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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark one)
[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
For the Fiscal year ended ____________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number
-----------------------------------
DYNAMIC DIGITAL DEPTH INC.
(Exact Name of Registrant as Specified in its Charter)
ALBERTA, CANADA
(Jurisdiction of Incorporation or Organization)
8 BRODIE HALL DRIVE, BENTLEY 6102, WESTERN AUSTRALIA
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section
12(b) of the Act:
None
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Securities registered or to be registered pursuant to Section 12(g) of
the Act:
COMMON SHARES, WITHOUT PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the date of this registration
17,989,762 COMMON SHARES, WITHOUT PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) for 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
----- -----
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) for the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
NOT APPLICABLE
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TABLE OF CONTENTS
<TABLE>
<S> <C>
ITEM 1 DESCRIPTION OF BUSINESS.................................................1
ITEM 2 DESCRIPTION OF PROPERTY................................................48
ITEM 3 LEGAL PROCEEDINGS......................................................48
ITEM 4 CONTROL OF REGISTRANT..................................................48
ITEM 5 NATURE OF TRADING MARKET...............................................49
ITEM 6 EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS.......................................................................50
ITEM 7 TAXATION...............................................................52
ITEM 8 SELECTED FINANCIAL DATA................................................57
ITEM 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.........................................................59
ITEM 9A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............66
ITEM 10 DIRECTORS AND OFFICERS OF REGISTRANT..................................67
ITEM 11 COMPENSATION OF DIRECTORS AND OFFICERS...............................71
ITEM 12 OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES..................................................................71
ITEM 13 INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS........................73
ITEM 14 DESCRIPTION OF SECURITIES TO BE REGISTERED............................75
ITEM 15 DEFAULTS UPON SENIOR SECURITIES.......................................75
ITEM 16 CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES....................................................................75
</TABLE>
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<TABLE>
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ITEM 17 FINANCIAL STATEMENTS..................................................75
ITEM 19 FINANCIAL STATEMENTS AND EXHIBITS.....................................76
</TABLE>
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EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS IS REGARDING
NUMBERS OF COMMON SHARES AND SHARE PRICES ARE BASED ON ADJUSTMENTS TO GIVE
EFFECT TO A ONE-FOR-FIVE REVERSE STOCK SPLIT WHICH OCCURRED IN AUGUST 1998.
CURRENCY AND EXCHANGE RATES
All dollar amounts set forth in this Registration Statement are in Canadian
dollars, except whether otherwise indicated. The following table sets forth (i)
the rates of exchange for the Canadian dollar, expressed in United States
dollars, in effect at the end of each of the June 30 Fiscal year periods
indicated; (ii) the average exchange rates based on the last day of each month
during such periods; and (iii) the high and low exchange rate during such
periods, in each case based on the noon buying rate in New York City for cable
transfers in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York.
<TABLE>
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<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR ENDING JUNE 30, 1999 1998 1997 1996 1995
--------------------------- ---- ---- ---- ---- ----
Rate at End of Period $0.6786 $0.7303 $0.7241 $0.7325 $0.7281
Average Rate During Period $0.6623 $0.7059 $0.7223 $0.7335 $0.7290
High Rate $0.6917 $0.7303 $0.7456 $0.7513 $0.7510
Low Rate $0.6307 $0.6819 $0.6967 $0.7238 $0.7028
</TABLE>
On August 4, 1999, the noon buying rate in New York City for cable transfers in
Canadian dollars as certified for customer purposes by the Federal Reserve Bank
of New York (the "Exchange Rate") was $0.6712 = $1.00 Canadian.
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GLOSSARY OF TERMS
ANAGLYPH A stereo 3D format that uses viewing glasses with
different colored lenses (often red and blue or red and
green) to create a black and white 3D image.
AUTO-STEREOSCOPIC A 3D display method that allows the viewer to see a 3D
image on a screen without the need to wear any special
viewing glasses.
DE-MULTIPLEXER A device that recognizes alternating left and right eye
stereo 3D images recorded on a video tape or DVD and
separates them into two distinct left and right eye
output signals.
DYNAMIC DEPTH CUEING A patented process that allows a still or moving 2D image
to be analyzed to determine the distance or depth of the
objects in the scene in relation to the viewer. The
resulting depth cue is used to enable the distribution of
2D compatible 3D content.
EYE TRACKING SYSTEM A patented system that allows the location of a viewers
eyes to be calculated by capturing a predetermined
frequency of infra red light reflected by the human eye.
FREEWARE Software licenses that are distributed at nominal or zero
cost, often bundled with hardware products or other
software packages purchased by the end user. Freeware is
also distributed via the Internet as software downloads
from websites for which the user is not required to pay
a license fee.
GIANT SCREEN FILMS Films created in 65/70mm format that are projected on
screens that are considerably larger than those found in
retail theaters and cinemas. The format is often referred
to by the brand name IMAX(R).
HEAD END ENCODERS Broadcasting hardware systems that consolidate and encode
multiple video and audio signals into television channels
for distribution through terrestrial, satellite and cable
transmission.
HEAD TRACKING SYSTEM A patented software system that uses the information
about the location of the viewer's eyes from the Eye
Tracking System to determine and monitor the position
of the viewer's head.
LCD SHUTTER GLASSES A stereo 3D format that uses viewing glasses with
electronically controlled liquid crystal display (LCD)
lenses to create a full color 3D image. The LCD lenses
are electronically switched to `shutter' on and off to
obscure the viewers left and right eye as the alternate
left and right eye images are displayed on screen.
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LINE DOUBLER A hardware device that increases the display resolution
of a video signal. The device takes two successive lines
of a video signal and digitally recreates a third
intermediate line, based on information contained in the
two lines being compared. The additional intermediate
lines are then displayed on screen and provides the
appearance of greater clarity and quality.
SET TOP BOXES A consumer hardware device, often associated with cable
or satellite subscriber television. The set top box
decodes scrambled video signals to allow cable and
satellite operators to control consumer access to pay per
view or premium channel programming.
STEREOSCOPIC An image comprising of two subtly different (stereo)
views of the same information. The two images are
interpreted by the viewer as being stereo 3D, having the
appearance of depth on the screen, or giving the
impression that objects are moving off the screen toward
the viewer.
STREAMING VIDEO A format for delivering video images over the Internet.
Specially prepared video content is delivered or
`streamed ' to the end user via an Internet telephone
connection. The video player software on the user's
computer creates the image directly from the information
delivered via the Internet connection as opposed to
storing it and playing back from the user's hard drive.
2D COMPATIBLE 3D A proprietary 3D distribution format based on the Dynamic
Depth Cueing process. The depth data is inserted into the
original unaltered 2D image and delivered to the end user
via Internet, television or DVD. The end user may then
view the image in 2D or 3D. The image can be viewed in 3D
by activating a software or hardware decoder to interpret
the depth data and create the 3D image locally.
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ITEM 1 DESCRIPTION OF BUSINESS
GENERAL
Dynamic Digital Depth Inc. ("DDD" or the "Company") is a software and hardware
developer engaged in the development and commercialization of effective,
affordable 3D content, services and delivery technologies for mass-market
applications. DDD has developed a range of patented software and hardware
applications centered upon the emerging demand and technical feasibility of
displaying still and moving images in "stereoscopic 3D." The Company's solutions
are designed for use in a broad range of markets including Internet, cable,
satellite or terrestrial broadcasting, film and prerecorded DVD markets.
Stereoscopic 3D differs from the heavily marketed term "3D" used extensively in
the present-day video game and PC software markets. Enhanced or "stereoscopic
3D", as created by DDD's Dynamic Depth Cueing process, allows the viewer to see
the images in lifelike 3D by adding the appearance of depth to the image.
Stereoscopic 3D involves displaying two or more slightly different left and
right eye views of the image which the viewer then perceives to be a `real' 3D
image with enhanced depth. The benefit of stereoscopic 3D is that it provides a
visually richer image to the viewer allowing objects and characters to appear
behind the surface of the display screen and also, importantly, to appear to
move off the screen towards the viewer under certain circumstances.
The Company has developed a software-based solution allowing images created
using conventional 2D techniques including video, film and computer generated
media formats, to be manipulated digitally and converted to 3D. Significantly,
the data used to create the 3D version of a 2D image may be subsequently
embedded in the original 2D image allowing the viewer to choose whether to view
in 2D or 3D using a single piece of media. The additional 3D data adds a minimal
increase in size to the original 2D image.
The Company has engineered digital video processing hardware. The video
processor provides a series of features including the control of 3D projection
and display systems, real time conversion of standard video and DVD material to
3D, and image enhancement allowing PC monitors to display video and television
images at higher definition resolution than conventional television sets.
The Company has also developed a glasses-free `autostereoscopic' 3D projection
display targeted at the arcade video games industry. The 3D display creates a
giant 8' image and presents this to the player in 3D using a patented head
tracking system without the need for the player to wear glasses or a headset.
DDD's focus is now the commercialization of these technologies within the
worldwide entertainment and multimedia industries. A number of key applications
have been identified which fall into the following broad categories:
2D compatible 3D images for Internet distribution
2D compatible 3D broadcast programming
2D compatible 3D movies for Digital Versatile Disc (DVD)
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3D movies for theatrical release
Interactive Games Software applications
Video Processor and Display technologies
The Company's key product is a software application called DeepSee-TM-. Using
the DeepSee-TM- family of software products, existing 2D and 3D still and moving
images for Internet, television, film and video/DVD can be digitally manipulated
and enhanced to create the optimal 3D stereoscopic image. The key to DDD's
solution lies in the generation of depth cue data based upon the original 2D
image. DDD's Dynamic Depth Cueing process uses a series of sophisticated
software algorithms to identify each object in a scene along with its distance
or depth away from the viewer. The compressed depth cue data is reinserted into
the original 2D image and distributed to the viewer in 2D compatible 3D formats.
At the viewer's discretion, the depth cue data may be decoded by a software or
hardware-based DeepSee-TM- decoder allowing the images to be viewed in 3D on
conventional display hardware including PC monitors or television sets.
DeepSee-TM- comprises a range of easy to use semi-automated software tools for
the consumer or the content owner. The content owner, using a DeepSee-TM-
software toolkit licensed from the Company, then creates the appropriately
formatted 3D version of their 2D production for distribution over the Internet,
analog or digital broadcast channels or DVD disc.
DDD also provides a 2D to 3D conversion service, allowing the Company to
selectively offer this capability, particularly in professional markets such as
film and television.
HISTORY AND ORGANIZATION
NAME AND INCORPORATION
The Company was incorporated pursuant to the provisions of the Business
Corporations Act (Alberta) on February 4, 1987 as an oil and gas exploration
company with a listing of its Common Shares on The Alberta Stock Exchange (ASE)
on April 27, 1987. The Company remains a reporting issuer in the Province of
Alberta, Canada, and its Common Shares are listed for trading on the ASE under
the stock symbol "DDE".
In 1994, the Company became the subject of a reverse takeover by two related
Australian companies, Xenotech Australia Pty. Ltd. (now known as Dynamic
Digital Depth Australia Pty. Ltd.) and Xenotech Research Pty. Ltd. (now known as
Dynamic Digital Depth Research Pty. Ltd.).
The executive office of the Company is located at 8 Brodie Hall Drive, Bentley,
Western Australia 6102. The registered and records office of the Company is
located at 1600, 407 - 2nd Street S.W., Calgary, Alberta, Canada T2P 2Y3. The
Company maintains a North American office at 2450 Broadway, Suite 500, Santa
Monica, CA 90404, USA.
CORPORATE STRUCTURE
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The Company has three wholly-owned subsidiaries, Dynamic Digital Depth Australia
Pty. Ltd., Dynamic Digital Depth Research Pty. Ltd. and Dynamic Digital Depth
USA, Inc. As of the date of this registration, the Company carries on business
and holds its principal assets through its subsidiaries.
Dynamic Digital Depth Research Pty. Ltd. is the registered owner of the patent
rights to 3D display technology and subsequent inventions and improvements in
the field of stereoscopic 3D. Dynamic Digital Depth Australia Pty. Ltd. was
formed with the purpose of acquiring an exclusive worldwide marketing license to
the patented autostereoscopic 3D display technology from Dynamic Digital Depth
Research Pty. Ltd.
Dynamic Digital Depth USA, Inc. is engaged in the marketing and support of the
Company's products and services in North and South America.
The following chart sets forth the Company's corporate structure, including its
subsidiaries and the percentage of voting securities or ownership held by the
Company:
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Dynamic Digital Depth Inc.
(Alberta, Canada)
--------------------------
/
/
/
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<S> <C> <C>
100% 100% 100%
--------------------- --------------------- ---------------------
Dynamic Digital Depth Dynamic Digital Depth Dynamic Digital Depth
Australia Pty. Ltd. USA, Inc. Research Pty. Ltd.
(Western Australia, (Delaware, USA) (Western Australia,
Australia) Australia)
--------------------- --------------------- ---------------------
</TABLE>
INDUSTRY BACKGROUND
The earliest functional 3D devices were developed during the 19th century. Since
that time, there have been considerable efforts to develop various 3D
applications, however these have met with limited commercial success. The key
factor has been the lack of 3D content and effective delivery systems. The
Company has focused its research and development efforts on addressing these
requirements by providing a complete end to end solution.
The most common application of 3D technology has been in the entertainment
industry. During the 1950's, red and green `anaglyph' glasses were used for
viewing 3D `black and white' films. During the 1950's over 150 million tickets
were sold for early 3D films. The use of glasses to view 3D entertainment has
continued in recent years, but viewers have still had to contend with limited
content.
The application of 3D technology has attained its greatest commercial success
in giant screen `IMAX-Registered Trademark-' 3D films and 3D theme park rides
and attractions. These films have been made using twin camera 3D technology
manufactured by IMAX-Registered Trademark- and iWERKS Entertainment, Inc.
("iWERKS"). Filming with twin camera 3D technology carries a comparatively
high cost of filming and limits the shots that can be created by the film
maker due to the physical equipment size and calibration requirements.
Accordingly, even IMAX-Registered Trademark- 3D theaters have a limited
amount of content that is both time consuming and expensive to produce.
Presently 3D theaters represent 20% of IMAX's installed
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base. This total of 28 theaters is forecast to grow by a further 65 over the
next three years. In 1998, over 70 million people attended a theater using the
IMAX(R) system and this is forecast to triple over the next five years.
In the television industry, broadcasters including CBS, NBC and ABC have
broadcast segments of their prime time television programming including `Third
Rock from the Sun' and `Home Improvement' in 3D. The published ratings generated
from these brief 3D segments has demonstrated that there is an interest in
viewing 3D at the consumer level.
To deliver 3D to a television viewer using present day technologies, the
broadcast signal is formatted in `anaglyph' for viewing in black and white using
low cost red and blue glasses. The second most popular method is field
sequential 3D where alternating left and right eye stereo color images are
broadcast to the viewer on one broadcast channel, in conjunction with Liquid
Crystal Display viewing glasses. Finally two broadcast channels may be used to
deliver left and right eye stereo HDTV images to the viewer in color, again in
conjunction with Liquid Crystal Display viewing glasses. The former approach
provides a black and white image that can only be viewed in 3D while the latter
two are an expensive proposition for broadcasters since the content may either
only be viewed in 3D or requires two dedicated channels to deliver a single
program.
In today's interactive software applications, the heavily marketed term 3D is
used to describe the visual appearance of the computer models that the viewer
sees on screen as the game or application is viewed. This simply means that the
objects and characters are modeled with height, width and, importantly, depth
and therefore appear more visually convincing than their two dimensional
counterparts. 3D models may potentially be viewed from multiple angles.
Importantly, even in a `3D' software application, the viewer still sees a single
image on a conventional display such as a computer monitor or television screen
and therefore views in 2D.
STRATEGIC PARTNERSHIPS
In order to maximize the benefit of the licensing strategy described in this
document, the Company is seeking to secure a range of strategic partnerships.
The Company is targeting organizations with substantial market presence in key
markets including broadcasting and the Internet. The strategic partnerships are
initially intended to yield endorsements of the Company's proprietary 2D
compatible 3D conversion and transmission/delivery technologies. The agreements
are expected to yield marketing partnerships with organizations of substantial
market presence and expertise with well-established sales channels.
The range of hardware and software products is designed to accommodate the
Company's strategy that includes the formation of strategic partnerships to
assist in commercializing its products and services where appropriate.
Pursuant to Stock Purchase and Joint Development Agreements dated June 17, 1999,
the Company entered into a strategic partnership with General Instrument
Corporation, Horsham, Pennsylvania, USA. General Instrument Corporation is a
leading worldwide provider of integrated and interactive broadband access
solutions, teaming with its business partners to lead the convergence of the
Internet, telecommunications and video entertainment industries. The Joint
Development Agreement is intended to implement the Company's 2D compatible 3D
digital broadcasting technologies on General
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Instrument's range of consumer television advanced set top boxes and broadcast
head-end encoder systems.
INTELLECTUAL PROPERTY
The Company's Intellectual Property (IP) library spans proprietary hardware and
software technologies for which the patent applications are in various stages of
approval.
The Company may apply for additional patents relating to other aspects of its
products. There can be no assurance as to the breadth or degree of protection
which existing or future patents, if any, may afford the Company, that any
patent applications will result in issued patents, that the Company's patents
will be upheld, if challenged, or that competitors will not develop similar or
superior methods or products outside the protection of any patent issued to the
Company.
The Company believes that product recognition is an important competitive factor
and, accordingly, the Company promotes the DeepSee-TM- names, among others, in
connection with its marketing activities, and has applied for trademark
registration for such names. The Company's use of those marks may be subject to
challenge by others, which, if successful, could have a material adverse effect
on the Company.
The Company also relies on confidentiality agreements with its directors,
employees, consultants, manufacturers and prospective licensees and employs
various methods to protect the source codes, concepts, ideas, proprietary
know-how and documentation of its proprietary technology. However, such methods
may not afford the Company complete protection, and there can be no assurance
that others will not independently develop similar know-how or obtain access to
the Company's know-how or software codes, concepts, ideas and documentation.
Furthermore, although the Company has and expects to continue to have
confidentiality agreements with its directors, employees, consultants,
manufacturers, and prospective licensees, there can be no assurance that such
arrangements will adequately protect the Company's trade secrets.
The principal areas governed by Patent Applications are:
DYNAMIC DEPTH CUEING
This is the process that enables the assimilation of depth information from a 2D
image and the delivery of a 2D compatible 3D image to the viewer using either
analog or digital delivery mechanisms (Internet, DVD, cable, satellite and
terrestrial broadcast). The company has filed a number of patents and
improvement applications encompassing techniques for assimilating depth
information from existing 2D images and also the DDC compression, transmission
and decoding techniques necessary to generate a 3D image at the viewpoint while
maintaining 2D compatibility. These are referenced under the following
Application Numbers PCT/AU96/00820/US 102,247, PQ1197 and Improvement
Application PCT/AU98/01005.
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VIDEO PROCESSOR HARDWARE
The Company has developed a flexible hardware platform that enables a number of
different requirements to be satisfied through a re-programmable Field
Programmable Gate Array (FPGA) based circuit board. Variations of the video
processor provide a number of functions including:
- - De-multiplexing of field sequential media allowing separate left and right
eye projectors to be supplied by a single media source.
- - Real time conversion of standard video signal to 3D based upon movement
characteristics in the scene.
- - Increasing the resolution of a standard video signal via line doubling and
quadrupling allowing it to be displayed in 3D or in 2D at higher resolution
than it was originated in.
Of these, the Company has filed a patent application covering the Image
Processing Method & Apparatus (2D to 3D Realtime Conversion) under Application
Number PCT/AU98/00716. The Company has also filed a patent application covering
the Image Enhancement System under Application Number PQ1018.
GLASSES-FREE 3D PROJECTION DISPLAY
The glasses-free 3D projection display incorporates a number of discrete patent
applications. The patents relate to the display system itself, the unique
infrared head tracking system and the use of the display system in single and
multi-viewer applications. The patents are referenced under Application Numbers
PCT WO 94/25899, PCT/AU95/00843, PCT/AU97/00353, PCT/AU98/00969 and PP7275.
3D VIEWING GLASSES
In analyzing the requirements necessary to support a successful introduction of
3D television broadcasting to users of existing television sets, the Company
identified the requirement for high quality viewing glasses. The glasses allow
owners of PAL and NTSC television sets to view in 3D without the flicker
associated with the present generation of shuttered 3D viewing glasses. In
contrast to the switching of light method employed by the present generation of
Liquid Crystal Display `shutter' glasses, the Company's patented approach uses
the sequencing of color to which the human eye is far less susceptible. The
sequencing of color results in a very low flicker solution when used in
conjunction with existing television display screens. The patent is referenced
under Application Number PCT/AU/00028.
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PATENT LIBRARY STATUS
This is the status of the Company's patent library as at the date of this
registration statement. All of these Patents and Patent Applications are
believed to be material by the Company.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
APPLICATION INVENTION NAME STATUS PRIORITY DATE
NUMBERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PCT WO 94/25899 3D Stereoscopic Registered - USA May 4, 1993
Display Unit Registered - Australia
Registered - Singapore
- --------------------------------------------------------------------------------
PCT/AU95/00843 Head Tracking Unit Pending PCT Dec. 13, 1994
- --------------------------------------------------------------------------------
PCT/AU96/00820 Dynamic Depth Cueing Pending PCT Dec. 22, 1995
US 102,247 (DDC) (2D to 3D
Conversion - Offline
- 3D Camera - 2D
Compatible 3D
Transmission)
- --------------------------------------------------------------------------------
PCT/AU97/00353 Video Display System Pending PCT June 4, 1996
(Multiviewer)
- -------------------------------------------------------------------------------
PCT/AU/00028 Method & Apparatus Pending PCT Jan. 22, 1997
for Producing
Stereoscopic Images
(3D Glasses)
- -------------------------------------------------------------------------------
PCT/AU98/00716 Image Processing Pending PCT Sept. 2, 1997
Method & Apparatus
(2D to 3D Conversion
Realtime)(DDC Layers)
- -------------------------------------------------------------------------------
PCT/AU98/00969 Eye Tracking Pending PCT Nov. 21,1997
Apparatus
- -------------------------------------------------------------------------------
PCT/AU98/01005 DDC / 2 Pending PCT Dec. 2, 1997
Improvements to PCT
/AU96/00820
Improvements to PCT
/AU98/00716
- -------------------------------------------------------------------------------
PP7275 Teleconferencing Provisional Nov 23, 1998
System
- -------------------------------------------------------------------------------
PQ1018 Image Enhancement Provisional 17 June 1999
System
- -------------------------------------------------------------------------------
PQ1197 Image Conversion Provisional 25 June 1999
and Encoding
Techniques(DDC/3)
- -------------------------------------------------------------------------------
</TABLE>
During the preparation of Patent Applications, International Preliminary
Examiners' reports have identified international patents where a conflict with
the Company's application may potentially exist. The Company has provided a
response in each case indicating the areas in which the Company's applications
are unique and innovative and therefore avoid conflict with the third party
patents. The Company believes that the responses will be adequate to distinguish
the Company's applications from third party patents, however, there can be no
assurance that any patents will be issued pursuant to these applications or
that, if granted, such patents would survive a legal challenge to their validity
or provide significant protection for the Company.
PRODUCTS AND SERVICES
The Product Development strategy adopted by the Company is designed to deliver a
focused range of hardware and software products that are based upon the
Company's core intellectual properties. The range of hardware and software
products is designed to accommodate the Company's strategy that includes the
formation of strategic partnerships to assist in commercializing its products
and services where appropriate. Since the Company is entering a new market in
many cases, it has used its best efforts to create features that are anticipated
to be of benefit and value to end users.
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The Product Development plans of DDD are based upon the following products and
potential products:
DeepSee-TM- Viewer - a software based 3D decoder for use on PCs and Set Top
Boxes
DeepSee-TM- Photo - a software application capable of creating 3D digital
photographic images
DeepSee-TM- Movie - a software application capable of creating 3D digital
movies and video
DeepSee-TM- Studio Pro - a professional software application capable of
converting digitized 2D film and broadcast quality
video material to 3D
3D Demultiplexer - a DDD Video Processor hardware device for use with 3D
projection systems
Video Line Doubler - a DDD Video Processor hardware device capable of
increasing the visual resolution of PAL and NTSC
television video signals
Real Time 3D Generator - a DDD Video Processor hardware device capable of
converting 2D video images to 3D in real time
3D DDC Decoder - a DDD Video Processor hardware device capable of
decoding embedded DDC data from analog and digital
video signals
3D Projection Display - a 3D glasses-free large screen projection display for
use in arcade game outlets and Theme Park sites.
It is anticipated that the product release dates detailed in the following
sections may change over time as features and enhancements requested by
licensees and made available under license from third parties are incorporated
into the product specifications.
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SOFTWARE PRODUCTS
The following is a summary of the Company's software products and their intended
markets.
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PRODUCT TARGET MARKET TARGET LICENSEES REVENUE MODEL
- -----------------------------------------------------------------------------------------------------------
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DEEPSEE-TM- VIEWER PC Users Consumers License Purchases
Set Top Box Users Internet Browser Publishers Software Upgrades
Set Top Box Manufacturers
PC Media Player Publishers
- -----------------------------------------------------------------------------------------------------------
DEEPSEE-TM- PHOTO PC Users Consumers License Purchases
PC Peripheral Manufacturers Software Upgrades
Digital Camera
Manufacturers
Graphic Software Publishers
Photographic Image
Processors
- -----------------------------------------------------------------------------------------------------------
DEEPSEE-TM- MOVIE PC Users Consumers License Purchases
Web Masters PC Peripheral Manufacturers Software Upgrades
Digital Camcorder
Manufacturers
Graphic Software Publishers
Web Developers
- -----------------------------------------------------------------------------------------------------------
DEEPSEE-TM- STUDIO PRO Internet Video Providers, Internet Publishers Annual License Fee
Television Broadcasters Television Content Providers Support Fees
Royalty Income
Film Post Production Film Content Providers
Film Library Owners
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
DEEPSEE-TM- VIEWER
The DeepSee-TM- Viewer is a software application capable of decoding DDC data
embedded in a 2D image and generating a 3D version of the image dynamically at
the viewpoint. The DeepSee-TM- Viewer may either be implemented as a
software-based application, or as a hardware application.
Targeted for introduction in the last quarter of 1999, DeepSee-TM- Viewer is
intended for use primarily on the PC platform to support the Company's Internet
and video game products and also in cable and satellite television set top
boxes. The Company intends to follow the trend in the Internet browser and media
player market established by organizations such as Netscape, Microsoft, Apple
and RealNetworks. Users will be able to download a limited function version of
the Viewer for free in order to explore and view images that have been prepared
using the Company's 3D image authoring tools. Comparable product distribution
models include Apple Quicktime and Adobe Acrobat.
DeepSee-TM- Viewer will be made available as a software `plug-in' module for use
with popular Internet browsers and media players including Microsoft Internet
Explorer, Netscape Navigator, Apple Quicktime and RealNetworks RealPlayer.
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In this manner, a streaming video prepared in the Company's proprietary 2D
compatible 3D format may be downloaded from a web site. Visitors to the web site
who wish to view the video movie in 3D may download a free copy of the
DeepSee-TM- Viewer and install it on their PC. By providing limited functions of
the Viewer at zero cost to the end user, the Company envisages lowering the
barriers to entry for those users wishing to experience 3D on their PC screens.
This is intended to increase the Company's profile within the 3D market and help
gain market share and acceptance of the Company's revenue generating 3D image
authoring tools.
Based upon current resource and development planning, the development schedule
for DeepSee-TM- Viewer includes zero cost license `freeware' versions together
with chargeable versions scheduled for introduction between October 1999 and
July 2000.
Images can be viewed in 3D on PC or television screens using low cost `anaglyph'
red and blue glasses or consumer priced Liquid Crystal Display `shutter'
glasses.
Users who download the zero cost `freeware' Viewers will receive limited
functions, primarily aimed at generating 3D images using the lowest cost
`anaglyph' red/blue glasses. For those users who wish to exercise more control
over aspects of the 3D image and also use more advanced 3D image systems such as
LCD shutter glasses, an upgrade to a chargeable DeepSee-TM- Viewer will be
required.
In the Set Top Box broadcast applications, pursuant to a development agreement
dated June 17, 1999, the Company has entered into an agreement with General
Instrument Corporation, Horsham, Pennsylvania, USA. The agreement includes the
integration of DeepSee-TM- Viewer technologies for use on digital set top boxes.
DEEPSEE-TM- PHOTO
Targeted for introduction in the fourth quarter of 1999, DeepSee-TM- Photo is a
PC based software application capable of being used to convert popular PC
photographic image files from 2D to 3D. The objective of DeepSee-TM- Photo is to
enable consumer users to enhance digitized 2D photographs created using scanning
or digital camera technology. DeepSee-TM- Photo provides a number of
sophisticated tools encapsulated in an easy to use interface that make the
process of converting and editing a 3D image very straightforward. DeepSee-TM-
Photo will be supplied with red/blue `anaglyph' 3D glasses as well as full color
Liquid Crystal Display `shutter' glasses, intended for use in conjunction with
PC monitors.
Multiview 3D generation allows DeepSee-TM- Photo to create a Quicktime Movie
file from a single scanned 2D image by using the depth cue to create up to 7
degrees of visual perspective to the 2D image. Multiview 3D is intended to open
up the consumer photographic market allowing 3D photographs to be created. The
Company intends to license this capability to leading organizations in the
consumer photo processing market.
DeepSee-TM- Photo has been developed in Java, allowing it to be deployed on a
number of target operating systems including Microsoft Windows, Apple Macintosh
and UNIX.
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DeepSee-TM- Photo is intended to be a low cost, shrink-wrap software package
that is comparable to Adobe's PhotoDeluxe product in terms of pricing and
distribution. The Company has a preference for third parties to distribute and
support DeepSee-TM- Photo and envisages licensing the global distribution to
specialist graphics software publishers.
In addition to the distribution of boxed shrink-wrap products, the Company
also expects DeepSee-TM- Photo to be distributed through Internet based
e-commerce. Here, the user downloads an encrypted version of the product
prior to undertaking a credit card purchase transaction to install and
authorize the license for the software on their PC.
The Company has also made provision for a limited feature version of
DeepSee-TM- Photo intended for distribution with digital imaging products
including flat bed scanners and digital cameras. This provides the
opportunity for the Company to gain a sizable distribution base through
bundling with popular scanner and camera systems as a `freeware' component of
another manufacturer's product. This distribution channel is intended to
create awareness leading the end user to upgrade their `freeware' version to
a fully functional, chargeable version of the product.
Based upon current resource and development planning, the development schedule
for DeepSee-TM- Photo includes zero cost license `freeware' versions together
with chargeable versions scheduled for introduction between October 1999 and
July 2001.
Users who download the zero cost `freeware' DeepSee-TM- Photo will receive
limited functions, primarily aimed at generating 3D images using the lowest cost
`anaglyph' red/blue glasses. For those users who wish to obtain more advanced
features in manipulating the 3D image and also use more advanced 3D image
systems such as LCD shutter glasses, an upgrade to a chargeable DeepSee-TM-
Photo will be required.
DEEPSEE-TM- MOVIE
Targeted for availability in the fourth quarter of 1999, DeepSee-TM- Movie is a
PC based software application capable of being used by web masters and advanced
consumers to convert PC movie and streaming video files from 2D to 3D. The
objective of DeepSee-TM- Movie is to enable users to enhance PC movies and
videos created using popular movie creation tools and digital camcorder
technology. DeepSee-TM- Movie provides a number of sophisticated tools
encapsulated in an easy to use interface that make the process of converting and
editing a 3D movie very straightforward.
DeepSee-TM- Movie has been developed in Java, allowing it to be deployed on a
number of target operating systems including Microsoft Windows, Apple Macintosh
and UNIX.
DeepSee-TM- Movie will be supplied with red/blue `anaglyph' 3D glasses as well
as full color Liquid Crystal Display `shutter' glasses, intended for use in
conjunction with PC monitors.
DeepSee-TM- Movie is intended to be a shrink-wrap software package that is
comparable to RealNetworks G2 or Adobe Photoshop products in terms of pricing
and distribution. The Company has a preference for third parties to distribute
and support DeepSee-TM- Movie and envisages licensing the global distribution to
a specialist software publisher.
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In addition to the distribution of boxed shrinkwrap products, the Company also
expects DeepSee-TM- Movie to be distributed through Internet based e-commerce.
The user downloads an encrypted version of the product prior to undertaking a
credit card purchase transaction to install and authorize the license for the
software on their PC. Again, the Company will seek the provision of an
e-commerce solution from third parties that offer such services, although the
experience may appear to be that of buying directly from DDD to the end user.
The Company has not yet set a general release date for the launch of
DeepSee-TM- Movie. The Company is seeking to maximize the value of
DeepSee-TM- Movie by offering Internet Movie and Streaming Video conversion
as a service by the Company in the short term.
DEEPSEE-TM- STUDIO PRO
Targeted for introduction in the fourth quarter of 1999, DeepSee-TM- Studio Pro
is the Company's professional media conversion and transmission application
intended for use in Internet, film, DVD video and broadcast media applications.
DeepSee-TM- Studio prepares the 2D compatible 3D media for transmission through
encoding the depth cue data into Internet video files, digital and analog
broadcast signals for cable, satellite and terrestrial distribution and DVD
video discs.
In these markets, the resolution of detail in each frame of film or field of
video requires an advanced set of pixel accurate object identification and
tracking techniques in addition to highly efficient, operator independent depth
analysis and depth cue generation algorithms.
In order to support these features, and the necessity for rapid turnaround of
media for broadcast applications, DeepSee-TM- Studio Pro is founded on powerful
workstation hardware technology coupled with high capacity digital video storage
devices.
DeepSee-TM- Studio Pro is packaged as a turn-key combination of;
- - DeepSee-TM- Studio Pro software;
- - A Video Processor for real-time, on-screen editing of 3D images;
- - A powerful Intel Xeon or Merced workstation capable of processing large
volumes of digitized film and video material;
- - A high capacity Pluto Technologies video storage device compatible with
storing the unaltered 2D images and the corresponding depth cue data.
DeepSee-TM- Studio Pro licenses are high value, largely due to the sophisticated
underlying processor hardware and video storage devices. In all cases, the
Company expects to license DeepSee-TM- Studio Pro to principal organizations
including Internet video content providers, post-production companies, film
studios, cable broadcasters, television programmers and film library owners.
This involves an annual license fee associated with the DeepSee-TM- Studio Pro
license, and a royalty fee based upon the media created using DeepSee-TM- Studio
Pro.
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The Company has been approached by Intel Corporation's Workstation Products
Group, Medford, OR to determine the practical implications of standardizing
DeepSee-TM- Studio Pro on Intel's professional Xeon 32 bit Pentium 3
architecture and Merced 64 bit workstation architectures. The Company has also
entered into a relationship with Pluto Technologies, Boulder, CO to standardize
on the Pluto range of Video Storage Devices for DDD's film and broadcast data
storage needs.
DeepSee-TM- Studio Pro is intended to be a high end software package that is
comparable to AVID broadcast products in terms of pricing and distribution. The
Company is considering third parties for the distribution and support of
DeepSee-TM- Studio Pro and is investigating licensing the functions to a
specialist professional media software publisher. The Company is also
investigating distributing and supporting the product from within the Company.
Based upon current resource and development planning, the development schedule
for DeepSee-TM- Studio Pro includes versions scheduled for release between
December 1999 and July 2001.
HARDWARE PRODUCTS
The following is a summary of the Company's hardware products and their intended
markets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
PRODUCT TARGET MARKET TARGET LICENSEES REVENUE MODEL
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEPTH CUE DECODER DeepSee Studio Pro DeepSee Studio Pro Licensees Unit Sales
Set Top Boxes DVD Player Manufacturers Manufacture Royalties
DVD Players Set Top Box Manufacturers
- -------------------------------------------------------------------------------------------------------
3D DEMULTIPLEXER Professional A/V Professional A/V Users Unit Sales
3D Projection/Display 3D theater installations Manufacture Royalties
- -------------------------------------------------------------------------------------------------------
REAL TIME CONVERTER PC Users Consumers Manufacture Royalties
Consumer A/V PC Peripheral Manufacturers
Consumer Electronic
Manufacturers
- -------------------------------------------------------------------------------------------------------
LINE DOUBLER PC Video Players PC Peripheral Manufacturers Manufacture Royalties
PC Television PC Manufacturers
Home Theater Consumer Electronic
Manufacturers
Set Top Boxes Set Top Box Manufacturers
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
DDD VIDEO PROCESSOR
During the development of the 3D Projection Display and the 2D to 3D software
conversion process, the Company has engineered a digitally reprogrammable Video
Processor platform based upon a Field Programmable Gate Array (FPGA). This
provides a flexible underlying platform with the added advantage that any
functionality attained using the FPGA can be easily transferred to create an
Application Specific Integrated Circuit (ASIC) chip set. The primary functions
of the Video Processor are:
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3D Depth Cue Decoder - a device capable of decoding embedded depth cue
data from analog and digital video signals.
3D Demultiplexer - a device for use with 3D projection systems
Real Time 3D Converter - a device capable of converting 2D video images
to basic 3D in real time
2D Video Line Doubler - a device capable of increasing the visual
resolution of PAL and NTSC video signals
The Video Processor has a number of discrete functions that are designed to
bring solutions to specific requirements. These are:
DYNAMIC DEPTH CUE DECODING
In situations where DeepSee-TM- Viewer software may not be used to decode depth
cue data, the Company has developed a hardware-based depth cue decoder. This
allows the decoding of DDD's proprietary depth cue data for the real time
generation of a 3D image from depth cue encoded media.
This hardware based depth cue data decoder may be embedded in chip sets of set
top boxes, set top box accessories, DVD players, DVD player accessories and PC
cards.
The system processes an incoming analog or digital video stream for DVD, PC and
set top box applications. The depth cue data is extracted from the video stream
and applied to the 2D image within the video processor. A second stereo 3D image
is then constructed dynamically in real time prior to display.
A second important use for this feature is within DeepSee-TM- Studio Pro.
DeepSee-TM- Studio Pro stores the unaltered 2D image and the corresponding depth
cue data on a video storage device. Through combining the Video Processor with
DeepSee-TM- Studio Pro, the 2D image and depth cue data may be combined in real
time and displayed on a monitor. This allows the operator to dynamically refine
the depth cue to obtain the optimal 3D version of a scene. This configuration
provides real time, on-screen editing of a 3D image.
A prototype is due for completion in the third quarter of 1999. The Company
intends to demonstrate the hardware-based depth cue decoding to prospective
licensees in the set top box, DVD player and PC card manufacturing markets.
3D DEMULTIPLEXER FOR PROJECTION SYSTEMS
The 3D Demultiplexer processes incoming field sequential video signals for use
with 3D projection systems. This allows twin projector systems to be operated
from one media player alleviating the synchronization issues of using two
videocassette or DVD players.
In order for a single media player to be used, alternate left and right eye
images of each successive frame are recorded onto the videocassette or DVD in
`field sequential' format. The Video Processor simply uses the synchronization
signal found between each field on the videotape or DVD to
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`demultiplex' or redirect the successive fields to two output channels. The
output channels can be in Composite Video PAL or NTSC formats, S-Video or Red
Green Blue (RGB). One projector is then connected to each output channel to
create a 3D projection system.
Since this approach uses the alternate fields in the videotape to store left and
right eye 3D images, the image provided is half the resolution of a normal
videotape. Consequently, the Video Processor also provides the capability to
`line double' the output image. Here the video processor uses a combination of
digital line interpolation algorithms to create additional lines in the output
signal based upon the comparison of input line pairs. This digitally synthesizes
the image and gives the appearance that the left and right eye 3D output fields
are a full resolution image.
A prototype was completed in the third quarter of 1998, able to accept input
signals from media players in Composite Video PAL or NTSC formats, S-Video or
RGB. The company has already sold a limited number of video processors to
organizations in the 3D video projection system market who are seeking
competitively priced 3D signal demultiplexers. Modifications to the prototype
may be required in order to permit sale of the product in volume.
REAL TIME 3D CONVERTER
A prototype was completed in the first quarter of 1999 capable of undertaking
basic real time 2D to 3D conversion through a combination of field delay and
pixel shifting processes. The result is a 3D image which is acceptable on a PC
screen or TV display, but which is not continuously provided in 3D, reverting to
regular 2D in circumstances where the content does not permit the processor to
assimilate 3D images.
This allows any video transmission played from a videocassette, DVD or broadcast
signal to be converted to a simple form of 3D in real time. The advantage of the
real time converter is that it can handle any media, without the need for the
media to be preprocessed. The basic 3D result does not possess the same quality
or consistency of a 3D image produced using the DeepSee-TM- Studio Pro
post-production conversion process.
The Company intends to provide evaluation systems to companies in Japan to
consider manufacturing as a PC add-on card accessory. Modifications to the
prototype may be required in order to permit license and sale of the product in
volume.
2D LINE DOUBLING FOR VIDEO SIGNALS
While the line doubling feature is a requirement of a 3D signal demultiplexer,
it also provides some useful benefits when used with conventional media players
in non 3D applications. Many of today's consumer applications for DVD players
and set top boxes are converging television technologies with PC displays.
Traditionally, PAL and NTSC video signals are designed for television display
screens. This results in a videocassette tape producing images that are between
200 and 250 lines in resolution. As the tape is played, the first field builds
up the odd lines of an image, and the second field builds up the even lines
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of the image on the TV screen. The viewer then sees an image comprising between
400 and 500 lines of resolution.
Many PC monitors are capable of displaying images of 800 x 600 lines of
resolution, considerably higher than that of a television set. Consequently,
when videocassette tapes or DVDs are played on a PC monitor, the image quality
is that of a television set and therefore less than the display capability of
the PC monitor. The DDD video processor is capable of `line doubling' an
incoming video signal and displaying it on a PC monitor at a higher resolution
and with greater clarity than otherwise possible. Here the video processor uses
a combination of digital line interpolation algorithms to create additional
lines in the output signal based upon the comparison of input line pairs to
double the output resolution. This digitally synthesizes the image and gives the
appearance that the image is of a higher resolution approaching that of High
Definition.
A prototype was completed in the first quarter of 1999, able to accept input
signals from media players in Composite Video PAL or NTSC formats or S-Video.
The company has already sold a limited number of video processors to
organizations who are seeking line doubler technologies. Modifications to the
prototype may be required in order to permit sale of the product in volume.
3D PROJECTION DISPLAY
The origins of Dynamic Digital Depth 3D Projection Display lie in the design and
manufacture of a prototype glasses free stereo 3D display system. The system
uses a patented combination of an infra-red head tracking system coupled to a
twin LCD projection system that provides a life like 3D image on a large display
screen without the need for the viewer to wear glasses or a headset.
The Company has targeted the display system toward the international arcade game
industry as a deluxe game configuration.
The capability of playing a video game in true life like 3D, without impacting
on the throughput, and therefore the earning capacity of the game, is seen as a
considerable advantage in maintaining the desire among game players to visit
family entertainment centers. The large 3D display yields an experience that is
not presently available at home.
The 3D Projection Display was launched at the 1998 International Association of
Amusement Parks and Attractions Show (IAAPA) in Dallas, TX.
The Company is in the process of providing solutions to the requirements
identified in field trials. This includes a redesign of the eye tracking and
projection system to reduce the number of components and moving parts. Also
required is a projection system capable of delivering higher resolution images.
The Company intends to undertake a value engineering exercise to reduce the cost
of the system to licensees to yield a viable volume market.
Management has focused the Company's limited engineering resources on the high
volume opportunities in consumer broadcasting and the Internet/PC market rather
than on the arcade game display. The Company will apply resources to the 3D
projection display enhancements in the latter half of the calendar year 1999.
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2D TO 3D MEDIA CONVERSION SERVICES
The Company also offers a 2D to 3D media conversion service. The Company has
identified three discrete market segments within the 3D market where it is
actively focusing effort: (a) Giant Screen `IMAX(R)' theaters; (b) Video
Theater, Special Events, Advertising & Promotion; and (c) Computer Generated
Animation. The Company's Australian subsidiary, Dynamic Digital Depth Australia
Pty. Ltd. is actively undertaking chargeable 2D to 3D conversion projects.
IMAX(R) FILM CONVERSION
In the giant screen market, over 36 `IMAX(R)' 3D theaters already exist
worldwide. The production techniques and equipment required to produce a 3D
giant screen film are substantially different from those of a comparable 2D
film. Special cameras and related equipment are required that substantially
increase the size and weight of the additional camera hardware making certain
conventional shots impossible to film and reducing the number of takes possible
during an average day on location. These factors make the process of producing a
3D giant screen film expensive with production budgets almost double that of a
conventional 2D film.
By processing digitized giant screen 70mm film with DeepSee-TM- Studio Pro,
it becomes possible to create a 3D movie using conventional 2D camera
equipment and to generate the 3D equivalent in post-production. A wider
variety of shots can be made in less time with a 2D camera and there is no
need for synchronization of film speeds or lenses. Filmmakers using
conventional 3D techniques and equipment also benefit from depth cueing. By
applying the DeepSee-TM- Studio Pro to the film, 3D shots which are unusable
due to technical problems can be manipulated digitally and recreated in 3D
from a single film source and thus rescued.
The Company has a relationship with IMAGICA USA to explore the potential for
such a 3D service in the giant screen market. The DeepSee-TM- Studio Pro
process is of sufficient quality to be projected on IMAX(R) screens up to 80
feet high and 100 feet wide.
The Company has successfully converted the 45 second trailer of MacGillivray
Freeman's blockbuster IMAX(R) movie `Everest' and has been shown to giant screen
film producers at industry seminars.
The Company has recently completed a project to convert segments of the Magic
Box Productions LLC IMAX(R) film `Sigfried & Roy'. DDD and IMAGICA USA are also
working on test conversions for Showscan Entertainment's theme park ridefilm
library. In addition, the two companies have also converted six 10 second test
images for a proposed new IMAX(R) movie entitled 'Ocean of Light'.
35MM FILM AND PROFESSIONAL VIDEO CONVERSION
The DeepSee-TM- Studio Pro toolkit may be used to convert 35mm film and
professional video media with equal success. The Company has a relationship
with IMAGICA Corporation of Japan to provide conversion services for 35mm
film and professional video media.
The benefits the DDD process brings to film and video producers are identical to
those found in IMAX(R) conversions. Films may be created in 2D, using 2D camera
equipment and then converted to
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3D in post-production. The process is also being used to convert existing 35mm
film and professional video libraries and library footage to 3D.
The Company has undertaken test conversion work for IMAGICA Corporation of
Japan. This has resulted in commercial conversion contracts for the conversion
of video resolution media for Kaichu-Sanpo in Japan.
The Company has also converted `Natures Symphony' a VHS video production
designed for sale with Ilixco Inc.'s LCD shutter glasses.
SPECIAL EVENTS, ADVERTISING & PROMOTION
The Company has identified the niche market of Special Events, Advertising and
Promotion. Temporary 3D video projection installations have widespread use in
advertising and promotions and at special events such as trade shows and
conferences. The Company believes that this offers the opportunity to provide
short 3D movies designed to support product launches or promotional drives.
The Company has identified a number of parties who are active in the
corporate and promotional video market and is seeking to establish service
and license relationships with them in order to exploit DDD's 3D conversion
capabilities in this field. Accordingly the Company has entered into a
Memorandum of Understanding with Video Applications Inc., of Tustin, CA.
Video Applications Inc. is a partner of Hughes-JVC for electronic projection
systems for trade show and special event use. Initially, DDD will undertake
conversions for Video Applications, Inc. on behalf of their clients, however
it is intended that Video Applications Inc. will ultimately acquire a
DeepSee-TM- Studio Pro license. This license is intended to yield a royalty
to DDD based upon the volume of 3D conversion work undertaken for Video
Application Inc.'s clients.
The use of twin 3D projections systems also provides the opportunity for the
Company to sell its 3D video signal Demultiplexer to users in this market.
COMPUTER GENERATED ANIMATION
A growing number of productions, from IMAX(R) movies to theatrical films and
television programs, are now being originated entirely from computer graphics
with no live action or filmed components. Examples include Pixar's `Toy Story'
and Dreamworks' `Antz'.
Computer animated productions are built from detailed models of the characters
and scenery that appears on-screen. Sophisticated animation tools create wire
frame representations of the characters and objects onto which highly detailed
graphic texture maps are rendered. This method creates increasingly realistic
scenes to the point where the difference between footage shot with a film camera
and footage created in the memory of a computer is difficult for the viewer to
discern.
The DDD process yields some considerable advantages to those who wish to release
their 2D animated content in 3D. Conventional techniques require the graphic
artist to recreate the second `stereo' 3D frame by re-rendering each scene from
the computer a second time. This doubles the time taken to create the 3D
production compared to the original 2D production.
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DeepSee-TM- Studio Pro is capable of creating highly accurate depth cues
directly from wire frame models, with minimal operator involvement. Once the
depth cue data is created, the second stereo frame can be generated much more
efficiently by combining the depth cue with the existing 2D animated image.
The end result is a process that not only allows the graphic artist to fine
tune the 3D effect of each scene without the need to render two frames, but
also reduces the time taken to create the stereo 3D equivalent to one fifth
of the time taken with current techniques.
The Company has recently undertaken its first Computer Generated Animation 3D
conversion projects on behalf of Showscan Entertainment and Hasbro Interactive.
SALES AND MARKETING
The Company utilizes a number of tools and services in support of the promotion
of its products and services within its chosen target markets. These tools and
services assist the Company in attaining the appropriate profile both as a
market leading 3D technology provider and also as a public company listed on The
Alberta Stock Exchange.
The Company has already implemented a range of initiatives designed to enable
effective communication with prospective customers and licensees, investors and
press. These include a comprehensive web site, the retained services of a major
international public relations company and participation in a number of industry
trade shows and seminars targeted at specific application areas for the
Company's technologies.
THE DDD WEB SITE (HTTP://WWW.DDD3D.COM)
In early 1999, the Company undertook a project to revise the corporate web site;
however, the information found on the website is not part of this Registration
Statement. The objectives of the web site are:
1. To communicate products and services to prospective customers.
2. To communicate the core technologies to prospective licensees.
3. To provide background and reference material for current and prospective
investors.
4. To enable visitors to download samples of 2D compatible 3D images.
5. To be an electronic store front for the sale of software and hardware
products.
6. To assist in building a brand for the Company in the 3D marketplace.
PUBLIC RELATIONS
The Company has retained the services of Daniel J. Edelman Public Relations, an
international public relations company. The relationship is managed by the
Dallas, TX office of Edelman Public Relations.
The PR campaign has been focused on raising the profile of DDD in industry and
trade press. This has resulted in articles concerning DDD's technologies being
published in a variety of industry publications.
The Company, in conjunction with IMAGICA USA, previously retained the services
of a Giant Screen IMAX(R) film media specialist that resulted in further
industry and trade press exposure.
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The primary focus of the Public Relations activities is centered upon creating
presence in the North American market. The Company also undertakes international
PR, particularly in Australia and Canada.
Press releases containing forward looking statements and information that is
material to the Company are authorized by The Alberta Stock Exchange prior to
release.
INVESTOR RELATIONS
As a public company listed on The Alberta Stock Exchange, the Company has
undertaken Investor specific Public Relations, initially targeted toward the
Canadian investment community. The Company has recently appointed Daniel J.
Edelman Public Relations for Investor Relations activities.
TRADE SHOWS AND EXHIBITIONS
The Company attends and exhibits at trade shows in key markets. Company
representatives attend industry seminars and participate as guest speakers.
Where appropriate, the Company partners with potential licensees and strategic
partners in presenting the Company's technologies and solutions at trade shows
and exhibitions.
DDD has recently participated in the following Conferences and Exhibitions :
<TABLE>
<S> <C>
National Association of Broadcasters, Las Vegas, Exhibited in conjunction with Hughes/JVC
NV
Western Cable Show, Anaheim, CA Attended in conjunction with National
Digital Television Center
International Space Theater Consortium, Sydney, Exhibited in conjunction with IMAGICA
Australia
Large Format Cinematographers Association, Los Exhibited in conjunction with IMAGICA
Angeles, CA
EuroMAX, London, England Attended
International Association of Amusement Parks & Exhibited
Attractions, TX
Digital Content Creation, Los Angeles, CA Attended
Electronic Entertainment Expo (E3), Los Angeles, Attended
CA
SPIE 99, San Jose, CA Attended as guest speaker
SIGGRAPH, Los Angeles, CA Proposed exhibition in conjunction with Intel
Corporation in August 1999
</TABLE>
MARKETING COLLATERAL
The Company has created initial marketing collateral to support the sales and
marketing activities and corporate promotion.
The Company has focused on the Web Site as the primary mechanism for
disseminating information concerning the Company's products and services since
it is a highly effective international marketing
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medium. As both hardware and software products are released, marketing
collateral including brochures and data specification sheets will be introduced
to support the sales and marketing initiatives.
The Company will advertise and promote the availability of the products in
appropriate publications.
INTERNATIONAL MARKETING ACTIVITIES
In certain countries where the Company does not maintain a local office, the
Company intends to enter into representation agreements with local organizations
to provide licensee support and assist in marketing the technologies.
Representative partners will be selected based upon their local contacts and
their prior knowledge and involvement in 3D projects and activities.
On June 14, 1999, the Company entered into an agreement with AiCube Co. Ltd. of
Tokyo, Japan to provide local sales support and marketing activities for the
company's products and services in Japan.
PRINCIPAL MARKET SEGMENTS
The Company focuses on the worldwide entertainment and multimedia markets. This
has resulted in product development and marketing efforts in the following
market segments:
<TABLE>
<S> <C>
PC/Internet Provision of 2D compatible 3D media via the Internet
Broadcast Television Provision of 2D compatible 3D broadcast media
DVD Movies 2D compatible 3D movies for Digital Versatile Disc (DVD)
Movie Films Conversion of 2D films to 3D for theatrical release
Computer Animation Simplifying the process of creating computer generated 3D movies
Video Games Creating enhanced visual quality for DVD based video games
Professional Audio Visual Professional video processor and 3D display technologies
Arcade Games 3D arcade display
</TABLE>
PC/INTERNET
The Internet is a uniquely international visual medium where content is
delivered to users around the globe without the restrictions of country borders
or regional languages. Commercial and consumer web sites offer both photographic
and movie images for visitors to browse and download. With significant
competition to attract and maintain visitors to high profile web sites, the
opportunity to allow visitors to view pictures and movies in 3D or 2D from a
single download or video stream file is highly attractive to content driven web
sites.
Recent Internet statistics indicate that the provision of video content via the
Internet is a fast growing segment. There are over 320,000 sites offering
streaming video content with major sites such as Broadcast.com receiving 800,000
visitors daily. Over 200,000 hours of Internet video content is produced weekly
available to the 57 million users of RealNetworks RealPlayer software or the 50
million users of Apple Corporation's Quicktime software.
The Company is in the process of delivering a series of tools designed to be
used on standard Intel and Apple PCs where conventional PC display screens
provide clear 3D images. These include DeepSee-TM- Photo and DeepSee-TM-
Movie software applications used to convert 2D images and movies to 3D and
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the DeepSee-TM- Viewer browser or media player `plug-in' that allows the user
to view an encoded 2D image in 3D.
Applying the DDD process to a typical picture or movie file increases the file
size by approximately 1% above the original 2D picture or movie file size.
Consequently, the encoded image file is highly suited to distribution via
present day Internet connection speeds and communications bandwidths.
The market for media software applications that allow still pictures and video
movies to be digitally captured, prepared and distributed via the Internet is
occupied by a small number of companies. Real Networks, Microsoft Corporation,
Apple Corporation and Adobe all provide packaged software tools and media
players that allow the user to create and view images on PCs. The Company is
actively targeting these companies as potential strategic partners and/or
licensees.
The Company is delivering the following products intended for use in the
Internet/PC market
DeepSee-TM- Viewer Decoding 2D compatible 3D images using web browser or
media player 'plug-in' software modules
DeepSee-TM- Photo Converting 2D still photographs from digital
cameras or scanners to 3D and formatting them as 2D
compatible 3D.
DeepSee-TM- Movie Converting 2D movie and streaming video images to 3D and
formatting them as 2D compatible 3D.
DeepSee-TM- Studio Pro Converting large volumes of movie and streaming video
images from 2D to 3D for professional Web Master use.
BROADCAST TELEVISION
The Company has identified an opportunity to deliver 2D compatible 3D
programming to consumer households via terrestrial, cable or satellite
television transmission. This market is central to the convergence of consumer
entertainment television technology with digital technologies derived from the
personal computing and Internet sectors.
The delivery infrastructure used to bring television programming to the
household is being upgraded from the existing `analog' technology to digital,
allowing a number of additional services to be provided to the consumer through
their terrestrial, cable or satellite television channels. These services
include movies on demand, interactive software such as games and shopping, as
well as electronic mail and simplified access to the wealth of information now
available on the Internet.
A new generation of digital `Set Top Boxes' is the focal point of this new
consumer market. A large number of leading PC hardware and software technology
providers have a stake in set top boxes, delivering powerful processor chips,
graphics technology, memory, high speed modems and easy to use operating
environments. The companies involved in delivering technology include Intel,
Broadcom, Motorola, 3Dfx, @Home, Microsoft and Sony. Their principal customers
are the consumer set top box manufacturers including General Instrument,
Scientific Atlanta, WebTV and Motorola. The Company is actively targeting these
companies as potential strategic partners and/or licensees and, as previously
stated, has entered into an agreement with General Instrument.
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DDD's DeepSee-TM- 3D Viewer is designed for set top box applications either as a
downloadable software module or as an Application Specific Integrated Circuit
(ASIC) chip embedded in the set top box circuitry. Adding DeepSee-TM- 3D Viewer
technology to the set top box enables the decoding and display of 2D compatible
3D images on standard television sets.
The unique nature of the Company's 2D compatible 3D transmission process avoids
the need for two separate channels to deliver 3D content or the delivery of
content only capable of being viewed in 3D.
The set top box decodes the proprietary depth cue data and applies it to the 2D
image to create the 3D version as it is received in the home. This allows
standard television sets to display 3D images through the use of glasses worn by
the viewer.
The Company has also focused on unlocking the wealth of existing 2D television
content allowing it to be transmitted and viewed in 3D. This is vital to the
success of 3D broadcasting. It allows programming produced using conventional
techniques to be converted to 3D, and prepared for broadcast in a proprietary
format that can be viewed in 2D or 3D.
The DeepSee-TM- Studio Pro software allows the TV program to be digitally
processed, using advanced proprietary algorithms, to create depth cue
information for each frame of the broadcast. The content producer may then edit
the depth cue to ensure the optimal 3D view is created. The depth data is then
highly compressed and inserted back into the analog or digital broadcast signal
along with the original, unaltered 2D picture.
The Company is delivering the following products intended for use in the
Broadcast Television market
DeepSee-TM- Viewer Decoding 2D compatible 3D images using a Set Top
Box either as a software module, hardware chip or Set
Top Box accessory.
DeepSee-TM- Studio Pro Converting large volumes of broadcast content
from 2D to 3D for cable, satellite or terrestrial
broadcasting.
DVD VIDEO
A significant market determining the profitability of a feature film is the
consumer video/DVD market. Sales in this market represent a considerable
opportunity to the Company for converting and distributing both new and existing
films in the 2D compatible 3D format. A new generation of Digital Versatile Disc
(DVD) has recently been introduced that is expected to supersede videocassette
over the coming years. In July 1998, Warner Advanced Media Operations announced
they had recently replicated their 10 millionth DVD disc for a content library
which includes blockbuster titles such as `Twister' and `Batman Returns'.
DVD players can be used to display both 2D and 3D images played from a single
DVD disc through the integration of the Company's DeepSee-TM- Viewer
technologies. The DeepSee-TM- 3D Viewer is designed with DVD applications in
mind both as an Application Specific Integrated Circuit chip embedded in the DVD
player and as a decoder accessory compatible with the present installed base of
DVD players.
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The unique nature of the Company's 2D compatible 3D DVD distribution format
allows DVDs to be produced that can be viewed in both 2D and 3D. This removes
the need for specialized 3D media only capable of being viewed in 3D.
The DVD player decodes the depth cue data and applies it to the 2D image to
create the 3D version as the movie is played. This allows standard television
sets to display 3D images through the use of glasses worn by the viewer.
Unlocking existing 2D film and video content allowing it to be distributed on
DVD and viewed in 3D is vital to the success of 3D DVD. It allows content
produced using conventional 2D techniques to be converted to 3D, and prepared
for distribution in a proprietary 2D compatible 3D format. The constant stream
of blockbuster content created by Hollywood can be converted to 3D, as well as
enabling the 3D repurposing of existing film libraries for re release on DVD.
The DeepSee-TM- Studio Pro software allows the video to be digitally processed,
using advanced proprietary algorithms, to create depth cue information for each
frame of the video. The content producer may then edit the depth cue to ensure
the optimal 3D view is created. The depth data is then highly compressed and
inserted back into the DVD video signal along with the original, unaltered 2D
picture.
The Company is delivering the following products intended for use in the DVD
video market
DeepSee-TM- Viewer Decoding 2D compatible 3D images using a DVD player
either as a hardware chip or DVD Player accessory.
DeepSee-TM- Studio Pro Converting large volumes of film and video content
from 2D to 3D for creating 2D compatible 3D DVD Discs.
MOVIE FILMS
The Company is active in the conversion of film and video media from 2D to 3D.
The initial markets are Giant Screen `IMAX(R)' theaters, Digital & Electronic
Cinema and Special Events, Advertising & Promotion.
GIANT SCREEN `IMAX(R)' FILMS
This market is mainly occupied by IMAX(R) Corporation, Showscan Entertainment
and iWERKS. Presently 3D theaters represent 20% of IMAX(R)'s installed base.
Currently there are 28 IMAX(R) 3D theaters and this is forecast to grow by a
further 65 over the next three years. In 1998 over 70 million people saw films
shown on IMAX(R) screens and this is forecast to triple over the next five
years. Giant screen theaters include purpose built theme park and commercial
"ridefilms" and dedicated screens located in museums and science centers.
The production techniques and equipment required to produce a 3D giant screen
film are substantially different from those of a comparable 2D film. Special
cameras with dual lenses are required. Due to the weight of the extra film drums
and the additional camera hardware, 3D cameras are large and bulky, making
certain conventional shots impossible to film, and reducing the number of takes
possible during a day on location. This makes the process of producing a 3D
giant screen film expensive, with
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production budgets almost double that of a conventional 2D film. These
constraints lead to a surfeit of conventional films and few 3D films.
By processing digitized giant screen 2D film with DeepSee-TM- Studio Pro, it is
possible to create a 3D IMAX(R) movie in post production. This reduces
production costs on-set and provides for a wider range of shot types for 3D film
makers. Post production 3D conversion allows film makers to expand the nature of
3D films to include mainstream consumer story lines and plots.
The advanced 3D editing capabilities of DeepSee-TM- Studio Pro permit extensive
artistic control over the 3D effects in each scene. Applying DeepSee-TM- Studio
Pro to incorrectly filmed 3D shots allows them to be manipulated digitally and
thus rescued. This combination of features makes DeepSee-TM- Studio Pro a
significant tool for 3D film makers.
As part of the Company's alliance with IMAGICA USA, a specialist giant screen
post production company, the Company has already undertaken conversion projects
for the film `Sigfried & Roy' and test conversions for the film `Ocean of
Light'. The Company has converted test sequences from the Showscan Entertainment
ridefilms `Cosmic Pinball' and `Street Luge' and the trailer of the IMAX(R)
blockbuster film `Everest'.
The Company is actively targeting companies including IMAGICA USA, IMAX(R) and
Cinesite as potential strategic partners and/or licensees of DeepSee-TM- Studio
Pro in the giant screen film market.
DIGITAL & ELECTRONIC CINEMA
This is an emerging market intended to provide a successor to 35mm celluloid
projection and distribution systems in the theatrical film market. Companies
including Texas Instruments, Hughes-JVC and Cinecomm are focused on introducing
advanced alternatives to present 35mm film projection and theatrical film
distribution. In June 1999, `Star Wars - The Phantom Menace' was screened in Los
Angeles and New York using Hughes-JVC electronic projectors.
Digitally stored film ensures that each screening is of equal quality since
there is no film degradation or accumulation of dust and dirt particles
detracting from the viewer experience. The advanced digital distribution system
allows movies to be distributed instantaneously to theaters via satellite,
substantially reducing the processing and delivery costs of conventional 35mm
film stock.
Digital projection equipment and distribution is ideally suited to the Company's
2D compatible 3D transmission technologies, providing the opportunity to convert
35mm films to 3D using DeepSee-TM- Studio Pro and to distribute these in 2D
format with embedded 3D depth cue data.
The theater owner may then decide whether to offer screenings of 3D versions of
encoded films by projecting the decoded 3D version. The same film can be viewed
in conventional 2D since the depth cue process leaves the 2D image unaltered.
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SPECIAL EVENTS, ADVERTISING & PROMOTION
The Company is introducing its products and services to the niche market of
Special Events, Advertising and Promotion. In this market, a temporary 3D
theater is constructed for use in trade shows, product launches, sports events
or music concerts.
3D video theaters utilize low cost video projectors such as those manufactured
by Hughes-JVC, Barco and Sony. The ease of video resolution production and
distribution on laser disc, videocassette tape or DVD is more cost effective
than conventional 35mm film. The more sophisticated large screen installations
are powered by the latest generation of digital and electronic projection
systems including those made by Hughes-JVC.
Temporary installations have widespread use in advertising and promotions and at
special events such as trade shows, and conferences and concerts. The Company
believes this offers a potentially lucrative revenue stream through the
conversion of short 3D video movies designed to support product launches or
promotional campaigns.
DeepSee-TM- Studio Pro is used to convert 2D video material to 3D. The resulting
3D film is then either mastered onto DVD disc using the 2D compatible 3D format
or is recorded onto video cassette tape or a video storage device for subsequent
playback.
The Company has entered into an agreement with Video Applications Inc., of
Tustin, CA a company specializing in the corporate and promotional market.
The Company is delivering the following products intended for use in the film
and video market
DeepSee-TM- Studio Pro Converting film and video content from 2D to 3D for
creating 2D compatible 3D and custom '3D only' film and
video material.
COMPUTER ANIMATION
A growing number of productions, from IMAX(R) movies to theatrical films and
television programs are now being originated entirely from computer graphics
with no live action or filmed components. Examples include Pixar's `Toy Story',
Dreamworks' `Antz' and Disney's `A Bug's Life'. IMAX(R) recently concluded an
agreement with Mainframe Entertainment Inc. to bring computer animated 2D
productions to the IMAX(R) screen.
Computer animated productions are created from detailed computer models of the
characters and scenery. Sophisticated animation tools create wire frame
representations of the characters and objects onto which highly detailed
computer graphic images are placed. This creates realistic scenes making it
difficult for the viewer to distinguish computer animation from live action
footage.
To create 3D animation, present day techniques require the graphic artist to
recreate a second `stereo' 3D frame by re-rendering each scene from the computer
a second time. This more than doubles the time taken to create the 3D production
compared with the original 2D version.
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DeepSee-TM- Studio Pro is capable of creating highly accurate depth cues
directly from wire frame models, with minimal operator involvement. Once the
data is created, the second stereo 3D frame can be generated much more
efficiently. By combining the depth cue with the existing 2D image, the graphic
artist may fine tune the 3D effect of each scene without the need to render two
frames. This significantly reduces the time taken to create the stereo 3D
equivalent.
In a back to back comparison of the process, a conventional render of a 3D
computer animated scene took almost 20 hours whereas the DeepSee-TM- Studio Pro
toolkit required 2.5 hours to produce the same results.
Due to the largely automated performance efficiencies of creating 3D computer
animation with DeepSee-TM- Studio Pro, the Company has identified this as a
rapid route to market for the delivery of 2D compatible 3D media. The converted
3D productions will be supplied for film, broadcast and Internet use delivered
via the Company's proprietary 3D transmission technologies.
The Company is delivering the following products intended for use in the
computer animation market
DeepSee-TM- Studio Pro Converting computer animated content from 2D
to 3D for creating 2D compatible 3D DVD, Internet or
Broadcast media or custom `3D only' film and video
material.
VIDEO GAMES
Since the mid 1990's, the visual quality of computer graphics available on the
consumer PC and games console platforms has increased dramatically with graphics
processor capabilities doubling annually. There has been substantial growth in
the market for high quality interactive computer games. Recently, the DVD-ROM
has emerged as the alternative to distributing games on CD-ROM. The DVD stores
enough video and audio material to play back a feature length movie. This is
significant since blockbuster Hollywood films are often licensed as video games
where the gameplay takes place in scenes from the film.
The latest generation of consumer PCs from Compaq, Gateway, Hewlett Packard and
others are equipped with DVD-ROM drives that can read data from both CD-ROM and
DVD-ROM discs. Peripheral suppliers such as Creative Labs are already delivering
low priced DVD-ROM drives as add-ons to existing PCs.
DeepSee-TM- Studio Pro allows video from blockbuster films to be digitally
processed using advanced proprietary algorithms, and to create depth cue
information for each frame of the background scenery. The games developer may
then edit the depth cue to ensure that the optimal depth cue is created. The
depth data is then highly compressed and inserted back into the DVD video signal
along with the original, unaltered 2D version of the background scenery.
The solution offers a scaleable benefit to the games software publishers. The
games application reads the depth cue data from the DVD providing the game with
knowledge about the `passive' background scenery. The games application may
generate correctly scaled and positioned characters and objects with which the
player is interacting and insert them into a 2D live action background
dynamically. The same depth data can optionally be used to generate a 3D version
of the game.
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This allows the game player to experience a visually richer game than can
currently be played in 2D or 3D. Game characters appear in 2D live action
backgrounds played directly from the DVD, freeing up the graphics processor to
generate more compelling game characters and objects.
The Company is delivering the following products intended for use in the video
games market
DeepSee-TM- Viewer Decoding depth cue data from DVD using a PC
software application.
DeepSee-TM- Studio Pro Processing video content for creating depth
cue encoded DVD discs.
PROFESSIONAL AUDIO VISUAL
The Company intends to introduce the Video Processor hardware technologies in 2D
and 3D applications for professional audio visual ("A/V") use. The professional
A/V markets include 3D projection systems, home theater, video played on
Personal Computer screens and depth cue decoder accessories for use with DVD
players and broadcast set top boxes.
The Company has engineered a digitally reprogrammable platform based upon a
Field Programmable Gate Array (FPGA). This provides a flexible underlying
platform with the added advantage that any functionality attained using the FPGA
can be easily transferred to create a highly customized Application Specific
Integrated Circuit (ASIC) chipset.
DEPTH CUE DECODING FOR SET TOP BOXES, DVD PLAYERS AND ACCESSORIES
Certain implementations of DeepSee-TM- Viewer restrict the ability to use a
software application to decode depth cue data. These include adding decoder
capabilities to existing set top boxes, DVD players and MPEG cards used to play
video from DVD discs on PCs. To address this requirement, the Company has
developed a hardware-based depth cue decoder. This allows the decoding of DDD's
proprietary depth cue data from depth cue encoded media via hardware alone.
This hardware based depth cue decoder may be embedded in chip sets of digital
and analog set top boxes, set top box accessories, DVD players, DVD player
accessories and PC MPEG cards.
The Company intends to license the hardware chip to Broadcast Set Top Box, DVD
player and PC MPEG card manufacturers. Accessories for the current users of Set
Top Boxes and DVD players may be manufactured, ensuring consumers do not have to
replace existing technologies to obtain the benefits of 2D compatible 3D DVD
movies and television broadcasts.
3D PROJECTION SYSTEMS
For 3D projection systems there is the requirement to provide a separate video
feed of a left image and right image to each projector in order to create stereo
3D. Under normal circumstances this requires two accurately synchronized video
cassette players or DVD players.
The 3D Demultiplexer allows a single videocassette or DVD player to be used to
supply both video feeds, alleviating the complex synchronization requirements.
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3D media produced using DeepSee-TM- Studio Pro may be recorded onto a
videocassette tape or DVD in `field sequential' format. The demultiplexer
identifies the successive left and right eye images recorded sequentially on the
videotape or DVD and redirects the appropriate image to each projector.
This enables the Company to provide a cost-effective solution in the Special
Events, Promotions and Advertising market as well as to specialist 3D theaters.
REAL TIME 3D CONVERTER
Real time 3D conversion can be achieved through analyzing the motion
characteristics in a scene. An incoming video signal played from a VCR, DVD,
television broadcast or games console can therefore be viewed in 3D without the
need to pre-process the signal with depth cue information. Real time 3D can only
be created in a rudimentary manner based upon certain types of movement in a
scene and is therefore of a substantially lower quality than the depth cue based
3D created with DeepSee-TM- Studio Pro.
The Company has embedded some of the basic 2D to 3D conversion algorithms into a
hardware based real time 3D converter. This allows any conventional video signal
from videocassette, DVD, broadcast or video game console to be converted to a
simple form of 3D in real time.
The Company may release this solution as an accessory or add-on PC card in
markets where the DeepSee-TM- Studio Pro professional off-line conversion and
transmission technologies for broadcast and DVD use do not gain widespread
acceptance.
2D LINE DOUBLING FOR VIDEO SIGNALS
With the ever present advances in PC graphics processors and the recent
convergence of broadcast and Internet technologies, a number of PC manufacturers
now offer the ability to play back digitized streaming video, video cassette,
DVD and broadcast signals via the PC.
Many PC monitors are capable of displaying images of 800 x 600 lines of
resolution, considerably higher than that of a television set. When
videocassette tapes or DVDs are played on a PC monitor, the image quality is
consequently that of a television set and therefore well below the display
capability of the PC monitor.
The Company has created a video processor capable of `line doubling' an incoming
video signal and displaying it on a PC monitor at a higher resolution and with
greater clarity. The video processor uses digital line interpolation algorithms
to create additional lines in the output signal based upon the comparison of
input line pairs to double the output resolution. This digitally synthesizes the
image to a higher resolution, approaching that of high definition television
(HDTV).
The Company intends to license the line doubler hardware to Broadcast Set Top
Box, PC monitor manufacturers and suppliers of electronic and digital projection
systems.
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ARCADE GAMES
The Company has developed a glasses-free `autostereoscopic' 3D projection
display targeted at the arcade video games industry. The 3D display creates an 8
foot image and presents this to the player in 3D using a patented head tracking
system without the need for the player to wear glasses or a headset.
The international arcade market is dominated by a small number of companies
including SEGA Enterprises, NAMCO, WMS Industries, Atari Games Corporation and
Konami. In this market, popular consumer games debut in out of home
entertainment complexes and theme parks prior to their release in the consumer
channel.
Today, consumers can acquire the latest generation of powerful PC graphics
processors where the visual differential between what a player can experience in
the family entertainment center and at home is considerably reduced. In order
for the operators of family entertainment centers to offer a differentiating
experience from the home, the Company offers the 3D Projection Display under
license to arcade game manufacturers.
The capability of playing a video game in true life like 3D, without impacting
on player throughput, and therefore the earning capacity of the game, is seen as
a considerable advantage in gaining acceptance with owners of family
entertainment centers and theme parks. The 8 foot 3D display yields an
experience that is not presently available at home.
The Company has demonstrated the 3D display system to the major international
manufacturers of arcade games including SEGA, Konami and NAMCO in Japan and
Atari Games Corporation in the United States. The 3D Projection Display was
launched at the 1998 International Association of Amusement Parks and
Attractions Show ("IAAPA") in Dallas, TX.
RESEARCH AND DEVELOPMENT
The Company's development efforts during 1998, 1997 and 1996 were devoted to the
design and development of its products and technologies. Total research and
development expense for 1998, 1997 and 1996 was approximately $1,021,500,
$957,700 and $567,000 respectively. The 1999 research and development plan calls
for approximately $1,280,000 in development costs. For the nine months ended
March 31, 1999, the Company incurred approximately $955,800 in research and
development costs.
GOVERNMENT REGULATION
The hardware products designed and intended for manufacture by the Company and
their licensees are subject to government regulation concerning electromagnetic
interference and electrical safety standards which will impose compliance
burdens on the Company. In the United States for example, non-prototype products
may be required to conform with Federal Communications Commission (FCC)
regulations governing electromagnetic radiation suppression and Underwriters
Laboratory (UL) approval for electrical safety standards. There can be no
assurance that the Company's products will be able to comply with such
regulations.
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In many countries where the Company's products may be sold, similar equivalents
to these standards exist such as CE in Europe and Canadian Standards Authority
(CSA) in Canada. The Company will submit products for testing to appropriate
local specifications in each case where this is a prerequisite to marketing the
product in the country concerned. There can be no assurance that the Company's
products will be able to comply with such regulations.
The technology contained in the Company's products may be subject to United
States export restrictions. While the Company does not believe that any of its
current products are subject to the restrictions, there can be no assurance that
such export controls, either in their current form or as may be subsequently
enacted, will not delay introduction of new products or limit the Company's
ability to distribute products outside of the United States. Further, various
countries may regulate the import of certain technologies contained in the
Company's products. Any such export or import restrictions, new legislation or
regulation or government enforcement of existing regulations could have a
material adverse effect on the Company's business, operating results and/or
financial condition. There can be no assurance that the Company will be able to
comply with additional applicable laws and regulations without excessive cost or
business interruption, if at all, and failure to comply could have a material
adverse effect on the Company.
Under the Australian Customs Act 1901 part VI "the exportation of goods division
1 - prohibited exports" the Governor General may by regulation prohibit the
exportation of goods from Australia absolutely, in specified circumstances, to a
specified place or unless specified conditions or restrictions are complied
with. Without limiting the generality of that power of prohibition the
regulations may provide that the exportation of the goods is prohibited unless a
license, permission, consent or approval has been granted. The Customs
(Prohibited Exports) Regulations by regulation 13E provide that an officer of
Customs or the Department of Defense may grant a license or permission to export
from Australia goods listed in the Defense and Strategic Goods List ("DSGL").
The exportation from Australia of goods specified in the DSGL is prohibited
unless a license or permission in writing has been granted by an authorized
person. The only categories of goods listed in DSGL which appear to have any
potential relevance to the technology of the Australian subsidiaries of the
Company are goods having a dual use (military/civilian) being certain types of
software as listed. None of the Company's technology falls into any of the
categories of software currently listed in the DSGL.
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COMPETITION
The market for digital media manipulation and stereoscopic 3D display technology
is rapidly evolving, highly competitive and recently characterized by the
frequent introduction of new products based upon rapidly developing
technologies.
In order to understand where the Company believes competition will occur, it is
first necessary to differentiate `stereoscopic' 3D from the heavily marketed
term "3D" used extensively in the present-day video game and PC software
markets. Enhanced or "stereoscopic 3D", as created by the Company's Dynamic
Depth Cueing process, allows the viewer to see the images in lifelike 3D by
adding the appearance of depth to the image. Stereoscopic 3D involves displaying
two or more slightly different left and right eye views of the image which the
viewer then perceives to be a `real' 3D image with enhanced depth. The benefit
of stereoscopic 3D is that it provides a visually richer image to the viewer
allowing objects and characters to appear behind the surface of the display
screen and also, importantly, to appear to move off the screen towards the
viewer under certain circumstances.
