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As filed with the Securities and Exchange Commission on May __, 1998
Registration No. 34-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 to Form 20-F
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
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SMARTIRE SYSTEMS INC. (FORMERLY UNICOMM SIGNAL INC.)
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
BRITISH COLUMBIA, CANADA NOT APPLICABLE
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
150 - 13151 VANIER PLACE, RICHMOND, BRITISH COLUMBIA V6V 2J1
(604) 276-9884
(Address and telephone number of principal executive offices)
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SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
Not Applicable Not Applicable
SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
Common Stock, No Par Value
(Title of Class)
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FORWARD LOOKING STATEMENTS
Statements contained in this Registration Statement that are not based on
historical facts are forward-looking statements subject to uncertainties and
risks including, but not limited to, product demand and acceptance, economic
conditions, the impact of competition and pricing, results of financing efforts,
and other risks described under the caption "Risk Factors."
PART I.I.
ITEM 1. DESCRIPTION OF BUSINESS
(a) INTRODUCTION
SmarTire Systems Inc. (hereinafter, together with its subsidiary, referred to as
the "Company" or "SmarTire") is engaged in the development and marketing of a
line of tire monitoring systems incorporating proprietary patented technology
designed to improve tire life, fuel efficiency, vehicle productivity and safety.
The Company's corporate offices are located at #150 - 13151 Vanier Place,
Richmond, British Columbia, Canada, V6V 2J1. The telephone number is (604)
276-9884; and the facsimile number is (604) 276-2350.
The Company's consolidated financial statements are stated in Canadian Dollars
(CDN$) and are prepared in accordance with Canadian Generally Accepted
Accounting Principles (GAAP), the application of which, in the case of the
Company, conforms in all material respects for the periods presented with United
States GAAP except as indicated in the notes to the financial statements. All
per share amounts reflect a 1 to 8 reverse split effected on December 24, 1997.
Herein, all references to "$" and "CDN$" refer to Canadian Dollars; and all
references to "US$" refer to United States Dollars. Herein, all references to
common shares refer to the Company's common shares without par value.
In this Registration Statement, unless otherwise specified, all dollar amounts
are expressed in Canadian Dollars. The Government of Canada permits a floating
exchange rate to determine the value of the Canadian Dollar against the U.S.
Dollar.
Set forth below is the rate of exchange for the Canadian Dollar at the end of
the five most recent fiscal periods ended July 31st, and the six months ended
January 31, 1998 and 1997, average rates for the period, and the range of high
and low rates for the period. For purposes of this table, the rate of exchange
means the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank
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of New York. The table sets forth the number of Canadian Dollars required under
that formula to buy one U.S. dollar. The average rate means the average of the
exchange rates on the last day of each month during the period.
U.S. Dollar/Canadian Dollar
<TABLE>
<CAPTION>
Average Close High Low
------- ----- ---- ---
<S> <C> <C> <C> <C>
Six Months Ended 01/31/98 1.41 1.46 1.46 1.37
Six Months Ended 01/31/97 1.36 1.35 1.38 1.33
Fiscal Year Ended 7/31/97 1.37 1.38 1.40 1.33
Fiscal Year Ended 7/31/96 1.35 1.37 1.38 1.33
Fiscal Year Ended 7/31/95 1.38 1.37 1.42 1.34
Fiscal Year Ended 7/31/94 1.35 1.38 1.40 1.29
</TABLE>
(b) HISTORICAL CORPORATE DEVELOPMENT
The Company was incorporated under the laws of the Province of British Columbia
as TTC/Truck Tech Corp. on September 8, 1987. The Company (operating as
TTC/Truck Tech Corp.) completed its initial public offering on the Vancouver
Stock Exchange on September 11, 1989. On April 13, 1995, the Company changed its
name to UniComm Signal Inc. On December 24, 1997, the Company changed its name
to SmarTire Systems Inc. and effected a reverse stock split of 1 to 8. All
references in this registration statement take this split into effect when
referring to the number of shares of the Company's Common Stock or per share
data.
Since its inception, the Company has reported net losses arising from general
expenses and research/development expenditures. The Company has sustained itself
during the last several years through the sale of securities, including common
shares and convertible debentures, and the exercise of share purchase warrants
and share purchase options.
(c) BUSINESS
SmarTire is engaged in the development and marketing of a line of tire
monitoring systems (TMS) incorporating proprietary patented technology designed
to improve tire life, fuel efficiency, vehicle productivity and safety. Advanced
monitoring systems have been developed by the Company which provide the
operators of passenger cars, commercial vehicles and industrial equipment with
the ability to monitor the air pressures and temperatures within each tire on
the vehicle.
The overall corporate strategy of the Company is to concentrate on sales,
marketing and product development. It is expected that manufacturing will be
outsourced and performed by
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companies with established capacity and quality control to service the North
American and international markets.
The Company has entered into three agreements with TRW Inc. ("TRW"), each dated
April 20, 1998: A Supply Agreement (the "TRW Supply Agreement"), a Technical
Cooperation Agreement (the "TRW Technical Cooperation Agreement") and a License
Agreement (the "TRW License Agreement"). Pursuant to the TRW Supply Agreement,
the Company agreed to purchase from TRW all of its requirements for tire
pressure monitoring transmitters and receivers, provided that TRW's prices are
competitive. Pursuant to the TRW Technical Cooperation Agreement, the Company
and TRW agreed to cooperate in the development of new tire pressure sensing
technology, and, to the extent that the parties conduct individual development
work, they will share the results of such development work. The TRW Technical
Cooperation Agreement provides for regular meetings between the parties to
discuss developments at each party and to work together on specific projects
identified and outlined in a project statement. Further, subject to certain
limitations, the parties will share patents and applications therefor, utility
models and applications therefor, copyrights, trade secrets and other forms of
intellectual property relating to tire pressure sensing systems or components
thereof which either party develops during the term. The Agreement also provides
for cross-licensing of intellectual property owned by the parties. The term of
the TRW Technical Cooperation Agreement is for five years, subject to automatic
extension year by year unless one party gives notice to the other party at least
three months prior to the then end of the term. Pursuant to the TRW License
Agreement, the Company granted to TRW the exclusive worldwide right to make,
have made, use and sell tire pressure monitoring systems and components of such
systems for use as original equipment in the passenger car and light, medium and
heavy duty truck markets, and for use as service parts for such original
equipment. The Agreement also provides for technical assistance to be provided
to TRW. Pursuant to the TRW License Agreement, TRW is required to pay to the
Company a royalty based upon the net sales price of each Licensed Product sold
to a specified customer and covered by a claim of a Company patent. The TRW
License Agreement expires on the expiration date of the last to expire of the
Company's patents.
PRODUCTS
SmarTire(TM) Systems
The Company's products include tire monitoring systems for passenger cars and
off-road industrial equipment. A product for the commercial vehicle market has
been developed but has not yet been released for commercial sale. Key benefits
of the systems include:
Safety - When tire pressures are maintained at the proper levels, vehicle
braking, handling and
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stability are optimized. Incorrect tire pressures can compromise the stability
of a vehicle, its handling and braking, and, in extreme cases, may contribute to
causing an accident.
Fuel economy - Tire performance, which directly affects fuel economy, can be
optimized by conducting regular tire checks. According to the Society of
Automotive Engineers, even a tire with a 1 psi under-inflation below the
optimum level begins to reduce fuel economy.
Reduced downtime - Full-time monitoring of the tire operating parameters has
been shown to reduce unexpected and time consuming roadside repairs.
Passenger Car Tire Monitoring Systems
The Passenger Car TMS incorporates patented technology to monitor the pressure
in each tire in a passenger car and send a signal to the driver if the pressure
falls below a predetermined level.
The system consists of four small wheel modules, one fastened to each wheel
inside the tire, and a radio receiver. Each module contains a battery power
source with a life expectancy of ten years or 100,000 miles, a pressure sensor
with a unique tire position identification code and a radio transmitter. The
pressure sensor is made of a hermetically sealed transducer that enables the
system to measure the pressure of each tire with an accuracy of +/-1 psi. A
compact radio receiver which runs off the vehicle's 12 volt electrical system
picks up the signal sent by the module's radio telemetry transmitter. There are
no external wires or connections, making the system virtually maintenance free.
Tire pressure information for each wheel is digitally displayed on the vehicle's
driver information center. When the vehicle is moving at ten miles per hour or
more and a tire is under-inflated, a "low pressure warning" lamp appears on the
overhead console. For example, the systems currently available on Lincoln
Continentals are set so that when tire pressure falls below 18 psi, a lamp
indicating "low pressure warning" is illuminated on the overhead console. When
tire pressure falls below 10 psi, a second "low pressure warning" lamp appears
on the dashboard and an audible alarm is sounded. Tire pressure information is
transmitted approximately every 60 seconds while the vehicle is in motion.
The receiver is constantly listening for the transmissions from each wheel. Each
time the receiver is powered up, it performs a diagnostic cycle routine to
ensure all four sensors are operating properly. If signals are not received from
one or more sensors, the system is set to run through the diagnostic cycle
again. If it still does not receive a signal, the low pressure warning lamps are
turned on to alert the driver.
Commercial Vehicle TMS
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The Commercial Vehicle TMS will incorporate the Company's patented technology to
monitor tire pressures and temperatures on a wide variety of on-highway
applications, including commercial vehicles and transit buses.
The Commercial Vehicle TMS is a wireless tire monitoring system consisting of
individual sensors mounted inside each tire wheel assembly and a cab mounted
receiver/display unit. The individual sensors measure both the operating
pressure and temperature of each tire and then transmits this information via
radio signal. Whenever the pressure in any tire deviates from its pre-programmed
level, the SmarTire(TM) monitor alerts the driver so that the condition can be
corrected before the tire is damaged. The system has been developed for use by
trucking fleets that frequently change trailers, as each sensor has its own
unique identifying signal. When the driver switches trailers, the new trailer's
identifiers can be entered manually or electronically into the display unit.
Each display unit can handle up to 40 tire positions and can be used with
several trailers.
Each TMS sensor module is completely self contained and can be programmed via
wireless link. With its location inside the tire/rim assembly, each sensor is
protected from vandalism as well as environmental conditions. Sensor module
installation requires no modification to the existing wheels of vehicles.
The Commercial Vehicle TMS will offer vehicle operators a simple, dependable way
to improve tire pressure maintenance on a continuous basis. It is expected that,
when the product is available for sale, it will include the following features
and benefits:
real time monitoring of tire pressure and temperature values
display capability up to 40 tire locations on ten axles
reliable "wireless" data transmission from wheel mounted sensors
internal pressure/temperature correlation
projected sensor battery life in excess of five years
sensors suitable for use on all "tubeless" drop center rims
semi-automatic "wireless" trailer identification programming
built-in data storage (black box) capability
12 or 24 volt DC (negative ground) power source
The Commercial Vehicle TMS is designed to provide a useful tool for owners and
operators of commercial vehicles, reducing downtime and repair costs from
improperly inflated tires.
Industrial Equipment TMS
The Industrial Equipment TMS, which is the first product the Company
commercialized, provides full time monitoring of tire pressures and temperatures
on large mining and construction equipment.
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The Industrial Equipment TMS is a wireless tire monitoring system and consists
of individual sensors mounted at each tire location and a cab mounted
receiver/display unit. The individual sensors measure both the operating
pressure and temperature of each tire then transmits this information via radio
signal. The temperature data is also used by the system to calculate and
indicate the required tire operating pressure. This capability enables the
operator to set the tires at optimum pressure levels irrespective of their
temperatures, thereby increasing tire life. Whenever the pressure in any tire
deviates from its pre-programmed level, the SmarTire(TM) monitor alerts the
driver so that the condition can be corrected before the tire is damaged. Since
each individual sensor is programmed with a vehicle number and location, the
system can display data for each tire position. Each display unit can handle up
to 12 tire positions.
A user programmable alarm setting allows maintenance staff to select tire
pressure and temperature limits suitable for the vehicle's operating
environment. The display unit can indicate whether a particular tire is above,
below or within the correct operating limits. Visual and audible alarms are
triggered when the pressure and/or temperature limits are exceeded. The pressure
and temperature data from each tire is also logged over a period of time for
maintenance and analysis purposes. This data can be used to identify both
vehicle or tire irregularities.
Based upon its knowledge of the market, management believes that SmarTire's
Industrial Equipment TMS is currently the only commercially available off-road
tire monitoring system that is able to identify from a remote location actual
tire pressure and temperature values while the vehicle is operating.
PRODUCT DEVELOPMENT
The concept for the Company's initial product line, a remote air pressure sensor
for vehicle tires, was first conceived in 1986. The basic premise of its
development was that improperly inflated tires adversely affect tire wear and
safety. If a way could be found to monitor air pressure on a continuous basis,
tires would last longer and less unanticipated tire problems would occur. The
first prototype was built in late 1986, using "off-the-shelf" components and was
tested in 1987 to determine if the concept was viable. Positive results of
testing the prototype wireless communication system led to the incorporation of
the Company, with the purpose of further developing the technology and bringing
it to the market.
Industrial Equipment TMS
Development of the technology continued throughout 1988 and 1989. During 1990,
the Company revised its technology to address the specific needs for tire
monitoring in the mining industry. This redesign enhanced the power and
selectivity to ensure improved signal reception on larger vehicles.
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Environmental testing on both the radio and measuring sectors resulted in
improved accuracy of measured values by providing a means of programming in
temperature compensating algorithms.
During 1991, refinements were completed, tested and in-house production of the
Industrial Equipment TMS was initiated. Since that time, the Company has sold
over $1.5 million in Industrial Equipment TMS products.
Passenger Car TMS
On December 6, 1996, SmarTire acquired intellectual property, manufacturing and
testing equipment, and contractual rights relating to tire monitoring systems
from Epic Technologies Inc. (Epic). The contractual rights include the right to
supply tire monitoring systems for the 1997-1999 Lincoln Continental under a
production program with the Ford Motor Company.
Design work began on Epic's Low Pressure Tire Warning System in 1976. This
product is the result of many years of development and advances in electronic
microprocessor and radio telemetry technologies. In 1986, Epic was awarded
tooling and production of a system for the 1989 Corvette. That system was used
on the Corvette through to the 1996 model year.
The system is currently being offered as an option on Lincoln Continentals, and
the company expects to continue supplying tire monitors for the Lincoln
Continental through to the 1999 model year. There is no assurance that the Ford
Motor Company will continue to offer the tire monitoring system on the Lincoln
Continental.
A custom product was also co-developed with the Penske Racing Team for racing
applications and is commercially available.
For SmarTire, the acquisition of certain tire monitoring assets from Epic
greatly accelerated the Company's entry into the passenger car market with a
proven product. The Company is realizing sales of this Passenger Car TMS to Ford
Motor Company and introduced a modified version of this product to the
automotive aftermarket in June of 1997.
Commercial Vehicle TMS
The Industrial Equipment SmarTire(TM) technology is now being customized for the
on-highway commercial vehicle market. Additional development is being undertaken
to redesign the SmarTire(TM) sensor module to be suitable for use on a wide
range of applications such as commercial trucking and public transit. As part of
the development of the Commercial Vehicle TMS, a proprietary computer chip was
developed for the Company under contract by Integrated Sensor Solutions Inc., a
computer chip developer/manufacturer in San Jose, California.
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The Company is presently reviewing the market to determine the viability of this
product. Any release of the product to the market by the Company will depend on
such review as well as the completion of further development work.
TRW Technical Cooperation Agreement
Pursuant to the terms of the TRW Technical Cooperation Agreement, the Company
and TRW have agreed to cooperate in the development of new tire pressure sensing
technology and have agreed to work together from time to time on specific
projects to be identified and outlined in a project statement. Under the
Agreement, TRW and the Company will share certain intellectual property rights
which relate to tire pressure sensing systems or components thereof and which
either party develops during the term of the Agreement (the "Shared Intellectual
Property"). TRW has granted to the Company under the Shared Intellectual
Property owned by TRW a perpetual, worldwide, exclusive license to make, have
made, use and sell tire pressure sensing products and components for after
market sales of products and components for all vehicles. In turn, the Company
has granted to TRW under Shared Intellectual Property owned by Company a
perpetual worldwide exclusive license to make, have made, use and sell tire
pressure sensing products and components thereof for the market for original
equipment products and components for passenger car and light, medium and heavy
duty trucks, and for service parts for such products and components.
Research and Development
The following is an estimate of the amount spent during each of the last two
fiscal years on research and development activities;
1996 - $ 721,536
1997 - $1,193,705
PROPRIETARY PROTECTION
The Company holds several patents for its current technologies, which are listed
below:
United States Patent 5,231,872 addresses the technology in the tire monitoring
product. It was issued on August 3, 1993 and expires August 3, 2010.
United States Patent 5,285,189 addresses the technology in the abnormal tire
condition warning system. It was issued on February 8, 1994 and expires
February 8, 2011. This patent was purchased by the Company from Epic
Technologies, Inc. in December 1996.
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United States Patent 5,335,540 addresses the technology in the tire monitoring
product. It was issued on August 9, 1994 and expires August 9, 2011.
United States Patent 5,559,484 addresses the technology in the abnormal tire
condition warning system. It was issued on September 24, 1996 and expires
September 24, 2013. This patent was purchased by the Company from Epic
Technologies, Inc. in December 1996.
United States Patent 4,653,445 addresses the technology in an Engine Protection
System ("EPS") product. It was issued on March 31, 1987 and expires
March 31, 2004.
FUTURE PRODUCTS
There are numerous additional potential applications for the SmarTire(TM)
technology, including mass transit systems and aircraft landing gear. The
Company's current focus is passenger car and commercial vehicle aftermarkets.
Management believes that these markets represent the greatest opportunity for
the Company. If the Company is successful in raising additional working capital,
it may pursue development of other products utilizing the Commercial Vehicle TMS
technology.
MARKETING
Pursuant to the TRW License Agreement, the Company has granted to TRW the
exclusive, worldwide right to make, have made, use and sell tire pressure
monitoring systems and components for use as original equipment in passenger car
and light, medium and heavy duty truck markets, and for use as service parts for
such original equipment. Additionally, the Company has granted to TRW under
Shared Intellectual Property owned by the Company a perpetual worldwide,
exclusive license to make, have made, use and sell tire pressure sensing
products and components thereof in the market for original equipment products
and components for passenger car and light, medium and heavy duty trucks, and
for service parts for such products and components. In turn, TRW has granted to
the Company under Shared Intellectual Property owned by TRW a license for the
aftermarket sales of products and components for all vehicles.
Passenger Car
SmarTire's passenger car tire monitoring system is being marketed to the
after-market primarily through independent tire distributors. In North America,
there are an estimated 162 million cars on the road, and in Japan and Europe
there is another 165 million. Since 1980, the number of cars on the road has
grown at an annual rate of 2.2% per year. Most of these vehicles will require
replacement tires before their life is over. Independent tire dealers account
for over 55% of passenger tire retail sales, nearly three-quarters of all tires
sold in the U.S. With the median age of cars and trucks in the U.S. increasing,
industry analysts expect
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continued growth in after-market tire sales. SmarTire's management believes that
independent tire distributors represent the most effective channel for the sale
of its systems to the aftermarket.
Another development that is expected to lead to increased acceptance of tire
monitoring systems is the introduction of the "run-flat" tire. Tire
manufacturers such as Michelin, Bridgestone and Goodyear have developed a tire
that will allow drivers to drive up to 50 miles on a tire that has lost all of
its pressure. Since the ride characteristics are virtually the same with the
tires inflated or uninflated, it is not possible for a driver to know that the
tire is going flat without a tire monitoring system. The Company's SmarTire(TM)
system is currently being offered with a run-flat tire from Michelin as the
"SecuriTire" option on the Lincoln Continental. The Company has also received an
initial order from a major North American tire manufacturer in connection with
the manufacturer's "run-flat" tires.
Commercial Vehicle
The target market for the Commercial Vehicle SmarTire(TM) product is also
considerable. In North America, there are more than 10 million commercial
trucks. Japan and Europe have 20 million trucks on the road.
Commercial vehicle operators in North America are required to check their tire
pressure every 100 miles. For the most part, this inspection consists of an
imprecise visual check or a tap on each tire with a "Billy Club" rather than the
use of a tire gauge. The installation of the SmarTire(TM) system would
immediately provide a full time pressure monitoring capability that
substantially exceeds regulatory requirements.
According to the Canadian and American Trucking Associations, one of the most
common problems in the trucking industry are vehicles operating with incorrect
tire pressures. In the past, various legislative measures have been proposed for
the industry to enforce some method of monitoring tires. However, this has not
been effective due to the lack of a suitable method to improve tire monitoring.
With the development of the SmarTire(TM) products, the means to effectively
monitor tire pressures on a continuous, real-time basis under various conditions
has become viable.
Industrial Equipment
The Company plans to market its commercial vehicle products to the aftermarket
through tire distributors, commercial vehicle fleets, and service centers.
In 1991, the Company established a distribution agreement with the Haulpak
Division of Komatsu Dresser, which acted in the capacity of the exclusive
distributor of the Off-Road TMS. In March 1995, the Company re-negotiated the
agreement creating a new, non-
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exclusive four year distribution agreement with Komatsu, Ltd. This new contract
allows the Company to market to other distributors on a wholesale basis and
directly to retail customers.
In 1996, the Company established a non-exclusive, four year distribution
agreement with RimTec Pty. Ltd. of Australia to purchase and resell the Off-Road
TMS to off-road surface mining and off-road construction machinery markets in
Australia.
COMPETITION
As a whole, the tire monitoring industry is still in the early stages. A few
competitive tire monitoring systems are under development, especially for the
passenger car market. The potential market is so enormous that competition is
considered healthy for the industry since it generates more market attention.
Schrader-Bridgeport Inc. (Schrader) currently appears to be the only significant
producer of wireless tire monitoring systems for the passenger car market.
Schrader, a 150 year old company, claims to be the world's largest producer of
tire valves and tire-pressure measurement equipment with over $140 million in
annual sales. The tire monitoring system developed by Schrader is currently
being sold on Chevrolet Corvettes.
The SmarTire(TM) system uses a universal mounting system that allows the system
to be added to most passenger cars. Schrader's system is not universally
mountable, and instead uses a valve stem mounting that is specific to the rim
design. The Company's management believes that the SmarTire(TM) mounting system
is superior in its ability to be fitted to a larger variety of vehicles.
SmarTire's Passenger Car TMS, developed by Epic and currently available in
Lincoln Continentals, is the only commercially available passenger car tire
monitoring system with a proven track record. Variants of the system have been
in production and in use on vehicles since 1989.
Delco has acquired a tire deflation warning system which uses ABS brake
technology. The system is based on measuring rotations of the wheel. Once tire
deflation has been determined, the driver is notified by an alarm. Tire pressure
must drop at least 8 lbs. before the deflation is sensed. By the time the alarm
appears, the tires may have traveled a substantial distance resulting in severe
tire damage. The system is not compatible with run-flat tires since the shape of
the tire, hence the number of rotations, does not change when tire pressure
changes. Delco's system is available on the Buick Park Avenue, Pontiac Grand
Prix and a Toyota minivan.
SSI Technologies Inc. (SSI) is promoting a tire monitoring system that uses a
low-frequency magnetic field between a revolving transponder inside the rim and
tire and the stationary transceiver positioned outside of the tire. The system
has the advantage of not needing a
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battery, since it is powered by the vehicles electrical system. It also has many
disadvantages over a wireless system. The system must be hard-wired to the
vehicle, which adds cost and makes the system impractical for aftermarket
installations. The inductive link and wiring harness of the system are exposed
to brake heat, dirt, moisture, vibration and shock, while the SmarTire's system
is mounted safely within the tire cavity. To the best of management's knowledge,
the system is not yet commercially available.
One potential future development which could affect the market for both
passenger car and commercial vehicle tire monitoring is the development of a
"smart chip". This is a computer chip that could transmit data and would be
manufactured into tires. However, the Company believes that the smart chip
technology will not become viable for a number of years, if at all.
Currently, management believes that there is no directly competitive product for
SmarTire's Commercial Vehicle SmarTire(TM) system, although those companies
developing tire monitoring systems for the passenger car market could
potentially also develop systems for commercial vehicle applications. SmarTire's
management believes that the commercial vehicle market requires a more
sophisticated product with features such as the ability to change trailers and
still be able to identify specific tires, rather than a product that is limited
to alerting a driver that one tire of many is low. The Company's product is the
only system of which the Company is aware that is compatible with fleet usage
where trailer switching is the norm.
The Industrial Equipment TMS is the only commercially available system known to
the Company that monitors actual tire pressure and temperature values while a
vehicle is in motion. A few systems do exist that are primarily low pressure
warning systems which sense if tire pressure is dropping below a certain level
and indicate these to the operator with a red warning light. None, however,
measure both tire pressure and temperature on an on-going basis, providing
real-time analysis of that data. The SmarTire(TM) system provides
temperature/pressure correlation and the product is compatible for use with mine
dispatch systems for data storage and remote access. No other product provides
the same or essentially competitive features.
SEASONALITY
Not Applicable.
USA VS. FOREIGN SALES/ASSETS
Substantially all of the Company's revenues have been generated in the United
States.
At July 31, 1996 and July 31, 1997, substantially all assets were located in
Canada.
EMPLOYEES
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At March 31, 1998, the Company operated with the services of its six directors,
seven Executive Officers (of whom four are directors), and twelve additional
full-time employees/consultants. There is no collective bargaining agreement in
place.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company has no material expenses and anticipates no material impact on its
business from compliance with environmental laws.
(D) RISK FACTORS
History of Operating Losses and Fluctuating Operating Results.
Since inception through January 31, 1998, the Company has incurred aggregate
losses of approximately $18,000,561. As of January 31, 1998, the Company had a
deficiency of assets over liabilities of $3,458,408 and a working capital
deficiency of $1,458,591. In addition, the Company's quarterly operating results
may be subject to significant fluctuations due to many factors not within the
Company's control, such as the unpredictability of when a customer will order
products, the size of a customer's order, the demand for the Company's products,
the level of competition and general economic conditions. There is no assurance
that the Company will operate profitably or will generate positive cash flow in
the future. See "Management's Discussion and Analysis or Plan of Operation," and
the Financial Statements.
Dependence on Product Line and Services.
Historically, the Company has derived a significant percentage of its net
revenue from sales of its Industrial Equipment Tire Monitoring Systems to the
mining industry. The Company has recently introduced products for the passenger
car market. There can be no assurance that the Company will achieve or sustain
significant sales growth in either its historical markets for industrial
equipment or for its new products for the passenger car market. To the extent
demand for the Company's products does not develop, due to competition, product
performance, customer assessment of the Company's resources and expertise,
technological change or other factors, the Company's operations will be
materially adversely affected. See "Description of Business."
Reliance on a Major Customer.
One of the Company's customers for its industrial equipment monitoring market,
Komatsu America International Company (or its predecessors and affiliates),
accounted for approximately 92%, 67% and 18% of the Company's total revenues for
the years ended July 31, 1995, 1996 and 1997 respectively. This percentage is
expected to continue to decline as the Company's sales for the passenger car
market increase. For the year ended July 31, 1997, the Company's top three
customers accounted for approximately 69% of the Company's
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revenue. Accordingly, the loss of one of these major customers would materially
adversely affect the Company. The loss of any significant customer, or further
significant reductions by them in buying the products offered by the Company, or
the inability to collect accounts receivable from them, absent diversification
of the Company's revenues over other customers and products, would materially
and adversely affect the Company's revenue and results of operations. See
"Description of Business."
Need for Additional Capital.
To date, the Company has been dependent primarily on the issuance of securities
to fund its capital requirements. The Company is dependent on the proceeds of
securities offerings to fund its ongoing operations as well as to implement its
proposed expansion plans. The Company intends to raise additional funding in
fiscal 1999 through the issuance of securities. The Company anticipates that the
proceeds to the Company from the additional funding, together with projected
revenues, will be sufficient to fund the Company's operations through fiscal
1999. In the event that the Company's plans change, there are any delays in
implementing the proposed expansion, its projections prove to be inaccurate or
the proceeds of any additional funding prove to be insufficient, the Company may
be required to seek additional financing to fund the costs of daily operations
and of continuing to expand its operations. Any additional equity financing may
involve substantial dilution to the Company's then-existing stockholders. There
can be no assurance that additional financing will be available to the Company
when needed or, if available, that it can be obtained on commercially reasonable
terms. See "Management's Discussion and Analysis or Plan of Operations,"
"Description of Business" and Financial Statements.
Dependence on Key Personnel.
The Company's success depends to a significant extent on the continued service
of certain key management personnel. The loss or interruption of services from
one or more of these personnel, for whatever reason, could have a material
adverse effect on the Company. In the event of the loss of services of such
personnel, no assurances can be given that the Company will be able to obtain
the services of adequate replacement personnel. The Company's success also
depends in part on its ability to attract and retain qualified professional,
technical, managerial and marketing personnel. Competition for such personnel in
the markets in which the Company competes is intense, and there can be no
assurance the Company will be successful in attracting and retaining the
personnel it requires to conduct its operations successfully. See "Description
of Business."
Ability to Manage Growth of the Company.
The plans of the Company are based upon the growth of the business, and the
success of the Company will depend on its ability to implement and manage this
expansion. In addition, the Company may expand and grow through acquisitions.
Accordingly, the Company could
15
<PAGE> 16
experience a period of significant growth, which could place a significant
strain on the Company's management and other resources. The Company's ability to
manage and sustain growth effectively will depend, in part, on the ability of
its management to manage growth through the implementation of appropriate
management, operational and financial systems and controls, and successfully to
train, motivate and manage its employees. If the Company's management is unable
to manage its growth effectively, the Company's results of operations could be
materially adversely affected. See "Description of Business."
Limited Personnel.
Currently, the Company relies on its existing staff as its principal means of
selling its products, and on a small development staff to develop new products
and applications for existing products. The Company's growth and expansion may
be inhibited unless it establishes a larger direct sales force in order to
enhance its access to potential customers and a larger development staff to
develop new products and applications for existing products. At the present
time, the Company plans to increase its sales force, development staff and its
administrative staff, although no assurances can be given that qualified
personnel can be hired. The inability of the Company to hire and keep qualified
personnel could materially adversely affect the Company's future plans. See
"Description of Business."
Competition.
The markets in which the Company competes are rapidly changing. As indicated
(See "Description of Business, Business-Competition"), other companies offer
products similar to those offered by the Company, and target the same customers
as the Company. Many of these companies have substantially greater financial
marketing and technical resources. The Company also anticipates that the
competition within these markets will increase as demand for the products
escalates. It is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. See "Description of
Business Competition."
Rapid Technological Change.
The markets in which the Company competes are characterized by rapid
technological change, frequent new product and service introductions, evolving
industry standards and changes in customer demands. The introduction of products
embodying new technologies and the emergence of new industry standards can, in a
relatively short period of time, render existing products obsolete and
unmarketable. The Company believes that its success will depend upon its ability
continuously to develop new products and to enhance its current products and
introduce them promptly into the market. See "Description of Business -
Competition."
Dependence on Proprietary Technology; Risks of Third Party Infringement Claims.
16
<PAGE> 17
There can be no assurance that the Company's measures to protect its current
proprietary rights will be adequate to prevent misappropriation of such rights
or that the Company's competitors will not independently develop or patent
technologies that are substantially equivalent or superior to the Company's
technologies. Additionally, although the Company believes that its products and
technologies do not infringe upon the proprietary rights of any third parties,
there can be no assurance that third parties will not assert infringement claims
against the Company. Similarly, infringement claims could be asserted against
products and technologies which the Company licenses, or has the rights to use,
from third parties. Any such claims, if proved, could materially and adversely
affect the Company's business and results of operations. In addition, although
any such claims may ultimately prove to be without merit, the necessary
management attention and cost required to defend such claims could adversely
affect the Company's business and results of operations.
Adequacy of Product Liability Insurance and Lack of Errors and Omissions
Insurance.
The Company could be subject to claims in connection with the products that it
sells. There can be no assurance that the Company would have sufficient
resources to satisfy any liability resulting from any such claim, or that it
would be able to have its customers indemnify or insure it against any such
liability. The Company currently carries US$5 Million of product liability
insurance. There can be no assurance that such coverage would be adequate in
term and scope to protect the Company against material adverse effects in the
event of a successful claim. The Company currently does not carry errors and
omissions insurance. The Company intends to seek to obtain errors and omissions
insurance provided it can be obtained at reasonable prices; however, there can
be no assurance that such coverage or other insurance, if obtained, would be
adequate in term and scope to protect the Company against material adverse
effects in the event of a successful claim.
Dilutive Effect of Options, Warrants and Convertible Debentures.
As at April 24, 1998, there were options, warrants and convertible debentures
outstanding to purchase an aggregate of 3,169,719 shares of Common Stock. To the
extent that these and subsequent options, warrants and convertible debentures
are exercised and/or converted, dilution of the percentage ownership of the
Company's shareholders will occur, and any sales in the public market of the
common Stock underlying the options, warrants and convertible debentures might
adversely affect prevailing market prices for the Company's securities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition, changes in financial
condition and results of operations of the Company for the years ended July 31,
1997 and 1996 and for the six
17
<PAGE> 18
months ended January 31, 1998 and 1997 should be read in conjunction with the
consolidated financial statements of the Company and related notes included
therein.
The Company's consolidated financial statements are in Canadian dollars (CDN$)
and are prepared in accordance with Canadian Generally Accepted Accounting
Principles (GAAP) the application of which, in the case of the Company, conforms
in all material respects for the period presented with the United States GAAP
except as disclosed in the notes to the consolidated financial statements of the
Company included herein.
The Company's consolidated financial statements are prepared on a going-concern
basis which assumes the Company will realize its assets and discharge its
liabilities in the normal course of business. The Company's ability to continue
as a going concern is dependent upon its obtaining financing from its lenders,
shareholders and other investors as required, and the successful development and
marketing of the Company's products to generate future profitable operations.
There can be no assurance that additional financing will be available to the
Company when needed, or, if available, that it can be obtained on commercial
reasonable terms.
RESULTS OF OPERATIONS
Fiscal Year Ended July 31, 1997 vs. Fiscal 1996
Gross revenue for the fiscal year ended July 31, 1997 was $921,546 as compared
to $199,041 for the fiscal year 1996. The increase in revenue for the fiscal
year 1997 over the fiscal year 1996 was a result of the addition of new product
lines.
Gross margin decreased from 43.0% in fiscal 1996 to 28.5% in fiscal 1997 as a
result of the addition of new product lines, which provide higher volumes but
lower margins. During fiscal 1996, the Industrial Equipment TMS accounted for
100% of revenue, and provided a 43.0% gross profit. The new passenger car
products added during fiscal 1997, accounted for 82.0% of sales during the year,
and provided a gross profit of approximately 25.0%, resulting in a combined
gross profit of 28.5%. It is expected that the sales of the passenger car
products will grow, and that sales of the industrial equipment products will
become a smaller proportion of future sales.
Sales of a passenger car tire monitoring system to the Ford Motor Company for
use on the Lincoln Continental began in December of 1996 when the Company
purchased the rights to service the Lincoln production program from Epic
Technologies, Inc. The Company also purchased a product for racing applications
and began recording sales of that product in December, 1996. The development of
an additional new product, a passenger car tire monitor for the replacement tire
market, was completed during the 1997 fiscal year and the Company began selling
that product in May of 1997.
