies.
5. SCHEDULE
A schedule is attached outlining the major activities. The schedule is
constructed based on tasks and task durations as discussed at the UTMC -
BrainTech May 21, 1998 meeting. Task ownership is shown in the "Owner" column,
and is denoted as UTMC, BTECH, or BOTH.
-3-
<PAGE>
SCHEDULE B
Following is a description of all Jointly Owned Intellectual Property:
<PAGE>
SCHEDULE C
PART 1
The "BrainTech Technology" includes, without limitation, the Odysee Development
Studio, being an open object-oriented system incorporating software that allows
for the rapid design, construction and testing of sensor independent PC-based
vision systems applications capable of acquiring, digitizing, pre-processing and
classifying real world items, all as the same may be enhanced, amended,
modified, or improved from time to time.
PART 2
The "UTMC Technology" includes, without limitation:
(1) the UTCAM-Engine integrated circuit, being a dynamically configurable
content addressable memory engine which allows rapid access to large lookup
tables via associative keys rather than physical addresses. This includes
the ability to access exact or close matches at speeds which can not be
achieved with PC-based software implementations; and
(2) any other integrated circuits now or hereafter built using the UTCAM-Engine
core technology.
-10-
<PAGE>
Exhibit 10.3
MANUFACTURING AND SALES AGREEMENT
THIS MANUFACTURING AND SALES AGREEMENT (the "Agreement") is entered into as of
June ___, 1998 by and between BRAINTECH, INC. a Nevada corporation, with offices
located at 930 West 1st Street, Unit 102, North Vancouver, BC, Canada V7P 3N4
("BrainTech") and UTMC MICROELECTRONIC SYSTEMS INC., a Delaware corporation,
with offices located at 4350 Centennial Boulevard, Colorado Springs, CO 80907
("UTMC" and, together with BrainTech, the "Parties").
WHEREAS:
A. The Parties recognize that each of them possesses unique and complementary
skills, they have developed an understanding of each other's strengths, they
wish to exploit this relationship and for that purpose the Parties have entered
into a Product Development Agreement dated June _____, 1998 (the "Product
Development Agreement");
B. Pursuant to the Product Development Agreement, the Parties will develop an
image processing accelerator card for commercial sale (the "IMPAC Product" as
hereinafter defined); and
C. The Parties wish to enter into this Agreement to provide for the terms upon
which the IMPAC Product will be manufactured, marketed, distributed and sold
following development of the IMPAC Product pursuant to the Product Development
Agreement.
Now therefore, in consideration of the premises and the mutual benefits to be
derived hereunder, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Agreement:
"BrainTech Products" has the meaning set out in Section 3.1;
"BrainTech Technology" means the BrainTech Technology as defined in the Product
Development Agreement;
"Business Day" means a calendar day which is not a Saturday, Sunday or statutory
holiday in Colorado Springs, Colorado or Vancouver, British Columbia, Canada.
<PAGE>
"IMPAC Product" means the image processing accelerator card developed by the
Parties pursuant to the provisions of the Product Development Agreement;
"Intellectual Property" means all patents, patent applications, patent rights,
copyright registrations, copyrights, trade secrets, know-how, mask works,
discoveries, research data, inventions, manufacturing methods, industrial
designs, processes, technology, technical information, and any rights under
license to any of the foregoing, whether or not subject to statutory
registration or protection and whether protected, created, or arising under the
laws of the United States or Canada or any state or province thereof or under
the laws of any other jurisdiction.
"Jointly Owned Intellectual Property" has the meaning set out in the Product
Development Agreement;
"Person" includes an individual, partnership, unincorporated association, firm,
trustee, organization, syndication, corporation, executor, administrator or
other legal person or personal representative;
"Product Development Agreement" has the meaning set out in the Recitals;
"Recitals" means the Recitals to this Agreement;
"SOW" means the Statement of Work attached to, and forming a part of, the
Product Development Agreement;
"Specifications" means the specifications of the IMPAC Product as agreed and
reduced to writing by the Parties pursuant to Section 2 of the Product
Development Agreement or as may be amended by agreement in writing between the
Parties;
"Third Party Manufacturer" has the meaning set out in Section 2.3 of this
Agreement; and
"UTMC Technology" means the UTMC Technology as defined in the Product
Development Agreement, and as the same may be enhanced, amended or improved from
time to time.
1.2 HEADINGS
The division of this Agreement into Articles, Section, Subsections and
paragraphs and the insertion of headings is for the convenience of reference
only and shall not affect the construction or interpretation of this Agreement.
1.3 SINGULAR AND PLURAL
In this Agreement, all reference to the singular will be construed to include
the plural, the masculine to include the feminine and neuter gender, and where
necessary a body corporate, when the context so admits.
-2-
<PAGE>
1.4 CURRENCY
Unless otherwise stated herein, all sums of money expressed herein are in the
lawful currency of the United States of America.
1.5 GOVERNING LAW
This Agreement is made under and shall be construed under the laws of the State
of Colorado.
ARTICLE 2
MANUFACTURE OF THE IMPAC PRODUCT
2.1 THE IMPAC PRODUCT
The Parties acknowledge and agree that the IMPAC Product is being developed by
the Parties pursuant to the Product Development Agreement for manufacture
exclusively by or under the management of UTMC and for sale exclusively by
BrainTech. The Parties agree that neither Party may manufacture, market,
distribute, sell or otherwise exploit the IMPAC Product or any Jointly Owned
Intellectual Property other than pursuant to the terms of this Agreement or as
otherwise agreed in writing by the Parties.
2.2 MANUFACTURE OF IMPAC PRODUCT
Following the development of the IMPAC Product in accordance with the provisions
of the Product Development Agreement, UTMC will, subject to the provisions of
Section 2.3, manufacture and sell IMPAC Products to BrainTech, and BrainTech
will purchase IMPAC Products from UTMC, all in accordance with the terms of this
Agreement.
2.3 SUBCONTRACT FOR MANUFACTURE OF IMPAC PRODUCT
UTMC may enter into an agreement with a third Party (the "Third Party
Manufacturer") for the manufacture of the IMPAC Product if quantities of the
IMPAC Product that are required to meet market demand for the product exceed the
manufacturing capability of UTMC, as determined by UTMC in its sole discretion,
and the price for the product offered by such Third Party Manufacturer is more
competitive than the price payable to UTMC as determined pursuant to Section 2.5
of this Agreement. The terms of any contract entered into by UTMC for the
manufacture of the IMPAC Product by a Third Party Manufacturer shall be within
the discretion of UTMC, provided only that any such contract shall include a
confidentiality agreement of the manufacturer substantially similar to the
provisions of Article 5 of this Agreement. BrainTech shall purchase from UTMC
the IMPAC Products manufactured by such Third Party Manufacturer for a price per
unit equal to the price per unit paid by UTMC to such Third Party Manufacturer
plus an amount equal to 15% of such price in respect of a contract management
fee.
-3-
<PAGE>
2.4 SPECIFICATIONS FOR THE IMPAC PRODUCT
UTMC will manufacture the IMPAC Product, or cause the Third Party Manufacturer
to manufacture the IMPAC Product, in accordance with the Specifications, unless
otherwise agreed in writing by the Parties. If any such modifications to the
Specifications will result in a change in the cost of production of the modified
IMPAC Product, the Parties shall, in good faith, negotiate any necessary change
to the price of the modified IMPAC Product pursuant to Section 2.5 of this
Agreement.
2.5 PRICES OF THE IMPAC PRODUCT
The Parties will negotiate in good faith from time to time the unit price
payable by BrainTech to UTMC for the IMPAC Product. The initial price will be
established by the Parties on or before completion of the Preliminary Design
Review (as set out at item 29 on the IMPAC PC-board & Support S/W Development
Schedule attached to the Product Development Agreement). The Parties agree that
the price will be affected by customer requirements and demands and by other
economic factors between the Parties such as UTMC royalty obligations,
amortization of non-recurring expenses, BRAINTECH's agreement to secure its
hardware requirements through UTMC and BRAINTECH's continuing technical support.
Further, prices will further reflect the total market size, the potential for
volume discounts based upon market research, cost estimates and product price
bench marking. Prices for the IMPAC Product procured by UTMC from a Third Party
Manufacturer pursuant to Section 2.3 shall be negotiated by UTMC and approved by
BRAINTECH. In the event that the Parties cannot agree upon the initial price,
or subsequent price, for the IMPAC Product as set out in this Section 2.5, the
determination of the price shall be determined by the mediation and arbitration
provisions of Article 6 of this Agreement. The arbiter shall be required to
determine, based on pertinent economic information furnished by the Parties and
gathered by the arbiter, a fair and equitable price for the IMPAC Product that
permits both Parties to make a profit. If the arbiter is unable to establish
such a price, this Agreement shall terminate and each party shall be permitted
to exploit Jointly Owned Intellectual Property consistent with its ownership
rights.
2.6 ORDER AND DELIVERY
BrainTech shall from time to time submit to UTMC purchase orders for IMPAC
Products (including purchase orders in respect of orders from customers
introduced to BrainTech by UTMC as contemplated in Section 3.2 of this
Agreement) which purchase orders shall include mutually agreed upon terms for
payment, shipping, delivery, insurance, acceptance and such other matters as are
customarily the subject of purchase orders for goods similar in nature to the
IMPAC Product, and which shall include the provisions of Section 2.7 of this
Agreement. In the event of any conflict or inconsistency between the terms and
conditions of this Agreement and any terms or conditions set forth in any
purchase order or other document related to the transactions contemplated by
this Agreement, the terms and conditions in this Agreement shall prevail.