The term `3D' as it is used in today's video game and PC software markets simply
implies that a three dimensional computer graphics model of a character or
object is created by the computer. This allows the viewer to see the object from
a number of viewpoints as they navigate around it or manipulate it on screen.
The object is generally viewed in 2D however. In light of this difference, the
Company does not believe that its products and services compete with the
majority of "3D" based products.
A number of the organizations with which the Company may compete are
well-established manufacturers and developers of video hardware and software
publishers. Some of the Company's competitors possess substantially greater
financial, marketing, personnel and other resources than the Company, have
established reputations relating to product design, development, manufacture,
marketing and service of digital media manipulation and stereoscopic 3D display
products and have significant budgets to permit them to implement extensive
advertising and promotional campaigns to market new products in response to
competitors.
Competition to the Company's 2D to 3D DeepSee-TM- conversion technologies also
comes from the origination of 3D film, videos and live broadcasts using 3D
cameras. A number of films and movies have been created using conventional 3D
camera equipment, however it is the complex equipment and time consuming
techniques that deter most film makers from creating 3D productions.
The Company's objective is to deliver content that can be viewed in 2D or 3D.
The Company anticipates that the unique 2D compatible 3D nature of the
transmission process will allow 3D films to be processed and delivered in 2D
compatible 3D format. The Company therefore views the 3D origination of content
as complementary to providing a solution to creating 3D content.
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The Company expects that competition to its proprietary hardware and software
solutions may come from a number of existing and emerging sources that vary
between the following markets.
<TABLE>
<S> <C>
PC/Internet Provision of 2D compatible 3D media via the Internet
Broadcast Television Provision of 2D compatible 3D broadcast media
DVD Movies 2D compatible 3D movies for Digital Versatile Disc (DVD)
Movie Films Conversion of 2D films to 3D for theatrical release
Computer Animation Simplifying the process of creating computer generated 3D movies
Video Games Creating enhanced visual quality for DVD based video games
Professional Audio Visual Professional video processor and 3D display technologies
Arcade Games 3D arcade display
</TABLE>
COMPETITION IN THE PC/INTERNET MARKET
Competition to the Company's products and solutions in the PC/Internet market
may come in any of the following areas:
- - Conversion of photographic images from 2D to 3D for display in 3D on PCs
- - Conversion of streaming video and movies from 2D to 3D for display in 3D on
PCs
- - Low bandwidth encoding of 3D images to allow display in 2D or 3D
PHOTOGRAPHIC IMAGES
The Company is aware of a small number of organizations based in the United
States and Asia who offer technologies capable of converting photographic images
to 3D. These companies include Wooboo and APEC based in Korea and Taiwan
respectively and VREX based in the United States. These competitive products
presently suffer from a number of drawbacks that deliver images of lower quality
than those created by DeepSee-TM-. APEC and Wooboo use rudimentary pixel
shifting techniques that can produce distorted 3D versions of 2D images while
VREX appear to only be able to create 3D from pictures captured with a 3D camera
or originated using computer graphics modeling packages. The Company's
DeepSee-TM- software conversion products are capable of manipulating existing 2D
images with a high degree of accuracy. This delivers high quality, low
distortion 3D images that may be created from 2D photographs or 3D computer
models.
STREAMING VIDEO AND MOVIES
The Company is only presently aware of one organization, Synthonics Inc., a
United States company, whose technology could be applied to converting streaming
video and movie files to 3D. The Synthonics technique involves constructing a
computer wire frame model from a 2D image and utilizing this to create a stereo
3D image. This technology requires a minimum of two images from which to create
the 3D image therefore allowing it to be used on successive frames of a movie or
video. The Company believes that the requirement to create a wire frame model
from a comparison of two images makes the Synthonics process less efficient than
the depth cueing process employed in DeepSee-TM-.
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2D COMPATIBLE 3D TRANSMISSION AND DELIVERY
The Company has seen demonstrations of a number of compression and encoding
techniques for the delivery of 3D broadcast programming. None of these have
taken the approach of delivering 2D compatible 3D media by compressing the 3D
data and reinserting it into the original unaltered 2D image for subsequent
distribution. This technique is subject of a number of patents applied for by
the Company covering use in both the analog and digital broadcasting markets.
The majority of techniques used to deliver 3D media involve the delivery of
3D-only images such as those used by US 3D broadcasting company C3Digital, of
Salt Lake City, UT and 3D display manufacturer Visualabs of Calgary, Canada. The
3D-only field sequential transmissions offered by C3D Digital can only be viewed
with a proprietary decoder box and are not viewable in 2D on standard television
sets. The 3D signal used by the Visualabs 3D display is 2D compatible, however
it is proprietary to the decoder in the Visualabs display and may not be viewed
in 3D on a conventional television set. Alternative techniques produce 3D-only
images that are at best 15% larger than their 2D equivalents whereas the
compression techniques used in DeepSee-TM- typically deliver images that are 1%
larger than their 2D counterpart and may be viewed in 2D or 3D.
COMPETITION IN THE BROADCAST MARKET
Competition to the Company's products and solutions in the Broadcast market may
come in any of the following areas:
- - Conversion of broadcast quality video and movies from 2D to 3D for display
in 3D on televisions
- - Low bandwidth encoding of 3D images to allow broadcast transmission and
display in 2D or 3D
- - Real time conversion of broadcast video signals to 3D at the viewpoint. (See
Professional Audio Visual: Real Time Converter)
CONVERTING 2D BROADCAST CONTENT INTO 3D
As described in the PC/Internet Streaming Video and Movies section, Synthonics
Inc. can convert certain material from 2D to 3D. This technology could be
applied to conversion of 3D-only broadcast content.
2D COMPATIBLE 3D TRANSMISSION AND DELIVERY
The Company has seen demonstrations of a number of compression and encoding
techniques for the delivery of 3D broadcast programming. None of these have
taken the approach of delivering 2D compatible 3D media by compressing the 3D
data and reinserting it into the original unaltered 2D image for subsequent
distribution. This technique is subject of a number of patents applied for by
the Company covering use in both the analog and digital broadcasting markets.
The majority of techniques used to deliver 3D media involve the delivery of
3D-only images such as those used by US 3D broadcasting company C3Digital, of
Salt Lake City, UT and 3D display manufacturer Visualabs of Calgary, Canada.
These 3D-only transmissions can only be viewed with a proprietary decoder box
and are not viewable in 2D on standard television sets. Alternative techniques
produce 3D-only images that are at best 15% larger than their 2D equivalents
whereas the compression techniques used in
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DeepSee-TM- typically deliver images that are 1% larger than their 2D
counterpart and may be viewed in 2D or 3D.
REAL TIME 3D CONVERSION AT THE VIEWPOINT
A small number of companies offer devices capable of providing rudimentary 3D
images on television sets. They use motion analysis of the incoming video signal
to give the appearance of 3D depth to a scene. Consequently, the 3D effect
produced is inconsistent and non-existent for scenes with no movement
characteristics present. C3Digital markets these devices to consumers to enable
them to convert any television program to 3D. C3Digital also uses a real time
converter to create 3D-only broadcast material for distribution to their 3D
channel subscribers. Due to the inherent drawbacks of real time 3D generation,
the off-line 3D conversion process offered by DeepSee-TM- provides a more
comprehensive 3D result and allows the content owner to exercise full control
over the 3D effect in each scene, including those with no movement
characteristics present.
COMPETITION IN THE DVD MOVIE MARKET
Competition to the Company's products and solutions in the DVD market may come
in any of the following areas:
- - Conversion of broadcast quality video and movies from 2D to 3D for display
in 3D on televisions
- - Low bandwidth encoding of 3D images to allow delivery on DVD and display in
2D or 3D
- - Real time conversion of broadcast video signals to 3D at the viewpoint. (see
Professional Audio Visual : Real Time 3D Converter)
CONVERTING 2D DVD VIDEO CONTENT TO 3D
As described in the PC/Internet Streaming Video and Movies section, Synthonics
Inc. can convert certain material from 2D to 3D. This technology could be
applied to conversion of 3D-only DVD video content.
2D COMPATIBLE 3D DVD DELIVERY
The Company is not aware of any organization that is presently endeavoring to
deliver 2D compatible 3D DVD discs. This technique is subject of a number of
patents applied for by the Company. The Company is aware of a number of encoding
techniques for the delivery of 3D-only DVD movies. None of these have taken the
approach of delivering 2D compatible 3D media by compressing the 3D data and
reinserting it into the original unaltered 2D image for subsequent distribution.
These 3D-only DVDs can only be viewed with a proprietary decoder box and are not
viewable in 2D on standard television sets.
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REAL TIME 3D CONVERSION AT THE VIEWPOINT
As described in the Broadcasting, Real Time 3D Conversion at the Viewpoint
section, a small number of companies provide real time 3D converters capable of
providing rudimentary 3D images from video signals. These can be used with DVD
players.
COMPETITION IN THE FILM MARKET
Competition to the Company's products and solutions in the Film market may come
from the conversion of 35 or 70mm movies from 2D to 3D.
The Company is aware that, in addition to Synthonics, Inc., IMAX(R) Corporation
of Toronto, Canada is endeavoring to deliver a solution for converting 2D film
to 3D. The IMAX(R) process, as demonstrated at a recent industry conference,
uses techniques that require certain movement characteristics in the scene to
achieve a 3D effect. The sophisticated 3D algorithms employed in DeepSee-TM-
Studio Pro are not limited in this manner, and therefore offer greater
capabilities to film makers at this time.
IMAX(R) Corporation is also heavily involved in the sponsorship of 70mm 3D films
for which it provides custom 3D camera equipment, leased to film makers. As
previously identified, the size and technical limitations of 3D camera equipment
prevents film makers from capturing certain shots. The use of a 2D camera in
conjunction with the DeepSee-TM- process removes such restrictions from film
producers.
The Company is not aware of any instance where the Synthonics process has been
used to convert 35 or 70mm film to 3D.
COMPETITION IN THE COMPUTER ANIMATION MARKET
Competition to the Company's products and solutions in the Computer Animation
market may come from the present day approach of creating stereo 3D from
computer graphic wire frame models. Animation packages are used to produce
content ranging from IMAX(R) movies to PC streaming video. 3D productions
including `T-Rex Back to the Cretaceous' and `Encounter in the Third Dimension'
have been created using these techniques.
Users of many 3D computer graphic modeling packages may produce stereo 3D images
of an existing production. Presently, this process is time consuming, since it
requires a second image to be rendered from the wire frame models. The rendering
stage is processor intensive and time consuming, doubling the time taken to
create the 3D version in comparison to the 2D counterpart. The DeepSee-TM-
process allows a depth cue to be automatically created from wire frames. The
Depth Cues may then be used to create the stereo 3D image without requiring a
full render of a second image. This substantially reduces the time taken to
produce the stereo 3D image in comparison to the time taken using conventional
techniques.
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COMPETITION IN THE VIDEO GAME MARKET
Competition to the Company's products and solutions in the Video Game market may
come from any of the following areas:
- - Extraction of depth cues from streaming video and movies for compositing and
display in 3D on PCs
- - Low bandwidth encoding of depth cue data on DVD disc to allow display in 2D
or 3D
The Company is aware of two organizations, Synthonics Inc. and Synapix Inc., two
United States companies, whose technology could be applied to extracting depth
cue information from video material. The Synapix technique involves constructing
a depth cue from a 2D image and utilizing this to facilitate compositing. This
technology requires a minimum of two images from which to create the depth cue
therefore allowing it to be used on successive frames of a movie or video.
As described in the PC/Internet Streaming Video and Movies section, Synthonics
Inc. can convert certain material from 2D to 3D. This technology could be
applied to conversion of 3D-only video content.
In all the products identified as potential competitors to the Company's media
conversion capabilities, none have taken the approach of delivering 2D
compatible 3D media by compressing the 3D data and reinserting it into the
original unaltered 2D image for subsequent distribution. This technique is
subject of a number of patents applied for by the Company.
COMPETITION IN THE PROFESSIONAL AUDIO/VISUAL MARKET
The Company produces four products intended for use in the Professional Audio
Visual market.
DEPTH CUE DECODING FOR SET TOP BOXES, DVD PLAYERS AND ACCESSORIES
The Company's depth cue data format is proprietary to the Company and subject to
patent applications filed by the Company. The Company is aware of no other
organization presently offering or planning to offer a hardware based depth cue
decoder for 3D image generation under license or otherwise.
3D PROJECTION SYSTEMS
A number of organizations presently supply 3D Demultiplexer hardware systems.
These include VRex and QD Technologies, two United States organizations. These
hardware systems are offered in a variety of specifications that offer
equivalent performance to those offered by the Company.
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REAL TIME 3D CONVERTER
Sanyo Corporation offers a real time converter that is marketed in the medical
imaging market in the United States. A similar product is marketed by C3D
Digital as a real time converter for use with videocassettes and DVD players in
the United States. These hardware systems are offered in a variety of
specifications that offer equivalent performance to those offered by the
Company. Since real time 3D can only be created in a rudimentary manner based
upon certain types of movement in a scene it is therefore of a substantially
lower quality than the depth cue based 3D created with DeepSee-TM- Studio Pro.
2D LINE DOUBLING FOR VIDEO SIGNALS
A number of organizations including Faroudja, Vidikron, DWIN, Runco and QD
Technologies manufacture and license line doubling and quadrupling technologies.
These are aimed at the professional audio visual and home theater markets. These
hardware systems are offered in a variety of specifications that offer
equivalent performance to those offered by the Company.
COMPETITION IN THE ARCADE GAME MARKET
Competition to the Company's products and solutions in the Arcade Game market
may come from any company offering the display of 3D images.
A number of 3D display technologies are available in the arcade game industry
including virtual reality headsets and 3D display screen lenses. Virtual Reality
game participation requires the player to wear a headset. This is seen as a
deterrent to some players for health and safety reasons as well as a process
that reduces player throughput as the headset is put on and taken off between
each game. The unique, patented headset free head tracking technology used in
the Company's 3D projection display is seen as a major advantage over virtual
reality headsets since it does not compromise player throughput.
3D glasses free display lenses have recently been previewed at video game shows
however they suffer from image distortion since they employ curved display
lenses. The Company is not aware of any glasses-free display lens that has been
introduced in an arcade product. None of the 3D glasses free lenses offer a
giant display screen possible with the Company's 3D projection display system.
EMPLOYEES
As of July 1, 1999, the Company had 20 employees, 12 of whom are engaged in
engineering, research and development, 3 of whom are engaged in marketing and
sales activities and 5 of whom are in administration. The Company also contracts
the services of qualified hardware and software engineers on a project by
project basis. For 2D to 3D media conversion services, the Company has trained
12 computer operators who work under contract to the Company on a project by
project basis. None of the Company's employees is represented by a labor union.
The Company considers its employee relations to be satisfactory.
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BUSINESS RISKS
This Registration Statement contains forward-looking statements which involve
risks and uncertainties. When used in this filing, the words "may," "will,"
"expect," "anticipate," "believe," "continue," "estimate," "project," "intend,"
and similar expressions are intended to identify forward-looking statements
regarding events, conditions and financial trends which may affect the Company's
future plans of operations, business strategy, operating results and financial
position. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any revision of these
forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events. Such
statements are not guarantees of future performance and are subject to risks and
uncertainties and actual results may differ materially from those included
within the forward-looking statements as a result of certain factors, including
those set forth in the following risk factors and elsewhere in this Registration
Statement. In addition to the other information in this Registration Statement,
the following risk factors should be considered carefully in evaluating the
Company and its business.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; EXPLANATION OF GOING CONCERN
An investment in the Company should be viewed in light of the risks and
uncertainties inherently faced by a company in the early stages of development,
particularly given the evolving and highly competitive technology market in
which the Company competes. The Company concluded its reorganization and
commenced operations in respect of the 3D display technology in May 1994 and has
incurred net losses in each quarter since its reorganization. As to date the
Company has been engaged in product research and development and establishing
its technology development strategy. The Technologies are just beginning to
become available for marketing release and licensing. Accordingly, the Company
has a limited operating history on which an evaluation of the Company's
prospects can be made. The Company and its prospects must be considered in light
of the risks, expenses and difficulties frequently encountered in the
establishment of a business in an industry with evolving standards, and the
development and commercialization of new products based on innovative
technology.
The Company incurred net losses of approximately $1,222,900, $1,599,100 and
$2,062,400 million in Fiscal 1996, 1997 and 1998, respectively, and
approximately $2,300,900 for the nine months ended March 31, 1999. As of March
31, 1999, the Company had an accumulated deficit of approximately $7,936,600. In
addition, the Company intends over time to continue its level of expenditures in
the areas of research and development and increase its level of expenditures in
the areas of sales and marketing. As a result, the Company anticipates that it
will incur net losses for the foreseeable future, and there can be no assurance
that the Company will ever become profitable. There can be no assurance that the
Company's revenues will increase in future periods, that the Company will become
profitable, if at all, on a quarterly or annual basis in the future or that any
such profitability can be sustained.
To the extent that funds generated from operations, existing working capital
resources and the proposed financing discussed above are insufficient, the
Company will have to raise additional working capital. No assurance can be given
that additional financing will be available, or if available, will be on terms
acceptable to the Company. If adequate working capital is not available, the
Company may be required to curtail its operations.
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Due to these uncertainties, the reports of the Company's independent auditors
for the years ended June 30, 1998, 1997 and 1996 contain an explanatory
paragraph as to the substantial doubt about the Company's ability to continue as
a going concern. The Company's long-term viability and growth will depend upon
the successful commercialization of its technologies and its ability to obtain
adequate financing, as to which there can be no assurances.
ADDITIONAL CAPITAL REQUIREMENTS
The Company requires substantial working capital to fund its business,
particularly in light of its expected continued operating losses. Although the
Company believes its existing cash balances and cash flow expected to be
generated from future operations, should be sufficient to meet the Company's
working capital requirements for at least six (6) months, there can be no
assurance that such funds will be sufficient. To the extent that such funds are
insufficient to finance the Company's working capital requirements, the Company
will be required to raise additional funds through private or public equity or
debt financing. Such additional financing could result in dilution to existing
stockholders. There can be no assurance that the additional equity or debt
financing, if required, will be available on acceptable terms, on a timely basis
or at all. In the event that additional financing is unavailable, the Company
may be required to reduce its sales and marketing efforts.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; LENGTHY SALES CYCLE
The Company's operating results have fluctuated significantly in the past, and
are likely to continue to fluctuate in the future, on a quarterly and on an
annual basis as a result of a wide variety of factors, many of which are beyond
the Company's control. Certain factors that may affect the Company's operating
results in the future include demand for the Company's products and services;
size and timing of specific sales; level of product and price competition;
timing and market acceptance of new product introductions and product
enhancements by the Company and its competitors; changes in pricing policies by
the Company or its competitors; the Company's ability to hire, train and retain
personnel; the length of sales cycles; the Company's ability to establish and
maintain strategic relationships with third parties; delay of customer purchases
caused by announcement of new technology or otherwise; mix of distribution
channels through which products are sold; changes in the Company's sales force
incentives; software defects and other product quality problems; personnel
changes; changes in the Company's strategy; general domestic and international
economic and political conditions; economic conditions specific to the Internet,
Internet media and cable television industries; and budgeting cycles of the
Company's customers. As a result of the foregoing and other factors, including
the factors identified below, the Company anticipates that it may experience
material fluctuations in operating results on a quarterly basis.
Sales of the Company's products generally require the Company to engage in a
relatively lengthy sales effort. As a result of the length of its sales cycle,
the Company has a limited ability to forecast the timing and amount of specific
sales. Because the timing of individual sales is difficult to predict, large
individual sales may occur in quarters other than those anticipated by the
Company. Any shortfall from anticipated revenues could result in significant
variations in operating results from quarter to quarter. The Company's business,
operating results and financial condition could be materially adversely affected
by any revenue shortfall in a particular quarter.
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Based on the risk identified in this and other risk factors contained herein,
the Company believes that future revenues, expenses and operating results are
likely to vary significantly from period to period. In particular, because the
Company is at an early stage of development, period to period comparisons of
operating results are not necessarily meaningful or indicative of future
performance.
DEPENDENCE ON OTHERS TO INTRODUCE, MARKET AND PROMOTE DDD-BASED PRODUCTS AND
SERVICES FOR INFORMATION APPLIANCES
To date, DDD-based products and services have only been used in connection with
the conversion of 35mm and 70mm film and professional video media and computer
animations from 2D to 3D. For DDD-based products and services to gain widespread
market acceptance and for the Company to succeed, the Company must enter into
customer agreements with a number of companies in a variety of industries,
including but not limited to Cable Television Operators, Internet Content
Providers, Graphic Software Publishers, Photographic Image Processors, Web
Developers, Television Content Providers, Film Content Providers and Film
Library Owners. Such companies must successfully introduce, market and promote
DDD-based products and services for the markets in which they operate.
Although the Company's success depends on the successful and timely introduction
of DDD-based products and services by its customers, none of the Company's
customers are contractually obligated to introduce, market or promote DDD-based
products and services nor are any of the Company's customers contractually
required to achieve any specific introduction schedule. The Company's failure to
enter into customer agreements with additional customers or the failure of the
Company's customers to timely and successfully introduce, market and promote
DDD-based products and services for the markets in which they operate or the
failure of DDD-based products and services to gain widespread market acceptance
would have a material adverse effect on the Company's business, operating
results and financial condition.
DEPENDENCE ON HARDWARE MANUFACTURERS
Because the Company does not intend to manufacture hardware components, but
instead to license its technology to Set Top Box Manufacturers, PC Peripheral
Manufacturers, DVD Player Manufacturers and Digital Camera/Camcorder
Manufacturers, the Company's success will depend, in part, upon its ability to
enter into agreements with various hardware manufacturers to manufacture
products incorporating the Company's technology, and upon the successful
introduction and commercial acceptance of such products into the market. The
Company does not anticipate that agreements with any of these manufacturers will
require the manufacturers to manufacture or distribute products incorporating
the Company's software platform into products. The failure of the Company to
enter into agreements with manufacturers that incorporate the Company's software
into products that achieve broad market acceptance with consumers and businesses
will have a material adverse affect on the Company's business, operating results
and financial position.
COMPETITION
The market for the Company's products is new, competitive, subject to rapid
technological change and evolving standards and significantly affected by new
product introductions and other market activities of industry participants. The
Company believes competition will intensify as the markets it has targeted
develop and competitors focus on additional product and service offerings.
Increased competition could result in price reductions, fewer customer orders,
reduced gross margins, longer sales cycles and
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loss of market share, any of which would materially adversely affect the
Company's business, operating results and financial condition.
Many of the Company's existing and potential competitors have longer operating
histories, longer customer relationships, greater name recognition and
significantly greater financial, technical, sales and marketing and other
resources than the Company. Such competitors may be able to respond more quickly
to new or emerging technologies and changes in customer requirements or devote
greater resources to the development, promotion and sales of their products than
the Company. Further, current or potential customers may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing their ability to address the needs of the
Company's current or prospective customers. The Company's current or future
indirect channel partners may establish cooperative relationships with current
or potential competitors of the Company, thereby limiting the Company's ability
to sell its products through particular distribution channels. Accordingly, it
is possible that new competitors or alliances among current competitors may
emerge and rapidly gain significant market share. There can be no assurance that
existing or future competitors will not develop or offer technologies that
provide significant economic, technological, creative or strategic advantages
over those offered by the Company.
The Company's ability to retain its existing customers and attract new customers
depends on the quality of its products and services, the speed of its
technological developments, the price of its products and services, its quality
of marketing, its reputation in the industry and its ability to maintain
customer satisfaction. To that end, the Company must continue to develop
appropriate marketing solutions, incorporate new technological capabilities,
meet time sensitive deadlines and devise appropriate pricing strategies. To the
extent that the Company's competitors are perceived as providing superior
products and services, or to the extent that the Company's customers are
dissatisfied with the Company's products and services, the Company's business,
operating results and financial condition could be materially adversely
affected.
RAPID TECHNOLOGICAL CHANGE; RISKS ASSOCIATED WITH PRODUCT DEVELOPMENT,
INTRODUCTIONS AND ANNOUNCEMENTS
The market for the Company's products is characterized by evolving industry
standards, rapid technological change and frequent new product introductions and
enhancements. A key component of the Company's business is to enable businesses
to deliver a new generation of interactive digital content and applications to
users. Accordingly, some of the Company's success will depend upon its ability
to adhere to and adapt its products to evolving Internet, DVD and broadcast
protocols and standards so that users may obtain popular content.
The Company's operating results will therefore depend to a significant extent on
its ability to successfully develop and introduce new products that meet
changing customer requirements and emerging industry standards on a timely basis
and to reduce costs of existing products. There can be no assurance that the
Company's current or future products will achieve market acceptance or that the
Company will successfully identify new product opportunities and develop and
bring new products to market in a timely manner, that products developed by
others will not render the Company's products or technologies obsolete or
noncompetitive, or that the Company's products will be selected for design into
the products of manufacturers. The failure of any of the Company's product
development efforts
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could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company may experience delays in completing development and introduction of
new software products. In addition, from time-to-time, the Company or others may
announce products, features or technologies that have the potential to shorten
the life cycle of or replace the Company's then-existing products. Such
announcements could cause existing and potential customers to defer the decision
to buy or determine not to buy the Company's products, and such decisions would
have a material adverse effect on the Company's business, operating results and
financial condition.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
The company relies primarily on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary technology. In addition, the company has several patent
applications pending. there can be no assurance that any patents will be issued
pursuant to these applications or that, if granted, such patents would survive a
legal challenge to their validity or provide significant protection for the
company. The company has also taken steps to avoid disclosure of its trade
secrets, including adopting a corporate policy on confidentiality that applies
to all employees, requiring non-employees with access to proprietary information
to enter into written confidentiality agreements with the company and
contractually restricting customer access to the company's source code.
Despite the Company's efforts to protect its proprietary rights, there can be no
assurance that the steps taken by the Company will be adequate to deter
misappropriation of its proprietary information, that the Company will be able
to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights or that the Company's competitors will not
independently develop similar technology. In addition, the laws of many
countries do not protect the Company's proprietary rights to as great an extent
as do the laws of the United States. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology. Any
failure by the Company to meaningfully protect its intellectual property could
have a material adverse effect on the Company's business, operating results and
financial condition.
In the future, the Company may receive notice of claims of infringement of other
parties' intellectual property rights. Although the Company does not believe
that its products infringe on the intellectual property rights of third parties,
there can be no assurance that such a claim will not be asserted against the
Company in the future, that the assertion of such a claim will not result in
litigation or that the Company would prevail in such litigation or be able to
obtain a license for the use of any infringed intellectual property from a third
party on commercially reasonable terms. Further, the Company acknowledges that
software product developers may increasingly be subject to infringement claims
as the number of products and competitors in the Company's industry segment
grows and the functionality of products in different industry segments overlaps.
RISK RELATED TO EVOLVING DISTRIBUTION CHANNELS
To date, the Company has sold its products and services principally through its
direct sales force. In the future, the Company intends to expand the number and
reach of its indirect channel partners through distribution agreements. These
indirect channels are intended to increase the proportion of the
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Company's customers licensed through indirect channels. The development of these
indirect channels will require the investment of significant Company resources,
which could materially adversely affect the Company's business, operating
results and financial condition if the Company's efforts do not generate
significant license revenues. There can be no assurance that the Company will be
able to attract strategic partners that will be able to effectively market the
Company's products and services. The failure to recruit strategic partners that
are able to successfully market the Company's products and services could
adversely affect the Company's business, operating results and financial
condition. In addition, if it is successful in selling products and services
through this channel, the Company's gross margins will be negatively affected
due to discounts offered to such strategic partners.
DEPENDENCE ON THE INTERNET
Market acceptance of the Company's products and solutions is partially dependent
upon the pervasive adoption of the Internet for entertainment. As is typical in
the case of an emerging industry characterized by rapidly changing technology,
evolving industry standards and frequent new product and service introductions,
demand for and market acceptance of recently introduced Internet products and
services are subject to a high level of uncertainty. In addition, critical
issues concerning the commercial use of the Internet remain unresolved and may
affect the growth of Internet use, especially in the enterprise and consumer
markets targeted by the Company.
The adoption of the Internet for entertainment and access to content,
particularly by those individuals and enterprises that have historically relied
upon alternative means of entertainment and access to content, generally
requires understanding and acceptance of a new way of conducting business and
exchanging information. In particular, enterprises that have already invested
substantial resources in other means of providing entertainment content may be
reluctant and slow to adopt a new strategy. If the market fails to develop or
develops more slowly than expected, or if market competition increases, the
Company's business, operating results and financial condition may be materially
adversely affected.
To the extent that the Internet continues to experience an increase in users, an
increase in frequency of use or an increase in the bandwidth requirements of
users, there can be no assurance that the Internet infrastructure will be able
to support the demands placed upon it. In addition, the Internet could lose its
viability as a commercial medium due to delays in development or adoption of new
standards or protocols required to handle increased levels of Internet activity,
or due to increased government regulation. Changes in, or insufficient
availability of, telecommunications or similar services to support the Internet
also could result in slower response times and could adversely affect use of the
Internet generally.
If use of the Internet does not continue to grow or grows more slowly than
expected, or if the Internet infrastructure, standards, protocols or
complementary products, services or facilities do not effectively support any
growth that may occur, the Company's business, operating results (attributable
to that portion of the Company's business derived from Internet based products
and services) and financial condition would be materially adversely affected.
RISK OF SOFTWARE DEFECTS
Software products as complex as those offered by the Company may contain defects
or failures that may be detected at any point in the product's life. The Company
may experience delays or lost revenue to correct such defects in the future.
Despite testing by the Company, errors may still be found in new
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products or releases of commercial shipment, resulting in loss of or delay in
revenues, loss of market share, failure to achieve market acceptance, diversion
of development resources and harm to the Company's reputation. Any such
occurrence could have a material adverse effect on the Company's business,
operating results and financial condition.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries or otherwise
be able to distinguish 21st century dates from 20th century dates. As a result,
in less than one year, computer systems and software used by many companies and
organizations in a wide variety of industries will experience operating
difficulties unless they are modified or upgraded to process information related
to the century change adequately. Significant uncertainty exists in the software
and other industries concerning the scope and magnitude of problems associated
with the century change.
The Company has recently implemented procedures to ensure that its software
products are Year 2000 compliant. Although the Company believes that its
products are substantially Year 2000 compliant, it will test and review its
products and continue to make additional enhancements to ensure all products are
Year 2000 compliant before December 31, 1999. However, there can be no assurance
that the Company will be successful in making its products fully Year 2000
compliant by such date or that actual internal or external personnel and
resources required to achieve such compliance will not materially exceed the
Company's current estimates.
In addition, the Company utilizes third-party equipment and software that may
not be Year 2000 compliant. Failure of such third-party equipment or software to
operate properly with regard to the Year 2000 and thereafter could require the
Company to incur unanticipated expenses to remedy any problems, which could have
a material adverse affect on the Company's business, operating results and
financial condition. Any failure by the Company to make its products Year 2000
compliant could result in a decrease in sales of the Company's products, an
increase in the allocation of resources to address Year 2000 problems of the
Company's customers without additional revenue commensurate with such dedication
of resources and an increase in litigation costs relating to losses suffered by
the Company's customers due to such Year 2000 problems.
Furthermore, the purchasing patterns of the Company's enterprise customers or
potential enterprise customers may be affected by Year 2000 issues as businesses
expend significant resources to correct their current systems for Year 2000
compliance. These expenditures may result in reduced funds available to purchase
products and services such as those offered by the Company, which could have a
material adverse affect on the Company's business, operating results and
financial condition.
The Company has conducted a preliminary review of its internal computer systems
to identify the systems that could be affected by the Year 2000 issue. Based on
this preliminary review, the Company has determined that certain of its internal
systems are not currently Year 2000 compliant. The Company has developed a plan
to make such systems compliant before December 31, 1999. If the Company fails to
make such systems Year 2000 compliant before December 31, 1999, or if the cost
of making such systems Year 2000 compliant exceed the Company's preliminary
estimates, the Company's business, operating results and financial condition
could be materially adversely effected.
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MANAGEMENT OF GROWTH
The Company's rapid growth has placed, and is expected to continue to place, a
significant strain on the Company's managerial, operational and financial
resources. Moreover, the Company expects to significantly expand its operations
by, among other things, expanding the number of employees in professional
services, research and development and sales and marketing. This additional
growth will place a significant strain on its limited personnel, financial and
other resources. The Company's future success will depend, in part, upon the
ability of its senior management to manage growth effectively. This will require
the Company to implement additional management information systems, to further
develop its operating, administrative, financial and accounting systems and
controls, to hire additional personnel, to develop additional levels of
management within the Company, to locate additional office space in the United
States and internationally and to maintain close coordination among its
development, accounting, finance, sales and marketing, consulting services and
customer service and support organizations. The failure of the Company to manage
its future growth successfully would have a material adverse effect on the
Company's business, operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
The Company's future success depends in large part on the continued service of
its senior management and other key technical, sales and marketing personnel.
The loss of the services of any key employee could have a material adverse
effect on the Company's business, operating results and financial condition. If
one or more members of the Company's senior management or any of the Company's
key employees were to resign from the Company, particularly to join a competitor
or to form a competitor of the Company, the loss of such personnel and any
resulting loss of existing or potential customers to any such competitor could
have a material adverse effect on the Company's business, operating results and
financial condition. In addition, there can be no assurance that, in such an
event, the Company would be able to recruit personnel to replace such senior
management on terms that are acceptable to the Company. Further, the Company
maintains no key-person life insurance.
The Company's future success also depends to a significant degree on its ability
to attract, assimilate and retain highly qualified technical, sales and
management personnel. Competition for such personnel is intense and the process
of locating key technical, sales and management personnel with the combination
of skills and attributes required to execute the Company's strategy is often
lengthy. There can be no assurance that the Company will continue to attract,
assimilate and retain key personnel, and the failure to do so will have a
material adverse effect on the Company's business, operating results and
financial condition.
CONTROL BY EXISTING OFFICERS AND DIRECTORS.
The Company's executive officers and directors currently own an aggregate of
1,937,858 options, warrants and issued Common Shares, which represents
approximately 11% of the outstanding Common Shares as of the date hereof.
CONFLICTS OF INTEREST.
Certain of the directors and officers of the Company are also directors and/or
officers and/or shareholders of other high-tech companies, or of other companies
with whom the Company has contractual relations. If any conflicts arise whereby
directors have interests in companies or in business
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activities which are in competition with the business of the Company, such
conflicts will be subject to and governed by the laws applicable to directors
and officers in conflict of interest, including the procedures described in the
Business Corporations Act (Alberta).
DIVIDENDS.
All of the Company's available funds will be invested to finance the growth of
the Company's business and, therefore, investors cannot expect and should not
anticipate receiving a dividend on the Common Shares in the foreseeable future.
ENFORCEMENT OF CIVIL LIABILITIES.
As substantially all of the assets of the Company and its subsidiaries are
located outside of Canada, it may be difficult or impossible to enforce
judgments granted by a court in Canada against the assets of the Company and its
subsidiaries or the directors and officers of the Company resident outside of
Canada.
GOVERNMENT REGULATIONS; SAFETY ASPECTS.
The Company is commercially active in a number of countries with different
legislation pertaining to the regulation of the Company's products. Full
compliance in one jurisdiction is not a guarantee that products do not violate
regulations or exceed safety limits in other jurisdictions. Although the
Company's licensees are generally responsible for compliance with safety and
other laws in each country to which licensed products are supplied, there can be
no absolute guarantee that product liability can be isolated to the licensees of
the Company or that the Company's prototypes could not cause litigation in case
of accidental malfunction or breach of safety standards. There can be no
assurance that the claims against the Company can be successfully defended or
that the consequences of such litigation may not have a material effect on the
business or financial results of the Company.
CURRENCY FLUCTUATIONS.
The Company currently bills only in United States and Australian dollars with
its revenues and expenses, and its assets and liabilities recorded in its
subsidiary company's functional currency which are translated to Canadian
dollars for reporting purposes. Exchange rates for these currencies often
fluctuate in relation to the Canadian dollar and such fluctuations may effect
the Company's assets and liabilities when they are translated to Canadian
dollars. The Company does not currently engage in any hedging transactions in
international currencies.
PRODUCT SAFETY STANDARDS
Prior to introducing the hardware products in certain countries, the Company may
be required to submit products for testing to local electrical and
electromagnetic interference safety standards. Failure to be able to meet the
local safety standards may result in the Company not being approved to sell the
products in the country concerned. There can be no assurance that the Company
will be able to comply with such regulations.
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ITEM 2 DESCRIPTION OF PROPERTY
Dynamic Digital Depth Australia Pty. Ltd. ("DDD Australia Pty. Ltd.") entered
into an option deed on January 13, 1999 which provides DDD Australia Pty. Ltd. a
call option over a building comprising 1,711 square meters located at 6-8 Brodie
Hall Drive, Technology Park, Bentley, Western Australia. DDD Australia Pty. Ltd.
has paid a non-refundable option fee of A$500,000. The option is exercisable at
A$2,000,000 through November 1999. The option deed also provides a put option
between December 1, 1999 through December 14, 1999 whereby the owner may put the
building back to DDD Australia Pty. Ltd. at the exercise price.
DDD Australia Pty. Ltd. currently occupies 758 square meters of this building at
a cost of A$10,107 per month. DDD Australia Pty. Ltd. is actively seeking
purchasers for the building on a suite by suite basis. DDD Australia Pty. Ltd.
has received an offer to purchase the area DDD occupies for A$1,300,000. The
offer is conditional upon the offeror receiving financing and entering into a
lease with DDD Australia Pty. Ltd.
Dynamic Digital Depth Inc. maintains one office suite comprising approximately
1,000 square feet in California at an annual cost of U.S. $30,000. In order to
accommodate the planned expansion of the USA office, the Company is presently
seeking alternative premises of between 2,500 and 3,500 square feet. It is
anticipated that this new office space will replace the existing office suite at
an approximate annual cost of between U.S. $97,500 and $136,500.
ITEM 3 LEGAL PROCEEDINGS
On January 22, 1999 Angus Duncan Richards ("Richards") served a notice of
dispute on the Company related to the terms of a Consulting Agreement between
the Company and Richards. Richards alleges that the Company has breached the
Consulting Agreement through the failure to make payments to Richards out of the
gross annual income receipts and capital funds raised in connection with the
exploitation of certain technologies which Richards assisted to develop.
Richards also alleges that the Company has failed to use its best endeavors to
commercially exploit the technology. Richards also alleges that the certain
intellectual property which was assigned to Dynamic Digital Depth Research Pty.
Ltd. be returned to Richards The dispute is subject to arbitration for which no
date has been set. The Company refutes all of the allegations and intends to
rigorously defend this matter.
On December 18, 1998, Richards commenced litigation in The Court of Queen's
Bench of Alberta, Judicial District of Calgary, in Alberta, Canada seeking
monetary damages of $227,500 plus interest and court costs. Richards alleges
that the Company failed to permit him to exercise options to purchase 182,000
Common Shares at an exercise price $1.25 per share. The Company refused to
permit Richards to exercise the options based upon a determination that the
options had expired prior to Richards attempt to exercise the options. The
Company filed a Statement of Defense on February 10, 1999. The litigation is
currently in the discovery phase. The Company refutes all of the allegations and
intends to rigorously defend this matter.
ITEM 4 CONTROL OF REGISTRANT
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The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of July 20, 1999 by each person who,
to the knowledge of the Company, beneficially owned more than 10% of the Common
Stock.
<TABLE>
<CAPTION>
- --------------------------------- ------------------------------------- ---------------------------
NAME AND PLACE OF RESIDENCE NUMBER OF COMMON SHARES PERCENTAGE OF
OWNED OR CONTROLLED AS AT OUTSTANDING
THE EFFECTIVE DATE (1) COMMON SHARES
<S> <C> <C>
- --------------------------------- ------------------------------------- ---------------------------
- --------------------------------- ------------------------------------- ---------------------------
The Liverpool Limited 3,375,479 18.8%
Partnership
Bermuda
- --------------------------------- ------------------------------------- ---------------------------
- --------------------------------- ------------------------------------- ---------------------------
Westgate International, L.P. 3,375,480 18.8%
Cayman Islands
- --------------------------------- ------------------------------------- ---------------------------
</TABLE>
(1) Information as to beneficial shareholdings has been provided to the
Corporation by these beneficial shareholders. The general partners of these
beneficial shareholders are Liverpool Associates, Ltd. and Hambledon, Inc.
respectively. The Company has no information as to the identity of the limited
partners of these entities.
ITEM 5 NATURE OF TRADING MARKET
The Common Shares are listed and posted for trading on the ASE under the stock
symbol "DDE." The following table sets forth the high and low closing bid prices
on the ASE and the volume of Common Shares traded for each Fiscal quarter for
the period indicated. All financial figures are expressed in Canadian Dollars.
<TABLE>
<CAPTION>
FISCAL PERIOD HIGH (CAD$) LOW (CAD$) VOLUME
(JUNE 30 YEAR-END)
<S> <C> <C> <C>
1999
Fourth Quarter $3.80 $1.15 939,164
Third Quarter $1.50 $0.80 121,720
Second Quarter $2.05 $1.10 223,437
First Quarter $2.20 $1.65 886,478
1998
Fourth Quarter $2.25 $1.20 1,605,107
Third Quarter $1.90 $0.75 421,963
Second Quarter $2.00 $1.25 523,799
First Quarter $2.30 $1.15 852,689
</TABLE>
(prices and volume for periods prior to August 1998 have been restated to give
effect to a one-for-five reverse stock split)
On August 3, 1999, the closing bid price of the Common Shares on the ASE was
$6.50 per share.
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To the best of the Company's knowledge, as of June 28, 1999, 2,962,302 Common
Shares were held by 7 registered holders in the United States. The Common Shares
currently are not listed for trading on any securities exchange in the United
States. The Common Shares are not registered to trade in the United States in
the form of American Depository Receipts or similar certificates.
ITEM 6 EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
CANADIAN EXCHANGE CONTROLS
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends or other payments to non-residents. Dividends paid to United
States residents, however, are subject to a 15% withholding tax or a 5%
withholding tax for dividends paid in 1997 and thereafter, if the shareholder is
a corporation owning at least 10% of the outstanding voting shares of the
corporation pursuant to Article X of the reciprocal tax treaty between Canada
and the United States. (See "Item 7 -- Taxation")
Except as provided in the Investment Canada Act (the "Act"), which has
provisions that restrict the holding of voting shares by non-Canadians, there
are no limitations specific to the rights of non-Canadians to hold or vote the
Common Shares under the laws of Canada or the Province of Alberta, or in the
charter documents of the Company.
Management of the Company believes that the following general summary fairly
describes those provisions of the Act pertinent to an investment in the Company
by a person who is not a Canadian resident (a "non-Canadian").
The Act requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain thresholds to either notify, or file an application for
review with, Investment Canada, the federal agency created by the Act.
The notification procedure involves a brief statement of information about the
investment on a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.
If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.
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The following investments by non-Canadians are subject to notification under the
Act:
1. An investment to establish a new Canadian business; and
2. An investment to acquire control of a Canadian business that is
not reviewable pursuant to the Act.
The following investments by a non-Canadian are subject to review under the Act:
1. Direct acquisitions of control of Canadian businesses with assets
of $5 million or more, unless the acquisition is being made by a
World Trade Organization ("WTO") member country investor (the
United States being a member of the WTO);
2. Direct acquisitions of control of Canadian businesses with assets
of $160 million or more by a WTO investor;
3. Indirect acquisitions of control of Canadian businesses with
assets of $5 million or more if such assets represent more than
50% of the total value of the assets of the entities the control
of which is being acquired, unless the acquisition is being made
by a WTO investor, in which case there is no review;
4. Indirect acquisitions of control of Canadian businesses with
assets of $50 million or more even if such assets represent less
than 50% of the total value of the assets of the entities the
control of which is being acquired, unless the acquisition is
being made by a WTO investor, in which case there is no review;
and
5. An investment subject to notification that would not otherwise be
reviewable if the Canadian business engages in the activity of
publication, distribution or sale of books, magazines,
periodicals, newspapers, film or video recordings, audio or video
music recordings, or music in print or machine-readable form.
Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its direct or indirect Canadian parent
and an acquisition is indirect if it involves the acquisition of control of a
non-Canadian direct or indirect parent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of substantially all
of the assets of the Canadian business. No change of voting control will be
deemed to have occurred if less than one-third of the voting control of a
Canadian corporation is acquired by an investor.
A WTO investor, as defined in the Act, includes an individual who is a national
or a member country of the WTO or who has the right of permanent residence in
relation to that WTO member, a government or government agency of a WTO
investor-controlled corporation, limited partnership, trust or joint venture
that is neither WTO-investor controlled or Canadian controlled of which
two-thirds of its board of directors, general partners or trustees, as the case
may be, are any combination of Canadians and WTO investors.
The higher thresholds for WTO investors do not apply if the Canadian business
engages in activities in certain sectors such as uranium, financial services
(except insurance), transportation services or media activities.
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The Act specifically exempts certain transactions from either notification or
review. Included among this category of transactions is the acquisition of
voting shares or other voting interests by any person in the ordinary course of
that person's business as a trader or dealer in securities.
ITEM 7 TAXATION
CANADIAN TAXATION ISSUES
The following is a summary of the principal Canadian federal income tax
considerations generally applicable in respect of the Common Shares. The tax
consequences to any particular holders of Common Shares will vary according to
the status of that holder as an individual, trust, corporation or member of a
partnership, the jurisdiction in which that holder is subject to taxation, the
place where that holder is resident and, generally, according to that holder's
particular circumstances.
This summary is applicable only to holders who are resident in the United
States, have never been resident in Canada, hold their Common Shares as capital
assets and will not use or hold the Common Shares in carrying on business in
Canada.
The following general discussion in respect of taxation is based upon the
Company's understanding of the rules. No opinion was requested by the Company or
provided by its auditors and lawyers.
Generally, dividends paid by Canadian corporations to non-resident shareholders
are subject to a withholding tax of 25% of the gross amount of such dividends.
However, Article X of the tax treaty between Canada and the United States
reduces to 15% the withholding tax on the gross amount of dividends paid to
residents of the United States. A further reduction in the withholding tax rate
on the gross amount of dividends to 5% for dividends paid in 1997 and thereafter
where a United States corporation owns at least 10% of the voting stock of the
Canadian corporation paying the dividends.
A non-resident who holds Common Shares as a capital asset will not be subject to
taxes on capital gains realized on the disposition of such Common Shares unless
such Common Shares are "taxable Canadian property" within the meaning of the
Income Tax Act (Canada) and no relief is afforded under any applicable tax
treaty. The Common Shares would be taxable Canadian property of a non-resident
if, at any time during the five year period immediately preceding a disposition
by the non-resident of such Common Shares not less than 25% of the issued shares
of any class of the Company belonged to the non-resident, the person with whom
the non-resident did not deal at arm's length, or to the non-resident and any
person with whom the non-resident did not deal at arm's length.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal income
tax consequences that may apply to a "U.S. Holder" (as defined below) of Common
Shares. This discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury Department regulations
promulgated thereunder (the "Regulations"), published Internal Revenue Service
("IRS") rulings, published administrative positions of the IRS, and court
decisions that are currently applicable, any or all of which could materially
and adversely change at any time, possibly on a retroactive basis. In addition,
the discussion does not consider the potential effects, both adverse and
beneficial, of any proposed legislation which, if enacted, could be applied at
any time, possibly on a retroactive basis. The following discussion is not
intended to be, nor should it be construed to be, legal or tax advice to any
52
<PAGE>
holder or prospective holder of Common Shares. No opinion was requested by the
Company, or is provided by its lawyers and/or auditors, with respect to the
United States federal income tax consequences described in the following
discussion. Accordingly, holders and prospective holders of Common Shares should
consult their own tax advisors about the United States federal, state, local and
foreign tax consequences of purchasing, owning, and disposing of Common Shares.
U.S. HOLDERS
As used herein, a "U.S. Holder" includes a holder of Common Shares who is a
citizen or resident of the United States, a corporation or partnership created
or organized in or under the laws of the United States or of any political
subdivision thereof, certain defined trusts and estates, and any other person or
entity whose ownership of Common Shares is effectively connected with the
conduct of a trade or business in the United States. A U.S. Holder does not
include persons subject to special provisions of Federal income tax law, such as
tax-exempt organizations, qualified retirement plans, financial institutions,
insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers, non-resident alien individuals or foreign
corporations whose ownership of Common Shares is not effectively connected with
the conduct of a trade or business in the United States and shareholders who
acquired their stock through the exercise of employee stock options or otherwise
as compensation.
DISTRIBUTIONS ON COMMON SHARES
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to Common Shares are required to include in gross income for United
States federal income tax purposes the gross amount of such distributions to the
extent that the Company has current or accumulated earnings and profits, without
reduction for any Canadian income tax withheld from such distributions. Such
Canadian tax withheld may be credited, subject to certain limitations, against
the U.S. Holder's United States federal income tax liability or, alternatively,
may be deducted in computing the U.S. Holder's United States federal taxable
income by those who itemize deductions. (See the detailed discussion at "Foreign
Tax Credit" below). To the extent that distributions exceed current or
accumulated earnings and profits of the Company, they will be treated first as a
return of capital up to the U.S. Holder's adjusted basis in the Common Shares
and thereafter as gain from the sale or exchange of the Common Shares.
Preferential tax rates for long-term capital gains may apply to certain U.S.
Holders who satisfy minimum holding period and other requirements. There are
currently no preferential tax rates for long-term capital gains for a U.S.
Holder that is a corporation.
Dividends paid on the Common Shares generally will not be eligible for the
dividends-received deduction available to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends received from the Company (unless the Company
qualifies as a "foreign personal holding company" or a "passive foreign
investment company," as defined below) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Company. The
availability of this deduction is subject to several complex limitations which
are beyond the scope of this discussion.
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FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of Common Shares of the Company may be entitled,
at the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Furthermore, a US Holder which is a domestic
corporation may claim a deemed paid foreign tax credit based on the underlying
income taxes of the Company.
Generally, it will be more advantageous to claim a credit because a credit
reduces United States federal income taxes on a dollar-for-dollar basis, while a
deduction merely reduces the taxpayer's income subject to tax. This election is
made on a year-by-year basis and applies to all foreign income taxes (or taxes
in lieu of income tax) paid by (or withheld from) the U.S. Holder during the
year. There are significant and complex limitations which apply to the credit,
among which is the general limitation that the credit cannot exceed the
proportionate share of the U.S. Holder's United States federal income tax
liability that the U.S. Holder's foreign source income bears to his/her or its
worldwide taxable income. In the determination of the application of this
limitation, the various items of income and deduction must be allocated to
foreign and domestic sources. Complex rules govern this allocation process.
There are further limitations on the foreign tax credit for certain types of
income such as "passive income," "high withholding tax interest," "financial
services income," "shipping income," and certain other classifications of
income. The availability of the foreign tax credit, the deemed paid foreign tax
credit, and the application of the limitations on the credit are fact-specific
and holders and prospective holders of Common Shares should consult their own
tax advisors regarding their individual circumstances.
DISPOSITION OF COMMON SHARES
A U.S. Holder will recognize gain or loss upon the sale of Common Shares equal
to the difference, if any, between (i) the amount of cash plus the fair market
value of any property received, and (ii) the shareholder's tax basis in the
Common Shares. This gain or loss will be capital gain or loss if the Common
Shares are a capital asset in the hands of the U.S. Holder, which will be a
short-term or long-term capital gain or loss depending upon the holding period
of the U.S. Holder. Gains and losses are netted and combined according to
special rules in arriving at the overall capital gain or loss for a particular
tax year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders who are individuals, any unused portion of such
net capital loss may be carried over to be used in later tax years until such
net capital loss is thereby exhausted. For U.S. Holders that are corporations
(other than corporations subject to Subchapter S of the Code), an unused net
capital loss may be carried back three years from the loss year and carried
forward five years from the loss year to be offset against capital gains until
such net capital loss is thereby exhausted.
AUSTRALIAN TAXATION ISSUES
The shareholders of the Company are not directly subject to any Australian
income taxes, however, the Company is subject to the following tax laws related
to its Australian subsidiaries.
The Australian subsidiaries of the Company will be assessed separately to
Australian income tax on all income sourced worldwide. The Australian tax year
runs from July 1 to June 30, however permission can be sought for a substituted
tax year to coincide with the tax year of an overseas holding company. Trading
profits and other income of the subsidiaries is taxable at the rate of 36%. The
Federal Government of Australia is presently considering introducing a goods and
services tax ("GST") which,
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if introduced, may coincide with a reduction in the corporate rate of income
tax, but will increase the tax expense for the subsidiaries of goods and
services consumed by them. Capital gains are taxed at the ordinary company
income tax rate. Unfranked dividends paid by the subsidiaries to the Company
will be subject to a withholding tax of 15% fixed under the Canada-Australia
double tax treaty provided that the Company does not maintain a permanent
establishment in Australia or a fixed base for the performance of independent
personal services and the holding giving rise to the dividend is "effectively
connected" with the permanent establishment or fixed base. Fully franked
dividends paid by the subsidiaries to the Company will be exempt from tax in
Australia.
The trading losses of the subsidiaries incurred in the 1989/1990 financial year
and subsequent years can be carried forward indefinitely and offset against
future assessable income provided that the subsidiaries satisfy at least one of
the tests of continuity of more than 50% of shareholding and control or
continuity of carrying on the same business.
Since the subsidiaries are not public companies they are subject to Division 7A
of the Income Tax Assessment Act which will in certain circumstances deem a
loan, payment or debt forgiveness made to the Company, being the shareholder of
the subsidiaries, or to any associate of the Company to be an unfranked
dividend.
Since the Company holds more than 15% of the equity, control or income of the
subsidiaries any interest bearing loans made by the Company to the subsidiaries
must not exceed the ratio of 2:1 debt/equity or the subsidiaries will be denied
a tax deduction for interest paid on the debt to the extent that the ratio is
exceeded. Australian withholding tax on interest is at the rate of 10%.
Intercompany pricing rules apply to enable the Australian Commissioner of
Taxation to adjust prices, with respect to underpriced receivables from foreign
associates of Australian companies and overpriced revenue payable to such
associates, back to arms length prices.
Companies are assessed for Australian income tax separately notwithstanding that
they are part of a group of companies however intergroup losses can be
transferred where there is 100% common ownership of the Australian resident
companies by an ultimate corporate shareholder throughout the period of the
relevant year or years of income.
OTHER CONSIDERATIONS
In the following four circumstances, the above sections of the discussion may
not describe the United States federal income tax consequences resulting from
the holding and disposition of Common Shares of the Company. However, on the
basis of (a) the number of shareholders of its Common Shares, (b) the majority
ownership of its shares by Canadian and other non-U.S. residents, and (c) the
fact that the majority of its assets are actively managed (not passively held),
the Company believes that it is neither a "Foreign Personal Holding Company,"
"Foreign Investment Company," "Passive Foreign Investment Company," nor a
"Controlled Foreign Company."
FOREIGN PERSONAL HOLDING COMPANY
If at any time during a taxable year more than fifty percent (50%) of the total
combined voting power or the total value of the Company's outstanding shares is
owned, actually or constructively, by five or fewer individuals who are citizens
or residents of the United States, and sixty percent (60%) or more of
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<PAGE>
the Company's gross income for such year was derived from certain passive
sources (e.g. from dividends received from its subsidiaries), the Company would
be treated as a "foreign personal holding company" for United States federal
income tax purposes. In that event, U.S. Holders that hold Common Shares would
be required to include in gross income for such year their allowable portions of
such passive income to the extent the Company does not actually distribute such
income.
FOREIGN INVESTMENT COMPANY
If fifty percent (50%) or more of the combined voting power or total value of
the Company's outstanding shares is held, actually or constructively, by
citizens or residents of the United States, United States domestic partnerships
or corporations, or estates or trusts (as defined by Code Section 7701(a)(30)),
and the Company is found to be engaged primarily in the business of investing,
reinvesting, or trading in securities, commodities, or any interest therein, it
is possible that the Company might be treated as a "foreign investment company"
as defined in Section 1246 of the Code, causing all or part of any gain realized
by a U.S. Holder selling or exchanging Common Shares to be treated as ordinary
income rather than capital gains.
PASSIVE FOREIGN INVESTMENT COMPANY
As a foreign corporation with U.S. Holders, the Company could potentially be
treated as a passive foreign investment company ("PFIC"), as defined in Section
1297 of the Code, depending upon the percentage of the Company's income which is
passive, or the percentage of the Company's assets which are held for the
purpose of producing passive income.
The rules governing PFICs can have significant tax effects on U.S. shareholders
of foreign corporations. Section 1297(a) of the Code defines a PFIC as a
corporation that is not formed in the United States and, for any taxable year,
either (i) seventy-five percent (75%) or more of its gross income is "passive
income", which includes interest, dividends and certain rents and royalties or
(ii) the average percentage, by fair market value (or, if the company is a
controlled foreign corporation or makes an election, by adjusted tax basis), of
its assets that produce or are held for the production of "passive income" is
fifty percent (50%) or more. The taxation of a U.S. shareholder who owns stock
in a PFIC is extremely complex and is therefore beyond the scope of this
discussion. U.S. persons should consult with their own tax advisors with regard
to the impact of these rules.
CONTROLLED FOREIGN COMPANY
If more than fifty percent (50%) of the voting power of all classes of stock or
the total value of the stock of the Company is owned, directly or indirectly, by
citizens or residents of the United States, United States domestic partnerships
and corporations or estates or trusts other than foreign estates or trusts, each
of whom own 10% or more of the total combined voting power of all classes of
stock of the Company or the total value of the stock of the Company ("United
States shareholders"), the Company could be treated as a controlled foreign
corporation under Subpart F of the Code.
This classification would trigger the application of many complex results
including the required inclusion by such United States shareholders in income of
their pro rata share of "Subpart F income" (as specifically defined by the Code)
of the Company and the Company's earnings invested in U.S. property. In
addition, regardless of the classification of the Company as a Controlled
Foreign Corporation under Section 1248 of the Code, gain from the sale or
exchange of Common Shares by a
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U.S. person who is or was a United States shareholder (as defined above) at any
time during the five-year period ending with the sale or exchange is treated as
ordinary dividend income to the extent of earnings and profits of the Company
attributable to the stock sold or exchanged. Because of the complexity of
Subpart F and Section 1248, and because it is not clear that the Company is a
controlled foreign corporation, a more detailed review of these rules is outside
of the scope of this discussion.
ITEM 8 SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the Financial Statements and Notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other financial data included elsewhere in this Registration Statement. The
consolidated statements of loss and deficit for the years ended June 30, 1996,
1997 and 1998 and the balance sheet data at June 30, 1997 and 1998, are derived
from audited consolidated financial statements included elsewhere in this
Registration Statement. The consolidated statements of loss and deficit for the
year ended June 30, 1995 and 1996 and the balance sheet data at June 30, 1995
and 1996 are derived from audited consolidated financial statements not included
elsewhere in this Registration Statement. The consolidated statement of loss and
deficit and balance sheet data for the year ended June 30, 1994, are derived
from unaudited consolidated financial statements not appearing elsewhere in this
Registration Statement. The consolidated statement of loss and deficit and
balance sheet data for the nine months ended March 31, 1999 and 1998 are derived
from unaudited consolidated financial statements included elsewhere in this
Registration Statement. The unaudited financial information contained herein, in
the opinion of management, reflect all normal recurring adjustments that the
Company considers necessary for a fair presentation of such information in
accordance with Canadian generally accepted accounting principles. The Company's
audited consolidated financial statements are prepared in Canadian generally
accepted accounting principles which vary in certain respects from United States
generally accepted accounting principles. See Note 16 to the financial
statements for a discussion of the significant differences between Canadian and
U.S. generally accepted accounting principles as they apply to the Company for
the periods presented therein. Historical results are not necessarily indicative
of future results and the results for interim periods are not necessarily
indicative of results to be expected for the entire year.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended June 30th
March 31st
1999 1998 1998 1997 1996 1995 1994
$000's $000's
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME LOSS AND DEFICIT
Total revenue 138 254 368 279 912 377 -
Net loss from period (2,439) (1,529) (2,257) (1,599) (1,223) (628) (86)
Per share (0.15) (0.16) (0.21) (0.19) (0.18) (0.10) -
BALANCE SHEET DATA (AT PERIOD END)
Total assets 5,286 2,306 9,203 2,274 844 337 143
Total long-term debt 92 1,974 88 980 - - -
Cash dividends declared per share - - 0.00 0.00 0.00 0.00 0.00
U.S. GAAP RECONCILED AMOUNTS
Net loss for period (3,499) (2,006) (3,026) (2,459)
</TABLE>
57
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Per share (0.22) (0.21) (0.29) (0.28)
Total assets 2,654 938 7,547 1,414
</TABLE>
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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 "SELECTED CONSOLIDATED FINANCIAL
DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS REGISTRATION STATEMENT. THIS DISCUSSION AND ANALYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS.
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
REGISTRATION STATEMENT.
BACKGROUND AND BASIS OF PRESENTATION
Dynamic Digital Depth Inc. ("DDD" or the "Company") is a software and hardware
developer engaged in the development and commercialization of effective,
affordable 3D content, services and delivery technologies for mass-market
applications. DDD has developed a range of patented software and hardware
applications centered upon the emerging demand and technical feasibility of
displaying still and moving images in "stereoscopic 3D." The Company's solutions
are designed for use in a broad range of markets including Internet, cable,
satellite or terrestrial broadcasting, film and prerecorded video and DVD
markets.
To date, the Company has had limited commercial revenues while its efforts have
focused of the development of its technologies and products. Since inception,
the Company has incurred operating losses of approximately $8.3 million related
to the development of its technologies. The Company anticipates significant
product introductions in late 1999 and early 2000 which should begin to generate
revenue in Fiscal 2000, transforming the Company from principally a research and
development company to a technology-based marketing, licensing and distribution
company. The rate at which this transformation will occur is dependent on a
number of factors, many of which are beyond the Company's control. These include
the willingness of production companies to make their content available in 3D,
the willingness of broadcasters and cable system operators to invest in the
Company's technologies, and the willingness of consumers to buy and use the
ancillary equipment needed to view 3D images using the Company's technologies,
such as LCD shutter or red/blue anaglyph glasses.
The Consolidated Financial Statements of the Company include the accounts of
Dynamic Digital Depth Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The Company's
research and development operations and executive offices are located in Perth,
Australia. The Company is incorporated under the laws of Canada and it prepares
its financial statements in Canadian dollars and in accordance with Canadian
Generally Accepted Accounting Principles ("Canadian GAAP"). The notes to the
Consolidated Financial Statements include a note which describes the principal
differences between Canadian GAAP and Generally Accepted Accounting Principles
in the United States ("US GAAP").
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In August 1998 the Company effected a one for five reverse stock split. In this
Registration Statement, all references to numbers of shares and purchase or
exercise prices per share have been adjusted to give effect to the reverse stock
split.
RESULTS OF OPERATIONS
During the financial years ended June 30, 1996 ("Fiscal 1996"), June 30, 1997
("Fiscal 1997") and June 30, 1998 ("Fiscal 1998") and the nine month periods
ended March 31, 1998 ("1998 Interim Period") and March 31, 1999 ("1999 Interim
Period") the Company's results of operations reflect a continuing focus on its
research and development program together with an expansion of marketing
activities as its technologies were developed to a level where they could begin
to be commercialized.
REVENUES
During Fiscal 1996, 1997 and 1998 and the 1999 and 1998 Interim Periods revenues
were derived from the following sources:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
(UNAUDITED) YEAR ENDED 30 JUNE
NINE MONTHS
ENDED 31 MARCH
-----------------------------------------------------------------------------------------------------------------------------
1999 CAD$ 1998 CAD$ 1998 CAD$ 1997 CAD$ 1996 CAD$
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest received on cash balances 105,778 2,137 31,321 22,242 8,343
-----------------------------------------------------------------------------------------------------------------------------
Government subsidies - - 31,114 156,259 18,672
-----------------------------------------------------------------------------------------------------------------------------
Revenues derived from technologies 15,138 250,263 299,099 85,922 863,572
-----------------------------------------------------------------------------------------------------------------------------
Miscellaneous income 16,913 1,103 6,531 14,405 21,838
-----------------------------------------------------------------------------------------------------------------------------
TOTAL 137,829 253,503 368,065 278,828 912,425
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest was earned from cash balances invested in cash management accounts. The
amount of interest received for the 1999 Interim Period was considerably more
than that received for Fiscal 1998 the 1998 Interim Period, Fiscal 1997 and
Fiscal 1996 as a result of the investment of funds received from the May 1998
private placement of common shares.
Government subsidies represent amounts received by the Australian subsidiary,
Dynamic Digital Depth Australia Pty Ltd by way of Export Market Development
Grants from the Federal Government of Australia. These grants are provided to
Australian companies to assist them in developing export markets and are
calculated by reference to both export revenues earned and expenses incurred in
developing export markets. The grants are paid in the year following the
occurrence of the revenue or expenditure. The amount received for Fiscal 1997
was higher than that for Fiscal 1998 as export revenues for the 1996 Fiscal year
were higher than those for the Fiscal 1997. Similarly, the amount received for
Fiscal 1996 was lower than that for Fiscal 1997 because export revenues in
Fiscal 1995 were not as high as those received in Fiscal 1996.
Revenues derived from technologies represent amounts received from activities
undertaken by the Company whereby it has charged and been paid for services
performed and undertaken pursuant to agreements entered into with third parties
who were or are considered to be potentially long-term customers of the Company.
The work involved using the Company's technologies in order to establish whether
or not they were suitable for large-scale commercialization. Generally, for the
years and periods referred to, there were no significant revenues derived from
commercial activities except during
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<PAGE>
Fiscal 1996 when substantial revenues were earned from License fees received
from the development and manufacture of prototype autostereoscopic 3D units. The
contract to manufacture the prototypes concluded during the 1996 Fiscal year.
In the overall context of its past operations and with the exception of the 1996
Fiscal year, the Company has not consistently achieved substantial revenues from
the commercialization of its technologies. This in itself reflects the policies
employed by the Company in that it has tended to focus on the development of the
technologies in order to bring them to the level of sophistication and
marketability required for their successful commercialization.
OPERATING EXPENSES
The following table sets forth financial data relating to operating expenditure
for the periods indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(UNAUDITED) YEAR ENDED 30 JUNE
NINE MONTHS ENDED 31 MARCH
- --------------------------------------------------------------------------------------------------------------------
1999 CAD$ 1998 CAD$ 1998 CAD$ 1997 CAD$ 1996 CAD$
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amortization 59,171 33,484 42,225 69,725 32,699
- --------------------------------------------------------------------------------------------------------------------
General and administrative 1,475,805 909,791 1,510,458 1,096,167 790,738
- --------------------------------------------------------------------------------------------------------------------
Interest expense - 241,836 264,633 - -
- --------------------------------------------------------------------------------------------------------------------
Market development 225,526 228,124 306,324 169,242 223,524
- --------------------------------------------------------------------------------------------------------------------
Project costs 6,997 16,509 32,883 33,338 567,014
- --------------------------------------------------------------------------------------------------------------------
Salaries and wages 809,817 353,159 468,435 509,467 521,397
- --------------------------------------------------------------------------------------------------------------------
TOTAL 2,577,319 1,782,903 2,624,958 1,877,939 2,135,372
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1999 INTERIM PERIOD COMPARED TO 1998 INTERIM PERIOD
The increase in amortization expense resulted from the acquisition of additional
leased and owned assets during the last quarter of Fiscal 1998.
The increase in general and administrative expenses was a net result of a number
of significant developments including the commencement of operations (including
the opening of an office in Los Angeles) by the USA subsidiary Dynamic Digital
Depth USA Inc., in May 1998, the use of external consultants to assist with the
establishment of a corporate database, preparation of marketing plans and
submissions to government bodies and general advice and assistance on
administrative and accounting matters, the appointment of a public relations
firm to assist with the establishment and promotion of the of the Company's
profile in the United States and a general increase in the business activity of
the Company during the 1999 Interim Period as compared to the 1998 Interim
Period.
Interest expense was not incurred during the 1999 Interim Period as the
promissory notes, together with accrued interest, were converted into common
stock and warrants in May 1998 in connection with the Company's private
placement.
In addition to other increases in operating expenses outlined above, the
commencement of operations in the United states by Dynamic Digital Depth USA
Inc. also resulted in an increase in salaries and wages of approximately
$398,000. The balance of the increase in this expenditure gained by comparing
the two periods of approximately $59,000 resulted from salary increases awarded
to staff
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employed by the Australian subsidiaries, together with the employment of
additional personnel in those subsidiaries.
FISCAL 1998 COMPARED TO FISCAL 1997
In comparing these two Fiscal years it should be noted that in both years the
expenditures incurred in respect of ongoing research and development were
capitalized as deferred research and development in accordance with Canadian
GAAP. Since July 1, 1997 the Company has adopted a change in accounting
estimate in relation to development costs capitalized. The Company has
implemented new systems which permit a more precise allocation of certain
costs that relate directly to development within the costs capitalized for
the period. The effect of the change in estimate is to increase capitalized
development costs by approximately $CAD 270,000 for the year ended June 30,
1998. Apart from any variances referred to hereunder, it is considered that
there were no significant variances of a material nature between the two
years.
The increase in general and administrative expenses was a net result of a number
of significant developments including the commencement of operations (including
the opening of an office in Los Angeles) by the USA subsidiary Dynamic Digital
Depth USA Inc., in May 1998, the use of external consultants to assist with the
establishment of a corporate database, preparation of marketing plans and
submissions to government bodies and general advice and assistance on
administrative and accounting matters, increased legal expenses, travel costs
associated with the Company's increased marketing activities, and the general
increase in the business activity of the Company during Fiscal 1998 as compared
to Fiscal 1997.
Interest expense refers to the interest on promissory notes issued by the
Company which were subsequently converted in May 1998, along with the accrued
interest into common stock and warrants.
Salaries and wages for Fiscal 1997 included an amount of approximately $55,000
described as management fees. There was no equivalent expense incurred for
Fiscal 1998.
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FISCAL 1997 COMPARED TO FISCAL 1996
In comparing these two financial years it should be noted that the Company
met the deferral criteria in relation to research and development expenditure
and for the year ended June 30, 1997 these costs were capitalized in
accordance with Canadian GAAP. Previously such expenditure was expensed in
the period incurred. The change was brought about as it became apparent that
research and development projects were beginning to approach commercial
feasibility.
The increase in amortization in Fiscal 1997 over Fiscal 1996 results from two
reasons. Firstly, assets have been used for a full year (the great majority of
Fiscal 1996 additions were made in the latter six months of the year) and
secondly, there have been further additions during the Fiscal 1997 year.
The increase in general and administrative expenses in Fiscal 1997 over Fiscal
1996 was a net result of a number of developments including an increase in
taxation consulting fees, an increase in travel and accommodation costs which
reflected the increased activity in the marketing of the Company's technologies
involving extensive travel in Japan, Europe and the USA and an increase in legal
fees resulting from the preparation of draft licensing agreements.
Market development expenses reduced from Fiscal 1996 to Fiscal 1997 as less work
was required in developing markets and more effort was made in attempting to
commercialize the technologies. Whilst significant efforts were made to achieve
this commercialization it did not meet with the success hoped for.
Salaries and project expenses have reduced between Fiscal 1996 and Fiscal 1997
because costs were capitalized during the year as projects began to develop into
potentially commercially feasible products and technologies.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 30, 1998, the Company incurred a net loss of
approximately $2.3 million, with an operating cash flow deficit averaging
approximately $300,000 per month. These losses increased in the nine months
ended March 31, 1999 to approximately $2.4 million, resulting in a monthly
operating cash flow deficit approaching $500,000 per month. The net losses
principally reflect the pre-commercial operations of the Company' business and
corporate overhead. As of March 31, 1999, the Company had net working capital of
approximately $1 million, including a cash balance of $783,000. Through March
31, 1999, the Company had an accumulated deficit of approximately $8.3 million.
During 1999 the Company made significant progress towards full commercial
operation. Product introductions and expanded marketing will require significant
additional expenditures in Fiscal 2000. As a result, it can be expected that
short-term operating losses could accelerate from those experienced
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over the past year. In addition, the Company expects to require approximately
$1.0 million in capital expenditures during Fiscal 2000.
Historically, the Company has met its working capital requirements through
financing transactions involving the private placement of equity securities or
equity equivalents. During 1998, the Company completed private placements of
convertible notes, common shares and common share purchase warrants, yielding
net proceeds of approximately $8.6 million.
In June 1999, the Company entered into a Development Agreement with General
Instrument Corporation ("GI"), major manufacturer of cable headend equipment and
television set-top boxes. In connection with this Agreement, GI purchased 1.5
million common shares and 1.0 million common share purchase warrants for net
proceeds of approximately $2.8 million. At the same time, the Company received a
co-investment from a third party with net proceeds of $930,000, in exchange for
500,000 common shares and 500,000 common share purchase warrants. The common
share purchase warrants issued to GI and the co-investor are exercisable over a
three year term with increasing exercise prices ranging from $3.50 to $5.50 per
share. Under the Development Agreement, US$250,000 will be used to pay GI for
equipment and engineering services to integrate the Company's 2D-compatible 3D
technology and GI's digital set-top terminals.
During Fiscal 1998, the Company used $1.8 million in cash for its operating
activities, reflecting primarily the net loss for the year of $2.3 million
adjusted for net non-cash expenses that were approximately $426,000. Operating
activities in the 1999 Interim Period used $2.2 million in cash, also reflecting
principally the net loss for the period adjusted for net non-cash expenses that
were approximately $200,000.
Investing activities used net cash of $1.3 million during Fiscal 1998. These
funds were primarily used for development and patent costs (approximately
$900,000) and the purchase of capital assets of approximately $300,000.
Investing activities used $2.0 million in the 1999 Interim Period, again
primarily used for development and patent costs (approximately $1.1 million),
purchase of capital assets (approximately $360,000) and the payment of a
non-refundable option fee of $500,000 in respect of the building occupied by
the Company's Australian subsidiaries in Perth, Australia. See Item 2 -
Description of Property.
Financing activities provided net cash to the Company of $7.0 million during
Fiscal 1998. These funds were generated primarily by the sale of the
convertible notes, common shares and common share purchase warrants described
above. During the 1999 Interim period Financing activities used approximately
$1.7 million of the proceeds of the May 1998 private placement to repurchase
821,974 common shares. The repurchase of shares was recommended and financed
by the investors in the private placement to provide liquidity in the market
for the Company's shares reducing the impact of sales by smaller investors
which had depressed the Company's share price. The Company believed that it
was in the best interests of shareholders to enhance liquidity in the common
shares and to acquire the shares available at a price below management's view
of the fair market price of the common shares. Such repurchases were
completed in November 1998.
Subsequent to March 31, 1999, the Company completed approximately $3.7 million
in financing from GI and a co-investor.
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The Company does not believe that its available cash resources and cash flow
from operations will be sufficient to meet its liquidity needs through fiscal
2000. The Company expects that it will require additional financing which may
take the form of private placements of debt or equity securities with financing
sources or from development partners. There can be no assurance that such
financing will be available on attractive terms to the Company, if at all. If
the Company is unsuccessful in obtaining financing it may be required to seek to
license its technologies to third parties who are financially better able to
exploit the technologies or may be required to curtail operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998 (effectiveness date revised in June 1999), the Financial Accounting
Standards Board issued Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES, which is required to be adopted in years beginning after
June 15, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what the effect on
Statement 133 will be on the earnings and financial position of the Company.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two-digit year entries in the date code field. Consequently, on
January 1, 2000, many of these systems could fail or malfunction because they
may not be able to distinguish 21st Century dates from 20th Century dates. As a
result, computer systems and software used by many companies, including the
Company, its customers and potential customers, may need to be upgraded to
comply with such "Year 2000" requirements. The Company has developed and
implemented a program to identify and remedy the Year 2000 issues. The scope of
its Year 2000 readiness program includes the review and evaluation of
- the Company's information technology (IT) systems, such as
hardware and software utilized in the operation of its business;
- its non-IT systems and imbedded technology, such as
micro-controllers contained in various equipment and facilities;
- the readiness of third parties, including customers, suppliers
and other key vendors; and
- the Company's hardware and software products.
Although the Company has inventoried is principal internal information
technology systems and believes they are Year 2000 compliant, some of its
internal information technology systems are not yet certified. The Company
anticipates that it will complete its certification of these systems by
November 1, 1999. The Company has received Year 2000 compliance statements
from the suppliers of some of
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its principal internal systems, and has sought similar statements from other
vendors. Its review of the internal systems of third parties with whom the
Company has material interactions is ongoing.
Because the Company is substantially dependent upon the proper functioning of
its computer systems, a failure of its system to be Year 2000 compliant could
materially disrupt its operations which could seriously harm its business. The
Company has tested its hardware and software products to determine that they are
Year 2000 compliant, when configured and used in accordance with the related
documentation. The Company has performed operational tests for each of its
products by testing various future dates in the products' functional areas. In
addition, the transition from Year 1999 to Year 2000 was simulated for its
software. According to the results of its tests, the Company's products should
not abnormally end and/or provide incorrect or invalid results due to date data,
including dates that were represented in different century, provided that the
underlying operating system and customer hardware platform are Year 2000
compliant.
The Year 2000 problem may also affect third party software products that are
incorporated into the Company's products, applications and other software
products that its modifies and licenses to its customers. When the Company
incorporates third party software products into our products, it generally
discusses Year 2000 issues with these third parties and sometimes performs
internal testing on their products. It does not, however, guarantee or certify
that the software licensed by these suppliers is Year 200 compliant. Any failure
by parties to provide Year 2000 compliant software products that the Company
incorporates into our products could result in financial loss, harm to its
reputation and liability to others and could seriously harm its business.
The Company has funded its Year 2000 plan from operating cash flows and has not
separately accounted for those costs in the past. To date, these costs have not
been material. The Company may incur additional costs related to Year 2000
compliance for administrative personnel to manage the testing, review and
remediation and outside vendor and contractor assistance.
Although it is not fully developed, the Company expects to complete its Year
2000 contingency plan well in advance of December 31, 1999. The Company is
designing its Year 2000 contingency plan to address situations that may result
if it were unable to achieve Year 2000 readiness for its critical operations.
The costs of developing and implementing the plan are not considered to be
significant.
ITEM 9A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in any hedging or currency trading activities
although the Company bills in U.S. and Australian dollars, with its revenues and
expenses, and its assets and liabilities recorded in Canadian dollars.
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ITEM 10 DIRECTORS AND OFFICERS OF REGISTRANT
The names and positions with the Company of each director and executive officer
of the Company as of the date of this registration are as follows:
<TABLE>
<CAPTION>
NAME POSITION(S) DATE ELECTED OR APPOINTED
<S> <C> <C>
Neil W. Speakman Chairman of the Board of Directors and March 1994
Chief Financial Officer
Robert G. Baker President, Chief Executive Officer and October 1995
Director
Paul Kristensen Non-executive Director May 1996
Paul G. Jeffrey Non-executive Director March 1994
Ian Macintosh Non-executive Director April 1994
James K. Alford Non-executive Director September 1997
Phil Harman Chief Technology Officer June 1999
Chris Yewdall Vice President of Sales and Marketing September 1998
Sara Lane Sirey Secretary September 1997
</TABLE>
The Company's directors are elected by shareholders at each annual meeting or in
the event of a vacancy, appointed by the Board of Directors then in office, to
serve until the next annual meeting or until their successors are duly elected
and qualified. The Company's executive officers are appointed by the Board of
Directors and serve at the discretion of the Board of Directors. No family
relationship exists between any Director or Executive Officer and any other
Director or Executive Officer.