18
<PAGE> 19
Marketing expenses increased from $360,574 for the fiscal year ended July 31,
1996 to $451,307 for fiscal 1997 as a result of increase expenditures on point
of sale materials, technical manuals, trade shows, and advertising and
promotional relating to the passenger car aftermarket product, which the Company
began selling in June 1997. Marketing wages also increased as a result of
additional employees hired or assigned to marketing functions. Marketing travel
increased as a result of increased activity relating to the marketing of the
passenger car product line. Since the marketing of the aftermarket product did
not begin until late in the fiscal year, management expects marketing expenses
to increase in future quarters, relative to prior quarters.
General and Administrative expenses increased to $2,229,629 in fiscal 1997
compared to $1,843,124 in fiscal 1996. The increase was primarily attributable
to increases in interest expenses and rent. Interest expense rose from $159,292
in fiscal 1996 to $447,746 in fiscal 1997 as a result of additional convertible
debt issued during fiscal 1997. Rent increased from $41,135 in fiscal 1996 to
$101,341 as a result of the move to a larger premises in January of 1997.
Administrative wages were comparable from year to year at $620,918 for fiscal
1996 compared to $648,826 in fiscal 1997. Other general and administrative
expenses were an average of 2% higher in 1997 than in 1996.
Interest and finance charges increased from $39,959 for the six months ended
January 31, 1997 to $1,177,028 for the six months ended January 31, 1998 as a
result of interest on additional debt added during fiscal 1997 and the first
half of fiscal 1998 and as a result of the increased use of trade credit.
Interest and finance charges are expected to be substantially lower in the
second half of the fiscal year as a result of $3.6 million of long term debt
that was converted to share capital or redeemed subsequent to January 31, 1998.
Research and Development expenses increased from $721,536 for fiscal 1996 to
$1,193,705 for fiscal 1997. The increase was attributable to increases in
expenditures on prototype development and engineering supplies from $361,649 in
fiscal 1996 to $626,549 in fiscal 1997 as the Company continued to develop
further product enhancements for future versions of its products. Engineering
wages increased from $359,887 in fiscal 1996 to $469,598 in fiscal 1997 period
as a result of the addition of new employees. Engineering consulting expenses
were incurred in the second half of 1997 with no similar expenses in fiscal
1996.
Expenses increased during the fiscal year of 1997 to $4,385,976 as compared to
$3,023,877 in the fiscal year 1996 due to increases in marketing, general and
administrative, research and development, and depreciation and amortization
expenses.
Depreciation and amortization increased as a result of the amortization of
patents and other intellectual property that were purchased from Epic
Technologies Inc. in December of 1996.
Net loss for the year ended July 31, 1997 was ($4,123,373) as compared to
($2,937,891) for the fiscal year 1996. The increase in net loss from the fiscal
year 1996 to fiscal year 1997
19
<PAGE> 20
was attributable to increases in marketing, general and administrative, research
and development, and depreciation and amortization expenses in excess of the
increase in revenue.
Six Months Ended January 31, 1998 vs. Six Months Ended January 31, 1997
Gross revenue for the six months ended January 31, 1998 was $1,004,350 as
compared to $231,004 for the six month period ended January 31, 1997. The
increase in revenue was the result of a new product line added during fiscal
1997, as described above.
Expenses increased to $3,624,352 for the six month period ended January 31,
1998, from $1,495,721 for the comparable period of the previous fiscal year, due
to increases in depreciation and amortization, interest and finance charges,
marketing expenses, and research and development expenses. Marketing expenses
increased from $91,290 for the six month period ended January 31, 1997 to
$670,332 for the comparable period of 1998 as a result of increase expenditures
on point of sale materials, technical manuals, trade shows, and advertising and
promotional relating to the passenger car product, which the Company began
selling in June 1997. Marketing wages also increased as a result of additional
employees hired or assigned to marketing functions. Marketing travel increased
as a result of increased activity relating to the marketing of the passenger car
product line.
General and Administrative expenses were consistent for the six months periods
ended January 31, 1998 and January 31, 1997. These expenses totaled $815,992 in
the six month period ended January 31, 1998, compared to $870,806 for the
comparable period in 1997.
Research and Development expenses increased from $313,105 for the six months
ended January 31, 1997 to $637,140 for the six months ended January 31, 1998.
The increase is attributable to increase expenditures on prototype development
from $104,329 in the 1997 period to $226,000 in the 1998 period as the Company
continued to develop further product enhancements for future versions of its
products. Engineering wages also increased from $182,302 in the 1997 period to
$238,583 in the 1998 period as a result of wages increases to the staff, and the
addition of new employees. Engineering consulting expenses were also incurred in
the 1998 period, with no similar expenses in the 1997 period.
Depreciation and amortization expense increased as a result of the amortization
of patents and other intellectual property that were purchased from Epic
Technologies Inc. in December of 1996.
Net loss for the six months ended January 31, 1998 was ($3,393,350) as compared
to ($1,430,262) for the six months ended January 31, 1997.
The Company has increased its production steadily during the first six months of
fiscal 1998, and expects to be able to make further increases in production
during the remainder of the fiscal year.
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<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities through revenue from operations and the
placement of securities. Financing has been accomplished in the form of private
placements of common shares and common share purchase warrants; private
placements of convertible debentures; the exercise of incentive stock options;
the exercise of common share purchase warrants; and issuance of common stock in
exchange for satisfaction of liabilities.
The timing of such placements was dependent on the requirements of the Company
and the economic climate. The Company has incurred net losses in each year since
inception and as of January 31, 1998, had an accumulated deficit of $18,000,561.
As a result of a private placement completed in March 1998 as discussed below,
management believes that the Company has sufficient cash to fund its current and
planned operations through at least December 31, 1998. Thereafter, it is
possible that the Company will require additional funding depending on the
results from operations over the next two fiscal quarters.
The Company effected a reverse stock split of 1 to 8 effective December 24,
1997. At that time, all outstanding convertible securities, share purchase
warrants, and share purchase options were proportionately adjusted to reflect
the consolidation.
The most recent significant financings since August 1, 1995 are described in the
following paragraphs:
On April 20, 1998, TRW agreed to purchase from the Company (the "TRW Private
Placement") 900,000 units at a price of US$4.00 per unit for a total purchase
price of US$3,600,000, each Unit consisting of a share of Common Stock and one
non-transferable share purchase warrant entitling TRW to purchase an additional
share for a period of two years at a price of US$4.00 per share during the first
year and US$4.60 per share during the second year. The closing is expected to
occur on May 4, 1998 subject to the Company receiving the acceptance of the
Vancouver Stock Exchange (VSE) of the subscription. In the event that the VSE
does not approve the subscription, TRW is required to deliver the full
subscription price in trust to an escrow agent, which funds will be used to
purchase the Units when the Company is either delisted from the VSE or has
otherwise obtained regulatory approval for the subscription.
On March 24, 1998, the Company completed a private placement of 2,175,000 Units
for gross proceeds of $8,700,000. Each Unit consisted of one share of Common
Stock and one non-transferable share-purchase two year warrant at an exercise
price of $4.00 per share if exercised during the first year and $4.80 if
exercised during the second year. The Company paid a commission of $855,500.
On January 30, 1998, the Company completed a private placement of US $550,000 8%
convertible redeemable debentures pursuant to Regulation S promulgated under the
Securities
21
<PAGE> 22
Act of 1933, as amended. The Company paid a commission of US $55,000, with net
proceeds of US $495,000 on the issue. The Company redeemed the debentures on
March 16, 1998 for US $783,750 plus accrued interest.
On October 3, 1997, the Company completed a private placement of 18% convertible
redeemable debentures with a face value of US$ 622,222. The debentures were sold
at a discount to their face value for gross proceeds to the Company of US$
560,000. The Company paid a commission of US $56,000, with net proceeds of
US$504,000 on the issue. The debentures were convertible into common shares at
$3.12 per share. By April 24, 1998, US $622,222 of the debentures were converted
to 289,173 common shares.
On September 4, 1997, the Company completed the private placement of $380,000
Series "G" convertible debentures. The debentures carry an interest rate of ten
percent (10%) per annum paid semi-annually for a term of three years. The
Company paid a commission of $600, with net proceeds of $379,400 on the issue.
During the first three years, each debenture is convertible into units at a
price of $2.80 per unit if converted during the first year, $3.60 if converted
during the second year and $4.40 if converted during the third year. Each unit
consists of one common share and one two year non-transferable share purchase
warrant. If the holders convert the debenture in the first year, the warrant may
be exercised during the first year at $2.80 within one year of the date of
conversion and $3.60 during the second year; if the holders convert the
debenture in the second year, the warrant may be exercised at $3.60 within one
year of the date of conversion and $4.40 during the second year; and if the
holders convert the debenture in the third year, the warrant may be exercised at
$4.40 within one year of the date of conversion and $5.20 during the second
year. As at April 24, 1998, $10,000 of the debentures had been converted into
3,571 units.
Effective March 26, 1997, the Company completed the private placement of
$1,722,000 Series "F" convertible debentures. The debenture carries an interest
rate of ten percent (10%) per annum paid semi-annually for a term of three
years. The Company paid a commission of $108,000, with net proceeds of
$1,614,000 on the issue. As of February 28, 1998, all of the Series F Debentures
were converted into an aggregate of 615,000 Units consisting of 615,000 shares
of Common Stock and warrants to purchase 615,000 shares of Common Stock. The
warrant exercise price is $2.80 per share if exercised within one year of the
grant and $3.60 per share during the second year. As of April 24, 1998, 267,492
warrants had been exercised at $2.80 per share for proceeds of $748,978.
On November 6, 1996, the Company arranged for a brokered private placement of
1,134 Series "D" Redeemable 6% Convertible Debentures through the agency of
Groome Capital Advisory Inc. at a price of $1,000 per Debenture. Each Debenture
bears interest at 6% per annum from closing payable semi-annually and may be
convertible into units comprising one common share of the Company and one
warrant for a term of three years expiring November 1, 1999 at a price of $4.40
per Unit in the first year, $5.20 per Unit in the second year and $6.00 per Unit
in the third year. This offering raised a total of $1,134,000. The
22
<PAGE> 23
Company issued 46,875 Agent's Warrants to Groome Capital Advisory Inc. in
connection with the offering. The Agent's Warrants exercise price was $5.20 per
share if exercised within the first year and $6.40 per share during the second
year. On November 6, 1997, $974,000 of the debentures were converted into units.
On April 20, 1998, all of the Agent's Warrants were exercised with proceeds to
the Company of $300,000.
On November 20, 1996, the Company completed a private placement of 114,450 units
at a price of $4.00 per unit to raise gross proceeds of $457,800. Each unit
consisted of one common share and one non-transferable share purchase warrant.
The warrant is exercisable for a two year period and the holders thereof require
one warrant to purchase one share at a price of $4.00 per share until September
18, 1997, and $4.80 per share until September 18, 1998. In November, 1997, 2,750
warrants were exercised with net proceeds to the Company of $11,000. By April
24, 1998, 7,104 warrants were exercised for proceeds to the Company of $34,099.
The shares were restricted from trading for twelve months from advancement of
funds.
Effective July 3, 1996 the Company issued 166,195 units for $4.00 per unit, with
net proceeds to the Company of $664,780. Each unit consisted of one common share
and one non-transferable share purchase warrant. The warrant is exercisable for
a two year period and the holders thereof require one warrant to purchase one
share at a price of $4.00 per share until April 15, 1997, and $4.80 per share
until April 15, 1998. In April, 1997, 2,500 warrants were exercised at $4.00
with net proceeds to the Company of $10,000. By April 15, 1997, 140,222 warrants
were exercised at $4.80 with net proceeds to the Company of $673,066. The shares
were restricted from trading for twelve months from advancement of funds.
On July 24, 1995, the Company completed the private placement of $1,024,600
Series "C" convertible debentures. The debenture carries an interest rate of ten
percent (10%) per annum paid quarterly for a term of five years. During the
first three years, the debenture was convertible into units at a price of $6.40
per unit if converted during the first year, $8.00 if converted during the
second year and $12.00 if converted during the third year. Each unit consists of
one common share and one two year non-transferable share purchase warrant. If
the holders had converted the shares on or before July 24, 1996, conversion
would require one warrant to purchase one share at a price of $6.40 per share
during the first year from conversion, and $8.00 per share during the second
year from conversion. If the holders convert the shares after July 24, 1996, and
on or before July 24, 1997, conversion requires one warrant to purchase one
share at a price of $8.00 during the first year from conversion, and $12.00
during the second year from conversion. If the holders convert the shares after
July 24, 1997 and on or before July 24, 1998, conversion requires one warrant to
purchase one share at a price of $12.00 during the first year from conversion,
and $16.00 during the second year. As at February 28, 1998, $888,000 in
principal amount of these debentures had been converted into 138,750 units. On
March 9, 1998, the exercise price for the 138,744 outstanding warrants was
reduced from $6.40 per share to $4.40 per share. By April 24,
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<PAGE> 24
1998, 137,714 of the warrants were exercised for proceeds to the Company of
$605,942, and 1,063 warrants had expired.
Fiscal Year Ended July 31, 1997 and Fiscal Year Ended July 31, 1996
The Company's cash position at July 31, 1997 was $69,761, as compared to
$102,755 at July 31, 1996. This decrease was due to the net of the Company's
operating, financing, and investing activities described below.
For the year ended July 31, 1997, the Company had $3,796,458 provided from
financing activities, as compared to $3,294,785 provided from financing
activities for fiscal 1997. This increase reflects a greater amount of financing
raised through the issuance of convertible debentures and share capital.
The Company used $1,701,877 for investing activities during fiscal 1997 as
compared with $288,812 for fiscal 1996. The acquisition of intellectual
property, manufacturing and testing equipment and contractual rights relating to
tire monitoring assets acquired from Epic Technologies Inc. accounted for
$1,215,000 of the 1997 total. Of the purchase price, $1,012,500 was allocated to
other assets and $202,500 was allocated to capital assets.
Investment activities in fiscal 1997, included $157,756 for the development of a
new design of application specific integrated circuit (ASIC) for the Company's
products and included in other assets on the balance sheet, compared to $206,526
of similar expenditures in fiscal 1996.
Investment in capital assets increased to $329,121 for fiscal year 1997 compared
to $82,186 in fiscal 1996. The increase in fiscal 1997 was primarily
attributable to purchases of shop equipment for the production of new product
lines and for leasehold improvements to new premises which the Company began
occupying during fiscal 1997.
$2,127,575 was used in operating activities of the Company during fiscal 1997 as
compared with $3,135,484 for fiscal 1996. This reduction is attributed to an
increase in the loss for the year of $1,185,482; an increase in depreciation and
amortization of $412,692; offset by changes in non-cash working capital of
$1,118,227. The majority of the change in non-cash working capital was provided
by an increase in the balance of suppliers payables and accruals at July 31,
1997 compared to July 31, 1996.
Six Months Ended January 31, 1998 and Six Months Ended January 31, 1997
The Company's cash position at January 31, 1998 was $233,342, as compared to
$136,720 at January 31, 1997. This increase was due to the net of the Company's
operating, financing, and investing activities described herein.
24
<PAGE> 25
For the six months ended January 31, 1998, the Company had $2,951,957 provided
from financing activities, as compared to $1,776,225 provided from financing
activities for the six months ended January 31, 1997. The financing was provided
by the issuance of debentures and share capital. This increase was required to
fund the Company's operating and investing activities.
The Company used $157,330 in investing activities during the six months ended
January 31, 1998 as compared to $1,306,390 during the six months ended January
31, 1997. Investment activity was lower in the six months ended January 31, 1998
relative to the comparable period of the previous fiscal year due to the
acquisition of intellectual property, manufacturing and testing equipment and
contractual rights acquired from EPIC Technologies in December 1996.
$2,631,046 was used in operating activities of the Company during the six months
ended January 31, 1998 as compared with $435,870 for the six months ended
January 31, 1997. This difference can be attributed to an increase in the loss
for the period; an increase in depreciation and amortization, revaluation of
convertible debentures and changes in non-cash operating working capital.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Computer programs
that have sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. The Company does not anticipate that the
cost of any needed modifications will have a material effect on results of
operations.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases a 9,768 square foot facility at #150-13151 Vanier Place,
Richmond, British Columbia, V6V 2J1 for a five year term ending January 14, 2002
at a rental of $13,350 per month. This plant consisting of an office and
administration area, an engineering department and a prototype production
facility.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the power to
vote or direct the vote) and/or sole or shared
25
<PAGE> 26
investment power (including the power to dispose of or direct the disposition
of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, subject to community property laws
where applicable. Each person has sole voting and investment power with respect
to the shares of common stock, except as otherwise indicated. Beneficial
ownership consists of a direct interest in the shares of common stock, except as
otherwise indicated.
As of April 24, 1998, the Company had a total of 7,952,583 shares of Common
Stock (no par value) issued and outstanding. The Company also has 20,000 shares
of preferred stock ($1,000 per share par value) authorized, none of which are
outstanding. The Company effected a reverse split of 1 to 8 effective
December 24, 1997.
As of April 24, 1998, no person known to the Company was the beneficial owner of
more than five percent (5%) of the outstanding common shares of the Company
except that upon closing of the TRW Private Placement, TRW will be deemed to be
the beneficial owner of 1,800,000 shares of the Company's Common Stock or 18.46%
thereof. See "Management Discussion and Analysis or Plan of Operation -
Liquidity and Capital Resources."
The following table lists as of April 24, 1998 the number of shares of Common
Stock beneficially owned, and the percentage of the Company's common stock so
owned, by each director and by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class(5)
<S> <C> <C>
Robert Rudman 218,452(1) 2.69%
Kenneth Morgan -0- -0-%
John Bolegoh 69,969(2) 0.88%
Joseph Merback 191,865(3) 2.36%
Lawrence Becerra 100,000(4) 1.25%
Total Directors/Executive Officers (8 persons) 679,707 8.04%
</TABLE>
(1) 17,453 of these shares are "Principal Escrow Shares," the resale of which
is regulated by the Vancouver Stock Exchange and the British Columbia
Securities Commission. 175,000 of these shares represent currently
exercisable stock options and 1,250 of these shares represent currently
exercisable share purchase warrants.
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<PAGE> 27
(2) 17,452 of these shares are "Principal Escrow Shares", the resale of which
is regulated by the Vancouver Stock Exchange and the British Columbia
Securities Commission. 12,500 of these shares represent currently
exercisable stock options and 18,068 of these shares represent currently
exercisable share purchase warrants.
(3) 17,453 of these shares are "Principal Escrow Shares", the resale of which
is regulated by the Vancouver Stock Exchange and the British Columbia
Securities Commission. 156,250 of these shares represent currently
exercisable stock options and 8,125 of these shares represent currently
exercisable share purchase warrants.
(4) 25,000 of these shares represent currently exercisable stock options and
37,500 of these shares represent currently exercisable share purchase
warrants.
(5) Based on 7,952,583 shares outstanding as of April 24, 1998 and, as to a
specific person, shares issuable pursuant to the conversion or exercise,
as the case may be, of currently exercisable or convertible debentures,
share purchase warrants and stock options.
Changes in Control
The Company is unaware of any contract or other arrangement, the operation of
which may at a subsequent date result in a change of control of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following tables and text sets forth the names and ages of all directors and
executive officers of the Company as of April 24, 1998. The Board of Directors
of the Company is comprised of only one class. All of the directors serve until
the next Annual General Meeting of Shareholders and until their successors are
elected and qualified, or until their earlier death, retirement, resignation or
removal. Subject to any applicable employment agreement, executive officers
serve at the discretion of the Board of Directors, and are appointed to serve
until the first Board of Directors meeting following the annual meeting of
shareholders. There are no family relationships among directors and executive
officers. Also provided is a brief description of the business experience of
each director and executive officer during the past five years and an indication
of directorships held by each director in other companies subject to the
reporting requirements under the Federal securities laws:
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<PAGE> 28
Directors
<TABLE>
<CAPTION>
Date First Elected
Name Age or Appointed
- ------------------- --- ------------------
<S> <C> <C>
John I. Bolegoh(1) 53 Dec. 02, 1993
Joseph Merback (1) 61 Nov. 17, 1995
Robert Rudman 50 Sep. 22, 1993
Kenneth Morgan 36 Jan. 17, 1997
Lawrence Becerra(1) 45 March 30, 1998
</TABLE>
(1) Member of Audit Committee.
Executive Officers
<TABLE>
<CAPTION>
Name Position Date of Board Approval
- ---- -------- ----------------------
<S> <C> <C>
Robert Rudman President (1) March 1993
Joseph Merback President, SmarTire USA, Inc. April 1998
Kenneth Morgan Chief Financial Officer May 1996
John Bolegoh VP Operations January 1991
Shawn Lammers VP Engineering January 1997
Gary Schlachter Exec. VP Sales and Marketing April 1997
Ian Bateman President, SmarTire Europe Inc. March 1998
</TABLE>
(1) Chief Financial Officer from March 1993 to January 1996.
The backgrounds and experience of SmarTire's executive officers and directors
are as follows:
Robert Rudman:
Mr. Rudman is a Chartered Accountant with 15 years of experience assisting
public companies, especially on the Vancouver Stock Exchange. Mr. Rudman joined
the Company in March 1993 as the Chief Financial Officer after serving as an
independent financial consultant for several months. He became the President of
UniComm Signal on January 19, 1996.
Prior to joining SmarTire, Mr. Rudman was manager of a California based sales
contract financing firm. Previously, he was a partner in a consulting firm
providing professional assistance to publicly traded companies. Mr. Rudman
became a Chartered Accountant in 1974 and worked with Laventhol & Horwath and
Price Waterhouse & Co. in Winnipeg, Manitoba.
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<PAGE> 29
In addition to his Chartered Accountancy degree, Mr. Rudman holds a Bachelor of
Arts degree and graduate business diploma from Lakehead University in Thunder
Bay, Ontario.
John Bolegoh:
Mr. Bolegoh has an extensive background in tire product engineering, including
twenty years with Michelin Technical Services Canada Limited in positions of
increasing responsibility. Mr. Bolegoh joined SmarTire in 1991. His
responsibilities include defining necessary product capabilities and designs for
entering various markets; establishing contacts to promote awareness of the
Company's technologies; locating and exploring business possibilities with
potential distributors; and providing customer relations, problem solving,
training and sales assistance. Mr. Bolegoh has been responsible for the
development and marketing of the Industrial Equipment TMS and has successfully
established this product as a standard in the mining industry. He is currently
playing a key role in coordinating the joint efforts of the Company and Michelin
Tire as both organizations prepare for the formal market launch of the new
Passenger Car TMS.
Mr. Bolegoh specialized in mechanical technology at the Hamilton Institute of
Technology in Hamilton, Ontario.
Kenneth Morgan:
Mr. Morgan joined the Company in May 1996 as the Chief Financial Officer.
Reporting directly to the President, Mr. Morgan is responsible for the finance,
treasury, accounting, legal, MIS and administration functions.
In addition to his Canadian Chartered Accountancy designation, Mr. Morgan holds
an American CPA designation. Mr. Morgan has extensive financial reporting
experience gained as a manager with an international accounting firm (1990 to
1995) and as a consultant to a large publicly listed aerospace company (1995 to
1996).
Joseph Merback:
On April 24, 1998, the Board of Directors approved the appointment of Mr.
Merback as President of SmarTire USA, Inc., the Company's marketing subsidiary,
effective February 1, 1998. From January 1, 1997 to February 1, 1998, Mr.
Merback was an advisor to the Company. Mr. Merback is currently President of
Merback Capital Advisors in Los Angeles, California, which provides a wide range
of financial advisory services to both personal and corporate clients. The
company is active in providing private placements to public companies in
high-tech, oil exploration and biotech fields.
From 1959 to 1988, Mr. Merback was with Wilder Industries of Philadelphia,
Pennsylvania, the largest surplus recycled paperboard converter in the U.S. He
became the company's chairman and CEO in 1972. During his tenure with Wilder
Industries, he was responsible for taking the company's sales from $800,000 to
$55 million. In 1988, he sold the company to Case Paper Co.
29
<PAGE> 30
In 1972, he also founded Specialty Industries, a venture capital start-up
specializing in packaging for the electronics industry. When he left in 1988,
sales of the company were $35 million. Mr. Merback still retains equity
interests in six manufacturing plants.
Mr. Merback graduated from Temple University in marketing and finance, and has
attended the Wharton School of Finance.
Lawrence Becerra
Mr. Becerra has an extensive background in international finance. Since 1996, he
has been the principal and founder of West Sussex Trading, Inc. and Heriot Funds
Management which trades predominantly financial futures and foreign exchange.
Between 1992 and 1996 Mr. Becerra was the Senior Proprietary Trader promoted
from the position of Manager of European Money Market Trading for Goldman Sacks
International in London, England. Between 1987 and 1992 Mr. Becerra was the
Managing Director for Czarnikow Financial Futures. Between 1984 and 1987, he
held the position of Senior Trader with TransMarket Group, inc. Between 1976 and
1984, Mr. Becerra worked for Continental Bank in London and ended his tenure as
the Executive Director representing all trading activities for the company. He
attended Middlebury College in Middlebury, Vermont between 1970 and 1974 and
Hackney School in Terrytown, New York between 1968 and 1970.
Gary Schlachter:
Mr. Schlachter joined the Company on April 21, 1997 as the Executive Vice
President, Sales and Marketing for SmarTire USA. Mr. Schlachter is responsible
for developing and directing the strategic launch of the Company's Passenger Car
and Commercial Vehicle TMS product lines. He has over fifteen years management
and marketing experience in the tire industry.
Prior to joining SmarTire, Mr. Schlachter was Business Development Manager,
responsible for retail development programs, for Continental General Tire.
Previously, he served in several management posts at Michelin North America
including Business Development Manager, Eastern United States, Manager Special
Accounts Training Program, and Manager, Product Training and Dealer Program. Mr.
Schlachter is a graduate of Central Michigan University.
Shawn Lammers:
Mr. Lammers is a professional engineer, with a Bachelor of Applied Science
degree from the University of British Columbia, specializing in computer
engineering. He has developed software for MS-DOS, Windows, UNIX Workstations
and Amiga platforms. Mr. Lammers has been with the Company since its inception
and is responsible for the development of the patented remote sensing technology
utilized in SmarTire's products. He has been the chief engineer in respect to
the design, development and production of the Company's Passenger Car TMS, the
Commercial Vehicle TMS and the Industrial Equipment TMS.
Ian Bateman:
30
<PAGE> 31
Mr. Bateman is the Managing Director for SmarTire (Europe) Limited. He is a U.K.
resident and has extensive sales, marketing and senior managerial experience in
a variety of facets of European automotive industries. From 1966 to 1973 he was
a manager with Mid Bucks Automotive Limited overseeing the first "real time"
computer system ever used in the motor factoring field. During 1973 to 1979 Mr.
Bateman was a manager with Renault U.K. Limited, and was instrumental in the
formation of a direct sales company in the U.K. with a sales budget of pound
sterling100 million per year. Between 1979 and 1991 he ran his own marketing
company which expanded to supply every European car manufacturer/importer, with
the exception of just three, with an overall turnover of pound sterling10
million per year. From 1991 and prior to joining SmarTire (Europe) Limited, Mr.
Bateman carried out independent consulting services, most importantly with Otter
Controls Limited which was implementing a marketing program for a
tire-monitoring system.
There are no arrangements or understandings between any two or more Directors or
Executive Officers, pursuant to which he/she was selected as a Director or
Executive Officer.
There are no material arrangements or understandings between any two or more
Directors or Executive Officers.
Pursuant to the terms of the Subscription Agreement between the Company and TRW
dated April 20, 1998, the Company agreed that TRW will be entitled to appoint at
least one of the Company's directors upon closing of the subscription and
subsequent to TRW's exercise of its warrants and provided that TRW holds at
least 1,800,000 shares of the Company's common stock, TRW will be entitled to
appoint at least two of the Company's directors.
ITEM 6. EXECUTIVE COMPENSATION
The Company has no formal plan for compensating its Directors for their service
in their capacity as directors although such directors have received from time
to time and are expected to receive in the future options to purchase common
stock as awarded by the Board of Directors or (as to future options) a
Compensation Committee which may be established. Directors are entitled to
reimbursement for reasonable travel and other out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors. The Board of
Directors may award special remuneration to any Director undertaking any special
services on behalf of the Company other than services ordinarily required of a
Director. Other than indicated below, no Director received and/or accrued any
compensation for his services as a Director, including committee participation
and/or special assignments.
Effective February 1, 1998, the Board of Directors of the Company approved a new
management agreement with Robert Rudman, regarding his position as President of
the Company. The management agreement calls for payment of a base salary of
US$150,000 per
31
<PAGE> 32
annum and a bonus payable in shares of the Company's Common Stock based on
achieving certain gross revenue levels. The term of the agreement is for five
years.
Effective February 1, 1998, the Board of Directors of the Company approved a new
management agreement with Joseph Merback, regarding his position as President of
SmarTire USA, Inc., the Company's marketing subsidiary. The management agreement
calls for payment of a base salary of US$120,000 per annum and a bonus payable
in shares of the Company's Common Stock based on achieving certain gross revenue
levels. The term of the agreement is for five years.
Effective January 1, 1997, the Company had an advisory agreement with William
Cronin. Mr. Cronin voluntarily terminated his contract effective December 31,
1997.
The agreements with Messrs. Rudman and Merback require the Company to pay a
termination allowance in the event of the termination by the Company of such
individual. The termination allowance is twice the annual salary and bonuses.
Other than as discussed above, the Company has no plans or arrangements in
respect of remuneration received or that may be received by Executive Officers
of the Company in Fiscal 1997 to compensate such officers in the event of
termination of employment (as a result of resignation, retirement, change of
control) or a change of responsibilities following a change of control, where
the value of such compensation exceeds US$60,000 per Executive Officer.
There are no arrangements or plans in which the Company provides pension,
retirement or similar benefits for Directors or Executive Officers.
Other than the management agreements and advisory agreements discussed herein,
the Company has no material bonus or profit sharing plans pursuant to which cash
or non-cash compensation is or may be paid to the Company's Directors or
Executive Officers, except that stock options have been and may be granted at
the discretion of the Board or a committee thereof.
The following table sets forth the cash and other compensation during the fiscal
years ended July 31, 1997, 1996 and 1995 to the Company's chief executive
officer. No other executive officer received annual salary and bonus in excess
of US$100,000.
32
<PAGE> 33
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Securities
Name and Other Annual Underlying
Principal Position Year Salary Bonus Compensation Options/SARs
- ------------------ ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert Rudman (1) 1997 $101,785 -- --(1)-- 62,500
1996 $ 92,300 $45,650 --(1)-- --
1995 $ -- -- --(1)-- 31,250
</TABLE>
- --------------
(1) Perquisites and other personal benefits did not in the aggregate reach the
lesser of $50,000 or 10 percent of the total of annual salary and bonus
reported in this table for Mr. Rudman.
OPTION GRANTS DURING 1997
The following table sets forth information on grants of stock options pursuant
to the Option Plan during the fiscal year ended July 31, 1997 to the officer
identified in the Summary Compensation Table:
OPTION GRANTS TABLE
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
% of Total
Options
Granted to Exercise
Options Employees Price Expiration
Name Granted in 1997 ($/sh) Date
- ------------- ------- ----------- -------- ------------------
<S> <C> <C> <C> <C>
Robert Rudman 62,500 35.4% $2.96 September 18, 1998
</TABLE>
OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
The following table sets forth information concerning stock options which were
exercised during, or held at the end of, fiscal 1997 by the officers named in
the Summary Compensation Table:
33
<PAGE> 34
OPTION EXERCISES AND YEAR-END VALUE TABLE(1)
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the Money Options
Shares at Fiscal Year End at Fiscal Year End
Acquired On Value --------------------------------- --------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Rudman (1) 0 0 62,500 0 0 0
</TABLE>
- --------------
(1) There were no option exercises during fiscal 1997.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Richard Groome
Richard Groome, a past Director of the Company, is the President of Groome
Capital Advisory, Inc. Groome Capital Advisory, Inc. acted as the agent in a
convertible debenture offering which was consummated on November 6, 1996. Fees
paid to Groome Capital Advisory, Inc. in connection with the offering totaled
$89,900. The Company also issued 375,000 agent's Warrants to Groome Capital
Advisory Inc. in connection with the offering.
Groome Capital Advisory Inc. provided advisory services to the Company
pertaining to capital raising from May of 1996 to February 1997 for a fee of
$2,500 per month.
Robert Rudman
As discussed above, the Company entered into a new management agreement with
Robert Rudman effective February 1, 1998.
Joseph Merback
As discussed above, the Company entered into a new management agreement with
Joseph Merback effective February 1, 1998.
During the year ended July 31, 1997, the Company issued 18,750 shares of Common
Stock (1996 - 147,260) for cash in the amount of $67,300 (1996 - $954,224) to
senior officers, directors and/or their immediate families and companies
controlled by such persons.
Other than as disclosed above, there have been no transactions since August 1,
1994, or proposed transactions, which have materially affected or will
materially affect the Company in which any Director, Executive Officer, or
beneficial holder of more than 10% of the outstanding common stock, or any of
their respective relatives, spouses, associates or affiliates
34
<PAGE> 35
has had or will have any direct or material indirect interest. Management
believes the transactions referenced above were on terms at least as favorable
to the Company as the Company could have obtained from unaffiliated parties.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital of the Company includes: 200,000,000 shares of common
stock without par value of which 7,552,390 were issued and outstanding at March
31, 1998; and 20,000 shares of preferred stock with a par value of $1,000 per
share of which none are designated, issued or outstanding. The Company effected
a reverse split to 1 to 8 effective December 24, 1997.
All of the authorized shares of common stock of the Company are of the same
class and, once issued, rank equally as to dividends, voting powers, and
participation in assets. Holders of common stock are entitled to one vote for
each share held of record on all matters to be acted upon by the shareholders.
Holders of common stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors, in its discretion, out of
funds legally available therefore.
Upon liquidation, dissolution or winding up of the Company, holders of common
stock are entitled to receive pro rata the assets of Company, if any, remaining
after payments of all debts and liabilities. No shares have been issued subject
to call or assessment. There are no pre-emptive or conversion rights and no
provisions for redemption or purchase for cancellation, surrender, or sinking or
purchase funds.
Provisions as to the modification, amendment or variation of such shareholder
rights or provisions are contained in the Company Act of British Columbia.
Unless the Company Act or the Company's Articles or Memorandum otherwise
provide, any action to be taken by a resolution of the members may be taken by
an ordinary resolution or by a vote of a majority of more of the shares
represented at the shareholders' meeting.
The Company's Articles and the B.C. Company Act contain provisions which require
a "special resolution" for effecting certain corporate actions. Such a "special
resolution" requires a three-quarters vote of shareholders rather than a simple
majority for passage. The principle corporate actions that require a "special
resolution" include:
a. Transferring the Company's jurisdiction from British Columbia to another
jurisdiction;
b. Giving financial assistance under certain circumstances:
c. Certain conflicts of interest by Directors;
d. Disposing of all or substantially all of the Company's assets;
e. Removing a Director before the expiration of his term of office;
f. Certain alterations of share capital;
35
<PAGE> 36
g. Changing the Company name;
h. Altering any restrictions of the Company's business; and,
i. Certain reorganizations of the Company.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's common shares trade on the Vancouver Stock Exchange in Vancouver,
British Columbia, Canada, having the trading symbol "SES" and CUSIP#
831913-10-8.