-4-
<PAGE>
2.7 WARRANTIES AND INDEMNITIES
(a) UTMC shall only tender for acceptance by BrainTech IMPAC Products that
conform to the Specifications and which otherwise are in accordance with the
requirements of this Agreement. BrainTech reserves the right to inspect or
test any IMPAC Product or services that have been tendered for acceptance.
BrainTech may require repair or replacement of nonconforming items at the cost
of UTMC. Conformance of the IMPAC Products is defined as successful completion
of testing by UTMC in accordance with contractual testing requirements.
BrainTech hereby approves UTMC's inspection system as acceptable for performance
under this contract. UTMC may modify this system at anytime without securing
BrainTech's approval provided that the inspection system remains compliant with
ISO 9000 and QLM standards. BrainTech shall provide UTMC written notice of
rejection of IMPAC Products or services delivered hereunder within 30 days of
receipt thereof. If UTMC has not received written notice of rejection within
the time period stated above, such products or services shall be accepted.
Acceptance shall not alter any warranties provided under this Agreement
(b) UTMC shall indemnify BrainTech and its subsidiary, Brainware Systems Inc.,
and their respective directors, officers, employees and agents against
liability, including costs (provided that UTMC shall reimburse only reasonable
attorney fees) for actual direct infringement of any UNITED STATES patent,
trademark, copyright or other intellectual property rights, arising out of any
use by BrainTech of the UTMC Technology in accordance with the terms of this
Agreement or out of any Jointly Owned Intellectual Property created and/or
authored by UTMC alone. BrainTech agrees to provide UTMC prompt written notice
of any claim of infringement for which BrainTech intends to seek
indemnification. UTMC's obligation to indemnify and hold BrainTech harmless for
infringement is contingent upon timely receipt of this notice. BrainTech agrees
to provide to UTMC absolute authority and reasonable assistance, at UTMC's
expense, in the defence and/or settlement of any such claims. In the event that
any of the UTMC Technology or any Jointly Owned Intellectual Property created
and/or authored by UTMC alone, is found to be infringing, UTMC shall procure the
right for BrainTech to use the same (solely for such purposes as contemplated by
this Agreement), or provide a non-infringing substitute, or will refund to
BrainTech the purchase price. UTMC's obligation shall not extend to claims that
arise from compliance by UTMC with instructions issued by BrainTech. BrainTech
hereby agrees to indemnify and hold harmless UTMC, to the same extent that UTMC
is obligated to indemnify BrainTech, from any claims of infringement brought
against UTMC from events described in the previous sentence.
(c) UTMC warrants that the IMPAC Products delivered shall be free from defects
in material and workmanship and shall conform to the Specifications. BrainTech
agrees to provide UTMC written notice of breach of these warranties within one
year of delivery. UTMC's obligations and BrainTech's rights are contingent upon
timely receipt of this notice. UTMC shall repair or replace, at UTMC's
discretion, any IMPAC Products delivered hereunder that are not in compliance
with this warranty. BrainTech's rights provided hereunder are BrainTech's
exclusive rights for breach of warranties and are in lieu of all other rights
provide by law or in equity. EXCEPT FOR THE WARRANTIES PROVIDED ABOVE, UTMC AND
BRAINTECH AGREE THAT NO
-5-
<PAGE>
OTHER WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ARE GRANTED.
(d) BrainTech shall indemnify UTMC and its respective directors, officers,
employees and agents against liability, including costs (provided that BrainTech
shall reimburse only reasonable attorney fees) for actual direct infringement of
any UNITED STATES patent, trademark, copyright or other intellectual property
rights, arising out of any use by UTMC of the BrainTech Technology in accordance
with the terms of this Agreement or out of any Jointly Owned Intellectual
Property created and/or authored by BrainTech alone. UTMC agrees to provide
BrainTech prompt written notice of any claim of infringement for which UTMC
intends to seek indemnification. BrainTech's obligation to indemnify and hold
UTMC harmless for infringement is contingent upon timely receipt of this notice.
UTMC agrees to provide to BrainTech absolute authority and reasonable
assistance, at BrainTech's expense, in the defence and/or settlement of any such
claims. In the event that any of the BrainTech Technology, or any Jointly Owned
Intellectual Property created and/or authored by BrainTech alone, is found to be
infringing, BrainTech shall procure the right for UTMC to use any of the same
(solely for such purposes as contemplated by this Agreement), or provide a
non-infringing substitute, or will waive or refund to UTMC any commissions or
royalties paid to BrainTech in respect of the same. BrainTech's obligation
shall not extend to claims that arise from compliance by BrainTech with
instructions issued by UTMC. UTMC hereby agrees to indemnify and hold harmless
BrainTech, to the same extent that BrainTech is obligated to indemnify UTMC,
from any claims of infringement brought against BrainTech from events described
in the previous sentence.
(e) The Parties agree that each shall indemnify the other (as contemplated in
this Section 2.7) in respect of any Jointly Owned Intellectual Property created
and/or authored solely by that party (or its subsidiaries or other agents)
pursuant to the Product Development Agreement. The Parties further agree that
they shall share equally any liability for the infringement of any of the
Jointly Owned Intellectual Property created and/or authored jointly by both
Parties of any patent, trademark, copyright or other intellectual property
right. Where either party receives notice of any claim or potential claim in
respect of any such alleged infringement of any jointly created and /or authored
Jointly Owned Intellectual Property, it shall provide prompt notice of the same
to the other party. The Parties shall agree upon any defence and/or settlement
of any such claims and no settlement may be agreed to by either Party without
the written agreement of the other. Each Party agrees to provide to the other
all such assistance as reasonably requested by the other in respect of the
defence and/or settlement of any such claims. In the event that any of the
Jointly Owned Intellectual Property created and/or authored jointly by both
Parties is found to be infringing, as between the parties, both parties shall
share such liability equally in a 50/50 proportion.
(f) The specific rights and remedies described in this contract are the
exclusive rights and remedies of the respective Parties and are in lieu of all
other rights and remedies available at law or in equity. Neither Party will be
liable to the other for any special, incidental or consequential damages,
notwithstanding notice of the possibility thereof and the maximum liability of
either
-6-
<PAGE>
Party to the other whether arising in contract, tort or otherwise shall not
exceed the purchase price of the IMPAC Product.
ARTICLE 3
MARKETING, DISTRIBUTION AND SALE OF THE IMPAC PRODUCT
3.1 DISTRIBUTION AND SALE OF THE IMPAC PRODUCT
BrainTech has the exclusive right to sell IMPAC Products (which may be sold with
an application created for such with the BrainTech Technology or any other
technology of BrainTech or any other Person, and, with such other technology, is
referred to herein as the "BrainTech Products"), and to engage distributors
therefor, upon such terms and conditions as BrainTech shall in its discretion
determine, including, without limitation, the purchase price. BrainTech will be
entitled to define the product in terms useful for sales and marketing
activities including, without limitation, system descriptions, features and
specifications, configurations to be sold, software packages, hardware packages,
hardware subsystems, and hardware system configurations.
3.2 MARKETING OF THE BRAINTECH PRODUCTS
The Parties will each, in good faith, seek to maximize the sales of the IMPAC
Products and the BrainTech Products. BrainTech will be entitled to market and
advertise the IMPAC Products and the BrainTech Products in its discretion. UTMC
will market and advertise the IMPAC Products and the BrainTech Products through
its sales and distribution network, upon terms approved by BrainTech from time
to time. UTMC will refer all Qualified Customers (as hereinafter defined) and
all unqualified customer opportunities for sales to BrainTech and all sales of
BrainTech Products shall be made exclusively by BrainTech. As a minimum, UTMC
shall list the IMPAC Product on UTMC's web page, shall include the IMPAC Product
in UTMC's annual general product brochure, and shall create IMPAC Product
literature and distribute such literature to its sales force.
3.3 COMMISSIONS TO UTMC
(a) For all sales of IMPAC Products and BrainTech Products to Affiliates of
United Technologies Corporation and for all sales of IMPAC Products and
BrainTech Products initiated by UTMC and ultimately consummated by BrainTech,
UTMC will receive a commission of ten (10%) per cent of the Unit Price of such
products. For purposes of this Agreement:
"Unit Price" means the price payable by the customer to BrainTech for the
IMPAC Product or BrainTech Product, as the case may be, net of (i) any
sales tax, goods and services tax or other similar tax payable by the
customer to BrainTech in respect of the sale of the product to the
customer, and (ii) any non-recurring fees and charges payable by the
customer to BrainTech in respect of the product including, without
limitation, fees
-7-
<PAGE>
and charges for any feasibility studies, development of prototypes, custom
development or engineering in respect of the product or its application;
and
"Affiliate" means, with respect to United Technologies Corporation, any
Person directly or indirectly controlling, controlled by, or under common
control with United Technologies Corporation.
(b) For all sales initiated by UTMC and where BrainTech has also established a
sales initiative, the commission shall be five (5%) per cent of the Unit Price .
Within ten (10) Business Days of each calendar month, each of BrainTech and UTMC
shall submit to the other a list of their respective Qualified Customer
Prospects. For purposes of this Section 3.3, a "Qualified Customer Prospect" is
a potential customer that has given to UTMC or to BrainTech, through a
responsible representative of such potential customer, a bona fide expression
of interest in purchasing an IMPAC Product or BrainTech Product and in respect
of which BrainTech or UTMC, as the case may be, has completed a Qualification
Form attached hereto as Schedule A. The commission payable pursuant to this
Section 3.3 (b) shall be payable only in respect of sales by BrainTech to
Qualified Customer Prospects that appear on the list of each Party in respect of
the same month.
(c) All commissions payable pursuant to Section 3.3(a) or (b) will be payable
by BrainTech within 30 days following the acceptance of the product by
BrainTech's customer.
(d) UTMC will support BrainTech in consummating all sales regardless of origin.
Disputes associated with any particular sale or sale opportunity will be
resolved pursuant to the mediation and arbitration provisions of Article 6 of
this Agreement.