In connection with the recapitalization of the Company in May 1998, an
Investment Agreement ("Investment Agreement") and a Voting and Disposition
Agreement (the "Voting Agreement"). between the Company and Westgate
International, L.P. ("Westgate") and The Liverpool Limited Partnership
("Liverpool," and together with Westgate, the "Investors"), were entered into.
The Voting Agreement provides that the Investors have the right to nominate two
individuals to the board of directors of the Corporation, subject only to
regulatory approval. As of July 1, 1999, the investors have not nominated anyone
to the Board of Directors.
PROFILES OF DIRECTORS AND EXECUTIVE OFFICERS
The following are profiles of the directors and executive officers, including
their principal occupations during the five years prior to the date hereof.
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NEIL W. SPEAKMAN - CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF FINANCIAL
OFFICER
Mr. Speakman was appointed a director of the company in March 1994, and has
served as Chairman since that date. He provided financial consulting services to
the company until May 1, 1998, when he undertook full-time employment as
Chairman and Chief Financial Officer, based in Santa Monica, USA.
Prior to becoming a director of the Company, Mr. Speakman worked mainly with
small companies with technologies that have global applications, and has
developed those companies to the stage of public acceptance and
commercialization.
Mr. Speakman founded the company now known as Advanced Material Technologies
Inc. in 1989, a leading company in the provision of rare earth materials from
China. The company is listed on Toronto Stock Exchange. In 1995 Mr. Speakman was
a founder director of Turbo Genset Inc. and Compact Power Holdings Limited,
which are both publicly listed companies in Canada. Mr. Speakman was also a
director of FAS International Holdings Limited in 1997, listed upon The Alberta
Stock Exchange. Due to the full-time involvement with DDD, these directorships
have been relinquished.
After graduating from the University of Melbourne in Australia, Mr. Speakman
qualified as a chartered accountant with Price Waterhouse in 1967. Mr. Speakman
held various positions with Morgan Grenfell and Co. in London in 1969 to 1972,
and Ord Minnett in Hong Kong in 1972 to 1975, before founding his own practice
in Hong Kong in 1975.
ROBERT BAKER - PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Mr. Baker joined the Company in June 1995 as Managing Director of the Company's
Australian subsidiaries and in October 1995 was appointed President and CEO of
the Group responsible for all operations. As Managing Director / CEO of Computer
Protocol Pty Ltd from 1986-91, Mr. Baker established the start-up company in
Asia, Australia and the UK. Mr. Baker later negotiated the takeover and
integration of this company into the Datacraft Group of Companies and in January
1991 relocated to Hong Kong as Marketing Director with Datacraft Asia Pty Ltd.
Mr. Baker was responsible for all marketing activities in the Asian region and
was involved in the establishment of operations in many Asian countries as well
as being involved in the successful public listing on the Singapore Stock
Exchange. Datacraft Asia Pty Ltd. is a communications systems integrator with
revenues in excess of $300 million.
Prior to his involvement in technology companies, Mr. Baker held senior
management positions with consumer product companies including: East Asiatic
Trading Company - Denmark (Plumrose Pty Ltd); Gillette Corporation as General
Manager, Sales & Marketing; Tempo Marketing Pty Ltd, which Mr. Baker founded and
the Peter's Group of Companies as General Manager.
Mr. Baker graduated from the University of New South Wales in Australia, with a
degree in Business Administration, major in Marketing. He is a qualified auditor
for ISO 9000 International Quality Management Systems.
PAUL KRISTENSEN - DIRECTOR
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<PAGE>
Mr. Kristensen was appointed non-executive director of DDD in May 1996. Mr.
Kristensen is a director of a number of technology companies. He is the
President of Capital Technologies Pty. Ltd., which operates as a seed capital
management company, assisting selected inventions and business ventures from the
idea stage through to the international marketing of products or technology
licenses. Mr. Kristensen has been a founding director of a range of other
technology companies in Western Australia, including E.R.G. Limited, Arbortech
Pty. Ltd., Towerhill Holdings Pty. Ltd./Kinetic Limited and - in recent years,
Xenotech Australia Pty. Ltd., ECE Technology Pty. Ltd. and Structural Monitoring
Systems Ltd.
PAUL G. JEFFREY - DIRECTOR
Mr. Jeffrey was appointed a non-executive director of DDD in August 1994. He is
currently a non-executive director of a number of other Canadian public
companies, namely Azcar Technologies, Wild Horse Resources Ltd. and Turbo Genset
Inc.
Mr. Jeffrey was a principal shareholder and non-executive director of FH Deacon
Hodgson Inc. which later merged with Nesbitt Thompson and then was controlled by
the Bank of Montreal. In addition, he has served as an officer in organizations
such as the Young Presidents Organization, University Club of Toronto, Council
of the Ontario College of Art and the Investment Advisory Committee of Bloorview
Children's Hospital.
IAN MACINTOSH - DIRECTOR
Mr. Macintosh was appointed a non-executive director of DDD in August 1994. He
is also currently a non-executive director of Turbo Genset Inc., a Canadian
public company.
Mr. Macintosh was an insurance broker since 1950 (now retired), and is an
investor and director of St. Andrew's Valley Golf Club Limited. His community
involvement includes 30 years of service as a member of the Board of The
Arthritis Society of Canada and as a member of the Board of Governors of North
York General Hospital for over 20 years.
JAMES K. ALFORD - DIRECTOR
Mr. Alford was appointed a non-executive director of DDD on September 12, 1997.
Mr. Alford has been a partner in the law firm Vorys, Sater, Seymour and Pease
LLP, for the past eight (8) years. He has represented a number of European,
Asian and other companies and clients in merger, acquisition, licensing, joint
venture, corporation start-up and other commercial activities involving legal,
financial, tax, and operational structuring.
PHIL HARMAN - CHIEF TECHNOLOGY OFFICER
Mr. Harman joined the Company's Perth, Australia operations in May 1996 and
primarily manages the Research and Development process. He has been the primary
technology innovator and a major contributor to the development of the Company's
portfolio of technologies and products. Additionally, he manages the
intellectual property portfolio to ensure patent protection. Mr. Harman also
reviews new ideas, patents and concepts presented to the company and recommends
appropriate action. Mr. Harman was appointed Chief Technology Officer of DDD
effective July 1, 1999.
69
<PAGE>
From 1989 to 1996, Mr. Harman held the position of Information Technology
Manager for the Water Authority of Western Australia. Among other duties he was
responsible for developing and managing their state-wide computer and
communications network.
Prior to this position, Mr. Harman was a self-employed Communications and
Information Technology Consultant. He also co-founded an electronics and
communications company that became a leader in the provision of Fire Monitoring
and general Telemetry systems.
Upon immigrating to Australia from the UK in 1980, Mr. Harman was employed as a
Communications Engineer by the Western Australian Fire Brigades Board, where he
developed a number of new fire monitoring systems and communications networks.
In the United Kingdom Mr. Harman worked as a research scientist for the
Government Communications Centre in Milton Keynes.
Mr. Harman holds a Bachelor of Science (Hons 1) in Electrical and Electronic
Engineering from the University of Bath in the United Kingdom.
CHRIS YEWDALL - VICE PRESIDENT - SALES AND MARKETING
Mr. Yewdall has held the position of Vice President of Sales and Marketing of
the Company since September 1998 and was appointed President and CEO of the
Company's United States subsidiary effective on July 1, 1999. Prior to joining
the Company, Mr. Yewdall held the position of Vice President, Business
Development of C-Dilla Limited, an anti-piracy software provider to desktop and
entertainment software developers. From February 1991 through March 1997, Mr.
Yewdall was the General Manager and Vice President of Sales of Virtuality, Inc.
an immersive virtual reality 3D technologies company with offices in Europe and
North America.
Prior to this, Mr. Yewdall worked as a technical consultant and subsequently
sales executive with Manager Software Products, a systems development software
provider for IBM mainframe computers. Mr. Yewdall also worked at Jaguar Cars,
Coventry, UK where Mr. Yewdall was responsible for installing computer aided
design systems.
Mr. Yewdall graduated from North Staffordshire University, Stafford, England
with an Honors Degree in Information Systems.
SARA LANE SIREY - CORPORATE SECRETARY
Ms. Sirey has served as the Corporate Secretary since September 1997.
Ms. Sirey is a partner of Armstrong Perkins Hudson, Barristers and Solicitors.
She has been specializing in securities law with Armstrong Perkins Hudson,
Barristers and Solicitors, for the past five years during which time she has
been involved in the establishment, financing and the public listing of a number
of industrial companies.
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<PAGE>
ITEM 11 COMPENSATION OF DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
The Company has six (6) directors, two (2) of whom are executive officers. The
Company also has a corporate secretary. The total cash remuneration paid or
accrued during Fiscal 1998 to all members of management (all directors,
executive officers and any other key personnel who were employed by the Company
or its subsidiaries or retained on a consulting basis) was $330,873. Directors
of the Company acting in such capacity received no compensation for providing
such services during the Company's 1998 Fiscal year.
The Company has in place a stock option plan, which was approved by the
Company's shareholders at the annual general meeting of shareholders held on
December 18, 1998 (the "Plan"). The Plan has been established to provide
incentives to qualified parties to increase their proprietary interest in the
Company and thereby encourage their continuing association with the Company. The
Plan is administered by the Directors of the Company. The Plan provides that
options will be issued to directors, officers, employees and consultants of the
Company or its subsidiaries pursuant to option agreements in substantially the
form appended to the Plans (the "Option Agreements"). The Option Agreements
provide for the expiration of such options on a date not later than five years
after the issuance of such option.
Options issued pursuant to the Plan have an exercise price as determined by the
Board of Directors of the Company, provided that the exercise price shall not be
less than the price permitted by any stock exchange on which the Common Shares
are then listed.
In the 1998 Fiscal year, options were granted to directors, officers and
employees to acquire up to an aggregate of 485,000 Common Shares.
The Company does not have a pension, retirement, or similar plan.
ITEM 12 OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
STOCK OPTION GRANTS
The following table sets forth details with respect to the outstanding options
and warrants as of July 30, 1999.
<TABLE>
<CAPTION>
MARKET VALUE OF
NUMBER OF SECURITIES
COMMON SHARES UNDERLYING
EXPIRATION RESERVED EXERCISE OPTIONS ON
OPTIONEE CATEGORY DATE OF GRANT DATE UNDER OPTION(1) PRICE(1) DATE OF GRANT(1)
----------------- ------------- ---- --------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Directors (of the Company or its Nov. 27, 1996 Nov. 27, 2001 40,000 $1.35 $1.40
subsidiaries) who are not
Executive Officers. Dec. 20, 1997 Dec. 20, 2002 60,000 $1.30 $1.50
July 7, 1999 July 7, 2004 4,000 $2.47 $3.00
Executive Officers May 10, 1996 May 10, 2001 80,000 $1.25 $1.10
</TABLE>
71
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Nov. 27, 1996 Nov. 27, 2001 40,000 $1.35 $1.40
Dec. 20, 1997 Dec. 20, 2002 270,000 $1.30 $1.50
Sept. 7, 1998 Sept. 7, 2003 200,000 $1.50 $1.75
June 7, 1999 June 7, 2004 20,000 $2.80 $3.18
Employees May 10, 1996 May 10, 2001 48,000 $1.25 $1.10
Dec. 20, 1997 Dec. 20, 2002 100,000 $1.30 $1.50
Investors May 19, 1998 May 19, 2000 2,500,000 $2.00 $2.20
June 17, 1999 June 17, 2002 500,000 $3.50 $2.75
to
$5.50
July 7, 1999 July 7, 2004 4,000 $2.47 $3.00
Strategic Partnerships June 17, 1999 June 17, 2002 1,000,000 $3.50 $2.75
to
$5.50
</TABLE>
(1) Number of Options and Warrants, Exercise Price and Market Value of
underlying securities have been restated to give effect to a
one-for-five reverse stock split.
(2) These Options are under review by the Company in connection with the
termination of certain consulting agreements.
(3) The Common Shares were not trading on any exchange on August 3, 1994.
The Common Shares were reinstated on the ASE on September 9, 1994.
As of August 3, 1999, the directors and officers of the Company and its
subsidiaries collectively held stock options and warrants to acquire an
aggregate of 694,000 Common Shares.
OTHER RIGHTS TO PURCHASE SECURITIES OF THE COMPANY OR ITS SUBSIDIARIES
Effective May 19, 1998, the Company and the Investors closed a transaction to
effect a recapitalization of the Company pursuant to the terms of the Investment
Agreement. The Investment Agreement provided for the purchase by the Investors
of 5,000,000 units (the "Units") for cash equal to the US dollar equivalent of
CAD$7,500,000. Each Unit was comprised of one Common Share and one warrant (a
"Warrant") to purchase from the Company one-half of a Common Share at a price of
$2.00 per Common Share for a period of two years from the date of issuance (the
"Closing Date").
Pursuant to the Investment Agreement, the Company granted the Investors a right
of first refusal with respect to any capital raising transaction or series of
transactions involving the Company or any subsidiary, other than any Permitted
Equity Investment (as hereinafter defined), for so long as the Investors hold at
least 50% of the Common Shares acquired as a result of the transactions
contemplated by the Investment Agreement. The Company is required to provide to
the Investors written notice of the terms of any transaction that is subject to
the right of first refusal promptly after the receipt thereof. The Investors may
exercise the right of first refusal by issuing a written counternotice of their
intention to exercise the right of first refusal within 30 days of receipt of
the
72
<PAGE>
Company's notice, and by consummating the transaction by the later of (a)
the time provided in the original bona fide third party offer to the Company,
and (b) 30 days after receipt by the Company of the Investors' counternotice.
For purposes of the Investment Agreement, a "Permitted Equity Investment" means
(a) a sale of Common Shares to an individual or group of individuals, which sale
shall not, when aggregated with any other such sales, exceed 9.9% of the Common
Shares outstanding on the date of the Investment Agreement, (b) a sale of equity
of a newly created subsidiary of the Company to an individual or group of
individuals in an amount not to exceed 50% of the equity of such newly created
subsidiary, or 50% of the Company's ownership interest in such newly created
subsidiary if it is a joint venture, or (c) a public sale of Common Shares.
ITEM 13 INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
TRANSACTIONS WITH THE INVESTORS
On June 30, 1997, the Company, received loans from the Investors of U.S.
$500,000 each for a total of U.S. $1,000,000, and executed convertible
promissory notes to the Investors (the "Notes"). The Notes carried an interest
rate of five percent (5%) per annum. The outstanding principal balance and all
accrued interest on the Notes was convertible at any time and from time to time
by the Investors for Common Shares at an initial conversion price of U.S. $1.00
per Share (as adjusted to reflect the 5-1 stock split). In connection with the
loans, the Company issued to the Investors warrants to purchase 200,000 shares
of the Company's Common Shares at a purchase price of $1.00. These notes were
converted into Common Shares in May 1998 as described below.
The Notes were executed and delivered by the Company pursuant to a certain
Convertible Note Purchase Agreement, dated as of June 30, 1997, by and between
the Company and Investors (the "Note Purchase Agreement"). The Company's
obligations under the Notes were secured by a pledge of the capital stock of the
Company's subsidiaries pursuant to a Pledge Agreement, dated as of the same
date, by and between the Investors and the Company (the "Pledge Agreement"). In
addition, the Common Shares issued upon conversion of the Notes are entitled to
the benefits of the registration rights set forth in a Registration Rights and
Qualification Rights Agreement, dated as of the date of the Notes, by and
between the Investors and the Company (the "Registration Rights Agreement").
On February 9, 1998, the Company received loans of U.S. $250,000 each from the
Investors, and executed additional convertible promissory notes with the
Investors (the "Second Notes"). The Second Notes carried an interest rate of
five percent (5%) per annum. The outstanding principal balance and accrued
interest on the Second Notes was convertible at any time and from time to time
by the Investors for Common Shares at an initial conversion price of U.S. $1.00
per Share. The Second Notes were converted into Common Shares in May 1998 as
described below.
Effective May 19, 1998, the Company and the Investors closed a transaction to
effect a recapitalization of the Company pursuant to the terms of the Investment
Agreement. The Investment Agreement provided for the purchase by the Investors
of 5,000,000 Units.
The Investment Agreement provided that each Investor would convert the
outstanding principal balance and all accrued and unpaid interest under the
Notes into 1,550,959 Common Shares effective as of the Closing Date, and that
the Notes, the existing Registration Rights Agreement and the Pledge Agreement
would be canceled.
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<PAGE>
Pursuant to the Investment Agreement, the Company granted the Investors a right
of first refusal with respect to any capital raising transaction or series of
transactions involving the Company or any subsidiary, other than any Permitted
Equity Investment. See - Options to Purchase Securities from Registrant or
Subsidiaries - Other Rights to Purchase Securities of the Company or its
Subsidiaries.
Pursuant to the Investment Agreement, the Investors entered into a Voting and
Disposition Agreement (the "Voting Agreement"). The Voting Agreement provides
that at any time on or after the Closing Date, the Investors will have the right
to nominate two individuals to the board of directors of the Company, subject
only to regulatory approval, and the Company will take all necessary action to
effect the appointment of such individuals to the Company's board of directors.
The Investors also entered into a second registration rights agreement covering
the Units.
OPTION TO ACQUIRE SHARES AND WARRANTS ISSUED TO THE INVESTORS
Red Reef Limited, a British Virgin Islands company ("Red Reef"), has been
granted an option by the Investors to acquire up to 1,000,000 Common Shares (the
"Share Option") and up to 2,500,000 Warrants (the "Warrant Option") issued as
Units in conjunction with the May 1998 private placement under certain
conditions. These conditions include an effective registration under the United
States Securities Act of 1933 for the resale of the securities and the Common
Shares being listed for trading on the NASDAQ National Market System or SmallCap
System.
The Share Option is exercisable at $6.00 as to 500,000 Common Shares and $9.00
as to 500,000 Common Shares. The Warrant Option is exercisable as to 900,000
Warrants at $0.05, 800,000 Warrants at $1.00 and 800,000 Warrants at $2.00. The
Warrants issuable upon exercise of the Warrant Option are exercisable at a price
of $2.00 per Common Share.
The Warrant Option was subsequently assigned by Red Reef to approximately
thirteen members of the Company's management and staff including Messrs.
Speakman, Baker, Harman and Yewdall.
ESCROW SECURITIES
Pursuant to escrow agreements dated August 4, 1994 made among the Company,
certain shareholders of the Company and Montreal Trust Company of Canada, a
total of 1,561,949 Common Shares are currently held in escrow.
The Escrow Shares are subject to release in accordance with the policies of the
ASE. As of the date of this registration, the number of Escrow Shares
outstanding represent 8.7% of the issued and outstanding shares of the Company.
The escrow agreement provides that the shares held in escrow were to be canceled
upon the expiration of the escrow agreement on August 4, 1999 , however, the
terms of the escrow have been extended pending approval by the shareholders of
the Company at the next annual meeting of shareholders.
OTHER TRANSACTIONS
Consulting, management and finder's fees of approximately $145,000 were paid by
the Company during Fiscal 1998 to two companies whose directors are also
directors of the Company.
74
<PAGE>
PART II
ITEM 14 DESCRIPTION OF SECURITIES TO BE REGISTERED
The Company has an authorized capital consisting of an unlimited number of
Common Shares of which 17,926,992 are issued and outstanding as of the date of
this registration statement.
The holders of Common Shares are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors. Holders of Common Shares are entitled to receive
dividends when, as and if declared by the Board of Directors in its discretion,
out of funds legally available therefor. In the event of liquidation,
dissolution, or winding up of the Company, the holders of Common Shares are
entitled to share ratably in the assets of the Company, if any, legally
available for distribution to them after payment of debts and liabilities of the
Company after provision has been made for each class of stock, if any, having
liquidation preference over the Common Shares. Holders of Common Shares have no
conversion, preemptive or other subscription rights, and there are no redemption
or sinking fund provisions applicable to the Common Shares. All of the
outstanding Common Shares are fully paid and non-assessable.
The Company is also authorized to issue an unlimited number of non-voting First
Preferred Shares and non-voting Second Preferred Shares (the "Preferred
Shares"). The Preferred Shares are issuable with such rights, preferences,
maturity dates and similar matters as the Board of Directors of the Company may
from time to time determine without any further vote or action by the Company's
stockholders. No Preferred Shares are currently outstanding.
ITEM 15 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 16 CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
Not Applicable
ITEM 17 FINANCIAL STATEMENTS
See pages F-1 through F-15 incorporated hereby by reference.
75
<PAGE>
ITEM 19 FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements of Dynamic Digital Depth, Inc.
<TABLE>
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors F-1
Consolidated Statement of Loss and Deficit for the years ended 30 June
1998, 1997 and 1996 and the unaudited nine month periods ended 31 March
1999 and 1998 F-3
Consolidated Balance Sheets at 30 June 1997 and 1998 and unaudited at F-2
31 March 1999 and 1998
Consolidated Statement of Cash Flows for the years ended 30 June 1998,
1997 and 1996 and the unaudited nine month periods ended 31 March
1999 and 1998 F-4
Notes to and forming part of the Financial Statements F-5
(b) Exhibits
1(1) Articles of Incorporation - Mirabeau Resources Limited (1)
1(2) Articles of Incorporation - Mirabeau Resources Limited (1)
1(3) Certificate of Amendment - Mirabeau 88 Limited (1)
1(4) Certificate of Amendment - name change to Xenotech, Inc. (1)
1(5) Name Change Xenotech to Dynamic Digital Depth Incorporated (1)
1(6) Application for Release of Escrowed Shares (1)
1(7) Bylaws (1)
2(1) Voting Trust Agreement - Xenotech Inc./Trustee/Red Reef Ltd. (1)
2(2) Escrow Agreement - Mirabeau/Montreal Trust Co. of Canada (1)
2(3) Escrow Agreement - Mirabeau/Montreal Trust Co. of Canada/ Salamander (1)
Resources Ltd.
2(4) Investment Agreement - Xenotech, Inc./Westgate Int'l., L.P. and Liverpool (1)
Limited Partnership
2(5) Common Share Purchase Warrant - Liverpool Limited Partnership (1)
2(6) Common Share Purchase Warrant - Westgate Int'l., L.P. (1)
2(7) Warrant Option Agreement between Westgate Int'l., L.P. and Liverpool Limited (1)
Partnership and Red Reef Limited
2(8) Share Option Agreement between Westgate Int'l., L.P. and Liverpool Limited (1)
Partnership and Red Reef Limited
</TABLE>
76
<PAGE>
<TABLE>
<S> <C>
2(9) Voting and Disposition Agreement between Westgate Int'l., L.P. and Liverpool (1)
Limited Partnership and Neil W. Speakman, Robert Baker and Red Reef Limited
2(10) Registration Rights Agreement (1)
2(11) Stock Option Plan (1)
2(12) Form of Stock Option Agreement (1)
3(1) Memorandum of Understanding between Dynamic Digital Depth USA Inc. and (1)
Video Applications Inc.
3(2)* Development Agreement by and between Dynamic Digital Depth Research Pty. (1)
Ltd. and General Instrument Corporation
3(3)* Statement of Work by and between Dynamic Digital Depth Research Pty. Ltd. (1)
and General Instrument Corporation
3(4) Consultancy Agreement with Angus Duncan Richards (1)
3(5) Deed of Compromise and Release with Angus Duncan Richards (1)
3(6) Deed of Assignment with Angus Duncan Richards (1)
3(7) License Agreement with Angus Duncan Richards (1)
3(8) Deed between Dynamic Digital Depth Australia Pyt. Ltd. and Boston Tower Pty. (1)
Ltd. regarding 6-8 Brodie Hall Drive Technology Park
3(9) Lease between Dynamic Digital Depth Australia Pyt. Ltd. and Boston Tower (1)
Pty. Ltd. regarding 6-8 Brodie Hall Drive Technology Park
3(10) Lease Agreement with Barrister Executive Suites, Inc. regarding Suite 550, (1)
MOM Plaza, 2450 Broadway, Santa Monica, California, 90404
3(11) Employment Agreement with Neil W. Speakman (1)
3(12) Employment Agreement with Robert G. Baker (1)
3(13) Employment Agreement with Chris Yewdall (1)
3(14) Employment Agreement with Phil Harman (1)
</TABLE>
* Confidential treatment requested with respect to portions thereof.
77
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934,
as amended, 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, thereto duly authorized.
DYNAMIC DIGITAL DEPTH, INC.
Date: August 9, 1999 By: /s/ Neil W. Speakman
----------------------------------------
Neil W. Speakman
Chairman and Chief Financial Officer
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<PAGE>
DYNAMIC DIGITAL DEPTH INC.
(FORMERLY XENOTECH INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS....................................................................................... F-1
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT FOR THE YEARS ENDED JUNE 30, 1998,
1997 AND 1996 AND THE UNAUDITED NINE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998................................... F-3
CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1998 AND 1997 AND UNAUDITED AT
MARCH 31, 1999 AND 1998............................................................................................ F-2
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND
1996 AND THE UNAUDITED NINE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998............................................ F-4
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS................................................................ F-5
</TABLE>
<PAGE>
AUDITOR'S REPORT
To the Shareholders
of Dynamic Digital Depth Inc. (formerly Xenotech Inc.)
We have audited the consolidated balance sheets of Dynamic Digital Depth Inc. as
at June 30, 1998 and 1997, and the consolidated statements of loss and deficit,
and changes in financial position for each of the years in the three year period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 1998 and
1997, and the results of its operations and the changes in its financial
position for each of the years in the three year period then ended in accordance
with accounting principles generally accepted in Canada.
Perth, Australia
October 31, 1998
Chartered Accountants
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the shareholders dated October
31, 1998 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditor's report
when these are adequately disclosed in the financial statements.
Perth, Australia
October 31, 1998
Chartered Accountants
F-1
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
(INCORPORATED UNDER THE LAWS OF ALBERTA)
CONSOLIDATED BALANCE SHEETS
SEE BASIS OF PRESENTATION -NOTE 1
<TABLE>
<CAPTION>
----------------------------- -----------------------------
(UNAUDITED)
31 MARCH 30 JUNE
----------------------------- -----------------------------
1999 1998 1998 1997
$CAD $CAD $CAD $CAD
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash 783,254 310,764 5,006,173 1,034,118
Accounts receivable - other 189,432 107,565 159,764 45,990
----------------------------- -----------------------------
972,686 418,329 5,165,937 1,080,108
DEPOSITS [NOTE 11F] 529,917 - - -
CAPITAL ASSETS [NOTE 4] 710,411 299,993 436,864 228,692
RESTRICTED CASH [NOTE 7] - - 1,727,660 -
PATENTS [NOTE 5] 441,345 219,946 256,112 105,193
DEVELOPMENT COSTS [NOTE 5] 2,631,439 1,367,539 1,615,945 859,885
----------------------------- -----------------------------
5,285,798 2,305,807 9,202,518 2,273,878
----------------------------- -----------------------------
----------------------------- -----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities [NOTE 10] 403,937 391,422 631,694 361,992
Current portion of obligation under capital leases 24,939 73,141 63,186 80,768
----------------------------- -----------------------------
428,876 464,563 694,880 442,760
----------------------------- -----------------------------
PROMISSORY NOTES PAYABLE [NOTE 6] - 1,894,029 - 980,000
-----------------------------
-----------------------------
OBLIGATION UNDER CAPITAL LEASES [NOTE 7] 92,126 79,727 87,967 -
----------------------------- -----------------------------
COMMITMENTS AND CONTINGENCIES [NOTE 7,11]
SHAREHOLDERS' EQUITY/(DEFICIENCY)
Share capital [NOTE 8] 12,347,385 4,686,554 13,831,568 4,018,531
Contributed surplus [NOTE 6,15] 491,471 491,471 491,471 442,188
Deficit (8,269,672) (5,102,689) (5,830,182) (3,573,289)
Cumulative translation adjustment 195,612 (207,848) (73,186) (36,312)
----------------------------- -----------------------------
4,764,796 (132,512) 8,419,671 851,118
----------------------------- -----------------------------
5,285,798 2,305,807 9,202,518 2,273,878
----------------------------- -----------------------------
----------------------------- -----------------------------
SEE ACCOMPANYING NOTES
</TABLE>
F-2
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
<TABLE>
<CAPTION>
----------------------------- -------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED YEAR ENDED 30 JUNE
31 MARCH
1999 1998 1998 1997 1996
$CAD $CAD $CAD $CAD $CAD
----------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE
Technology Revenue 15,138 250,263 299,099 85,922 863,572
Grant income - - 31,114 156,259 18,672
Interest Income 105,778 2,137 31,321 22,242 8,343
Other 16,913 1,103 6,531 14,405 21,838
----------------------------- -------------------------------------------
137,829 253,503 368,065 278,828 912,425
----------------------------- -------------------------------------------
EXPENSES
Amortisation 43,940 27,811 34,100 64,406 32,699
Amortisation - patent costs 15,231 5,673 8,125 5,319 -
General and administrative [NOTE 10] 1,475,808 909,791 1,510,458 1,096,167 790,738
Interest - promissory notes - 241,836 264,633 - -
Market development 225,526 228,124 306,324 169,242 223,524
Project costs 6,997 16,509 32,883 33,338 567,014
Salaries and wages 809,817 353,159 468,435 509,467 521,397
----------------------------- -------------------------------------------
2,577,319 1,782,903 2,624,958 1,877,939 2,135,372
----------------------------- -------------------------------------------
NET LOSS FOR THE PERIOD (2,439,490) (1,529,400) (2,256,893) (1,599,111) (1,222,947)
INCOME TAXES [NOTE 12] - - - - -
----------------------------- -------------------------------------------
NET LOSS FOR THE PERIOD (2,439,490) (1,529,400) (2,256,893) (1,599,111) (1,222,947)
DEFICIT, BEGINNING OF PERIOD (5,830,182) (3,573,289) (3,573,289) (1,974,178) (751,231)
----------------------------- -------------------------------------------
DEFICIT, END OF PERIOD (8,269,672) (5,102,689) (5,830,182) (3,573,289) (1,974,178)
----------------------------- -------------------------------------------
----------------------------- -------------------------------------------
NET LOSS PER SHARE [NOTE 9] (0.15) (0.16) (0.21) (0.19) (0.18)
----------------------------- -------------------------------------------
----------------------------- -------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 15,835,057 9,726,007 10,608,563 8,637,550 6,932,986
----------------------------- -------------------------------------------
----------------------------- -------------------------------------------
NOTE : THE FIGURE FOR THE WEIGHTED AVERAGE NUMBER OF SHARES PRIOR TO 30 JUNE
1998 HAVE BEEN ADJUSTED FOR THE EFFECT OF A ONE FOR FIVE REVERSE STOCK SPLIT
WHICH OCCURRED IN AUGUST 1998.
SEE ACCOMPANYING NOTES
</TABLE>
F-3
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN FINANCIAL POSITION
<TABLE>
<CAPTION>
---------------------------- -----------------------------------------
(UNAUDITED)
NINE MONTHS ENDED YEAR ENDED 30 JUNE
31 MARCH
1999 1998 1998 1997 1996
$CAD $CAD $CAD $CAD $CAD
---------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss for the period (2,439,490) (1,529,400) (2,256,893) (1,599,111) (1,222,947)
Add items not requiring a cash payment
Amortisation 59,171 33,484 42,225 69,725 32,699
Interest on promissory notes - 241,836 215,350 - -
Net change in non-cash working capital 161,655 (38,808) 168,741 505,612 (5,309)
---------------------------- -----------------------------------------
(2,218,664) (1,292,888) (1,830,577) (1,023,774) (1,195,557)
---------------------------- -----------------------------------------
INVESTING ACTIVITIES
Increase in deposits (529,917) - - - -
Purchase of capital assets (359,789) (132,235) (350,696) (112,120) (107,946)
Proceeds of sale of capital assets - - 8,209 - -
Patent costs (200,464) (120,426) (159,044) (52,815) (57,697)
Development costs (928,315) (457,152) (680,672) (859,885) -
---------------------------- -----------------------------------------
(2,018,485) (709,813) (1,182,203) (1,024,820) (165,643)
---------------------------- -----------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of share capital 12,610 608,023 8,031,348 1,341,133 1,736,000
Proceeds from issuance of promissory notes payable - 670,732 698,679 841,890 -
Increase in contributed surplus - 49,283 49,283 400,461 -
Finance lease principal (56,907) (48,691) (66,815) (32,872) (3,662)
Repurchase issued share capital (1,669,133) - - - -
Restricted Cash [Note 7] 1,727,660 - 1,727,660 - -
---------------------------- -----------------------------------------
14,230 1,279,347 6,984,835 2,550,612 1,732,338
---------------------------- -----------------------------------------
NET INCREASE/(DECREASE) IN CASH DURING THE PERIOD (4,222,919) (723,354) 3,972,055 502,018 371,138
CASH, BEGINNING OF PERIOD 5,006,173 1,034,118 1,034,118 532,100 160,962
---------------------------- -----------------------------------------
CASH, END OF PERIOD 783,254 310,764 5,006,173 1,034,118 532,100
---------------------------- -----------------------------------------
SEE ACCOMPANYING NOTES
</TABLE>
F-4
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company, through its wholly owned subsidiaries, Dynamic Digital Depth
Australia Pty Ltd., Dynamic Digital Depth Research Pty Ltd. and Dynamic Digital
Depth USA Inc., specialises in the business of research and development and
marketing of technologies in 3D television and related areas, such as the
conversion to 3D of existing 2D film and video material, auto-stereoscopic 3D
computer displays, 3D video arcade game displays, 3D viewing glasses, 3D special
effects software and 3D camera adaptor. The company changed its name from
Xenotech Inc. to Dynamic Digital Depth Inc. on August 17, 1998.
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realisation of assets and the discharge of
liabilities in the normal course of business for the foreseeable future. The
Company has not attained commercial production and has incurred significant
losses to June 30, 1998. The ability of the Company to continue as a going
concern is in substantial doubt and is dependent on reaching satisfactory
commercial production levels in order to produce a positive cash flow and or
obtaining additional financing.
The outcome of these matters cannot be predicted at this time. These financial
statements do not give effect to any adjustment to the classifications and
amounts of assets and liabilities that might be necessary should the company be
unable to continue as a going concern.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Dynamic Digital
Depth Inc. ("DDD") and its wholly-owned subsidiaries Dynamic Digital Depth
Australia Pty. Ltd. ("Australia"), Dynamic Digital Depth Research Pty. Ltd.
("Research") and Dynamic Digital Depth USA Inc. ("USA"). The consolidated
financial statements are presented in Canadian dollars ($CAD) unless otherwise
specified.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in Canada
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period 31
March 1999 are not necessarily indicative of the results that may be expected
for the year ended 30 June 1999.
3. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in Canada. Because a precise
determination of many assets and liabilities is dependent upon future events,
the preparation of financial statements for a period necessarily involves the
use of estimates and approximations which have been made using careful judgment.
The financial statements have, in management's opinion, been properly prepared
within reasonable limits of materiality and within the framework of the
accounting policies summarised below:
CHANGE IN ACCOUNTING ESTIMATES
The accounting estimates adopted are consistent with those of the previous year
except for the accounting estimate in respect to development costs.
The company has implemented new systems which permit a more precise allocation
of certain overhead costs to development costs capitalised in accordance with
section 3450 `Research and development costs.' The change has increased
development costs by $CAD269,262 for the year ended June 30,1998 over the amount
which could have been capitalized under previous systems.
F-5
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Technology revenue from the granting of licenses under license agreements in
specific geographical areas is recognised in full in the period in which the
license is granted.
Technology revenue from conversion services is recognised in full in the period
in which the service is provided.
Revenue from grants is recognised in full in the period in which it is received.
CAPITAL ASSETS
Capital assets are carried in the accounts at cost less amortisation.
Amortisation is calculated on a straight line basis using the following rates:
Furniture and fixtures 13% - 27%
Office equipment 13% - 27%
Equipment under capital leases lesser of remaining lease term and
economic life
Technical equipment 13% - 27%
Automotive equipment 25%
Leased assets that transfer substantially all of the benefits and risks of
ownership related to the leased asset from the lessor to the lessee are
accounted for as a capital lease. Under a capital lease, the asset is
capitalised and the present value of the related lease payments is recorded as a
liability. Amortisation of capitalised leased assets is computed using the
straight line method over the lesser of the remaining lease term and economic
life. The lease agreements have an implicit interest rate varying between 7.95%
and 17.20%.
PATENTS, RESEARCH AND DEVELOPMENT COSTS
Costs relating to acquiring and establishing patents in 3D television and
related areas, such as the conversion to 3D of existing 2D film and video
material, auto-stereoscopic 3D computer displays, 3D video arcade game displays,
3D viewing glasses, 3D special effects software and 3D camera adaptor are
recorded at cost and are being amortised over twenty years.
Research costs are expensed as incurred. Development costs that meet specific
criteria related to technical, market and financial feasibility are capitalised.
Amortisation of development costs will start upon commencement of commercial
production. The costs will be amortised on a straight-line basis over a period
of three years. In the event the costs are determined not to be of continuing
benefit to the Company, these amounts will be written off.
FINANCIAL INSTRUMENTS
Financial instruments of the Company consist mainly of cash, accounts
receivable, accounts payable and accrued liabilities, promissory notes payable
and capital lease obligations. As at June 30, 1998 and 1997, there are no
significant differences between the carrying amounts of cash, accounts
receivable, accounts payable and accrued liabilities, and their estimated fair
values. Compound financial instruments containing both a liability and an equity
component are recorded in their component parts based on the fair values of such
parts on the date the instrument was created.
MEASUREMENT UNCERTAINTY
The amounts recorded for patents and development costs represent accumulated
costs and are not intended to reflect present or future values. The
recoverability of these amounts is dependent upon the ability of the Company to
successfully complete their development and upon future profitable operations
and hence are subject to measurement uncertainty and the impact of adjustments
to carrying value on the financial statements of future periods could be
material.
F-6
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TAXATION
Incomes taxes are accounted for using the deferral method whereby taxes relating
to timing differences between accounting income and taxable income are recorded
as deferred income taxes.
CONCENTRATION OF CREDIT RISK
The company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents , term cash deposits and
other receivables. The company's cash and cash equivalents are placed with high
quality major Australian, Canadian and American banking institutions, limiting
its exposure to credit risk. At 30 June 1998, the receivables balance disclosed
on the balance sheet consists of a number of amounts including security deposits
and sundry debtors which are receivable from a number of debtors.
FOREIGN EXCHANGE
Dynamic Digital Depth's Australian subsidiaries and USA subsidiary are deemed
self-sustaining foreign operations for foreign currency translation purposes. As
such, the financial reports of overseas operations are translated using the
current rate method and any exchange differences are taken directly to the
cumulative translation reserve and disclosed on the balance sheet in
shareholders equity.
<TABLE>
<CAPTION>
4. CAPITAL ASSETS
1998
--------------------------------------------------
ACCUMULATED NET BOOK VALUE
COST AMORTISATION
$CAD $CAD $CAD
--------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 36,843 13,836 23,007
Office equipment 22,022 9,446 12,576
Equipment under capital leases 257,082 81,598 175,484
Technical equipment 229,931 82,610 147,321
Automotive equipment 78,476 - 78,476
--------------------------------------------------
624,354 187,490 436,864
--------------------------------------------------
--------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------
ACCUMULATED NET BOOK VALUE
COST AMORTISATION
$CAD $CAD $CAD
--------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 33,344 10,505 22,839
Office equipment 17,695 7,495 10,200
Equipment under capital lease 134,668 27,513 107,155
Technical equipment 156,545 68,047 88,498
--------------------------------------------------
342,252 113,560 228,692
--------------------------------------------------
--------------------------------------------------
</TABLE>
F-7
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PATENTS AND DEVELOPMENT COSTS
<TABLE>
<CAPTION>
1998 1997
---------------------------- -----------------------------
ACCUMULATED ACCUMULATED
COST AMORTISATION COST AMORTISATION
$CAD $CAD $CAD $CAD
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Patents 269,556 13,444 110,512 5,319
----------------------------- -----------------------------
Net book value 256,112 105,193
---------------------------- -----------------------------
---------------------------- -----------------------------
Development costs 1,615,945 - 859,885 -
----------------------------- -----------------------------
Net book value 1,615,945 859,885
---------------------------- -----------------------------
---------------------------- -----------------------------
</TABLE>
Total research and development costs expensed during the year were $CAD891,732,
$CAD957,692 and $CAD1,021,478 for the years ended June 30, 1996, 1997 and 1998
respectively.
6. PROMISSORY NOTES PAYABLE
In February 1998, the Company issued promissory notes in the amount of
US$500,000 attached with 200,000 warrants. See note 8. The promissory notes bear
interest at 5% per annum and are convertible at the holders option into common
shares on the basis of US$1.00 per share.
The Company has calculated the debt component of the note issue as the present
value of the required interest and principal payments discounted at a rate
approximating the interest rate that would have been applicable to
non-convertible debt at the time of its issuance. The difference between the
face amount of the loan and the calculated debt component has been recorded as
contributed surplus which amounted to $CAD400,461 at June 30, 1997 and
$CAD49,283 at June 30, 1998. Refer to note 15 for movements in the contributed
surplus.
In May 1998, the US$500,000 of promissory notes together with US$1,000,000 of
notes (issued on June 30, 1997) and $CAD243,297 interest unpaid on the notes
were converted to 1,550,959 common shares ascribed a value of US$1.00 per share.
The maturity of the promissory notes was 31 December 1998.
7. COMMITMENTS
The following is a schedule of future minimum lease payments under the
capital leases:
<TABLE>
<CAPTION>
1998
$CAD
-----------
<S> <C>
1999 71,734
2000 43,694
2001 40,751
2002 18,012
-----------
Total minimum lease payments 174,191
less amount representing interest (23,038)
-----------
Present value of minimum lease payments 151,153
-----------
-----------
</TABLE>
Total rental expense on operating leases approximated $CAD 65,000, $CAD 65,000
and $CAD 90,000 for years ended June 30, 1996, 1997 and 1998 respectively.
F-8
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. COMMITMENTS (CONTINUED)
<TABLE>
<CAPTION>
----------------------------- -----------------------------
(UNAUDITED)
31 MARCH 30 JUNE
----------------------------- -----------------------------
1999 1998 1998 1997
$CAD $CAD $CAD $CAD
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Current portion of obligation under capital leases 24,939 73,141 63,186 80,768
Non current portion of obligation under capital leases 92,126 79,727 87,967 -
----------------------------- -----------------------------
117,065 152,858 151,153 80,768
----------------------------- -----------------------------
----------------------------- -----------------------------
</TABLE>
At June 30, 1998, pursuant to an agreement as of May 19, 1998 in connection
with the issuance of Common Shares, the Company has agreed to allocate $CAD
1,900,000 to acquire common shares under a normal course issuer bid (share
buy back) at an average price not to exceed $CAD 2.50 per common share. In
the event that all or a portion of the funds have not been expended for the
above purpose before December 31, 1998 or such later date as the parties may
agree, the balance of the funds shall be returned to general unrestricted
cash.
8. SHARE CAPITAL
AUTHORISED
Unlimited number of voting common shares with no par value
Unlimited number of non-voting first and second preferred shares, issuable
in series
ISSUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES $CAD
-----------------------------
<S> <C> <C>
Balance at June 30, 1996 - common voting shares 8,285,315 2,677,398
Issued common voting shares through private placements, net of issuance costs 855,881 1,127,783
Issued common voting shares on exercise of stock options 17,780 25,850
Issued common voting shares on exercise of warrants 150,000 187,500
-----------------------------
Balance at June 30, 1997 - common voting shares 9,308,976 4,018,531
Issued common voting shares through private placements, net of issuance costs 5,359,791 7,873,135
Issued common voting shares on conversion of promissory notes 1,550,959 1,894,029
Issued common voting shares on exercise of stock options 109,770 143,213
Issued common voting shares on exercise of warrants 100,000 75,000
Normal course issuer bid (80,800) (172,340)
-----------------------------
Balance at June 30, 1998 - common voting shares 16,348,696 13,831,568
-----------------------------
-----------------------------
</TABLE>
NOTE : THE FIGURE FOR THE NUMBER OF SHARES HAVE BEEN ADJUSTED FOR THE EFFECT OF
A ONE FOR FIVE REVERSE STOCK SPLIT WHICH OCCURRED IN AUGUST 1998.
OPTIONS
The Company has established a stock option plan for its directors, officers and
employees and has granted the following options:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
OUTSTANDING AT EXERCISE PRICE
JUNE 30, 1997 $CAD EXPIRY DATE
- ----------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
222,310 1.25 August 3, 1999
138,000 1.25 May 10, 2001
160,000 1.35 November 27, 2001
</TABLE>
F-9
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. SHARE CAPITAL (CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
OUTSTANDING AT EXERCISE PRICE
JUNE 30, 1998 $CAD EXPIRY DATE
- ----------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
172,540 1.25 August 3, 1999
128,000 1.25 May 10, 2001
100,000 1.35 November 27, 2001
485,000 1.30 December 20, 2002
</TABLE>
On May 19, 1998, 10,000 options that were due to expire on May 10, 2001 were
cancelled as a result of an employee leaving the company.
WARRANTS
The Company has 200,000 share purchase warrants outstanding with options to
purchase common shares on a 1:1 basis at a price of $US1.00 per share. These
warrants were granted in addition to the US$1,000,000 promissory notes that were
issued on 30 June 1997 as disclosed in note 6. The warrants were due to expire
on June 30, 1999.
Pursuant to an agreement as of May 19, 1998, the Company has 5,000,000 share
purchase warrants outstanding with options to purchase common shares on a 2:1
basis at a price of $CAD2.00 per share. These warrants expire on May 19,
2000. The warrants were issued as part of a $CAD 7.5 million, 5,000,000 share
placement which is included in the 5,359,791 common voting shares issued
during the year ended 30 June 1998 as disclosed in note 8.
The party who holds these share purchase warrants has granted options over
certain of these warrants for the benefit of certain members of management of
the Company. Details of the options granted are listed below:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
OUTSTANDING AT EXERCISE PRICE
JUNE 30, 1998 $CAD EXPIRY DATE
- ----------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
350,000 2.05 May 19, 2000
430,000 3.00 May 19, 2000
320,000 4.00 May 19, 2000
</TABLE>
9. LOSS PER SHARE
An assumed conversion of the options and warrants to purchase common shares and
the resultant imputed interest savings would have an anti-dilutive effect on
loss per share.
10. RELATED PARTY TRANSACTIONS
Consulting, management and finders fees of $CAD145,147 (June 30, 1997 -
$CAD133,530, 1996 - $CAD212,713) were paid by Dynamic Digital Depth Inc. to
companies whose directors are also directors of Dynamic Digital Depth Inc..
These transactions were based on an arms length transactions under normal
commercial terms.
Included in the accounts payable and accrued liabilities at 30 June, 1997 is an
amount $CAD64,115 due to a director of Dynamic Digital Depth Inc.. On July 1,
1997, $CAD60,000 of the amount was converted to 48,000 common shares of the
Company at $CAD1.25 per share and the remainder was repaid in cash.
F-10
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. SUBSEQUENT EVENTS (UNAUDITED)
SHARES CAPITAL MOVEMENTS SUBSEQUENT TO 30 JUNE 1998
a) In June 1999, the Company entered into a Development Agreement with General
Instrument Corporation, a major manufacturer of cable headend equipment and
television set-top boxes. As part of the Agreement, General Instrument
Corporation purchased 1.5 million common shares and 1 million common share
purchase warrants for net proceeds of approximately $CAD2.8million. At the
same time, the Company received a co-investment from a third party with net
proceeds of $CAD930,000, in exchange for 500,000 common shares and 500,000
common share purchase warrants. The common share purchase warrants issued
to General Instrument Corporation and the co-investor are exerciseable over
a three year term with increasing exercise prices ranging from $CAD3.50 to
$CAD5.50 per share. Under the Development Agreement, US$250,000 will be
used to pay General Instruments Corporation for equipment and engineering
services to integrate the Company's 2D-compatible 3D technology and General
Instrument's digital set-top terminals.
b) The company has issued 159,470 common shares based on the conversion of
options issued prior to 30 June 1998. The date and number of options
converted are detailed below.
March 3, 1999 9,700
May 26, 1999 69,770
May 12, 1999 40,000
June 10, 1999 40,000
c) The company has purchased 25,300 shares and cancelled them. The date and
number of share purchased and cancelled are detailed below.
November 16, 1998 10,300
May 1, 1999 15,000
d) On June 15, 1999, 200,000 share purchase warrants referred to in note 8
were converted.
e) On September 7, 1998, 200,000 options were issued over common shares to an
executive officer of the company, exercisable on or before September 7, 2003
at an exercise price of $CAD 1.50.
f) Dynamic Digital Depth Australia Pty Ltd entered into an option deed on
January 13, 1999 which provides Dynamic Digital Depth Australia Pty Ltd a
call option over a building comprising 1,711 square meters. Dynamic Digital
Depth Australia Pty Ltd has paid a non-refundable option fee of A$500,000
(Australian Dollars). The option is exerciseable at A$2,000,000 through to
November 1999. The option deed also provides a put option over the same
building between December 1, 1999 through December 14, 1999 whereby the
owner may put the building back to Dynamic Digital Depth Australia Pty Ltd
at the exercised price.
LITIGATION
g) In January 1999 Angus Duncan Richards ("Richards") served a notice of
dispute on the Company relating to the terms of a Consulting Agreement
between the Company and Richards. The dispute is subject to arbitration for
which no date has been set. The Company refutes all of the allegations and
intends to rigorously defend this matter.
h) In December 1998 Angus Duncan Richards ("Richards") commenced litigation in
Alberta, Canada seeking monetary damages for $CAD227,500 plus interest and
court costs. Richards alleges the Company failed to permit him to exercise
options to purchase 182,000 common shares at an exercise price of $0.25 per
share based upon the determination that the options had expired. The Company
filed a Statement of Defence in February 1999. The Company refutes all of
the allegations and intends to rigorously defend this matter.
F-11
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. LOSS CARRYFORWARD
The Company has non-capital accumulated losses carried forward for income tax
purposes amounting to $CAD7,460,938, the benefit of which has not been reflected
in the accounts. The losses of the Company of $CAD127,878, $CAD199,320,
$CAD344,244, $CAD746,968 must be utilised by June 30, 2002, 2003, 2004 and 2005
respectively. The remaining losses can be carried forward indefinitely.
13. GEOGRAPHIC SEGMENTS
<TABLE>
<CAPTION>
AUSTRALIA USA CANADA ELIMINATIONS CONSOLIDATED
1998 $CAD $CAD $CAD $CAD $CAD
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE 339,656 22,117 6,292 - 368,065
--------------------------------------------- ------------------
NET LOSS FOR THE YEAR (1,061,985) (186,824) (1,008,084) - (2,256,893)
--------------------------------------------- ------------------
--------------------------------------------- ------------------
IDENTIFIABLE ASSETS 2,542,062 4,617,020 12,753,017 (10,709,581) 9,202,518
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AUSTRALIA CANADA ELIMINATIONS CONSOLIDATED
1997 $CAD $CAD $CAD $CAD
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE 257,933 20,895 - 278,828
------------------------------ -----------------
NET LOSS FOR THE YEAR (1,336,407) (262,704) - (1,599,111)
------------------------------ -----------------
------------------------------ -----------------
IDENTIFIABLE ASSETS 1,369,652 4,826,128 (3,921,902) 2,273,878
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AUSTRALIA CANADA ELIMINATIONS CONSOLIDATED
1996 $CAD $CAD $CAD $CAD
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE 910,336 2,089 912,425
------------------------------ -----------------
NET LOSS FOR THE YEAR (1,054,691) (168,256) (1,222,947)
------------------------------ -----------------
------------------------------ -----------------
IDENTIFIABLE ASSETS 497,537 2,225,268 (1,879,238) 843,567
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
14. YEAR 2000
The Year 2000 Issue arises because many computerised systems use two digits
rather than four to identify a year. Date-sensitive systems may recognise 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.
F-12
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
ORDINARY SHARES CONTRIBUTED CUMULATIVE DEFICIT TOTAL
SURPLUS TRANSLATION SHAREHOLDERS'
ADJUSTMENT EQUITY
SHARES $CAD $CAD $CAD $CAD $CAD
------------- --------------- ----------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 5,985,315 941,398 41,727 16,801 (751,231) 248,695
Issue of 2,300,000 shares
through private placement,
net of issuance costs......... 2,300,000 1,736,000 - - - 1,736,000
Loss on translation of foreign
controlled entities........... - - - (33,452) - (33,452)
Net loss after tax.............. - - - - (1,222,947) (1,222,947)
------------- --------------- ----------------- --------------- --------------- -----------------
Balance at June 30,1996 8,285,315 2,677,398 41,727 (16,651) (1,974,178) 728,296
Issue of 855,881 shares through
private placement, net of
issuance costs................ 855,881 1,127,783 - - - 1,127,783
Issue of 17,780 shares on
exercise of stock options..... 17,780 25,850 - - - 25,850
Issue of 150,000 shares on
exercise of warrants.......... 150,000 187,500 - - - 187,500
Loss on translation of foreign
controlled entities........... - - - (19,661) - (19,661)
Adjustment to contributed
surplus....................... - - 400,461 - - 400,461
Net loss after tax.............. - - - - (1,599,111) (1,599,111)
------------- --------------- ----------------- --------------- --------------- -----------------
Balance at June 30, 1997 9,308,976 4,018,531 442,188 (36,312) (3,573,289) 851,118
Issue of 5,359,791 shares
through private placement,
net of issuance costs......... 5,311,791 7,813,135 - - - 7,813,135
Issue of 48,000 shares in lieu
of amount payable to a
director...................... 48,000 60,000 - - - 60,000
Issue of 1,550,959 shares on
conversion of promissory
notes......................... 1,550,959 1,894,029 - - - 1,894,029
Issue of 109,770 shares on
exercise of stock options..... 109,770 143,213 - - - 143,213
Issue of 100,000 shares on
exercise of warrants.......... 100,000 75,000 - - - 75,000
Repurchase of shares through
normal course issuer bid.
(share buy-back)................ (80,800) (172,340) - - - (172,340)
Loss on translation of foreign
controlled entities........... - - - (36,874) - (36,874)
Adjustment to contributed
surplus....................... - - 49,283 - - 49,283
Net loss after tax.............. - - - - (2,256,893) (2,256,893)
------------- --------------- ----------------- --------------- --------------- -----------------
Balance at June 30, 1998 16,348,696 13,831,568 491,471 (73,186) (5,830,182) 8,419,671
Issue of 9,700 shares on
exercise of stock options..... 9,700 12,610 - - - 12,610
Repurchase of shares through
normal course issuer bid.
(share buy-back)................ (741,174) (1,496,793) - - - (1,496,793)
Gain on translation of foreign
controlled entities........... - - - 268,798 - 268,798
Net loss after tax.............. - - - - (2,439,490) (2,439,490)
------------- --------------- ----------------- --------------- --------------- -----------------
Balance at 31 March 1999
(unaudited) 15,617,222 12,347,385 491,471 195,612 (8,269,672) 4,764,796
------------- --------------- ----------------- --------------- --------------- -----------------
NOTE : THE FIGURE FOR THE NUMBER OF SHARES HAVE BEEN ADJUSTED FOR THE EFFECT OF
A ONE FOR FIVE REVERSE STOCK SPLIT WHICH OCCURRED IN AUGUST 1998.
</TABLE>
F-13
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SUMMARY OF DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ("US GAAP")
The Company's financial statements are prepared in accordance with Canadian
GAAP, which differ in certain significant respects from US GAAP. The significant
differences relate principally to the following items and the adjustments
necessary to reconcile the consolidated net income, shareholders' equity, and
certain balance sheet accounts in accordance with US GAAP are shown in the
schedules below.
a) DEVELOPMENT COSTS
Under Canadian GAAP development costs that meet specific criteria related to
technical, market and financial feasibility are capitalised. Amortisation of
development costs will start upon commencement of commercial production. For US
GAAP purposes, development costs are expensed in the period incurred. The
Canadian GAAP and US GAAP reconciliation includes an adjustment to expense the
capitalised development costs in the relevant year those costs were incurred. In
fiscal year ended June 30, 1998 CAD$756,060 (1997 : $CAD859,885) of development
costs have been expensed in the reconciliation to net loss under US GAAP,
representing expenditure incurred in that year. Refer to note 16 (g) for the
effect of the write off.
b) INCOME TAXES
Under US GAAP income taxes are computed using the asset and liability method.
Under the asset and liability method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted tax
rates and laws.
Under Canadian GAAP certain differences between the book and tax basis of assets
and liabilities are treated as permanent differences because their reversal is
not considered probable in the foreseeable future. Under US GAAP, Statement of
Financial Accounting Standards No. 109, " Accounting for Income Taxes," these
differences would be accounted for as temporary differences.
Under Canadian GAAP, the deferred tax asset in respect of income tax losses
carried forward are not recognised unless the benefit is virtually certain of
realisation. Under US GAAP, the benefit is not recognised unless realisation is
more likely than not. Based on the present circumstances, the deferred income
tax assets have not been recognised as it is more likely than not that the
benefit will not be realised.
c) PROMISSORY NOTES
Under Canadian GAAP the debt component of the note issue is the present value of
the required interest and principal payments discounted at a rate approximating
the interest rate that would have been applicable to non-convertible debt at the
time of its issuance. The difference between the face amount of the loan and the
calculated debt component has been recorded as contributed surplus.
Under US GAAP only the warrant component is reflected in shareholders equity.
Refer to note 16 (g) for the effect of the change in GAAP.
For the purposes of this reconciliation, the company accounts for debt issued
with stock purchase warrants in accordance with APB Opinion No. 14, "Accounting
for Convertible Debt and Debt Issued with Stock Purchase Warrants." The interest
expense is calculated based on the percentage attached to the convertible debt.
Refer to note 16 (g) for the effect of the change in GAAP.
d) PATENT COSTS
Under Canadian GAAP patent costs capitalised included both internal and external
costs. Under US GAAP only external costs are capitalised. Refer not 16 (g) for
the effect of the difference in GAAP.
F-14
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SUMMARY OF DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ("US GAAP") (CONTINUED)
e) EMPLOYEE STOCK OPTIONS
For the purposes of this reconciliation, the Company accounts for stock options
granted to employees and directors in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and intends to continue to do so.
Under Canadian GAAP, stock options are only recognised when converted and the
exercise price paid is treated as issued capital. Net income has been adjusted
for this difference.
f) EARNINGS PER SHARE
Under Canadian GAAP, diluted earnings per share is determined by dividing the
net income adjusted to include the assumed income, net of tax, from investing
the proceeds from the exercise of outstanding share options and warrants in 180
day bank bills, by the weighted average number of ordinary shares, both on issue
and potentially dilutive options, outstanding during the financial year.
Under US GAAP, the treasury stock method would be used to compute diluted
earnings per share.
In the reconciliation below no effect has been given in the US GAAP computation
of earnings per share to potential dilutive securities as their effect is
anti-dilutive.
g) THE FOLLOWING TABLE SUMMARISES THE EFFECT ON NET LOSS OF THE DIFFERENCES
BETWEEN CANADIAN AND US GAAP.
<TABLE>
<CAPTION>
---------------------------- ------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED YEAR ENDED 30 JUNE
31 MARCH
1999 1998 1998 1997 1996
$CAD $CAD $CAD $CAD $CAD
---------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loss after income tax under Canadian GAAP (2,439,490) (1,529,400) (2,256,893) (1,599,111) (1,222,947)
Write off development costs 16 (a) (1,015,494) (507,654) (756,060) (859,885) -
Promissory notes 16 (c) - 94,954 103,370 - -
Internal patent costs 16 (d) - - (39,262) - -
Employee stock options 16 (e) (44,363) (63,834) (77,620) - -
---------------------------- ------------------------------------------
Net loss under US GAAP (3,499,347) (2,005,934) (3,026,465) (2,458,996) (1,222,947)
Foreign currency translation adjustment 268,798 (171,536) (36,874) (19,661) (33,452)
---------------------------- ------------------------------------------
Comprehensive loss (3,230,549) (2,177,470) (3,063,339) (2,478,657) (1,256,399)
---------------------------- ------------------------------------------
---------------------------- ------------------------------------------
Basic Earnings and Diluted Earnings per share
under Canadian GAAP (0.15) (0.16) (0.21) (0.19) (0.18)
Basic Earnings and Diluted Earnings per share
under US GAAP (0.22) (0.21) (0.29) (0.28) (0.18)
</TABLE>
F-15
<PAGE>
DYNAMIC DIGITAL DEPTH INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SUMMARY OF DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ("US GAAP") (CONTINUED)
The following table summarises the effect on the shareholders' equity of the
differences between Canadian and US GAAP
<TABLE>
<CAPTION>
--------------------------- ---------------------------
(UNAUDITED)
NINE MONTHS ENDED YEAR ENDED 30 JUNE
31 MARCH
1999 1998 1998 1997
$CAD $CAD $CAD $CAD
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Shareholders' equity/(deficiency) under Canadian GAAP 4,764,796 (132,512) 8,419,671 851,118
Development Costs 16 (a) (2,631,439) (1,367,539) (1,615,945) (859,885)
Promissory Notes 16 (c) - (264,790) - (310,461)
Internal patent costs 16 (d) - - (39,262) -
--------------------------- ---------------------------
Shareholders' equity/(deficiency) under US GAAP 2,133,357 (1,764,841) 6,764,464 (319,228)
--------------------------- ---------------------------
--------------------------- ---------------------------
</TABLE>
The following table summarises the effect on the balance sheet of the
differences between Canadian and US GAAP
<TABLE>
<S> <C> <C> <C> <C>
Total assets under Canadian GAAP 5,285,798 2,305,807 9,202,518 2,273,878
Development costs 16 (a) (2,631,439) (1,367,539) (1,615,945) (859,885)
Internal patent costs 16 (d) - - (39,262) -
--------------------------- ---------------------------
Total assets under US GAAP 2,654,359 938,268 7,547,311 1,413,993
--------------------------- ---------------------------
--------------------------- ---------------------------
</TABLE>
h) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
US GAAP - DERIVATIVES
In June 1998 (effectiveness date revised in June 1999), the Financial Accounting
Standards Board issued Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES, which is required to be adopted in years beginning after
June 15, 2000. The Statement will require the Company to recognise all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognised in other
comprehensive income until the hedged item is recognised in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognised in earnings. The Company has not yet determined what the effect of
Statement 133 will be on the earnings and financial position of the Company.
CANADIAN AND US GAAP - SEGMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (Statement 131) and the Accounting Standards
Board of the CICA issued similar recommendations, which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore the
company will adopt the new requirements retroactively in fiscal 1999. Management
has not completed it review of Statement 131, but does not anticipate that the
adoption of this statement will have a significant effect on the Company's
reported segments.
F-16
<PAGE>
Exhibit 1(1)
20360267
-------------------------------------
CORPORATE ACCESS NO.
ALBERTA
BUSINESS CORPORATIONS ACT
Form 2
CERTIFICATE OF INCORPORATION
-MIRABEAU RESOURCES LIMITED-
-------------------------------------------------------------------------
Name of Corporation
I HEREBY CERTIFY THAT THE ABOVE-MENTIONED CORPORATION, THE ARTICLES
OF INCORPORATION OF WHICH ARE ATTACHED, WAS INCORPORATED UNDER
THE BUSINESS CORPORATIONS ACT OF THE PROVINCE OF ALBERTA.
---------------------------------------
Registrar of Corporations
FEBRUARY 4, 1987
---------------------------------------
Date of Incorporation
<PAGE>
Exhibit 1(2)
ARTICLES OF INCORPORATION
Name of Corporation
MIRABEAU RESOURCES LIMITED
The Classes and any Maximum Number of Shares that the Corporation is Authorized
to Issue
The Corporation is authorized to issue an unlimited number of:
First Preferred Shares, issuable in series, the rights, privileges,
restrictions, and conditions of which are set forth in
Appendix 1 attached hereto and incorporated herein;
Second Preferred Shares, issuable in series, the rights, privileges,
restrictions and conditions of which are set forth in Appendix
2 attached hereto and incorporated herein;
Common Shares, the rights, privileges, restrictions and conditions of
which are set forth in Appendix 3 attached hereto and
incorporated herein.
Restrictions, if any, on Share Transfers
None
Number (or Minimum and Maximum Number of Directors)
Minimum of three, maximum of seven
Restrictions on Business to be Carried On
None
Other provisions, if any:
Without in any way limiting the borrowing powers of the Corporation or
of the directors as set out in the Business Corporations Act
and in the Bylaws (as amended from time to time), the
directors of the Corporation may from time to time:
borrow money upon the credit of the Corporation;
issue, reissue, pledge and/or sell securities, bonds,
debentures, notes or other evidences of indebtedness
of or in guarantee by the Corporation, whether
secured or unsecured;
charge, mortgage, hypothecate, pledge or otherwise create an
interest in or charge upon all or any property of any
nature, present or future (including, without
limitation, the under-taking and rights of the
Corporation (by way
<PAGE>
of charge, mortgage, hypothec, pledge or otherwise)
in order to secure any securities, bonds, debentures,
notes or other evidences of indebtedness of or
guarantee by the Corporation, or money borrowed by or
other debtor liabilities of the Corporation;
and nothing herein restricts or limits the borrowing of money
by the Corporation on bills of exchange or promissory notes
made, drawn, accepted or endorsed by or on behalf of the
Corporation.
The Board may from time to time delegate to one or more of the
directors and/or officers of the Corporation as designated by
the directors, all or any of the powers conferred on the
directors by the foregoing or by the Business Corporations Act
to such extent and in such manner as the directors shall
determine at the time of such delegation;
The Corporation is entitled to a lien on shares registered in the
name of the shareholder for a debt owing to the Corporation;
The directors may, between annual general meetings, appoint one or
more additional directors of the Corporation to serve until
the next annual general meeting, but the number of additional
directors shall not at any time exceed 1/3 the number of
directors who held office at the expiration of the last annual
meeting of the Corporation.
Date: January 27, 1987
INCORPORATOR'S NAME ADDRESS
Katherine E. Sibold 900, 340 - 12 Avenue S.W.
Calgary, Alberta T2R 1L5
-------------------------
Katherine E. Sibold
<PAGE>
APPENDIX I
The First Preferred Shares, as a class, shall carry and be subject to the
following designations, rights, privileges, restrictions and conditions:
RIGHT TO ISSUE IN ONE OR MORE SERIES
The First Preferred Shares may at any time or from time to time be
issued in one (1) or more series, each series to consist of such number
of shares as may before .the issue thereof be determined by the
directors who may determine, from time to time before the issue
thereof, the designation, rights, privileges, restrictions and
conditions attaching to the shares of each such series, the whole
subject to the following provisions and to the issue of Articles of
Amendment setting forth the designation, rights, privileges,
restrictions and conditions attaching to the shares of each series.
RANKING OF FIRST PREFERRED SHARES
The First Preferred Shares of each series shall rank on a parity with
the First Preferred Shares of every other series with respect to
priority in payment of dividends and amounts payable on return of
capital. When any dividends or amounts payable on return of capital are
not paid in full, the First Preferred Shares of all series shall
participate ratably in respect of such dividends which, in the case of
cumulative dividends, shall cover all prior completed periods in
respect of which such dividends are accrued and unpaid plus such
further amounts, if any, in respect of dividends as may be specified in
the provisions attaching to any particular series, and, in the case of
non-cumulative dividends, shall cover all such dividends declared and
unpaid, and on any return of capital in accordance with the sums that
would be payable on such return of capital if all sums so payable were
paid in full including premiums, if any, as have been provided for with
respect to any series.
The First Preferred Shares shall be entitled to preference over the
common shares and the Second Preferred Shares of the Corporation and
over any other shares ranking junior to the First Preferred Shares with
respect to priority in payment of dividends which, in the case of
cumulative dividends, shall cover all prior completed periods in
respect of which such dividends are accrued and unpaid plus such
further amounts, if any, in respect of dividends as may be specified in
the provisions attaching to any particular series and, in the case of
non-cumulative dividends, shall cover all such dividends declared and
unpaid, and with respect to distribution of assets, including premiums,
if any, as have been provided for with respect to any series in the
event of liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or any other distribution of the
assets of the Corporation among its shareholders for the purpose of
winding up its affairs and may also be given such other preferences not
inconsistent with paragraphs 1 to 6 hereof over the common shares and
the Second Preferred Shares of the Corporation and over any other
shares ranking junior to the First Preferred Shares. After payment to
the holders of the First Preferred Shares of the amounts payable to
them, they shall not be entitled to share in any further distributions
of the property or assets of the Corporation.
<PAGE>
The holders of any series of First Preferred Shares shall not be
entitled to any further or other dividends than those expressly
provided for in the rights, privileges, restrictions and conditions
attached to the First Preferred Shares of such series.
DECLARATION OF DIVIDENDS
The directors may, at any time or from time to time, determine, with
respect to any cash dividend declared payable on the First Preferred
Shares a class or any series thereof, that the holders of the shares of
such class or series, or the holders of shares of such class or series
whose addresses, on the records of the Corporation, are in Canada
and/or in specified jurisdictions outside Canada, shall have the right
to elect to receive such dividends in the form of a stock dividend
payable in shares of the capital stock of the Corporation having a
value, as determined by the directors, that is substantially
equivalent, as of the date determined by the directors, to the cash
amount of such dividend, except that shareholders shall receive cash in
lieu of fractional interests in the shares to which they would
otherwise be entitled unless the directors shall otherwise determine.
VOTING RIGHTS
Except as required by law or as hereinafter specifically provided with
respect to any other series of First Preferred Shares then outstanding,
the holders of the First Preferred Shares shall not be entitled as such
to receive notice of or to attend any meeting of the shareholders of
the Corporation or to vote at any such meeting.
AMENDMENT WITH APPROVAL OF HOLDERS FIRST PREFERRED SHARES
The rights, privileges, restrictions and conditions attaching to the
First Preferred Shares as a class may be changed at any time or from
time to time with such approvals as may be required by law and with the
approval of the holders of the First Preferred Shares as a class, such
approval to be given in the manner provided in paragraph 6 hereof.
APPROVAL OF HOLDERS OF FIRST PREFERRED SHARES
Any consent or approval given by the holders of First Preferred Shares
as a class shall be deemed to have been sufficiently given if passed at
a meeting of holders of First Preferred Shares duly called and held
upon not less than twenty-one (21) days notice at which the holders of
outstanding First Preferred Shares to which are attached forty per cent
(40%) of the votes attached to all outstanding First Preferred Shares
are present (the "quorum") or are represented by proxy and carried by
the affirmative vote of not less than two-thirds (2/3) of the votes
cast at such meeting.
If at any such meeting a quorum is not present or represented by proxy
within one-half hour after the time appointed for such meeting then the
meeting (if called by the Corporation) shall be adjourned to such date
not less than twenty-one days thereafter and to such time and place as
may be designated by the chairman, and not less than ten (10) days'
written notice shall be given of such adjourned meeting. At such
adjourned meeting the holders of the First Preferred Shares present or
represented by proxy may transact the
<PAGE>
business for which the meeting was originally convened and a resolution
passed thereat by affirmative vote of not less than two-thirds (2/3) of
the votes cast at such meeting shall constitute the consent or approval
of the holders of First Preferred Shares. On every ballot taken at
every such meeting every holder of First Preferred Shares shall be
entitled to one (1) vote in respect of each one dollar ($1.00)
aggregate stated issue price of First Preferred Shares held by such
holder. Subject to the foregoing, the formalities to be observed in
respect of the giving or waiving of notice of any such meeting and the
conduct thereof shall be those from time to time prescribed in the
by-laws of the Corporation with respect to meetings of shareholders.
If the variation of the rights, privileges, restrictions and conditions
hereinbefore contained affects the rights of the holders of First
Preferred Shares of any series in a manner different from other holders
of First Preferred Shares, then such variation shall, in addition to
being approved by the holders of the First Preferred Shares of such
series so affected, which approval shall be given by resolution passed
by not less than two-thirds (2/3) of the votes cast at the meeting of
the holders of First Preferred Shares of such series, and the
provisions of this paragraph 6 shall apply, mutatis mutandis, with
respect to the holding of such meeting and in particular in respect of
the quorum required.
<PAGE>
APPENDIX 2
The Second Preferred Shares, as a class, shall carry and be subject to the
following designations, rights, privileges, restrictions and conditions:
RIGHT TO ISSUE IN ONE OR MORE SERIES
The Second Preferred Shares may at any time or from time to time be
issued in one (1) or more series, each series to consist of such number
of shares as may before the issue thereof be determined by the
directors who may determine, from time to time before the issue
thereof, the designation, rights, privileges, restrictions and
conditions attaching to the shares of each such series, the whole
subject to the following provisions and to the issue of Articles of
Amendment setting forth the designation, rights, privileges,
restrictions and conditions attaching to the shares of each series.
RANKING OF SECOND PREFERRED SHARES
The Second Preferred Shares of each series shall rank on a parity with
the Second Preferred Shares of every other series with respect to
priority in payment of dividends and amounts payable on return of
capital. When any dividends or amounts payable on return of capital are
not paid in full, the Second Preferred Shares of all series shall
participate ratably in respect of such dividends which, in the case of
cumulative dividends, shall cover all prior completed periods in
respect of which such dividends are accrued and unpaid plus such
further amounts, if any, in respect of dividends as may be specified in
the provisions attaching to any particular series, and, in the case of
non-cumulative dividends, shall cover all such dividends declared and
unpaid, and on any return of capital in accordance with the sums that
would be payable on such return of capital if all sums so payable were
paid in full including premiums, if any, as have been provided for with
respect to any series.
The Second Preferred Shares shall be entitled to preference over the
common shares of the Corporation and over any other shares ranking
junior to the Second Preferred Shares, but shall rank junior to the
First Preferred Shares of the Corporation, with respect to priority in
payment of dividends which, in the case of cumulative dividends, shall
cover all prior completed periods in respect of which such dividends
are accrued and unpaid plus such further amounts, if any, in respect of
dividends as may be specified In the provisions attaching to any
particular series and, in the case of non-cumulative dividends, shall
cover all such dividends declared and unpaid, and with respect to
distribution of assets, including premiums, if any, as have been
provided for with respect to any series in the event of liquidation,
dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the assets of the Corporation
among its shareholders for the purpose of winding up its affairs and
may also be given such other preferences not inconsistent with
paragraphs 1 to 6 hereof over the common shares of the Corporation and
over any other shares ranking junior to the Second Preferred Shares.
After payment to the holders of the Second Preferred Shares of the
amounts payable to
<PAGE>
them, they shall not be entitled to share in any further distributions
of the property or assets of the Corporation.
The holders of any series of Second Preferred Shares shall not be
entitled to any further or other dividends than those expressly
provided for in the rights, privileges, restrictions and conditions
attached to the Second Preferred Shares of such series.
DECLARATION OF DIVIDENDS
The directors may, at any time or from time to time, determine, with
respect to any cash dividend declared payable on the Second Preferred
Shares a class or any series thereof, that the holders of the shares of
such class or series, or the holders of shares of such class or series
whose addresses, on the records of the Corporation, are in Canada
and/or in specified jurisdictions outside Canada, shall have the right
to elect to receive such dividends in the form of a stock dividend
payable in shares of the capital stock of the Corporation having a
value, as determined by the directors, that is substantially
equivalent, as of the date determined by the directors, to the cash
amount of such dividend, except that shareholders shall receive cash in
lieu of fractional interests in the shares to which they would
otherwise be entitled unless the directors shall otherwise determine.
VOTING RIGHTS
Except as required by law or as hereinafter specifically provided with
respect to any other series of Second Preferred Shares then
outstanding, the holders of the Second Preferred Shares shall not be
entitled as such to receive notice of or to attend any meeting of the
shareholders of the Corporation or to vote at any such meeting.
AMENDMENT WITH APPROVAL OF HOLDERS SECOND PREFERRED SHARES
The rights, privileges, restrictions and conditions attaching to the
Second Preferred Shares as a class may be changed at any time or from
time to time with such approvals as may be required by law and with the
approval of the holders of the Second Preferred Shares as a class, such
approval to be given in the manner provided in paragraph 6 hereof.
APPROVAL OF HOLDERS OF SECOND PREFERRED SHARES
Any consent or approval given by the holders of Second Preferred Shares
as a class shall be deemed to have been sufficiently given if passed at
a meeting of holders of Second Preferred Shares duly called and held
upon not less than twenty-one (21) days notice at which the holders of
outstanding Second Preferred Shares to which are attached forty per
cent (40%) of the votes attached to all outstanding Second Preferred
Shares are present (the "quorum") or are represented by proxy and
carried by the affirmative vote of not less than two-thirds (2/3) of
the votes cast at such meeting.
If at any such meeting a quorum is not present or represented by proxy
within one-half hour after the time appointed for such meeting then the
meeting (if called by the Corporation) shall be adjourned to such date
not less than twenty-one days thereafter and
<PAGE>
to such time and place as may be designated by the chairman, and not
less than ten (10) days written notice shall be given of such adjourned
meeting. At such adjourned meeting the holders of the Second Preferred
Shares present or represented by proxy may transact the business for
which the meeting was originally convened and a resolution passed
thereat by affirmative vote of not less than two-thirds (2/3) of the
votes cast at such meeting shall constitute the consent or approval of
the holders of Second Preferred Shares. On every ballot taken at every
such meeting every holder of Second Preferred Shares shall be entitled
to one (1) vote In respect of each one dollar ($1.00) aggregate stated
issue price of Second Preferred Shares held by such holder. Subject to
the foregoing, the formalities to be observed in respect of the giving
or waiving of notice of any such meeting and the conduct thereof shall
be those from time to time prescribed in the by-laws of the Corporation
with respect to meetings of shareholders.
If the variation of the rights, privileges, restrictions and conditions
hereinbefore contained affects the rights of the holders of Second
Preferred Shares of any series in a manner different from other holders
of Second Preferred Shares, then such variation shall, in addition to
being approved by the holders of the Second Preferred Shares of such
series so affected, which approval shall be given by resolution passed
by not less than two-thirds (2/3) of the votes cast at the meeting of
the holders of Second Preferred Shares of such series, and the
provisions of this paragraph 6 shall apply, mutatis mutandis, with
respect to the holding of such meeting and in particular in respect of
the quorum required.
<PAGE>
APPENDIX 3
The common shares of the Corporation have attached thereto the
following:
the right to one vote per share held on a ballot at any meeting of the
shareholders of the Corporation except meetings at which only holders
of a specified class or series of a class of shares are entitled to
vote;
the right to receive dividends as and when declared by the Corporation on
the common shares as a class, subject to prior satisfaction of all
preferential rights to dividends attached to all shares of other
classes of shares of the Corporation ranking in priority to the common
shares in respect of dividends; and
the right to receive the remaining property of the Corporation on
dissolution, subject to prior satisfaction of all preferential rights
to return to capital on dissolution attached to all shares of other
classes of shares of the Corporation ranking in priority to the common
shares in respect of return of capital on dissolution.
