UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F/A
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
or
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-26005
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MICROMEM TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
Ontario, Canada
(Jurisdiction of incorporation or organization)
150 York Street, Suite 1206
Toronto, Ontario M5H-3S5, Canada
Tel: (416) 364-6513
Fax: (416) 360-4034
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes |_| No |X*|
Indicate by check mark which financial statement item the Registrant
has elected to follow:
Item 17 |X| Item 18
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* This is the Registrant's initial filing under the Securities Exchange
Act of 1934
<PAGE>
TABLE OF CONTENTS
Part I
Page
----
Item 1. Description of Business..............................................3
Item 2. Description of Property.............................................17
Item 3. Legal Proceedings...................................................17
Item 4. Control of Registrant...............................................17
Item 5. Nature of Trading Market............................................18
Item 6. Exchange Controls and Other Limitations Affecting Security Holders..19
Item 7. Taxation............................................................19
Item 8. Selected Financial Data.............................................19
Item 9. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................24
Item 9A Quantitative and Qualitative Disclosures About Market Risk..........29
Item 10. Directors and Officers of Registrant................................29
Item 11. Compensation of Directors and Officers .............................29
Item 12. Options to Purchase Securities from Registrant......................32
Item 13. Interest of Management in Certain Transactions......................33
Part II
Item 14. Description of Securities to be Registered..........................34
Part III
Not Applicable
Part IV
Item 17. Financial Statements.................................................35
Item 18. Financial Statements.................................................35
Item 19. Financial Statements and Exhibits....................................35
Signatures....................................................................37
<PAGE>
CURRENCY
Micromem's financial statements are all expressed in United States
dollars except for the AvantiCorp International Inc. historical audited
financial statements for the fiscal years ended October 31, 1998, 1997 and 1996,
which are expressed in Canadian dollars, the functional and reporting currency
of AvantiCorp International Inc. during those periods. All other financial data
appearing in this Registration Statement are expressed in United States dollars
("US $"), with the exception of certain limited cases in which financial data is
expressed in Canadian dollars ("CDN $"), such as when the exercise price of
certain options and warrants denominated in that currency are referred to.
Transactions that were conducted in Canadian dollars or other foreign
currencies have been converted into United States dollars at the rate of
exchange prevailing at the date of such transactions, and assets and liabilities
denominated in Canadian dollars or other foreign currencies but expressed in
this registration statement in United States dollars have been converted into
United States dollars at the rate of exchange prevailing on the date of the
applicable financial statement. See "ITEM 8 - SELECTED FINANCIAL DATA - Exchange
Rate Data" for exchange rate information with respect to United States dollars
and Canadian dollars on the various financial statement dates. On November 15,
1999, the noon buying rate for cable transfers in Canadian dollars as certified
for customs by the Federal Reserve Bank of New York, expressed in the amount of
U.S. Dollars equal to one Canadian dollar, was US $.6824 (US $1.00 = CDN
$1.4655).
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This Registration Statement on Form 20-F contains certain
forward-looking statements. These forward-looking statements are based on
current expectations, estimates and projections about the business of Micromem
and the industry in which Micromem operates, management's beliefs, and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks" and "estimates," variations on such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. Micromem's actual results could differ materially from those expressed
or forecasted in these forward-looking statements as a result of certain
factors, including those set forth under "Description of Business" and elsewhere
in this Registration Statement.
RISK FACTORS
The entire business of Micromem at this time involves the development
and exploitation of a patented ferromagnetic based memory technology called
MAGRAM(TM), the attributes of which include nonvolatility and the ability to be
both read and written randomly. While the basic development work on the
technology is close to completion, no revenues from the technology have yet been
received and no revenue producing agreements have been signed. Micromem and
Micromem's investors, therefore, face a number of significant risks, which are
described below.
Micromem Currently Has No Source of Revenue.
Micromem's objective is to license its MAGRAM(TM) Technology for use in
various industries and then work with each licensee to adapt the technology to
meet that licensee's particular needs. Micromem is negotiating with potential
licensees but has not yet entered into any license agreements. If Micromem fails
to enter into any license agreements it will have no revenues and even if it
enters into such agreements the amount of the revenues it receives will depend
on the terms it is able to get from each licensee and the ability of each
licensee to compete in its particular market.
<PAGE>
Products Using the Technology Have Not Yet Been Manufactured in Large
Quantities.
Micromem's success depends on whether the MAGRAM(TM) technology can be
manufactured in large quantities at competitive prices. Working prototypes and
samples of the technology have been produced but large scale manufacturing has
not yet been undertaken. Failure to be able to manufacture large quantities at
competitive prices could seriously hurt Micromem's ability to generate revenues.
Competition From Existing or Future Technology Could Seriously Affect
the Company.
Micromem is seeking to compete in a market currently dominated by other
strong and well-established technologies, particularly Dynamic Random Access
Memory or DRAM. Even if MAGRAM(TM) has technological advantages over those other
technologies, the inability of MAGRAM(TM) to compete on other grounds such as
price or manufacturing volume, or the saturation of the market due to large
existing inventories of the other technologies or existing long-term contracts
for such technologies, could seriously impair Micromem's ability to generate
revenues. In addition, the competitive pressures faced by Micromem could be
enhanced if, as is likely, Micromem's competitors include established companies
with greater financial or other resources and more diversified product lines
than Micromem.
Failure To Receive Continued Financing Could Cause the Business to
Suffer.
Since Micromem expects no material revenues from operations for the
near future, in order to successfully market the MAGRAM(TM) technology to
potential licensees and in order to continue the research and development that
would be needed for further improvements, Micromem will need additional
financing. Micromem will need to obtain this financing from investors and from
persons who hold outstanding options and warrants. While Micromem has had
sufficient funds thus far to meet its requirements, there is no assurance it
will be able to continue to do so, and failure to receive sufficient funds in
the future could affect its ability to market and exploit the technology.
Because Much of Micromem's Success and Value Depends On Its Ownership
and Use of Intellectual Property, Micromem's Failure to Protect That Property
Could Adversely Affect Its Future Growth and Success.
Micromem's success will depend, in part, on its ability to protect its
intellectual property. Micromem relies primarily on patent, copyright, trademark
and trade secret laws, as well as nondisclosure agreements and other methods to
protect its proprietary technologies and processes. Despite its efforts to
protect its proprietary technologies and processes, unauthorized parties may
attempt to copy or otherwise obtain and use its products or technology without
authorization, develop similar technology independently or design around its
patents. Policing unauthorized use of Micromem's products is expensive and
difficult, and Micromem cannot be certain that the steps it has taken will
prevent misappropriation or infringement of its intellectual property.
Intellectual Property Claims Against Micromem, No Matter How
Groundless, Could Cause Its Business To Suffer.
Micromem's future success and competitive position depend in part on
its ability to retain exclusive rights to the MAGRAM(TM) technology, including
any improvements that may be made on that technology from time to time by
Micromem or on its behalf. While the MAGRAM(TM) technology is patented and
Micromem knows of no challenge that has been made either against the technology
or against Micromem's exclusive rights to it, and has no reason to believe that
any such challenge might be made or that the grounds for any such challenge
exist, if any intellectual property litigation were to be commenced against
Micromem, no matter how groundless, the result would be significant expense,
adversely affecting licensing and sales, and diverting the efforts of its
technical and management personnel and, in the event of an adverse outcome,
substantial damages and possible restrictions on the licensing and use of the
technology.
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
Micromem Technologies Inc. ("Micromem") is a corporation under the laws
of the Province of Ontario, Canada, with principal executive offices at 150 York
Street, Suite 1206, Toronto, Ontario M5H-2S5. Formerly known as AvantiCorp
International Inc., Micromem changed its name to Micromem Technologies Inc. on
January 14, 1999.
Through a wholly-owned subsidiary, Pageant Technologies Incorporated,
Micromem is engaged in the development and exploitation of patented technology
known as MAGRAM(TM) which relates to high performance memory and memory
intensive logic products having the characteristics of nonvolatility, which is
the ability to retain information after power has been shut off, and random
read/write capability, which is the ability to read or write information by
going directly to the appropriate location rather than by starting at the first
location and proceeding sequentially until the appropriate location is reached.
Micromem does not expect to produce products for sale to users but rather plans
to license the technology to others who will incorporate the technology into
specific products in different markets. Negotiations with several potential
licensees have begun although no license agreements have yet been concluded.
General History and Development of Micromem Technologies Inc.
Micromem was incorporated under the laws of the Province of Ontario,
Canada, on October 21, 1985 as Mine Lake Minerals Inc. It subsequently changed
its name to Avanti Capital Corp. on June 23, 1988 and to AvantiCorp
International Inc. on April 30, 1992 before becoming Micromem Technologies Inc.
on January 14, 1999 in connection with its acquisition of Pageant.
Micromem was formed to engage in the business of both mineral and oil
and gas exploration and development in Canada and the United States. By 1992,
Micromem's primary mining interests were held through its ownership of 605,000
common shares, representing at that time approximately 6.5%, of Ontex Resources
Limited ("Ontex"), a mineral exploration company whose shares are listed on the
Alberta Stock Exchange. Micromem's holdings in Ontex were reduced to 600,000
shares in 1994 and 325,000 shares in November 1998, when it sold 275,000 shares
for US $149,794. In January 1999, the remaining 325,000 shares of Ontex owned by
Micromem were sold. Sam Fuda, Chairman of the Board of Directors of Micromem,
served as President and Chief Executive Officer of Ontex from 1986 to December
1998, and has served as Chairman of the Board of Ontex since that date. Ross
McGroarty, Executive Vice President and Secretary, and a Director, of Micromem,
has been a director of Ontex since 1988.
By 1992, Micromem's oil and gas interests centered on the development
of the Valentine oil and gas field located in Lafourche Parish, Louisiana, in
which it had a 6.25% interest. In 1994 Micromem increased its interest in the
Valentine field to 9.75%, then sold its entire interest in 1995 to the field's
operator, Alliance Resources PLC ("Alliance"), an oil and gas exploration
company whose shares are listed on the London Stock Exchange, in exchange for
18,000,000 Alliance common shares and US $150,000. In fiscal year 1997 a one for
40 reverse split of the Alliance common shares resulted in a reduction of the
number of common shares being held by Micromem from 18,000,000 shares to 450,000
shares which, at April 30, 1999, had a quoted market value of US $47,152.
Micromem also owned interests in six Crown granted mining claims in
British Columbia and 30 unpatented mining claims in Ontario. These interests,
which had an aggregate carrying value of US $153,564 at the end of fiscal year
1992, were written down to nominal value by Micromem in fiscal year 1995 and
written off in fiscal year 1998 when all remaining unpatented claims lapsed.
Micromem has received no income from operations during any of its past three
fiscal years.
-3-
<PAGE>
Purchase of Pageant Technologies Incorporated
On January 11, 1999, Micromem completed the acquisition of 100% of the
capital stock of Pageant Technologies Incorporated, a company incorporated under
the laws of the Turks & Caicos Islands ("Pageant International"), in exchange
for 32,000,000 Common Shares and warrants for the purchase of an additional
1,000,000 Common Shares (the "Warrants"), representing 88.94% of the outstanding
Common Shares of Micromem (89.24% assuming exercise of all the Warrants). The
Warrants are exercisable at CDN $2.00 per share prior to and on January 11, 2000
and CDN $2.30 per share from January 12, 2000 to and on January 12, 2001.
Immediately prior to the acquisition Pageant International had only two
stockholders, Ataraxia Corp., which owned 99.70% of the Pageant International
shares, and Magaly Bianchini, an individual unaffiliated with Ataraxia Corp.,
who owned the remaining 0.30%.
Pursuant to the terms of the purchase agreement, on January 11, 1999,
Micromem issued 16,600,000 of the 32,000,000 acquisition shares to Ataraxia
Corp., 100,000 to the other Pageant International owner, Magaly Bianchini, and
the remaining 15,300,000 to five companies, Thorblaujep Inc. (3,466,587 shares),
Skyfield Ventures (3,400,000 shares), Deux Basil Inc. (2,900,000 shares),
Sterling 1850 Ltd. (2,833,413 shares) and Millcreek Limited (2,700,000 shares).
Concurrently , Micromem issued all 1,000,000 Warrants to Sterling 1850 Ltd. A
list of the persons who received Common Shares and Warrants from Micromem on
January 11, 1999, the number of Common Shares and Warrants they received, and
the number and percentage of the outstanding Common Shares such shares and
Warrants represented on a fully diluted basis, are set forth in the table below:
RECIPIENTS OF
COMMON SHARES AND WARRANTS FROM MICROMEM
on January 11, 1999
<TABLE>
<CAPTION>
Shares (Fully Diluted)
Name of Recipient Shares Warrants Number Percent
<S> <C> <C> <C> <C>
Ataraxia Corp. 16,600,000 -- 16,600,000 44.89%
Sterling 1850 Ltd. 2,833,413 1,000,000 3,833,413 10.37%
Thorblaujep Inc. 3,466,587 -- 3,466,587 9.37%
Skyfield Ventures 3,400,000 -- 3,400,000 9.19%
Deux Basil Inc. 2,900,000 -- 2,900,000 7.84%
Millcreek Limited 2,700,000 -- 2,700,000 7.30%
Magaly Bianchini 100,000 -- 100,000 0.27%
---------- ---------- ---------- -----
32,000,000 1,000,000 33,000,000 89.23%
========== ========== ========== =====
</TABLE>
The next day, January 12, 1999, Ataraxia Corp. transferred 12,700,000
of its 16,600,000 acquisition shares to five companies, Levan Trading SA
(3,200,000 shares), Saigon Holdings Ltd. (3,100,000 shares), Chaimina Foundation
(2,900,000 shares), Marose Holdings Ltd. (1,900,000 shares) and Hibernian Trust
Co. Ltd. (1,500,000 shares), and one individual, David Formosa (100,000 shares).
In addition, Sterling 1850 Ltd. transferred 971,824 of the 1,000,000 Warrants to
29 persons in amounts ranging from 5,737 to 200,000 Warrants (0.02% to 0.54% of
the issued and outstanding Common Shares assuming exercise of all Warrants). The
remaining 28,176 Warrants were retained by Sterling 1850 Ltd. until April 30,
1999 when they were sold to a company controlled by Sam Fuda, Chairman of the
Board of Directors of Micromem, for US $3.12 per Warrant, who then exercised all
of the Warrants at CDN $2.00 per share.
Of the 30 persons holding Warrants at the close of business January 12,
1999, the only persons who either had affiliations with Pageant or Ataraxia or
held Common Shares were Sterling 1850 Ltd., which had 28,176 Warrants (0.08% of
the issued and outstanding Common Shares assuming exercise of all Warrants and,
together with its 2,833,413 shares, 2,861,589 shares or 7.74% assuming exercise
of all Warrants) and Hibernian Trust Company Ltd. which had 70,500 Warrants
(0.19% of the issued and outstanding Common Shares assuming exercise
-4-
<PAGE>
of all Warrants and, together with its 1,500,000 shares, 1,570,500 shares or
4.25% assuming exercise of all Warrants).
A list of the persons who received Common Shares from Ataraxia Corp.
and Warrants from Sterling 1850 Ltd. On January 12, 1999, the number of Common
Shares and Warrants they received, and the number and percentage of the
outstanding Common Shares such shares and Warrants represented on a fully
diluted basis, are set forth in the table below:
RECIPIENTS OF
COMMON SHARES FROM ATARAXIA CORP.
AND
WARRANTS FROM STERLING 1850 LTD.
on January 12, 1999
<TABLE>
<CAPTION>
Shares From Warrants From Shares (Fully Diluted)
Name of Recipient Ataraxia Sterling 1850 Number Percent
<S> <C> <C> <C>
Levan Holdings SA 3,200,000 -- 3,200,000 8.26%
Saigon Holdings Ltd. 3,100,000 -- 3,100,000 8.38%
Chaimina Foundation 2,900,000 -- 2,900,000 7.84%
Marose Holdings Ltd. 1,900,000 -- 1,900,000 5.14%
Hibernian Trust Co. Ltd. 1,500,000 70,500 1,570,500 4.25%
Clifford Goodwill -- 200,000 200,000 0.54%
I-SM Ltd. -- 112,500 112,500 0.30%
David Formosa 100,000 -- 100,000 0.27%
Gael E. Rowland -- 100,000 100,000 0.27%
Pacific Star Ltd. -- 76,200 76,200 0.21%
Rick Corbett -- 50,000 50,000 0.14%
Bob and Wendy Erikson -- 50,000 50,000 0.14%
Daniel and Geraldine Gentsler -- 50,000 50,000 0.14%
Bill Hillman -- 37,500 37,500 0.10%
Irving Bakerman -- 25,000 25,000 0.07%
Andy Warden -- 25,000 25,000 0.07%
Thomas Sheppard -- 15,000 15,000 0.04%
Dawn Brecher -- 12,500 12,500 0.03%
Todd English -- 12,500 12,500 0.03%
Laurie Formosa -- 12,500 12,500 0.03%
Michael French -- 12,500 12,500 0.03%
Mark Hassett -- 12,500 12,500 0.03%
Ronald Mitchell -- 12,500 12,500 0.03%
Connie Polmantwin -- 12,500 12,500 0.03%
William T. Schwartz -- 12,500 12,500 0.03%
Merle Sheilds Long -- 9,287 9,287 0.03%
Lynda Lee Hillman -- 7,600 7,600 0.02%
Murray DeGiralamo -- 6,250 6,250 0.02%
Brian McLaughlan -- 6,250 6,250 0.02%
Janette Merrick -- 6,250 6,250 0.02%
Michael Salisbury -- 6,250 6,250 0.02%
Jeff Suave -- 6,250 6,250 0.02%
Michele Suave -- 6,250 6,250 0.02%
Christina Hillman -- 5,737 5,737 0.02%
---------- ---------- ---------- -----
12,700,000 971,824 13,671,824 36.97%
========== ========== ========== =====
</TABLE>
-5-
<PAGE>
The distributions of Common Shares and Warrants described above made on
January 11, 1999 by Micromem pursuant to the instructions of Ataraxia Corp. and
on January 12, 1999 by Ataraxia Corp. and Sterling 1850 Ltd., were made for the
purpose of repaying loans and paying for services rendered to Ataraxia Corp.
during the period when Ataraxia Corp. was organizing Pageant International and
acquiring and developing the MAGRAM(TM) technology. Thorblaujep Inc. had loaned
$175,000 in cash and had provided development services. Skyfield Ventures had
introduced Ataraxia Corp. to Micromem. Deux Basil Inc. had loaned $150,000 and
had provided development services. Levan Holdings SA had loaned $240,000. Saigon
Holdings Ltd. had loaned $223,000. Chaimina Foundation had loaned $217,5000.
David Formosa, directly and through Marose Holdings Ltd., had provided
development services. The Warrants were distributed to persons who had helped
finance the early stage development of the MAGRAM(TM) technology or had provided
services for that purpose, including key personnel of Ataraxia or the University
of Utah.
As a result of the transfers described above, by the close of business
January 12, 1999, the day following the acquisition, Ataraxia Corp. owned 10.84%
of Micromem's outstanding Common Shares (10.55% assuming exercise of the
Warrants). The balance of the acquisition shares were held by ten other
companies who owned from 4.17% to 9.63% of Micromem's outstanding Common Shares
(4.06% to 9.37% assuming exercise of the Warrants), and two individuals who each
owned 0.28% (0.27% assuming exercise of the Warrants). The Warrants were held by
30 persons in amounts ranging from 200,000 to 5,737 Warrants (0.54% to 0.02% of
the Common Shares assuming exercise of all Warrants), including Hibernian Trust
Company with 70,500 Warrants and Sterling 1850 Ltd. With 28,176 Warrants. A list
of the persons who held the Common Shares and Warrants issued by Micromem in the
acquisition as of the close of business January 12, 1999, the number of shares
and Warrants they held and the percentage of the outstanding Common Shares such
shares and Warrants represented on a fully diluted basis are set forth in the
table below:
HOLDERS OF ACQUISITION SHARES AND WARRANTS
as of January 12, 1999
<TABLE>
<CAPTION>
Shares (Fully Diluted)
Name of Holder Shares Warrants Number Percent
<S> <C> <C> <C>
Ataraxia Corp. 3,900,000 -- 3,900,000 10.55%
Thorblaujep Inc. 3,466,587 -- 3,466,587 9.37%
Skyfield Ventures 3,400,000 -- 3,400,000 9.19%
Levan Trading SA 3,200,000 -- 3,200,000 8.65%
Saigon Holdings Ltd. 3,100,000 -- 3,100,000 8.38%
Chaimina Foundation 2,900,000 -- 2,900,000 7.84%
Deux Basil Inc. 2,900,000 -- 2,900,000 7.84%
Sterling 1850 Ltd. 2,833,413 28,176 2,861,589 7.74%
Millcreek Limited 2,700,000 -- 2,700,000 7.30%
Marose Holdings Ltd. 1,900,000 -- 1,900,000 5.14%
Hibernian Trust Co. Ltd. 1,500,000 70,500 1,570,500 4.25%
Clifford Goodwill -- 200,000 200,000 0.54%
I-SM Ltd. -- 112,500 112,500 0.30%
Magaly Bianchini 100,000 -- 100,000 0.27%
David Formosa 100,000 100,000 0.27%
Gael E. Rowland -- 100,000 100,000 0.27%
Holders having less than 100,000
shares on a fully diluted basis as a
group1 -- 488,824 488,824 1.32%
---------- ---------- ---------- ------
32,000,000 1,000,000 33,000,000 89.24%
Shares Previously Outstanding 3,980,646 -- 3,980,646 10.76%
---------- ---------- ---------- ------
35,980,646 1,000,000 36,980,646 100.00%
========== ========== ========== ======
</TABLE>
1 Includes 25 holders holding Warrants in amounts ranging from 76,200 to
5,737 (0.21% to 0.02% assuming exercise of all Warrants). See table on
page 5 for a complete list of the holders.
-6-
<PAGE>
None of the persons who received Micromem Common Shares or Warrants by
January 12, 1999 were affiliated except for (i) Ataraxia Corp., Sterling 1850
Ltd. and Hibernian Trust Co. Ltd., and (ii) Marose Holdings Ltd. and David
Formosa. Hugh O'Neill, the controlling stockholder of Ataraxia Corp., is a
member of the management of Sterling 1850 Ltd. and a director of Hibernian Trust
Co. Ltd. Mr. O'Neill controls Sterling 1850 Ltd. and Hibernian Trust Co. Ltd. as
well as Ataraxia Corp., and is considered to have beneficial ownership of the
Common Shares and Warrants owned by all three, which totaled 8,332,089 Common
Shares (assuming exercise of all Warrants) or 22.53% as of January 12, 1999. All
of the shares held by Hibernian Trust Co. Ltd., being 1,500,000 shares or 4.06%
(assuming exercise of the Warrants) were held in trust for Tillion Investment
Co. Ltd., a Bahamian company, and were subsequently distributed to it. As of
November 15, 1999 neither Sterling 1850 Ltd. nor Hibernian Trust Co. Ltd. owned
any Common Shares or Warrants.
The total purchase price for the Pageant International Common Stock was
US $30,000,000, based on a valuation report prepared by the business appraisal
firm Business Equity Appraisal Reports, Inc. ("Bear"), entitled Estimated Market
Value of HFRAM Technology as of July 6, 1998 (the "Bear Report"). (HFRAM, or
"Hall Ferromagnetic Random Access Memory" is the technology now referred to by
Micromem as MAGRAM(TM).) The value of the Common Shares to be used to pay the
purchase price was determined through arm's length negotiations using as a point
of reference the price per Common Share of US $1.16 on September 23, 1998.
On January 11, 1999, immediately following the acquisition, Stephen
Fleming, the President and Chief Executive Officer of Pageant USA, was elected
to Micromem's Board to join Sam Fuda and Ross McGroarty, who had served as
directors since 1992 and 1988, respectively. The Board then elected Mr. Fuda as
Chairman, Mr. Fleming as President and Chief Executive Officer, and Mr.
McGroarty, who had been serving as President, as Executive Vice President and
Secretary. Subsequently, on March 18, 1999, Robert Patterson, who had been
serving as Chairman of the Board and Vice President of Corporate Development of
Pageant USA, was elected President and Chief Executive Officer of Micromem to
replace Mr. Fleming.
The primary asset of Pageant International is an undivided 50% interest
in a patent, registered in the United States with corresponding patent
applications in Europe and Japan, for nonvolatile random access memory
technology called MAGRAM(TM) (the "MAGRAM(TM) Technology"). The balance of the
50% interest is owned by Estancia Limited, a company incorporated under the laws
of the Turks & Caicos Islands, which has granted Pageant International an
exclusive worldwide license (the "MAGRAM(TM) License") to develop, manufacture
and sell the MAGRAM(TM) Technology. The MAGRAM(TM) License, which was originally
executed by Ataraxia Corp. and then assigned to Pageant International with the
written consent of Estancia Limited, also provides that if Pageant
International, as approved assignee of Ataraxia Corp., sells the rights to the
MAGRAM(TM) Technology to a third party not owned or controlled by it, it will
have to pay Estancia Limited 50% of the proceeds from such transaction. This
provision makes it clear that in the event of the sale of all of the MAGRAM(TM)
Technology rights, 50% of the proceeds would go to Estancia Limited, reflecting
its 50% undivided interest in the technology, rather than 40% reflecting its
royalty rights under the MAGRAM(TM) License. Estancia Limited is controlled by
Mr. John Zammit. Mr. Zammit has no direct control relationship with Micromem and
has no control relationship with Ataraxia Corp. of which Micromem is aware.
The MAGRAM(TM) License provides that Pageant International will pay to
Estancia Limited or its nominee a royalty of 40% of the gross profits less
certain agreed expenses for revenue received from the MAGRAM(TM) Technology.
Following the granting of the MAGRAM(TM) License, Pageant Technologies (U.S.A.)
Inc., a wholly-owned subsidiary of Pageant International ("Pageant USA," and
together with Pageant International, "Pageant") entered into a Research
Agreement with the University of Utah for the purpose of completing research and
producing a working prototype. The researchers at the University of Utah have
now completed their research with respect to individual MAGRAM(TM) memory cells
and have prepared 8-bit technology evaluation samples which are now available
for prospective licensees. Meanwhile, the manufacturing process is being
validated and
-7-
<PAGE>
documented, and testing at certain independent laboratories already has begun to
help prospective licensees evaluate the technology and determine the amount of
time and expense that could be expected for incorporating the technology into
their products. For some companies the process could take from three to six
months whereas for others, particularly those seeking to use the technology in a
new application, the process could take a year or longer.
Micromem has developed the MAGRAM(TM) Technology to the point where it
can be sold to prospective licensees for use in their products. Micromem's
objective is to license the technology for use in various industries and then
work with each licensee to adapt the technology to maximize its performance in
those areas most important to the particular industry's needs, such as speed or
low power requirements. While negotiations with potential licensees are
currently underway, it is difficult to estimate when any such license agreements
will be concluded or, if concluded, how long it will take to complete the final
development work necessary to bring a product to market. Nevertheless, Micromem
is hopeful that products using the technology will begin to be marketed during
the first half of calendar year 2000.
The acquisition of Pageant has been treated as a reverse purchase
acquisition for accounting purposes. A reverse acquisition is deemed to have
occurred when a company uses so much of its voting stock to purchase another
company that the former stockholders of the acquired company could be said to
have ended up controlling the company doing the acquiring. In the case of the
purchase of Pageant International by Micromem, the two former shareholders of
Pageant ended up with a greater number of voting shares than did the
pre-acquisition Micromem shareholders and therefore have been deemed to have
apparent control. The consolidated financial statements of Micromem are
presented as a continuation of the financial position and results of Pageant
International, even though Micromem remains the legal parent and Pageant
International remains the legal subsidiary. The primary consequence of the
application of this treatment to the Pageant acquisition is that the patent
rights are recorded at US $100, the historical value at which they were carried
on the Pageant International balance sheet, rather that the being increased to
reflect the significantly greater valuation ascribed to them by the Bear Report.
The MAGRAM(TM) Technology
Background
MAGRAM(TM), which stands for "magnetic random access memory," is a
ferromagnetic based technology designed to provide digital nonvolatile memory
that can be both read and written randomly, and consists of microscopic
ferromagnetic rods which are stacked together horizontally and vertically on a
silicon wafer, making a memory chip. Each rod provides 1 bit of data based on
its ability to alternate between a charged and an uncharged state, which states
are read by a sensor attached to the rod. Since a rod's state is determined by
magnetic attraction rather than by the presence of an electric charge, chips
using the rods will not lose information when power is cut off. The various
characteristics of MAGRAM(TM) can be better understood by describing them in the
context of the three basic types of memory devices used by present day
computers, Random Access Memory (RAM), Read Only Memory (ROM), and secondary
storage devices such as floppy and hard disks. The three types of memory devices
are described below.
Random Access Memory (RAM) is memory that can be both read and written
randomly, which means that its storage locations can be accessed in any order.
Thus, a computer using RAM can find and go directly to the selected location
rather than performing a sequential search. RAM is usually semi-conductor based
and is considered a computer's main or primary memory, because it is either in,
or closely associated with, the computer's central processing unit (CPU or
processor), the computational or control unit of the computer responsible for
interpreting and executing instructions. RAM, however, is also generally
volatile, which means that all stored information vanishes once the power supply
is removed. As a consequence, all of the information must be restored each time
the power is resumed.
Two typical examples of RAM are Dynamic Random Access Memory and Static
Random Access Memory. Dynamic Random Access Memory (Dynamic RAM or DRAM) uses
integrated circuits containing capacitors, resulting in significant storage
capacity and speed. DRAM can be written and read in the speed range of less than
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100 nanoseconds. In addition to being volatile, however, DRAM has a second major
drawback, which is that its capacitors lose their charge over time and therefore
information contained in DRAM must be continually refreshed. Basically, this
means that on average DRAM must stop operations every 16-30 milliseconds and
restore all of the data it contains, failing which the data will disappear.
During this refresh time, the processor has no access to the information being
refreshed.
Static Random Access Memory (Static Ram or SRAM) differs from DRAM in
that it stores information in a logic circuit referred to as a flip-flop, rather
than in a capacitor. SRAM memory does not need to be refreshed while the power
is on, but -- like DRAM memory -- loses its information once the power is turned
off. SRAM memory is less commonly used than DRAM memory because it has roughly a
quarter of the density of DRAM memory and has more complex circuitry, although
SRAM is becoming more commonly used as cache memory, which is used in
association with CPUs.
Read Only Memory (ROM), like RAM can be read randomly. Unlike RAM,
however, it is non-volatile and does not lose its information when a computer's
power is cut off. ROM is typically employed to store vital program information
required during the first moments after a computer is powered on. It may be used
for such purposes as forcing system test routines to be conducted or preparing
the processor for work by pointing to input/output devices needed for further
instructions or for controlling access to certain computer devices or subsystems
such as hard drives. ROM, however, has one major drawback, which is that in most
cases, once in place, it cannot be rewritten and even when it can, it cannot be
rewritten quickly and efficiently.
Speed and random accessibility of memory data are key to successful and
efficient computer operation. However, although DRAM and ROM are both digital
memories, each having benefits and drawbacks, it has been difficult to reach a
middle ground and maximize the potential of a synthesis of the two. The basic
objective of MAGRAM(TM) is to utilize ferromagnetic technology to combine the
best, seemingly mutually exclusive features of both these memories:
nonvolatility, speed, random read and no refresh requirement in the case of ROM,
and random read/write and high density in the case of DRAM.
Disks, both floppy and hard, are secondary storage devices. Floppy
Disks are light and portable, and are written and read by a motor driven
mechanical drive. They normally have a storage capacity in the kilobyte to low
megabyte range. The hard drive in which Hard Disks are located has become the
workhorse of mass and archival storage. Hard disks traditionally store vast
amounts of programs and raw and processed data which can be written and read
indirectly by the processor, far exceeding floppy disks in storage capacity.
Both Floppy Disks and Hard Disks are non-volatile and can be both written and
read, but being serial (as opposed to parallel) devices, they are considerably
slower than RAM.
Description of the MAGRAM(TM) Technology
The MAGRAM(TM) technology is based on the same physical principle
employed by magnetic disks, diskettes, and audio, video and digital tapes, and
is similar to the old "core" memories used in early main frame computers. Those
devices all rely on ferromagnets to store data and, as a consequence, are
intrinsically reliable because once a ferromagnet has experienced a polarity
reversal, only a force equal and opposite to that which set it to its present
state will change its magnetic moment or polarity. The MAGRAM(TM) Technology,
unlike the old "core" memories, has passive read capability, which means that
the memory cells can be read any number of times using only a single read cycle
for each read event, and that no write or restore cycles are required. The
"core" memories, though nonvolatile and technically requiring no refresh, must
be "flipped" or reversed in order to be read, which process requires several
operations, including write cycles, and therefore effectively could be
considered similar to refresh.
In addition, the strength of ferromagnets is not weakened by repeated
polarity reversals over time. MAGRAM(TM) substitutes individual ferromagnetic
elements in place of the capacitor/transistor (DRAM) or flip-flop (SRAM) designs
now most widely used. The main advantages of the ferromagnetic technology over
the capacitor/transistor-based (DRAM/SRAM) technologies is expected to be that:
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a) the stored information will be non-volatile, i.e., data will
not be lost when power is removed;
b) the need for memory refresh cycles would be eliminated;
c) the need for other types of memory, such as DRAM, cache and
ROM, may be reduced or eliminated;
d) heat production should be reduced; and
e) the need for constant save routines and even uninterruptible
power supply devices should be reduced or eliminated.
In a computer system designed around a device using such technology
ideally only one type of memory would be needed, replacing ROM, RAM and even
hard drives. A system centered around this memory technology would be
considerably faster, would rely on less software "overhead," and ultimately
would be safer for data. Sequences used to start up a computer when its power is
turned on, now stored in ROM, could be stored in protected areas of RAM and
therefore could be easily modified. Sequences triggered when a computer is
turned off, whether intentionally or otherwise, could be reduced or eliminated
in that current register contents could be saved to RAM. Moreover, the operating
system itself could be resident in RAM, rather than having to be reloaded from
the hard drive each time power is restored. Thus, MAGRAM(TM) could take the
place of all standard digital memory devices in a typical computer. The need to
allocate archival memory devices or mass memory for operating systems and other
programs would disappear, since they could be accessed and run directly from a
single memory system.
Chips incorporating this memory storage technology are anticipated to
be as fast as or faster than current DRAM or SRAM technology, so that ultra-high
clock rates will not present a problem. Furthermore, the MAGRAM(TM) technology
is expected to use less power in computer systems and therefor should produce
less heat than conventional memory, both due to its lower power requirement and
to the elimination of unnecessary refresh cycles.
The MAGRAM(TM) technology is expected to be compatible with the
existing equipment that reads and writes digital information into one-bit memory
sites. In addition, it is expected that MAGRAM(TM) technology will be able to be
incorporated into a memory chip with minimum impact on the current memory chip
fabrication process, and could replace the current method of imbedding one-bit
memory sites into a memory array. This would be of great importance to
manufacturers since only a few, simple, additional steps would need to be added
to the chip manufacturing process in order to apply this technology to the
production of memory devices, although it is expected that the overall number of
steps would be reduced.
In summary, the key characteristics to consider in understanding the
potential significance of the MAGRAM(TM) memory technology are the following:
NON-VOLATILITY - Volatility in an electronic digital memory
device refers to its inability to retain stored data
subsequent to the removal of electrical power. The principal
feature of MAGRAM(TM) is its ability to retain such data after
loss of electrical power, and to do so indefinitely. This is
particularly important when considered in the context of
random, versus serial, access.
NO REFRESH REQUIRED - Refresh is the process of first reading,
then re-writing, or restoring, data previously stored in a
memory cell. It requires not only electrical energy, but
computer cycles to perform. During refresh, the areas of
memory storage being refreshed are inaccessible to the CPU.
Refresh is costly, therefore, in terms of both time and
energy, and its effect becomes increasingly significant over
time, especially as computer clock and CPU speeds become
faster. With MAGRAM(TM), once data is written or set into a
cell, there is no need for refresh since the data will not
vary until it is forcibly changed during a subsequent write
cycle.
PASSIVE READ CAPABILITY - This feature means that the memory
cells can be read any number of times using only a single read
cycle for each read event, and that no write or restore cycles
are required. This capability should be contrasted to the
process used in some
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ferromagnetic memory technologies, such as "core" memories,
which, though non-volatile and technically requiring no
refresh, must be "flipped" or reversed in order to be read.
This process requires several operations, including write
cycles, and effectively could be considered similar to
refresh.
SPEED - Computer clocks (or timers) and CPU's work in concert
at high speed. These speeds are measured in MHz and in parts
of a second, such as nanoseconds. Since the CPU receives
programmed instructions from RAM, the RAM, being the immediate
source of such data, must operate at the same speeds. One of
the salient features of DRAM, leading to its heralded use in
the industry, is its ability to deliver instructions and store
data at such speeds. MAGRAM(TM) also is expected to operate at
these high rates of speed.
HIGH DENSITY - Density in integrated circuit devices refers to
the amount of electronics that are packed into a square unit
of measure. The base unit is the micron, which is one
one-millionth of a meter, or 0.0000039 inches. Typically, the
greater the density of the packaging, the greater the
efficiency of the device. MAGRAM(TM) cells will be small
enough to compete favorably against other memory devices,
whether random or serial.
LOW POWER CONSUMPTION - All electronic devices consume power
and radiate heat. The degree to which they do depends directly
on their efficiency. Memory devices based on the MAGRAM(TM)
technology are expected to be energy conservative. This is due
to the fact that "write" and "read" current will be required
only during the short periods of time when data is being
changed or retrieved. Since MAGRAM(TM) is truly non-volatile,
there are no laborious energy consuming refresh cycles and the
power source can be completely removed from MAGRAM(TM) devices
between sessions without a loss of data. DRAM, by contrast,
must be fully powered at all times when reliance on the stored
data is required.
RADIATION HARD - Different types of radiation can damage or
alter the function of integrated circuit devices. Although
appropriate testing for radiation hardness (resistance to
alteration and damage) has not been conducted on MAGRAM(TM)
devices, it is expected that they will fare well in this
category.
ENVIRONMENTAL TOLERANCE - Integrated circuit devices have
definite temperature, humidity, atmospheric pressure and
vibration tolerance limits. Since MAGRAM(TM) memories are to
be built within industry standards of encapsulated devices,
they are expected to be similarly tolerant.
INDEFINITE DATA RETENTION - Other than purposefully forcing a
ferromagnet to reverse polarity, there is no known reason why
it will not retain that polarity indefinitely. MAGRAM(TM)
memories will be capable of this feature without the use of
continuous electrical power.
NO HALF LIFE PROBLEM - MAGRAM(TM) has no half-life per se.
Since ferromagnets are not known to decay or lose their
ability to reverse and maintain polarity over time and use,
the life span of MAGRAM(TM) should be as long as that of the
basic device itself. Half-life is a condition that plagues
ferroelectric and other non-volatile memories such as flash.
Ferroelectric memory is based on the shift of an atom within a
crystal, the result of which is a reversal of electrical
potential on the crystal surface, which in turn, is used to
store digital data. These crystals, however, eventually break
down over time and with use, so that the memory cell loses its
usefulness. Because of this inherent weakness, ferroelectric
memories are not reliable for constant write/read
environments.
CONCURRENT READ/WRITE FEASIBILITY - Since MAGRAM(TM) memories
require no refresh and thus no corresponding constant "address
sweep" across the memory field, it should be
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feasible to design a memory such that one byte (group of
cells) may be written simultaneously with a read operation on
the same die (memory area) so long as those two addresses are
not the same.
NON-EXOTIC TECHNOLOGY - MAGRAM(TM) memories are expected to be
composed of inexpensive, easily obtainable materials.
Patents
A U.S. patent for the MAGRAM(TM) Technology (U.S. Patent 5,295,097
entitled Nonvolatile Random Access Memory, the "Patent") was issued to Richard
M. Lienau on March 15, 1994. Mr. Lienau has also filed corresponding patent
applications for Europe (application no. 93918644.1) and Japan (application no.
505547/199) (the "Patent Applications"). On November 18, 1997, Mr. Lienau
assigned his entire right, title and interest in the Patent and Patent
Applications to Estancia Limited and on November 19, 1997, Estancia Limited
assigned a nontransferable undivided 50% interest in the Patent and Patent
Applications to Pageant International through Pageant International's parent
company Ataraxia Corp.
In addition to an undivided 50% interest in the Patent and Patent
Applications, Pageant International has been granted an exclusive worldwide
license to develop the MAGRAM(TM) technology and manufacture and sell the
related products. The License was granted by Estancia Limited to Pageant
International's then parent company Ataraxia Corp. pursuant to an agreement
dated September 17, 1997 among Ataraxia Corp., Estancia Limited and Richard M.
Lienau (the "License Agreement"), which Ataraxia Corp. assigned to Pageant
International on October 22, 1997. The License Agreement also provides that
Estancia Limited and Richard Lienau will grant to Pageant International a right
of first refusal to acquire rights in respect of any patent improvements or new
technology or application developed or under the control of Estancia Limited or
Richard Lienau relating to any invention, technology, application or product
which may reasonably be regarded as similar to or competitive with the
MAGRAM(TM) technology. The License Agreement requires Pageant International pay
to Estancia Limited or its nominee a royalty of 40% of the gross profits less
expenses agreed by the parties for each technology license sold. Additionally,
Pageant International will pay Estancia Limited 40% of any per unit royalty
received by Pageant less properly documented reasonable expenses directly
related to the obtaining of said royalties and as agreed by the parties in
writing. Pageant International will also pay Estancia Limited 40% of any other
revenues (less those expenses agreed by the parties) of Pageant International
related to the grant of rights or use of the MAGRAM(TM) technology by Estancia
Limited, exclusive of participation of Estancia Limited in the contract.
The License Agreement requires Pageant International to provide the
funding necessary to support the work being done by the University of Utah (see
"PLAN OF OPERATION -- Research and Development") to develop a prototype and to
test, manufacture, document or otherwise take the technology to the marketplace.
Pageant International also is to be responsible for all marketing, sales and
licensing of the technology. In the event of default by Pageant International,
all right, title and interest in the technology and related intellectual
property rights transferred to Pageant International under the License Agreement
shall revert back to Estancia Limited.
PLAN OF OPERATION
The technology development work of Micromem has been completed and the
next stage will be the adaptation of the MAGRAM(TM) technology by Micromem's
licensees to specific applications. Following is the plan of operation for
Micromem through the end of the second quarter of fiscal year 2000:
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Research and Development
Pageant USA entered into a Research Agreement dated as of November
24, 1997 with the University of Utah (the "Research Agreement") providing for
work to be performed by University faculty, staff and students within the
University's Department of Electrical Engineering for the purpose of producing a
working prototype of a micron scale, integrated circuit ferromagnetic
nonvolatile random access memory. The Research Agreement broke down the actual
research and development work into two phases. The first phase was to consist of
a series of tests and actions with respect to the development of a single micron
scale memory cell, from the research of appropriate ferromagnetic materials for
use in such a cell to the testing of such a cell for various capabilities under
a variety of conditions appropriate for such a device. The second phase was to
consist of the construction, testing and packaging as finished products of
groupings of bytes of such cells from an 8-bit (one byte) grouping to groupings
to the order of 32 to 64 bytes. The first phase testing has been completed and
the University has built 8-bit technology evaluation samples for testing by
prospective licensees. Micromem does not envision a need for 32 to 64 byte
samples at this time.
The University has earned a total of US $646,359 as of November 15,
1999 for its work under the Research Agreement, which terminates December 31,
1999, which includes a base fee of US $282,549 provided for in the Research
Agreement plus an additional US $363,810 for supplemental work approved by
management. The Research Agreement also provides that the University would own
all rights, title and interest in all inventions and improvements conceived or
reduced to practice by the University or University personnel, and may at its
election file all related patent applications, but that the University must
grant to Pageant USA, on such terms and conditions as the University may
specify, an option for an exclusive license on any such inventions,
improvements, applications or patents.
Production
Pageant USA has negotiated with Clear Blue Laboratories, Inc. ("Clear
Blue") an agreement for the joint use with three other companies of a specially
designed research and manufacturing facility currently being completed in a
building at the University of Utah's Research Park in Salt Lake City. The
agreement will not be executed until the facility has been completed and
approved by Micromem, which is expected to happen prior to the end of December
1999. Clear Blue's lease is for a period of five years ending May 31, 2004,
renewable for an additional five-year period. Clear Blue is controlled by Hugh
G. O'Neill, who also controls Ataraxia Corp., which owned substantially all of
the capital stock of Pageant International before its acquisition by Micromem
and currently owns approximately 10.7% of Micromem's Common Shares.
The facility will have a class 1,000 clean room, which is an air tight
room in which micron and sub-micron sized integrated circuits, such as devices
that would use the MAGRAM(TM) technology, can be fabricated in an atmosphere in
which the amount of particulate matter is not permitted to rise above a
specifically defined scientifically acceptable level. The facility will be used
by Micromem for research and development, and for the limited production of
memory modules. The primary objective of the research and development to be
conducted at the new facilities will be to enhance and provide specialized
support for the product lines of Micromem's licensees, and to help meet the
particular needs and performance objectives of those licensees such as, for
example, increased speed, small size, greater density or the use of specialized
materials.
Clear Blue has retained the services of Dr. Richard Lienau, the
inventor of MAGRAM(TM), to ensure that the specifications of the facility meet
the requirements of Micromem for research, development, evaluation and
enhancement. Micromem expects to pay Dr. Lienau between $36,000 and $50,000 per
year for his services depending on the nature of the work he performs and the
amount of time he spends.
Micromem will pay a base fee of US $10,000 per month for access to the
facility and will pay on a cost plus per hour basis for the staff and equipment
employed or used on Micromem's behalf. Due to the relationship between Mr.
O'Neill, Micromem and Clear Blue, the agreement for the use of the facility is
not an arm's length transaction. Micromem believes, however, based on its review
of the alternatives available to it in the region, that
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the terms are fair and reasonable, and as good as it might have obtained from an
independent third party were a comparable facility to be available. The
anticipated costs of using the Clear Blue facility represent a substantial
saving on the costs of undertaking research or development at the University of
Utah, and the arrangements obviate the need of Micromem to expend substantial
sums to build its own laboratories.
Micromem is working with Clear Blue rather than with the owner of the
building because Clear Blue's involvement with the facility preceded that of
Micromem. Clear Blue is seeking to develop a facility to provide access to
technical assistance, equipment and specialized scientific space that smaller
companies may not otherwise be able to afford and, in fact, is working out
similar agreements with three other companies in addition to Micromem. Micromem
considers the terms of the agreement proposed by Clear Blue to be fair and less
expensive than the alternatives available to it, such as a continuation of the
contract with the University of Utah or building its own facility.
Micromem's primary expenses, therefore, are expected to be the $10,000
per month facility access fee, the cost plus payments it makes for the use of
the facility's equipment and technical personnel, and the up to $50,000 per year
to be paid to Dr. Lienau. Micromem does not anticipate problems in raising the
funds necessary for those payments, which would be easily covered by the
exercise by Mr. Fuda of his options, which he has said he would do as and when
needed.
Notwithstanding the facility in Salt Lake City, Pageant fully expects
that it will be primarily dependent on licensees, contract manufacturers or
commercial partners to manufacture its proposed products. Although this
dependence on third parties for manufacturing may adversely affect operating
results as well as Pageant's ability to develop and deliver products on a timely
and competitive basis, Pageant believes that there is ample capacity within the
computer industry to accommodate Pageant's needs for the foreseeable future.
Pageant further believes that the competitiveness among contract manufacturers
will ensure that adequate and reliable supplies of materials can be sourced in a
cost effective manner for the foreseeable future.
It is estimated that by the end of May 2000 approximately 10 people
will be employed by Micromem as compared to three at April 30, 1999, the low
number being due to Micromem's plans to work through licensees and independent
contractors.
Market Opportunities
The MAGRAM(TM) technology potentially applies to many different
markets. Products using the technology can be implemented as a subcomponent, a
component or a stand alone system. The technology has a varied number and type
of applications because of such special attributes as high level of speed, low
power consumption, elimination of refresh cycles, and retention of memory
without power.
There are a number of industries that could be expected to make
immediate use of MAGRAM(TM) Technology. Virtually every cell phone contains
flash memory integrated circuits, and cell phone manufacturers are forced to
continually strive for the longest life per battery charge in an effort to
satisfy consumer needs and remain competitive. The MAGRAM(TM) Technology would
be a great asset to these manufacturers since it would consume less power than
flash memory circuits and does not have write cycle limitations. Similarly,
small handheld devices such as two way pagers, palm PC's and organizers do not
have disk memory to store information. Due to this limitation, they are
typically forced to use flash memory in an effort to conserve power. As in the
case of cellular phones, MAGRAM(TM) would provide a meaningful alternative. Many
devices use custom ASIC's (application specific integrated circuits) to replace
a group of components in an effort to reduce the size, weight, cost and power
consumption of a circuit. The auto industry, for example, is a major user of
ASIC technology. Although there are many advantages to ASIC's, one major
disadvantage is that they typically require long development cycles. Moreover,
if the ASIC has a design flaw that requires correction, the modification process
could extend the design cycle by an additional 2-6 months. Incorporation of the
MAGRAM(TM) technology into ASIC designs would allow for changes to be made
without redesigning the ASIC and restarting the cycle, thus saving designers
critical time. A great many household appliances contain small memory devices to
store time or simple instructions. The
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MAGRAM(TM) technology provides a low cost method of providing nonvolatile memory
to store user preferences for devices like clocks so they need not be
reprogrammed after the power has been removed or turned off. Examples of
appliances that could make immediate use of this technology are VCR's, digital
clocks, answering machines and microwaves.
These are just examples of immediate applications of the MAGRAM(TM)
technology in the marketplace. The list is not exhaustive and basically anything
electrical that has a memory could benefit from MAGRAM(TM). Other possible uses
would certainly be in hard drive replacements, RAM type floppies, personal
pocket memories, and various devices employed in the military and space
programs.
The computer industry presents a particularly important market for the
MAGRAM(TM) technology for a number of reasons. The industry is experiencing a
growing need to develop memory that is fast enough to keep pace with high CPU
clock speeds. The current hard disk is too slow and prone to wear and frequent
failure, being an electro-mechanical device consisting of spinning platters upon
which data is stored and accessed by moveable arms that seek the data from place
to place on the platters. MAGRAM(TM), on the other hand, is based on a
ferromagnetic material virtually impervious to internal defect and change, and
will be marketed as a viable solution to these industry problems. Both the new
market and the upgrade market will be targeted.
The market for memory chips is extremely large. The BEAR Report stated
that, in a reference to ". . . chips manufactured and distributed to OEMs and
other volume channels, various sources estimate the total market which is
potentially relevant to this technology to be on the order of $40-50 billion and
growing at 30% per year." Management believes that successful incorporation of
the MAGRAM(TM) technology would be of immense value to any of the large chip
makers.
Marketing Strategy
Micromem is aggressively pursuing the establishment of a partnership
between Pageant and one or more major memory manufacturers. Management believes
that combining the MAGRAM(TM) Technology with the strength of such strategic
partners in the marketplace will facilitate and allow Pageant to obtain highly
favorable licensing agreements with other major companies worldwide. At the same
time, Management continues to work with the University of Utah to further
improve the density, speed, bit size and manufacturing process. An additional
significant increase in Pageant's ability to obtain licensing agreements is
expected to be attained when products, based on the technology, begin to realize
success in the marketplace.