ARTICLE 4
LICENSES
4.1 LICENSE BY UTMC
UTMC hereby grants to BrainTech an exclusive worldwide right, license and
privilege to resell, offer for sale, market, advertise and distribute, and to
sublicense other Persons to resell, offer for sale, market, advertise and
distribute, the IMPAC Product. The right, license and privilege set out in this
Section 4.1 is granted free of any royalty obligation of BrainTech to UTMC or to
any other person. The rights contained herein shall not include the right to
use UTMC Technology or Jointly Owned Intellectual Property for the manufacture
of the IMPAC Product.
4.2 LICENSE BY BRAINTECH
BrainTech hereby grants to UTMC the right to license to a Third Party
Manufacturer the rights of BrainTech in and to the Jointly Owned Intellectual
Property solely for the purpose of manufacture of IMPAC Products pursuant to
Section 2.3.
-8-
<PAGE>
4.3 MUTUAL LICENSE
(a) Each of the Parties hereby grants to the other the right to market and
advertise IMPAC Products and BrainTech Products under its respective names,
trade marks and trade names, and the same shall remain the property of their
respective owner, and the other Party shall have no right therein other than the
rights set out in this Section 4.3.
(b) In the event that either Party is unable or unwilling to perform its
obligations under this Agreement, such Party shall grant to the Party willing to
proceed a royalty-free, non-exclusive license to use UTMC Technology, BrainTech
Technology or Jointly-Owned Intellectual Property, as the case may be, and as
necessary solely for the purposes of manufacture, marketing and sales of the
IMPAC Product. In the case of the ODYSEE Development Studio ("ODS"), the use
shall be limited solely to the development for a customer of the product
required by that customer and such development requires the use of the ODS. It
is understood and agreed by UTMC that the license set out in this Section 4.3(b)
is limited only to the use of the ODS by UTMC for the purpose of developing the
product required by a customer and does not include any right to the source code
of the ODS or to modify the ODS in connection with development of the
application for a customer or to sublicense or otherwise permit any customer or
any other person to use or access the ODS. In the event of a dispute as to
whether a Party is unable or unwilling to perform its obligations under this
Agreement, such dispute shall be resolved pursuant to the dispute resolution
procedure set out in Article 6 of this Agreement.
ARTICLE 5
CONFIDENTIALITY AND NON-DISCLOSURE
5.1 CONFIDENTIALITY AND NON-DISCLOSURE
(a) Neither Party may disclose Confidential Information Received from any other
Party without the prior written consent of the disclosing Party and then only to
the extent specified in such consent. Both Parties shall maintain the
confidentiality of the Confidential Information received from the other Party
with the same degree of care it uses to protect its own confidential and
proprietary information of like importance, but in no event less than a
reasonable degree of care. Each Party shall limit access to the Information
received hereunder to those employees and independent contractors who have a
business need for such access and have entered into appropriate confidentiality
agreements if they have enforceable professional obligations to maintain the
confidentiality of the applicable information. Confidential Information may
only be copied and disseminated within a receiving Party's own organization on a
need to know basis. Confidential Information maybe used only for the purposes
outlined in this agreement.
(b) "Confidential Information" shall consist of any written, audible, visual or
oral information or physical items disclosed by a Party that is either
(i) marked with a restrictive legend or (ii) identified as confidential or
proprietary at the time of disclosure and is confirmed in writing by the
disclosing Party as such within fifteen (15) days after its disclosure, provided
that
-9-
<PAGE>
any proprietary software disclosed hereunder (including all written materials
provided in connection with such software) shall be deemed to be "Confidential
Information" until the commercial release thereof, whether or not such software
is legended or otherwise identified as confidential.
(c) The restrictions on disclosure of Confidential Information described in
Section 5.1(a) above shall not extend to any item of information which (i) is
publicly known at the time of its disclosure, (ii) is lawfully received from a
third Party not bound in a confidential relationship to the other Party,
(iii) is published or otherwise made known to the public by the disclosing
Party, or (iv) is generated independently without reference to Confidential
Information received from the other Party. A Party may disclose Confidential
Information to the extent required by law, provided that the Party so required
must give the original disclosing Party prompt notice and shall reasonably
cooperate with any effort by such disclosing Party to obtain a protective order.
(d) The Parties are independent contractors, and no Party is the employee,
agent or customer of any other Party absent a separate binding written agreement
to that effect. Nothing contained in this memorandum or any discussion between
the Parties, including without limitation any disclosure of Confidential
Information hereunder, will impair the rights of either Party to make, procure
and market products or services, now or in the future, which may be competitive
with those offered by the other Party.
(e) Each Party acknowledges that a violation of this Section 5.1 could cause
irreparable harm to the other Party for which no adequate remedy at law exists
and each Party therefore agrees that, in addition to any other remedies
available, a Party shall be entitled to seek injunctive relief to enforce the
non-disclosure obligations set forth in this section, without having to post a
bond.
(f) Upon demand of the disclosing Party, the recipient Party shall promptly
return any written Confidential Information of the other and all physical media
on which Confidential Information was received, including any copies thereof,
with a letter confirming that the Confidential Information has in no way been
reproduced or copied or that all copies have been returned. The obligations set
forth herein to hold Confidential Information disclosed by the other Party in
confidence expire three (3) years after the date of disclosure thereof, provided
that, with respect to an software disclosed in source code form, such
obligations shall be perpetual.
ARTICLE 6
DISPUTE RESOLUTION
6.1 MEDIATION
If any dispute, disagreement, claim or controversy exists between the Parties
arising out of or relating to any provision hereof, including any alleged breach
hereof (in each case, a "Disputed Matter"), such Disputed Matter shall be
submitted to the following mediation process:
-10-
<PAGE>
(a) The Disputed Matter shall first be referred jointly to two designees, one
of each of BrainTech and UTMC. If such designees do not agree upon a decision
within fifteen (15) Business Days after referral of the matter to them, the
Parties shall proceed to the next stage of the dispute resolution procedure.
(b) Upon written notice and within ten (10) Business Days after the conclusion
of the internal mediation described in Section 6.1(a) above, providing neither
BrainTech nor UTMC has given notice that it elects to submit the Disputed Matter
to arbitration pursuant to Section 6.2, either BrainTech or UTMC may elect to
utilize a non-binding dispute resolution procedure whereby each Party presents
its case at a hearing (the "Hearing") before a panel consisting of a senior
executive of UTMC, a senior executive of BrainTech and a mutually acceptable
neutral adviser. If UTMC or BrainTech elects to utilize outside mediation, the
other Party agrees to participate in such mediation, unless such other Party
elects to submit the Disputed Matter to arbitration pursuant to Section 6.2.
The Hearing will occur no more than ten (10) days after UTMC or BrainTech serves
written notice to use outside mediation. Each Party may be represented at the
Hearing by lawyers. If the matter cannot be resolved at such Hearing by the
Parties, the neutral adviser may be asked by either UTMC or BrainTech to assist
in evaluating the strengths and weaknesses of each Party's position on the
merits of the Disputed Matter. Within ten (10) days after the Hearing, the
senior executive of UTMC and the senior executive of BrainTech shall meet and
try again to resolve the matter. If the matter cannot be resolved at such
meeting, the Parties' only recourse is formal binding arbitration as provided
for in Section 6.2 below. The outside mediation proceedings will have been
without prejudice to the legal position of any affected Party. Each Party shall
each bear their respective costs incurred in connection with this procedure,
except that they shall share equally the fees and expenses of the neutral
adviser and the costs of the facility for the Hearing.
6.2 ARBITRATION
Upon written notice and within ten (10) Business Days after the conclusion of
the internal mediation described in Section 6.1, either UTMC or BrainTech may
elect to submit the Disputed Matter to arbitration. In any case, in the event
that outside mediation pursuant to Section 6.1 fails to resolve the Disputed
Matter, such Disputed Matter shall be submitted to, and determined by,
arbitration. Each such arbitration shall proceed in accordance with the rules
then obtaining of the International Chamber of Commerce (excluding the Optional
Rules of Conciliation) (the "Rules"), insofar as such Rules are not inconsistent
with the provisions expressly set forth in this Agreement, unless the Parties
mutually agree otherwise, and pursuant to the following procedures:
(a) Notice of the demand for arbitration shall be filed in writing with the
other Party to this Agreement and with the International Chamber of Commerce.
(b) Such arbitration shall be conducted by a panel of three arbitrators
appointed as follows: one (1) arbitrator (the "UTMC Appointee") shall be
appointed by UTMC, one (1) arbitrator (the "BrainTech Appointee") shall be
appointed by BrainTech and one (1) arbitrator (the "Independent Arbitrator")
shall be selected by the UTMC Appointee and the BrainTech
-11-
<PAGE>
Appointee. UTMC and BrainTech shall each appoint their respective Appointee
within ten (10) Business Days after a Disputed Matter is submitted to
arbitration. If the UTMC Appointee and the BrainTech Appointee are unable to
agree upon an Independent Arbitrator within ten (10) Business Days after the
appointment of the second of such Appointees to be appointed, then such
Independent Arbitrator shall be appointed by the International Chamber of
Commerce, who shall be requested to appoint a person familiar with technology
joint ventures in general, and preferably computer hardware and software
technology in particular.
(c) A determination by a majority of the panel of three arbitrators shall be
binding on the Parties.
(d) Reasonable discovery shall be allowed in arbitration.
(e) The Parties shall be entitled to be represented at the arbitration by legal
counsel and shall be entitled to adduce evidence.
(f) The governing law shall be as specified in Section 1.5.
(g) Unless otherwise agreed by the Parties, all arbitration proceedings shall
be held in Seattle, Washington.