<PAGE>
Exhibit 1(3)
CORPORATE ACCESS NUMBER 20360267
ALBERTA
BUSINESS CORPORATIONS ACT
CERTIFICATE
OF
AMENDMENT
MIRABEAU 88 LIMITED
CHANGED ITS NAME TO XENOTECH INC. ON AUGUST 11, 1994.
---------------------------------------
Registrar of Corporations
<PAGE>
Exhibit 1(4)
FORM 4
BUSINESS CORPORATIONS ACT
(SECTION 27 OR 171)
ALBERTA CONSUMER AND
CORPORATE AFFAIRS
ARTICLES OF AMENDMENT
- --------------------------------------------------------------------------------
1. Name of Corporation 2. Corporate Access No.
MIRABEAU 88 LIMITED 20360267
- --------------------------------------------------------------------------------
3. The Articles of the above-named corporation are amended as follows:
PURSUANT TO SECTION 167(1)(A) OF THE BUSINESS CORPORATIONS ACT, ITEM 1
OF THE ARTICLES OF INCORPORATION IS HEREBY AMENDED TO CHANGE THE NAME
OF THE CORPORATION FROM MIRABEAU 88 LIMITED TO
XENOTECH INC.
- --------------------------------------------------------------------------------
Date Signature Title
AUGUST 11, 1994 Solicitor & Agent
- --------------------------------------------------------------------------------
For Department Use Only Filed
20360267
---------------------------------------------
CORPORATE ACCESS NO.
<PAGE>
ALBERTA
BUSINESS CORPORATIONS ACT
Form 5
CERTIFICATE OF AMENDMENT
- MIRABEAU 88 LIMITED -
- --------------------------------------------------------------------------------
Name of Corporation
I HEREBY CERTIFY THAT THE ARTICLES OF THE ABOVE-MENTIONED CORPORATION WERE
AMENDED.
/ / UNDER SECTION 13 OF THE BUSINESS CORPORATIONS ACT IN ACCORDANCE WITH
THE ATTACHED NOTICE:
/ / UNDER SECTION 27 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF AMENDMENT DESIGNATING A SERIES OF SHARES;
/X/ UNDER SECTION 171 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF AMENDMENT;
/ / UNDER SECTION 185 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF REORGANIZATION;
/ / UNDER SECTION 186 OF THE BUSINESS CORPORATIONS ACT AS SET OUT IN THE
ATTACHED ARTICLES OF ARRANGEMENT.
---------------------------------------
Registrar of Corporation
AUGUST 4, 1988
---------------------------------------
Date of Amendment
<PAGE>
BUSINESS CORPORATIONS ACT
(SECTION 27 or 171)
ALBERTA Consumer and Corporate Affairs ARTICLES OF AMENDMENT
- --------------------------------------------------------------------------------
1. NAME OF CORPORATION 2. CORPORATE ACCESS NUMBER:
MIRABEAU RESOURCES LIMITED 20360267
- --------------------------------------------------------------------------------
3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
Pursuant to Section 167(1)(a), the name of the Corporation is changed
to MIRABEAU 88 LIMITED and paragraph one (1) of the Articles of
Incorporation is amended to read:
"1. The name of the corporation is MIRABEAU 88 LIMITED".
Pursuant to Section 167(1)(f) of the Business Corporations Act
(Alberta) the Corporation will consolidate the Five Million (5,000,000)
issued and outstanding Common Shares in the capital of the Corporation
into One Million (1,000,000) issued and outstanding Common Shares
(hereinafter in the said paragraph called "Common Shares") on the basis
that each five (5) of the said Five Million (5,000,000) issued and
outstanding Common Shares shall become one (1) Common Share, provided
however, that any person who on the date of these articles of amendment
become effective is a registered holder on the records of the
Corporation of a number of Common Shares not divisible by five (5)
shall not be entitled to be entered on the set records of the
Corporation as the holder of one-fifth (1/5th) of the Common Share, in
respect of the odd Common Share or Common Shares held by such person or
to receive a certificate thereof, but in lieu thereof any such persons
shall be entitled to receive in respect of each such odd Common Share
on the surrender of the certificate or certificates representing issued
and outstanding Common Shares without par value in the capital of the
Corporation an non-voting and non-dividend bearing transferable
fractional bearer a certificate in the form approved by the board of
directors of the Corporation representing one-fifth (1/5th) of the
Common Share and entitling such bearer to receive upon the surrender of
such fractional certificate accompanied four (4) similar fractional
certificates sufficient on consolidation thereof to make up a whole
Common Share a certificate representing one (1) Common Share; such
fractional certificates shall not entitled the bearer thereof prior to
surrender thereof for consolidation as aforesaid to any dividends in
respect of the fraction of a Common Share represented thereby or to
vote at any meeting of the shareholders of the Corporation; any
dividends declared upon Common Shares the holders of such shares of
record as of a date prior to such surrender for consolidation as
aforesaid shall be paid to the first holder of record of a Common Share
issued upon such surrender of fractional certificates for consolidation
as aforesaid.
- --------------------------------------------------------------------------------
6. DATE SIGNATURE TITLE
JULY 28, 1988 ----------------------- DIRECTOR
JOHN N. CAMPBELL
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY FILED
<PAGE>
Exhibit 1(5)
SOLOMON BROTHERS
LVL 40 EXCHANGE PLAZA
2 THE ESPLANADE
PERTH WA 6000
Remove this top section if desired before framing
- --------------------------------------------------------------------------------
CERTIFICATE OF REGISTRATION
OF FOREIGN COMPANY
(ON CHANGE OF NAME)
This is to certify that
XENOTECH INC.
AUSTRALIAN REGISTERED BODY NUMBER 080 097 918
did on the twenty-sixth day of October 1998 become registered
under the Corporations Law with the name
DYNAMIC DIGITAL DEPTH INCORPORATED
AUSTRALIAN REGISTERED BODY NUMBER 080 097 918
The foreign company was formed or incorporated in
CANADA.
The foreign company was registered under Part 5B.2 of the
Corporations Law on THE SEVENTEENTH DAY OF SEPTEMBER, 1997.
Given under the seal of the
Australian Securities and Investments Commission
on this twenty-sixty day of October, 1998
Alan Cameron
Chairman
<PAGE>
Exhibit 1(6)
our file: 37268.002
July 6, 1999 your file:
contact: SARA-LANE SIREY
THE ALBERTA STOCK EXCHANGE direct line: (403) 237-4713
10th Floor
300 - 5th Avenue S.W. email: [email protected]
Calgary, Alberta
T2P 3C4
ATTENTION: MARK BROWN, VICE PRESIDENT, LISTINGS
Dear Sir:
RE: DYNAMIC DIGITAL DEPTH INC. (THE "CORPORATION") - APPLICATION FOR RELEASE OF
ESCROWED SHARES
As you are aware, we represent the Corporation (formerly Xenotech Inc.,
formerly Mirabeau 88 Limited).
APPLICATION FOR RELEASE OF ESCROWED SHARES
On behalf of the Corporation, we hereby make application for the release of
common shares which are currently subject to two escrow agreements (the "Escrow
Agreements"), both of which are dated August 4, 1994, copies of which are
enclosed herewith.
The Corporation makes application pursuant to paragraph six of the Escrow
Agreements reads as follows:
"6. (a) THE EXCHANGE WILL CONSENT TO THE RELEASE FROM
ESCROW OF ONE SHARE FOR EACH $0.10 OF CASH FLOW
GENERATED BY OR FROM THE PROPERTY.
(b) THE EXCHANGE WILL CONSENT TO THE RELEASE FROM ESCROW
OF ONE SHARE FOR EACH $0.10 RECEIVED BY THE ISSUER,
DISPLAY OR TRUE VISION IN A PAYMENT OF A CAPITAL
ADVANCE PURSUANT TO A LICENSE AGREEMENT ENTERED INTO
BY ANY OF THE ABOVE PARTIES.
(c) ANY RELEASE FROM ESCROW UNDER THIS PARAGRAPH 6 SHALL
BE MADE PURSUANT TO A WRITTEN APPLICATION ON BEHALF
OF THE ISSUER OR THE SECURITY HOLDER, WHICH
APPLICATION SHALL BE ACCOMPANIED BY EVIDENCE OF THE
CASH FLOW AND/OR CAPITAL RECEIVED, IN A FORM
SATISFACTORY TO THE EXCHANGE. APPLICATION FOR RELEASE
MAY ONLY BE MADE ONCE PER YEAR AND MAY ONLY RELATE TO
CASH FLOW AND/OR CAPITAL RECEIVED IN THE PRECEDING
FISCAL YEAR OR THE FISCAL YEARS OF THE ISSUER SINCE
THE LAST RELEASE FROM ESCROW PURSUANT TO THIS
AGREEMENT, WHICH EVER IS GREATER.
(d) NOTWITHSTANDING SUBPARAGRAPH (C) ABOVE, THE MAXIMUM
NUMBER OF SHARES TO BE RELEASED FROM ESCROW IN ANY
YEAR TO THE SECURITY HOLDER PURSUANT TO SUBPARAGRAPH
(A) ABOVE SHALL BE ONE-THIRD OF THE ORIGINAL NUMBER
OF SHARES HELD IN ESCROW ON BEHALF OF THE SECURITY
HOLDER."
<PAGE>
July 6, 1999
The Alberta Stock Exchange
page 2 of 3
The last release from escrow provided by The Alberta Stock Exchange in respect
of the Corporation's common shares occurred on February 10, 1997 in respect of
an application the Corporation made relating to the cash flow and capital
received based on the audited financial statements for the period ended June 30,
1996.
On August 17, 1998, the Corporation consolidated share capital on a 1/5 basis.
Considering this share consolidation, one (1) post consolidated share is
eligible for release for every $0.50 of cash flow, or for every $0.50 received
by the Corporation, or its subsidiaries, in a payment of a capital advance
pursuant to a licence agreement since June 30, 1996.
We have received confirmation from Ernst & Young, the Corporation's auditor,
that the cash flow and/or capital advances made pursuant to licence agreements
since June 30, 1996 total an aggregate of AUS$385,718.00. We herewith enclose
correspondence dated March 4, 1999 from Ernst & Young as well as a copy of the
audited financial statements for the year ended June 30, 1998 in support of the
foregoing. We have been advised by the Bank of Canad that its exchange rate for
Australian dollars to Canadian dollars as of June 30, 1998 was $0.8828.
Therefore, the total amount received from license fees and sales relates to
CDN$340,511.
Accordingly, a total of an aggregate of 681,024 shares are releaseable on a
pro-rata basis to the Escrowed shareholders in accordance with the Escrow
Agreements. We request your written consent for this release and request that
you contact the writer should you require any further information or
documentation in respect of the same.
EXTENSION OF CANCELLATION DATE
Pursuant to Paragraph 11 of each of the Escrow Agreements, the common shares
subject to the Escrow Agreements are to be cancelled on August 4, 1999, unless
otherwise exempted in writing by The Alberta Stock Exchange. It is our
understanding that it is the policy of The Alberta Stock Exchange to extend
cancellation dates of escrow agreements on a year by year basis. Therefore, on
behalf of the Corporation, we hereby make application for the extension of this
deadline for INTER ALIA, the following reasons:
a. The Escrowed Shares are an essential component of the executive
incentive package which maintains and ensures their current and future
contribution to the development of the Corporation's business;
b. The Escrowed Shares were issued in consideration for the technology
when the Corporation was in the research and development stage of
development. The extension of the deadline would be fair and equitable
as the Corporation and its technology are now emerging into the
commercialization stage;
c. Extending the cancellation deadline of the Escrow Agreements would not
be prejudicial to the public interest.
<PAGE>
July 6, 1999
The Alberta Stock Exchange
page 3 of 3
GENERAL
In respect of the foregoing applications, we herewith enclose the following to
assist you in your review of the same:
a. copies of each of the Escrow Agreements;
b. correspondence from The Montreal Trust Company of Canada, the transfer
agent of the Corporation, in respect of the escrowed shareholdings of
the Corporation;
c. correspondence from Ernst & Young dated March 4, 1999;
d. audited financial statements of the Corporation for the year ended June
30, 1998; and
e. cheque in the amount of $53.50 in payment of the fee relating to this
application.
We thank you in advance for your attention to the foregoing and look forward to
receiving your approval in respect of the same.
Yours truly,
ARMSTRONG PERKINS HUDSON
per:
SARA-LANE SIREY
SLS/lf
Enclosures: as stated.
<PAGE>
Exhibit 1(7)
General By-Law
BY-LAW NUMBER 1
A by-law relating generally to the conduct of the business and
affairs of MIRABEAU RESOURCES LIMITED (hereinafter called the "Corporation")
IT IS HEREBY ENACTED as a by-law of the Corporation as
follows:
Division One
INTERPRETATION
1.1. In the by-laws of the Corporation, unless the context
otherwise specifies or requires:
(a) "Act" means the BUSINESS CORPORATIONS ACT of Alberta,
as from time to time amended and every statute that
may be substituted therefor and, in the case of such
substitution, any references in the by-laws of the
Corporation to provisions of the Act shall be read as
references to the substituted provisions therefor in
the new statute or statutes;
(b) "appoint" includes "elect" and vice versa;
(c) "articles" means the articles of incorporation or
continuance of the Corporation, as from time to time
amended or restated;
(d) "board" means the board of directors of the
Corporation;
(e) "business day" means a day which is not a
non-business day;
(f) "by-laws means this by-law and all other by-laws of
the Corporation from time to time in force and
effect;
(g) "meeting of shareholders" includes an annual and a
special meeting of shareholders;
(h) "non-business day" means Saturday, Sunday and any
other day that is a holiday as from time to time
defined in THE INTERPRETATION ACT (Alberta);
(i) "Regulations" means the regulations under the Act as
published or from time to time amended and every
regulation that may be substituted therefor and, in
the case of such substitution, any references in the
by-laws of the Corporation to provisions of the
Regulations shall be read as references to the
substituted provisions therefor in the new
regulations;
<PAGE>
(j) "signing officer" means, in relation to any
instrument, any person authorized to sign the same on
behalf of the Corporation by virtue of section 3.01
of this by-law or by a resolution passed pursuant
thereto; and
(k) "special meeting of shareholders" means a meeting of
any particular class or classes of shareholders and a
meeting of all shareholders entitled to vote at an
annual meeting of shareholders at which special
business is to be transacted.
Save as aforesaid, all terms which are
contained in the by-laws of the Corporation and which are
defined in the Act or the Regulations shall, unless the
context otherwise specifies or requires, have the meanings
given to such terms in the Act or the Regulations. Words
importing the singular number include the plural and vice
versa; the masculine shall include the feminine; and the word
"person" shall include an individual, partnership,
association, body corporate, body politic, trustee, executor,
administrator and legal representative.
Headings used in the by-laws are inserted
for reference purposes only and are not to be considered or
taken into account in construing the terms or provisions
thereof or to be deemed in any way to clarify, modify or
explain the effect of any such terms or provisions.
Division Two
BANKING AND SECURITIES
2.1. BANKING ARRANGEMENTS
The banking business of the Corporation including, without
limitation, the borrowing of money and the giving of security therefor, shall be
transacted with such banks, trust companies or other bodies corporate or
organizations as may from time to time be designated by or under the authority
of the board. Such banking business or any part thereof shall be transacted
under such agreements, instructions and delegations of power as the board may
from time to time prescribe or authorize.
2.2. VOTING RIGHTS IN OTHER BODIES CORPORATE
The signing officers of the Corporation may execute and
deliver instruments of proxy and arrange for the issuance of voting certificates
or other evidence of the right to exercise the voting rights attaching to any
securities held by the Corporation. Such instruments, certificates or other
evidence shall be in favour of such person or persons as may be determined by
the officers executing such proxies or arranging for the issuance of such voting
certificates or evidence of the right to exercise such voting rights. In
addition, the board, or failing the board the signing officers of the
Corporation, may direct the manner in which and the person or persons by whom
any particular voting rights or class of voting rights may or shall be
exercised.
2
<PAGE>
Division Three
EXECUTION OF INSTRUMENTS
3.1. AUTHORIZED SIGNING OFFICERS
Unless otherwise authorized by the board, deeds, transfers,
assignments, contracts, obligations, certificates and other instruments may be
signed on behalf of the Corporation by any two of the president, chairman of the
board, managing director, any vice-president, any director, secretary,
treasurer, any assistant secretary or any assistant treasurer or any other
office created by by-law or by the board. In addition, the board may from time
to time direct the manner in which and the person or persons by whom any
particular instrument or class of instruments may or shall be signed. Any
signing officer may affix the corporate seal to any instrument requiring the
same, but no instrument is invalid merely because the corporate seal is not
affixed thereto.
3.2. CHEQUES, DRAFTS AND NOTES
All cheques, drafts or orders for the payment of money and all
notes and acceptances and bills of exchange shall be signed by such officer or
officers or person or persons, whether or not officers of the Corporation, and
in such manner as the board may from time to time designate by resolution.
Division Four
DIRECTORS
4.1. NUMBER
The board shall consist of such number of directors as is
fixed by the articles, or where the articles specify a variable number, shall
consist of such number of directors as is not less than the minimum nor more
than the maximum number of directors provided in the articles and as shall be
fixed from time to time by resolution of the shareholders.
4.2. ELECTION AND TERM
Subject to the articles or a unanimous shareholder agreement
the election of directors shall take place at each annual meeting of
shareholders and all of the directors then in office, unless elected for a
longer period of time (not to exceed the close of the third (3rd) annual meeting
of shareholders following election), shall retire but, if qualified, shall be
eligible for re-election. The number of directors to be elected at any such
meeting shall, subject to the articles or a unanimous shareholder agreement, be
the number of directors then in office, or the number of directors whose terms
of office expire at the meeting, as the case may be, except that if cumulative
voting is not required by the articles and the articles otherwise permit, the
shareholders may resolve to elect some other number of directors. Where the
shareholders adopt an amendment to the articles to increase the number of
minimum number of directors, the shareholders may, at the meeting at which they
adopt the amendment, elect the additional number
3
<PAGE>
of directors authorized by the amendment. If an election of directors is not
held at the proper time, the incumbent directors shall continue in office until
their successors are elected. If the articles provide for cumulative voting,
each director elected by shareholders (but not directors elected or appointed by
creditors or employees) ceases to hold office at the annual meeting and each
shareholder entitled to vote at an election of directors has the right to cast a
number of votes equal to the number of votes attached to the shares held by him
multiplied by the number of directors he is entitled to vote for, and he may
cast all such votes in favour of one candidate or distribute them among the
candidates in any manner. If he has voted for more than one candidate without
specifying the distribution among such candidates, he shall be deemed to have
divided his votes equally among the candidates for whom he voted.
4.3. REMOVAL OF DIRECTORS
Subject to the Act and the articles, the shareholders may by
ordinary resolution passed at a special meeting remove any director from office,
except a director elected by employees or creditors pursuant to the articles or
a unanimous shareholder agreement, and the vacancy created by such removal may
be filled at the same meeting, failing which it may be filled by the board.
Provided, however, that if the articles provide for cumulative voting, no
director shall be removed pursuant to this section where the votes cast against
the resolution for his removal would, if cumulatively voted at an election of
the full board, be sufficient to elect one or more directors.
4.4. CONSENT
A person who is elected or appointed a director is not a
director unless:
(a) he was present at the meeting when he was elected or
appointed and did not refuse to act as a director, or
(b) if he was not present at the meeting when he was
elected or appointed:
(i) he consented in writing to act as a director
before his election or appointment or within
ten (10) days after it, or
(ii) he has acted as a director pursuant to the
election or appointment.
4.5. VACATION OF OFFICE
A director of the Corporation ceases to hold office when:
(a) he dies or resigns;
(b) he is removed in accordance with section 104 of the
Act; or
(c) he becomes disqualified under subsection 100(1) of
the Act.
4
<PAGE>
4.6. COMMITTEE OF DIRECTORS
The directors may appoint from among their number a managing
director, who must be a resident Albertan, or a committee of directors, however
designated, of which at least half of the members must be resident Albertans,
and subject to section 110 of the Act may delegate to the managing director or
such committee any of the powers of the directors. A committee may be comprised
of one director.
4.7. TRANSACTION OF BUSINESS OF COMMITTEE
Subject to the provisions of this by-law with respect to
participation in a meeting by telephone, the powers of a committee of directors
may be exercised by a meeting at which a quorum is present or by resolution in
writing signed by all of the members of such committee who would have been
entitled to vote on that resolution at a meeting of the committee. Meetings of
such committee may be held at any place in or outside Alberta and may be called
by any one member of the committee giving notice in accordance with the by-laws
governing the calling of meetings of the board.
4.8. PROCEDURE
Unless otherwise determined herein or by the board, each
committee shall have the power to fix its quorum at not less than a majority of
its members, to elect its chairman and to regulate its procedure.
4.9. REMUNERATION AND EXPENSES
Subject to any unanimous shareholder agreement, the directors
shall be paid such remuneration for their services as the board may from time to
time determine. The directors shall also be entitled to be reimbursed for
traveling and other expenses properly incurred by them in attending meetings of
the board or any committee thereof. Nothing herein contained shall preclude any
director from serving the Corporation in any other capacity and receiving
remuneration therefor.
4.10. VACANCIES
Subject to the Act, a quorum of the board may fill a vacancy
among the directors, except a vacancy resulting from an increase in the number
or minimum number of directors or from a failure to elect the number or minimum
number of directors required by the articles. If there is not a quorum of
directors, or if there has been a failure to elect the number or minimum number
of directors required by the articles, the directors then in office shall
forthwith call a special meeting of 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.
5
<PAGE>
4.11. ACTION BY THE BOARD
Subject to any unanimous shareholder agreement, the board
shall manage the business and affairs of the Corporation. Notwithstanding a
vacancy among the directors, a quorum of directors may exercise all the powers
of the directors. If the Corporation has only one director, that director may
constitute a meeting.
Division Five
MEETING OF DIRECTORS
5.1. PLACE OF MEETING
Meetings of the board may be held at any place within or
outside Alberta.
5.2. NOTICE OF MEETING
Unless the directors have made regulations otherwise, meetings
of the board may be summoned on twenty-four (24) hours' notice, given verbally
or in writing, and whether by means of telephone or telegraph, or any other
means of communication. A notice of a meeting of directors need not specify the
purpose of or the business to be transacted at the meeting except where the Act
requires such purpose or business to be specified, including any proposal to:
(a) submit to the shareholders any question or matter
requiring approval of the shareholders;
(b) fill a vacancy among the directors or in the office
of auditor;
(c) issue securities, except in the manner and on the
terms authorized by the directors;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares issued
by the Corporation, except in the manner and on the
terms authorized by the directors;
(f) pay a commission for the sale of shares;
(g) approve a management proxy circular;
(h) approve any financial statements to be placed before
the shareholders at an annual meeting; or
(i) adopt, amend or repeal by-laws.
Provided, however, that a director may in
any manner, and either before or after the meeting, waive
notice of a meeting and attendance of a director at a meeting
of directors shall constitute a waiver of notice of the
meeting except
6
<PAGE>
where a director attends a meeting for the express purpose of
objecting to the transaction of any business on the grounds
that the meeting is not lawfully called.
For the first meeting of the board to be
held immediately following an election of directors no notice
of such meeting shall be necessary, and for a meeting of the
board at which a director is to be appointed to fill a vacancy
in the board, no notice of such meeting shall be necessary to
the newly elected or appointed director or directors in order
to legally constitute the meeting, provided, in each case,
that a quorum of the directors is present.
5.3. ADJOURNED MEETING
Notice of an adjourned meeting of the board is not required if
the time and place of the adjourned meeting is announced at the original
meeting.
5.4. CALLING OF THE MEETINGS
Meetings of the board shall be held from time to time at such
time and at such place as the board, the chairman of the board, the managing
director, the president or any two directors may determine. Should more than one
of the above-named call a meeting at or for substantially the same time, there
shall be held only one meeting and such meeting shall occur at the time and
place determined by, in order of priority, the board, any two directors, the
chairman, or the president.
5.5. REGULAR MEETINGS
The board may, from time to time, appoint a day or days in any
month or months for regular meetings of the board at a place and hour to be
named. A copy of any resolution of the board fixing the place and time of such
regular meetings shall be sent to each director forthwith after being passed,
and forthwith to each director subsequently elected or appointed, but no other
notice shall be required for any such regular meeting except where the Act or
this by-law requires the purpose thereof or the business to be transacted
thereat to be specified.
5.6. CHAIRMAN
The chairman of any meeting of the board shall be the first
mentioned of such of the following officers as have been appointed and who is a
director and is present at the meeting: chairman of the board, managing director
or president. If so such officer is present, the directors present shall choose
one of their number to be chairman.
5.7. QUORUM
Subject to the following section 5.8, the quorum for the
transaction of business at any meeting of the board shall consist of a majority
of the directors holding office or such greater number of directors as the board
may from time to time determine.
7
<PAGE>
5.8. HALF ALBERTAN REPRESENTATION AT MEETINGS
Directors shall not transact business at a meeting of
directors unless at least half of the directors present are resident Albertans.
Notwithstanding the foregoing, directors may transact business at a meeting of
directors when less than half of the directors present are resident Albertans
if:
(a) a resident Albertan director who is unable to be
present approves in writing or by telephone or other
communications facilities the business transacted at
the meeting; and
(b) the number of resident Albertan directors present at
the meeting, together with any resident Albertan
director who gives his approval under clause (a),
totals at least half of the directors present at the
meeting.
5.9. VOTING
Questions arising at any meeting of the board shall be decided
by a majority of votes, the chairman of the meeting shall be entitled to vote
and the chairman shall not have a second or casting vote in the event of an
equality of votes.
5.10. MEETING BY TELEPHONE
A director may participate in a meeting of the board or a
committee of the board by means of such telephone or other communication
facilities, as permit all persons participating in the meeting to hear each
other, and a director participating in such meeting by such means is deemed to
be present at the meeting.
5.11. RESOLUTION IN LIEU OF MEETING
Notwithstanding any of the foregoing provisions of this
by-law, a resolution in writing signed by all the directors entitled to vote on
that resolution at a meeting of the directors or a committee of directors is as
valid as if it has been passed at a meeting of the directors or a committee of
directors. A copy of every such resolution shall be kept with the minutes of the
proceedings of the directors or committee of directors. Any such resolution in
writing is effective for all purposes at such time as the resolution states
regardless of when the resolution is signed and may be signed in counterpart.
5.12. AMENDMENTS TO THE ACT
It is hereby affirmed that the intention of sections 4.6, 5.8
and 7.3 as they relate to Albertan representation is to comply with the minimum
requirements of the Act and in the event that such minimum requirements shall be
amended, deleted or replaced such that no, or lesser, requirements with respect
to Albertan representation are then in force, such sections shall be
correspondingly amended, deleted or replaced.
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Division Six
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
6.1. CONFLICT OF INTEREST
A director of officer shall not be disqualified from his
office, or be required to vacate his office, by reason only that he is a party
to, or is a director or officer or has a material interest in any person who is
a party to, a material contract or proposed material contract with the
Corporation or a subsidiary thereof. Such a director of officer shall, however,
disclose the nature and extent of his interest in the contract at the time and
in the manner provided by the Act. Subject to the provisions of the Act, a
director shall not by reason only of his office be accountable to the
Corporation or to its shareholders for any profit or gain realized from such a
contract or transaction, and such contract or transaction shall not be void or
voidable by reason only of the director's interest therein, provided that the
required declaration and disclosure of interest is properly made, the contract
or transaction is approved by the directors or shareholders, if necessary, and
it was fair and reasonable to the Corporation at the time it was approved and,
if required by the Act, the director refrains from voting as a director on the
contract or transaction.
6.2. LIMITATION OF LIABILITY
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 shall exercise the care,
diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. Subject to the foregoing, no director of officer for
the time being of the Corporation shall be liable for the acts, neglects or
defaults of any other director or officer or employee or for joining in any act
for conformity, or for any loss, damage or expense happening to the Corporation
through the insufficiency or deficiency of title to any property acquired by the
Corporation or for or on behalf of the Corporation or for the insufficiency or
deficiency of any security in or upon which any of the moneys of or belonging to
the Corporation shall be placed out or invested or for any loss, conversion,
misapplication or misappropriation of or any damage resulting from any dealings
with any moneys, securities or other assets belonging to the Corporation or for
any loss or damage arising from the bankruptcy, insolvency or tortious acts of
any person with whom any of the moneys, securities or effects of the Corporation
shall be deposited, or for any loss occasioned by any error of judgment or
oversight on his part, or for any other loss, damage or misfortune whatever
which may happen in the execution of the duties of his respective office or
trust or in relation thereto; provided that nothing herein shall relieve any
director of officer from the duty to act in accordance with the Act and the
Regulations thereunder or from liability for any breach thereof. The directors
for the time being of the Corporation shall not be under any duty or
responsibility in respect of any contract, act or transaction whether or not
made, done or entered into in the name or on behalf of the Corporation, except
such as shall have been submitted to and authorized or approved by the board.
No act or proceeding of any director or officer or the board
shall be deemed invalid or ineffective by reason of the subsequent ascertainment
of any irregularity in regard to
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such act or proceeding or the election, appointment or qualification of such
director or officer or board.
6.3. INDEMNITY
Subject to section 119 of the Act, the Corporation shall
indemnify a director or officer of the Corporation, a former director or officer
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,
if:
(a) he acted honestly and in good faith with a view to
the best interests of the Corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he
had reasonable grounds for believing that his conduct
was lawful.
The Corporation shall also indemnify such persons in such
other circumstances as the Act permits or requires. Nothing herein contained
shall limit the right of any person entitled to indemnity to claim indemnity
apart from the provisions of this section 6.3.
6.4. INSURANCE
The Corporation may purchase and maintain insurance for the
benefit of any person referred to in section 6.3 against any liability incurred
by him:
(a) 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
(b) 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.
Division Seven
OFFICERS
7.1. ELECTION OR APPOINTMENT
Subject to any unanimous shareholder agreement, the board may,
from time to time, appoint a chairman of the board, a president, one or more
vice-presidents, a secretary, a
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treasurer and such other officers as the board may determine, including one or
more assistants to any of the officers so appointed. The board may specify the
duties of and, in accordance with this by-law and subject to the provisions of
the Act, delegate to such officers powers to manage the business and affairs of
the Corporation. Except for a managing director and a chairman of the board who
must be directors, an officer may, but need not, be a director, and one person
may hold more than one office.
7.2. CHAIRMAN OF THE BOARD
The chairman of the board shall, when present, preside at all
meetings of the board, committees of directors and at all meetings of
shareholders.
If no managing director is appointed, the board may assign to
the chairman of the board any of the powers and duties that, by any provision of
this by-law, are assigned to the managing director; and he shall, subject to the
provisions of the Act, have such other powers and duties as the board may
specify. During the absence or disability of the chairman of the board, his
duties shall be performed and his powers exercised by the managing director, if
any, or by the president.
7.3. MANAGING DIRECTOR
The managing director, if any, shall be a resident Albertan
and shall have, subject to the authority of the board, general supervision of
the business and affairs of the Corporation; and he shall, subject to the
provisions of the Act, have such other powers and duties as the board may
specify.
7.4. PRESIDENT
The president shall subject to the authority of the board and
the managing director, if any, have such powers and duties as the board may
specify. During the absence or disability of the managing director, or if no
managing director has been appointed, the president shall also have the powers
and duties of that office; provided, however, that unless he is a director he
shall not preside as chairman at any meeting of directors or of a committee of
directors.
7.5. VICE PRESIDENT
During the absence or disability of the president, his duties
shall be performed and his powers exercised by the vice-president or, if there
is more than one, by the vice-president designated from time to time by the
board or the president; provided, however, that a vice-president who is not a
director shall not preside as chairman at any meeting of directors or of a
committee of directors. A vice-president shall have such other powers and duties
as the board or the president may prescribe.
7.6. SECRETARY
The secretary shall attend and be the secretary of all
meetings of the board, shareholders and committees of the board and shall enter
or cause to be entered in records kept
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for that purpose minutes of all proceedings thereat; he shall give or cause to
be given, as and when instructed, all notices to shareholders, directors,
officers, auditors and members of committees of the board; he shall be the
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 instruments belonging to the Corporation, except when some other officer or
agent has been appointed for that purpose; and he shall have such other powers
and duties as the board or the chief executive officer may specify.
7.7. TREASURER
The treasurer shall keep proper accounting records in
compliance with the Act and shall be responsible for the deposit of money, the
safekeeping of securities and the disbursement of the funds of the Corporation;
he shall render to the board whenever required an account of all his
transactions and he shall have such other powers and duties as the board or
chief executive officer, if any, or the president may specify.
7.8. GENERAL MANAGER OR MANAGER
If elected or appointed, the general manager shall have,
subject to the authority of the board, the managing director, if any, the chief
executive officer, if any, and the president, full power to manage and direct
the business and affairs of the Corporation (except such matters and duties as
by law must be transacted or performed by the board and/or by the shareholders)
and to employ and discharge agents and employees of the Corporation and may
delegate to him or them any lesser authority. A general manager or manager shall
conform to all lawful orders given to him by the board and shall at all
reasonable times give to the directors or any of them all information they may
require regarding the affairs of the Corporation. Any agent or employee
appointed by a general manager or manager shall be subject to discharge by the
board.
7.9. POWERS AND DUTIES OF OTHER OFFICERS
The powers and duties of all other officers shall be such as
the terms of their engagement call or as the board, the managing director, if
any, or the chief executive officer, if any, or the president may specify. 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 or the chief
executive officer, if any, or the president otherwise directs.
7.10. VARIATION OF POWERS AND DUTIES
The board may from time to time and subject to the provisions
of the Act, vary, add to or limit the powers and duties of any officer.
7.11. VACANCIES
If the office of any officer of the Corporation shall be or
become vacant by reason of death, resignation, disqualification or otherwise,
the directors by resolution may appoint a person to fill such vacancy.
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7.12. REMUNERATION AND REMOVAL
The remuneration of all officers appointed by the board shall
be determined from time to time by resolution of the board. The fact that any
officer or employee is a director or shareholder of the Corporation shall not
disqualify him from receiving such remuneration as may be determined. All
officers, shall be subject to removal by resolution of the board at any time,
with or without cause, notwithstanding any agreement to the contrary, provided
however that this right of removal shall not limit in any way such officer's
right to damages by virtue of such agreement or any other rights resulting from
such removal in law or equity.
7.13. AGENTS AND ATTORNEYS
The Corporation, by or under the authority of the board shall
have power from time to time to appoint agents or attorneys for the Corporation
in or outside Canada with such powers (including the power to sub-delegate) of
management, administration or otherwise as may be thought fit.
7.14. CONFLICT OF INTEREST
An officer shall disclose his interest in any material
contract or proposed material contract with the Corporation in accordance with
section 6.1.
7.15. FIDELITY BONDS
The board may require such officers, employees and agents of
the Corporation as the board deems advisable to furnish bonds for the faithful
discharge of their powers and duties, in such forms and with such surety as the
board may from time to time determine.
Division Eight
SHAREHOLDERS' MEETINGS
8.1. ANNUAL MEETINGS
Subject to the Act, the annual meeting of shareholders shall
be held at such time and on such day in each year and at such place or places as
the board, the chairman of the board, the managing director or the president may
from time to time determine, for the purpose of considering the financial
statements and reports required by the Act to be placed before the annual
meeting, electing directors, appointing auditors if required by the Act or the
articles, and for the transaction of such other business as may properly be
brought before the meeting.
8.2. SPECIAL MEETING
The board shall have the power to call a special meeting of
shareholders at any time.
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8.3. PLACE OF MEETINGS
Meetings of shareholders shall be held as provided for in the
Articles or failing any reference in the Articles at such place in Alberta as
the directors may determine.
8.4. RECORD DATE FOR NOTICE
The board may fix in advance a date, preceding the date of any
meeting of shareholders by not more than fifty (50) days and not less than
twenty-one (21) days, as a record date for the determination of shareholders
entitled to notice of the meeting. If no record date is fixed, the record date
for the determination of the shareholders entitled to receive notice of the
meeting shall be the close of business on the date immediately preceding the day
on which the notice is given or, if no notice is given, the day on which the
meeting is held.
8.5. NOTICE OF MEETING
Notice of the time and place of each meeting of shareholders
shall be sent not less than twenty-one (21) days and not more than fifty (50)
days before the meeting to each shareholder entitled to vote at the meeting,
each director and the auditor of the Corporation. Such notice may be sent by
mail addressed to, or may be delivered personally to, the shareholder, at his
latest address as shown in the records of the Corporation or its transfer agent,
to the director, at his latest address as shown in the records of the
Corporation or in the last notice filed pursuant to section 101 or 108 of the
Act, or to the auditor, at his most recent address as shown in the records of
the Corporation. A notice of meeting of shareholders sent by mail to a
shareholder, director or auditor in accordance with the above is deemed to be
served on the day on which it was deposited in the mail. A notice of a meeting
is not required to be sent to shareholders who are not registered on the records
of the Corporation or its transfer agent on the record date as determined
according to section 8.4 hereof. Notice of a meeting of shareholders at which
special business is to be transacted shall state the nature of such business in
sufficient detail to permit the shareholder to form a reasoned judgment thereon
and shall state the text of any special resolution to be submitted to the
meeting. A special meeting and an annual meeting may be convened by one and the
same notice and it shall be no objection to the notice that it only convenes the
second meeting contingently on any resolution being passed by the requisite
majority at the first meeting.
8.6. RIGHT TO VOTE
Subject to the provisions of the Act as to authorized
representatives of any other body corporate, at any meeting of shareholders in
respect of which the Corporation has prepared the list referred to in section
8.7 hereof, every person who is named in such list shall be entitled to vote the
shares shown thereon opposite his name except to the extent that such person has
transferred any of his shares after the record date set pursuant to section 8.4
hereof or, if no record date is fixed, after the date on which the list referred
to in section 8.7 is prepared, and the transferee, upon producing properly
endorsed certificates evidencing such shares or otherwise establishing that he
owns such shares, demands not later than ten (10) days before the meeting that
his name be included to vote the transferred shares at the meeting. In the
absence of a list
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prepared as aforesaid in respect of a meeting of shareholders, every person
shall be entitled to vote at the meeting who at the close of business on the
record date, or if no record date is set, at the close of business on the date
preceding the date notice is sent, is entered in the securities' register as the
holder of one or more shares carrying the right to vote at such meeting.
8.7. LIST OF SHAREHOLDERS ENTITLED TO NOTICE
In the event the Corporation has greater than fifteen (15)
shareholders entitled to vote at a meeting, for every meeting of shareholders
the Corporation shall prepare a list of shareholders entitled to receive notice
of the meeting, arranged in alphabetical order, and showing the number of shares
held by each shareholder. If a record date for the meeting is fixed pursuant to
section 8.4 hereof by the board, the shareholders listed shall be those
registered at the close of business on the record date. If no record date is
fixed by the board, the shareholders listed shall be those listed at the close
of business on the last business day immediately preceding the day on which
notice of a meeting is given, or where no such notice is given, the day on which
the meeting is held. The list shall be available for examination by any
shareholder during usual business hours at the registered office of the
Corporation or at the place where its central securities' register is maintained
and at the place where the meeting is held.
8.8. MEETINGS WITHOUT NOTICE
A meeting of shareholders may be held without notice at any
time and place permitted by the Act:
(a) if all the shareholders entitled to vote thereat are
present in person or represented by proxy or if those
not present or represented by proxy waive notice of
or otherwise consent to such meeting being held; and
(b) if the auditors and the directors are present or
waive notice of or otherwise consent to such meeting
being held.
At such meetings any business may be transacted which the
Corporation at a meeting of shareholders may transact. If the meeting is held at
a place outside Canada, shareholders not present or represented by proxy, but
who have waived notice of or otherwise consented to such meeting, shall also be
deemed to have consented to a meeting being held at such place.
8.9. WAIVER OF NOTICE
A shareholder and any other person entitled to attend a
meeting of shareholders may in any manner waive notice of a meeting of
shareholders and attendance of any such person at a meeting of shareholders
shall constitute a waiver of notice of the meeting except where such person
attends a meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called.
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8.10. CHAIRMAN, SECRETARY AND SCRUTINEERS
The chairman of the board or, in his absence, the president,
if such an officer has been elected or appointed and is present, or otherwise a
vice-president who is a shareholder of the Corporation shall be chairman of any
meeting of shareholders. If no such officer is present within fifteen (15)
minutes from the time fixed for holding the meeting, or declines to be chairman
of the meeting, the persons present and entitled to vote shall choose one of
their number to be chairman. If the secretary of the Corporation is absent, the
chairman shall appoint some person, who need not be a shareholder, to act as
secretary of the meeting. If desired, one or more scrutineers, who need not be
shareholders, may be appointed by a resolution or by the chairman with the
consent of the meeting.
8.11. PERSONS ENTITLED TO BE PRESENT
The only persons entitled to be present at a meeting of
shareholders shall be those entitled to vote thereat, the directors and auditors
of the Corporation and others who, although not entitled to vote, are entitled
or required under any provision of the Act or the articles or by-laws 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.
8.12. QUORUM
A quorum at any meeting of shareholders (unless a greater
number of persons are required to be present or a greater number of shares are
required to be represented by the Act or by the articles or by any other by-law)
shall be persons present not being less than two (2) in number and holding or
representing not less than five (5%) percent of the shares entitled to be voted
at the meeting. If a quorum is present at the opening of any meeting of
shareholders, the shareholders present or represented may proceed with the
business of the meeting notwithstanding that a quorum is not present throughout
the meeting. If a quorum is not present at the opening of the meeting of
shareholders, the shareholders present or represented may adjourn the meeting to
a fixed time and place but may not transact any other business.
8.13. PARTICIPATION IN MEETING BY TELEPHONE
A shareholder or any other person entitled to attend a meeting
of shareholders may participate in the meeting by means of telephone or other
telecommunication facilities that permit all persons participating in the
meeting to hear each other and a person participating in such a meeting by those
means is deemed to be present at the meeting.
8.14. PROXYHOLDERS AND REPRESENTATIVES
Votes at meetings of the shareholders may be given either
personally or by proxy; or, in the case of a shareholder who is a body corporate
or association, by an individual authorized by a resolution of the board or
governing body of the body corporate or association to represent it at a meeting
of shareholders of the Corporation, upon producing a certified copy of such
resolution or otherwise establishing his authority to vote to the satisfaction
of the secretary or the chairman.
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A proxy shall be executed by the shareholder or his attorney
authorized in writing and is valid only at the meeting in respect of which it is
given or any adjournment of that meeting. A person appointed by proxy need not
be a shareholder.
8.15. TIME FOR DEPOSIT OF PROXIES
The board may specify in a notice calling a meeting of
shareholders a time, preceding the time of such meeting by not more than
forty-eight (48) hours exclusive of Saturdays and holidays, before which time
proxies to be used at such meeting must be deposited. A proxy shall be acted
upon only if, prior to the time so specified, it shall have been deposited with
the Corporation or an agent thereof specified in such notice or, if no such time
having been specified in such notice, it has been received by the secretary of
the Corporation or by the chairman of the meeting or any adjournment thereof
prior to the time of voting.
8.16. JOINT SHAREHOLDERS
If two or more persons hold shares jointly, any one of them
present in person or duly represented at a meeting of shareholders may, in the
absence of the other or others, vote the shares; but if two or more of those
persons are present in person or represented and vote, they shall vote as one of
the shares jointly held by them.
8.17. VOTES TO GOVERN
Except as otherwise required by the Act, all questions
proposed for the consideration of shareholders at a meeting of shareholders
shall be determined by a majority of the votes cast and in the event of an
equality of votes at any meeting of shareholders either upon a show of hands or
upon a ballot, the chairman shall not have a second or casting vote.
8.18. SHOW OF HANDS
Subject to the Act, any question at a meeting of shareholders
shall be decided by a show of hands, unless a ballot thereon is required or
demanded as hereinafter provided. Upon a show of hands every person who is
present and entitled to vote shall have one vote. Whenever a vote by show of
hands shall have been taken upon a question, unless a ballot thereon is 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 meeting shall be prima
facie evidence of the fact without proof of the number 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
shareholders upon the said question.
8.19. BALLOTS
On any question proposed for consideration at a meeting of
shareholders, a shareholder, proxyholder or other person entitled to vote may
demand and the chairman may require that a ballot be taken either before or upon
the declaration of the result of any vote by show of hands. If a ballot is
demanded on the election of a chairman or on the question of an
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adjournment it shall be taken forthwith without an adjournment. A ballot
demanded or required on any other question be taken in such manner as the
chairman shall direct. A demand or requirement for a ballot may be withdrawn at
any time prior to the taking of the ballot. If a ballot is taken each person
present shall be entitled, in respect of the shares that he is entitled to vote
at the meeting upon the question, to the number of votes as provided for by the
articles or, in the absence of such provision in the articles, to one vote for
each share he is entitled to vote. The result of the ballot so taken shall be
the decision of the shareholders upon the question. The demand or requirement
for a ballot shall not prevent the continuance of a meeting for the transaction
of any business other than the question on which the ballot has been demanded or
required.
8.20. ADJOURNMENT
The chairman at a meeting of shareholders may, with the
consent of the meeting and subject to such conditions as the meeting may decide,
adjourn the meeting from time to time and from place to place. If a meeting of
shareholders is adjourned for less than thirty (30) days, it shall not be
necessary to give notice of the adjourned meeting, other than by announcement at
the time of the adjournment. Subject to the Act, if a meeting of shareholders is
adjourned by one or more adjournments for an aggregate of thirty (30) days or
more, notice of the adjourned meeting shall be given in the same manner as
notice for an original meeting but, unless the meeting is adjourned by one or
more adjournments for an aggregate of more than ninety (90) days, subsection
143(1) of the Act does not apply
8.21. RESOLUTION IN LIEU OF A MEETING
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 the shareholders; and a resolution in
writing dealing with all matters required to be dealt with at a meeting of
shareholders, and signed by all the shareholders entitled to vote at such
meeting, satisfies all the requirements of the Act relating to meetings of
shareholders. A copy of every such resolution in writing shall be kept with
minutes of the meetings of shareholders. Any such resolution in writing is
effective for all purposes at such time as the resolution states regardless of
when the resolution is signed and may be signed in counterpart.
8.22. ONLY ONE SHAREHOLDER
Where the Corporation has only one shareholder or only one
holder of any class or series of shares, the shareholder present in person or
duly represented constitutes a meeting.
Division Nine
SHARES
9.1. NON-RECOGNITION OF TRUSTS
Subject to the Act, the Corporation may treat the registered
holder of any share as the person exclusively entitled to vote, to receive
notices, to receive any dividend or other
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payment in respect of the share, and otherwise to exercise all the rights and
powers of an owner of the share.
9.2. CERTIFICATES
The shareholder is entitled at his option to a share
certificate that complies with the Act or a non-transferable written
acknowledgment of his right to obtain a share certificate from the Corporation
in respect of the securities of the Corporation held by him. Share certificates
and acknowledgments of a shareholder's right to a share certificate,
respectively, shall be in such form as described by the Act and as the board
shall from time to time approve. A share certificate shall be signed manually by
at least one director officer of the Corporation or by or on behalf of a
registrar, transfer agent or branch transfer agent of the Corporation, or by a
trustee who certifies it in accordance with a trust indenture, and any
additional signatures required on the share certificate may be printed or
otherwise mechanically reproduced on it.
9.3. REPLACEMENT OF SHARE CERTIFICATES
The board or any officer or agent designated by the board may
in its or his discretion direct the issuance of a new share certificate or other
such certificate in lieu of and upon cancellation of a certificate that has been
mutilated or in substitution for a certificate claimed to have been lost,
destroyed or wrongfully taken on payment of such reasonable fee and on such
terms as to indemnity, reimbursement of expenses and evidence of loss and of
title as the board may from time to time prescribe, whether generally or in any
particular case.
9.4. JOINT HOLDERS
The Corporation is not required to issue more than one share
certificate in respect of shares held jointly by several persons, and delivery
of a certificate to one of several joint holders is sufficient delivery to all.
Any one of such holders may give effectual receipts for the certificate issued
in respect thereof or for any dividend, bonus, return of capital or other money
payable or warrant issuable in respect of such certificate.
Division Ten
TRANSFER OF SECURITIES
10.1. REGISTRATION OF TRANSFER
If a share in registered form is presented for registration of
transfer, the Corporation shall register the transfer if:
(a) the share is endorsed by an appropriate person, as
defined in section 61 of the Act;
(b) reasonable assurance is given that the endorsement is
genuine and effective;
(c) the Corporation has no duty to inquire into adverse
claims or has discharged any such duty;
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(d) any applicable law relating to the collection of
taxes has been complied with;
(e) the transfer is rightful or is to a bona fide
purchaser; and
(f) the transfer fee, if any, has been paid.
10.2. TRANSFER AGENTS AND REGISTRAR
The board may from time to time by resolution appoint or
remove one or more trust companies registered under the Trust Companies Act as
its agent or agents to maintain a central securities' register or registers, and
an agent or agents to maintain a branch securities' register or registers.
Agents so appointed may be designated as transfer agent or registrar according
to their functions, and a person may be appointed and designated with functions
as both registrar and transfer or branch transfer agent. Registration of the
issuance or transfer of a security in the central securities' register or in a
branch securities' register is complete and valid registration for all purposes.
10.3. SECURITIES' REGISTERS
A central securities' register of the Corporation shall be
kept at its registered office or at any other place in Alberta designated by the
board to record the shares and other securities issued by the Corporation in
registered form, showing with respect to each class or series of shares and
other securities:
(a) The names, alphabetically arranged, and the latest
known address of each person who is or has been a
holder;
(b) the number of shares or other securities held by each
holder; and
(c) the date and particulars of the issuance and transfer
of each share or other security.
A branch securities' register or registers may be kept either
in or outside Alberta at such place or places as the directors may determine. A
branch securities' register shall only contain particulars of securities issued
or transferred at that branch. Particulars of each issue or transfer of a
security registered in a branch securities' register shall also be kept in the
corresponding central securities' register.
10.4. DECEASED SHAREHOLDERS
In the event of the death of a holder, or of one of the joint
holders, of any share, the Corporation shall not be required to make any entry
in the securities' register in respect thereof or to make any dividend or other
payments in respect thereof except upon production of all such documents as may
be required by law and upon compliance with the reasonable requirements of the
Corporation and its transfer agents.
20
<PAGE>
Division Eleven
DIVIDENDS AND RIGHTS
11.1. DIVIDENDS
Subject to the Act, the board may from time to time declare
dividends payable to the shareholders according to their respective rights and
interest in the Corporation. Dividends may be paid in money or property or by
issuing fully paid shares of the Corporation.
11.2. DIVIDEND CHEQUES
A dividend payable in money shall be paid by cheque to the
order of each registered holder of shares of the class or series in respect of
which it has been declared and shall be mailed by prepaid ordinary mail to such
registered holder at his address recorded in the Corporation's securities'
register or registers unless such holder otherwise directs. 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 mailed to them at their
recorded address. The mailing of such cheque as aforesaid, unless the same is
not paid on due presentation, shall satisfy and discharge the liability for the
dividend to the extent of the sum represented thereby plus the amount of any tax
which the Corporation is required to and does withhold.
11.3. NON-RECEIPT OF CHEQUES
In the event of non-receipt of any dividend cheque by the
person to whom it is sent as aforesaid, the Corporation shall issue to such
person a replacement cheque for a like amount on such terms as to indemnity,
reimbursement of expenses and evidence of non-receipt and of title as the board
may from time to time prescribe, whether generally or in any particular case.
11.4. UNCLAIMED DIVIDENDS
No dividend shall bear interest against the Corporation. Any
dividend unclaimed after a period of six (6) years from the date on which the
same has been declared to be payable shall be forfeited and shall revert to the
Corporation.
11.5. RECORD DATE FOR DIVIDENDS AND RIGHTS
The board may fix in advance a date, preceding by not more
than fifty (50) days the date for the payment of any dividend, as a record date
for the determination of the persons entitled to receive payment of such
dividend, provided that, unless waived as provided for in the Act, notice of any
such record date is given, not less than seven (7) days before such record date,
by newspaper advertisement in the manner provided in the Act and by written
notice to each stock exchange in Canada, if any, on which the Corporation's
shares are listed for trading. Where no record date is fixed in advance as
aforesaid, the record date for the determination of the persons entitled to
receive payment of any dividend shall be at the close of business on the day on
which the resolution relating to such dividend is passed by the board.
Division Twelve
21
<PAGE>
INFORMATION AVAILABLE TO SHAREHOLDERS
12.1. CONFIDENTIAL INFORMATION
Except as provided by the Act, no shareholder shall be
entitled to obtain information respecting any details or conduct of the
Corporation's business which in the opinion of the directors it would be
inexpedient in the interests of the Corporation to communicate to the public.
12.2. CONDITIONS OF ACCESS TO INFORMATION
The directors may from time to time, subject to rights
conferred by the Act, determine whether and to what extent and at what time and
place and under what conditions or regulations the documents, books and
registers and accounting records of the Corporate or any of them shall be open
to the inspection of shareholders and no shareholder shall have any right to
inspect any document or book or register or account record of the Corporation
except as conferred by statute or authorized by the board or by a resolution of
the shareholders.
12.3. REGISTERED OFFICE AND SEPARATE RECORDS OFFICE
The registered office of the Corporation shall be at a place
within Alberta and at such location therein as the board may from time to time
determine. The records office will be at the registered office or at such
location, if any, within Alberta, as the board may from time to time determine.
Division Thirteen
NOTICES
13.1. METHOD OF GIVING NOTICES
A notice or document required by the Act, the Regulations, the
articles or the by-laws to be sent to a shareholder or director of the
Corporation may be sent by prepaid mail addressed to, or may be delivered
personally to:
(a) the shareholder at his latest address as shown in the
records of the Corporation or its transfer agent; and
(b) the director at his latest address as shown in the
records of the Corporation or in the last notice
filed under section 101 or 108.
A notice or document sent by mail in accordance with the
foregoing to a shareholder or director of the Corporation is deemed to be
received by him at the time it would be delivered in the ordinary course of mail
unless there are reasonable grounds for believing that the shareholder or
director did not receive the notice or document at the time or at all.
22
<PAGE>
13.2. NOTICE TO JOINT SHAREHOLDERS
If two or more persons are registered as joint holders of any
share, any notice may be addressed to all of such joint holders but notice
addressed to one of such persons shall be sufficient notice to all of them.
13.3. PERSONS ENTITLED BY DEATH OR OPERATION OF LAW
Every person who, by operation of law, transfer, death of a
shareholder or any other means whatsoever, shall become entitled to any share,
shall be bound by every notice in respect of such share which shall have been
duly given to the shareholder from whom he derives his title to such share prior
to his name and address being entered on the securities' register (whether such
notice was given before or after the happening of the event upon which he became
so entitled) and prior to his furnishing to the Corporation the proof of
authority or evidence of his entitlement prescribed by the Act.
13.4. NON-RECEIPT OF NOTICES
If a notice of document is sent to a shareholder in accordance
with section 13.1 and the notice or document is returned on three (3)
consecutive occasions because the shareholder cannot be found, the Corporation
is not required to send any further notice or documents to the shareholder until
he informs the Corporation in writing of his new address; provided always, that
in the event of the return of a notice of a shareholders' meeting mailed to a
shareholder in accordance with section 13.1 of this by-law the notice shall be
deemed to be received by the shareholder on the date deposited in the mail
notwithstanding its return.
13.5. OMISSIONS AND ERRORS
Subject to the Act, the accidental omission to give any notice
to any shareholder, director, officer, auditor or member of a committee of the
board or the non-receipt of any notice by any such person 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.
13.6. SIGNATURE ON NOTICES
Unless otherwise specifically provided, the signature of any
director or officer of the Corporation to any notice or document to be given by
the Corporation may be written, stamped, typewritten or printed or partly
written, stamped, typewritten or printed.
13.7. WAIVER OF NOTICE
If a notice or document is required by the Act or the
Regulations, the articles, the by-laws or otherwise to be sent, the sending of
the notice or document may be waived or the time for the notice or document may
be waived or abridged at any time with the consent in writing of the person
entitled to receive it.
23
<PAGE>
Division Fourteen
MISCELLANEOUS
14.1. DIRECTORS TO REQUIRE SURRENDER OF SHARE CERTIFICATES
The directors in office when a Certificate of Continuance is
issued under the Act are hereby authorized to require the shareholders of the
Corporation to surrender their share certificates, or such of their share
certificates as the directors may determine, for the purpose of cancelling the
share certificates and replacing them with new share certificates that comply
with section 45 of the Act, in particular, replacing existing share certificates
with share certificates that are not negotiable securities under the Act. The
directors in office shall act by resolution under this section 14.1 and shall in
their discretion decide the manner in which they shall require the surrender of
existing share certificates and the time within which the shareholders must
comply with the requirement and the form or forms of the share certificates to
be issued in place of the existing share certificates. The directors may take
such proceedings as they deem necessary to compel any shareholder to comply with
a requirement to surrender his share certificate or certificates pursuant to
this section. Notwithstanding any other provision of this by-law, but subject to
the Act, the directors may refuse to register the transfer of shares represented
by a share certificate that has not been surrendered pursuant to a requirement
under this section.
14.2. FINANCIAL ASSISTANCE TO SHAREHOLDERS, EMPLOYEES AND OTHERS
The Corporation may give financial assistance by means of a
loan, guarantee or otherwise:
(a) to any person in the ordinary course of business if
the lending of money is part of the ordinary business
of the Corporation;
(b) to any person on account of expenditures incurred or
to be incurred on behalf of the Corporation;
(c) to a holding body corporate if the Corporation is a
wholly owned subsidiary of the holding body
corporate;
(d) to a subsidiary body corporate of the Corporation; or
(e) to employees of the Corporation or any of its
affiliates:
(i) to enable or assist them to purchase or
erect living accommodation for their own
occupation; or
(ii) in accordance with the plan for the purchase
of shares of the Corporation or any of its
affiliates to be held by a trustee;
and, subject to the Act:
24
<PAGE>
(f) to a shareholder or director of the Corporation or of
an affiliated corporation;
(g) to an associate of a shareholder or of a director of
the Corporation or of an affiliated corporation; or
(h) to any person for the purpose of or in connection
with a purchase of a share issued or to be issued by
the Corporation or an affiliated corporation.
14.3. SEVERABILITY
The invalidity or enforceability of any provision of this
by-law shall not affect the validity or enforceability of the remaining
provisions of this by-law.
14.4. REPEAL OF ARTICLES OF ASSOCIATION
Notwithstanding that the Articles of Association of the
Corporation under The Companies Act of Alberta are repealed as of the coming
into force of this by-law, such repeal shall not affect the previous operation
of any provision of the Articles of Association so repealed or affect the
validity of any act done or right, privilege, obligation or liability acquired
or incurred under, or the validity of any contract or agreement made pursuant
to, any such provision of the Articles of Association prior to their repeal. All
officers and persons acting under the Articles of Association so repealed shall
continue to act as if appointed under the provisions of this by-law and all
resolutions of the shareholders or board passed under the repealed Articles of
Association shall continue as good and valid except to the extent inconsistent
with this by-law or the Act and until amended or repealed.
25
<PAGE>
MADE by the Board the 6th day of March A.D. 1987
----------------------------------
President
----------------------------------
Secretary
CONFIRMED by the Shareholders in accordance with the Business
Corporation Act, the 6th day of March, A.D. 1987.
----------------------------------
Secretary
26
<PAGE>
Exhibit 2(1)
VOTING TRUST AGREEMENT made the 13th day of August, 1996 AMONG:
RED REEF LIMITED a corporation incorporated pursuant to the
laws of the British Virgin Islands (the "Shareholder")
OF THE FIRST PART
- and -
THE CHAIRMAN OF THE CORPORATION (the "Trustee")
OF THE SECOND PART
- and -
XENOTECH INC., a corporation incorporated under the laws of
Alberta (the "Corporation")
OF THE THIRD PART
WHEREAS the Shareholder, pursuant to a Deed of Option dated May 15,
1996, exercised its option to acquire 6,000,000 Common Shares in the capital of
the Corporation, all of which are subject to an escrow agreement dated August 4,
1994; and
WHEREAS The Alberta Stock Exchange has approved of the acquisition and
the requisite transfer within escrow of the said shares on the condition that
the Shareholder enter into a voting trust agreement. This condition was imposed
by The Alberta Stock Exchange to prevent the possibility of the Shareholder
exercising the voting rights of the Shares contrary to the intentions of the
management of the Corporation, and by virtue of the aggregate voting rights
superseding that of the management of the Corporation, thereby invoke a change
of control; and
WHEREAS the Shareholder has agreed to enter into this Agreement for the
purpose of assuring the continuity of the management and policies of the
Corporation.
IN CONSIDERATION of the mutual covenants and agreements hereinafter
contained, the parties hereto hereby agree as follows:
1. The Shareholder represents and warrants that it is the registered holder and
beneficial holder of 6,000,000 Common Shares of the Corporation which are
currently subject to an escrow agreement dated August 4, 1994 (the "Shares").
<PAGE>
2. During the continuance of this Agreement, and subject to the terms of this
Agreement, the Trustee shall have the exclusive right, in his sole discretion,
to receive all notices of and to attend all meetings of the Shareholders of the
Corporation and to vote, in person or by proxy, and otherwise exercise all
rights attaching to the shares of the Corporation registered in the name of the
Shareholder and held by it pursuant to this Agreement, for the sole purpose of
nominating and electing the directors of the Corporation from time to time, and
for fixing the number of directors to be elected from time to time. The
Shareholder shall, from time to time and at all times, take such actions and
execute and deliver to the Trustee such documents as may be reasonably requested
or required by the Trustee to exercise his rights or any of them in respect of
the said shares, including, but not limited to, the execution and delivery of
such proxies and other documents as shall enable the Trustee to exercise the
voting rights attached to such shares.
3. All cash or other dividends and other cash distributions, if any, declared
and paid in respect of the shares subject of this Agreement shall be for the
benefit of and paid to the Shareholder.
4. The Trustee hereby accepts the trusts created hereunder and agrees to carry
out and discharge his duties and obligations hereunder to the best of his
abilities. In carrying out his duties and responsibilities under this Agreement,
the Trustee shall not be responsible for any loss occasioned by his actions and
shall incur no liability or responsibility by reason of any error, mistake,
action or omission made or done under or pursuant to this Agreement, except for
his own willful or negligent default.
Should the Chairman of the Corporation as of the date hereof resign or
be removed from such position, he shall remain party to this Agreement until the
board of directors of the Corporation appoints a new chairman.
5. If during the term of this Agreement the Shareholder, with the approval of
The Alberta Stock Exchange, sells a portion of the Free-Trading Shares or
transfers a portion of the Escrowed Shares, the Trustee shall be released from
its obligations in respect of the portion of Shares so transferred or sold, if
approval of The Alberta Stock Exchange is obtained for such release.
6. This Agreement shall continue of full force and effect upon and in respect of
the Shares as long as The Alberta Stock Exchange is of the view that the
Shareholder could potentially disrupt the management and policies of the
Corporation by exercising the voting rights of the aggregate number of Shares
held by the Shareholder contrary to the intentions of the management of the
Corporation. This Agreement will be terminated upon the consent of The Alberta
Stock Exchange.
7. This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on
the date first written above.
2
<PAGE>
RED REEF LIMITED
Per:
-----------------------------------
Per:
-----------------------------------
- -------------------------------------- ---------------------------------------
Witness NEIL SPEAKMAN, CHAIRMAN
XENOTECH INC.
Per:
-----------------------------------
Per:
-----------------------------------
3
<PAGE>
Exhibit 2(2)
ESCROW AGREEMENT
(PERFORMANCE ESCROW AGREEMENT)
THIS AGREEMENT made in triplicate this 4th day of August, 1994, BETWEEN:
MIRABEAU 88 LIMITED, a body corporate incorporated under the
laws of the Province of Alberta, (herein called the "Issuer")
- and -
MONTREAL TRUST COMPANY OF CANADA, a body corporate, duly
authorized to carry on business in the Province of Alberta,
and all Provinces in Canada, (herein called the "Trustee")
- and -
THE SHAREHOLDERS SET OUT IN SCHEDULE "A" ANNEXED HERETO,
(herein called the "Security Holders")
WHEREAS certain the Security Holders, TrueVision 3-D Pty Ltd.
("TrueVision"), and the Issuer entered into an agreement dated March 16, 1994
whereby the Security Holders sold all of the issued and outstanding shares of
True Vision to the Issuer, the consideration for such property being the
allotment of securities in the Issuer to the Security Holders, the property and
the number of securities and the names of the Security Holders presently owning
or about to receive such securities being respectively and more particularly
described in Schedule "A" attached to and forming part of this agreement.
AND WHEREAS certain the Security Holders, Display
Technologies Pty Ltd. ("Display"), and the Issuer entered into an agreement
dated March 16, 1994 whereby the Security Holders sold all of the issued and
outstanding shares of True Vision to the Issuer, the consideration for such
property being the allotment of securities in the Issuer to the Security
<PAGE>
Holders, the property and the number of securities and the names of the Security
Holders presently owning or about to receive such securities being respectively
and more particularly described in Schedule "A" attached to and forming part of
this agreement.
AND WHEREAS in order to comply with the requirements of The
Alberta Stock Exchange, the Security Holders are desirous of depositing in
escrow certain securities in the Issuer owned or to be received by them;
AND WHEREAS the Trustee has agreed to undertake and perform
its duties according to the terms and conditions thereof;
NOW THEREFORE this agreement witnesses that, in consideration
of the sum of One Dollar ($1.00) paid by the parties to each other, receipt of
this sum being acknowledged by each of the parties, the Security Holders jointly
and severally covenant and agree with the Issuer and with the Trustee, and the
Issuer and the Trustee covenant and agree each with the other and with the
Security Holders jointly and severally as follows:
1. Where used in this agreement, or in any amendment or supplement hereto,
unless the context otherwise requires, "Cash Flow" means net income derived from
the property, as shown on the audited financial statements or verified by the
Issuer's auditors, adjusted by the following add-backs: (i) depreciation, (ii)
depletion, (iii) deferred taxes, (iv) amortization of good will, (v)
amortization of research and development costs.
2. Each of the Security Holders hereby places and deposits in escrow with the
Trustee those of his securities in the Issuer which are represented by the
certificates described in Schedule "A" and the Trustee hereby acknowledges
receipt of those certificates. The Security Holders agree to deposit in escrow
any further certificates representing securities in the Issuer which he may
2
<PAGE>
receive as a stock dividend on securities hereby escrowed, and to deliver to the
Trustee immediately on receipt thereof the certificates for any such further
securities and any replacement certificates which may at any time be issued for
any escrowed securities.
3. The Parties hereby agree that, subject to the provisions of paragraph 6
herein, the securities and the beneficial ownership of or any interest in them
and the certificate representing them (including any replacement securities or
certificates) shall not be sold, assigned, hypothecated, alienated, released
from escrow, transferred within escrow, or otherwise in any manner dealt with,
without the written consent of The Alberta Stock Exchange (hereinafter referred
to as the "Exchange") given to the Trustee or except as may be required by
reason of the death of bankruptcy of any Security Holder, in which cases the
Trustee shall hold the said certificates subject to this agreement, for whatever
person, or company shall be legally entitled to become the registered owner
thereof.
4. The Security Holders direct the Trustee to retain their respective
securities and the certificates (including any replacement securities or
certificates) representing them and not to do or cause anything to be done to
release them from escrow or to allow any transfer, hypothecation or alienation
thereof, without the written consent of the Exchange. The Trustee accepts the
responsibilities placed on it by the agreement and agrees to perform them in
accordance with the terms of this agreement and the written consents, orders or
directions of the Exchange.
5. Any Security Holder applying to the Exchange for a consent for a transfer
within escrow shall, before applying, give reasonable notice in writing of this
intention to the Issuer and the Trustee.
3
<PAGE>
6. (a) The Exchange will consent to the release from escrow of one share for
each $0.10 of Cash Flow generated by or from the property.
(b) The Exchange will consent to the release from escrow of one share for
each $0.10 received by the Issuer, Display or TrueVision in a payment
of a capital advance pursuant to a license agreement entered into by
any of the above parties.
(c) Any release from escrow under this paragraph 6 shall be made pursuant
to a written application on behalf of the Issuer or the Security
Holders, which application shall be accompanied by evidence of the Cash
Flow and/or capital received, in a form satisfactory to the Exchange
Application for release may only be made once per year and may only
relate to Cash Flow and/or capital received in the preceding fiscal
year or the fiscal years of the Issuer since the last release from
escrow pursuant to this agreement, whichever is greater All shares
released from escrow shall, unless otherwise directed by the Exchange,
be distributed pro rata to all Security Holders.
(d) Notwithstanding subparagraph (c) above, the maximum number of shares to
be released from escrow in any year to a Security Holder pursuant to
subpararaph (a) above shall be one-third of the original number of
shares held in escrow on behalf of such Security Holder.
7. A release from escrow of all or part of the escrowed securities shall
terminate this agreement only in respect to those securities so released. For
greater certainty this paragraph does not apply to securities transferred within
escrow.
4
<PAGE>
8. The Security Holders shall, if a dividend is declared while the Escrowed
Shares or any of them continue to be held in escrow under this Agreement,
renounce and release any right to receive payment of the dividend on the shares
then held in escrow.
9. If the Issuer is wound up and any securities remain in escrow under this
agreement at the time when a distribution of assets to holders of securities is
made by the liquidator, the Security Holders shall assign their right to receive
that part of the distribution which is attributable to the escrowed securities
to the Trustee, for the benefit of, and in trust for the persons and companies
who are then holders of free securities in the Issuer rateably in proportion to
their holdings.
10. (a) In the event that the Issuer has lost, alienated or has not obtained a
good or marketable title to, or has abandoned or discontinued
development of, any or all of the aforesaid property which was or
formed part of the consideration for which the aforesaid securities
were issued, or that any or all of the said property has become of
little or no value, the Issuer shall declare the occurrence of that
event, with full particulars thereof, to the Exchange by a resolution
of its directors, and those Security Holders who are directors from
time to time hereby agree to cause such resolution to be passed and
certified to the satisfaction of the Exchange.
(b) The Security Holder jointly and severally agree with the Issuer and the
Trustee that in the event of any such loss, alienation, failure to
acquire title, or of such abandonment or discontinuance of development
or diminution of value, the securities held in escrow shall not be
cancelled or released from escrow, in whole or in part, except with the
consent of the Exchange.
5
<PAGE>
(c) The Exchange may, in its sole discretion, having regard to the number
and value of the securities issued for the property, the value of the
property as ultimately established and such other circumstances as it
may consider relevant, determine the number of securities to be
cancelled or released and shall communicate its decision in writing to
the Trustee. If the Exchange determines that less than all the
securities then held in escrow shall be cancelled or released, the
securities to be cancelled or released shall be taken rateably from the
escrowed security holding of each of the Security Holders, unless the
Exchange otherwise directs or the Security Holders, with the consent of
the Exchange, otherwise agree in writing.
(d) On receipt of the Trustee of a determination to cancel, each of the
Security Holders shall tender the required number of escrowed
securities to the Issuer by way of gift for cancellation and, the
Issuer shall thereupon take the necessary action, by way of reduction
of capital or otherwise, to cancel them, and the certificates for these
securities shall be delivered up for cancellation by the Issuer's
transfer agent.
(e) Each of the Security Holders undertakes and agrees to vote and cause to
be voted their respective securities in a manner consistent with the
terms, conditions and intent of this agreement in relation to the
aforesaid gifting back of securities for cancellation.
11. Notwithstanding paragraphs 6 and 10, any shares remaining in escrow on the
fifth anniversary of the date of this agreement, unless otherwise exempted in
writing by the Exchange, shall be cancelled by the Trustee within six (6) months
of the said fifth anniversary.
6
<PAGE>
12. All voting rights attached to the escrowed securities shall at all times be
exercised by the respective registered owners thereof.
13. The Security Holders and the Issuer hereby jointly and severally agree to
and do hereby release and indemnify and save harmless the Trustee from and
against all claims, suits, demands, costs, damages and expenses which may be
occasioned by reason of the Trustee's compliance in good faith with the terms
hereof.
14. The Issuer hereby acknowledges the terms and conditions of this Agreement
and agrees to take all reasonable steps to facilitate its performance and to pay
the Trustee's proper charges for its services as trustee of this escrow.
15. If the Trustee shall wish to resign, it shall give at least three (3)
months' notice to the Issuer which may, with the written consent of the
Exchange, by writing appoint another Trustee in its place and such appointment
shall be binding on the Security Holders, and the new Trustee shall assume and
be bound by the obligations of the Trustee hereunder.
16. The covenants of the Security Holders with the Issuer in this agreement are
made with the Issuer both in its own right and as trustee for the holders from
time to time of free securities in the Issuer, and may be enforced not only by
the Issuer but also by any holder of free securities.
17. This agreement may be executed in several parts of the same form and the
parts as so executed shall together constitute one original agreement, and the
parts, if more than one, shall be read together and construed as if all the
signing parties hereto had executed one copy of this agreement.
7
<PAGE>
18. Wherever the singular or masculine is used, the same shall be construed to
include the plural or feminine or neuter where the context so requires.
This agreement shall enure to the benefit of and be binding on
the parties to this agreement and each of their heirs, executors,
administrators, successors and assigns.
8
<PAGE>
IN WITNESS WHEREOF the Issuer and Trustee have caused their respective corporate
seals to be hereto affixed and the Security Holders have hereto set their
respective hands and seals.
MIRABEAU 88 LIMITED
Per:
-----------------------------------
Per:
-----------------------------------
MONTREAL TRUST COMPANY OF CANADA
Per:
-----------------------------------
Per:
-----------------------------------
9
<PAGE>
SIGNED, SEALED AND DELIVERED by the respective Security
Holders whose names are subscribed in the right-hand column below in the
presence of the respective persons whose names are subscribed in the left-hand
column.
- --------------------------------------- ---------------------------------------
Witness E.N. MONKS
- --------------------------------------- ---------------------------------------
Witness I.L.K. MARSHALL
- --------------------------------------- ---------------------------------------
Witness Kenneth F. Clements as Trustee of the
Edgewater Clements Trust
ROSANDO PTY LTD.
Per:
-----------------------------------
(c/s)
Per:
-----------------------------------
CHARNLEY HALL PTY LTD.
Per:
-----------------------------------
(c/s)
Per:
-----------------------------------
10
<PAGE>
CHEMCO PTY LTD.
Per:
-----------------------------------
(c/s)
Per:
-----------------------------------
CAPITAL TECHNOLOGIES PTY LTD.
Per:
-----------------------------------
(c/s)
Per:
-----------------------------------
GRAYWINTER INVESTMENTS PTY LTD.
Per:
-----------------------------------
(c/s)
Per:
-----------------------------------
- --------------------------------------- ---------------------------------------
Witness CLINTON GIRAUDO
11
<PAGE>
- --------------------------------------- ---------------------------------------
Witness ANGUS DUNCAN RICHARDS
- --------------------------------------- ---------------------------------------
Witness ANGUS DUNCAN RICHARDS as Trustee for
R & D SERVICES TRUST
NCA INVESTMENTS PTY LTD.
Per:
-----------------------------------
(c/s)
Per:
-----------------------------------
PHOEBE INVESTMENTS (WA) PTY LTD.
Per:
-----------------------------------
(c/s)
Per:
-----------------------------------
SIIRRON PTY LTD.
Per:
-----------------------------------
(c/s)
Per:
-----------------------------------
12
<PAGE>
SCHEDULE "A"
To an Escrow Agreement dated the 4th day of August, 1994, and made among
Mirabeau 88 Limited therein called the "Issuer", Montreal Trust Company of
Canada therein called the "Trustee", and certain security holders of the Issuer,
therein called the "Security Holders"
<TABLE>
<CAPTION>
Certificate
Names of Number of Numbers of
Security Type of Securities Securities
Holders Securities Escrowed Escrowed
- ------- ---------- ----------- -----------
<S> <C> <C> <C>
Kenneth F. Clements as Trustee for the Common Shares 1,422,157
Edgewater Clements
Trust
Rosando Pty Ltd. as Trustee for the Common Shares 1,231,570
S.M.V. Trust
E.N. Monks Common Shares 1,231,570
Charnley Hall Pty Ltd. Common Shares 1,230,563
Chemco Pty Ltd. Common Shares 1,422,157
Capital Technologies Pty Ltd. Common Shares 1,422,157
I.L.K. Marshall Common Shares 615,284
Graywinter Investments Pty Common Shares 888,837
Ltd.
Angus Duncan Richards as Trustee for Common Shares 8,216,716
the Richards Family
Trust
Angus Duncan Richards as Trustee for Common Shares 516,814
the R & D Services Trust
Clinton Giraudo as Trustee for the Common Shares 444,229
Clinton Giraudo Family
Trust
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C>
Phoebe Investments (WA) Pty Ltd. Common Shares 355,381
Siirron Investments Pty Ltd. Common Shares 355,381
NCA Investments Pty Ltd. Common Shares 177,691
</TABLE>
14
<PAGE>
Exhibit 2(3)
ESCROW AGREEMENT
(PERFORMANCE ESCROW AGREEMENT)
AGREEMENT made in triplicate this 4th day of August,
1994, BETWEEN:
MIRABEAU 88 LIMITED, a body corporate incorporated under the
laws of the Province of Alberta. (herein called the "Issuer")
- and -
MONTREAL TRUST COMPANY OF CANADA, a body corporate, duly
authorized to carry on business in the Province of Alberta,
and all Provinces in Canada, (herein called the "Trustee")
- and -
SALAMANDER RESOURCES LIMITED, a corporation incorporated
pursuant to the laws of Hong Kong, (herein called the
"Security Holder")
WHEREAS the Security Holder has provided services (the
"Services" to the Issuer relating to the negotiation of the financing and
acquisition of TrueVision Pty Ltd. ("True Vision") and Display Technologies Pty
Ltd. ("Display");
AND WHEREAS Issuer has issued to the Security Holder an
aggregate of 1,420,000 common shares of the capital stock of the Issuer as
consideration for the Services;
AND WHEREAS in order to comply with the requirements of The
Alberta Stock Exchange, the Security Holder is desirous of depositing in escrow
certain securities in the Issuer owned or to be received by them;
AND WHEREAS the Trustee has agreed to undertake and perform
its duties according to the terms and conditions thereof;
<PAGE>
NOW THEREFORE this agreement witnesses that, in consideration
of the sum of One Dollar ($1.00) paid by the parties to each other, receipt of
this sum being acknowledged by each of the parties, the Security Holder
covenants and agrees with the Issuer and with the Trustee, and the Issuer and
the Trustee covenant and agree each with the other and with the Security Holder
as follows:
1. Where used in this agreement, or in any amendment or supplement hereto,
unless the context otherwise requires, "Cash Flow" means net income derived from
the property, as shown on the audited financial statements or verified by the
Issuer's auditors, adjusted by the following add-backs: (i) depreciation, (ii)
depletion, (iii) deferred taxes, (iv) amortization of good will, (v)
amortization of research and development costs.