The following table lists the volume of trading and high, low and closing sales
prices on the Vancouver Stock Exchange for the Company's common shares since
August 1, 1995. The closing price on March 31, 1998 was $4.57.
Vancouver Stock Exchange Stock Trading Activity
<TABLE>
<CAPTION>
Quarter Ended Volume High Low Closing
- ------------- ------ ---- ---- -------
<S> <C> <C> <C> <C>
10/31/95 300,060 6.56 4.40 5.60
01/31/96 214,600 5.92 4.24 5.04
04/30/96 344,055 4.96 3.68 4.24
07/31/96 377,204 6.88 4.40 4.80
10/31/96 230,720 5.12 3.52 3.92
01/31/97 303,737 4.72 2.88 3.04
04/30/97 204,246 4.32 2.40 3.92
07/31/97 211,314 4.08 2.40 2.72
10/31/97 512,763 $5.04 $2.40 $4.32
1/31/98 810,055 $5.00 $2.35 $4.75
</TABLE>
Price Fluctuations, Share Price Volatility
In recent years, securities markets in Canada have experienced a high level of
price and volume volatility, and the market price of many industrial companies,
particularly those considered speculative companies, have experienced wide
fluctuations in price which have not necessarily been related to operating
performance, underlying asset values, or prospects of such companies. The
Company's share price on the Vancouver Stock Exchange fluctuated from a low of
$3.68 to a high of $6.88 during 1996; and during fiscal 1997 a low of $2.40
36
<PAGE> 37
and a high of $5.12. There can be no assurance that continuing fluctuations in
the Company's share price and volume will not occur.
The Company's common shares trade in the United States on the OTC Bulletin Board
with the symbol "SMTR".
The table set forth below lists the volume of trading and high, low and closing
sales prices on the OTC Bulletin Board for the Company's common shares since May
1995. The closing price on March 31, 1998 was US$3.28.
OTC BULLETIN BOARD
STOCK TRADING ACTIVITY
<TABLE>
<CAPTION>
Period Volume High Low Closing
- ------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
8/1/95 - 10/31/95 112,746 US$5.52 US$3.44 US$4.24
11/1/95 - 1/31/96 64,077 US$4.80 US$3.04 US$4.00
2/1/96 - 4/30/96 112,587 US$5.52 US$2.56 US$3.36
5/1/96 - 7/31/96 109,063 US$5.36 US$2.72 US$3.52
8/1/96 - 10/31/96 92,868 US$6.00 US$2.40 US$2.64
11/1/96 - 1/31/97 104,502 US$3.76 US$2.00 US$2.32
2/1/97 - 4/30/97 88,007 US$3.20 US$1.60 US$2.56
5/1/97 - 7/31/97 93,635 US$3.36 US$1.44 US$2.24
8/1/97 - 10/31/97 513,862 US$4.40 US$1.50 US$4.36
11/1/97 - 1/31/98 810,055 US$4.25 US$1.63 US$3.28
</TABLE>
The Company's common shares are issued in registered form. Pacific Corporate
Trust Company (located in Vancouver, British Columbia, Canada) is the registrar
and transfer agent for the common shares.
On March 31, 1998, the shareholders' list for the Company's common shares showed
430 registered shareholders and 7,552,390 shares outstanding.
The Company has researched indirect holdings registered to the various
depository institutions and stock brokerage firms, and estimates that there were
approximately 2,500 shareholders at the above date.
The Company has not declared any dividends since incorporation and does not
anticipate that it will do so in the foreseeable future. The intention of the
Company is to retain future earnings for use in its operations and the expansion
of its business.
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<PAGE> 38
ITEM 2. LEGAL PROCEEDINGS
The Company knows of no material, active or pending legal proceedings against
it; nor is the Company involved as a plaintiff in any material proceeding or
pending litigation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In August 1994, the Company sold 25,000 Units (consisting of 1
common share and one warrant) for aggregate proceeds of $100,000. No commissions
were paid. The financing was pursuant to Regulation S, and all of the investors
were located outside the United States.
In October 1994, the Company sold 57,188 Units with aggregate
proceeds of $228,750, each Unit consisting of one common share and one warrant.
No commissions were paid. $187,500 of the financing was made to non-US investors
pursuant to Regulation S and $41,250 of the financing was made to one US
investor pursuant to Section 4(2) of the Act.
In October 1994, the Company sold 41,250 Units (consisting of one
common share and one warrant) with gross proceeds of $165,000, with no
commissions paid. $155,000 of the financing was made to non-US investors
pursuant to Regulation S and $10,000 of the financing was made to 2 US investors
pursuant to Section 4(2) of the Act.
In November 1994, 88,929 Units (consisting of one common share and
one warrant) with gross proceeds of $249,000 was completed. No commissions were
paid. $24,000 of the financing was made to non-US investors pursuant to
Regulation S and $225,000 of the financing was made to three US investors
pursuant to Section 4(2) of the Act.
In December 1994, the Company completed the sale of Series B
Convertible Debentures (convertible into units of one common share and one
warrant) in the aggregate principal amount $703,999. No commissions were paid.
$138,415 of the financing was made to non US investors pursuant to Regulation S
and $567,584 of the financing was made to 33 US investors pursuant to Section
4(2) of the Act.
In May 1995, the Company sold 76,220 Units for gross proceeds of
$250,000, each Unit consisting of one Common Share and one warrant. No
commissions were paid. $190,000 of the financing was made to non-US investors
and $60,000 of the financing was made to 3 US investors pursuant to Section 4(2)
of the Act.
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<PAGE> 39
In July 1995, the Company sold Series C Convertible Debentures in
the aggregate principal amount of $1,024,600, (each Debenture convertible into
units of one common share and one warrant). No commissions were paid. $5,000 of
the financing was sold to non-US investors pursuant to Regulation S and
$1,019,600 was sold to 40 US investors pursuant to Section 4(2) of the Act.
In July 1996, the Company sold 166,195 Units for gross proceeds of
$654,780, each Unit consisting of one common share and one warrant. No
commissions were paid. $275,000 of the financing was made to non-US investors
pursuant to Regulation S and $779,560 of the financing was made to 13 US
investors pursuant to Section 4(2) of the Act.
In November 1996, the Company sold an aggregate of $1,134,000 in
principal amount of Series D Convertible Debentures (each Debenture convertible
into units of one common share and one warrant). $825,000 of commissions were
paid. $699,000 of the offering was made to non-US investors pursuant to
Regulation S and $235,000 of the offering was made to 3 US investors pursuant to
Section 4(2) of the Act. The Company issued 46,875 warrants to the placement
agent.
In November 1996, the Company sold 114,450 Units (one common share
and one warrant) with gross proceeds of $457,800. No commissions were paid.
$418,750 of the financing was made to non-US investors pursuant to Regulation S
and $678,100 was made to 12 US investors pursuant to Section 4(2) of the Act.
In March 1997, the Company sold an aggregate principal amount of
$1,722,000 of Series F Convertible Debentures (convertible into units of one
common share and one warrant). $108,000 of commissions were paid. $108,000 of
the financing was made to non US investors pursuant to Regulation S and
$1,614,000 of the financing was made to 8 US investors pursuant to Section 4(2)
of the Securities Act.
In September 1997, the Company sold an aggregate of $360,000 in
principal amount of Series G Convertible Debentures (convertible into units of
one common share and one warrant). $600 of commissions were paid. $69,000 of the
financing was made to non-US investors pursuant to Regulation S and $311,000 was
made to 11 US investors pursuant to Section 4(2) of the Act.
In October 1997, the Company sold an aggregate principal amount of
$622,222 of Convertible Debentures (convertible into shares of Common Stock).
All of the offering was made to non-US investors pursuant to Regulation S.
Commissions of US $56,000 were paid.
In January 1998, the Company sold $550,000 in an aggregate principal
amount of Convertible Debentures (convertible into shares of Common Stock).
Commissions of
39
<PAGE> 40
US$55,000 were paid. All of the offering was made to non US persons pursuant to
Regulation S.
In March 1998, the Company sold 2,175,000 Units (one common share
and one warrant) for gross proceeds of $8,700,000. $855,500 of commissions were
paid. $7,318,000 of financing was made to non US investors pursuant to
Regulation S and $1,382,000 was made to seven US investors pursuant to Section
4(2) of the Act.
In April 1998, the Company agreed to sell to TRW 900,000 Units (one
common share and one warrant) for gross proceeds of US$3,600,000 pursuant to
Section 4(2) of the Act. No commissions were paid.
All of the U.S. investors in the above financings were accredited
investors as defined under Rule 501.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification of Directors and Officers
The Company's Articles provide, among other things, that, subject to the Company
Act (British Columbia), the Company will indemnify each and every director,
secretary or assistant secretary and each and every former director, secretary
or assistant secretary of the Company against all reasonable losses, costs,
charges and expenses properly incurred, including any amount paid to settle an
action or satisfy a judgment in a civil, criminal or administrative action or
proceeding by reason of his having been a director or secretary or assistant
secretary of the Company, if: (a) he acted honestly and in good faith, with a
view to the best interests of the Company; and (b) he had reasonable grounds for
believing his conduct was lawful.
The Company's Articles further provide that the Company may, if permitted by
law, indemnify any person who serves or has served as a director, officer,
employee or agent of the company, or of any corporation of which the Company is
a shareholder. Further, the Company is authorized by its Articles to purchase
and maintain insurance for the benefit of any person who is or was serving as a
director, officer, employee or agent of the Company or of any corporation of
which the company is a shareholder, against any liability which may be incurred
by him in that capacity.
Under section 128 of the Company Act (British Columbia), any indemnity provided
by the Company to the following persons is subject to court approval:
(a) a director or former director of the Company;
40
<PAGE> 41
(b) a director or former director of any corporation of which the
Company is or was a shareholder;
(c) the heirs and personal representatives of any person mentioned in
paragraph (a) or (b);
(d) an officer or former officer of the Company or of a corporation of
which the Company is or was a shareholder.
The Company may indemnify such person against all reasonable costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
including an amount paid to settle an action or satisfy a judgment in a civil,
criminal or administrative action or proceeding to which the person is made a
party because of being or having been a director or officer, including an action
brought by the Company or corporation. Indemnification is only possible under
section 128 of the Company Act (British Columbia) if: (a) the person acting
honestly and in good faith with a view to the best interests of the corporation
of which the person is or was a director or officer; and (b) in the case of a
criminal or administrative action or proceeding, the person had reasonable
grounds for believing that the person's conduct was lawful.
PART F/S
FINANCIAL STATEMENTS
The Company's consolidated financial statements are stated in Canadian Dollars
(CDN$) and are prepared in accordance with Canadian Generally Accepted
Accounting Principles (GAAP), the application of which, in the case of the
Company, conforms in all material respects for the periods presented with United
States GAAP.
The consolidated financial statements are attached hereto and found immediately
following the text of this Registration Statement. The Auditor's Report of KPMG,
Chartered Accountants, for the audited consolidated financial statements is
included herein immediately preceding the audited consolidated financial
statements.
A. Audited Consolidated Financial Statements and Financial Statement
Schedules:
Auditor's Report, dated August 29, 1997.
Consolidated Balance Sheet at July 31, 1997 and July 31, 1996.
Consolidated Statements of Loss and Deficit for the Years Ended July 31,
1997 and July 31, 1996.
41
<PAGE> 42
Consolidated Statement of Changes in Financial Position for the Years
Ended July 31, 1997 and July 31, 1996.
Notes to Consolidated Financial Statements.
Unaudited Interim Consolidated Financial Statements and Financial Statement
Schedules:
Consolidated Balance Sheet at January 31, 1998 and January 31, 1997.
Consolidated Statements of Loss and Deficit for Six Months Ended January
31, 1998 and January 31, 1997.
Consolidated Statements of Changes in Financial Position for Six Months
Ended January 31, 1998 and January 31, 1997.
Notes to consolidated Financial Statements.
42
<PAGE> 43
PART III.
ITEM 1. INDEX TO EXHIBITS
Index to Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of TTC/Truck Tech Corp. dated
September 8, 1982
3.2 Memorandum and Articles of TTC/Truck Tech Corp.
3.3 Memorandum of TTC/Truck Tech Corp. dated September 2, 1987
3.4 Altered Memorandum of TTC/Truck Tech Corp. dated October 25, 1991
3.5 Certificate of Change of Name from TTC/Truck Tech Corp. to UniComm Signal
Inc. dated April 13, 1994
3.6 Certificate of Change of Name from UniComm Signal Inc. to SmarTire Systems
Inc. dated December 24, 1997
3.7 Special Resolution and Altered memorandum of UniComm Signal Inc. dated
October 28, 1994
3.8 Special Resolution and Altered memorandum of UniComm Signal Inc. dated
November 17, 1995
3.9 Special Resolution and Altered memorandum of UniComm Signal Inc. dated
January 17, 1997
3.10 Special Resolution and Altered memorandum of SmarTire Systems Inc. dated
January 16, 1998
10.1 Management Agreement between SmarTire Systems Inc. and Robert Rudman (the
President of the Company) dated as of February 1, 1998
10.2 Management Agreement between SmarTire Systems Inc. and Joseph Merback
dated as of February 1, 1998
10.3 Supply Agreement dated April 20, 1998 between the Company and TRW Inc.
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C>
10.4 Technical Cooperation Agreement dated as of April 20, 1998 between the
Company and TRW Inc.
10.5 License Agreement dated as April 20, 1998 between the Company and TRW Inc.
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of TTC/Truck Tech Corp. dated
September 8, 1987
3.2 Memorandum and Articles of TTC/Truck Tech Corp.
3.3 Memorandum of TTC/Truck Tech Corp. dated September 2, 1987
3.4 Altered Memorandum of TTC/Truck Tech Corp. dated October 25, 1991
3.5 Certificate of Change of Name from TTC/Truck Tech Corp. to UniComm Signal
Inc. dated April 13, 1994
3.6 Certificate of Change of Name from UniComm Signal Inc. to SmarTire Systems
Inc. dated December 24, 1997
3.7 Special Resolution and Altered memorandum of UniComm Signal Inc. dated
October 28, 1994
3.8 Special Resolution and Altered memorandum of UniComm Signal Inc. dated
January 17, 1997
3.9 Special Resolution and Altered memorandum of UniComm Signal Inc. dated
November 17, 1995
3.10 Special Resolution and Altered memorandum of SmarTire Systems Inc. dated
January 16, 1998
10.1 Management Agreement between SmarTire Systems Inc. and Robert Rudman (the
President of the Company) dated as of February 1, 1998
10.2 Management Agreement between SmarTire Systems Inc. and Joseph Merback
dated as of February 1, 1998
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C>
10.3 Supply Agreement dated April 20, 1998 between the Company and TRW Inc.*
10.4 Technical Cooperation Agreement dated as of April 20, 1998 between the
Company and TRW Inc.
10.5 License Agreement dated as April 20, 1998 between the Company and
TRW Inc.*
</TABLE>
- -----------------------
* Portions of the Exhibit have been omitted pursuant to a request for
confidential treatment.
45
<PAGE> 46
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.
SMARTIRE SYSTEMS INC.
(Registrant)
Date: May 5, 1998 By: /s/ Robert Rudman
----------------------------------------------
Robert Rudman
President
Date: May 5, 1998 By: /s/ Kenneth Morgan
----------------------------------------------
Kenneth Morgan
Chief Financial Officer
46
<PAGE> 47
SMARTIRE SYSTEMS INC.
(FORMERLY UNICOMM SIGNAL INC.)
Consolidated Financial Statements (Unaudited)
Six Months ended January 31, 1998 and 1997
<TABLE>
<CAPTION>
INDEX
Page
<S> <C>
FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
Consolidated Statements of Loss and Deficit 2
Consolidated Statements of Changes in Financial Position 3
Notes to Consolidated Financial Statements 4
</TABLE>
<PAGE> 48
SMARTIRE SYSTEMS INC.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
January 31, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash $ 233,342 $ 136,720
Receivables 761,741 42,719
Inventory 658,821 408,122
Prepaids 44,957 36,054
------------ ------------
1,698,861 623,615
Capital assets 556,261 392,706
Other assets 1,001,583 1,266,955
------------ ------------
$ 3,256,705 $ 2,283,276
============ ============
Liabilities and Shareholders' Equity (Deficiency of
Assets over Liabilities)
Current liabilities
Payables and accruals $ 2,963,991 $ 988,724
Current portion of long-term debt (note 3) 193,461 193,461
------------ ------------
3,157,452 1,182,185
Long term debt (note 3) 3,557,661 986,190
Shareholders' equity (deficiency of assets
over liabilities)
Share capital (note 4) 13,865,828 11,730,191
Equity component of convertible debt (note 5) 676,325 298,810
Deficit (18,000,561) (11,914,100)
------------ ------------
(3,458,408) 114,901
------------ ------------
$ 3,256,705 $ 2,283,276
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board
"Robert V. Rudman" Director "Kenneth W. Morgan" Director
- ---------------------------------- --------------------------
1
<PAGE> 49
SMARTIRE SYSTEMS INC.
Consolidated Statements of Loss and Deficit
(Expressed in Canadian Dollars)
Six Months ended January 31 (Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenue $ 1,004,350 $ 231,004
Cost of goods sold 773,348 165,545
------------ ------------
231,002 65,459
Expenses
Depreciation and amortization 323,860 180,561
General and administrative 815,992 870,806
Interest and finance charges 1,177,028 39,959
Marketing 670,332 91,290
Research and development 637,140 313,105
------------ ------------
3,624,352 1,495,721
------------ ------------
Net loss (3,393,350) (1,430,262)
Deficit, beginning of period (14,607,211) (10,483,838)
------------ ------------
Deficit, end of period $(18,000,561) $(11,914,100)
============ ============
Loss per share $ (0.87) $ (0.40)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 50
SMARTIRE SYSTEMS INC.
Consolidated Statements of Changes in Financial Position
(Expressed in Canadian Dollars)
Six Months ended January 31 (Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
Operations
Net loss $(3,393,350) $(1,430,262)
Depreciation and amortization 323,860 180,561
Changes in non-cash working capital 326,011 813,831
----------- -----------
(2,743,479) (435,870)
Financing
Repayment of long-term debt (14,400) --
Convertible debentures 1,980,433 1,134,000
Share capital issued 2,158,568 660,225
Conversion of debentures to share capital (1,060,211) (18,000)
----------- -----------
3,064,390 1,776,225
Investing
Capital assets (79,619) (91,390)
Other assets (77,711) --
Acquisition of tire monitoring assets -- (1,215,000)
----------- -----------
(157,330) (1,306,390)
----------- -----------
Increase (decrease) in cash 163,581 33,965
Cash, beginning of period 69,761 102,755
----------- -----------
Cash, end of period $ 233,342 $ 136,720
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 51
SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
Six Months ended January 31, 1998 and 1997 (Unaudited)
1. FUTURE OPERATIONS
SmarTire Systems Inc. is a Canadian company. The Company and its
subsidiaries develop and market products incorporating wireless data
transmission and processing technologies, primarily for the commercial
vehicle and automotive markets. The Company's primary product is a wireless
tire monitoring system which it currently markets for use on commercial and
passenger vehicles, off-road heavy equipment and other pneumatic tire
applications.
These financial statements are prepared on a going-concern basis which
assumes the Company will realize its assets and discharge its liabilities
in the normal course of business. The application of the going-concern
concept is dependent upon the Company's ability to obtain adequate sources
of financing from its lenders, shareholders and other investors as
required, and the successful development and marketing of the Company's
products to generate future profitable operations. Operations from current
and prior periods did not generate positive cash flow from operations. The
Company plans to finance future operations substantially through further
equity or debt financings, similar to prior periods (see subsequent events
note 13).
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These financial statements include the accounts of the Company and its
wholly-owned subsidiaries, SmarTire USA Inc. and Delta Transportation
Products Ltd.
The unaudited consolidated financial statements have been prepared in
Canadian dollars in accordance with generally accepted accounting
principles in Canada and generally conform with those established in the
United States, except as explained in note 8. The unaudited consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments necessary for a fair presentation of the
financial position and results of operations for the interim periods.
(b) Cash
Cash includes cash on account, demand deposits and short-term investments
with maturities of less than three months.
(c) Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is
determined using the weighted average cost method and includes invoice
cost, duties and freight, plus direct labor applied to the product and the
applicable share of manufacturing overhead.
(d) Capital assets
Capital assets are recorded at cost. Depreciation is provided for on the
declining balance basis at 30% per annum. Leasehold improvements are
depreciated over the term of the lease plus one renewal option period.
4
<PAGE> 52
SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Six Months ended January 31, 1998 and 1997 (Unaudited)
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(e) Deferred and patent costs
Research costs are expensed as incurred. Development costs and patent
costs, which are included in other assets, that are expected to provide
future benefits with reasonable certainty are deferred and amortized over
the useful life of the products to a maximum of three years. Other
development costs that do not meet these criteria are expensed as incurred.
(f) Revenue recognition
Revenue from sales is recognized when goods are shipped to customers.
(g) Loss per share
Basic loss per share computations are based on the weighted average number
of shares outstanding during the period. The stock options and warrants
outstanding (note 4(f)) are antidilutive, accordingly, fully diluted loss
per share does not differ from basic loss per share for the periods
presented herein.
(h) Foreign exchange
Monetary items denominated in foreign currency are translated to Canadian
dollars at exchange rates in effect at the balance sheet date and
non-monetary items are translated at rates of exchange in effect when the
assets were acquired or obligations incurred. Revenues and expenses are
translated at rates in effect at the time of the transactions. Foreign
exchange gains and losses are included in income.
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Western Economic Diversification Program, unsecured, repayable in monthly
instalments of the greater of $1,000 or 1% of gross sales of the prior
month, plus supplemental payments of 1% of new equity funds
raised since August 1, 1995 $ 28,743 $ 28,743
Western Economic Diversification Program, repayable
in monthly instalments of the greater of $4,000 or 4%
of gross sales of the prior month, plus supplemental
payments of 1% of new equity raised since August 1, 1995 164,718 164,718
Class B redeemable debenture with a face value of
$Nil (1997-$14,400) bearing interest at 12% per
annum, secured by a floating charge on certain assets
of the Company, due December 9, 1997 -- 14,400
Class C redeemable debenture with a face value
of $136,600 (1996 - $136,600) bearing interest at 10% per annum, secured
by a floating charge on certain assets of the Company, due July 24, 2000,
convertible by the lender at any time prior to repayment, into units,
each unit comprised of 1 common share and 1 common share purchase
warrant, at $12.00 per unit until July 24, 1998. Each warrant entitles
the holder to purchase one common share at a price ranging from $12.00 to
$16.00 at dates between July 25, 1997 and July 24, 2000 136,600 136,600
-------- --------
Carried forward $330,061 $344,461
</TABLE>
5
<PAGE> 53
SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Six Months ended January 31, 1998 and 1997 (Unaudited)
3. LONG-TERM DEBT, CONTINUED
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Brought forward $ 330,061 $ 344,461
Class D redeemable debenture with a face value of $160,000 (1997 -
$1,134,000) bearing interest at 6% per annum, secured by a floating
charge on certain assets of the Company, due November 1, 1999,
convertible by the lender at any time prior to repayment, into units,
each unit comprised of 1 common share and 1 common share purchase
warrant, at $4.40 per unit until November 1, 1997, $5.20 per unit until
November 1, 1998, and $6.00 per unit until November 1, 1999. Each warrant
entitles the holder to purchase one common share at a price ranging $5.20
to $12.00 at dates between November 2, 1996 and November 1, 2001 132,002 835,190
Class F redeemable debenture with a face value of $1,722,000
(1997 - $Nil) bearing interest at 10% per annum, secured by a floating
charge on certain assets of the Company, due February 28, 2000,
convertible by the lender at any time prior to repayment, into units,
each unit comprised of 1 common share and 1 common share purchase
warrant, at $2.80 per unit until February 28, 1998, $3.60 per unit until
February 28, 1999, and $4.40 per unit until February 28, 2000. Each
warrant entitles the holder to purchase one common share at a price
ranging from $2.80 to $5.20 at dates between March 1, 1997
and February 28, 2001 1,336,061 --
Class G redeemable debenture with a face value of $380,000
(1997 - $Nil) bearing interest at 10% per annum, secured by a
floating charge on certain assets of the Company, due May 1, 2000,
convertible by the lender at any time prior to repayment into units,
each unit comprised of 1 common share and 1 share purchase
warrant, at a price of $2.80 per unit until May 1, 1998, $3.60 per unit
until May 1, 1999, and $4.40 until May 1, 2000. Each warrant entitles
the holder to purchase one common share at a price ranging from
$2.80 to $5.20 at dates between May 1, 1997 and May 1, 2002 286,998 --
Series A subordinated convertible debenture with a face value of US
$622,222 (1996 - $Nil) bearing interest at 18% per annum secured by a
floating charge on certain assets of the Company, due at various dates
between August and October 1998, redeemable by the lender or the borrower
at 120% of face value and convertible into common shares at a price of $3.12 per share 896,000 --
Convertible debenture with a face value of US $550,000 (1997 - $Nil)
bearing interest at 8% per annum, due January 6, 2000, redeemable by the
borrower, and convertible into common shares at a 30% discount to market 770,000 --
---------- ----------
3,751,122 1,179,651
Less: current portion 193,461 193,461
---------- ----------
$3,557,661 $ 986,190
========== ==========
</TABLE>
6
<PAGE> 54
SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Six Months ended January 31, 1998 and 1997 (Unaudited)
3. LONG-TERM DEBT, CONTINUED
Interest on the Western Economic Diversification loans is payable on any
amount that remains unpaid 30 days after due date at a rate of 3% above the
Bank of Canada rate and is compounded monthly.
During the periods ended January 31, 1998 and 1997, the Company paid
interest on long term debt $1,007,642 and $39,959 respectively.
4. SHARE CAPITAL
(a) Authorized
(i) Common shares: 200,000,000 (1997 - 50,000,000) without par value
(ii) Preferred shares: 20,000 (1997 - 20,000) with par value of $1,000
per share
During 1997, the Company increased the authorized capital from
50,000,000 common shares without par value to 200,000,000 common shares
without par value.
During 1996, the Company authorized 20,000 preferred shares with a par
value of $1,000 per share.
(b) The subscribed and issued share capital of the Company is as follows:
<TABLE>
<CAPTION>
Common
Shares Amount
--------- -----------
<S> <C> <C>
Balance at July 31, 1997 3,600,898 $11,707,260
Issued during the period ended January 31, 1998
Cash -- --
Exercise of stock options 339,425 1,078,834
Exercise of warrants 15,250 71,000
Conversion of convertible debenture "D" 221,361 1,008,734
--------- -----------
Balance at January 31, 1998 4,176,934 13,865,828
========= ===========
</TABLE>
(c) During the period ended January 31, 1998, convertible debentures with a
principal component of $803,562 and an equity component of $256,649
were converted to 221,361 common shares net of related share issuance
costs of $51,477.
(d) The Company effected a reverse stock split of 1 to 8 effective December
24, 1997. At that time, all outstanding common shares, convertible
securities, common share purchase warrants, and common share purchase
options were proportionately adjusted to reflect the consolidation. All
references to share capital within the financial statements are on a
post-consolidation basis.
(e) Shares held in escrow
A total of 181,250 (1997 - 181,250) shares are held in escrow, to be
released only with the consent of the governing regulatory authorities.
These shares carry voting rights but are restricted from trading
subject to an earn-out provision based on a formula acceptable to the
governing regulatory authorities and until consent is obtained.
7
<PAGE> 55
SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Six Months ended January 31, 1998 and 1997 (Unaudited)
4. SHARE CAPITAL, CONTINUED
An additional 250,000 treasury shares have been reserved for future
allotment and issuance, subject to an earn-out provision based on cash flow
as defined in the earn-out agreement.
The shares held in escrow and the allotted treasury shares are scheduled to
expire May 23, 1999.
(f) Stock options and warrants, and convertible debentures.
As at January 31, 1998 stock options were outstanding for 316,450 (1997 -
283,750) common shares of the Company. These options are exerciseable by
the holders at prices ranging from $2.61 to $4.48 (1997 - $3.60 to $4.88)
per share and expire on various dates from 1997 to 2002.
As at January 31, 1998, warrants were outstanding for 669,881 (1997 -
470,996) shares of the Company. The warrants entitle the holders to
purchase common shares of the Company at prices ranging from $4.00 to $8.00
(1997 - $3.84 to $8.00) per share which expire on various dates until 1999.
As at January 31, 1998, convertible debentures (note 3) were outstanding
that may be converted into 2,106,137 (1997 - $549,605) common shares of the
Company at prices ranging from $2.80 to $12.00 (1997 - $4.40 to $8.00) per
share and expire on various dates from 1998 to 2002.
5. FINANCIAL INSTRUMENTS AND SIGNIFICANT ESTIMATES
(a) Fair value disclosure
The carrying value of cash, receivables, and payables and accruals
approximate fair value due to the short-term maturity of these instruments.
The fair value of long-term debt subject to fixed interest rates is
estimated by discounting the future cash flows, including interest
payments, using rates currently available for debt of similar terms and
maturity, based on the Company's credit standing and other market factors.
The carrying value was determined to approximate their fair value given the
proximity of their issuance to the balance sheet date. The fair value of
long-term debt subject to floating market rates approximates its carrying
value.
(b) Credit risk
The Company does not have a significant exposure to any individual
customer, however, the majority of the Company's activities are
concentrated in the automotive industry and sales are substantially to
United States customers.
(c) Convertible debt instruments
The Company records the liability component of a financial instrument
(determined to be the net present value of the principal) and the equity
component separately on the balance sheet. Interest is recorded at the
estimated market interest rate, determined at issuance date, for
instruments of comparable credit status but without the conversion option.
8
<PAGE> 56
SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Six Months ended January 31, 1998 and 1997 (Unaudited)
5. FINANCIAL INSTRUMENTS AND SIGNIFICANT ESTIMATES, CONTINUED
(d)Significant estimates
Management of the Company follows a policy of using significant estimates
related to establishing the recoverability of its assets including
inventory, capital assets and other assets and the likelihood of contingent
payables. These criteria are evaluated periodically by management and are
amended as the related operations progress. Management applies the results
of operations to the criteria to determine whether there is a permanent
impairment in value of the assets or the existence of a liability.
6. RELATED PARTY TRANSACTIONS
Included in accounts payable are amounts due to directors and shareholders
of the Company totalling $167,996 as at January 31, 1998 (1997 - $Nil)
which are unsecured, non-interest bearing and due on demand.
7. SUBSEQUENT EVENTS
(a) On April 20, 1998 the Company announced it had entered into three
product related agreements and a private placement agreement with TRW
Inc. of Cleveland, Ohio. TRW has been granted a worldwide, exclusive
license to use SmarTire technology to manufacture and sell tire
pressure monitoring systems as original equipment in passenger car and
truck markets. The companies have entered into a technical cooperation
agreement involving the development of new tire monitoring systems for
O.E.M. and aftermarket applications. A manufacturing supply agreement
has also been signed which establishes TRW as the Company's principal
supplier of tire monitoring systems. The equity investment in the
Company is in the form of a private placement consisting of 900,000
units at a price of US$4.00 (US) per unit for gross proceeds of US$3.6
million. Each unit consists of one common share of SmarTire Systems
Inc. and one two-year non-transferable common share purchase warrant.
Each warrant entitles TRW to purchase one additional common share at a
price of US$4.00 in the first year or US$4.60 per share in the second
year. With this investment, TRW will own approximately 10% of the
Company's issued capital and will have the right to purchase an
additional 10% through the exercise of the warrants.
(b) On March 24, 1998 the Company announced the completion of a $8.7
million private placement of 2,175,000 units at a price of $4.00 per
unit. Each unit consists of one common share and one two-year
non-transferable common share purchase warrant. One warrant will
entitle the holder to purchase one additional common share at a price
of $4.00 per share in the first year, or $4.80 per share in the second
year.
(c) On March 30, 1998 the Company repaid long-term debt of $193,461 due to
the Canadian Federal Government under the Western Economic
Diversification Program.
9
<PAGE> 57
SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Six Months ended January 31, 1998 and 1997 (Unaudited)
7. SUBSEQUENT EVENTS, CONTINUED
(d) On February 28, 1998 the holders of the Series "F" convertible
debenture converted the face value of $1,722,000 into 615,000 common
shares and 615,000 common share purchase warrants, as per the
conditions of the debenture.
(e) On dates between March 11, 1998 and April 16, 1998 the holders of the
Series A subordinated convertible debenture converted the face value of
US$622,222 into 289,174 common shares, as per the conditions of the
debenture.
(f) On March 16, 1998 the Company redeemed the balance of a convertible
debenture with a face value of US$550,000.
8. UNITED STATES ACCOUNTING PRINCIPLES
(a) Loss and deficit
The Company's financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). A
reconciliation of financial statement amounts from Canadian generally
accepted accounting principles to United States generally accepted
accounting principles is as follows:
<TABLE>
<CAPTION>
($000's) 1998 1997
-------- --------
<S> <C> <C>
Net loss in accordance with Canadian GAAP $ (3,393) $ (1,430)
Effects of differences in accounting for:
Research and development costs (b) (382) (868)
Interest expense on convertible debt 101 --
-------- --------
Net loss in accordance with United States GAAP (3,674) (2,298)
Beginning deficit in accordance with United States GAAP (14,914) (10,883)
-------- --------
Ending deficit in accordance with United States GAAP $(18,588) $(13,181)
======== ========
</TABLE>
(b) Research and development costs
United States generally accepted accounting principles require that all
development costs be charged to expense when incurred. Applying United
States generally accepted accounting principles, other assets would be
reduced by approximately $766,166 and $1,266,955 as at January 31, 1998 and
1997, respectively.
(c) Convertible debt
Under Canadian GAAP, a value is assigned to the conversion feature of debt
convertible to equity. Under United States GAAP, a value is assigned to the
conversion feature of debt convertible to equity if the conversion rate is
less than the market price of the common stock at the date of issuance.
Applying United States Accounting Standards, total long-term debt would
increase by approximately $171,000 (1996 - $Nil), and shareholder's equity
would increase by $211,000 (1996 - $Nil) as at January 31, 1998 and
interest expense would increase by approximately $382,000 (1996 - $Nil).
10
<PAGE> 58
SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements, Continued
(Amounts Expressed in Canadian Dollars)
Six Months ended January 31, 1998 and 1997 (Unaudited)
8. UNITED STATES ACCOUNTING PRINCIPLES, CONTINUED
(d) Loss per share
The weighted average number of shares and loss per share under United
States generally accepted accounting principles are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- -------------
<S> <C> <C>
Weighted average number of shares 3,707,666 3,417,148
Loss per share $ (0.82) $ (0.67)
========== ==========
</TABLE>
Loss per share is computed based on the weighted average number of common
shares outstanding during the period plus common share equivalents.
Contingently returnable shares held in escrow have been excluded from the
calculation of weighted average number of shares under United States
generally accepted accounting principles. Under Canadian generally accepted
accounting principles, contingently returnable shares held in escrow are
included in the calculation of weighted average number of shares.
(e) Statement of changes in financial position
United States GAAP requires the effect of non-cash working capital balances
be disclosed in the statement of cash flows and the effect of non-cash
financing and investing transactions excluded from the statement of cash
flows.