(h) Each Party agrees to comply with any award made in such proceeding that has
become final and to the entry of a judgment in accordance with applicable law in
any court having jurisdiction thereof upon any award rendered in such proceeding
that has become final.
(i) If at the conclusion of reviewing any Disputed Matter, the arbitrators
determine that despite both parties having acted in good faith and not in
material breach of the Agreement, the Parties have irreconcilable differences
and cannot, as a result, effectively exploit the IMPAC Product as contemplated
by the terms of this Agreement, this Agreement will be terminated and the
arbitrators shall in their decision provide the terms of such termination which
terms are to include the cross-licensing of the Jointly Owned Intellectual
Property by each Party to the other, to the extent necessary, on such terms as
the arbitrators believe is fair to both Parties, including, without limitation,
provisions for royalties to be paid to each Party for the other Party's
exploitation of the Jointly Owned Intellectual Property and any IMPAC Products
and provisions to ensure that both Parties have the necessary rights, technical
information and know how to fully exploit the Jointly Owned Intellectual
Property and the IMPAC Product. Notwithstanding the foregoing, the arbitrators
shall not have the power to require BrainTech to grant to UTMC rights in any of
the BrainTech Technology nor to require UTMC to grant to BrainTech rights in any
of the UTMC Technology.
(j) The decision of the arbitrators shall be tendered within sixty (60) days of
the final submissions of the Parties in writing or in a hearing before the
arbitrators.
(k) Each such arbitration award that has become final shall be conclusive and
binding upon the Parties and shall not be appealable.
-12-
<PAGE>
(l) Attorneys' fees, costs and other out-of-pocket expenses may be awarded by
the arbitrators in their discretion to the Party that prevails in any such
arbitration, provided that each Party shall pay its own expenses pending the
awarding thereof to the Party that prevails in any such arbitration.
(m) The foregoing agreement to arbitrate and shall be specifically enforceable
and the award rendered by the arbitrators shall be final and judgment may be
entered upon it in accordance with applicable law in any court having
jurisdiction thereof.
6.3 CERTAIN INJUNCTIVE RELIEF
Nothing in this Agreement shall limit the rights of any of the Parties to seek
in any court of competent jurisdiction:
(a) legal or equitable relief in circumstances other than a Disputed Matter; or
(b) in any circumstances, such interim relief as may be need to maintain the
status quo, to prevent irreversible harm or otherwise protect the subject matter
of any Disputed Matter until the matter shall have been finally resolved. Any
such interim relief ordered by a court shall not determine or prejudge the
substantive issues to be decided by such mediation and/or arbitration.
In addition, if a Disputed Matter is submitted to arbitration, and the
arbitrators deem themselves to be incompetent to hear any matter brought before
them pursuant to Section 6.2, then the Parties may seek relief in any court of
competent jurisdiction.
ARTICLE 7
TERM
7.1 TERM
The term of this Agreement shall be for a minimum period of five years from the
date first written above and thereafter shall be renewed and shall continue for
successive periods of one year without any action required by either party. If
either Party wishes to terminate this Agreement, that Party shall provide
written notice to the other of the same, and this Agreement shall terminate four
years after the date of such written notice, subject to the five year minimum
term provided for above.
-13-
<PAGE>
ARTICLE 8
GENERAL
8.1 WAIVER
The failure of either Party to insist, in one or more instances, upon the
performance of any of the terms, covenants or conditions of this agreement and
the failure of either to exercise any right hereunder, shall not be construed as
a waiver or relinquishment of the future performance of any such term, covenant,
or conditions of the exercise of such right, and the obligation of the other
Party with respect to such future performance shall continue in full force and
effect.
8.2 SURVIVAL
Notwithstanding any other provisions of this Agreement, and without limiting the
rights of either Party whatsoever under this Agreement, the provisions of
Sections 2.7(b), (c), (d), (e) and (f) and Article 5 shall survive the
termination of all or any part of this Agreement and shall continue in full
force and effect.
8.3 COST OF ENFORCEMENT
In the event it becomes necessary for either Party hereto to institute against
the other any action at law or in equity to secure or protect its rights under
this Agreement, such Party will be entitled to recover in any judgment entered
therein in its favour such legal fees as may be allowed by the Court, together
with such Court costs and damages as provided by law.
8.4 SEVERABILITY
Should any part of this Agreement for any reason be declared invalid, such
decision will not affect the validity of any remaining portion, which remaining
portion will remain in force and effect as if this Agreement had been executed
with the invalid portion thereof eliminated and it is hereby declared the
intention of the Parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts, or
portion which may, for any reason be hereafter declared invalid.
8.5 BINDING EFFECT
This Agreement shall bind and enure to the benefit of the Parties hereto and
their respective successors and permitted assigns.
8.6 ENTIRE AGREEMENT
This Agreement and the Product Development Agreement constitutes the entire
agreement between the Parties and supersedes all previous agreements and
understandings between the Parties (including, without limitation, the letter of
understanding made between the Parties dated as of April 1, 1998) in any way
relating to the subject matter hereof, including any
-14-
<PAGE>
representations, inducements, warranties or provisions made by either Party to
the other whether collateral, oral or otherwise, concerning this Agreement, the
matters herein, or concerning any other matter which is not contained herein.
8.7 AMENDMENTS
This Agreement will not be modified or amended in any way except in writing
signed by both Parties hereto.
8.8 NOTICE
Any notice, consent, approval or other communication required or permitted to be
given hereunder shall only be duly and properly given if given in writing, and
if delivered by hand, sent by registered mail postage prepaid, or transmitted by
telecopier (facsimile) addressed as follows, or such other address as any Party
shall specify by written notice so given, and shall be deemed to have been
received as of the date delivered by hand, or if sent by telecopier then
twenty-four (24) hours after such transmittal, or if mailed then on the close of
business of the business day next following the mailing thereof. In the event
of disruptions in the postal system, all communications shall be given by one of
the other methods described in this Section.
Braintech, Inc. UTMC
102 - 930 West 1st Street 4350 Centennial Boulevard
North Vancouver, BC Colorado Springs, CO 80907
Canada V7P 3N4 USA
Attention: The President Attention: The President
Facsimile: (604) 980-7121 Facsimile: (719) 594-5541
8.9 NON-ASSIGNABILITY
Neither this Agreement nor any obligation contained herein may be assigned to or
transferred in any way by either Party without the express written consent of
the other Party, provided that some or all of the obligations of BrainTech
hereunder may be performed by Brainware Systems Inc., a British Columbia company
and a wholly-owned subsidiary of BrainTech. The performance of such obligations
by Brainware Systems Inc. shall not relieve BrainTech from its obligations under
this agreement and BrainTech shall be responsible for the performance of any
such obligations by Brainware Systems Inc.
8.10 RELATIONSHIP OF THE PARTIES
The relationship between the Parties established under this Agreement shall be
that of independent contractors. This Agreement does not restrict either Party
from pursuing independently other business opportunities or selling its
products.
-15-
<PAGE>
8.11 COUNTERPARTS
This Agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
Executed as of the day and year first above written.
UTMC/
BRAINTECH, INC. MICROELECTRONIC SYSTEMS INC.
Per: /S/ Owen Jones Per: /S/ C.H. Ide
-------------------------- ----------------------------
Owen Jones President
President
-16-
<PAGE>
SCHEDULE A
QUALIFICATION OF CUSTOMERS FOR IMPAC PRODUCT
Caller's Name: ___________________________ Company Name:_______________________
Caller's Phone Number: ___________________
1. Where did you learn about the IMPAC Product?
2. What application do you have in mind for IMPAC?
3. Is there a funded project to implement this application?
4. What production lines are operating and what volume of product is being
produced?
5. What locations of your company would use IMPAC?
6. What is the size of your company?
7. Would you like a company representative to call you?
Qualification rationale:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Submitted by UTMC/BrainTech: ____________________________________
Signed and dated
-17-
<PAGE>
MEMORANDUM OF AGREEMENT October 18, 1996
This memorandum will record the agreement made between Evergreen International
Technology Inc. ("Evergreen") and BrainTech, Inc. ("BrainTech) with respect to
the allocation and sharing of common costs.
1. In this letter agreement, the following terms have the following
definitions:
(a) "Personnel Costs" include all costs relating to the employment of the
following individuals, occupying the following positions with respect to
both Evergreen and BrainTech:
Owen Jones - President
Mary Ellen Ajtony - Administrative Assistant
Jeffrey Maher - Accountant
Manfred Kurschner - Investor Relations Manager
Debra Meyer - Marketing Analyst
Hong Nguyen - Network Supervisor
and such other individuals as Evergreen and BrainTech shall agree from time
to time. Without limitation, "Personnel Costs" also include costs,
expenses or damages paid in respect of the termination of the employment of
any of the above persons, in the event that the employment of any of the
above persons is terminated simultaneously by BrainTech and Evergreen.
(b) "Premises Costs" include all costs relating to the rental, cleaning,
maintenance and operation of the leasehold premises of Evergreen, and
currently used by BrainTech as licensee.
(c) "Miscellaneous Costs" include such overhead costs as telephone and fax
charges, courier services and office supplies.
2. Evergreen and BrainTech agree that each of Evergreen and BrainTech shall be
responsible for one half of the Personnel Costs.
3. Evergreen and BrainTech agree that each of Evergreen and BrainTech shall be
responsible for one half of the Premises Costs.
4. Evergreen and BrainTech agree that each of Evergreen and BrainTech shall be
responsible for one half of the Miscellaneous Costs, to the extent that
such costs cannot reasonably be allocated to the business of either
Evergreen or BrainTech individually.
5. BrainTech acknowledges that nothing in this agreement shall give BrainTech
any leasehold or other proprietary interest in the office premises of
Evergreen, and that no disposition of
<PAGE>
any such leasehold or other proprietary interest is created by this
agreement, or has been created by any fact or event to the date hereof.