2. The Security Holder hereby places and deposits in escrow with the Trustee
those of his securities in the Issuer which are represented by the certificates
described in Schedule "A" and the Trustee hereby acknowledges receipt of those
certificates. The Security Holder agrees to deposit in escrow any further
certificates representing securities in the Issuer which he may receive as a
stock dividend on securities hereby escrowed, and to deliver to the Trustee
immediately on receipt thereof the certificates for any such further securities
and any replacement certificates which may at any time be issued for any
escrowed securities.
3. The Parties hereby agree that, subject to the provisions of paragraph 6
herein, the securities and the beneficial ownership of or any interest in them
and the certificate representing them (including any replacement securities or
certificates) shall not be sold, assigned, hypothecated, alienated, released
from escrow, transferred within escrow, or otherwise in any manner dealt with,
without the written consent of The Alberta Stock Exchange (hereinafter
2
<PAGE>
referred to as the "Exchange") given to the Trustee or except as may be required
by reason of the death or bankruptcy of the Security Holder, in which cases the
Trustee shall hold the said certificates subject to this agreement, for whatever
person, or company shall be legally entitled to become the registered owner
thereof.
4. The Security Holder directs the Trustee to retain their respective
securities and the certificates (including any replacement securities or
certificates) representing them and not to do or cause anything to be done to
release them from escrow or to allow any transfer, hypothecation or alienation
thereof, without the written consent of the Exchange. The Trustee accepts the
responsibilities placed on it by the agreement and agrees to perform them in
accordance with the terms of this agreement and the written consents, orders or
directions of the Exchange.
5. The Security Holder, before applying to the Exchange for a consent for a
transfer within escrow shall, give reasonable notice in writing, of this
intention to the Issuer and the Trustee.
6. (a) The Exchange will consent to the release from escrow of one share for
each $0.10 of Cash Flow generated by or from the property.
(b) The Exchange will consent to the release from escrow of one share for
each $0.10 received by the Issuer, Display or TrueVision in a payment
of a capital advance pursuant to a license agreement entered into by
any of the above parties.
(c) Any release from escrow under this paragraph 6 shall be made pursuant
to a written application on behalf of the Issuer or the Security
Holders, which application shall be accompanied by evidence of the Cash
Flow and/or capital received, in a form satisfactory to the Exchange.
Application for release may only be made once per year and may only
relate to Cash Flow and/or capital received in
3
<PAGE>
the preceding fiscal year or the fiscal years of the Issuer since the
last release from escrow pursuant to this agreement, whichever is
greater.
(d) Notwithstanding subparagraph (c) above, the maximum number of shares to
be released from escrow in any year to a Security Holder pursuant to
subpararaph (a) above shall be one-third of the original number of
shares held in escrow on behalf of the Security Holder.
7. A release from escrow of all or part of the escrowed securities shall
terminate this agreement only in respect to those securities so released. For
greater certainty this paragraph does not apply to securities transferred within
escrow.
8. The Security Holders shall, if a dividend is declared while the Escrowed
Shares or any of them continue to be held in escrow under this Agreement,
renounce and release any right to receive payment of the dividend on the shares
then held in escrow.
9. If the Issuer is wound up and any securities remain in escrow under this
agreement at the time when a distribution of assets to holders of securities is
made by the liquidator, the Security Holder shall assign their right to receive
that part of the distribution which is attributable to the escrowed securities
to the Trustee, for the benefit of, and in trust for the persons and companies
who are then holders of free securities in the Issuer rateably in proportion to
their holdings.
4
<PAGE>
10. (a) In the event that the Issuer has lost, alienated or has not obtained a
good or marketable title to, or has abandoned or discontinued
development of, any or all of the aforesaid property which was or
formed part of the consideration for which the aforesaid securities
were issued, or that any or all of the said property has become of
little or no value, the Issuer shall declare the occurrence of that
event, with full particulars thereof, to the Exchange by a resolution
of its directors, and if the Security Holder is a director of the time
of such an occurrence, the Security Holder hereby agrees to cause such
resolution to be passed and certified to the satisfaction of the
Exchange.
(b) The Security Holder agrees with the Issuer and the Trustee that in the
event of any such loss, alienation, failure to acquire title, or of
such abandonment or discontinuance of development or diminution of
value, the securities held in escrow shall not be cancelled or released
from escrow, in whole or in part, except with the consent of the
Exchange.
(c) The Exchange may, in its sole discretion, having regard to the number
and value of the securities issued for the property, the value of the
property as ultimately established and such other circumstances as it
may consider relevant, determine the number of securities to be
cancelled or released and shall communicate its decision in writing to
the Trustee. If the Exchange determines that less than all the
securities then held in escrow shall be cancelled or released, the
securities to be cancelled or released shall be taken rateably from the
escrowed security holding of each of the Security Holders subject to
this agreement at the time of that the
5
<PAGE>
Exchange directs such shares to be cancelled or released, unless the
Exchange otherwise directs or the Security Holders, with the consent of
the Exchange, otherwise agree in writing.
(d) On receipt of the Trustee of a determination to cancel, each of the
Security Holders subject to this agreement of such a determination,
shall tender the required number of escrowed securities to the Issuer
by way of gift for cancellation and, the Issuer shall thereupon take
the necessary action, by way of reduction of capital or otherwise, to
cancel them, and the certificates for these securities shall be
delivered up for cancellation by the Issuer's transfer agent.
(e) The Security Holder undertakes and agrees to vote and cause to be voted
its securities in a manner consistent with the terms, conditions and
intent of this agreement in relation to the aforesaid gifting back of
securities for cancellation.
11. Notwithstanding paragraphs 6 and 10, any shares remaining in escrow on the
fifth anniversary of the date of this agreement, unless otherwise exempted in
writing by the Exchange, shall be cancelled by the Trustee within six (6) months
of the said fifth anniversary.
12. All voting rights attached to the escrowed securities shall at all times be
exercised by the respective registered owners thereof.
13. The Security Holder and the Issuer hereby agree to and do hereby release and
indemnify and save harmless the Trustee from and against all claims, suits,
demands, costs, damages and expenses which may be occasioned by reason of the
Trustee's compliance in good faith with the terms hereof.
6
<PAGE>
14. The Issuer hereby acknowledges the terms and conditions of this Agreement
and agrees to take all reasonable steps to facilitate its performance and to pay
the Trustee's proper charges for its services as trustee of this escrow.
15. If the Trustee shall wish to resign, it shall give at least three (3)
months' notice to the Issuer which may, with the written consent of the
Exchange, by writing appoint another Trustee in its place and such appointment
shall be binding on the Security Holder, and the new Trustee shall assume and be
bound by the obligations of the Trustee hereunder.
16. The covenants of the Security Holders with the Issuer in this agreement are
made with the Issuer both in its own right and as trustee for the holders from
time to time of free securities in the Issuer, and may be enforced not only by
the Issuer but also by any holder of free securities.
17. This agreement may be executed in several parts of the same form and the
parts as so executed shall together constitute one original agreement, and the
parts, if more than one, shall be read together and construed as if all the
signing parties hereto had executed one copy of this agreement.
18. Wherever the singular or masculine is used, the same shall be construed to
include the plural or feminine or neuter where the context so requires.
19. This agreement shall enure to the benefit of and be binding on the parties
to this agreement and each of their heirs, executors, administrators, successors
and assigns.
7
<PAGE>
IN WITNESS WHEREOF the Issuer and Trustee have caused their respective
corporate seals to be hereto affixed and the Security Holders have hereto set
their respective hands and seals.
MIRABEAU 88 LIMITED
Per:
-----------------------------------
Per:
-----------------------------------
MONTREAL TRUST COMPANY OF CANDA
Per:
-----------------------------------
Per:
-----------------------------------
SALAMANDER RESOURCES LIMITED
Per:
-----------------------------------
Per:
-----------------------------------
8
<PAGE>
SCHEDULE "A"
------------
To an Escrow Agreement dated the 4th day of August, 1994, and made among
Mirabeau 88 Limited therein called the "Issuer", Montreal Trust Company of
Canada therein called the "Trustee", and a certain security holder of the
Issuer, therein called the "Security Holder"
<TABLE>
<CAPTION>
CERTIFICATE
NAMES OF NUMBER OF NUMBERS OF
SECURITY TYPE OF SECURITIES SECURITIES
HOLDERS SECURITIES ESCROWED ESCROWED
- -------- ---------- ---------- -----------
<S> <C> <C> <C>
Salamander Resources Limited ...... Common Shares 1,168,234
</TABLE>
<PAGE>
Exhibit 2(4)
INVESTMENT AGREEMENT
THIS AGREEMENT is made as of May 19, 1998 between:
WESTGATE INTERNATIONAL, L.P., a Cayman Islands limited
partnership ("Westgate") and THE LIVERPOOL LIMITED
PARTNERSHIP, a Bermuda limited partnership ("Liverpool")
("collectively the "Investors"),
-- and --
XENOTECH INC., a corporation formed under the laws of Alberta
(the "Corporation").
BACKGROUND
The Corporation and the Investors have agreed to complete a series of
transactions which will result in the financing and recapitalization of the
Corporation, including the following:
A. The Corporation has agreed to issue to the Investors and the Investors
have agreed to purchase from the Corporation an aggregate of 25,000,000
units in the capital of the Corporation, in accordance with the terms
of this Agreement.
B. The Investors have agreed to grant options for the benefit of certain
key members of management of the Corporation over certain securities of
the Corporation held by the Investors, in accordance with the terms of
this Agreement.
C. The Investors have agreed to convert notes in the principal amount of
US$1,500,000 and accrued interest thereon into common shares of the
Corporation, in accordance with the terms of this Agreement.
D. The Corporation has agreed to conduct a Normal Course Issuer Bid
through the facilities of The Alberta Stock Exchange, in accordance
with the terms of this Agreement.
THIS AGREEMENT WITNESSES THAT for good and valuable consideration the parties
agree as follows.
ARTICLE 1.
INTERPRETATION
1.1 DEFINITIONS.
Where used in this Agreement, the following terms have the respective
meanings set out below.
<PAGE>
"AGREEMENT" means this investment agreement and all schedules and instruments in
amendment or confirmation of this investment agreement as amended, supplemented
or restated from time to time.
"BUSINESS DAY" means any day of the year, other than a Saturday or Sunday, on
which Canadian chartered banks in Calgary, Alberta are open for business.
"CLOSING" means the completion of the transactions contemplated by this
Agreement.
"CLOSING DATE" means May 19, 1998 or such other date as the parties may agree to
in writing.
"COMMON SHARES" means the common shares in the capital stock of the Corporation.
"CORPORATION" means Xenotech Inc., a corporation incorporated under the laws of
the Province of Alberta.
"CONVERTIBLE NOTES" means the secured promissory notes of the Corporation dated
June 30, 1997 and February 10, 1998 in the aggregate principal amount of
US$1,500,000 issued by the Corporation to the Investors.
"DOCUMENTS" means the Agreement and the Warrant Option Agreement, Share Option
Agreement and Voting and Disposition Agreement.
"FINANCIAL STATEMENTS" means the audited financial statements of the Corporation
(consisting of a balance sheet and accompanying statements of income, retained
earnings and changes in financial position together with all notes to such
statements) prepared for the financial periods of the Corporation ending on June
30, 1997 and the interim unaudited financial statements for the six month period
ended December 31, 1997.
"GAAP" means the generally accepted accounting principles from time to time
approved by the Canadian Institute of Chartered Accountants, or any successor
institute, applicable as at the date on which any calculation or statement is
made, or required to be made, under this Agreement.
"INVESTORS" means Westgate International, L.P., a Cayman Islands limited
partnership and The Liverpool Limited Partnership, a Bermuda limited
partnership.
"LIVERPOOL" means The Liverpool Limited Partnership, a Bermuda limited
partnership.
"MATERIAL" means material to the business of the Corporation and its
subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means any effect on the business, operations,
properties, prospects, or financial condition of the entity with respect to
which such term is used and which is material and adverse to the financial
condition or business operations of such entity or to other entities controlling
or controlled by such entity, and/or any condition or situation which would
prohibit or otherwise interfere with the ability of the entity with respect to
which said term is used to enter into and perform its obligations under the
Documents.
-2-
<PAGE>
"MATURITY DATE" means the date occurring five years following the Closing Date.
"OPTION SHARES" means an aggregate of 5,000,000 common shares in the capital of
the Corporation held by the Investors.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).
"SHARE OPTION AGREEMENT" means the agreement between the Investors and Red Reef
Limited concerning the Option Shares, to be dated the Closing Date,
substantially in the form set out in schedule 2.6 as amended, supplemented or
restated from time to time.
"SUBSIDIARIES" means the entities in which the Corporation owns the equity and
other ownership interests set out in schedule 3.1(b).
"TAXES" means all taxes, charges, fees, levies or other assessments, including,
without limitation, all income, capital, franchise, withholding, payroll, use,
goods and services, employment, health, education, excise, business, property or
other taxes, customs duties, surtaxes, anti-dumping and countervail duties,
charges or government imposts of any kind whatsoever, together with any fines,
interest or penalties on, in lieu of, for non-collection of or relating to, such
taxes, charges, fees, levies or assessments or additions thereto imposed by any
federal, provincial, local or foreign government authority.
"TIME OF CLOSING" means 2:00 p.m. (Calgary time) on the Closing Date or such
later time as the Closing may occur.
"UNIT" means a unit in the capital stock of the Corporation being comprised of
one Common Share and one-half of one Warrant.
"WARRANT" means a warrant of the Corporation which entitles the holder to
acquire a Common Share at a price of $0.40 for a period of two years from the
date of issue.
"WARRANT OPTION AGREEMENT" means the agreement between the Investors and Red
Reef Limited concerning the Warrants, to be dated the Closing Date,
substantially in the form set out in schedule 2.5 as amended, supplemented or
restated from time to time.
"WESTGATE" means Westgate International, L.P., a Cayman Island limited
partnership.
1.2 HEADINGS.
Headings shall not affect the interpretation of this Agreement.
1.3 EXTENDED MEANINGS.
Words importing the singular include the plural and vice versa. Words
importing gender shall include the masculine, feminine and neuter genders. Words
importing persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations.
-3-
<PAGE>
1.4 SEVERABILITY.
If any provision of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not be affected.
1.5 ACCOUNTING TERMS.
All accounting terms not specifically defined in this Agreement shall be
construed in accordance with GAAP.
1.6 AMENDMENT.
No amendment of this Agreement shall be binding unless in writing and
signed by the parties.
1.7 GOVERNING LAW.
This agreement shall be governed by and interpreted in accordance with the laws
of Alberta and the applicable laws of Canada, and the parties hereto attorn to
the jurisdiction of the Courts of the Province of Alberta.
1.8 SCHEDULES.
The following are the schedules attached to and incorporated in this
Agreement:
schedule 2.3 -- Warrant Certificate
schedule 2.4 -- Release and Cancellation Agreement
schedule 2.5 -- Warrant Option Agreement
schedule 2.6 -- Share Option Agreement
schedule 2.7 -- Voting and Disposition Agreement
schedule 2.12 -- Registration Rights Agreement
schedule 3.1(a) -- Constating Documents
schedule 3.1(b) -- Subsidiaries
schedule 3.1(c) -- Foreign Jurisdictions
schedule 3.1(f) -- Options
schedule 3.1(j) -- Intellectual Property
schedule 3.1(m) -- Disclosure Documents
schedule 6.1(g)(vi) -- Opinion of the Corporation's Counsel
schedule 6.1(g)(vii) -- Senior Executive Agreements
1.9 CURRENCY.
All dollar amounts stated herein shall be in Canadian currency, unless
otherwise stated.
-4-
<PAGE>
ARTICLE 2.
PRIVATE PLACEMENT AND CONVERSION OF DEBT COMMITMENT
2.1 UNIT PURCHASE AND PURCHASE PRICE.
In accordance with the terms of, and subject to the conditions
contained in, this Agreement, the Investors subscribe for and agree to purchase
from the Corporation, and the Corporation agrees to issue to the Investors,
25,000,000 Units at a price of $0.30 per Unit for an aggregate subscription
price of $7,500,000.
2.2 PAYMENT.
In accordance with the terms of, and subject to the conditions
contained in, this Agreement, the Investors shall pay to the Corporation on the
Closing Date the US dollar equivalent of the subscription price of $7,500,000 by
way of certified cheque, bank draft or wire in favour of the Corporation.
In calculating the US dollar equivalent the parties shall use the
closing exchange rate on the Business Day immediately preceding the Closing
Date, or such other rate as may be mutually agreed by the parties hereto.
2.3 DELIVERY OF UNITS.
On the Closing Date, the Corporation will issue and deliver to the
Investors certificates evidencing a total of 25,000,000 Common Shares and
certificates evidencing a total of 12,500,000 Warrants. The Warrants shall be in
the form attached hereto as Schedule 2.3.
2.4 CONVERSION OF DEBT.
In accordance with the terms of, and subject to the conditions
contained in, this Agreement and the Convertible Notes, on the Closing Date the
Investors shall exercise their right to convert the principal amount outstanding
under the Convertible Notes, and any accrued interest to the Closing Date, to
Common Shares.
In respect thereof, the Investors shall deliver the Conversion Notice
to the Corporation in the prescribed form set out in the Convertible Notes and
the Corporation shall issue certificates evidencing a total of 7,500,000 fully
paid and non-assessable Common Shares to the Investors on the Closing Date in
respect of the conversion of the principal amount of the Convertible Notes, and
shall issue certificates evidencing such additional fully paid and
non-assessable Common Shares in respect of the conversion of the accrued
interest under the Convertible Notes. The number of additional Common Shares
shall be calculated by dividing the total amount of accrued interest to the Date
of Closing by the conversion price of US$0.20 per Common Share.
Upon the issuance and delivery of the said Common Shares, the parties
agree that none of the parties shall have any further rights or obligations in
respect of the conversion of the Convertible Notes.
-5-
<PAGE>
On the Closing Date, the parties agree that the Registration Rights
Agreement dated June 30, 1997, as amended and the Pledge Agreement dated June
30, 1997, between the Corporation, Liverpool and Westgate (the "Pledge
Agreement") as amended, shall be deemed to be of no further force and effect and
that all security provided to the Investors pursuant to the terms of the Pledge
Agreement or the Convertible Notes shall be relinquished. On the Closing Date,
the parties shall enter into a Release and Cancellation Agreement substantially
in the form attached hereto as schedule 2.4.
2.5 WARRANT OPTION.
On the Closing Date, the Investors shall execute the Warrant Option
Agreement and thereby grant an option for the benefit of certain key employees
of the Corporation, but not the obligation, to purchase the Warrants at varying
prices in accordance with the terms of the Warrant Option Agreement attached
hereto as schedule 2.5.
2.6 SHARE OPTION.
On the Closing Date, the Investors shall execute the Share Option
Agreement and thereby grant an option for the benefit of certain key employees
of the Corporation, but not the obligation, to purchase the Option Shares in
accordance with the terms of the Share Option Agreement attached hereto as
schedule 2.6.
2.7 VOTING AND DISPOSITION AGREEMENT.
On the Closing Date, the Investors agree to enter into and shall
execute the Voting and Disposition Agreement in the form attached hereto as
schedule 2.7.
2.8 DIRECTORS OF THE CORPORATION.
At any time on or after the Closing Date, subject to the provisions of
the Voting and Disposition Agreement, the Investors shall have the right to
nominate two individuals to the Board of Directors of the Corporation, subject
only to regulatory approval, and the Corporation agrees to take all necessary
action to effect the appointment of such individuals to the Board of Directors.
2.9 NORMAL COURSE ISSUER BID.
The Corporation agrees that subsequent to the Date of Closing that it
will file a Notice of Intention to Make a Normal Course Issuer Bid ("Bid") with
The Alberta Stock Exchange and that it will allocate up to $1,900,000 (the "Bid
Funds") of the funds received hereunder from the sale of Units to acquire Common
Shares pursuant to such bid, at an average price not to exceed $0.50 per Common
Share, unless otherwise agreed by the Investors. The Corporation shall use its
best efforts to obtain the approval of The Alberta Stock Exchange for the Bid,
and thereafter, to complete the Bid in accordance with the agreed upon terms.
The Corporation agrees to segregate the Bid Funds in a separate bank
account or brokerage account for use exclusively to fund the Bid. In the event
that all or a portion of the
-6-
<PAGE>
funds have not been expended for the purposes of the Bid on or before December
31, 1998, or such later date as the parties may agree, the balance of the Bid
Funds shall be returned to the general treasury of the Corporation to be used
for general working capital purposes.
The Investors agree not to tender any Common Shares to the Bid, and
the Corporation agrees to use its best efforts to ensure that "insiders" of
the Corporation, as defined by the Securities Act (Alberta) do not tender any
Common Shares to the Bid.
2.10 RIGHTS OF FIRST REFUSAL; PRE-EMPTIVE RIGHTS.
Without limiting the scope of the covenants contained in Article 5, in
the event that while the Investors hold fifty (50%) percent or more the Common
Shares of the Corporation which they will acquire as a result of the
transactions contemplated herein, the Corporation or any Subsidiary desires to
enter into any capital raising transaction or series of transactions other than
Permitted Equity Investments, the Investors shall have a right of first refusal
with respect to such transactions and shall have the right to match the terms of
any bona fide offer with respect thereto received from a third party; provided,
in the case of an offer consisting in whole or in part of consideration other
than cash, the Investors shall have the right to offer the cash equivalent of
such offer. To effect the foregoing, the Corporation shall provide written
notice of the terms of such proposed transaction to the Investors promptly
following receipt of such offer. The Investors may then exercise their right to
match by issuing a written counternotice of their intention to do so within 30
days of receipt of the notice from the Corporation and the consummation of such
counteroffer shall occur by the later of (i) the time provided by the original
bona fide third party offer or (ii) 30 days from the receipt of the Investors'
counteroffer.
For the purposes of this Article 2.10, Permitted Equity Investment
shall mean (i) a sale of Common Shares to an individual or group of individuals,
which sale shall not, when aggregated with any other such sales, exceed 9.9% of
the Common Shares outstanding on the date hereof; (ii) a sale of equity of a
newly created subsidiary of the Corporation to an individual or group of
individuals in an amount not to exceed 50% of the equity of such newly created
subsidiary, or 50% of the Corporation's ownership interest in such newly created
subsidiary if it is a joint venture; and/or (iii) a public sale of Common Shares
pursuant to a prospectus document.
2.11 CONSOLIDATION.
Immediately following Closing, subject only to regulatory approval and
any further agreement between the parties, the Corporation shall take all
necessary action and use its best efforts to obtain all necessary approvals,
including the approval of shareholders of the Corporation, to consolidate its
issued and outstanding capital such that shareholders receive one common share
of the Corporation for each five common shares held.
2.12 NASDAQ LISTING; REGISTRATION RIGHTS.
The Corporation agrees to make application at the earliest practicable
date to have the Common Shares listed on either (i) the NASDAQ National Market
("NNM") or (ii) the NASDAQ Small Cap Market ("NASDAQ Small Cap"), and shall take
all actions within its power and use its
-7-
<PAGE>
best efforts to have the Common Shares, not later than December 31, 1999: (i)
registered under the U.S. Securities Exchange Act of 1934, as amended and the
rules promulgated thereunder; and (ii) listed and trading on the NNM or the
NASDAQ Small Cap.
On the Closing Date, the parties agree to execute the Registration
Rights Agreement in the form attached hereto as schedule 2.12.
2.13 EMPLOYMENT AGREEMENTS.
On or before the Time of Closing, the Corporation shall enter into
employment contracts with Messrs. Speakman and Baker, substantially in the form
attached hereto as schedule 6.1(g)(vii).
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
3.1 REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
The Corporation represents and warrants to the Investors as set out
below and acknowledges and confirms that the Investors are relying upon such
representations and warranties in connection with the transactions contemplated
herein.
(a) ORGANIZATION; GOOD STANDING. The Corporation is duly organized, validly
existing and in good standing under the laws of the Province of Alberta
and has all requisite corporate power and authority to carry on its
business as now conducted. Attached as Exhibit 3.l(a) hereto are copies
of the constating documents of the Corporation.
(b) SUBSIDIARIES. Each direct or indirect subsidiary of the Corporation
(each a "Subsidiary" and collectively, the "Subsidiaries") is a
corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Attached as Schedule
3.1(b) is a list of all Subsidiaries, indicating domiciles and
jurisdictions of organization.
(c) FOREIGN QUALIFICATION; OFFICES. The Corporation and each Subsidiary is
duly qualified and in good standing as a foreign corporation authorized
to do business in each jurisdiction (other than its jurisdiction of
organization) in which the nature of its activities or the character of
the properties it owns or leases makes such qualification necessary.
Set forth in Schedule 3.1(c) is a list of all foreign jurisdictions
where business is conducted by the Corporation or any Subsidiary and
where the Corporation or any Subsidiary is qualified as a foreign
corporation. The Corporation has its principal offices at 1600, 407 -
2nd Street S.W., Calgary, Alberta, Canada, T2P 2Y3. The Corporation and
Investors understand and agree that Xenotech USA, Inc. cannot register
to conduct business in California until it changes its corporate name.
(d) AUTHORIZATION; ENFORCEABILITY. (i) The Corporation and its Subsidiaries
each have the requisite corporate power and authority to enter into and
perform the Documents to which
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it is a party; (ii) the execution, issuance, delivery and performance
of the Documents have been, or shall have been prior to the Closing
Date, duly authorized by all necessary corporate action, and no further
consent or authorization of its or the Subsidiaries' Board of Directors
or shareholders is, or will be, prior to the Closing Date, required;
(iii) the Documents have been duly executed and delivered by it or the
Subsidiaries, as the case may be; (iv) the Documents to which it is a
party are valid and binding obligations enforceable against it in
accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and
remedies, or by other equitable principles of general application; and
(v) the Documents to which each Subsidiary is a party are such
Subsidiary's valid and binding obligations enforceable against such
Subsidiary in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies, or by other equitable principles of
general application.
(e) NON-CONTRAVENTION. The execution, delivery and performance of the
Documents by the Corporation and by the Subsidiaries and the
consummation by them of the transactions contemplated hereby and
thereby, do not and will not (i) result in a violation of the articles
of incorporation or certificate of organization, as applicable, or
by-laws or other organizational or constating documents of the
Corporation or the Subsidiaries; (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any Material agreement,
indenture or instrument to which it or any Subsidiary is a party; or
(iii) result in violation of any applicable law, rule, regulation,
order, judgment or decree applicable to it or any Subsidiary or by
which any of its property or assets or the property or assets of any
Subsidiary is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse
Effect).
(f) CAPITALIZATION. The Corporation has an authorized capitalization
consisting of (i) an unlimited number of Common Shares of which
49,392,683 shares are outstanding, (ii) an unlimited number of
non-voting first preferred shares, none of which are outstanding; and
(iii) an unlimited number of non-voting second preferred shares, none
of which are outstanding. All of the issued and outstanding Common
Shares have been duly and validly authorized and issued and are fully
paid and non-assessable. Except as set forth in Schedule 3.1(f), there
are no options, warrants, convertible securities, contracts or other
rights to purchase, exchange or convert into, any shares of capital
stock of the Corporation nor any voting trust or arrangements relating
thereto. Upon conversion of the Convertible Notes for Common Shares,
and upon exercise of the Warrants for Common Shares issuable upon such
exercise ("Warrant Shares"), the Common Shares so issued will be duly
and validly authorized and issued, fully paid and non-assessable. All
outstanding shares of capital stock of the Subsidiaries are owned by
the Corporation, free and clear of any liens, claims, charges, options,
or other encumbrances other than the pledge pursuant to the Pledge
Agreement (as defined in Section 2.4).
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(g) RESERVATION OF SHARES. The Common Shares issuable pursuant to the
purchase and sale of Units, including the Common Shares issuable on
exercise of the Warrants, have been duly reserved by the Corporation.
(h) CONSENTS; FILINGS. Other than the approval of the Alberta Stock
Exchange of the transactions contemplated by the Documents, there are
no other consents, filings, authorizations or orders required under any
applicable law, rule or regulation in the United States or Canada, in
order for the Corporation to execute, deliver and perform any of its
obligations under the Documents, including without limitation, any
filing under the U.S. Hard-Scott-Rodino Antitrusts Improvement Act of
1976, as amended, or any Form 20 filing in the Province of Alberta.
(i) TITLE TO ASSETS. It and each Subsidiary has record or registered title
in fee simple to, or valid and subsisting leasehold interests in, all
of its real property and good title to all of its personal property,
and none of such property is subject to any lien, claim, option, charge
or encumbrance of any nature, with the exception of encumbrances
created pursuant to the Pledge Agreement.
(j) INTELLECTUAL PROPERTY. The Corporation (and/or the Subsidiaries) owns
or has licenses to use certain patents, copyrights and trademarks
("Intellectual Property") associated with its business, which are set
forth on Schedule 3.1(j). The Corporation and the Subsidiaries have no
reason to believe that the Intellectual Property rights which it owns
are invalid or unenforceable or that the use of such Intellectual
Property by the Corporation or its Subsidiaries infringes upon or
conflicts with any right of any third party, and neither the
Corporation nor any Subsidiaries has received notice of any such
infringement or conflict. The Corporation and the Subsidiaries have no
knowledge of any infringement of their Intellectual Property by any
third party. Notwithstanding the above, the Corporation has received
notice that its corporate name, "Xenotech", may not be registerable in
some or all of the states in the United States.
(k) LEGAL COMPLIANCE; SECURITIES LAW. Its business (and the business of the
Subsidiaries) is not being conducted in violation of any applicable
law, ordinance or regulation of any governmental entity in which it is
incorporated, domiciled, or conducts business, except for possible
violations which either singly or in the aggregate do not and will not
have a Material Adverse Effect. In respect of the sale of the Units
hereunder, there has been no advertisement of the Units and no selling
or promotional expenses have been paid or incurred in connection
therewith. Without limiting the generality of the foregoing, the
Corporation is a reporting issuer not in default of any requirement of
the SECURITIES ACT (Alberta), or of any requirements of the Alberta
Stock Exchange.
(l) NO LITIGATION. There is no litigation, investigation or proceeding of
or before any arbitrator, court or other governmental authority
pending, or to its best knowledge, threatened by or against the
Corporation, any Subsidiaries or against any of their respective
properties or revenues which could have a Material Adverse Effect.
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(m) DISCLOSURE DOCUMENTS; FINANCIAL STATEMENTS. The Common Shares are
listed for trading on the Alberta Stock Exchange and the Corporation
has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the Alberta Stock Exchange, the Alberta
Securities Commission, or pursuant to any applicable law, rule or
regulation. The Corporation has delivered or made available to the
Purchaser true and complete copies of all such documents, together with
all reports distributed to shareholders (collectively "Disclosure
Documents") filed or distributed since December 31, 1994; such
documents are listed on Schedule 3.1(m). As of their respective dates,
the Disclosure Documents complied in all material respects with the
requirements of applicable law, rules and regulations, and none of the
Disclosure Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Corporation included in the Disclosure Documents
comply as to form in all material respects with applicable accounting
requirements and applicable rules and regulations. Such financial
statements have been prepared in accordance with Canadian GAAP applied
on a consistent basis during the periods involved, and fairly present
in all material respects the financial position of the Corporation as
of the dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(n) NO MATERIAL ADVERSE CHANGE. Since June 30, 1997, the date through which
the most recent annual questionnaire has been prepared and filed with
the Alberta Stock Exchange, a copy of which is included in the
Disclosure Documents, no change which would have a Material Adverse
Effect has occurred or exists with respect to the Corporation or the
Subsidiaries.
(o) NO UNDISCLOSED LIABILITIES. The Corporation and the Subsidiaries have
no liabilities or obligations not disclosed in the Disclosure
Documents, other than those liabilities incurred in the Ordinary Course
of Business since June 30, 1997, which liabilities, individually or in
the aggregate, do not or would not have a Material Adverse Effect on
the Corporation or the Subsidiaries.
(p) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance has
occurred or exists with respect to the Corporation or the Subsidiaries
or their respective businesses, properties, prospects, operations or
financial conditions, which under applicable law, rule or regulation,
requires public disclosure or announcement by the Corporation but which
has not been so publicly announced or disclosed. The Corporation has
not disclosed to the Investors any material information regarding it or
its Subsidiaries which has not been publically disclosed.
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
4.1 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
The Investors severally and not jointly represent and warrant to the
Corporation as set out below and acknowledge and confirm that the Corporation is
relying upon such representations and warranties in entering into and performing
the Corporation's obligations under the Documents.
(a) DUE ORGANIZATION. The Investors are limited partnerships which have
been duly created and organized and are validly subsisting in good
standing under the laws of the jurisdictions in which they were
organized and have the full power and authority to enter into and
perform their obligations under this Agreement. The term "good
standing" in this section means that (i) the Investors have not been
discontinued or dissolved under the laws of the jurisdiction in which
they were organized, (ii) no steps or proceedings have been taken to
authorize or require such discontinuance or dissolution, and (iii) the
Investors have submitted to each relevant government authority all
notices, or returns of corporate information, and all other filings
required by law to be submitted to each such authority.
(b) AUTHORITY. The execution, delivery and performance by the Investors of
this Agreement (i) have been duly authorized by all necessary action,
(ii) do not and will not contravene, violate or conflict with any
provision of the constating documents of the Investors or any provision
of existing law or regulation or order of any government authority or
of any court having jurisdiction over the Investors, and (iii) do not
and will not conflict with, result in breach of, constitute a default
under, require a consent under, or result in the creation of, any lien,
charge or encumbrance upon the property of the Investors pursuant to
any indenture, contract, bank or credit agreement, mortgage or other
agreement or instrument to which an Investor is a parry.
(c) PURCHASE FOR OWN ACCOUNT. Each Investor hereby represents, warrants,
and agrees that the Units are being acquired for its own account and
for investment and not with a view to resale or distribution.
(d) RESIDENCY. Each Investor represents that it is not a resident of
Canada.
(e) RESTRICTIONS ON RESALE. No Investor will offer to sell or sell the
Common Shares and Warrants prior to the expiration of the period ending
90 days from the date such securities are acquired (the "Restricted
Period"), to a person in Canada or to any other person for the account
or benefit of a person in Canada, except for offers or sales of such
securities on a basis in compliance with or exempt from the
registration requirements, and in compliance with or exempt from the
prospectus preparation and filing requirements, of applicable Canadian
securities laws. Each Investor agrees to require each person who
purchases any such securities from such Investor prior to the
expiration of the Restricted
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Period to agree that by purchasing such securities, such buyer
represents and agrees that it will comply with the restrictions on
offers and sales set forth above and will require of any other
purchaser to whom it sells such securities a notice containing
substantially the same statement. For purposes hereof, the Restricted
Period for the Common Shares and Warrants shall be deemed to have
commenced upon the acquisition of the said Common Shares and Warrants.
Each Investor further agrees not to sell Common Shares or Warrants in
the US or to persons resident in the US except in transactions which
satisfy all applicable US federal and state securities laws and as to
which the Corporation has received an opinion of counsel satisfactory
to it regarding compliance with applicable US federal securities laws.
Each Investor agrees to require each person who purchases any such
securities from such Investor prior to the expiration of the Restricted
Period to agree that by purchasing such securities, such buyer
represents and agrees that it will comply with the restrictions on
offers and sales set forth above and will require of any other
purchaser to whom it sells such securities a notice containing
substantially the same statement.
(f) ENFORCEABILITY OF AGREEMENT. This Agreement constitutes a valid
and binding obligation of each of the Investors enforceable against
it in accordance with the Agreement's terms, except, as such
enforcement may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of,
creditors rights and remedies, or by other equitable principles of
general application.
ARTICLE 5
COVENANTS OF THE CORPORATION
5.1 AFFIRMATIVE COVENANTS.
The Corporation covenants that from the date hereof until the date that
the Common Shares are listed and trading on the NNM or the NASDAQ Small Cap, it
will (and will cause each of the Subsidiaries to) observe or perform the
following:
(a) CORPORATE EXISTENCE. It will maintain its corporate existence in good
standing and remain qualified to do business as a foreign corporation
in each jurisdiction in which the nature of its activities or the
character of the properties it owns or leases makes such qualification
necessary.
(b) CONTINUATION OF BUSINESS. It will continue to conduct its business of
commercializing and developing 3D television and video technology in
compliance with all applicable rules and regulations of applicable
governmental authorities.
(c) DISCLOSURE DOCUMENTS. It will furnish to Investors a copy of each
Disclosure Document filed or distributed hereinafter, not later than
the date such document is filed with regulatory authorities or
distributed to shareholders.
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(d) PRESERVATION OF BUSINESS. It will keep its business and properties
substantially intact, including present operations, physical
facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees and will maintain its
existing insurance policies.
(e) FULL ACCESS. Upon written request, the Corporation will permit
representatives of the Investors to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Corporation, to all premises, properties, personnel,
books, records, contracts, and documents of or pertaining to the
Corporation. Notwithstanding the foregoing, the Corporation shall not
provide the Investors any information which, according to applicable
law, rule or regulation, should have been disclosed publicly by the
Corporation prior to the date provided to the Investors, but which has
not been disclosed.
(f) RESERVATION OF WARRANT SHARES. The Corporation shall at all times
reserve and keep available out of its authorized but unissued Common
Shares, such number of Common Shares as shall be from time to time
sufficient to effect the exercise of the Warrants.
(g) NASDAQ LISTING. The Corporation shall apply to have the Common Shares
listed on either (i) the NASDAQ National Market ("NNM") or (ii) the
NASDAQ Small Cap Market ("NASDAQ Small Cap"), and shall take all
actions within its power and use its best efforts to have the Common
Shares, not later than December 31, 1999: (i) registered under the U.S.
Securities Exchange Act of 1934, as amended and the rules promulgated
thereunder; and (ii) listed and trading on the NNM or the NASDAQ Small
Cap.
(h) ALBERTA STOCK EXCHANGE LISTING AND REPORTING ISSUER STATUS. The
Corporation will maintain the listing of its Common Shares on the
Alberta Stock Exchange and will maintain its status as a "reporting
issuer not in default" under the Securities Act (Alberta).
5.2 NEGATIVE COVENANTS.
The Corporation covenants that from the date hereof until the date that
the Common Shares are listed and trading on the NNM or the NASDAQ Small Cap it
will not (and will cause the Subsidiaries not to), without the prior written
approval of the Investors:
(a) Enter into any merger or consolidation or acquire assets of any other
person, or sell, lease or otherwise dispose of its assets, or lease,
license or permit the use of any Intellectual Property or other
property, except in the Ordinary Course of Business where such
transaction is at arm's length and in exchange for fair market value
consideration. (Notwithstanding the foregoing, the Corporation or the
Subsidiaries may: (i) transfer assets to a Subsidiary or joint venture
which is jointly (at least 50%) owned by either (a) the Corporation, or
(b) a Subsidiary provided that such transfers shall be on terms as
favorable as would be reached in an arm's length transaction and shall
be for fair market value; and (ii) permit the use of its Intellectual
Property pursuant to a license agreement on arm's length terms and for
fair market value consideration).
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(b) Sell or otherwise dispose of any shares of its capital stock or issue
any additional shares of its capital stock or securities convertible,
exchangeable or exercisable into shares of its capital stock other than
pursuant to (i) exercise of issued and outstanding convertible
securities of the Corporation; (ii) exercise of the Warrants; (iii)
pursuant to permitted financings, subject to the conditions set forth
in Article 2.10 herein; or (iv) the issuance of incentive stock options
to employees and directors, not to be exercisable for more than the
aggregate of (a) the number of Common Shares issuable pursuant to such
options on the date hereof, and (b) 10% of the Common Shares
outstanding on the date hereof; provided that such options shall be
issued with an exercise price no lower than the closing market price
for the Common Shares on the principal trading market for such shares
at the time of issuance.
(c) Except for the purpose of effecting the Normal Course Issuer Bid
provided for pursuant to Article 2.9 herein, declare any dividends on
any shares of any class of its capital stock, or apply any of its
property or assets to the purchase, redemption or other retirement of,
or set apart any sum for the payment of any dividends on, or for the
purchase, redemption or other retirement of, or make any other
distribution by reduction of capital or otherwise in respect of, any
shares of any class of its capital stock.
(d) Purchase or otherwise acquire any assets, in excess of US$200,000 in
the aggregate, after the date hereof, other than assets used in the
Ordinary Course of Business.
(e) Relocate the principal offices of the Corporation.
(f) Amend its articles, by-laws or other organizational documents, except
as may be required to consolidate the issued and outstanding capital of
the Corporation and to change its name as contemplated herein, or to
register Common Shares with the U.S. Securities and Exchange Commission
or to list the Common Shares on the NNM or NASDAQ Small Cap.
(g) Engage in any transaction with any affiliate, except: (i) as set forth
in subparagraph (a) above or (ii) except on arm's length terms, for
fair market value consideration and in the Ordinary Course of Business.
(h) Increase, by more than 10% annually, the compensation of any director
or officer.
(i) Otherwise engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business.
ARTICLE 6.
CONDITIONS OF CLOSING
6.1 CONDITIONS OF CLOSING.
The obligations of the parties under this Agreement are subject to the
conditions stated below.
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(a) TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Corporation contained in the Documents shall be true
and correct in all material respects as of the Closing Date with the
same force and effect as if such representations and warranties had
been made on and as of such date. The Corporation shall have delivered
to the Investors evidence satisfactory to the Investors to the
foregoing effect dated the Closing Date.
(b) PERFORMANCE OF COVENANTS. The Corporation shall have performed and
complied with all of its covenants hereunder in all material respects.
(c) NO ADVERSE PROCEEDINGS. No action or proceeding shall be pending or
threatened which could reasonably be expected to impair or prohibit the
completion of the transactions contemplated by this Agreement.
(d) SATISFACTORY DUE DILIGENCE. The Investors, acting reasonably, are
satisfied with their review of the business of the Corporation and all
material agreements of the Corporation.
(e) NO MATERIAL ADVERSE CHANGE. No change shall have occurred in the
operation, affairs or prospects of the Corporation (including changes
in applicable laws and regulations), other than changes in the Ordinary
Course of Business which, in the judgment of the Investors, are not
expected to be materially adverse to the operation, affairs or
prospects of the Corporation.
(f) APPROVALS AND CONSENTS. Any approval, consent, ruling, exemption or
authorization (including those related to the Alberta Stock Exchange)
that may be necessary or appropriate in respect of the transaction
contemplated by this Agreement shall have been received and shall be
absolute or on terms reasonably acceptable to the Investors, without
adversely affecting, or resulting in the violation or a breach of, or a
default under or any termination, cancellation, amendment or
acceleration of any obligation under any material license, permit,
lease or contract in connection with the property or the business of
the Corporation.
(g) DELIVERIES. The Corporation shall have delivered or caused to be
delivered to the Investors the following documents in form and
substance satisfactory to the Investors and its counsel:
(i) certificates representing the Common Shares and the Warrants;
(ii) certified copies of:
A. the charter documents and extracts from the by-laws
of the Corporation relating to the execution of
documents;
B. all resolutions of the shareholders, the board of
directors or any duly authorized committee thereof,
of the Corporation approving the entering into of
this Agreement and the issuing of the Common Shares
and
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Warrants and the completion of all transactions
contemplated under this Agreement; and
C. all other instruments evidencing necessary corporate
action of the Corporation with respect to such
matters;
(iii) a certificate of an officer of the Corporation certifying the
names and true signatures of the Corporation's officers
authorized to sign the Documents and the other instruments to
be delivered under the Documents;
(iv) a certificate of an officer of the Corporation certifying that
the representation and warranties of the Corporation, set
forth in Article 3.1, are true and correct as of the Closing
Date;
(v) a certificate of status, compliance, good standing or similar
certificate with respect to the Corporation issued by
appropriate government officials of Alberta;
(vi) the opinion of counsel for the Corporation, substantially in
the form set out in schedule 6.1(g)(vi);
(vii) agreements with Messrs. Speakman and Baker, duly executed in
substantially the form set out in schedule 6.1(g)(vii);
(viii) executed Voting and Disposition Agreement;
(ix) executed Registration Rights Agreement; and
(x) all necessary assurances, transfers, assignments and consents,
and any other instruments necessary or reasonably required to
carry out effectively the intent of this Agreement and to
issue the Common Shares and Warrants to the Investors, free
and clear of all encumbrances.
(H) DELIVERIES OF THE INVESTORS. The Investors shall have delivered or
caused to be delivered to the Corporation the following documents in
form and substance satisfactory to the Corporation and its counsel:
(i) certified funds in payment of the purchase price of the Units;
(ii) executed Warrant Option Agreement;
(iii) executed Share Option Agreement;
(iv) executed Voting and Disposition Agreement;
(v) executed Registration Rights Agreement; and
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(vi) any and all documents which may be reasonably requested in
relation to the conversion of the Convertible Notes, including
the Release and Cancellation Agreement.
ARTICLE 7.
INDEMNITIES AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1 GENERAL INDEMNITY.
The Corporation shall fully indemnify the Investors and their
respective partners, members, employees, agents and professional advisers
(collectively, the "Indemnified Parties") against all loss, liability and
expense arising out of any misrepresentation or breach of warranty or obligation
by the Corporation under the Documents or any document delivered under the
Documents. This indemnity includes, without limitation, reasonable expenses of
investigation and legal fees and expenses in connection with any action or
proceeding against the Corporation or any of the Indemnified Parties. If the
amount required to satisfy any claim so disclosed or provided for shall exceed
the amount so disclosed or provided for, the excess shall be considered to be a
separate liability in respect of which no disclosure or provision has been made.
7.2 NOTICE AND PARTICIPATION.
The Indemnified Parties shall give the Corporation prompt notice of any
loss, liability or expense for which the Corporation may be liable under section
6.1. The Corporation may, at its expense, and subject to the prior approval of
the Investors, which approval shall not be unreasonably withheld, participate in
any negotiations, assume the defence of any action or proceeding and settle for
monetary damages any claim in respect of which indemnification is sought under
section 6.1, provided that any such settlement shall absolve the Indemnified
Parties in full.
7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, GENERAL INDEMNITY.
The representations and warranties of the Corporation contained in the
Documents or in any document delivered under the Documents shall survive the
Closing and shall continue in full force and effect for the benefit of the
Investors for a period of two years from the date hereof, and the General
Indemnity granted under Article 7.1 shall continue in full force and effect for
the benefit of the Investors for a period of four years from the date hereof.
ARTICLE 8.
CLOSING
8.1 DATE, TIME AND PLACE OF CLOSING.
The Closing shall take place at the offices of Ogilvie and Company, at
the Time of Closing on the Closing Date.
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ARTICLE 9.
MISCELLANEOUS
9.1 COSTS.
In the event that the Closing as contemplated herein does not occur,
each of the parties hereto shall be responsible for all of its own costs
incurred in relation to the negotiation and execution of the Documents. In the
event that Closing does occur the Corporation agrees to pay all reasonable costs
of the Investors incurred in relation to the negotiation and execution of the
Documents.
9.2 FURTHER ASSURANCES.
The parties shall, from time to time, take such action and execute and
deliver such documents as may be reasonably necessary or appropriate to give
effect to the terms and intent of the Documents.
9.3 NOTICES.
Any notice or other communication required or permitted to be given
under the Documents shall be in writing and may be delivered personally or sent
by fax, addressed:
If to Liverpool:
The Liverpool Limited Partnership
c\o A.S. & K. Services Ltd.
P.O. Box HM 1179
Hamilton, Bermuda HM EX
Attn: Ms. Deborah Hendrickson
Fax: 011-441-295-5328
If to Westgate:
Westgate International, L.P.
c\o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street, Grand Cayman
Cayman Islands, BWI
Attn: Mr. Greg Taylor
Fax: (809) 949-7634
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Copy to:
Richard Mansouri
Stonington Management Corp.
712 - 5th Avenue, 36th Floor
New York, New York 10019
Fax: (212) 974-2092
If to the Corporation:
Xenotech Inc.
c\o Ogilvie and Company
1600 Canada Place
407 2nd Street SW
Calgary, Alberta T2P 2Y3
Attn: Ms. Sara-Lane Sirey
Fax: (403) 262-7896
Any such notice or other communication given as aforesaid shall be deemed to
have been effectively given, if sent by fax or other similar form of
telecommunications, on the next Business Day following such transmission or, if
delivered, to have been received on the date of such delivery. Any party may
change its address for service from time to time by notice given in accordance
with the foregoing and any subsequent notice shall be sent to the party at its
changed address.
9.4 CONFIDENTIALITY.
If the transaction contemplated by this Agreement is not completed for
any reason, the Investors shall hold in strict confidence, and shall not
disclose to any person or use any confidential information obtained by the
Investors with respect to the Corporation and its affairs, for a period of two
years from the date hereof.
9.5 PUBLICITY.
Unless required by law, regulation or by any stock exchange, neither
the Corporation nor the Investors shall issue any press release or make any
other public statement or announcement relating to or connected with or arising
out of the Documents or the matters contained in the Documents, without
obtaining the prior written approval of the other party to the contents and the
manner of presentation and publication of such press release, public statement
or announcement. Such approval may not be unreasonably withheld or delayed. If
disclosure is required by law, regulation or by any stock exchange, the
disclosing party shall consult in advance with the other party and attempt in
good faith to reflect such other party's concern in the required disclosure.
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9.6 ENTIRE AGREEMENT.
The Documents constitute the entire agreement between the parties with
respect to the subject matter of such instruments and such instruments supersede
all prior negotiations and understandings.
9.7 WAIVER.
No waiver by a party of any breach of the Documents by the other party
(i) shall take effect or be binding upon the party unless in writing and signed
by the party, or (ii) shall limit or affect the rights of the party with respect
to any other breach.
9.8 TIME OF ESSENCE.
Time shall be of the essence of this Agreement.
9.9 ASSIGNMENT.
None of the Documents may be assigned by either party without the
written consent of the other, which consent may not be unreasonably withheld or
delayed. The Documents shall enure to the benefit of and be binding upon the
parties and their respective successors and permitted assigns.
9.10 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties in separate counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute one
and the same agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
WESTGATE INTERNATIONAL, L.P.
Martley International, Inc.
Attorney-in-fact
By:
--------------------------------------
Paul Singer, President
THE LIVERPOOL LIMITED PARTNERSHIP
Liverpool Associates, Ltd.
General Partner
By:
--------------------------------------
Paul Singer, President
-21-
<PAGE>
XENOTECH INC.
By:
--------------------------------------
Robert Baker
President and Chief Executive Officer
-22-
<PAGE>
Exhibit 2(5)
SCHEDULE 2.3
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS. THIS WARRANT MAY NOT BE TRANSFERRED TO ANY RESIDENT
OF THE PROVINCE OF ALBERTA UNTIL AUGUST 17, 1998.
--------------------------------------
May 19, 1998 XENOTECH INC. No. 98A-1
--------------------------------------
Common Share Purchase Warrant
XENOTECH INC., an Alberta corporation (the "Company"), hereby certifies
that for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, THE LIVERPOOL LIMITED PARTNERSHIP, having an address
c/o A.S. & K. Services Ltd., P.O. Box HM1179, Hamilton Bermuda ("Purchaser") or
any other Warrant Holder is entitled, on the terms and conditions set forth
below, to purchase from the Company at any time beginning on the date hereof and
ending twenty-four (24) months after the date hereof (the "Term"), 6,250,000
fully paid and nonassessable common shares, of the Company (the "Common
Shares"), at a purchase price per share of Cdn. $0.40 per share (the "Purchase
Price"), as the same may be adjusted pursuant to Section 5 herein.
Notwithstanding the foregoing, upon the listing of the Common Shares on the NNM
or the NASDAQ Small Cap (each as defined in the Investment Agreement) (In either
case, a "U.S. Listing"), if not prohibited by the rules of such trading market,
the Term shall be automatically extended without further action, such that this
Warrant shall be exercisable for a period of thirty-six (36) months from the
date hereof. The Company shall provide the Warrant Holder with prompt written
notice of any U.S. Listing, which notice shall indicate whether the
aforementioned extension of the Term shall have been effected.
1. DEFINITIONS.
(a) the term "Warrant Holder" shall mean the Purchaser or any
assignee of all or any portion of this Warrant.
(b) the term "Warrant Shares" shall mean the Common Shares or
other securities issuable upon exercise of this Warrant.
(c) the term "Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated May 19, 1998, between the Company and the
Purchaser.
<PAGE>
(d) the term "Investment Agreement" shall mean the Investment
Agreement dated May 19, 1998, between the Company and the Purchaser.
(e) the term "Warrant Option Agreement" shall mean the Warrant
Option Agreement dated May 19, 1998, between the Purchaser and Red Reef Limited.
2. EXERCISE OF WARRANT.
(a) This Warrant may be exercised by the Warrant Holder, in
whole or in part, at any time and from time to time by the following method:
Subject to the rights of Red Reef pursuant to the terms of the
Warrant Option Agreement, the Warrant Holder may surrender
this Warrant, together with the form of subscription at the
end hereof duly executed by the Warrant Holder ("Subscription
Notice"), at the offices of the Company or any transfer agent
for the Common Shares.
(b) In the event that the Warrant is not exercised in full,
the number of Warrant Shares shall be reduced by the number of such Warrant
Shares for which this Warrant is exercised, and the Company, at its expense,
shall forthwith issue and deliver to or to the order of the Warrant Holder a new
Warrant of like tenor in the name of the Warrant Holder or as the Warrant Holder
(upon payment by the Warrant Holder of any applicable transfer taxes) may
request, reflecting such adjusted Warrant Shares.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as
soon as practicable after the exercise of this Warrant in full or in part, and
in any event within three (3) "trading days" (as defined below) thereafter, the
Company shall transmit the certificates (together with any other stock or other
securities or property to which Warrant Holder is entitled upon exercise) by
messenger or overnight delivery service to reach the address designated by such
holder within three (3) trading days after the receipt of the Subscription
Notice ("T+3") and the purchase price for the Warrant Shares purchased pursuant
thereto.
The term "trading day" means a day on which there is
trading on the Alberta Stock Exchange or such other market or exchange on which
the Common Shares are then traded.
(b) This Warrant may not be exercised as to fractional Common
Shares. In the event that the exercise of this Warrant, in full or in part,
would result in the issuance of any fractional Common Shares, then in such event
the Warrant Holder shall be entitled to cash equal to the fair market value of
such fractional share. For purposes of this Warrant, "fair market value" shall
equal the closing trading price of the Common Shares on the then principal
trading exchange or market for the Common Shares (the "Principal Market") on the
date of determination
-2-
<PAGE>
or, if the Common Shares are not listed or admitted to trading on any Canadian
or U.S. national securities exchange, the average of the closing bid and asked
prices on the over-the-counter market as furnished by any member of a Canadian
or U.S. stock exchange reasonably selected from time to time by the Company for
that purpose and reasonably acceptable to the Warrant Holder, or, if the Common
Shares are not listed or admitted to trading on any Canadian or U.S. national
securities exchange or traded over-the-counter and the average price cannot be
determined as contemplated above, the fair market value of the Common Shares
shall be as reasonably determined in good faith by the Company's Board of
Directors with the concurrence of the Warrant Holder.
4. (A) REPRESENTATIONS AND COVENANTS OF THE COMPANY.
(a) The Warrant Shares have been approved for listing on The
Alberta Stock Exchange, subject to issuance.
(b) The Company shall comply with its obligations under the
Registration Rights Agreement with respect to the Warrant Shares.
(c) The Company shall take all necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, including, without limitation, the notification of the Principal
Market, for the legal and valid issuance of this Warrant and the Warrant Shares
to the Warrant Holder under this Warrant.
(d) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps reasonably necessary
and within its control to insure that it maintains its status as a "reporting
issuer not in default" under the Securities Act (Alberta) and the Common Shares
remain listed on the Principal Market.
(e) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such Common Shares
as shall from time to time be issuable hereunder.
(f) The Warrant Shares, when issued in accordance with the
terms hereof, will be duly authorized and, when paid for or issued in accordance
with the terms hereof, shall be validly issued, fully paid and non-assessable.
(B) REPRESENTATIONS AND COVENANTS OF THE PURCHASER.
The Purchaser shall not resell the Warrant Shares in the
United States, unless such resale is pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable exemption from
such registration requirements, in which case it will deliver a legal opinion of
counsel to such effect. The Purchaser shall comply with its obligations under
the Registration Rights Agreement.
-3-
<PAGE>
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The
number of and kind of securities purchasable upon exercise of this Warrant
and the Purchase Price shall be subject to adjustment from time to time as
follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number of Warrant Shares as to which this Warrant is exercisable as of the date
of such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the Purchase Price payable per share, but the aggregate Purchase Price
payable for the total number of Warrant Shares purchasable under this Warrant as
of such date shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Shares payable in
Common Shares or other securities or rights convertible into Common Shares
("Common Share Equivalents") without payment of any consideration by holders of
Common Shares for the additional Common Shares or the Common Share Equivalents
(including the additional Common Shares issuable upon exercise or conversion
thereof), then the number of Common Shares for which this Warrant may be
exercised shall be increased as of the record date (or the date of such dividend
distribution if no record date is set) for determining which holders of Common
Shares shall be entitled to receive such dividends, in proportion to the
increase in the number of outstanding shares (and Common Shares issuable upon
conversion of all such securities convertible into Common Shares) of Common
Shares as a result of such dividend, and the Purchase Price shall be adjusted so
that the aggregate amount payable for the purchase of all the Warrant Shares
issuable hereunder immediately after the record date (or on the date of such
distribution, if applicable), for such dividend shall equal the aggregate amount
so payable immediately before such record date (or on the date of such
distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at anytime after the date hereof
the Company distributes to holders of its Common Shares any shares of its
capital stock, any evidence of indebtedness or any of its assets (including
cash), then the number of Warrant Shares for which this Warrant is exercisable
shall be adjusted to equal: (i) the number of Warrant Shares for which this
Warrant is exercisable immediately prior to such event, (ii) multiplied by a
fraction, (A) the numerator of which shall be the "Fair Market Value" (as
defined in Section 5(f) hereof) per Common Share on the record date for the
dividend or distribution, and (B) the denominator of which shall be the Fair
Market Value per Common Share on the record date for the dividend or
distribution minus the amount allocable to one Common Share of the value (as
jointly determined in good faith by the Board of Directors of the Company and
the Warrant Holder) of any and all such evidences of indebtedness, shares of
capital stock, other securities or property, so distributed. The Purchase Price
shall be adjusted to equal: (i) the Purchase Price in effect immediately before
the occurrence of any event (ii) multiplied by a fraction, (A) the numerator of
which is the number of Warrant Shares for which this Warrant is exercisable
immediately before
-4-
<PAGE>
the adjustment, and (B) the denominator of which is the number of Warrant Shares
for which this Warrant is exercisable immediately after the adjustment.
(d) MERGER, ETC. If at any time after the date hereof there
shall be a merger or consolidation of the Company with or into or a transfer of
all or substantially all of the assets of the Company to another entity, then
the Warrant Holder shall be entitled to receive upon such transfer, merger or
consolidation becoming effective, and upon payment of the aggregate Purchase
Price then in effect, the number of shares or other securities or property of
the Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by Warrant Holder for the shares
of stock subject to this Warrant had this Warrant been exercised just prior to
such transfer, merger or consolidation becoming effective or to the applicable
record date thereof, as the case may be. The Company will not merge or
consolidate with or into any other corporation, or sell or otherwise transfer
its property, assets and business substantially as an entirety to another
corporation, unless the corporation resulting from such merger or consolidation
(if not the Company), or such transferee corporation, as the case may be, shall
expressly assume prior to the consummation thereof, by supplemental agreement
reasonably satisfactory in form and substance to the Warrant Holder, the due and
punctual performance and observance of each and every covenant and condition of
this Warrant to be performed and observed by the Company.
(e) RECLASSIFICATION, ETC. If at any time after the date
hereof there shall be a reorganization or reclassification of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Purchase Price then in
effect, the number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Shares or securities which are convertible into or
exchangeable for its Common Shares or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of its Common Shares or any such convertible securities (other than
shares or options issued or which may be issued pursuant to the Company's
employee or director option plans not to exceed the aggregate of (i) the number
of Common Shares issuable pursuant to such options on the date hereof, and (ii)
10% of the Common Shares outstanding on the date hereof) at an effective
purchase price per share which is less than the closing trading price of the
Common Shares on the Principal Market on the trading day next preceding such
issue or sale ("Fair Market Value"), then in each such case, the Purchase Price
in effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying the
Purchase Price then in effect by a fraction, (x) the numerator of which shall be
the sum of (1) the number of Common Shares outstanding immediately prior to such
issue or sale, including, without duplication, those deemed to have been issued
under any provision of this Warrant plus (2) the number of Common Shares which
the aggregate consideration received by the Company for such additional shares
would purchase at such Fair Market Value; and (y) the denominator of which shall
be the number of Common Shares
-5-
<PAGE>
outstanding immediately after such issue or sale including, without duplication,
those deemed to have been issued under any provision of the Warrants. The number
of shares which may be purchased hereunder shall be increased proportionately to
any reduction in Purchase Price pursuant to this Section 5(f), so that after
such adjustments the aggregate Purchase Price payable hereunder for the
increased number of shares shall be the same as the aggregate Purchase Price in
effect just prior to such adjustments.
For the purposes of the foregoing adjustment, in the case of
the issuance of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, Common Shares ("Convertible
Securities"), the maximum number of Common Shares issuable upon exercise,
exchange or conversion of such Convertible Securities shall be deemed to be
outstanding, provided that no further adjustment shall be made upon the actual
issuance of Common Shares upon exercise, exchange or conversion of such
Convertible Securities. If any of the convertible securities, warrants, option
or other rights to subscribe for or to purchase or exchange for Common Shares
are issued or granted but expire without being converted or exercised, then such
rights shall revert and be calculated back to the Company; provided, that any
such recalculation shall not effect any prior exercises of this Warrant.
6. NO IMPAIRMENT. The Company will not, by amendment of its constating
documents (including its Certificate of Incorporation or By-Laws) or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Warrant Holder against impairment. Without limiting the
generality of the foregoing, the Company will take all such action as may be
reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
7. NOTICE OF ADJUSTMENTS NOTICES. Whenever the Purchase Price or number
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 5
hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable hereunder
after giving effect to such adjustment, and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the Warrant
Holder.
8. RIGHTS AS SHAREHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a shareholder of the
Company with respect to the Warrant Shares, including (without limitation) the
right to vote such shares, receive dividends or other distributions thereon or
be notified of stockholder meetings. However, in the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any
-6-
<PAGE>
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right, the
Company shall mail to each Warrant Holder, at least 10 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Warrant and, in the case of any such loss, theft or destruction of the Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof a new Warrant of like tenor.
10. CONSENT TO JURISDICTION, CHOICE OF LAW.
(a) This agreement shall be governed by and interpreted in
accordance with the laws of Alberta and the applicable laws of Canada, and the
parties hereto attorn to the jurisdiction of the Courts of the Province of
Alberta.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto and
the provisions contained in the Investment Agreement or the Registration Rights
Agreement and incorporated into this Warrant and the Warrant Shares contain the
entire understanding of the parties with respect to the matters covered hereby
and thereby and, except as specifically set forth herein and therein, neither
the Company nor the Warrant Holder makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may
be waived or amended other than by a written instrument signed by the Party
against whom enforcement of any such amendment or waiver is sought.
12. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy or
facsimile (on receipt of the fax-confirmation) at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
-7-
<PAGE>
to the Company:
Xenotech Inc.
407 2nd Street S.W.
No. 1600
Calgary, Alberta T2P 2Y3
Attention: R. Michael Zwack
Telephone: (403) 237-9050
Telecopier: (403) 262-7896
with a copy to:
Vorys, Sater, Seymour and Pease
1828 L Street, N.W.
Washington, D.C.
Attention: James K. Alford, Esq.
Telephone: (202) 467-8801
Telecopier: (202) 467-8900
to Purchaser:
The Liverpool Limited Partnership
c/o A.S & K. Services Ltd.
P.O. Box HM1179
Hamilton, Bermuda
Attn: Ms. Deborah Hendrickson
Fax: 011 441 295-5328
Either Party hereto may from time to time change its address for notices under
this Section 12 by giving at least 10 days prior written notice of such changed
address to the other party hereto.
13. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
Party against which enforcement of such change, waiver, discharge or termination
is sought. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
-8-
<PAGE>
14. ASSIGNMENT. Subject to compliance with applicable securities laws,
this Warrant may be transferred or assigned, in whole or in part, at any time
and from time to time by the then Warrant Holder by submitting this Warrant to
the Company together with a duly executed Assignment in substantially the form
and substance of the Form of Assignment which accompanies this Warrant and, upon
the Company's receipt hereof, and in any event, within three (3) business days
thereafter, the Company shall issue a Warrant to the Warrant Holder to evidence
that portion of this Warrant, if any as shall not have been so transferred or
assigned.
Dated: May 19, 1998 XENOTECH INC.
By:
------------------------------------
Neil W. Speakman
Chairman
THE LIVERPOOL LIMITED PARTNERSHIP
By:Liverpool Associates, Ltd.
General Partner
By:
------------------------------------
Paul Singer, President
-9-
<PAGE>
(SUBSCRIPTION NOTICE)
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO __________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
_______ Common Shares of Xenotech Inc., an Alberta corporation (the "Company"),
and herewith makes payment of Cdn. $________ therefor; or
The undersigned requests that the certificates for such shares
be issued in the name of, and delivered to ___________________, whose address is
______________________ _______________.
Dated:
--------------------------------------------
(Signature must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------------
(Address)
<PAGE>
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase ____
Common Shares of Xenotech Inc., an Alberta corporation, to which the within
Warrant relates, and appoints ________ Attorney to transfer such right on the
books of Xenotech Inc., an Alberta corporation, with full power of substitution
of premises.
Dated:
--------------------------------------------
(Signature must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------------
(Address)
Signed in the presence of:
- -----------------------------------
<PAGE>
Exhibit 2(6)
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1993, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS. THIS WARRANT MAY NOT BE TRANSFERRED TO ANY RESIDENT
OF THE PROVINCE OF ALBERTA UNTIL AUGUST 17, 1998.
--------------------------------------
May 19, 1998 XENOTECH INC. No. 98A-2
--------------------------------------
Common Share Purchase Warrant
XENOTECH INC., an Alberta corporation (the "Company"), hereby certifies
that for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, WESTGATE INTERNATIONAL, L.P., having an address c/o
Midland Bank Trust Corporation (Cayman) Limited, P.O. Box 1109, Mary Street
Grand Cayman, Cayman Islands, British West Indies ("Purchaser") or any other
Warrant Holder is entitled, on the terms and conditions set forth below, to
purchase from the Company at any time beginning on the date hereof and ending
twenty-four (24) months after the date hereof (the "Term"), 6,250,000 fully paid
and nonassessable common shares, of the Company (the "Common Shares"), at a
purchase price per share of Cdn. $0.40 per share (the "Purchase Price"), as the
same may be adjusted pursuant to Section 5 herein. Notwithstanding the
foregoing, upon the listing of the Common Shares on the NNM or the NASDAQ Small
Cap (each as defined in the Investment Agreement) (In either case, a "U.S.
Listing"), if not prohibited by the rules of such trading market, the Term shall
be automatically extended without further action, such that this Warrant shall
be exercisable for a period of thirty six (36) months from the date hereof. The
Company shall provide the Warrant Holder with prompt written notice of any U.S.
Listing, which notice shall indicate whether the aforementioned extension of the
Term shall have been effected.
1. DEFINITIONS.
(a) the term "Warrant Holder" shall mean the Purchaser or any assignee
of all or any portion of this Warrant.
(b) the term "Warrant Shares" shall mean the Common Shares or other
securities issuable upon exercise of this Warrant.
(c) the term "Registration Rights Agreement" shall mean the
Registration Rights Agreement, dated May 19, 1998, between the Company and the
Purchaser.
<PAGE>
(d) the term "Investment Agreement" shall mean the Investment Agreement
dated May 19, 1998, between the Company and the Purchaser.
(e) the term "Warrant Option Agreement" shall mean the Warrant Option
Agreement dated May 19, 1998, between the Purchaser and Red Reef Limited.
2. EXERCISE OF WARRANT.
(a) This Warrant may be exercised by the Warrant Holder, in whole or in
part, at any time and from time to time by the following method:
Subject to the rights of Red Reef pursuant to the terms of the Warrant
Option Agreement, the Warrant Holder may surrender this Warrant,
together with the form of subscription at the end hereof duly executed
by the Warrant Holder ("Subscription Notice"), at the offices of the
Company or any transfer agent for the Common Shares.
(b) In the event that the Warrant is not exercised in full, the number
of Warrant Shares shall be reduced by the number of such Warrant Shares for
which this Warrant is exercised, and the Company, at its expense, shall
forthwith issue and deliver to or to the order of the Warrant Holder a new
Warrant of like tenor in the name of the Warrant Holder or as the Warrant Holder
(upon payment by the Warrant Holder of any applicable transfer taxes) may
request, reflecting such adjusted Warrant Shares.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) "trading days" (as defined below) thereafter, the Company
shall transmit the certificates (together with any other stock or other
securities or property to which Warrant Holder is entitled upon exercise) by
messenger or overnight delivery service to reach the address designated by such
holder within three (3) trading days after the receipt of the Subscription
Notice ("T + 3") and the purchase price for the Warrant Shares purchased
pursuant thereto.
The term "trading day" means a day on which there is trading on the
Alberta Stock Exchange or such other market or exchange on which the Common
Shares are then traded.
(b) This Warrant may not be exercised as to fractional Common Shares.
In the event that the exercise of this Warrant, in full or in part, would result
in the issuance of any fractional Common Shares, then in such event the Warrant
Holder shall be entitled to cash equal to the fair market value of such
fractional share. For purposes of this Warrant, "fair market value" shall equal
the closing trading price of the Common Shares on the then principal trading
exchange or market for the Common Shares (the
<PAGE>
"Principal Market") on the date of determination or, if the Common Shares are
not listed or admitted to trading on any Canadian or U.S. national securities
exchange, the average of the closing bid and asked prices on the
over-the-counter markets as furnished by any member of a Canadian or U.S.
stock exchange reasonably selected from time to time by the Company for that
purpose and reasonably acceptable to the Warrant Holder, or, if the Common
Shares are not listed or admitted to trading on any Canadian or U.S. national
securities exchange or traded over-the-counter and the average price cannot
be determined as contemplated above, the fair market value of the Common
Shares shall be as reasonably determined in good faith by the Company's Board
of Directors with the concurrence of the Warrant Holder.
4. (A) REPRESENTATIONS AND COVENANTS OF THE COMPANY.
(a) The Warrant Shares have been approved for listing on The Alberta
Stock Exchange, subject to issuance.
(b) The Company shall comply with its obligations under the
Registration Rights Agreement with respect to the Warrant Shares.
(c) The Company shall take all necessary action and proceedings as may
be required and permitted by applicable law, rule and regulation, including,
without limitation, the notification of the Principal Market, for the legal and
valid issuance of this Warrant and the Warrant Shares to the Warrant Holder
under this Warrant.
(d) From the date hereof through the last date on which this Warrant is
exercisable, the Company shall take all steps reasonably necessary and within
its control to insure that it maintains its status as a "reporting issuer not in
default" under the Securities Act (Alberta) and the Common Shares remain listed
on the Principal Market.
(e) The Company shall at all times reserve and keep available, solely
for issuance and delivery as Warrant Shares hereunder, such Common Shares as
shall from time to time be issuable hereunder.
(f) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable.
(B) REPRESENTATIONS AND COVENANTS OF THE PURCHASER.
The Purchaser shall not resell the Warrant Shares in the United States,
unless such resale is pursuant to an effective registration statement under the
Securities Act or pursuant to an applicable exemption from such registration
requirements, in which case it will deliver a legal opinion of counsel to such
effect. The Purchaser shall comply with its obligations under the Registration
Rights Agreement.
<PAGE>
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of
any kind of securities purchasable upon exercise of this Warrant and the
Purchase Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights under
this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number of Warrant Shares as to which this Warrant is exercisable as of the date
of such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the Purchase Price payable per share, but the aggregate Purchase Price
payable for the total number of Warrant Shares purchasable under this Warrant as
of such date shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the Company
declares a dividend or other distribution on Common Shares payable in Common
Shares or other securities or rights convertible into Common Shares ("Common
Share Equivalents") without payment of any consideration by holders of Common
Shares for the additional Common Shares or the Common Shares Equivalents
(including the additional Common Shares issuable upon exercise or conversion
thereof), then the number of Common Shares for which this Warrant may be
exercised shall be increased as of the record date (or the date of such dividend
distribution if no record date is set) for determining which holders of Common
Shares shall be entitled to receive such dividends, in proportion to the
increase in the number of outstanding shares (and Common Shares issuable upon
conversion of all such securities convertible into Common Shares) of Common
Shares as a result of such dividend, and the Purchase Price shall be adjusted so
that the aggregate amount payable for the purchase of all the Warrant Shares
issuable hereunder immediately after the record date (or on the date of such
distribution, if applicable), for such dividend shall equal the aggregate amount
so payable immediately before such record date (or on the date of such
distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Shares any shares of its capital
stock, any evidence of indebtedness or any of its assets (including cash), then
the number of Warrant Shares for which this Warrant is exercisable shall be
adjusted to equal: (i) the number of Warrant Shares for which this Warrant is
exercisable immediately prior to such event, (ii) multiplied by a fraction, (A)
the numerator of which shall be the "Fair Market Value" (as defined in Section
5(f) hereof) per Common Share on the record date for the dividend or
distribution, and (B) the denominator of which shall be the Fair Market Value
per Common Share on the record date for the dividend or distribution minus the
amount allocable to one Common Share of the value (as jointly determined in good
faith by the Board of Directors of the Company and the Warrant Holder) of any
and all such evidences of indebtedness, shares of capital stock, other
securities or property, so distributed. The Purchase Price shall be adjusted to
equal: (i) the Purchase Price in effect immediately before the occurrence of any
event (ii) multiplied by a fraction, (A)
<PAGE>
the numerator of which is the number of Warrant Shares for which this Warrant is
exercisable immediately before the adjustment, and (B) the denominator of which
is the number of Warrant Shares for which this Warrant is exercisable
immediately after the adjustment.
(d) MERGER, ETC. If at any time after the date hereof there shall be a
merger or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon such transfer, merger or
consolidation becoming effective, and upon payment of the aggregate Purchase
Price then in effect, the number of shares or other securities or property of
the Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by Warrant Holder for the shares
of stock subject to this Warrant had this Warrant been exercised just prior to
such transfer, merger or consolidation becoming effective or to the applicable
record date thereof, as the case may be. The Company will not merge or
consolidate with or into any other corporation, or sell or otherwise transfer
its property, assets and business substantially as an entirety to another
corporation, unless the corporation resulting from such merger or consolidation
(if not the Company), or such transferee corporation, as the case may be, shall
expressly assume prior to the consummation thereof, by supplemental agreement
reasonably satisfactory in form and substance to the Warrant Holder, the due and
punctual performance and observance of each and every covenant and condition of
this Warrant to be performed and observed by the Company.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof there
shall be a reorganization or reclassification of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, then the Warrant Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Purchase Price then in effect,
the number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company issues or
sells any Common Shares or securities which are convertible into or exchangeable
for its Common Shares or any convertible securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Shares or any such convertible securities (other than shares or options
issued or which may be issued pursuant to the Company's employee or director
option plans not to exceed the aggregate of (i) the number of Common Shares
issuable pursuant to such options on the date hereof, and (ii) 10% of the Common
Shares outstanding on the date hereof) at an effective purchase price per share
which is less than the closing trading price of the Common Shares on the
Principal Market on the trading day next preceding such issue or sale ("Fair
Market Value"), then in each such case, the Purchase Price in effect immediately
prior to such issue or sale shall be reduced effective concurrently with such
issue or sale to an amount determined by multiplying the Purchase Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of Common Shares outstanding
<PAGE>
immediately prior to such issue or sale, including, without duplication, those
deemed to have been issued under any provision of this Warrant plus (2) the
number of Common Shares which the aggregate consideration received by the
Company for such additional shares would purchase at such Fair Market Value; and
(y) the denominator of which shall be the number of Common Shares outstanding
immediately after such issue or sale including, without duplication, those
deemed to have been issued under any provision of the Warrants. The number of
shares which may be purchased hereunder shall be increased proportionately to
any reduction in Purchase Price pursuant to this Section 5(f), so that after
such adjustments the aggregate Purchase Price payable hereunder for the
increased number of shares shall be the same as the aggregate Purchase Price in
effect just prior to such adjustments.
For the purposes of the forgoing adjustment, in the case of the
issuance of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, Common Shares ("Convertible
Securities"), the maximum number of Common Shares issuable upon exercise,
exchange or conversion of such Convertible Securities shall be deemed to be
outstanding, provided that no further adjustment shall be made upon the
actual issuance of Common Shares upon exercise, exchange or conversion of
such Convertible Securities. If any of the convertible securities, warrants,
option or other rights to subscribe for or to purchase or exchange for Common
Shares are issued or granted but expire without being converted or exercised,
then such rights shall revert and be calculated back to the Company;
provided, that any such recalculation shall not effect any prior exercises of
this Warrant.
6. NO IMPAIRMENT. The Company will not, by amendment of its constating
documents (including its Certificates of Incorporation or By-Laws) or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Warrant Holder against impairment. Without limiting
the generality of the foregoing, the Company will take all such action as may be
reasonably necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant.
7. NOTICE OF ADJUSTMENTS - NOTICES. Whenever the Purchase Price or number
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 5
hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable hereunder
after giving effect to such adjustment, and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the Warrant
Holder.
<PAGE>
8. RIGHTS AS SHAREHOLDER. Prior to exercise of this Warrant, the Warrant
Holder shall not be entitled to any rights as a shareholder of the Company with
respect to the Warrant Shares, including (without limitation) the right to vote
such shares, receive dividends or other distributions thereon or be notified of
stockholder meetings. However, in the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to each Warrant Holder, at least 10 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of the Warrant and,
in the case of any such loss, theft or destruction of the Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof a new Warrant of like tenor.
10. CONSENT TO JURISDICTION; CHOICE OF LAW.
(a) This agreement shall be governed by and interpreted in accordance
with the laws of Alberta and the applicable laws of Canada, and the parties
hereto attorn to the jurisdiction of the Courts of the Province of Alberta.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto and the
provisions contained in the Investment Agreement or the Registration Rights
Agreement and incorporated into this Warrant and the Warrant Shares contain the
entire understanding of the parties with respect to the matters covered hereby
and thereby and, except as specifically set forth herein and therein, neither
the Company nor the Warrant Holder makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this Agreement may
be waived or amended other than by a written instrument signed by the Party
against whom enforcement of any such amendment or waiver is sought.
12. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy or
facsimile (on receipt of the fax confirmation) at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second
<PAGE>
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
to the Company:
Xenotech Inc.
407 2nd Street S.W.
No. 1600
Calgary, Alberta T2P 2Y3
Attention: R. Michael Zwack
Telephone: (403) 237-9050
Telecopier: (403) 262-7896
with a copy to:
Vorys, Sater, Seymour and Pease
1828 L Street, N.W.
Washington, D.C.
Attention: James K. Alford, Esq.
Telephone: (202) 467-8801
Telecopier: (202) 467-8900
to Purchaser:
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Islands
British West Indies
Attention: Greg Taylor
Telephone: (809) 949-7755
Telecopier: (809) 949-7634
Either Party hereto may from time to time change its address for notices under
this Section 12 by giving at least 10 days prior written notice of such changed
address to the other party hereto.
13. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the Party
against which enforcement of such change, waiver, discharge or termination is
sought. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
<PAGE>
14. ASSIGNMENT. Subject to compliance with applicable securities laws, this
Warrant may be transferred or assigned, in whole or in part, at any time and
from time to time by then Warrant Holder by submitting this Warrant to the
Company together with a duly executed Assignment in substantially the form and
substance of the Form of Assignment which accompanies this Warrant and, upon the
Company's receipt hereof, and in any event, within three (3) business days
thereafter, the Company shall issue a Warrant to the Warrant Holder to evidence
that portion of this Warrant, if any shall not have been so transferred or
assigned.
Dated: May 19, 1998 XENOTECH INC.
By:
--------------------------------
Neil W. Speakman
Chairman
WESTGATE INTERNATIONAL, L.P.
by: Martley International, Inc.,
General Partner
By:
--------------------------------
Paul Singer, President
<PAGE>
(SUBSCRIPTION NOTICE)
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _____________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
________ Common Shares of Xenotech Inc., an Alberta corporation (the "Company"),
and herewith makes payment of Cdn.$____________ therefor; or
The undersigned requests that the certificates for such shares
be issued in the name of, and delivered to ________________, whose address is
_________________________.
Dated:
---------------------------------------------
(Signature must conform to name of holder
as
specified on the face of the Warrant)
---------------------------------------------
(Address)
<PAGE>
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
________________ the right represented by the within Warrant to purchase ___
Common Shares of Xenotech Inc., an Alberta corporation, to which the within
Warrant relates, and appoints _______ Attorney to transfer such right on the
books of Xenotech Inc., an Alberta corporation, with full power of substitution
of premises.
Dated:
---------------------------------------------
(Signature must conform to name of holder
as
specified on the face of the Warrant)
---------------------------------------------
(Address)
Signed in the presence of:
- --------------------------------
<PAGE>
Exhibit 2(7)
WARRANT OPTION AGREEMENT
THIS AGREEMENT made as of the 19th day of May, 1998.
BETWEEN:
THE LIVERPOOL LIMITED PARTNERSHIP, A BERMUDA LIMITED
PARTNERSHIP AND WESTGATE INTERNATIONAL, L.P., A CAYMAN LIMITED
PARTNERSHIP
(herein respectively referred to "Liverpool" and "Westgate" or
collectively as the "Optionor")
- and -
RED REEF LIMITED, A BODY CORPORATE GOVERNED BY THE LAWS OF THE
BRITISH VIRGIN ISLANDS
(herein referred to as the "Optionee")
WHEREAS:
A. The Optionor holds Warrants (as hereinafter defined) which entitle the
holders thereof to acquire an aggregate of 12,500,000 common shares of
the share capital of the Corporation (as hereinafter defined); and
B. The Optionor wishes to grant the Optionee an option to purchase
the Warrants.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
mutual covenants hereinafter set forth, and for other valuable consideration,
the parties hereto have agreed as follows:
ARTICLE ONE
DEFINITIONS
1.01 In this Agreement the following terms shall have the following
meanings:
A. "Agreement" means this agreement made as of the date first
written above, among the Optionor and the Optionee, and the
expressions "above", "below", "herein", "hereof" and similar
expressions refer to this Agreement.
B. "Corporation" means Xenotech Inc. and any successor or
continuing corporation resulting from any form of corporate
reorganization.
<PAGE>
C. "Covered Shares" means those Shares of the Corporation, as
defined in the Registration Rights Agreement.
D. "Expiration Date" means May 5, 2000.
E. "Option Date" means August 17, 1998.
F. "Option Warrants" means the Warrants the Optionee is entitled
to purchase under the Warrant Option.
G. "Registration Rights Agreement" means the Registration Rights
Agreement entered into as of May 19, 1998, between Xenotech,
Liverpool and Westgate.
H. "SEC" means the U.S. Securities and Exchange Commission.
I. "Warrant Option" means an option to purchase the 12,500,000
Warrants held by the Optionor pursuant to this Agreement and
includes any portion of that option.
J. "Warrants" means the common share purchase warrants evidenced
by the warrant certificates attached as Schedule "A" and
Schedule "B" hereto registered in the names of Liverpool and
Westgate respectively. Each Warrant entitles the holder to
acquire one (1) common share of the capital of the
Corporation upon payment of $0.40 per share on or before May
15, 2000.
1.02 In this Agreement, the masculine gender shall include the feminine
gender and the singular shall include the plural and vice versa
wherever the context requires.
1.03 All dollar amounts stated herein are in Canadian currency.
ARTICLE TWO
WARRANT OPTION
2.01 The Optionor hereby grants to the Optionee, subject to the terms and
conditions hereinafter set out, an irrevocable option to purchase the Option
Warrants, at any time or from time to time after the Option Date and on or
before the Expiration Date on the following basis:
(a) 4,500,000 Warrants, at an exercise price of $0.01 per
Warrant;
(b) 4,000,000 Warrants, at an exercise price of $0.20 per
Warrant; and
(c) the remaining 4,000,000 Warrants, at an exercise price of
$0.40 per Warrant.
-2-
<PAGE>
2.02 Each of Westgate and Liverpool hereby agree to tender an aggregate of
the number of the Warrants purchased by the Optionee pursuant to Article 4 of
this Agreement.
2.03 At 4:30 p.m. Calgary time, on the Expiration Date, the Warrant Option
shall forthwith expire and terminate and be of no further force or effect
whatsoever as to such of the Option Warrants in respect of which the Warrant
Option hereby granted have not then be exercised.
2.04 The Warrant Option granted pursuant to Article 2.01 above may only be
exercised by the Optionee in the event that: (a) the Common Shares of the
Corporation are listed and trading on the NASDAQ National Market or the NASDAQ
Small Cap Market; (b) and the Common Shares of the Corporation are registered
under the US Securities Exchange Act of 1934, as amended, and (c) the Covered
Shares are "US Registered" (as defined in Section 3(a) of the Registration
Rights Agreement).
ARTICLE THREE
MATERIAL CHANGE
3.01 In the event that, prior to the Expiration Date or exercise in full of
the Warrant Option, the outstanding share capital of the Corporation shall be
subdivided or consolidated into a greater or lesser number of common shares and
Warrants, or, in the event of the payment of a stock dividend by the
Corporation, or in the event that all of the shareholders of the Corporation are
granted the right to purchase additional common shares of the share capital of
the Corporation, the number and exercise price of Option Warrants remaining
subject to the Warrant Option hereunder shall be increased or reduced
accordingly, as the case may be.
ARTICLE FOUR
EXERCISE OF THE WARRANT OPTION
4.01 The Warrant Option may be exercised by the Optionee from time to time
in whole or in part, in accordance with the provisions hereof by delivery of the
option exercise form attached hereto as Schedule "C" to the Optionors and by
tendering the payment therefor by wire or by certified cheque to the
Corporation's counsel in trust, against delivery of certificates representing
the Warrants to be acquired upon such exercise of the Warrant Option.
4.02 Upon receiving the option exercise form attached hereto as Schedule
"C":
(a) Liverpool agrees to forthwith deliver a certificate
evidencing Warrants and provide the Corporation with
irrevocable instructions to cancel the said certificate and
reissue:
(i) certificates evidencing one-half of the number of
Warrants indicated upon the exercise form tendered by
the Optionee pursuant to Article 4.01 hereof
registered in accordance with the instructions
provided by the Optionee; and
-3-
<PAGE>
(ii) a certificate evidencing the balance of the Warrants,
if any, not registered pursuant to Article
4.02(a)(i), registered in accordance with the
instructions of Liverpool, which shall be delivered
along with the proceeds of the exercise in accordance
with the instructions of Liverpool, without deduction
or setoff.
(b) Westgate agrees to forthwith deliver a certificate evidencing
Warrants and provide the Corporation with irrevocable
instruction to cancel the said certificate and reissue:
(i) certificates evidencing one-half of the number of
Warrants indicated upon the exercise form tendered by
the Optionee pursuant to Article 4.01 hereof
registered in accordance with the instructions
thereby given; and
(ii) a certificate evidencing the balance of the Warrants,
if any, not registered pursuant to Article
4.02(b)(i), registered in accordance with the
instructions of Westgate, which shall be delivered
along with the proceeds of the exercise in accordance
with the instructions of Westgate, without deduction
or setoff.
ARTICLE FIVE
GENERAL
5.01 Any notice or other communication required or permitted to be given
under this Agreement shall be in writing and may be delivered personally or sent
by fax, addressed:
If to the Optionor:
The Liverpool Limited Partnership
c/o A.S. & K. Services Ltd.
P.O. Box HM 1179
Hamilton, Bermuda HMEX
Attn: Ms. Deborah Hendrickson
Fax: 011-441-295-5328
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street, Grand Cayman
Cayman Islands, BWI
Attn: Mr. Greg Taylor
Fax. (809) 949-7634
-4-
<PAGE>
Copy to:
Richard Mansouri
Stonington Management Corp.
712 - 5th Avenue, 36th Floor
New York, New York
10019
Fax: (212) 974-2092
If to the Optionee:
Red Reef Limited
P.O. Box 3152, Road Town,
Tortola, British Virgin Islands
Fax: 011 44 1481 710091
Copy to:
Xenotech, Inc.
c/o Ogilvie and Company
1600 Canada Place
407 2nd Street SW
Calgary, Alberta
T2P 2Y3
Attn: Ms. Sara-Lane Sirey
Fax: (403) 262-7896
Any such notice or other communication given as aforesaid shall be deemed to
have been effectively given, if sent by fax or other similar form of
telecommunications, on the next business day following such transmission or, if
delivered, to have been received on the date of such delivery. Any party may
change its address for service from time to time by notice given in accordance
with the foregoing and any subsequent notice shall be sent to the party as its
changed address.
5.02 The parties hereto covenant that they shall and will from time to time
and at all times hereafter do and perform all such acts and things and execute
all such additional documents as may be required to give effect to the terms and
intention of this Agreement.
5.03 This Agreement supersedes all other agreements, documents, writings
and verbal understandings among the parties relating to the subject matter
hereof and represents the entire agreement between the parties relating to the
subject matter hereof.
5.04 Subject to the other provisions hereof, this Agreement shall enure to
the benefit of and be binding upon the parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns.
-5-
<PAGE>
5.05 This Agreement may not be assigned or transferred by the Optionee,
except to an affiliated entity or a director, officer or employee of the
Corporation.
5.06 Time shall be of the essence of this Agreement.
5.07 This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta and the parties hereto attorn to the
jurisdiction of the courts of the Province of Alberta.
5.08 This Agreement may be executed in several counterparts and by original
or by facsimile signature, each of which when so executed shall be deemed to be
an original, and such counterparts together shall constitute one and the same
instrument and, notwithstanding their date of execution, shall be deemed to bear
the date as of the date above written.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
THE LIVERPOOL LIMITED PARTNERSHIP
BY: LIVERPOOL ASSOCIATES, LTD.
GENERAL PARTNER
BY:
---------------------------------
PAUL SINGER, PRESIDENT
WESTGATE INTERNATIONAL, L.P.
BY: MARTLEY INTERNATIONAL, INC.
ATTORNEY-IN-FACT
BY:
---------------------------------
PAUL SINGER, PRESIDENT
RED REEF LIMITED
PER:
- ------------------------------------
-6-
<PAGE>
OPTION EXERCISE FORM
TO: WESTGATE INTERNATIONAL, L.P.
C/O MIDLAND BANK TRUST CORPORATION (CAYMAN) LIMITED
P.O. BOX 1109, MARY STREET
GRAND CAYMAN, CAYMAN ISLANDS
BRITISH WEST INDIES
ATTENTION: GREG TAYLOR
FAX: (345) 949-7634
AND:
THE LIVERPOOL LIMITED PARTNERSHIP
C/O A.S. & K. SERVICES LTD.
P.O. BOX HM 1179
HAMILTON, BERMUDA HMEX
ATTENTION: DEBORAH HENDRICKSON
FAX. (441) 295-5328
COPY TO: RICHARD MANSOURI
STONINGTON MANAGEMENT CORP.
712 - 5TH AVENUE, 36TH FLOOR
NEW YORK, NEW YORK
10019
FAX: (212) 974-2092
Red Reef Limited hereby exercises the right to purchase _______________________
Warrants of Xenotech Inc. at purchase price of CDN$_________________ per
Warrant, payment for which is submitted with this Exercise Form pursuant to and
in accordance with the terms and conditions of the Warrant Option Agreement made
as of May 15, 1998 among Westgate International L.P., The Liverpool Limited
Partnership and Red Reef Limited.
The Optionee hereby directs that the Warrants hereby acquired by this Exercise
Form be issued and delivered as follows:
NAME:
----------------------------------------------------------
ADDRESS IN FULL:
----------------------------------------------------------
----------------------------------------------------------
NUMBER OF WARRANTS
BEING ACQUIRED:
----------------------------------------------------------
-7-
<PAGE>
TOTAL EXERCISE
PRICE TENDERED:
----------------------------------------------------------
----------------------------------------------------------
DATED:
- ---------------------------------------
(Signature of Optionee)
-8-
<PAGE>
Exhibit 2(8)
SHARE OPTION AGREEMENT
THIS AGREEMENT made as of the 19th day of May, 1998.
BETWEEN:
THE LIVERPOOL LIMITED PARTNERSHIP, A BERMUDA LIMITED
PARTNERSHIP AND WESTGATE INTERNATIONAL, L.P., A CAYMAN LIMITED
PARTNERSHIP
(herein respectively referred to "Liverpool" and "Westgate" or
collectively as the "Optionor")
- and -
RED REED LIMITED, A BODY CORPORATE GOVERNED BY THE LAWS OF THE
BRITISH VIRGIN ISLANDS
(herein referred to as the "Optionee")
WHEREAS the Optionor holds common shares of the share capital of the Corporation
(as hereinafter defined) and the Optionor wishes to grant the Optionee an option
to purchase 5,000,000 of the said common shares.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
mutual covenants hereinafter set forth, and for other valuable consideration,
the parties hereto have agreed as follows:
ARTICLE ONE
DEFINITIONS
1.01 In this Agreement the following terms shall have the following meanings:
i. "Agreement" means this agreement made as of the date first
written above, among the Optionor and the Optionee, and the
expressions "above", "below", "herein", "hereof" and similar
expressions refer to this Agreement.
ii. "Corporation" means Xenotech Inc. and any successor or continuing
corporation resulting from any form of corporate reorganization.
iii. "Covered Shares" means those Shares of the Corporation, as
defined in the Registration Rights Agreement.
iv. "First Expiration Date" means May 19, 2001, or such earlier date
as may be determined pursuant to Article 2.02.
<PAGE>
v. "Option Shares" means the Shares the Optionee is entitled to
purchase under the Share Option.
vi. "Registration Rights Agreement" means the Registration Rights
Agreement entered into as of May 19, 1998, between Xenotech,
Liverpool and Westgate.
vii. "SEC" means the U.S. Securities and Exchange Commission.
viii. "Second Expiration Date" means May 19, 2002, or such earlier date
as may be determined pursuant to Article 2.04.
ix. "Share Option" means an option to purchase the 5,000,000 Shares
held by the Optionor pursuant to this Agreement and includes any
portion of that option.
x. "Shares" means the common shares of the share capital of the
Corporation.
1.02 In this Agreement, the masculine gender shall include the feminine
gender and the singular shall include the plural and vice versa
wherever the context requires.
1.03 All dollar amounts stated herein are in Canadian currency.
ARTICLE TWO
SHARE OPTION
2.01 The Optionor hereby grants to the Optionee subject to the terms and
conditions hereinafter set out, an irrevocable option to purchase 2,500,000 of
the Option Shares, at any time or from time to time on or before the First
Expiration Date upon payment of One Dollar and Twenty Cents ($1.20) per Share.
2.02 In the event that (a) the Shares trade on The Alberta Stock Exchange,
or such other exchange as the Corporation may have listed the Shares for
trading, at a price of $2.40 or greater for a period of twenty (20) consecutive
trading days, and (b) the Optionee receives notice of this fact from the
Optionor within ten (10) days of the twentieth (20th) trading day, the First
Expiration date shall be deemed to be the date being thirty (30) days from the
date of receipt of the notice by the Optionee.
2.03 The Option hereby grants to the Optionee subject to the terms and
conditions hereinafter set out, an irrevocable option to purchase 2,500,000 of
the Option Shares, at any time or from time to time on or before the Second
Expiration Date upon payment of One Dollar and Eighty Cents ($1.80) per Share.
2.04 In the event that (a) the Shares trade on The Alberta Stock Exchange,
or such other exchange as the Corporation may have listed the Shares for
trading, at a price of $3.60 or greater for a period of twenty (20) consecutive
trading days, and (b) the Optionee receives notice of this fact from the
Optionor within ten (10) days of the twentieth (20th) trading day, the Second
<PAGE>
Expiration date shall be deemed to be the date being thirty (30) days from the
date of receipt of the notice by the Optionee.
2.05 Each of Westgate and Liverpool hereby agree to tender an aggregate of
the number of the Shares purchased by the Optionee pursuant to Article 4 of this
Agreement.
2.06 At 4:30 p.m. Calgary time, on the First or Second Expiration Date, as
the case may be, that portion of the Share Option shall forthwith expire and
terminate and be of no further force or effect whatsoever as to such of the
Option Shares in respect of which the Share Option hereby granted has not then
been exercised.
2.07 The Share Option granted pursuant to Article 2.01 above may only be
exercised by the Optionee in the event that (a) the Common Shares of the
Corporation are listed and trading on the NASDAQ National Market or the NASDAQ
Small Cap Market; (b) the Common Shares of the Corporation are registered under
the US Securities Exchange Act of 1934, as amended; and (c) the Covered Shares
are "US Registered" (as defined in section 3(a) of the Registration Rights
Agreement).
ARTICLE THREE
MATERIAL CHANGE
3.01 In the event that, prior to the Expiration Date or exercise in full of
the Share Option, the outstanding share capital of the Corporation shall be
subdivided or consolidated into a greater or lesser number of Shares, or, in the
event of the payment of a stock dividend by the Corporation, or in the event
that all of the shareholders of the Corporation are granted the right to
purchase additional common shares of the share capital of the Corporation, the
number and exercise price of Option Shares remaining subject to the Share Option
hereunder shall be increased or reduced accordingly, as the case may be.
3.02 If, prior to the Expiration Date or exercise in full of the Share
Option granted hereby, the Corporation shall, at any time arrange with or merge
into another corporation, the Optionee will thereafter receive, upon the
exercise of the Share Option, the securities or properties to which a holder of
the number of shares then deliverable upon the exercise of the Share Option
would have been entitled upon such arrangement or merger, and the Optionor shall
take steps in connection with such arrangement or merger as may be necessary to
assure that the provisions hereof shall thereafter be applicable, in relation to
any securities or property thereafter deliverable upon the exercise of the
Option granted hereby. A sale of all or substantially all of the assets of the
Corporation for consideration (apart from the assumption of obligations)
consisting primarily of securities shall be deemed to be an arrangement or
merger for the foregoing purposes.
ARTICLE FOUR
EXERCISE OF THE SHARE OPTION
4.01 The Share Option may be exercised by the Optionee from time to time in
whole or in part, in accordance with the provisions hereof by delivery of the
option exercise form attached hereto as Schedule "A" to the Optionors and by
tendering the payment therefor by wire
<PAGE>
or by certified cheque to the Corporation's counsel in trust, against delivery
of certificates representing the Shares to be acquired upon such exercise of the
Share Option.
4.02 Upon receiving the option exercise form attached hereto as Schedule "A":
(a) Liverpool agrees to forthwith deliver a duly endorsed and
signature guaranteed certificate evidencing Shares together with
corporate resolution of the registered holder and the endorsing
party, if applicable, and all such other documentation as may be
required by the transfer agent of the Corporation and provide the
Corporation with irrevocable instructions to cancel the said
certificate and reissue:
(i) certificates evidencing one-half of the number of Shares
indicated upon the exercise form tendered by the Optionee
pursuant to Article 4.01 hereof registered in accordance
with the instructions provided by the Optionee; and
(ii) a certificate evidencing the balance of the Shares, if any,
not registered pursuant to Article 4.02(a)(i), registered in
accordance with the instructions of Liverpool, which shall
be delivered along with the proceeds of the exercise in
accordance with the instructions of Liverpool, without
deduction or setoff.
(b) Westgate agrees to forthwith deliver a certificate evidencing
Shares together with corporate resolution of the registered
holder and the endorsing party, if applicable, and all such other
documentation as may be required by the transfer agent of the
Corporation and provide the Corporation with irrevocable
instructions to cancel the said certificate and reissue:
(i) certificates evidencing one-half of the number of Shares
indicated upon the exercise form tendered by the Optionee
pursuant to Article 4.01 hereof registered in accordance
with the instructions thereby given; and
(ii) a certificate evidencing the balance of the Shares, if any,
not registered pursuant to Article 4.02(b)(i), registered in
accordance with the instructions of Westgate, which shall be
delivered along with the proceeds of the exercise in
accordance with the instructions of Westgate, without
deduction or setoff.
ARTICLE FIVE
GENERAL
5.01 Any notice or other communication required or permitted to be given
under this Agreement shall be in writing and may be delivered personally or sent
by fax, addressed:
<PAGE>
If to the Optionor:
The Liverpool Limited Partnership
c/o A.S. & K. Services Ltd.
P.O. Box HM 1179
Hamilton, Bermuda HMEX
Attn: Ms. Deborah Hendrickson
Fax: 011-441-295-5328
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street, Grand Cayman
Cayman Islands, BWI
Attn: Mr. Greg Taylor
Fax. (809) 949-7634
Copy to:
Richard Mansouri
Stonington Management Corp.
712 - 5th Avenue, 36th Floor
New York, New York
10019
Fax: (212) 974-2092
If to the Optionee:
Red Reef Limited
P.O. Box 3152, Road Town,
Tortola, British Virgin Islands
Fax: 011 44 1481 710091
Copy to:
Xenotech, Inc.
c/o Ogilvie and Company
1600 Canada Place
407 2nd Street SW
Calgary, Alberta
T2P 2Y3
Attn: Ms. Sara-Lane Sirey
Fax: (403) 262-7896
Any such notice or other communication given as aforesaid shall be deemed to
have been effectively given, if sent by fax or other similar form of
telecommunications, on the next business day following such transmission or, if
delivered, to have been received on the date of such delivery. Any party may
change its address for service from time to time by notice given in
<PAGE>
accordance with the foregoing and any subsequent notice shall be sent to the
party as its changed address.
5.02 The parties hereto covenant that they shall and will from time to time
and at all times hereafter do and perform all such acts and things and execute
all such additional documents as may be required to give effect to the terms and
intention of this Agreement.
5.03 This Agreement supersedes all other agreements, documents, writings and
verbal understandings among the parties relating to the subject matter hereof
and represents the entire agreement between the parties relating to the subject
matter hereof.
5.04 Subject to the other provisions hereof, this Agreement shall enure to
the benefit of and be binding upon the parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns.
5.05 This Agreement may not be assigned or transferred by the Optionee,
except to an affiliated entity or a director, officer or employee of the
Corporation.
5.06 Time shall be of the essence of this Agreement.
5.07 This Agreement shall be governed by and construed in accordance with the
laws of the Province of Alberta and the parties hereto attorn to the
jurisdiction of the courts of the Province of Alberta.
5.08 This Agreement may be executed in several counterparts and by original
or by facsimile signature, each of which when so executed shall be deemed to be
an original, and such counterparts together shall constitute one and the same
instrument and, notwithstanding their date of execution, shall be deemed to bear
the date as of the date above written.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the day and year first above written.
THE LIVERPOOL LIMITED PARTNERSHIP
BY: LIVERPOOL ASSOCIATES, LTD.
GENERAL PARTNER
BY:
------------------------------------
PAUL SINGER, PRESIDENT
WESTGATE INTERNATIONAL, L.P.
BY: MARTLEY INTERNATIONAL, INC.
ATTORNEY-IN-FACT
BY:
------------------------------------
PAUL SINGER, PRESIDENT
<PAGE>
RED REEF LIMITED
PER:
- ---------------------------------------
<PAGE>
SCHEDULE "A"
OPTION EXERCISE FORM
TO: WESTGATE INTERNATIONAL, L.P.
C/O MIDLAND BANK TRUST CORPORATION (CAYMAN) LIMITED
P.O. BOX 1109, MARY STREET
GRAND CAYMAN, CAYMAN ISLANDS
BRITISH WEST INDIES
ATTENTION: GREG TAYLOR
FAX: (345) 949-7634
AND:
THE LIVERPOOL LIMITED PARTNERSHIP
C/O A.S. & K. SERVICES LTD.
P.O. BOX HM 1179
HAMILTON, BERMUDA HMEX
ATTENTION: DEBORAH HENDRICKSON
FAX. (441) 295-5328
COPY TO: RICHARD MANSOURI
STONINGTON MANAGEMENT CORP.
712 - 5TH AVENUE, 36TH FLOOR
NEW YORK, NEW YORK
10019
FAX: (212) 974-2092
Red Reef Limited hereby exercises the right to Purchase _______________________
Shares of Xenotech Inc. at purchase price of CDN$_________________ per Share,
payment for which is submitted with this Exercise Form pursuant to and in
accordance with the terms and conditions of the Option Agreement made as of May
15, 1998 among Westgate International L.P., The Liverpool Limited Partnership
and Red Reef Limited.
The Optionee hereby directs that the Shares hereby acquired by this Exercise
Form be issued and delivered as follows:
NAME:
---------------------------------------------
ADDRESS IN FULL:
---------------------------------------------
---------------------------------------------
NUMBER OF SHARES
BEING ACQUIRED:
---------------------------------------------
TOTAL EXERCISE
PRICE TENDERED:
---------------------------------------------
<PAGE>
DATED:
---------------------------------------------
- ------------------------------------
(Signature of Optionee)
<PAGE>
Exhibit 2(9)
VOTING AND DISPOSITION AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 19th day of May, 1998, AMONG:
WESTGATE INTERNATIONAL, L.P., a Cayman Islands limited partnership
(hereinafter referred to as "Westgate")
- and -
THE LIVERPOOL LIMITED PARTNERSHIP, a Bermudian limited partnership
(hereinafter referred to as "Liverpool")
(Westgate and Liverpool being hereinafter collectively referred to as
the "Venture Group")
- and -
NEIL W. SPEAKMAN, an individual resident in the United Kingdom
(hereinafter referred to as "Speakman")
- and -
ROBERT BAKER, an individual resident in Australia (hereinafter referred
to as "Baker")
- and -
RED REEF LIMITED, a body corporate governed by the laws of the British
Virgin Islands (hereinafter referred to as "Red Reef");
(Speakman, Baker and Red Reef being hereinafter collectively
referred to as the "Management Group")
WHEREAS the parties hereto wish to establish their respective rights and
obligations in relation to exercising the voting rights of their Shares (as
hereinafter defined) of Xenotech Inc., an Alberta corporation (hereinafter
referred to as the "Corporation"), the transfer and disposition of their Shares
and various other matters on the terms and conditions hereinafter set forth;
AND WHEREAS Westgate, Liverpool and the Corporation are parties to an
investment agreement dated May 19, 1998 (the "Investment Agreement"), pursuant
to which Westgate and Liverpool will be acquiring securities of the Corporation
pursuant to a private placement and the conversion of convertible notes
previously acquired;
AND WHEREAS Westgate, Liverpool and Red Reef are parties to a share option
agreement dated May 19, 1998 (the "Share Option Agreement") and a warrant option
agreement dated May 19, 1998 (the "Warrant Option Agreement") pursuant to which
Westgate
<PAGE>
and Liverpool granted an option to Red Reef to acquire up to 5,000,000 common
shares and 12,500,000 warrants of the Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of THE
respective covenants and agreements of the parties contained herein and for
other good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged by each of the parties hereto), it is hereby agreed as
follows:
ARTICLE I
INTERPRETATION
1.1. Definitions
Where used in this Agreement, unless the context or the subject matter is
inconsistent therewith, the following terms shall have the following meanings:
(a) "associate" and "affiliate" shall have the meaning ascribed thereto as
set forth in the Securities Act (Alberta);
(b) "Board of Directors" means the board of directors of the Corporation;
(c) "Business Day" shall mean a day on which banks are open for business in
Alberta but not include a Saturday, Sunday or statutory holiday in
Alberta;
(d) "Corporation" means Xenotech Inc.;
(e) "Management Group" means collectively Speakman, Baker and Red Reef;
(f) "Person" includes an Individual, a firm, a corporation, a syndicate, a
partnership mist, an association, a Joint venture, are incorporated
organization, governmental authority or any other entity;
(g) "Shareholders" means Westgate, Liverpool, Speakman, Baker and Red Reef
and any associates affiliates of such parties who shall acquire an
interest, directly or indirectly, in the Shares; and "Shareholder"
means any one of the Shareholders for the time being,
(h) "Shares" mean common shares, preferred shares, options, rights,
convertible shares or any ocher type of security of the Corporation
owned, controlled or directed ac the date of this Agreement or
subsequently owned, controlled or directed by a Shareholder,
(i) "transfer" of a Share includes any sale, exchange, transfer,
assignment, Option gift, bequest, pledge, encumbrance. creation of a
security interest. hypothecation. mortgage, alienation, disposition or
other transaction, whether voluntary, involuntary or by operation of
law, by which the legal or beneficial ownership Of,
<PAGE>
or any security interest or other rights, title or interest in, such
Share passes from one Person to another or to the same Person in a
different capacity, whether or not for value, and any change of control
of the legal. or beneficial owner of the Share or of any Person that
controls, directly or indirectly, in any manner whatsoever, such legal
or beneficial owner of the Share, other than an involuntary change of
control resulting from the transmission of securities from a deceased
or incompetent Shareholder (as applicable) to his estate or legal
personal representative for so long as the securities continue to be
held by the estate or such legal personal representative and continue
to be subject to this Agreement, and "to transfer". "transferred and
similar expressions shall have corresponding' meanings, and
(j) "Venture Group" means collectively Westgate International, L.P, and The
Liverpool Limited Partnership.
1.2. Gender/Numbers
Words importing the singular number only shall include the plural and vice
versa and words importing the use of any gender shall include all genders.
1.3. Headings
The Article and section headings in this Agreement arc included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any ocher purpose.
1.4. Proper Law
This Agreement and all documents ancillary hereto shall be governed by and
interpreted in accordance with the laws of the Province of Alberta and the
federal laws of Canada applicable therein, and each of the parties hereby
attorneys to the jurisdiction of the courts thereof.
1.5. Business Days
If any act is required hereunder to be done, any notice is required
hereunder to be given or any period of rime is to expire hereunder on any day
that is not a Business Day, such act shall be required to be done or notice
shall be required to be given or time shall expire on the next succeeding
Business Day.
1.6. Reclassification of Shares
The provisions of this Agreement shall apply, MUTARIS MUTANDIS, to any
shares or securities of any nature into which the Shares or any of them may be
converted, exchanged, reclassified, redesignated, subdivided or consolidated, to
any shares or securities of any nature chat are received by a Shareholder as a
stock dividend or distribution payable in shares, warrants, rights or options of
any nature of the Corporation or any successor, continuing company or
corporation of the Corporation that may be received by a Shareholder on a
restructuring, reorganization, amalgarnation, arrangement, dissolution,
consolidation or merger, statutory or otherwise, and to any shares, securities,
warrants, rights or options hereafter issued or allotted by the Corporation
<PAGE>
to a Shareholder, all of which shares, securities, warrants, rights or options
shall be deemed to be Shares for all purposes of this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of the Venture Group
Each of Westgate and Liverpool hereby severally and not jointly represent
and warrant to the Management Group as follows and acknowledge that the
Management Group is relying upon such representations and warranties in
connection with the entering into of this Agreement:
(a) Liverpool and Westgate are limited partnerships which have been duly
created and organized and are validly subsisting and in good standing
under the laws of the jurisdictions in which they were organized and
have the full power and authority to enter into and perform their
obligations under this Agreement. The term "good standing" in this
section means that: (i) Liverpool and Westgate have not been
discontinued or dissolved under the laws of the jurisdictions in which
they were organized; (ii) no steps or proceedings have been taken to
authorize or require such discontinuance or dissolution; and (iii)
Liverpool and Westgate have submitted to each relevant government
authority all notices, or returns of corporate information, and all
other filings required by law to be submitted to each such authority;
(b) the execution, delivery and performance by Liverpool and Westgate of
this Agreement: (i) have been duly authorized by all necessary action;
(ii) do not and will not contravene, violate or conflict with any
provision of the constating documents of Liverpool and Westgate or any
provision of existing law or regulation or order of any government
authority or of any court having jurisdiction over Liverpool and
Westgate; and (iii) do not and will not conflict with, result in breach
of, constitute a default under, require a consent under, or result in
the creation of, any lien, charge or encumbrance upon the property of
the Investors pursuant to any indenture, contract, bank or credit
agreement, mortgage or other agreement or instrument to which either
Liverpool and Westgate is a party; and
(c) this Agreement constitutes a valid and binding obligation of each of
Liverpool and Westgate enforceable against it in accordance with the
Agreement's terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors rights and remedies,
or by other equitable principles of general application.
2.2. Representations and Warranties of Speakman
Speakman hereby represents and warrants to the Venture Group as follows and
acknowledges that the Venture Group is relying upon such representations and
warranties in connection with the entering into of this Agreement:
<PAGE>
(a) this Agreement has been duly executed and delivered and constitutes a
legal, valid and binding obligation of Speakman, enforceable against
Speakman in accordance with its terms;
(b) neither the execution and delivery of this Agreement by it nor the
performance by it of its respective obligations hereunder will conflict
with or result in the violation of any agreement, obligation, contract
commitment, law or regulation to which Speakman is a parry or by which
it is bound; and
(c) Speakman owns 711,944 Shares beneficially, comprised of 611,944 commons
shares and 100,000 options to purchase common shares, free and clear of
any claims, encumbrances, rights, proxies or obligations whatsoever
except those arising hereunder.
2.3. Representations and Warranties of Baker
Baker hereby represents and warrants to the Venture Group as follows and
acknowledges that the Venture Group is relying upon such representations and
warranties in connection with the entering into of this Agreement:
(a) this Agreement has been duly executed and delivered and constitutes a
legal, valid and binding obligation of Baker, enforceable against Baker
in accordance with its terms;
(b) neither the execution and delivery of this Agreement by it nor the
performance by it of its respective obligations hereunder will conflict
with or result in the violation of any agreement, obligation, contract
commitment, law or regulation to which Baker is a party or by which it
is bound; and
(c) Baker owns 2,416,000 Shares beneficially, comprised of 666,000 common
shares and 1,750.000 options to purchase common shares. free and clear
of any claims, encumbrances, rights, proxies or obligations whatsoever
except those arising, hereunder.
2.4. Representations and Warranties of Red Reef
Red Reef hereby represents and warrants to the Venture Group as follows and
acknowledges that the Venture Group is relying upon such representations and
warranties in connection with the entering into of this Agreement:
(a) Red Reef has been duly created and organized and is validly subsisting
and in good standing under the laws of the jurisdiction in which it was
organized and has the full power and authority to enter into and
perform its obligations under this Agreement. The term "good standing"
in this section means that: (i) Red Reef has not been discontinued or
dissolved under the laws of the jurisdiction in which it was organized;
(ii) no steps or proceedings have been taken to authorize or require
such discontinuance or dissolution; and (iii) Red Reef has submitted to
each relevant
<PAGE>
government authority all notices, or returns of corporate
information, and all other filings required by law to be submitted to
each such authority;
(b) the execution, delivery and performance by Red Reef of this Agreement:
(i) has been duly authorized by all necessary action; (ii) does not and
will not contravene, violate or conflict with any provision of the
constating documents of Red Reef or any provision of existing law or
regulation or order of any government authority or of any court having
jurisdiction over Red Reef; and (iii) does not and will not conflict
with, result in breach of, constitute a default under, require a
consent under, or result in the creation of, any lien, charge or
encumbrance upon the property of Red Reef pursuant to any indenture,
contract, bank or credit agreement, mortgage or other agreement or
instrument to which Red Reef is a party;
(c) this Agreement constitutes a valid and binding obligation of Red Reef
enforceable against it in accordance with the Agreement's terms, except
as such enforcement may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors rights and remedies, or by other equitable
principles of general application; and
(d) Red Reef owns 2,908,206 Shares beneficially, comprised of 2,908,206
common shares and nil options to purchase common shares, free and clear
of any claims, encumbrances, rights, proxies or obligations whatsoever
except those arising hereunder.
ARTICLE 3
THE EXERCISE OF VOTING RIGHTS IN RESPECT OF SHARES OF THE
CORPORATION
3.1. Appointment and Replacement of Directors
Except as they may otherwise unanimously agree in writing, the parties
hereto agree that all voting rights in respect of their Shares shall be
exercised to effect the following:
(a) the Board of Directors of the Corporation will consist of not less than
six and not more than nine directors;
(b) the election and maintenance in office as directors of two nominees of
the Venture Group;
(c) the election and maintenance in office as directors of the balance of
the members of the board as nominees of the Management Group;
(d) upon the end of the term of any director for any reason whatsoever, the
nominator of the vacating director shall be entitled to replace its
nominee and to nominate the director's successor who shall promptly be
elected a director as contemplated herein; and
<PAGE>
(e) the Management Group shall ensure through its nominees that the
composition of the board remains in compliance with the Canadian
residency requirements of the Business Corporations Act (Alberta).
ARTICLE 4
TRANSFER OF SHARES AND RIGHT OF FIRST REFUSAL
4.1. Restrictions on Transfer
Except as otherwise provided for herein or as specifically consented to in
writing by all of the parties, the parties hereto shall not, and shall not make
any agreement to, directly or indirectly, transfer any of the Shares they
respectively own, control or direct for any reason or purpose whatsoever. Any
attempt to accomplish or effect any or all of the acts prohibited hereby shall
be null and void.
4.2. Notice of Proposed Sale by a Member of Venture Group
(a) If any party comprising the Venture Group desires to transfer all or
any part of the Shares (a "Disposition") owned, controlled or directed
by such party (the "Offeror") to any Person other than a member of the
Management Group or the other member of the Venture Group, then such
party shall give written notice of such Disposition (the "Notice of
Disposition") to the Management Group (collectively the "Offerees" or
singularly the "Offeree") in accordance with the provisions of this
section.
(b) In the event that the Disposition comprises twenty percent (20%) or
less of the Offeror's holdings of Shares as at the date of the Notice
of Disposition, the Offeror shall issue the Notice of Disposition not
less than ten (10) days prior to the closing date of the Disposition.
(c) In the event that the Disposition comprises more than twenty percent
(20%) of the Offeror's holdings of Shares as at the date of the Notice
of Disposition, the Offeror shall issue the Notice of Disposition not
less than thirty (30) days prior to the closing date of the
Disposition.
(d) A Disposition shall not include any transfer:
(i) to an associate or an affiliate;
(ii) pursuant to, or in conjunction with, any offering of securities
to the public;
(iii) pursuant to, or in conjunction with any take-over bid,
amalgamation, plan of arrangement or other corporate
reorganization whereby all holders of Shares are entitled to
participate; or
<PAGE>
(iv) of up to five percent (5%) of the Shares held by the Offeror
within any twelve (12) month period.
(e) The right of any member of the Venture Group to conduct a Disposition
pursuant to this Agreement is subject to the rights of Red Reef under
the Share Option Agreement and the Warrant Option Agreement.
(f) Notwithstanding the foregoing, a Disposition shall not be made without
the prior written consent of a member of the Management Group if such
Disposition shall include a transfer to:
(i) any person or entity known by the Offeror to be engaged in the
business of developing 3D video systems and applications and for
which such business is a substantial portion of such person or
entity's overall business;
(ii) any person or entity with an identifiable, verifiable arid
substantial adverse interest against the Corporation, or
(iii) any one of Sega Enterprises, IMAX Corporation, IWERKS
Entertainment Inc. TCI Inc. News Corp. Atari Corporation, Viacom
Inc., Hindujay Indusind, Matsushita, Sony Corp., Sarnoff
Corporation or Phillips Industries.
4.3. Content of Notice of Disposition
The Notice of Disposition to the Offerees shall set out the number of
Shares to be transferred pursuant to the Disposition (the "Offered Shares'), the
material terms (including the closing date) upon which the Disposition is to
occur and the price at which (the "Purchase Price") such Offered Shares will be
sold pursuant to the Disposition.
4.4. Right to Purchase Offered Shares
Upon the Notice of Disposition being given, the Offerees shall have the
right to purchase all, but not less than all, of the Offered Shares for the
Purchase Price. The Offerees shall be entitled to purchase the Offered Shares
PRO RATA based upon the number of Shares beneficially owned by each of the
Offerees or to purchase in such other proportion as the Offerees may agree in
writing. If the Offerees shall disagree or dispute amongst themselves as to
their respective entitlements or otherwise. the Offereo shall be entitled to
receive instructions, approvals, confirmations, acknowledgments and waivers
exclusively from Speakman.
4.5. Notice of Purchase and Additional Purchases
On or before 4:30 p.m. Eastern time on the tenth (10th) day after the
issuance of the Notice of Disposition, the Offerees (or either one of them)
shall give notice to the Offerors and to the Corporation that they shall
purchase the Offered Shares. If the Offerees do not provide such notice, then
the Offeror shall be entitled to transfer its Shares in accordance with Section
4.7.
<PAGE>
4.6. Default in Transferring Shares
If the Offeror makes default in transferring the Offered Shares to the
Offeree(s) in accordance with the terms set out in the Notice of Disposition,
the Secretary of the Corporation is authorized and directed on behalf of the
parties to this Agreement, to receive the purchase price from the Offerees and
to thereupon cause the names Of the Offeree(s) to be entered in the registers of
the Corporation as the holders of the Shares purchasable by them. The said
purchase price shall be held in trust by the Corporation on behalf of the
Offeror and not commingled with the Corporation's assets, and any interest
thereon shall be for the account of the Offeror. The receipt by the Secretary of
the Corporation for the purchase price shall be a good discharge to the Offerees
and the Secretary shall thereafter enter the Offeree(s) name(s) in the registers
of the Corporation in exercise of the aforesaid power. On such registration, the
Offeror will then be entitled to receive, inclusive of interest and without
deduction or setoff, the purchase price received by the Secretary of the
Corporation.
4.7. What Shares can be Sold to Third Party
If the Offerees do not:
(a) give notice in accordance with the provisions of Section 4.5 that they
are willing to purchase all of the Offered Shares;
(b) fulfill all of the terms of sale as set out in the Notice of
Disposition; and
(c) complete the purchase within the amount of time specified in the Notice
of Disposition,
the rights of the Offerees, subject as hereinafter provided, to purchase the
Offered Shares shall forthwith cease and terminate and the Offeror may sell the
Offered Shares to the third party purchaser within ninety (90) days after the
expiry of the ten (10) day period specified in Section 4.5, for a price not less
than the Purchase Price and on other terms no more favorable to such third party
purchaser than those set forth in the Notice of Disposition. If the Offered
Shares are not sold within such ninety (90) day period on such terms, the rights
of the Offerees pursuant to this Article 4 shall again take effect and so on
from time to time.
4.8. Consent to Transfer
Each Shareholder hereby irrevocably consents to any transfer of Shares made
pursuant to and in accordance with the provisions of this Agreement and hereby
agrees to execute any and all such forms of consent, instruments and other
documents as may be required from time to time as evidence of or to give effect
to the foregoing.
4.9. Pledge of Shares to Secured Parry
Any Shareholder may pledge any Shares owned by it to a secured party as
BONA FIDE security for BONA FIDE indebtedness for borrowed money, provided that
contemporaneously with
<PAGE>
any such pledge of Shares such secured party executes and delivers an
acknowledgment to the parties to this Agreement whereby it agrees to be bound by
the provisions hereof as if it were an original party hereto.
4.10. Permitted Sales by Members of the Management Group
(a) In any twelve (12) month period, any member of the Management Group
shall be entitled to transfer up to five (5%) percent of the Shares
held by them, without prior approval from the Venture Group.
(b) In the event of a sale pursuant to this Section 4.10, such vendor shall
provide written notice at least ten (10) days in advance of the
proposed sale to each of the members of the Venture Group which notice
shall include the number of Shares to be sold, the price of the Shares
and the date on which such sale is anticipated to occur.
ARTICLE 5
GENERAL
5.1. Compliance
The parties agree that they will nor exercise nor permit to be exercised
any rights associated with their respective Shares contrary to the terms or
intent of this Agreement.
5.2. Securities Legislation Compliance
The parties agree that any transfer of Shares by any party hereto shall be
completed in compliance with all applicable securities legislation.
5.3. Registration Rights Agreement Compliance
Each of Speakman, Baker and Red Reef agree that they will each use their
best efforts to ensure that the Corporation complies with the Registration
Rights Agreement dated May 19, 1998 and made between Westgate, Liverpool and the
Corporation.
5.4. Term and Termination
This Agreement shall come into force and effect as of the date first above
written and shall continue in force until the earlier of:
(a) May 19, 2000;
(b) the date that the Shares of the Corporation are listed or posted for
trading on any market or exchange in the United States of America,
including, but not limited to, any-over-the counter market, NASDAQ or
any recognized stock exchange and the common shares of the Corporation,
and those held by the Venture Group, are registered under U.S.
securities legislation in the matter contemplated in the
<PAGE>
Investment Agreement and the Registration Rights Agreement dated May
19, 1998 between the Corporation and the Venture Group;
(c) the date upon which the Corporation is wound up, dissolved or
permanently ceases to carry on business; or
(d) the date upon which this Agreement is terminated by written agreement
among all of the parties hereto or their permitted successors or
assigns.
5.5. Notice
Any demand, notice or other document required or permitted to be given
hereunder shall be in writing and shall be personally delivered, faxed or mailed
to the respective parties by certified mail, return receipt requested, at their
respective addresses set forth below or such other addresses as may be
designated in accordance with the provisions of this Section 5.3 and
communication shall be deemed to have been received when delivered personally
or, if sent by facsimile or mail, then when actually receive by the party to
whom it is addressed.
(a) if to Liverpool:
The Liverpool Limited Partnership
c/o A.S. & K Services Ltd.
P.O. Box HM 1179
Hamilton HM EX Bermuda
Attention: Deborah Hendrickson
Phone: 441-295-2244
Facsimile: 441-295-5328
with a copy to:
Stonington Management Corporation
712 Fifth Avenue
New York, New York
10019
Attention: Richard Mansouri
Phone: 212-974-6000
Facsimile: 212-974-2092
(b) if to Westgate:
Westgate International, L.P.
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
<PAGE>
Mary Street
Grand Cayman
Cayman Islands, British West Indies
Attention: Greg Taylor
Phone: 345-949-7755
Facsimile: 345-949-7634
with a. copy to:
Stonington Management Corporation
712 Fifth Avenue
New York, New York
10019
Attention: Richard Mansouri
Phone: 212-974-6000
Facsimile: 212-974-2092
(c) if to Neil W. Speakman:
4300 Promenade Way Apt. 117
Marina Delray
California, USA 90292
Facsimile: 310-822-5117
with a copy to:
Ogilvie and Company
1600, 407 - 2nd Street SW
Calgary, Alberta
T2P 2Y3
Attention: Sara-Lane Sirey
Facsimile: 403-262-7896
(d) if to Robert Baker:
Suite 1/41 Walters Drive
Osborne Park
Western Australia 6017
Facsimile: 011-61-09-446-3340
with a copy to:
<PAGE>
Ogilvie and Company
1600, 407 - 2nd Street SW
Calgary, Alberta T2P 2Y3
Attention: Sara-Lane Sirey
Facsimile: 403-262-7896
(e) if to Red Reef:
P.O. 3152, Road Town
Tortola, British Virgin Islands
Facsimile: 011-44-1481-710091
with a copy to:
Ogilvie and Company
1600, 407 - 2nd Street SW
Calgary, Alberta
T2P 2Y3
Attention: Sara-Lane Sirey
Facsimile: 403-262-7896
5.6. Entire Agreement
This Agreement sets forth the entire agreement among the parties pertaining
to the subject matter hereof and supersedes all prior agreements, understanding,
negotiations and discussions of the parties, whether oral or written, and there
are no warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein.
5.7. Amendment
No supplement, modification, waiver or termination of this Agreement shall
be binding unless executed in writing by all of the parties hereto or by their
respective successor's or permitted assigns.
5.8. Waiver
No waiver of any of the provisions of this Agreement shall be deemed to be
or shall constitute a waiver of any other provision, nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
5.9. Time
<PAGE>
Time shall be the essence of this Agreement.
5.10. Benefit of the Agreement and Assignment
This Agreement shall enure to the benefit of and be binding upon the
parties hereto, all Persons who subsequently acquire Shares from the
Shareholders and become bound hereby and their respective heirs, executors,
administrators, legal personal representatives, successors and permitted
assigns. This Agreement may only be assigned to associates and affiliates of the
assigning party.
5.11. Counterparts
This Agreement may be executed in any number of counterparts by any one or
more of the parties to be bound hereby. Each executed counterpart shall be
deemed to be an original and such counterparts shall together constitute one and
the same agreement.
5.12. Counterparts
This agreement may be executed in any number of counterparts by any one or
more of the parties to be bound hereby. Each executed counterpart shall be
deemed to be an original and counterparts shall together constitute one and
the same agreement.
- -------------------------------------- ---------------------------------------
Witness NEIL W. SPEAKMAN
- -------------------------------------- ---------------------------------------
Witness ROBERT BAKER
RED REEF LIMITED
Per:
-----------------------------------
WESTGATE INTERNATIONAL. L.P. THE LIVERPOOL LIMITED
<PAGE>
PARTNERSHIP
By: Martley International, Inc. By: Liverpool Associates, Ltd.
Attorney-in-fact General Partner
By: By:
----------------------------- ------------------------------------
Paul Singer, President Paul Singer, President
This Agreement may be executed in any number of counterparts by any one or
more of the parties to be bound hereby. Each executed counterpart shall be
deemed to be an original and such counterparts shall together constitute one and
the same agreement.
IN WITNESS WHEREFORE the parties hereto have executed this Agreement and
delivered as of the date first above written.
- -------------------------------------- ---------------------------------------
Witness NEIL W. SPEAKMAN
- -------------------------------------- ---------------------------------------
Witness ROBERT BAKER
RED REEF LIMITED
Per:
-----------------------------------
<PAGE>
Exhibit 2(10)
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT entered into as of June 30, 1997,
between XENOTECH INC., an Alberta corporation ("Company"), WESTGATE
INTERNATIONAL, L.P., a Cayman Islands limited partnership ("Westgate"), and THE
LIVERPOOL LIMITED PARTNERSHIP, a Bermuda limited partnership ("Liverpool" and
together with Westgate, the "Purchasers").
WITNESSETH:
WHEREAS, Purchasers have purchased 5% convertible promissory notes of the
Company, dated the date hereof, in the aggregate original principal amount of
US$ 1,000,000 (the "First Notes"), pursuant to a Convertible Note Purchase
Agreement, dated as of June 30, 1997 by and between the Company and Purchasers
(the "Note Purchase Agreement");
<PAGE>
WHEREAS, Pursuant to the terms and conditions of the Note Purchase
Agreement, Purchasers may purchase additional 5% convertible promissory notes of
the Company, in the aggregate original principal amount of US$ 1,000,000 (the
"Second Notes" and together with the First Notes, the "Notes");
WHEREAS, the Notes will be convertible into common shares (the Common
Shares") of the Company (the "Note Shares") (together with the Warrant Shares
(as defined below), the "Underlying Shares") pursuant to the terms and
conditions set forth in the Notes; and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Purchasers' agreement to enter into the Note Purchase Agreement, the Company
has issued warrants to purchase 1,000,000 Common Shares to Purchasers (the
"First Warrants") and, upon the purchase of the Second Note, the Company will
issue to Purchasers warrants to purchase an additional 1,000,000 Common Shares
(the "Second Warrants" and together with the First Warrants, the "Warrants") and
the Company has agreed to provide the Purchasers with certain registration
rights with respect to the Underlying Shares and certain other rights and
remedies with respect to the Notes and the Warrants as set forth in this
Agreement;
Now, THEREFORE, in consideration of the mutual promises,
representations, covenants and conditions set forth in the Note Purchase
Agreement and this Agreement, the Company and Purchasers agree as follows:
Section l. DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"ASC" shall mean The Alberta Securities Commission.
"ASE" shall mean the Alberta Stock Exchange.
"COVERED SHARES" shall mean all of the Underlying Shares and any
securities issued in substitution or exchange for either pursuant to a merger,
reclassification, exchange or consolidation or as a distribution thereon.
"EXCHANGE ACT" shall mean the U.S. Securities Exchange Act of 1934, as
amended.
"PURCHASED SECURITIES" shall mean the Notes and the Warrants.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"SECURITIES ACT" shall mean the U.S. Securities Act of 1933, as
amended.
"WARRANT SHARES" shall mean Common Shares of the Company issuable upon
exercise of the Warrants.
<PAGE>
Section 2. RESALE OF THE COVERED SHARES IN ALBERT
(a) The Company hereby represents and warrants to Purchasers that the
Underlying Shares have been approved for listing on the ASE.
(b) Provided that Purchasers shall have complied with the provisions of
Sections 4(b) and 4(c) of the Note Purchase Agreement, the Company hereby
represents, warrants and covenants that, subject to the compliance by the
Company with paragraph (c) below and the receipt of the approvals set forth
therein, upon the termination of the applicable Restricted Period (as defined
in the Note Purchase Agreement), (i) the Purchased Securities may freely be
resold in Alberta, without legal restriction (in which event, such Purchased
Securities shall be deemed "Alberta Qualified"); (ii) the Covered Shares (A)
may freely be resold in Alberta, without legal restriction and (B) shall be
listed and posted for trading on the ASE (in the event that clauses (A) and
(B) apply to any Covered Shares, such Covered Shares shall be deemed "Alberta
Qualified.").
(c) The Company undertakes to make such filings, to pay such fees and
other expenses and to use its best efforts to obtain such approvals as shall
be necessary to cause the Purchased Securities and the Covered Shares to
become, and to continue to be, Alberta Qualified, including, without
limitation, obtaining any required approvals from the ASE and Canadian
regulatory authorities, including, without limitation, the ASC.
(d) The Company undertakes to comply with all applicable laws, rules,
and regulations of the ASE and of Canadian regulatory authorities, including,
without limitation, the filing of any Disclosure Documents (as defined in the
Note Purchase Agreement) with the ASC, ASE or other Canadian regulatory
authority, as shall be required to maintain the Alberta Qualified status of
the Purchased Securities and the Covered Shares in Alberta, as set forth in
Subsection (b) above.
Section 3. RESALE IN THE UNITED STATES.
(a) The Company shall, (i) not later than July 15, 1998, have filed with
the SEC a registration statement under the Securities Act registering the
Covered Shares for resale and shall use its best efforts to have the SEC declare
such registration statement effective, not later than September 30, 1998; (ii)
not later than August 1, 1998, have filed with the NASDAQ National Market
("NASDAQ") or NASDAQ Small Cap Market ("NASDAQ Small Cap") an application for
the listing of the Covered Shares thereon and shall use its best efforts to
cause such listing to be approved and effective not later than September 30,
1998; and (iii) shall use its best efforts to cause the resale of the Covered
Shares by the holders thereof to be registered or exempted under the securities
or "blue sky" laws of such states as shall have been specified by the Purchasers
to the Company. In the event that the Covered Shares shall be (x) registered for
resale pursuant to an effective registration statement under the Securities Act;
(y) listed for trading on the NASDAQ or NASDAQ Small Cap; and (z) registered or
exempted for resale in such states as shall have been specified by the
Purchasers to, such Covered Shares shall be deemed "U.S. Registered. "
(b) The Company shall maintain the effectiveness and the listings set forth
in subsection (a) above (i) until all of the Covered Shares shall have been sold
pursuant to such registrations or
<PAGE>
listings or (ii) until the Covered Shares may be sold pursuant to Rule 144(k)
under the Securities Act.
SECTION 4. PIGGY-BACK REGISTRATION.
(a) If the Company at any time proposes for any reason to register any of
its securities under the Securities Act (other than registrations on Forms S-4
or S-8 or any similar or successor form), other than pursuant to Section 3
hereof, it shall each such time promptly give written notice to Purchasers and
the then holders of Covered Shares (if different from Purchasers) of its
intention so to do, and, upon the written request, given within 30 days after
receipt of any such notice, of any holder or holders of the Covered Shares then
outstanding, to register any Covered Shares (which request shall specify the
Covered Shares intended to be sold or disposed of by such holders and shall
state the intended method of disposition of such Covered Shares by the
prospective seller), the Company shall use its best efforts to cause all such
Covered Shares to be registered under the Securities Act promptly upon receipt
of the written request of such holders for such registration, all to the extent
requisite to permit the sale or other disposition (in accordance with the
intended methods thereof, as aforesaid) by the prospective seller or sellers of
the Covered Shares so registered. In the event that the proposed registration by
the Company is, in whole or in part an underwritten public offering of
securities of the Company, any request pursuant to this Section 4(a) to register
Covered Shares shall specify that such shares are to be included in the
underwriting (a) on the same terms and conditions as the Common Shares, if any,
otherwise being sold through underwriters under such registration or (b) on
terms and conditions comparable to those normally applicable to offerings of
Common Shares in reasonably similar circumstances in the event that no other
Common Shares are being sold through underwriters under such registration;
PROVIDED, HOWEVER, that if the managing underwriter determines in good faith and
advises in writing that the inclusion of all Covered Shares proposed to be
included therein by the Company would interfere with the successful marketing
(including pricing) of such securities, then the number of Covered Shares to be
included in the underwritten public offering shall be reduced PRO RATA among the
holders of Covered Shares (based upon the total number of Covered Shares then
outstanding).
(b) If the Company, at any time proposes for any reason to distribute any
of its securities by way of a prospectus filed in accordance with any provincial
securities regulations (a "Canadian Prospectus"), the Company shall each such
time promptly give written notice to Purchasers and the then holders of Covered
Shares (if different from Purchasers) of its intention to do so, and, upon the
written request, given within 30 days after receipt of any such notice, of any
holder or holders of the Covered Shares then outstanding, to qualify the
distribution of such Covered Shares by the Canadian Prospectus (which request
shall specify the number of Covered Shares intended to be sold or disposed of by
such holders and shall state the intended method of disposition of such Covered
Shares by the prospective seller). The Company shall promptly use its best
efforts to cause the proposed distribution of all such Covered Shares to be
qualified by the Canadian Prospectus promptly upon receipt of the written
request of such holders, all to the extent requisite to permit the sale or other
disposition (in accordance with the intended methods thereof, as aforesaid) by
the prospective seller or sellers of the Covered Shares so qualified. In the
event that the proposed distribution by the Company is, in whole or in part, an
underwritten public offering of securities of the Company, any request pursuant
to this Section 4(b) to qualify
<PAGE>
the distribution of Covered Shares shall specify that such shares are to be
included in the underwriting: (i) on the same terms and conditions as the Common
Shares, if any, otherwise being sold through underwriters under such
distribution; or (ii) on terms and conditions comparable to those normally
applicable to offerings of common shares in reasonably similar circumstances in
the event that no other Common Shares are being sold through underwriters under
such distribution; PROVIDED HOWEVER, that if the lead underwriter determines in
good faith and advises in writing that the inclusion of all Covered Shares
proposed to be included therein by the Company would interfere with the
successful marketing (including pricing) of such securities, then the number of
Covered Shares to be included in the underwritten public offering shall be
reduced PRO RATA among the holders of the Covered Shares (based upon the total
number of Covered Shares then outstanding).
SECTION 5. PREPARATION AND FILING . If and whenever the Company is
under an obligation pursuant to the provisions of this Agreement to use its best
efforts to effect the registration of any Covered Shares, the Company shall, as
expeditiously as practicable:
(a) prepare and file with the SEC a registration statement, under Rule 415
under the Securities Act, with respect to such Covered Shares and use its best
efforts to cause such registration statement to become and remain effective;
(b) prepare and file with the SEC such amendments and supplements to such
registration statements and the prospectus used in connection therewith as may
be necessary to keep such registration statement, effective for the period set
forth in Section 3(b);
(c) furnish to each selling holder of Covered Shares such number of copies
of a summary prospectus or other prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such other
documents as such seller may reasonably request in order to facilitate the
public sale or other disposition of such Covered Shares;
(d) use its best efforts to register or qualify the Covered Shares covered
by such registration statement under the securities or blue sky laws of such
jurisdictions, as each such holder (or, in the case of an underwritten offering,
the managing underwriter) shall reasonably request (PROVIDED, HOWEVER, that the
Company shall not be required to consent to general service of process for all
purposes in any jurisdiction where it is not then qualified or to register or
qualify the Covered Shares covered by such registration statement in any
jurisdiction which would require the Company to amend its certificate of
incorporation or by-laws or covenant or undertake to do any other act or make
any other change regarding its capitalization or share ownership prior to the
effectiveness of such registration or qualification);
(e) prepare and file any required filings with the NASDAQ or NASDAQ Small
Cap;
(f) notify in a timely fashion each seller of Covered Shares covered by
such registration statement, at any time when a prospectus relating to the
Covered Shares covered by such registration statement is required to be
delivered under the Securities Act within the appropriate period mentioned in
clause (b) of this Section 5, of the happening of any event as a result of which
the prospectus included in such registration statement, as then in effect,
includes an untrue
<PAGE>
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and promptly prepare and furnish to
such seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing; and
(g) at the request of any holder of Covered Shares, if such Covered Shares
are being sold through underwriters, furnish to the underwriters on the date
that such Covered Shares are delivered to the underwriters for sale in
connection with a registration pursuant to this Agreement, or, if such Covered
Shares are not being sold through underwriters, furnish to such holder or
holders on the date that the registration statement with respect to such
Restricted Shares becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the holder or holders
making such request; and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
any underwritten public offering, addressed to the underwriters, if any, and to
the holder or holders making such request.
SECTION 6. PENALTIES, SUSPENSION OF EFFECTIVENESS.
(a) In the event that after the expiration of any applicable Restricted
Period (as defused in the Note Purchase Agreement), the Covered Shares or
Purchased Securities to which such Restricted Period applies are not Alberta
Qualified, or in the event that any Alberta Qualified Purchased Securities or
Covered Shares cease to be so qualified, then the Company shall pay to the
holders of the Notes an amount equal to 3 % of the Outstanding Principal Balance
thereon (as defined in the Notes), in cash, for each 30 day period that any
Covered Shares or Purchased Securities are not Alberta Qualified (which payment
shall be PRO RATA for any period less than 30 days). Notwithstanding the
foregoing, this provision shall not apply to the extent that (i) the escrow
referred to in Section 6(b) of the Note Purchase Agreement shall have been fully
funded as set forth therein (ie., US$1.40 for each US$ 1.00 of the Notes
purchased) or; (ii) the holders of the Notes shall not have complied with
Sections 4(b) and 4(c) of the Note Purchase Agreement.
(b) In the event that all Covered Shares shall not have been U.S.
Registered on or prior to September 30, 1998, then the Company shall pay to
holders of the Notes an amount equal to 1.5 % of the Outstanding Principal
Balance thereon, in cash, for the first 45 day period, and 2.5% of the
Outstanding Principal Balance thereon, in cash, for each subsequent 45 day
period that any Covered Shares are not U.S Registered (in each case which
payment shall be PRO RATA for any period less than 45 days).
(c) The Company may suspend dispositions under any registration statement
filed under the Securities Act (a "Registration Statement") and notify the
holders of any Covered Shares that it may not sell the Covered Shares pursuant
to any Registration Statement or prospectus contained therein (a "Prospectus")
(a "Blocking Notice") if the Company's management determines in its reasonable
good faith judgment that the Company's obligation to
<PAGE>
ensure that such Registration Statement and Prospectus are current and complete
would require the Company to take actions that might reasonably be expected to
have a materially adverse (to the Company as a whole) detrimental effect on any
proposal, negotiations or plan by the Company or any of its subsidiaries to
engage in any material acquisition of assets (other than in the ordinary course
of business) or any material merger, consolidation, tender offer, reorganization
or similar transaction; provided that such suspension pursuant to a Blocking
Notice or the Notice described below may not exceed twenty (20) consecutive days
or an aggregate of thirty (30) days in any three (3) month period. Upon receipt
of a Blocking Notice or "Notice" from the Company of the existence of any fact
of the kind described in the following sentence, no holder of Covered Shares
shall dispose of, sell or offer for sale the Covered Shares pursuant to the
Registration Statement until such holder receives (i) copies of the supplemented
or amended Prospectus, or until counsel for the Company shall have determined
that such disclosure is not required due to subsequent events, (ii) notice in
writing (the "Advice ") from the Company that the use of the Prospectus may be
resumed and (iii) copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus. Pursuant to the immediately
preceding sentence, the Company shall provide such Notice to the holder upon the
determination by the Company of the existence of any fact or the happening or
any event that makes any statement of a material fact made in the Registration
Statement, the Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue in any material respect, or that
requires the making of any additions to or changes in the Registration Statement
or the Prospectus, in order to make the statements therein not misleading in any
material respect. If so directed by the Company in connection with any such
notice, each holder of Covered Shares will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
holder's possession, of the Prospectus covering such Covered Shares that was
current immediately prior to the time of receipt of such Notice. In the event
the Company shall give any such Blocking Notice or Notice, the time regarding
the effectiveness of such Registration Statement shall be extended by one and
one-half (1-1/2) times the number of days during the period from and including
the date of the giving of such Blocking Notice or Notice to and including the
date when the holder shall have received the copies of the supplemented or
amended Prospectus, the Advice and any additional or supplemental filings that
are incorporated by reference in the Prospectus. Delivery of a Blocking Notice
or Notice and the related suspension of any Registration Statement shall not
constitute a default under this Agreement and shall not create any obligation to
pay the default payments under this Section 6. However, if the holder's ability
to sell under the Registration Statement is suspended for more than the twenty
or thirty day periods described above, then the penalty provisions of Section 6
shall apply from the date that the Blocking Notice or Notice was received.
(d) The Company acknowledges that any failure, refusal or inability by the
Company described in the foregoing paragraphs (a) through (c) above will cause
the holders of Covered Shares to suffer damages in an amount that will be
difficult to ascertain, including without limitation damages resulting from the
loss of liquidity in the Covered Shares and the additional investment risk in
holding the Covered Shares, whether or not such holders of Covered Shares
ultimately achieve the return on investment contemplated in the Notes.
Accordingly, the parties agree that it is appropriate to include in this
Agreement the foregoing provisions for default payments in order to compensate
the holders of Covered Shares for such damages. The parties
<PAGE>
acknowledge and agree that the default payments set forth above represent the
parties' good faith effort to quantify such damages and, as such, agree that the
form and amount of such default payments are reasonable and will not constitute
a penalty. In the event that any default payments hereunder are not paid when
due, the holders of the Notes may accelerate the Notes. The default payments
provided for above are in addition to and not in lieu or limitation of any other
rights the holders of Covered Shares may have at law, in equity or under the
terms of the Notes, the Note Purchase Agreement, the Warrants, the Subsidiary
Guaranty or this Agreement, including without limitation, the right to specific
performance.
Section 7. EXPENSES. All expenses incurred by the Company in complying
with Sections 2, 3, 4 and 5, including, without limitation, all registration and
filing fees (including all expenses incident to filing with the National
Association of Securities Dealers, Inc.), fees and expenses of complying with
securities and blue sky laws, Canadian provincial laws, listing fees for
exchanges or other markets (including without limitation the ASE, NASDAQ and
NASDAQ Small Cap), printing expenses and fees and disbursements of counsel
including with respect to each registration or filing effected pursuant to such
sections, reasonable fees and disbursements of not more than one counsel for the
sellers requesting registration hereunder to the Company, and of the independent
certified public accountants for the Company (including the expense of any
special audits in connection with any such registration) shall be paid by the
Company; PROVIDED, HOWEVER, that all underwriting discounts and selling
commissions applicable to the Covered Shares covered by such registration shall
be borne by the seller or sellers, in proportion to the number of Covered Shares
sold by such seller or sellers.
Section 8. INDEMNIFICATION.
(a) In connection with any registration of any Covered Shares under the
Securities Act or the Alberta qualification or registration under Canadian
provincial law of any Purchased Securities or Covered Shares pursuant to this
Agreement, the Company shall indemnify and hold harmless the seller of such
securities, any employees, officers, directors, members, partners or agents of
such seller ("Seller Indemnities "), each underwriter, broker or any other
person acting on behalf of such seller and each other person, if any, who
controls any of the foregoing persons within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several (or actions
in respect thereof), to which any of the foregoing persons may become subject
under the Securities Act, applicable Canadian provincial law, or otherwise
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement under which
such Covered Shares were registered under the Securities Act, any preliminary
Prospectus or final Prospectus contained therein or otherwise filed with the
SEC, or any Canadian Prospectus or disclosure document filed with Canadian
regulatory authorities, any amendment or supplement thereto or any document
incident to registration or qualification of any Covered Shares or Purchased
Securities, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading or, with respect to any Prospectus,
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, or any violation by the Company of the
Securities Act, the Exchange Act or state securities, blue sky laws or Canadian
provincial laws applicable to the Company and relating to action or inaction
<PAGE>
required of the Company in connection with such registration or qualification
under such state securities, blue sky laws or Canadian provincial laws; and,
subject to the provisions of Section 8(c), the Company shall reimburse such
seller, Seller Indemnity, such underwriter, such broker or such other person
acting on behalf of such seller and each such controlling person for any legal
or other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or action,
PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said Registration Statement, preliminary Prospectus,
final Prospectus, Canadian Prospectus or Canadian disclosure document,
amendment, supplement or document incident to registration or qualification of
any Covered Shares or Purchased Securities in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by such seller or underwriter specifically for use in the preparation
thereof.
(b) In connection with any registration of Covered Shares under the
Securities Act or the Alberta qualification or registration under Canadian
provincial law of any Purchased Securities or Covered Shares pursuant to this
Agreement, each seller of Purchased Securities or Covered Shares shall indemnify
and hold harmless (in the same manner as set forth in paragraph (a) of this
Section 8) the Company and each officer and director of the Company who shall
sign such Registration Statement, each underwriter, broker or other person
acting on behalf of such seller, each person who controls any of the foregoing
within the meaning of the Securities Act and each other seller of Covered Shares
or Purchased Securities under such Registration Statement, Canadian Prospectus
or Canadian disclosure document with respect to any statement or omission from
such Registration Statement, any preliminary Prospectus or final Prospectus
contained therein or otherwise filed with the SEC, Canadian Prospectus or
Canadian disclosure document, any amendment or supplement thereto or any
document incident to registration or qualification of any Covered Shares or
Purchased Securities, if such statement or omission was made in reliance upon
and in conformity with written information furnished to the Company or such
underwriter through an instrument duly executed by such seller specifically for
use in connection with the preparation of such Registration Statement,
preliminary Prospectus, final Prospectus, Canadian Prospectus or Canadian
disclosure document, amendment, supplement or document or any failure to deliver
any Registration Statement, preliminary Prospectus, final Prospectus, Canadian
Prospectus or Canadian disclosure document, amendment, supplement or document;
PROVIDED, HOWEVER, that the maximum amount of liability in respect of such
indemnification (including, but not limited to, attorneys' fees and expenses)
shall be limited, in the case of each seller of Covered Shares or Purchased
Securities, to an amount equal to the proceeds actually received by such seller
from the sale of such securities effected pursuant to such registration, less
underwriter or broker commissions or expenses ("Net Proceeds").
(c) Promptly after receipt by an indemnified party of notice of any
claim referred to in paragraphs (a) or (b) of this Section 8, such indemnified
party will, if a claim in respect thereof is made against an indemnifying party,
give written notice to the latter of the commencement of such action. In case
any such action is brought against an indemnified party, the indemnifying party
will be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that it may
wish, with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its
<PAGE>
election so to assume the defense thereof, the indemnifying party shall not
be responsible for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof, PROVIDED, HOWEVER,
that if any indemnified party shall have reasonably concluded that' there may
be one or more legal or equitable defenses available to such indemnified
party which are additional to or conflict with those available to the
indemnifying party, or the indemnifying party shall have failed to assume,
within seven (7) business days of receipt of notice from the indemnified
party, the defense of the indemnified party, the indemnifying party shall not
have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such
indemnified party and any person controlling such indemnified party for that
portion of the reasonable fees and expenses of any one counsel retained by
all the indemnified parties which is reasonably related to the matters
covered by the indemnity agreement provided in this Section 8.
(d) If the indemnification provided for in this Section 8 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage, liability or action referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and for the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim, damage,
liability or action as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) In no event shall the obligation of any indemnifying party to
contribute under this Section 8 exceed the amount that such indemnifying party
would have been obligated to pay by way of indemnification if the
indemnification provided for under hereof had been available under the
circumstances.
(f) Company and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by PRO RATA
allocation (even if the holders or the underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this section, no holder or underwriter shall
be required to contribute any amount in excess of the amount by which (i) in the
case of any holder, the Net Proceeds or (ii) in the case of an underwriter, the
total price at which the Covered Shares or Purchased Securities purchased by it
and distributed to the public were offered to the public exceeds, in any such
case, the amount of any damages that such holder or underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission
<PAGE>
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 1 1 (f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(g) The indemnity and contribution agreements contained in this Section 8
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement or the Note Purchase Agreement or an underwriting
agreement, (ii) any investigation made by or on behalf of any 1 indemnified
party or by or on behalf of Company, and (iii) the consummation of the sale or
successive resales of the Covered Shares.
Section 9. INFORMATION BY HOLDER . Each holder of Covered Shares
included in any registration effected pursuant to this Agreement shall furnish
to the Company such information with respect to such holder and the proposed
distribution by such holder as the Company shall request in writing on a timely
basis and as shall, in the reasonable opinion of Counsel for the Company be
required by Canadian Provincial, U.S. Federal or applicable state securities
laws in connection with such registration effected pursuant to this Agreement.
Section 10. PUBLICITY. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of any holder of the
Purchased Securities or Covered Shares without its consent, unless and until
such disclosure is required by law or applicable regulation, and then only to
the extent of such requirement. The Company agrees that it will deliver a copy
of any public announcement regarding the matters covered by this Agreement or
any agreement and document executed in connection herewith to each such holder
and any public announcement including the name of a holder to such holder, prior
to publication of such announcements.
Section 11. COVENANTS OF COMPANY.
(a) Company shall at all times reserve and keep available out of its
authorized but unissued Common Shares, such number of Underlying Shares as shall
from time to time be sufficient to effect the exchange of the outstanding amount
of the Note, and to effect the exercise of the outstanding Warrants,
respectively.
(b) Once the Covered Shares are registered pursuant to Section 3 herein,
Company will cause the Common Shares to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules thereunder)
to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under the Exchange Act.
(c) Without limiting the generality of Section 2(c), the Company shall make
such filings and take such actions: (i) as shall be necessary to maintain its
status as a "reporting issuer" not in default, under the laws of the Province of
Alberta; and (ii) as shall be necessary to maintain the listing and posting of
the Common Shares on the ASE.
<PAGE>
Section 12. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Agreement or on behalf of the parties hereto will bind and inure to the
benefit of the respective successors and permitted assigns of the parties
hereto.
Section 13. MISCELLANEOUS.
(a) Amendment or Waiver, Assignment. This Agreement may not be modified or
amended without the prior consent of the parties hereto. No failure or delay on
the part of either party in exercising any right hereunder shall operate as a
waiver; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other rights. No waiver
of any such right or amendment hereof shall be effective unless given in
writing. No waiver of any such right shall be deemed a waiver of any other right
hereunder. Neither this Agreement nor any right or benefits thereunder may be
assigned by the Company, but a Purchaser may assign this Agreement and the
rights hereunder, in whole or in part, without the consent of the Company, to
any transferee of any Purchased Securities or any Covered Shares; PROVIDED,
HOWEVER, that such assignment shall not be effected in connection with the
assignment of any Note, unless the requirements for assignment set forth in
Section 15 of the Notes shall have been complied with.
(b) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
(c) Severability. If any provision hereof shall be held to be void, illegal
or unenforceable it shall be deemed severable from the remaining provisions
hereof which shall remain in full force and effect.
(d) Notices. Any notice to be given hereunder shall be given (except as
otherwise expressly set forth herein) by registered prepaid airmail, air courier
service or by fax or may be delivered by hand and shall be deemed to have been
received, if given by registered prepaid airmail, seven days after posting; if
given by fax, on receipt of the fax confirmation; and if delivered by hand or by
air courier, at the time of such delivery:
if to Liverpool:
The Liverpool Limited Partnership
c/o A.S. & K Services Ltd.
P.O. Box HM 1179
Hamilton HM EX
Bermuda
Attention: Yvonne Powell
Telephone: 011-441-295-2244
Telecopier: 011-441-295-5328
if to Westgate:
Westgate International, L.P.
<PAGE>
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman
Cayman Islands
British West Indies
Attention: Frank White
Telephone: (809) 949-7755
Telecopier: (809) 949-7634
if to the Company:
Xenotech Inc.
407 2nd Street S.W.
No. 1600
Calgary, Alberta T2P 2Y3
Attention: R. Michael Zwack
Telephone: (403) 237-9050
Telecopier: (403) 262-7896
with a copy to:
Vorys, Sater, Seymour and Pease
1828 L Street, N.W.
Washington, D.C.
Attention: James K. Alford, Esq.
Telephone: (202) 467-8801
Telecopier: (202) 467-8900
(e) Governing Law, Jurisdiction.
(i) THIS AGREEMENT AND THE OBLIGATIONS OF THE PARTIES
HEREUNDER, WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF
THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
JURISDICTION. THE PARTIES HEREBY AGREE THAT SECTION 6-2708 OF THE DELAWARE CODE
SHALL APPLY.
(ii) Each of the parties irrevocably submits to the exclusive
jurisdiction of any State or Federal Court sitting in the State of Delaware over
any suit, action, or proceeding arising out of or relating to this Agreement.
Each of the Parties irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of the venue of
any such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.
<PAGE>
(iii) The Company hereby irrevocably designates and appoints
Corporation Service Company
1013 Centre Road
Wilmington, Delaware 19805
Attention: Telephone: (302) 998-0595
Telecopier: (302) 998-7078
as agent upon whom service of process may be served in any suit arising or
proceeding based upon or arising under this Agreement and to take any and all
actions, including the filing of any and all documents to continue such
appointment in full force and effect as aforesaid.
The Purchasers hereby irrevocably designates and appoints
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
Attention: Stefanie Vascellaro
Telephone: (302) 658-7581
Telecoyrier: (302) 655-5049
as agent upon whom service of process may be served in any suit arising or
proceeding based upon or arising under this Agreement and to take any and all
actions, including the filing of any and all documents to continue such
appointment in full force and effect as aforesaid.
Each party further agrees that the service of process upon it, or upon an
agent appointed above, as the case may be, mailed by certified or registered
mail shall be deemed in every respect effective service of process upon such
party in any such suit or proceeding. Nothing herein shall affect Purchasers'
right to serve process in any other manner permitted by law. The Company agrees
that a final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.