The changes in non-cash working capital balances related to operating
activities include:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Decrease (increase) in assets
Receivables $(652,500) $ 194,503
Inventory 40,798 (3,903)
Prepaids 1,625 (17,473)
Increase in liabilities
Payables and accruals 936,088 640,704
--------- ---------
$ 326,011 $ 813,831
========= =========
</TABLE>
Cash provided by share capital issuance and cash applied to the conversion
of debentures to share capital under financing would each decrease in total
by $1,060,211 in the period ended January 31, 1998 (1997 - $18,000) because
these amounts would be considered non-cash transactions.
(f) Income taxes
Under United States GAAP, deferred income taxes reflect the net effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income
tax purposes. Temporary differences are tax-effected at current rates
whereas under Canadian GAAP, temporary differences are tax-effected at
historical rates. There have been no deferred tax effects or changes in tax
rates during fiscal years 1997 and 1996. There are no differences in
recorded amounts under FAS 109 or Canadian GAAP. The Company's deferred tax
asset under FAS 109 is as follows:
11
<PAGE> 59
SMARTIRE SYSTEMS INC.
Notes to Consolidated Financial Statements, Continued
(Amounts Expressed in Canadian Dollars)
Six Months ended January 31, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 5,126,000 $ 3,166,000
Scientific research and development expenses 1,121,000 1,121,000
----------- -----------
6,247,000 4,287,000
Less valuation allowance (6,247,000) (4,287,000)
----------- -----------
Net deferred tax liabilities $ -- $ --
=========== ===========
</TABLE>
The Company believes that the realization of its net deferred tax assets is
not more likely than not and therefore has recognized a full valuation
allowance thereon. The Company's future ability to realize its deferred tax
assets is based on several factors, including future profitability.
(g) Recent accounting standards
Effective August 1997, the Company adopted FAS 128, Earning per Share for
United States GAAP reporting purposes, on a retroactive basis. FAS 128 has
no significant effect on the Company's consolidated financial statements.
In June 1997, the FASB issued FAS 130, Reporting Comprehensive Income, and
FAS 131, Disclosures About Segments of an Enterprise and Related
Information which are required to be implemented during the Company's
fiscal year ended July 31, 1999. These standards will effect the
presentation but not the measurement of the consolidated financial
statements and the related notes.
12
<PAGE> 60
UNICOMM SIGNAL INC.
Consolidated Financial Statements
Years ended July 31, 1997 and 1996
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Loss and Deficit 3
Consolidated Statements of Changes in Financial Position 4
Notes to Consolidated Financial Statements 5
</TABLE>
<PAGE> 61
AUDITORS' REPORT TO THE DIRECTORS
We have audited the consolidated balance sheets of UniComm Signal Inc. as at
July 31, 1997 and 1996 and the consolidated statements of loss and deficit and
changes in financial position for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at July 31, 1997 and
1996 and the results of its operations and the changes in its financial position
for the years then ended in accordance with generally accepted accounting
principles in Canada. As required by the Company Act of the Province of British
Columbia, we report that, in our opinion, these principles have been applied on
a consistent basis.
/s/ KPMG
Chartered Accountants
Richmond, Canada
August 29, 1997
except note 7(c) which is as of December 24, 1997
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financial statements are affected by
conditions and events that cast substantial doubt on the Company's ability to
continue as a going concern, such as those described in note 1 to the financial
statements. Our report to the board of directors dated August 29, 1997, is
expressed in accordance with Canadian reporting standards which do not permit a
reference to such events and conditions in the auditors' report when these are
adequately disclosed in the financial statements.
/s/ KPMG
Chartered Accountants
Richmond, Canada
August 29, 1997
1
<PAGE> 62
UNICOMM SIGNAL INC.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
July 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash $ 69,761 $ 102,755
Receivables 109,241 237,222
Inventory (note 3) 699,619 404,219
Prepaids 46,582 18,581
------------ ------------
925,203 762,777
Capital assets (note 4) 556,332 135,206
Other assets (note 5) 1,168,042 398,626
------------ ------------
$ 2,649,577 $ 1,296,609
============ ============
Liabilities and Shareholders' Equity (Deficiency of Assets over Liabilities)
Current liabilities
Payables and accruals $ 2,027,903 $ 348,020
Current portion of long-term debt (note 6) 207,861 193,461
------------ ------------
2,235,764 541,481
Long term debt (note 6) 2,473,362 169,000
Shareholders' equity (deficiency of assets
over liabilities)
Share capital (note 7) 11,707,260 11,069,966
Equity component of convertible debt (note 8) 840,402 --
Deficit (14,607,211) (10,483,838)
------------ ------------
(2,059,549) 586,128
Future operations (note 1)
Commitments and contingencies (note 11)
Subsequent events (note 13)
------------ ------------
$ 2,649,577 $ 1,296,609
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board
_________________________ Director _________________________ Director
2
<PAGE> 63
UNICOMM SIGNAL INC.
Consolidated Statements of Loss and Deficit
(Expressed in Canadian Dollars)
Years ended July 31
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenue $ 921,546 $ 199,041
Cost of goods sold 658,943 113,055
------------ ------------
262,603 85,986
Expenses
Marketing 451,307 360,574
General and administrative 2,229,629 1,843,124
Research and development 1,193,705 721,536
Depreciation and amortization 511,335 98,643
------------ ------------
4,385,976 3,023,877
------------ ------------
Net loss (4,123,373) (2,937,891)
Deficit, beginning of year (10,483,838) (7,545,947)
------------ ------------
Deficit, end of year $(14,607,211) $(10,483,838)
------------ ------------
Loss per share $ (1.17) $ (1.11)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 64
UNICOMM SIGNAL INC.
Consolidated Statements of Changes in Financial Position
(Expressed in Canadian Dollars)
Years ended July 31
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH PROVIDED BY (USED IN)
Operations
Net loss $(4,123,373) $(2,937,891)
Depreciation and amortization 511,335 98,643
Changes in non-cash working capital 1,484,463 (296,236)
----------- -----------
(2,127,575) (3,135,484)
Financing
Repayment of long-term debt -- (15,000)
Convertible debentures 3,177,164 1,024,600
Share capital issued 637,294 3,844,534
Conversion of debentures to share capital (18,000) (1,559,349)
----------- -----------
3,796,458 3,294,785
Investing
Capital assets (329,121) (82,186)
Other assets (157,756) (206,626)
Acquisition of tire monitoring assets (note 12) (1,215,000) --
----------- -----------
(1,701,877) (288,812)
----------- -----------
Increase (decrease) in cash (32,994) 129,511
Cash, beginning of year 102,755 232,266
----------- -----------
Cash, end of year $ 69,761 $ 102,755
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 65
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
1. FUTURE OPERATIONS
UniComm Signal Inc. is a Canadian company. The Company and its
subsidiaries develop and market products incorporating wireless data
transmission and processing technologies, primarily for the commercial
vehicle and automotive markets. The Company's primary product is a
wireless tire monitoring system which it currently markets for use on
commercial and passenger vehicles, off-road heavy equipment and other
pneumatic tire applications.
These financial statements are prepared on a going-concern basis which
assumes the Company will realize its assets and discharge its liabilities
in the normal course of business. The application of the going-concern
concept is dependent upon the Company's ability to obtain adequate sources
of financing from its lenders, shareholders and other investors as
required, and the successful development and marketing of the Company's
products to generate future profitable operations. Operations from current
and prior periods did not generate positive cash flow from operations. The
Company plans to finance future operations substantially through further
equity or debt financings, similar to prior periods (see subsequent events
note 13).
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These financial statements include the accounts of the Company and its
wholly-owned subsidiaries, SmarTire USA Inc. and Delta Transportation
Products Ltd.
The audited consolidated financial statements have been prepared in
Canadian dollars in accordance with generally accepted accounting
principles in Canada and generally conform with those established in the
United States, except as explained in note 14.
(b) Cash
Cash includes cash on account, demand deposits and short-term investments
with maturities of less than three months.
(c) Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is
determined using the weighted average cost method and includes invoice
cost, duties and freight, plus direct labor applied to the product and the
applicable share of manufacturing overhead.
(d) Capital assets
Capital assets are recorded at cost. Depreciation is provided for on the
declining balance basis at 30% per annum. Leasehold improvements are
depreciated over the term of the lease plus one renewal option period.
(e) Deferred and patent costs
Research costs are expensed as incurred. Development costs and patent
costs, which are included in other assets, that are expected to provide
future benefits with reasonable certainty are deferred and amortized over
the useful life of the products to a maximum of three years. Other
development costs that do not meet these criteria are expensed as
incurred.
5
<PAGE> 66
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
2. SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(f) Revenue recognition
Revenue from sales is recognized when goods are shipped to customers.
(g) Loss per share
Basic loss per share computations are based on the weighted average number
of shares outstanding during the year. The stock options and warrants
outstanding (note 7(e)) are antidilutive, accordingly, fully diluted loss
per share does not differ from basic loss per share for the years
presented herein.
(h) Foreign exchange
Monetary items denominated in foreign currency are translated to Canadian
dollars at exchange rates in effect at the balance sheet date and
non-monetary items are translated at rates of exchange in effect when the
assets were acquired or obligations incurred. Revenues and expenses are
translated at rates in effect at the time of the transactions.
Foreign exchange gains and losses are included in income.
3. INVENTORY
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Raw materials and parts $269,367 $206,553
Work in progress 192,115 24,997
Finished goods 238,137 172,669
-------- --------
$699,619 $404,219
======== ========
</TABLE>
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997
Accumulated Net book
Cost Depreciation value
-------- -------- --------
<S> <C> <C> <C>
Computer and software $211,480 $118,721 $ 92,759
Office and shop equipment 493,955 125,631 368,324
Leasehold improvements 100,262 5,013 95,249
-------- -------- --------
$805,697 $249,365 $556,332
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996
Accumulated Net book
Cost Depreciation value
-------- -------- --------
<S> <C> <C> <C>
Computer and software $184,479 $ 84,754 $ 99,725
Office and shop equipment 89,597 54,116 35,481
-------- -------- --------
$274,076 $138,870 $135,206
======== ======== ========
</TABLE>
6
<PAGE> 67
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
5. OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred finance costs $ 157,756 $ --
Deferred product development costs 406,626 406,626
Acquired patents, intellectual property and contractual rights 1,062,500 50,000
---------- ----------
1,626,882 456,626
Accumulated depreciation 458,840 58,000
---------- ----------
Net book value $1,168,042 $ 398,626
========== ==========
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Western Economic Diversification Program, unsecured, repayable in monthly
instalments of the greater of $1,000 or 1% of gross sales of the prior
month, plus supplemental payments of 1% of new equity funds
raised since August 1, 1995 $ 28,743 $ 28,743
Western Economic Diversification Program, repayable
in monthly instalments of the greater of $4,000 or 4%
of gross sales of the prior month, plus supplemental
payments of 1% of new equity raised since August 1, 1995 164,718 164,718
Class B redeemable debenture with a face value of
$14,400 (1996 - $32,400) bearing interest at 12% per
annum, secured by a floating charge on certain assets
of the Company, due December 9, 1997 14,400 32,400
Class C redeemable debenture with a face value
of $136,600 (1996 - $136,600) bearing interest at 10% per annum, secured
by a floating charge on certain assets of the Company, due July 24,
2000, convertible by the lender at any time prior to repayment, into
units, each unit comprised of 1 common share and 1 common share purchase
warrant, at $12.00 per unit until July 24, 1998. Each warrant entitles
the holder to purchase one common share at a price ranging from $12.00
to $16.00 at dates between July 25, 1997 and July 24, 2000 136,600 136,600
-------- --------
Carried forward $344,461 $362,461
======== ========
</TABLE>
7
<PAGE> 68
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
6. LONG-TERM DEBT, CONTINUED
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Brought forward $ 344,461 $ 362,461
Class D redeemable debenture with a face value of $1,134,000 (1996 - $Nil)
bearing interest at 6% per annum, secured by a floating charge on
certain assets of the Company, due November 1, 1999, convertible by the
lender at any time prior to repayment, into units, each unit comprised
of 1 common share and 1 common share purchase warrant, at $4.40 per unit
until November 1, 1997, $5.20 per unit until November 1, 1998, and $6.00
per unit until November 1, 1999. Each warrant entitles the holder to
purchase one common share at a price ranging from $5.20 to $12.00 at
dates between November 2, 1996 and November 1, 2001 912,454 --
Class F redeemable debenture with a face value of $1,722,000
(1996 - $Nil) bearing interest at 10% per annum, secured by a floating
charge on certain assets of the Company, due February 28, 2000,
convertible by the lender at any time prior to repayment, into units,
each unit comprised of 1 common share and 1 common share purchase
warrant, at $2.80 per unit until February 28, 1998, $3.60 per unit until
February 28, 1999, and $4.40 per unit until February 28, 2000. Each
warrant entitles the holder to purchase one common share at a price
ranging from $2.80 to $5.20 at dates between March 1, 1997
and February 28, 2001 1,262,153 --
Class G redeemable debenture with a face value of $178,000
(1996 - $Nil) bearing interest at 10% per annum, secured by a floating
charge on certain assets of the Company, due May 1, 2000, convertible by
the lender at any time prior to repayment into units, each unit
comprised of 1 common share and 1 share purchase warrant, at a price of
$2.80 per unit until May 1, 1998, $3.60 per unit until May 1, 1999, and
$4.40 until May 1, 2000. Each warrant entitles the holder to purchase
one common share at a price ranging from $2.80 to $5.20 at
dates between May 1, 1997 and May 1, 2002 162,155 --
---------- ----------
2,681,223 362,461
Less: current portion 207,861 193,461
---------- ----------
$2,473,362 $ 169,000
========== ==========
</TABLE>
8
<PAGE> 69
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
6. LONG-TERM DEBT, CONTINUED
Interest on the Western Economic Diversification loans is payable on any
amount that remains unpaid 30 days after due date at a rate of 3% above
the Bank of Canada rate and is compounded monthly.
During the years ended July 31, 1997 and 1996, the Company paid interest
on long-term debt of $304,582, and $196,394 respectively.
7. SHARE CAPITAL
(a) Authorized
(i) Common shares: 200,000,000 (1996 - 50,000,000) without par
value
(ii) Preferred shares: 20,000 (1996 - 20,000) with par value of
$1,000 per share
During 1997, the Company increased the authorized capital from
50,000,000 common shares without par value to 200,000,000 common
shares without par value.
During 1996, the Company authorized 20,000 preferred shares with a
par value of $1,000 per share.
(b) The subscribed and issued share capital of the Company is as follows:
<TABLE>
<CAPTION>
Common
Shares Amount
--------- -----------
<S> <C> <C>
Balance at July 31, 1995 2,301,484 $ 7,225,432
Issued during the year ended July 31, 1996
Cash 166,195 664,780
Exercise of stock options 70,000 226,660
Exercise of warrants 412,755 1,185,245
Conversion of convertible debenture 401,666 1,559,349
Shares subscribed for cash in 1996 and issued in 1997 52,125 208,500
--------- -----------
Balance at July 31, 1996 3,404,225 11,069,966
Issued during the year ended July 31, 1997
Cash (net of issuance costs of $32,931) 62,325 216,369
Exercise of stock options 26,250 72,300
Exercise of warrants 102,473 330,625
Conversion of convertible debenture 5,625 18,000
--------- -----------
Balance at July 31, 1997 3,600,898 $11,707,260
========= ===========
</TABLE>
(c) The Company effected a reverse stock split of 1 to 8 effective
December 24, 1997. At that time, all outstanding common shares,
convertible securities, common share purchase warrants, and common share
purchase options were proportionately adjusted to reflect the
consolidation. All references to share capital within the financial
statements are on a post-consolidated basis.
9
<PAGE> 70
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
7. SHARE CAPITAL, CONTINUED
(d) Shares held in escrow
A total of 181,250 (1996 - 181,250) shares are held in escrow, to be
released only with the consent of the governing regulatory authorities.
These shares carry voting rights but are restricted from trading subject
to an earn-out provision based on a formula acceptable to the governing
regulatory authorities and until consent is obtained.
An additional 250,000 treasury shares have been reserved for future
allotment and issuance, subject to an earn-out provision based on cash
flow as defined in the earn-out agreement.
The shares held in escrow and the allotted treasury shares are scheduled
to expire May 23, 1999.
(e) Stock options and warrants
As at July 31, 1997 stock options were outstanding for 349,375 (1996 -
196,438) common shares of the Company. These options are exerciseable by
the holders at prices ranging from $2.88 to $3.20 (1996 - $2.00 to $5.60)
per share and expire on various dates from 1997 to 2002.
The Company also has various warrants outstanding as at July 31, 1997 for
463,770 (1996 - 600,529) shares of the Company. The warrants entitle the
holders to purchase common shares of the Company at prices ranging from
$4.00 to $8.00 (1996 - $3.20 to $5.60) per share which expire on various
dates until 1998.
8. FINANCIAL INSTRUMENTS AND SIGNIFICANT ESTIMATES
(a) Fair value disclosure
The carrying value of cash, receivables and payables and accruals
approximate fair value due to the short-term maturity of these
instruments.
The fair value of long-term debt subject to fixed interest rates is
estimated by discounting the future cash flows, including interest
payments, using rates currently available for debt of similar terms and
maturity, based on the Company's credit standing and other market factors.
The carrying value was determined to approximate their fair value given
the proximity of their issuance to the balance sheet date. The fair value
of long-term debt subject to floating market rates approximates its
carrying value.
(b) Credit risk
The Company does not have a significant exposure to any individual
customer, however, the majority of the Company's activities are
concentrated in the automotive industry and sales are substantially to
United States customers.
(c) Convertible debt instruments
The Company records the liability component of a financial instrument
(determined to be the net present value of the principal) and the equity
component separately on the balance sheet. Interest is recorded at the
estimated market interest rate, determined at issuance date, for
instruments of comparable credit status but without the conversion option.
10
<PAGE> 71
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
8. FINANCIAL INSTRUMENTS AND SIGNIFICANT ESTIMATES, CONTINUED
(d) Significant estimates
Management of the Company follows a policy of using significant estimates
related to establishing the recoverability of its assets including
inventory, capital assets and other assets and the likelihood of
contingent payables. These criteria are evaluated periodically by
management and are amended as the related operations progress. Management
applies the results of operations to the criteria to determine whether
there is a permanent impairment in value of the assets or the existence of
a liability.
9. RELATED PARTY TRANSACTIONS
Included in accounts receivable are amounts due from directors and
shareholders of the Company totalling $Nil as at July 31, 1997 (1996 -
$78,200) which are unsecured, non-interest bearing and due on demand.
Included in payables and accruals are amounts due to directors and
shareholders of the Company totalling $188,500 as at July 31, 1997 (1996 -
$Nil) which are unsecured, non-interest bearing and due on demand.
During the year ended July 31, 1997, the Company issued 18,750 (1996 -
147,260) common shares for cash in the amount of $67,300 (1996 - $954,224)
to senior officers, directors and/or their immediate families and
companies controlled by senior officers, directors and/or their immediate
families.
10. INCOME TAXES
The Company has losses for income tax purposes carried forward at July 31,
1997 of approximately $8,791,000 (1996 - $6,771,000) and scientific
research and development expenditures of $4,000,000 (1996 - $2,906,000)
available to reduce future taxable income. The related tax benefits of
these deductions have not been recognized in the accounts. The losses for
income tax purposes expire as follows:
<TABLE>
<S> <C>
1998 $ 625,000
1999 893,000
2000 913,000
2001 836,000
2002 1,469,000
2003 2,080,000
2004 1,975,000
-------------
$ 8,791,000
=============
</TABLE>
11
<PAGE> 72
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Amounts Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
11. COMMITMENTS AND CONTINGENCIES
(a) The Company is committed to the following payments under operating
leases, and service agreements for premises and certain equipment.
<TABLE>
<S> <C>
1998 $ 210,000
1999 215,000
2000 163,000
2001 163,000
2002 76,000
------------
$ 827,000
============
</TABLE>
(b) The purchase agreement between the Company and Epic Technologies, Inc.
(EPIC) regarding the acquisition of tire monitoring assets (note 12)
requires the Company to pay EPIC an additional US $100,000 in any of the
three years following the closing date in which sales meet specific
performance objectives. (c) The Company is involved in a dispute with a
former supplier in which the supplier is demanding payment of US $151,000.
Management is of the opinion that the Company is under no obligation to
pay the supplier and, accordingly, no charge has been recorded in the
books of the Company.
12. ACQUISITION OF TIRE MONITORING ASSETS
On December 6, 1996, the Company acquired intellectual property,
manufacturing and testing equipment, and contractual rights relating to
tire monitoring systems from EPIC Technologies, Inc. for cash
consideration of US $900,000 (Cdn $1,215,000).
Net assets acquired are as follows:
<TABLE>
<S> <C>
Capital assets $ 202,500
Patents, intellectual property and contractual rights 1,012,500
----------
$1,215,000
==========
</TABLE>
13. SUBSEQUENT EVENTS
(a) On September 3, 1997, the Company announced a private placement of 380
Series "G" convertible redeemable 10% debentures at a price of $1,000 per
debenture. Each debenture is convertible into units representing one
common share and one common share purchase warrant for a term of three
years expiring May 1, 1999 at a price of $2.80 per unit in the first year,
$3.60 per unit in the second year, and $4.40 per unit in the third year.
$178,000 of the proceeds for the private placement were received prior to
July 31, 1997 and are included in long term debt (note 6)
and equity component of long-term debt.
(b) On October 3, 1997, the Company announced a private placement of 18%
convertible redeemable debentures to be issued at a discount to their face
value of US $677,776 for total proceeds to the Company of US $610,000. The
debentures are convertible into common shares. The private placement is
subject to regulatory approval.
12
<PAGE> 73
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Amounts Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
14. UNITED STATES ACCOUNTING PRINCIPLES
(a) Loss and deficit
The Company's financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). A
reconciliation of financial statement amounts from Canadian generally
accepted accounting principles to United States generally accepted
accounting principles is as follows:
<TABLE>
<CAPTION>
($000's) 1997 1996
-------- --------
<S> <C> <C>
Net loss in accordance with Canadian GAAP $ (4,123) $ (2,938)
Effects of differences in accounting for:
Research and development costs (b) 151 (149)
Interest expense on convertible debt (c) (59) --
-------- --------
Net loss in accordance with United States GAAP (4,031) (3,087)
Beginning deficit in accordance with United States GAAP (10,883) (7,796)
-------- --------
Ending deficit in accordance with United States GAAP $(14,914) $(10,883)
======== ========
</TABLE>
(b) Research and development costs
United States generally accepted accounting principles require that all
development costs be charged to expense when incurred. Applying United
States generally accepted accounting principles, other assets would be
reduced by approximately $222,000 and $399,000 as at July 31, 1997 and
1996, respectively.
(c) Convertible debt
Under Canadian GAAP, a value is assigned to the conversion feature of debt
convertible to equity. Under United States GAAP, a value is assigned to
the conversion feature of debt convertible to equity if the conversion
rate is less than the market price of the common stock at the date of
issuance. Applying United States Accounting Standards, total long-term
debt would increase by approximately $279,000 (1996 - $Nil) and
shareholder's equity would decrease by $220,000 (1996 - $Nil) as at July
31, 1997 and interest expense would increase by approximately $59,000
(1996 - $nil).
(d) Loss per share
The weighted average number of shares and loss per share under United
States generally accepted accounting principles are as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Weighted average number of shares 3,344,803 2,474,251
Loss per share $ (1.21) $ (1.25)
========== ==========
</TABLE>
13
<PAGE> 74
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Amounts Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
14. UNITED STATES ACCOUNTING PRINCIPLES, CONTINUED
(d) Loss per share, continued
Loss per share is computed based on the weighted average number of common
shares outstanding during the year plus common share equivalents.
Contingently returnable shares held in escrow have been excluded from the
calculation of weighted average number of shares under United States
generally accepted accounting principles. Under Canadian generally
accepted accounting principles, contingently returnable shares held in
escrow are included in the calculation of weighted average number of
shares.
(e) Statement of changes in financial position
United States GAAP requires the effect of non-cash working capital
balances be disclosed in the statement of cash flows and the effect of
non-cash financing and investing transactions excluded from the statement
of cash flows.
The changes in non-cash working capital balances related to operating
activities include:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Decrease (increase) in assets
Receivables $ 127,981 $ (154,404)
Inventory (295,400) (199,571)
Prepaids (28,001) (14,601)
Increase in liabilities
Payables and accruals 1,679,883 72,340
----------- -----------
$ 1,484,463 $ (296,236)
=========== ===========
</TABLE>
Cash provided by share capital issuance and cash applied to the conversion
of debentures to share capital under financing would each decrease in
total by $18,000 in the year ended July 31, 1997 (1996 - $1,559,349)
because these amounts would be considered non-cash transactions.
14
<PAGE> 75
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Amounts Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
14. UNITED STATES ACCOUNTING PRINCIPLES, CONTINUED
(f) Income taxes
Under United States GAAP, deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and amounts used for
income tax purposes. Temporary differences are tax-effected at current
rates whereas under Canadian GAAP, temporary differences are tax-effected
at historical rates. There have been no deferred tax effects or changes in
tax rates during fiscal years 1997 and 1996. There are no differences in
recorded amounts under FAS109 or Canadian GAAP. The Company's deferred tax
asset under FAS109 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 3,393,326 $ 2,613,606
Scientific research and development expenses 1,544,000 1,121,716
----------- -----------
4,937,326 3,735,322
Less valuation allowance (4,937,326) (3,735,322)
----------- -----------
Net deferred tax liabilities $ -- $ --
=========== ===========
</TABLE>
The Company believes that the realization of its net deferred tax assets
is not more likely than not and therefore has recognized a full valuation
allowance thereon. The Company's future ability to realize its deferred
tax assets is based on several factors, including future profitability.
(g) Recent United States accounting standards
Effective August 1, 1996, the Company adopted FAS 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of, for United States GAAP reporting purposes. FAS 121 had no significant
effect on the Company's consolidated financial statements.
Effective August 1, 1995, the Company adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123 ("FAS 123"),
Accounting for Stock-Based Compensation, for United States GAAP purposes.
Under APB 25, no compensation expense has been recognized in 1997 and
1996. Compensation cost based on the fair value of options at the grant
dates applying the provisions of FAS 123 was determined to be immaterial
for fiscal years 1997 and 1996. For these purposes, the fair value of each
option was estimated using the Black-Scholes option - pricing model with
the following weighted average assumptions: dividend yield 0% (1996 - 0%),
expected volatility 8.0% (1996 - 8%), Canadian risk free interest rate
5.0% (1996 - 5.5%), and weighted average option term of 1.7 years (1996 -
2.0 years). The weighted average fair value of the options granted was
$0.04 (1996 - $0.05) per option.
15
<PAGE> 76
UNICOMM SIGNAL INC.
Notes to Consolidated Financial Statements, Continued
(Amounts Expressed in Canadian Dollars)
Years ended July 31, 1997 and 1996
14. UNITED STATES ACCOUNTING PRINCIPLES, CONTINUED
(g) Recent United States accounting standards, continued
In February 1997, the Financial Accounting Standards Board ("FASB") issued
FAS 128, Earnings per Share, which is required to be implemented during
the Company's fiscal year ending July 31, 1998, on a retroactive basis.
The Company does not expect FAS 128 to have a material effect on the
financial statements.
In June 1997, the FASB issued FAS 130, Reporting Comprehensive Income, and
FAS 131, Disclosures About Segments of an Enterprise and Related
Information which are required to be implemented during the Company's
fiscal year ended July 31, 1999. These standards will effect the
presentation but not the measurement of the consolidated financial
statements and the related notes.
16
<PAGE> 1
EXHIBIT 3.1
CANADA NUMBER
PROVINCE OF BRITISH COLUMBIA 332869
[LOGO]
PROVINCE OF BRITISH COLUMBIA
Ministry of Finance and Corporate Relations
REGISTRAR OF COMPANIES
COMPANY ACT
CERTIFICATE OF INCORPORATION
I HEREBY CERTIFY THAT
TTC/TRUCK TECH CORP.
HAS THIS DAY BEEN INCORPORATED UNDER THE COMPANY ACT
[SEAL]
GIVEN UNDER MY HAND AND SEAL OF OFFICE
AT VICTORIA, BRITISH COLUMBIA,
THIS 8TH DAY OF SEPTEMBER, 1987
/s/ ROBERTA J. LOWDON
-------------------------------------
ROBERTA J. LOWDON
DEPUTY REGISTRAR OF COMPANIES
<PAGE> 1
EXHIBIT 3.2
MEMORANDUM
and ARTICLES
TTC/TRUCK TECH CORP.
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
PART ARTICLE PAGE
- ---- ------- ----
<S> <C> <C>
1 Interpretation............................................. 1
2 Shares and Share Certificates.............................. 1
3 Issue of Shares............................................ 2
4 Transfer of Shares......................................... 2
5 Transmission of Shares..................................... 2
6 Share Registers............................................ 3
7 Purchase and Redemption of Shares.......................... 3
8 Borrowing Powers........................................... 3
9 General Meetings........................................... 3
10 Proceeding at General Meetings............................. 4
11 Votes of Members........................................... 5
12 Directors.................................................. 6
13 Election, Appointment and Retirement of Directors.......... 6
14 Proceedings of Directors................................... 6
15 The Seal................................................... 7
16 Officers................................................... 7
17 Indemnification and Protection of Directors,
Officers and Employees ................................. 7
18 Dividends and Reserve...................................... 8
19 Accounting Records......................................... 9
20 Notices.................................................... 9
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
21 Record Dates................................................ 9
22 Prohibition................................................. 9
23 Liens....................................................... 9
24 Rights and Restrictions (if any)............................
</TABLE>
3
<PAGE> 4
INDEX TO ARTICLES
<TABLE>
<S> <C>
ACCOUNTING RECORDS......................................................
AUDITORS................................................................
BORROWING POWERS........................................................
CAPITAL, INCREASE OF....................................................
DEBENTURES
Register of......................................................
DIRECTORS
Additional, Appointment of.......................................
Alternative, Appointment of......................................
Committees of....................................................
Conflict of Interest.............................................
Delegation of Powers.............................................
Disqualification of..............................................
Election of......................................................
Indemnification of...............................................
Insurance........................................................
Liability of.....................................................
Qualifications...................................................
Number of........................................................
Proceedings Generally............................................
Chairman.......................................................
Consent Resolution.............................................
Majority.......................................................
Notice.........................................................
Quorum.........................................................
Meetings by telephone, etc.....................................
Remuneration.....................................................
Resolution in Writing............................................
Vacancy..........................................................
Validation of Acts...............................................
DIVIDENDS...............................................................
Declaration of...................................................
Deductions from..................................................
Distributions of.................................................
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
Interest.........................................................
Manner of Payment................................................
Reserves.........................................................
Transfer of Shares...............................................
</TABLE>
5
<PAGE> 6
COMPANY ACT
ARTICLES
OF
TTC/TRUCK TECH CORP.
PART 1 - INTERPRETATION
1.1 In these Articles, unless the context otherwise requires:
(a) "Board of Directors", "Board" and "Directors" mean the director or
directors of the Company;
(b) "Company Act" means the Company Act of the Province of British
Columbia and any Act enacted in substitution therefor and all
amendments thereto and includes all regulations made pursuant
thereto;
(c) "Registered Address" means the address recorded in any register
maintained by the Company pursuant to the provisions of the Company
Act.
1.2 Expressions referring to writing including references to printing,
lithographing, typewriting, photography, and other modes of representing or
reproducing words in a visible form.
1.3 Words importing the singular include the plural, and vice versa. Words
importing a male person include a female person and a corporation.
1.4 "Will" is to be construed as imperative.
1.5 The definitions contained in the Company Act apply to these Articles if no
inconsistency is created.
PART 2 - SHARES AND SHARE CERTIFICATES
2.1 Every share certificate issued by the Company will be in such form as the
Directors approve and will comply with the Company Act.
6
<PAGE> 7
2.2 Any share certificate may be delivered to the holder by sending it by
prepaid registered mail to his Registered Address. Where a share is held by two
or more persons, delivery of the certificate for the share to the holder named
first in the register of members is sufficient delivery to all.
2.3 If a share certificate is worn out or defaced, the Directors may, upon
production of the certificate and upon such other terms as they may require,
order the certificate to be cancelled and issue a new certificate in its place.
2.4 If a share certificate is stolen, lost or destroyed, the Directors may, upon
proof to the satisfaction of the Director and upon such indemnity as the
Directors may require being provided, issue a new certificate in its place.
2.5 Subject to the Company Act, the Company may treat a person whose name is
entered in the register of members as the absolute owner of any share and,
unless otherwise ordered by a Court of competent jurisdiction, the Company is
not bound to recognize any equitable or other claim to or interest in the share
on the part of any other person.
PART 3 - ISSUE OF SHARES
3.1 The unissued shares of the Company and those acquired a redemption, purchase
or other acquisition of its shares by the Company are under the control of the
Directors who may, subject to the rights of the members, issue ________ grant
options, or otherwise dispose of the shares to such persons, including the
Directors, and upon such terms and conditions as the Directors may determine and
the Company Act may prescribe.
3.2 Subject to the Company Act, the Directors may pay a commission or allow a
discount to any person in consideration of his subscribing or agreeing to
subscribe, whether absolutely or conditionally, for any shares in the Company or
procuring or agreeing to procure subscriptions, whether absolute or conditional,
for any shares in the Company. The Directors may also pay brokerage.
3.3 The Directors may determine the price or consideration for which shares
without par value are issues.
3.4 Subject to the Company Act, the Company may issue share purchase warrants
upon such terms and conditions as the Directors may determine. Share purchase
warrants may be issued alone or in conjunction with any other security issued or
created by the Company.
3.5 The Company may by special resolution alter its Memorandum to increase the
share capital of the Company.
7
<PAGE> 8
PART 4 - TRANSFER OF SHARES
4.1 Subject to the restrictions set forth in these Articles, a member may
transfer any share by instrument in writing executed by or on behalf of the
member and delivered to the secretary or the transfer agent of the Company. The
instrument or transfer of any share will be either in the form provided on the
back of the Company's form of share certificate or in any other form which the
Directors may approve. If the Directors so require, each instrument of transfer
will be in respect of on class of shares only.
4.2 Where an instrument of transfer together with the share certificate and such
other evidence of title as the Director may require is delivered to the Company,
the Directors will, subject to the restrictions set forth in these Articles,
cause the name of the transferee to be entered into the register of members, but
the transferor remains the holder of the share until the name of the transferee
is entered into the register of members.
4.3 The signature of a member or his duly authorized attorney upon the
instrument of transfer constitutes authority to the Company to register the
shares specified in the instrument of transfer in the name of the person named
in the instrument of transfer as transferee or, if no person is named, in any
name designated in writing by the person depositing the share certificate and
the instrument of transfer with the secretary or the transfer agent of the
Company.
4.4 The Company and its Directors, officers and agents are not bound to inquire
into the title of a transferee and they are not liable to any person for
registering a transfer of shares.
4.5 The Directors may prescribe the sum to be paid to the Company to register
any transfer.
PART 5 - TRANSMISSION OF SHARES
5.1 If a member dies and his share is not held by two or more persons, the legal
representative of the deceased will be the only person recognized by the Company
as having any title to or interest in the share.
5.2 If a member dies and his share is held by two or more persons, the surviving
holder or holders of the share and the legal representative of the deceased will
be the only persons recognized by the Company as having an interest, if any, in
the share.
5.3 Before recognizing any legal representative of a deceased member, the
Directors may require him to obtain a grant of Letters Probate or Letters of
Administration in the Province of British Columbia.