6. Evergreen and BrainTech acknowledge and agree that it is not practical to
ensure that all payments in respect of the costs covered by this Agreement
will be made equally by BrainTech and Evergreen in the first instance.
BrainTech and Evergreen agree that they shall, from time to time, account
to each other for their respective shares of the costs covered by this
Agreement, for the purpose of ensuring that the intent of this Agreement is
carried out.
7. Evergreen and BrainTech shall deal with each other in good faith with
respect to all matters covered by this Agreement.
ACCEPTED AND AGREED TO:
EVERGREEN INTERNATIONAL TECHNOLOGY INC.
per:
/s/ E. A. White
- ---------------------------
Edward A. White, Director
BRAINTECH, INC.
per:
/s/ Grant Sutherland
- ----------------------------
Grant Sutherland, Director
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT made the 2ND day of November, 1995.
BETWEEN:
EVERGREEN INTERNATIONAL TECHNOLOGY INC.
1910 - 777 Hornby Street, Vancouver,
British Columbia, V6Z 1S4
(hereinafter referred to as "Licensor")
- and -
CDNet SYSTEMS INC.
Unit #102, 930 West 1st Street,
North Vancouver, British Columbia, V7P 3N4
(hereinafter referred to as "Licensee")
WHEREAS:
A. Licensee is in the business of developing and Commercially Exploiting
computer software for use in connection with the Internet;
B. Licensor is the owner of Technology which is capable of being adapted and
combined with other technology to create authoring tools for the Internet;
C. Licensor desires to grant to Licensee and Licensee desires to receive from
Licensor a grant of a NON-EXCLUSIVE license and interest in the Technology
to develop and Commercially Exploit same for Internet Authoring Tool
Applications in accordance with the provisions of this Agreement;
D. Licensor is a party to extensive litigation including petitions filed in
the Supreme Court of British Columbia pursuant to the BANKRUPTCY ACT of
Canada and is not able to raise the $3,000,000 to $5,000,000 required to
develop and market Internet Authoring Tool Applications;
E. Licensor's Technology must be combined with technology from Braintech, Inc.
in order to develop Internet Authoring Tool Applications and Braintech,
Inc. is under no obligation to do business with Licensor;
F. Because of lack of funding and lack of access to the technology of
Braintech, Inc., Licensor is not in a position to develop Internet
Authoring Tool Applications; and
G. Is in the best interest of Licensor to enter into this License Agreement:
(a) in order to earn the payments and royalties provided for in Article
3 hereof; and
<PAGE>
-2-
(b) to have an opportunity to obtain a license back from Licensee with
respect to Internet Authoring Tool Applications as provided for in
Article 2A hereof.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained (the adequacy of which consideration as to each of
the parties hereto is hereby mutually acknowledged), the parties hereto covenant
and agree as follows:
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS
In this Agreement and in the recitals and Schedules hereto annexed,
unless otherwise specified or patently required by the context, the words and
phrases defined in the recitals and elsewhere in this Agreement shall have the
meanings ascribed to them therein, and the following words and terms shall have
the respective meanings ascribed to them as follows:
(a) "AFFILIATE" means with respect to any person, any other person
directly or indirectly controlling, controlled by, or under common
control with such first person. "Control" shall mean having the
power to direct the affairs of a person by reason of the ownership
of or controlling the right to vote sufficient numbers of shares of
voting stock, or to direct the general management of the affairs of
such person by contract or otherwise.
(b) "ASSOCIATE" where used to indicate a relationship with any person or
company means (i) an Affiliate or any company of which such person
or company beneficially owns, directly or indirectly voting
securities carrying more than 10 per cent of the voting rights
attached to all voting securities of the company for the time being
outstanding; (ii) any partner of that person or company, (iii) any
trust or estate in which such person or company has a substantial
beneficial interest or as to which such person or company serves as
trustee or in a similar capacity, or (iv) any relative of the
person.
(c) "COMMERCIALLY EXPLOIT" means in relation to any technology to make
Improvements to and to market, distribute and grant sub-licenses to
use the technology in conjunction with the Improvements and to
reproduce the technology for these purposes.
(d) "CONFIDENTIAL INFORMATION" means the confidential, secret or
proprietary information of one party (the "Disclosing Party"),
including technical, financial, and business information and
computer programs of the Disclosing Party which has been or may
hereafter be disclosed, directly or indirectly to the other party
(the "Recipient"), either orally, in writing or in any other
material form, or delivered to the Recipient.
(e) "EFFECTIVE DATE" means the date first written above.
(f) "IMPROVEMENTS" means, in relation to any technology or intellectual
property, modifications, improvements, enhancements, additions and
adaptations to, and derivative works based upon or derived from, the
technology or intellectual property.
<PAGE>
-3-
(g) "INTELLECTUAL PROPERTY RIGHTS" means all intellectual and industrial
property rights and includes rights to (i) inventions and patents
for inventions, including re-issue thereof and continuation and
continuations in part, (ii) copyrights, (iii) designs and industrial
designs, (iv) trade-marks (v) know-how, trade secrets and
confidential information, and (vi) other proprietary rights.
(h) "INTERNET AUTHORING TOOL APPLICATIONS" means computer software
application programs (including utilities and tools) which are
designed primarily for use as authoring tools for use on the
Internet.
(i) "LICENSE" means the rights conferred upon Licensee pursuant to
Article 2.
(j) "LICENSEE IMPROVEMENTS" means Improvements made to the Technology by
or for Licensee.
(k) "NET REVENUE" means the net sale price, license and rental fees,
royalties, lump sum payments, and other payments and consideration
earned and received by Licensee or Associates of Licensee from the
Commercial Exploitation of the Technology, Licensee Improvements,
and Products without any deductions other than the following items
of expenses, if any, to the extent they are actually paid: taxes on
sales or use, packaging, insurance, transportation product
advertising and promotion expenses of sales, and import duties.
(l) "PRODUCT" AND "PRODUCTS" means any computer programs, software,
system or product, whether tangible or intangible, which is based
upon or derived from or which incorporates or uses any of the
Technology or Licensee Improvements.
(m) "TECHNOLOGY" means the source code for the computer software known
as "JOT-IT" and its predecessor "Evergreen Notes".
1.2 HEADINGS
The division of this Agreement into Articles and Sections and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof", "hereunder" and similar expressions refer to this
Agreement and not to any particular Article or Section or other portion hereof
and include any agreement supplemental hereto. Unless something in the subject
matter or context is inconsistent therewith, references herein to Articles or
Sections are to Articles or Sections of this Agreement.
1.3 EXTENDED MEANINGS
In this Agreement words importing the singular number only shall
include the plural and VICE VERSA, and words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations. The terms "provision" and "provisions" refer to terms,
conditions, provisions, covenants, obligations, undertakings, warranties and
representations in this Agreement.
<PAGE>
-4-
1.4 AMBIGUITIES
The parties hereto agree that each of them has participated in the
drafting of this Agreement and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Agreement.
ARTICLE 2 - LICENSE
2.1 GRANT OF LICENSE
Subject to the provisions of this Agreement, Licensor hereby grants
to Licensee, and Licensee hereby accepts from Licensor, a worldwide
NON-EXCLUSIVE license and interest in the Technology during the term of this
Agreement to Commercially Exploit the Technology for Internet Authoring Tool
Applications.
2.2 RESERVATION OF RIGHTS
Notwithstanding the provisions of Section 2.1, Licensor hereby
expressly reserves the right to Commercially Exploit the Technology for
non-Internet Authoring Tool Applications and to Commercially Exploit the
Technology for Internet Authoring Tool Applications.
2.3 SUB-LICENSE AGREEMENTS
The License conferred hereunder upon Licensee includes permission to
grant sublicenses to third parties to Commercially Exploit the Technology for
Internet Authoring Tool Applications. All sublicense agreements or other
arrangements between Licensee and third parties shall be consistent with the
terms of this Agreement including without limitation those pertaining to term,
termination, ownership of Intellectual Property Rights, and use and maintenance
of Confidential Information, except that third parties shall not have any right
to grant any further sublicenses, without the prior written consent of Licensor.
The form of all sublicense agreements including without limitation agreements
with end users and distributors shall contain provisions to protect the
Confidential Information of Licensor. Licensee agrees to use reasonable efforts
to enforce the terms of all sublicenses. Licensee agrees, if requested to do so
by Licensor, to provide Licensor with a copy of sublicense agreements.
ARTICLE 2A - LICENSE BACK TO LICENSOR
2A.1 If Licensee is successful in developing Internet Authoring Tool
Applications pursuant to this License and a license obtained by Licensee from
Braintech, Inc., and if Licensee is successful in obtaining $3,000,000 to
$5,000,000 from a significant investor in order to Commercially Exploit the
Internet Authoring Tool Applications, then Licensee will negotiate in good faith
with Licensor with a view to granting back to Licensor a worldwide NON-EXCLUSIVE
license to allow Licensor to use the Licensee Improvements to develop and market
electronic performance support systems (such license to be on reasonable
commercial terms acceptable to both Licensee and Licensor, one such term to be
that Licensor will not develop and market products that compete with the
Internet Authoring Tool Applications of Licensee).
<PAGE>
-5-
ARTICLE 3 - PAYMENTS AND ROYALTIES TO LICENSOR
3.1 LUMP SUM PAYMENT
Licensee agrees to pay the Licensor a one time lump sum payment of
$25,000 within 14 days of the Effective Date.