(iv) Each party hereto knowingly and voluntarily waives any and all
rights it may have to a trial by jury with respect to any litigation based on,
or arising out of, under, or in connection with, this Agreement. Each party is
hereby authorized to submit, as conclusive evidence of such waiver of jury
trial, this Agreement to a court that has jurisdiction over the subject matter
of such litigation and the parties to this Agreement.
(f) Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter herein and supersedes all
previous oral statements and other writings with respect thereto.
<PAGE>
(g) Headings. The headings of the sections and subsections of this
Agreement are asserted for convenience only and shall not be deemed to
constitute a part hereof.
<PAGE>
Exhibit 2(11)
STOCK OPTION PLAN
1. PURPOSE
The purpose of the Stock Option Plan (the "Plan") of Dynamic Digital Depth Inc.,
a Corporation subsisting under the BUSINESS CORPORATIONS ACT (Alberta) (the
"Corporation"), is to advance the interests of the Corporation by encouraging
its directors, management, employees and consultants to acquire shares in the
Corporation, thereby increasing their proprietary interest in the Corporation,
encouraging them to remain associated with the Corporation and furnishing them
with additional incentive in their efforts on behalf of the Corporation in the
conduct of its affairs.
2. ADMINISTRATION
The Plan shall be administered by the board of directors of the Corporation (the
"Board"). A majority of the Board shall constitute a quorum, and the acts of a
majority of the directors present at any meeting at which a quorum is present,
or acts unanimously approved in writing, shall be the acts of the directors.
Subject to the provisions of the Plan, the Board shall have authority to
construe and interpret the Plan and all option agreements entered into
thereunder, to define the terms used in the Plan and in all option agreements
entered into thereunder, to prescribe, amend and rescind rules and regulations
relating to the Plan and to make all other determinations necessary or advisable
for the administration of the Plan. All determinations and interpretations made
by the Board shall be binding and conclusive on all participants in the Plan and
on their legal personal representatives and beneficiaries.
Each option granted hereunder shall be evidenced by an agreement, signed on
behalf of the Corporation and by the optionee, in such form as the directors
shall approve. Each such agreement shall recite that it is subject to the
provisions of this Plan.
3. SHARES SUBJECT TO PLAN
Subject to adjustment as provided in Section 14 hereof, the shares to be offered
under the Plan shall consist of shares of the Corporation's authorized but
unissued common shares. The number of shares reserved for issuance pursuant to
stock options granted under the Plan shall not exceed 10% of the issued and
outstanding shares of the Corporation at the time of granting of options from
time to time, to a maximum of 3,180,000 Common Shares. If any option granted
hereunder shall expire or terminate for any reason without having been exercised
in full, the unpurchased shares subject thereto shall again be available for the
purpose of this Plan.
4. MAINTENANCE OF SUFFICIENT CAPITAL
The Corporation shall at all times during the term of the Plan reserve and keep
available such numbers of shares as will be sufficient to satisfy the
requirements of the Plan.
5. ELIGIBILITY AND PARTICIPATION
Directors, officers, management, consultants and employees of the Corporation
shall be eligible for selection to participate in the Plan (such persons
hereinafter collectively referred to as "Participants"). The Board shall
determine to whom options shall be granted, the terms and provisions of the
respective option agreements, the time or times at which such options shall be
granted, and the number of shares to be subject to each option. An individual
who has been granted an option may, if he is otherwise eligible, and if
permitted under the policies of
<PAGE>
the stock exchange or stock exchanges on which the shares of the Corporation are
to be listed, be granted an additional option or options if the directors shall
so determine.
6. EXERCISE PRICE
(a) The exercise price of the shares covered by each option shall
be determined by the Board. The exercise price shall be not
less than the price permitted by any stock exchange on which
the common shares are then listed or other regulatory body
having jurisdiction.
(b) In the event the Corporation becomes listed on The Toronto
Stock Exchange the option price per common share shall be
determined by the Board, subject to regulatory approval, at
the time any option is granted but in no event shall such
price be lower than the Market Price (as hereinafter defined)
at the time of the grant.
"MARKET PRICE" means:
(a) at any time during which the common shares are listed and
posted for trading on The Toronto Stock Exchange (the "TSE"),
the closing sale price for board lots of common shares on the
TSE on the business day immediately prior to the day on which
the Market Price is to be determined, or if there is no sale
of board lots of common shares on such day, then the average
of the bid and asked prices on the TSE for the business day
immediately prior to the day on which the Market Price is to
be determined, or if there are no bid and asked prices on the
TSE on such day, the five-day weighted average on the closing
prices for board lots of common shares on the TSE based on the
five business days immediately prior to the day on which the
Market Price is to be determined;
(b) at any time during which the common shares are not listed and
posted for trading on the TSE, but are quoted on any other
stock exchange, the closing sale price for board lots of
common shares on such exchange on the business day immediately
prior to the day on which the Market Price is to be
determined, or if there is no sale of board lots of common
shares on such day, then the average of the bid and asked
prices on such exchange for the business day immediately prior
to the day on which the Market Price is to be determined, or
if there are no bid and asked prices on such exchange on such
day, then the five-day weighted average of the closing sale
prices for board lots of common shares on such exchange based
on the five business days immediately prior to the day on
which the Market Price is to be determined; and
(c) at any other time, the fair market value of the common shares,
as determined by the Board, with due regard being had to any
over-the-counter sale prices, asked and bid prices, volume
quotations, value of assets and liabilities of the
Corporation, and income and prospects of the Corporation, as
the Board shall in its sole discretion determine to be
relevant.
7. NUMBER OF OPTIONED SHARES
The number of shares subject to an option to a Participant shall be determined
in the resolution of the Board, but no Participant shall be granted an option
which exceeds 5% of the issued and outstanding shares of the Corporation (on a
non-diluted basis).
<PAGE>
8. DURATION OF OPTION
Each option and all rights thereunder shall be expressed to expire on the date
set out in the option agreements and shall be subject to earlier termination as
provided in paragraphs 10 and 11.
9. OPTION PERIOD, CONSIDERATION AND PAYMENT
(a) The Option Period shall be a period of time fixed by the Board
not to exceed five years from the date the option is granted,
provided that the Option Period shall be reduced with respect
to any option as provided in Sections 10 and 11 covering
cessation as a director, officer or employee of the
Corporation or death of the Participant.
(b) An option shall vest and may be exercised (in each case to the
nearest full share) during the Option Period in such manner as
the Board may fix by resolution. Options which have vested may
be exercised in whole or in part at any time and from time to
time during the Option Period. To the extent required by The
Alberta Stock Exchange, no options may be exercised under this
Plan until this Plan has been approved by a resolution duly
passed by the shareholders of the Corporation.
(c) Except as set forth in Sections 10 and 11, no option may be
exercised unless the Participant is at the time of such
exercise a director, officer, manager, consultant, or employee
of the Corporation; except, in the case of a consultant, where
the option has been granted for a specific service, the option
may be exercised only upon completion of that service.
(d) The exercise of any option will be contingent upon receipt by
the Corporation at its head office of a written notice of
exercise, specifying the number of common shares with respect
to which the option is being exercised, accompanied by cash
payment, certified cheque or bank draft for the full purchase
price of such common shares with respect to which the option
is exercised. No Participant or his legal representatives,
legatees or distributees will be, or will be deemed to be, a
holder of any shares subject to an option under this Plan,
unless and until the certificates for such shares are issued
to him or them under the terms of the Plan.
10. CEASING TO BE A DIRECTOR, OFFICER, MANAGER, OR EMPLOYEE
If a Participant shall cease to be a director, officer, manager, or employee of
the Corporation or a company for any reason (other than death), he may but only
within 90 days next succeeding his ceasing to be a director, officer, manager,
or employee, exercise his option to the extent that he was entitled to exercise
it at the date of such cessation.
Nothing contained in the Plan, nor in any option granted pursuant to the Plan,
shall as such confer upon any Participant any right with respect to continuance
as a director, officer, manager, employee or consultant of the Corporation or of
any affiliate.
<PAGE>
11. DEATH OF PARTICIPANT
In the event of the death of a Participant, the option previously granted to him
shall be exercisable only within the twelve months next succeeding such death
and then only:
(a) by the person or persons to whom the Participant's rights
under the option shall pass by the Participant's will or the
laws of descent and distribution; and
(b) if and to the extent that he was entitled to exercise the
Option at the date of his death.
12. RIGHTS OF OPTIONEE
No person entitled to exercise any option granted under the Plan shall have any
of the rights or privileges of a shareholder of the Corporation in respect of
any shares issuable upon exercise of such option until certificates representing
such shares shall have been issued and delivered.
13. PROCEEDS FROM SALE OF SHARES
The proceeds from sale of shares issued upon the exercise of options shall be
added to the general funds of the Corporation and shall thereafter be used from
time to time for such corporate purposes as the Board may determine and direct.
14. ADJUSTMENTS
If the outstanding shares of the Corporation are increased, decreased, changed
into or exchanged for a different number or kind of shares of securities of the
Corporation through re-organization, merger, re-capitalization,
re-classification, stock dividend, subdivision or consolidation, an appropriate
and proportionate adjustment shall be made in the maximum number or kind of
shares as to which options may be granted under the Plan. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in the outstanding options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the option but with a corresponding adjustment in the
price for each share or other unit of any security covered by the option.
Upon the liquidation or dissolution of the Corporation or upon a
re-organization, merger or consolidation of the Corporation with one or more
corporations as a result of which the Corporation is not the surviving
corporation, or upon the sale of substantially all of the property or more than
eighty (80%) percent of the then outstanding shares of the Corporation to
another corporation, the Plan shall terminate, and any options theretofore
granted hereunder shall terminate unless provision is made in writing in
connection with such transaction for the continuance of the Plan and for the
assumption of options theretofore granted, or the substitution for such options
of new options covering the shares of a successor employer corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to number and kind
of shares and prices, in which event the Plan and options theretofore granted
shall continue in the manner and upon the terms so provided. If the Plan and
unexercised options shall terminate pursuant to the foregoing sentence all
persons then entitled to exercise an unexercised portion of options then
outstanding shall have the right at such time immediately prior to consummation
of the event which results in the termination of the Plan as the Corporation
shall designate, to exercise their options to the full extent not theretofore
exercised.
Adjustments under this Section shall be made by the Board whose determination
as to what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive. No fractional share shall be issued under the Plan on
any such adjustment.
<PAGE>
15. TRANSFERABILITY
All benefits, rights and options accruing to any Participant in accordance with
the terms and conditions of the Plan shall not be transferrable or assignable
unless specifically provided herein. During the lifetime of a Participant any
benefits, rights and options may only be exercised by the Participant.
16. AMENDMENT AND TERMINATION OF PLAN
Subject to applicable regulatory approval, the Board may, at any time, suspend
or terminate the Plan. Subject to applicable regulatory approval, the Board may
also at any time amend or revise the terms of the Plan, PROVIDED that no such
amendment or revision shall alter the terms of any options theretofore granted
under the Plan.
17. NECESSARY APPROVALS
The obligation of the Corporation to issue and deliver shares in accordance with
the Plan is subject to any approvals which may be required from any regulatory
authority or stock exchange having jurisdiction over the securities of the
Corporation. If any shares cannot be issued to any Participant for whatever
reason, the obligation of the Corporation to issue such shares shall terminate
and any option exercise price paid to the Corporation will be returned to the
Participant.
18. STOCK EXCHANGE RULES
The rules of any stock exchange upon which the Corporation's shares are listed
shall be applicable relative to options granted to Participants.
19. EFFECTIVE DATE OF PLAN
The Plan has been adopted by the Board of the Corporation subject to the
approval of the stock exchange or stock exchanges on which the shares of the
Corporation are to be listed and, if so approved, the Plan shall became
effective upon such approvals being obtained.
20. INTERPRETATION
The Plan will be governed by and construed in accordance with the laws of Canada
and of the Province of Alberta.
IN WITNESS WHEREOF the Corporation has caused its corporate seal to be affixed
hereto in the presence of its officers duly authorized in that behalf as of the
13th day of November 1998.
DYNAMIC DIGITAL DEPTH INC.
Per:
ROBERT BAKER, PRESIDENT
Per:
NEIL SPEAKMAN, DIRECTOR
<PAGE>
Exhibit 2(12)
FORM OF OPTION AGREEMENT
THIS AGREEMENT made as of the th day of ,1998
-- -----------------
BETWEEN:
, an individual resident in California (the
-------------------
"Executive")
- and -
DYNAMIC DIGITAL DEPTH INC. (FORMERLY XENOTECH INC.), a body corporate,
having its registered office in the City of Calgary, in the Province of
Alberta (the "Corporation")
DIRECTORS' AND MANAGEMENT STOCK OPTION AGREEMENT
WHEREAS:
A. the Corporation is incorporated under the laws of the Province of Alberta,
having an authorized capital consisting of an unlimited number of Common
Shares and an unlimited number of Preferred Shares, all without nominal or
par value; and
B. the Board of Directors have agreed to grant unto the Executive an option to
purchase an aggregate of____________(________) Common Shares without par
value of its authorized unissued share capital in consideration of the
Executive's ongoing services and contributions to the Corporation; and
C. the granting of such option to the Executive was authorized by the Board of
Directors of the Corporation effective ____________, 1998;
NOW, THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
and mutual covenants hereinafter set forth, and for other valuable
consideration, the Parties have agreed as follows:
ARTICLE I
DEFINITIONS
1.1 In this Agreement the following terms shall have the following meanings:
(a) "Board" means the Board of Directors of the Corporation.
(b) "Corporation" means Dynamic Digital Depth Inc. and any
successor or continuing corporation resulting from any form of
corporate reorganization.
(c) "Option Shares" means the Shares the Executive is entitled to
purchase under a Share Option.
<PAGE>
(d) "Parties" means the Executive and the Corporation,
collectively.
(e) "Share Option" means an option to purchase treasury shares
granted to the Executive pursuant to this Agreement, and
includes any portion of that option.
(f) "Share Option Agreement" means this Agreement and any
novations thereof.
(g) "Expiration Date" means
-----------------------------------.
(h) "Option Date" in respect of the Share Option means the date of
this Agreement.
(i) "Option Price" means the price per share for each portion of
the Share Option set forth in Clause 2.1 hereof.
(j) "Share" means a Common Share of the Corporation as constituted
at the date hereof.
(k) "Treasury Share" means a theretofore unissued Share which is
purchased directly from the Corporation by or for the account
of the Executive.
(l) "Market Price" means the price at which the Shares are being
offered for upon the Exchange.
(m) "Option Period" means the period commencing upon the Option
Date and expiring upon the Expiration Date.
(n) "Exchange" means the stock exchanges upon which the
Corporation may be listed upon during the Option Period.
1.2 In this Agreement, the masculine gender shall include the feminine
gender and the singular shall include the plural and vice versa
wherever the context requires.
ARTICLE II
SHARE OPTION
2.1 Subject to the Executive receiving a USA work visa, and subject to the
terms and conditions hereinafter set out, the Corporation hereby grants
to the Executive, an irrevocable option to purchase
( ) Shares of the Corporation at a price of CDN $ per
Share which may be exercised on the following basis:
2.2 At 4:30 p.m., Calgary time, on the Expiration Date, the Share Option
shall forthwith expire and terminate and be of no further force or
effect whatsoever as to such of the Option Shares in respect of which
the Share Option hereby granted has not then been exercised.
2
<PAGE>
ARTICLE III
CURRENCY DURING TERM OF EMPLOYMENT
3.1 If subsequent to the Option Date and prior to the Expiration Date, the
Executive's position as a director, an officer, a consultant to the
Corporation and/or the Corporation's subsidiary, or as an employee of
the Corporation and/or the Corporation's subsidiary, as the case may
be, is terminated by reason of the death or disability of the
Executive, the Share Option may be exercised during the period expiring
the earlier of the Expiration Date or one year after such date of death
or the date of termination of his employment by reason of disability.
In the event of the Executive's death or disability, the rights of the
Executive under the Share Option may be exercised by the person or
persons to whom the Executive's rights under the Share Option shall
pass by will or applicable law or, if no such person has such right, by
the Executive's executors or administrators, subject to the time
limitations as aforesaid.
3.2 If subsequent to the Option Date and prior to the Expiration Date, the
Executive's position as a director, an officer, a consultant to the
Corporation and/or the Corporation's subsidiary, or an employee of the
Corporation and/or the Corporation's subsidiary, as the case may be, is
terminated for any reason other than the death or disability of the
Executive, the Share Option may be exercised during the ninety (90) day
period following the date on which the Executive's position is
terminated, and upon the expiry of such ninety (90) day period, the
Share Option shall expire.
ARTICLE IV
MATERIAL CHANGE
4.1 In the event that, prior to the Expiration Date or exercise in full of
the Share Option, the outstanding share capital of the Corporation
shall be subdivided or consolidated into a greater or lesser number of
Shares, or, in the event of the payment of a stock dividend by the
Corporation, or in the event that all of the shareholders of the
Corporation are granted the right to purchase additional Shares of the
Corporation, the number and price of Option Shares remaining subject to
the Share Option hereunder shall be increased or reduced accordingly,
as the case may be.
4.2 If, prior to the Expiration Date or exercise in full of the Share
Option granted hereby, the Corporation shall, at any time arrange with
or merge into another corporation, the Executive will thereafter
receive, upon the exercise of the Share Option, the securities or
properties to which a holder of the number of shares then deliverable
upon the exercise of the Share Option would have been entitled upon
such arrangement or merger, and the Corporation will take steps in
connection with such arrangement or merger as may be necessary to
assure that the provisions hereof shall thereafter be applicable, in
relation to any securities or property thereafter deliverable upon the
exercise of the Option granted hereby. A sale of all or substantially
all of the assets of the Corporation for consideration, (apart from the
assumption of obligations), consisting primarily of securities shall be
deemed to be an arrangement or merger for the foregoing purposes.
3
<PAGE>
ARTICLE V
ADJUSTMENT FOR RIGHTS ISSUE
5.1 If, subsequent to the Option Date and prior to the Expiration Date,
(a) Shares are offered pro rata for subscription by the
shareholders of the Corporation, generally by way of a rights
issue; and
(b) the price at which each Share is so offered is less than the
Market Price in force on the date of public announcement of
the right issue,
the subscription price applicable to each Share then comprised in the
Option Period shall be reduced by the value of the theoretical rights
entitlement per cum rights share and that theoretical rights
entitlement per cum rights share shall be taken to have a value
calculated by applying the formula:
P-(S+D)
------
N+1
where:
P = the weighted average price of fully paid Shares sold in the
ordinary course of trading on the Exchange during the five
business days after public announcement of the rights issue;
S = the aggregate amount per share payable for each new share
under the rights issue;
D = any dividends due but not yet paid on existing Shares which
will not be payable in respect of new Shares issued under the
rights issue; and
N = the number of cum rights Shares required to be held to receive
a right to one new Share under the rights issue.
ARTICLE VI
ADJUSTMENT FOR BONDS ISSUE
6.1 ADDITIONAL SHARES
If, during the Option Period, Shares are issued pro rata to the
shareholders of the Corporation generally by way of bonus issue
involving capitalization of reserves or distributable profits, the
Executive shall be entitled, upon later exercise of the Share Option
Period as to some or all of the Shares comprised in it, to receive in
addition to the Option Shares an allotment of so many additional shares
as would have been issued to a shareholder of the Corporation who, on
the date for determining entitlements under the bonus issue, held
Shares equal in number to the Option Shares.
4
<PAGE>
6.2 USE OF SHARE PREMIUM RESERVE
The Corporation's Share Premium reserve shall be applied in paying up
any such additional Shares at the time of allotment of them.
ARTICLE VII
RESERVATION OF TREASURY SHARES
7.1 The Corporation shall at all times during the term of this Agreement,
reserve and keep available a sufficient number of Treasury Shares to
satisfy the requirements hereof.
ARTICLE VIII
RESTRICTION ON ASSIGNMENT
8.1 The Share Option granted hereby is, insofar as the Executive is
concerned, personal and non-assignable and neither this Agreement nor
any rights in regard thereto shall be transferable or assignable except
upon the death of the Executive pursuant to Clause 3.1 hereof.
ARTICLE IX
EXERCISE OF THE SHARE OPTION
9.1 The Share Option may be exercised by the Executive in accordance with
the provisions hereof in whole or in part, from time to time, by
delivery of written notice of such exercise and by tendering the
payment therefor in cash or by certified cheque to the Corporation at
its principal and registered office in the City of Calgary, in the
Province of Alberta. Such notice shall state the number of the Option
Shares with respect to which the Share Option is then being exercised.
The Share Option shall be deemed for all purposes to have been
exercised to the extent stated in such notice upon delivery of the
notice and a tender of payment in full, notwithstanding any delay in
the issuance and delivery of the certificates for the Shares so
purchased.
ARTICLE X
RIGHTS OF THE EXECUTIVE PRIOR TO EXERCISE DATE
10.1 The Share Option herein granted shall not entitle the Executive to any
rights whatsoever as a shareholder of the Corporation with respect to
any Shares subject to the Share Option until it has been exercised in
accordance with Clause 9.1 and Option Shares have been issued as fully
paid and non-assessable.
ARTICLE XI
FURTHER ASSURANCES
11.1 The Parties covenant that they shall and will from time to time and at
all times hereafter do and perform all such acts and things and execute
all such additional documents as may be required to give effect to the
terms and intention of this Agreement.
5
<PAGE>
ARTICLE XII
INTERPRETATION
12.1 It is understood and agreed by the Parties that questions may arise as
to the interpretation, construction or enforcement of this Agreement
and the parties are desirous of having the Board determine any such
question of interpretation, construction or enforcement. It is
therefore understood and agreed by and between the Parties that any
question arising under the terms of this Agreement as to
interpretation, construction or enforcement shall be referred to the
Board and their majority decision shall be final and binding on both of
the Parties.
ARTICLE XIII
ENTIRE AGREEMENT
13.1 This Agreement supersedes all other agreements, documents, writings and
verbal understandings among the parties relating to the subject matter
hereof and represents the entire agreement between the parties relating
to the subject matter hereof.
ARTICLE XIV
ENUREMENT
14.1 Subject to the other provisions hereof, this Agreement shall enure to
the benefit of and be binding upon the Parties and their respective
heirs, executors, administrators, successors and permitted assigns.
14.2 This Agreement shall continue to constitute a binding obligation of the
Corporation notwithstanding any change of control of its voting
securities during the term hereof.
IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and
year first above written.
SIGNED, SEALED AND DELIVERED )
in the presence of: )
)
)
) ---------
- -------------------------------
Witness )
DYNAMIC DIGITAL DEPTH INC.
Per:
------
Per:
------
6
<PAGE>
Exhibit 3(1)
DYNAMIC DIGITAL DEPTH USA INC
- and -
VIDEO APPLICATIONS INC
-------------------------------------------------
MEMORANDUM OF UNDERSTANDING
-------------------------------------------------
8th June 1999
Solomon Brothers
Solicitors
Level 40
Exchange Plaza
2 The Esplanade
PERTH WA 6000
Tel: 9221 5888
Fax: 9221 5955
Ref: PFF/
<PAGE>
THIS AGREEMENT is made the day of June 1999
BETWEEN
DYNAMIC DIGITAL DEPTH USA INC a company incorporated under the laws of Delaware
and having its main office and place of business at MGM Plaza, 2450 Broadway,
Suite 550, Santa Monica, California, 90404 (hereinafter referred to as "DDD
USA") of the first part
- - and -
VIDEO APPLICATIONS INC a company incorporated in __________ and having its main
office and place of business at 14791 Myford Road, Tustin, California, 92780
(hereinafter referred to as "VAI") of the second part
WHEREAS
A. DDD USA holds license rights from Dynamic Digital Depth Australia Pty
Ltd in relation to technology which is under development by Dynamic
Digital Depth Research Pty Ltd comprising techniques, hardware and
software for both real time and non-realtime reprocessing of film and
video stock from 2D to 3D ("the Technology").
B. The rights held by DDD USA in relation to the Technology include the
rights to intellectual property comprised in or related to the
Technology, including without limitation patents, patent applications,
data, designs, techniques, concepts, test results, drawings, know-how,
software, algorithms and trade and other secrets relating to the
design, development, use, operation and production of the Technology
("the Intellectual Property").
C. Those parts of the Intellectual Property as are not in the public
domain comprise confidential proprietary information of DDD USA.
D. VAI is a research development and production company currently involved
in producing and staging Corporate Promotional Events and Broadcast and
Interactive Theatrical Events including with the use of VAI's
proprietary electronic projection equipment, ("the VAI Business").
2.
<PAGE>
E. VAI wishes to investigate the feasibility of commercializing the
Technology, or parts of it, as part of the VAI Business with a view to
entering into an agreement with DDD USA for an ongoing license to
utilize the Technology and the Intellectual Property in the course of
the VAI Business, a joint venture agreement or other commercial
agreement relating to the Technology ("the Commercial Agreement") and
to this end VAI wishes to:
(i) obtain access to relevant parts of the Confidential
Information with respect to the Technology;
(ii) engage in an investigation, during a period of up to 120 days,
unless extended per paragraph 3, into the feasibility of
application of the Technology in the VAI Business (the "Due
Diligence").
(iii) obtain the assistance of DDD USA with respect to the Due
Diligence including to make available to VAI in confidence the
software and hardware comprised in the Technology as it is
developed and becomes available.
G. DDD USA has agreed, subject to the terms herein, to assist VAI, in the
manner specified herein with respect to the Due Diligence.
3.
<PAGE>
THEREFORE IT IS AGREED THAT:
1. The recitals hereto are made a part of this agreement.
2. DEFINITIONS
2.1 "Confidential Information" means:
2.1.1 any information disclosed by DDD to VAI pursuant to
this agreement not being in the public domain at the
time of disclosure and which is in written, graphic,
machine readable, or other tangible form and is
marked "confidential", "proprietary" or in some other
manner to indicate that it has been disclosed in
confidence;
2.1.2 oral information disclosed by DDD to VAI pursuant to
this agreement, provided that such information is not
in the public domain at the time of disclosure and is
designated as confidential at the time of disclosure
and is reduced to writing by DDD within 60 days of
its oral disclosure and such writing is marked in a
manner to indicate its confidential nature and
delivered to VAI;
2.1.3 all other information relating to the Technology
arising for the first time from the Due Diligence,
including test results.
2.2 2.2.1 However, information disclosed by DDD hereunder
shall not be Confidential Information if VAI
demonstrates that such information is:
(a) already known to VAI at the time of receipt
from DDD;
(b) already public at the time of receipt or
thereafter becomes public through no breach
of this Agreement by VAI;
(c) obtained by VAI from a third party, which
third party, by disclosing the information
to VAI, did not breach an obligation of
confidentiality incurred vis-a-vis DDD;
4.
<PAGE>
(d) disclosed by DDD itself to a third party
without restriction on disclosure.
2.2.2 Exclusivity shall be granted to VAI in North America
for the duration of this agreement and subject to the
terms of this agreement in the following areas of
business:
(a) "Corporate Promotional Events" which means
business theater presentations, conventions,
trade show exhibits, point of purchase
displays, sales training, technical
training, product demonstrations, product
promotion, motivation, annual meetings.
(b) "Broadcast and Interactive Theatrical
Events" which means live and pre-recorded
sporting events, music concerts and
interactive video games displayed on theater
screens using digital or electronic
projectors.
2.3 "DDD" means the Dynamic Digital Depth group of companies.
2.4 Notwithstanding the foregoing the exclusivity granted above to
VAI excludes:
2.4.1
70 mm, 65mm and 35mm film and HD video or HD
CGI or any combination of the foregoing and
which is intended for the following
applications and venues:
2.4.1.1 edutainment motion simulators
2.4.1.2 theme parks
2.4.1.3 destination theaters
2.4.1.4 museum theaters
2.4.1.5 expositions
2.4.1.6 worlds fairs
2.4.2 Sub- HD video, sub-HD CGI, sub-HD ride films
and sub-HD simulators, as applied to
applications and venues in clause 2.4.1.
5.
<PAGE>
2.4.3 Products for broadcast transmission,
excluding closed circuit.
2.4.4 Interactive entertainment software (eg
arcade and consumer video game
applications).
2.4.5 Consumer pre-recorded media,
2.4.6 Products for retail motion picture
theatrical distribution.
2.5 "2D" means images viewable in two dimensions.
2.6 "3D" means images viewable in three dimensions.
6.
<PAGE>
CO-OPERATION AND NEGOTIATION
3. During the period of 120 days unless extended as set forth below
commencing to run from the date of execution of this agreement ("the
Term") and in consideration of receipt by DDD USA of the Fee specified
in clause 14.1 DDD USA will in co-operation with VAI assist with the
Due Diligence in the manner specified in clauses 4 to 6 herein and will
not enter into negotiations with other parties in the areas of business
set out in clause 2.2.2. At VAI's sole option, said Term shall be
extended for 60 days in exchange for the payment of the Extension Fee
as set forth in paragraph 14.2.
4. DDD USA undertakes to supply to VAI ONE (1) of each item of software
and hardware comprised in the Technology as and when each such item has
been developed by DDD to a stage that DDD USA considers it, or them
together, suitable for prototype release for evaluation purposes ("the
Prototype Components").
5. The Prototype Components will be delivered by DDD USA to VAI at VAI's
premises in Tustin, CA at VAI's expense with respect to freight and
insurance. DDD USA shall notify VAI immediately any Prototype
Components are ready for delivery and it shall be the responsibility of
VAI to pay the shipping company the freight charge, or to reimburse DDD
USA for same, and to insure the Prototype Components to their full
value as specified by DDD USA.
6. DDD USA will supply to VAI in confidence an operating manual for the
Prototype Components.
7. Ownership of the hardware and software comprised in the Prototype
Components and all Intellectual Property Rights comprised in or related
to the hardware and software comprising the Prototype Components shall
upon delivery to VAI remain the property of DDD USA.
8. VAI shall upon request from time to time make available to DDD USA full
access to all results of the Evaluation Program as they pertain to the
Technology. For the avoidance of doubt, it is agreed that VAI shall be
under no obligation to give to DDD USA access to any information
pertaining to any VAI componentry or equipment with which the Prototype
Components are tested or used.
7.
<PAGE>
9. Upon expiration of the Term then unless a Commercial Agreement has by
then been executed by DDD USA and VAI and provides to the contrary, VAI
shall at its expense deliver up to DDD USA at DDD USA's premises in
Santa Monica, California all Confidential Information in whatever
medium it is recorded and all Prototype Components.
10. DDD USA and VAI will during the Term negotiate in good faith with a
view to concluding a Commercial Agreement. It is expressly agreed that
neither DDD USA nor VAI is under any obligation to enter into a
Commercial Agreement but VAI shall have the first right of refusal to
enter into a Commercial Agreement with DDD for a period of 60 days
following the expiration of this memorandum of understanding.
11. VAI will during the Term use its best endeavors to develop for
submission to DDD USA business plans for the commercial application of
the Technology within each area comprised in Corporate Promotional
Events.
12. VAI will during the Term allow DDD reasonable access, free of charge,
to use VAI's projection and screening facilities.
13. DDD USA and VAI will during the Term use best endeavors to agree a
basis for the parties to cooperate in funding and producing some high
quality presentation material, for the joint use of DDD and VAI for
promotional purposes, showcasing the features and benefits of the
Technology (the "Presentation Material").
14. REMUNERATION
14.1 A payment of US$xxxxxxx (the "Fee") payable to DDD USA by VAI
on execution of this Agreement.
14.2 An optional extension fee of US$xxxxxxx (the "Extension Fee")
for an additional 60 days payable to DDD USA by VAI as set
forth in paragraph 3.
8.
<PAGE>
14.3 All funds advanced are to be credited against future license
fees. Payment of the Fee by VAI to DDD USA will be by way of
telegraphic transfer to DDD USA's bank account as follows:
Dynamic Digital Depth USA Inc
xxxxxxxxxxxxxxxxxxx
Account No. xxxxxxxxxxxxxxxxxx
15. CONFIDENTIALITY AND LIMITATION ON USE
To the extent that VAI is provided with:
15.1 access to the Confidential Information;
15.2 permission to engage in the Due Diligence;
15.3 access to the Prototype Components;
VAI acknowledges that:
15.4 the access and permission is provided solely for the purpose
of the Due Diligence;
15.5 no right to manufacture or sell the Technology, the
Confidential Information, and any product arising wholly or
partly directly or indirectly therefrom, is conferred upon VAI
by this Agreement;
15.6 no right to use the Prototype Components and the Intellectual
Property other than for the purposes of the in-house
confidential Due Diligence by VAI; and
15.7 VAI must only use the Confidential Information and the
Prototype Components for the purpose of the Due Diligence;
9.
<PAGE>
15.8 disclosure by VAI of the Confidential Information and any
aspect of the technology involved in the Technology to any
third party may only occur with the prior written consent of
DDD USA;
15.9 demonstration by VAI to its customers and potential customers
of Presentation Material created or modified using the
Technology may occur provided that no disclosure of
Confidential Information is thereby made and provided further
that the prior written consent of DDD USA is obtained.
15.10 VAI shall sign a DDD Confidentiality Agreement.
16. Upon termination of this agreement the obligations imposed upon VAI by
this Agreement to respect and protect the confidentiality of the
Confidential Information shall survive termination and remain in full
force and effect.
17. ACKNOWLEDGMENTS AND WARRANTIES
17.1 Except as set forth in this Clause 17, THERE ARE NO
WARRANTIES, EXPRESS OR IMPLIED BY OPERATION OF LAW OR
OTHERWISE, WITH RESPECT TO THE TECHNOLOGIES, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
17.1 The Prototype Components to be made available by DDD USA to
VAI pursuant to this Agreement are intended for prototype
engineering evaluation only and will not have been subjected
to production release processes. While DDD USA shall take
reasonable care in producing the Prototype Components no
warranty as to fitness for VAI's purposes is given by, or
imposed upon, DDD USA;
17.2 DDD USA is not liable for any damages in connection with the
provision to VAI of the Prototype Components including without
limitation any loss of profit, loss of use, loss of goodwill,
work stoppage, equipment failure or malfunction, interruption
of business, direct, indirect, special, exemplary, incidental
or consequential damages in connection therewith or
10.
<PAGE>
relating to or arising out of the Evaluation.
17.4 DDD USA warrants that each of the patents and patent
applications listed in the schedule is an asset of DDD in good
standing and, where appropriate, enforceable.
17.5 Except as otherwise disclosed in writing to VAI, DDD USA
warrants and represents that to the best of its knowledge:
17.5.1 the Technology is unique; and
17.5.2 no process or product currently exists or is in
development that has cost effective performance and
quality equivalent to or better than that of the
Technology.
18. MISCELLANEOUS
18.1 No right created by this agreement is waived unless the waiver
is in writing by the party granting the waiver.
18.2 This Agreement shall be construed in accordance with and
governed by the laws of the State of California, as if
entirely performed therein and without reference to its
conflict of law provisions.
18.3 Any amendments to this agreement must be made in writing and
signed by both parties.
18.4 The terms of this agreement, specify the entire understanding
between the parties.
18.5 The interests and rights of either party in and to this
agreement cannot be assigned without the prior written consent
of the other party.
11.
<PAGE>
SCHEDULE
PATENTS & PATENT APPLICATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
APPLICATION NUMBERS INVENTION NAME STATUS PRIORITY DATE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PCT WO 94/25899 3D Stereoscopic Display Unit Registered - USA 4 May 1993
Registered - Australia
-
Singapore
- ------------------------------------------------------------------------------------------------------------------
PCT/AU95/00843 Head Tracking Unit Pending PCT 13 Dec 1994
- ------------------------------------------------------------------------------------------------------------------
PCT/AU97/00353 Video Display System (Multiviewer) Pending PCT 4 June 1996
- ------------------------------------------------------------------------------------------------------------------
PCT/AU96/00820 Dynamic Depth Cueing (DDC) Pending PCT 22 Dec 1995
US 102,247 (2D to 3D Conversion - Offline - 3D
Camera - 2D Compatible 3D Transmission)
- ------------------------------------------------------------------------------------------------------------------
PCT/AU98/00716 Image Processing Method & Apparatus (2D Pending PCT 2 Sept 1997
to 3D Conversion Realtime) (DDC Layers)
- ------------------------------------------------------------------------------------------------------------------
PCT/AU98/01005 DDC / 2 Pending PCT 2 Dec 1997
Improvements to PCT/AU96/00820
Improvements to PCT/AU98/00716
- ------------------------------------------------------------------------------------------------------------------
PCT/AU98/00969 Eye Tracking Apparatus Pending PCT 21 Nov 1997
- ------------------------------------------------------------------------------------------------------------------
PO4567 Panorama Sidefield Dimensional Image Suspended
System (3D Camera Adaptor)
- ------------------------------------------------------------------------------------------------------------------
PCT/AU/00028 Method & Apparatus for Producing Pending PCT 22 Jan 1997
Stereoscopic Images (3D Glasses)
- ------------------------------------------------------------------------------------------------------------------
PO6373 Multiple Viewer Video Display System (2D Suspended
Multiviewer)
- ------------------------------------------------------------------------------------------------------------------
PP7275 Teleconferencing System Provisional Dec 1998
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
12.
<PAGE>
IN WITNESS HEREOF, THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT ON THE DAY
AND YEAR FIRST HEREINBEFORE MENTIONED.
SIGNED on behalf of
DYNAMIC DIGITAL DEPTH USA INC by
- -----------------------------------
being duly authorised by the
Company to do so
- -----------------------------------
SIGNED on behalf of
VIDEO APPLICATIONS INC by
- -----------------------------------
being duly authorised by the
Company to do so
- -----------------------------------
13.
<PAGE>
Exhibit 3(2)
[GRAPHIC]
GENERAL INSTRUMENT-Registered Trademark-
[GRAPHIC]
DYNAMIC DIGITAL DEPTH INC.
C 0 N F I D E N T I A L
DEVELOPMENT AGREEMENT
BY AND BETWEEN
DYNAMIC DIGITAL DEPTH RESEARCH PTY. LTD.
(ACN 060 154 912)
AND
GENERAL INSTRUMENT CORPORATION
DATED: JUNE __, 1999
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as XXXXX. A complete version of this
exhibit has been filed separately with the Securities and Exchange Commission.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS.................................................................................................1
1. Definitions..........................................................................................1
2. GI Services..........................................................................................2
3. GI's Obligations.....................................................................................2
4. NCI's Obligations....................................................................................3
5. Joint Obligations of the Parties.....................................................................3
6. Payment..............................................................................................4
7. Intellectual Property Rights.........................................................................4
8. Representations and Warranties.......................................................................5
9. Term and Termination.................................................................................6
10. Rights following Termination........................................................................6
11. Proprietary Information.............................................................................6
12. Indemnification.....................................................................................7
12.1 General Indemnification...................................................................8
12.2 GI Intellectual Property Infringement Indemnity...........................................8
12.3 NCI Intellectual Property Infringement Indemnity..........................................8
12.4 Rights of Indemnitor......................................................................9
12.5 Indemnification Procedures................................................................9
13. Insurance...........................................................................................9
13.1 Minimum Acceptable Levels of Insurance....................................................9
13.2 Waiver of Subrogation; Evidence of Insurance.............................................10
14. Limitation of Liability............................................................................10
15. Dispute Resolution.................................................................................11
15.1 Internal Review..........................................................................11
15.2 Continuation of Obligations..............................................................11
16. General............................................................................................11
16.1 Notices..................................................................................11
16.2 Relationship of the Parties..............................................................12
16.3 Assignment...............................................................................12
16.4 Counterparts.............................................................................13
16.5 Headings.................................................................................13
16.6 Compliance with Laws.....................................................................13
16.7 Governing Law............................................................................13
16.8 Waiver...................................................................................13
16.9 Construction.............................................................................13
16.10 Severability............................................................................13
16.11 Excused Performance.....................................................................13
16.12 Suspension of Performance...............................................................14
16.13 Force Majeure Notification..............................................................14
16.14 Non-Solicitation........................................................................14
16.15 Entire Agreement........................................................................14
</TABLE>
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DEVELOPMENT AGREEMENT
THIS Development Agreement ("Agreement") is made and entered into as of
the _____ day of June, 1999 ("Effective Date"), by and between General
Instrument Corporation, a Delaware corporation, with its principal place of
business at 101 Tournament Drive, Horsham, PA 19044 ("GI"), and Dynamic Digital
Depth Research Pty. Ltd. (ACN 060 154 912), a corporation organized under the
laws of the Australia with its principal place of business at 8 Brodie Hall
Drive, Bentley 6102, Western Australia ("DDD"). GI and DDD are hereinafter
sometimes referred to individually as a "Party" and collectively as the
"Parties."
RECITALS
WHEREAS, GI is a leading worldwide provider of integrated and
interactive broadband access solutions, teaming with its business partners to
lead the convergence of the Internet, telecommunications and video entertainment
industries; and
WHEREAS, DDD has developed patented technologies for the transmission
and display of 2-D compatible 3-D images over cable, satellite and terrestrial
broadcast and the Internet; and
WHEREAS, on the terms set forth below DDD desires to procure
professional services from GI to facilitate the inclusion of DDD's Products into
certain of GI's Platforms; and
WHEREAS, GI agrees to provide such professional services to DDD on the
terms set forth below;
NOW, THEREFORE, in consideration of the mutual provisions set forth in
this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties intending to be legally
bound, hereby agree as follows:
DEFINITIONS.
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
"DELIVERABLES" shall mean those items to be provided by GI to DDD as
identified in a SOW.
"FIRMWARE" shall mean, but shall not be limited to, all operating
systems and drivers needed or useful to operate and or develop applications for
use of or to deliver digital content on the Platforms as indicated in a SOW.
"HEAD-END" shall mean GI digital Head-end equipment associated with the
operation of GI's cable plant.
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"PLATFORMS" shall mean the end to end digital system including but not
limited to, both Terminals and Head-end and all documentation, enhancements,
modifications, and derivative works thereto, but excluding any part of the
Products and any proprietary rights relating to such part.
"PRODUCTS" shall mean DDD's Products as set forth in Exhibit A hereto
and all documentation, enhancements, modifications, and derivative works
thereto.
"SERVICES" shall mean any activities undertaken by GI and/or its
approved subcontractors in support of DDD software in accordance with terms and
conditions contained in the SOWs.
"STATEMENT OF WORK" or "SOW" shall mean a mutually-agreed written
statement of work (the first of which shall be attached hereto as an Exhibit)
specifying the support obligations to be undertaken by GI in conjunction with
the Services.
"TERMINALS" shall mean GI commercially available digital set-top
terminals.
2. GI SERVICES.
2.1 GI shall perform certain Services in accordance with a SOW. In the
event of a conflict between any term of this Agreement and any SOW, the terms of
the SOW shall control.
2.2 Changes within the scope of the Services, as identified in a SOW, shall
be made only in writing executed by both Parties. Notwithstanding the guaranteed
nature of the payments hereunder, GI shall have no obligation to commence work,
and DDD shall have no obligation to pay, for amended Services as set forth in
the SOW until the fee and/or schedule impact of such changes are agreed upon by
the Parties in writing.
2.3 Some of the Services performed by GI are intended to result in the
creation of Deliverables, which will include the interface layer between the
Products and the Platforms. The ownership of intellectual property rights in the
Deliverables shall be governed by Article 7 hereof.
2.4 The SOW shall identify the Parties' respective project manager. All
communications between the Parties concerning the day-to-day management of a
project shall be made through the respective project managers. Each Party shall
have a right to change its project manager upon a minimum of thirty (30) days'
prior written notice to the other Party and subject to the other Party's
approval, which approval shall not be unreasonably withheld or delayed.
2.5 DDD expressly consents to GI's use of subcontractors in connection with
the performance of the Services, PROVIDED; HOWEVER, that GI shall remain
responsible for the performance of all obligations performed by such
subcontractors to the same extent as if such obligations were performed by GI
employees. GI shall not disclose any Proprietary Information of DDD to said
subcontractors unless and until such subcontractor has agreed in writing to
protect the confidentiality of such Proprietary Information in accordance with
Article 11 hereof.
3. GI'S OBLIGATIONS. GI shall have the following responsibilities during
the Term:
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3.1 On the schedule to be established pursuant to the initial Statement of
Work, GI agrees to provide DDD with equipment specified therein for use by DDD
for development, testing and demonstration purposes. As set forth in the SOW, GI
shall provide DDD in a timely fashion with delivery of the Platforms and the
provision of Technical Services (as defined in a SOW) during the Term.
3.2 GI shall keep DDD informed as to any problems encountered with the
Products and/or under any SOW and as to any resolutions arrived at for those
problems, and shall communicate promptly to DDD any and all modifications,
design changes or improvements of the Products suggested by any entity or person
solicited by or making inquiries of GI (a "customer") or by any employee or
agent of GI. GI shall also keep DDD informed as to any problems encountered with
the Platform which shall interfere with the ability to deploy the Products on
the Platform. GI further agrees that DDD shall have and is hereby assigned
specific right, title and interest in and to any such suggested modifications,
design changes or improvements of the Products, consistent with the other
intellectual property rights granted hereunder.
4. DDD'S OBLIGATIONS. DDD shall have the following responsibilities during
the Term:
4.1 In connection with GI's performance of the Services, DDD shall have
certain additional responsibilities that will be identified in each applicable
SOW.
4.2 DDD acknowledges and agrees that GI's performance of the Services may
be dependent upon DDD's timely and effective satisfaction of certain obligations
and timely decisions and approvals by DDD. GI shall be entitled to rely upon all
such DDD decisions and approvals.
4.3 DDD shall keep GI informed as to any problems encountered with the
Platforms and as to any resolutions arrived at for those problems, and shall
communicate promptly to any and all modifications, design changes or
improvements of the Platforms that have been made generally available by DDD.
DDD shall also keep GI informed as to any problems encountered with the Products
which shall interfere with the ability to deploy the Products on the Platform.
DDD further agrees that GI shall have and is hereby assigned specific right,
title and interest in and to any such suggested modifications, design changes or
improvements of the Platforms, consistent with the other intellectual property
rights granted hereunder.
5. JOINT OBLIGATIONS OF THE PARTIES.
5.1 DDD and GI agree to meet on a quarterly basis at an executive and
working level to discuss the relationship and update each Party on Product and
Platform roadmaps.
5.2 Each Party acknowledges and agrees that the other Party is relying upon
the information that such Party provides and each Party represents that such
information is true, accurate and complete to the best of its knowledge.
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6. PAYMENT.
6.1 Upon execution of this Agreement, DDD shall provide to GI, $XXXXXX to
be contributed to a fund that will be drawn against by GI as follows:
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<CAPTION>
- -------------------------------------- ------------------
TECHNICAL
SERVICES
- -------------------------------------- ------------------
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TERM
- -------------------------------------- ------------------
- - Q1 $XXXXXXX
- -------------------------------------- ------------------
- - Q2 $XXXXXXX
- -------------------------------------- ------------------
- - Q3 $XXXXXXX
- -------------------------------------- ------------------
- - Q4 $XXXXXXX
- -------------------------------------- ------------------
TOTAL $XXXXXXX
- -------------------------------------- ------------------
</TABLE>
6.2 DDD's payments to GI shall include all applicable governmental taxes,
excises, duties and/or other charges (except taxes on or measured by the net
income of GI or any employment, withholding or similar taxes, excises and/or
other charges) that GI may be required to pay with respect to the production,
sale or transportation of any Deliverables provided or any Services performed
hereunder. If, during the term of a particular SOW, any such taxes, excises,
duties and/or charges are imposed upon and required to be paid by GI which were
not in effect as of the commencement of the Agreement, and if DDD reasonably
deems such new taxes, excises, duties and/or charges to be excessive, DDD
reserves the right to terminate the applicable SOW to which such taxes applied,
upon thirty (30) days' prior written notice.
7. INTELLECTUAL PROPERTY RIGHTS.
7.1 DDD and its licensors retain (i) all title and rights to the Products,
all copies and derivative works thereof (by whomever produced) and all related
documentation and materials including the Proprietary Information of DDD and all
enhancements, modifications or improvements thereto (by whomever produced), (ii)
all of their service marks, trademarks, trade names or any other designations
and (iii) all copyrights, patent rights, trade secret rights and other
proprietary rights in the Products.
7.2 GI and its licensors retain (i) all title and rights to the Platforms
and all related documentation and materials including the Proprietary
Information of GI and all enhancements, modifications or improvements thereto
(by whomever produced), (ii) all of their service marks, trademarks, trade names
or any other designations and (iii) all copyrights, patent rights, trade secret
rights and other proprietary rights in the Platforms.
7.3 GI agrees, except as otherwise expressly and unambiguously authorized
hereunder, (i) not to create or attempt to create, by reverse engineering or
otherwise, the source code or internal structure of the Products or any part
thereof from the object code or from the information made available to it, (ii)
not to remove any product identification or notices of any proprietary or
copyright restrictions from the Products or any support material, (iii) not to
list or
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otherwise display or copy the object code of any Product, and (iv) not to copy
the Products, develop any derivative works thereof or include any portion
thereof in any other software program, and (v) prior to disposing of any media
or apparatus, to destroy completely any Proprietary Information contained
therein.
7.4 DDD agrees, except as otherwise expressly and unambiguously authorized
hereunder, it will (i) not create or attempt to create, by reverse engineering
or otherwise, the source code or internal structure of the Platform or any part
thereof from the object code or from the information made available to it, (ii)
not remove any product identification or notices of any proprietary or copyright
restrictions from the Platform or any support material, (iii) not list or
otherwise display or copy the object code of the Platform, (iv) not copy such
Platform, develop any derivative works thereof or include any portion thereof in
any other software program, and (v) prior to disposing of any media or
apparatus, destroy completely any Proprietary Information contained therein.
8. REPRESENTATIONS AND WARRANTIES.
The Parties hereby represent and warrant to each other that:
8.1 all Services and their respective duties and obligations shall be
performed in accordance with the terms and conditions set forth in this
Agreement, including any exhibits and each SOW;
8.2 all Services and Products do not and shall not violate any applicable
law, rule or regulation; any contracts with third parties; or any third-party
rights in any patent, trademark, copyright, trade secret or similar right;
8.3 such Party is the lawful owner or licensee of any software programs or
other materials used by such Party in the performance of the duties called for
in this Agreement and has all rights necessary to convey to the other party the
unencumbered ownership of Deliverables to which they are entitled hereunder.;
8.4 all Services and their respective duties and obligations shall be
performed consistently with generally accepted industry standards. This warranty
shall be valid for thirty (30) days from performance of the applicable Services.
For any breach within this warranty period, GI shall, as its exclusive liability
and sole remedy, reperform the portion of the Services or demonstrate that
completion of such reperformed work shall occur as promptly as possible
thereafter or refund the fees paid to GI applicable to the affected portion of
such Services. Any such refunded amounts will be deducted from the amount of the
guaranteed payment specified pursuant to Section 6 and the allocation set forth
in the SOW.
8.5 all software, Firmware, hardware, products and/or other items provided
by either Party will, when used in accordance with their intended purpose,
accurately process correctly inputted date/time data (including, but not limited
to calculating, comparing and sequencing) from, into and between the twentieth
and twenty-first centuries and the years 1999 and 2000, including leap year
calculations provided that all hardware and software accurately process date
data information with such products and/or Deliverables. In the event of any
breach of this warranty, the defaulting Party shall, at its sole cost and
expense, repair or replace the item(s) to meet the warranted performance as
identified herein as its exclusive liability and sole
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remedy. THE PARTIES MAKE NO OTHER REPRESENTATIONS OR WARRANTIES REGARDING YEAR
2000 OPERABILITY.
8.6 EXCEPT AS EXPRESSLY SET FORTH ABOVE, NEITHER PARTY MAKES ANY WARRANTIES
TO THE OTHER PARTY WITH RESPECT TO THE PRODUCTS OR ANY SERVICES AND DISCLAIMS
ALL IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE.
9. TERM AND TERMINATION.
9.1 Unless terminated earlier as provided herein, this Agreement shall have
a term extending from the Effective Date and continuing for a period of one (1)
year thereafter (the "Term").
9.2 This Agreement may be terminated prior to the expiration of its Term by
either Party in the event of:
(i) a material breach of any provision of this Agreement where the
breaching Party fails to cure such breach within thirty (30)
days following receipt of notice of such breach from the
non-breaching Party (except with respect to the failure by
either Party to pay any undisputed amounts due to the other,
where the event of default must be remedied within ten (10)
days); or
(ii) either Party making an assignment for the benefit of
creditors, or if a receiver, trustee in bankruptcy or similar
officer shall be appointed to take charge of any and all of
the other parties property, or if the other Party files a
petition for reorganization of its indebtedness or other
similar activities.
9.3 Neither Party shall incur any liability by reason of the termination of
this Agreement in accordance with the foregoing provisions. Notwithstanding any
other provision of this Agreement, nothing, including but not limited to
termination, shall in any way affect DDD's obligation to make the guaranteed
payments to GI and, in the event of any dispute relating to the payment of money
for the Services, DDD shall deposit any amount then due into an interest bearing
account with a bank that is mutually satisfactory to the Parties, and such
amount (or portion thereof), together with interest accrued thereon, shall be
released to the Parties upon resolution of such disputes pursuant to Section 15.
10. RIGHTS FOLLOWING TERMINATION.
Upon termination of this Agreement for any reason, except (i) for the
obligations to pay any amounts due pursuant to the terms hereunder, and (ii) the
obligations and rights of the Parties set forth in Sections 9.3, and Articles 6,
7, 8, 11, 12, 13, 14, 15, and 16 shall survive any expiration or termination of
this Agreement.
11. PROPRIETARY INFORMATION.
11.1 Each Party acknowledges that, in the course of performing its duties
and exercising its rights under this Agreement, it may obtain information from
the other Party which is of a confidential and proprietary nature ("Proprietary
Information"). Such Proprietary Information may include, without limitation,
computer object or source codes, trade secrets, know-how,
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inventions, techniques, processes, programs, algorithms, schematics and related
or similar data (collectively "Technical Information") and customer lists,
financial information and sales and marketing plans (collectively, "Business
Information"). Each Party and its respective employees and permissible
contractors and agents who have been approved pursuant to Section 11.2 below
shall, at all times, both during the Term and after its termination for a period
thereafter not to exceed (A) three (3) years, with respect to Proprietary
Information comprised of Business Information, and (B) twenty (20) years, with
respect to Proprietary Information comprised of Technical Information, keep in
trust and confidence all such Proprietary Information of the other Party, and
shall not use such Proprietary Information other than in the course of
exercising its rights and performing its duties as expressly permitted or
provided in and for the term of this Agreement; nor shall either Party or its
respective employees or agents disclose any Proprietary Information of the other
Party to any person without the other Party's prior written consent. Proprietary
Information shall not include information that: (a) is or becomes part of the
public domain through no fault or breach on the part of the receiving Party or
any of its subsidiaries, affiliates or persons to whom Proprietary Information
is disclosed; (b) was known to the receiving Party or any of its subsidiaries,
affiliates or persons to whom Proprietary Information is disclosed free of any
obligation of confidentiality at the time of discloser's communication thereof
to recipient and such knowledge can be proven by appropriate evidence; (c) is
subsequently rightfully obtained by the receiving Party or any of its
subsidiaries or affiliates from a third party without an obligation to keep such
information confidential; (d) is independently developed by employees of the
receiving Party or any of its subsidiaries or affiliates without the use of or
access to any Proprietary Information or any breach of this Agreement; or (e) is
required to be disclosed by governmental or judicial action, provided that the
receiving Party has first given the disclosing Party reasonable notice of such
requirement and provides reasonable cooperation with the disclosing Party in
seeking confidential treatment for any such disclosure.
11.2 Each Party shall bind in writing its (i) employees, (ii) any
permissible contractors and/or agents, and (iii) any other permissible third
party, who have been approved in writing in advance by the other Party, who have
access to the other Party's Proprietary Information to hold such information in
confidence and not to disclose any thereof except as expressly allowed herein.
11.3 In the event that either Party becomes aware of any breach in the
confidentiality of the other Party's Proprietary Information, such Party shall
have the obligation to promptly inform the other Party of the actual or
suspected breach of confidentiality.
11.4 Except for a single archival copy of Proprietary Information to be
maintained by the legal department, upon termination of this Agreement for any
reason whatsoever, each Party will deliver to the other Party all materials
embodying the other Party's Proprietary Information, including but not limited
to any documentation, records, listings, notes, data, sketches, drawings,
memoranda, models, accounts, reference materials, sample and machine-readable
media that in any way relate to the Proprietary Information. Further, excet as
noted above, neither Party will retain any copies of any of the above materials.
If any Proprietary Information is stored on one or more computers, then each
Party shall make a copy of all of such Proprietary Information in either print
or electronic format, as determined by other Party in its sole discretion, and
deliver such copy to the other Party. Each Party shall delete all of the other
party's Proprietary Information stored on all computers.
12. INDEMNIFICATION.
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12.1 GENERAL INDEMNIFICATION. Except as provided below, each Party shall
defend, indemnify, and hold the other Party, its subsidiaries and affiliates,
and each of their respective employees, officers, directors, attorneys, agents,
and representatives, harmless from and against any and all claims, liabilities,
expenses, losses, demands, damages, fines, penalties, and causes of action of
every kind and character from any cause whatsoever, made, incurred, sustained,
or initiated by any third party (including any employee, contractor or
representative of a Party or any of their respective family members), arising
out of, incident to, or in connection with the negligence or willful misconduct
of such Party.
12.2 GI INTELLECTUAL PROPERTY INFRINGEMENT INDEMNITY. Subject to any
exceptions set forth in this Indemnification Section, GI shall defend,
indemnify, and hold DDD, its subsidiaries and affiliates, and each of their
respective employees, officers, directors, attorneys, agents, and
representatives, harmless from and against any damages, liabilities, costs and
expenses (including reasonable attorneys' fees) arising out of any claims by
third parties that: (1) the Platform or Services provided by GI to DDD, or (2)
any other software or hardware that DDD is required by GI to use under this
Agreement, (i) infringes a copyright or patent, or (ii) constitutes a
misappropriation of a third party's trade secret or proprietary information.
Notwithstanding anything to the contrary elsewhere in this Article 12, GI will
have no obligation under this Article 12 with respect to any damages,
liabilities, costs and expenses arising from or in connection with any such
claim to the extent caused by:
(a) modifications of the Deliverables by DDD or its agents;
(b) DDD's subsequent combination of any the Deliverables with, or
operation or use thereof in combination with, items not
furnished or specified by GI (other than the combination
thereof with other items required to enable such item to be
used by DDD for its intended purposes);
(c) GI's compliance with specifications of DDD; or
(d) a breach of the terms of this Agreement by DDD that is
material to the claims alleged or the damages, liabilities,
costs and expenses incurred by GI.
12.3 DDD INTELLECTUAL PROPERTY INFRINGEMENT INDEMNITY. Subject to any
exceptions set forth in this Indemnification Section, DDD shall defend,
indemnify, and hold harmless GI, its subsidiaries and affiliates, and each of
their respective employees, officers, directors, attorneys, agents, and
representatives, from and against any damages, liabilities, costs and expenses
(including reasonable attorney's fees) arising out of any claims by third
parties that: (1) Products provided by DDD to GI, where DDD is acting as a
software developer who develops on the Terminal and is offering application or
application language software either on a standalone basis or as integrated or
bundled into an operating system, (2) any other software or hardware (excluding
the Platform and other GI products) that GI is required by DDD to use under this
Agreement, or (3) the specifications and requirements of DDD, (a) infringes a
copyright or patent or (b) constitutes a misappropriation of a third party's
trade secret or proprietary information. Notwithstanding anything to the
contrary elsewhere in this Article 12, DDD will have no obligation under this
Section with respect to any damages, liabilities, costs and expenses arising
from or in connection with any such claim to the extent caused by:
(a) modifications made by GI or its agents to an item provided by
or for DDD;
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(b) the combination thereof by GI or its agents with, or the
operation or use thereof in combination with, items not
furnished or specified by DDD (other than the combination
thereof with other items required to enable such item to be
used by GI for its intended purposes); or
(c) a breach of the terms of this Agreement by GI material to the
claims or the damages, liabilities, costs and expenses
incurred by DDD.
12.4 RIGHTS OF INDEMNITOR. If the Deliverable(s) or any software, hardware
or other materials becomes the subject of a claim under this Section, or in the
indemnitor's reasonable opinion is likely to become the subject of such a claim,
then the indemnitor may, at its option: (i) replace or modify the
Deliverable(s), software, hardware or other materials to make it non-infringing
or may cure any claims of misuse of another's trade secret; or (ii) procure for
the indemnitee the right to continue using the Deliverable(s), software or
hardware or other materials pursuant to this Agreement.
12.5 INDEMNIFICATION PROCEDURES. The indemnification obligations set forth
in this Article 12 will not apply unless the Party claiming indemnification:
(a) Notifies the indemnitor in writing within thirty (30) days of
the claim of any matters in respect of which the indemnity may
apply and of which the notifying Party has actual knowledge,
in order to allow the indemnitor the opportunity to
investigate and defend the matter; provided, that the failure
to so notify will only relieve the indemnitor of its
obligations under this Section if and to the extent that the
indemnitor is prejudiced thereby; and
(b) Gives the indemnitor reasonable opportunity to control the
response thereto and the defense thereof, including any
agreement relating to the settlement thereof; PROVIDED that,
the indemnitee will have the right to participate in any legal
proceeding to contest and defend a claim for indemnification
involving a third party and to be represented by legal counsel
of its choosing, all at the indemnitee's cost and expense.
12.6 The indemnitor shall have sole control of the defense and all related
settlement negotiations and the indemnitee agrees to provide all reasonable
assistance, information and authority necessary for the indemnitor to perform
its obligations under this Article. Reasonable out-of-pocket expenses incurred
by the indemnitee in providing such assistance will be reimbursed by the
indemnitor. The indemnitor will not be responsible for any settlement or
compromise made without its consent.
12.7 This Article 12 sets forth each Party's sole and exclusive remedy with
respect to third party infringement claims relating to the subject matter
hereof.
13. INSURANCE.
13.1 MINIMUM ACCEPTABLE LEVELS OF INSURANCE. Each Party shall, at all times
during the Term, at its sole cost and expense, and thereafter for so long as is
reasonable and customary in the industry, or for such shorter period as the
other Party consents, in consideration of the
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particular circumstances, carry and maintain the insurance coverage listed below
with insurers having a "Best's" rating of A+X or better or of comparable rating
in Australia:
(a) Workers' Compensation insurance as required under applicable
state law including Employer's Liability $100,000 (per
accident) $500,000 (disease - policy limit) $100,000 (disease
- per employee);
(b) Commercial General Liability insurance covering claims for
bodily injury, death, personal injury or property damage
occurring or arising out of the performance of this Agreement,
including coverage for independent contractor's protection
(required if any work will be subcontracted),
premises-operations, products/completed operations and
contractual liability with respect to the liability assumed by
each Party hereunder. The limits of insurance shall not be
less than:
<TABLE>
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Each Occurrence $ 2,000,000
General Aggregate Limit $ 5,000,000
Products- Completed Broad
Form Property Damage $ 2,000,000
</TABLE>
(c) Should performance of this Agreement involve any use of
automobiles, comprehensive automobile liability insurance
covering the ownership, operation and maintenance of all
owned, non-owned and hired motor vehicles with limits of not
less than $1,000,000 Combined Single Limit (Bodily
Injury/Property Damage) for bodily injury and property damage.
13.2 WAIVER OF SUBROGATION; EVIDENCE OF INSURANCE. Each Party agrees that
it, its insurer(s) and anyone claiming by, through, under or on such Party's
behalf shall have no right of action or subrogation against the other Party and
the other Party's affiliates, directors, officers employees and customers based
on any loss or liability insured against under the insurance required by this
Agreement. The insurance limits required in this Section may be obtained through
any combination of primary and excess or umbrella liability insurance. The
insured Party shall forward to the other Party, at such Party's request,
certificates of such insurance. The certificates shall provide that: (a) the
other Party be named as an additional insured as its interests may appear with
respect to this Agreement; (b) thirty (30) days' prior written notice of
cancellation of, material change or exclusions in the policy to which
certificates relate shall be given to the other Party; and (c) coverage is
primary and not excess of, or contributory with, any other valid and collectible
insurance purchased or maintained by the other Party. The fulfillment of such
obligations, however, shall not otherwise relieve the insured Party of any
liability assumed hereunder or in any way modify the insured Party's obligations
to indemnify the other Party under this Agreement.
14. LIMITATION OF LIABILITY.
EXCEPT FOR BODILY INJURY OF A PERSON, IN NO EVENT SHALL EITHER PARTY BE LIABLE
FOR ANY AMOUNT IN EXCESS OF THE AGGREGATE AMOUNT PAID HEREUNDER OR FOR ANY LOSS
OF DATA, PROFITS, LOSS OF USE, OR FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR
OTHER INDIRECT DAMAGES ARISING
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OUT OF OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY SHALL HAVE A DUTY TO
MITIGATE DAMAGES FOR WHICH THE OTHER PARTY IS RESPONSIBLE.
15. DISPUTE RESOLUTION.
15.1 INTERNAL REVIEW. Any disputes, controversies or claims that arise
between the Parties shall be resolved using the following procedures:
(a) If the Parties are unable to resolve a dispute, controversy or
claim, upon the provision of notice by either Party to the
other Party, the matter will immediately be referred to a
senior management representative of each Party.
(b) Such senior management representatives will meet within ten
(10) business days of their receipt of the notice for the
purpose of resolving the dispute, controversy or claim and
will discuss the relevant issues and will attempt to negotiate
a mutually satisfactory resolution in good faith, without
using formal proceedings.
(c) During the course of negotiations, all reasonable requests
made by one Party to another for non-privileged information,
reasonably related to this Agreement, will be honored to
advise a Party of the other's position.
(d) No formal proceedings for the resolution of a dispute,
controversy or claim may be commenced until either or both of
the appointed senior management representatives conclude in
good faith that amicable resolution through continued
negotiation of the matter is not likely; PROVIDED, HOWEVER,
that notwithstanding anything to the contrary, either Party
may at any time seek injunction or other equitable relief from
any court of competent jurisdiction.
(e) In the event that the Parties cannot resolve a dispute
pursuant to this Section 15.1, either Party shall be free to
pursue all available remedies.
15.2 CONTINUATION OF OBLIGATIONS. Except where clearly prevented by the
nature of the dispute, both Parties agree to continue performing their
respective obligations under this Agreement while the dispute is being actively
discussed unless and until such obligations are terminated or expire in
accordance with the provisions of this Agreement.
16. GENERAL.
16.1 NOTICES. Wherever one Party is required or permitted to give written notice
to the other under this Agreement, such notice will be given by hand, by
certified U.S. mail, return receipt requested, by overnight courier, or by fax
and addressed as follows:
<TABLE>
<S> <C>
If to GI: WITH A COPY TO:
General Instrument Corporation General Instrument Corporation
101 Tournament Drive 101 Tournament Drive
Horsham, PA 19044 Horsham, PA 19044
Attn: EXECUTIVE VP, BUSINESS DEVELOPMENT Attn: SENIOR VP AND GENERAL COUNSEL
Phone: (215) 323-1112 Phone: (215) 323-1203
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Fax: (215) 323-1111 Fax: (215) 323-1293
If to DDD: WITH A COPY TO:
Dynamic Digital Depth Research Pty. Ltd. Dynamic Digital Depth Inc.
8 Brodie Hall Drive MGM Plaza
Bentley 6102 2450 Broadway, Suite 550
Western Australia Santa Monica, CA 90404
Attn: Managing Director Attn: Managing Director
Phone: (011) 618-9355-6888 Phone: (310) 829-5211
Fax: (011) 618-9355-6988 Fax: (310) 829-5141
</TABLE>
All such notices shall be effective upon receipt. Either Party may designate a
different notice address from time to time upon giving ten (10) days' prior
written notice thereof to the other Party.
16.2 RELATIONSHIP OF THE PARTIES.
(a) GI is and shall at all times during the Term remain, an
independent contractor. This Agreement will not be construed
as creating any partnership, agency relationship or other form
of legal association that would impose liability upon one
Party for the other Party's actions or failure to act. Neither
Party has any authority, express or implied, to assume or
create any obligations, responsibility, or liability on behalf
of, or to bind the other Party in any manner whatsoever.
(b) Each Party shall be responsible for the management, direction
and control of its employees and other agents and such
employees and other agents will not be employees of the other
Party.
(c) Except where and to the extent this Agreement expressly
provides that GI will perform certain identified services as
agent for DDD, the Services shall be performed under the
control, management and supervision of GI.
16.3 ASSIGNMENT. Neither Party may, or will have the power to, assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other Party. Notwithstanding any provision to the
contrary, either Party will be permitted to assign all (and only all) of its
rights and obligations under this Agreement to any of the following entities:
(a) another entity that acquires all or substantially all of its
assets;
(b) an affiliate; which for purposes of this reference shall mean
any entity that controls, is controlled by or is under common
control with a Party, with control being defined as more than
fifty percent (50%) equity ownership of the controlled Party;
or
(c) a successor in a merger, acquisition or divestiture of all or
a portion of such Party.
Such assignment shall not relieve the assigning Party of its obligations under
this Agreement. This Agreement will be binding on the Parties and their
respective successors and permitted
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<PAGE>
assigns. Except as expressly permitted in this Agreement any other purported
assignment of the rights or obligations of a Party hereunder shall be null, void
and of no force or effect.
16.4 COUNTERPARTS. This Agreement may be executed in one or more parts, all
of which when taken together will constitute one single agreement between the
Parties.
16.5 HEADINGS. The Section headings used in this Agreement are included for
ease of reference and convenience and shall not be considered in interpreting or
construing this Agreement.
16.6 COMPLIANCE WITH LAWS. Both Parties' performance under this Agreement,
as well as all Services and Deliverable(s) provided hereunder by GI, shall
comply with all applicable U.S. federal, state and local laws and ordinances,
and all orders, rules, regulations and requirements thereunder. Each Party
agrees that it will not export or re-export, directly or indirectly, any of the
other Party's Proprietary Information or any products or materials of the other
Party's to any country for which the United States of America, at the time of
export or re-export, requires an export license or other governmental approval,
without first obtaining such license or approval.
16.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO ITS
CHOICE OF LAW PROVISIONS. FOR THE AVOIDANCE OF DOUBT, THE UNITED NATIONS
CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALES OF GOODS SHALL NOT APPLY TO
THE SUPPLY OF PRODUCTS OR OTHER TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT.
16.8 WAIVER. The waiver by either Party of a breach or a default of any
provision of this Agreement by the other Party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either Party to exercise or avail itself of
any right, power or privilege that it has, or may have hereunder, operate as a
waiver of any right, power or privilege by such Party.
16.9 CONSTRUCTION. The negotiating and drafting of this Agreement has been
participated in by each Party and not by either Party to the exclusion of the
other and, for all purposes, this Agreement shall be deemed to have been drafted
jointly by the Parties. The language used in this Agreement shall be deemed to
be the language chosen by the Parties to express their mutual intent, and no
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement.
16.10 SEVERABILITY. Any provisions hereof which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdictions, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
16.11 EXCUSED PERFORMANCE. A Party shall be excused from performing an
obligation under this Agreement and shall not be considered in default to the
extent such Party's performance has been prevented, in whole or in part, by (i)
an act of Force Majeure (defined, below), or (ii) the non-performance of any
other Party to this Agreement; PROVIDED, HOWEVER, that a Party shall not be so
excused from the performance of its obligations under this Agreement to the
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<PAGE>
extent that the other Party's non-performance is attributable to the Party
seeking to be excused from the performance of its obligations under this
Agreement failing to perform its obligations under this Agreement. "Force
Majeure" shall mean, without limitation, (a) any act of God, war, riot, fire,
rupture, explosion, flood, strike, injunction, governmental action, inaction, or
order, transportation failures, unavailability of materials, supplies or energy,
or unscheduled outage or shut-down, (b) any lockout or other labor disturbance,
even if such lockout or disturbance is within the power of a Party to settle, or
(c) any other cause, whether similar or dissimilar to the foregoing, which is
beyond the reasonable control of a Party (or any affiliate of such Party)
claiming Force Majeure interference with the performance of such Party under
this Agreement.
16.12 SUSPENSION OF PERFORMANCE. If either Party is prevented by Force
Majeure from performing any of its obligations under this Agreement, other than
making payments due and payable hereunder, it is agreed that upon such Party's
providing written notice and full particulars of such Force Majeure to the other
Party as soon as practicable after commencement of the occurrence of the cause
relied on, the obligations of the Party giving such notice, so far as they are
affected by such Force Majeure, shall be suspended but only during the
continuation of such inability, and the affected Party shall undertake to remedy
such cause or inability as soon as practicable.
16.13 FORCE MAJEURE NOTIFICATION. The notice referred to in the preceding
Section shall be given by the Party claiming Force Majeure hereunder and shall
describe the nature of the Force Majeure event, the extent of the impact on the
ability of such Party to perform its obligations hereunder and the expected
timetable for remedying the Force Majeure. If it appears that the Force Majeure
cannot be remedied, the notice shall so state. Should any Force Majeure event
occur, the Parties agree to cooperate to determine how such event can best be
remedied to avoid, or minimize the duration of, any suspension hereof including,
but not limited to, good faith negotiations to modify this Agreement to allow
for the continuation of the affected performance. When the event of Force
Majeure has ceased or been remedied, the Party whose performance has been
affected shall provide written notice to the other Party stating that the Force
Majeure event has ceased or been remedied.
16.14 NON-SOLICITATION. During the Term and for a period of one (1) year
following termination of this Agreement, neither Party shall solicit for
employment, or advise any other person to solicit for employment, any employee
of the other Party; for the avoidance of doubt "solicit" shall not include
non-specific solicitations (e.g. advertisements in trade journals, or
independent and non-directed solicitations by third party employment recruiters,
etc.).
16.15 ENTIRE AGREEMENT. This Agreement and all Exhibits and attachments
hereto constitute the final written expression of all terms of the Agreement
relating to the transactions described herein. This Agreement supersedes all
previous communications, representations, agreements, promises or statements,
either oral or written, with respect to such transactions. No addition to or
modification of any provision of this Agreement will be binding unless made in
writing and signed by both Parties.
14
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their duly authorized representatives.
GENERAL INSTRUMENT CORPORATION DYNAMIC DIGITAL DEPTH
RESEARCH PTY. LTD.
By: By:
----------------------------- ------------------------------
Name: Name:
--------------------------- ----------------------------
Title: Title:
-------------------------- ---------------------------
Date: Date:
--------------------------- ---------------------------
SIGNATURE PAGE TO DEVELOPMENT AGREEMENT
<PAGE>
Exhibit 3(3)
EXHIBIT A-1
STATEMENT OF WORK
TO THE DEVELOPMENT AGREEMENT BETWEEN
DYNAMIC DIGITAL DEPTH RESEARCH PTY. LTD. AND GENERAL INSTRUMENT CORPORATION
PROJECT: ALPHA PHASE
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as XXXXX. A complete version of this
exhibit has been filed separately with the Securities and Exchange Commission.
This Statement of Work ("SOW") dated the day of June, 1999 (the
"Effective Date") is hereby incorporated in its entirety into that certain
Development Agreement between Dynamic Digital Depth Research Pty. Ltd. ("DDD")
and General Instrument Corporation ("GI") (the "Agreement"). GI and DDD are
hereinafter sometimes referred to individually as a "Party" and collectively as
the "Parties."
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein, and intending to be legally bound, DDD and GI hereby agree as follows:
1.0 CONFLICTS/TERMS The terms and conditions of this SOW are subject to and
governed by the terms and conditions of the Agreement. In the event of a
conflict between any term of this Statement of Work and the Agreement, the terms
of this Statement of Work shall control. Capitalized terms shall have the
meanings identified in the Agreement unless otherwise defined in this SOW.
1.a: PROJECT ALPHA PHASE: SOW covers the initial prototype phase of
this project which includes the initial port of DDD product ("Product")
xxxxx version of GI's advanced digital platform. This SOW does not
xxxxxx on the Platform. 1b: PLATFORM: Platform refers to the prototype
of GI's advanced digital platform code named xxxx consisting of an
xxxxx board with xxxxxx graphics xxxx card xxxxx or a substitute
equivalent platform which, in combination, emulates the computing
capability of GI's advanced digital platform. xxx is an xxx platform
not currently supporting xxxx. As used in this SOW, Platform refers
only to the xxxx device and does not include any other components of
the GI digital system.
2.0 TECHNICAL SERVICES
GI will provide to DDD the following Technical Services in furtherance of the
Parties' mutual objectives for integrating the Products with the Platform,
subject to GI's engineering schedules, documentation release schedules, and
Firmware release dates in connection with the Alpha Phase prototype on the
Platform.
2.1 DOCUMENTATION. All documentation in the possession of GI relevant,
necessary or useful to the development of Products on the Platform specified
above, including digital terminal API documentation, interface documents,
release notes on terminal and Head-end equipment, operations manuals, and any
other documented information in support of third party development. If published
documentation does not exist, GI will provide, as and when available,
support/information regarding such requirements whether in published
documentation, non-published format or verbal.
<PAGE>
2.2 TRAINING. In the event that this SOW continues beyond the Alpha phase
pre-scheduled training at GI's facilities will be offered on an annual basis on
commercially available GI digital terminals and Head-end equipment. GI will
provide training updates as new Head-ends and Digital Set-top terminals are
released to market. The number of DDD employees scheduled for specific GI
training will be limited by class sizes and availability.
2.3 TECHNICAL SUPPORT. Priority technical support to DDD which includes
unlimited access to GI's developer support center during normal business hours
M-F 9 a.m. - 5 p.m. EST, that will provide all technical support to phone and/or
email requests for functional and technical, including access to FAQ web site
for support issues when available, access to test scripts, application scripts
and debuggers necessary for development process and support/guidance in their
use, support and information related to developer Firmware releases and their
use, priority response to logged problems, bug reports, and other issues
reported by DDD to support center. GI will provide unlimited access on a
pre-scheduled basis to GI's development lab for training DDD personnel during
Alpha Phase development efforts.
2.4 FIRMWARE RELEASES. Access to all commercially deployed GI Firmware
releases and Firmware upgrades on all Platforms necessary/applicable to the
integration of DDD's Products in Alpha phase, to be used solely for the purpose
of integration. Priority support will also include early release GI Firmware and
Firmware upgrades scheduled in support of DDD's development support for
development purposes. Firmware releases and information on scheduled release
dates provided to DDD hereunder are based on GI schedules and subject to change
based on GI engineering schedules. GI will keep DDD informed as to the latest
scheduled releases of Firmware and Firmware upgrades. GI shall use reasonable
commercial efforts to provide DDD with the earliest possible releases of
Firmware relevant to DDD software development efforts.
2.5 DESIGN SUPPORT. (Not applicable in Alpha Phase) Application and system
design assistance for Products on the Platforms. DDD will receive priority
access to GI System Engineering personnel for pre-scheduled engineering
consultations by senior GI engineering personnel as reasonably requested by DDD
on a quarterly basis. DDD may submit consultation agenda topics to facilitate
said consultations. Consultation information exchange will include all relevant
digital terminal, digital equipment and digital system information appropriate
for the successful implementation of DDD software on Platforms, currently
available development firmware, and production schedule information and
currently scheduled design features, limitations, planned modifications,
upgrades, and future design plans for Platforms. DDD also agrees to provide full
disclosure of its Product development plans applicable to the GI Platforms in
order for mutual exchange of relevant developmental information.