The BEAR Report stressed the importance of finding a strategic partner,
noting that until such a partner had been located, "some caution concerning
[MAGRAM's(TM)] present market value is necessary." Having said that, however,
the BEAR Report proceeded to state that "[n]evertheless, it is impossible to
ignore the extraordinary potential market for this technology . . ." and
concluded that, based on the assumptions and qualifications set forth in the
report, ". . . it is our opinion that the market value of the technology, in its
current state of development, is approximately $30 million." As development
progresses, management of Pageant believes that the market value of the
technology will increase. However, since the technical risk appears to be
relatively low, the increase in value with completion of a prototype is also
likely to be low. Management believes that the next significant increases in
market value will come when a partnership with a major memory manufacturer is
established and when products based on the technology begin to realize some
significant success in the marketplace.
Competition
Technological competition in the memory technology industry is intense
and is characterized by rapidly changing technology, short product life cycles,
cyclical oversupply and rapid price erosion. Pageant's success depends
significantly upon its ability to obtain and maintain a competitive position in
the development or acquisition of products and technology in its area of
concentration. Rapid technological development by others may result in actual
and proposed products or technology becoming obsolete in a relatively short
period of time. Some of Pageant's competitors will have substantially greater
financial and technical resources, manufacturing and marketing
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capabilities than Pageant. In addition, some of Pageant's potential competitors
have significantly greater experience in undertaking beta testing and cookbook
trials of new or improved hardware computer products. Such competitors may have,
unknown to Pageant, products which are technologically superior to those of
Pageant.
Most of the established technologies with which MAGRAM(TM) will
compete, while well established in the marketplace, lack one or more of
MAGRAM's(TM) special characteristics. EPROMs (erasable programmable read-only
memory) and EEPROMs (electrically erasable read-only memory) can be erased and
rewritten, but must be written "en masse," rather than at the individual word
level. "Flash" memory is a form of EEPROM that is widely used today in such
devices as cell phones, modems and personal digital assistants, handheld devices
otherwise known as PDAs. The drawbacks to Flash memory are that write times are
slower, the number of read/write cycles are limited and it can be more difficult
and expensive to manufacture. Another competitive product is DRAM or SRAM backed
by a lithium battery with enough low level voltage and support circuitry to
perform the necessary refresh cycles. The retention time for such memory could
be long, depending on the life of the battery, but the cost is high.
DRAM (Dynamic Random Access Memory) is a digital memory device
ubiquitous in the computer industry. It is usually found as RAM (Random Access
Memory) in computers of all sizes and types throughout the world. The principal
reasons for its popularity are that it is fast (write/read times less than 100ns
(nanoseconds; 1/100,000,000 part of a second)), dense (many bytes of data in a
small area) and inexpensive. Speed and density are important because the CPU
(Central Processing Unit), the device that oversees all activities in a
computer, must work closely with RAM, which holds software (instructions) and
data (information) for immediate, rapid bi-directional access.
DRAM has drawbacks, however, the primary one being that it is volatile.
Volatile devices cannot retain, or "remember" data after their power is removed.
Furthermore, even with available power, DRAM devices are unable to retain data
longer than about 30ms (milliseconds; 1/1,000 part of a second). Some have a
shorter retention span; as low as 4-5ms. This negative factor requires an action
called "refresh," and means that the data in DRAM is restored at least every
30-33ms, or some 30 times per second. During refresh, access to RAM by the CPU
is denied, and no write/read functions can take place. In addition, though DRAM
devices are inexpensive, their manufacture, or fabrication, requires many steps
to complete.
MAGRAM(TM) devices, on the other hand, have several advantages over
DRAM devices. First, and foremost, they are non-volatile. This means that they
retain data after power off. Moreover, they do not require refresh. Since there
is no refresh, there is no need to stop access to RAM on the part of the CPU.
Second, MAGRAM(TM) is as fast (write/read speeds) as DRAM, and in some cases,
faster. In addition, MAGRAM(TM) devices are simpler to make than DRAMs, use less
exotic tooling and therefore can be fabricated more quickly and cheaply.
Although DRAMs are dense, it is expected that MAGRAM(TM) devices can be
fabricated to be as dense as DRAMs in the near term.
There are additional implications for the use of the MAGRAM(TM)
technology to replace DRAMs configured as RAM. Since DRAMs are volatile, hard
drives, ROMs (Read Only Memories) and cache (CPU-close fast, non-refresh, but
volatile) memories are necessary to make up for DRAM deficiencies. In a computer
system with MAGRAM(TM)-based RAM, MAGRAM(TM) memory devices could serve as an
extension of these three other memory types and even eventually could replace
them.
Micromem is aware of no commercially competitive products that provide
both true nonvolatile memory and random writes. The only product of which the
company has knowledge which comes close to those objectives is a FRAM device
produced by Ramtron International Corporation. MAGRAM(TM) is also a FRAM device,
but while both devices are "Random Access Memory," the Ramtron device is
ferroelectric rather than ferromagnetic. This means that its nonvolatility
results from the movement of an electric charge trapped in a crystal matrix
rather than from the polarity reversals of ferromagnets. Although ferroelectric
memory devices are non-volatile, they tend to degrade over time because each
time the electric charge, or polarity, of a ferroelectric memory cell is
switched, some of the crystals break down and become useless. After many uses
the cell then becomes unable to maintain or
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<PAGE>
"remember" enough of an electric charge to be useful. As a consequence,
ferroelectric devices tend to be used in data processing circuits that require
their use only on an occasional basis as, for example, in situations where data
needs to be stored in an emergency.
The ability of Pageant to compete successfully depends on elements
outside of its control, including the rate at which customers incorporate
Pageant's products into their systems, the success of such customers in selling
those systems, Pageant's protection of its intellectual property, the number,
nature and success of competitors and their product introductions, and general
market and economic conditions. In addition, Pageant's success will depend in a
large part on its ability to develop, introduce, and license in a timely manner
products that compete effectively on the basis of product features (including
speed, density, die size, and packaging), availability, quality, reliability and
price, together with other factors including the availability of sufficient
manufacturing capacity and the adequacy of production yields. For example, from
time to time an oversupply of DRAM has caused a significant drop in DRAM prices.
Such a drop conceivably could have a material adverse effect on the sale of
MAGRAM(TM) products, though since Micromem has not yet begun marketing
MAGRAM(TM) it does not know the extent to which price sensitivity with respect
to DRAM or any other product will be a relevant marketing consideration. There
is no assurance that Pageant will be able to compete successfully in the future.
ITEM 2. DESCRIPTION OF PROPERTY
Micromem maintains corporate headquarters in Toronto, Ontario, Canada.
The space, consisting of 500 square feet, is part of a larger office space
leased by Ontex Resources Limited ("Ontex") pursuant to a lease that expires
January 30, 2002. Micromem reimburses Ontex at cost for its space. There is no
written sublease between Ontex and Micromem. Sam Fuda, Chairman of the Board of
Directors of Micromem, is Chairman of the Board of Directors of Ontex and Ross
McGroarty, Executive Vice President, Secretary and a Director of Micromem, is a
Director of Ontex. The chief executive offices of Pageant USA are located in
Santa Fe, New Mexico. The space consists of 1,852 square feet and is leased. The
lease expires December 31, 2000. Pageant USA is planning to lease shared space
in a research and manufacturing facility currently under construction in a
building at the University of Utah's Research Park in Salt Lake City. The
facility is expected to be ready in December 1999.
See "PLAN OF OPERATION -- Production."
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings involving Micromem as of the date
hereof, nor are any such proceedings known to be contemplated.
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth, as of November 15, 1999, certain
information with respect to (i) each person known by Micromem to be the owner of
more than 10% of Micromem's Common Shares, and (ii) the officers and directors
of Micromem as a group:
Title of Class Identity of Person or Group Amount Owned Percent of Class
Common Shares Ataraxia Corp.(1) 3,900,000 10.6%
P. O. Box 267
B.C.M. Cape Building
Leeward Highway
Turks & Caicos
Common Shares Hugh G. O'Neill(1) 3,930,500(2) 10.6%
Common Shares All officers and directors as a 1,050,000(3) 2.8%
group
(1) Ataraxia Corp., a company incorporated under the laws of the Turks &
Caicos Islands, is controlled by Hugh O'Neill.
(2) Includes 3,900,000 Common Shares owned by Ataraxia Corp.
(3) Includes options granted to Sam Fuda to purchase prior to January 25,
2009, up to 800,000 Common Shares at a price per share of US $3.00.
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<PAGE>
There are no arrangements known to Micromem the operation of which may at a
subsequent date result in a change of control of Micromem.
ITEM 5. NATURE OF TRADING MARKET
Trading in the Common Shares is quoted in the "pink sheets" published
by the National Quotation Bureau, Inc. Prior to September 2, 1999 trading had
been quoted on the NASD's OTC Bulletin Board, but terminated when a new OTC
Bulletin Board Eligibility Rule went into effect eliminating companies that were
not subject to the reporting requirements of the U.S. Securities and Exchange
Commission. This registration statement is being filed in order to make Micromem
subject to those reporting requirements.
The table below sets forth the high and low sales prices for Common
Shares in U.S. Dollars as reported since trading began in April 1998. Micromem's
fiscal year ends October 31. The Common Shares are not traded in Canada.
U.S. Dollars:
High Low
---- ---
Quarter ended April 30, 1998 0.7500 0.6520
Quarter ended July 31, 1998 0.5625 0.5000
Quarter ended October 31, 1998 3.2500 1.4375
Quarter ended January 31, 1999 5.1250 2.9375
Quarter ended April 30, 1999 8.2500 3.3000
Quarter ending July 31, 1999 7.7500 4.5000
Quarter ending October 31, 1999 5.9690 3.6880
At November 15, 1999 approximately 14.74% of the outstanding Common
Shares were held by registered shareholders with addresses in the United States.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
As of the date of this Registration Statement, there are no
governmental laws, decrees or regulations in Canada that restrict the export or
import of capital, including, but not limited to, foreign exchange controls, or
that affect the remittance of dividends or other payments to nonresident holders
of Common Shares.
There are no limitations under the laws of Canada or the Province of
Ontario, or in the charter or any other constituent documents of Micromem on the
right of nonresidents of Canada or persons who are not Canadian citizens to hold
and/or vote the Common Shares of Micromem.
ITEM 7. TAXATION
The following is a summary of certain Canadian federal income tax
provisions applicable to United States corporations, citizens, and resident
alien individuals purchasing, holding and disposing of Common Shares. The
discussion is a general summary only and does not purport to deal with all
aspects of Canadian federal taxation that may be relevant to shareholders,
including those subject to special treatment under the income tax laws.
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<PAGE>
Shareholders are advised to consult their own tax advisers regarding the
Canadian federal income tax consequences of holding and disposing of Micromem's
Common Shares, as well as any consequences arising under U.S. federal, state or
local tax laws or tax laws of other jurisdictions outside the United States. The
summary is based on the assumption that, for Canadian tax purposes, the
purchasers or shareholders (i) deal at arm's-length with Micromem, (ii) are not
residents of Canada, (iii) hold the Common Shares as capital property, and (iv)
do not use or hold Common Shares in, or in the course of, carrying on business
in Canada (a "Non-Resident Holder").
Dividends paid or credited on the Common Shares to a non-resident
holder will be subject to a non-resident withholding tax under the Income Tax
Act (Canada) at the rate of 25%, although such rate may be reduced under the
provisions of an applicable income tax treaty. For this purpose, dividends will
include amounts paid by Micromem in excess of the paid-up capital of the Common
Shares on a redemption or a purchase for cancellation of such shares by Micromem
(other than purchases on the open market). Under the Canada-United States Income
Tax Convention, 1980 (the "Tax Treaty") the rate is generally reduced to 15% for
dividends paid to a person who is a US resident. Dividends paid to US
corporations owning at least 10% of the voting stock of Micromem are subject to
a withholding tax rate of 5% under the Tax Treaty as amended by the Protocol
signed on March 17, 1995. Other applicable tax treaties may reduce the 25%
Canadian tax rate for other Non-Resident Holders.
A Non-Resident Holder generally will not be subject to tax in Canada on
capital gains realized from disposition of Common Shares, unless such shares are
"taxable Canadian property" within the meaning of the Income Tax Act (Canada).
Generally, the Common Shares would not be taxable Canadian property unless the
Non-Resident Holder, together with related parties, at any time during the five
years prior to the disposition of the Common Shares owned not less than 25% of
the issued shares of any class of the capital stock of .Micromem. Under the
Treaty, a resident of the United States will not be subject to tax under the
Income Tax Act (Canada) in respect of gains realized on the sale of Common
Shares which constitute "taxable Canadian property", provided that the value of
the Common Shares at the time of disposition is not derived principally from
real property located in Canada.
This summary is not exhaustive of all possible income tax
considerations and shareholders and prospective purchasers are advised to
consult with their own tax advisors with respect to their particular
circumstances.
ITEM 8. SELECTED FINANCIAL DATA
The information set forth below is unaudited and is derived from the
audited and unaudited Financial Statements included in Item 17 of this
Registration Statement and listed in the Index to Financial Statements appearing
on page A-1. It therefore should be read in conjunction with such Financial
Statements and with Item 9 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
While Micromem is the technical acquiror of Pageant International, the
acquisition has been treated as a reverse purchase acquisition (or reverse
takeover) for accounting purposes. This means that the consolidated financial
statements of Micromem are presented as a continuation of the financial position
and results of Pageant International, even though Micromem remains the legal
parent and Pageant International remains the legal subsidiary. Consequently,
control of the net assets and operations of Micromem is deemed to have been
acquired by Pageant effective January 11, 1999, the date of the acquisition of
the Pageant International stock, and all financial information prior to January
11, 1999 is that of Pageant International and its subsidiary alone. The
information set forth below, therefore, goes back only to September 3, 1997, the
date on which Pageant Technologies was incorporated, and shows selected
financial data for Pageant International for its fiscal years ended October 31,
1998 and 1997, the earlier period being only for September 3, 1997 through
October 31, 1997. The consolidated Financial Statements from which the data has
been derived have been prepared in accordance with International Accounting
Standards ("IAS").
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<PAGE>
Pageant Technologies Incorporated
A Development Stage Company
For year ended October 31, 1998
With Comparatives for the Period
from September 3, 1997 (Date of Incorporation) to October 31, 1997
(United States Dollars)
1998 1997
---- ----
Current Assets $ 148,586 $ -
Fixed Assets 15,334 -
Patents 100 -
Total Assets 164,020 -
Total Liabilities 665,011 1,249
Shareholder's Deficit (500,991) (1,249)
Interest Income 2,571 -
Total Expenses 529,274 1,250
Unrealized Gain on Foreign
Exchange 26,961 -
Net Loss (499,742) (1,250)
Loss Per Share - Basic and
Diluted (499,742) (1,250)
Weighted Average Shares 1 1
There are no material differences between the presentation of the
Financial Statements from which this information was derived in accordance with
International Accounting Standards and their presentation had they been prepared
in accordance with United States Generally Accepted Accounting Standards.
The unaudited selected financial data set forth below also has been
prepared on a reverse acquisition (reverse takeover) basis, with Pageant
International being deemed to be the acquiror for accounting purposes even
though it is the legal subsidiary and even though the name of the company is
Micromem Technologies Inc. Therefore, that part of the selected financial data
for the six months ended April 30, 1999 that is prior to January 11, 1999, the
date of the acquisition, and all of the selected financial data for the six
months ended April 30, 1998, is the historical data for Pageant International.
The Consolidated Financial Statements from which the data was derived have been
prepared in accordance with accounting principles generally accepted ("GAAP") in
Canada, which, in the case of Micromem, conform in all material respects with
those in the United States. For a reconciliation between Canadian GAAP and US
GAAP see the Notes to Consolidated Financial Statements April 30, 1999 at page
A-25.
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<PAGE>
Micromem Technologies Inc.
A Development Stage Company
(United States Dollars)
Six Months Ended
April 30,
1999 1998
Working capital (deficiency) $(1,967,080) $ (280,291)
Investment in other companies 47,152 --
Patents and copyrights 13,624 100
Capital assets 53,193 18,682
Equity (deficiency) (1,853,111) (261,509)
Revenue:
Interest earned 1,156 747
Costs and expenses:
Travel and entertainment 59,440 67,432
Professional fees 146,412 86,339
Wages and salaries 94,778 28,695
Compensation 1,268,387 --
Administration expenses 74,220 22,932
Development expenses 264,396 50,000
Unrealized loss (gain)
on foreign 19,867 4,206
exchange 5,425 1,403
Amortization
Loss on sale of investment 54,606 --
in other companies 36,072 --
Write down of investment 2,356 --
Interest expense
Net loss 2,024,803 260,260
Net loss per share - basic and
diluted 0.06 0.01
Weighted average shares 34,433,680 32,014,503
Reconciliation between Canadian GAAP and US GAAP
Micromem's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted ("GAAP") in Canada which, in the
case of Micromem, conform in all material respects with those in the United
States.
Micromem has chosen to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion ("APB") No. 25
"Accounting for Stock Issued to Employees". Accordingly, compensation expense
has been recognized, at the date of option grants or when the option shares are
earned based on the quoted market price of the stock, in the consolidated
statement of operations and deficit.
Micromem qualifies as a development stage enterprise as defined in SFAS No. 7.
The financial statements have been prepared to include the additional
information required to be disclosed by SFAS No. 7.
Micromem's comprehensive income as determined under SFAS No. 130 would not
differ from net loss as shown above for all periods presented.
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<PAGE>
There are no differences in cash used in operating, investing and financing
activities as reported and as per U.S. GAAP.
There are no differences in shareholders' equity as reported and per U.S. GAAP.
<TABLE>
<CAPTION>
April 30, 1999 April 30, 1998
<S> <C> <C>
Net loss as reported and as per U.S. GAAP $ 2,024,803 $ 260,260
----------- -----------
Net loss per share - basic $ 0.06 $ 0.01
----------- -----------
Net loss per share - diluted $ 0.06 $ 0.01
----------- -----------
Weighted average shares $34,433,688 $32,014,503
Plus: Incremental shares from assumed conversion of warrants 1,539,218 985,497
----------- -----------
Adjusted weighted average shares $35,972,898 $33,000,000
=========== ===========
</TABLE>
In the above table, incremental shares from assumed conversion of warrants have
been excluded from the calculation of the diluted loss per share because their
inclusion would be antidilutive for the periods presented.
Income Taxes
Micromem follows the "deferral method" of accounting for deferred income taxes,
pursuant to which it records deferred taxes on "timing differences" (differences
between accounting and tax treatment of certain revenues and expenses), using
tax rates effective for the year in which the timing differences arise. In
addition, Micromem did not recognize future tax benefits in connection with
provisions for loss of US $1,073,000 recorded in Micromem Technologies Inc. and
US $3,000 recorded in Pageant Technologies Incorporated, because, under Canadian
GAAP, Micromem did not have virtual certainty that it would realize those tax
benefits prior to their expiry.
Under U.S. GAAP, Micromem is required to use the "asset and liability method" of
accounting for deferred taxes, which gives recognition to deferred taxes on all
"temporary differences" (differences between accounting basis and tax basis of
Micromem's assets and liabilities) using currently enacted tax rates. In
addition, U.S. GAAP requires Micromem to record all deferred tax assets,
including the future tax benefits of losses carried forward. Micromem is then
required to record a "valuation allowance" for any deferred tax assets where it
is more likely that the asset will not be realized.
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<PAGE>
Micromem has not recorded any deferred tax asset or liability, as it believes
that it does not meet the test of certainty under Canadian GAAP or the "more
likely than not" test under U.S. GAAP. See detailed schedule below.
<TABLE>
<CAPTION>
(Deductible) (Deductible)
Temporary Temporary
Carrying Difference Difference
Amount Tax Basis 1999 1998
<S> <C> <C> <C> <C>
Cash $ 190,595 $ 190,595 $ -- $ --
Deposits and other receivables 77,841 77,841 -- --
Deferred exploration -- 232,963 ( 232,963) ( 236,238)
Unused non capital tax losses -- 1,805,176 (1,805,176) ( 202,442)
Unused capital tax losses -- 200,111 (200,111) ( 44,516)
Prepaid expenses 2,497 2,497 -- --
Investments in other companies 47,152 875,657 ( 828,505) (1,186,936)
Patents and logos 13,624 13,624 -- --
Capital assets 56,193 61,929 ( 8,736) --
----------- ----------- ----------- -----------
Total assets $ 384,902 $ 3,460,393 $(3,075,491) $(1,670,132)
=========== =========== =========== ===========
Accounts payable and accrued liabilities $ 1,449,729 $ 1,449,729 $ -- $ --
Shareholder loan 788,284 788,284 -- --
----------- ----------- ----------- -----------
Total liabilities 2,238,013 2,238,013 -- --
----------- ----------- ----------- -----------
Share capital 672,684 672,684 -- --
Retained earnings (2,525,795) 549,696 -- --
----------- ----------- ----------- -----------
Total equity (1,853,111) 1,222,380 -- --
----------- ----------- ----------- -----------
Total $ 384,902 $ 3,460,393 -- --
=========== =========== =========== ===========
Future tax asset $(3,075,491) Tax rate 45% $(1,383,971) $( 751,559)
=========== =========== ===========
Valuation allowance $ 1,383,971 $ 751,559
=========== ===========
Net future (tax asset)/liability $ -- $ --
----------- -----------
</TABLE>
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<PAGE>
Exchange Rate Data
The following table sets forth, for the periods indicated, the high,
low, end of period and average for period noon buying rates in New York City for
cable transfers in Canadian Dollars certified for customs purposes by the
Federal Reserve Bank of New York, as expressed in the amount of U.S. Dollars
equal to one Canadian dollar.
<TABLE>
<CAPTION>
Six Months Ended
April 30, Year Ended October 31,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
High for period .6428 .6341 .7093 .7235 .7024 .7166
Low for period .6860 .7140 .7513 .7458 .7527 .7731
End of period .6860 .6480 .7093 .7458 .7462 .7393
Average for period .6589 .6830 .7279 .7323 .7272 .7366
</TABLE>
On November 15, 1999, the noon buying rate for one Canadian dollar as
quoted by the Federal Reserve Bank of New York was US $.6 824 (US $1.00 = CDN
$1.4655).
No dividends were issued by Micromem during the periods referred to in
the above table.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with Item 8 - Selected
financial Data and the Financial Statements starting on page A-1 of this Report.
While the Registrant, a development stage company, which changed its
name to Micromem Technologies Inc. from AvantiCorp International Inc. on January
14, 1999, is the legal acquiror of Pageant International, the acquisition has
been treated as a reverse purchase acquisition (or reverse takeover) for
accounting purposes. This means that the consolidated financial statements of
Micromem are presented as a continuation of the financial position and results
of Pageant International, even though Micromem remains the legal parent and
Pageant International remains the legal subsidiary. Consequently, control of the
net assets and operations of Micromem is deemed to have been acquired by Pageant
effective January 11, 1999, the date of the acquisition of the Pageant
International stock, and all financial information prior to January 11, 1999 is
that of Pageant International and its subsidiary alone. Thus, the historical
financial condition and results of operations being presented for all periods
prior to January 11, 1999, the date of the reverse purchase acquisition, are
those of Pageant International alone, and the historical financial condition and
results of operations for all periods after January 11, 1999 are those of both
Pageant International and Micromem. Therefore, to the extent the following
discussion concerns financial periods ended prior to January 11, 1999, only the
financial condition and results of operations of Pageant International will be
addressed, even though all references are to Micromem Technologies Inc., the
Registrant's actual name.
Fiscal year ended October 31, 1998 with comparatives for the period from
September 3, 1997 (date of incorporation) to October 31, 1997
Micromem had no revenues from its inception through to the end of its
fiscal year ended October 31, 1998 except for US $2,571 in interest income.
Micromem's wholly-owned subsidiary, Pageant International, was created for the
purpose of acquiring and developing the MAGRAM(TM) Technology and during this
period its primary activities were obtaining license rights with respect to the
Technology (agreement dated September 17, 1997), acquiring an undivided 50%
interest in the MAGRAM(TM) Technology patent (assignment dated November 19,
1997) and commencing research and development activities (Research Agreement
with the University of Utah dated November 24, 1997).
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<PAGE>
Micromem expects to begin licensing the MAGRAM(TM) Technology by the
first quarter of fiscal year 2000 and expects to start realizing revenues from
these arrangements during the first nine months of fiscal year 2000. What
research and development is necessary to begin licensing has been completed by
the University of Utah under a Research Agreement dated as of November 24, 1997,
and ending December 31, 1999, for which the University is being paid a basic fee
totaling US $282,549. As of November 15, 1999, an additional US $363,810 had
been earned by the University of Utah for supplemental work approved by
Micromem's management, for a total of US $646,359. Of this amount, US $50,000
was paid during Micromem's fiscal year ended October 31, 1998. Micromem expects
to do additional research and development work in the future with respect to the
MAGRAM(TM) Technology, either on its own to adapt the technology to meet the
needs of particular industries or together with licensees to further adapt the
technology to their special uses. At this time Micromem is unable to estimate
how much such research and development will cost or the extent to which it will
be paid by Micromem's licensees.
Total expenses during the fiscal year ended October 31, 1998 totaled US
$529,274. Of this amount, US $176,012 (33.3%) was for travel and entertainment
expenses incurred in negotiating the acquisition of the technology, raising the
capital for the acquisition and coordinating operations among the Pageant
International offices in the Turks & Caicos Islands, the Pageant USA offices in
Santa Fe, New Mexico, and the research headquarters at the University of Utah in
Salt Lake City, Utah. Professional fees during this period totaled US $166,182
(31.4%), representing primarily legal and accounting expenses incurred in
connection with forming the enterprise, acquiring the technology, obtaining
patent protection, and negotiating license rights and the Research Agreement
with the University of Utah.
Other expenses incurred during the fiscal year ended October 31, 1998
included US $81,457 (15.4%) for wages and salaries, US $50,872 (9.6%) for
administrative expenses and US $50,000 (9.4%) for development expenses. As noted
above, the US $50,000 in development expenses was the first installment (17.7%)
of the US $282,549 payable to the University of Utah under the Research
Agreement dated November 24, 1997, and ending December 31, 1999. As of November
15, 1999, the work of the University of Utah had been substantially completed
and a total of US $516,359 due under the Research Agreement had been paid.
Micromem expects that the an additional US $130,000 outstanding will be paid on
or before December 31, 1999.
Depreciation on fixtures and equipment for the fiscal year ended
October 31, 1998 totaled US $4,751 (0.9% of total expenses). Depreciation was
calculated using the straight-line method to write off the cost of the fixtures
and equipment over their estimated useful lives of three years.
Micromem had unrealized gain on foreign exchange during the fiscal year
ended October 31, 1998 of US $26,961. This gain results from the effect of
exchange rates on advances made by shareholders in Canadian dollars and held by
Micromem in Canadian dollar denominated bank accounts. Such advances were
interest-free and unsecured, and had no fixed repayment date. As of October 31,
1998, shareholder advances of US $625,177 were outstanding, of which US $594,032
were held in Canadian dollars and US $31,145 were held in United States dollars.
Micromem incurred a net loss of US $499,742 for the year ended October
31, 1998, as compared to a net loss of US $1,250 for the period ended October
31, 1997. Micromem is still in the development stage and has generated no
revenues from its operations.
Six Months Ended April 30, 1999 compared to Six Months Ended April 30, 1998
The six months ended April 30, 1999 include consolidated financial
information for Pageant International and for Micromem starting January 11,
1999, the date of the acquisition. All financial information prior to that date
in the two periods being compared is that of Pageant International alone since
the acquisition is being treated as a reverse purchase acquisition (reverse
takeover) for accounting purposes.
Micromem had no operating revenue in either period, its only activities
being the acquisition of the rights to the MAGRAM(TM) Technology, and subsequent
research and development. Its only income during those periods
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<PAGE>
were for US $1,156 interest earned in the six months ended April 30, 1999 and US
$747 of interest earned in the six months ended April 30, 1998.
Costs and expenses increased 676.2% to US $2,025,959 in the six months
ended April 30, 1999 from US $261,007 in the period ended April 30, 1998.
The largest component by far of this change was the US $1,268,387
ascribed to compensation in the six months ended April 30, 1999 as contrasted
with the six months ended April 30, 1998 when no compensation costs were
recorded. The compensation amount for the six months ended April 30, 1999
primarily reflects payments to 275311 Ontario Inc., or its assignee 164189
Canada Inc., each being a corporation controlled by Sam Fuda, Chairman of
Micromem, under a one-year consulting/management agreement ending December 31,
1999, and to Mast Holdings (Bermuda) Ltd., a company controlled by Robert
Patterson, President and Chief Executive Officer of Micromem, under a one-year
consulting/management agreement in effect from March 9, 1999 to March 10, 2000.
(See "Compensation of Directors and Officers" for a discussion of the two
consulting/management agreements.)
In addition, development expenses increased 428.8%, to US $264,396 in
the six months ended April 30, 1999 from US $50,000 in the six months ended
April 30, 1998. Professional fees increased 69.6% to US $146,412 for the six
months ended April 30, 1999 from US $86,339 for the six months ended April 30,
1998 reflecting primarily the legal and accounting fees resulting from the
acquisition, work with respect to licensing the technology and perfecting patent
protection, and the commencement of Micromem's efforts to meet the requirements
for eligibility as a reporting company under the US securities laws.
Wages and salaries increased 230.3% to US $94,778 for the six months
ended April 30, 1999 from US $28,695 for the six months ended April 30, 1998 and
administration expenses increased 223.6% to US $74,220 from US $22,932, in each
case reflecting Micromem's expansion and the addition of the office in Toronto.
Micromem had an unrealized loss on foreign exchange for the six months
ended April 30, 1999 of US $19,867 as compared to a loss of US $4,206 for the
six months ended April 30, 1998, due to the effect of exchange rates on advances
made by shareholders in Canadian dollars and held in Canadian dollar denominated
bank accounts. As of April 30, 1999, shareholder advances of US $858,423 were
outstanding, of which US $564,032 were held in Canadian dollars and US $224,252
were held in United States dollars.
During the six months ended April 30, 1999 Micromem had a loss on sale
of investment in other companies of US $54,606 resulting from the sale on
January 27, 1999 of 325,000 shares of Ontex Resources Limited at an aggregate
sales price of US $233,641. Micromem had no such loss for the comparable period
in 1998. The Ontex stock had been acquired by the pre-acquisition Micromem
Technologies Inc. (formerly AvantiCorp International Inc.), which is legally
considered the acquired company. As a result, the Ontex stock is not reflected
in any financial information included in the selected financial data that is
earlier than January 11, 1999, the date of the acquisition. Ontex is a mining
company as was AvantiCorp International Inc., and the sale of the Ontex stock
reflects the intention of Micromem to focus its resources on the development of
its technology. The loss was an accounting loss. Micromem's investment in Ontex
had been carried at CDN $180,000 (US $116,640) as reflected in its October 31,
1998 financial statements, but was marked to market as of January 11, 1999
consistent with reverse takeover accounting practices, market being CDN $435,500
(US $289,273) based on a market price of CDN $1.34 (US $0.89) for a share of
Ontex common stock on such date, resulting in a gain of CDN $338,000 (US
$224,510).
During the six months ended April 30, 1999, Micromem also wrote down
its investment in Alliance Resources PLC, a publicly traded company, by US
$36,072 from US $83,224 to US $47,152 to reflect the quoted market price of the
company's stock. Micromem took the writedown following a determination that the
decline in the market price of the stock was due to factors that were other than
temporary.
Amortization on fixtures and equipment increased 286.7% to US $5,425
for the six months ended April 30, 1999 from US $1,403 for the six months ended
April 30, 1998.
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Micromem had a net loss for the six months ended April 30, 1999 of US
$2,024,803 or US $0.06 per share, an increase of 678.0% over the net loss of US
$260,260 or US $0.01 per share for the six months ended April 30, 1998. As of
April 30, 1999, Micromem had a cumulative deficit of US $2,525,795 or US $0.08
per share.
Liquidity
Micromem currently has no cash flow from operations and will have none
until it is in a position to either license or directly produce and sell its
products utilizing MAGRAM(TM) Technology. The researchers of the University of
Utah who were hired by Micromem to complete the research on the technology have
produced working prototype 8-bit technology evaluation samples which are being
used in negotiations with prospective licensees. Meanwhile the financing of
Micromem's activities has come primarily from shareholder advances of US
$625,117 during fiscal year 1998 and US $160,757 during the six months ended
April 30, 1999. These advances were interest free and unsecured, and had no
fixed repayment date. A second source of financing was the sale of Common
Shares, which totaled US $291,627 during the six months ended April 30, 1999,
and the sale of Micromem's investment in Ontex Resources Limited for US $233,641
on January 27, 1999.
Micromem currently has no lines of credit in place and must obtain
financing from investors and from persons who hold outstanding options and
Warrants in order to meet its cash flow needs before it begins receiving
revenues from licensing or direct sales. In May 1999 Micromem completed an arm's
length private placement with Exterland Corporation in Lugano, Switzerland, of
350,000 Common Shares at US $3.00 per share, from which Micromem received
proceeds of US $1,050,000. The US $3.00 per share price was below the then
market value, reflecting the 18 month restriction on transfer imposed on the
purchaser under Ontario securities law.
Micromem currently has outstanding Warrants for the purchase of
[879,324] Common Shares at CDN $2.00 per share until January 11, 2000 and at CDN
$2.30 per share for the twelve months thereafter. These exercise prices are
materially below the current sales price of a Common Share (CDN $5.496 or US
$3.750 per share at November 15, 1999). Micromem also has granted options for
the purchase of 1,000,000 Common Shares to Sam Fuda, Chairman of Micromem and a
Director, at an exercise price of US $3.00 per Common Share, pursuant to the
Micromem Technologies Inc. 1999 Stock Option Plan as part of a compensation
package for Mr. Fuda. The options expire January 23, 2009. Mr. Fuda exercised
options for the purchase of 100,000 Common Shares on each of October 1, 1999 and
November 4, 1999, bringing an additional $600,000 to Micromem. It is expected
that Mr. Fuda will exercise the balance of these options as and when Micromem
requires funding. Neither Mr. Fuda nor any of the holders of Warrants, however,
has any obligation to exercise, and there can be no assurance that Micromem will
realize funds from any of these sources.
Reconciliation of US GAAP and IAS GAAP or Canadian GAAP
There are no material differences between the presentation of the
financial statements appearing in this registration statement in accordance with
International Accounting Standards or Canadian GAAP, as the case may be, and
their presentation had they been prepared in accordance with United States
Generally Accepted Accounting Principles.
Impact of SFAS 131 and SFAS 133
Micromem is not affected by the provisions of either SFAS 131 or SFAS
133. Micromem is still in a development stage and has not yet commenced
operations. It is anticipated that Micromem will operate as a reportable segment
and that therefore the provisions of SFAS 131 will not have an impact. SFAS 133
does not apply because Micromem does not now and does not expect in the future
to deal in derivative contracts.
MAGRAM(TM) Technology
The primary asset of Micromem is its undivided 50% interest in the
patent for the MAGRAM(TM) Technology, which it holds through its wholly-owned
subsidiary Pageant Technologies Incorporated ("Pageant
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<PAGE>
International"). Pageant International acquired its interest by means of a
patent assignment from Ataraxia Corp. Pageant International also received an
assignment from Ataraxia Corp. of its entire interest in a license agreement
with Estancia Limited and, if Pageant International were to be in breech of its
obligations under the license agreement, the 50% interest and all related
intellectual property rights would revert back to Estancia Limited. Management
believes, however, that the risk of the patent reverting to Estancia Limited is
low, since the license agreement contains no minimum performance criteria and
since the other obligations of Pageant International under the license agreement
(a minimal initial payment, financing of the research at the University of Utah
and the marketing, sales licensing and manufacturing of the technology, and the
payment of 40% royalties based on net sales) have either been performed or are
well within Micromem's and Pageant International's capabilities.
Year 2000 Compliance
Many older computer software programs refer to years in terms of their
final two digits only. This simple problem, which could, for example, cause a
computer to interpret 2000 as the year 1900, has the potential to cause a
company serious harm. Date related failures or miscalculations could disrupt a
company's operations, including its research and development activities,
information technology systems, and even, in extreme cases, could cause its
business to shut down entirely. Even if a company has taken great care to
eliminate all year 2000 problems in its own operations it still could face
serious damage to its business if such a problem were to disrupt the business of
a key customer or supplier.
Since at this time Micromem has no revenue generating operations and no
reliance on computerized systems for its operations, it believes it is unlikely
to face any year 2000 problem that would have a material financial impact on it.
Management believes that Micromem is ready to face, and can easily remediate,
any year 2000 problem that does arise with respect to its operations. Micromem
to date has not incurred, and in the future is unlikely to incur, any
replacement or remediation costs for equipment or systems as a result of a year
2000 problem.
The biggest potential problem Micromem faces within its own operations
concerns the research facility in Utah which it expects to begin using when
construction is completed and the facility is approved by Micromem, which is
expected to happen prior to the end of December 1999. The facility and most of
the equipment being supplied by the manager of the facility are new and are
expected to be free of year 2000 defects, and the vendors have confirmed to
either Micromem or the manager of the facility that the equipment is year 2000
compliant. Even if a problem were to arise, however, management is reasonably
certain that, since the program will still be in its early stages, Micromem
should be able to conduct the necessary research, development and fabrication
activities using other readily available equipment or at other locations until
the problem is corrected.
At this time Micromem's only significant supplier is the University of
Utah. The Research Agreement with the University of Utah terminates December 31,
1999 and most of the work under the contract has been concluded. Therefore,
Micromem believes that there are no year 2000 problems with respect to any of
its suppliers that would cause a material disruption of its operations.
While no formal contingency plan has been developed with respect to
either the research facility in Utah or the Research Agreement with the
University of Utah, management believes that Micromem is ready to face any year
2000 problems that do arise and should be able to continue its research and
development activities.
Micromem has begun negotiations with potential licensees, but as of yet
none have been concluded. Micromem is taking the potential for year 2000
problems into consideration in those negotiations, and intends to continue doing
so.
Capital Resources
Micromem had no material commitments for capital expenditures as of
October 31, 1998 or April 30, 1999.
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<PAGE>
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The Directors, Executive Officers and other key personal of Micromem as
at September 10, 1999 are set forth below:
Name Age Position
---- --- --------
Robert Patterson 51 President and Chief Executive Officer
Sam Fuda 64 Chairman of the Board of Directors
Ross McGroarty 60 Executive Vice President and Secretary, Director
Antonio Lopes 36 Chief Financial Officer
Stephen Fleming 53 Director
Robert Patterson has served as the President and Chief Executive
Officer of Micromem since March 18, 1999. In 1997 he was one of the founders of
Pageant USA and served as that company's Chairman of the Board and Vice
President of Corporate Development until its acquisition by Micromem in January
1999. From 1995 to 1997 he served as Vice President of Corporate Development for
SGL International, Inc.
Sam Fuda has served as Chairman of the Board of Micromem since January
11, 1999 and a Director of Micromem since 1992. From 1992 to January 11, 1999 he
also served as Secretary of Micromem. He served as President and Chief Executive
Officer of Ontex Resources Limited from 1986 to December 1998 and as Chairman of
the Board of Ontex Resources Limited since that date.
Ross McGroarty was elected Executive Vice President and Secretary of
Micromem on January 11, 1999. For ten years prior to that he served Micromem as
President. He has been a director of both Micromem and Ontex Resources Limited
since 1988.
Antonio Lopes was appointed Chief Financial Officer of the Company on
October 15, 1999. He also has been serving as Controller and Chief Financial
Officer of Federal White Cement Limited, a privately held corporation, since
1993, and prior to that was a Senior Accountant at Ernst & Young from 1989 to
1993.
Stephen Fleming was elected a Director of Micromem on January 11, 1999
following the ratification by Micromem's shareholders of the acquisition of
Pageant International, and served as President and Chief Executive Officer of
Micromem from January 11, 1999 to March 18, 1999. He has served as President and
Chief Executive Officer of Pageant USA since 1997 and President of SGL
International Inc., a company he co-founded that is engaged in technology
development, since 1996. From 1990 to 1995 he served as Senior Vice President
for International Technology Development of International Ion Incorporated.
There are no arrangements or understandings between any director and
any other person pursuant to which the director was selected as a director or
executive officer. There is no family relationship between any director or
executive officer and any other director or executive officer.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation paid by Micromem and its
subsidiaries during Micromem's last fiscal year to all directors and officers as
a group for services in all capacities was $24,000, all of which was paid to
Ross McGroarty in his capacity as President.
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<PAGE>
Pursuant to a verbal agreement between Micromem and Ross McGroarty,
Executive Vice-President and Secretary of Micromem, Mr. McGroarty received a
salary of CDN $5,000 per month from February through April 1999.
On January 25, 1999, as part of a compensation package for Sam Fuda,
Micromem granted Mr. Fuda options to purchase, prior to January 25, 2009, up to
1,000,000 Common Shares at a price per share of US $3.00 pursuant to the
Micromem Technologies Inc. 1999 Stock Option Plan.
Pursuant to a consulting agreement between 275311 Ontario Inc., a
corporation controlled by Sam Fuda, Chairman and a director of Micromem, and
Micromem dated as of January 29, 1999, Micromem retained 275311 Ontario Inc. to
provide certain consulting and management services during the period from
January 1, 1999 through to December 31, 1999, including assisting and advising
Micromem's Board of Directors and senior management in negotiations with
prospective purchasers, manufacturers and licensees of the MAGRAM(TM)
Technology, overseeing Micromem's compliance with corporate and securities
regulations in Canada and those of any trading system or stock exchange on which
Micromem's shares may become listed, retaining and instructing Micromem's
professional advisers, including its legal counsel and auditors, providing
advice to Micromem's Board of Directors and senior management with respect to
structuring of Micromem's equity funding by private placement and/or public
offering and providing introductory services to the financial and investment
community in Toronto, and managing a corporate office of Micromem to be situated
in Toronto during the period from January 1, 1999 through to December 31, 1999.
The interest of 275311 Ontario Inc. in the agreement has been assigned
to 164189 Canada Limited ("FudaCo"), a corporation controlled by Mr. Fuda, and
FudaCo has assumed all of 275311 Ontario Inc.'s obligations under the agreement.
As a result, FudaCo will render the services contracted for under the agreement
and FudaCo will be paid fees on a quarterly basis, in form of cash or Common
Shares, at the option of Micromem, under the agreement. If Micromem elects to
pay the fees through quarterly issuances of Common Shares, then the number of
shares to be issued to FudaCo, quarterly, would be calculated as the product of
0.3125% of the simple average of the number of shares of Micromem that were
outstanding on the last day of each month during a quarter (the "Average
Outstanding"). If Micromem elects to pay the fees through quarterly cash
payments to FudaCo, then the amount of such fees would be calculated as the
product of 0.3125% of the Average Outstanding multiplied by the simple average
of the daily close price of Micromem's Common Shares during the quarter.
Pursuant to a consulting agreement between Mast Holding (Bermuda) Ltd.
("Mast"), a Bermuda corporation, and Micromem dated March 10, 1999, Micromem
retained Mast to provide certain consulting and management services, to be
rendered by Robert Patterson, during the period from March 9, 1999 to March 10,
2000. The services to be rendered under the agreement include the services of
Mr. Patterson as the President and Chief Executive Officer of Micromem. Under
the agreement, Mast will be paid fees on a quarterly basis, in the form of cash
or Common Shares at the option of Micromem. If Micromem elects to pay the fees
through quarterly issuances of Common Shares, then the number of shares to be
issued quarterly would be calculated as the product of 0.3125% of the simple
average of the number of shares of Micromem that were outstanding on the last
day of each month during a quarter (the "Average Outstanding"). If Micromem
elects to pay the fees through quarterly cash payments, then the amount of such
fees would be calculated as the product of 0.3125% of the Average Outstanding
multiplied by the simple average of the daily close price of Micromem's Common
Shares during the quarter.
The issuance of Common Shares under both the agreement with 275311
Ontario Inc. and the agreement with Mast Holding (Bermuda) Ltd. (the "Consulting
Agreements") is conditioned on approval being obtained by Micromem from its
shareholders, failing which Micromem is required to pay the cash equivalent of
the fees under each of the agreements. Micromem's Board of Directors has already
given its approval to the issuance of Common Shares under the two Consulting
Agreements. If Micromem's shareholders fail to approve the issuance of Common
Shares under the Consulting Agreements, or if Micromem elects to make payments
under the Consulting Agreements in cash, the amount of cash compensation that
each consultant would receive would depend on (i) the average number of Micromem
Common Shares outstanding each quarter during the term of a consultant's
Consulting Agreement determined by taking the simple average of the number of
Common Shares outstanding on
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<PAGE>
the last day of each month during each such quarter, and (ii) the average daily
closing price of Micromem Common Shares for each such quarter.
Following are tables giving examples of the amount of cash that each
consultant would receive if Micromem Common Shares had an average daily closing
price of (i) US $4, (ii) US $5, (iii) US $6, or (iv) US $7 during the months
from September 1999 through to the end of each Consulting Agreement. For
purposes of determining the Average Number of Shares Outstanding it was assumed
that the options granted to Mr. Fuda for the purchase of 1,000,000 Common Shares
were fully exercised before the end of January 1999 and that no additional
Common Shares were issued by Micromem after November 10, 1999. For ease of
computation, it has also been assumed that the Consulting Agreement with Mast
Holding (Bermuda) Ltd. began March 1, 1999 rather than March 9, 1999.
<TABLE>
<CAPTION>
164189 Canada Limited
(275311 Ontario Inc.)
(US Dollars)
Ave. No.
Quarter Ended Shares Per Total Per Total Per Total Per Total
Outstanding Share Share Share Share
------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1999 35,984,810 $3.98 $447,561 $3.98 $447,561 $3.98 $447,561 $3.98 $447,561
June 30, 1999 37,323,594 $6.17 $719,646 $6.17 $719,646 $6.17 $719,646 $6.17 $719,646
September 30, 1999 37,451,319 $4.00 $468,141 $5.00 $585,177 $6.00 $702,212 $7.00 $819,248
December 31, 1999 37,451,319 $4.00 $468,141 $5.00 $585,177 $6.00 $702,212 $7.00 $819,248
-------- -------- -------- --------
$2,103,490 $2,337,560 $2,571,631 $2,805,702
========== ========== ========== ==========
Mast Holdings (Bermuda) Ltd.
(US Dollars)
Ave. No.
Quarter Ended Shares Per Total Per Total Per Total Per Total
Outstanding Share Share Share Share
------------------ ------------------- ------------------ -------------------
May 31, 1999 37,170,868 $6.50 $755,033 $6.50 $755,033 $6.50 $755,033 $6.50 $755,033
August 30, 1999 37,451,319 $4.80 $561,770 $4.80 $561,770 $4.80 $561,770 $4.80 $561,770
November 30, 1999 37,451,319 $4.00 $468,141 $5.00 $585,177 $6.00 $702,212 $7.00 $819,248
February 29, 2000 37,451,319 $4.00 $468,141 $5.00 $585,177 $6.00 $702,212 $7.00 $819,248
-------- -------- -------- --------
$2,253,086 $2,487,157 $2,721,228 $2,955,298
========== ========== ========== ==========
</TABLE>
If Micromem's shareholders approve the issuance of Common Shares under
the Consulting Agreements and if Micromem elects to make payments under the
Consulting Agreements in Common Shares, the number of Common Shares that each
consultant would receive would depend on the average number of Micromem Common
Shares outstanding each quarter during the term of a consultant's Consulting
Agreement determined by taking the simple average of the number of Common Shares
outstanding on the last day of each month during each such quarter.
Following is a table giving an example of the number of Common Shares
that each consultant would receive assuming that Micromem issued no more Common
Shares from the date of this registration statement to the end of each
Consulting Agreement except for those Common Shares required to be issued to the
consultants under the Consulting Agreements. Each table assumes for the purpose
of determining the Common Shares Outstanding (Average) that (i) the options for
the purchase of 1,000,000 Common Shares granted to Mr. Fuda were fully exercised
prior to the end of January 1999, (ii) the Common Shares issued pursuant to each
Consulting Agreement increased the number of Common Shares outstanding as of the
last day of the three month period with respect to which they were issued, and
(iii) no other Common Shares were issued by Micromem after November 10, 1999.
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<PAGE>
<TABLE>
<CAPTION>
164189 Canada Limited
(275311 Ontario Inc.)
(US Dollars)
Common Shares
Quarter Ended Outstanding (Average) Total Received % of Total
------------- --------------------- -------------- ----------
<S> <C> <C> <C>
March 31, 1999 35,984,810 112,453 0.31%
June 30, 1999 36,810,181 115,032 0.31%
September 30, 1999 37,373,232 116,791 0.31%
December 30, 1999 37,606,816 117,521 0.31%
------- -----
461,797 1.25%
======= =====
Mast Holding (Bermuda) Ltd.
(US Dollars)
Common Shares
Quarter Ended Outstanding (Average) Total Received % of Total
------------- --------------------- -------------- ----------
May 31, 1999 36,401,445 113,755 0.31%
August 31, 1999 37,296,038 116,550 0.31%
November 30, 1999 37,528,793 117,277 0.31%
February 29, 2000 37,763,349 118,010 0.31%
------- -----
465,593 1.25%
======= =====
</TABLE>
Based on the unaudited balance sheet of Micromem at April 30, 1999, the
net tangible book value per Common Share was CDN $(0.05). In the example set
forth in the table above, it is assumed that as of February 29, 2000, after the
two Consulting Agreements have terminated, (i) the total number of Common Shares
outstanding will be 37,920,523, (ii) a total of 927,390 Common Shares, or 2.45%
of the then outstanding Common Shares, will have been issued under the two
Consulting Agreements, (iii) 1,000,000 Common Shares, or 2.64% of the then
outstanding Common Shares, will have been issued to Sam Fuda upon exercise of
his options, (iv) Micromem will have received CDN $4,500,000 from Mr. Fuda upon
exercise of his options, and (v) no change will have occurred in the financial
position of Micromem from April 30, 1999. Based on such table and assumptions,
the net tangible book value per Common Share at February 29, 2000 would be CDN
$(0.05) as compared to CDN $(0.07) prior to the issuance of the Common Shares
under the Consulting Agreements, representing a dilution per Common Share of
(170.27%).
Directors of Micromem receive CDN $500 and expenses for each meeting of
the Board of Directors or committee of the Board of Directors they attend.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT
Warrants for the purchase of 879,324 shares, issued as part of the
purchase price for Pageant International, were outstanding on November 15, 1999.
Each warrant entitles its holder to purchase one Common Share at a purchase
price of CDN $2.00 through January 11, 2000, and CDN $2.30 from January 12, 2000
through January 12, 2001, at which time the warrants expire. No warrants are
held by any directors or officers of Micromem.
On January 25, 1999, Micromem granted Sam Fuda options to purchase,
prior to January 25, 2009, up to 1,000,000 Common Shares at a price per share of
US $3.00, pursuant to the Micromem Technologies Inc. 1999 Stock Option Plan. Mr.
Fuda exercised options for the purchase of 100,000 Common Shares at an aggregate
purchase price of US $300,000 on each of October 1, 1999 and November 4, 1999,
leaving options for a balance of 800,000 Common Shares outstanding.
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<PAGE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
During the past three fiscal years and to the date of this registration
statement, there have been no material transactions in which Micromem or any of
its subsidiaries was a party, and in which any director or officer of Micromem
had a direct or indirect material interest, except as set forth below.