3.2 ROYALTIES
Licensee agrees to pay the Licensor royalties on Net Revenue as
follows:
(a) on the first $10 Million of Net Revenue, the Licensor shall not be
entitled to any royalties whatsoever. Licensor and Licensee
recognize and acknowledge that the Licensee will attempt to obtain
$3 Million to $5 Million in financing to develop and market Products
and that the first $10 Million of Net Revenue must be unimpeded by
royalties so that the Licensee can offer an attractive investment
opportunity to a significant investor;
(b) on the next $20 Million of Net Revenue, the Licensee shall pay
royalties equal to 5% of the Net Revenue, such royalties to be
payable within thirty (30) days of the end of each calendar quarter;
(c) the Licensor shall be entitled to a maximum of $1 Million in
royalties under this License. For greater certainty, the Licensor
shall not be entitled to any royalties on Net Revenue in excess of
$30 Million.
3.3 CALCULATION OF ROYALTIES
The royalties due hereunder will accrue and the Net Revenue will be
deemed to have been earned by Licensee when payment is received by Licensee or
an Associate of Licensee. No royalties will be payable on returns which are
accepted and credited by Licensee or the Associate.
3.4 INTEREST
In the event any payment due to Licensor hereunder is not made when
due and payable, interest on any unpaid amount shall accrue annually at the rate
of two (2%) percent above the prime rate of interest charged by the main branch
of the Royal Bank of Canada in Vancouver to its most creditworthy customers.
3.5 PAYMENT AND REPORTS
Within thirty (30) days following the end of each calendar quarter
during the term of this Agreement, Licensee will submit to Licensor a report
setting forth separately all Products Commercially Exploited and licenses
granted by Licensee, the Net Revenue with respect thereto, and the royalties due
and payable to Licensor hereunder. The report shall be accompanied by full
payment, without deduction or set-off of any kind, save and except for any
deduction permitted pursuant to Section 8.3. The payment will be transmitted by
Licensee to a bank designated by Licensor in writing and will be payable in
Canadian dollars or U.S. dollars or partly in Canadian dollars and partly in
U.S. dollars, at the option of the Licensee.
<PAGE>
-6-
3.6 RECORDS AND EXAMINATIONS
Licensee agrees to keep, and shall cause its Associates to keep,
full and accurate books of accounts and records regarding the Commercial
Exploitation of the Technology, Licensee Improvements and Products in sufficient
detail to enable the payments specified in this Article 3 to be determined.
Licensor may, at its expense, designate Deloitte Touche, Price Waterhouse or
Peat Marwick Thorne to examine such books and records insofar as they pertain to
verifying the reports submitted in accordance with this Article. Such
examination shall be conducted no more than once in any calendar year. If such
examination results in an additional amount due which is five percent (5%) or
greater than the amount previously reported and paid for in the relevant period,
then Licensee will be obligated to pay the expenses of the examination.
ARTICLE 4 - INTELLECTUAL PROPERTY RIGHTS
4.1 OWNERSHIP OF TECHNOLOGY
The parties acknowledge and agree that this License grants to
Licensee an interest in the Technology to Commercially Exploit the Technology
for Internet Authoring Tool Applications. However, Licensee acknowledges and
agrees that this License does not transfer to Licensee the title to or any
Intellectual Property Right in or to the Technology. Licensee agrees not to
contest the title or ownership of Licensor in or to the Technology.
4.2 LICENSEE IMPROVEMENTS
Licensee will own all Intellectual Property Rights in Licensee
Improvements.
4.3 PROPRIETARY LEGENDS
Licensee agrees to affix to all Products and copies of the
Technology, where commercially feasible and where permitted by law, and where
directed by Licensor to packaging materials, notices and proprietary legends
reasonably requested by Licensor to provide notice to the public of the
Intellectual Property Rights owned or claimed by Licensor.
4.4 OBTAINING INTELLECTUAL PROPERTY RIGHTS
Licensor retains the exclusive right to make applications to protect
the Intellectual Property Rights in the Technology. Licensee shall have the
exclusive right to make applications to obtain and maintain Intellectual
Property Rights in the Licensee Improvements.
ARTICLE 5 - INFRINGEMENT
5.1 PROSECUTION OF INFRINGEMENT CLAIMS
The parties shall as soon as possible notify each other in writing
of any actual, alleged, or threatened infringements, misappropriations or other
unauthorized uses ("Infringements") with respect to the Technology of which they
become aware. Licensor may, but is not required to, take any and all
<PAGE>
-7-
actions, legal or otherwise, which are necessary to terminate or prevent
Infringements. Licensee shall have the right to be kept informed of the status
and progress of all actions instituted by Licensor pursuant to this section 5.1.
Licensor shall bear all expenses of all actions which it initiates pursuant to
this section 5.1. Licensee shall have no right to take any action, legal or
otherwise, to terminate or prevent Infringements with respect to the Technology.
Licensee shall have the exclusive right to take all actions, legal or otherwise,
to terminate or prevent Infringements with respect to Licensee Improvements.
5.2 DEFENSE OF INFRINGEMENT CLAIMS
During the term of this Agreement, Licensor will defend at its own
expense any action brought against Licensee which is based on a claim that the
Technology as furnished by Licensor to Licensee as part of the Technology
Package infringes in Canada or the United States any existing copyright, patent
or trade secret (a "Claim") and Licensor will pay any costs, settlements,
damages and legal fees finally awarded against Licensee with respect to such
Claim; provided that Licensee notifies Licensor promptly in writing of the
Claim, permits Licensor fully to control the defence of the Claim, does not
agree to any settlement of the Claim without Licensor's written consent, and
agrees to any settlement reasonably proposed by Licensor. Licensor's
obligations under this section shall apply to Claims based solely on the
infringement of the Technology as provided to Licensee as part of the Technology
Package and shall not extend to any Improvements made thereto by any person or
to the use of the Technology in combination with any equipment, hardware,
software or system of any third party where the combination is the source of the
Claim. Licensee shall not consent to any judgement or enter into any settlement
of a Claim which affects the validity of, or Licensor's title to the Technology,
without Licensor's prior written consent. Licensee agrees to assist Licensor in
defending all Claims. In the event that any Claims arise as a result of any
Licensee Improvement, Licensee shall indemnify and hold harmless Licensor
against any and all damages, settlement costs and expenses (including reasonable
legal fees) suffered or incurred by Licensor in respect thereof. This Section
states the entire obligations of Licensor and the sole remedies of Licensee with
respect to any claim pertaining to the infringement, misappropriation or
violation of an Intellectual Property Right related to the Technology.
ARTICLE 6 - CONFIDENTIALITY
6.1 CONFIDENTIALITY OBLIGATION
(a) Each party acknowledges that Confidential Information will be
exchanged between the parties pursuant to this Agreement. Each party shall use
no less than the same means it uses to protect its similar confidential and
proprietary information, but in any event not less than reasonable means, to
prevent the disclosure and to protect the confidentiality of the Confidential
Information of the other party. Each party agrees that it will not use the
Confidential Information of the other party except for the purposes of this
Agreement and as authorized herein.
(b) Notwithstanding section 6.1(a), the Recipient of Confidential
Information may use or disclose the Confidential Information to the extent that
the Recipient can show that such Confidential Information is (i) already known
by the Recipient without an obligation of confidentiality, (ii) publicly known
or becomes publicly known through no unauthorized act of the Recipient, (iii)
rightfully received from a third party, (iv) independently developed by the
Recipient without use of the information of the Disclosing Party, (v) approved
by the Disclosing Party for disclosure, or (vi) required to be disclosed
pursuant to a requirement of a governmental agency or law so long as the
Recipient provides the other
<PAGE>
-8-
party with notice of such requirement prior to any such disclosure and takes all
reasonable steps available to maintain the information in confidence.
6.2 LOSS OF CONFIDENTIAL INFORMATION
In the event of any unauthorized disclosure or loss of, or inability
to account for, Confidential Information of the Disclosing Party, the Recipient
will notify the Disclosing Party immediately.
6.3 ENFORCEMENT OF CONFIDENTIALITY OBLIGATION
Each of party acknowledges and agrees that irreparable injury may
result to the other party if such party breaches the provisions of this
Agreement relating to Confidential Information and that damages may be an
inadequate remedy in respect of such breach. Each party hereby agrees in
advance that, in the event of such breach, the other party shall be entitled, in
addition to such other remedies, damages and relief as may be available under
applicable law, to the granting of injunctive relief in such party's favour.
ARTICLE 7 - REPRESENTATIONS AND WARRANTIES
7.1 CORPORATE CAPACITY OF LICENSOR
Licensor represents and warrants to Licensee that:
(a) Licensor is a corporation duly incorporated, organized and
subsisting under the laws of the Province of British Columbia with
corporate power to own its assets and to carry on its business;
(b) Licensor has good and sufficient power, authority and right to enter
into and deliver this Agreement and to grant the License to Licensee
free and clear of all liens, charges and encumbrances;
(c) Neither the entering into nor the delivery of this Agreement, nor
the carrying out of the obligations of Licensor hereunder will
result in a violation of:
(i) any of the provisions of the constating documents or
by-laws of Licensor;
(ii) any agreement or other instrument to which Licensor is
a party or is bound; or
(iii) any applicable law or regulation.
(d) this Agreement constitutes a valid, binding and legally enforceable
obligation of Licensor in accordance with its terms.
<PAGE>
-9-
7.2 CORPORATE CAPACITY OF LICENSEE
Licensee represents and warrants to Licensor that:
(a) Licensee is a corporation duly incorporated, organized and
subsisting under the laws of BRITISH COLUMBIA with corporate power
to own its assets and to carry on its business;
(b) Neither the entering into nor the delivery of this Agreement, nor
the carrying out of the obligations of Licensee hereunder will
result in a violation of:
(i) any of the provisions of the constating documents or
by-laws of Licensee;
(ii) any agreement or other instrument to which Licensee is
a party or is bound; or
(iii) any applicable law or regulation.
(c) this Agreement constitutes a valid, binding and legally enforceable
obligation of Licensee in accordance with its terms.