8
<PAGE> 9
5.4 A person who is entitled to a share because of the death or bankruptcy of a
member, upon producing the evidence required by the Directors and the Company
Act, may be registered as holder of the share or may transfer the share but the
Directors will in either case have the same rights under Article 22.3 as they
have in the case of a share transfer before death or bankruptcy.
5.5 A person who is entitled to a share because of an order of a Court of
competent jurisdiction or because of a statute upon producing such evidence as
the Directors may require, may be registered as the holder of the share.
5.6 The person entitled to a share by reason of the death bankruptcy of a member
is entitled to the same dividend and other advantages as those to which he would
be entitled if he were the member, but he will not be entitled in respect of it
to vote or exercise any other rights conferred by membership in respect of
meetings of the Company until his name appears in the register of members.
PART 6 - SHARE REGISTERS
6.1 The Company will keep or cause to be kept a register of members, a register
of allotments, and a register of transfers. The Company may keep or cause to be
kept a separate register in respect of each class of shares.
6.2 The Directors may appoint a Trust Company to keep the registers referred to
in Article 6.1 and, if a separate register is to be kept in respect of any class
of shares, the Directors may appoint the same or a different Trust Company to
keep the register in respect of any class of shares. The Directors may appoint
the same or a different Trust Company as the Company's transfer agent.
6.3 Subject to the Company Act, the Company may keep or cause to be kept one or
more branch registers of members at such place or places as the Directors may
determine.
PART 7 - PURCHASE AND REDEMPTION OF SHARES
7.1 Subject to the special rights and restrictions attached to shares, the
Company may, by a resolution of the Directors and in compliance with the Company
Act, purchase any of its shares upon the terms specified in the resolution or
may redeem any class of shares in accordance with the special rights and
restrictions attached thereto.
7.2 If the Company may not vote any share that it has redeemed or purchased.
PART 8 - BORROWING POWERS
8.1 The Directors may on behalf of the Company:
9
<PAGE> 10
(a) borrow money upon such terms and conditions as they think fit;
(b) issue bonds, debentures, or other debt obligations either outright
or as security for any liability or obligation of the Company; and
(c) mortgage, pledge, charge, or give other security on the whole or any
part of the property, assets and undertakings of the Company,
present and future.
8.2 The Directors may authorize the issue of any debentures, bonds or other debt
obligations of the Company at a discount or premium and with such rights or
privileges as the Directors may determine at or before the time of issue.
8.3 The Company may keep one or more branch registers of its debentureholders
inside or outside the Province of British Columbia as the Directors may
determine.
PART 9 - GENERAL MEETINGS
9.1 Subject to the Company Act, the first annual general meeting will be held
within 15 months from the date of the incorporation, and thereafter an annual
general meeting will be held once in every calendar year at the time (not being
more than 13 months after the holding of the last preceding annual general
meeting) and the place that is prescribed by the Directors. In default of the
meeting being held, the meeting may be convened by any one or more members in
accordance with the Company Act.
9.2 Notwithstanding Article 9.1, if the Company is not a reporting Company under
the Company Act, it is not necessary to hold a meeting if all the members
entitled to attend and vote at the meeting consent in writing to the business to
be transacted at the meeting.
9.3 The Directors may, at any time, convene a general meeting.
9.4 Notice of a general meeting will be sufficient if it specifies:
(a) the place, day and hour of the meeting;
(b) the general nature of any special business to be transacted at the
meeting; and
(c) that any documents to be considered with any special business will
be available for inspection by the members a place designated in the
notice during business hours on any working day or days up to the
date of the meeting and at the meeting.
10
<PAGE> 11
9.5 Accidental omission to give notice of a meeting to any member or the
non-receipt of notice of a meeting will not validate the proceedings at that
meeting.
9.6 The period of notice of a general meeting may be reduced or waived by
unanimous consent in writing of the member entitled to attend and vote at the
meeting.
9.7 All business conducted at a general meeting is to be special with the
exception of electing directors, appointing and fixing the remuneration of the
auditors, and considering the financial statements and the reports of the
Directors as auditors.
PART 10 - PROCEEDINGS AT GENERAL MEETINGS
10.1 No business will be transacted at any general meeting unless a quorum of
members entitled to vote is present at the time when the meeting convenes.
10.2 Members personally present, being not less than two (or, if the Company has
only one member, one) and who hold, represent by proxy in the aggregate not less
than one-tenth of the issued capital of the Company entitled to vote, constitute
quorum.
10.3 If a quorum is not present within one-half hour from the time appointed for
a meeting, then the meeting, if convened upon the requisition of members, will
be dissolved. In any other case, the meeting will stand adjourned to the same
day in the next week, at the same hour and place. If at the adjourned meeting a
quorum is not present within one-half hour from the time appointed for the
meeting, the members present will constitute a quorum.
10.4 The chairman of the Board or, in his absence, the president of the Company
will preside as chairman at every meeting of the Company.
10.5 If, at any meeting:
(a) there is no chairman or president;
(b) the chairman or president is not within five minutes after the time
appointed for holding the meeting;
(c) the chairman or president is unwilling to act as chairman, the
members present may choose a chairman for the meeting,
the members present may choose a chairman for the meeting.
10.6 The chairman may, with the consent of any meeting, and will, if so directed
by the meeting, adjourn the meeting from time to time and from place to place,
but no business will be transacted at any adjourned meeting other than the
business __________
11
<PAGE> 12
unfinished at the meeting from which the adjournment took place. When a meeting
is adjourned to an unspecified time and place, not less than seven days' notice
of the adjourned meeting will be given, but it is not otherwise necessary to
give any notice of adjournment or of the business to be transacted at an
adjourned meeting.
10.7 Subject to the Company Act, every question submitted to a general meeting
will be decided on a show of hands unless, before or on the declaration of the
result of the show of hands, a poll is directed by the chairman or demanded by a
member or a proxy holder entitled to vote. A declaration by the chairman that,
on a show of hands, a resolution has been carried, or defeated, together with an
entry to that effect in the minute book of the Company is conclusive evidence of
the fact.
10.8 If a poll is demanded, it will be taken in such manner as the chairman
directs, and the result of the poll is effective from the time of the meeting at
which the poll is demanded. The demand for a poll may be withdrawn. Any poll
demanded on the election of the chairman of a meeting or on any question of
adjournment will be taken at the meeting without adjournment.
10.9 In the case of an equality of votes, the chairman of the meeting will not
have a second or casting vote.
10.10 The demand for a poll does not prevent the continuance of a meeting for
the transaction of any business other than the question on which the poll has
been demanded.
PART 11 - VOTES OF MEMBERS
11.1 Subject to any rights or restrictions for the time being attached to any
class or classes of shares, on a show of hand every member present in person has
one vote, and on a poll every member, present in person or by proxy, has one
vote for each share he holds.
11.2 Subject to the rights or restrictions attached to any class of shares, any
corporation which is a member and which is not a subsidiary of the Company is
entitled to vote at any meeting of the Company and may appoint a person to act
as its representative at the meeting.
11.3 In the case of two or more registered holders of a share, the vote of the
senior who tenders a vote, whether in person or by proxy, will be accepted to
the exclusion of the votes of the others, and for this purpose seniority is
determined by the order in which their names stand in the register of members.
11.4 A member for whom a committee has been duly appointed may vote, whether on
a show of hands or on a poll, by his committee. A committee may appoint a proxy
holder.
12
<PAGE> 13
11.5 On a poll, votes may be cast either personally or by proxy.
11.6 A proxy and any power of attorney or other authority under which it is
signed or a notarially certified copy of the power of authority will be
deposited at the place specified for that purpose in the notice of meeting or,
if no place is so specified, at the registered office of the Company before the
time for holding the meeting at which the person named in the proxy proposes to
vote, or such earlier time as the Directors may determine. In default the proxy
will not be treated as valid.
11.7 A proxy will be in writing under the hand of the appointor and, if the
appointor is a corporation, under the hand of an officer or attorney duly
authorized for that purpose. A proxy holder is not required to be a member.
11.8 A proxy will be in the following form or in any form the Directors approve:
The undersigned hereby appoints
________________________________________________ of
________________________________________________ or
______________________, of _____________________ (or failing him
________________________, of ______________________________) as
proxy holder for the undersigned to attend at and vote for and on
behalf of the undersigned at the (annual ______ extraordinary, as
the case may be) general meeting of the Company, to be held on the
______________ day of _____________________________, and at any
adjournment of that meeting.
Signed this ________ day of ______________, 19____
The form of and the authority conferred by a proxy will comply with
the Company Act.
11.9 A proxy may be revoked at any time before it is exercised.
PART 12 - DIRECTORS
12.1 Unless the number of Directors is determined by ordinary resolution, the
number of Directors, including additional Directors, will be not be less than
one (or, if the Company is a reporting company, not less than three), and not
more than 20. Within this range the number of Directors may be determined by the
Directors.
12.2 A director is not required to be a member.
13
<PAGE> 14
12.3 The remuneration of the Directors may be fixed by the Board, subject to
such limitation as may be established by ordinary resolution, and may be in
addition to any remuneration they are otherwise entitled to receive.
12.4 It is the duty of a director to comply with the Company Act.
12.5 A director is entitled to be repaid reasonable expenses properly incurred
on the business of the Company. If a director is required to perform extra
services or is otherwise occupied on the Company's business, he is entitled to
receive remuneration to be fixed by the Board or, at the option of the
Directors, by the Company in general meeting, and the remuneration may be either
in addition to or in substitution for any other remuneration he is entitled to
receive.
PART 13 - ELECTION, APPOINTMENT AND RETIREMENT OF DIRECTORS
13.1 Subject to Article 13.3, at each annual general meeting of the Company all
Directors will retire from office effective at the termination of the meeting
(or, if the members consent in writing to the business required to be transacted
at the annual general meeting pursuant to Article 9.2, then on the effective
date of the resolution electing Directors) and directors will be elected to fill
the offices vacated.
13.2 A retiring director is eligible for re-election.
13.3 If, at a meeting at which an election of Directors ought to take place, the
places of retiring directors are not filled, the meeting will stand adjourned
until the same day in the next week, at the same time and place. If at the
adjourned meeting the places of the retiring directors are not filled, the
retiring directors, or such of them as have not had their places filled, will be
deemed to have been re-elected at the adjourned meeting.
13.4 Subject to Article 12.1, the Directors may, from time-to-time, appoint a
person or persons as an additional director or directors; provided that the
number of additional directors shall not at any time exceed 1/3 of the number of
directors elected or appointed at the last annual general meeting of the
Company.
13.5 A director may, with the approval of the Directors, appoint any person,
whether a member or a director of the Company or not, to serve as his alternate
director and as such to attend and vote in his place at meetings of Directors.
If the appointee is a director of the Company, he will be entitled to two votes,
one as a director and the other as an alternate director. If the appointing
director so directs, notices of meetings of Directors will be sent to the
alternate director and not to the appointing director.
13.6 An alternate director will vacate his office as an alternate director when
either:
(a) The appointing director ceases to be a director; or
14
<PAGE> 15
(b) The appointing director removes the appointee from office as an
alternate director by notice in writing delivered to the secretary
to the Company.
13.7 The Company may, by special resolution, remove any director before the
expiration of his period of office and may by ordinary resolution appoint
another person in his stead.
13.8 A casual vacancy that occurs among Directors may be filled for the
unexpired term by the remaining directors.
PART 14 - PROCEEDINGS OF DIRECTORS
14.1 The Directors may meet together for the conduct of business, and may
adjourn and otherwise regulate their meeting as they think fit.
14.2 Unless all directors waive their right to notice or otherwise agree, the
secretary or a director will give not less than seven days' notice of any
meeting of Directors. Any director may requisition a meeting of Directors by
giving notice.
14.3 A majority of votes decides questions arising at any meeting of Directors.
In the case of an equality of votes, the chairman will not have a second or
casting vote.
14.4 The Directors may fix the quorum necessary for the conduct of their
business. If no quorum is fixed, it is a majority of the Board.
14.5 A director who is interested in any contract or transaction will be counted
in the quorum for a meeting of Directors but will disclose the nature and extent
of his interest at the meeting. Unless authorized by ordinary resolution, a
director cannot vote on a contract or transaction in which he is interested.
14.6 The Directors may continue to act if there is a vacancy in their number,
but, if the number of Directors is less than the quorum fixed pursuant to these
Articles, the continuing Directors may act only to fill the vacancies up to the
quorum fixed pursuant to these Articles, or to summon a general meeting of the
Company.
14.7 The Directors may elect a chairman for their meetings and determine the
period for which he is to hold office. If no chairman is elected, the president
will be chairman. If neither the chairman nor the president is present at any
meeting of Directors, the directors present may choose a chairman of the
meeting.
14.8 The Directors may delegate any of their powers to a committee or committees
consisting of such person or persons as they think fit. Any committee so formed
will, in the exercise of its delegated powers, conform to any regulations that
may be imposed by the Directors.
15
<PAGE> 16
14.9 No act of the Board or a director is invalid because a defect in the
appointment or qualification of a director is discovered subsequently.
14.10 The Directors may, without calling a meeting, pass a resolution by
unanimous consent in writing.
14.11 Where by radio, telephone or other means of audible voice transmission,
one or more directors are in communication with all directors present at a
meeting of directors in such a manner that each director present at such meeting
and each director so communicating can speak to and at all times hear what is
spoken by each of the other directors who are either present at such meeting or
so communicating during such meeting, then and in such case all directors so
communicating shall be considered to be present at the meeting and shall be
counted as present at the meeting for the purposes of determining a quorum and
voting as if they were physically present at the meeting, and any resolution
concurred in by such of the directors present and counted as present at such
meeting as are required to vote in favor of such resolution at a meeting of
directors to pass same shall be deemed to be a resolution of the Board duly
passed.
PART 15 - THE SEAL
15.1 The Directors may provide a seal for the Company. The seal of the Company
may be affixed to any instrument by, and any instrument may be executed on
behalf of the Company in the presence of, any two directors of the Company, or
as may be determined by resolution of the Directors.
15.2 The Directors may authorize for use without the Province of British
Columbia an official seal, which will be a facsimile of the common seal of the
Company with the addition on its face of the name of the Province State or
Country where it is to be used.
PART 16 - OFFICERS
16.1 The Directors will appoint or elect a president and secretary of the
Company and may appoint or elect such other officer or officers of the Company
as in their discretion they think fit. The chairman of the boar and the
president are required to be directors.
PART 17 - INDEMNIFICATION AND PROTECTION OF DIRECTORS, OFFICERS AND EMPLOYEES
17.1 Subject to the Company Act, a director or other officer of the Company is
not liable for:
(a) any act, receipt, neglect, or default of any other director or
officer;
(b) joining in any act for conformity;
16
<PAGE> 17
(c) loss or damage arising from bankruptcy, insolvency or tortious acts
of any person with whom any monies, securities or effects are
deposited;
(d) loss or damage arising or happening to the Company through the
insufficiency or deficiency of any security in or upon which assets
of the Company may be invested;
(e) any loss occasioned by any error or oversight on his part; or
(f) any loss, damage or misfortune whatsoever happening in the execution
of the duties of his office or in relation thereto.
unless it happens through his own dishonesty.
17.2 Subject to the Company Act, the Company will indemnify each and every
director, secretary or assistant secretary and each and every former director,
secretary or assistant secretary of the Company against all reasonable losses,
costs, charges and expenses properly incurred, including any amount paid to
settle an action or satisfy a judgment in a civil, criminal or administrative
action or proceeding by reason of his having been a director or secretary or
assistant secretary of the Company, if:
(a) he acted honestly and in good faith, with a view to the best
interests of the Company and
(b) he had reasonable grounds for believing his conduct was lawful.
The result of any action, suit or proceeding does not create a presumption that
the person did not act honestly and in good faith with a view to the best
interests of the Company, or that the person did not have reasonable grounds to
believe that his conduct was lawful. The Company will apply to a Court of
competent jurisdiction for all approvals of the Court which maybe required to
make this Article effective and enforceable. Each director, secretary and
assistant secretary on being elected or appointed will be deemed to have
contracted with the Company on the terms of the indemnity contained in this
Article.
17.3 The Company may, if permitted by law, indemnify any person who serves or
has served as a director, officer, employee, or agent of the Company or of any
corporation of which the Company is a shareholder.
17.4 The Company may purchase and maintain insurance for the benefit of any
person who is or was serving as a director, officer, employee or agent of the
Company or of any corporation of which the Company is a shareholder against any
liability which may be incurred by him in that capacity.
17
<PAGE> 18
PART 18 - DIVIDENDS AND RESERVE
18.1 The Directors may by resolution declare dividends, either with or without
notice, and pay the same out of any fund of the Company available for that
purpose.
18.2 Subject to special rights as to dividends attached to any shares, all
dividends will be declared and paid according to the number of shares held.
18.3 The Directors may, before declaring a dividend, set aside out of the
profits of the Company such moneys as they think proper as a reserve or reserves
which will be applicable for meeting contingencies or equalizing dividends, or
for any other purpose to which the profits of the Company may be properly
applied, and the moneys may, pending this application either be employed in the
business of the Company or be invested as the Directors think fits.
18.4 No dividends bear interest against the Company.
18.5 The Directors may deduct from any dividend payable to a member all sums of
money presently owing by that member to the Company.
18.6 The transfer of shares does not, as against the Company, transfer the right
to any dividend declared thereon before registration of the transfer.
18.7 The Directors may, with the approval of the members declare a dividend to
be paid wholly or in part by distribution of specific assets including without
limitation paid up shares or debentures of the Company and any other
corporation.
18.8 The Directors may settle any difficulty which may arise in regard to a
distribution as they think expedient, and particular may issue fractional
certificates, may fix the value for the distribution of any specific assets and
may determine that cash payments will be made to any member upon the basis of
the value so fixed or that fractions of less than $1.00 will be disregarded in
order to adjust the rights of all parties.
PART 19 - ACCOUNTING RECORDS
19.1 The Directors will cause to be kept books of account, accounting records
and such other records as are necessary to comply with the provisions of
statutes applicable to the Company.
19.2 The books and records will be kept at such place or places as the Directors
may think fit and will be open to inspection by the Directors.
18
<PAGE> 19
PART 20 - NOTICES
20.1 Any notice may be given by the Company to any member or director either
personally or by sending it by prepaid post or telegram to him at his Registered
Address.
20.2 A notice sent by prepaid post or telegram is effective on the day after the
date of sending. A notice delivered personally is effective on the day of
delivery.
20.3 If a share is held by two or more members, a notice sent to the holder
named first in the register of members is effectively given to all the holders
thereof.
20.4 A notice may be given by the Company to the person entitled to a share
because of the death or bankruptcy of member by sending it by prepaid post or
telegram addressed to the person by name, or by the title of the representative
or the deceased member or trustee of the bankrupt member, or by any like
description, at the address supplied for that purpose or, if no address is
supplied, at the Registered Address of the member.
PART 21 - RECORD DATES
21.1 The Directors may fix a date (the "Record Date") within the period
permitted by the Company Act for the purpose of determining the identity of
persons entitled to receive notice of any meeting, to attend or vote at any
meeting, to receive dividend, to exercise a right to purchase shares, or for any
other proper purpose. Only those persons whose names appear on the records of
the Company on the Record Date will be included for the purposes described in
determining the Record Date.
21.2 If no Record Date is fixed by the Directors, the date on which the business
is transacted is the Record Date.
PART 22 - PROHIBITION
22.1 The number of members is limited to 15.
22.2 No shares or debt obligations issued by the Company will be offered for
sale to the public.
22.3 Shares cannot be transferred without the previous consent of the Directors
expressed by resolution of the Board. The Directors are not required to give any
reason for refusing to consent to a proposed transfer.
22.4 The provisions of Articles 22.1, 22.2 and 22.3 shall not apply if and so
long as the Company is a reporting company.
19
<PAGE> 20
PART 23 - LIENS
23.1 The Company has a lien on every share registered in the name of a member
for all moneys owing by him to the Company, but the Directors may at any time
declare any share to be wholly or in part exempt from the provisions of this
Part. The Company's lien on a share extends to all dividends payable thereon.
23.2 The Company may sell a share on which there is a lien under this Part in
such manner as the Directors think fit, if:
(a) the member is indebted to the Company;
(b) notice stating that the Company intends to sell the shares pursuant
to this Part if the indebtedness is not _________ within 14 days
from the date of mailing has been given to the member; and
(c) 14 days have passed since the notice was mailed.
23.3 If any share is sold under this Part and the purchaser's name in entered on
the register of members, the purchaser not bound to see to the application of
the purchase money, and his title to the share will not be affected by any
irregularity or invalidity of the proceedings under this Part.
23.4 The provisions of Articles 23.1, 23.2 and 23.3 shall not apply if and so
long as the Company is a reporting company.
20
<PAGE> 21
- --------------------------------------------------------------------------------
Full names, resident addresses and occupations of Subscribers
- --------------------------------------------------------------------------------
- -------------------------
NAME
- -------------------------
- -------------------------
- -------------------------
NAME
- -------------------------
- -------------------------
- -------------------------
NAME
- -------------------------
- -------------------------
- --------------------------------------------------------------------------------
DATED at Vancouver, B.C. this 2nd day of September, A.D. 1987.
21
<PAGE> 1
EXHIBIT 3.3
Form 1
(Section 5)
COMPANY ACT
TTC/TRUCK TECH CORP.
MEMORANDUM
I wish to be formed into a Company with limited liability under the
Company Act, in pursuance of this Memorandum.
1. The name of the Company is "TTC/TRUCK TECH CORP."
2. The authorized capital of the Company consists of TEN MILLION (10,000,000)
Common shares without par value.
3. I agree to take the number, class and kind of shares in the Company set
opposite my name.
<TABLE>
<CAPTION>
- --------------------------- --------------------------------
FULL NAME, RESIDENT ADDRESS NUMBER, CLASS AND KIND OF
OCCUPATION OF SUBSCRIBER SHARES TAKEN BY SUBSCRIBER
- --------------------------- --------------------------------
<S> <C>
__________________________ One (1) Common Share
DON C. SIHOTA without par value
1706 - 1005 Jervis St.,
Vancouver, B.C.
6E 3T1
Solicitor
TOTAL NUMBER OF SHARES TAKEN: One (1) Common Share
without par value
</TABLE>
- --------------------------------------------------------------------------------
DATED at Vancouver, British Columbia this 2nd day of September, 1987.
<PAGE> 1
EXHIBIT 3.4
"COMPANY ACT"
TTC/TRUCK TECH CORP.
Altered Memorandum
(As altered by the Special Resolution passed October 25, 1991.)
1. The name of the Company is TTC/TRUCK TECH CORP.
2. The authorized capital of the Company consists of TWENTY FIVE MILLION
(25,000,000) common shares without par value.
<PAGE> 1
EXHIBIT 3.5
CANADA NUMBER
PROVINCE OF BRITISH COLUMBIA 332869
[LOGO]
CERTIFICATE
OF
CHANGE OF NAME
COMPANY ACT
I HEREBY CERTIFY THAT
TTC/TRUCK TECH CORP.
HAS THIS DAY CHANGED ITS NAME TO
UNICOMM SIGNAL INC.
GIVEN UNDER MY HAND AND SEAL OF OFFICE
AT VICTORIA, BRITISH COLUMBIA,
[SEAL]
ON APRIL 13, 1994
/s/ JOHN S. POWELL
-------------------------------------
JOHN S. POWELL
REGISTRAR OF COMPANIES
<PAGE> 1
EXHIBIT 3.6
NUMBER: 332869
[LOGO]
CERTIFICATE
OF
CHANGE OF NAME
COMPANY ACT
CANADA
PROVINCE OF BRITISH COLUMBIA
I HEREBY CERTIFY THAT
UNICOMM SIGNAL INC.
has this day changed its name to
SMARTIRE SYSTEMS INC.
[SEAL]
Issued under my hand at Victoria, British Columbia
on December 24, 1997
/s/ JOHN S. POWELL
-------------------------
JOHN S. POWELL
Registrar of Companies
<PAGE> 1
EXHIBIT 3.7
PROVINCE OF BRITISH COLUMBIA
FORM 21
(Section 371)
---------
COMPANY ACT
--------
SPECIAL RESOLUTION
The following special resolution was passed by the undermentioned
Company on the dated stated:
Name of Company: UniComm Signal Inc.
Date resolution passed: October 28, 1994
Resolution:
"RESOLVED, as a special resolution, that the Company's authorized
capital be increased from 25 million common shares without par value
to 50 million common shares without par value; AND that paragraph 2
of the Company's memorandum be altered to read as follows:
The authorized capital of the Company consists of 50,000,000
common shares without par value."
An altered Memorandum is attached to this Special Resolution.
Certified to be a true copy the 28th day of October, 1994.
-------------------------------------
Signature
Relationship to Company:
President, Chairman and
Director
<PAGE> 2
FORM 1
(Section 5)
COMPANY ACT
(BRITISH COLUMBIA)
ALTERED MEMORANDUM
UNICOMM SIGNAL INC.
As altered by special resolution passed October 28, 1994, I wish to
be formed into a Company with limited liability under the Company Act (British
Columbia) in pursuance of this Memorandum.
1. The name of the Company is UniComm Signal Inc.
2. The authorized capital of the Company consists of 50,000,000
common shares without par value.
<PAGE> 1
EXHIBIT 3.8
PROVINCE OF BRITISH COLUMBIA
FORM 21
(Section 371)
Certificate of
Incorporation
No. 332869
---------
COMPANY ACT
--------
SPECIAL RESOLUTION
The following special resolution was passed by the undermentioned
Company on the dated stated:
Name of Company: UniComm Signal Inc.
Date resolution passed: January 17, 1997
Resolution:
"RESOLVED, as a Special Resolution, that the Memorandum of the
Company be altered by increasing the authorized capital of the
Company from 50,000,000 common shares without par value, of which
28,269,434 are issued and outstanding to 200,000,000 common shares
without par value, of 28,269,434 will be issued and outstanding."
The Memorandum, as amended, is attached.
Certified a true copy the 6th day of February, 1997.
--------------------------------------
Signature
Relationship to Company:
Solicitor
<PAGE> 2
SCHEDULE "A"
ALTERED MEMORANDUM
(as altered by Special Resolution dated January 17, 1997)
1. The name of the Company is UNICOMM SIGNAL INC.
2. The authorized capital of the Company consists of two hundred million and
twenty thousand (200,020,000) shares divided into:
(a) Two Hundred Million (200,000,000) common shares without par value,
and
(b) Twenty Thousand (20,000) Preferred shares with a par value of $1,000
per share.
<PAGE> 1
EXHIBIT 3.9
PROVINCE OF BRITISH COLUMBIA
FORM
(Section 371)
SPECIAL RESOLUTION
The following special resolution was passed by the undermentioned
Company on the date stated:
Name of Company: UNICOMM SIGNAL INC.
Date resolution passed: November 17, 1995
Resolution:
RESOLVED, as a Special Resolution, that:
A. the authorized capital of the Company be increased by creating
Twenty Thousand (20,000) Preferred shares with a par value of
One Thousand ($1,000) Dollars per share so that the authorized
capital of the Company consists of Fifty Million and Twenty
Thousand (50,020,000) shares divided into Fifty Million
(50,000,000) Common shares without par value and Twenty
Thousand (20,000) Preferred shares with a par value of One
Thousand ($1,000) Dollars per share and that the Memorandum of
the Company be altered accordingly;
B. paragraph two of the memorandum of the Company be altered by
deleting it in its entirety and substituting the following
therefor:
"2. The authorized capital of the Company consists of FIFTY
MILLION AND TWENTY THOUSAND shares (50,020,000) divided
into:
(a) FIFTY MILLION (50,000,000) common shares without par
value; and
(b) TWENTY THOUSAND (20,000) Preferred shares with a par
value of One Thousand Dollars ($1,000) per share."
C. there be created and attached to the Preferred shares the
following Special Rights and Restrictions and that the
Articles of the
<PAGE> 2
Company be amended by adding the following as Part 22 -
Special Rights and Restrictions:
"PART 22 - SPECIAL RIGHTS AND RESTRICTIONS
22.1 The holders of the Preferred shares shall be entitled to
receive notice of, to attend and to vote at meetings of
the Members of the Company.
22.2 The holders of the Preferred shares shall in each year,
in the discretion of the Directors, but always in
preference and in priority to any payment of dividends
on the Common shares, be entitled, out of any or all
profits or surplus available for dividends, to fix
preferential cumulative dividends at a rate of Ten (10%)
per cent per annum on the amount paid up on the
Preferred shares. No dividends shall be declared or paid
or set aside on the Common shares in any fiscal year
until all declared but unpaid dividends for that fiscal
year and all prior fiscal years on the Preferred shares
have been paid. The holders of the Preferred shares
shall not be entitled to any dividend other than or in
excess of the fixed preferential cumulative dividends at
the rate of Ten (10%) per cent per annum hereinbefore
provided for.
22.3 Each issued and fully paid Preferred share may, at any
time, for up to three (3) years from the date of issue
of the Preferred share, but no later than December 31,
2000, at the option of the holder thereof, be converted
into Common shares at a price per Common share as is
determined by the directors and approved by the
Company's regulatory authorities (the ("Conversion
Rate"). The conversion privilege herein provided for may
be exercised by notice in writing given to the Company
accompanied by the certificates representing the
Preferred shares in respect of which the holder thereof
desires to exercise such right of conversion and such
notice shall be signed by the person registered on the
books of the Company as the holder of the Preferred
shares in respect of which such right is being exercised
or by his duly authorized agent and shall specify the
number of Preferred shares which the holder desires to
have converted. The holder shall also pay any
governmental or other tax imposed in respect of such
transaction. Upon receipt of such notice and
certificates the Company shall issue a certificate
representing fully paid Common
2
<PAGE> 3
shares upon the basis above described and in accordance
with the provisions hereof to the holder of the
Preferred shares represented by the certificates
accompanying such notice and, if less than all of the
Preferred shares represented by any certificate are to
be converted, the holder shall be entitled to receive a
new certificate for the Preferred shares represented by
the original certificate which are not to be converted.
22.4 In case the Company shall:
(a) declare a dividend or make a distribution on its
Common shares in shares;
(b) subdivide its outstanding Common shares into a
greater number of shares; or
(c) consolidate its outstanding Common shares into a
smaller number of shares,
(any such event being herein called a "Common Share
Reorganization"), the Conversion Rate thereafter shall
be proportionately adjusted so that conversion of the
Preferred shares, or any part thereof, after such time
shall be entitled to receive Common shares of equal
value to the Common shares which it would have owned or
been entitled to receive had the Preference shares been
converted immediately prior to such Common Share
Reorganization.
3
<PAGE> 4
22.5 All shares resulting from any conversion of issued and
fully paid Preferred shares into Common shares shall be
deemed to be fully paid and non-assessable, and the
Preferred shares so converted shall be restored to the
status of authorized but unissued Preferred shares. The
Company shall not issue any Common shares if after such
issuance the number of authorized but unissued Common
shares would be insufficient to satisfy the conversion
privileges in Article 22.3 hereof in the event that all
the Preferred shares outstanding from time to time were
converted into Common shares in accordance with the
provisions of such Article."
THE MEMORANDUM AS ALTERED IS ATTACHED AS SCHEDULE "A".
Certified a true copy the 1st day of December, 1995.
Signature
Relationship to Company: Solicitor
4
<PAGE> 5
SCHEDULE "A"
ALTERED MEMORANDUM
(as altered by Special Resolution dated November 17, 1995)
I wish to be formed into a Company with limited liability under the
Common Act (British Columbia) in pursuance of this Memorandum.
1. The name of the Company is "UNICOMM SIGNAL INC.".
2. The authorized capital of the Company consists of FIFTY MILLION AND TWENTY
THOUSAND shares (50,020,000) divided into:
(a) FIFTY MILLION (50,000,000) common shares without par value; and
(b) TWENTY THOUSAND (20,000) Preferred shares with a par value of One
Thousand Dollars ($1,000) per share.
<PAGE> 1
EXHIBIT 3.10
PROVINCE OF BRITISH COLUMBIA
FORM 19
(Section 348)
COMPANY ACT
SPECIAL RESOLUTION
Certificate of
Incorporation No. 332869
The following special resolution was passed by the company referred to
below on the date stated:
Name of Company: SMARTIRE SYSTEMS INC.
Date resolution passed: JANUARY 16, 1998
Resolution [see note (a)]:
RESOLVED, as a Special Resolution, that:
The Special Rights and Restrictions attached to the Preferred shares be changed
and that the Articles of the Company be amended by deleting the existing Part 22
and replacing with the following as Part 22 - Special Rights and Restrictions:
"PART 22 - SPECIAL PROJECTS AND RESTRICTIONS
22.1 The holders of the Preferred shares shall be entitled to
receive notice of, to attend and to vote at meetings of the
Members of the Company.
22.2 The holders of the Preferred shares shall in each year, in the
discretion of the Directors, but always in preference and in
priority to any payment of dividends on the Common shares, be
entitled, out of any or all profits or surplus available for
dividends, to fix preferential cumulative dividends at a rate
per annum as determined by the Directors on the amount paid up
on the Preferred shares. No dividends shall be declared or
paid or set aside on the Common shares in any fiscal year
until all declared but unpaid dividends for that fiscal year
and all prior fiscal years on the Preferred shares have been
paid. The holders of the Preferred shares shall not be
entitled to any dividend other than or in excess of the fixed
<PAGE> 2
preferential cumulative dividends at the rate per annum
hereinbefore provided for.
22.3 Each issued and fully paid Preferred share may, at any time,
for up to three (3) years from the date of issue of the
Preferred share, at the option of the holder thereof, be
converted into Common shares at a price per Common share as is
determined by the directors and approved by the Company's
regulatory authorities (the "Conversion Rate"). The conversion
privilege herein provided for may be exercised by notice in
writing given to the Company accompanied by the certificates
representing the Preferred shares in respect of which the
holder thereof desires to exercise such right of conversion
and such notice shall be signed by the person registered on
the books of the Company as the holder of the Preferred shares
in respect of which such right is being exercised or by his
duly authorized agent and shall specify the number of
Preferred shares which the holder desires to have converted,
The holder shall also pay any governmental or other tax
imposed in respect of such transaction. Upon receipt of such
notice and certificates the Company shall issue a certificate
representing fully paid Common shares upon the basis above
described and in accordance with the provisions hereof to the
holder of the Preferred shares represented by the certificates
accompanying such notice and, if less than all of the
Preferred shares represented by any certificate are to be
converted, the holder shall be entitled to receive a new
certificate for the Preferred shares represented by the
original certificate which are not to be converted.
22.4 In case the Company shall:
(a) declare a dividend or make a distribution on its Common
shares in shares;
(b) subdivide its outstanding Common shares into a greater
number of shares; or
(c) consolidate its outstanding Common shares into a smaller
number of shares,
(any such event being herein called a "Common Share
Reorganization"), the Conversion Rate thereafter shall be
proportionately adjusted so that conversion of the Preferred
shares, or any part thereof, after such time shall be entitled
to receive Common shares of equal value to the Common shares
which it
2
<PAGE> 3
would have owned or been entitled to receive had the
Preference shares been converted immediately prior to such
Common Share Reorganization.
22.5 All shares resulting from any conversion of issued and fully
paid Preferred shares into Common shares shall be deemed to be
fully paid and non-assessable, and the Preferred shares so
converted shall be restored to the status of authorized but
unissued Preferred shares. The Company shall not issue any
Common shares if after such issuance the number of authorized
but unissued Common shares would be insufficient to satisfy
the conversion privileges in Article 22.3 hereof in the event
that all the Preferred shares outstanding from time to time
were converted into Common shares in accordance with the
provisions of such Article.