Pursuant to a consulting agreement between 275311 Ontario Inc., a
corporation controlled by Sam Fuda, Chairman and a director of Micromem, and
Micromem dated as of January 29, 1999, Micromem retained 275311 Ontario Inc. to
provide certain consulting and management services during the period from
January 1, 1999 through to December 31, 1999, including assisting and advising
Micromem's Board of Directors and senior management in negotiations with
prospective purchasers, manufacturers and licensees of the MAGRAM(TM)
Technology, overseeing Micromem's compliance with corporate and securities
regulations in Canada and those of any trading system or stock exchange on which
Micromem's shares may become listed, retaining and instructing Micromem's
professional advisers, including its legal counsel and auditors, providing
advice to Micromem's Board of Directors and senior management with respect to
structuring of Micromem's equity funding by private placement and/or public
offering and providing introductory services to the financial and investment
community in Toronto, and managing a corporate office of Micromem to be situated
in Toronto during the period from January 1, 1999 through to December 31, 1999.
The interest of 275311 Ontario Inc. in the agreement has been assigned
to 164189 Canada Limited ("FudaCo"), a corporation controlled by Mr. Fuda, and
FudaCo has assumed all of 275311 Ontario Inc.'s obligations under the agreement.
As a result, FudaCo will render the services contracted for under the agreement
and FudaCo will be paid fees on a quarterly basis, in form of cash or Common
Shares, at the option of Micromem, under the agreement. If Micromem elects to
pay the fees through quarterly issuances of Common Shares, then the number of
shares to be issued to FudaCo, quarterly, would be calculated as the product of
0.3125% of the simple average of the number of shares of Micromem that were
outstanding on the last day of each month during a quarter (the "Average
Outstanding"). If Micromem elects to pay the fees through quarterly cash
payments to FudaCo, then the amount of such fees would be calculated as the
product of 0.3125% of the Average Outstanding multiplied by the simple average
of the daily close price of Micromem's Common Shares during the quarter. See
"ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS".
Pursuant to a consulting agreement between Mast Holding (Bermuda) Ltd.
("Mast"), a Bermuda corporation, and Micromem dated March 10, 1999, Micromem
retained Mast to provide certain consulting and management services, to be
rendered by Robert Patterson, during the period from March 9, 1999 to March 10,
2000. The services to be rendered under the agreement include the services of
Mr. Patterson as the President and Chief Executive Officer of Micromem. Under
the agreement, Mast will be paid fees on a quarterly basis, in the form of cash
or Common Shares at the option of Micromem. If Micromem elects to pay the fees
through quarterly issuances of Common Shares, then the number of shares to be
issued quarterly would be calculated as the product of 0.3125% of the simple
average of the number of shares of Micromem that were outstanding on the last
day of each month during a quarter (the "Average Outstanding"). If Micromem
elects to pay the fees through quarterly cash payments, then the amount of such
fees would be calculated as the product of 0.3125% of the Average Outstanding
multiplied by the simple average of the daily close price of Micromem's Common
Shares during the quarter. See "ITEM 11. COMPENSATION OF DIRECTORS AND
OFFICERS".
The issuance of Common Shares under both the agreement with 275311
Ontario Inc. and the agreement with Mast Holding (Bermuda) Ltd. (the "Consulting
Agreements") is conditioned on approval being obtained by Micromem from its
shareholders, failing which Micromem is required to pay the cash equivalent of
the fees under each of the agreements. Micromem's Board of Directors has already
given its approval to the issuance of Common Shares under the two Consulting
Agreements. If Micromem's shareholders fail to approve the issuance of Common
Shares under the Consulting Agreements, or if Micromem elects to make payments
under the Consulting Agreements in cash, the amount of cash compensation that
each consultant would receive would depend on (i) the average number of Micromem
Common Shares outstanding each quarter during the term of a consultant's
Consulting Agreement determined by taking the simple average of the number of
Common Shares outstanding on
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<PAGE>
the last day of each month during each such quarter, and (ii) the average daily
closing price of Micromem Common Shares for each such quarter.
Pageant USA has negotiated with Clear Blue Laboratories, Inc. ("Clear
Blue") an agreement for the joint use with three other companies of a specially
designed research and manufacturing facility currently being completed at the
University of Utah's Research Park in Salt Lake City. The agreement will not be
executed until the facility has been completed and approved by Micromem, which
is expected to happen prior to the end of December 1999. Clear Blue's lease is
for a period of five years ending May 31, 2004, renewable for an additional
five-year period. Clear Blue is controlled by Hugh G. O'Neill, who also controls
Ataraxia Corp., which owned substantially all of the capital stock of Pageant
International before its acquisition by Micromem and currently owns
approximately 10.7% of Micromem's Common Shares. See "ITEM 1. DESCRIPTION OF
BUSINESS - PLAN OF OPERATION - Production".
During the past three years, no relatives, spouses or relatives of
spouses of officers or directors were involved in material transactions with
Micromem, and no such transaction is currently proposed.
During the past three fiscal years and the current fiscal year, no
officer or director and no associate of any officer or director, has been
indebted to Micromem.
Part II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
The authorized capital of Micromem consists of an unlimited number of
common shares ("Common Shares"), of which 36,651,319 shares were issued and
outstanding as of November 15, 1999, and 2,000,000 special, redeemable, voting
preference shares ("Special Shares"), none of which is outstanding as of the
date hereof.
Holders of Common Shares will be entitled to receive notice of, attend
and vote at all meetings of the shareholders of Micromem. Each Common Share
carries one vote at such meetings. In the event of the voluntary or involuntary
liquidation, dissolution or winding-up of Micromem, after payment of all
outstanding debts, the remaining assets of Micromem available for distribution
will be distributed to the holders of Common Shares. Dividends may be declared
and paid on the Common Shares in such amounts and at such times as the directors
shall determine in their discretion in accordance with the Business Corporations
Act (Ontario) (the "Business Corporations Act"). There are no pre-emptive
rights, conversion rights, redemption provisions or sinking fund provisions
attaching to the Common Shares. Common Shares are not liable to further calls or
to assessment by Micromem; provided, however, that pursuant to the provisions of
the Business Corporations Act, Micromem has a lien on any Common Share
registered in the name of a shareholder or the shareholder's legal
representative for a debt owed by the shareholder to Micromem.
Holders of Special Shares are entitled to receive notice of, attend and
vote at all meetings of the shareholders of Micromem. Each Special Share carries
one vote at such meetings. In the event of the voluntary or involuntary
liquidation, dissolution or winding-up of Micromem, after payment of all
outstanding debts, the holders of the Special Shares shall be entitled to
receive, before any distribution of any part of the assets of Micromem among the
holders of any other shares, the amount paid up on the Special Shares. The
Special Shares are redeemable at the option of Micromem for the amount paid up
on the shares. Dividends may not be declared or paid on the Special Shares and
transfer of the Special Shares is restricted without the approval of the
Directors of Micromem and the prior written consent of the Ontario Securities
Commission. The number of Special Shares that may be issued and outstanding at
any time is limited to 500,000. There are no pre-emptive rights, conversion
rights or sinking fund provisions attaching to the Special Shares. Special
Shares are not liable to further calls or to assessment by Micromem; provided,
however, that pursuant to the provisions of the Business Corporations Act,
Micromem has a lien on any Special Share registered in the name of a shareholder
or the shareholder's legal representative for a debt owed by the shareholder to
Micromem.
-34-
<PAGE>
The by-laws of Micromem provide that two persons present in person and
entitled to vote at any meeting of Shareholders shall constitute a quorum for
the transaction of business at such meeting.
There is no restriction on the repurchase or redemption of shares by
Micromem while there is an arrearage in the payment of dividends.
Part IV
ITEM 17. FINANCIAL STATEMENTS
The financial statements required by Item 17 are listed in the Index to
Financial Statements appearing on Page A-1.
ITEM 18. FINANCIAL STATEMENTS
Not applicable
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
See the Index to Financial Statements on page A-1 of the financial
statements filed as part of this registration statement as Attachment A hereto.
(b) Exhibits:
The following exhibits are filed as part of this registration statement
as Attachment B hereto:
Exhibit No. 1.1 Articles of Incorporation as currently in
effect
Exhibit No. 1.2 By-Laws as currently in effect
Exhibit No. 3.1 Letter Agreement dated December 7, 1998
among Micromem, Ataraxia Corp. and Pageant
Technology Inc. relating to the purchase by
Micromem of all of the stock of Pageant
Technology Inc.
Exhibit No. 3.2 Assignment of MAGRAM(TM)Technology patent
from Richard Lienau to Estancia Limited
dated November 18, 1997
Exhibit No. 3.3 Assignment of undivided 50% interest in
MAGRAM(TM)Technology patent from Estancia
Limited to Ataraxia Corp. dated November 19,
1997
Exhibit No. 3.4 Assignment of undivided 50% interest in
MAGRAM(TM)Technology patent from Ataraxia
Corp. to Pageant Technologies Incorporated
dated November 19, 1997
-35-
<PAGE>
Exhibit No. 3.5 Agreement with respect to Joint Ownership
and Certain License Rights dated September
17, 1997 between Richard M. Lienau and
Estancia Limited, and Ataraxia Corp.
Exhibit No. 3.6 Assignment of September 17, 1997 agreement
by Ataraxia Corp. to Pageant Technologies
Inc.
Exhibit No. 3.7 Research Agreement dated November 24, 1997
by and between Pageant Technologies (USA)
Inc. and the University of Utah
Exhibit No. 3.8 Letter Agreement dated February 1, 1999
extending November 24, 1997 Research
Agreement to December 31, 1999
Exhibit No. 3.9 Consulting Agreement dated as of January 29,
1999 between 275311 Ontario Inc. and
Micromem Technologies Inc. for the services
of Sam Fuda
Exhibit No. 3.10 Consulting Agreement dated as of March 10,
1999 between Mast Holding (Bermuda) Ltd. and
Micromem for the services of Robert
Patterson
Exhibit No. 3.11 Lease dated January 16, 1998, for the
Pageant Technologies Inc. office in Santa
Fe, New Mexico
Exhibit No. 3.12 Consent dated September 2, 1999 of Business
Equity Appraisal Reports, Inc. ("Bear")
Exhibit No. 3.13 Agreement dated April 27, 1999 for the sale
to Exterland Corporation of 350,000 Common
Shares at a price of US $3.00 per share
Exhibit No. 3.14 Form of Warrant Certificate for the Warrants
issued January 11, 1999
Exhibit No. 3.15 Micromem Technologies Inc. 1999 Stock Option
Plan
-36-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
MICROMEM TECHNOLOGIES INC.
By:
-------------------------------------
Name: Sam Fuda
Title: Chairman of the Board of Directors
Dated: November 18, 1999
-37-
<PAGE>
ATTACHMENT A
------------
INDEX TO FINANCIAL STATEMENTS
Pageant Technologies Incorporated (A Development Stage Corporation)
Consolidated Financial Statements for The Year Ended October 31, 1998 A-3
And the Period from September 3, 1997 (Date of Incorporation) to
October 31, 1997 Independent Auditors' Report
Independent Auditors' Report A-4
Consolidated Balance Sheet as of October 31, 1998 and October
31, 1997 A-5
Consolidated Statement of Loss and Accumulated Deficit for
Year Ending October 31, 1998 and for the period from September A-6
3, 1997 (Date of Incorporation) to October 31, 1997
Consolidated Statement of Cash Flows for Year Ending October
31, 1998 and for the period from September 3, 1997 (Date of A-7
Incorporation) to October 31, 1997
Notes to Consolidated Financial Statements for Year Ending
October 31, 1998 And For The Period From September 3, 1997 A-8
(Date of Incorporation) to October 31, 1997
Micromem Technologies Inc. (Formerly AvantiCorp International Inc.) A
Development Stage Company Consolidated Financial Statements April 30, A-12
1999 (Unaudited)
Consolidated Balance Sheets as of April 30, 1999 and 1998 A-13
Consolidated Statements of Operations and Deficit for the Six
Months Ended April 30, 1999 and 1998, and since Inception to A-14
April 30, 1999
Consolidated Statements of Cash Flows for the Six Months Ended
April 30, 1999 and 1998, and since Inception to April 30, 1999 A-15
Notes to Consolidated Financial Statements April 30, 1999 A-17
A-1
<PAGE>
AvantiCorp International Inc. Financial Statements October 31, 1998,
1997 and 1996 A-28
Auditor's Report A-29
Balance Sheets as of October 31, 1998, 1997 and 1996 A-30
Statements of Operations and Deficit for Years Ended October
31, 1998, 1997 and 1996 A-31
Statements of Changes in Cash Position for Years Ended October
31, 1998, 1997 and 1996 A-32
Notes to Financial Statements October 31, 1998 A-33
Micromem Technologies Inc. (Formerly AvantiCorp International Inc.)
Pro-Forma Consolidated Financial Statements of Operations for the
Period Ended April 30, 1999 (Unaudited) A-39
Pro-Forma Consolidated Statement of Operations for the Period
Ended April 30, 1999 A-40
Notes to the Pro-Forma Consolidated Statement of Operations
April 30, 1999 A-41
Micromem Technologies Inc. (Formerly AvantiCorp International Inc.)
Pro-Forma Consolidated Financial Statements of Operations for the
Period Ended October 31, 1998 (Unaudited) A-43
Pro-Forma Consolidated Statement of Operations for the Period
Ended October 31, 1998 A-44
Notes to the Pro-Forma Consolidated Statement of Operations
October 31, 1998 A-45
A-2
<PAGE>
PAGEANT TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE CORPORATION)
Consolidated Financial Statements
For The Year ending October 31, 1998
And the period from September 3, 1997 (date of
Incorporation) And October 31,
1997 And Independent Auditors' Report
A-3
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE]
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
Pageant Technologies Incorporated
We have audited the consolidated balance sheets of Pageant Technologies
Incorporated, a development stage corporation, (The "Company") as of October 31,
1998 and October 31, 1997, and the consolidated statements of loss and
accumulated deficit and cash flows for the year ending October 31, 1998 and for
the period from September 3, 1997 (date of incorporation) to October 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with International Standards on Auditing
and United States Generally Accepted Auditing Standards. Those Standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion these financial statements present fairly, in all material
respects, the financial position of the Company as of October 31, 1998 and
October 31, for the year ending October 31, 1998 and for the period from
September 3, 1997 (date of incorporation) to October 31, 1997 in accordance with
International Accounting Standards.
Without qualifying our opinion we draw attention to Note 7 to the financial
statements, which states that there are no material differences between the
presentation of these financial statements in accordance with International
Accounting Standards and their presentation had they been prepared in accordance
with United States Generally Accepted Accounting Principles.
October 29, 1999
A-4
<PAGE>
PAGEANT TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 31, 1998 AND OCTOBER 31, 1997
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
1998 1997
ASSETS
CURRENT ASSETS:
Cash at Bank $ 147,063 $ --
Deposits and advances 1,523 --
--------- ---------
Total current assets 148,586 --
FIXED ASSETS (Note 3) 15,334 --
PATENTS (Note 4) 100 --
--------- ---------
TOTAL $ 164,020 $ --
========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 39,834 $ 1,249
Shareholder advances (Note 5) 625,177 --
--------- ---------
Total current liabilities 665,011 1,249
--------- ---------
SHAREHOLDER'S DEFICIT
Share capital (Note 6) 1 1
Accumulated deficit (500,992) (1,250)
--------- ---------
Total shareholder's deficit (500,991) (1,249)
--------- ---------
TOTAL $ 164,020 $ --
========= =========
A-5
<PAGE>
PAGEANT TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED STATEMENT OF LOSS AND ACCUMULATED DEFICIT FOR YEAR ENDING OCTOBER
31, 1998 AND FOR THE PERIOD FROM SEPTEMBER 3, 1997 (DATE OF INCORPORATION) TO
OCTOBER 31, 1997
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
From
inception
to October, 31
1998 1997 1998
INTEREST INCOME $ 2,571 $ -- $ 2,571
--------- --------- ---------
EXPENSES
Travel and entertainment 176,012 -- 176,012
Professional fees 166,182 1,250 167,432
Wages and salaries 81,457 -- 81,457
Administration expenses 50,872 -- 50,872
Development expenses 50,000 -- 50,000
Depreciation 4,751 -- 4,751
Total expenses 529,274 1,250 530,524
--------- --------- ---------
NET OPERATING LOSS (526,703) (1,250) (527,953)
Unrealised gain on foreign exchange 26,961 -- 26,961
--------- --------- ---------
NET LOSS (499,742) (1,250) (500,992)
ACCUMULATED DEFICIT:
BEGINNING OF YEAR (1,250) -- --
--------- --------- ---------
END OF YEAR $(500,992) $ (1,250) $(500,992)
========= ========= =========
A-6
<PAGE>
PAGEANT TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS FOR YEAR ENDING OCTOBER 31, 1998 AND FOR
THE PERIOD FROM SEPTEMBER 3, 1997 (DATE OF INCORPORATION) TO OCTOBER 31, 1997
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From
inception
to October, 31
1998 1997 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(499,742) $ (1,250) $(500,992)
Adjustments for:
Depreciation 4,751 -- 4,751
--------- --------- ---------
(494,991) (1,250) (496,241)
Increase in deposits and advances (1,523) -- (1,523)
Increase in accounts payable and accrued expenses 38,585 1,249 39,834
--------- --------- ---------
Cash used in operating activities (457,929) (1) (457,930)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (20,085) -- (20,085)
Purchase of Patent (100) -- (100)
--------- --------- ---------
Cash used in investing activities (20,185) -- (20,185)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issue of shares -- 1 1
Shareholder advances 625,177 -- 625,177
--------- --------- ---------
Cash from financing activities 625,177 1 625,178
--------- --------- ---------
NET INCREASE IN CASH 147,063 -- 147,063
CASH, BEGINNING OF YEAR -- -- --
--------- --------- ---------
CASH, END OF YEAR $ 147,063 $ -- $ 147,063
========= ========= =========
</TABLE>
A-7
<PAGE>
PAGEANT TECHNOLOGIES INCORPORATED
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDING OCTOBER 31, 1998 AND
FOR THE PERIOD FROM SEPTEMBER 3, 1997 (DATE OF INCORPORATION) TO OCTOBER 31,
1997
(Expressed in United States Dollars)
- --------------------------------------------------------------------------------
1. GENERAL
Pageant Technologies Incorporated, a development stage corporation (The
"Company") was incorporated on September 3, 1997 in The Turks and Caicos
Islands B.W.I., company number E21820. The Company acts principally as an
asset holding and development company. The Company currently does not have
any significant operating income and is therefore dependent on the
advances from its parent company to finance its day to day operations
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of Pageant Technologies Incorporated are prepared
in accordance with International Accounting Standards. The significant
accounting policies of the Company are as follows:
a. Basis of Consolidation - These consolidated financial statements
include Pageant Technologies Incorporated and its wholly owned
subsidiary, Pageant Technologies (USA) Inc., a research and
development company incorporated in the State of Utah U.S.A.
b. Patents - Patents are carried at cost less accumulated amortisation.
Amortisation of patents is calculated using the straight line method
to write them off over their estimated useful lives of 15 years
c. Foreign currency translation - The reporting currency of these
financial statements is the United States dollar. Income and
expenses in foreign currencies have been converted to United States
at the rate of exchange prevailing at date of each transaction.
Assets and liabilities denominated in foreign currencies are
converted into United States dollars at the rate of exchange
prevailing at October 31, 1998. Any resulting unrealised gains and
losses are recognised in income.
d. Fixed assets - Fixtures and equipment are carried at cost less
accumulated depreciation. Depreciation on fixtures and equipment is
calculated using the straight-line method to write them off over
their estimated useful lives of 3 years.
e. Development costs - development costs are written off in the period
in which they are incurred.
A-8
<PAGE>
f. Cash flow statements - The Company adopted International Accounting
Standard 7 "Cash Flow Statements" for its financial statements.
Under the Standard, cash equivalents are defined as short-term,
highly liquid investments with maturities of three months or less
when purchased, that are readily convertible to known amounts of
cash and are subject to an insignificant risk of changes in value.
Cash and cash equivalents are reconciled to the balance sheet; and
non-cash items are excluded from the cash flow statement.
g. Transactions with related parties - Transactions with related
parties are measured at the carrying amounts of the goods and
services being exchanged, unless such transactions are determined to
be in the normal course of operations, in which case, they are
recorded at the agreed exchange amount.
3. FIXED ASSETS
Fixed assets are made up as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
Beginning Ending
Balance Additions Disposals Balance
---------------------------------------------------------------
COST
<S> <C> <C> <C> <C>
Fixtures and Equipment $ -- $ 20,085 $ -- $ 20,085
=========== =========== =========== ===========
1998
---------------------------------------------------------------
Beginning Depreciation Ending
Balance Expense Disposals Balance
---------------------------------------------------------------
DEPRECIATION
<S> <C> <C> <C> <C>
Fixtures and Equipment $ -- $ 4,751 $ -- $ 4,751
=========== =========== =========== ===========
1998 Net movement $ -- $ 15,334 $ -- $ 15,334
=========== =========== =========== ===========
</TABLE>
4. PATENTS
The Company owns a fifty-percent interest in US patent # 5,295,097 and has
the exclusive right to develop, manufacture and sell the related products
associated with "nonvolatile random access memory". A working prototype is
being developed by the University of Utah.
At its current stage of development, the technology being developed under
the patent has an estimated market value of $30,000,000. This estimated
market value is based on a report, dated July 6, 1998, prepared by Hans P.
Schroeder, President of Business Equity Appraisal Reports, Inc. of San
Carlos California.
A-9
<PAGE>
5. SHAREHOLDER ADVANCES
The Shareholder, as a related party, advances funds periodically to meet
the cash flow requirements of the Company. These advances are
interest-free, unsecured and have no fixed repayment date. Movements
during the year were as follows:
1998 1997
Canadian Dollar
Advances $ 698,569 $ --
Repayments (66,670)
Revaluation (37,867) --
594,032 --
United States Dollar
Advances 31,145 --
Repayments -- --
31,145 --
$ 625,177 $ --
--------- --------
6. SHARE CAPITAL
The share capital of the Company is made up as follows:
1998 1997
Authorised:
5,000 ordinary shares of $1.00 each $5,000 $5,000
Issued & fully paid:
1 ordinary share of $1.00 $ 1 $ 1
====== ======
On December 4, 1998 a further 4,999 ordinary shares of US$1.00 each were
issued to the existing shareholder at par.
On January 12, 1999 the entire share capital of the company was acquired
by Micromem Technologies (formerly Avanti Corporation) for a consideration
of 32,000,000 shares.
A-10
<PAGE>
7. COMPLIANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
There are no material differences between the presentation of these
financial statements in accordance with International Accounting Standards
and their presentation had they been prepared in accordance with United
States Generally Accepted Accounting Principles.
* * * *
A-11
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
A-12
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED BALANCE SHEETS
(Expressed in United States Dollars)
(Unaudited)
April 30,
<TABLE>
<CAPTION>
1999 1998
ASSETS
<S> <C> <C>
Current assets
Cash $ 190,595 $ 162,951
Deposits and other receivables (note 2) 77,841 2,615
Prepaid expenses 2,497 --
----------- -----------
270,933 165,566
Investment in other companies (note 3) 47,152 --
Patents and logos (note 4) 13,624 100
Capital assets (note 5) 53,193 18,682
----------- -----------
$ 384,902 $ 184,348
=========== ===========
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 1,449,729 $ 6,578
Shareholder loan (note 6) 788,284 439,279
----------- -----------
2,238,013 445,857
----------- -----------
SHAREHOLDERS' EQUITY
Share capital (note 7)
Authorized
Unlimited number of common shares
2,000,000 special, redeemable, voting preference shares
Issued
36,068,146 common shares 672,684 1
Deficit accumulated during the development stage (2,525,795) (261,510)
---------- --------
(1,853,111) (261,509)
---------- --------
$ 384,902 $ 184,348
=========== ===========
</TABLE>
See notes attached.
A-13
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in United States Dollars)
FOR THE SIX MONTHS ENDED APRIL 30
(Unaudited)
<TABLE>
<CAPTION>
Since
Inception to
April 30,
1999 1998 1999
<S> <C> <C> <C>
Revenue
Interest earned $ 1,156 $ 747 $ 3,727
----------- ----------- -----------
Costs and expenses
Travel and entertainment 59,440 67,432 235,452
Professional fees 146,412 86,339 313,844
Wages and salaries 94,778 28,695 176,235
Compensation 1,268,387 -- 1,268,387
Administration expenses 74,220 22,932 125,092
Development expenses 264,396 50,000 314,396
Unrealized loss (gain) on foreign exchange 19,867 4,206 ( 7,094)
Amortization 5,425 1,403 10,176
Loss on sale of investment in other companies 54,606 -- 54,606
Write down of investment 36,072 -- 36,072
Interest expense 2,356 -- 2,356
----------- ----------- -----------
2,025,959 261,007 2,529,522
----------- ----------- -----------
Net loss 2,024,803 260,260 2,525,795
Deficit, beginning of the period 500,992 1,250 --
----------- ----------- -----------
Deficit, end of the period $ 2,525,795 $ 261,510 $ 2,525,795
=========== =========== ===========
Net loss per share - basic and diluted $ 0.06 $ 0.01 $ 0.08
=========== =========== ===========
Weighted average shares 34,433,680 32,014,503
=========== =========== ===========
</TABLE>
See notes attached.
A-14
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
FOR THE SIX MONTHS ENDED APRIL 30
(Unaudited)
<TABLE>
<CAPTION>
Since
Inception to
April 30,
1999 1998 1999
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,024,803) $ (260,260) $(2,525,795)
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of investment in other companies 54,606 -- 54,606
Write down of investment 36,072 -- 36,072
Amortization 5,425 1,403 10,232
Interest expense 2,356 -- 2,356
----------- ----------- -----------
(1,926,344) (258,857) (2,422,529)
Changes in assets and liabilities net of effects
from reverse takeover:
Increase in deposits and other receivables (72,720) (2,615) (74,243)
Increase in accounts payable and accrued
liabilities 1,303,851 5,329 1,343,685
Decrease in development expenses (112,031 -- 112,031
Increase in prepaid expenses
2,497) -- 2,497)
----------- ----------- -----------
Net cash used in operating activities (585,679) (256,143) (1,043,553)
----------- ----------- -----------
Cash flows from investing activities:
Sale of investments 233,641 -- 233,641
Patents and logos (13,580) (100) (13,680)
Capital assets (43,228) (20,085) (63,369)
----------- ----------- -----------
Net cash provided by (used in) investing activities: 176,833 (20,185) 156,592
----------- ----------- -----------
Cash flows from financing activities
Issue of common shares 291,627 -- 291,628
Net proceeds from shareholder loan 160,751 439,279 785,928
----------- ----------- -----------
Net cash provided by financing activities 452,378 439,279 1,077,556
----------- ----------- -----------
Net increase in cash and cash equivalents 43,532 162,951 190,595
Cash and cash equivalents, beginning of the period 147,063 -- --
----------- ----------- -----------
Cash and cash equivalents, end of the period $ 190,595 $ 162,951 $ 190,595
=========== =========== ===========
</TABLE>
See notes attached.
A-15
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States Dollars)
FOR THE SIX MONTHS ENDED APRIL 30
(Unaudited)
Supplemental schedule of non-cash operating and financing activities:
On January 11, 1999, Micromem Technologies Inc. issued 32 million common shares
and 1 million warrants to acquire all of the issued and outstanding shares of
Pageant Technologies Inc. As a result of this transaction, the shareholders of
Pageant Technologies Inc. owned 88.9% of the outstanding shares of Micromem
Technologies Inc. and accordingly, the purchase of Pageant Technologies Inc. is
accounted for as a reverse takeover transaction. In conjunction with the reverse
takeover accounting, the following is the fair values of Micromem as of January
11, 1999:
Assigned fair value of net assets of Micromem $ 549,140
Less: Cash and bank balances (168,084)
--------
Net non-cash items $ 381,056
=========
See notes attached.
A-16
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
Micromem Technologies Inc. ("Micromem" or the "Company") is a corporation
incorporated under the laws of the Province of Ontario, Canada. By Articles of
Amendment dated January 14, 1999, the Company changed its name from Avanticorp
International Inc. to Micromem Technologies Inc. On January 11, 1999, Micromem
Technologies Inc., acquired all the outstanding shares of Pageant Technologies
Inc., a Company incorporated under the laws of the Turks & Caicos Islands,
B.W.I. This acquisition was recorded as a reverse takeover under generally
accepted accounting principles (note 1(a)).
The Company is a development stage enterprise, and through its wholly-owned
subsidiary, engaged in the development and exploitation of patented technology
known as MAGRAM which relates to high performance memory and memory intensive
logic products. The planned principal commercial operations relating to
production of MAGRAM has not commenced and is still in the development stage.
The financial position as at April 30, 1998 and 1999 and the results of
operations and changes in cash position for the six months ended April 30, 1998
and 1999 are unaudited. The unaudited financial statements, in the opinion of
management, include all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the financial information for such
unaudited periods.
1. Significant accounting policies
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles as promulgated by The
Canadian Institute of Chartered Accountants.
These consolidated financial statements include the accounts of the
Company's wholly-owned legal subsidiaries Pageant Technologies Inc. and
Pageant Technologies (U.S.A.) Inc.
The significant policies used in the preparation of these financial
statements conform in all material respects, to generally accepted
accounting principles. These are as follows:
a) Basis of presentation
On January 11, 1999, Micromem Technologies Inc. issued 32 million
common shares and 1 million warrants to acquire all of the issued
and outstanding shares of Pageant Technologies Inc. On that date,
the total number of Micromem Technologies Inc. shares outstanding
was 3,980,646 shares. As a result of this transaction, the
shareholders of Pageant Technologies Inc. owned 88.9% of the
outstanding common shares of Micromem Technologies Inc. and,
accordingly, the purchase of Pageant Technologies Inc. by Micromem
Technologies Inc. is accounted for as a reverse takeover transaction
under generally accepted accounting principles.
Under the principles of reverse takeover accounting, the
consolidated financial statements of Micromem Technologies Inc., the
legal parent, are presented as a continuation of the financial
position and results from operations of Pageant Technologies Inc.,
the legal subsidiary.
Application of reverse takeover accounting results in the following:
I) The consolidated financial statements of the combined entity
are issued under the name of the legal parent Micromem
Technologies Inc., but are considered a continuation of the
financial statements of the legal subsidiary, Pageant
Technologies Inc.;
A-17
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
1. Significant accounting policies, continued
a) Basis of presentation, continued
ii) As Pageant Technologies Inc. is deemed to be the acquirer for
accounting purposes, its assets and liabilities are included
in the consolidated financial statements at their historical
carrying values;
iii) The comparative financial statements are those of Pageant
Technologies Inc.; and
iv) Control of the net assets and operations of Micromem
Technologies Inc. is deemed to be acquired by Pageant
Technologies Inc. effective January 11, 1999. For purposes of
this transaction, the deemed consideration is $549,140
ascribed to the net assets of Micromem Technologies Inc.
outstanding immediately prior to the business combination plus
$52,933 of transaction costs.
The accounting for the business combination on this basis can
be summarized as follows:
Deemed consideration (including transaction costs) $ 602,073
Assigned fair value of net assets of Micromem
Technologies Inc. acquired 549,140
---------
Excess of deemed consideration over net assets
acquired $ 52,933
=========
The excess of deemed consideration over net assets acquired
represents acquisition expenses that have been accounted for
through the Statement of Operations and Deficit.
The transaction was accounted for by the purchase method with
the results of operations included in the financial statements
from the date of acquisition. Details of the acquisition are
as follows:
Net assets acquired at assigned fair values:
Cash $ 168,084
Non-cash current assets 115,629
Investments 371,471
-------
655,184
Less:
Current liabilities 106,044
-------
$ 549,140
=========
b) Foreign currency translation
Transactions in foreign currencies have been converted to
United States dollars at the rate of exchange prevailing at
date of each transaction. Assets and liabilities denominated
in foreign currencies are converted into United States dollars
at the rate of exchange prevailing at April 30, 1999. The
resulting translation gains or losses are included in the
determination of net earnings.
A-18
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
1. Significant accounting policies, continued
c) Investments
Investments are carried at cost. A write down of the carrying value
is charged against income when evidence indicates a decline in the
underlying value and earning power of an individual investment is
other than temporary. Realized gains and losses are included in
investment and other income.
d) Capital assets
Capital assets are carried at cost. Amortization is provided on
furniture and equipment using the straight-line basis over the
useful life. Amortization is provided on equipment on the
straight-line basis for a period of up to 3 years.
e) Patents and logos
Patents are carried at cost and amortization would commence on an
appropriate basis when sales commence. Logos are carried at cost
less accumulated amortization. Amortization on logos is calculated
using the straight line method to write them off over their
estimated useful lives of 15 years.
f) Income taxes
The Company follows the tax allocation basis of accounting for
income taxes whereby income taxes deferred to future years as a
result of timing differences between accounting income and income
for tax purposes are recorded as deferred income taxes.
g) Development costs
Development costs are expensed in the period in which they are
incurred.
h) Measurement of uncertainty
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statement and the reported amounts of
revenues and expenses during the period. Actual results could differ
from those estimates.
i) Cash flow statements
The Company adopted the Canadian Institute of Chartered Accountants
Hand Book Section 1540, "Cash Flow Statements" for its financial
statements. Under the new Hand Book Section, the definition of cash
equivalents is changed to short-term, highly liquid investments with
maturities of three months or less when purchased, that are readily
convertible to known amounts of cash and are subject to an
insignificant risk of changes in value. Cash and cash equivalents
are reconciled to the balance sheet; and non-cash items are excluded
from the cash flow statement.
A-19
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
1. Significant accounting policies, continued
j) Going concern
These financial statements have been prepared on the basis of
generally accepted accounting principles as applicable to a going
concern. The Company has incurred substantial losses in its
development stage. The continuation as a going concern is dependent
on the continued support from the Company's investors and on
achieving a source of income. The Chairman of the Company has been
granted options for the purchase of 1,000,000 common shares of the
Company at an exercise price of $3.00 per common share and it is
expected that these options will be exercised as and when the
Company requires funding.
k) Transactions with related parties
Transactions with related parties are measured at the carrying
amounts of the goods and services being exchanged, unless such
transactions are determined to be in the normal course of
operations, in which case, they are recorded at the agreed upon
exchange amount.
2. Deposits and other receivables
Deposits and other receivables include receivables from LED
Technologies (U.S.A.) of $37,700 and Clear Blue Laboratories, Inc.
of $30,315 and GST recoverable, which is a value-added tax paid on
goods and services used in the course of doing business, of $8,328.
The balance of $1,498 (1998 - $2,615) represents other advances and
deposits.
3. Investment in other companies
<TABLE>
<CAPTION>
Quoted
Carrying Market
Value Value
<S> <C> <C>
Ontex Resources Limited, January 11, 1999
325,000 shares $ 288,247
Alliance Resources PLC, January 11, 1999
450,000 shares 83,224
--------
371,471
Sale of Ontex, January 27, 1999
325,000 shares (233,641)
Loss on sale of 325,000 shares of Ontex ( 54,606)
Write down of Alliance Resources PLC, April 30, 1999 ( 36,072)
-------- ----------
Balance, April 30, 1999 $ 47,152 $ 47,152
======== ========
</TABLE>
The loss on sale relates to losses incurred on the sale of 325,000 Ontex
shares. The Company has written down its investment in Alliance Resources
PLC to quoted market prices at April 30, 1999 due to "other than
temporary" decline in value of the investment.
A-20
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
4. Patents and logos
<TABLE>
<CAPTION>
1999
Beginning Ending
Balance Additions Disposals Balance
<S> <C> <C> <C> <C>
Cost
Patents $ 100 $ -- $ -- $ 100
Logos -- 13,580 -- 13,580
------- ------- --------- -------
$ 100 $13,580 $ -- $13,680
======= ======= ========= =======
1999
Beginning Amortization Ending
Balance Expense Disposals Balance
Depreciation
Patents $ -- $ -- $ -- $ --
Logos -- 56 -- 56
------- ------- --------- -------
$ -- $ 56 $ -- $ 56
======= ======= ========= =======
1999 Net movement $ 100 $13,524 $ -- $13,624
======= ======= ========= =======
1998 Net movement $ -- $ 100 $ -- $ 100
======= ======= ========= =======
</TABLE>
A subsidiary of the Company, Pageant Technologies Inc., has a 50%
interest in a patent registered in the United States with corresponding
patent applications in Europe and Japan, for non-volatile random access
memory technology called Magram(TM). The subsidiary has an exclusive
worldwide license to develop, manufacture and sell the Magram(TM)
technology. The Magram(TM) license provides that the subsidiary would pay
a royalty of 40% of the gross profits less certain agreed expenses for
revenue received from the Magram(TM) technology to a company which holds
the balance of the 50% interest. The 50% interest held by the Company's
subsidiary will revert back to the original owner if the license
agreement is in default.
The Company's obligations under the License Agreement, other than its
obligation to pay a 40% royalty, are very general obligations related to
supporting development of the technology and being responsible for
marketing, sales and licensing. The Agreement does not create any
obligations for the Company that present a particularly significant risk
that might cause it to lose its right to the patents.
5. Capital assets
April 30,
Accumulated 1999 1998
Cost Amortization Net Net
Equipment $ 63,369 $ 10,176 $ 53,193 $ 18,682
========== ========== ========== ==========
A-21
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
6. Shareholder loan
Shareholder loan continuity is as follows:
<TABLE>
<CAPTION>
1999 1998
U.S.$ Cdn$ Total Total
<S> <C> <C> <C> <C>
Balance, October 31, 1998 $ 31,145 $ 594,032 $ 625,177 $ --
Advances 200,000 -- 200,000 439,279
Accrued interest 2,356 -- 2,356 --
Repayments (9,249) (30,000) (39,249)
Balance, April 30, 1999 $ 224,252 $ 564,032 $ 788,284 $ 439,279
========= ========= ========= =========
</TABLE>
The Chairman of the Company advances funds periodically to meet the cash
flow requirements of the Company. Such loans bear interest at 10% per
annum ($2,356) and do not have fixed repayment periods. Of the shareholder
advances as of April 30, 1999, $202,356 relates to an advance from the
Chairman and $585,928 to an advance from a shareholder which is interest
free, unsecured and has no fixed repayment date.
7. Share capital
a) Authorized: unlimited number of common shares without par value.
b) Issued and outstanding:
The ascribed share capital of Micromem Technologies Inc., the
continuing consolidated entity, as at April 30, 1999 for accounting
purposes is computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Existing share capital of Pageant Technologies Inc., April 30, 1998 $ 1
Common shares of Pageant Technologies Inc., issued December 8, 1998 4,999
Existing common share capital of Pageant Technologies Inc., January 11, 1999 5,000
Value of net assets of Micromem Technologies Inc., (note 1(a)(iv)) 602,073
Excess of deemed consideration over net assets of Micromem (52,933)
Share capital of Micromem Technologies Inc., January 11, 1999 554,140
Exercise of common share purchase warrants for cash 118,544
Common share capital, April 30, 1999 $ 672,684
=========
</TABLE>
As a result of the business combination, Pageant Technologies Inc.,
became a wholly-owned subsidiary of Micromem Technologies Inc. For
accounting purposes, at January 11, 1999, the outstanding shares of
Micromem Technologies Inc., the continuing consolidated entity,
consisted of the number of Micromem shares issued to that date with
an assigned value equal to the share capital of the continuing
consolidated entity at that date as computed above. As a result, the
number of outstanding shares of Micromem are as follows:
A-22
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STATE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
7. Share capital, continued
<TABLE>
<CAPTION>
<S> <C>
Existing outstanding common shares of Micromem, October 31, 1998 3,490,646
Exercise of Director's stock options 490,000
Existing common share capital of Micromem Technologies Inc., January 11, 1999 3,980,646
Common shares issued to effect the business combination with Pageant
Technologies Inc. 32,000,000
Exercise of common share purchase warrants for cash 87,500
Outstanding common shares, April 30, 1999 36,068,146
==========
</TABLE>
c) An option is outstanding on 1,000,000 shares of the company's capital
at $3.00 per share, exercisable on or before January 25, 2009.
d) Common share purchase warrants:
As part of the purchase consideration of Pageant Technologies Inc.,
1,000,000 common share purchase warrants exercisable on a one-for-one
basis were issued. Out of this total, 912,500 are outstanding at
April 30, 1999 and are exercisable at a price of Cdn$2.00 per share
through January 11, 2000 and Cdn$2.30 from January 12, 2000 through
January 12, 2001. The warrants expire on January 12, 2001.
8. Commitments
The minimum annual future lease commitments of the Company for its office
premises under non-cancellable operating leases are as follows:
1999 $ 12,519
2000 $ 18,771
The agreement with the University of Utah for the research and
development work provided for an expenditure commitment of $282,549. At
April 30, 1999, the Company had advanced a total of $264,396.
9. Related party transactions
In the normal course of business, the Company enters into transactions
with companies under common control on terms similar to those offered to
non-related parties. Such items are included in the consolidated
financial statements as follows:
April 30, April 30,
1999 1998
Shareholder loan $ 788,284 $ 439,279
Compensation and Accounts payable $1,268,387 $ --
Other receivables $ 30,315 $ --
Interest expense $ 2,356 $ --
On January 29, 1999 and March 10, 1999, the Company entered into two
consulting agreements with two companies that are controlled by the
Chairman and the President respectively.
A-23
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
9. Related party transactions, continued
For the services contracted for, the companies will be paid fees on a
quarterly basis, in form of cash or common shares, at the option of
Micromem, under the agreement. If Micromem elects to pay the fees through
quarterly issuances of common shares, then the number of shares to be
issued to the companies, quarterly, would be calculated as the product of
0.3125% of the simple average of number of shares of Micromem that were
outstanding on the last day of each month during the quarter. If Micromem
elects to pay the fees through quarterly cash payments, then the amount of
such fees would be calculated as the product of 0.3125% of the average
outstanding multiplied by a simple average of the daily close price of
Micromem's common shares during the quarter.
The amount has been accrued for assuming that the Company will issue
shares at $1,268,387, subject to the approval of shareholders.
On January 25, 1999, as part of a compensation package, the Company
granted the Chairman options to purchase, prior to January 25, 2009, up to
1,000,000 common shares at the prevailing market price per share of $3.00
pursuant to the Micromem Technologies Inc. 1999 stock option plan.
The receivable of $30,315 represents an amount due from Clear Blue
Laboratories, Inc., is a related party by virtue of its control by a
principal shareholder, and is in respect of sharing of office costs.
The Chairman of the Company advances funds periodically to meet the cash
flow requirements of the Company. Such loans bear interest at 10% per
annum ($2,356) and do not have fixed repayment periods. Of the shareholder
advances as of April 30, 1999, $202,356 relates to an advance from the
Chairman and $585,928 to an advance from a shareholder which is interest
free, unsecured and no fixed repayment date.
10. Income tax information
The Company has mineral exploration and development expenses of $233,000
available for carry forward indefinitely against future taxable income.
Operating losses total $1,805,000 and expire as to $27,000 in 2000,
$100,000 in 2001, $5,000 in 2003, $51,000 in 2004, $59,000 in 2005 and
$1,563,000 in 2006. Operating losses can be carried back three years and
forward seven years against taxable income.
11. Uncertainty due to the Year 2000 issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
A-24
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
12. Reconciliation between Canadian GAAP and U.S. GAAP
The Company's consolidated financial statements have been prepared in
accordance with accounting principles generally accepted ("GAAP") in
Canada which, in the case of the Company, conform in all material respects
with those in the United States.
The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
("APB") No. 25 "Accounting for Stock Issued to Employees". Accordingly,
compensation expense has been recognized, at the date of option grants or
when the option shares are earned based on the quoted market price of the
stock, in the consolidated statement of operations and deficit.
The Company qualifies as a development stage enterprise as defined in SFAS
No. 7. The financial statements have been prepared to include the
additional information as required to be disclosed by SFAS No. 7.
The Company's comprehensive income as determined under SFAS No. 130 would
not differ from net loss as shown above for all periods presented.
There are no differences in cash used in operating, investing and
financing activities as reported and as per U.S. GAAP.
There are no differences in shareholders' equity as reported and per U.S.
GAAP.
<TABLE>
<CAPTION>
April 30, April 30,
1999 1998
<S> <C> <C>
Net loss as reported and as per U.S. GAAP $ 2,024,803 $ 260,260
=========== ===========
Net loss per share basic $ 0.06 $ 0.01
=========== ===========
Net loss per share diluted $ 0.06 $ 0.01
=========== ===========
Weighted average shares 34,433,680 32,014,503
Plus: Incremental shares from assumed conversion of warrants 1,539,218 985,497
----------- ----------
Adjusted weighted average shares 35,972,898 33,000,000
=========== ===========
</TABLE>
The above incremental shares from assumed conversion of warrants have been
excluded from the calculation of the diluted loss per share because to do
so would be antidilutive for the periods presented.
Income taxes
The Company follows the "deferral method" of accounting for deferred
income taxes, pursuant to which the Company records deferred taxes on
"timing differences" (differences between accounting and tax treatment of
certain revenues and expenses), using tax rates effective for the year in
which the timing differences arise. In addition, the company did not
recognize future tax benefits in connection with provisions for loss of
$1,381,000 recorded in Micromem Technologies Inc. and $3,000 recorded in
Pageant Technologies (USA) Inc., because, under Canadian GAAP, the Company
did not have virtual certainty that it would realize these tax benefits
prior to their expiry.
A-25
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
12. Reconciliation between Canadian GAAP and U.S. GAAP, continued
Under U.S. GAAP, the Company is required to use the "asset and liability
method" of accounting for deferred taxes, which gives recognition to
deferred taxes on all "temporary differences" (differences between
accounting basis and tax basis of the Company's assets and liabilities)
using currently enacted tax rates. In addition, U.S. GAAP requires the
Company to record all deferred tax assets, including the future tax
benefits of losses carried forward. The Company is then required to record
a "valuation allowance" for any deferred tax assets where it is more
likely than not that the asset will not be realized.
The Company has not recorded any deferred tax asset or liability, as it
believes that it does not meet the test of certainty under Canadian GAAP
or the "more likely than not" test under U.S. GAAP. See detailed schedule
below:
<TABLE>
<CAPTION>
(Deductible) (Deductible)
Temporary Temporary
Carrying Difference Difference
Amount Tax Basis 1999 1998
<S> <C> <C> <C> <C>
Cash $ 190,595 $ 190,595 $ -- $ --
Deposits and other receivables 77,841 77,841 -- --
Deferred exploration -- 232,963 (232,963) (236,238)
Unused non capital tax losses -- 1,805,176 (1,805,176) (202,442)
Unused capital tax losses -- 200,111 (200,111) (44,516)
Prepaid expenses 2,497 2,497 -- --
Investments in other companies 47,152 875,657 (828,505) (1,186,936)
Patents and logos 13,624 13,624 -- --
Capital assets 53,193 61,929 (8,736) --
Total assets $ 384,902 $ 3,460,393 $(3,075,491) $(1,670,132)
=========== =========== =========== ===========
Accounts payable and accrued liabilities $ 1,449,729 $ 1,449,729 $ -- $ --
Shareholder loan 788,284 788,284 -- --
----------- ----------- ----------- -----------
Total liabilities 2,238,013 2,238,013 -- --
Share capital 672,684 672,684 -- --
Retained earnings (2,525,795) 549,696 -- --
----------- ----------- ----------- -----------
Total equity (1,853,111) 1,222,380 -- --
----------- ----------- ----------- -----------
Total $ 384,902 $ 3,460,393 $ -- $ --
=========== =========== =========== ===========
Future tax asset $(3,075,491) Tax rate 45% $(1,383,971) $ (751,559)
=========== =========== ===========
Valuation allowance $ 1,383,971 $ 751,559
=========== ===========
Net future (tax asset)/liability $ -- $ --
=========== ===========
</TABLE>
A-26
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
A DEVELOPMENT STAGE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
13. Subsequent events
a) In May 1999, the Company issued 350,000 common shares for $1,050,000
pursuant to a private placement agreement.
b) In September 1999, a subsidiary of the Company received confirmation
that an amount of $586,669 previously reported as a loan from its
former parent company had been forgiven, and would be treated as
contributed surplus.
A-27
<PAGE>
AVANTICORP INTERNATIONAL INC.
FINANCIAL STATEMENTS
(Expressed in Canadian Currency)
OCTOBER 31, 1998, 1997 AND 1996
A-28
<PAGE>
DAVID J. HENDERSON
Suite 1710
150 King Street West
Toronto, Ontario
M5H 3S5
AUDITOR'S REPORT
To the Directors,
Avanticorp International Inc.
I have audited the balance sheets of Avanticorp International
Inc. as at October 31, 1998, 1997 and 1996 and the statements of operations and
deficit and changes in cash position for the years then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted
auditing standards. Those standards require that I 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 my opinion, these financial statements present fairly, in
all material respects, the financial position of the Company as at October 31,
1998, 1997 and 1996 and the results of its operations and the changes in its
cash position for the years then ended in accordance with generally accepted
accounting principles.
Toronto, Canada
June 28, 1999, except as to
Notes 2, 3, 6 and 10 which are
as of November 15, 1999. Chartered Accountant.
A-29
<PAGE>
<TABLE>
<CAPTION>
AVANTICORP INTERNATIONAL INC.
BALANCE SHEETS
(Expressed in Canadian Currency)
October 31,
1998 1997 1996
---- ---- ----
ASSETS
<S> <C> <C> <C>
Current assets
Cash $ 8,394 $ 1,312 $ 4,291
Accounts receivable 1,590 688 25,672
----------- ----------- -----------
9,984 2,000 29,963
Investments in other companies (note 2) 342,000 485,865 1,725,494
Mineral exploration properties - 2 3
------------ ----------- -----------
$ 351,984 $ 487,867 $ 1,755,460
=========== =========== ===========
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 129,186 $ 81,482 $ 58,957
Notes payable (note 3) 119,752 192,043 218,702
----------- ----------- -----------
248,938 273,525 277,659
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Share capital (note 4)
Authorized
Unlimited number of common shares
2,000,000 special, redeemable, voting preference shares
Issued
3,490,646 common shares 2,853,569 2,743,471 2,692,471
Deficit (2,750,523) (2,529,129) (1,214,670)
----------- ----------- -----------
103,046 214,342 1,477,801
----------- ----------- -----------
$ 351,984 $ 487,867 $ 1,755,460
=========== =========== ===========
Approved by the Board:
S. Fuda, Director
R.J. McGroarty, Director
</TABLE>
A-30
<PAGE>
<TABLE>
<CAPTION>
AVANTICORP INTERNATIONAL INC.
STATEMENTS OF OPERATIONS AND DEFICIT
(Expressed in Canadian Currency)
Years ended
October 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue $ - $ - $ -
Expenses
Administration and general 80,938 63,285 47,103
Interest 5,573 11,544 11,528
--------- ----------- ----------
86,511 74,829 58,631
--------- ----------- ----------
Operating loss 86,511 74,829 58,631
Investments in other companies written down 119,295 1,239,629 -
Loss (gain) on sale of investments in other companies 15,586 - (127,280)
Mineral exploration properties written off
2 1 -
--------- ----------- -----------
Net loss 221,394 1,314,459 (68,649)
Deficit, beginning of the year 2,529,129 1,214,670 1,283,319
----------- ----------- -----------
Deficit, end of the year $ 2,750,523 $ 2,529,129 $ 1,214,670
=========== =========== ===========
Net loss (income) per share - basic and diluted $ 0.07 $ 0.45 $ (0.03)
=========== =========== ===========
</TABLE>
A-31
<PAGE>
AVANTICORP INTERNATIONAL INC.