ARTICLE 8 - LIMITATION OF LIABILITY
8.1 DISCLAIMER OF ADDITIONAL WARRANTIES
Licensee acknowledges that the Technology Package to be delivered to
Licensee hereunder may not be error free. Licensee agrees that in the event
errors or deficiencies in the Technology are discovered that it will correct
same itself. Licensor expressly disclaims all representations, warranties and
conditions expressed or implied not contained herein, including representations,
warranties and conditions of quality, performance, merchantability, fitness for
a particular purpose, and those arising by statute or otherwise in law or from a
course dealing or use of trade.
8.2 LOSS OF PROFIT CLAIMS
The Licensor will not be liable for lost profits, loss of revenue or
earnings, claims made by third parties, or for any commercial, economic,
special, incidental, indirect, consequential or exemplary damage arising from
any defect in the Technology, even if Licensor has been advised of, or foresees
the possibility of, any of these damages occurring.
ARTICLE 9 - COVENANTS OF LICENSEE
9.1 LIABILITY CLAIMS
Licensee shall be responsible for the development of all
Improvements to the Technology and for the engineering, design, manufacture and
publishing of all Products Commercially Exploited by it or any person authorized
by it to do so. Licensee assumes all responsibility and liability for loss or
<PAGE>
-10-
damage caused by or attributable to the Products, however caused. Licensee
agrees to indemnify and hold harmless Licensor and its officers, directors,
employees and agents from any and all claims, damages, liability and costs,
including reasonable legal fees and disbursements, which Licensor or the said
persons suffer or incur as a result of or which relate to the manufacture, sale,
licensing, publishing, distribution, or use of Products (including for example,
personal injury and product liability claims related to the Products). Licensee
shall obtain and maintain throughout the term of this Agreement and for a period
of ten (10) years thereafter, public liability, product liability and indemnity
insurance covering the Products and their use, in an amount of not less than $1
Million for personal injury or death and shall include Licensor as a named
insured, provided that such insurance is available on commercially reasonable
terms. Licensee shall provide Licensor, if requested to do so by Licensor, with
evidence satisfactory to Licensor that such insurance has been obtained.
9.2 TRADE PRACTICES
Licensee agrees to comply with all applicable laws, ordinances and
regulations in performing its obligations under this Agreement and in
Commercially Exploiting Products.
9.3 TRADE-MARKS AND TRADE NAMES
Licensee shall not use any trade-mark or trade name owned by or
proprietary to Licensor including the trade-mark "Evergreen" in its business or
to market or promote any Product without the prior written consent of Licensor.
ARTICLE 10 - TERM AND TERMINATION
10.1 TERM
Subject to the provisions of this Agreement, the term of this
Agreement shall commence on the Effective Date and shall terminate fifteen (15)
years from the Effective Date.
10.2 TERMINATION
(a) This Agreement may be terminated:
(i) at any time by mutual written consent of Licensee and Licensor;
(ii) by notice from Licensor to Licensee in the event Licensee shall
dissolve or liquidate and not continue business in another entity or
form, or the Licensee shall be declared bankrupt by a court of
competent jurisdiction and such court order is not reversed within 2
years, or Licensee shall have made a general assignment for the
benefit of creditors, or a receiver of all or any substantial part
of Licensee's assets shall have been appointed and not discharged
within 2 years; or
(iii) by notice from Licensee to Licensor in the event the Licensee
determines that it no longer requires this License for its business.
By way of example, this may occur if the Licensee writes new source
code which does not embody the source code or the design of the
source code of the Technology.
<PAGE>
-11-
(b) The failure of a party to terminate this Agreement for any of the
reasons specified in section 10.2 shall not in any way be deemed a waiver of
such party's rights in respect thereof or otherwise limit its rights to enforce
the obligations of the other party hereunder.
10.3 EFFECT OF TERMINATION
(a) Upon the termination of this Agreement the following shall occur:
(i) the License shall immediately terminate;
(ii) the Licensee shall pay all amounts owed to Licensor up to
such date;
(iii) sublicenses to third parties pertaining to the Commercial
Exploitation of the Technology shall immediately terminate;
(iv) sublicenses granted to end users of Licensee (other than
Associates) for the use of computer software forming part of
Products shall continue for as long as the licensee thereof
is not in breach of it's license agreement with respect to
such software. Licensee shall continue to enforce the terms
of such agreements pertaining to the use of the Technology
and Confidential Information of Licensor and will, if
requested to do so by Licensor, at the option of Licensor,
permit Licensor to enforce the agreements in the name of
Licensee or assign all or any of the agreements to Licensor;
and
(v) Licensee and Associates of Licensee shall return to Licensor
all copies of the Technology and Confidential Information of
Licensor in their possession, power and control. Licensee
shall be entitled to retain all such information as it
relates to the Licensee Improvements.
(b) The expiration or termination of this Agreement for any reason shall
not limit or otherwise affect the respective rights and obligations of the
parties under Articles 3, 6, 8 and 9 and Section 10.3 and any other rights and
obligations of the parties hereunder accrued prior to the date hereof.
10.4 RIGHTS AND REMEDIES
All rights and remedies of either party under this Agreement shall
be cumulative and may be exercised singularly or concurrently.
ARTICLE 11 - GENERAL
11.1 RELATIONSHIP
The relationship between the parties constituted by this Agreement
is intended and is to be construed as of that independent contracting parties
only and not that of partnership, joint venture, agency or any other association
whatsoever. Nothing whatsoever contained herein shall constitute either party
as having the authority to bind the other in any manner whatsoever, and nothing
whatsoever contained herein shall give or is intended to give any rights of any
kind to any third party.
<PAGE>
-12-
11.2 ACCOUNTING PRINCIPLES
Wherever in this Agreement reference is made to a calculation to be
made in accordance with accounting principles, such reference shall be deemed to
be to generally accepted accounting principles applicable as at the date on
which such calculation is made or required to be made, established by The
Canadian Institute of Chartered Accountants, or any successor institute.
11.3 CURRENCY
All sums due under this Agreement shall be paid in CANADIAN dollars
unless otherwise specified.
11.4 ASSIGNMENT
Neither party may assign or otherwise transfer this Agreement or any
of its rights or obligations herein without the prior written consent of the
other party, which consent shall not be unreasonably withheld. Notwithstanding
the foregoing, either party may assign this Agreement in connection with the
sale of all or substantially all of the assets of the party in connection with a
corporate reorganization to an Affiliate of the party, provided that the
assignee undertakes in writing with the other party to be bound by all of the
provisions of this Agreement.
11.5 AMENDMENTS AND WAIVER
No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by the parties hereto and
no waiver of any breach of any term or provision of this Agreement shall be
effective or binding unless made in writing and signed by the party purporting
to give the same and, unless otherwise provided, shall be limited to the
specific breach waived.
11.6 FURTHER ASSURANCES
Each of the parties hereto shall from time to time execute and
deliver all such further documents and instruments (including instruments of
conveyance) and do all acts and things as the other party may reasonably require
to effectively carry out or better evidence or perfect the full intent and
meaning of this Agreement.
11.7 NOTICES
Any demand, notice or other communication to be given in connection
with this Agreement shall be given in writing and shall be given by personal
delivery or by electronic means of communication addressed to the recipient as
follows:
To Licensor: EVERGREEN INTERNATIONAL TECHNOLOGY INC.
1910 - 777 Hornby Street
Vancouver, British Columbia
V6Z 1S4
Facsimile: 604-687-2731
<PAGE>
-13-
To Licensee: CDNet SYSTEMS INC.
Unit #102, 930 West 1st Street,
North Vancouver, Canada V7P 3N4
Facsimile No.: 604-980-7121
or to such other address, individual or electronic communication number as may
be designated by notice given by either party to the other. Any demand, notice
or other communication given by personal delivery shall be conclusively deemed
to have been given on the day of actual delivery thereof and, if given by
electronic communication, on the day of transmittal thereof if given during the
normal business hours of the recipient and on the business day during the
business hours of the recipient and on the business day during which such
business hours next occur if not given during such hours on any day.
11.8 SEVERABILITY
If a court or other lawful authority of competent jurisdiction
declares any provision, Article or Section of this Agreement invalid, illegal or
unenforceable, this Agreement will continue in full force and effect with
respect to all other provisions, Articles and Sections and all rights and
remedies accrued under such other provisions, Articles and Sections will survive
any such declaration.
11.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Province of British Columbia and the laws of Canada applicable
therein.
11.10 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and cancels and supersedes any
prior understandings and agreements between the parties hereto with respect
thereto. There are no representations, warranties, terms, conditions,
undertakings or collateral agreements, express, implied or statutory, between
the parties other than as expressly set forth in this Agreement.
<PAGE>
-14-
IN WITNESS WHEREOF the parties have executed this Agreement as of
the date first written above.
EVERGREEN INTERNATIONAL TECHNOLOGY INC.
By: /s/ [ILLEGIBLE]
-------------------------------
CDNet SYSTEMS INC.
By: /s/ [ILLEGIBLE]
-------------------------------
<PAGE>
JOINT VENTURE TECHNOLOGY DEVELOPMENT AGREEMENT
This Agreement made the 23rd day of November, 1995.
BETWEEN:
BRAINTECH, INC.
Unit #102, 930 West 1st Street
North Vancouver, British Columbia
V7P 3N4
(hereinafter referred to as "Braintech")
AND:
EVERGREEN INTERNATIONAL TECHNOLOGY INC.
1910 - 777 Hornby Street
Vancouver, British Columbia
V6Z 1S4
(hereinafter referred to as "Evergreen")
AND:
CDNet SYSTEMS INC.