22.6 In the event of any liquidation, dissolution, bankruptcy or
winding up of the Company, holders of Preferred shares shall
be entitled to receive ratably and in priority to any
distribution to holders of common shares the full paid up
capital value per share held by them plus the amount of all
dividends declared in such Preferred shares and unpaid, but
there shall be no further participation in the assets of the
Company by the holders of Preferred shares; all assets
remaining after payment to the holders of Preferred shares as
aforesaid will be distributed ratably among the holders of the
Common shares.
Certified a true copy the 5th day of February, 1998.
/s/
----------------------------------------
Signature
Relationship to Company: Solicitor
NOTE: (a) Insert text of ordinary resolution.
(b) See Section 1(1) for definition of "special resolution".]
3
<PAGE> 1
EXHIBIT 10.1
MANAGEMENT AGREEMENT
THIS AGREEMENT effective as of the 1 day of February, 1998.
BETWEEN:
SMARTIRE SYSTEMS INC., a company duly incorporated pursuant to the laws of
the Province of British Columbia, having an office at 150 - 13151 Vanier
Place, Richmond, British Columbia, V6V 2J1
(hereinafter referred to as the "Company")
OF THE FIRST PART
AND:
ROBERT RUDMAN, businessman, of 40 - 5740 Garrison Road,
Richmond, British Columbia, V7C 5E7
(hereinafter referred to as the "Manager")
OF THE SECOND PART
RECITALS
WHEREAS the Company has requested the assistance of the Manager
in providing certain management services, as hereinafter described;
WHEREAS the Manager has agreed to provide such assistance and
services to the Company in accordance with the terms and conditions herein set
forth;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth below, the parties hereto agree as follows:
1. DUTIES AND DEVOTION OF TIME
1.1 Duties. During the terms of this Agreement the Manager
shall be responsible for the duties contained in Schedule "A" attached hereto
and incorporated herein by this reference (the "Duties").
1.2 Devotion of Time. The parties hereto acknowledge and agree
that the work of the Manager is and shall be of such a nature that regular hours
are insufficient and impractical and occasions may arise whereby the Manager
shall be
<PAGE> 2
required to work other than eight (8) hours per day and/or five (5) days per
week. It is also anticipated that the Manager may be required to work during
evenings, Saturdays, Sundays and Public Holidays. The Manager agrees that the
consideration set forth herein shall be in full and complete satisfaction for
such work and services, regardless of when and where such work and services are
performed. The Manager further releases the Company from any claims for overtime
pay or other such compensation which may accrue to the Manager by reason of any
existing or future legislation or otherwise. Notwithstanding the foregoing, the
Company agrees that so long as the Manager properly discharges its duties
hereunder, the Manager may devote the remainder of its time and attention to
other non-competing business pursuits.
1.3 Location of Company Headquarters. The parties hereto
acknowledge that the effective strategic direction of the Company and its
subsidiaries does not require that the headquarters of the Company be or remain
in the City of Vancouver, in the Province of British Columbia, and agree that
the Company's location has no effect on the Duties of the Manager.
1.4 Business Opportunities the Property of the Company. The
Manager agrees to communicate immediately to the Company all business
opportunities, inventions and improvements in the nature of the business of the
Company which, during the term of this Agreement, the Manager may conceive, make
or discover, become aware of, directly or indirectly, or have presented to it in
any manner which relates in any way to the Company, either as it is now or as it
may develop, and such business opportunities, inventions or improvements shall
become the exclusive property of the Company without any obligation on the part
of the Company to make any payments therefor in addition to the salary and
benefits herein described to the Manager.
1.5 No Personal Use. The Manager shall not use any of the work
the Manager shall perform for the Company for any personal purposes without
first obtaining the prior written consent of the Company.
2. SALARY, BONUSES AND BENEFITS
2.1 Salary. In consideration of the Manager providing the
services referred to herein, the Company agrees to pay the Manager an annual
base salary of one hundred fifty thousand U.S. dollars ($150,000) less
applicable deductions, payable bi-weekly, plus the performance bonus as set out
below, subject to increase as from time to time approved by the Board of
Directors of the Company.
2.2 Benefits. The Company shall provide, maintain and pay for:
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<PAGE> 3
(a) medical insurance for the Manager and his immediate
family as is provided by the Company's Medical Services Plan;
(b) such extended health and other benefits for the
Manager and his immediate family as are provided to senior management employees
of the Company, subject to the eligibility of the Manager; and
(c) an appropriate car for the Manager's use or a car
allowance as set by the Company.
2.3 Bonuses. The Company may pay bonuses (the "Bonuses") to the
Manager at any time, and from time to time, and for the realization of any of
the Performance Objectives, as initially defined in Schedule "B" attached hereto
and incorporated hereinafter by this reference, and as amended from time to time
in writing by both parties. The amount of the Bonuses shall be determined by the
Directors of the Company and shall be based on the nature of the Performance
Objectives and other significant corporate objectives attained by the Manager.
2.4 Performance Bonus. In addition to any bonus that may be
paid pursuant to clause 0 herein, the Company will pay to the Manager a
performance bonus (the "Performance Bonus") based upon the annual revenues of
the Company on an audited, consolidated basis. During the term of this
Agreement, the first time the Company meets or exceeds the revenue targets
listed below, the Manager shall be granted Company shares, in the amounts
indicated below:
(a) if the Company's revenues for a fiscal year exceed
$10,000,000 Cdn, the Manager shall receive 25,000 shares as a performance bonus
for that year; and
(b) if the Company's revenues for a fiscal year exceed
$25,000,000 Cdn, the Manager shall receive an additional 25,000 shares as a
performance bonus for that year; and
(c) if the Company's revenues for a fiscal year exceed
$50,000,000 Cdn, the Manager shall receive an additional 25,000 shares as a
performance bonus for that year; and
(d) if the Company's revenues for a fiscal year exceed
$100,000,000 Cdn, the Manager shall receive an additional 25,000 shares as a
performance bonus for that year.
In the event that the Common Shares of SmarTire are consolidated or subdivided,
the number of shares to be issued pursuant hereto will be adjusted in the same
ratio as the subdivision or consolidation.
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<PAGE> 4
2.5 Registration of Performance Bonus Shares. To ensure that
any shares issued to the Manager under paragraph 0 of this Agreement are freely
tradable, SmarTire shall register with the SEC any such shares issued. Upon or
as soon as is practical after the issuance of such shares, SmarTire shall file a
form S-8 or other appropriate form with the SEC to effect registration.
2.6 Payment in Cash or Shares. All payments payable by the
Company to the Manager, including the salary, Bonuses, and reimbursement of
expenses under Section 0 hereof, shall be payable in cash or, at the election of
the Manager, and subject to the approval of the regulatory authorities, such
will be paid in whole or in part in free-trading shares in the capital stock of
the Company ("Free-Trading Shares").
3. VACATION
3.1 Entitlement to Vacation. The Company acknowledges that the
Manager shall be entitled to an annual vacation of six (6) weeks. The Manager
shall use its best efforts to ensure that such vacation is arranged with the
Company in advance such that it does not unduly affect the operations of the
Company.
3.2 Increase in Vacation. The period set out in Section 0 above
may be increased from time to time as mutually agreed to by the Manager and the
Board of Directors.
4. REIMBURSEMENT OF EXPENSES
4.1 Reimbursement of Expenses. The Manager shall be reimbursed
for all reasonable out-of-pocket expenses incurred by the Manager in or about
the execution of the Duties contained herein, including without limitation the
generality of the foregoing, all reasonable travel and promotional expenses
payable or incurred by the Manager in connection with the Duties under this
Agreement. All payments and reimbursements shall be made within three (3) days
of submission by the Manager of vouchers, bills or receipts for such expenses.
5. CONFIDENTIAL INFORMATION
5.1 Confidential Information. The Manager shall not, either
during the term of this Agreement or at any time thereafter, without specific
consent in writing, disclose or reveal in any manner whatsoever to any other
person, firm or corporation, nor will it use, directly or indirectly, for any
purpose other than the purposes of the Company, the private affairs of the
Company or any confidential information which it may acquire during the term of
this Agreement with relation to the business and affairs of the directors and
shareholders of the Company, unless the
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<PAGE> 5
Manager is ordered to do so by a court of competent jurisdiction or unless
required by any statutory authority.
5.2 Non-Disclosure Provisions. The foregoing provision shall be
subject to the further non-disclosure provisions contained in Schedule "C"
attached hereto and incorporated hereinafter by this reference.
5.3 Provisions Survive Termination. The provisions of this
section shall survive the termination of this Agreement.
6. TERM
6.1 Term. Subject to the termination provisions contained
hereunder, this Agreement shall remain in effect for a period of five (5) years
from February 1, 1998. Thereafter the parties shall renew this Agreement if they
mutually agree upon the terms and conditions of such renewed agreement.
7. TERMINATION
7.1 Termination by Manager. Notwithstanding any other provision
contained herein, the parties hereto agree that the Manager may terminate this
Agreement, with or without cause, by giving ninety (90) days written notice of
such intention to terminate.
7.2 Resignation or Cessation of Duties. In the event that the
Manager ceases to perform all of the Duties contained herein, other than by
reason of the Manager's death or disability, or if the Manager resigns
unilaterally and on his own initiative from all of his positions this Agreement
shall be deemed to be terminated by the Manager as of the date of such cessation
of Duties or such resignation, and the Company shall have no further obligations
under Section 0 hereof.
7.3 Termination by Company. The Company may terminate this
agreement at any time for just cause. The parties further agree that except for
termination for just cause, the Company may not terminate this Agreement without
payment, at that time, to the Manager of a termination allowance equivalent to
twice the annual salary and Bonuses payable by the Company to the Manager,
regardless of the date of termination. The Performance Bonuses will be paid to
the Manager in any event that the Company achieves the revenues set out in
clause 0 during the 5 years from the date of closing unless this agreement is
terminated for just cause.
7.4 Termination if Change of Control. Notwithstanding any other
provision of this Agreement, in the event of a change in control of the Company
at the option of the Manager this Agreement shall be deemed to be terminated by
the
5
<PAGE> 6
Company, and the Manager shall be entitled to the termination allowance stated
in Section 0 hereof. For the purposes hereof, a change in control of the Company
shall be deemed to occur if a transaction or series of transactions takes place
whereby, directly or indirectly:
(a) any person or combination of persons (other than any
person or persons who are controlling shareholders of the Company) obtains a
sufficient number of securities of the Company to affect materially the control
of the Company; for the purposes of this Agreement, a person or combination of
persons holding shares or other securities in excess of the number which,
directly or following conversation thereof, would entitle the holder thereof to
cast 30% or more of the vote attaching to all shares of the Company which may be
cast to elect directors of the Company, shall be deemed to be in a position to
affect materially the control of the Company; or
(b) the Company shall consolidate or merge with or into,
amalgamate with, or enter into a statutory arrangement with, any other person
(other than a subsidiary of the Company), or any other person (other than a
subsidiary of the Company) shall consolidate or merge with or into or
amalgamated with or enter into a statutory arrangement with, the Company, and,
in connection therewith, all or part of the outstanding voting shares shall be
changed in any way, reclassified or converted into, exchanged or otherwise
acquired for shares or other securities of the Company or any other person or
for cash or any other property (other than a transaction which has been approved
by a majority of the directors of the Company holding office at the effective
date of this Agreement); or
(c) the Company shall sell or otherwise transfer,
including by way of the grant of a leasehold interest (or one or more of its
subsidiaries shall sell or otherwise transfer, including by way grant of a
leasehold interest) property or assets (A) aggregating more than 50% of the
consolidated assets (measured by either book value or fair market value) of the
Company and its subsidiaries as at the end of the most recently completed
financial year of the Company, or (B) which during the most recently completed
financial year of the Company generated, or during the then current financial
year of the Company are expected to generate, more than 50% of the consolidated
operating income or cash flow of the Company and its subsidiaries, to any other
person or persons (other than the Company or one of its subsidiaries).
7.5 Termination if Change in Reporting Structure. In the event
of a change in the reporting structure of the Manager's position as officer and
director of the Company ("Change in Reporting Structure"), or in the event that
the Manager is removed from his position, or is not re-elected when he stands
for election to the position of director and officer, this Agreement shall be
deemed to be terminated by the Company as of the date of such Change in
Reporting Structure or such removal from office, and the Manager shall be
entitled to the termination allowance stated in
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<PAGE> 7
Section 0 hereof. For the purposes hereof, a Change in Reporting Structure shall
be deemed to occur if there occurs, directly or indirectly, but not limited to,
any reduction of duties or reduction of responsibility for the day-to-day
operations of the Company as currently practised by the Manager in its present
activities as director and officer of the Company.
7.6 Election by the Manager. Notwithstanding any other
provision of this Agreement, including Schedule "A" hereto, the Manager may
voluntarily relinquish one or more of the positions in the Company held by him,
provided he maintains at least one of the positions stated in Section 0 hereof,
and in such an event the terms of this Agreement shall not be affect thereby.
7.7 Death. In the event of the death of the Manager during the
term of this Agreement, this Agreement shall be terminated as of the date of
such death, and the Manager shall be entitled to the termination allowance
stated in Section 0 hereof.
7.8 Disability. In the event that the Manager will during the
term of this Agreement by reason of illness or mental or physical disability or
incapacity be prevented from or incapable of performing the Duties hereunder,
then the Manager shall be entitled to receive the remuneration provided for
herein at the rate specified hereinbefore for the period during which such
illness, disability or incapacity will continue, but not exceeding six (6)
successive months. If such illness, disability or incapacity continues or will
continue for a period longer than six (6) successive months, then this Agreement
may, at the option of the Director of the Company, forthwith be terminated, and
the Manager shall be entitled to the termination allowance stated in Section 0
hereof.
7.9 Termination Payments. Any payments made by the Company to
the Manager upon the termination of this Agreement shall, be made in cash in a
lump sum payment, or, if the Company does not have available funds, in equal
monthly cash installments over one year with interest at 8% per annum, in
Free-Trading Shares, or in a combination of cash and Free-Trading Shares,
subject to regulatory approval. All payments required to be made by the Company
to the Manager pursuant to Section 0 hereof shall be made in full, irrespective
of the amount of the term remaining under this Agreement.
8. RIGHTS AND OBLIGATIONS UPON TERMINATION
8.1 Rights and Obligations. Upon termination of this Agreement,
the Manager shall deliver up to the Company all documents, papers, plans,
materials and other property of or relating to the affairs of the Company, other
than the Manager's personal papers in regard to his role in the Company, which
may then be in its or the Manager's possession or under her/his control.
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<PAGE> 8
9. REGULATORY APPROVAL
9.1 Performance Bonus Subject to Regulatory Approval. While the
Company's shares are listed for trading on the VSE, the Performance Bonus
included herein will not be paid until the Company has obtained VSE approval
thereto. The Company will use all reasonable efforts to obtain such approval. In
the event that the Company is unable to obtain approval from the V.S.E. for
payment of the Performance Bonus within a reasonable period of time, then the
Company will delist from the V.S.E. if it is necessary to allow the Company to
pay any Performance Bonus that would otherwise be payable hereunder.
10. NOTICES AND REQUESTS
10.1 Notices and Requests. All notices and requests in
connection with this Agreement shall be deemed given as of the day they are
received either by messenger, delivery service, or mailed by registered or
certified mail with postage prepaid and return receipt requested and addressed
as follows:
(a) if to the Company:
SmarTire Systems Inc.
150-13151 Vanier Place
Richmond, British Columbia V6V 2J1
with a copy to:
CLARK, WILSON
Suite 800-885 West Georgia Street
Vancouver, British Columbia V6C 3H1
Attention: Bernard Pinsky
(b) If to the Manager:
Robert Rudman
40-5740 Garrison Road
Richmond, British Columbia V7C 5E7
or to such other address as the party to receive notice or request so designates
by written notice to the other.
11. INDEPENDENT PARTIES
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<PAGE> 9
11.1 Independent Parties. This Agreement is intended solely as a
management services agreement and no partnership, agency, joint venture,
distributorship or other form of agreement is intended.
12. AGREEMENT VOLUNTARY AND EQUITABLE
12.1 Agreement Voluntary. The parties acknowledge and declare
that in executing this Agreement they are each relying wholly on their own
judgment and knowledge and have not been influenced to any extent whatsoever by
any representations or statements made by or on behalf of the other party
regarding any matters dealt with herein or incidental thereto.
12.2 Agreement Equitable. The parties further acknowledge and
declare that they each have carefully considered and understand the provisions
contained herein, including, but without limiting the generality of the
foregoing, the Manager's rights upon termination and the restrictions on the
Manager after termination and agree that the said provisions are mutually fair
and equitable, and that they executed this Agreement voluntarily and of their
own free will.
13. CONTRACT NON-ASSIGNABLE; INUREMENT
13.1 Contract Non-Assignable. This Agreement and all other
rights, benefits and privileges contained herein may not be assigned by the
Manager.
13.2 Inurement. The rights, benefits and privileges contained
herein, including without limitation the benefits of Sections 0 and 0 hereof,
shall inure to the benefit of and be binding upon the respective parties hereto,
their heirs, executors, administrators and successors.
14. ENTIRE AGREEMENT
14.1 Entire Agreement. This Agreement represents the entire
Agreement between the parties and supersedes any and all prior agreements and
understandings, whether written or oral, between the parties. The Manager
acknowledges that it was not included to enter into this Agreement by any
representation, warranty, promise or other statement, except as contained
herein.
14.2 Previous Agreements Cancelled. Save and except for the
express provisions of this Agreement, any and all previous agreements, written
or oral, between the parties hereto or on their behalf relating to the services
of the Manager for the Company are hereby terminated and cancelled and each of
the parties hereby releases and further discharges the other of and from all
manner of actions, causes of action, claims and demands whatsoever under or in
respect of any such Agreement.
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<PAGE> 10
15. WAIVER
15.1 Waiver. No consent or waiver, express or implied, by either
party to or of any breach or default by the other party in the performance by
the other of its obligations herein shall be deemed or construed to be a consent
or waiver to or of any breach or default of the same or any other obligation of
such party. Failure on the part of any party to complain of any act or failure
to act, or to declare either party in default irrespective of how long such
failure continues, shall not constitute a waiver by such party of its rights
herein or of the right to then or subsequently declare a default.
16. SEVERABILITY
16.1 Severability. If any provision contained herein is
determined to be void or unenforceable in whole or in part, it is to that extent
deemed omitted. The remaining provisions shall not be affected in any way.
17. AMENDMENT
17.1 Amendment. This Agreement shall not be amended or otherwise
modified except by a written notice of even date herewith or subsequent hereto
signed by both parties.
18. HEADINGS
18.1 Headings. The headings of the sections and subsections
herein are for convenience only and shall not control or affect the meaning or
construction of any provisions of this Agreement.
19. GOVERNING LAW
19.1 Governing Law. This Agreement shall be construed under and
governed by the laws of the Province of British Columbia and the laws of Canada
applicable therein.
20. EXECUTION
20.1 Execution in Several Counterparts. This Agreement may be
executed by facsimile and in several counterparts, each of which shall be deemed
to be an original and all of which shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the ______ day of _______________, 1998.
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<PAGE> 11
SMARTIRE SYSTEMS INC.
Per:
----------------------------------
Authorized Signatory
SIGNED, SEALED AND DELIVERED by )
ROBERT RUDMAN in the presence of: )
)
- -------------------------------------- )
Name )
- -------------------------------------- ) ------------------------
Address ) ROBERT RUDMAN
)
- -------------------------------------- )
Occupation )
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<PAGE> 12
SCHEDULE "A"
MANAGER'S DUTIES
1. To create value for the Company's shareholders by leading
the establishment of a profitable business for the Company.
2. The Manager shall be appointed by the Company as the full
time president, a director on the Board of Directors of the Company and each of
the Company's subsidiaries, and the Manager shall faithfully, honestly and
diligently serve the Company and each of the Company's subsidiaries in these
capacities.
3. The Manager shall be responsible for leading in the
strategic management and direction of the Company and each of the Company's
subsidiaries and for the supervision and delegation of such duties and
responsibilities as the Company deems appropriate to other officers and the
employees of the Company and its subsidiaries.
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<PAGE> 13
SCHEDULE "B"
PERFORMANCE OBJECTIVES
Build the Company into a leader in the manufacture and sales of tire monitoring
systems for vehicles of all types in North America. Achieve the financial
projections as prepared by management and approved by the Company's directors.
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<PAGE> 14
SCHEDULE "C"
NON-DISCLOSURE PROVISIONS
1. CONFIDENTIAL INFORMATION AND MATERIALS
(a) "Confidential Information" shall mean, for the purposes of
this Agreement, non-public information which the Company designates as being
confidential or which, under the circumstances surrounding disclosure ought
reasonably to be treated as confidential. Confidential Information includes,
without limitation, information, whether written, oral or communicated by any
other means, relating to released or unreleased the Company software or hardware
products, the marketing or promotion of any product of the Company, the Company
business policies or practices, and information received from others which the
Company is obliged to treat as confidential. Confidential Information disclosed
to the Manager by any subsidiary and/or agents of the Company is covered by this
Agreement.
(b) Confidential Information shall not include that information
defined as Confidential Information hereinabove which the Manager can
exclusively establish:
(i) is or subsequently becomes publicly available without
breach of any obligation of confidentiality owed by the Company;
(ii) became known to the Manager prior to disclosure by
the Company to the Manager;
(iii) became known to the Manager from a source other than
the Company other than by the breach of any obligations of confidentiality
owed to the Company; or
(iv) is independently developed by the Manager.
(c) Confidential Materials shall include all tangible materials
containing Confidential Information, including, without limitation, written or
printed documents and computer disks or tapes, whether machine or user readable.
2. RESTRICTIONS
(a) The Manager shall not disclose any Confidential Information
to third parties for a period of three (3) years following the termination of
this Agreement, except as provided herein. However, the Manager may disclose
Confidential Information during bona fide execution of the Duties or in
accordance with judicial or other governmental order, provided that the Manager
shall give
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<PAGE> 15
reasonable notice to the Company prior to such disclosure and shall comply with
any applicable protective order or equivalent.
(b) The Manager shall take reasonable security precautions, at
least as great as the precautions it takes to protect its own confidential
information, to keep confidential the Confidential Information, as defined
hereinabove.
(c) Confidential Information and Materials may be disclosed,
reproduced, summarized or distributed only in pursuance of the business
relationship of the Manager with the Company, and only as provided hereunder.
The Manager agrees to segregate all such Confidential Materials from the
materials of others in order to prevent co-mingling.
3. RIGHTS AND REMEDIES
(a) The Manager shall notify the Company immediately upon
discovery of any unauthorized use or disclosure of Confidential Information or
Materials, or any other breach of this Agreement by the Manager, and shall
cooperate with the Company in every reasonable manner to aid the Company to
regain possession of said Confidential Information or Materials and prevent all
such further unauthorized use.
(b) The Manager shall return all originals, copies,
reproductions and summaries of or relating to the Confidential Information at
the request of the Company or, at the option of the Company, certify destruction
of the same.
(c) The parties hereto recognize that a breach by the Manager of
any of the provisions contained herein would result in damages to the Company
and that the Company could not be compensated adequately for such damages by
monetary award. Accordingly, the Manager agrees that in the event of any such
breach, in addition to all other remedies available to the Company at law or in
equity, the Company shall be entitled as a matter of right to apply to a court
of competent jurisdiction for such relief by way of restraining order,
injunction, decree or otherwise, as may be appropriate to ensure compliance with
the provisions of this Agreement.
4. MISCELLANEOUS
(a) All Confidential Information and Materials are and shall
remain the property of the Company. By disclosing information to the Manager,
the Company does not grant any express or implied right to the Manager to or
under any and all patents, copyrights, trademarks, or trade secret information
belonging to the Company.
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(b) All obligations created herein shall survive change or
termination of any and all business relationships between the parties.
(c) The Company may from time to time request suggestions,
feedback or other information from the Manager on Confidential Information or on
released or unreleased software belonging to the Company. Any suggestions,
feedback or other disclosures made by the Manager are and shall be entirely
voluntary on the party of said Manager and shall not create any obligations on
the part of the Company or a confidential agreement between the Manager and the
Company. Instead, the Company shall be free to disclose and use any suggestions,
feedback or other information from the Manager as the Company sees fit, entirely
without obligation of any kind whatsoever to the Manager.
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<PAGE> 1
EXHIBIT 10.2
MANAGEMENT AGREEMENT
THIS AGREEMENT effective as of the 1 day of February, 1998.
BETWEEN:
SMARTIRE U.S.A. INC., a company duly incorporated pursuant to the laws
of Delaware, U.S.A having an office at 159 Wilbur Dr. N.E., North Canton,
Ohio, 44720
(hereinafter referred to as the "Company")
OF THE FIRST PART
AND:
JOSEPH MERBACK, businessman, of 27725 Winding Way, Malibu,
California, 90265
(hereinafter referred to as the "Manager")
OF THE SECOND PART
AND:
SMARTIRE SYSTEMS INC., a company duly incorporated pursuant to the laws of
the Province of British Columbia, having an office at 150 - 13151 Vanier
Place, Richmond, British Columbia, V6V 2Jl
(hereinafter referred to as "SmarTire")
OF THE THIRD PART
RECITALS
WHEREAS the Company has requested the assistance of the Manager
in providing certain management services, as hereinafter described;
WHEREAS the Manager has agreed to provide such assistance and
services to the Company in accordance with the terms and conditions herein set
forth;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants set forth below, the parties hereto agree as follows:
<PAGE> 2
1. DUTIES AND DEVOTION OF TIME
1.1 Duties. During the terms of this Agreement the Manager
shall be responsible for the duties contained in Schedule "A" attached hereto
and incorporated herein by this reference (the "Duties").
1.2 Devotion of Time. The parties hereto acknowledge and agree
that the work of the Manager is and shall be of such a nature that regular hours
are insufficient and impractical and occasions may arise whereby the Manager
shall be required to work other than eight (8) hours per day and/or five (5)
days per week. It is also anticipated that the Manager may be required to work
during evenings, Saturdays, Sundays and Public Holidays. The Manager agrees that
the consideration set forth herein shall be in full and complete satisfaction
for such work and services, regardless of when and where such work and services
are performed. The Manager further releases the Company from any claims for
overtime pay or other such compensation which may accrue to the Manager by
reason of any existing or future legislation or otherwise. Notwithstanding the
foregoing, the Company agrees that so long as the Manager properly discharges
its duties hereunder, the Manager may devote the remainder of its time and
attention to other non-competing business pursuits.
1.3 Business Opportunities the Property of the Company. The
Manager agrees to communicate immediately to the Company all business
opportunities, inventions and improvements in the nature of the business of the
Company which, during the term of this Agreement, the Manager may conceive, make
or discover, become aware of, directly or indirectly, or have presented to it in
any manner which relates in any way to the Company, either as it is now or as it
may develop, and such business opportunities, inventions or improvements shall
become the exclusive property of the Company without any obligation on the part
of the Company to make any payments therefor in addition to the salary and
benefits herein described to the Manager.
1.4 No Personal Use. The Manager shall not use any of the work
the Manager shall perform for the Company for any personal purposes without
first obtaining the prior written consent of the Company.
2. SALARY, BONUSES AND BENEFITS
2.1 Salary. In consideration of the Manager providing the
services referred to herein, the Company agrees to pay the Manager an annual
base salary of one hundred twenty thousand U.S. dollars ($120,000) less
applicable deductions, payable bi-weekly, plus the performance bonus as set out
below, subject to increase as from time to time approved by the Board of
Directors of the Company.
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<PAGE> 3
2.2 Benefits. The Company shall provide, maintain and pay for:
(a) medical insurance for the Manager and his immediate
family as is provided by the Company's Medical Services Plan;
(b) such extended health and other benefits for the
Manager and his immediate family as are provided to senior management employees
of the Company, subject to the eligibility of the Manager; and
(c) an appropriate car for the Manager's use or a car
allowance as set by the Company.
2.3 Bonuses. The Company may pay bonuses (the "Bonuses") to the
Manager at any time, and from time to time, and for the realization of any of
the Performance Objectives, as initially defined in Schedule "B" attached hereto
and incorporated hereinafter by this reference, and as amended from time to time
in writing by both parties. The amount of the Bonuses shall be determined by the
Directors of the Company and shall be based on the nature of the Performance
Objectives and other significant corporate objectives attained by the Manager.
2.4 Performance Bonus. In addition to any bonus that may be
paid pursuant to clause 0 herein, SmarTire will pay to the Manager a performance
bonus (the "Performance Bonus") based upon the annual revenues of SmarTire on an
audited, consolidated basis. During the term of this Agreement, the first time
SmarTire meets or exceeds the revenue targets listed below, the Manager shall be
granted SmarTire shares, in the amount indicated below:
(a) if SmarTire's revenues for a fiscal year exceed
$10,000,000 Cdn, the Manager shall receive 25,000 shares as a performance bonus
for that year; and
(b) if SmarTire's revenues for a fiscal year exceed
$25,000,000 Cdn, the Manager shall receive an additional 25,000 shares as a
performance bonus for that year; and
(c) if SmarTire's revenues for a fiscal year exceed
$50,000,000 Cdn, the Manager shall receive 25,000 shares as a performance bonus
for that year; and
(d) if SmarTire's revenues for a fiscal year exceed
$100,000,000 Cdn, the Manager shall receive an additional 25,000 shares as a
performance bonus for that year.
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In the event that the Common shares of SmarTire are consolidated or
subdivided, the number of shares to be issued pursuant hereto will be adjusted
in the same ratio as the subdivision or consolidation.
2.5 Registration of Performance Bonus Shares. To ensure that
any shares issued to the Manager under paragraph 0 of this Agreement are freely
tradable, SmarTire shall register with the SEC any such shares issued. Upon or
as soon as is practical after the issuance of such shares, SmarTire shall file a
form S-8 or other appropriate form with the SEC to effect registration.
2.6 Payment in Cash or Shares. All payments payable by the
Company to the Manager, including the salary, Bonuses, and reimbursement of
expenses under Section 0 hereof, shall be payable in cash or, at the election of
the Manager, and subject to the approval of the regulatory authorities, such
will be paid in whole or in part in free-trading shares in the capital stock of
SmarTire ("Free-Trading Shares").
2.7 Signing Bonus. In consideration of the Manager entering
into this Agreement, the Company agrees to pay the Manager a signing bonus of
twenty five thousand U.S. dollars ($25,000 U.S.). The Manager acknowledges that
at the time of the execution of this Agreement, he has received the twenty five
thousand U.S. dollar signing bonus.
3. VACATION
3.1 Entitlement to Vacation. The Company acknowledges that the
Manager shall be entitled to an annual vacation of six (6) weeks. The Manager
shall use its best efforts to ensure that such vacation is arranged with the
Company in advance such that it does not unduly affect the operations of the
Company.
3.2 Increase in Vacation. The period set out in Section 0 above
may be increased from time to time as mutually agreed to by the Manager and the
Board of Directors.
4. REIMBURSEMENT OF EXPENSES
4.1 Reimbursement of Expenses. The Manager shall be reimbursed
for all reasonable out-of-pocket expenses incurred by the Manager in or about
the execution of the Duties contained herein, including without limitation the
generality of the foregoing, all reasonable travel and promotional expenses
payable or incurred by the Manager in connection with the Duties under this
Agreement. All payments and reimbursements shall be made within three (3) days
of submission by the Manager of vouchers, bills or receipts for such expenses.
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5. CONFIDENTIAL INFORMATION
5.1 Confidential Information. The Manager shall not, either
during the term of this Agreement or at any time thereafter, without specific
consent in writing, disclose or reveal in any manner whatsoever to any other
person, firm or corporation, nor will it use, directly or indirectly, for any
purpose other than the purposes of the Company, the private affairs of the
Company or any confidential information which it may acquire during the term of
this Agreement with relation to the business and affairs of the directors and
shareholders of the Company, unless the Manager is ordered to do so by a court
of competent jurisdiction or unless required by any statutory authority.
5.2 Non-Disclosure Provisions. The foregoing provision shall be
subject to the further non-disclosure provisions contained in Schedule "C"
attached hereto and incorporated hereinafter by this reference.
5.3 Provisions Survive Termination. The provisions of this
section shall survive the termination of this Agreement.
6. TERM
6.1 Term. Subject to the termination provisions contained
hereunder, this Agreement shall remain in effect for a period of five (5) years
from February 1, 1998. Thereafter the parties shall renew this Agreement if they
mutually agree upon the terms and conditions of such renewed agreement.
7. TERMINATION
7.1 Termination by Manager. Notwithstanding any other provision
contained herein, the parties hereto agree that the Manager may terminate this
Agreement, with or without cause, by giving ninety (90) days written notice of
such intention to terminate.
7.2 Resignation or Cessation of Duties. In the event that the
Manager ceases to perform all of the Duties contained herein, other than by
reason of the Manager's death or disability, or if the Manager resigns
unilaterally and on his own initiative from all of his positions this Agreement
shall be deemed to be terminated by the Manager as of the date of such cessation
of Duties or such resignation, and the Company shall have no further obligations
under Section 0 hereof.
7.3 Termination by Company. The Company may terminate this
agreement at any time for just cause. The parties further agree that except for
termination for just cause, the Company may not terminate this Agreement without
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payment, at that time, to the Manager of a termination allowance equivalent to
twice the annual salary and Bonuses payable by the Company and SmarTire to the
Manager, regardless of the date of termination. The Performance Bonuses will be
paid to the Manager in any event that the Company achieves the revenues set out
in clause 0 during the 5 years from the date of closing unless this agreement is
terminated for just cause.
7.4 Termination if Change of Control. Notwithstanding any other
provision of this Agreement, in the event of a change in control of SmarTire or
the Company at the option of the Manager this Agreement shall be deemed to be
terminated by the Company, and the Manager shall be entitled to the termination
allowance stated in Section 0 hereof. For the purposes hereof, a change in
control of SmarTire or the Company, as the case may be, shall be deemed to occur
if a transaction or series of transactions takes place whereby, directly or
indirectly:
(a) any person or combination of persons (other than any
person or persons who are controlling shareholders of SmarTire) obtains a
sufficient number of securities of SmarTire or the Company to affect materially
the control of SmarTire or the Company; for the purposes of this Agreement, a
person or combination of persons holding shares or other securities in excess of
the number which, directly or following conversation thereof, would entitle the
holder thereof to cast 30% or more of the vote attaching to all shares of
SmarTire which may be cast to elect directors of SmarTire, shall be deemed to be
in a position to affect materially the control of SmarTire; or
(b) SmarTire or the Company shall consolidate or merge
with or into, amalgamate with, or enter into a statutory arrangement with, any
other person (other than a subsidiary of SmarTire) or any other person (other
than a subsidiary of SmarTire) shall consolidate or merge with or into or
amalgamated with or enter into a statutory arrangement with SmarTire or the
Company, and, in connection therewith, all or part of the outstanding voting
shares shall be changed in any way, reclassified or converted into, exchanged or
otherwise acquired for shares or other securities of SmarTire or any other
person or for cash or any other property (other than a transaction which has
been approved by a majority of the directors of SmarTire holding office at the
effective date of this Agreement); or
(c) SmarTire or the Company shall sell or otherwise
transfer, including by way of the grant of a leasehold interest (or one or more
of its subsidiaries shall sell or otherwise transfer, including by way grant of
a leasehold interest) property or assets (A) aggregating more than 50% of the
consolidated assets (measured by either book value or fair market value) of
SmarTire and its subsidiaries as at the end of the most recently completed
financial year of SmarTire, or (B) which during the most recently completed
financial year of SmarTire generated, or during the then current financial year
of SmarTire are expected to generate, more than 50%
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of the consolidated operating income or cash flow of SmarTire and its
subsidiaries, to any other person or persons (other than SmarTire or one of its
subsidiaries).