STATEMENTS OF CHANGES IN CASH POSITION
(Expressed in Canadian Currency)
<TABLE>
<CAPTION>
Years ended
October 31,
1998 1997 1996
---- ---- ----
Cash resources provided by (used in)
<S> <C> <C> <C>
Operating activities
Operating loss $ (86,511) $ (74,829) $ (58,631)
Change in non-cash working capital
(Increase) decrease in accounts receivable (902) 24,984 2,812
Increase (decrease) in accounts payable and
accrued liabilities 47,704 22,525 (81,992)
--------- --------- ---------
(39,709) (27,320) (137,811)
--------- --------- ---------
Investing activities
Investments in other companies
Purchases -- -- (189,817)
Disposals 8,984 -- 212,484
--------- --------- ---------
8,984 -- 22,667
--------- --------- ---------
Financing activities
Issue of common shares 110,098 51,000 81,600
Increase (decrease) in notes payable (72,291) (26,659) 36,202
--------- --------- ---------
37,807 24,341 117,802
--------- --------- ---------
Increase (decrease) in cash 7,082 (2,979) 2,658
Cash, beginning of the year 1,312 4,291 1,633
--------- --------- ---------
Cash, end of the year $ 8,394 $ 1,312 $ 4,291
========= ========= =========
</TABLE>
A-32
<PAGE>
AVANTICORP INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Expressed in Canadian Currency)
OCTOBER 31, 1998
Avanticorp International Inc. is a corporation incorporated under the laws of
the Province of Ontario, Canada and was formed to engage in the business of both
mineral and oil and gas exploration and development.
1. Significant accounting policies
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles as promulgated by The
Canadian Institute of Chartered Accountants.
The significant policies used in the preparation of these financial
statements conform in all material respects, to generally accepted
accounting principles. These are as follows:
a) Foreign currency translation
All amounts are stated in Canadian dollars. Assets and liabilities in
foreign currencies are translated into Canadian dollars at period-end
exchange rates. The resulting net charge or credit is included in the
operating results for the period. Revenues and expenses are
translated to Canadian dollars at the prevailing exchange rates at
the date of the transactions.
b) Investments
Investments are carried at cost. A write down of the carrying value
is charged against income when evidence indicates a decline in the
underlying value and earning power of an individual investment is
other than temporary. Realized gains and losses are included in
investment and other income.
c) Transactions with related parties
Transactions with related parties are measured at the carrying
amounts of the goods and services being exchanged, unless such
transactions are determined to be in the normal course of operations,
in which case, they are recorded at the agreed upon exchange amount.
d) Cash flow statements
The Company adopted the Canadian Institute of Chartered Accountants
Hand Book Section 1540, "Cash Flow Statements" for its financial
statements. Under the new Hand Book Section, the definition of cash
equivalents is changed to short-term, highly liquid investments with
maturities of three months or less when purchased, that are readily
convertible to known amounts of cash and are subject to an
insignificant risk of changes in value. Cash and cash equivalents are
reconciled to the balance sheet; and non-cash items are excluded from
the cash flow statement.
e) Income taxes
The Company follows the tax allocation basis of accounting for income
taxes whereby income taxes deferred to future years as a result of
timing differences between accounting income and income for tax
purposes are recorded as deferred income taxes.
f) Measurement of uncertainty
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statement and the reported amounts of
revenues and expenses during the period. Actual results could differ
from those estimates.
A-33
<PAGE>
AVANTICORP INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Expressed in Canadian Currency)
OCTOBER 31, 1998
2. Investments in other companies - at cost less amounts written off
<TABLE>
<CAPTION>
Quoted Quoted Quoted
Market Carrying Market Carrying Market Carrying
Value Value Value Value Value Value
1998 1998 1997 1997 1996 1996
---- ---- ---- ---- ---- ----
Alliance Resources
PLC
<S> <C> <C> <C> <C> <C> <C>
450,000 shares $ 162,000 $ 162,000 $ 281,295 $ 281,295 $ * $1,274,877
Ontex Resources
Limited
600,000 shares 294,000 180,000 222,000 180,000 150,000 180,000
Castello Casino
Corp.
122,850 shares -- -- -- 24,570 270,270 270,617
---------- ---------- ---------- ---------- ---------- ----------
-- -- 24,570 24,570 270,270 270,617
---------- ---------- ---------- ---------- ---------- ----------
$ 456,000 $ 342,000 $ 527,865 $ 485,865 $ 420,270 $1,725,494
========== ========== ========== ========== ========== ==========
</TABLE>
* The shares of Alliance were suspended from trading on the London
Stock Exchange on August 13, 1996 at which time the quoted market
value was $858,600.
Reconciliation of change in carrying value of investments between 1995
and 1998:
<TABLE>
<CAPTION>
Carrying Adjustment Per U.S.
Value ** GAAP
<S> <C> <C> <C> <C>
Balance, October 31, 1995 $ 1,620,881
Proceeds from sale of Castello Casino Corp. - 172,000 shares (212,484)
Realized gain on sale of Castello Casino Corp. - 172,000 shares 127,280
Purchase of Castello Casino Corp. - 153,000 shares 189,817
----------
Balance, October 31, 1996 1,725,494 $ - $ 1,725,494
Write down of Alliance Resources PLC, October 31, 1997 (993,583)
Write down of Castello Casino Corp., October 31, 1997 (246,046)
----------
Balance, October 31, 1997 485,865 515,265
29,400
Write down of Alliance Resources PLC, October 31, l998 (119,295)
Proceeds from sale of Castello Casino Corp., June 24, 1998
122,850 shares (8,984)
Realized loss on sale of Castello Casino Corp. (15,586)
----------
Balance, October 31, 1998 as reported $ 342,000 79,800 421,800
==========
</TABLE>
The loss on sale relates to losses incurred on the sale of 122,850
Castello Casino Corp. shares. The company has written down its
investments in Alliance Resources PLC to quoted market prices at October
31, 1998 due to "other than temporary" decline in value of the
investment.
** Net unrealized gains on Ontex Resources Limited (note 10)
A-34
<PAGE>
AVANTICORP INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Expressed in Canadian Currency)
OCTOBER 31, 1998
3. Notes payable
Notes payable are due on demand and bear interest at 8% per annum.
These notes payable are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C> <C>
Note 1 From third party $ 107,000 $ 153,083 $ 169,783
Note 2 From related party - note 6 10,110 7,682 -
Note 3 From related party - note 6 2,642 31,278 48,919
--------- --------- ---------
$ 119,752 $ 192,043 $ 218,702
========= ========= =========
</TABLE>
These notes and related interest were repaid on November 23, 1998.
4. Share capital
a) Authorized: unlimited number of common shares without par value.
b) Issued and outstanding:
The Company issued common shares as follows: Shares Capital
Balance, October 31, 1995 2,555,646 $ 2,610,871
Exercise of directors' stock options 170,000 81,600
--------- -----------
Balance, October 31, 1996 2,725,646 2,692,471
Exercise of directors' stock options 255,000 51,000
--------- -----------
Balance, October 31, 1997 2,980,646 2,743,471
Exercise of directors' options 510,000 110,098
--------- -----------
Balance, October 31, 1998 3,490,646 $ 2,853,569
========= ===========
c) Stock options:
Pursuant to the Company's Incentive Stock Option Plan, directors'
options are outstanding on 490,000 shares at U.S.$0.66 exercisable
over a period of two years from September 15, 1998. No compensation
expense was recognized on the granting of these options.
5. Financial instruments
The carrying value of cash, accounts receivable and accounts payable and
accrued liabilities reflected in the balance sheet approximate their
respective fair values. The fair values of investments in other companies
are assumed to approximate quoted market values, as disclosed in note 2.
A-35
<PAGE>
AVANTICORP INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Expressed in Canadian Currency)
OCTOBER 31, 1998
6. Related party transactions
In the normal course of business, the Company enters into transactions
with companies under common control on terms similar to those offered to
non-related parties. Such items are included in the financial statements
as follows:
Carrying Value Carrying Value Carrying Value
1998 1997 1996
---- ---- ----
a) Investments in other
companies $ 180,000 $ 180,000 $ 180,000
b) Notes payable 12,752 38,960 48,919
a) The investments in other companies of $180,000 represents the
carrying value of Ontex Resources Limited.
The Ontex investment was a related party investment. Sam Fuda,
Chairman of the Board of Directors of the Company, served as
President and Chief Executive Officer of Ontex from 1986 to December
1998, and has served as Chairman of the Board of Ontex since that
date. Ross McGroarty, Executive Vice President and Secretary, and a
Director of the Company, has been a director of Ontex since 1988.
b) The notes payable from related parties are as follows:
1998 1997 1996
---- ---- ----
Giomardi Holdings Inc. $ 2,642 $31,278 $48,919 Family trust with
discretionary powers with
Mr. Sam Fuda
Agamete Group 10,110 7,682 -- Mr. Ross McGroarty is
president of the company
-------- ------- -------
$12,752 $38,960 $48,919
======== ======= =======
7. Income tax information
As of October 31, 1998, the Company has mineral exploration and
development expenses of $339,000 available for carry forward indefinitely
against future taxable income. Operating losses total $353,000 and expire
as to $39,000 in 2000, $146,000 in 2001, $7,000 in 2003, $75,000 in 2004
and $86,000 in 2005. Operating losses can be carried back three years and
forward seven years against taxable income.
8. Events subsequent to October 31, 1998
a) The Company sold 275,000 shares of Ontex Resources Limited for
$232,150.
b) The balances due on notes payable in the total amount of $119,752 at
October 31, 1998 were repaid.
c) By Articles of Amendment dated January 14, 1999, the Company changed
its name to Micromem Technologies Inc.
d) On January 11, 1999, the Company acquired all the shares of Pageant
Technologies Inc., a Turks and Caicos Islands, British West Indies
corporation by the issue of 32,000,000 shares of its capital and
1,000,000 share purchase warrants. The share purchase warrants could
be exercised during a period of two years from the issue date. The
exercise price would be $2.00 per share during the first twelve months
of the period or $2.30 per share during the second twelve months.
A-36
<PAGE>
AVANTICORP INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Expressed in Canadian Currency)
OCTOBER 31, 1998
9. Uncertainty due to the Year 2000 issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range
from minor errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting
the entity, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
10. Reconciliation between Canadian GAAP and U.S. GAAP
The only difference between Canadian and U.S. GAAP for the presentation
of the balance sheets and statements of operations and deficit of these
accompanying financial statements is as follows:
1998 1997 1996
Shareholders' equity, as reported $ 103,046 $214,342 $1,477,801
Net unrealized gains in investments
(net of estimated tax) 79,800 29,400 -
--------- -------- ----------
Shareholders' equity as per U.S. GAAP $ 182,846 $243,742 $1,477,801
========= ======== ==========
The net unrealized gains in investments relate to the company's holding
of 600,000 shares of Ontex Resources. The net unrealized gains are not
recognized in the financial statements under Canadian GAAP. Under U.S.
GAAP, per SFAS 115, the unrealized gain in investments is excluded from
earnings and reported as a net amount in a separate component of
shareholders' equity.
1998 1997 1996
---- ---- ----
Net loss (income) for the period as
reported and per U.S. GAAP $ 221,394 $1,314,459 $ (68,649)
========== ========== ===========
Net loss (income) per share - basic $ 0.07 $ 0.45 $ (0.03)
=========== =========== ===========
Net loss (income) per share - diluted $ 0.07 $ 0.45 $ (0.03)
=========== =========== ===========
Weighted average shares 3,301,084 2,902,399 2,669,289
Plus: Incremental shares from assumed
conversion of options 253,535 45,959 56,357
---------- ---------- -----------
Adjusted weighted average shares 3,554,619 2,948,358 2.725,646
========== ========== ===========
The above incremental shares from assumed conversion of options have been
excluded from the calculation of the diluted loss per share for the years
1998 and 1997 because to do so would be antidilutive for the periods
presented.
The Company follows the "deferral method" of accounting for deferred
income taxes, pursuant to which the Company records deferred taxes on
"timing differences" (differences between accounting and tax treatment of
certain revenues and expenses), using tax rates effective for the year in
which the timing differences arise. In addition, the company did not
recognize future tax benefits in connection with provisions for loss of
$871,000 recorded in Micromem Technologies Inc., because, under Canadian
GAAP, the Company did not have virtual certainty that it would realize
these tax benefits prior to their expiry.
A-37
<PAGE>
AVANTICORP INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Expressed in Canadian Currency)
OCTOBER 31, 1998
10. Reconciliation between Canadian GAAP and U.S. GAAP, continued
Under U.S. GAAP, the Company is required to use the "asset and liability
method" of accounting for deferred taxes, which gives recognition to
deferred taxes on all "temporary differences" (differences between
accounting basis and tax basis of the Company's assets and liabilities)
using currently enacted tax rates. In addition, U.S. GAAP requires the
Company to record all deferred tax assets, including the future tax
benefits of losses carried forward. The Company is then required to
record a "valuation allowance" for any deferred tax assets where it is
more likely than not that the asset will not be realized.
The Company has not recorded any deferred tax asset or liability, as it
believes that it does not meet the test of certainty under Canadian GAAP
or the "more likely than not" test under U.S. GAAP. See detailed schedule
below:
<TABLE>
<CAPTION>
1998 1997 1996
(Deductible) (Deductible) (Deductible)
Carrying Temporary Temporary Temporary
Amount Tax Basis Difference Difference Difference
------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash $ 8,394 $ 8,394 $ -- $ -- $ --
Accounts receivable 1,590 1,590 -- -- --
Deferred exploration -- 339,427 (339,427) (339,427) (339,427)
Unused non capital tax
losses -- 353,107 (353,107) (290,869) (216,040)
Unused capital tax
losses -- 374,104 (374,104) (63,962) (63,962)
Investments in other
companies 342,000 1,764,111 (1,422,111) (1,705,390) (465,761)
----------- ----------- ----------- ----------- -----------
Total assets $ 351,984 $ 2,840,733 $(2,488,749) $(2,399,648) $(1,085,190)
=========== =========== =========== =========== ===========
Accounts payable and
accrued liabilities $ 129,186 $ 129,186 $ -- $ -- $ --
Notes payable 119,752 119,752 -- -- --
----------- ----------- ----------- ----------- -----------
Total liabilities 248,938 248,938 -- -- --
----------- ----------- ----------- ----------- -----------
Share capital 2,853,569 2,853,569 -- -- --
Retained earnings (2,750,523) (261,774) -- -- --
----------- ----------- ----------- ----------- -----------
Total equity 103,046 2,591,795 -- -- --
----------- ----------- ----------- ----------- -----------
Total $ 351,984 $ 2,840,733 -- -- --
=========== =========== =========== =========== ===========
Future tax asset $(2,488,749) Tax rate 45% $(1,119,937) $(1,079,842) $ (488,335)
=========== ----------- ----------- -----------
Valuation allowance $ 1,119,937 $ 1,079,842 $ 488,335
=========== =========== ===========
Net future tax
(asset)/liability $ -- $ -- $ --
=========== =========== ===========
</TABLE>
A-38
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
FOR THE PERIOD ENDED APRIL 30, 1999
(Unaudited)
A-39
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
FOR THE PERIOD ENDED APRIL 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Proforma
adjustment
1999 (Note 4) Proforma
Revenue
<S> <C> <C> <C>
Interest earned $ 1,156 $ -- $ 1,156
----------- ----------- -----------
Costs and expenses
Travel and entertainment 59,440 6,940 66,380
Professional fees 146,412 50,291 196,703
Wages and salaries 94,778 7,518 102,296
Compensation 1,268,387 -- 1,268,387
Administration expenses 74,220 79,258 153,478
Development expenses 264,396 -- 264,396
Unrealized loss on foreign exchange 19,867 -- 19,867
Amortization 5,425 -- 5,425
Loss on sale of investment in other companies 54,606 -- 54,606
Write down of investment 36,072 -- 36,072
Interest expense 2,356 -- 2,356
----------- --------- -----------
2,025,959 144,007 2,169,966
----------- --------- -----------
Net loss $ 2,024,803 $ 144,007 $ 2,168,810
=========== =========== ===========
Net loss per share basic and diluted $ 0.06
===========
Weighted average shares 34,433,680
===========
</TABLE>
A-40
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
NOTES TO THE PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
1. Basis of preparation
The pro-forma consolidated statement of operations of Micromem
Technologies Inc. ("Micromem" or the "Company") (formerly Avanticorp
International Inc.) has been prepared in accordance with generally
accepted accounting principles in Canada and reflects the acquisition by
Micromem of all of the issued and outstanding shares of Pageant
Technologies Inc. ("Pageant").
In compiling the pro-forma consolidated statement of operations, we have
used the historical information from the unaudited financial statements of
Micromem Technologies Inc. as at and for the period ended April 30, 1999.
The pro-forma consolidated statement of operations should be read in
conjunction with such financial statements, including the notes thereto.
The pro-forma consolidated statement of operations has been prepared
assuming the acquisition of Pageant occurred on November 1, l998. The
pro-forma consolidated statement of income may not be indicative of the
results that actually would have occurred if the acquisition had taken
place on the date indicated, or the results which may be obtained in the
future.
2. Foreign currency translation
Transactions in foreign currencies have been converted to United States
dollars at the rate of exchange prevailing at date of each transaction.
Assets and liabilities denominated in foreign currencies are converted
into United States dollars at the rate of exchange prevailing at April 30,
1999. The resulting translation gains or losses are included in the
determination of net earnings.
3. Acquisition of Pageant
On January 11, 1999, Micromem issued 32 million common shares and 1
million warrants to acquire all of the issued and outstanding shares of
Pageant. As a result of this transaction, the shareholders of Pageant
owned 88.9% of the outstanding shares of Micromem and, accordingly, the
purchase of Pageant by Micromem, is accounted for as a reverse takeover
transaction under generally accepted accounting principles.
4. Pro-forma adjustment
To record the expenses relating to the period from November 1, 1998 to
January 10, 1999 of Avanticorp International Inc.
A-41
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
NOTES TO THE PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
APRIL 30, 1999
(Unaudited)
5. Reconciliation between Canadian GAAP and U.S. GAAP
The Company's pro-forma consolidated statement of operations has been
prepared in accordance with accounting principles generally accepted
("GAAP") in Canada which, in the case of the Company, conform in all
material respects with those of the United States.
The cumulative effect of adjustments on the pro-forma net loss of the
Company is as follows:
Pro-forma net loss as reported and as per U.S. GAAP $ 2,168,810
===========
Weighted average shares 34,433,680
Plus: Incremental shares from assumed conversion of
warrants 1,539,218
-----------
Adjusted weighted average shares 35,972,898
The above incremental shares from assumed conversion of warrants have been
excluded from the calculation of the diluted loss per share because to do
so would be antidilutive for the periods presented.
A-42
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
FOR THE PERIOD ENDED OCTOBER 31, 1998
(Unaudited)
A-43
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
FOR THE PERIOD ENDED OCTOBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Proforma
adjustment
Avanti Pageant (Note 4) Proforma
<S> <C> <C> <C> <C>
Revenue
Interest income $ -- $ 2,571 $ -- $ 2,571
---------- ---------- ---------- ----------
Investment income -- 2,571 -- 2,571
---------- ---------- ---------- ----------
Costs and expenses
Administration and development
expenses 60,082 497,562 52,933 610,577
Loss on sale of investment in other
companies 10,824 -- -- 10,824
Write down of investment 82,850 -- -- 82,850
Amortization -- 4,751 -- 4,751
153,756 502,313 52,933 709,002
---------- ---------- ---------- ----------
Net loss $ 153,756 $ 499,742 $ 52,933 $ 706,431
========== ========== ========== ==========
Net loss per share basic and diluted $ 0.21
==========
Weighted average shares 3,301,084
==========
</TABLE>
A-44
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
NOTES TO THE PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
OCTOBER 31, 1998
(Unaudited)
1. Basis of preparation
The pro-forma consolidated statement of operations of Micromem
Technologies Inc. ("Micromem" or the "Company") (formerly Avanticorp
International Inc.) has been prepared in accordance with generally
accepted accounting principles in Canada and reflects the acquisition by
Micromem of all of the issued and outstanding shares of Pageant
Technologies Inc. ("Pageant").
In compiling the pro-forma consolidated statement of operations, the
following historical information was used:
(a) The audited financial statements of Avanticorp International Inc. as
at and for the year ended October 31, 1998; and
b) The audited consolidated financial statements of Pageant
Technologies Incorporated as at and for the period from September 3,
1997 to October 31, 1998. As the results of operations for the
period from September 3, 1997, the date of inception, through
October 31, 1997 was not significant, these results were combined
with the data for the year ended October 31, 1998.
The pro-forma consolidated statement of operations should be read in
conjunction with such financial statements, including the notes thereto.
The pro-forma consolidated statement of operations has been prepared
assuming the acquisition of Pageant occurred on September 3, 1997. The
pro-forma consolidated statement of income may not be indicative of the
results that actually would have occurred if the acquisition had taken
place on the date indicated, or the results which may be obtained in the
future.
2. Foreign currency translation
Transactions in foreign currencies have been converted to United States
dollars at the rate of exchange prevailing at date of each transaction.
Assets and liabilities denominated in foreign currencies are converted
into United States dollars at the rate of exchange prevailing at October
31, 1998. The resulting translation gains or losses are included in the
determination of net earnings.
3. Acquisition of Pageant
On January 11, 1999, Micromem issued 32 million common shares and 1
million warrants to acquire all of the issued and outstanding shares of
Pageant. As a result of this transaction, the shareholders of Pageant
owned 88.9% of the outstanding shares of Micromem and, accordingly, the
purchase of Pageant by Micromem, is accounted for as a reverse takeover
transaction under generally accepted accounting principles.
4. Pro-forma adjustment
To record the acquisition expenses relating to the transaction of $52,933.
A-45
<PAGE>
MICROMEM TECHNOLOGIES INC.
(FORMERLY AVANTICORP INTERNATIONAL INC.)
NOTES TO THE PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
OCTOBER 31, 1998
(Unaudited)
5. Reconciliation between Canadian GAAP and U.S. GAAP
The Company's pro-forma consolidated statement of operations has been
prepared in accordance with accounting principles generally accepted
("GAAP") in Canada which, in the case of the Company, conform in all
material respects with those of the United States.
The cumulative effect of adjustments on the pro-forma net loss of the
Company is as follows:
<TABLE>
<CAPTION>
<S> <C>
Pro-forma net loss as reported and as per U.S. GAAP $ 706,431
==========
Weighted average shares 3,301,084
Plus: Incremental shares from assumed conversion of options 253,535
----------
Adjusted weighted average shares 3,554,619
==========
</TABLE>
The above incremental shares from assumed conversion of options have been
excluded from the calculation of the diluted loss per share because to do
so would be antidilutive for the periods presented.
A-46
<PAGE>
ATTACHMENT B
------------
INDEX TO EXHIBITS
Sequential
Number Exhibit Page Number
- ------ ------- -----------
1.1 Articles of Incorporation as currently in E-1
effect
1.2 By-Laws as currently in effect E-10
3.1 Letter Agreement dated December 7, 1998 among E-34
the Company, Ataraxia Corp. and Pageant
Technology Inc. relating to the purchase by the
Company of all of the stock of Pageant
Technology Inc.
3.2 Assignment MAGRAM(TM)Technology patent from E-41
Richard Lienau to Estancia Limited dated
November 18, 1997
3.3 Assignment of undivided 50% interest in E-43
MAGRAM(TM) Technology patent from Estancia
Limited to Ataraxia Corp. dated November 19,
1997
3.4 Assignment of undivided 50% interest in E-44
MAGRAM(TM) Technology patent from Ataraxia
Corp. to Pageant Technologies Incorporated
dated November 19, 1997
3.5 Agreement with respect to Joint Ownership and E-46
Certain License Rights dated September 17, 1997
between Richard M. Lienau and Estancia Limited,
and Ataraxia Corp.
3.6 Assignment of September 17, 1997 agreement by E-56
Ataraxia Corp. to Pageant Technologies Inc.
3.7 Research Agreement dated November 24, 1997 by E-65
and between Pageant Technologies (USA) Inc. and
the University of Utah
3.8 Letter Agreement dated February 1, 1999 E-75
extending November 24, 1997 Research Agreement
to December 31, 1999
3.9 Consulting Agreement dated as of January 29, E-76
1999 between 275311 Ontario Inc. and Micromem
Technologies Inc. for the services of Sam Fuda
3.10 Consulting Agreement dated as of March 10, 1999 E-83
between Mast Holding (Bermuda) Ltd. and the
Company for the services of Robert Patterson
3.11 Lease dated January 16, 1998, for the Pageant E-91
Technologies Inc. office in Santa Fe, New
Mexico
3.12 Consent dated September 2, 1999 of Business Equity E-122
Appraisals Reports, Inc. to the references in the
Registration Statement.
3.13 Subscription Agreement, dated April 27, 1999 for the E-128
sale to Exterland Corporation of 350,000 Common
Shares at a price of US $3.00 per share.
3.14 Warrant Certificate for the Warrants issued January E-139
11, 1999
3.14 Micromem Technologies Inc. 1999 Stock Option Plan E-143
B-1
<TABLE>
<CAPTION>
For Ministry Use Only
A l'usage exclusil du ministere
<S> <C> <C>
Ministry of Ministere de Ontario Corporation Number
Consumer and Commercial la Consommation Numero de la compagnie en
Relations et du Commerce Ontario
Ontario
6 4 1 9 4 3
----------------------------
CERTIFICATE CERTIFICAT
Ceci certifie que les presents
This is to certify that these statuts entrent en vigueur le
articles are effective on
OCTOBER 21 OCTOBRE, 1985
Controller of Records /s/ Controleur des Dossiers Trans Line Comp Method
Companies Branch Direction des Compagnies Code No Stat Type Incorp
----- -------------
A 0 0 A 3
----- -------------
18 20 28 29 30
Notice Jurisdiction
Share Req'd
--------- -------------
S N O N T A R I O
--------- -------------
31 32 33 47
- ------------------ -----------------------------------------------------------------------------------------------------------------
ARTICLES OF INCORPORATION
STATUTS CONSTITUTIFS
Form 3 1. The present name of the corporation is: Denomination sociale actuelole de la campagnie:
Business
Corporations M I N E L A K E M I N E R A L S I N C.
Act.
1982
Formula
numero 3
Loi de 1982
sur les
compagnies
2. The address of the registered office is : Addresse du social:
Suite 1710, 390 Bay Street
-----------------------------------------------------------------------------------------------------------------
(Street & Number or R.R. Number & if Multi-Office Building give Room No.)
Rue et numero ou numero de la R.R. et. s'il s"agit d'un edifice a bureaux. numero du bureau
Toronto, Ontario M 5 H 2 Y 2
-----------------------------------------------------------------------------------------------------------------
(Name of Municipality or Post Office) (Post Code)
Nom de la muncipalite ou du bureau de poste) (Code postal)
Municipality of Metropolitan Toronto Judicial District of York
(Name of Municipality, Geographical Township) (County, District, Regional Municipality)
Nom de la muncipalite, du canton in the (Comte, district, municipalite regionale)
dans/le/la
3. Number (or minimum and maximum number) of directors is:
Minimum - 3 Nombre (ou nombres minimal et maximal
Maximum - 5 d'adminstrateurs:
4. The first director(s) is/are: Premier(s) adminstrateur(s):
Resident
Canadian
Residence address, giving street & No. or R.R. State
No. or municipality and postal code. Yes or No
Address personnelle, y compris la rue et le Resident
First name, initials and surname numero, le numero de la R.R. ou, le nom de Canadien
Prenom, initiales et nom de famile municipalite et le code postal Oui/Non
-------------------------------------------- --------------------------------------------------- ----------------
Richard Lachcik 302-2100 Bathurst Street, Toronto Ontario, M5N 2P2 Yes
John Eversley 1016-45 Balliol Street, Toronto Ontario, M4S 1C3 Yes
E-1
<PAGE>
Mark Mickleborough 11 Spruce Hill Road, Toronto, Ontario M4E 3G2 Yes
5. Restrictions, if any, on business the corporation may Limites, s'il y a lieu, imposees aux
carry activites on or on powers the corporation may commercials ou aux pouvoirs de la compagnie.
exercise.
No restrictions on objects.
6. The classes and any maximum number of shares that the Categories et nombre maximal, s'il a lieu,
corporation is authorized to issue. d'actions que la compagnie est autorisee a
emettre:
An unlimited number of voting common shares and a maximum 2,000,000 special preference shares.
7. Rights, privileges, restrictions and conditions (if any)
attaching to each class of shares and directors authority Droits, privileges, restricitions et
with respect to any class of shares which may be issued in conditions, s'il y a lieu, rattaches a chaque
series. categorie d'actions et pouvoirs des
administrateurs relalifs a chaque categorie
d'actions qui peut etre emise en serie.
1. The special shares shall be designated as redeemable, voting, non-participating shares (hereinafter
called the "Preference Shares")
2. No dividends at any time shall be declared, set aside or paid on the Preference Shares.
3. In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution
of assets or property of the Corporation among shareholders for the purpose of winding up its
affairs the holders of the Preference Shares shall be entitled to receive from the assets and
property of the Corporation a sum equivalent to the aggregate of the paid up capital of the
Preference Shares held by them respectively before any amount shall be paid or any property
or assets of the Corporation distributed to the holders of any common share or shares of any
other class ranking junior to the Preference Shares. After payment to them as above provided
they shall not be entitled to share in any further distribution of the assets or property of
the Corporation.
4. The Preference Shares shall be redeemable in accordance with the provisions set forth in
Clause 5 hereof, on payment for each share to be redeemed of the paid up capital thereof.
5. The Corporation may not redeem the Preference Shares or any of them prior to the expiration of
five years from the respective dates of issuance thereof, without the prior consent of the holders
of the Preference Shares to be redeemed. The Corporation shall redeem the then outstanding
Preference Share five years from the respective dates of issue of the Preference Shares.
E-2
<PAGE>
6. In case of the redemption of Preference Shares, the Corporation shall at least thirty (30) days
before the date specified for redemption mail to each person who at the date of mailing is a
registered holder of Preference Shares to be redeemed a notice in writing of the intention of the
Corporation to redeem such Preference Shares. Such notice shall be mailed by letter, postage
prepaid, addressed to each such shareholder at his address as it appears on the records of the
Corporation or in the event of the address of any such shareholder not so appearing then to the last
known address of such shareholder, provided, however, that accidental failure to give any such
notice to one (1) or more of such shareholders shall not affect the validity of such redemption.
Such notice shall set out the redemption price and the date on which redemption is to take place and
if part only of the shares held by the person to whom it is to be redeemed the number thereof so to be
redeemed. On or after the date so specified for redemption, the Corporation shall pay or cause to
be paid to or to the order of the registered holders of, the Preference Shares to be redeemed the
redemption price thereof on presentation and surrender at the head office of the Corporation or any
other place designated in such notice of the certificates representing the Preference Shares called
for redemption. If a part only of the shares represented by any certificates be redeemed a new
certificate for the balance shall be issued at the expense of the Corporation. From and after the
date specified for redemption in any such notice the holders thereof shall not be entitled to
exercise any of the rights of shareholders thereof unless payment of the redemption price shall not
be made upon presentation of certificates in accordance with the foregoing provisions, in which case
the rights of the shareholders shall remain unaffected. The Corporation shall have the right at any
time after the mailing of notice of its intention to redeem any Preference Shares to deposit the
redemption or of such of the said shares represented by certificates as have not at the date of such
deposit been surrendered by the holders thereof in connection with such redemption to a special
account in any chartered bank or any trust company in Canada, named in such notice, to be paid
without interest to or in the order of the respective holders of such Preference Shares called for
redemption upon presentation and surrender to such bank or trust company of the certificates
representing the same, and upon such deposit having been made shall be redeemed and the rights of
the holders thereof after such deposit or such redemption date, as the case may be, shall be limited
to receiving without interest their proportionate part of the total redemption price so deposited
against presentation and surrender of the said certificates held by them respectively.
7. The Corporation may at any time or times purchase for cancellation all or any part of the
Preference Shares outstanding from time to time from the holders thereof, at a price not
exceeding the paid up capital thereof, with the consent of the holders thereof.
8. The holders of the Preference Shares shall be entitled to receive notice of and attend all
meetings of shareholders of the Corporation and shall have one (1) vote for each Preference Share
held at all meetings of the shareholders of the Corporation.
8. The issue, transfer or ownership of share is/is not L'emission, le transfert ou la propriete
restricted and the restrictions (if any) are as follows: d'actions est/n'est pas restreinte. Les
restrictions, e'il y a lieu, sont les
suivantes:
1. No shareholder shall be entitled to sell, assign, transfer, or otherwise dispose of any Preference
Share or Shares without both (a) the previous express sanction of the directors of the
corporation expressed by a resolution passed at a meeting of the Board of Directors of the
Corporation or consented to by an instrument or instruments in writing signed by a majority of
the directors; and (b) the prior written consent of the Ontario Securities Commission.
E-3
<PAGE>
2. The number of Preference Shares issuable by the Corporation at any time shall be limited such
that at no time shall more than 500,000 Preference Shares be issued and outstanding.
9. Other provisions, if any, are: Autres dispositions, s'il y a lieu:
At any time or times, the Corporation may purchase the whole or any part of its outstanding common
shares and such shares shall be cancelled upon such purchase.
10. The names and addresses of the incorporators are Full residence address or address of registered
Nom et adresse des fondateurs office or of principal place of business giving
street & No. or R.R. No., municipality and
postal code
Address personnelle au complet, adresse du
siege social ou adresse de l'etablissement
pricipal, y compris la
First name, initials and surname or corporate name rue et le numero, le numero de la R.R.,
Prenom, initiale et nom de famille ou denomination le nom de la municipalite et le code postal
sociale
-------------------------------------------------------- --------------------------------------------------------
Richard Lachcik 302-2100 Bathurst St. Toronto Ontario, M5N 2P2
John Eversley 1016-45 Balliol Street, Toronto Ontario, M4S 1C3
Mark Mickleborough 11 Spruce Hill Road, Toronto, Ontario, M4E 3G2
These articles are signed in duplicate Les presents statuts sont signes en double exemplaire
- -----------------------------------------------------------------------------------------------------------------------------------
Signatures of incorporators
(Signature des londateurs)
/s/ Richard Lachcik /s/ John Eversley
- ------------------------------------ -------------------------------------
Richard Lackcik John Eversley
/s/ Mark Mickleborough
-------------------------------------
Mark Mickleborough
E-4
<PAGE>
For Ministry Use Only
A l'usage exclusif du ministere
Ministry of Ministere de Ontario Corporation Number
Consumer and Commercial la Consommation Numero de la compagnie en
Relations et du Commerce Ontario
Ontario
6 4 1 9 4 3
---------------------------
CERTIFICATE CERTIFICAT
Ceci certifie que les presents
This is to certify that these statuts entrent en vigueur le
articles are effective on
June 23 Juin, 1988
Director /s/ Le Directeur TRANS
Companies Branch Direction des Compagnies CODE
--------
C
--------
18
- ------------------ -----------------------------------------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 1. The present name of the corporation is: Denomination sociale actuelole de la campagnie:
Business
Corporations
Act,
1982
Formule
numero 3
Loi de 1982
sur les
compagnies
M I N E L A K E M I N E R A L S I N C.
2. The name of the corporation is changed (if Nouvelle denomination sociale de la campagnie (s'il y
applicable): a lieu):
A V A N T I C A P I T A L C O R P .
3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion:
21 October, 1985
-----------------------------------------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as Les statuts de la campagnie sont modifies
follows: de la facon suivante:
BE IT RESOLVED that the articles of the Corporation be and they are hereby amended to change
the name of the corporation to "AVANTI CAPITAL CORP.".
5. The amendment has been duly authorized as required La modifications a ete dument autorisee
by Sections 167 and 169 (as applicable) of the conformement a l'article 167 et. s'il y a lieu.
Business Corporations Act. a l'article 169 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was Les actionnaires ou les administrateurs (Le cas
approved by the shareholders/directors (as echeant) de la compagnie ont approuve la
applicable) of the corporation on resolution autorisant la modification
23 June, 1998
--------------------------------------------------------- -------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate Les presents statuts sont signes en double
exemplaire.
/s/ MINE LAKE MINERALS INC.
-------------------------------------------------------
Name of Corporation
(Denomination sociale de la compagnie)
E-5
<PAGE>
For Ministry Use Only
A l'usage exclusif du ministere
Ministry of Ministere de Ontario Corporation Number
Consumer and Commercial la Consommation Numero de la compagnie en
Relations et du Commerce Ontario
Ontario
6 4 1 9 4 3
---------------------------
CERTIFICATE CERTIFICAT
Ceci certifie que les presents
This is to certify that these statuts entrent en vigueur le
articles are effective on
APRIL 30 AVRIL, 1992
Director /s/ Le Directeur TRANS
Companies Branch Direction des Compagnies CODE
--------
C
--------
18
- ------------------ -----------------------------------------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 1. The present name of the corporation is: Denomination sociale actuelle de la campagnie:
Business
Corporations A V A N T I C A P I T A L C O R P.
Act,
1982
Formule
numero 3
Loi de 1982
sur les
compagnies
2. The name of the corporation is changed (if Nouvelle denomination sociale de la campagnie (s'il y
applicable): a lieu):
A V A N T I C O R P. I N T E R N A T I O N A L I N C.
3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion:
21 October, 1985
-----------------------------------------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as Les statuts de la campagnie sont modifies de
follows: la facon suivante:
The Articles of the Corporation are hereby amended to:
(i) consolidate the issued and outstanding common shares of the corporation by
changing each of the issued and outstanding common shares into one-fifth (1/5) of a
common share; provided, however, that holders of common shares on the date that
the articles of amendment filed to give effect to such consolidation become
effective shall not be entitled to receive any factional common shares following the
consolidation; and
E-6
<PAGE>
5. The amendment has been duly authorized as required La modifications a ete dument autorisee
by Sections 167 and 169 (as applicable) of the conformement a l'article 167 et. s'il y a lieu.
Business Corporations Act. a l'article 169 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was Les actionnaires ou les administrateurs (Le cas
approved by the shareholders/directors (as echeant) de la compagnie approuve la resolution
applicable) of the corporation on autorisant la modification
April 30, 1992
--------------------------------------------------------- -------------------------------------------------------
(Day, Month, Year
(jour, mois, annee)
These articles are signed in duplicate. Les presents sont signes en double exemplaire.
AVANTI CAPITAL CORP.
--------------------------------------------
Name of Corporation
(Denomination sociale de la compagnie)
By:/Par /s/ Ross McGroarty, President
-------------------------------------
(Signature) (Description of Office)
(signature) (Fonction)
E-7
<PAGE>
For Ministry Use Only
A l'usage exclusif du ministere
Ministry of Ministere de Ontario Corporation Number
Consumer and Commercial la Consommation Numero de la compagnie en
Relations et du Commerce Ontario
Ontario
6 4 1 9 4 3
---------------------------
CERTIFICATE CERTIFICAT
Ceci certifie que les presents
This is to certify that these statuts entrent en vigueur le
articles are effective on
JANUARY 14 JANVIER, 1999
Director/Directeur TRANS
Business Corporations Act/Loi sur les societes par actions CODE
--------
C
--------
18
- ------------------ -----------------------------------------------------------------------------------------------------------------
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
Form 3 1. The present name of the corporation is: Denomination sociale actuelle de la campagnie:
Business
Corporations
Act,
Formule
numero 3
Loi de 1982
sur les
compagnies
A V A N T I C O R P I N T E R N A T I O N A L I N C.
2. The name of the corporation is changed (if Nouvelle denomination sociale de la campagnie (s'il y
applicable): a lieu):
M I C R O M E M T E C H N O L O G I E S I N C.
3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion:
21 October, 1985
-----------------------------------------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
4. The articles of the corporation are amended as Les statuts de la campagnie sont modifies
follows: de la facon suivante:
The name of the corporation be changed from "Avanticorp International Inc." to "Micromem Technologies Inc.".
5. The amendment has been duly authorized as required La modifications a ete dument autorisee
by Sections 167 and 169 (as applicable) of the conformement a l'article 167 et. s'il y a lieu.
Business Corporations Act. a l'article 169 de la Loi sur les compagnies.
6. The resolution authorizing the amendment was Les actionnaires ou les administrateurs (Le cas
approved by the shareholders/directors (as applicable) echeabt) de la compagnie ont approuve la
of the corporation on resolution autorisant la modification
11 January 1999
-----------------------------------------------------------------------------------------------------------------
(Day, Month, Year)
(jour, mois, annee)
These articles are signed in duplicate. Les presents sont signes en double exemplaire.
E-8
<PAGE>
AVANTICORP. INTERNATIONAL INC.
--------------------------------------------
By:/Par /s/ Ross McGroarty
-------------------------------------
Ross McGroarty, President
(Signature) (Description of Office)
(signature) (Fonction)
</TABLE>
E-9
INDEX
TO
BY-LAWS NO. 1 AND 2
NO. 1 - TRANSACTION OF BUSINESS AND AFFAIRS
Paragraph No. Page
GENERAL BUSINESS
1. Registered Office .....................................................1
2. Seal ..................................................................1
3. Financial Year.........................................................1
4. Banking Arrangements...................................................1
5. Execution of Instruments...............................................2
DIRECTORS
6. Power of Directors.....................................................2
7. Number of Directors and Quorum.........................................2
8. Qualifications ........................................................2
9. Resident Canadians.....................................................2
10. Transaction of Business................................................3
11. Election and Term......................................................3
12. Removal of Directors...................................................3
13. Vacancies..............................................................3
14. Calling of Meetings....................................................3
15. First Directors Meeting................................................3
16. Place of Meeting.......................................................4
17. Participation by Telephone.............................................4
18. Votes to Govern........................................................4
19. Remuneration of Directors..............................................4
20. Transaction of Business by Signature...................................4
21. One Director...........................................................4
22. Declaration of Interest................................................4
23. Avoidance Standards....................................................5
24. Standard of Care.......................................................5
25. Indemnity of Directors and Officers....................................5
26. Insurance for Directors and Officers...................................5
27. Financial Assistance...................................................6
E-10
<PAGE>
OFFICERS
28. Appointed Officers.....................................................6
29. President .............................................................6
30. Vice-President ........................................................7
31. General Manager .......................................................7
32. Secretary..............................................................7
33. Treasurer..............................................................7
34. Other Officers.........................................................7
35. Variation of Duties....................................................7
36. Agents and Attorneys ..................................................7
37. Fidelity Bonds ........................................................8
SHARES
38. Allotment .............................................................8
39. Payment of Commission .................................................8
40. Security Certificates .................................................8
41. Replacement of Security Certificates...................................8
42. Central and Branch Registers...........................................9
43. Transfer of Securities.................................................9
44. Dealings with Registered Holder........................................9
45. Lien on Shares.........................................................9
SHAREHOLDERS
46. Annual Meetings .......................................................9
47. Special Meeting .......................................................9
48. Notices ..............................................................10
49. Reports to Shareholders...............................................10
50. Persons Entitled to be Present........................................10
51. Record Date...........................................................10
52. Quorum................................................................10
53. Right to Vote.........................................................11
54. Representatives.......................................................11
55. Proxies...............................................................11
56. Joint Shareholders....................................................11
57. Scrutineers...........................................................11
58. Votes to Govern.......................................................12
59. Show of Hands.........................................................12
60. Polls.................................................................12
61. Casting Vote..........................................................12
62. Adjournment...........................................................12
63. Transaction of Business by Signature..................................12
E-11
<PAGE>
64. One Shareholder.......................................................12
65. Dividends.............................................................13
NOTICES
66. Method of Giving......................................................13
67. Computation of Time...................................................13
68. Omissions and Errors..................................................13
69. Notice to Joint Shareholders..........................................14
70. Persons Entitled by Death or Operation of Law ........................14
71. Waiver of Notice .....................................................14
INTERPRETATION
72. Interpretation........................................................14
MAKING AND CONFIRMATION...............................................15
NO. 2 -- BORROWING
Borrowing of Money, the Issuing of Debt Obligations and the
Securing of Liabilities...............................................16
MAKING AND CONFIRMATION...............................................17
E-12
<PAGE>
BY-LAW NO. 1
A BY-LAW RELATING GENERALLY TO THE TRANSACTION
OF THE BUSINESS AND AFFAIRS OF
MINE LAKE MINERALS, INC.
BE IT ENACTED and it is hereby enacted as a by-law of
MINE LAKE MINERALS, INC.
(hereinafter called the "Corporation") as follows:
GENERAL BUSINESS
Registered Office
1. The directors may from time to time by resolution fix the
location of the registered office of the Corporation within the municipality or
geographic township within Ontario as specified in its articles.
Seal
2. The Corporation shall have a corporate seal which shall be
adopted and may be changed by resolution of the directors.
Financial Year
3. The first financial year of the Corporation shall terminate on
a date to be determined by the directors of the Corporation and thereafter on
the anniversary date thereof in each year, until changed by resolution of the
directors of the Corporation.
Banking Arrangements
4. The banking business of the Corporation, or any part thereof,
shall be transacted with such bank, trust company or other firm or corporation
carrying on a banking business as the directors may designate, appoint or
authorize from time to time by resolution and all such banking business or any
part thereof shall be transacted on the Corporation's behalf by such one or more
officers and/or other persons as the board may designate, direct or authorize
from time to time by resolution and to the extent therein provided, including
without restricting the generality of the foregoing, the operation of the
Corporation's accounts; the making, signing, drawing, accepting, endorsing,
negotiating, allotting, depositing or transferring of any cheques, promissory
notes, drafts, acceptances, bills of exchange and orders for the payment of
money; the giving of receipts for and orders relating
E-13
<PAGE>
to any property of the Corporation; the execution of any agreement relating to
any banking business and defining the rights and powers of the parties thereto;
and the authorizing of any officer of such banker to do any act or thing on the
Corporation's behalf to facilitate such banking business.
Execution of Instruments
5. Deeds, transfers, assignments, contracts, obligations and
other instruments in writing requiring the signature of the Corporation may be
signed on behalf of the Corporation by the President alone.
and the corporate seal shall be affixed to such instruments as may be required
by any person so authorized to sign on behalf of the Corporation.
Notwithstanding any provisions to the contrary contained in the
by-laws of the Corporation, the directors may at any time and from time to time
by resolution direct the manner in which, and the person or persons by whom any
particular deed, transfer, contract, obligation or other instrument in writing,
any class of deeds, transfers, contracts, obligations or other instruments in
writing requiring signature by the Corporation may or shall be signed.
DIRECTORS
Power of Directors
6. The directors shall manage or supervise the management of the
business and affairs of the Corporation unless otherwise specifically provided
in any unanimous shareholder agreement.
Number of Directors and Quorum
7. Subject to the articles of the Corporation, the number of
directors of the Corporation shall be that number of directors as specified in
the articles or shall be that number of directors as determined from time to
time by a special resolution within the minimum and maximum as permitted by the
articles of the Corporation. A majority of the number of directors or minimum
number of directors required by the articles shall constitute a quorum at any
meeting of the directors. Notwithstanding vacancies, the remaining directors may
exercise all the powers of the board of directors so long as a quorum of the
board of directors remains in office.
E-14
<PAGE>
Qualifications
8. Each director shall be eighteen (18) or more years of age and
shall be an individual as defined by the Act. No person who is of unsound mind
and has been so found by a court in Canada or elsewhere or who has the status of
a bankrupt shall be a director. If a director acquires the status of a bankrupt
or becomes of unsound mind and is so found, he shall thereupon cease to be a
director.
Resident Canadians
9. A majority of the directors of the Corporation, other than a
non-resident corporation as defined by the Act, shall be resident Canadians.
Where the Corporation has only one or two directors, that director or one of the
two directors. as the case may be, shall be a resident Canadian.
Transaction of Business
10. The board of directors shall not transact any business at a
meeting of directors unless a majority of directors present are resident
Canadians or unless the Corporation is a non-resident corporation as defined by
the Act.
Election and Term
11. The directors shall be elected yearly to hold office until
the next annual meeting of the shareholders of the Corporation or until their
successors shall have been duly elected. The whole board shall be elected at
each annual meeting and all the directors then in office shall retire, but, if
qualified, are eligible for re-election. The election may be by a show of hands
or by a resolution of the shareholders unless a ballot be demanded by any
shareholder.
Removal of Directors
12. The shareholders may by ordinary resolution at an annual or
special meeting of the shareholders of the Corporation remove any director from
office. Notice of intention to pass any such resolution shall be given in the
notice calling the meeting and the shareholders may by a majority of votes cast
at that meeting elect a person otherwise qualified to fill the vacancy created
by the removal of such director.
Vacancies
13. Except as hereinafter provided vacancies on the board of
directors may be filled for the remainder of its term of office by qualified
persons by the remaining directors if they constitute a quorum. If there is not
a quorum of directors or if a vacancy results from a failure to elect the number
of directors required to be elected at any meeting of shareholders or if a
vacancy results from an increase in the number of directors where the directors
are otherwise authorized by special resolution to determine the number of
directors
E-15
<PAGE>
and the appointment of an additional director would result in a total number of
directors greater than one and one third (1 1/3) times the number of directors
required to have been elected at the last annual meeting of shareholders then
the directors then in office shall forthwith call a special meeting of the
shareholders to fill the vacancy and, if they fail to call a meeting or if there
are no directors then in office, the meeting may be called by any shareholder.
Calling of Meetings
14. Meetings of the board of directors shall be held from time to
time at such place, at such time and on such day as the President or a
Vice-President who is a director or any two (2) directors may determine, and the
Secretary shall call meetings when directed or authorized by the President or by
a Vice-President who is a director or by any two (2) directors. Notice of every
meeting so called shall be given to each director not less than forty-eight
hours (excluding any part of a Sunday or Holiday as defined by the
Interpretation Act of Canada for the time being in force) before the time when
the meeting is to be held and such notice shall specify the general nature of
any business to be transacted, save that no notice of a meeting shall be
necessary if all the directors are present, and do not object to the holding of
the meeting, or if those absent have waived notice of or have otherwise
signified their consent to the holding of such meeting.
First Directors Meeting
15. After incorporation an incorporator or a director may call a
meeting of the directors of the Corporation by the giving of not less than five
(5) days notice thereof to each director stating the time and place of the
meeting at which the directors may, make by-laws; adopt forms of security
certificates and corporate records; authorize the issue of securities; appoint
officers; appoint one or more auditors to hold office until the first annual or
a special meeting of shareholders; make banking arrangements; and transact any
other business.
Place of Meeting
16. Meetings of the board of directors may be held at the
registered office of the Corporation or at any other place within or outside of
Ontario; except that unless the Corporation is a non-resident corporation a
majority of the meetings of the board of directors in any financial year shall
be held at a place within Canada.
Participation by Telephone
17. With the unanimous consent of all the directors of the
Corporation present at or participating in a meeting, a meeting of directors or
of a committee of directors may be held by means of such telephone, electronic
or other communication facilities as permit all persons participating in the
meeting to communicate with each other simultaneously and instantaneously and a
director participating in such a meeting by such means is deemed to be present
at that meeting. If a majority of the directors participating at a
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meeting held as herein provided are then in Canada the meeting shall be deemed
to have been held in Canada.
Votes to Govern
18. At all meetings of the board of directors, unless otherwise
provided in the Act, every question shall be decided by a majority of the votes
cast on the question and in case of an equality of votes, the Chairman of the
meeting shall not be entitled to a second or casting vote.
Remuneration of Directors
19. The directors of the Corporation shall be paid such
remuneration as may be determined by the board of directors. Any remuneration so
payable to a director who is also an officer or employee of the Corporation or
is counsel or solicitor of the Corporation or otherwise serves it in a
professional capacity shall be, in addition to his salary as such officer, or
his professional fees as the case may be. The directors shall also be paid such
sums in respect of the out-of-pocket expenses incurred in attending board,
committee or shareholder meetings or otherwise in respect of the performance by
them of their duties as the board of directors may from time to time determine.
Transaction of Business by Signature
20. A resolution in writing signed by all the directors entitled
to vote on that resolution at a meeting of directors or a committee of
directors, is as valid as if it had been passed at a meeting of directors or a
committee of directors.