1600 - 777 Dunsmuir Street
Vancouver, British Columbia
V7Y 1K4
(hereinafter referred to as "CDNet")
WHEREAS:
A. Microsoft Corp. announced last week at Comdex that its focus for the next
generation of software will be to produce programs that have recognition
capability and that can be run concurrently;
B. Braintech has recognition technology which it has used in the source code
for its software known as "Braintron" (hereinafter referred to as
"Braintech's Technology");
<PAGE>
- 2 -
C. Evergreen has concurrency technology which it has used in the source code
for its software known as "JOT-IT" and the predecessor program "Evergreen
Notes" (hereinafter referred to as "Evergreen's Technology");
D. CDNet has licenses from Braintech and Evergreen and has produced software
that integrates Braintech's Technology and Evergreen's Technology (which
integrated technology is hereinafter called "CDNet's Technology") and has
integration expertise; and
E. The parties agree that they should form a joint venture to combine their
respective technologies to develop software and other technology that
embodies recognition and concurrency (the "Concurrent Recognition Engine")
with the objective of obtaining development funds from Microsoft Corp. and
selling rights to the Concurrent Recognition Engine to Microsoft Corp.
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained (the adequacy of which consideration as to each of the parties
hereto is hereby mutually acknowledged) the parties hereto covenant and
agree as follows.
JOINT VENTURE
1. The parties hereby agree to form a joint venture (the "Joint Venture") for
the purpose of developing the Concurrent Recognition Engine.
COMBINE TECHNOLOGIES
2. The parties agree to work in concert and to combine their respective
technologies to develop the Concurrent Recognition Engine. For this
purpose:
(a) Braintech hereby grants to the Joint Venture the non-exclusive right
to use Braintech's Technology;
(b) Evergreen hereby grants to the Joint Venture the non-exclusive right
to use Evergreen's Technology; and
(c) CDNet hereby grants to the Joint Venture the non-exclusive right to
use CDNet's Technology.
<PAGE>
- 3 -
FUNDING AND REVENUE SHARING
3. The relationship between the parties shall be a joint venture relationship
and not a partnership. No party hereto shall have authority to bind any
other party hereto. Each of the parties shall be responsible for providing
one-third of the monies required to fund the development of the Concurrent
Recognition Engine. Revenue from the Concurrent Recognition Engine
("Revenue") shall be divided amongst the parties in proportion to their
actual funding contributions. If a party fails to provide its one-third of
the required development monies, either or both of the other parties may
make up the shortfall and shall earn a larger share of the Revenue,
provided that no party shall be diluted below a 10% share of Revenue. If a
party is diluted to a 10% share of Revenue and fails to provide additional
funding that may be required, either or both of the other parties may
provide the required funding by way of loan to the Joint Venture to be paid
out of the first available Revenue. If a party is diluted below one-third
of Revenue, that party may claw-back to a one-third Revenue entitlement by
providing development monies representing a full one-third of all
development monies.
OWNERSHIP OF THE CONCURRENT RECOGNITION ENGINE
4. Each of the parties shall have an ownership interest in the Concurrent
Recognition Engine equivalent to its entitlement to Revenue from time to
time.
RIGHT TO USE THE CONCURRENT RECOGNITION ENGINE
5. In addition to an entitlement to a share of revenue in accordance with
paragraph 3 hereof, and an ownership interest in the Concurrent Recognition
Engine in accordance with paragraph 4 hereof, each of the parties shall
have the right to use the Concurrent Recognition Engine to develop products
within the class of products prescribed in Schedule "A" for each party. No
party shall use the Concurrent Recognition Engine or any technology
associated therewith to develop any product that falls within the class of
products prescribed for any other party hereto.
MICROSOFT CORP.
6. The parties agree to approach Microsoft Corp. with the objectives of:
(a) obtaining development monies from Microsoft Corp.; and
(b) selling rights to the Concurrent Recognition Engine to Microsoft Corp.
<PAGE>
- 4 -
USE OF CORPORATION
7. The parties may form a corporation to own the Concurrent Recognition Engine
and to coordinate development, funding and sales efforts.
BANKRUPTCY AND RECEIVERSHIP
8. If any party hereto is declared bankrupt by a court of competent
jurisdiction or if a receiver or receiver-manager is appointed for any such
party, that party's rights hereunder shall terminate, including, but not
restricted to:
(a) that party's entitlement to any share of Revenue;
(b) that party's entitlement to any ownership interest in the Concurrent
Recognition Engine; and
(c) that party's right to use the Concurrent Recognition Engine for any
purpose including developing products that fall within the class of
products prescribed for such party,
and no compensation whatsoever shall be payable to such party.
The remaining parties shall divide between them in proportion to their
funding contributions the Revenue and ownership rights forfeited by the
party in bankruptcy or receivership. Further, the remaining parties shall
continue to have the non-exclusive right to use the technology of the party
in bankruptcy or receivership in accordance with paragraph 2 to develop a
Concurrent Recognition Engine.
HOSTILE PARTY
9. If any party hereto becomes controlled in any manner whatsoever, directly
or indirectly, either through share ownership or through representation on
its Board of Directors or in any other manner whatsoever by any of the
following or by proxy holders or nominees of any of the following, then
such party shall be deemed to be a hostile party and paragraph 8 hereof
shall apply to such party as if such party were bankrupt or in
receivership, and such party shall forfeit all its rights for Revenue
entitlement, ownership in the Concurrent Recognition Engine and to use of
the Concurrent Recognition Engine without any entitlement whatsoever for
compensation:
<PAGE>
- 5 -
Lawrence Steve Kostiuk
Donald Mavinic
Allan Dale Harvey
Klaus Nicolaus
Leonard Kowalawich
John C. Kostiuk
Scott Kostiuk
Riva Yachts of Canada Ltd.
Carol Kostiuk
Janolivier
Cactus Consultants International, Inc.
Cristo Securities, Inc.
Elmswell Investment, Inc.
Gilbert Johnston
Inter Active Research Corporation
Yves Lavallee
or any corporation or other entity whatsoever associated or affiliated with
any of the above.
CONFIDENTIALITY
10. The parties agree to keep the affairs of the Joint Venture and details of
their respective technologies confidential.
FURTHER ASSURANCES
11. Each of the parties hereto shall from time to time execute and deliver all
such further documents and instruments (including instruments of
conveyance) and do all acts and things as the other parties hereto may
reasonably require to effectively carry out or better evidence or perfect
the full intent and meaning of this Agreement.
NOTICES
12. Any demand, notice or other communication to be given in connection with
this Agreement shall be given in writing and shall be given by personal
delivery or by electronic means of communication addressed to the recipient
as follows:
BRAINTECH, INC.
Unit #102, 930 West 1st Street
North Vancouver, British Columbia
V7P 3N4
Facsimile: 604-980-7121
<PAGE>
- 6 -
EVERGREEN INTERNATIONAL TECHNOLOGY INC.
1910 - 777 Hornby Street
Vancouver, British Columbia
V6Z 1S4
Facsimile: 604-687-2731
CDNet SYSTEMS INC.
1600 - 777 Dunsmuir Street
Vancouver, British Columbia
V7Y 1K4
Facsimile: 604-688-0094
or to such other address, individual or electronic communication number as
may be designated by notice given by either party to the other. Any
demand, notice or other communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery
thereof and, if given by electronic communication, on the day of
transmittal thereof if given during the normal business hours of the
recipient and on the business day during the business hours of the
recipient and on the business day during which such business hours next
occur if not given during such hours on any day.
SEVERABILITY
13. If a court or other lawful authority of competent jurisdiction declares any
provision, Article or Section of this Agreement invalid, illegal or
unenforceable, this Agreement will continue in full force and effect with
respect to all other provisions, Articles and Sections and all rights and
remedies accrued under such other provisions, Articles and Sections will
survive any such declaration.
GOVERNING LAW
14. This Agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia and the laws of Canada applicable
therein.
ENTIRE AGREEMENT
15. This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and cancels and supersedes any
prior understandings and agreements between the parties hereto with
respect thereto.
<PAGE>
- 7 -
There are no representations, warranties, terms, conditions, undertakings
or collateral agreements, express, implied or statutory, between the
parties other than as expressly set forth in this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first written above.
BRAINTECH, INC.
By: /s/ John McDonald
---------------------------------
Director
EVERGREEN INTERNATIONAL
TECHNOLOGY INC.
By: /s/ [ILLEGIBLE]
---------------------------------
CDNet SYSTEMS INC.
By: /s/ Grant Sutherland, Director
---------------------------------
<PAGE>
Exhibit 11.1
CALCULATION OF NET LOSS PER SHARE
<TABLE>
<S> <C> <C> <C> <C>
1996
Shares - opening
balance 17,400,000
Share Issuances
1/4/96 950,000 362/366 939,589
4/3/96 733,333 272/366 544,991
6/5/96 2,000,000 209/366 1,142,077
9/23/96 1,000,000 114/366 311,475
12/26/96 1,200,000 5/366 16,393
------
2,954,525
---------
Weighted Average 20,354,525
----------
----------
Loss ($959,945)
Loss per share ($0.05)
1997
Shares - opening
balance 17,400,000
Share Issuances
9/23/97 1,000,000 99/365 271,333
2/5/97 1,000,000 329/365 901,370
3/20/97 1,000,000 286/365 783,562
1/1/97 150,000 365/365 150,000
6/1/97 50,000 214/365 29,315
3/1/97 50,000 306/365 41,918
12/1/97 50,000 31/365 4,247
2,181,645
---------
Weighted Average 25,464,978
----------
----------
Loss ($930,042)
Loss per share ($0.04)
</TABLE>
<PAGE>
SUBSIDIARIES OF THE COMPANY
1. BrainWare Systems Inc.
Head Office: Unit 102, 930 West 1st Ave., North Vancouver, B.C.V7P3N4