7.5 Termination if Change in Reporting Structure. In the event
of a change in the reporting structure of the Manager's position as officer and
director of either the Company or SmarTire ("Change in Reporting Structure"), or
in the event that the Manager is removed from his position, or is not re-elected
when he stands for election to the position of director and officer, this
Agreement shall be deemed to be terminated by the Company as of the date of such
Change in Reporting Structure or such removal from OFFICE, and the Manager shall
be entitled to the termination allowance stated in Section 0 hereof. For the
purposes hereof, a Change in Reporting Structure shall be deemed to occur if
there occurs, directly or indirectly, but not limited to, any reduction of
duties or reduction of responsibility for the day-to-day operations of the
Company as currently practiced by the Manager in its present activities as
director and officer of the Company.
7.6 Election by the Manager. Notwithstanding any other
provision of this Agreement, including Schedule "A" hereto, the Manager may
voluntarily relinquish one or more of the positions in the Company or SmarTire
held by him, provided he maintains at least one of the positions stated in
Section 0 hereof, and in such an event the terms of this Agreement shall not be
affect thereby.
7.7 Death. In the event of the death of the Manager during the
term of this Agreement, this Agreement shall be terminated as of the date of
such death, and the Manager shall be entitled to the termination allowance
stated in Section 0 hereof.
7.8 Disability. In the event that the Manager will during the
term of this Agreement by reason of illness or mental or physical disability or
incapacity be prevented from or incapable of performing the Duties hereunder,
then the Manager shall be entitled to receive the remuneration provided for
herein at the rate specified hereinbefore for the period during which such
illness, disability or incapacity will continue, but not exceeding six (6)
successive months. If such illness, disability or incapacity continues or will
continue for a period longer than six (6) successive months, then this Agreement
may, at the option of the Director of the Company, forthwith be terminated, and
the Manager shall be entitled to the termination allowance stated in Section 0
hereof.
7.9 Termination Payments. Any payments made by the Company to
the Manager upon the termination of this Agreement shall, be made in cash in a
lump sum payment, or, if the Company does not have available funds, in equal
monthly cash installments over one year with interest at 8% per annum, in
Free-Trading Shares, or in a combination of cash and Free-Trading Shares,
subject to regulatory approval. All payments required to be made by the Company
to the Manager
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pursuant to Section 0 hereof shall be made in full, irrespective of the amount
of the term remaining under this Agreement.
8. RIGHTS AND OBLIGATIONS UPON TERMINATION
8.1 Rights and Obligations. Upon termination of this Agreement,
the Manager shall deliver up to the Company all documents, papers, plans,
materials and other property of or relating to the affairs of the Company, other
than the Managers personal papers in regard to his role in the Company, which
may then be in its or the Manager's possession or under her/his control.
9. REGULATORY APPROVAL
9.1 Performance Bonus Subject to Regulatory Approval. While
SmartTire's shares are listed for trading on the VSE, the Performance Bonus
included herein will not be paid until the Company has obtained VSE approval
thereto. The Company and SmarTire will use all reasonable efforts to obtain such
approval. In the event that SmarTire is unable to obtain approval from the
V.S.E. for payment of the Performance Bonus within a reasonable period of time,
then SmarTire will de-list from the V.S.E. if it is necessary allow the Company
to pay any Performance Bonus that would otherwise be payable hereunder.
10. NOTICES AND REQUESTS
10.1 Notices and Requests. All notices and requests in
connection with this Agreement shall be deemed given as of the day they are
received either by messenger, delivery service, or mailed by registered or
certified mail with postage prepaid and return receipt requested and addressed
as follows:
(a) if to the Company:
SmarTire U.S.A. Inc.
159 Wilbur Dr. N.E.
North Canton, Ohio
44720
with a copy to:
CLARK, WILSON
Suite 800-885 West Georgia Street Vancouver, British
Columbia V6C 3H1
Attention: Bernard Pinsky
(b) If to the Manager:
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Joseph Merback
27725 Winding Way
Malibu, California 90265
(c) If to SmarTire: SmarTire Systems Inc. 150 - 13151 Vanier
Place Richmond, British Columbia V6V 2J 1
with a copy to:
CLARK, WILSON
Suite 800-885 West Georgia Street Vancouver, British
Columbia
V6C 3Hl
Attention: Bernard Pinsky
or to such other address as the party to receive notice or request so designates
by written notice to the other.
11. INDEPENDENT PARTIES
11.1 Independent Parties. This Agreement is intended solely as a
management services agreement and no partnership, agency, joint venture,
distributorship or other form of agreement is intended.
12. AGREEMENT VOLUNTARY AND EQUITABLE
12.1 Agreement Voluntary. The parties acknowledge and declare
that in executing this Agreement they are each relying wholly on their own
judgment and knowledge and have not been influenced to any extent whatsoever by
any representations or statements made by or on behalf of the other party
regarding any matters dealt with herein or incidental thereto.
12.2 Agreement Equitable. The parties further acknowledge and
declare that they each have carefully considered and understand the provisions
contained herein, including, but without limiting the generality of the
foregoing, the Manager's rights upon termination and the restrictions on the
Manager after termination and agree that the said provisions are mutually fair
and equitable, and that they executed this Agreement voluntarily and of their
own free will.
13. CONTRACT NON-ASSIGNABLE; INUREMENT
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13.1 Contract Non-Assignable. This Agreement and all other
rights, benefits and privileges contained herein may not be assigned by the
Manager.
13.2 Inurement. The rights, benefits and privileges contained
herein, including without limitation the benefits of Sections 0 and 0 hereof,
shall inure to the benefit of and be binding upon the respective parties hereto,
their heirs, executors, administrators and successors.
14. ENTIRE AGREEMENT
14.1 Entire Agreement. This Agreement represents the entire
Agreement between the parties and supersedes any and all prior agreements and
understandings, whether written or oral, between the parties. The Manager
acknowledges that it was not included to enter into this Agreement by any
representation, warranty, promise or other statement, except as contained
herein.
14.2 Previous Agreements Cancelled. Save and except for the
express provisions of this Agreement, any and all previous agreements, written
or oral, between the parties hereto or on their behalf relating to the services
of the Manager for the Company or for SmarTire are hereby terminated and
cancelled and each of the parties hereby releases and further discharges the
other of and from all manner of actions, causes of action, claims and demands
whatsoever under or in respect of any such Agreement.
15. WAIVER
15.1 Waiver. No consent or waiver, express or implied, by either
party to or of any breach or default by the other party in the performance by
the other of its obligations herein shall be deemed or construed to be a consent
or waiver to or of any breach or default of the same or any other obligation of
such party. Failure on the part of any party to complain of any act or failure
to act, or to declare either party in default irrespective of how long such
failure continues, shall not constitute a waiver by such party of its rights
herein or of the right to then or subsequently declare a default.
16. SEVERABILITY
16.1 Severability. If any provision contained herein is
determined to be void or unenforceable in whole or in part, it is to that extent
deemed omitted. The remaining provisions shall not be affected in any way.
17. AMENDMENT
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17.1 Amendment. This Agreement shall not be amended or otherwise
modified except by a written notice of even date herewith or subsequent hereto
signed by both parties.
18. HEADINGS
18.1 Headings. The headings of the sections and subsections
herein are for convenience only and shall not control or affect the meaning or
construction of any provisions of this Agreement.
19. GOVERNING LAW
19.1 Governing Law. This Agreement shall be construed under and
governed by the laws of the Province of British Columbia and the laws of Canada
applicable therein.
20. EXECUTION
20.1 Execution in Several Counterparts. This Agreement may be
executed by facsimile and in several counterparts, each of which shall be deemed
to be an original and all of which shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the ___ day of __________, 1998.
SMARTIRE SYSTEMS (USA) INC.
Per:
- ------------------------------------------
Authorized Signatory
SIGNED, SEALED AND DELIVERED by )
JOSEPH MERBACK in the presence of: )
)
- -------------------------------- )
Name )
Address )
)
- -------------------------------- )
JOSEPH MERBACK )
)
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<PAGE> 12
)
)
- -------------------------------- )
Occupation
SMARTIRE SYSTEMS INC.
Per:
--------------------------
Authorized Signatory
This is page 12 of Agreement dated above for reference the ___ day of
___________, 1998.
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<PAGE> 13
SCHEDULE "A"
MANAGER'S DUTIES
1. To create value for the Company's shareholders by leading the
establishment of a profitable business for the Company.
2. The Manager shall be appointed by the Company as the full time
president, a director on the Board of Directors of the Company and each of the
Company's subsidiaries, and the Manager shall faithfully, honestly and
diligently serve the Company and each of the Company's subsidiaries in these
capacities.
3. The Manager shall be responsible for leading in the strategic
management and direction of the Company and each of the Company's subsidiaries
and for the supervision and delegation of such duties and responsibilities as
the Company deems appropriate to other officers and the employees of the Company
and its subsidiaries.
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SCHEDULE "B"
PERFORMANCE OBJECTIVES
Build the Company into a leader in the manufacture and sales of tire monitoring
systems for vehicles of all types in North America. Achieve the financial
projections as prepared by management and approved by the Company's directors.
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SCHEDULE "C"
NON-DISCLOSURE PROVISIONS
1. CONFIDENTIAL INFORMATION AND MATERIALS
(a) "Confidential Information" shall mean, for the purposes of
this Agreement, non-public information which the Company designates as being
confidential or which, under the circumstances surrounding disclosure ought
reasonably to be treated as confidential. Confidential Information includes,
without limitation, information, whether written, oral or communicated by any
other means, relating to released or unreleased the Company software or hardware
products, the marketing or promotion of any product of the Company, the Company
business policies or practices, and information received from others which the
Company is obliged to treat as confidential. Confidential Information disclosed
to the Manager by any subsidiary and/or agents of the Company is covered by this
Agreement.
(b) Confidential Information shall not include that information
defined as Confidential Information hereinabove which the Manager can
exclusively establish:
(i) is or subsequently becomes publicly available without
breach of any obligation of confidentiality owed by the Company;
(ii) became known to the Manager prior to disclosure by
the Company to the Manager;
(iii) became known to the Manager from a source other than
the Company other than by the breach of any obligations of confidentiality owed
to the Company; or
(iv) is independently developed by the Manager.
(c) Confidential Materials shall include all tangible materials
containing Confidential Information, including, without limitation, written or
printed documents and computer disks or tapes, whether machine or user readable.
2. RESTRICTIONS
(a) The Manager shall not disclose any Confidential Information
to third parties for a period of three (3) years following the termination of
this Agreement, except as provided herein. However, the Manager may disclose
Confidential Information during bona fide execution of the Duties or in
accordance with judicial or other governmental order, provided that the Manager
shall give
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reasonable notice to the Company prior to such disclosure and shall comply with
any applicable protective order or equivalent.
(b) The Manager shall take reasonable security precautions, at
least as great as the precautions it takes to protect its own confidential
information, to keep confidential the Confidential Information, as defined
hereinabove.
(c) Confidential Information and Materials may be disclosed,
reproduced, summarized or distributed only in pursuance of the business
relationship of the Manager with the Company, and only as provided hereunder.
The Manager agrees to segregate all such Confidential Materials from the
materials of others in order to prevent commingling.
3. RIGHTS AND REMEDIES
(a) The Manager shall notify the Company immediately upon
discovery of any unauthorized use or disclosure of Confidential Information or
Materials, or any other breach of this Agreement by the Manager, and shall
cooperate with the Company in every reasonable manner to aid the Company to
regain possession of said Confidential Information or Materials and prevent all
such further unauthorized use.
(b) The Manager shall return all originals, copies,
reproductions and summaries of or relating to the Confidential Information at
the request of the Company or, at the option of the Company, certify destruction
of the same.
(c) The parties hereto recognize that a breach by the Manager of
any of the provisions contained herein would result in damages to the Company
and that the Company could not be compensated adequately for such damages by
monetary award. Accordingly, the Manager agrees that in the event of any such
breach, in addition to all other remedies available to the Company at law or in
equity, the Company shall be entitled as a matter of right to apply to a court
of competent jurisdiction for such relief by way of restraining order,
injunction, decree or otherwise, as may be appropriate to ensure compliance with
the provisions of this Agreement.
4. MISCELLANEOUS
(a) All Confidential Information and Materials are and shall
remain the property of the Company. By disclosing information to the Manager,
the Company does not grant any express or implied right to the Manager to or
under any and all patents, copyrights, trademarks, or trade secret information
belonging to the Company.
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(b) All obligations created herein shall survive change or
termination of any and all business relationships between the parties.
(c) The Company may from time to time request suggestions,
feedback or other information from the Manager on Confidential Information or on
released or unreleased software belonging to the Company. Any suggestions,
feedback or other disclosures made by the Manager are and shall be entirely
voluntary on the party of said Manager and shall not create any obligations on
the part of the Company or a confidential agreement between the Manager and the
Company. Instead, the Company shall be free to disclose and use any suggestions,
feedback or other information from the Manager as the Company sees fit, entirely
without obligation of any kind whatsoever to the Manager.
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EXHIBIT 10.3
EXECUTION COPY
THE ITEMS MARKED BY TWO ASTERISKS ** HAVE BEEN OMITTED FROM THIS FILING
AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") is entered into this 20th
day of April, 1998, by and between SMARTIRE SYSTEMS INC., a British Columbia
corporation ("Buyer"), and TRW INC., an Ohio, USA corporation acting on behalf
of its TRW Automotive Electronics North America Division ("Seller") for the
purpose of establishing the terms and conditions under which Buyer will purchase
from Seller and Seller will sell to Buyer tire pressure monitoring transmitters
and receivers ("Product").
Buyer and Seller agree as follows:
1. QUANTITY AND PRICE
1.1 QUANTITY:
(a) Buyer will purchase from Seller one hundred percent
(100%) of its requirements for Product (other than those tire pressure
transmitters or low pressure warning devices which Buyer is required, by written
contractual obligation executed prior to the date of this Agreement, to purchase
from EPIC Technologies or from Advantage Enterprises Inc.), provided that
Seller's prices are competitive. Seller's prices will be deemed to be
competitive if they are no more than ** percent (**%) higher than bona fide
written quotations obtained by Buyer from electronics manufacturers with similar
capabilities for comparable quantities of Product.
1.2 PRICE:
(a) The unit prices of the Product purchased and supplied
under this Agreement will be determined in accordance with this Section 1.2.
(b) To enable Seller to submit a quotation for the price
of a Product to be supplied under this Agreement, Buyer will provide Seller with
a request for quotation that includes (1) detailed and complete specifications
and drawings for the Product, (2) the period over which Buyer will require
Seller to supply the Product and (3) Buyer's annual requirements for the
Product.
(c) Based on the information provided by Buyer in the
request for quotation, Seller will submit a quotation for the Product in
question. If the price quoted by Seller is competitive, Buyer will issue a
purchase order to Seller for its annual requirements for the Product. If the
price quoted by Seller is not competitive, Buyer will inform Seller in writing.
Seller will have a thirty (30) day
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period within which to revise its quotation in order to make it competitive. If
Seller thereafter fails to submit a competitive quotation, Buyer will be free to
purchase the Product covered by the quotation from a third party for the period
described in the request for quotation provided to Seller.
2. RELEASES AND SUPPLY OF GOODS
2.1 RELEASES: Buyer will issue to Seller weekly releases, in a
form reasonably acceptable to Seller ("Releases"), consisting of a Shipping
Authorization (as described in Section 2.2) and the Material Planning &
Authorization (as described in Section 2.3). If there is any conflict in the
terms of Releases, the most recent Release will prevail; provided, however, that
Seller will be fully compensated hereunder for its actions in supplying Product
identified by a Shipping Authorization, in fabricating Product pursuant to a
Fabrication Authorization (as described in Section 2.3) and in procuring
materials pursuant to a Raw Material Authorization (as described below) taken or
committed to prior to the receipt of such later Release.
2.2 SHIPPING AUTHORIZATION: Each Shipping Authorization will
authorize Seller to ship specified quantities of Product for arrival at the
location designated by Buyer on specified due dates.
2.3 MATERIAL PLANNING & AUTHORIZATION: Each Material Planning &
Authorization will state the following information:
(a) the quantities of Product that Seller will be
authorized to fabricate ("Fabrication Authorization").
(b) the quantities of Product for which Seller will be
authorized to procure the necessary raw materials ("Raw Material
Authorization").
2.4 INVOICES: Seller may not submit invoices to Buyer until
after Shipment to Buyer of the Product to which such invoices relate.
3. GENERAL TERMS AND CONDITIONS
The provisions of this Agreement include Seller's Standard
Conditions of Sale (the "Terms and Conditions"), a copy of which is attached
hereto as Exhibit A, and which are hereby incorporated herein by this reference.
In the event of any conflict between the provisions of this Agreement and the
Terms and Conditions, the provisions of this Agreement will govern. This
Agreement, together with the Terms and Conditions, is in lieu of and overrides
any contrary term or condition, preprinted or otherwise, that may appear on any
form used (a) by Buyer to purchase, offer to
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purchase, or to confirm the purchase of any Product or (b) by Seller to
acknowledge such purchase, offer or confirmation.
5. TERMINATION
5.1 TERMINATION FOR CAUSE: Either party may terminate this
Agreement upon the other party's breach of any material provision of this
Agreement and failure to correct such breach with thirty (30) calendar days of
the breaching party's receipt of a written notice that (A) describes the breach
in reasonable detail and (B) states that the Agreement will be terminated if the
breach is not corrected within the aforementioned cure period. In the event of a
breach under an individual purchase order issued under this Agreement, which
breach does not substantially impair the value of the whole Agreement, the
non-breaching party may terminate such individual purchase order in accordance
with provisions thereof but not the Agreement.
5.2 SELLER'S OBLIGATION UPON TERMINATION: Upon termination of
this Agreement pursuant to Section 5.1 above, Seller will (a) immediately
terminate all work under this Agreement; (b) transfer title and deliver to Buyer
all finished Product conforming to Buyer's Specifications, work in process
(provided that Buyer authorized the fabrication of such work in process by a
Fabrication Authorization) and raw material (provided that Buyer authorized the
procurement of such Raw Material by a Raw Material Authorization); and (c) take
all action necessary to protect property in Seller's possession in which Buyer
has or may acquire an interest and, if requested, return such property.
5.3 BUYER'S OBLIGATION UPON TERMINATION: Upon termination of
this Agreement pursuant to Section 5.1 above, Buyer will pay to Seller an amount
equal to the sum of: (a) the contract price for all finished Product transferred
and delivered to Buyer in accordance with clause (b) of Section 5.2; plus (b)
Seller's actual cost of the work in process and raw materials transferred and
delivered to Buyer in accordance with clause (b) of Section 5.2.
6. MERGER/AMENDMENT
This Agreement supersedes all prior agreements and understandings
between the parties respecting the subject matter hereof. The provisions of this
Agreement may not be amended or otherwise modified except by a written agreement
that (A) has been signed by an authorized individual for each party and (B)
specifically refers to the provision of this Agreement to be amended or
modified.
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7. HEADINGS
Section headings used in this Agreement are for convenience only and
are not a part of this Agreement for any other purpose.
8. GOVERNING LAW
This Agreement will be governed by and construed in accordance with
the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives.
TRW INC. SMARTIRE SYSTEMS INC.
By: By:
---------------------------- -------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
---------------------------- -------------------------------
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EXHIBIT A
STANDARD CONDITIONS OF SALE
1. PURCHASE ORDERS. This Quotation is an offer subject to, and
expressly conditioned upon, these Standard Conditions of Sale. The prices set
forth in Seller's Quotation are firm for a period of thirty days. Submission of
a purchase order by Purchaser shall be an acceptance of this Quotation offer on
the date of receipt by ____________________ (hereinafter called Seller) at its
designated offices, subject to these Standard Conditions of Sale, regardless of
the provisions, conditions or terms contained in such purchase order. Any
provisions, conditions or terms contained in such purchase order, which are in
addition to or not consistent with these Standard Conditions of Sales are null
and void and not binding on Seller. As used in these Standard Conditions of
Sale, "Product" means products manufactured by Seller which are being sold to
Purchaser hereunder.
2. TERMS OF SALE. All shipments are made f.o.b. Seller's
manufacturing location, freight collect, unless otherwise specified, except that
title and ownership of Products will remain with Seller (or, alternatively,
Purchaser grants Seller a security interest in such Products) until the purchase
price (including but not limited to all interest, costs and taxes, if any) has
been paid in full.
3. TAXES. The prices set forth herein do not include any amount
for federal, state, provincial or local excise, sales, use, service, occupation,
gross income, property or similar taxes (including but not limited to goods and
services taxes). Such taxes shall, to the extent then determined to be
applicable to this transaction, be included in Seller's invoice. If any such
taxes are later determined to be applicable to this transaction or Seller is
required to pay or bear the burden thereof, the prices set forth herein shall be
increased by the amount of such taxes and any interest or penalty thereon, and
Purchaser shall pay to Seller the full amount of any such increase no later than
thirty (30) days after the receipt of such invoice therefor. A request for
exemption from any tax must be accompanied by properly completed tax exemption
certificate. Seller shall have the right to include taxes which may be
applicable to the price set forth herein in the event that Purchaser does not
supply to Seller, prior to shipment, properly completed sales, use and federal
excise exemption certificates.
4. TERMS OF PAYMENT. Terms of payment for invoices dated
between the 1st and 25th of the month are net 10 days of the following month.
Terms of payment for invoices dated between the 26th and the end of the month
are net 10 days of the second month following. However, Seller reserves the
right to demand payment prior to shipment(s) if Purchaser fails to pay when due
for any goods previously delivered, or, if in Seller's judgment, Purchaser's
financial condition
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warrants payment prior to shipments. Purchaser will pay interest at the rate of
eighteen percent (18%) per annum on overdue balances.
5. WARRANTY. Seller warrants that, for a period of one (1) year
from Seller's shipment of a Product, such Product will (i) conform to applicable
specifications and drawings which are set forth on the face of Purchaser's
purchase order and (ii) be free from defects in materials and workmanship under
normal use and operation. Seller's sole and exclusive obligation in respect of
any Product which fails to conform to the foregoing warranty is to repair or
replace such Product, provided that (i) Seller receives written notice of the
defect during the period of warranty and (ii) any nonconforming Product is
returned at Purchaser's expense to Seller at a location to be designated by
Seller. Purchaser hereby releases Seller, its employees, agents and
subcontractors from any liabilities, demands, claims, actions, lawsuits,
damages, losses and expenses (including, but not limited to, reasonable
attorneys' fees) in respect of the Products except as set forth in Paragraph 6.
In no event shall Seller be liable for any special, incidental or consequential
damages to Purchaser or any third party caused by any defective Product whether
the defect is warranted against or not. Seller shall have no obligation under
this warranty to make repairs or replacements necessitated by catastrophe,
fault, or negligence, misuse, abuse or accident of Purchaser or other users. THE
FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, CONDITIONS OR
REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE INCLUDING ANY IMPLIED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY.
6. PATENTS. Seller will indemnify, defend, and hold harmless
Purchaser from and against any and all liabilities, demands, claims, actions,
lawsuits, damages, losses and expenses, including, but not limited to,
reasonable attorneys' fees, which arise from the purchase, sale and/or use of
Products furnished by Seller to Purchaser under this Agreement and which are
based on any alleged or actual infringement or other unauthorized use of any
patent, copyright or trade secret of a third person, but only to the extent such
infringement or other unauthorized use is predicated on the purchase, sale
and/or use of Products manufactured by Seller to Seller's own designs and
specifications, rather than designs or specifications originally supplied by
Purchaser, and provided that Seller shall have no obligation to Purchaser unless
Purchaser (i) gives Seller prompt written notice of and control over the defense
and settlement of each such demand, claim, action, and lawsuit and (ii)
cooperates fully, at Purchaser's expense, in such defense and settlement.
Further, if Products ordered by Purchaser from Seller become or, in Seller's
opinion, are likely to become the subject of a claim of infringement or other
unauthorized use of a patent, copyright or trade secret of a third person or to
raise any issue of infringement or other unauthorized use of a patent, copyright
or trade secret of a third person, Purchaser shall permit Seller, at Seller's
election and expense, (a) to procure for Purchaser the right to purchase, use
and sell and/or continue purchasing, using and selling Products
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from Seller or (b) to modify the Products or replace the Products with
comparable products so that the Products ordered by Purchaser from Seller become
noninfringing or free from such claim of unauthorized use, provided that such
modifications or replacements are made in a manner which does not materially
impair Purchaser's existing use, if any, of the Products or (c) to remove the
Products purchased from Seller and refund the purchase price and the
transportation and installation costs of such removed Goods. THE FOREGOING IS
PURCHASER'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTIES, CONDITIONS OR
REPRESENTATIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, OF SELLER AGAINST
INFRINGEMENT, AND PURCHASER HEREBY WAIVES ALL OTHER REMEDIES IN RESPECT THERETO.
Notwithstanding the foregoing, if Purchaser furnishes designs or specifications
to Seller, the above indemnity shall not apply. In such event Purchaser will
indemnify, defend, and hold harmless Seller, its employees, agents and
subcontractors, in a manner fully equivalent to the foregoing for any and all
liabilities, demands, claims, actions, lawsuits, damages, losses and expenses,
including, but not limited to, reasonable attorneys' fees, which are based on
any alleged or actual infringement or other unauthorized use of a patent,
copyright or trade secret of a third person predicated on the manufacture, sale
or use of Products manufactured by Seller to designs or specifications supplied
by Purchaser.
7. DELAYS. Seller shall in no event be liable for any delay due
directly or indirectly to (a) the failure of Purchaser to supply material and
services which the Purchaser is to supply or (b) causes beyond the control and
without the fault or negligence of Seller, including, but not restricted to,
acts of God, acts of the public enemy, acts of any federal, state, provincial or
local government, or any political subdivision of the foregoing, acts of the
Purchaser, its agents, employees, or subcontractors, explosions, fires, floods,
epidemics, quarantine restrictions, strikes, freight embargoes and shortages,
unusually severe weather conditions and defaults of suppliers or subcontractors
due to any such causes.
8. CHANGE ORDER. Purchaser may at any time prior to the
scheduled date of shipment by a written order change drawings, designs,
specifications, materials, packing, time and place of delivery or method of
transportation, provided that (i) Seller receives 90 days advance written notice
of such change and (ii) if any such change increases the cost or time required
for Seller's performance hereunder, Purchaser and Seller execute a written
change order providing for an equitable adjustment to the price of Product or an
extension of delivery dates or both. Any claim by Seller for any adjustment will
be made within a reasonable time of the date Seller is first notified of the
change. If Seller's claim includes any cost for property made obsolete as a
result of the change, the claim must be supported by releases (or other forms of
authorization) provided by Purchaser
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authorizing Seller to procure or manufacture the property. Purchaser may
prescribe the manner in which such property will be disposed.
9. CONFIDENTIALITY. Purchaser will consider all information
furnished by Seller under this Agreement (including drawings, specifications, or
other documents prepared by Seller for Purchaser in connection with this
Agreement) to be confidential and will not disclose any such information to any
other person, unless Purchaser obtains Seller's prior written permission.
10. CONTRACTS: MODIFICATIONS: GOVERNING LAW. All orders place by
Purchaser with Seller are accepted subject to these Standard Conditions of Sale.
These Standard Conditions of Sale set forth the entire agreement between
Purchaser and Seller regarding the subject matter hereof and, as such, supersede
all previous agreements, written or oral, regarding such subject. No terms,
conditions or warranties other than those stated herein, and no agreement or
understanding, oral or written, in any way purporting to modify these Standard
Conditions of Sale, whether contained in Purchaser's purchase or release forms,
or elsewhere, shall be binding on Seller unless set forth in a written document
which (i) specifically refers to these Standard Conditions of Sale and (ii) has
been executed by duly authorized representatives of Purchaser and Seller. This
Quotation and Standard Conditions of Sale shall be governed by the laws of the
State of Ohio.
11. ASSIGNMENT. Purchaser may not assign this Agreement without
Seller's prior written consent. Any attempted assignment without such consent
will be null and void.
12. Typographical errors are subject to correction.
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EXHIBIT 10.4
EXECUTION COPY
TECHNICAL COOPERATION AGREEMENT
AGREEMENT, dated as of 20 April, 1998, by and between SMARTIRE
SYSTEMS INC., a British Columbia corporation having a place of business at 13151
Vanier Place, Suite 150, Richmond, British Columbia, Canada V6V 2J1
("SmarTire"), and TRW INC., a corporation existing under the laws of the State
of Ohio, United States of America, acting for and on behalf of its Automotive
Electronics Group in the U.S. and having a place of business at 24175 Research
Drive, Farmington Hills, Michigan, United States of America 48335-2642 ("TRW").
WHEREAS SmarTire designs and manufactures tire pressure sensing
systems for motor vehicles and possesses certain technology relating to same;
WHEREAS SmarTire, in a license agreement dated 20 April, 1998,
granted TRW an exclusive license to use the SmarTire tire pressure sensing
technology in the original equipment market for passenger cars and light,
medium, and heavy truck;
WHEREAS TRW has certain relevant technology relating to automotive
electronics, in general, and radio frequency communications systems, in
particular;
WHEREAS TRW will now have a need to develop new tire pressure
sensing products for its licensed markets and, further, SmarTire will have a
continuing need to develop new tire pressure sensing products for the markets
which it has retained; and
WHEREAS TRW and SmarTire wish to cooperate in future technical
development of the tire pressure sensing products for the mutual benefit of both
companies;
NOW, THEREFORE, in view of the foregoing premises and in
consideration of the mutual promises and covenants contained in this Agreement,
SmarTire and TRW agree as follows:
Article 1
Definitions
The following words and phrases will have the meanings set forth
below where used herein with initial capital letters:
1.1 Affiliate: Any corporation, partnership, or other business
entity in which SmarTire or TRW owns or controls more than fifty percent (50%)
of the
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voting stock or otherwise has more than fifty percent (50%) of the right to
control the entity.
1.2 Effective Date: The date set forth in the preamble of this
Agreement.
1.3 Intellectual Property Rights: Patents and applications
therefor, utility models and applications therefor, copyrights, trade secrets,
and any and all other forms of intellectual property.
1.4 Project Statement: As defined in Section 2.3.
1.5 Secrecy Agreement: The secrecy agreement between the
parties dated as of 6 January, 1998, as amended 18 February 1998.
1.6 Shared Intellectual Property: As defined in Section 3.1.
1.7 SmarTire Markets: Aftermarket sales of products and
components for all vehicles.
1.8 TRW Markets: The market for original equipment products and
components for passenger car and light, medium, and heavy duty trucks, and for
service parts for such products and components.
1.9 Other Definitions and Meanings: For purposes of this
Agreement, (a) the term "person" includes any natural person, firm, association,
partnership, corporation, or other entity and (b) the words "hereof", "herein",
"hereby" and other words of similar import refer to this Agreement as a whole.
Article 2
Technical Cooperation
2.1 Generally: SmarTire and TRW will cooperate in the
development of new tire pressure sensing technology of mutual benefit to both
companies. To the extent that the parties conduct individual development work in
the area of tire pressure sensing technology, the parties will share the results
of such development work pursuant to the terms of this Agreement.
2.2 Technology Exchange Meetings: The parties will meet
regularly, at least once every calendar quarter, to discuss tire pressure
sensing developments at each party. At such meetings the parties will freely
exchange technical information, design information, and intellectual property
information. The parties will not be obliged to disclose any information, the
disclosure of which is
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prohibited by a secrecy agreement with a third party. However, each party will
use reasonable efforts to avoid any secrecy obligations which might prohibit
such disclosures. The meetings will take place at mutually agreeable locations,
and each party will bear its own costs in attending such meetings.
2.3 Specific Projects: The parties will from time to time work
together in good faith and using reasonable commercial efforts on specific
projects, each of which will be identified and outlined in a project statement
("Project Statement"). Each Project Statement will specify at least (a) the goal
of the project, (b) the tasks to be performed by each party, (c) the estimated
timetable of such project, (d) the deliverables (if any) that each party is to
provide to the other, and (e) the special rules (if any) for sharing of the
costs of the project. Each Project Statement will specifically state that it is
a Project Statement under this Agreement, will be signed by both parties, and
will thereafter be a part of this Agreement. In the absence of special cost
sharing rules, each party will bear its own costs in participating in each such
project.
2.4 Initial Projects: The parties will initially cooperate on
the specific projects set forth in Exhibit A hereof.
2.5 Work Under Project Statements: The parties will work in
good faith to complete the work specified in each Project Statement. However, in
no event will a failure by a party to complete a task or deliver a deliverable
specified in a Project Statement be considered to be a breach of this Agreement,
or give rise to any action for any damages, whether regular, consequential,
special, or otherwise, on the part of either party hereto.
Article 3
Technology Rights
3.1 Shared Intellectual Property: TRW and SmarTire will share,
under the terms and subject to the limitations of this Article 3, Intellectual
Property Rights which both (a) relate to tire pressure sensing systems or
components thereof, and (b) either TRW or SmarTire develops during the term of
this Technical Cooperation Agreement ("Shared Intellectual Property").
3.2 Excluded Technology: Shared Intellectual Property does not
include any technology which a party acquires through purchase from a third
party (rather than from internal developments), or subsequent development of
such technology acquired by the party. However, the parties will in good faith
discuss the terms under which such new technology acquired by one party through
purchase and useful in the area of tire pressure sensing systems will be made
available to the other party. Further, Shared Intellectual Property does not
include technology developed
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and owned by divisions of TRW Inc. other than the Automotive Electronics Group
in the U.S.
3.3 License from TRW to SmarTire: TRW hereby grants to SmarTire
under Shared Intellectual Property owned by TRW a perpetual, worldwide,
cost-free, exclusive license to make, have made, use, and sell tire pressure
sensing products and components thereof in the SmarTire Markets.
3.4 License from SmarTire to TRW: SmarTire hereby grants to TRW
under Shared Intellectual Property owned by SmarTire a perpetual, worldwide,
cost-free, exclusive license to make, have made, use, and sell tire pressure
sensing products and components thereof in the TRW Markets.
3.5 Market Overlap: The parties recognize that there could be
some minor overlap between the TRW Markets and the SmarTire Markets. For
avoidance of doubt, it will not be considered to be a violation of exclusive
licenses granted in this Agreement if some aftermarket products sold by SmarTire
in aftermarket channels are used by customers as replacements for original
equipment products, or if some original equipment products sold by TRW in
original equipment channels are used by customers as aftermarket products.
3.6 Sublicenses: Each party may grant to its Affiliates
sublicenses under the rights granted herein.
Article 4
Secrecy and Use of Information
4.1 Existing Secrecy Agreement: The obligations of the parties
with respect to secrecy and use of information will be governed by the terms of
the Secrecy Agreement.