One Director
21. Where the Corporation has only one director, that director
may constitute a meeting.
Declaration of Interest
22. Every director or officer of the Corporation who, is a party
to a material contract or transaction or proposed material contract or
transaction with the Corporation, or is a director or an officer of, or has a
material interest in, any person who is a party to a material contract or
transaction or proposed material contract or transaction with the Corporation,
shall disclose in writing to the Corporation or request to have entered in the
minutes of the meeting of directors the nature and extent of his interest. All
such disclosures shall be made at the time required by the applicable provisions
of the Act and directors shall refrain from voting in respect of any such
contract or transaction unless otherwise permitted by the Act.
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Avoidance Standards
23. If a material contract is made or a material transaction is
entered into between the Corporation and a director or officer of the
Corporation or between the Corporation and any other person of which a director
or officer of the Corporation is a director or officer or in which he has a
material interest, the director or officer is not accountable to the Corporation
or its shareholders for any profit or gain realized from the contract or
transaction; and the contract or transaction is neither void or voidable, by
reason only of that relationship or by reason only that the director is present
at or is counted to determine the presence of a quorum at the meeting of
directors that authorized the contract or transaction, if the director or
officer disclosed his interest as hereinbefore provided and the contract or
transaction was reasonable and fair to the Corporation at the time it was so
approved. A director or officer acting honestly and in good faith is not
accountable to the Corporation or to its shareholders for any profit or gain
realized from any such contract or transaction by reason only of his holding the
office of director or officer and the contract or transaction, if it was
reasonable and fair to the Corporation at the time it was approved, is not by
reason only of the director's or officer's interests therein void or voidable
where, the contract or transaction is confirmed or approved by special
resolution at a meeting of the shareholders duly called for that purpose; and
the nature and extent of the director's or officer's interest in the contract or
transaction is disclosed in reasonable detail in the notice calling the meeting.
Standard of Care
24. Every director and officer of the Corporation in exercising
his powers and discharging his duties shall, act honestly and in good faith with
a view to the best interests of the Corporation; and exercise the care,
diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. Every director and officer of the Corporation shall
comply with the Act, the regulations, articles, by-laws and any unanimous
shareholder agreement.
Indemnity of Directors and Officers
25. The Corporation shall indemnify the directors and officers of
the Corporation, former directors or officers of the Corporation or a person who
acts or acted at the Corporation's request as a director or officer of a body
corporate of which the Corporation is or was a shareholder or creditor and his
heirs and legal representatives against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
director or officer of the Corporation or body corporate and with the approval
of the court in respect of an action by or on behalf of the Corporation or body
corporate to procure a judgment in its favour to which he is made a party by
reason of being or having been a director or officer of the Corporation or body
corporate against all costs, charges and expenses reasonably incurred by him in
connection with such action, if, he acted honestly and in good faith with a view
to the best interests of the Corporation; and in the case of a
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criminal or administrative action or proceeding that is enforced by a monetary
penalty, he had reasonable grounds for believing that his conduct was lawful.
Insurance for Directors and Officers
26. The Corporation may purchase and maintain insurance for the
benefit of the directors or officers of the Corporation, former directors or
officers of the Corporation or persons who act or acted at the Corporation's
request as a director or officer of a body corporate of which the Corporation is
or was a shareholder or creditor and his heirs and legal representatives against
any liability incurred by him, in his capacity as a director or officer of the
Corporation, except where the liability relates to his failure to act honestly
and in good faith with a view to the best interests of the Corporation; or in
his capacity as a director or officer of another body corporate where he acts or
acted in that capacity at the Corporation's request, except where the liability
relates to his failure to act honestly and in good faith with a view to the best
interests of the body corporate.
Financial Assistance
27. The Corporation or any corporation with which it is
affiliated, shall not, directly or indirectly, give financial assistance by
means of a loan, guarantee or otherwise, to any shareholder, director, officer
or employee of the Corporation or affiliated corporation or to an associate of
any such person for any purpose; or to any person for the purpose of or in
connection with a purchase of a share or a security convertible into or
exchangeable for a share, issued or to be issued by the Corporation or
affiliated Corporation, where there are reasonable grounds for believing that,
the Corporation is or after giving the financial assistance would be unable to
pay its liabilities as they become due; or the realizable value of the
Corporation's assets, excluding the amount of any financial assistance in the
form of a loan and in the form of any secured guarantee, after giving the
financial assistance, would be less than the aggregate of the Corporation's
liabilities and stated capital of all classes. The Corporation may give
financial assistance by means of a loan, guarantee or otherwise, to any person
in the ordinary course of business if the lending of money is part of the
ordinary business of the Corporation; to any person on account of expenditures
incurred or to be incurred on behalf of the Corporation; to its holding body
corporate if the Corporation is a wholly owned subsidiary of the holding body
corporate; to a subsidiary body corporate of the Corporation; or to employees of
the Corporation or any of its affiliates, to enable or assist them to purchase
or erect living accommodation for their own occupation, or in accordance with a
plan for the purchase of shares of the Corporation or any of its affiliates.
OFFICERS
Appointed Officers
28. The directors of the Corporation may from time to time
designate the offices of the Corporation, appoint officers, specify their duties
and, subject to the Act, delegate to them powers to manage the business and
affairs of the Corporation. A director
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may be appointed to any office of the Corporation and two or more offices of the
Corporation may be held by the same person. In the absence of a written
agreement to the contrary, the board of directors may remove at its pleasure any
officer of the Corporation. The terms of employment and remuneration of any
officer so appointed by it shall be settled from time to time by the board of
directors. Unless otherwise from time to time specified by the board of
directors the offices of the Corporation, if so designated, and the officers so
appointed shall have the following duties and powers.
President
29. The President shall, when present, preside at all meetings of
the shareholders and of the board of directors and shall be charged with the
general supervision of the business and affairs of the Corporation. Except when
the board of directors has appointed a general manager or managing director, the
President shall also have the powers and be charged with the duties of that
office.
The President shall be appointed from amongst the directors.
Vice-President
30. During the absence or inability of the President his duties
may be performed and his powers may be exercised by the Vice-President, or if
there are more than one, by the Vice-President in order of seniority (as
determined by the board of directors) save that no Vice-President shall preside
at a meeting of the board of directors or at a meeting of shareholders who is
not qualified to attend the meeting as a director, as the case may be. If a
Vice-President exercises any such duty or power, the absence or inability of the
President shall be presumed with reference thereto. A Vice-President shall also
perform such duties and exercise such powers as the President may from time to
time delegate to him or the board may prescribe.
General Manager
31. The General Manager, if one be appointed, shall have the
general management and direction, subject to the authority of the board of
directors and supervision of the President, of the Corporation's business and
affairs and the power to appoint and remove any and all officers, employees and
agents of the Corporation not appointed directly by the board of directors and
to settle the terms of their employment and remuneration. If and so long as the
general manager is a director he may but need not be known as the Managing
Director.
Secretary
32. The Secretary shall give, or cause to be given, all notices
required to be given to shareholders, directors, auditors and members of
committees; he shall attend all meetings of the directors and of the
shareholders and shall enter or cause to be entered in books kept for that
purpose minutes of all proceedings at such meetings; he shall be the
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custodian of the stamp or mechanical device generally used for affixing the
corporate seal of the Corporation and of all books, papers, records, documents
and other instruments belonging to the Corporation; and he shall perform such
other duties as may from time to time be prescribed by the board of directors.
Treasurer
33. The Treasurer shall keep full and accurate books of account
in which shall be recorded all receipts and disbursements of the Corporation
and, under the direction of the board of directors, shall control the deposit of
money, the safekeeping of securities and the disbursement of the funds of the
Corporation; he shall render to the board of directors at the meetings thereof,
or whenever required of him an account of all his transactions as Treasurer and
of the financial position of the Corporation; and he shall perform such other
duties as may from time to time be prescribed by the board of directors.
Other Officers
34. The duties of all other officers of the Corporation shall be
such as the terms of their engagement call for or the board of directors
requires of them. Any of the powers and duties of an officer to whom an
assistant has been appointed may be exercised and performed by such assistant,
unless the board of directors otherwise directs.
Variation of Duties
35. From time to time the board may vary, add to or limit the
powers and duties of any officer or officers.
Agents and Attorneys
36. The board of directors shall have power from time to time to
appoint agents or attorneys for the Corporation in or out of Canada with such
powers of management or otherwise (including the power to sub-delegate) as may
be thought fit.
Fidelity Bonds
37. The board of directors may require such officers, employees
and agents of the Corporation as the board of directors deems advisable to
furnish bonds for the faithful discharge of their duties, in such form and with
such surety as the board of directors may from time to time prescribe.
SHARES
Allotment
38. The board of directors may from time to time accept
subscriptions and allot or grant options to purchase the whole or any part of
the authorized and unissued shares
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in the Corporation including any shares created by an amendment to the articles
of the Corporation to such person or persons or class of persons as the board of
directors shall by resolution determine.
Payment of Commission
39. The directors may authorize the Corporation to pay a
reasonable commission to any person in consideration of his purchasing or
agreeing to purchase shares of the Corporation from the Corporation or from any
other person, or procuring or agreeing to procure purchasers for any such
shares.
Security Certificates
40. Every security holder including every shareholder shall be
entitled, in the case of initial issuance without payment and in the case of any
subsequent transfer upon payment of a fee of not more than three dollars ($3.00)
to a security certificate in respect of the securities held by him or to a
non-transferable written acknowledgement of his right to obtain a security
certificate from the Corporation in respect of the securities of the Corporation
held by him. Security certificates shall be in such form or forms as the board
of directors shall from time to time approve. Unless otherwise ordered by the
board of directors, they shall be signed by the President or a Vice-President
and by the Secretary or an assistant Secretary and need not be under the
corporate seal; provided that certificates representing securities in respect of
which a transfer agent and registrar (which term shall include a branch transfer
agent and registrar) or trustee have been appointed shall not be valid unless
countersigned by or on behalf of such transfer agent and registrar or trustee.
If authorized by resolution of the board of directors, the corporate seal of the
Corporation and the signature of one of the signing officers, or in the case of
security certificates representing securities in respect of which a transfer
agent and registrar or trustee have been appointed, the signatures of both
signing officers, may be printed, engraved, lithographed, or otherwise
mechanically reproduced in facsimile upon security certificates and every such
facsimile signature shall for all purposes be deemed to be the signature of the
officer whose signature it reproduces and shall be valid notwithstanding that
one or both of the officers whose signature (whether manual or facsimile)
appears thereon no longer holds office at the date of issue or delivery of the
certificate.
Replacement of Security Certificates
41. The board of directors may by resolution prescribe, either
generally or in a particular case, reasonable conditions upon which a new
security certificate may be issued in lieu of and upon cancellation of the
security certificate which has become mutilated or in substitution for a
certificate which has been lost, stolen or destroyed.
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Central and Branch Registers
42. The Corporation shall maintain a central securities register
and a central register of transfers at its registered office or at any other
place in Ontario designated by the directors and one or more branch securities
register and register of transfers at such offices of the Corporation or other
places either within or outside Ontario as designated by the directors. The
board of directors may from time to time by resolution appoint a registrar,
trustee or agent to keep the register of security holders and a transfer agent,
trustee or other agent to keep the register of transfers and may also designate
from time to time branch registers of security holders and branch registers of
transfers. A registrar, trustee, transfer agent or other agent may but need not
be the same individual or Corporation.
Transfer of Securities
43. Transfers of securities of the Corporation shall be
registrable on the register of transfers or on one of the branch registers of
transfers (if any) kept by or for the Corporation in respect thereof upon
surrender of the security endorsed by the appropriate person together with such
reasonable assurance as the Corporation shall require and subject to the other
provisions of the Act relating to transfers and the restrictions on transfer set
forth in the articles of the Corporation.
Dealings with Registered Holder
44. The Corporation and any trustee appointed in respect of a
security may, subject to the Act, treat the registered holder of a security as a
person exclusively entitled to vote, to receive notices, to receive any
interest, dividend or other payments in respect of the security, and otherwise
to exercise all the rights and powers of a holder of the security and is not
required to inquire into the existence of, or see to the performance or
observance of, any duty owed to a third person by a registered holder of any of
its securities or by anyone whom it treats, as permitted or required by the Act,
as the owner or registered holder thereof.
Lien on Shares
45. Subject to the provisions of the Act, the Corporation has a
lien on a share registered in the name of a shareholder or his legal
representative for a debt of that shareholder to the Corporation which lien may
be realized by the sale or other disposition of such share or by any other
method permitted by law.
SHAREHOLDERS
Annual Meetings
46. The annual meeting of shareholders shall, subject to the
articles and any unanimous shareholder agreement be held at such place in or
outside Ontario as the directors may determine for the purpose of hearing and
receiving the reports and statements
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required by the Act to be read and laid before the shareholders at any annual
meeting, electing directors, reappointing, if necessary, the incumbent auditor
and fixing or authorizing the board of directors to fix his remuneration. No
other business shall be transacted at an annual meeting of shareholders unless
such meeting is also properly constituted as a special meeting of shareholders.
Special Meeting
47. The directors of the Corporation may at any time and from
time to time call a special meeting of shareholders of the Corporation to be
held at such time and at such place in or outside Ontario as the directors
determine. The phrase "meeting of shareholders" wherever it occurs in this
by-law shall mean and include the annual meeting of shareholders and a special
meeting of shareholders and shall also include a meeting of any class or classes
of shareholders.
Notices
48. No public notice or advertisement of any meeting of
shareholders shall be required, but notice of the time and place of each such
meeting shall be given not less than ten (10) days nor more than fifty (50) days
before the day on which the meeting is to be held, to the auditor, if any, the
directors and to each shareholder entitled to vote at the meeting. Notice of a
special meeting of shareholders shall state or be accompanied by a statement of,
the nature of that special business in sufficient detail to permit the
shareholder to form a reasoned judgment thereon; and the text of any special
resolution or by-law to be submitted to the meeting. A meeting of shareholders
may be held at any time without notice if all the shareholders entitled to vote
thereat are present or represented by proxy and do not object to the holding of
the meeting or those not present or represented by a proxy have waived notice,
if all the directors are present or have waived notice and if the auditor, if
any, is present or has waived notice.
Reports to Shareholders
49. Subject to the provisions of the Act a copy of the financial
statements for the period that began immediately after the end of the last
completed financial year and ended not more than six (6) months before the
annual meeting, a copy of the auditor's report, if any, and any further
information respecting the financial position of the Corporation and the results
of its operations required by the articles, the by-laws or any unanimous
shareholder agreement shall be sent to each shareholder not less than ten (10)
days before each annual meeting of shareholders or before the transaction of the
annual business of the Corporation pursuant to paragraph 62 hereof.
Persons Entitled to be Present
50. Persons entitled to attend a meeting of shareholders shall be
those entitled to vote thereat, the auditor, if any, of the Corporation, the
directors of the Corporation and others who although not entitled to vote are
entitled or required under the
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provisions of the Act or by-laws of the Corporation or any unanimous shareholder
agreement to be present at the meeting. Any other person may be admitted only on
the invitation of the Chairman of the meeting or with the consent of the
meeting.
Record Date
51. The directors may fix in advance a date preceding by not more
than fifty (50) days or by less than twenty-one (21) days a record date for the
determination of persons entitled to receive notice of a meeting of shareholders
and notice thereof shall be given not less than seven (7) days before the date
so fixed by advertisement and by notice as provided in the Act. The directors
may also fix in advance the date as the record date for the purpose of
determining shareholders, entitled to receive payment of a dividend; entitled to
participate in a liquidation or distribution; or for any other purpose except
the right to receive notice of or to vote at a meeting which such record date
shall not precede by more than fifty (50) days the date on which such particular
action is to be taken and notice thereof shall be given as hereinbefore
provided.
Quorum
52. Two persons present in person and each entitled to vote
thereat shall constitute a quorum for the transaction of business at any meeting
of shareholders.
Right to Vote
53. At each meeting of shareholders every shareholder shall be
entitled to vote who is entered on the books of the Corporation as a holder of
one or more shares carrying the right to vote at such meeting in accordance with
a shareholder list which, in the case of a record date shall be prepared not
later than ten (10) days after such record date and where there is no record
date at the close of business on the day immediately preceding the day on which
notice is given or where no notice is given on the day on which the meeting is
held. Where a person has transferred any of his shares after the date on which
the list hereinbefore referred to was prepared and the transferee produces
satisfactory evidence in accordance with the provisions of the Act not later
than ten (10) days before the meeting that such person owns shares in the
Corporation such transferee is entitled to vote his shares at the meeting. Where
a share or shares have been mortgaged or hypothecated, the person who mortgaged
or hypothecated such share or shares (or his proxy) may nevertheless represent
the shares at meetings and vote in respect thereof unless in the instrument
creating the mortgage or hypothec he has expressly empowered the holder of such
mortgage or hypothec to vote thereon, in which case such holder (or his proxy)
may attend meetings to vote in respect of such shares upon filing with the
Secretary of the meeting sufficient proof of the terms of such instrument.
Representatives
54. An executor, administrator, committee of a mentally
incompetent person, guardian or trustee and where a Corporation is such
executor, administrator,
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committee, guardian or trustee of a testator, intestate, mentally incompetent
person, ward or cestui que trust, any person duly appointed a proxy for such
corporation, upon filing with the Secretary of the meeting sufficient proof of
his appointment, shall represent the shares in his or its hands at all meetings
of the shareholders of the Corporation and may vote accordingly as a shareholder
in the same manner and to the same extent as the shareholder of record. If there
be more than one executor, administrator, committee, guardian or trustee, the
provisions of paragraph 56 shall apply.
Proxies
55. Every shareholder entitled to vote at a meeting of
shareholders may by means of a proxy appoint a proxy holder or one or more
alternate proxy holders, who need not be shareholders, as his nominee to attend
and act at the meeting in manner, to the extent and with the authority conferred
by the proxy. The instrument appointing a proxy shall be executed by the
shareholder or his attorney authorized in writing or, if the shareholder is a
body corporate, by an officer or attorney thereof duly authorized and shall
cease to be valid after the expiration of one year from the date thereof. The
instrument appointing a proxy shall comply with the provisions of the Act and
regulations thereto and shall be in such form as the directors may from time to
time prescribe or in such other form as the Chairman of the meeting may accept
as sufficient and shall be deposited with the Secretary of the meeting before
any vote is cast under its authority, or at such earlier time and in such manner
as the board or directors may prescribe in accordance with the Act.
Joint Shareholders
56. Where two or more persons hold shares jointly, one of those
holders present at a meeting of shareholders may in the absence of the others
vote the shares, but if two or more of those persons are present, in person or
by proxy, they shall vote as one of the shares jointly held by them.
Scrutineers
57. At each meeting of shareholders one or more scrutineers may
be appointed by a resolution of the meeting or by the Chairman with the consent
of the meeting to serve at the meeting. Such scrutineers need not be
shareholders of the Corporation.
Votes to Govern
58. At all meetings of shareholders every question shall, unless
otherwise required by the articles or by-laws of the Corporation or by the Act,
be decided by the majority of the votes duly cast on the question.
Show of Hands
59. At all meetings of shareholders every question shall be
decided by a show of hands unless a poll thereon be required by the Chairman or
be demanded by any
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shareholder present in person or represented by proxy and entitled to vote. Upon
a show of hands every person present and entitled to vote shall have one vote.
After a show of hands has been taken upon any question the Chairman may require
or any shareholder present in person or represented by proxy and entitled to
vote may demand a poll thereon. Whenever a vote by show of hands shall have been
taken upon a question, unless a poll thereon be so required or demanded, a
declaration by the Chairman of the meeting that the vote upon the question has
been carried or carried by a particular majority or not carried and an entry to
that effect in the minutes of the proceedings at the meeting shall be prima
facie evidence of the fact without proof of the number or proportions of the
votes recorded in favour of or against any resolution or other proceeding in
respect of the said question, and the result of the vote so taken shall be the
decision of the Corporation in annual or special meeting, as the case may be,
upon the question. A demand for a poll may be withdrawn at any time prior to the
taking of the poll.
Polls
60. If a poll be required by the Chairman of the meeting or be
duly demanded by any shareholder and the demand be not withdrawn, a poll upon
the question shall be taken in such manner as the Chairman of the meeting shall
direct. Upon a poll each shareholder who is present in person or represented by
proxy shall be entitled to one vote for each share in respect of which he is
entitled to vote at the meeting and the result of the poll shall be the decision
of the Corporation in annual or special meeting, as the case may be, upon the
question.
Casting Vote
61. In case of an equality of votes at any meeting of
shareholders, either upon a show of hands or upon a poll, the Chairman of the
meeting shall not be entitled to a second or casting vote.
Adjournment
62. The Chairman of the meeting of shareholders may, with the
consent of the meeting and subject to such conditions as the meeting may decide,
or where otherwise permitted under the provisions of the Act, adjourn the
meeting from time to time and from place to place.
Transaction of Business by Signature
63. Subject to the provisions of the Act, a resolution in writing
signed by all the shareholders entitled to vote on that resolution at a meeting
of shareholders is as valid as if it had been passed at a meeting of
shareholders; and a resolution in writing dealing with all matters required by
this Act, be dealt with at a meeting of shareholders and signed by all the
shareholders entitled to vote at that meeting, satisfies all other requirements
of the Act relating to that meeting of shareholders.
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One Shareholder
64. Where the Corporation has only one shareholder, all business
which the Corporation may transact at an annual or special meeting of
shareholders shall be transacted in the manner provided for in paragraph 63
hereof.
Dividends
65. The board of directors may from time to time declare
dividends payable to shareholders according to their respective rights and
interests in the Corporation. The Corporation may pay a dividend by issuing
fully paid shares of the Corporation or options or rights to acquire fully paid
shares of the Corporation and the Corporation may pay a dividend in money or
property. A dividend payable in money shall be paid by cheque drawn on the
Corporation's bankers or one of them to the order of each registered holder of
shares of the class in respect of which it has been declared and mailed by
ordinary mail, postage prepaid, to such registered holder at his last address
appearing on the books of the Corporation. In the case of joint holders the
cheque shall, unless such joint holders otherwise direct, be made payable to the
order of all such joint holders and if more than one address appears on the
books of the Corporation in respect of such joint holding the cheque shall be
mailed to the first address so appearing. The mailing of such cheque as
aforesaid shall satisfy and discharge all liability for the dividend to the
extent of the sum represented thereby, unless such cheque be not paid at par on
due presentation. In the event of non-receipt of any cheques for dividends by
the person to whom it is so sent as aforesaid, the Corporation on proof of such
non-receipt and upon satisfactory indemnity being given to it, shall issue to
such person a replacement cheque for a like amount. Any dividend which remains
unclaimed after a period of twelve (12) years after the date on which it has
been declared payable shall be forfeited and revert to the Corporation.
NOTICES
Method of Giving
66. Any notice, communication or other document to be given by
the Corporation to a shareholder, director, officer or auditor of the
Corporation under any of the provisions of the articles or by-laws or the Act
shall be sufficiently given if sent to such shareholder, director, officer or
auditor by prepaid mail addressed to, or may be delivered personally to, a
shareholder at his last address as shown on the records of the Corporation or
its transfer agent; and a director, officer or auditor at his last address as
shown in the records of the Corporation or in the case of a director or officer
in the most recent notice filed under the Corporations Information Act,
whichever is the more current. A notice or document sent by prepaid mail as
hereinbefore provided to a shareholder, director, officer or auditor of the
Corporation shall be deemed to be received by the addressee on the fifth day
after mailing. Where the Corporation sends a notice or document to a shareholder
by prepaid mail as hereinbefore provided and the notice or document is returned
on three consecutive occasions because the shareholder cannot be found, the
Corporation is not required to send any further
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notices or documents to the shareholder until he informs the Corporation in
writing of his new address.
Computation of Time
67. In computing the date when notice must be given under any
provision of the articles or by-laws requiring a specified number of days'
notice of any meeting or other event, the date of giving the notice and the date
of the meeting or other event shall be excluded.
Omissions and Errors
68. The accidental omission to give any notice to any
shareholder, director, officer or auditor or any error in any notice not
affecting the substance thereof shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.
Notice to Joint Shareholders
69. All notices with respect to any shares registered in more
than one name may if more than one address appears on the books of the
Corporation in respect of such joint holding, be given to such joint
shareholders at the first address so appearing, and notice so given shall be
sufficient notice to all the holders of such shares.
Persons Entitled by Death or Operation of Law
70. Every person who by operation of law, transfer, death of a
shareholder or by any means whatsoever, shall become entitled to any share or
shares, shall be bound by every notice in respect of such share or shares which
shall have been duly given to the person from whom he derives his title to such
share or shares, previously to his name and address being entered on the books
of the Corporation (whether it be before or after the happening of the event
upon which he became entitled).
Waiver of Notice
71. Where a notice or document is required by the Act, or the
articles or by-laws of the Corporation to be sent, the notice may be waived or
the time for sending the notice or document may be waived or abridged at any
time with the consent in writing of the person entitled thereto.
INTERPRETATION
72. In this by-law and all other by-laws of the Corporation,
words importing the singular number only shall include the plural and
vice-versa; words importing the masculine gender shall include the feminine and
neuter genders; words importing persons shall include individuals, sole
proprietorships, partnerships, unincorporated associations,
E-29
<PAGE>
unincorporated syndicates, unincorporated organizations, trusts, body corporates
and natural persons in their capacity as trustees, executors, administrators or
other legal representatives; "resident Canadian" means an individual who is
determined to be a resident Canadian as defined by the Act; "articles" shall
include the original or restated articles of incorporation, articles of
amendment, articles of amalgamation, articles of continuance, articles of
reorganization, articles of arrangement, articles of dissolution, articles of
revival and any amendments thereto; the "Act" shall mean the Business
Corporations Act, 1982 as amended from time to time or any act that may
hereafter be substituted therefor.
PASSED the 21st day of October, 1985.
WITNESS the corporate seal of the Corporation.
/s/ Glen Erikson
----------------------------------
President
/s/
----------------------------------c/s
Secretary
E-30
<PAGE>
BE IT RESOLVED THAT By-Law Number 1 being a by-law relating
generally to the transaction of the business and affairs of the Corporation be
and the same is hereby made as a by-law of the Corporation and the President and
the Secretary be and they are hereby authorized to sign the by-law and to apply
the corporate seal thereto.
THE UNDERSIGNED, being all the directors of the Corporation
hereby sign the foregoing resolution pursuant to the provisions of the Business
Corporations Act, 1982.
DATED the 21st day of October, 1985
/s/John Eversley
----------------------------------
JOHN EVERSLEY
/s/Richard Lachcik
----------------------------------
RICHARD LACHCIK
/s/Mark Mickleborough
----------------------------------
MARK MICKLEBOROUGH
BE IT RESOLVED THAT By-Law Number 1 being a by-law relating
generally to the transaction of the business and affairs of the Corporation be
and the same is hereby confirmed without amendment as a by-law of the
Corporation.
THE UNDERSIGNED, being all the shareholders of the Corporation
hereby sign the foregoing resolution pursuant to the provisions of the Business
Corporations Act, 1982.
DATED the 21st day of October, 1985
/s/Glen Erikson
----------------------------------
GLEN ERIKSON
GYRO CAPITAL, INC.
----------------------------------
per:/s/
----------------------------------
A.S.O.
E-31
<PAGE>
BY-LAW NUMBER 2
A BY-LAW RESPECTING THE BORROWING OF MONEY,
THE ISSUING OF DEBT OBLIGATIONS AND THE SECURING OF LIABILITIES
BE IT ENACTED and it is hereby enacted as a by-law of
MINE LAKE MINERALS INC.
(hereinafter called the "Corporation") as follows:
The directors of the Corporation may from time to time:
(a) Borrow money on the credit of the Corporation;
(b) Issue, reissue, sell or pledge debt obligations of the
Corporation but no invitation shall be extended to the public to
subscribe for any such debt obligations;
(c) Subject to the Business Corporations Act, 1982, give a guarantee
on behalf of the Corporation to secure performance of an
obligation of any person;
(d) Mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any obligation of the
Corporation; and
(e) Delegate the powers conferred on the directors under this by-law
to a director, a committee of directors or an officer of the
Corporation to such extent and in such manner as the directors
shall by resolution determine.
PASSED the 21st day of October 1985.
WITNESS the corporate seal of the Corporation.
/s/Glen Erikson
----------------------------------
President
/s/
----------------------------------c/s
Secretary
E-32
<PAGE>
BE IT RESOLVED THAT By-Law Number 2 being a by-law relating
generally to the borrowing of money by the Corporation be and the same is hereby
made as a by-law of the Corporation and the President and the Secretary be and
they are hereby authorized to sign the by-law and to apply the corporate seal
thereto.
THE UNDERSIGNED, being all the directors of the Corporation
hereby sign the foregoing resolution pursuant to the provisions of the Business
Corporations Act, 1982.
DATED the 21st day of October, 1985
/s/John Eversley
----------------------------------
JOHN EVERSLEY
/s/Richard Lachcik
----------------------------------
RICHARD LACHCIK
/s/Mark Mickleborough
----------------------------------
MARK MICKLEBOROUGH
BE IT RESOLVED THAT By-Law Number 2 being a by-law relating
generally to the borrowing of money by the Corporation be and the same is hereby
confirmed without amendment as a by-law of the Corporation.
THE UNDERSIGNED, being all the shareholders of the Corporation
hereby sign the foregoing resolution pursuant to the provisions of the Business
Corporations Act, 1982.
DATED the 21st day of October, 1985
/s/Glen Erikson
----------------------------------
GLEN ERIKSON
GYRO CAPITAL, INC.
----------------------------------
per:/s/
----------------------------------
A.S.O.
E-33
Avanticorp International Inc.
150 York Street, Suite 1206
Toronto, Ontario M5H-3S5
December 7, 1999
Ataraxia Corp. and
Pageant Technologies Inc.
P.O. Box 267
Providenciales,
Turks & Caicos Islands
Dear Sirs,
This letter sets out the agreement among Ataraxia Corp. (the "Vendor"),
Pageant Technologies Inc. (the "Corporation") and Avanticorp International Inc.
(the "Purchaser") pursuant to which the Vendor has agreed to sell to the
Purchaser and the Purchaser has agreed to purchase from the Vendor all of the
outstanding shares in the capital of the Corporation as follows:
1. Subject to the terms hereof, the Purchaser hereby agrees to purchase from
the Vendor and the Vendor hereby agrees to sell, assign and transfer and
cause to be sold, assigned and transferred to the Purchaser all of the
outstanding shares in the capital stock of the Corporation (collectively
the "Purchased Shares") legally and beneficially owned by the Vendor, in
exchange for 32.0 million fully paid and non-assessable common shares and
one million common share purchase warrants (the "Warrants") (collectively,
the "Exchanged Securities"). Each Warrant shall entitle its holder to
purchase one common share of the Purchaser for (Cdn.) $2.00 during the
first twelve months and (Cdn.) $2.30 during the second twelve months and
shall expire two years from the date of its issue. The parties agree that
the Purchaser shall on the Escrow Closing Date issue the Exchanged
Securities in the names of the persons set forth in Schedule "A" hereto in
the quantities as set forth therein. The parties agree that the Exchanged
Securities shall be issued pursuant to sub-section 72(1)(j) of the
Securities Act (Ontario) (the "Act").
2. The closing of the purchase and sale of the Purchased Shares (the
"Closing") will be completed in escrow at 11:00 a.m. on the date hereof
(the "Escrow Closing Date") at 150 York Street, Suite 1206, Toronto,
Canada.
3. Immediately upon execution and delivery of this agreement, the parties
shall hold all closing documents in escrow (the "Escrow") as follows:
(A) the parties hereby direct and authorize the Vendor's legal counsel,
Hugh O'Neil & Company, Turks & Caicos, (the "Vendor's Counsel"), to
hold the following documents (the "Vendor's Closing Documents") in
escrow during the period commencing on the date hereof to the Release
Date (the "Interim Period"): (i) a certificate or certificates
representing the Purchased Shares, all duly endorsed
E-34
<PAGE>
in transferable form with all signatures guaranteed by a Canadian
Chartered Bank or another institution acceptable to the transfer agent
of the Corporation; and (ii) an unsigned legal opinion from the
Vendor's legal counsel in the form annexed hereto as Schedule "B" (the
"Vendor's Counsel's Opinion");
(B) the parties further agree that the Purchaser shall hold in escrow the
following documents (the "Purchaser's Closing Documents") during the
Interim Period: (i) a certificate or certificates representing the
Exchanged Securities and the date of issuance of said securities shall
be post-dated to January 12, 1999 (the "Release Date); and (ii) an
unsigned legal opinion from the Purchaser's legal counsel in the form
annexed hereto as Schedule "C" (the "Purchaser's Counsel's Opinion");
and
(C) the Purchaser shall deliver to the Vendor photostatic copies of the
Purchaser's Closing Documents and the Vendor shall deliver to the
Purchaser photostatic copies of the Vendor's Closing Documents.
4. On the Release Date, the parties hereby direct the Vendor's Counsel to
deliver to the Purchaser the Vendor's Closing Documents which shall include
a signed copy of the Vendor's Counsel's Opinion, and the Purchaser shall
deliver to the Vendor the Purchaser's Closing Documents, which shall
include a signed copy of the Purchaser's Counsel's Opinion, save and except
that the certificates representing the Exchanged Securities that are to be
issued in the names of Skyfield Ventures Inc. and Magaly Bianchini shall be
delivered to their respective duly authorized representatives (the "Release
of Documents"). The Release of Documents shall take place at 2:00 p.m. on
the Release Date at the offices of the Purchaser, at 150 York Street, Suite
1206, Toronto, Ontario or at such other place as the parties may mutually
agree in writing.
5. The Vendor hereby covenants, represents and warrants to the Purchaser as
follows and acknowledges that the Purchaser is relying on such
representations and warranties in connection with the purchase by it of the
Purchased Shares:
(a) Except as required by subsection 5(b) hereof, the Corporation's
financial statements consisting of a statement of loss and accumulated
deficit and statement of cash flows for the period ended August 31,
1998 and a balance sheet as at August 31, 1998 together with the notes
thereto and the auditors' report thereon (the "Corporation's Financial
Statements"), a copy whereof being annexed hereto as Schedule "D", are
true and correct in every material respect and present fairly the
financial position of the Corporation as at the date of the
Corporation's Financial Statements and the results of its operations
for the period then ended;
(b) The liabilities of the Corporation described as Convertible loans and
carried at $563,041 on the balance sheet of the Corporation included
in the Corporation's Financial Statements and all other liabilities of
the Corporation save and except those incurred in the ordinary course
of the Corporation's business will have been
E-35
<PAGE>
satisfied and discharged on or before the Release Date without any
cost or liability to the Corporation and the Corporation's cash on
hand will be nil on the Release Date;
(c) the Corporation owns a fifty per cent (50%) interest in U.S. Patent
No. 5,295,097, EEC Patent No. 93918644 and Japan Patent No.
505547/1944 (Collectively, the "Patents"), copies of which are
attached as Schedule "E" hereto, which are the patents for MAGRAM
Technology (as defined below) free and clear of all rights, liens,
encumbrances, security interests, mortgages and claims whatsoever and
the other 50% interest in the Patents is owned by Estancia Limited
("Estancia") a Turks & Caicos corporation;
(d) the Corporation holds a valid enforceable exclusive license from
Estancia, to exclusively develop, modify, improve, sell, distribute
and exploit the high performance memory and memory intensive logic
products and technologies, previously called Hall Effect Ferromagnetic
Technology or HFRAM Technology and now referred to as MAGRAM
Technology (herein, "MAGRAM Technology") (the "Exploitation Rights"),
subject to a 40% net profit interest payable to Estancia;
(e) attached as Schedule "F" to this agreement, and as initialled by the
parties, is a true copy of the agreement between Richard Lienau,
Estancia and the Corporation pursuant to which the Corporation
purchased the Exploitation Rights;
(f) the Vendor has the right and entitlement to sell, assign and transfer
the Purchased Shares to the Purchaser pursuant to the terms of this
agreement and the Inventor has granted all requisite consents and
approvals to the transactions contemplated herein;
(g) there will not be any liabilities, contingent or otherwise, of the
Corporation not disclosed or reflected in the Corporation's Financial
Statements except those incurred in the ordinary course of business of
the Corporation since the date of the Corporation's Financial
Statements, and the Corporation has not and will not have guaranteed
or agreed to guarantee any debt, liability or other obligation of any
person, firm or corporation;
(h) on the Release Date, the Vendor shall be the sole legal and beneficial
holder of the Purchased Shares free and clear of any claims, liens,
charges or encumbrances whatsoever and there shall be no contract,
option or right binding upon the Vendor to sell the Purchased Shares
to any person except for the Purchaser pursuant to this agreement.
6. The Purchaser hereby covenants, represents and warrants to the Vendor as
follows and acknowledges that the Vendor is relying on such representations
and warranties in connection with the sale by it of the Purchased Shares:
(a) the Purchaser's financial statements consisting of a statement of loss
and accumulated deficit and statement of cash flows for the period
ended October 31, 1998 and a balance sheet as at October 31, 1998
together with the notes thereto and the auditors' report thereon (the
"Purchaser's Financial Statements"), a copy whereof being annexed
hereto as Schedule "G", are true and correct in every
E-36
<PAGE>
material respect and present fairly the financial position of the
Purchaser as at the date of the Purchaser's Financial Statements and
the results of its operations for the period then ended;
(b) the Purchaser shall as soon as possible following the execution and
delivery of this agreement deliver to the Vendor a list of the
Purchaser's shareholders produced and certified by the Purchaser's
transfer agent and registrar, Equity Transfer Services Inc., and the
said list shall confirm the number of outstanding common shares of the
Purchaser at 3,490,643 as at the date hereof;
(c) the Purchaser has the right and entitlement to issue the Exchanged
Securities to the Vendor pursuant to the terms of this agreement, and
upon their issue as fully paid and non-assessable securities pursuant
to the terms hereof, the holder of the Exchanged Securities will not
be required, under the Act, to hold the Exchanged Securities for any
period of time prior to their resale provided that such resale is not
a "distribution" as such term is defined in clause (c) of the
definition of "distribution" in the Act;
(d) there will not be any liabilities, contingent or otherwise, of the
Purchaser not disclosed or reflected in the Purchaser's Financial
Statements except those incurred in the ordinary course of business of
the Purchaser and those required to complete the transactions
contemplated herein since the date of the Purchaser's Financial
Statements, and the Purchaser has not and will not have guaranteed or
agreed to guarantee any debt, liability or other obligation of any
person, firm or corporation;
(e) the Purchaser undertakes and agrees to comply with all applicable laws
and the rules and regulations of any securities regulatory authority
governing the issuance of the Exchanged Securities;
(f) the Purchaser is not aware of any material pending or threatened
investigations or actions by environmental regulatory authorities in
connection with any of its properties or assets or any material
pending or threatened claims relating to environmental conditions of
its properties or assets; and
(g) there are no actions, suits, proceedings or inquiries pending or
threatened against or affecting the Purchaser at law or before or by
any federal, provincial, municipal or other governmental department,
commission, board, bureau or agency, domestic or foreign, which may in
any way materially and adversely affect the Purchaser including
without limitation before or by any securities regulatory authority.
7. The covenants, representations and warranties of the parties contained
herein shall survive the closing of the transactions contemplated herein
for a period of two years following the Release Date.
E-37
<PAGE>
8. (a) Subject to section 7, should there be a breach of any of the
representations and warranties contained in sections 5 and 6 of this
agreement at any time after the Release Date by a party hereto (the
"Party in Breach"), then the other party (the "Notifying Party") shall
send written notice of such breach (the "Notice") to the Party in
Breach at the address set forth at the beginning of this agreement.
The Party in Breach shall be entitled to 60 days from the date of the
Notice to rectify or cure the breach which is the subject of the
Notice. In the event that the breach has not been rectified or cured
within 60 days of the date of the Notice, then any continuing dispute
shall be referred for arbitration to a single arbitrator to be
appointed by the parties.
(b) Any party may refer any such matter to arbitration by written notice
to the other ("Arbitration Notice") and, within ten days after receipt
of the Arbitration Notice, the parties will agree on the appointment
of an arbitrator, who shall be capable of commencing arbitration
within 21 days of his appointment. No person will be appointed as an
arbitrator unless such person agrees in writing to act.
(c) If the parties cannot agree on a single arbitrator as provided in
clause (b), or if the person appointed is unwilling or unable to act,
any party may request the court to appoint a single arbitrator in
accordance with the Arbitrations Act of the Province of Ontario.
9. This agreement may not be assigned by any party hereto without the prior
written consent of the other party.
10. This agreement constitutes the whole agreement among the parties with
respect to the matters set out herein and annuls all prior discussions,
understandings and agreements relating thereto and may not be varied except
in writing signed by each of the parties hereto.
11. The validity, performance and interpretation of this agreement shall be
governed by the laws of the Province of Ontario as a contract made and
wholly to be performed within the said Province. The parties hereto
irrevocably submit to the exclusive jurisdiction of Ontario courts for this
purpose.
12. This agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective legal personal representatives,
successors and permitted assigns.
13. This agreement may be signed by the parties in separate counterparts, each
of which may be fax copy, and all of the counterparts so signed shall
together form one and the same instrument.
E-38
<PAGE>
If you are in agreement with the foregoing, please sign one copy of
this letter in the place indicated below and return it to the Vendor, at the
address set forth at the head of this letter at your earliest convenience.
Yours very truly,
AVANTICORP INTERNATIONAL INC.
Per: /s/ Ross McGroarty
--------------------------------
Name: Ross McGroarty
Title: President
Per: /s/ Sam Fuda
--------------------------------
Name: Sam Fuda
Title:
The foregoing is hereby agreed to be
ATARAXIA CORP. AND PAGEANT
TECHNOLOGIES INC., this 7th day of
December, 1998.
ATARAXIA CORP.
Per: /s/ Hibernian Directors Ltd.
--------------------------------
Name: Hibernian Directors Ltd.
Title: Director of the Company
PAGEANT TECHNOLOGIES INC.
Per: /s/ Hibernian Directors Ltd.
--------------------------------
Name: Hibernian Directors Ltd.
Title: Director of the Company
E-39
<PAGE>
SCHEDULE "A"
to the letter agreement among Avanticorp International Inc.
and Ataraxia Corp. and Pageant Technologies Inc.
<TABLE>
<CAPTION>
=====================================================================================================
Name and Address of Person Number and Type of Denominations of
to whom Exchanged Exchanged Securities to be Exchanged Securities
Securities are to be Issued Issued to be Issued
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Ataraxia Corp. 16.6 million common shares 100 x 100,000
P.O. Box 267 132 x 50,000
Providenciales,
Turks & Caicos Islands
- -----------------------------------------------------------------------------------------------------
Skyfield Ventures 3.4 million common shares 1 x 3,400,000
C/o Intel Trust
Corso Elvezia
4 P.O. Box 2717
Lugano, Switzerland
- -----------------------------------------------------------------------------------------------------
Magaly Bianchini 100,000 common shares 1 x 100,000
13280 - 7th Concession
King City, Ontario L7B-1K4
- -----------------------------------------------------------------------------------------------------
Deux Basil Inc. 2.9 million common shares 1 x 2,900,000
C/o Hugh O'Neill & Co.
B.C.M. Cape Building
Leeward Highway,
Providenciales
Turks & Caicos Islands
- -----------------------------------------------------------------------------------------------------
Millcreek Limited 2.7 million common shares 1 x 2,700,000
C/o International Company
Services (BVI) Limited
Road Town, Tortola, BVI
- -----------------------------------------------------------------------------------------------------
Thorblaujep Inc. 3,466,587 common shares 1 x 3,466,587
C/o Hugh O'Neill & Co.
B.C.M. Cape Building
Leeward Highway,
Providenciales
Turks & Caicos Islands
- -----------------------------------------------------------------------------------------------------
Sterling 1850 Ltd. 2,833,413 common shares 1 x 2,833,413
C/o Hugh O'Neill & Co. 1,000,000 warrants 1 x 1,000,000
B.C.M. Cape Building
Leeward Highway,
Providenciales
Turks & Caicos Islands
=====================================================================================================
</TABLE>
E-40
CONFIRMATORY
ASSIGNMENT OF U.S. PATENT
AND CORRESPONDING EUROPEAN
AND JAPANESE APPLICATIONS
U.S. PATENT NO. ISSUE DATE TITLE OF THE INVENTION
- --------------- ---------- ----------------------
5,295,097 March 15, 1994 Nonvolatile Random Access Memory
ASSIGNOR ASSIGNEE
NAME: Richard Lienau NAME: Estancia Limited
ENTITY: An Individual TITLE: a Turks & Caicos
corporation
ADDRESS: HC70 Box 19Z ADDRESS: P.M.B. 2
Providenciales
Pecos, NM 87552 Turks & Caicos Islands
British West Indies
- --------------------------------------------------------------------------------
In consideration of the sum of one-hundred dollars ($100.00), and
other good and valuable consideration, the receipt of which is hereby
acknowledged, said Assignor as sole owner of the above-identified U.S. Patent
and correspondence European application 93918644.1 and Japanese application
505547/1994 does confirm the transfer unto said Assignee of his entire right,
title and interest in and to said U.S. Patent and said corresponding European
and Japanese Applications.
Executed this 18th day of Nov. in the year 1997 at Pecos, New Mexico
87552
/s/_________________________________________________
Signature of Assignor (or of authorized signatory if
Assignor is a corporation, partnership or association)
State of New Mexico
County of San Miguel
Before me personally appeared Richard Lienau who acknowledged the foregoing
instrument to be a free act and deed and also represented that he or she is
authorized to execute the same this 18th day of November, in the year 1997.
/s/_________________________________________________
(Notary Public)
E-41
<PAGE>
PATENTS ONLY
- -------------------------------------------------------------------------------
To the Honorable Commissioner of Patents and Trademarks:
Please record the attached original documents or copy thereof
- -------------------------------------------------------------------------------
1. Name of conveying party(ies):
Richard Lienau
HC70 Box 19Z
Pecos, NM 87552
Additional name(s) of conveying party(ies) |_| Yes |X| No
- --------------------------------------------------------------------------------
2. Name and address of receiving party(ies):
Name: Estancia Limited
Internal Address:
Street Address: P.M.B. 2, Providenciales
Turks & Caicos Islands,
City: British West Indies State: ZIP:
Additional name(s) & address(es) attached? |_| Yes |X| No
- --------------------------------------------------------------------------------
3. Nature of conveyance:
|X| Assignment |_| Merger
|_| Security Agreement|_| Change of Name
|_| Other
Execution Date: November 18, 1997
- --------------------------------------------------------------------------------
4. Application number(s) or registration number(s):
If this document is being filed together with a new application, the
execution date of the application is
A. Patent Application No.(s) B. Patent No.(s)
U.S. Patent
5,295,097
Additional numbers attached? |_| Yes |X| No
- --------------------------------------------------------------------------------
5. Name and address of party to whom
correspondence concerning document should be
mailed:
Name: ARTHUR FREILICH
---------------
Internal Address: FREILICH, HORNBAKER & ROSEN
_____________________________________________
_____________________________________________
Street Address: SUITE 840
10960 WILSHIRE BOULEVARD
City: LOS ANGELES State: CA ZIP: 90024
- --------------------------------------------------------------------------------
6. total number of applications and patents involved: 1
- --------------------------------------------------------------------------------
7. Total fee (37 CFR 3.41) ....................................... $40.00
|_| Enclosed
|X| Authorized to be charged to deposit account
- --------------------------------------------------------------------------------
8. Deposit account number:
06-1985
DO NOT USE THIS SPACE
- -------------------------------------------------------------------------------
9. Statement and signature.
To the best of my knowledge and belief, the foregoing information is true
and correct and any attached copy is a true copy of the original document.
ARTHUR FREILICH /s/ Arthur Freilich November 21, 1997
- -----------------------------------------------------------------------------
Name of Person Signing Signature Date
Total number of pages including cover sheet, attachments, and document: 2
- -------------------------------------------------------------------------------
E-42
CONFIRMATORY
ASSIGNMENT OF U.S. PATENT
AND CORRESPONDING EUROPEAN
AND JAPANESE APPLICATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
U.S. PATENT NO. ISSUE DATE TITLE OF THE INVENTION
- --------------- ---------- ----------------------
5,295,087 March 15, 1994 Nonvolatile Random Access Memory
ASSIGNOR ASSIGNEE
-------- --------
NAME: Estancia Limited NAME: Ataraxia Corp.
--------------------------------- ------------------------------
ENTITY: a Turks & Caicos corporation ENTITY: a Turks & Caicos corporation
--------------------------------- ------------------------------
ADDRESS: P.M.B. 2 ADDRESS: P.O. Box 267
--------------------------------- ------------------------------
Providenciales Leeward Highway
Turks & Caicos Islands Providenciales
British West Indies Turks & Caicos Islands
British West Indies
</TABLE>
In consideration of the sum of one-hundred dollars ($100.00), and other
good and valuable consideration, the receipt which is hereby acknowledged, said
Assignor as sole owner of the above-identified U.S. Patent responding European
application 93918644.1 and Japanese application 505547/199 does confirm the
transfer unto said Assignee of an undivided fifty percent (50%) interest in and
to said U.S. Patent and said corresponding European and Japanese Applications,
nontransferable by Assignee except to Pageant Technologies, Incorporated, and
subject to the terms and conditions defined in related agreements between the
parties.
Executed this 19th day of November, in the year 1997 at Providenciales,
Turks & Caicos Islands
For and on behalf of
Avatar Corporation By: /s/
Limited (as Director of ---------------------------------------
Estancia Limited Signature of Assignor (or of authorized
signatory if Assignor is a corporation,
partnership or association)
State of
County of
Before me personally appeared
who acknowledged the foregoing to be a free act and deed and also represented
that he or she is authorized to exercise the same this 19th day of November, in
the year 1997.
/s/
---------------------------------------
Notary Public
E-43
CONFIRMATORY
ASSIGNMENT OF U.S. PATENT
AND CORRESPONDING EUROPEAN
AND JAPANESE APPLICATIONS
U.S. PATENT NO. ISSUE DATE TITLE OF THE INVENTION
- --------------- ---------- ----------------------
5,295,097 March 15, 1994 Nonvolatile Random Access Memory
ASSIGNOR ASSIGNEE
-------- --------
NAME: Ataraxia Corp. NAME: Pageant Technologies
Incorporated
ENTITY: a Turks & Caicos corporation ENTITY: a Turks & Caicos
corporation
ADDRESS: P.O. Box 267 ADDRESS: P.O. Box 267
Leeward Highway Leeward Highway
Providenciales Providenciales
Turks & Caicos Island Turks & Caicos Island
British West Indies British West Indies
In consideration of the sum of one-hundred dollars ($100.00), and other
good and valuable consideration, the receipt of which is hereby acknowledged,
said Assignor as owner of an undivided fifty percent (50%) nontransferable
interest in the above-identified U.S. Patent and correspondence European
application 93918644.1 and Japanese application 505547/1994 does confirm the
transfer unto said Assignee of its undivided fifty percent (50%) nontransferable
interest in and to said U.S. Patent and said corresponding European and Japanese
Applications subject to the terms and conditions defined in related agreements
between the parties.
Executed this 19th day of Nov. in the year 1997 at Providenciales,
Turks & Caicos
/s/ Hibernian Directors Ltd.
-----------------------------------------------------
Director of the Company
Signature of Assignor (or of authorized signatory if
Assignor is a corporation, partnership or association)
Providenciales
Turks & Caicos Is.
Before me personally appeared Dale M. Peters who acknowledged the foregoing
instrument to be a free act and deed and also represented that he or she is
authorized to execute the same this 19th day of November, the year 1997.
/s/
----------------------
Notary Public
E-44
<PAGE>
PATENTS ONLY
- -------------------------------------------------------------------------------
To the Honorable Commissioner of Patents and Trademarks:
Please record the attached original documents or copy thereof
- -------------------------------------------------------------------------------
1. Name of conveying party(ies):
Ataraxia Corp.
P.O. Box 267, Leeward Highway
Providenciales,
Turks & Caicos Islands
British West Indies
Additional name(s) of conveying party(ies) |_| Yes |X| No
2. Name and address of receiving party(ies):
Name: Pageant Technologies Incorporated
Internal Address: _______________________________
_________________________________________________
_________________________________________________
Street Address: P.O. Box 267, Leeward Highway
Providenciales, Turks & Caicos Islands
City: British West Indies State: ZIP:
Additional name(s) & address(es) attached? |_| Yes |X| No
3. Nature of conveyance:
|X| Assignment |_| Merger
|_| Security Agreement|_| Change of Name
|_| Other
Execution Date: November 19, 1997
4. Application number(s) or registration number(s):
If this document is being filed together with a new application, the
execution date of the application is ______________
A. Patent Application No.(s) B. Patent No.(s)
U.S. Patent
5,295,097
Additional numbers attached? |_| Yes |X| No
5. Name and address of party to whom
correspondence concerning document should be
mailed:
Name: ARTHUR FREILICH
---------------
Internal Address: FREILICH, HORNBAKER & ROSEN
Street Address: SUITE 840
10960 WILSHIRE BOULEVARD
City: LOS ANGELES State: CA ZIP: 90024
6. total number of applications and patents involved: 1
7. Total fee (37 CFR 3.41) ....................................... $40.00
|_| Enclosed
|X| Authorized to be charged to deposit account
8. Deposit account number:
06-1985
- -------------------------------------------------------------------------------
DO NOT USE THIS SPACE
- --------------------------------------------------------------------------------
9. Statement and signature.
To the best of my knowledge and belief, the foregoing information is true
and correct and any attached copy is a true copy of the original document.
ARTHUR FREILICH /s/ Arthur Freilich November 21, 1997
- -------------------------------------------------------------------------------
Name of Person Signing Signature Date
Total number of pages including cover sheet, attachments, and document: 2
- -------------------------------------------------------------------------------
E-45
SCHEDULE "A'
------------
ATARAXIA CORP.
P.O. Box 267
B.C.M. Cape Building
Leeward Highway
The Turks of Caicos
September 17, 1997
Richard M. Lienau
Pecos, New Mexico 87552
Estancia Limited
P.M.B. 2
Providenciales
Turks & Caicos Islands
British West Indies
Dear Sir:
Re: Joint Ownership & Exclusive License Rights to Certain Patents
-------------------------------------------------------------
Further to our earlier discussions and the Heads of Agreement
dated June 17, 1997, we provide the following by way of summary of the principal
terms and conditions we would be prepared to acquire, and you would be prepared
to grant, joint ownership and an exclusive license right to Ataraxia Corp. and
or its wholly owned subsidiary Pageant Technology, Inc. (together "Ataraxia") to
jointly develop, as well as manufacture and sell the related products associated
with the invention entitled the Hall Effect Ferromagnetic Random Access Memory
technology (the "HFRAM Technology").
1. Patents. Ataraxia will acquire the joint ownership and
exclusive world wide licensing rights (together the "Territory") the following
patents:
a. US Patent File No. 5295097
b. EEC Patent File No. 939186441
c. Japan Patent File No. 505547/1994
(together the "Patents".)
2. Joint Ownership and Maintenance of Patents. Estancia Limited
will and will cause Richard Lienau (Mr. Lienau personally and or jointly acting
under the business name NVTECH) to patent, register, copyright or otherwise
protect to the extent commercially feasible, the HFRAM technology selected by
Ataraxia for transfer to joint ownership. Estancia Limited will cause Richard
Lienau to transfer a nontransferable undivided one-half joint ownership interest
in such technology and related patents to Ataraxia. Ataraxia agrees it will
transfer its ownership to Estancia Limited in the event of a material default of
the agreement between the parties by Ataraxia which is not cured within a
E-46
<PAGE>
reasonable time. Ataraxia will finance future patent costs for further
considerations. Inventor(s) will always be given full credit for the patents,
but all rights shall be jointly owned by Ataraxia and Estancia Limited.
3. Power to Grant Rights and Validity of Patents. Estancia
Limited will and will cause Richard Lienau to patent, register, copyright or
otherwise protect to the extent the commercially feasible, the HFRAM technology
selected by Ataraxia to transfer to joint ownership. Estancia Limited will
demonstrate to Ataraxia that Estancia Limited has all necessary ownership or
other rights in such technology to enter into the transactions contemplated in
this letter agreement. Estancia Limited will also warrant that the technologies,
systems, etc. provided to Ataraxia are original works and were not
misappropriated from others. Estancia Limited will or will cause to be
transferred an ownership interest in such technology and related patents to
Ataraxia. Ataraxia will finance future patent costs for further considerations.
The parties agree the inventor(s) will always be given full credit for the
patents, but all rights will be jointly owned by Estancia Limited and Ataraxia.
4. Obligations of Estancia Limited:
a. New Inventions: Estancia Limited will and will cause
Richard Lienau to grant to Ataraxia a right of first
refusal to acquire rights in respect of any patent
improvements or new technology or application developed or
under the control of the Estancia Limited Corp. or Richard
Lienau relating to any invention, technology, application
or product which may reasonably be regarded as similar to
or competitive with the Products.
b. Technical and Marketing Support. Estancia Limited agrees
to provide Ataraxia with all information/training
reasonably necessary for it to market the technology.
Estancia Limited will serve as advisors to Ataraxia at no
cost to Ataraxia, in regards to license/contract
negotiation, marketing and personal hiring, as reasonably
deemed necessary by Ataraxia.
c. Consulting Services. Estancia Limited will cause Richard
Lienau to serve as a consultant to Ataraxia for a fee of
no more than US$ 125 per man-hour plus reasonable expenses
to include evaluating other technologies, developing new
applications and/or systems whether HFRAM or other
technologies. Additionally, Estancia Limited will provide
such services to such customers of Ataraxia as Ataraxia
may reasonably request at the same rate. If Estancia
Limited contracts directly with customers of Ataraxia for
such services, Estancia Limited shall pay to Ataraxia 40%
of the gross profit less agreed to expenses related to
such contracts.
5. Obligations of Ataraxia
a. Initial & Subsequent Payment. The parties acknowledge
Ataraxia provided Estancia Limited with US$ 3,000 at the
signing of the original heads of agreement. Ataraxia
agrees to provide Estancia Limited with an additional sum
of CD$ 20,000 on or shortly after Ataraxia entering
E-47
<PAGE>
into an agreement with a listed public company related
to the technology. The CD$ 20,000 will be satisfied,
subject to regulatory approval, by the reservation and
issuance of free trading shares in the listed public
company. The exact number of shares will be determined
by dividing the value of the shares of the listed public
company into CD$ 20,000.
b. Financing of Development and Manufacturing. Ataraxia
will provide funding deemed necessary and as
commercially feasible to support the prototype
development by the University of Utah of the HFRAM
technology as necessary to test, manufacture, document,
or otherwise take the HFRAM technology to the
marketplace. Additionally, Ataraxia will be responsible
for all marketing, sales and licensing of the selected
technology.
c. Royalty. Ataraxia will pay Estancia Limited a royalty of
40% of gross profit (less those expenses agreed by the
parties) for each HFRAM license sold or otherwise
transferred by Estancia Limited. Additionally, Ataraxia
will pay Estancia Limited 40% of any per unit royalty
received by Ataraxia less properly documented reasonable
expenses directly related to the obtaining of said
royalties and as agreed to by the parties in writing.
d. Other Payments. Ataraxia will pay Estancia Limited 40%
of any other revenues (less those expenses agreed by the
parties) of Ataraxia related to the grant of rights or
use of the HFRAM technology by Estancia Limited,
exclusive of participation of Estancia Limited in the
contract.
6. Formal Agreement.
a. Terms of Formal Agreement: The parties agree to enter into a
formal agreement with one another within six months from the
date of this Agreement which will:
i. reflect the provisions set forth herein and the Heads of
Agreement attached as Appendix One;
ii. set out the minimum performance requirements of each
party; and
iii. such other provisions as are customary in a licensing
arrangement of the character contemplated hereby and are
reasonably acceptable to Ataraxia and Estancia Limited.
b. Agreement is Binding: Until superceded by the formal agreement,
this Agreement will remain binding and in full force and effect.
c. Purpose of Agreement: Estancia Limited and Richard Lienau agree
that the purpose of this and the formal agreement is to tie-up
and exhaust the entire rights held by Estancia Limited and
Richard Lienau in the Patents during the term of this Agreement
and any formal agreement entered into by the parties. In
addition to a formal license agreement, the parties agree to
enter into all other supporting documents necessary to fulfill
this intent.
E-48
<PAGE>
d. Compensation on Termination: Estancia Limited agrees that if the
relationship of the parties is terminated it will pay to
Ataraxia all costs properly incurred by Ataraxia to develop the
prototype, test, manufacture, document, or otherwise take the
HFRAM technology to the marketplace.
7. Sale of Rights to Third Parties. If Ataraxia sells the rights
to the HFRAM Technology to a third party not owned or controlled by Ataraxia,
Ataraxia will pay Estancia Limited 50% of the proceeds from such transaction.
Estancia Limited will not be obligated to provide to the third party the same
concessions, prices and services as to Ataraxia. If there is any dispute between
Ataraxia and Estancia Limited as to the fairness or value of a third party
contract either Ataraxia or Estancia Limited may request independent
arbitration.
8. New Ventures. Ataraxia and Estancia Limited agree that a
separate agreement will cover the parties or their respective affiliates
arrangement with respect to the design of a new computer system and operating
software based on the HFRAM technology. Estancia Limited or its designated
affiliate will be given a 15% ownership of the organization. Any transfer of
HFRAM products from licensee within the contemplation of section 5 above to such
separate organization shall not in any way reduce or off-set license fees or
royalties contemplated by such section 5.
9. Information. Ataraxia and Estancia Limited agree to make
available to each other information necessary for either party to verify sales
or other pertinent costs and equipment purchases. Each party agrees to protest
the confidentiality of the confidential and/or proprietary information of the
other party, and to use such information only as provided in the business
agreement.
10. Use of Trademarks. Neither party shall publish, make
reference to, or otherwise use or designate the trademarks or trade names of the
other party in connection with activities contemplated hereby without the
written consent of such other party.
11. Material Default. In the event of a default under these
provisions of the agreement, specific therein, to constitute a "material
default":
a. By Ataraxia, all right, title and interest in the
technology and related intellectual property rights
transferred to Ataraxia under the agreement shall revert
back to Estancia Limited; or
b. By Estancia Limited, Ataraxia shall have the right to cure
or cause a third party to cure such material default and
deduct the cost thereof from the amounts due to Estancia
Limited pursuant to sections 4 and 5 above.
12. Confidentiality. Each party agrees to keep confidential and
not disclose, directly or indirectly, any information concerning the HFRAM
Technology or other parties business (except to the extent that such information
is available to the general public) or any other information which the other
party designates as confidential, including the contents of this agreement.
E-49
<PAGE>
13. Governing Law and Arbitration. All disputes, controversy or
claims arising out of or in connection with or in relation to the contract,
including any question regarding its existence, validity or termination, will be
governed by and construed in accordance with the laws of the United States
related to intellectual property and the domestic laws of the State of New
Mexico; under this agreement. The parties irrevocably submit to the jurisdiction
of such courts to finally adjudicate or determine any suit, action or
proceedings arising out of or in connection with this agreement.
14. General Terms:
a. This Agreement constitutes the entire agreement between
the parties or any of them and supersedes and replaces all
previous oral or written agreements. Specifically, where
any term of the signed Heads of Agreement attached as
Appendix One conflicts with the terms of this Agreement,
the terms of this Agreement apply.
b. This Agreement may be amended only by an agreement in
writing executed by all the parties to the Agreement.
c. This Agreement may be executed in counterpart and by fax.
If you find the foregoing to be acceptable, please advise by
dating, signing and returning two copies of this letter and on our receipt of
these, we will instruct our counsel to prepare a formal agreement for your
review and consideration. This formal agreement will follow and will be along
the lines of Appendix One attached.
Yours very truly,
ATARAXIA CORP.
/s/ Hibernian Directors Ltd.
Director of the Company
-----------------------
Hibernian Directors Ltd.
- -----------------------------------------------------------
AGREED TO AND ACCEPTED this 25 day of September 1997.
ESTANCIA LIMITED RICHARD LIENAU
/s/ /s/ Richard Lienau
- --------------------- ------------------------
Authorized Signatory
AVATAR CORPORATION LIMITED
(DIRECTOR OF ESTANCIA LIMITED)
E-50
<PAGE>
APPENDIX ONE
Part I
HEADS OF AGREEMENT
------------------
ATARAXIA CORP., a Turk & Caicos corporation hereafter known as "ATARAXIA"
purposes to NVTECH the following:
1. NVTECH agrees to patent, register, copyright or otherwise protest to the
extent commercially feasible, the HFRAM technology selected by ATARAXIA for
transfer to joint ownership. NVTECH will demonstrate to ATARAXIA that NVTECH has
all the necessary ownership or other rights in such technology to enter into the
transactions contemplated hereby. NVTECH will also warrant that the
technologies, systems, etc. provided to ATARAXIA are original works and are not
misappropriated from others. NVTECH will transfer a joint ownership interest in
such technology and related patents to ATARAXIA.
2. ATARAXIA intents to set up a separate organization to design a new computer
system and operating software based on the HFRAM technology. NVTECH will be
given 15% ownership of said organization. Any transfer of HFRAM products from a
licensee within the contemplation of paragraph 3 below to such separate
organization shall not in any way reduce or off-set license fees or royalties
contemplated by agreement dated 17 June 1997.
3. ATARAXIA will pay NVTECH a royalty of 40% of gross profit (less those
expenses agreed by the parties) for each HFRAM license sold or otherwise
transferred by ATARAXIA. Additionally, ATARAXIA will pay NVTECH 40% of any per
unit royalty received by ATARAXIA less properly documented reasonable expenses
directly related to the obtaining of said royalties.
4. ATARAXIA and NVTECH agree to make available to each other information
necessary for either party to verify sales or other pertinent costs, and
equipment purchases. Each party agrees to protect the confidentiality of the
confidential and/or proprietary information of the other party, and to use such
information only as provided in the business agreement.
5. Neither party shall publish, make reference to, or otherwise use or designate
the trademarks or trade names of the other party in connection with activities
contemplated hereby without the written consent of such other party.
6. Neither party, without the express consent of all other party shall divulge
the contents of this agreement or the names of the principles of the other
party.
ENTERED INTO AND AGREED TO THIS 17th DAY OF JUNE 1997
NVTECH ATARAXIA CORP.
/s/ Hibernian Directors Ltd.
/s/ Richard Lienau Director of the Company
------------------ -----------------------
By: Richard Lienau By: Hibernian Directors Ltd.
E-51
<PAGE>
APPENDIX ONE
Part II
-------
HEADS OF AGREEMENT
------------------
ATARAXIA CORP., a Turks & Caicos corporation hereafter known as "ATARAXIA",
purposes to NVTECH the following:
1. NVTECH agrees to patent, register, copyright or otherwise protect to the
extent commercially feasible, the HFRAM technology selected by ATARAXIA for
transfer to joint ownership. NVTECH will demonstrate to ATARAXIA that NVTECH has
all the necessary ownership or other rights in such technology to enter into the
transactions contemplated hereby. NVTECH will also warrant that the
technologies, systems, etc. provided to ATARAXIA are original works and were not
misappropriated from others. NVTECH will transfer a joint ownership increase in
such technology and related patents to ATARAXIA.
2. ATARAXIA will finance future patent costs for further considerations.
Inventor(s) will always be given full credit for the patents, but all rights
shall be jointly owned by ATARAXIA and NVTECH.
3. NVTECH agrees that rights to offer HFRAM applications and other technologies
developed by NVTECH will be offered to ATARAXIA on a first right of refusal
basis.
4. NVTECH will provide ATARAXIA with all information/training reasonably
necessary for it to market the technology. NVTECH will serve as advisors to
ATARAXIA at no cost to ATARAXIA, in regards to license/contact negotiation,
marketing and personnel hiring, as reasonably deemed necessary by ATARAXIA.
5. ATARAXIA will provide all funding necessary to test, manufacture, document,
or otherwise make the HFRAM technology marketable. Additionally, ATARAXIA will
be responsible for all marketing, sales, and licensing of the selected
technology.
6. NVTECH will serve as a consultant to ATARAXIA for a fee of no more than $125
per man-hour plus reasonable expenses to include evaluating other technologies,
developing new applications and or systems whether HFRAM or other technologies.
Additionally, NVTECH will provide such services to such customers of ATARAXIA as
ATARAXIA may reasonably request at the same rate. If NVTECH contracts directly
with customers of ATARAXIA for such services, NVTECH shall pay to ATARAXIA 40%
of the net profit related to such contracts.
7. ATARAXIA will pay NVTECH a royalty of 40% of gross profits (less those
expenses agreed by the parties) for each HFRAM license sold or otherwise
transferred by ATARAXIA. Additionally, ATARAXIA will pay NVTECH 40% of any per
unit royalty received by ATARAXIA less properly documented reasonable expenses
directly related to the obtaining of said royalties.
E-52
<PAGE>
8. ATARAXIA will pay NVTECH 40% of any other revenues (less those expenses
agreed by the parties) of ATARAXIA related to the grant of rights or use of the
HFRAM technology by ATARAXIA, exclusive of participations of NVTECH in the
contract.
9. Should ATARAXIA sell the rights to the HFRAM technology to a third party part
not owned or controlled by ATARAXIA, ATARAXIA will pay NVTECH 50% of the
proceeds from such transaction. NVTECH will not be obligated to provide to the
third party the same concessions, prices and services as to ATARAXIA. If there
is any dispute between ATARAXIA and NVTECH as to the fairness or value of a
third party contract either ATARAXIA or NVTECH may request independent
arbitration.
10. ATARAXIA and NVTECH agreed to make available to each other information
necessary for either party to verify sales or other pertinent costs, and
equipment purchases. Each party agrees to protect the confidentiality of the
confidential and/or proprietary information of the other party, and to use such
information only as provided in the business agreement.
11. Neither party shall publish, make reference to, or otherwise use or
designate the trademarks or trade names of the other party in connection with
activities contemplated hereby without the written consent of such other party.
12. ATARAXIA will provide NVTECH $3,000 at the signing of this heads of
agreement. ATARAXIA will take best efforts to have the business agreement ready
for signing no later than the end of August 1997. ATARAXIA will provide NVTECH
an additional $7,000 of the signing of the business agreement or such other
amount that may be agreed to by the parties. Such agreement shall (a) reflect
the provisions set forth herein (b) minimum performance requirements for each
party, and (c) such other provisions as are customary in a licensing arrangement
of the character contemplated hereby and are reasonably acceptable to ATARAXIA
and NVTECH. In the event of a default under these provisions of the agreement
specified therein to constitute a "material default," (i) by ATARAXIA, all
right, title and interest in the technology and related intellectual property
rights transferred to ATARAXIA under the agreement shall revert back to NVTECH,
or (ii) by NVTECH, ATARAXIA shall have the right to cure or cause a third party
to cure such material default and deduct the cost thereof from the amounts due
to NVTECH pursuant to sections 7 and 8 above. If such agreement is not signed by
31 August 1997, this terms of agreement shall expire and be of no further force
or effect.
13. Neither party, without the express consent of the other party shall divulge
the contents of this agreement or the names of the principles of the other
party.
ENTERED INTO AND AGREED TO THIS 17TH DAY OF JUNE 1997.
NVTECH ATARAXIA CORP.
/s/ Hibernian Directors Ltd.
/s/ Richard Lienau Director of the Company
------------------ ----------------------------
By: Richard Lienau Hibernian Directors Ltd.
E-53
<PAGE>
ASSIGNMENT OF CONTRACT
----------------------
IN CONSIDERATION OF $10.00, the receipt of which is acknowledged,
I assign to Pageant Technologies Inc. all my interest in and to the contract
dated the 17th day of September, made between Ataraxia Corp., Richard Lienau and
Estancia Limited, attached as Schedule "A", including all rights of action or
other rights accruing to me, or which might after this assignment takes effect
accrue to me under the contract.
DATED the 22nd day of October, 1997.
ATARAXIA CORP.
/s/
Hibernian Directors Ltd.
Director of the Company
-----------------------
Signed in the Presence of:
/s/ Susan Caprow
- ----------------------------------
Signature
Susan Caprow
- ----------------------------------
Print Name
BCM Cape BLDG.
- ----------------------------------
Address
Providenciales
- ----------------------------------
E-54
<PAGE>
CONSENT TO ASSIGNMENT
---------------------
We, Estancia Limited, consent to this assignment.
<TABLE>
<CAPTION>
<S> <C>
ESTANCIA LIMITED
By: /s/
-----------------------------
For and on behalf of Avatar
Corporation Limited, Director of
Estancia
I, Richard Lienau, consent to this assignment.
RICHARD LIENAU
By: /s/ Richard Lienau
-----------------------------
We, Pageant Technologies, Inc., acknowledge and
consent to this assignment.
PAGEANT TECHNOLOGIES INC.
/s/
-----------------------------
Hibernian Directors Ltd.
Director of the Company
</TABLE>
E-55
ATARAXIA CORP.
P.O. Box 267
B.C.M. Cape Building
Leeward Highway
The Turks of Caicos
September 17, 1997
Richard M. Lienau
Pecos, New Mexico 87552
Estancia Limited
P.M.B. 2
Providenciales
Turks & Caicos Islands
British West Indies
Dear Sir:
Re: Joint Ownership & Exclusive License Rights to Certain Patents
-------------------------------------------------------------
Further to our earlier discussions and the Heads of Agreement dated
June 17, 1997, we provide the following by way of summary of the principal terms
and conditions we would be prepared to acquire, and you would be prepared to
grant, joint ownership and an exclusive license right to Ataraxia Corp. and or
its wholly-owned subsidiary Pageant Technology, Inc. (together "Ataraxia") to
jointly develop,m as well as manufacture and sell the related products
associated with the invention entitled the Hall Effect Ferromagentic Random
Access Memory technology (the "HFRAM Technology").
1. Patents. Ataraxia will acquire the joint ownership and exclusive
world wide licensing rights (together the "Territory") the following patents:
a. US Patent File No. 5295097
b. EEC Patent File No. 939186441
c. Japan Patent File No. 505547/1994
(together the "Patents",)
2. Joint Ownership and Maintenance of Patents. Estancia Limited will
and will cause Richard Lienau (Mr. Lienau personally and or jointly acting under
the business name NVTECH) to patent, register, copyright or otherwise protect to
the extent commercially feasible, the HFRAM technology selected by Ataraxia for
transfer to joint ownership. Estancia Limited will cause Richard Lienau to
transfer a nontransferable undivided one-half joint ownership interest in such
technology and related patents to Ataraxia. Ataraxia agrees it will transfer its
ownership to Estancia Limited in the event of a
E-56
<PAGE>
material default of the agreement between the parties by Ataraxia which is not
cured within a reasonable time. Ataraxia will finance future patent costs for
further considerations. Inventor(s) will always be given full credit for the
parties, but all rights shall be jointly owned by Ataraxia and Estancia Limited.
3. Power to Grant Rights and Validity of Patents. Estancia
Limited will and will cause Richard Lienau to patent, register, copyright or
otherwise protect to the extent the commercially feasible, the HFRAM technology
selected by Ataraxia to transfer to joint ownership. Estancia Limited will
demonstrate to Ataraxia that Estancia Limited has all necessary ownership or
other rights in such technology to enter into the transactions contemplated in
this letter agreement. Estancia Limited will also warrant that the technologies,
systems, etc. provided to Ataraxia are original works and were not
misappropriated from others. Estancia Limited will or will cause to be
transferred an ownership interest in such technology and related patents to
Ataraxia. Ataraxia will finance future patent costs for further considerations.
The parties agree the inventor(s) will always be given full credit for the
patents, but all rights will be jointly owned by Estancia Limited and Ataraxia.
4. Obligations of Estancia Limited:
a. New Inventions: Estancia Limited will and will cause
Richard Lienau to grant to Ataraxia a right of first
refusal to acquire rights in respect of any patent
improvements or new technology or application developed or
under the control of the Estancia Limited Corp. or Richard
Lienau relating to any invention, technology, application
or product which may reasonably be regarded as similar to
or competitive with the Products.
b. Technical and Marketing Support. Estancia Limited agrees
to provide Ataraxia with all information/training
reasonably necessary for it to market the technology.
Estancia Limited will serve as advisors to Ataraxia at no
cost to Ataraxia, in regards to license/contract
negotiation, marketing and personal hiring, as reasonably
deemed necessary by Ataraxia.
c. Consulting Services. Estancia Limited will cause Richard
Lienau to serve as a consultant to Ataraxia for a fee of
no more than US$ 125 per man-hour plus reasonable expenses
to include evaluating other technologies, developing new
applications and/or systems whether HFRAM or other
technologies. Additionally, Estancia Limited will provide
such services to such customers of Ataraxia as Ataraxia
may reasonably request at the same rate. If Estancia
Limited contracts directly with customers of Ataraxia for
such services, Estancia Limited shall pay to Ataraxia 40%
of the gross profit less agreed to expenses related to
such contracts.
E-57
<PAGE>
5. Obligations of Ataraxia
a. Initial & Subsequent Payment. The parties acknowledge
Ataraxia provided Estancia Limited with US$ 3,000 at the
signing of the original heads of agreement. Ataraxia
agrees to provide Estancia Limited with an additional sum
of CD$ 20,000 on or shortly after Ataraxia entering into
an agreement with a listed public company related to the
technology. The CD$ 20,000 will be satisfied, subject to
regulatory approval, by the reservation and issuance of
free trading shares in the listed public company. The
exact number of shares will be determined by dividing the
value of the shares of the listed public company into CD$
20,000.
b. Financing of Development and Manufacturing. Ataraxia will
provide funding deemed necessary and as commercially
feasible to support the prototype development by the
University of Utah of the HFRAM technology as necessary to
test, manufacture, document, or otherwise take the HFRAM
technology to the marketplace. Additionally, Ataraxia will
be responsible for all marketing, sales and licensing of
the selected technology.
c. Royalty. Ataraxia will pay Estancia Limited a royalty of
40% of gross profit (less those expenses agreed by the
parties) for each HFRAM license sold or otherwise
transferred by Estancia Limited. Additionally, Ataraxia
will pay Estancia Limited 40% of any per unit royalty
received by Ataraxia less properly documented reasonable
expenses directly related to the obtaining of said
royalties and as agreed to by the parties in writing.
d. Other Payments. Ataraxia will pay Estancia Limited 40% of
any other revenues (less those expenses agreed by the
parties) of Ataraxia related to the grant of rights or use
of the HFRAM technology by Estancia Limited, exclusive of
participation of Estancia Limited in the contract.
6. Formal Agreement.
a. Terms of Formal Agreement: The parties agree to enter into
a formal agreement with one another within six months from
the date of this Agreement which will:
i. reflect the provisions set forth herein and the Heads
of Agreement attached as Appendix One;
ii. set out the minimum performance requirements of each
party; and
E-58
<PAGE>
iii. such other provisions as are customary in a
licensing arrangement of the character contemplated
hereby and are reasonably acceptable to Ataraxia
and Estancia Limited.
b. Agreement is Binding: Until superseded by the formal
agreement, this Agreement will remain binding and in full
force and effect.
c. Purpose of Agreement: Estancia Limited and Richard Lienau
agree that the purpose of this and the formal agreement is
to tie-up and exhaust the entire rights held by Estancia
Limited and Richard Lienau in the Patents during the term
of this Agreement and any formal agreement entered into by
the parties. In addition to a formal license agreement,
the parties agree to enter into all other supporting
documents necessary fulfill this intent.
d. Compensation on Termination. Estancia Limited agrees that
that if the relationship of the parties is terminated it
will pay to Ataraxia all costs properly incurred by
Ataraxia to develop the prototype, test, manufacture,
document, or otherwise take the HFRAM technology to the
marketplace.
7. Sale of Rights to Third Parties. If Ataraxia sells the rights
to the HFRAM Technology to a third party not owned or controlled by Ataraxia,
Ataraxia will pay Estancia Limited 50% of the proceeds from such transaction.
Estancia Limited will not be obligated to provide to the third party the same
concessions, prices and services as to Ataraxia. If there is any dispute between
Ataraxia and Estancia Limited as to the fairness or value of a third party
contract either Ataraxia or Estancia Limited may request independent
arbitration.
8. New Ventures. Ataraxia and Estancia Limited agree that a
separate agreement will cover the parties or their respective affiliates
arrangement with respect to the design of a new computer system and operating
software based on the HFRAM technology. Estancia Limited or its designated
affiliate will be given a 15% ownership of the organization. Any transfer of
HFRAM products from a licensee within the contemplation of section 5 above to
such separate organization shall not in any way reduce or off-set license fees
or royalties contemplated by such section 5.
9. Information. Ataraxia and Estancia Limited agree to make
available to each other information necessary for either party to verify sales
or other pertinent costs and equipment purchases. Each party agrees to protect
the confidentiality of the confidential and/or proprietary information of the
other party, and to use such information only as provided in the business
agreement.
10. Use of Trademarks. Neither party shall publish, make
reference to, or otherwise use or designate the trademarks or trade names of the
other party in connection with activities contemplated hereby without the
written consent of such other party.
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11. Material Default. In the event of a default under these
provisions of the agreement, specific therein, to constitute a "material
default":
a. By Ataraxia, all right, title and interest in the
technology and related intellectual property rights
transferred to Ataraxia under the agreement shall
revert back to Estancia Limited; or
b. By Estancia Limited, Ataraxia shall have the right
to cure or cause a third party to cure such
material default and deduct the cost thereof from
the amounts due to Estancia Limited pursuant to
sections 4 and 5 above.
12. Confidentiality. Each party agrees to keep confidential and
not disclose, directly or indirectly, any information concerning the HFRAM
Technology or other parties business (except to the extent that such information
is available to the general public) or any other information which the other
party designates as confidential, including the contents of this agreement.
13. Governing Law and Arbitration. All disputes, controversy or
claims arising out of or in connection with or in relation to the contract,
including any question regarding its existence, validity or termination, will be
governed by and construed in accordance with the laws of the United States
related to intellectual property and the domestic laws of the State of New
Mexico; under this agreement. The parties irrevocably submit to the jurisdiction
of such courts to finally adjudicate or determine any suit, action or
proceedings arising out of or in connection with this agreement.
14. General Terms:
a. This Agreement constitutes the entire agreement
between the parties or any of them and supersedes
and replaces all previous oral or written
agreements. Specifically, where any term of the
signed Heads of Agreement attached as Appendix One
conflicts with the terms of this Agreement, the
terms of this Agreement apply.
b. This Agreement may be amended only by an agreement
in writing executed by all the parties to the
Agreement.
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c. This Agreement may be executed in counterpart and by
fax.
If you find the foregoing to be acceptable, please advise by
dating, signing and returning two copies of this letter and on our receipt of
these, we will instruct our counsel to prepare a formal agreement for your
review and consideration. This formal agreement will follow and will be along
the lines of Appendix One attached.
Yours very truly,
ATARAXIA CORP.
/s/ Hibernian Directors Ltd.
Director of the Company
- ----------------------------
Hibernian Directors Ltd.
- -------------------------------------------------------------
AGREED TO AND ACCEPTED this 25 day of September 1997.
ESTANCIA LIMITED RICHARD LIENAU
/s/ /s/ Richard Lienau
- --------------------------------- ----------------------------
Authorized Signatory
AVATAR CORPORATION LIMITED
(DIRECTOR OF ESTANCIA LIMITED)
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APPENDIX ONE
Part I
HEADS OF AGREEMENT
------------------
ATARAXIA CORP., a Turk & Caicos corporation hereafter known as "ATARAXIA"
purposes to NVTECH the following:
1. NVTECH agrees to patent, register, copyright or otherwise protest to the
extent commercially feasible, the HFRAM technology selected by ATARAXIA for
transfer to joint ownership. NVTECH will demonstrate to ATARAXIA that NVTECH has
all the necessary ownership or other rights in such technology to enter into the
transactions contemplated hereby. NVTECH will also warrant that the
technologies, systems, etc. provided to ATARAXIA are original works and are not
misappropriated from others. NVTECH will transfer a joint ownership interest in
such technology and related patents to ATARAXIA.
2. ATARAXIA intents to set up a separate organization to design a new computer
system and operating software based on the HFRAM technology. NVTECH will be
given 15% ownership of said organization. Any transfer of HFRAM products from a
licensee within the contemplation of paragraph 3 below to such separate
organization shall not in any way reduce or off-set license fees or royalties
contemplated by agreement dated 17 June 1997.
3. ATARAXIA will pay NVTECH a royalty of 40% of gross profit (less those
expenses agreed by the parties) for each HFRAM license sold or otherwise
transferred by ATARAXIA. Additionally, ATARAXIA will pay NVTECH 40% of any per
unit royalty received by ATARAXIA less properly documented reasonable expenses
directly related to the obtaining of said royalties.
4. ATARAXIA and NVTECH agree to make available to each other information
necessary for either party to verify sales or other pertinent costs, and
equipment purchases. Each party agrees to protect the confidentiality of the
confidential and/or proprietary information of the other party, and to use such
information only as provided in the business agreement.
5. Neither party shall publish, make reference to, or otherwise use or designate
the trademarks or trade names of the other party in connection with activities
contemplated hereby without the written consent of such other party.
6. Neither party, without the express consent of all other party shall divulge
the contents of this agreement or the names of the principles of the other
party.
ENTERED INTO AND AGREED TO THIS 17th DAY OF JUNE 1997
NVTECH ATARAXIA CORP.
/s/ Hibernian Directors Ltd.
/s/ Richard Lienau Director of the Company
------------------ -----------------------
By: Richard Lienau By: Hibernian Directors Ltd.
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<PAGE>
APPENDIX ONE
Part II
HEADS OF AGREEMENT
------------------
ATARAXIA CORP., a Turks & Caicos corporation hereafter known as "ATARAXIA",
purposes to NVTECH the following:
1. NVTECH agrees to patent, register, copyright or otherwise protect to the
extent commercially feasible, the HFRAM technology selected by ATARAXIA for
transfer to joint ownership. NVTECH will demonstrate to ATARAXIA that NVTECH has
all the necessary ownership or other rights in such technology to enter into the
transactions contemplated hereby. NVTECH will also warrant that the
technologies, systems, etc. provided to ATARAXIA are original works and were not
misappropriated from others. NVTECH will transfer a joint ownership increase in
such technology and related patents to ATARAXIA.
2. ATARAXIA will finance future patent costs for further considerations.
Inventor(s) will always be given full credit for the patents, but all rights
shall be jointly owned by ATARAXIA and NVTECH.
3. NVTECH agrees that rights to offer HFRAM applications and other technologies
developed by NVTECH will be offered to ATARAXIA on a first right of refusal
basis.
4. NVTECH will provide ATARAXIA with all information/training reasonably
necessary for it to market the technology. NVTECH will serve as advisors to
ATARAXIA at no cost to ATARAXIA, in regards to license/contact negotiation,
marketing and personnel hiring, as reasonably deemed necessary by ATARAXIA.
5. ATARAXIA will provide all funding necessary to test, manufacture, document,
or otherwise make the HFRAM technology marketable. Additionally, ATARAXIA will
be responsible for all marketing, sales, and licensing of the selected
technology.
6. NVTECH will serve as a consultant to ATARAXIA for a fee of no more than $125
per man-hour plus reasonable expenses to include evaluating other technologies,
developing new applications and or systems whether HFRAM or other technologies.
Additionally, NVTECH will provide such services to such customers of ATARAXIA as
ATARAXIA may reasonably request at the same rate. If NVTECH contracts directly
with customers of ATARAXIA for such services, NVTECH shall pay to ATARAXIA 40%
of the net profit related to such contracts.
7. ATARAXIA will pay NVTECH a royalty of 40% of gross profits (less those
expenses agreed by the parties) for each HFRAM license sold or otherwise
transferred by ATARAXIA. Additionally, ATARAXIA will pay NVTECH 40% of any per
unit royalty received by ATARAXIA less properly documented reasonable expenses
directly related to the obtaining of said royalties.
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8. ATARAXIA will pay NVTECH 40% of any other revenues (less those expenses
agreed by the parties) of ATARAXIA related to the grant of rights or use of the
HFRAM technology by ATARAXIA, exclusive of participations of NVTECH in the
contract.
9. Should ATARAXIA sell the rights to the HFRAM technology to a third party part
not owned or controlled by ATARAXIA, ATARAXIA will pay NVTECH 50% of the
proceeds from such transaction. NVTECH will not be obligated to provide to the
third party the same concessions, prices and services as to ATARAXIA. If there
is any dispute between ATARAXIA and NVTECH as to the fairness or value of a
third party contract either ATARAXIA or NVTECH may request independent
arbitration.
10. ATARAXIA and NVTECH agreed to make available to each other information
necessary for either party to verify sales or other pertinent costs, and
equipment purchases. Each party agrees to protect the confidentiality of the
confidential and/or proprietary information of the other party, and to use such
information only as provided in the business agreement.
11. Neither party shall publish, make reference to, or otherwise use or
designate the trademarks or trade names of the other party in connection with
activities contemplated hereby without the written consent of such other party.
12. ATARAXIA will provide NVTECH $3,000 at the signing of this heads of
agreement. ATARAXIA will take best efforts to have the business agreement ready
for signing no later than the end of August 1997. ATARAXIA will provide NVTECH
an additional $7,000 of the signing of the business agreement or such other
amount that may be agreed to by the parties. Such agreement shall (a) reflect
the provisions set forth herein (b) minimum performance requirements for each
party, and (c) such other provisions as are customary in a licensing arrangement
of the character contemplated hereby and are reasonably acceptable to ATARAXIA
and NVTECH. In the event of a default under these provisions of the agreement
specified therein to constitute a "material default," (i) by ATARAXIA, all
right, title and interest in the technology and related intellectual property
rights transferred to ATARAXIA under the agreement shall revert back to NVTECH,
or (ii) by NVTECH, ATARAXIA shall have the right to cure or cause a third party
to cure such material default and deduct the cost thereof from the amounts due
to NVTECH pursuant to sections 7 and 8 above. If such agreement is not signed by
31 August 1997, this terms of agreement shall expire and be of no further force
or effect.
13. Neither party, without the express consent of the other party shall divulge
the contents of this agreement or the names of the principles of the other
party.
ENTERED INTO AND AGREED TO THIS 17TH DAY OF JUNE 1997.
NVTECH ATARAXIA CORP.
/s/ Hibernian Directors Ltd.
/s/ Richard Lienau Director of the Company
------------------ ----------------------------
By: Richard Lienau Hibernian Directors Ltd.
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RESEARCH AGREEMENT
------------------
This Research Agreement ("Agreement") is entered into and effective as
of November 24, 1997 by and between Pageant Technologies (USA) Inc., a
corporation having its principal place of business at 50 West Broadway, Salt
Lake City, Utah (hereinafter referred to as "Sponsor") and the University of
Utah (Tax ID. # 87-6000525), a body politic and corporate of the State of Utah,
on behalf of the University of Utah Electrical Engineering located at 3280
Merrill Engineering Building, Salt Lake City, Utah 84112 (hereinafter referred
to as "University").
RECITALS:
WHEREAS, Sponsor wishes to have certain research services performed in
accordance with the scope of work outlined in this Agreement; and
WHEREAS, the performance of such research is consistent, compatible and
beneficial to the academic role and mission of University as an institution of
higher education; and
WHEREAS, University is qualified to provide such research services.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual covenants,
conditions and undertakings herein set forth, the parties agree as follows:
1. Scope of Work. University agrees to perform for Sponsor certain
research services (the "Services") described in the Scope of Work set forth in
Appendix A, which is attached hereto and incorporated herein by this reference.
The Services shall be performed under the direction and supervision of Jennifer
Hwu, principal investigator, Department of Electrical Engineering.
2. Term. The term of this Agreement shall commence upon the effective
date hereof and shall continue until December 31, 1998 unless extended or
renewed by mutual agreement of the parties. Scope of work and final reports
shall be completed on or before July 31, 1998. Per mutual agreement of both
parties, personnel costs including fringe benefits and associated indirect costs
will be invoiced and paid until December 31, 1998, or for one year total
compensation for each identified employee whichever comes first, not to exceed
budget totals in paragraph 3.
3. Compensation and Payment.
3.1 Compensation. Sponsor shall pay to University a total of Two
hundred Eighty two thousand, five hundred forty nine Dollars ($282,549) (the
"Compensation") for performance of the Services under this Agreement. A budget
itemizing the costs for
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<PAGE>
providing the Services is set forth in Appendix B, which is attached hereto and
incorporated herein by this reference.
3.2 Payment. Monthly progress payments shall be made by Sponsor
to University based upon monthly invoices submitted by University. The amounts
of all such progress payments shall be based upon University's progress in
performing the Services. Invoices submitted to Sponsor shall be paid by Sponsor
within thirty (30) days of receipt. The monthly invoices for services performed
shall identify direct costs, labor and the percent of work completed. Final
payment shall be made upon completion of the Services.
Compensation checks shall be payable to "The University of Utah" and shall be
delivered to Gary S. Gledhill, Manager, Research Accounting, 201 South
Presidents Circle, #406, University of Utah, Salt Lake City, Utah, 84112.
4. Reporting Requirements. University shall provide written reports to
Sponsor on the progress of the performance of Services as outlined or required
in the Scope of Work. A final written report shall be furnished to Sponsor upon
completion of the Services.
5. Equipment. All equipment, instruments and materials purchased or used
by University in connection with performance of the Services shall at all times
remain under the sole control and ownership of University.
6. Publication and Confidentiality.
6.1 Publication. In furtherance of University's role as a public
institution of higher education, it is necessary that significant results of
research activities be reasonably available for publication by the University,
and Sponsor acknowledges that University may publish the results of research
conducted in connection with this Agreement. Notwithstanding the foregoing,
University agrees that it shall not publish the results of research conducted in
connection with this Agreement, without the prior written consent of Sponsor,
until the expiration of six (6) months following the first to occur of either
the termination of this Agreement or submission of the final written report
required under Section 4 hereof. In the event University wishes to publish
research results prior to the expiration of the above described six (6) month
period, University shall first provide to Sponsor written notice of University's
intent to publish and a draft of such publication. Sponsor shall have thirty
(30) days after receipt of the draft publication to request in writing the
removal of portions deemed by Sponsor to contain confidential or patentable
material owned by Sponsor, or to request a delay in submission of the draft for
publication pending Sponsor's application for patent protection. In either
event, University shall have no obligation to delay publication of the draft for
longer than six (6) months following delivery of University's notice to Sponsor
of intent to publish. If University does not receive Sponsor's written response
to the notice of intent to publish within the thirty (30) day period, then
Sponsor shall be deemed to have consented to such publication. Information
supplied to University by Sponsor and identified by Sponsor as proprietary
information shall not be included in any material published by University
without prior written consent of Sponsor.
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<PAGE>
6.2 Confidentiality. Sponsor acknowledges that University is a
governmental entity and thus subject to the Utah Government Records Access and
Management Act, Sec. 63-2-101 et seq., Utah Code Ann. (1993 and Supp. 1995)
("GRAMA") and Section 53B-16- 301 et seq., Utah Code Ann. (1993 and Supp. 1995).
Pursuant to GRAMA and Section 53B-16-301 et seq., this Agreement, and
confidential information provided pursuant hereto may be subject to public
disclosure. Any person who provides University with records that such person
believes should be protected from disclosure for business reasons must, pursuant
to Section 63-2-308 of GRAMA and Section 53B-16-304, provide University with a
written claim of business confidentiality and a concise statement of reasons
supporting such claim.
7. Indemnification.
7.1 Indemnification by University. University is a governmental
entity and is subject to the Utah Governmental Immunity Act, Section 63-30-1 et
seq., Utah Code Ann. (1993 and Supp. 1995) (the "Act"). Section 63-30-34 of the
Act expressly limits judgments against the University, its officers and
employees to $250,000.00 per person and $500,000.00 per occurrence for bodily
injury and death and to $100,000.00 per occurrence for property damage. Subject
to the provisions of the Act, University shall indemnify, defend and hold
harmless Sponsor, its officers, agents and employees against any actions, suits,
proceedings, liabilities and damages that may result solely from the negligent
acts or omissions of University, its officers, agents or employees in connection
with this Agreement. Nothing in this Agreement shall be construed as a waiver of
any rights or defenses applicable to University under the Act, including without
limitation, the provisions of Section 63-30-34 regarding limitation of
judgments. University shall give Sponsor timely notice of any claim or suit
instituted of which it has knowledge that in any way, directly or indirectly,
affects or might affect Sponsor, and Sponsor shall have the right at its own
expense to participate in the defense of the same.
7.2 Indemnification by Sponsor. Sponsor shall indemnify, defend
and hold harmless University, its directors, officers, agents and employees
against any actions, suits, proceedings, liabilities and damages arising from
the negligent acts or omissions of Sponsor, its officers, agents or employees in
connection with this Agreement. Sponsor shall give University timely notice of
any claim or suit instituted of which it has knowledge that in any way, directly
or indirectly, affects or might affect University, and University shall have the
right at its own expense to participate in the defense of the same.
8. Compliance With Laws. In performance of the Services, University
shall comply with all applicable federal, state and local laws, codes,
regulations, rules and orders. University shall obtain, at its expense and as
part of the price for Services, all required government licenses, permits, and
approvals for the performance of the Services, except those licenses, permits
and approvals which the Scope of Work specifies will be obtained by Sponsor.
9. Patent and Inventions. The University shall own all rights, title and
interest in all inventions and improvements conceived or reduced to practice by
University or University personnel in the performance of the Services and may,
at its election, file all patent
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<PAGE>
applications relating thereto. In consideration of Sponsor's support of
University in performance of the Services, University agrees to grant to
Sponsor, on such terms and conditions as University may specify, an option for
an exclusive license on any such inventions, improvements, applications or
patents. Sponsor's right to elect and exercise said option shall expire six
months after University has provided written notice to Sponsor of any such
invention, improvement, application or patent. The terms of any such license
that shall be negotiated shall be within industry standards of such invention,
improvement, application or patent. If the parties fail to reach agreement as to
the terms and conditions of such license within (60) sixty days, after the
Sponsor has exercised its right to acquire such license, then the terms of the
license shall be settled pursuant to the disputes resolution provisions set
forth in Section 14 herein. In the event University shall abandon its rights to
any such invention, improvement, application or patent, then University shall
assign to Sponsor all of University's rights, title and interest therein. This
shall occur if the University does not file a provisional or patent application
in respect to an invention or improvement within the (6) six months the
University has provided written notice to Sponsor of any such invention or
improvement.
10. Relationship of Parties. In assuming and performing the obligations
of this Agreement, University and Sponsor are each acting as independent parties
and neither shall be considered or represent itself as a joint venturer,
partner, agent or employee of the other. Neither party shall use the name or any
trademark of the other party in any advertising, sales promotion or other
publicity matter without the prior written approval of the other party.
11. Termination. This Agreement may be terminated by either party for
material breach, by giving written notice thereof to the other party. Such
termination shall be effective thirty (30) days after receipt of such notice. If
in such an instance the breach can be cured, the party shall have the right
during such (30) thirty day period to cure such breach. Termination shall not
relieve either party of any obligation or liability accrued hereunder prior to
such termination, or rescind or give rise to any right to rescind any payments
made prior to the time of such termination.
12. Uncontrollable Forces. Neither Sponsor nor University shall be
considered to be in default of this Agreement if delays in or failure of
performance shall be due to uncontrollable forces the effect of which, by the
exercise of reasonable diligence, the nonperforming party could not avoid. The
term "uncontrollable forces" shall mean any event which results in the
prevention or delay of performance by a party of its obligations under this
Agreement and which is beyond the control of the nonperforming party. It
includes, but is not limited to, fire, flood, earthquakes, storms, lightning,
epidemic, war, riot, civil disturbance, sabotage, inability to procure permits,
licenses, or authorizations from any state, local, or federal agency or person
for any of the supplies, materials, accesses, or services required to be
provided by either Sponsor or University under this Agreement, strikes, work
slowdowns or other labor disturbances, and judicial restraint.
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<PAGE>
13. Miscellaneous.
13.1 Assignment. Neither party shall assign or transfer any
interest in this Agreement, nor assign any claims for money due to or become due
under this Agreement, without the prior written consent of the other party.
13.2 Entire Agreement. This Agreement, with its attachments,
constitutes the entire agreement between the parties regarding the subject
matter hereof and supersedes any other written or oral understanding of the
parties. This Agreement may not be modified except by written instrument
executed by both parties.
13.3 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties, their successors and permitted assigns.
13.4 Notices. Except as provided in Section 3 hereof regarding
payment of invoices, any notice or other communication required or permitted to
be given to either party hereto shall be in writing and shall be deemed to have
been properly given and effective: (a) on the date of delivery if delivered in
person during recipient's normal business hours; or (b) on the date of delivery
if delivered by courier, express mail service or first-class mail, registered or
certified, return receipt requested. Such notice shall be sent or delivered to
the respective addresses given below, or to such other address as either party
shall designate by written notice given to the other party as follows:
In the case of Sponsor:
Pageant Technologies (USA) Inc.
P.O. Box 369
Pecos, New Mexico 87552
Attn: Stephen B. Fleming
In the case of University:
University of Utah
Office of Sponsored Projects
1471 Federal Way
Salt Lake City, Utah 84112
Attn: Lynne U. Chronister
13.5 Governing Law. This Agreement shall be interpreted and
construed in accordance with the laws of the State of Utah, without application
of any principles of choice of laws.
13.6 Nonwaiver. A waiver by either party of any breach of this
Agreement shall not be binding upon the waiving party unless such waiver is in
writing. In the event of a written waiver, such a waiver shall not affect the
waiving party's rights with respect to any other or further breach.
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13.7 Execution by Counterpart. This Agreement may be executed
separately or independently in any number of counterparts, each and all of which
together shall be deemed to have been executed simultaneously and for all
purposes to be one Agreement.
13.8 Attorney Fees. The prevailing Party in any action or suit to
enforce the terms or conditions of this Agreement shall be entitled to recover
its costs of court and reasonable attorneys' fees incurred in enforcing the
terms or conditions of this Agreement.
14. Dispute Resolution. Except to the right of either party to
apply to a court of competent jurisdiction for a temporary restraining order, a
preliminary injunction, or other equitable relief to preserve the status quo or
prevent irreparable harm, any and all claims, disputes or controversies arising
under, out of, or in connection with the Agreement, including any dispute
relating to patent validity or infringement, which the parties shall be unable
to resolves within sixty (60) days shall be mediated in good faith. The party
raising such dispute shall promptly advise the other party of such dispute. By
not later than five (5) business days after the recipient has received such
notice of dispute, each party shall have selected for itself a representative
who shall have the authority to bind such party, and shall additionally have
advised the other party in writing of the name and title of such representative.