4.2 Exceptions: The parties recognize that each party may need
to disclose certain of the other party's Proprietary Information, as defined in
the Secrecy Agreement, to others as part of the party's permitted activities
under this Agreement. Each party may disclose such Know-how to its employees,
agents, subcontractors, suppliers, customers, and sublicensees to the extent
that each such disclosure is reasonably necessary for purposes of manufacturing,
selling, installing, repairing, and/or servicing tire pressure sensing, systems
and components hereunder, or procuring goods and services required in connection
therewith.
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Article 5
Warranty
5.1 By SmarTire: SmarTire warrants that it has the right to
enter into this Agreement and that SmarTire's performance of this Agreement will
not violate any agreement between SmarTire and any third person.
5.2 By TRW: TRW warrants that it has the right to enter into
this Agreement and that TRW's performance of this Agreement will not violate any
agreement between TRW and any third person.
Article 6
Products Liability
6.1 Product Defects: SmarTire will have full responsibility for
determining that (a) the designs of the products and components made for the
SmarTire Markets are suitable for the uses intended by purchasers of such
products and components and (b) each product and component made for the SmarTire
Markets is manufactured and tested to insure that such product or component is
not defective. TRW will have full responsibility for determining that (a) the
designs of the products and components made for the TRW Markets are suitable for
the uses intended by purchasers of such products and components and (b) each
product and component made for the TRW Markets is manufactured and tested to
insure that such product or component is not defective. This Section 6.1 will
not, however, relieve either party from any responsibility it may have as a
supplier to the other party of products and components under a separate purchase
agreement for such components.
6.2 Indemnification: Subject to the last sentence of Section
6.1, each party will have no recourse against the other party, and will
indemnify and hold the other party harmless in respect of any and all expenses,
damages, losses, and liabilities that may arise in connection with each party's
use of the other party's technology in the manufacture and sale of products and
components hereunder. However, if a defect should appear in the documents which
relate to one party's design of any product or component and which was provided
to the other party hereunder, the one party will use reasonable efforts to
correct such defect and to provide the other party with corrected documents,
without undue delay and without charge to the other party.
6.3 Limitation of Liability: Other provision of this Agreement
notwithstanding, under no circumstances will either party be liable to the other
for any incidental or consequential damages arising under this Agreement.
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Article 7
Patents
7.1 Title: Nothing in this Agreement will be deemed to convey
to either party the legal title to any Intellectual Property Right owned by the
other party.
7.2 Acquisition and Maintenance of Patents: Nothing in this
Agreement will be deemed to require either party (a) to file, prosecute, or
maintain any patent or (b) to respond to or otherwise defend any action for
reexamination or revocation of any patent.
7.3 Notice of Infringements By Third Persons: Each party will
promptly (a) notify the other party of any conduct by any third person which may
constitute infringement of any Intellectual Property Right owned by the other
party and licensed herein and (b) make available to such other party any
information with respect to such possible infringement as the party may possess
or to which the party may have access. TRW will have the right and discretion,
but no obligation, to take whatever action it deems desirable in connection with
any alleged infringement, of any SmarTire Intellectual Property Right licensed
exclusively to TRW herein, by products for use as original equipment in
passenger car and light, medium, and heavy duty truck markets. The parties will
consult with one another regarding any such TRW actions. SmarTire will give TRW
all reasonable assistance in connection with any action. If TRW requests
assistance, then SmarTire will advise TRW of the estimated cost of providing the
requested assistance. TRW will reimburse SmarTire for reasonable costs incurred
by SmarTire in providing such requested assistance.
7.4 Infringement Claims By Third Persons: If a third person
asserts a claim or institutes a suit or proceeding against one party alleging
that any tire pressure sensing product or component made by or for the one party
infringes any patent, utility model, or other intellectual property right of a
third person, then the other party will at its own expense cooperate with the
one party in every reasonable way in the defense of such claim, suit, and/or
proceeding.
Article 8
Default
8.1 Default: A party will be deemed in default under this
Agreement if (a) the party becomes insolvent, bankrupt or any of its assets are
seized or placed in trust for the benefit of creditors, or (b) the party
breaches any obligation required to be performed by the party under this
Agreement and fails to cure such breach within sixty (60) days after receipt of
a written notice of breach from the other party or undertaken diligently to cure
such breach if more than sixty (60) days is required to effect such cure.
However, a party will not be deemed to be in default
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for breach unless the notice of breach described the breach in reasonable detail
and indicated that the Agreement would be subject to termination if the breach
were not corrected within the aforementioned cure period.
8.2 Remedy for Default: If a party is in default as provided in
Section 8.1, the non-defaulting party may (a) terminate this Agreement by giving
the defaulting party notice of termination and (b) pursue any other remedy under
this Agreement or otherwise available to the non-defaulting party.
Article 9
Delay
9.1 Notice: If either party is unable to perform or is delayed
in performing any of its respective obligations under this Agreement, then the
party who is unable to perform or is delayed in performing will give the other
party notice of such inability to perform or delay in performing as soon as
reasonably possible under the circumstances, including information regarding the
cause or reason for such inability to perform or delay in performing.
9.2 Excusable Delay: If either party is prevented from
performing or is delayed in performing any of its respective obligations under
this Agreement due to any circumstance beyond its reasonable control, but not
due to its negligence, (including but not limited to strikes, war, an act of
God, a public enemy, interference by any civil or military authority, or
inability to secure governmental approval, materials or services or similar
cause) and gives notice to the other party, then the time for performance of any
such obligation (except the payment of any sum due hereunder) will be extended
for a period equal to the number of days during which performance thereof was
prevented or delayed and, during such period, such party will not be deemed in
default under this Agreement.
Article 10
Term and Termination
10.1 Term: The term of this Agreement will begin on the
Effective Date, upon execution of this Agreement by both SmarTire and TRW and,
unless terminated early for default under Section 8.2, the Agreement will
thereafter continue in full force and effect until the end of its then-current
term. The initial term of the Agreement will end on the fifth anniversary of the
Effective Date. The Agreement will automatically extend year by year following
such fifth anniversary, however, unless one party gives notice hereunder to the
other party, at least three months prior to such fifth anniversary or a
subsequent anniversary, of non-extension of the Agreement.
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10.2 Wrapping-up of Projects: Upon the giving of a notice of
non-extension under Section 10.1, the parties will consult with one another
regarding the manner in which the remaining work in any outstanding Project
Statements will be wrapped up.
10.3 Survival of Rights and Obligations: The licenses to Shared
Intellectual Property given under Sections 3.3 through 3.5 will survive
termination of this Agreement. In addition, the rights and obligations of the
parties under Articles 4, 5, and 6 will survive termination of this Agreement.
Article 11
Assignment
Neither party may assign or transfer this Agreement or any of its
rights or duties under this Agreement without the prior written consent of the
other party, except to a successor in interest by amalgamation, merger,
consolidation, or the acquisition of substantially all of the assets of the
party, and provided such assignee agrees in writing to perform all of the
assignor's obligations under this Agreement.
Article 12
Notice
Any notice or other communication to any party under this Agreement
will be in writing and will be deemed to have been duly given, if communicated
by facsimile, cable or similar electronic means, at the time receipt thereof has
been confirmed by return electronic communication or signal that the message has
been clearly received, or if mailed, ten (10) days after mailing, registered
mail, postage prepaid, return receipt requested:
If to TRW: TRW Automotive Electronics Group in the U.S.
24175 Research Drive
Farmington Hills, Michigan 48335-2642
U.S.A.
FAX: 248.442.5290
Attention: General Manager
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With a copy to: TRW Automotive Electronics Group
1900 Richmond Road
Cleveland, Ohio 44124
U.S.A.
FAX: 216.291.7725
Attention: VP and Assistant General Counsel
If to SmarTire: SmarTire Systems Inc.
13151 Vanier Place
Suite 150
Richmond, British Columbia
CANADA V6V 2J1
FAX: 604.276.2350
Attention: President
provided, however, that if either party will have designated a different address
by notice to the other party given as provided above, then to the last address
so designated.
Article 13
Miscellaneous
13.1 Headings: Except for the headings for the Definitions in
Article 1, the headings and titles to the Articles and Sections of this
Agreement are inserted for convenience only and will not be deemed a part of
this Agreement or affect the construction or interpretation of any provision of
this Agreement.
13.2 Entire Agreement: This Agreement, the Secrecy Agreement,
and Exhibit A comprise the entire agreement between TRW and SmarTire and
supersede all other agreements, oral or written, heretofore made with respect to
the technical cooperation contemplated by the Agreement.
13.3 Modification: This Agreement may be amended only in writing
signed by both parties which specifically refers to the provision of this
Agreement to be amended and clearly recites the amendment thereto.
13.4 Waiver: No waiver of any right or remedy in respect of any
occurrence or event on one occasion will be deemed a waiver of such right or
remedy in respect of such occurrence or event on any subsequent occasion.
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13.5 Remedies: Unless otherwise expressly provided in this
Agreement, the rights and remedies set forth in this Agreement are in addition
to, and not in limitation of, other rights and remedies under the Agreement, at
law or in equity, and the exercise of one right or remedy will not be deemed a
waiver of any other right or remedy.
13.6 Governing Law: The validity, construction, interpretation
and enforceability of this Agreement will be determined and governed by the laws
of the State of Ohio, United States of America.
13.7 Dispute Resolution: The parties agree to use good faith
efforts to resolve any disputes, controversies or differences which may arise
between the parties hereto, out of, in relation to or in connection with this
Agreement, including disputes regarding default under Section 8.1(b) but not
including disputes regarding default under Section 8.1(a), by means of
negotiation between the parties. If any such matter is not promptly resolved by
such means, such matter will be decided exclusively and with binding effect upon
the parties by arbitration under the International Arbitration Rules of
conciliation and arbitration of the American Arbitration Association which are
in effect at the time of invocation of the arbitration. The arbitration will be
conducted by a panel of three arbitrators, one appointed by each party and the
third, who will act as chairman of the panel, by the two arbitrators so
appointed. The place of the arbitration will be Detroit, Michigan, and the
arbitration will be conducted in the English language. The arbitration will be
decided according to the law. The panel will issue a written opinion stating the
decision of the panel and the legal reasoning of the panel in reaching the
decision.
13.8 Counterparts: This Agreement may be executed in multiple
counterparts with equal force and effect in the English language, and each such
counterpart will be deemed an original of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first shown hereinabove, and this Agreement will be deemed dated as of
such date.
TRW INC. SMARTIRE SYSTEMS INC.
By: By:
------------------------------ -----------------------------------
- ---------------------------------- -----------------------------------
(Typed/Printed Name) (Typed/Printed Name)
Title: Title:
---------------------------- --------------------------------
Exhibit A: Initial Projects
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Exhibit A
Project Statement
This is Project Statement No. ___ under the Technical Cooperation
Agreement between TRW and SmarTire dated as of ___ April 1998.
1. Project Title
2. Project Description
3. Project Goal(s)
4. Project Activities and Deliverables
5. Project Schedule
6. Project Cost
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EXHIBIT 10.5
LICENSE AGREEMENT
AGREEMENT, dated as of 20 April, 1998, by and between SMARTIRE
SYSTEMS INC., a British Columbia corporation having a place of business at 13151
Vanier Place, Suite 150, Richmond, British Columbia, Canada V6V 2J1
("SmarTire"), and TRW INC., a corporation existing under the laws of the State
of Ohio, United States of America, and having a place of business at 1900
Richmond Road, Cleveland, Ohio, United States of America 44124 ("TRW").
WHEREAS SmarTire owns certain intellectual property which is useful
in connection with the design and manufacture of tire pressure monitoring
systems; and
WHEREAS TRW desires to acquire from SmarTire, and SmarTire desires
to grant to TRW, the exclusive right to use such SmarTire intellectual property
to manufacture and sell tire pressure monitoring systems for passenger cars and
light, medium, and heavy trucks, and;
NOW, THEREFORE, in view of the foregoing premises and in
consideration of the mutual promises and covenants contained in this Agreement,
SmarTire and TRW agree as follows:
Article 1
Definitions
The following words and phrases will have the meanings set forth
below where used herein with initial capital letters:
1.1 Affiliate: Any corporation, partnership, or other business
entity in which SmarTire or TRW owns or controls more than fifty percent (50%)
of the voting stock or otherwise has more than fifty percent (50%) of the right
to control the entity.
1.2 Licensed Products: Tire pressure monitoring systems and
components of such systems, including but not limited to tire pressure
transmitters and receivers.
1.3 SmarTire Know-How: All information, including, but not
limited to, information of the type listed on Exhibit A to this Agreement, which
on the date of this Agreement is in existence, is useful in connection with the
design, manufacture, and/or use of the Licensed Products, and SmarTire has the
right, whether by reason of ownership of the information or otherwise, to
license to TRW.
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1.4 SmarTire Patent: A patent or utility model, or application
for patent or utility model, existing on the effective date of this Agreement
and including, but not limited to, the patents and applications listed on
Exhibit B, which has a claim covering the Licensed Product or a component of the
Licensed Product and in connection with which SmarTire has the right, whether by
reason of ownership of the patent, utility model or application or otherwise, to
grant licenses to TRW on the date of this Agreement. The term also includes
patents or utility models, or applications for patents or utility models, based
on the invention disclosures identified on Exhibit B.
1.5 Net Sales Price: This term has the meaning assigned to it
in Article 6.
1.6 Other Definitions and Meanings: For purposes of this
Agreement, (a) the term "person" includes any natural person, firm, association,
partnership, corporation, or other entity and (b) the words "hereof", "herein",
"hereby" and other words of similar import refer to this Agreement as a whole.
Article 2
Licensed Rights
2.1 Grant By SmarTire: SmarTire hereby grants to TRW the
exclusive, worldwide right to make, have made, use, and sell, Licensed Products
for use as original equipment in passenger car and light, medium, and heavy duty
truck markets, and for use as service parts for such original equipment.
2.2 Market Overlap: The parties recognize that there could be
some minor overlap between the market identified in the exclusive license of
Section 2.1 and the aftermarkets retained by SmarTire. For avoidance of doubt,
it will not be considered to be a violation of the exclusive license of Section
2.1 if some aftermarket products sold by SmarTire in aftermarket channels are
used by customers as service replacements for original equipment products, or if
some original equipment products sold by TRW in original equipment channels are
used by customers as aftermarket products.
2.3 Sublicenses: TRW may grant sublicenses to its Affiliates
under the rights granted herein without the consent of SmarTire, but may grant
sublicenses to others under the rights granted herein only upon the prior
written consent of SmarTire, which will not be unreasonably withheld. TRW will
report sales, and pay royalties on sales, of sublicensees hereunder under the
same terms and conditions upon which TRW reports and pays royalties on its own
sales hereunder.
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Article 3
Delivery and Use of Know-How
3.1 Initial Delivery: Within thirty (30) days after execution
of this Agreement by both parties, SmarTire will furnish to TRW, at TRW's
request and at no cost to TRW, one set of the documents specified in Exhibit A
for particular applications of the Licensed Product which are currently being
manufactured and sold by SmarTire or Affiliates of SmarTire or are currently in
design by SmarTire or Affiliates of SmarTire.
3.2 Changes: If, after TRW begins the manufacture of the
Licensed Product, SmarTire makes any change to any document applicable to the
Licensed Product, SmarTire will promptly deliver to TRW, so as to enable TRW to
incorporate such change into the Licensed Product, two (2) copies of the
applicable engineering change notice or other document which shows such change.
3.3 Language: All documents which SmarTire furnishes under this
Article 3 will be in the English language. All measurements in such documents
will likewise conform to the measurement system used in the original document
prepared by or for SmarTire.
Article 4
Technical Assistance and Services
4.1 Selection of Manufacturing Facilities: Upon TRW's written
request during the first two (2) years of the term of this Agreement, SmarTire
will provide, at SmarTire's expense, assistance and services to TRW in
connection with determining the manufacturing equipment needed for the
manufacture of the Licensed Product.
4.2 Plant Visits: Upon TRW's written request during the first
two (2) years of the term of this Agreement, SmarTire will permit TRW's
employees to visit SmarTire's plants at which the Licensed Products are
manufactured. SmarTire will further arrange with its contract manufacturer for
TRW's employees to visit the contract manufacturer's plant at which the Licensed
Products are manufactured. The purpose of such plant visits will be to observe
and be trained in SmarTire's methods and equipment used in the design,
manufacture, and testing of the Licensed Products.
4.3 Start-Up Services: Upon TRW's written request during the
first two (2) years of the term of this Agreement, SmarTire will provide, at
TRW's facilities, the services of engineering, technical, and/or administrative
employees of SmarTire to assist TRW in the start up of manufacturing the
Licensed Products. SmarTire will provide the foregoing services at SmarTire's
expense, exclusive of
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THE ITEMS MARKED BY TWO ASTERISKS ** HAVE BEEN OMITTED FROM THIS FILING
AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
travel and lodging expenses. TRW will reimburse SmarTire for such reasonable
travel and lodging expenses as its employees may incur in providing such
services.
4.4 Occasional Individual Services: During the term of this
Agreement, subject to the availability of SmarTire's employees, SmarTire will
provide to TRW, at TRW's expense, such additional product and engineering
services and technical cooperation as TRW may reasonably request.
4.5 Regulations: During visits to SmarTire's plants, TRW's
employees will comply with all regulations adopted for the safety of employees
and the protection of SmarTire's business and property. During visits to TRW's
plants, SmarTire's employees will comply with all regulations adopted for the
safety of employees and the protection of TRW's business and property.
4.6 Language: All documents and writings furnished by SmarTire
under this Article 4 will be written in the English language, and all
measurements will conform to the measurement system specified in Section 3.3
above.
Article 5
Fees and Payments
5.1 Royalty: As compensation for the rights granted to TRW
under Article 2 of this Agreement and for the documents and services provided
pursuant to Articles 3 and 4 of this Agreement, TRW will pay to SmarTire a
running royalty of ** percent (**%) of the Net Sales Price of each Licensed
Product that is both (a) sold to Ford Motor Company, either directly or through
an intermediate, higher level supplier, for use on vehicles for model years 2000
through 2003, inclusive, and (b) covered by a claim of a SmarTire Patent that is
valid and in force in the country in which such Licensed Product is made, used,
or sold. Following payment of royalties for the specified model years, the
royalty obligations hereunder will be satisfied and this license will be fully
paid up. For purposes of this Agreement, a Licensed Product will be deemed
"sold" when invoiced to the customer.
5.2 Charges for Services: For services provided pursuant to
Section 4.4 of this Agreement at TRW's request, TRW will pay to SmarTire (a) an
amount, subject to the provisions of Section 5.3 below, equal to ** United
States Dollars (U.S.$ ** ) per day for each SmarTire employee who performs
services for TRW, (b) all reasonable expenses incurred in connection with such
employee's performance of services away from the employee's normal place of
work, including, without limitation, the out-of-pocket costs of travel, lodging,
and meals, and (c) the out-of-pocket costs of samples and prototypes.
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5.3 Payments:
(a) Royalties: TRW will pay to SmarTire the royalties
specified in Section 5.1 hereof within thirty (30) days after the
end of each quarter calendar year for each Licensed Product which is
invoiced by TRW or a sublicensee during such quarter calendar year.
(b) Other Amounts: TRW will pay to SmarTire all other
amounts which TRW is required to pay under this Agreement within
thirty (30) days after SmarTire submits its invoice for such
amounts.
5.4 Currency: TRW will make all payments to SmarTire under this
Agreement in United States Dollars and all other amounts which TRW is required
to pay to SmarTire under this Agreement in such currency as is specified in
SmarTire's invoice.
5.5 Taxes: If any tax is imposed on any payment by TRW to
SmarTire under this Agreement, SmarTire will pay such taxes. If, however, TRW is
required by law to withhold any taxes from any sum payable to SmarTire under
this Agreement, TRW will withhold such taxes and pay the taxes to the
appropriate tax authorities. TRW will also obtain and promptly furnish to
SmarTire a receipt evidencing each such tax payment described in the preceding
sentence in a form sufficient to enable SmarTire to obtain any tax credit to
which SmarTire may be entitled.
5.6 Overdue Payments: If TRW fails to pay an amount to be paid
to SmarTire hereunder within the period herein prescribed for such payment, the
unpaid amount will bear interest at two percent (2%) above the prime lending
rate as established by the Chase Manhattan Bank, N.A. of New York, New York, per
annum, from the last day for payment until payment thereof is made to SmarTire.
Article 6
Net Sales Price
6.1 Generally: In calculating royalties due hereunder, the Net
Sales Price will be the selling price shown on the invoice for each Licensed
Product or component of a Licensed Product which TRW or a sublicensee sells to a
customer, less the Excluded Amounts identified in Section 6.2.
6.2 Excluded Amounts: As used in this Article 6, the term
"Excluded Amounts" means the following amounts:
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<PAGE> 6
(a) any money refunded or credit granted to the customer
in respect of Licensed Products or components returned to TRW,
(b) any bone fide trade or volume purchase discounts
listed separately on the invoice and deducted from the selling price
of Licensed Products or components,
(c) any charges for freight, insurance, packing, and sales
taxes which are paid by the customer and which are specifically
itemized and listed separately on the invoice, and
(d) the prorated portion of the invoice price attributable
to materials or components purchased by or for TRW from SmarTire and
incorporated in the Licensed Products.
6.3 Part of Larger Assemblies: If a Licensed Product or a
component of a Licensed Product is sold only as an integrated part of a larger
assembly, the Net Sales Price of the Licensed Product or component will be
considered to be in the same proportion to the net sales price of the larger
assembly (calculated in a manner similar to that described in Sections 6.1-6.2
hereof) as the manufacturing cost of the Licensed Product or component is to the
manufacturing cost of the larger assembly. For purposes of this Section 6.3,
manufacturing cost will include the cost of
(a) materials and purchased parts,
(b) direct labor, including fringe benefits,
(c) factory overhead, and
(d) transportation,
but will not include general selling and administrative overhead or profit.
Article 7
Records, Reports and Audit
7.1 Records: TRW will make accurate business records according
to generally accepted accounting principles showing the number of units of the
Licensed Products made and sold by or for TRW and TRW's sublicensees under this
Agreement. TRW will maintain such records for a period of two (2) years after
the end of the calendar year in which the Licensed Products described in such
records are sold.
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7.2 Reports: Within thirty (30) days after the end of each
quarter calendar year, TRW will (a) prepare a written report which shows the
total Net Sales Price of the Licensed Product which were invoiced by TRW and its
sublicensees during such quarter calendar year and upon which a royalty is due
hereunder, and (b) deliver copies of such report to SmarTire, together with the
royalty payments payable to SmarTire under Section 5.3(a) of this Agreement for
the same period.
7.3 Inspection: Upon SmarTire's written request, from time to
time during the term of this Agreement and for two (2) years thereafter, TRW
will permit SmarTire during reasonable business hours, to inspect all the
records that TRW is required to maintain pursuant to Section 7.1 above and, for
the purpose of verifying such records, to inspect (a) the establishments at
which TRW and/or each sublicensee makes or stores Licensed Products, components
of Licensed Products, or raw materials for Licensed Products, and (b) any
Licensed Products, components of Licensed Products, or raw materials for
Licensed Products which are within any such establishment. If such inspection
reveals an underpayment of royalties in excess of three percent (3%) during any
quarter calendar year, then TRW will pay all of the cost of such inspection and
such underpaid royalties will become immediately due and payable to SmarTire. If
the inspection reveals no such underpayment, however, then SmarTire will pay the
cost of the inspection.
Article 8
Protection of SmarTire Know-How
8.1 Existing Secrecy Agreement: The obligations of the parties
with respect to secrecy and use of information will be governed by the terms of
the secrecy agreement between the parties dated as of 6 January, 1998, as
amended 18 February 1998 (the "Secrecy Agreement").
8.2 Exceptions: The parties recognize that TRW may need to
disclose certain SmarTire Proprietary Information, as defined in the Secrecy
Agreement, to others as part of TRW activities under this Agreement. TRW may
disclose SmarTire Know-How to its employees, agents, subcontractors, suppliers,
customers, and sublicensees to the extent that each such disclosure is
reasonably necessary for purposes of manufacturing, selling, installing,
repairing, and/or servicing Licensed Products or procuring goods and services
required in connection therewith.
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Article 9
Warranty
9.1 By SmarTire: SmarTire warrants that it owns the SmarTire
Patents, that it has the right to enter into this Agreement, and that SmarTire's
performance of this Agreement will not violate any agreement between SmarTire
and any third person. In addition, SmarTire represents to the best of its
knowledge, but does not warrant, that the manufacture, use, and sale of the
Licensed Products will not infringe or otherwise violate the patent or other
intellectual property rights of third parties.
9.2 By TRW: TRW warrants that it has the right to enter into
this Agreement and that TRW's performance of this Agreement will not violate any
agreement between TRW and any third person.
Article 10
SmarTire Patents
10.1 Title: Nothing contained in this Agreement will be deemed
to convey to TRW the legal title to any SmarTire Patent.
10.2 Maintenance of Patents: SmarTire will have no obligation
under this Agreement (a) to file, prosecute, or maintain any SmarTire Patent or
(b) to respond to or otherwise defend any action for reexamination or revocation
of any SmarTire Patent.
10.3 Judicial Interpretation: If any claim of any SmarTire
Patent is held invalid, or its scope limited or defined, by any judicial or
administrative decree, order or judgment final beyond further right of appeal,
the judicial or administrative holding of invalidity or limitation or definition
placed upon such claim will thereafter be followed in determining whether
royalties are payable for the use of such SmarTire Patent and for all other
purposes of this Agreement.
10.4 Instituting Actions Against Infringers: TRW will have the
right and discretion, but no obligation, to take whatever action it deems
desirable in connection with any alleged infringement of any SmarTire Patent in
relation to Licensed Products intended for use as original equipment in
passenger car and light, medium, and heavy duty truck markets. SmarTire will
have the right and discretion, but no obligation, to take whatever action it
deems desirable in connection with any other alleged infringement of any
SmarTire Patent. The parties will consult with one another regarding any such
actions. SmarTire will give TRW all reasonable assistance in connection with any
action taken by TRW. If TRW requests assistance, then SmarTire will advise TRW
of the estimated cost of providing the requested
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assistance. TRW will reimburse SmarTire for reasonable costs incurred by
SmarTire in providing such requested assistance.
10.5 Infringement Claims By Third Persons: If a third person
asserts a claim or institutes a suit or proceeding against TRW alleging that (a)
any product made by or for TRW which incorporates or is made using the SmarTire
Know-How or any SmarTire Patent or (b) any equipment, apparatus, method, or
process used to make any product which incorporates or is made using the
SmarTire Know-How or any SmarTire Patent infringes any patent, utility model, or
other intellectual property right of a third person, then SmarTire will at its
own expense cooperate with TRW in every reasonable way in the defense of such
claim, suit, and/or proceeding.
Article 11
Default
11.1 Default by TRW: TRW will be deemed in default under this
Agreement if (a) TRW fails to pay any sum due and payable under this Agreement
within forty-five (45) days after notice that same has become due and payable,
(b) TRW becomes insolvent, bankrupt or any of its assets are seized or placed in
trust for the benefit of creditors, or (c) TRW fails to perform any other
obligation required to be performed by TRW under this Agreement within sixty
(60) days after notice from SmarTire that the time herein provided for such
performance has passed or, if no such time is prescribed, within sixty (60) days
after notice from SmarTire.
11.2 Default by SmarTire: SmarTire will be deemed in default
under this Agreement if SmarTire fails to perform any obligation required to be
performed by SmarTire under this Agreement within sixty (60) days after notice
from TRW that the time herein provided for such performance has passed or, if no
such time is prescribed, within sixty (60) days after notice from TRW.
11.3 Remedy for Default: If TRW is in default as provided in
Section 11.1, SmarTire may pursue any remedy under this Agreement or otherwise
available to SmarTire except that SmarTire may not terminate this Agreement for
such default. If SmarTire is in default as specified in Section 11.2, TRW may
(a) terminate this Agreement by giving SmarTire notice of termination, and (b)
pursue any other remedy under this Agreement or otherwise available to TRW.
Article 12
Term and Termination
12.1 Term: The term of this Agreement will begin on the date set
forth in the preamble, above, upon execution of the Agreement by both SmarTire
and
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TRW. Unless sooner terminated as herein provided, the term of this Agreement
will expire on the expiration date of the last-to-expire of the SmarTire
Patents.
12.2 Survival of Rights and Obligations: The expiration or
termination of this Agreement will not discharge, extinguish, or otherwise
affect the parties rights or obligations under Articles 8 and 9 hereof.
Article 13
Assignment
Neither party may assign or transfer this Agreement or any of its
rights or duties under this Agreement without the prior written consent of the
other party, except to a successor in interest by amalgamation, merger,
consolidation, or the acquisition of substantially all of the assets of the
party, and provided such assignee agrees in writing to perform all of the
assignor's obligations under this Agreement.
Article 14
Notice
Any notice or other communication to any party under this Agreement
will be in writing and will be deemed to have been duly given, if communicated
by facsimile, cable or similar electronic means, at the time receipt thereof has
been confirmed by return electronic communication or signal that the message has
been clearly received, or if mailed, ten (10) days after mailing, registered
mail, postage prepaid, return receipt requested:
If to TRW: TRW Automotive Electronics Group in the U.S.
24175 Research Drive
Farmington Hills, Michigan 48335-2642
U.S.A.
FAX: 248.442.5290
Attention: General Manager
With a copy to: TRW Inc.
1900 Richmond Road
Cleveland, Ohio 44124
U.S.A.
FAX: 216.291.7725
Attention: Secretary
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If to SmarTire: SmarTire Systems Inc.
13151 Vanier Place
Suite 150
Richmond, British Columbia
CANADA V6V 2J1
FAX: 604.276.2350
Attention: President
provided, however, that if either party will have designated a different address
by notice to the other party given as provided above, then to the last address
so designated.
Article 15
Miscellaneous
15.1 Headings: Except for the headings for the Definitions in
Article 1, the headings and titles to the Articles and Sections of this
Agreement are inserted for convenience only and will not be deemed a part of
this Agreement or affect the construction or interpretation of any provision of
this Agreement.
15.2 Entire Agreement: This Agreement and Exhibits A and B
comprise the entire agreement between TRW and SmarTire and supersede all other
agreements, oral or written, heretofore made with respect to the Licensed
Products and the transactions contemplated by the Agreement.
15.3 Modification: This Agreement may be amended only in writing
signed by both parties which specifically refers to the provision of this
Agreement to be amended and clearly recites the amendment thereto.
15.4 Waiver: No waiver of any right or remedy in respect of any
occurrence or event on one occasion will be deemed a waiver of such right or
remedy in respect of such occurrence or event on any subsequent occasion.
15.5 Remedies: Unless otherwise expressly provided in this
Agreement, the rights and remedies set forth in this Agreement are in addition
to, and not in limitation of, other rights and remedies under the Agreement, at
law or in equity, and the exercise of one right or remedy will not be deemed a
waiver of any other right or remedy.
15.6 Governing Law: The validity, construction, interpretation
and enforceability of this Agreement will be determined and governed by the laws
of the State of Ohio, United States of America.
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15.7 Dispute Resolution: The parties agree to use good faith
efforts to resolve any disputes, controversies or differences which may arise
between the parties hereto, out of, in relation to or in connection with this
Agreement, including disputes regarding default under Article 11, by means of
negotiation between the parties. If any such matter is not promptly resolved by
such means, such matter will be decided exclusively and with binding effect upon
the parties by arbitration under the International Arbitration Rules of
conciliation and arbitration of the American Arbitration Association which are
in effect at the time of invocation of the arbitration. The arbitration will be
conducted by a panel of three arbitrators, one appointed by each party and the
third, who will act as chairman of the panel, by the two arbitrators so
appointed. The place of the arbitration will be Detroit, Michigan, and the
arbitration will be conducted in the English language. The arbitration will be
decided according to the law. The panel will issue a written opinion stating the
decision of the panel and the legal reasoning of the panel in reaching the
decision.
15.8 Counterparts: This Agreement may be executed in multiple
counterparts with equal force and effect in the English language, and each such
counterpart will be deemed an original of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first shown hereinabove, and this Agreement will be deemed dated as of
such date.
TRW INC. SMARTIRE SYSTEMS INC.
By: By:
------------------------------ -----------------------------------
- ---------------------------------- -----------------------------------
(Typed/Printed Name) (Typed/Printed Name)
Title: Title:
---------------------------- --------------------------------
Exhibit A: SmarTire Know-How
Exhibit B: SmarTire Patents
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THE ITEMS MARKED BY TWO ASTERISKS ** HAVE BEEN OMITTED FROM THIS FILING
AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT A
SMARTIRE KNOW-HOW
General Know-How:
1. Detailed knowledge of tire pressure sensing systems
2. Detailed knowledge of tire/wheel construction.
3. ** designs/patents
4. Product history/evolution information (OEM and aftermarket)
5. Industry contacts and support for interfacing to established
customer, partners, suppliers, etc. (i.e. Michelin, Tiremate,
SensoNor)
6. Established business/potential for contract manufacturing
relationship
7. Design support for ** .
Specific Know-How:
1. Outstanding items form initial engineering meeting:
a) ** including product specification,
FMEA, validation test reports, released drawing packages
for transmitter, receiver and software, test fixture
drawing packages and functional/end of line tester
information.
b) Test report from independent test lab which conducted
** .
c) Battery life calculations, complete with assumptions for
usage, shelf life and operating environment.
2. System level documentation (aftermarket and OEM)
a) Detailed system overview/theory of operation
b) Lessons learned for selection of ** .
c) Detailed design information /calculations/ test reports
for system FCC test reports/approval correspondence
d) Design theory for ** .
e) ** .
f) ** .
3. Transmitter information (aftermarket and OEM)
a) Detailed circuit description documentation
b) Theory of operation/overview
c) Design calculations/worst case analysis information
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THE ITEMS MARKED BY TWO ASTERISKS ** HAVE BEEN OMITTED FROM THIS FILING
AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
d) Component specification and rationale for selection.
e) Software documentation including (flow charts, state
diagram, specs, test plan/report)
f) Detailed design information for **
g) Battery selection information and rationale
h) **
i) Mechanical packaging information, tooling etc.
4. Receiver information (aftermarket and OEM)
a) Detailed circuit description documentation
b) Theory of operation/overview
c) Design calculations/worst case analysis.
d) Component specification and rationale for selection.
e) Software documentation including (flow charts, state
diagram, specifications, test plan/report)
f) Detailed design information for **
g) Mechanical packaging information, tooling etc.
SmarTire will also provide on-going design support for ** ,
packaging options, ** and other items per Dave's report.
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EXHIBIT B
SMARTIRE PATENTS
1. U.S. Patent No. 5,285,189 (Nowicki et al.)
2. U.S. Patent No. 5,559,484 (Nowicki et al.)
3. U.S. Patent No. 5,335,540 (Bowler et al.)
4. U.S. Patent No. 5,231,872 (Bowler et al.)
5. U.S. Patent Application No. 08/689343 (Nowicki et al.),
filed 7 August 1996
6. Any patent applications based on the inventions described
in the attachment entitled "Sensor and Mirror Mount
Display Unit: Patent Abstract"
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<PAGE> 16
THE ITEMS MARKED BY TWO ASTERISKS ** HAVE BEEN OMITTED FROM THIS FILING
AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SENSOR AND MIRROR MOUNT DISPLAY UNIT: PATENT ABSTRACT
**
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THE ITEMS MARKED BY TWO ASTERISKS ** HAVE BEEN OMITTED FROM THIS FILING
AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
**
17