By not later than (10) days after the date of such notice of dispute, the party
against whom the dispute shall be raised shall select a mediator in the Salt
Lake City area and such representative shall schedule a date with such mediator
for a hearing. The parties shall enter into a good faith mediation and shall
share the costs equally. If the representative of the parties have not been able
to resolve the dispute within fifteen (15) business days after such mediation
hearing, then any and all claims, disputes or controversies arising under, out
of, or in connection with this Agreement, including any dispute relating to
patent validity or infringement, shall be resolved by final and binding
compulsory arbitration in Salt Lake City, Utah pursuant to Title 78, Chapter 31a
Utah code Ann (1953), as amended, and shall be determined in accordance with the
Commercial Arbitration Rules of the American Arbitration Association to the
extent such rules are not in conflict with such law. The arbitrators shall have
no power to add to, subtract from or modify any of the terms or conditions of
this Agreement, not to award punitive damages. Any award rendered in such
arbitration may be enforced by either party in either the courts of the State of
Utah or in the United States District Court for the District of Utah, to whose
jurisdiction for such purposes University and Sponsor each hereby irrevocably
consents and submits. All costs and expenses, including reasonable attorney's
fees, of the prevailing party in connection with arbitration of such controversy
or claim shall be borne by the other party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives effective as of the day and
year first written above.
UNIVERSITY OF UTAH PAGEANT TECHNOLOGIES (USA), INC.
"University" "Sponsor"
By: /s/ Lynne U. Chronister By: /s/ Stephen Fleming
--------------------------------- -------------------------------
(Signature) (Signature)
Name: Lynne U. Chronister, Director Name: Stephen Fleming
--------------------------------- -------------------------------
Office of Sponsored Projects (Please Print)
Title: Title: President
--------------------------------- ------------------------------
Date: 11/26/97 Date: 11/26/97
--------------------------------- ------------------------------
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APPENDIX A
SCOPE OF WORK
By agreement between the University of Utah and Pageant Technology Inc., the
following work is to be performed by University faculty, staff and students
within the Department of Electrical Engineering including Hedco Labs, for the
purpose of producing a working prototype of a micron scale, integrated circuit
ferromagnetic nonvolatile random access memory, which will be referred to as
HFRAM.
WORK ONE
STEP ONE: RAMP-UP
1.1 Hire staff and students.
1.2 Obtain office and research space for staff and students.
1.3 Order appropriate ferromagnetic materials for use in a micron scale
memory cell.
1.4 Repair and enhance equipment needed for HFRAM development.
STEP TWO: SINGLE MEMORY CELL
2.1 Research appropriate ferromagnetic materials for use in a micron scale
memory cell.
2.2 Deposit, using appropriate methods, selected versions of the
aforementioned ferromagnetic materials on silicon or glass substances in
the micron range, as a "stick" normal to the plane of the substrate,
such stick to have an aspect ratio greater than 1:1.
2.3 Place around said stick a state-change conductor intimate to me stick,
of no more than 270 degrees rotation and insulated from it.
2.4 Manufacture, either prior or subsequent to such deposition, a magnetic
flux sensor/detector such as an InSb Hall Effect sensor intimate to the
stick, at one end, parallel to the plane of the substrate, and centered
to the axis of said stick.
2.5 Attach such electrical conductors to the state change and flux sensor
cell thus manufactured so hat electrical current may be applied to the
state change and sensor circuit of said memory cell.
2.6 Test said individual cell for state change, data retention, and sense
capabilities under a variety of conditions appropriate for such a
device, with power on, then with power off for data retention.
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2.7 Perform associated theoretical work to support experimental HFRAM
development.
STEP THREE: Matrixed memory cells
3.1 Construct a grouping of said cells as eight "bits", in a "byte,"
electrically interconnected, and test as above.
3.2 Construct a small grouping, or matrix/array of said bytes, electrically
interconnected and test as above.
3.3 Prepare a certain number of packaged dies with matrices of the order of
32 to 64 bytes of said cells to be tested as finished product. It is
understood that yield may be low for high bit count matrices/array.
WORK TWO
Conduct searches of existing data bases monthly or as requested to identify
emerging technologies and/or products which may fit into Pageant's business
strategy.
COMMENTS
Progress reports on Work One will be rendered on a quarterly basis or within 48
hours of encountering a situation which could adversely impact the intent of
this statement of work.
The University will take best efforts to produce an eight bit proof of concept
device as soon as possible after RAMP-UP to facilitate Pageant's marketing and
business strategy.
E-73
<PAGE>
APPENDIX B
ESTIMATED BUDGET
Post Doc's (50,000 + 16,500) $ 66,500
Technician (15,000 + 4,950) 19,950
UG Op Spt (12,500 + 1,125) 13,625
Tech Support (33,000 + 10,890) 43,890
HEDCO Lab 13,650
Supplies 15,000
Upgrades 10,000
Masks 15,000
------
SUBTOTAL $197,615
Equipment 30,950
Overhead 54,344
------
TOTAL $282,549
E-74
THE UNIVERSITY OF UTAH
February 1, 1999
Pageant Technologies (USA), Inc.
3205 Richard's Lane, Suite B
Santa Fe, NM 87505
SUBJECT: Letter of Confirmation
To Whom It May Concern:
This is to confirm that the University of Utah has a contract with Pageant
Technologies (USA) Inc. The contract is entitled "Study of HFRAM, which is a
micron scale integrated circuit ferromagnetic nonvolatile random access memory"
under the direction of Dr. Jennifer Hwu. The contract amount is $282,549 with
the project period from November 26, 1997 to December 31, 1999, unless an
extension is mutually agreed upon by both parties.
Sincerely,
/s/ Lynne U. Chronister
Lynne U. Chronister
Director, Office of Sponsored Projects
(801) 581-3003
[email protected]
cc: Dr. J. Hwu
E-75
Exhibit 3.9
CONSULTING AGREEMENT
THIS AGREEMENT made as of the 29th day of January 1999
B E T W E E N:
275311 ONTARIO INC.
a corporation subsisting under the laws of Ontario
(hereinafter called the "SFCo")
OF THE FIRST PART;
- and -
MICROMEM TECHNOLOGIES INC.
(formerly, Avanticorp International Inc.)
a corporation incorporated under the laws of Ontario
(hereinafter called the 'Corporation")
OF THE SECOND PART;
NOW THEREFORE THIS AGREEMENT WITNESSES that for good and valuable
consideration (the receipt and sufficiency whereof are hereby acknowledged by
both of the parties hereto), it is agreed by and between the parties hereto as
follows:
1. Retainer of SFCo
----------------
Subject to the terms and conditions of this agreement, the Corporation
hereby retains SFCo, and SFCo hereby agrees, to: (i) provide to the Corporation
the services further described in section 2 hereof; and (ii) arrange for Sam
Fuda to serve as a director of the Corporation; all during the period commencing
January 1, 1999 through to December 31, 1999.
2. Duties
SFCo shall report to the Board of Directors (the "Board") of the
Corporation and shall perform such duties as may from time to time be determined
by or as may be assigned to it by the Board within the scope of the following
duties:
E-76
<PAGE>
i. assisting and advising the corporation's board of directors and senior
management in negotiations with prospective purchasers, manufacturers
and licensees of the Corporation's MAGRAM TM technology;
ii. overseeing the Corporation's compliance with corporate and securities
regulations in Canada and those of any trading system or stock
exchange upon which the Corporation's shares may become listed;
iii. retaining and instructing the Corporation's professional advisors
including the corporation's legal counsel and auditors;
iv. providing advice to the Corporation's board of directors and senior
management with respect to structuring of the Corporation's equity
funding by private placement and/or public offering and providing
introductory services to the financial and investment community in
Toronto; and
v. managing a corporate office of the Corporation to be situated in
Toronto.
3. Service
During the term of this agreement, SFCo shall faithfully serve the
Corporation and shall use its best efforts to promote the interests of the
Corporation and shall devote such portion of Sam Fuda's working time to the
business and affairs of the Corporation as SFCo shall deem necessary to carry
out the responsibilities of SFCo and Sam Fuda as required under this agreement.
4. Termination of Agreement
(a) This agreement, unless it is extended by mutual written agreement
between the parties, shall terminate on December 31, 1999 provided
that this agreement may be earlier terminated by the Corporation,
without notice, for cause. This agreement shall also terminate upon
the death or disability of Sam Fuda. Sam Fuda shall be deemed to be
disabled in the event that he should be unable to perform his
functions hereunder by reason of physical incapacity, mental disease
or affliction for any two weeks in any twelve month period.
(b) The Corporation may terminate this contract without notice or without
cause at any time by paying SFCo the full present value of the fees
otherwise payable hereunder during the balance of the term of this
agreement.
5. Results of Termination
Upon the occurrence of any of the events described in paragraph 4, this
agreement and the retainer of SFCo hereunder shall be wholly terminated, with
the exception of paragraphs 8 through 13 inclusive and the clauses specifically
contemplated to continue in full force and effect beyond termination of this
agreement. Upon any such termination, neither SFCo no Sam Fuda shall have any
claim against the Corporation for damages or otherwise arising out of or in
respect of this agreement except for payments required to be made hereunder.
E-77
<PAGE>
6. Remuneration
As remuneration for the services to be rendered by SFCo to the
Corporation hereunder, the Corporation shall pay SFCo a fee which shall be
payable on the last day of every quarter during the term of this agreement, at
the option of the Corporation either:
i. through the issuance to SFCo of a number of fully paid and
non-assessable common shares of the Corporation (the "Incentive
Shares") equal to 0.3125% of the simple average of the number of
common shares of the Corporation that were outstanding on the last day
of each of the three months of the quarter in respect of which the
Incentive Shares are issued (the "Average Outstanding"); or
ii. through payment by certified cheque or bank draft for an amount equal
to 0.3125% of the Average Outstanding multiplied by the simple average
of the close price of the common shares of the Corporation on the
stock exchange or trading market where the common shares of the
Corporation are traded from time to time on each day of the quarter in
respect of which the said payment from time to time on each day of the
quarter in respect of which the said payment is made; provided that if
on any trading day the common shares of the Corporation have not
traded on such stock exchange or trading market, then the simple
average of the closing bid and ask prices shall be used in lieu of the
close price in respect of that day.
The parties hereto acknowledge and agree that the issuance of any Incentive
Shares shall be conditional upon the Corporation receiving requisite approval of
the shareholders of the Corporation pursuant to Ontario Securities Commission
Rule 45-503 provided that in the event that the Corporation is unable or
unwilling to issue the Incentive Shares in respect of a quarter due to requisite
shareholder approval not having been obtained prior to the end of the said
quarter then the Corporation shall pay to SFCo the cash fee provided for in
sub-section 6(ii) above.
7. Extension of Contract
If the Corporation wishes to extend this contract past December 31,
1999, the Board shall notify SFCo accordingly by October 31, 1999, whereupon, if
SFCo desires to extend this contract, the parties shall negotiate the terms of
the extension of this contract.
8. Confidential Information
SFCo acknowledges that in the course of SFCo carrying out, performing
and fulfilling its responsibilities to the Corporation it will have access to
and will be entrusted with detailed confidential information including without
limitation financial information, shareholder lists, of all kinds, agreements,
correspondence and documentation to, from , and regarding financiers and
prospective financiers, auditors, legal counsel and professional advisors, joint
venture partners and prospective joint venture partners, of the Corporation and
its subsidiaries, brokers, vendors or properties of any kind, and patents and
trade secrets, marketing and business plans and price lists concerning the
business of the Corporation and the present and contemplated products,
techniques and other services evolved or used by the Corporation (the
"Confidential Information") and that any disclosure of the Confidential
Information to the competitors of the Corporation or the general public would be
highly detrimental to the best interests of these parties. SFCo acknowledges and
agrees that the right to maintain the confidentiality of the Confidential
Information and the right to preserve the goodwill of the Corporation constitute
proprietary
E-78
<PAGE>
rights which the Corporation is entitled to protect. Accordingly, SFCo covenants
and agrees with the Corporation that, save with the consent of the Corporation
it will not, during the term of this retainer by the Corporation or for a period
of ten years after the termination of this agreement, disclose any of the
Confidential Information to any person outside of the Corporation nor shall it
use the same for any purpose other than for the purposes of the Corporation
provided that SFCo shall not be liable for disclosure of the Confidential
Information upon the occurrence of one or more of the following events:
i. the Confidential Information becoming generally known to the public
other than through a breach of this agreement;
ii. the Confidential Information being lawfully obtained by SFCo from a
third party or parties without breach of this agreement by SFCo, as
shown by documentation sufficient to establish the third party as a
source of the Confidential information; and
iii. SFCo being required to make disclosure of the Confidential Information
by operation of law.
SFCo shall deliver to the Corporation, upon termination of its retainer
hereunder, or upon request, all documents, financial statements and information,
memoranda, notes, reports, records, reports, manuals, price lists,
correspondence, shareholder lists, customer lists, order forms, drawings and
other documents (and all copies thereof, whether in hard copy or in machine
readable form) relating to the business of the Corporation and all assets and
properties of the Corporation referenced therein, which it may then possess or
have under its control. SFCo agrees that all restrictions contained in this
clause are reasonable and valid in the circumstances and all defenses to the
strict enforcement thereof by the Corporation are hereby waived by SFCo.
9. Non-Solicitation
SFCo agrees that following the execution of this agreement with the
Corporation, it will not, directly or indirectly, during the term of this
agreement, any extension of the term of this agreement and at any time during
the period of three (3) years from the date of termination without the prior
written consent of the Corporation solicit or attempt to solicit away from the
Corporation any existing or prospective shareholders, investors, suppliers,
employees, customers, clients, investors, joint venture partners or vendors of
properties of any kind, or acquisition or merger candidates of the Corporation.
10. Validity of Covenants
If any covenant or provision herein is determined to be void or
unenforceable in whole or in part, it shall not be deemed to affect or impair
the validity of any other covenant or provision and the covenants and provisions
herein are hereby declared to be separate and distinct. SFCo hereby agrees that
all restrictions in this agreement are reasonable and valid and all defenses to
the strict enforcement thereof by the Corporation are hereby waived by SFCo.
11. Injunctive Relief
SFCo further agrees that the remedy at law for any breach by SFCo of the
confidentiality, non-competition or non-solicitation provisions of this
agreement will be inadequate and that the Corporation, on any application to a
court, shall be entitled to temporary and permanent injunctive relief against
Sam Fuda and SFCo without the necessity of proving actual damage to the
Corporation. SFCo agrees that
E-79
<PAGE>
the breach of the confidentiality, non-competition or non-solicitation clauses
contained herein will result in irreparable damage to the Corporation which will
not be compensable by law through an award of damages.
12. Indemnity
The Corporation agrees to indemnify and hold SFCo, Sam Fuda and each and
every of the directors and officers of SFCo (hereinafter, the "Personnel")
harmless from and against any and all expenses, losses, claims, actions, damages
or liabilities, whether joint or several (including the aggregate amount paid in
reasonable settlement of any actions, suits, proceedings or claims), and the
reasonable fees and expenses of its counsel that may be incurred in advising
with respect to and/or defending any claim that may be made against SFCo to
which SFCo and/or its Personnel may become subject or otherwise involved in any
capacity under any statute or common-law or otherwise insofar as such expenses,
losses, claims, damages, liabilities or actions arise out of or are based,
directly, or indirectly upon SFCo fulfilling its obligations to the Corporation
pursuant to this agreement, provided that: (a) SFCo and/or the Personnel have
acted honestly and in good faith with a view to the best interests of the
Corporation and they have not aced negligently; and (b) in the case of a
criminal or a administrative action or proceeding that is enforced by a monetary
penalty, SFCo and/or the Personnel had reasonable grounds for believing that
its/his/their conduct was lawful.
13. Notice
Any notice in writing required to or permitted to be given to SFCo
hereunder shall be sufficiently given if delivered to SFCo, respectively,
personally or mailed by registered mail, postage prepaid, addressed to SFCo as
follows:
275311 Ontario Inc.
150 York Street, Suite 1206
Toronto, Ontario
M511-3S5
Any notice in writing required or permitted to be given to the
Corporation hereunder may be given in the same fashion to the Corporation, as
follows:
MicroMem Technologies Inc.
3205 Richard's Lane, Suite B
Sante Fe, New Mexico
87505
and to
MicroMem Technologies Inc.
150 York Street, Suite 1206
Toronto, Ontario
M5H-3S5
Any such notice which is mailed shall be deemed to have been received by
SFCo or the Corporation, as the case may be, on the seventh day following the
date of mailing. Any such notice which is delivered personally or by courier
shall be deemed to have been received by SFCo or the
E-80
<PAGE>
Corporation, as the case may be, on the same day that it is actually received at
the premises of the addressee as described above. Any address for the giving of
notices hereunder mayo be changed by notice in writing.
14. Governing Law
The provisions of this agreement shall be governed by and interpreted in
accordance with the laws of the Province of Ontario.
15. Successors and assigns
The provisions hereof, where the context permits, shall enure to the
benefit of and be binding upon the successors and permitted assigns of the
Corporation and SFCo, respectively, provided that the obligations any of the
parties hereto may not be assigned without the express prior written consent of
the other parties hereto.
16. Entire Agreement; Amendment; Headings
This agreement constitutes the entire understanding between the parties
with reference to the subject matter hereof and shall not be changed or modified
except by written instrument signed by each party. The headings used in this
agreement are solely for convenience and are not to be used in construing or
interpreting this agreement.
17. Independent Advice
SFCo hereby acknowledges that it has been given the opportunity to
obtain and it has obtained independent legal advice concerning the advisability
of entering into this agreement prior to executing this agreement.
18. Arbitration
(a) Should there be a breach of any covenant, representation and warranty
contained in this agreement at any time after the date of execution of
this agreement by a party hereto (the "Party in Breach"), then the
other party (the "Notifying Party") shall send written notice of such
breach (the "Notice") to the Party in Breach at the address set forth
below. The Party in Breach shall be entitled to 30 days from the date
of the Notice to rectify or cure the breach which is the subject of
the Notice. In the event that the breach has not been rectified or
cured within 30 days of the date of the Notice, then any continuing
dispute shall be referred for arbitration to a single arbitrator to be
appointed by the parties.
(b) Any party may refer any such matter to arbitration by written notice
to the other ("Arbitration Notice") and, within ten days after receipt
of the Arbitration Notice, the parties will agree on the appointment
of an arbitrator, who shall be capable of commencing arbitration
within 21 days of this appointment. No person will be appointed as an
arbitrator unless such person agrees in writing to act.
(c) If the parties cannot agree on a single arbitrator as provided in
clause (b), or if the person appointed is unwilling or unable to act,
any party may request the court to appoint a single arbitrator in
accordance with the Arbitranous Act of the Province of Ontario.
E-81
<PAGE>
IN WITNESS WHEREOF this agreement has been executed by the parties
hereto on the 29th day of January, 1999.
SIGNED, SEALED AND DELIVERED
275311 ONTARIO INC.
Per:/s/ Sam Fuda
---------------------------
Name:
Title:
MICROMEM TECHNOLOGIES INC.
Per:/s/ Stephen B. Fleming
---------------------------
Name: Stephen B. Fleming
Title: President
Per:/s/ Ross McGroarty
---------------------------
Name: Ross McGroarty
Title: Executive V.P.
- 7 -
E-82
CONSULTING AGREEMENT
THIS AGREEMENT made as of the 10th day of March, 1999.
B E T W E E N:
MAST HOLDING (BERMUDA) LTD.
a corporation subsisting under the laws of Bermuda
(hereinafter called the "Mast")
OF THE FIRST PART;
- and -
MICROMEM TECHNOLOGIES INC.
(formerly, Avanticorp International Inc.)
a corporation incorporated under the laws of Ontario
(hereinafter called the "Corporation")
OF THE SECOND PART;
NOW THEREFORE THIS AGREEMENT WITNESSES that for good and valuable
consideration (the receipt and sufficiency whereof are hereby acknowledged by
both of the parties hereto), it is agreed by and between the parties hereto as
follows:
1. Retainer of Mast
----------------
Subject to the terms and conditions of this agreement, the Corporation
hereby retains Mast, and Mast hereby agrees, to: (i) provide to the Corporation
the services further described in section 2 hereof; and (ii) arrange for Robert
Patterson ("Patterson") to serve as a director and President of the Corporation;
all during the period commencing March 9, 1999 through to March 10, 2000.
E-83
<PAGE>
2. Duties
------
Mast and Patterson shall report to the Board of Directors (the "Board")
of the Corporation and Mast and Patterson shall perform such duties as may from
time to time be determined by or as may be assigned to them by the Board within
the scope of the following duties:
i. Patterson shall serve as the President and Chief Executive
Officer of the Corporation under the terms of this agreement;
ii. Patterson shall oversee the research and development of the
MAGRAM TM technology owned and licensed by the Corporation's
subsidiary, Pageant Technologies Incorporated ("MAGRAM") and
assist and advise the Corporation's board of directors and senior
management in negotiations with prospective purchasers,
manufacturers and licensees of the Corporation's MAGRAM TM
technology;
iii. Mast and Patterson shall oversee the sale, licensing and
exploitation of MAGRAM; and
iv. Such other services and work upon which the parties may mutually
agree.
3. Service
-------
During the term of this agreement, Mast shall faithfully serve the
Corporation and shall use its best efforts to promote the interests of the
Corporation and shall devote such portion of Robert Patterson's working time to
the business and affairs of the Corporation as Mast shall deem necessary to
carry out the responsibilities of Mast and Robert Patterson as required under
this agreement.
4. Termination of Agreement
------------------------
(a) This agreement, unless it is extended by mutual written agreement
between the parties, shall terminate on March 9, 2000 provided
that this agreement may be earlier terminated by the Corporation,
without notice, for cause. This agreement shall also terminate
upon the death or disability of Robert Patterson. Robert
Patterson shall be deemed to be disabled in the event that he
should be unable to perform his functions hereunder by reason of
physical incapacity, mental disease or affliction for any two
weeks in any twelve month period.
(b) The Corporation may terminate this contract without notice or
without cause at any time by paying Mast the full present value
of the fees otherwise payable hereunder during the balance of the
term of this agreement.
5. Results of Termination
----------------------
Upon the occurrence of any of the events described in paragraph 4, this
agreement and the retainer of Mast hereunder shall be wholly terminated, with
the exception of paragraphs 8 through 13 inclusive and the clauses specifically
contemplated to continue in
E-84
<PAGE>
full force and effect beyond termination of this agreement. Upon any such
termination, neither Mast nor Robert Patterson shall have any claim against the
Corporation for damages or otherwise arising out of or in respect of this
agreement except for payments required to be made hereunder.
6. Remuneration
------------
As remuneration for the services to be rendered by Mast to the
Corporation hereunder, the Corporation shall pay Mast a fee which shall be
payable on the last day of every quarter during the term of this agreement, at
the option of the Corporation either:
i. through the issuance to Mast for a number of fully paid and
non-assessable common shares of the Corporation (the "Incentive
Shares") equal to 0.3125% of the simple average of the number of
common shares of the Corporation that were outstanding on the
last day of each of the three months of the quarter in respect of
which the Incentive Shares are issued (the "Average
Outstanding"); or
ii. through payment by certified cheque or bank draft for an amount
equal to 0.3125% of the Average Outstanding multiplied by the
simple average of the close price of the common shares of the
Corporation on the stock exchange or trading market where the
common shares of the Corporation are traded from time to time on
each day of the quarter in respect of which the said payment is
made; provided that if on any trading day the common shares of
the Corporation have not traded on such stock exchange or trading
market, then the simple average of the closing bid and ask prices
shall be used in lieu of the close price in respect of that day.
The parties hereto acknowledge and agree that the issuance of any Incentive
Shares shall be conditional upon the Corporation receiving requisite approval of
the shareholders of the Corporation pursuant to Ontario Securities Commission
Rules 45-503 provided that in the event that the Corporation in unable or
unwilling to issue the Incentive Shares in respect of a quarter due to requisite
shareholder approval not having been obtained prior to the end of the said
quarter then the Corporation shall pay to Mast the cash fee provided for in
sub-section 6(ii) above.
7. Extension of Contract
---------------------
If the Corporation wishes to extend this contract past March 9, 2000,
the Board shall notify Mast accordingly by December 31, 1999, whereupon, if Mast
desires to extend this contract, the parties shall negotiate the terms of the
extension of this contract.
8. Confidential Information
------------------------
Mast and Patterson acknowledges that in the course of Mast and Patterson
carrying out, performing and fulfilling their responsibilities to the
Corporation Mast and Patterson will
E-85
<PAGE>
have access to and will be entrusted with detailed confidential information
including without limitation financial information, shareholder lists,
agreements, correspondence and documentation to, from, and regarding financiers
and prospective financiers, auditors, legal counsel and professional advisors,
joint venture partners and prospective joint venture partners, of the
Corporation and its subsidiaries, brokers, vendors of properties of any kind,
and patents and trade secrets, marketing and business plans and price lists
concerning the business of the Corporation and the present and contemplated
products, techniques and other services evolved or used by the Corporation (the
"Confidential Information") and that any disclosure of the Confidential
Information to the competitors of the Corporation or the general public would be
highly detrimental to the best interests of these parties. Mast and Patterson
acknowledge and agree that the right to maintain the confidentiality of the
Confidential Information and the right to preserve the goodwill of the
Corporation constitute proprietary rights which the Corporation is entitled to
protect. Accordingly, Mast and Patterson covenant and agree with the Corporation
that, save with the consent of the Corporation they will not, during the term of
this retainer by the Corporation or for a period of ten years after the
termination of this agreement, disclose any of the Confidential Information to
any person outside of the Corporation nor shall they use the same for any
purpose other than for the purposes of the Corporation provided that Mast and
Patterson shall not be liable for disclosure of the Confidential Information
upon the occurrence of one or more of the following events:
i. the Confidential Information becoming generally known to the
public other than through a breach of this agreement;
ii. the Confidential Information being lawfully obtained by Mast or
Patterson from a third party or parties without breach of this
agreement by Mast or Patterson, as shown by documentation
sufficient to establish the third party as a source of the
Confidential Information; and
iii. Mast and Patterson being required to make disclosure of the
Confidential Information by operation of law.
Mast and Patterson shall deliver to the Corporation, upon termination of its
retainer hereunder, or upon request, all documents, financial statements and
information, memoranda, notes, reports, records, reports, manuals, price lists,
correspondence, shareholder lists, customer lists, order forms, drawings and
other documents (and all copies thereof, whether in hard copy or in machine
readable form) relating to the business of the Corporation and all assets and
properties of the Corporation referenced therein, which they may then possess or
have under its control. Mast and Patterson agree that all restrictions contained
in this clause are reasonable and valid in the circumstances and all defenses to
the strict enforcement thereof by the Corporation are hereby waived by Mast and
Patterson.
9. Non-Solicitation
----------------
Mast and Patterson agree that following the execution of this agreement
with the Corporation, they will not, directly or indirectly, during the term of
this agreement, any
E-86
<PAGE>
extension of the term of this agreement and at any time during the period of
three (3) years from the date of termination without the prior written consent
of the Corporation solicit or attempt to solicit away from the Corporation any
existing or prospective shareholders, investors, suppliers, employees,
customers, clients, investors, joint venture partners or vendors of properties
of any kind, or acquisition or merger candidates of the Corporation.
10. Validity of Covenants
---------------------
If any covenant or provision herein is determined to be void or
unenforceable in whole or in part, it shall not be deemed to affect or impair
the validity of any other covenant or provision and the covenants and provisions
herein are hereby declared to be separate and distinct. Mast and Patterson
hereby agree that all restrictions in this agreement are reasonable and valid
and all defenses to the strict enforcement thereof by the Corporation are hereby
waived by Mast and Patterson.
11. Injunctive Relief
-----------------
Mast and Patterson further agree that the remedy at law for any breach
by Mast and Patterson of the confidentiality, non-competition or
non-solicitation provisions of this agreement will be inadequate and that the
Corporation, on any application to a court, shall be entitled to temporary and
permanent injunctive relief against Mast and Patterson without the necessity of
proving actual damage to the Corporation. Mast and Patterson agree that the
breach of the confidentiality, non-competition or non-solicitation clauses
contained herein will result in irreparable damage to the Corporation which will
not be compensable by law through an award of damages.
12. Indemnity
---------
The Corporation agrees to indemnify and hold Mast, Robert Patterson and
each and every of the directors and officers of Mast (hereinafter, the
"Personnel") harmless from and against any and all expenses, losses, claims,
actions, damages or liabilities, whether joint or several (including the
aggregate amount paid in reasonable settlement of any actions, suits,
proceedings or claims), and the reasonable fees and expenses of its counsel that
may be incurred in advising with respect to and/or defending any claim that may
be made against Mast to which Mast and/or its Personnel may become subject or
otherwise involved in any capacity under any statute or common-law or otherwise
insofar as such expenses, losses, claims, damages, liabilities or actions arise
out of or are based, directly, or indirectly, upon Mast fulfilling its
obligations to the Corporation pursuant to this agreement, provided that: (a)
Mast and/or the Personnel have acted honestly and in good faith with a view to
the best interests of the Corporation and they have not acted negligently; and
(b) in the case of a criminal or a administrative action or proceeding that is
enforced by a monetary penalty, Mast and/or the Personnel had reasonable grounds
for believing that its/his/their conduct was lawful.
E-87
<PAGE>
13. Notice
------
Any notice in writing required to or permitted to be given to Mast and
Patterson hereunder shall be sufficiently given if delivered to Mast and
Patterson, respectively, personally or mailed by registered mail, postage
prepaid, addressed to Mast as follows:
Mast Holding (Bermuda) Ltd.
Reid House, 31 Church Street
Hamilton, Bermuda HM 12
Attention: Ms. Margaret Barnes
------------------------------
- and -
Robert Patterson
*
Any notice in writing required or permitted to be given to the
Corporation hereunder may be given in the same fashion to the Corporation, as
follows:
MicroMem Technologies Inc.
3205 Richard's Lane, Suite B
Santa Fe, New Mexico
87505
and to
MicroMem Technologies Inc.
150 York Street, Suite 1206
Toronto, Ontario
M5H-3S5
Any such notice which is mailed shall be deemed to have been received by
Mast, Patterson or the Corporation, as the case may be, on the seventh day
following the date of mailing. Any such notice which is delivered personally or
by courier shall be deemed to have been received by Mast, Patterson or the
Corporation, as the case may be, on the same day that it is actually received at
the premises of the addressee as described above. Any address for the giving of
notices hereunder may be changed by notice in writing.
14. Governing Law
-------------
The provisions of this agreement shall be governed by and interpreted in
accordance with the laws of the Province of Ontario.
E-88
<PAGE>
15. Successors and Assigns
----------------------
The provisions hereof, where the context permits, shall enure to the
benefit of and be binding upon the successors and permitted assigns of the
Corporation, Patterson and Mast, respectively, provided that the obligations any
of the parties hereto may not be assigned without the express prior written
consent of the other parties hereto.
16. Entire Agreement; Amendment; Headings
-------------------------------------
This agreement constitutes the entire understanding between the parties
with reference to the subject matter hereof and shall not be changed or modified
except by written instrument signed by each party. The headings used in this
agreement are solely for convenience and are not to be used in construing or
interpreting this agreement.
17. Independent Advice
------------------
Mast and Patterson hereby acknowledge that they have been given the
opportunity to obtain and they have obtained independent legal advice concerning
the advisability of entering into this agreement prior to executing this
agreement.
18. Arbitration
-----------
(a) Should there be a breach of any covenant, representation and
warranty contained in this agreement at any time after the date
of execution of this agreement by a party hereto (the "Party in
Breach"), then the other party (the "Notifying Party")shall send
written notice of such breach (the "Notice") to the Party in
Breach at the address set forth below. The Party in Breach shall
be entitled to 30 days from the date of the Notice to rectify or
cure the breach which is the subject of the Notice. In the event
that the breach has not been rectified or cured within 30 days of
the date of the Notice, then any continuing dispute shall be
referred for arbitration to a single arbitrator to be appointed
by the parties.
(b) Any party may refer any such matter to arbitration by written
notice to the other ("Arbitration Notice") and, within ten days
after receipt of the Arbitration Notice, the parties will agree
on the appointment of an arbitrator, who shall be capable of
commencing arbitration within 21 days of his appointment. No
person will be appointed as an arbitrator unless such person
agrees in writing to act.
(c) If the parties cannot agree on a single arbitrator as provided in
clause (b), or if the person appointed is unwilling or unable to
act, any party may request the court to appoint a single
arbitrator in accordance with the Arbitrations Act of the
Province of Ontario.
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IN WITNESS WHEREOF this agreement has been executed by the parties
hereto on the ____ day of March, 1999.
SIGNED, SEALED AND DELIVERED )
)
)
- ------------------------------ ) -----------------------------
WITNESS ) ROBERT J. PATTERSON
)
)
) MAST HOLDING (BERMUDA) LTD.
)
)
)
) Per:
) Name:
) Title:
)
)
)
) MICROMEM TECHNOLOGIES INC.
)
)
)
) Per:
) Name:
) Title:
)
)
)
) Per:
) Name:
) Title:
)
)
)
) Per:
) Name:
) Title:
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STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
January 16, 1998, is made by and between Plains Eagle Corporation ("Lessor") and
Pageant Technologies (USA), Inc. ("Lessee"), (collectively the "Parties," or
individually a "Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 3205 Richards Lane, Suite B, located in
the City of Santa Fe, County of Santa Fe, State of New Mexico, with zip code
87505, as outlined on Exhibit A attached hereto ("Premises"). The "Building" is
that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): Light industrial
office/warehouse, in addition to Lessee's rights to use and occupy the Premises
as hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "Industrial Center." (Also see Paragraph 2.)
1.2(b) Parking: five (5) unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and zero (0) reserved vehicle parking spaces ("Reserved
Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: Three years and 0 months ("Original Term") commencing January
1, 1998 ("Commencement Date") and ending December 31, 2000 ("Expiration Date").
(Also see Paragraph 3.)
1.4 Early Possession: if applicable ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $2,084.00 per month ("Base Rent"), payable on the first
(1st) day of each month commencing January 1, 1998. (Also see Paragraph 4.)
|X| If this box is checked, this Lease provides for the Base Rent to
be adjusted per Addendum #1, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $2,084.00 as Base Rent for the
period January 1-31, 1998.
1.6(b) Lessee's Share of Common Area Operating Expenses: 32 percent
(32%) ("Lessee's Share") as determined by
|_| pro rata square footage of the Premises as compared to the total
square footage of the Building or |X| other criteria as described in Addendum
#1.
1.7 Security Deposit: $2,084.4. ("Security Deposit"). (Also see
Paragraph 5.)
1.8 Permitted Use: Office/warehouse for research and development of
laser technology ("Permitted Use") (Also see Paragraph 6.)
1.10 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
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1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by Stephen B. Fleming ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through __, and Exhibit A only, all of which
constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, and compliance with the Americans with
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Disabilities Act and applicable zoning, municipal, county, state and federal
laws, ordinances and regulations and any covenants or restrictions of record
(collectively, "Applicable Laws") and the present and future suitability of the
Premises for Lessee's intended use; (b) that Lessee has made such investigation
as it deems necessary with reference to such matters, is satisfied with
reference thereto, and assumes all responsibility therefore as the same relate
to Lessee's occupancy of the Premises and/or the terms of this Lease; and (c)
that neither Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles
that belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, contractors or invitees to be loaded, unloaded, or parked
in areas other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the
prohibited activities described in this Paragraph 2.6, then Lessor shall have
the right, without notice, in addition to such other rights and remedies that it
may have, to remove or tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this
Lease, provide the parking facilities required by Applicable Law.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of
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the Industrial Center. Under no circumstances shall the right herein granted to
use the Common Areas be deemed to include the right to store any property,
temporarily or permanently, in the Common Areas. Any such storage shall be
permitted only by the prior written consent of Lessor or Lessor's designated
agent, which consent may be revoked at any time. In the event that any
unauthorized storage shall occur then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas,
including, without limitation, changes in the location, size, shape and number
of driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress, egress, direction of traffic, landscaped areas, walkways and
utility raceways;
(b) To close temporarily any of the Common Areas
for maintenance purposes so long as reasonable access to the
Premises remains available;
(c) To designate other land outside the
boundaries of the Industrial Center to be a part of the Common
Areas;
(d) To add additional buildings and improvements
to the Common Areas;
(e) To use the Common Areas while engaged in
making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof; and
(f) To do and perform such other acts and make
such other changes in, to or with respect to the Common Areas and Industrial
Center as Lessor may, in the exercise of sound business judgment, deem to be
appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8), shall be in effect during such period. Any such early
possession
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shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed, shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee. (See Addendum #1, Paragraph 49)
4.2 Common Area Operating Expenses. (See Addendum #1, Paragraph 50)
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from
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Lessor, deposit additional monies with Lessor as an addition to the Security
Deposit so that the total amount of the Security Deposit shall at all times bear
the same proportion to the then current Base Rent as the initial Security
Deposit bears to the initial Base Rent set forth in Paragraph 1.5. Lessor shall
not be required to keep all or any part of the Security Deposit separate from
its general accounts. Lessor shall, at the expiration or earlier termination of
the term hereof and after Lessee has vacated the Premises, return to Lessee (or,
at Lessor's option, to the last assignee, if any, of Lessee's interest herein),
that portion of the Security Deposit not used or applied by Lessor. Unless
otherwise expressly agreed in writing by Lessor, no part of the Security Deposit
shall be considered to be held in trust, to bear interest or other increment for
its use, or to be prepayment for any monies to be paid by Lessee under this
Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only
for the Permitted Use set forth in Paragraph 1.8, or any other legal use which
is reasonably comparable thereto, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste or
a nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably
withhold or delay its consent to any written request by Lessee, Lessee's
assignees or subtenants and by prospective assignees and subtenants of Lessee,
its assignees and subtenants, for a modification of said Permitted Use, so long
as the same will not impair the structural integrity of the Improvements on the
Premises or in the Building or the mechanical or electrical systems therein,
does not conflict with uses by other lessees, is not significantly more
burdensome to the Premises or the Building and the improvements thereon, and is
otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold
such consent, Lessor shall within five (5) business days after such request give
a written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term
"Hazardous Substance" as used in this Lease shall mean any product, substance,
chemical, material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or
use of any above or below
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ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or
has reasonable cause to believe, that a Hazardous Substance has come to be
located in, on, under or about the Premises or the Building, other than as
previously consented to by Lessor, Lessee shall immediately give Lessor written
notice thereof, together with a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action, or
proceeding given to, or received from, any governmental authority or private
party concerning the presence, spill, release, discharge of, or exposure to,
such Hazardous Substance including but not limited to all such documents as may
be involved in any Reportable Use involving the Premises. Lessee shall not cause
or permit any Hazardous Substance to be spilled or released in, on, under or
about the Premises (including, without limitation, through the plumbing or
sanitary sewer system).
(c) Indemnification. Lessee shall indemnify,
protect, defend and hold Lessor, its agents, employees, lenders and ground
lessor, if any, and the Premises, harmless from and against any and all damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, loss of
permits and attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee or by anyone
under Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultants' and attorneys' fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and
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in a timely manner, comply with all "Applicable Requirements," which term is
used in this Lease to mean all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill, or release of any Hazardous Substance), now in
effect or which may hereafter come into effect. Lessee shall, within five (5)
days after receipt of Lessor's written request, provide Lessor with copies of
all documents and information, including but not limited to permits,
registrations, manifests, applications, reports and certificates, evidencing
Lessee's compliance with any Applicable Requirements specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures
and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation),
Lessee shall, at Lessee's sole cost and expense and at all times, keep the
Premises and every part thereof in good order, condition and repair (whether or
not such portion of the Premises requiring repair, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, without
limiting the generality of the foregoing, all equipment or facilities
specifically serving the Premises, such as lighting facilities, fire hose
connections if within the Premises, fixtures, interior
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walls, interior surfaces of exterior walls, ceilings, floors, windows, doors,
plate glass, and hardware, but excluding any items which are the responsibility
of Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in
good order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and
expense, procure and maintain a contract, with copies to Lessor, in customary
form and substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilation system for the Premises. However, Lessor reserves the right, upon
notice to Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's
obligations under this Paragraph 7.1, Lessor may enter upon the Premises after
ten (10) days' prior written notice to Lessee (except in the case of an
emergency, in which case no notice shall be required), perform such obligations
on Lessee's behalf, and put the Premises in good order, condition and repair, in
accordance with Paragraph 13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, unless damage by Lessee or its employees, customers
or invitees, structural condition of interior bearing walls, exterior roof,
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, (on-going maintenance of ice on parking lot and walkway is Lessee's
responsibility), parkways, driveways, landscaping, fences, heating and cooling
and utility systems serving the Common Areas and all parts thereof, as well as
providing the services for which there is a Common Area Operating Expense
pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior
or interior surfaces of exterior walls nor shall Lessor be obligated to
maintain, repair or replace windows, doors or plate glass of the Premises.
Lessee expressly waives the benefit of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term
"Utility Installations" is used in this Lease to refer to all air lines, power
panels, electrical distribution, security, fire protection systems,
communications systems, lighting fixtures, heating, ventilating and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment which can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises which are
provided by Lessor under
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the terms of this Lease, other than Utility Installations or Trade Fixtures.
"Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due
all claims for labor or materials furnished or alleged to have been furnished to
or for Lessee at or for use on the Premises, which claims are or may be secured
by any mechanic's or materialman's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior to
the commencement of any work in, on, or about the Premises, and Lessor shall
have the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to one and one-half times the amount of such contested lien claim or
demand, indemnifying Lessor against liability for the same, as required by law
for the holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
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7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to
require their removal and to cause Lessee to become the owner thereof as
hereinafter provided in this Paragraph 7.4, all Alterations and Utility
Installations made to the Premises by Lessee shall be the property of and owned
by Lessee, but considered a part of the Premises. Lessor may, at any time and at
its option, elect in writing to Lessee to be the owner of all or any specified
part of the Lessee-Owned Alterations and Utility Installations. Unless otherwise
instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and
Utility Installations shall, at the expiration or earlier termination of this
Lease, become the property of Lessor and remain upon the Premises and be
surrendered with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing,
Lessor may require that any or all Lessee-Owned Alterations or Utility
Installations be removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or any part of any Alterations
or Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall
surrender the Premises by the end of the last day of the Lease term or any
earlier termination date, clean and free of debris and in good operating order,
condition and state of repair, ordinary wear and tear excepted. Ordinary wear
and tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under this Lease. Except as otherwise agreed or specified herein,
the Premises, as surrendered, shall include the Alterations and Utility
Installations. The obligation of Lessee shall include the repair of any damage
occasioned by the installation, maintenance or removal of Lessee's Trade
Fixtures, furnishings, equipment, and Lessee-Owned Alterations and Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Requirements and/or good practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity. (See Addendum #1, Paragraph 51)
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and
keep in force during the term of this Lease a Commercial General Liability
policy of insurance protecting Lessee, Lessor and any Lender(s) whose names have
been provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
endorsement and contain the "Amendment of the Pollution Exclusion" endorsement
for damage caused by heat, smoke or fumes from a hostile fire. The policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for
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the performance of Lessee's indemnity obligations under this Lease. The limits
of said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also
maintain liability insurance described in Paragraph 8.2(a) above, in addition to
and not in lieu of, the insurance required to be maintained by Lessee. Lessee
shall not be named as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value. (See
Addendum #1, Paragraph 51)
(a) Building and Improvements. Lessor shall
obtain and keep in force during the term of this Lease a policy or policies in
the name of Lessor, with loss payable to Lessor and to any Lender(s), insuring
against loss or damage to the Premises. Such insurance shall be for full
replacement cost, as the same shall exist from time to time, or the amount
required by any Lender(s), but in no event more than the commercially reasonable
and available insurable value thereof if, by reason of the unique nature or age
of the improvements involved, such latter amount is less than full replacement
cost. Lessee-Owned Alterations and Utility Installations, Trade Fixtures and
Lessee's personal property shall be insured by Lessee pursuant to Paragraph 8.4.
If the coverage is available and commercially appropriate, Lessor's policy or
policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender),
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and any Lender(s), insuring the loss of the
full rental and other charges payable by all lessees of the Building to Lessor
for 6 months (including all Real Property Taxes, insurance costs, all Common
Area Operating Expenses and any scheduled rental increases). Said insurance may
provide that in the event the Lease is terminated by reason of an insured loss,
the period of indemnity for such coverage shall be extended beyond the date of
the completion of repairs or replacement of the Premises, to provide for one
full year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any
co-insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible amount in
the event of such loss.
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(c) Adjacent Premises. Lessee shall pay for any
increase in the premiums for the property insurance of the Building and for the
Common Areas or other buildings in the Industrial Center if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the
Insuring Party, Lessor shall not be required to insure Lessee-Owned Alterations
and Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and
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against any and all claims, loss of rents and/or damages, costs, liens,
judgments, penalties, loss of permits, attorneys' and consultants' fees,
expenses and/or liabilities arising out of, involving, or in connection with,
the occupancy of the Premises by Lessee, the conduct of Lessee's business, any
act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage
or destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than fifty
percent (50%) of the then Replacement Cost (as defined in Paragraph 9.1(d)) of
the Premises (excluding Lessee-Owned Alterations and Utility Installations and
Trade Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean
damage or destruction to the Premises, other than Lessee-Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building
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shall, at the option of Lessor, be deemed to be Premises Total Destruction.
(c) "Insured Loss" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a) irrespective of any
deductible amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to
repair or rebuild the Improvements owned by Lessor at the time of the occurrence
to their condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of applicable building
codes, ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean
the occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on,
or under the Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage - Uninsured Loss. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make repairs at Lessee's expense and this
Lease shall continue in full force and effect), Lessor may at Lessor's option,
either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of
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knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurances thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage
or (ii) Hazardous Substance Condition for which Lessee is not legally
responsible, the Base Rent, Common Area Operating Expenses and other charges, if
any, payable by Lessee hereunder for the period during which such damage or
condition, its repair, remediation or restoration continues, shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not in excess of proceeds from insurance required to be carried under Paragraph
8.3(b). Except for abatement of Base Rent, Common Area Operating Expenses and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such damage, destruction, repair,
remediation or restoration.
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(b) If Lessor shall be obligated to repair or
restore the Premises under the provisions of this Paragraph 9 and shall not
commence, in a substantial and meaningful way, the repair or restoration of the
Premises within ninety (90) days after such obligation shall accrue, Lessee may,
at any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to Lessor
and such Lenders and such repair or restoration is not commenced within thirty
(30) days after receipt of such notice, this Lease shall terminate as of the
date specified in said notice. If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after the receipt of such
notice, this Lease shall continue in full force and effect. "Commence" as used
in this Paragraph 9.6 shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
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10. Real Property Taxes. (See Addendum #1, Paragraph 51)
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2.
10.2 Real Property Tax Definition. As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises. The term "Real Property Taxes" shall also include any tax,
fee, levy, assessment or charge, or any increase therein, imposed by reason of
events occurring, or changes in Applicable Law taking effect, during the term of
this Lease, including but not limited to a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
(See Addendum #1, Paragraph 51), the entirety of any increase in Real Property
Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available, Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written
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statement setting forth the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph (See Addendum #1, Paragraph 50).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage or otherwise transfer or encumber
(collectively, "assign") or sublet all or any part of Lessee's interest in this
Lease or in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall
constitute an assignment requiring Lessor's consent. The transfer, on a
cumulative basis, of twenty-five percent (25%) or more of the voting control of
Lessee shall constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in
any transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of Lessee,
as hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the
time of full execution and delivery of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists immediately
prior to said transaction or transactions constituting such reduction, at
whichever time said Net Worth of Lessee was or is greater, shall be considered
an assignment of this Lease by Lessee to which Lessor may reasonably withhold
its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net
worth of Lessee (excluding any Guarantors) established under generally accepted
accounting principles consistently applied.
(d) An assignment or subletting of Lessee's
interest in this Lease without Lessor's specific prior written consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1, or a
non-curable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unconsented to assignment or subletting as a
non-curable Breach, Lessor shall have the right to either: (i) terminate this
Lease, or (ii) upon thirty (30) days' written notice ("Lessor's Notice"),
increase the monthly Base Rent for the Premises to the greater of the then fair
market rental value of the Premises, as reasonably determined by Lessor or one
hundred ten percent (110%) of the Base Rent then in effect. Pending
determination of the new fair market rental value, if disputed by Lessee, Lessee
shall pay the amount set forth in Lessor's Notice, with any overpayment credited
against the next installment(s) of Base Rent coming due, and any underpayment
for the period retroactively to the effective date of the adjustment
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being due and payable immediately upon the determination thereof. Further, in
the event of such Breach and rental adjustment, (i) the purchase price of any
option to purchase the Premises held by Lessee shall be subject to similar
adjustment to the then fair market value as reasonably determined by Lessor
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition) or one hundred ten percent (110%) of the price
previously in effect, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of such
adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this
Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or
injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any
assignment or subletting shall not (i) be effective without the express written
assumption by such assignee or sublessee of the obligations of Lessee under this
Lease, (ii) release Lessee of any obligations hereunder, nor (iii) alter the
primary liability of Lessee for the payment of Base Rent and other sums due
Lessor hereunder or for the performance of any other obligations to be performed
by Lessee under this Lease.
(b) Lessor may accept any rent or performance of
Lessee's obligations from any person other than Lessee pending approval or
disapproval of an assignment. Neither a delay in the approval or disapproval of
such assignment nor the acceptance of any rent for performance shall constitute
a waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or
subletting shall not constitute a consent to any subsequent assignment or
subletting by Lessee or to any subsequent or successive assignment or subletting
by the assignee or sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable under this Lease or the
sublease and without obtaining their consent, and such action shall not relieve
such persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of
Lessee's obligation under this Lease, Lessor may proceed directly against
Lessee, any Guarantors or anyone else responsible for the performance of the
Lessee's obligations under this Lease, including any sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or
subletting shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
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together with a non-refundable deposit of $1,000 or ten percent (10%) of the
monthly Base Rent applicable to the portion of the Premises which is the subject
of the proposed assignment or sublease, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this
Lease shall, by reason of accepting such assignment or entering into such
sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to
conform and comply with each and every term, covenant, condition and obligation
herein to be observed or performed by Lessee during the term of said assignment
or sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
(g) The occurrence of a transaction described in
Paragraph 12.2(c) shall give Lessor the right (but not the obligation) to
require that the Security Deposit be increased by an amount equal to six (6)
times the then monthly Base Rent, and Lessor may make the actual receipt by
Lessor of the Security Deposit increase a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent
to any assignment or subletting, may require that the amount and adjustment
schedule of the rent payable under this Lease be adjusted to what is then the
market value and/or adjustment schedule for property similar to the Premises as
then constituted, as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting.
The following terms and conditions shall apply to
any subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor
all of Lessee's interest in all rentals and income arising from any sublease of
all or a portion of the Premises heretofore or hereafter made by Lessee, and
Lessor may collect such rent and income and apply same toward Lessee's
obligations under this Lease; provided, however, that until a Breach (as defined
in Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not, by
reason of the foregoing provision or any other assignment of such sublease to
Lessor, nor by reason of the collection of the rents from a sublessee, be deemed
liable to the sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee under such Sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents and other charges due
and to become due under the sublease. Sublessee shall rely upon any such
statement and request from Lessor and shall pay such rents and other charges to
Lessor without any obligation or right to inquire as to whether such Breach
exists and notwithstanding any notice from or claim from Lessee to the contrary.
Lessee shall have no right or claim against such sublessee, or, until the Breach
has been cured,
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against Lessor, for any such rents and other charges so paid by said sublessee
to Lessor.
(b) In the event of a Breach by Lessee in the
performance of its obligations under this Lease, Lessor, at its option and
without any obligation to do so, may require any sublessee to attorn to Lessor,
in which event Lessor shall undertake the obligations of the sublessor under
such sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of
the sublessor under a sublease shall also require the consent of
Lessor herein.
(d) No sublessee under a sublease approved by
Lessor shall further assign or sublet all or any part of the Premises without
Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of
Default or Breach by Lessee to the sublessee, who shall have the right to cure
the Default of Lessee within the grace period, if any, specified in such notice.
The sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the
intention to reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in
this Lease, the failure by Lessee to make any payment of Base Rent, Lessee's
Share of Common Area Operating Expenses, or any other monetary payment required
to be made by Lessee hereunder as and when due, the failure by Lessee to provide
Lessor with reasonable evidence of insurance or surety bond required under this
Lease, or the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in
this Lease, the failure by Lessee to provide Lessor with reasonable written
evidence (in duly executed original form, if applicable) of (i) compliance with
Applicable Requirements per
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Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms,
covenants, conditions or provisions of this Lease, or of the rules adopted under
Paragraph 40 hereof that are to be observed, complied with or performed by
Lessee, other than those described in Subparagraphs 13.1(a), (b) or (c), above,
where such Default continues for a period of thirty (30) days after written
notice thereof by or on behalf of Lessor to Lessee; provided, however, that if
the nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach of
this Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following
events: (i) the making by Lessee of any general arrangement or assignment for
the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11
U.S. Code Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days; provided, however, in the event that any provision of this Subparagraph
13.1(e) is contrary to any applicable law, such provision shall be of no force
or effect, and shall not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial
statement of Lessee or of any Guarantor, given to Lessor by
Lessee or any Guarantor, was materially false.
(g) If the performance of Lessee's obligations
under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the
termination of a Guarantor's liability with respect to this lease other than in
accordance with the terms of such guaranty, (iii) a Guarantor's becoming
insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to
honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 Remedies If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an
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emergency, without notice), Lessor may at its option (but without obligation to
do so), perform such duty or obligation on Lessee's behalf, including but not
limited to the obtaining of reasonably required bonds, insurance policies, or
governmental licenses, permits or approvals. The costs and expenses of any such
performance by Lessor shall be due and payable by Lessee to Lessor upon invoice
therefor. If any check given to Lessor by Lessee shall not be honored by the
bank upon which it is drawn, Lessor, at its own option, may require all future
payments to be made under this Lease by Lessee to be made only by cashier's
check. In the event of a Breach of this Lease by Lessee (as defined in Paragraph
13.1), with or without further notice or demand, and without limiting Lessor in
the exercise of any right or remedy which Lessor may have by reason of such
Breach, Lessor may:
(a) Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises to
Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the
worth at the time of the award of the unpaid rent which had been earned at the
time of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
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(b) Continue the Lease and Lessee's right to
possession in effect (in California under California Civil Code Section 1951.4)
after Lessee's Breach and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations.
Lessor and Lessee agree that the limitations on assignment and subletting in
this Lease are reasonable. Acts of maintenance or preservation, efforts to relet
the Premises, or the appointment of a receiver to protect the Lessor's interest
under this Lease, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter
available to Lessor under the laws or judicial decisions of the state where the
Premises are located.
(d) The expiration or termination of this Lease
and/or the termination of Lessee's right to possession shall not relieve Lessee
from liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's occupancy
of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other
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provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
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15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the Indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenant Statement" from published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall delivery to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit as aforesaid, the prior Lessor
shall be relieved of all liability
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with respect to the obligations and/or covenants under this Lease thereafter to
be performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only upon
the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery data is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail
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or overnight courier that guarantees next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the United States Postal
Service or courier. If any notice is transmitted by facsimile transmission or
similar means, the same shall be deemed served or delivered upon telephone or
facsimile confirmation of receipt of the transmission thereof, provided a copy
is also delivered via delivery or mail. If notice is received on a Saturday or a
Sunday or a legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of any estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively,
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"Security Device"), now or hereafter placed by Lessor upon the real property of
which the Premises are a part, to any and all advances made on the security
thereof, and to all renewals, modifications, consolidations, replacements and
extensions thereof. Lessee agrees that the Lenders holding any such Security
Device shall have no duty, liability or obligation to perform any of the
Obligations of Lessor under this Lease, but that in the event of Lessor's
default with respect to any such obligation, Lessee will give any Lender whose
name and address have been furnished Lessee in writing for such purpose notice
of Lessor's default pursuant to Paragraph 13.5. If any Lender shall elect to
have this Lease and/or any Option granted hereby superior to the lien of its
Security Device and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from
the Lender that Lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in Breach
hereof and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents, provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any
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time, in the case of an emergency, and otherwise at reasonable times for the
purpose of showing to prospective purchasers, lenders, or lessees, and making
such alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time place
on or about the Premises or Building any ordinary "For Sale" signs and Lessor
may at any time during the last one hundred eighty (180) days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
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responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgement that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this Lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of the first
refusal to purchase other property of Lessor, or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original
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Lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily
assigned or exercised by any person or entity other than said original Lessee
while the original Lessee is in full and actual possession of the Premises and
without the intention of thereafter assigning or subletting. The Options, if
any, herein granted to Lessee are not assignable, either as a part of an
assignment of this Lease or separately or apart therefrom, and no Option may be
separated from this Lease in any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices to separate Defaults under Paragraph 13.1
during any twelve month period, whether or not the Defaults are cured, or (iii)
if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that
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Lessor deems necessary, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights of way, utility raceways,
dedications, maps and restrictions do not reasonably interfere with the use of
the Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
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ADDENDUM #1
TO
STANDARD/INDUSTRIAL
COMMERCIAL MULTI-TENANT LEASE
MODIFIED NET
Dated January 16, 1998
By and Between Plains Eagle Corporation as Lessor
And
Pageant Technologies (USA), Inc. as Lessee
This Addendum to Lease ("this Addendum") is made and entered into by and between
Plains Eagle Corporation (Lessor) and Pageant Technologies (USA), Inc. (Lessee)
and is dated as of the date set forth on the first page of the Lease between
Lessor and Lessee to which this Addendum is attached (the Lease). The Lease as
amended and supplemented by this Addendum is referred to hereinafter as "this
Lease". The promises, covenants, agreements and declarations made and set forth
herein are intended to and shall have the same force and effect as if set forth
at length in the body of the Lease. To the extent that the provisions of this
Addendum are inconsistent with the terms and conditions of the Lease, the
provisions of this Addendum shall control.
49. Rent. Paragraph 1.5 and 4.1 is hereby added to as follows:
(a) rent in the monthly sum of $2,084.00 for and
during the first twelve months of the lease term for the
period January 1, 1998 - December 31, 1998
The 3% rent escalation rate applies to the second through third years of the
lease agreement as follows:
(b) rent in the monthly sum of $2,147.00 for and during the
second twelve months of the lease term for the period
January 1, 1999 - December 31, 1999;
(c) rent in the monthly sum of $2,211.00 for and during the
third twelve months of the lease term for the period
January 1, 2000 - December 31, 2000;
50. Lessee's Share of Common Area Operating Expenses. Paragraph 1.6(b), 4.2 and
4.2(a-d) of the Lease are hereby deleted, and the following language is
substituted therefor:
Lessee shall pay on a prorated base per square foot calculated to be 32% of the
following monthly/annual operating costs;
1. Water
2. City Sewer
3. Gas
4. Electric
5. Property Insurance
Should Lessee become sole occupant of Lot #7/3205 Parkway Drive, Lessee shall
pay 100% of the total cost of utilities until such time as the building is again
100% leased.
Lessee to pay for telephone service, refuse disposal, janitorial and any other
services contracted for by Lessee if Lessee deems such services are necessary.
51. Annual Property Taxes and Annual Association Dues to be paid by Lessor.
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53. Lessee acknowledges by the signing of this Lease Agreement that they have
received a copy of the Richards Avenue Business Park Owners Association
Declaration of Covenants and Restrictions.
LESSOR: Plains Eagle LESSEE: Pageant Technologies
Corporation Inc. (USA), Inc.
By: /s/ James Ellegood By: /s/ Stephen B. Fleming
------------------------------- ------------------------------
James Ellegood, Stephen B. Fleming
Vice President
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September 2, 1999
Micromem Technologies Inc.
150 York Street, Suite 1206
Toronto, Ontario M5H 355
Canada
Re: HFRAM Valuation Report
We understand that Micromem Technologies, Inc. ("Micromen") wishes to refer to
and quote from our report entitled, "Estimated Market Value of HFRAM
Technology", dated as of July 6, 1998 (the "Valuation Report"), in a
Registration Statement on Form 20-F which Micromem is filing with the Securities
and Exchange Commission the ("SEC").
We have reviewed the references to and quotes from the Valuation Report that
Micromem intends to include in the Registration Statement and hereby consent to
the use in the Registration Statement of those or substantially similar
references and quotes.
Yours truly,
Business Equity Appraisals Report, Inc.
/s/ Hans P. Schroeder
Hans P. Schroeder
President
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SUBSCRIPTION AGREEMENT
To: EXTERLAND CORPORATION
Dear Sirs:
Re: Sale of Common Shares
We hereby confirm your purchase, subject to the terms and conditions set forth
herein, of 350,000 common shares ("Common Shares") in the capital stock of
Micromem Technologies Inc. (the "Corporation") from the Corporation, at a price
of (US.) $3.00 per share (collectively, the "Purchased Shares") being an
aggregate purchase price of $1,050,000 (the "Purchase Price").
(one million, fifty thousand U.S. dollars)
In connection with your purchase, we enclose Schedule A, with respect to closing
instructions, registration and payment, which we request that you complete, sign
and return to us along with an executed copy of this commitment letter by 12:00
p.m. on April 30, 1999.
You acknowledge and agree that you have not received or been provided with an
offering memorandum or similar document and that your decision to enter into
this agreement and purchase the number of Common Shares agreed to be purchased
by you has not been made upon any verbal or written representation as to fact or
otherwise made by or on behalf of us or any other person and that your decision
is based entirely upon information concerning the Corporation which is publicly
available. You further acknowledge and agree that we assume no responsibility or
liability of any nature whatsoever for the accuracy or adequacy of any such
publicly available information or as to whether all information concerning the
Corporation required to be disclosed by it has been generally disclosed. You
further acknowledge and agree that we have not engaged in any independent
investigation with respect to the Corporation or any such matter.
Conditions of Closing
The Corporation's Obligation to sell the Purchased Shares to you is subject to
the condition that you execute and return to us all relevant documentation
required by applicable securities legislation and policy statements, as the sale
of Purchased Shares from the Corporation to you will not be qualified by a
prospectus. You are purchasing the Purchased Shares as principal for your own
account and not for the benefit of or as agent for any other beneficial
purchaser who is acquiring Purchased Shares as principal for its own account.
You agree to
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comply with the Securities Act (Ontario) and Regulations and all other relevant
securities legislation and policies concerning any resale of the Purchased
Shares.
Closing
Delivery and payment for the purchased Shares shall be completed at the offices
of the Corporation, 150 York Street, Suite 1206, Toronto, Ontario, MSH-3S5 at
12:00 p.m., (Toronto time), on any date from and including May 5, 1999, as may
be selected by the Corporation on not less than 24 hours' notice to you provided
that the closing may be extended to any date after May 5, 1999 as may be
mutually agreed upon by the Corporation and you (such completion date being the
"Closing Date"). We will notify you in advance of the Closing Date.
A single share certificate representing the Purchased shares will be available
for delivery in Toronto, Ontario against delivery to the Corporation in the
manner specified in Schedule A of the amount of the Purchase Price in freely
transferable Canadian funds for the Purchased Shares purchased by you on the
Closing Date.
Costs
Each party shall be responsible for his/her/its own expenses associated with the
transactions contemplated herein including without limitation legal, accounting
and other advisory fees.
Prospectus Exemptions
The sale and delivery of the Purchased Shares by the Corporation to you are
conditional upon such sale being exempt from the prospectus filing requirements
of any applicable statute relating to the sale of such shares.
Representations and Warranties
By your acceptance of this letter, you represent and warrant to the Corporation
(which representations and warranties shall survive closing) that:
(a) (i) you are purchasing the Purchased Shares as principal for your
own account, and not for the benefit of any other person; and
(ii) the purchaser was not created or established solely to acquire
securities, or to permit purchases of securities without a
prospectus, in reliance on an exemption form the prospectus
requirements of applicable securities legislation;
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(b) you, the beneficial purchaser, will execute and deliver all
documentation as may be required by applicable Canadian securities
legislation and policy statements to permit the purchase of the
Purchased Shares hereunder on the terms as set forth herein;
(c) the Purchased Shares are being acquired by you for investment only and
not with a view to resale or distribution; and
(d) you are not a related party with respect to the Corporation as such
term is defined in the Securities Act (Ontario) and the Rules
thereunder.
This agreement is governed by the laws of Ontario. By your acceptance of this
letter below, you irrevocably attorn to the jurisdiction of the courts of
Ontario. All references to currency are to the currency of the United States of
America unless otherwise referenced. This agreement constitutes the entire
agreement among the parties hereto and supersedes all prior negotiations,
agreements and understandings. This agreement may not be amended except by
written instrument duly executed by the parties hereto.
If the foregoing is in accordance with your understanding, please sign and
return the enclosed copy of this letter as soon as possible, to evidence the
binding agreement between you and the Corporation.
Yours very truly,
MICROMEM TECHNOLOGIES INC.
Per: /s/ Ross McGroarty
- -----------------------
Name: Ross McGroarty
Title: Exec. V.P.
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<PAGE>
To: Micromem Technologies Inc.
We accept the foregoing and agree to be bound by the terms thereof and, without
limitation, further agree that Micromem Technologies Inc. may rely upon the
covenants, representations and warranties contained therein as if it were a
contracting party.
We, the undersigned, hereby acknowledge that we have consented and requested
that all documents evidencing or relating in any way to the sale of the
Purchased Shares be drawn up in the English language only.
EXTERLAND CORPORATION
(full legal name or purchaser)
c/o Intel Trust SA
Corso Elvezia 4
- --------------------------------
(street address)
6900 Lugano (Switzerland)
- --------------------------------
(city, province)
/s/ Robert Mandell
- --------------------------------
(signature)
President
- --------------------------------
(position)
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<PAGE>
Schedule A
To: Micromem Technologies Inc.
150 York Street, Suite 1206
Toronto, Ontario M5H-3S5
Attention: Mr. Sam Fuda. Chairman
---------------------------------
Dear Sirs:
Re: Purchase of Common Shares
-----------------------------
We acknowledge receipt of your letter of April 27,1999.
1. Representation at Closing - complete either (a), (b) or (c).
(a) We authorize David L. Hynes to represent us at the closing of
the above sale at the offices of Micromem Technologies Inc.,
at 150 York Street, Suite 1206, Toronto, Ontario, at 10:00
a.m. on April 30th, 1999, or on such other date as may be
determined to be the Closing Date, and appoint D. L. Hynes to
be our agent and attorney to deliver on our behalf payment for
the shares referred to in section 4, to receive delivery of a
certificate representing such securities and to execute and
deliver a receipt thereto and any other instrument or document
required in connection with the purchase and sale of the said
securities.
Yes |XX| No |_|
(b) We intend to have another representative at the closing.
Yes |_| No |XX|
Our representative, which we hereby appoint as our agent and
attorney with the powers as set forth in section 1(a) above,
will be:
(c) We plan to be present at the closing.
Yes |XX| No |_|
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2. Method of Payment - complete (a) _________________ has been appointed
to represent you at closing in section 1(a) above. Otherwise, complete
(b).
Payment in the amount of (U.S.) $3.00 per share will be made as
follows:
Check one
(a) a bank draft or certified cheque payable in U.S. _____
funds to ________ arrive at the offices of _______,
Toronto, Ontario (Attention: __________ ) at or before
[10:00 a.m.] on 19, or on such other date as may be
determined to be the Closing Date (in which event
Limited will deliver its certified cheque at closing on
your behalf);
(b) a bank draft or certified cheque payable in U.S. X
funds to and presented at the closing by us or our ------
representative named in section I (b) above.
(c) wire transfer of the funds to our legal counsel in X
Toronto, Ontario and presented at the closing by ------
us or our representative named in section 1(b) above.
3. Delivery - please deliver the certificates representing ownership of
the shares to:
4. Registration - registration of the single certificate which is to be
delivered at closing should be made as follows:
* If this item is left blank, the share certificate will be registered in
the name of the purchaser as it appears on page one of the agreement to
which this Schedule A is attached.
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<PAGE>
5. We acknowledge that we will deliver to our legal counsel, David Hynes,
Barrister & Solicitor, no later than 10:00 am. on _______1999, or on
such other date as may be determined to be the Closing Date, all such
additional completed forms in respect of our purchase of securities of
Micromem Technologies Inc. as may be required for filing with the
appropriate securities and regulatory authorities.
Date: EXTERLAND CORPORATION
(name of purchaser)
by: /s/ Robert Mandell
----------------------------------
(signature)
President
----------------------------------
(position)
WARRANT CERTIFICATE
Certificate No.: 99-000 No. of Warrants: NIL
EXERCISABLE BEFORE 4:00 P.M. (TORONTO TIME)
ON JANUARY 12, 2001 (THE "TIME OF EXPIRY"),
AFTER WHICH TIME THIS WARRANT
CERTIFICATE WILL BE NULL AND VOID
AT THE FOLLOWING EXERCISE PRICES:
(i) $2.00 prior to and on January 11, 2000; and
(ii) $2.30 from January 12, 2000 to and on January 12, 2001
COMMON SHARE PURCHASE WARRANTS
to Purchase Common Shares ("Warrants")
Of
AVANTICORP INTERNATIONAL INC.
(incorporated pursuant to the laws of Ontario)
1. THIS IS TO CERTIFY that, for value received, SPECIMEN (the "holder") is
entitled to purchase, at any time before the Time of Expiry fully paid
and non-assessable common shares ("Common Shares") in the capital of
Avanticorp International Inc. (the "Company"), as constituted on the
date hereof, on the basis of one Common Share for each of the number
specified above of whole Warrants, by surrendering to the Company at
its principal office this Warrant Certificate, with a subscription in
the form set forth on page 6 hereof duly completed and executed, and
cash or a certified cheque, bank draft or money order in lawful money
of Canada, payable to or to the order of the Company, in an amount
equal to the purchase price of the Common Shares so subscribed for.
2. Surrender of this Warrant Certificate and payment as provided above
will be deemed to have been effected only on personal delivery thereof
to, or, if sent by mail or other means of transmission, on actual
receipt thereof by, the Company.
3. Subject to adjustment thereof in the events and in the manner herein
referred to, the purchase price (the "Exercise Price") payable for each
Common Share on exercise of any Warrants evidenced by this Warrant
Certificate will be as follows:
(i) $2.00 prior to and on January 11, 2000; and
(ii) $2.30 from January 12, 2000 to and on January 12,
2001
in lawful money of Canada.
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<PAGE>
4. Common Shares will not be issued pursuant to any Warrants if the
issuance of such Common Shares would constitute a violation of the
securities laws of any applicable jurisdiction.
5. Certificates representing the Common Shares subscribed for hereunder
will be mailed to the person, persons or company specified in the
subscription form at their address specified therein or, if so
specified in the subscription form, delivered to such person or persons
at the office where this Warrant Certificate was surrendered. If fewer
Common Shares are purchased than the number that may be subscribed for
pursuant to the Warrants evidenced by this Warrant Certificate, the
holder will be entitled to receive, without charge, a new Warrant
Certificate in respect of the balance of such unexercised Warrants. To
the extent that any Warrant evidenced hereby confers the right to
purchase a fraction of a Common Share, such right may be exercised in
respect of such fraction only in combination with another Warrant
Certificate or other Warrant Certificates which in the aggregate
entitle the holder to be issued a whole number of Common Shares, and
under no circumstances is the Company obligated to issue any fractional
Common Share.
6. On presentation at the principal office of the Company, and on
compliance with the reasonable requirements of the Company, one or more
Warrant Certificates may be exchanged for one or more Warrant
Certificates of different denomination evidencing in the aggregate the
same number of Warrants as the Warrant Certificate or Warrant
Certificates being exchanged.
7. Subject to Section 8, the Exercise Price (and the number of Common
Shares in the case of subsections (D) and (E)) shall be subject to
adjustment from time to time in the events and in the manner provided
in this section, and for such purposes and as used in this section,
"Current Market Price" means the closing price of the Common Shares on
the principal stock exchange through which the Common Shares trade on
the day prior to the date in question or, in the event that the Common
Shares do not trade through the facilities of a stock exchange, means
the current value of the Common Shares on the date in question as
determined by the Company's board of directors.
(A) If and whenever at any time after the date hereof and prior to
the Time of Expiry the Company shall
(i) issue Common Shares to all or substantially all the
holders. of the Common Shares as a stock dividend;
(ii) subdivide its outstanding Common Shares into a
greater number of shares; or
(iii) consolidate its outstanding Common Shares into a
smaller number of shares,
(any of such events in (i), (ii) and (iii) being called a
"Common Share Reorganization"), then the Exercise Price shall
be adjusted, effective immediately
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<PAGE>
after the record date at which the holders of Common Shares
are determined for the purpose of the Common Share
Reorganization, by multiplying the Exercise Price in effect
immediately prior to such record date by a fraction, the
numerator of which shall be the number of Common Shares
outstanding on such record date before giving effect to such
Common Share Reorganization and the denominator of which shall
be the number of Common Shares outstanding immediately after
giving effect to such Common Share Reorganization (including,
in the case where securities exchangeable for or convertible
into Common Shares are distributed, the number of Common
Shares that would have been outstanding had all such
securities been exchanged for or converted into Common Shares
on such record date).
(B) If and whenever at any time after the date hereof and prior to
the Time of Expiry the Company shall issue rights, options or
warrants to all or substantially all of the holders of the
Common Shares under which such holders are entitled, during a
period expiring not more than 45 calendar days after the
record date for such issue (the "Rights Periods"), to
subscribe for or purchase Common Shares or securities
exchangeable for or convertible into Common Shares at a price
per Common Share to the holder (or in the case of securities
exchangeable for or convertible into Common Shares, at a
conversion or exchange price per share at the date of issue of
such securities to the holder) of less than 95 % of the
Current Market Price for the Common Shares on such reward date
(any of such events being called a "Rights Offering"), then
the Exercise Price shall be adjusted effective immediately
after the end of the Rights Period to a price determined by
multiplying the Exercise Price in effect immediately prior to
the end of the Rights Period by a fraction
(i) the numerator of which shall be the aggregate of:
(a) the number of Common Shares outstanding as
of the record date for the Rights Offering,
and
(b) a number determined by dividing (1) either
(A) the product of the number of Common
Shares issued or subscribed for during the
Rights Period upon the exercise of the
rights, warrants or options under the Rights
Offerings and the price at which each such
Common Share is offered, or, as the case may
be, (B) the product of the exchange or
conversion price of such securities offered
and the number of Common Shares for or into
which the securities so offered pursuant to
the Rights Offering have been exchanged or
converted during the Rights Period, by (2)
the Current Market Price of the Common
Shares as of the record date for the Rights
Offering, and
(ii) the denominator of which shall be the number of
Common Shares outstanding after giving effect to the
Rights Offering (including the
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<PAGE>
number of Common Shares actually issued or subscribed
for during the Rights Period upon exercise of the
rights, warrants or options under the Rights
Offering).
(C) If and whenever at any time after the date hereof and prior to
the Time of Expiry the Company shall fix a record date for the
issue or the distribution to all or substantially all the
holders of the Common Shares of (i) shares of the Company of
any class other than Common Shares; (ii) fights, options or
warrants to acquire Common Shares or property or other assets
of the Company; (iii) evidences of indebtedness; or (iv) any
property or other assets, and if such issuance or distribution
does not constitute a Common Share Reorganization or a Rights
Offering (any of such non-excluded events being herein called
a "Special Distribution"); the Exercise Price shall be
adjusted effective immediately after such record date to a
price determined by multiplying the Exercise Price in effect
on such record date by a fraction:
(i) the numerator of which shall be
(a) the product of the number of Common Shares
outstanding on such record date and the
Current Market Price of the Common Shares on
such record date, less
(b) the fair market value, as determined by the
directors (whose determination shall be
final and conclusive), to the holders of the
Common Shares of the shares, rights,
options, warrants, evidences of indebtedness
or property or other assets issued or
distributed in the Special Distribution, and
(ii) the denominator of which shall be the number of
Common Shares outstanding on such record date
multiplied by the Current Market Price of the Common
Shares on such record date.
(D) If and whenever at any time after the date hereof and prior to
the Time of Expiry there shall be a reclassification of the
Common Shares at any time outstanding or a change of the
Common Shares into other shares or into other securities
(other than a Common Share Reorganization), or a
consolidation, amalgamation or merger of the Company with or
into any other corporation or other entity (other than a
consolidation, amalgamation or merger which does not result in
any reclassification of the outstanding Common Shares or a
change of the Common Shares into the shares of such other
corporation or entity), or a transfer of the undertaking or
assets of the Company as an entirety or substantially as an
entirety to another corporation or other entity (any of such
events being herein called a "Capital Reorganization"), and
the holder exercises his right to purchase Common Shares then
held after the effective date of such Capital Reorganization,
the holder shall be entitled to receive, and shall accept, for
the same aggregate consideration, in lieu of the number of
Common Shares to which the Holder was theretofore
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<PAGE>
entitled upon such exercise, the kind and the aggregate number
of shares, other securities or other property which the holder
would have been entitled to receive as a result of such
Capital Reorganization if, on the effective date thereof, the
holder was theretofore entitled upon exercise. If determined
appropriate by the Company, appropriate adjustments shall be
made as a result of any such Capital Reorganization in the
application of the provisions set forth in this Section 7
shall thereafter correspondingly be made applicable as nearly
as may reasonably be in relation to any shares, other
securities or other property thereafter deliverable upon the
exercise of the Warrant.
(E) If and whenever at any time after the date hereof and prior to
the Time of Expiry
(i) a Common Share Reorganization shall occur, or
(ii) the Company shall fix a record date for a Rights
Offering,
and any such event results in an adjustment in the Exercise
Price pursuant to the provisions of this Section 7, the number
of Common Shares shall be adjusted contemporaneously with the
adjustment of the Exercise Price by multiplying the number of
Common Shares theretofore purchasable by a fraction the
numerator of which shall be the Exercise Price in effect
immediately prior to such adjustment and the denominator of
which shall be the Exercise Price resulting from such
adjustment.
8. Rules for Calculating Adjustments. (For the purpose of Section 7):
(A) The adjustments provided for in Section 7 are cumulative and
such adjustments shall be made successively whenever an event
referred to therein shall occur, subject to the following
subsections of this Section 8.
(B) No adjustment in the Exercise Price shall be required unless
such adjustment would result in a change of at least 1% in the
prevailing Exercise Price and no adjustment shall be made in
the number of Common Shares unless it would result in a change
of at least one-hundredth of a share, provided, however, that
any adjustments which, except for the provisions of this
subsection (B) would otherwise have been required to be made
shall be carried forward and taken into account into any
subsequent adjustment.
(C) If a dispute shall at any time arise with respect to
adjustments provided for in Section 7, such dispute shall be
determined by the Company's auditors, or if they are unable or
unwilling to act, by such other firm of independent chartered
accountants as may be selected by action by the directors and
any such determination shall be final and conclusive and
binding upon the Company, the Holder and the shareholders of
the Company.
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<PAGE>
(D) If the Company shall set a record date to determine the
holders of the Common Shares for the purpose of entitling them
to receive any dividend or distribution or any subscription or
purchase rights and shall, thereafter and before the
distribution to such shareholders of any such dividend,
distribution or subscription or purchase rights, legally
abandon its plan to pay or deliver such dividend, distribution
or subscription or purchase fights, then no adjustment in the
Exercise Price or the number of Common Shares purchasable upon
exercise of the Warrant shall be required by reason of the
setting of such record date.
(E) In the absence of resolution of the directors fixing a record
date for a Common Share Reorganization, Rights Offering or
Special Distribution, the Company shall be deemed to have
fixed as the record date therefor the date on which the Common
Share Reorganization, Rights Offering or Special Distribution
is effected.
(F) As a condition precedent to the taking of any action which
would require any adjustment in any of the purchase rights
pursuant to any of the Warrants, including the Exercise Price
and the number or class of shares or other securities which
are to be received upon the exercise thereof, the Company
shall take any corporate action which may, in the opinion of
counsel, be necessary in order that the Company have unissued
and reserved in its authorized share capital and may validly
and legally issue as fully paid and non-assessable all the
shares or other securities which the holder is entitled to
receive on the total exercise thereof in accordance with the
provisions thereof.
9. Whenever the number Common Shares or the Exercise Price shall require
an adjustment pursuant to Section 7, the Company shall forthwith obtain
a certificate signed by a senior officer of the Company, setting forth
in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including an opinion on the
fair value, as determined by the Board of Directors of the Company, of
any evidences of indebtedness, shares of stock, other securities or
property or warrants, options or other subscription or purchase fights
referred to in Section 7) and specifying the numbers of Common Shares
and describing the numbers and kind of any other shares of stock
comprising a Warrant Share, and any change in the Exercise Price
thereof after giving effect to such adjustment or change. The Company
shall promptly, and in any case within 30 days after the making of such
adjustment, cause a signed copy of such certificate to be delivered to
the holder. The Company shall keep at its office or agency copies of
all such certificates and cause the same to be available for inspection
upon receipt of reasonable notice at said office during normal business
hours by the holder.
10. The holding of this Warrant Certificate will not constitute the holder
a shareholder of the Company or entitle him to any right or interest in
respect thereof.
11. This Warrant Certificate is transferable.
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<PAGE>
IN WITNESS WHEREOF Avanticorp International Inc. has caused this
Warrant Certificate to be signed by its director or officer duly authorized in
that behalf as of the 12th day of January, 1999.
AVANTICORP INTERNATIONAL INC.
per:
-------------------------------------
Name:
Title:
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<PAGE>
SUBSCRIPTION FORM
TO: AVANTICORP INTERNATIONAL INC.
The undersigned holder of the Common Share Purchase Warrants evidenced by the
within Warrant Certificate hereby subscribes for Common Shares of Avanticorp
International Inc. pursuant to such Common Share Purchase Warrants at $2.00
exercisable prior to and on January 11, 2000; and $2.30 exercisable from January
12, 2000 to and on January 12, 2001 per share on the terms specified in such
Warrant Certificate 99-000, and encloses herewith cash or a certified cheque,
bank draft or money order payable to the order of Avanticorp International Inc.
in payment thereof.
Expiry Date: January 12, 2001
Number of warrants held: NIL
Number of warrants exercised under this subscription:
---------
Balance of unexercised warrants:
---------
Subscription funds submitted (number of warrants exercised x
(i) $2.00 prior to and on January 11, 2000; and
(ii) $2.30 from January 12, 2000 to and on January 12, 2001:
---------
The undersigned hereby irrevocably directs that the said Common Shares be issued
as follows:
Registration Address of Registered Holder Denomination
------------ ---------------------------- ------------
- ---------------- ---------------------------------- ------------
----------------------------------
----------------------------------
Dated this day of 19 /20 .
SUBSCRIBER
per:
---------------------------------
Name:
Title:
This subscription is acknowledged this day of 19 /20 .
AVANTICORP INTERNATIONAL INC.
per:
---------------------------------
Name:
Title:
MICROMEM TECHNOLOGIES INC.
1999 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
1.1 The purpose of the Plan is to attract, retain and motivate persons of
training experience and leadership as key service providers to the
Corporation and its Subsidiaries, including their directors, officers
and employees, and to advance the interests of the Corporation by
providing such persons with the opportunity, through share options, to
acquire an increased proprietary interest in the Corporation.
2. DEFINED TERMS
Where used herein, the following terms shall have the following
meanings, respectively:
2.1 "Board" shall mean the board of directors of the Corporation;
2.2 "Corporation" means Micromem Technologies Inc.;
2.3 "Eligible Person" means:
(i) any director, officer or employee of the Corporation or any
Subsidiary, or any other Service Provider (an "Eligible
Individual"); or
(ii) a corporation controlled by an Eligible Individual, the issued
and outstanding voting shares of which are, and will continue
to be, beneficially owned, directly or indirectly, by such
Eligible Individual and/or spouse, children and/or
grandchildren of such Eligible Individual (an "Employee
Corporation");
2.4 "Insider" means any insider, as such term is defined in Subsection 1(1)
of the Securities Act (Ontario), of the Corporation, other than a
person who falls within that definition solely by virtue of being a
director or senior officer of a Subsidiary, and includes any associate,
as such term is defined in Subsection 1(1) of the Securities Act
(Ontario), of any such insider;
2.5 "Market Price" at any date in respect of the Shares means the closing
sale price of the Shares on the NASDAQ Bulletin Board (or other stock
exchange on which the Shares are listed and posted for trading as may
be selected for such purpose by the Board) on the trading day
immediately preceding such date. In the event that trade on such
trading day, the Market Price shall be the average of the bid and ask
prices in respect of the Shares at the close of trading on such trading
day. In the event that the Shares are not listed and posted for trading
on any stock exchange, the Market Price shall be the fair market value
of the Shares as determined by the Board in its sole discretion;
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<PAGE>
2.6 "Option" means an option to purchase Shares granted to an Eligible
Person under the Plan;
2.7 "Option Price" means the price per Share at which Shares may be
purchased under an Option, as the same may be adjusted from time to
time in accordance with Article 8 hereof;
2.8 "Optioned Shares" means the Shares issuable pursuant to an exercise of
Options;
2.9 "Optionee" means an Eligible Person to whom an Option has been granted
and who continues to hold such Option;
2.10 "Plan" means this Micromem Technologies Inc. Stock Option Plan, as the
same may be further amended or varied from time to time;
2.11 "Service Provider" means:
(i) an employee or Insider of the Corporation or any Subsidiary;
or
(ii) any other person or company engaged to provide ongoing
management or consulting services for the Corporation or for
any entity controlled by the Corporation;
2.12 "Shares" means the common shares of the Corporation or, in the event of
an adjustment contemplated by Article 8 hereof, such other shares or
securities to which an Optionee may be entitled upon the exercise of an
Option as a result of such adjustment; and
2.13 "Subsidiary" means any corporation which is a subsidiary, as such term
is defined in Subsection 1(2) of the Business Corporations Act
(Ontario), of the Corporation.
3. ADMINISTRATION OF THE PLAN
3.1 The Plan shall be administered by the Board.
3.2 The Board shall have the power, where consistent with the general
purpose and intent of the Plan and subject to the specific provisions
of the Plan:
(a) to establish policies and to adopt rules and regulations for
carrying out the purposes, provisions and administration of
the Plan;
(b) to interpret and construe the Plan and to determine all
questions arising out of the Plan or any Option, and any such
interpretation, construction or determination made by the
Board shall be final, binding and conclusive for all purposes;
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<PAGE>
(c) to determine the number of Shares covered by each Option;
(d) to determine the Option Price of each Option;
(e) to determine the time or times when Options will be granted
and exercisable;
(f) to determine if the Shares which are issuable on the exercise
of an Option will be subject to any restrictions upon the
exercise of such Option; and
(g) to prescribe the form of the instruments relating to the
grant, exercise and other terms of Options.
3.3 The Board may, in its discretion, require as conditions to the grant or
exercise of any Option that the Optionee shall have:
(a) represented, warranted and agreed in form and substance
satisfactory to the Corporation that he or she is acquiring
and will acquire such Option and the Shares to be issued upon
the exercise thereof or, as the case may be, is acquiring such
Shares, for his or her own account, for investment and not
with a view to or in connection with any distribution, that
her or she has had access to such information as is necessary
to enable him or her to evaluate the merits and risks of such
investment and that he or she is able to bear the economic
risk of holding such Shares for an indefinite period;
(b) agreed to restrictions on transfer in form and substance
satisfactory to the Corporation and to an endorsement on any
option agreement or certificate representing the Shares making
appropriate reference to such restrictions (including any
notation required by the NASDAQ Bulletin Board or any other
stock exchange on which the Shares become listed); and
(c) agreed to indemnify the Corporation in connection with the
foregoing.
3.4 Any Option granted under the Plan shall be subject to the requirement
that, if at any time counsel to the Corporation shall determine that
the listing, registration or qualification of the Shares subject to
such Option upon any securities exchange or under any law or regulation
of any jurisdiction, or the consent or approval of any securities
exchange or any governmental or regulatory body, is necessary as a
condition of, or in connection with, the grant or exercise of such
Option or the issuance or purchase of Shares thereunder, such Option
may not be accepted or exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have
been effected or obtained on conditions acceptable to the Board.
Nothing herein shall be deemed to require the Corporation to apply for
or to obtain such listing, registration, qualification, consent or
approval.
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4. SHARES SUBJECT TO THE PLAN
Options may be granted in respect of authorized and unissued Shares,
provided that the aggregate number of Shares reserved for issuance upon
the exercise of all Options granted under the Plan, subject to any
adjustment of such number pursuant to the provisions of Article 8
hereof, shall not exceed 5,000,000 or such greater number of Shares as
may be determined by the Board and approved, if required, by the
shareholders of the Corporation and by any relevant stock exchange or
other regulatory authority. Optioned Shares in respect of which Options
are not exercised shall be available for subsequent Options. No
fractional Shares may be purchased or issued under the Plan.
5. ELIGIBILITY: GRANT: TERMS OF OPTIONS
5.1 Options may be granted to any Eligible Person in accordance with
Section 5.2 hereof.
5.2 Options may be granted by the Corporation to the extent that they are
approved by the Board.
5.3 Subject as herein and otherwise specifically provided in this Article
5, the number of Shares subject to each Option, the Option Price of
each Option, the expiration date of each Option, the extent to which
each Option is exercisable from time to time during the term of the
Option and other terms and conditions relating to each such Option
shall be determined by the Board.
5.4 Each Option granted under this Plan shall be exercisable for a maximum
period of ten (10) years from the date the Option is granted to the
Optionee. Subject to this Section 5.4, the Board shall, at the time of
granting an Option, determine the time or times when an Option or a
part of an Option shall be exercisable.
5.5 Subject to any adjustments pursuant to the provisions of Article 8
hereof, the Option Price of any Option shall in no circumstances be
lower than the Market Price on the date on which the grant of the
Option is approved by the Board. If, as and when any Shares have been
duly purchased and paid for under the terms of an Option, such Shares
shall be conclusively deemed allotted and issued as fully paid
non-assessable Shares at the price paid therefor.
5.6 No Options shall be granted to any Optionee if the total number of
Shares issuable to such Optionee under this Plan, together with any
Shares reserved for issuance to such Optionee under options for
services or any other stock option plans, would exceed 5% of the issued
and outstanding Shares.
5.7 An Option is personal to the Optionee and non-assignable (whether by
operation of law or otherwise), except as provided for herein. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose
of an Option contrary to the provisions of the Plan, or upon the levy
of any attachment or similar process upon an Option, the Option shall,
at the election of the Corporation, cease and terminate and be of no
further force or effect whatsoever.
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5.8 No Options shall be granted to any Optionee if such grant could result,
at any time, in the issuance to any one Insider and such Insider's
associates, within a one-year period, of a number of Shares exceeding
5% of the issued and outstanding Shares.
For the purposes of this Section 5.8, the phrase "issued and
outstanding Shares" excludes any Shares issued pursuant to the Plan or
other stock options, stock option plans, employee stock purchase plans
or other compensation or incentive mechanisms, over a preceding
one-year period and "associate" means any person associated with such
Insider.
6. TERMINATION OF EMPLOYMENT, DEATH
6.1 Subject to Sections 6.2 and 6.3 hereof and to any express resolution
passed by the Board with respect to an Option, an Option and all rights
to purchase Shares pursuant thereto shall expire and terminate
immediately upon the Optionee who holds such Option ceasing to be an
Eligible Person.
6.2 If, before the expiry of an Option in accordance with the terms
thereof, an Optionee shall cease to be an Eligible Person (an "Event of
Termination") for any reason other than his or her termination for
"cause" of his or her employment with the Corporation or any Subsidiary
then the Optionee may:
(a) exercise the Option to the extent that he or she was entitled
to do so at the time of such Event of Termination, at any time
up to and including, but not after, a date forty-five (45)
days following the date of such Event of Termination, or prior
to the close of business on the expiration date of the Option,
whichever is earlier; and
(b) with the prior written consent of the Board, which consent may
be withheld in the Corporation's sole discretion, exercise any
part of the Option which was not exercisable at the time of
the occurrence of the Event of Termination at any time up to
and including, but not after, a date three (3) months
following the date of such Event of Termination, or prior to
the close of business on the expiration date of the Option,
whichever is earlier, to purchase all or any of the Optioned
Shares as the Board may designate but not exceeding the number
of Optioned Shares the Optionee would have otherwise been
entitled to purchase pursuant to the Option had the Optionee's
status as an Eligible Person been maintained for the term of
the Option.
6.3 If an Optionee dies before the expiry of an Option in accordance with
the terms thereof, the Optionee's legal representative(s) may, subject
to the terms of the Option and the Plan:
(a) exercise the Option to the extent that the Optionee was
entitled to do so at the date of his or her death at any time
up to and including, but not after, a date
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one year following the date of death of the Optionee, or prior
to the close of business on the expiration date of the Option,
whichever is earlier; and
(b) with the prior written consent of the Board, exercise at any
time up to and including, but not after, a date one year
following the date of death of the Optionee, or prior to the
close of business on the expiration date of the Option,
whichever is earlier, any part of the Option which was not
exercisable at the time of the Optionee's death to purchase
all or any of the Optioned Shares as the Board may designate
but not exceeding the number of Optioned Shares the Optionee
would have otherwise been entitled to purchase had the
Optionee survived.
6.4 For greater certainty, Options shall not be affected by any change of
employment of the Optionee or by the Optionee ceasing to be a director
of the Corporation provided that the Optionee continues to be an
Eligible Person.
6.5 For the purposes of this Article 6, a determination by the Corporation
that an Optionee was discharged for "cause" shall be binding on the
Optionee; provided, however, that such determination shall not be
conclusive of the Optionee's potential entitlement to damages for the
loss of the right to exercise an Option in the event that a court of
competent jurisdiction ultimately determines that the discharge was
without "cause".
6.6 If the Optionee is an Employee Corporation, the references to the
Optionee in this Article 6 shall be deemed to refer to the Eligible
Individual associated with the Employee Corporation.
6.7 If an Optionee has been terminated "for cause" or does not exercise his
or her options in accordance with the provisions of sections 6.2 or 6.3
as the case may be, the number of options not exercised shall be added
to the number of options remaining available to be granted under the
Plan.
7. EXERCISE OF OPTIONS
7.1 Subject to the provisions of the Plan, an Option may be exercised from
time to time by delivery to the Corporation at its registered office of
a written notice of exercise addressed to the Secretary of the
Corporation specifying the number of Shares with respect to which the
Option is being exercised and accompanied by payment in full, by cash
or certified cheque, of the option Price of the Shares then being
purchased. Certificates for such Shares shall be issued and delivered
to the Optionee within a reasonable time following the receipt of such
notice and payment.
7.2 Notwithstanding any of the provisions contained in the Plan or in any
Option, the Corporation's obligation to issue Shares to an Optionee
pursuant to the exercise of any Option shall be subject to:
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(a) completion of such registration or other qualification of such
Shares or obtaining approval of such governmental or
regulatory authority as the Corporation shall determine to be
necessary or advisable in connection with the authorization,
issuance or sale thereof,
(b) the admission of such Shares to listing on any stock exchange
on which the Shares may then be listed;
(c) the receipt from the Optionee of such representations,
warranties, agreements and undertakings, as the Corporation
determines to be necessary or advisable in order to safeguard
against the violation of the securities laws of any
jurisdiction; and
(d) the satisfaction of any conditions on exercise prescribed
pursuant to Section 3.4 hereof.
In this connection the Corporation shall, to the extent necessary, take
all commercially reasonable steps to obtain such approvals,
registrations and qualifications as may be necessary for the issuance
of such Shares in compliance with applicable securities laws and for
the listing of such Shares on any stock exchange on which the Shares
are then listed.
7.3 Options shall be evidenced by a share option agreement, instrument or
certificate in such form not inconsistent with this plan as the Board
may from time to time determine as provided for under Subsection 3.2
(g), provided that the substance of Article 5 be included therein.
8. CERTAIN ADJUSTMENTS
8.1 In the event of any subdivision or redivision of the Shares into a
greater number of Shares at any time after the grant of an Option to
any Optionee and prior to the expiration of the term of such Option,
the Corporation shall deliver to such Optionee at the time of any
subsequent exercise of his or her Option in accordance with the terms
hereof, in lieu of the number of Shares to which he or she was
theretofore entitled upon such exercise, but for the same aggregate
consideration payable therefor, such number of Shares as such Optionee
would have held as a result of such subdivision or redivision if, on
the record date thereof, the Optionee had been the registered holder of
the number of Shares to which he or she was theretofore entitled upon
such exercise.
8.2 In the event of any consolidation of the Shares into a lesser number of
Shares at any time after the grant of an Option to any Optionee and
prior to the expiration of the term of such Option, the Corporation
shall deliver to such Optionee at the time of any subsequent exercise
of his or her Option in accordance with the terms hereof, in lieu of
the number of Shares to which he or she was theretofore entitled upon
such exercise, but for the same aggregate consideration payable
therefor, such number of
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Shares as such Optionee would have held as a result of such
consolidation if, on the record date thereof, the Optionee had been the
registered holder of the number of Shares to which he or she was
theretofore entitled upon such exercise.
8.3 If at any time after the grant of an Option to any Optionee and prior
to the expiration of the term of such Option, the Shares shall be
reclassified, reorganized or otherwise changed, otherwise than as
specified in Sections 8.1 and 8.2 or, subject to the provisions of
Subsection 9.2(a) hereof, the Corporation shall consolidate, merge or
amalgamate with or into another corporation (the corporation resulting
or continuing from such consolidation, merger or amalgamation being
herein called the "Successor Corporation") or, the Corporation shall
pay a stock dividend (other than any dividends in the ordinary course),
the Optionee shall be entitled to receive upon the subsequent exercise
of his or her Option in accordance with the terms hereof and shall
accept in lieu of the number of Shares to which he or she was
theretofore entitled upon such exercise but for the same aggregate
consideration payable therefor, the aggregate number of shares of the
appropriate class and/or other securities of the Corporation or the
Successor Corporation (as the case may be) and/or other consideration
from the Corporation or the Successor Corporation (as the case may be)
that the Optionee would have been entitled to receive as a result of
such reclassification, reorganization or other change or, subject to
the provisions of Subsection 9.2(a) hereof, as a result of such
consolidation, merger, amalgamation, or stock dividend, if on the
record date of such reclassification, reorganization, other change or
stock dividend, or the effective date of such consolidation, merger or
amalgamation or dividend payment, as the case may be, he or she had
been the registered holder of the number of Shares to which he or she
was theretofore entitled upon such exercise.
8.4 In the event the Corporation should declare and pay a special cash
dividend or other distribution out of the ordinary course, a special
dividend in specie on the Shares, or a stock dividend other than in the
ordinary course, the Option Price of all Options outstanding on the
record date of such dividend or other distribution shall be reduced by
an amount equal to the cash payment or other distribution or the fair
market value of the dividend in specie or stock dividend or other
distribution, as determined by the Board in its sole discretion. Any
such reduction in the Option Price shall be subject to regulatory
approval and the Option Price shall not be less than $0.01 per Share.
9. AMENDMENT OR DISCONTINUANCE OF THE PLAN
9.1 The Board may amend or discontinue the Plan at any time, provided,
however, that no such amendment may materially and adversely affect any
Option previously granted to an Optionee without the consent of the
Optionee, except to the extent required by law. Any such amendment
shall, if required, be subject to the prior approval of, or acceptance
by, any stock exchange on which the Shares are listed and posted for
trading.
9.2 Notwithstanding anything contained to the contrary in this Plan or in
any resolution of the Board in implementation thereof
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(a) in the event the Corporation proposes to amalgamate, merge or
consolidate with any other corporation (other than a
wholly-owned Subsidiary) or to liquidate, dissolve or wind-up,
or in the event an offer to purchase or repurchase the Shares
of the Corporation or any part thereof shall be made to all or
substantially all holders of Shares of the Corporation, the
Corporation shall have the right, upon written notice thereof
to each Optionee holding Options under the Plan, to permit the
exercise of all such Options within the 20 day period next
following the date of such notice and to determine that upon
the expiration of such 20 day period, all rights of the
Optionees to such Options or to exercise same (to the extent
not theretofore exercised) shall ipso facto terminate and
cease to have further force or effect whatsoever;
(b) in the event of the sale by the Corporation of all or
substantially all of the assets of the Corporation as an
entirety or substantially as an entirety so that the
Corporation shall cease to operate as an active business, any
outstanding Option may be exercised as to all or any part of
the Optioned Shares in respect of which the Optionee would
have been entitled to exercise the Option in accordance with
the provisions of the Plan at the to date of completion of any
such sale at any time up to and including, but not after the
earlier of: (i) the close of business on that date which is
thirty (30) days following the date of completion of such
sale; and (ii) the close of business on the expiration date of
the Option; but the Optionee shall not be entitled to exercise
the Option with respect to any other Optioned Shares;
(c) subject to the rules of any relevant stock exchange or other
regulatory authority, the Board may, by resolution, advance
the date on which any Option may be exercised or extend the
expiration date of any Option. The Board shall not, in the
event of any such advancement or extension, be under any
obligation to advance or extend the date on or by which
Options may be exercised by any other Optionee; and
(d) the Board may, by resolution, but subject to applicable
regulatory requirements, decide that any of the provisions
hereof concerning the effect of termination of the Optionee's
employment shall not apply to any Optionee for any reason
acceptable to the Board.
Notwithstanding the provisions of this Article 9, should changes be
required to the Plan by any securities commission, stock exchange or
other governmental or regulatory body of any jurisdiction to which the
Plan or the Corporation now is or hereafter becomes subject, such
changes shall be made to the Plan as are necessary to conform with such
requirements and, if such changes are approved by the Board, the Plan
as amended, shall be filed with the records of the Corporation and
shall remain in full force and effect in its amended form as of and
from the date of its adoption by the Board.
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10. MISCELLANEOUS PROVISIONS
10.1 An Optionee shall not have any rights as a shareholder of the
Corporation with respect to any of the Shares covered by such Option
until the date of issuance of a certificate for Shares upon the
exercise of such Option, in full or in part, and then only with respect
to the Shares represented by such certificate or certificates. Without
in any way limiting the generality of the foregoing, no adjustment
shall be made for dividends or other rights for which the record date
is prior to the date such share certificate is issued.
10.2 Nothing in the Plan or any Option shall confer upon an Optionee any
right to continue or be re-elected as a director of the Corporation or
any night to continue in the employ of the Corporation or any
Subsidiary, or affect in any way the right of the Corporation or any
Subsidiary to terminate his or her employment at any time; nor shall
anything in the Plan or any Option be deemed or construed to constitute
an agreement. or an expression of intent, on the part of the
Corporation or any Subsidiary to extend the employment of any Optionee
beyond the time which he or she would normally be retired pursuant to
the provisions of any present or future retirement plan of the
Corporation or any Subsidiary, or beyond the time at which he or she
would otherwise be retired pursuant to the provisions of any contract
of employment with the Corporation or any Subsidiary.
10.3 Notwithstanding Section 5.8 hereof, Options may be transferred or
assigned between an Eligible Individual and the related Employee
Corporation provided the assignor delivers notice to the Corporation
prior to the assignment.
10.4 The Plan and all matters to which reference is made herein shall be
governed by and interpreted in accordance with the laws of the Province
of Ontario and the laws of Canada applicable therein.
11. SHAREHOLDER AND REGULATORY APPROVAL
11.1 The Plan shall be subject to ratification by the shareholders of the
Corporation to be effected by a resolution passed at a meeting of the
shareholders of the Corporation, and to acceptance by any other
relevant regulatory authority. Any Options granted prior to such
ratification and acceptance shall be conditional upon such ratification
and acceptance being given and no such Options may be exercised unless
and until such ratification and acceptance are given.
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