2.6 APPLICATION TESTING AND INTEGRATION. (not applicable in Alpha Phase)
Testing and integration support for Products based on test plans mutually
developed by GI and DDD to validate Product interoperability on Platforms. Full
lab facilities will be made available to DDD on a pre-scheduled basis throughout
scheduled testing projects, including support of DDD's testing and integration
of Products and Product features and providing resources, for the first Platform
launch as necessary and identified in test plans. When included in test plans,
Product testing may also include testing of third
2
<PAGE>
party equipment, third party applications. Support for any official testing
program developed by GI during the Term, will be included in the Services. This
Agreement specifically excludes the testing by GI personnel of DDD application
services against specific cable operator system configurations, testing of
applications at cable customer sites or Y2K testing
2.7 LAUNCH SUPPORT. (Not applicable in Alpha Phase) Launch support for
Products at customer site trials of Products. Customer site and scope of work
must be mutually agreed upon by both Parties. Support for Product launch at
customers' sites will include technical support, integration support, field
support, joint site survey, site management, field engineering support, priority
equipment support, and trouble shooting of GI's digital system. Proposed launch
support services must be deemed by GI to be reasonable and achievable based on
GI current and projected development, engineering, and production schedules. DDD
can request additional services for which GI will prepare a proposal for
additional services on a time and material basis, which if accepted by DDD, will
form the basis of an additional SOW.
3.0 EQUIPMENT
3.1 EQUIPMENT DESCRIPTION.
GI will provide DDD with the following GI equipment as required during the Term:
Maximum of xxx standard configured Platforms for development purposes.
DDD can request additional quantities and types of equipment that, if agreed
upon by GI, will be provided at xxxx based on GI's then current rates for
developers. Delivery of all equipment will be based on commercial and in-stock
availability with developer units being provided as needed
IN WITNESS WHEREOF, the Parties have caused this Statement of Work to be
executed by their duly authorized representatives.
DYNAMIC DIGITAL DEPTH GENERAL INSTRUMENT CORPORATION
RESEARCH PTY. LTD.
By: By:
--------------------------------- -----------------------------
Name: Name:
------------------------------- ---------------------------
Title: Title:
------------------------------ --------------------------
3
<PAGE>
Exhibit 3(4)
XENOTECH RESEARCH PTY LTD
ACN 060 154 912
- and -
XENOTECH INC
and
XENOTECH AUSTRALIA PTY LTD
ACN 060 154 949
- and -
ANGUS DUNCAN RICHARDS
---------------------------------------
CONSULTANCY AGREEMENT
---------------------------------------
Solomon Brothers
Solicitors
Level 40
Exchange Plaza
2 The Esplanade
PERTH WA 6000
Tel: 221 5888
Fax: 221 5955
Ref: PFF
<PAGE>
CONSULTANCY AGREEMENT
THIS AGREEMENT is made the day of 1995
BETWEEN
XENOTECH RESEARCH PTY LTD ACN 060 154 912 of Suite 1, 41 Walters Drive, Osborne
Park in the State of Western Australia ("the Company") of the first part;
- - and -
XENOTECH INC of c/- Ogilvie & Co, 1600, 407 - Second Street, S.W., Calgary,
Alberta and XENOTECH AUSTRALIA PTY LTD ACN 060 154 949 of Suite 2, 41 Walters
Drive, Osborne Park, Western Australia (together "the Guarantors") of the second
part;
- - and -
ANGUS DUNCAN RICHARDS of Unit 2, 5 Richardson Street, South Perth in the State
of Western Australia, ("the Consultant") of the third part;
RECITALS
A. The Company carries on the business of invention, research,
development, and licensing of a wide range of three dimensional
television products and processes and related technologies ("the
Business").
B. The Company is desirous of being assisted in invention, research,
development, manufacture and marketing tasks with respect to the
Business.
C. The Consultant carries on business, inter alia, as inventor, researcher
and developer in the fields comprised in the Business.
D. The Company wishes to make use of the particular skills and abilities
of the Consultant and wishes to appoint the Consultant to provide his
services with respect to the Business.
1
<PAGE>
NOW THIS DEED WITNESSETH AS FOLLOWS:
1. INTERPRETATION
1.1 In this Agreement the following expressions have the following
meanings:-
1.1.1 "Business Plan" means the Barrington Enterprises
business plan produced by Xenotech Australia Pty Ltd
("XA");
1.1.2 "Commencement Date" means the date this Agreement is
signed;
1.1.3 "the Company" means Xenotech Research Pty Ltd;
1.1.4 "the Consultant" means Angus Duncan Richards;
1.1.5 "Consulting Fee" means the fee specified in clause
8.1;
1.1.6 "Deed of Compromise and Release" means the deed so
named and executed contemporaneously with this
Agreement by the Consultant and Xenotech;
1.1.7 "2D to 3D/DDC Deed of Assignment" means the deed so
named and executed contemporaneously with this
Agreement by the Consultant and the Company;
1.1.8 "2D to 3D/DDC Licence Agreement" means the deed so
named and executed contemporaneously with this
Agreement by the Consultant and the Company;
1.1.9 "Feasibility Report" means the Feasibility Study
Report for XA by Systems Intellect in July 1994;
1.1.10 "Fully Documented" means disclosed in detail by
writing, video tape or computer disc as appropriate
all information held or available.
1.1.11 "Intellectual Property" means copyright, know-how,
confidential information, concepts, expertise,
proposals for commercialisation, patents, patent
2
<PAGE>
applications, patentable concepts, designs and
trademarks;
1.1.12 "Related Corporation" means a corporation which is
deemed to be related to the Company by virtue of
Section 50 of the Corporations Law;
1.1.13 "Samsung Prototype" means the prototype referred to
in clause 2.1 of the Samsung Licence Agreement;
1.1.14 "Specified Services" means the services to be
provided by the Consultant pursuant to this Agreement
as provided in Clause 3;
1.1.15 "Task Completion" means the date upon which both the
Consultant and the Company declare in writing that
they are satisfied that the Samsung Prototype,
development of the Processes to a patentable stage
and the matters listed in paragraphs 3, 4 and 5 of
the Schedule have all been satisfactorily completed.
1.1.16 "the Technologies" means the autostereoscopic three
dimensional television display system under
development by the Company and any improvements or
alterations of any kind to that system together with
all parts, attachments, accessories and any patent
relating thereto and all other inventions,
developments, products, processes, systems, methods,
techniques and concepts referred to in the Listing
Application, the Feasibility Report, the Business
Plan and the Report by the Company to XA headed
"Project Options and Strategies", and all
developments, advances, improvements and alterations
of any kind thereto together with all parts,
attachments and accessories and any patent relating
thereto;
1.1.17 "Term" shall mean the period described in Clause 4.;
1.1.18 "2D to 3D/DDC Upgrades" means fully documented
upgrades to the technology of each of the Processes
so as to keep Xenotech as far as possible at the
technological forefront within the industry with
respect to those technologies;
1.1.19 "writing" includes typewriting, printing,
lithography, photography and other
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<PAGE>
modes of representing or reproducing words in a
visible form and "written" has a corresponding
meaning;
1.1.20 "Xenotech" means the Company, Xenotech Australia Pty
Ltd and Xenotech Inc ("XI") together;
1.1.21 "2D to 3D Process and DDC Process" have the meanings
given in the Deed of Compromise & Release;
1.1.22 "the Processes" means the 2D to 3D Process and the
DDC Process together
1.1.23 "gross annual income receipts" in clauses 8.5 and 8.6
means, subject to clause 8.14, all receipts by
Xenotech in any twelve month period from the date of
this deed which comprise assessable income of
Xenotech for the purposes of the Income Tax
Assessment Act 1936 as amended without deduction for
any costs or expenses incurred by Xenotech in
generating the said receipts.
1.2 A reference in this Agreement to a party includes a reference
to a party's successors and permitted assigns.
1.3 Words and expressions denoting the singular number shall mean
and include the plural and vice-versa. Any gender shall mean
and include all genders.
1.4 Words and expressions denoting individual persons shall mean
and include companies and associations of persons whether or
not incorporated.
1.5 References to any statutory enactment or law shall mean and
shall be construed as reference to that enactment or law as
amended or modified or re-enacted from time to time and to all
regulations thereunder and to the corresponding provisions of
any similar enactment or law of any other relevant
jurisdiction.
1.6 References to recitals, clauses, sub-clauses, paragraphs or
schedules, whether by letter or number, are references to
recitals, clauses, sub-clauses, paragraphs or Schedules of
this Agreement. Schedules of this Agreement are incorporated
in the Agreement.
4
<PAGE>
1.7 Headings shall not affect the construction or interpretation
of this Agreement.
1.8 References in this Agreement to money are references to the
currency of Australia.
1.9 Where a day appointed or specified by this Agreement for the
payment of any money falls on a Saturday, Sunday or a day
appointed as a bank holiday for the whole day the day so
appointed or specified shall be deemed to be the day preceding
the day so appointed or specified which is not in turn a
Saturday, Sunday or day so appointed as a holiday for the
whole day.
1.10 If for any reason any provision or part of any provision of
this Agreement is unenforceable and cannot be construed so as
to be enforceable the remaining provisions hereof or part of
any provision shall nevertheless be carried into effect.
2. APPOINTMENT OF CONSULTANT
2.1 The Company hereby appoints the Consultant to provide the
Specified Services during the Term.
2.2 The Consultant hereby accepts such appointment.
2.3 The Consultant shall carry out the Specified Services during
the Term.
3. SPECIFIED SERVICES
The Consultant shall provide such services to the Company, and any
Related Corporation, as the Company may from time to time direct in
relation to development of the Technologies ("the Specified Services")
which services shall until otherwise agreed between the parties be
those services stated in the Schedule hereto under the heading "Job
Description". The Company may from time to time by a director
authorised by the Board give directions in writing to the Consultant in
respect of the manner of provision of the Specified Services but no
such direction shall invalidate or affect anything done by the
Consultant prior to such a direction being given.
4. TERM OF APPOINTMENT
5
<PAGE>
The Consultant's appointment under this Agreement shall be:
4.1 with respect to the 2D to 3D/DDC Upgrades, for a period of 5
years commencing on the date of this Agreement;
4.2 with respect to the Specified Services, other than 2D to
3D/DDC Upgrades, for a period commencing on the date of this
agreement and ending on 18 April 1996 provided however that
the period shall automatically be extended for a further 12
months from 18 April 1996 and from each succeeding anniversary
of that date unless either the Company or the Consultant give
to the other written notice of termination not less than sixty
(60) days prior to 18 April and provided further that both the
Consultant and the Company shall be at liberty at the election
of either of them to terminate this agreement with respect to
provision of the Specified Services other than the 2D to
3D/DDC Upgrades at any time, by one months prior written
notice after Task Completion.
5. CONSULTANT RESPONSIBLE TO BOARD OF COMPANY
The Consultant shall in all respects comply with the reasonable written
directions given to him by the Company in relation to development of
the Technologies.
6. CONSULTANT TO BEHAVE DILIGENTLY
6.1 The Consultant shall perform all of his obligations hereunder
and conduct all operations in a good, professional,
workmanlike and commercially reasonable manner with a standard
of diligence, competence and care appropriate in the
circumstances and in accordance with generally accepted
practices appropriate to the activities undertaken.
6.2 In the discharge of his duties the Consultant will:
6.2.1 observe and comply with all reasonable written
resolutions, regulations and directions from time to
time made or given by the Board of Directors of the
Company or its authorised nominee director in
relation to development of the Technologies;
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<PAGE>
6.2.2 use his best endeavours at all time to promote and
develop the Business;
6.2.3 subject to clause 8.1 below, be free to devote his
time, energy and expertise, in such manner as he sees
fit provided however that any matter requiring urgent
attention in order to protect the interests of the
Company in relation to development of the
Technologies shall be given priority over the
Consultant's other interests so long as this does not
cause undue hardship to the Consultant.
7. EXCLUSIVE SERVICE
7.1 The Consultant shall not without the written consent of the
Company during the Term (including without limiting the
generality of the foregoing via corporate body, trust or other
entity) in any capacity engage in, or provide services to any
third party engaged in, any trade, business or occupation
which competes with the Business insofar as it relates to the
development of the Technologies.
7.2 Subject to clause 7.1 nothing herein contained shall prevent
or be deemed to prevent the Consultant providing or agreeing
to provide consulting services to any other person or entity
as he herein agrees to provide to the Company or prevent the
carrying on of business.
8. REMUNERATION OF CONSULTANT
8.1 In consideration for carrying out the Specified Services,
other than the regular 2D to 3D/DDC Upgrades, for 35 hours per
week, or such other hours as are mutually agreed between the
parties in writing, during the first 8 months of the Term or
until Task Completion and thereafter such hours per week as
the Consultant considers appropriate, the Consultant shall be
paid during the Term Sixty dollars ($60) per hour worked ("the
Consulting Fee"). Hours worked beyond 35 hours per week
require the prior written approval of the Company.
8.2 The Consultant shall keep and submit to the Company at the end
of each week daily timesheets recording the time spent by the
Consultant in fulfilling his duties under this agreement such
timesheets to be in such form and contain such information as
the
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Company may reasonably specify from time to time.
8.3 The Consulting Fee shall be paid by monthly instalments in
arrears by not later than seven days after the end of each
calendar month.
8.4 The Consulting Fee shall be reviewed by the parties on 18
April 1996 then annually at the expiry of each successive year
of the Term and the Consulting Fee shall be increased by a
percentage not less than the percentage increase in the
Consumer Price Index for the previous twelve months period.
8.5 In consideration for the services of the Consultant in
providing the assistance referred to in item 5 of the Schedule
with respect to the 2D to 3D Process and in using his best
endeavours to provide the 2D to 3D Upgrades fully documented,
the Company shall pay to the Consultant a fee of $500,000.00
("the 2D to 3D Upgrade Fee") payable in maximum instalments of
$100,000.00 per annum out of the total gross annual income
receipts by Xenotech from commercial exploitation of the 2D to
3D Process ("the 2D to 3D Receipts") payable over 5 years or
until such time as the total 2D to 3D Upgrade Fee has been
paid in full, provided that the Consultant shall not be
entitled to receive more than $100,000.00 per annum in part
payment of the 2D to 3D Upgrade Fee and in the event that the
2D to 3D Receipts by Xenotech are less than $200,000.00 in any
particular year, the Consultant shall be entitled to receive
50% of the amount of such receipts.
8.6 In consideration for the services of the Consultant in
providing the assistance referred to in item 5 of the Schedule
with respect to the DDC Process and in using his best
endeavours to provide the DDC Upgrades fully documented the
Company shall pay to the Consultant a fee of $500,000.00 ("the
DDC Upgrade Fee") payable in maximum instalments of
$100,000.00 per annum out of the total gross annual income
receipts by Xenotech from commercial exploitation of the DDC
Process ("the DDC Receipts") payable over 5 years or until
such time as the DDC Upgrade Fee has been paid in full,
provided that the Consultant shall not be entitled to receive
more than $100,000.00 per annum in part payment of the DDC
Upgrade Fee and in the event that the DDC Receipts by Xenotech
are less than $200,000.00 in any particular year, the
Consultant shall be entitled to receive 50% of the amount of
such receipts.
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8.7 Liability to pay the 2D to 3D Upgrade Fee and the DDC Upgrade
Fee ("the Upgrade Fees") or any outstanding balance of the
Upgrade Fees shall survive termination of this Agreement and
shall continue so long as Xenotech is reasonably able to
commercially exploit the 2D to 3D and DDC Processes and
receives remuneration for the same.
8.8 Xenotech shall use its best endeavours to commercially exploit
the 2D to 3D and DDC Processes so as to achieve payment by the
Company to the Consultant of the Upgrade Fees within 5 years
from the date of this Agreement or as soon as practicable
after the 5 years.
8.9 In the event that in any particular year the 2D to 3D Receipts
for that year exceed $200,000.00, the amount by which the said
receipts exceed $200,000.00 shall, for the purposes of this
clause, be added to and treated as part of the 2D to 3D
Receipts in the following year, to which the Consultant is
entitled to 50% subject to the limit of $100,000.00 per annum.
8.10 In the event that in any particular year the DDC Receipts for
that year exceed $200,000.00, the amount by which the said
receipts exceed $200,000.00 shall, for the purposes of this
clause, be added to and treated as part of the DDC Receipts in
the following year, to which the Consultant is entitled to 50%
subject to the limit of $100,000.00 per annum.
8.11 The Company is to maintain records of all 2D to 3D Receipts
and DDC Receipts and shall make those records available for
inspection by the Consultant for the purpose of calculating
the amount of the annual Upgrade Fees payable to him.
8.12 Subject to the provisions of the 2D to 3D/DDC Deed of
Assignment and the 2D to 3D/DDC Licence Agreement in the event
that the Consultant develops improvements or alterations to
the Processes the beneficial right to same is automatically
vested in the Company and such improvements or alterations
shall be disclosed by the Consultant to the Company fully
documented as part of the 2D to 3D/DDC Upgrades.
8.13 Payment by the Company of any part of the Upgrade Fees payable
to the Consultant shall be made on a quarterly basis provided
however that the Consultant shall not be entitled to receive
payment of any amount greater than 50% of the 2D to 3D
Receipts
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and the DDC Receipts in any quarter and subject to the maximum
specified in clauses 8.5 and 8.6.
8.14 Any capital funds raised primarily in relation to either the
2D to 3D or DDC processes received by Xenotech, any Related
Corporation or company in which Xenotech has a relevant
interest, which are in excess of those required by it for the
purposes of meeting the costs reasonably expected to be
incurred in developing the Process or Processes to a
commercially exploitable stage, including reasonable marketing
costs and a costs contingency provision of up to 10%, are
deemed to form part of gross annual income receipts as defined
for the purposes of this Agreement.
8.15 Xenotech or any other entity to which Clause 8.14 applies
shall produce a business plan for the purposes of any capital
raising in relation to the Process or Processes. The
Consultant shall be entitled to have full access, in advance
of any such capital raising, to such business plan, all other
documentation to be used by that entity for the purposes of
that capital raising and any other documentation relevant to
the determination of the costs reasonably expected to be
incurred as referred to in Clause 8.14.
9. ANNUAL LEAVE
9.1 The Consultant shall be entitled to suspend his services for
up to 4 weeks within any 12 month period during the Term
accumulated at the rate of 0.416 days per 35 hours worked and
to be taken at such times as may be selected by the Consultant
and approved by the Company such approval not to be
unreasonably withheld.
9.2 At the discretion of the Consultant part or all of the annual
period of suspension of service may be accrued from year to
year up to a maximum of 12 weeks entitlement at any time and
thereafter the Consultant's entitlement to any further accrued
suspension of services shall, unless the Company otherwise
determines, lapse.
9.3 The Consultant shall be entitled to take no more than 8 weeks
of such accumulated entitlement within any 12 month period
unless the Company determines otherwise.
9.4 The Consultant shall not be obliged to provide his services
during such period as he is disabled by illness from so doing
and supplies a certificate from a medical practitioner
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to this effect.
10. SUPERANNUATION
Except to the extent required by law the Company shall be under no
obligation to make any contribution or provision for superannuation
benefits with respect to the Consultant.
11. CONSULTANT'S COSTS
The Company (in addition to the Consulting Fee) shall be responsible
for all reasonable travelling and accommodation costs and other
reasonable out-of-pocket expenses incurred by the Consultant, with the
prior written approval of the Company, in carrying out the Specified
Services. It is a condition precedent to the entitlement of the
Consultant to the reimbursement of each such cost that the Consultant
produce to the Company vouchers receipts or other appropriate evidence
of the incurring of the cost or expense. Reimbursement is to be made to
the Consultant by the Company not later than 7 days after production by
the Consultant of the said vouchers, receipts or other appropriate
evidence of the cost incurred.
12. CONFIDENTIAL INFORMATION
12.1 The Consultant hereby covenants and agrees that all knowledge,
experience, know-how, expertise and information relating to
the Technologies ("the Trade Secrets") is valuable
confidential property of the Company and the Consultant shall
not, and shall ensure that no employee or agent of the
Consultant shall, either during the continuance of this
Agreement or for a period of 5 years thereafter, except in the
proper course of his duties under this Agreement and as a
director of Xenotech Inc or with the prior written consent of
the Company, use or divulge to any person, and shall use his
best endeavours to prevent the publication or disclosure of,
any trade secret of the Company or any information concerning
the Business, the Technologies or the finances of the Company
or any of its dealings transactions or affairs which may come
to the knowledge of the Consultant during the course of this
Agreement, and shall keep such Trade Secrets and information
confidential.
12.2 The following acts shall not constitute a breach of confidence
by the Consultant:
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12.2.1 disclosure to employees or agents or sub-contractors
of either party as may be necessary to effectively
carry out the terms of this Agreement (the party
engaging any such employee or agent or subcontractor
is to take reasonable precautions against any further
disclosure or non-authorised use by that employee or
agent or subcontractor);
12.2.2 disclosure to the extent required by any law
applicable to the Consultant or by any authority or
regulatory body having jurisdiction over the
Consultant;
12.2.3 disclosure to the extent that it can be shown that
the material disclosed had, at the time of disclosure
and through no wrongful act on the part of the
Consultant, his employees or agents, already come
within the public domain or had generally become
known within the relevant industry.
13. RIGHTS TO INTELLECTUAL PROPERTY
13.1 The Consultant hereby covenants and agrees with the Company that:-
13.1.1 copyright in all things in relation to development of
the Technologies produced by the Consultant in the
course of performing the Specified Services,
including without limitation information recorded on
computer disc or tape, audio tape or in writing,
shall vest in and become the property of the Company
immediately the thing is produced;
13.1.2 he shall use his best endeavours to ensure that all
information produced by the Consultant in the course
of performance of the Specified Services and recorded
on computer tape or disc shall be written in a
computer language which is compatible with the
computer equipment commonly used by the Company so
that it may be readily accessed by the Company using
computer equipment in the possession of the Company;
13.1.3 subject to the provisions of the 2D to 3D/DDC Licence
Agreement ownership of anything falling within the
definition of, or related to, the Technologies
developed, conceived or acquired by any means
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whatsoever by or on behalf of the Consultant during
the course of this Agreement shall be deemed to be
immediately vested in the Company and the Consultant
shall have no right or interest therein whatsoever
including any right to use in any way for the benefit
of the Consultant.
13.2 The Company may, at its complete discretion, reward the
Consultant as the Company deems appropriate for any invention
made or other outstanding contribution to the development of
the Technologies.
14. TERMINATION BY COMPANY
14.1 In addition to termination pursuant to clause 4.2 this
Agreement may be terminated by the Company by one month's
notice in writing to the Consultant if at any time during the
term of this Agreement:-
14.1.1 the Consultant is in the reasonable opinion of the
Company guilty of such grave misconduct in respect of
the provision of the Specified Services that the
Consultant must be deemed to have repudiated this
Agreement;
14.1.2 the Consultant is in default under the terms of this
Agreement and the Company has given the Consultant
notice in writing specifying the event or events of
default and the Consultant has failed to remedy
such default within 21 days of receipt of the notice.
15. TERMINATION BY CONSULTANT
15.1 The Consultant may, in addition to termination pursuant to
clause 4.2, terminate this Agreement pursuant to clause 14.1.2
as if "Company" is read as "Consultant" and vice versa.
15.2 The Consultant may terminate this agreement forthwith in the
event that XI, XA or the Company is placed into liquidation
other than voluntary liquidation for the purposes of
reconstructing the Xenotech Group.
16. The Company may not unreasonably restrict or hinder the Consultant in
his performance of
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the Specified Services.
17. UPON TERMINATION
17.1 The Consultant shall as soon as practicable and in any event
within 5 days of the date of termination of this Agreement
deliver up to the Company at the address of the registered
office for the Company all books, papers, audio, video and
computer tapes, computer discs and other documents of whatever
sort in the possession or control of the Consultant relating
to the Business or the affairs of the Company and each and
every other item of property of the Company. The said audio,
video and computer tapes and discs shall be delivered up with
all information recorded thereon as at the date of termination
intact and without erasure. Provided however that with respect
to those audio, video and computer tapes and discs brought
into existence by the Consultant, trading as Elite Research
and Development, prior to 24 June 1993 copies only are
required to be delivered up.
17.2 The Consultant's obligations and the Company's Rights
specified in clauses 8.12, 8.14, 8.15, 12.1, 13.1.1, 13.1.3
and 28 shall survive termination of this Agreement.
18. GUARANTEE
The Guarantors in consideration for the entry by the Consultant into
this Agreement hereby guarantee the performance by the Company of its
obligations to the Consultant with respect to the Consulting Fee and
the Upgrade Fees.
19. ARBITRATION
In the event of any dispute arising as to the interpretation or
application of this Agreement the dispute shall be first referred to an
independent arbitrator to be selected by mutual agreement between the
parties. In the absence of agreement the dispute shall be referred to
Queens Counsel, appointed by the President of the Law Society of
Western Australia, who shall act as an arbitrator.
20. ASSIGNMENT
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Neither the Consultant nor the Company may assign their rights and
obligations or any part thereof under this Agreement without the prior
written consent of all parties to the Agreement which consent shall not
be unreasonably refused.
21. PROPER LAW
This Agreement shall be governed by and construed according to the laws
of Western Australia and the parties hereby submit to the jurisdiction
of any competent court of Western Australia able to entertain claims
arising hereunder.
22. COSTS
All costs incidental to the preparation and stamping of this Agreement
shall be paid by the Company.
23. ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties
hereto with respect to the subject matter hereof, and supersedes and
replaces any and all prior agreements or understandings, written or
oral, express or implied, between the parties hereto concerning and
relating to any and all of the subjects and contents hereof.
24. VARIATION
This agreement shall not be changed or modified in any way except in
writing executed by both the Company and the Consultant.
25. AUTHORITY
Subject to the provisions of this Agreement, the Consultant shall not
without the consent of the Company at any time make any representation
that the Consultant has authority to represent or bind the Company.
26. NOTICES
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Any notice, offer, request, payment or demand required or permitted to
be given under the Agreement shall be in writing and shall be deemed
sufficiently served if delivered in person or by telex or telegraph or
facsimile or sent by security postage prepaid (and air mail if sent
from outside the State of the addressee) and addressed in the case of
the parties to their addresses aforesaid or to the latest address a
party shall have specified in a written notice given to the other
party. Notices given or payments made by security post as aforesaid
shall be deemed to have been given or made three (3) days after posting
and in the case of telex or telegraph or facsimile will be deemed to
have been given or made on the next business day in Western Australia
following the day of transmission. A notice, offer, request or demand
may be signed by a director, secretary, manager of or solicitor for a
party giving notice.
27. SEVERANCE
In the event of any part of this Deed being or becoming void or
unenforceable whether due to the provisions of any statute or otherwise
then that part shall be severed from this Deed to the intent that all
parts that shall not be or become void or unenforceable shall remain in
full force and effect and be unaffected by any such severance.
28. Xenotech may not dispose of any right title or interest in the
Processes to any natural person for other than arms length
consideration and in relation to a Related Corporation or other entity
in which Xenotech holds a relevant interest may not dispose of any such
right, title or interest unless that corporation or other entity shall
have first entered into a deed binding it to perform the obligations
with respect to the Processes which Xenotech owes to the Consultant
under this Agreement.
DULY EXECUTED as at the date of this Deed.
THE COMMON SEAL of XENOTECH )
RESEARCH PTY LTD )
ACN 060 154 912 was hereunto affixed )
by authority of the Directors in the )
presence of: )
Director:
Director/Secretary:
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XENOTECH INC
Per __________________
Per __________________
THE COMMON SEAL of )
XENOTECH AUSTRALIA PTY LTD )
ACN 060 154 949 was hereunto affixed )
by authority of the Directors in the )
presence of: )
Director:
Director/Secretary:
SIGNED BY the said )
ANGUS DUNCAN RICHARDS )
in the presence of: )
Witness:
Address:
Occupation:
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THE SCHEDULE
JOB DESCRIPTION
TITLE: PROJECT TECHNICAL DIRECTOR
1. During the first eight months of the Term:
(a) To conduct ongoing invention, into the Technologies and plan
and design research and development programs and steps with
respect to the Technologies.
(b) By means of 1(a) to assist to expedite the completion of the
Samsung prototype as rapidly and effectively as possible with
a view to ensuring that XA can receive the $750,000 fee due to
it from Samsung upon successful completion of the prototype.
(c) By means of 1(a) to use his best endeavours to assist to
expedite the research, development and commercialisation of
the 2D to 3D and DDC Processes.
(d) To monitor the work of other research staff of the Company and
to provide advice and reports to the Project Manpower Manager
as to research and development steps to be taken.
(e) Within the context of 1(a) attending to the implementation of
decisions of the Board of Directors of the Company in relation
to the development of the Technologies.
2. During the Term:
(a) As requested by the Company, and provided the Consultant is
given reasonable notice and that the request does not cause
undue hardship to the Consultant, to conduct or assist in
negotiations in order;
(i) to attract investment funds into, or venture partners
with the Company;
(ii) to promote, market or sell products, know-how and
licences available from the Company;
(iii) to contract the services of qualified staff or
consultants as needed and on such terms and
conditions as agreed by the Board of Directors.
(b) To use his best endeavours to provide regular 2D to
3D/DDC Upgrades.
3. Within 2 days of the date of this deed provide to the Company in
writing details of a proposal developed by the Consultant for
expediting the research and development, at nominal cost to Xenotech,
of the 2D to 3D Process.
4. Within 28 days of the date of this deed provide to the Company in
writing a concept disclosure describing the underlying principles for
the Processes, Macro 3D, 3D transmission using standard TV Bandwidth,
Split Screen 3D, PQE his concept for a multiviewer autostereoscopic
display system and his concept for a very compact computer-monitor
sized autostereoscopic display.
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5. To co-operate fully with the patent attorneys appointed by the Company
to assist in drafting as soon as practicable the specifications in
relation to the 2D to 3D Process, DDC Process, Macro 3D (as described
in the Listing Application the Feasibility Report and the Business
Plan) and split screen 3D (as described in the Report by the Company to
XA headed "Project Options and Strategies") for any patentable products
arising with respect to those processes.
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Exhibit 3(5)
XENOTECH INC
- and -
XENOTECH AUSTRALIA PTY LTD
- and -
XENOTECH RESEARCH PTY LTD
- and -
ANGUS DUNCAN RICHARDS
-------------------------------------------------
DEED OF COMPROMISE & RELEASE
-------------------------------------------------
Solomon Brothers
Solicitors
Level 40
Exchange Plaza
2 The Esplanade
PERTH WA 6000
Tel: 221 5888
Fax: 221 5955
Ref: PFF
<PAGE>
THIS DEED is made the day of 1995
- ---------
BETWEEN
XENOTECH INC of c/- Ogilvie & Co, 1600, 407 - Second Street, S.W., Calgary,
Alberta ("XI") - and XENOTECH AUSTRALIA PTY LTD ACN 060 154 949 of Suite 2,
41 Walters Drive, Osborne Park, Western Australia ("XA")
- - and -
XENOTECH RESEARCH PTY LTD ACN 060 154 912 of Suite 1, 41 Walters Drive, Osborne
Park, Western Australia ("XR") - and ANGUS DUNCAN RICHARDS of Unit 2,
5 Richardson Street, South Perth ("AR")
WHEREAS
A. XI is a corporation incorporated in Canada and listed on the Alberta
Stock Exchange ("ASE").
B. XA is a corporation incorporated in Western Australia having ACN number
060 154 949.
C. XR is a corporation incorporated in Western Australia having ACN number
060 154 912.
D. AR is a director of XI and the trustee of the R & D Services Trust and
the Richards Family Trust. AR executes this deed in his own right and
in his capacity as trustee of those trusts.
E. XA and XR are both wholly owned subsidiaries of XI.
F. XI, XA and XR (together "Xenotech") have raised certain claims as
against AR which claims are detailed in the Federal Court Application
WAG 30 of 1993 and documents filed in those proceedings ("the Action").
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G. In order to avoid the expense and inconvenience of further litigation
Xenotech and AR have agreed to a settlement of the Action and all
matters in dispute between them related to the Action on the terms set
out in this agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES AS FOLLOWS:
1. In this deed the following expressions have the following meanings:
"Business Plan" means the Barrington Enterprises business plan produced
by XA.
"Consultancy Agreement" means the deed so named and executed by
Xenotech and AR contemporaneously with this deed a copy of which is
attached as schedule 1.
"Feasibility Report" means the Feasibility Study Report for XA by
Systems Intellect in July 1994.
"fully document" means disclose in detail by writing, video tape or
computer disc as appropriate, all information held or available.
"Listing Application" means the application by XI to the ASE a copy of
an excerpt from which is attached as schedule 2.
"Licence Agreement" means the licence agreement dated 24 June 1993
between XR, XA and AR.
"Intellectual Property" means copyright, know-how, confidential
information, concepts, expertise, proposals for commercialisation,
patents, patent applications, patentable concepts, designs and
trademarks.
"Intellectual Property Rights" means all legal and equitable rights,
benefits or entitlements with respect to the Intellectual Property.
"Reed Loan Debt" has the meaning given by clause 6.7.
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"Samsung Licence Agreement" means the licence agreement dated 5 October
1994 between Samsung Electronics Co Ltd and XA.
"the Technologies" means the autostereoscopic three dimensional
television display system under development by XR and any improvements
or alterations of any kind to that system together with all parts,
attachments and accessories and any patent relating thereto and all
other inventions, developments, products, processes, systems, methods,
techniques and concepts referred to in the Listing Application, the
Feasibility Report, the Business Plan and the Report by XR to XA headed
"Project Options and Strategies", and all developments, advances,
improvements and alterations of any kind thereto together with all
parts, attachments and accessories and any patent relating thereto.
"ASE" means the Alberta Stock Exchange in Calgary, Alberta, Canada.
"the 2D to 3D/DDC Upgrades" has the meaning given in clause 1.1.19 of
the Consultancy Agreement.
"the Settlement Loan Debt" has the meaning given by clause 5.4.
"2D to 3D/DDC Licence Agreement" means the deed of that name executed
by AR and XR contemporaneously with this deed.
"2D to 3D/DDC Deed of Assignment" means the deed of that name executed
by AR and XR contemporaneously with this deed.
"2D to 3D Process" means the process known to the parties as the 2D to
3D conversion process described in the Listing Application as "2D to 3D
Film and Video Reprocessing".
"DDC Process" means the process known to the parties as Dynamic Depth
Cueing and described in the Listing Application as "Television
Transmission of Reprocessed 3D over 2D TV."
"the Processes" means both the 2D to 3D Process and the DDC Process.
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COVENANTS BY XA AND XR
2. XA acknowledges that no call to repay the Reed Loan Debt shall be made
unless and until AR is in default of this Deed of Compromise and
Release or the Consultancy Agreement, or the Consultancy Agreement is
terminated.
3. It is confirmed by XR that within 7 days of receipt by XA of $750,000
from Samsung pursuant to clause 3.1.2 of the Samsung Licence Agreement
AR shall receive by way of additional Consultancy Fee $25,000 in one
lump sum ("Samsung Success Fee").
4. XR shall forthwith engage AR as a consultant by the Consultancy
Agreement.
5. COVENANTS BY XI
5.1 XI shall continue to promote AR as the inventor of the
Technologies, for the purposes of assisting Xenotech to
effectively market the Technologies.
5.2 XI shall use its best endeavours to raise further capital as a
matter of urgency.
5.3 XI shall use its best endeavours to find a purchaser for such
of AR's shares in XI as AR wishes to dispose of.
5.4 Subject to XI raising sufficient further capital XR shall
advance to AR as soon as possible TWENTY FIVE THOUSAND DOLLARS
AUSTRALIAN (A$25,000) ("the Settlement Loan Debt") by way of
loan repayable out of the Samsung Success Fee and the Upgrade
Fees. XR is entitled to withhold payment of sufficient of
those fees to extinguish the Reed Loan Debt as well as the
Settlement Loan Debt. AR shall pay interest on the Settlement
Loan Debt in amounts per annum equal to the fringe benefits
tax liability arising for XR by reason of the Settlement Loan
Debt such amounts to be capitalised and payable as and when
the Settlement Loan Debt principal is repaid.
6. COVENANTS BY AR
AR covenants and agrees with Xenotech that:
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<PAGE>
6.1 he shall forthwith execute the Consultancy Agreement and shall
immediately hereinafter work pursuant to the Consultancy
Agreement and shall comply with all of his obligations arising
under the Consultancy Agreement;
6.2 in the event that he or any partnership or company with which
he is associated develops improvements or alterations to the
Processes, the beneficial right to the said improvements or
alterations is automatically vested in XR and such
improvements or alterations shall be disclosed by AR to XR
fully documented as part of the 2D to 3D/DDC Upgrades;
6.3 subject to the provisions of this deed he has no claim
whatsoever to the Technologies;
6.4 XR had full entitlement to grant, and has effectively granted,
to XA a licence in terms of the Licence Agreement with respect
to all of the Technologies, other than the Processes, and the
Intellectual Property Rights in respect of the Intellectual
Property underlying the Technologies, except for the
Processes, and the definition of "Technology" contained in the
Licence Agreement extends to and encompasses each of the
Technologies, except for the Processes, and the said
Intellectual Property;
6.5 by the 2D to 3D/DDC Licence Agreement 3 AR grants to XR
certain rights with respect to the Processes;
6.6 by the 2D to 3D/DDC Deed of Assignment AR, subject to the
conditions expressed in the 2D to 3D/DDC Deed of Assignment,
assigns to XR the entirety of his rights and interest in the
Processes;
6.7 he is indebted to XA in the sum of $24,756 advanced by XA to
AR for the purposes of settling a dispute as between AR and
Christopher Reed, a former partner of AR, that such loan has
been advanced free of interest and is repayable at call and
that while XA has agreed on the same terms to advance a
further $10,244 to AR as and when required for the purposes of
the settlement, XR ceases to be under any obligation to make
the further advance upon AR being in
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default under this deed or the Consultancy Agreement. The said
advances up to a total of $35,000 are referred to as the "Reed
Loan Debt" AR shall use his best endeavours to sell shares in
XI held by him for the R & D Services Trust the proceeds of
which shall be paid by AR to XR to extinguish the Reed Loan
Debt;
6.8 Any person engaged now or in the future by Xenotech, has total
liberty and entitlement to disclose to Xenotech all knowledge
and information held by that person concerning the Processes
and concerning 3D systems generally, insofar as that knowledge
and information is relevant to research and development of the
Technologies, and this clause enures to the benefit of any
such person engaged, as well as Xenotech.
7. INTELLECTUAL PROPERTY
7.1 AR covenants and agrees with Xenotech that the right to use
the Intellectual Property which underlies the Technologies is,
as between Xenotech and AR, and subject to the 2D to 3D/DDC
Licence Agreement, owned wholly and solely by Xenotech
provided that AR shall be entitled to use such Intellectual
Property in the development of products, processes or systems
unrelated to the Technologies. AR and Xenotech acknowledge
that such rights shall survive termination of the Consultancy
Agreement.
7.2 AR covenants and agrees that all inventions, developments,
products, processes, systems, methods, techniques and concepts
produced by Xenotech from its use of the said Intellectual
Property shall be owned by Xenotech and AR has no claim
thereto.
8. RELEASE BY XENOTECH
In consideration for the execution by AR of this deed Xenotech fully
and finally discharges and releases AR from all claims which it
considers it presently may have as against AR in relation to the
matters the subject of the Action.
9. Subject to clause 10, this deed may be pleaded in bar to any action or
proceeding on any matter the subject of the Action by Xenotech against
AR.
6
<PAGE>
10. Nothing in clauses 8 and 9 prevents Xenotech from enforcing the terms
of this deed.
11. RELEASE BY AR
11.1 In consideration for the execution by Xenotech of this deed AR
fully and finally discharges and releases Xenotech from all
claims which he considers he presently may have as against
Xenotech in relation to the matters the subject of the Action.
11.2 Subject to clause 11.3 this deed may be pleaded in bar to any
action or proceeding on any matter the subject of the Action
by AR against Xenotech.
11.3 Nothing in clauses 11.1 and 11.2 prevents AR from enforcing
the terms of this deed.
12. INDEPENDENT ADVICE
Each of the parties hereto acknowledges and agrees that he and it has
taken independent legal advice concerning the substance and effect of
this deed and has not relied upon or in any way been induced by any
representation made by any party to determine to execute this deed.
13. UNRELATED INVENTIONS
Xenotech acknowledges that it has no rights or entitlement with respect
to any inventions made by AR unrelated to the Technologies.
14. STAMP DUTY
Xenotech shall bear the stamp duty payable on this deed.
15. COSTS
The parties hereto shall bear their own costs of the dispute, the
Action and the preparation of this deed and shall forthwith execute,
and Xenotech shall file, a consent order in the Action to the effect
that the Action shall be dismissed with no order as to costs.
7
<PAGE>
16. TIME OF THE ESSENCE
Time shall be of the essence with respect to the terms of this deed.
17. CONFIDENTIALITY
The contents of this deed, other than the schedules, are confidential
to the parties and except to the extent required by compulsion of law
or for the purposes of enforcing this deed may not be disclosed by any
party without the prior written consent of each other party.
18. GOVERNING LAW
The governing law with respect to construction and enforcement of this
deed shall be the law in force in Western Australia and the parties
submit to the jurisdiction of the Supreme and Federal Courts of Western
Australia and the High Court of Australia.
8
<PAGE>
EXECUTED AS A DEED
XENOTECH INC
Per
----------------------
Per
----------------------
THE COMMON SEAL of )
XENOTECH RESEARCH PTY LTD )
ACN 060 154 912 was hereunto )
affixed by authority of the Directors )
in the presence of: )
Director:
Director/Secretary:
THE COMMON SEAL of )
XENOTECH AUSTRALIA PTY LTD )
ACN 060 154 949 was hereunto affixed )
by authority of the Directors in the )
presence of: )
Director:
Director/Secretary:
SIGNED BY the said )
ANGUS DUNCAN RICHARDS )
in the presence of: )
Witness:
Address:
Occupation:
9
<PAGE>
Exhibit 3(6)
ANGUS DUNCAN RICHARDS
("the Assignor")
- and -
XENOTECH RESEARCH PTY LTD
ACN 060 154 912
("the Assignee")
---------------------------------------
2D TO 3D/DDC DEED OF ASSIGNMENT
---------------------------------------
Solomon Brothers
Solicitors
Level 40
Exchange Plaza
2 The Esplanade
PERTH WA 6000
Tel: 221 5888
Fax: 221 5955
Ref: PFF
<PAGE>
2D TO 3D/DDC DEED OF ASSIGNMENT
This 2D TO 3D/DDC DEED OF ASSIGNMENT is made the day of 1995
BETWEEN
ANGUS DUNCAN RICHARDS of Unit 2, 5 Richardson Street, South Perth in the State
of Western Australia (hereinafter called "the Assignor") of the first part;
- and -
XENOTECH RESEARCH PTY LTD ACN 060 154 912 of Suite 1, 41 Walters Drive, Osborne
Park in the State of Western Australia (hereinafter called "the Assignee") of
the second part;
WHEREAS
A. The Assignor has invented a process for reprocessing film and video
tape stock originally produced to recreate images in 2 dimensions so
that it recreates images in 3 dimensions more particularly described in
the Listing Application by Xenotech Inc ("XI") to the Alberta Stock
Exchange in September 1994 ("the Listing Application"), in the
Feasibility Study Report for Xenotech Australia Pty Ltd ("XA") by
Systems Intellect in July 1994 ("the Feasibility Report") and in the
Business Plan of XA ("the 2D to 3D Process") and has invented a process
by which material subjected to the 2D to 3D Process can be transmitted
using a technique known as Dynamic Depth Cueing more particularly
described in the Listing Application, the Feasibility Report, the
Business Plan of XA and in the Report by the Assignee to XA headed
"Project Options and Strategies" ("the DDC Process") (together "the
Processes")
B. The Assignor has agreed, subject to the conditions specified herein, to
assign and transfer to the Assignee the Intellectual Property Rights
with respect to the Processes.
NOW THIS DEED WITNESSETH AS FOLLOWS
1. In this deed the following expressions have the following meanings:
<PAGE>
"this Agreement" means the agreement entered into between the parties
and evidenced by this document and any documents executed by the
parties varying the same;
"Assignee" includes the Assignee's successors and assigns;
"Assignor" includes the Assignors successors and assigns;
"Xenotech" and "Xenotech Group" mean each of XI, XA and the Assignee
together.
2. ASSIGNMENT
PROVIDED THAT either:
(i) none of the Assignee XI and XA have been placed into
liquidation, other than voluntary liquidation for the purpose
of reconstruction which does not involve termination of their
obligations to the Assignor, within 8 months of the date of
this deed; or
(ii) XA has within 8 months of the date of this deed received
payment from Samsung Electronics Co Ltd ("Samsung") pursuant
to clause 3.1.2 of the Technical Licence Agreement dated 5
October 1994 between Samsung and XA,
THEN in either event in consideration of execution by the Assignee of
the deed of compromise and release between the Assignor and the
Assignee of even date herewith the Assignor hereby assigns to the
Assignee and confirms that following the satisfaction of the proviso
the Assignee shall be the sole beneficial owner of all the benefit of:
2.1 all legal and equitable rights, benefits or entitlements with
respect to intellectual property in the nature of copyright,
know-how, confidential information, concepts, expertise,
proposals for commercialisation, patents, patentable concepts,
designs and trademarks that are held as at the date of
satisfaction of the proviso herein by the Assignor in relation
to the Processes;
2.2 without limiting the generality of clause 2.1, all rights to
commercially exploit
<PAGE>
the Processes
(together "the Intellectual Property Rights to the Processes")
3. The Intellectual Property Rights to the Processes shall be deemed to
have vested absolutely in the Assignee with effect immediately on and
from the satisfaction of the proviso to clause 2 herein.
4. TRANSFER OF TITLE
4.1 The Assignor undertakes at the expense of the Assignee to do
all acts and execute all documents necessary or desirable for
effecting transfer of title to the Intellectual Property
Rights to the Processes to the Assignee.
4.2 The Assignee will pay all reasonable fees costs and expenses
incurred by the Assignor in connection with the said transfer
of title and all stamp duty, if any, payable in respect of
this deed.
4.3 The Assignor shall forthwith on being requested so to do by
the Assignee deliver up to the Assignee all certificates of
title, papers, plans, reports and other records relating to
the rights assigned pursuant to this deed.
5. ASSIGNOR'S WARRANTIES
The Assignor warrants that he has not entered and shall not hereafter
enter into any agreement with any party other than the Assignee with
respect to the Intellectual Property Rights to the Processes and the
said Intellectual Property Rights are not the subject of any charge,
lien or other encumbrance held by any person other than the Assignee.
6. INDEMNIFICATION
The Assignee will indemnify and at all times hold the Assignor fully
and effectively indemnified against any losses, costs, actions, claims,
demands, expenses, judgments, orders or other liabilities arising
directly or indirectly out of or in connection with the
<PAGE>
prosecution of any patent application with respect to the Processes or
any aspect thereof and the protection or enforcement of any letters
patent that may issue pursuant to such applications with respect to the
Processes.
7. NOTICES
7.1 Notices under this agreement may be delivered by hand, by
mail, or by facsimile to the parties at the addresses
specified at the commencement of this agreement.
7.2 Notice shall be deemed given:
7.2.1 in the case of hand delivery, upon the date that
delivery is effected;
7.2.2 in the case of posting, 3 days after dispatch;
7.2.3 in the case of facsimile, upon completion of
transmission.
8. The Assignee may not dispose of any right, title or interest in the
Intellectual Property Rights to the Processes to any natural person for
other than arms length consideration or to any corporation related to
the Assignee by virtue of section 50 of the Corporations Law or to any
other entity in which Xenotech holds a relevant interest unless that
corporation or other entity shall have first entered into a deed
binding it to perform the obligations with respect to the Processes
owed to the Assignor by Xenotech pursuant to the consultancy agreement
between Xenotech and the Assignor executed contemporaneously with this
deed.
9. COSTS
The costs of the drafting, preparation and stamping of this agreement
shall be met by the Assignee.
10. ENTIRE AGREEMENT
This agreement incorporates the entire agreement of the parties and
supercedes all previous agreements, arrangements and understandings
(whether oral or written) between
<PAGE>
them with respect to the subject matter hereof.
11. GOVERNING LAW
This agreement shall be governed by and construed in accordance with
the Laws of the State of Western Australia.
<PAGE>
IN WITNESS WHEREOF THE PARTIES HERETO HAVE HEREUNTO AFFIXED THEIR
HANDS AND SEALS THE DAY AND DATE FIRST HEREINBEFORE APPEARING
SIGNED BY the said )
ANGUS DUNCAN RICHARDS )
in the presence of: )
Witness:
Address:
Occupation:
THE COMMON SEAL of )
XENOTECH RESEARCH PTY LTD )
ACN 060 154 912 was hereunto affixed )
by authority of the Board of Directors )
in the presence of: )
Director:
Director/Secretary:
<PAGE>
ANGUS DUNCAN RICHARDS
("Inventor")
- and -
XENOTECH RESEARCH PTY LTD
CAN 060 154 912
("Company")
-----------------------------------------
2D TO 3D/DDC LICENCE AGREEMENT
------------------------------------------
Solomon Brothers
Solicitors
Level 40
Exchange Plaza
2 The Esplanade
PERTH WA 6000
Tel: 221 5888
Fax: 221 5955
Ref: PFF
<PAGE>
THIS DEED is made the __________ day of __________, 1995.
BETWEEN
ANGUS DUNCAN RICHARDS of Unit 2, 5 Richardson Street, South Perth, in
the State of Western Australian (hereinafter called the "Inventor")
- and -
XENOTECH RESEARCH PTY LTD CAN 060 154 912 OF Suite 1, 41 Walters Drive,
Osborne Park in the said State (hereinafter called the "Company")
WHEREAS
A. The Inventor represents and warrants to have invented a process, for
reprocessing film and videotape stock originally produced to recreate
images in 2 dimensions so that it recreates images in 3 dimensions, more
particularly described in the Listing Application by Xenotech Inc. to the
Alberta Stock Exchange in September 1994 ("the Listing Application") in
the Feasibility Study Report to Xenotech Australia Pty Ltd ("XA") by
Systems Intellect in July 1994 ("the Feasibility Report") and in the
Business Plan of XA ("the 2D to 3D Process") and has invented a process by
which material subjected to the 2D to 3D Process can be transmitted using
a technique known as Dynamic Depth Cueing more particularly described in
the Listing Application the Feasibility Report, the Business Plan of XA
and in the Report by the Company to XA headed "Project Options and
Strategies" ("the DDC Process") (together "the Processes").
B. The Company is desirous of acquiring the exclusive world rights to
commercially use, the Intellectual Property Rights with respect to the
Processes by means of research, development, manufacturing, and marketing
of products, processes and systems and by granting sub-licences to
commercially use the Processes by the said means.
NOW IT IS HEREBY AGREED as follows:
1. INTERPRETATION
In this Deed, the following expressions have the following meanings:
"this Deed" means the agreement entered into between the Parties and
evidenced by this document;
"Beneficial Rights" means exclusive worldwide rights to put to commercial
use by any means whatsoever including to research, licence, develop,
manufacture and market the Processes and products, processes an systems
based on or derived from the Processes and "Beneficial Owner" has a
corresponding meaning;
"Commencement Date" means the above date of this Deed;
<PAGE>
"Intellectual Property Rights" means all legal and equitable rights,
benefits or entitlements with respect to intellectual property in the
nature of copyright, know-how, confidential information, concepts,
expertise, proposals for commercialisation, patents, patent applications,
patentable concepts, designs and trademarks in relation to the Processes
("the Intellectual Property") that are held by the Inventor;
"Company" includes the Company's successors in title and permitted
assigns;
"Company's Covenants" means all or any of the covenants contained in this
Deed on the part of the Company to be observed or performed;
"Deed of Assignment" means the deed of assignment of the Intellectual
Property Rights called 2D to 3D/DDC Deed of Assignment executed by the
parties contemporaneously with this Deed;
"Deed of Compromise and Release" means the deed of compromises executed by
the Company, its Related Corporations and the Inventor contemporaneously
with this Deed;
"Inventor" includes the Inventor's successors in title and permitted
assigns:
"Inventor's Covenants" means all or any of the covenants contained in this
Deed on the part of the Inventor to be observed or performed;
"Parties" means the parties to this Deed and their respective successors
and permitted assigns which become bound by the terms of this Deed and
"Party" has a corresponding meaning;
"the Term" means the period from the date of this Deed until the proviso
in clause 2 of the Deed of Assignment is satisfied or in the event it is
not satisfied, until the Company is placed into liquidation.
"the Territory" means each State and territory of Australia and every
other territory and country of the world.
"Xenotech" means the Company, XA and Xenotech Inc. together.
2. GRANT OF LICENCE
In consideration of the execution by the Company of the Deed of Compromise
the Inventor hereby grants to the Company an exclusive licence for the
Territory for the Term to exercise the Beneficial Rights and commercially
utilise the Intellectual Property Rights.
3. INVENTOR'S WARRANTIES
3.1 The Inventor warrants that to the best of his knowledge he is the
sole Inventor and owner of all and any Intellectual Property Rights
with respect to the Processes.
-2-
<PAGE>
3.2 The Inventor warrants that he has not entered into any agreement
with any party other than the Company in relation to the
Intellectual Property or the Processes.
4. INVENTOR'S COVENANTS
4.1 The Inventor covenants and agrees as follows:
(a) that for so long as this Deed remains in force, the Inventor
shall not enter into any other agreement whatsoever with any
other person in respect to the Intellectual Property or the
Processes;
(b) to disclose in writing to the Company, within 7 days of the
execution of this Deed, all of the Intellectual Property of
which the Inventor currently has knowledge including all
know-how, information, specifications and data in his
possession or control with respect to the Processes;
(c) to allow the Company to make application in its own name for
patent protection with respect to any patentable concept
comprised in the Intellectual Property.
5. The Company may not dispose of any right, title or interest in the
Beneficial Rights and the Intellectual Property Rights to any natural
person for other than arms length consideration and in relation to a
corporation related to the Company by virtue of section 50 of the
Corporations Law or to any other entity in which Xenotech holds a relevant
interest may not dispose of any such right, title or interest unless that
corporation or other entity shall have first entered into a deed binding
it to perform the obligations with respect to the Processes owed to the
Inventor pursuant to the consultancy agreement between Xenotech and the
Inventor executed contemporaneously with this deed.
6. NOTICES
6.1 Notices under this Deed may be delivered by hand, by mail, or
facsimile to the Registered office of the party being notified.
6.2 Notice shall be deemed given:
(a) in the case of hand delivery, upon written acknowledgment of
receipt by an officer or other duly authorised employee, agent
or representative of the receiving party;
(b) in the case of posting, three days after dispatch;
(c) in the case of facsimile, upon completion of transmission.
7. GOVERNING LAW
-3-
<PAGE>
7.1 This Deed shall be governed by and construed in all respects in
accordance with the laws of Western Australia.
8. TERMINATION
8.1 In the event that neither proviso in clause 2 of the Deed of
Assignment is satisfied, upon expiry of the Term the Company shall
as soon as is practicable and in any event within 5 days deliver to
the Inventor all books, papers, audio, video and computer tapes,
computer discs and other documents of whatever sort in the
possession or control of the Company relating to the Processes
including all documents relating to any improvements or enhancements
to the Processes.
8.2 Upon clause 7.1 taking effect to require delivery up of material no
information in relation to the Processes in the possession of the
Company shall be disclosed by the Company, its officers or agents to
any third parties without the prior consent of the Inventor.
8.3 Upon and from termination of the Term, the Company shall cease to
have any claim to the Processes other than pursuant to the Deed of
Assignment.
-4-
<PAGE>
EXECUTED AS A DEED
SIGNED BY the said )
ANGUS DUNCAN RICHARDS )
in the presence of: )
Witness:
Address:
Occupation:
THE COMMON SEAL of )
XENOTECH RESEARCH PTY LTD )
CAN 060 154 912 was hereunto affixed )
by authority of the Directors in the )
presence of: )
Director:
Director/Secretary:
<PAGE>
"Intellectual Property Rights" means all legal and equitable rights,
benefits or entitlements with respect to intellectual property in the
nature of copyright, know-how, confidential information, concepts,
expertise, proposals for commercialisation, patents, patent applications,
patentable concepts, designs and trademarks in relation to the Processes
("the Intellectual Property") that are held by the Inventor;
"Company" includes the Company's successors in title and permitted
assigns;
"Company's Covenants" means all or any of the covenants contained in this
Deed on the part of the Company to be observed or performed;
"Deed of Assignment" means the deed of assignment of the Intellectual
Property Rights called 2D to 3D/DDC Deed of Assignment executed by the
parties contemporaneously with this Deed;
"Deed of Compromise and Release" means the deed of compromises executed by
the Company, its Related Corporations and the Inventor contemporaneously
with this Deed;
"Inventor" includes the Inventor's successors in title and permitted
assigns:
"Inventor's Covenants" means all or any of the covenants contained in this
Deed on the part of the Inventor to be observed or performed;
"Parties" means the parties to this Deed and their respective successors
and permitted assigns which become bound by the terms of this Deed and
"Party" has a corresponding meaning;
"the Term" means the period from the date of this Deed until the proviso
in clause 2 of the Deed of Assignment is satisfied or in the event it is
not satisfied, until the Company is placed into liquidation.
"the Territory" means each State and territory of Australia and every
other territory and country of the world.
"Xenotech" means the Company, XA and Xenotech Inc. together.
2. GRANT OF LICENCE
In consideration of the execution by the Company of the Deed of Compromise
the Inventor hereby grants to the Company an exclusive licence for the
Territory for the Term to exercise the Beneficial Rights and commercially
utilise the Intellectual Property Rights.
3. INVENTOR'S WARRANTIES
3.1 The Inventor warrants that to the best of his knowledge he is the
sole Inventor and owner of all and any Intellectual Property Rights
with respect to the Processes.
-2-
<PAGE>
3.2 The Inventor warrants that he has not entered into any agreement
with any party other than the Company in relation to the
Intellectual Property or the Processes.
4. INVENTOR'S COVENANTS
4.1 The Inventor covenants and agrees as follows:
(a) that for so long as this Deed remains in force, the Inventor
shall not enter into any other agreement whatsoever with any
other person in respect to the Intellectual Property or the
Processes;
(b) to disclose in writing to the Company, within 7 days of the
execution of this Deed, all of the Intellectual Property of
which the Inventor currently has knowledge including all
know-how, information, specifications and data in his
possession or control with respect to the Processes;
(c) to allow the Company to make application in its own name for
patent protection with respect to any patentable concept
comprised in the Intellectual Property.
5. The Company may not dispose of any right, title or interest in the
Beneficial Rights and the Intellectual Property Rights to any natural
person for other than arms length consideration and in relation to a
corporation related to the Company by virtue of section 50 of the
Corporations Law or to any other entity in which Xenotech holds a relevant
interest may not dispose of any such right, title or interest unless that
corporation or other entity shall have first entered into a deed binding
it to perform the obligations with respect to the Processes owed to the
Inventor pursuant to the consultancy agreement between Xenotech and the
Inventor executed contemporaneously with this deed.
6. NOTICES
6.1 Notices under this Deed may be delivered by hand, by mail, or
facsimile to the Registered office of the party being notified.
6.2 Notice shall be deemed given:
(a) in the case of hand delivery, upon written acknowledgment of
receipt by an officer or other duly authorised employee, agent
or representative of the receiving party;
(b) in the case of posting, three days after dispatch;
(c) in the case of facsimile, upon completion of transmission.
7. GOVERNING LAW
-3-
<PAGE>
7.1 This Deed shall be governed by and construed in all respects in
accordance with the laws of Western Australia.
8. TERMINATION
8.1 In the event that neither proviso in clause 2 of the Deed of
Assignment is satisfied, upon expiry of the Term the Company shall
as soon as is practicable and in any event within 5 days deliver to
the Inventor all books, papers, audio, video and computer tapes,
computer discs and other documents of whatever sort in the
possession or control of the Company relating to the Processes
including all documents relating to any improvements or enhancements
to the Processes.
8.2 Upon clause 7.1 taking effect to require delivery up of material no
information in relation to the Processes in the possession of the
Company shall be disclosed by the Company, its officers or agents to
any third parties without the prior consent of the Inventor.
8.3 Upon and from termination of the Term, the Company shall cease to
have any claim to the Processes other than pursuant to the Deed of
Assignment.
-4-
<PAGE>
EXECUTED AS A DEED
SIGNED BY the said )
ANGUS DUNCAN RICHARDS )
in the presence of: )
Witness:
Address:
Occupation:
THE COMMON SEAL of )
XENOTECH RESEARCH PTY LTD )
CAN 060 154 912 was hereunto affixed )
by authority of the Directors in the )
presence of: )
Director:
Director/Secretary:
<PAGE>
Exhibit 3(8)
THIS DEED is made on the day of 1998
BETWEEN:
DYNAMIC DIGITAL DEPTH (AUSTRALIA) PTY LTD (ACN 060 154 949) of 41 Walters Drive
Herdsman Business Park, Osborne Park in the State of Western Australia ("DDD");
- - and -
BOSTON TOWER PTY LTD (ACN 071 187 187) of 11 Grove End Ridge, Mt Claremont in
the said State ("the Owner")
WHEREAS:
A. The Owner owns the Land.
B. By the Original Contract, DDD agreed to purchase and the Owner agreed
to sell the Land.
C. DDD and the Owner have agreed to cancel the Original Contract and the
Owner has agreed to grant and DDD has agreed to take a lease of the
Land on the terms and conditions contained in the Lease and the Owner
has further agreed to grant to DDD an option to purchase the Land and
DDD has agreed to grant to the Owner an option to sell the Land to DDD
and/or its nominee.
D. The parties have entered into this Deed in order to record the terms of
their agreement.
NOW THIS DEED WITNESSES AS FOLLOWS:
1. DEFINITIONS
1.1 In this Deed unless a contrary intention appears:
1.1.1 "Call Option" means the option granted under clause
3.1;
1.1.2 "Commencement Date" means date of execution of this
Deed by the
1
<PAGE>
1.1.3 parties; "Contract" means the contract for the sale
and purchase of the Land attached and marked
Schedule 5 of this Deed;
1.1.4 "Expiry Date" means 30 November 1999 or any later
date the parties may agree to in writing;
1.1.5 "Land" means the land specified in Schedule 1 of this
Deed;
1.1.6 "Lease" means the lease executed contemporaneously
with this Deed made between DDD as lessee and the
Owner as lessor in respect of the Land;
1.1.7 "Option Fee" means the sum of Five Hundred Thousand
Dollars ($500,000.00) to be paid by DDD to the Owner
in accordance with clause 3.1;
1.1.8 "Original Contract" means the Contract for Sale of
Land by Offer and Acceptance dated 14 August 1998
made between the Owner and DDD whereby the Owner
agreed to sell and DDD agreed to buy the Land on the
terms covenants and conditions contained therein as
amended.
1.1.9 "Purchase Price" means Two Million Dollars
($2,000,000.00);
1.1.10 "Put Option" means the option granted under clause
4.1; and
1.2 In the interpretation of this Deed unless repugnant to the
sense or context:
1.2.1 a reference to any statute or act includes all
statutes and acts (State or
2
<PAGE>
Federal) for the time being enacted amending
consolidating modifying or replacing any statutes
and all regulations by-laws requisitions or orders
made under any statute from time to time by any
statutory public or other competent authority and
any statutes or acts enacted in substitution for
any statute or act;
1.2.2 references to sections shall be references to all the
clauses under the heading of the section to which the
reference relates;
1.2.3 where 2 or more persons are parties hereto the
covenants and agreements on their part shall bind
them and any 2 or greater number of them jointly and
severally; and
1.2.4 a reference to any Party shall include a reference to
their assigns and successors or legal personal
representatives as the case may be.
2. CANCELLATION OF ORIGINAL CONTRACT
2.1 The parties mutually covenant and agree that immediately upon
the date of execution of this Deed the Original Contract shall
be deemed to have come to an end and the deposit and all other
moneys (if any) paid pursuant to the Original Contract shall
be then refunded to DDD and there shall be no further claim
under the Original Contract by either party, agent or other
person at law or in equity.
3. CALL OPTION
3.1 CALL OPTION
In consideration of payment by DDD to the Owner of the Option
Fee which shall be paid immediately on the Commencement Date
the Owner grants to
3
<PAGE>
DDD and/or its nominee the irrevocable option to purchase the
Land for the Purchase Price free from all encumbrances (save
and except the restrictive covenant contained in Transfer
G548183 and Easement G708737 upon the terms and conditions set
out in the Contract.
3.2 EXERCISE OF CALL OPTION
The Call Option may only be exercised at any time during the
period commencing on the Commencement Date and expiring at
5.00pm on the Expiry Date by DDD and/or its nominee serving on
the Owner a notice signed on behalf of DDD and/or its nominee
in the form or to the effect of the form of notice set out in
Schedule 2 of this Deed.
4. PUT OPTION
4.1 In consideration of the payment by the Owner to DDD of the sum
of $1.00 simultaneously with the signing of this Deed, the
receipt of which DDD acknowledges, DDD grants to the Owner the
irrevocable option to require DDD and/or its nominee to
purchase the Land for the Purchase Price free from all
encumbrances (save and except the restrictive covenant
contained in Transfer G548183 and Easement G708737 upon the
terms and conditions set out in the Contract.
4.2 EXERCISE OF PUT OPTION
The Put Option may only be exercised at any time during the
period commencing on 1 December 1999 and expiring at 5.00pm on
14 December 1999 by the Owner serving on DDD a notice signed
by the Owner in the form or to the effect of the form of
notice set out in Schedule 4 of this Deed.
4
<PAGE>
5. NOTICE OF NOMINATION
5.1 Subject to clause 9.3.1 and specifically the requirement
contained in clause 9.3.1.2 for the nominee to exercise the
Call Option, if at anytime prior to the Expiry Date and at or
prior to the exercise by DDD of the Call Option or the
exercise by the Owner of the Put Option DDD shall serve on the
Owner a notice signed on behalf of DDD in the form or to the
effect of the form of notice set out in Schedule 3 of this
Deed advising of the name and address of DDD's nominee,
thereafter for all purposes of this Deed the nominee shall be
substituted for DDD as if the nominee had been named in this
Deed as a party in lieu of DDD and all references to DDD in
this Deed shall thereafter be deemed to be references to DDD's
nominee.
6. EFFECT OF THE EXERCISE OF AN OPTION
If either DDD and/or its nominee (as the case may be) exercises the
Call Option or the Owner exercises the Put Option, a contract shall be
and be deemed to be created pursuant to which the Owner is bound to
sell the Land to DDD and/or its nominee (as the case may be) and DDD
and/or its nominee (as the case may be) is bound to purchase the Land
for the Purchase Price and on the terms of the Contract and the
settlement date shall be the date provided in the Contract.
7. OPTION FEE
The Option Fee shall be non-refundable and upon payment shall belong to
the Owner absolutely and whether or not the Call Option or the Put
Option is exercised and nothing contained in this Deed in general or
the provisions of clause 5 and clause 9.3 in particular if acted upon
by DDD shall oblige the Owner to repay the whole or any part of the
Option Fee to DDD or any of its nominees or assignees.
5
<PAGE>
8. GENERAL CONDITIONS
The Joint Form of General Conditions for the Sale of Land, 1998
revision shall be incorporated in and deemed to be part of the Contract
except to the extent that they are varied by or inconsistent with the
terms of this Deed or the express terms of the Contract.
9. MISCELLANEOUS
9.1 NOTICES
All notices to be given by or pursuant to this Deed in general
and any notices pursuant to clauses 3.2 and 4.2 in particular
shall be given in writing and either personally served or sent
by registered post addressed as follows:-
DDD:
To: Dynamic Digital Depth (Australia) Pty Ltd
Address: 41 Walters Drive
Herdsman Business Park
OSBORNE PARK WA 6017
THE OWNER:
To: Boston Tower Pty Ltd
Address: 11 Grove End Ridge
Mt Claremont WA 6110
Notices shall be deemed served or given:-
9.1.1 if personally served, by being left at the address of
the party to whom the notice is given between the
hours of 9.00am and 5.00pm on which all banks are
open for business in Western Australia, then in such
case at the time the notice is so delivered;
9.1.2 if sent by registered post 72 hours after the time of
posting.
6
<PAGE>
Any party may change its address for receipt of notices at any
time by giving notice of such change to the other party. Any
notice given under this Deed may be signed on behalf of any
party by the duly authorised representative of that party and
shall be sent to all other parties to this Deed.
9.2 FURTHER ASSURANCES
Each party covenants and agrees with the other that it will
make execute do and sign all further acts, deeds, matters and
things as may give effect to the terms, covenants, condition
and intentions of this Deed provided that DDD shall indemnify
the Owner against all expenses reasonably incurred by the
Owner in complying with the requirements of this clause.
9.3 ASSIGNMENT
9.3.1 DDD has the right to assign all of its rights,
obligations or benefits under this Deed by giving
written notice of nomination in the form of
Schedule 3 to the Owner at any time subject to:
9.3.1.1 the Owner's consent which consent
shall not be unreasonably withheld
and the Owner shall promptly
consider DDD's application for that
consent and provide its response to
DDD within 14 days from the date of
DDD's request; and
9.3.1.2 the nominee specified in the written
notice of nomination exercising the
Call Option in accordance with
clause 3 contemporaneously with the
giving of the written notice of
nomination provided that the
exercise of the Call Option shall
not be effective unless and until
the Owner
7
<PAGE>
has consented to the assignment as
required by Clause 9.3.1.1.
9.3.2 The Owner may only assign all (but not part) of
its rights obligations and benefits under this
Deed in the Land subject to first procuring the
assignee to enter into a deed with DDD to be
prepared by DDD at the cost of the Owner pursuant
to which the assignee covenants with DDD to be
bound by the terms of this Deed.
9.3.3 The Owner may only assign all (but not only part)
of its rights obligations and benefits under this
Deed in the Land subject to first procuring the
assignee to enter into a deed with DDD to be
prepared by DDD at the cost of the Owner pursuant
to which the assignee covenants with DDD to be
bound by the terms of this Deed.
9.4 TERMINATION OF LEASE
Notwithstanding clause 3, if the Lease is at any time
terminated pursuant to clause 5.2 of the Lease then clause 3
and 4 of this Deed shall not apply and DDD shall not be
entitled to exercise the Call Option and the owner shall not
be entitled to exercise the Put Option provided that the owner
shall be entitled to keep the Option Fee absolutely in
accordance with clause 7.
9.5 PROPER LAW
The Laws of the State of Western Australia and where
applicable the Commonwealth of Australia shall apply to this
Deed and the parties submit to the jurisdiction of the courts
of Western Australia and the courts having jurisdiction to
hear appeals therefrom.
9.6 COSTS
8
<PAGE>
DDD shall pay the Owner's reasonable legal costs and expenses
incurred by the Owner in connection with the preparation and
negotiation of this Deed and of any related documentation
provided for by this Deed together with all reasonable and
proper disbursements incurred by the Owner's solicitors in
connection with those matters and DDD shall pay all stamp duty
assessed in respect of this Deed and documentation associated
with this Deed hereon.
Executed as a Deed
9
<PAGE>
THE COMMON SEAL of )
DYNAMIC DIGITAL DEPTH )
(AUSTRALIA) PTY LTD )
(ACN 060 154 949) )
was hereunto affixed by )
authority of the Directors )
in the presence of: )
Director:
Director/Secretary:
THE COMMON SEAL of )
BOSTON TOWER PTY LTD )
(ACN 071 187 187) )
was hereunto affixed by )
authority of the Directors )
in the presence of: )
Director:
Director/Secretary:
10
<PAGE>
SCHEDULE 1
LAND
6-8 Brodie-Hall Drive Technology Park, Bentley more particularly described as
part of lot 53 on Diagram 74187 and being the whole of the land comprised in
Certificate of Title Volume 2103 Folio 138.
11
<PAGE>
SCHEDULE 2
FORM OF NOTICE OF EXERCISE OF CALL OPTION
NOTICE OF EXERCISE OF CALL OPTION
This notice is delivered by (Dynamic Digital Depth (Australia) Pty Ltd (ACN
060 154 949) ("DDD") (or the nominees name if appropriate) ("the Nominee") in
terms of the Deed dated the day of 1998 made between Boston Tower Pty
Ltd and DDD.
(DDD or the nominee if appropriate) gives notice to Boston Tower Pty Ltd under
clause 3.2 of that Deed that it exercises the Option to purchase the Land as
defined in and in accordance with the provisions of the Deed.
Dated the day of 199
------------ ------------------ ----
- ----------------------------
12
<PAGE>
SCHEDULE 3
FORM OF NOTICE OF NOMINATION
NOTICE OF NOMINATION
This notice is delivered by Dynamic Digital Depth (Australia) Pty Ltd (ACN 060
154 949) ("DDD") in terms of the Deed dated the day of 1998 made between Boston
Tower Pty Ltd ("the Owner"), and DDD ("the Deed").
DDD hereby irrevocably notifies the Owner that DDD has nominated
_________________ to the exclusion of DDD as its nominee for the purposes of the
Deed.
Dated the day of 199
------------- ---------------------- ----
THE COMMON SEAL of )
DYNAMIC DIGITAL DEPTH )
(AUSTRALIA) PTY LTD )
was hereunto affixed by )
authority of the Directors )
in the presence of: )
Director:
Director/Secretary:
- ------------------------------------------------------
of
---------------------------------------------------
being the abovenamed nominee hereby consents to this nomination and agrees with
the Owner to comply with the provisions of this Deed and to be bound by and have
all of the rights, benefits and obligations of DDD pursuant to the Deed in
general and acknowledges and agrees to be bound by the provisions of clause 7 in
particular.
[Insert Sealing Clause for Nominee]
Dated the day of 199
--------------------- ----------------------- ----
- ---------------------------------------------------------------------------
13
<PAGE>
SCHEDULE 4
FORM OF NOTICE OF EXERCISE OF PUT OPTION
NOTICE OF EXERCISE OF PUT OPTION
This notice is delivered by Boston Tower Pty Ltd (ACN 071 187 187) in terms
of the Deed dated the day of 1998 made between Boston Tower Pty Ltd
and Dynamic Digital Depth (Australia) Pty Ltd (ACN 060 164 949) ("DDD").
Boston Tower Pty Ltd gives notice to DDD under clause 4.2 of that Deed that it
exercises the Put Option to sell the Land as defined in and in accordance with
the provisions of the Deed.
Dated the day of 199
--------------- --------------- ----
14
<PAGE>
SCHEDULE 5
CONTRACT
15
<PAGE>
DYNAMIC DIGITAL DEPTH (AUSTRALIA) PTY LTD
(ACN 060 154 949)
- and -
BOSTON TOWER PTY LTD
(ACN 071 187 187)
--------------------------------
OPTION DEED
--------------------------------
Solomon Brothers
40th Floor
Exchange Plaza
2 The Esplanade
PERTH WA 6000
Ref: BCD/sw/6572034
<PAGE>
Exhibit 3(9)
BOSTON TOWER PTY LTD
(ACN 071 187 187)
("the Lessor")
- and -
DYNAMIC DIGITAL DEPTH (AUSTRALIA) PTY LTD
(ACN 060 154 949)
("the Lessee")
- and -
DYNAMIC DIGITAL DEPTH INCORPORATED
("the Guarantor")
-------------------------------------------------
LEASE
6-8 BRODIE HALL DRIVE TECHNOLOGY PARK
-------------------------------------------------
Solomon Brothers
Solicitors
Level 40, Exchange Plaza
2 The Esplanade, Perth WA 6000
Ph: 9221 5888 Fax: 9221 5955
Ref: BCD/DHS/6480150
<PAGE>
TABLE OF CONTENTS
Clause Subject Matter
1. Interpretation
2. Lease and Rent
3. Lessee's Covenants
3.1 Payment of Rent
3.2 Outgoings
3.3 Power Telephone and Other Services
3.4 Payment of Costs
3.5 Indemnities
3.6 Insurance
3.7 Evidence of Insurance and Renewal
3.8 Voiding Insurance Policies
3.9 Hazards
3.10 Repairs and Maintenance
3.11 Painting
3.12 Cleaning
3.13 Further Repairs and Maintenance
3.14 Malfunctions in the Premises
3.15 Protection of Floor coverings
3.16 No alterations or Additions
3.17 Legislation Orders and Regulations
3.18 Permitting Lessor to Enter and Inspect
3.19 Lessor's Rights to Repair
3.20 Air-Conditioning Plant
3.21 No Auction Sales
3.22 No Overloading
3.23 No Sign Antenna or Amplifier
3.24 Keeping Authorised Signs in Good Order
3.25 Nuisance
3.26 Equipment Restrictions
3.27 No Dropping or Throwing
3.28 Sanitary Appliances
3.29 Use of Premise
3.30 Town Planning
3.31 Lessee's Representative
3.32 Access to Premises
3.33 Assignment and Subletting
3.34 Lessee's Liabilities to Continue
<PAGE>
3.35 Caveats
3.36 Give Notices
3.37 Permit Intending Tenants or Purchasers to Inspect
3.38 Remove Fixtures and Fittings
3.39 Keep Secure
3.40 Yield Up
4. Lessor's Covenants
4.1 Quiet Enjoyment
4.2 Mortgagee's Consent
4.3 Lessor's Consent
4.4 Lessor entering the Premises
4.5 Payment of Outgoings Not the Responsibility of the Lessee
4.6 Structural Repairs
4.7 Structural Works
5. Mutual Covenants
5.1 Damages
5.2 Default Provisions
5.3 Essential Terms
5.4 Damage to the Premises
5.5 Exclusion of Warranties
5.6 Ownership of Fixtures and Fittings
5.7 Holding Over
5.8 Moratorium
5.9 Severance
5.10 Waiver
5.11 Service of Notices
5.12 Option of Renewal
5.13 Arbitration
5.14 Special Conditions
5.15 State Planning Commission Approval
5.16 Governing Law
5.17 Strata Titles Act
5.18 Common Areas, Variable Outgoings
6. Power of Attorney
7. Guarantee
7.1 Guarantee and Indemnity
7.2 Unlimited Liability
7.3 Continuing Guarantee and Indemnity
7.4 Preservation of Guarantor's Liability
7.5 Suspension of Guarantor's Rights
7.6 No Deduction from Payments
<PAGE>
7.7 Payments in Gross
7.8 Securities
7.9 Other Securities and Obligations of Guarantor
7.10 Ownership of this Document
7.11 Non-Liability of other Persons
7.12 Reinstatement of the Lessor's Rights
7.13 Notices
7.14 Certificate as to the Secured Moneys
7.15 Application of Moneys
7.16 Acknowledgment by Guarantor
7.17 Interpretation
The Schedule
<PAGE>
THIS LEASE is made on the day 19 .
BETWEEN:
BOSTON TOWER PTY LTD (ACN 071 187 187) of 11 Grove End Ridge Mt. Claremont in
the State of Western Australia ("the Lessor");
- - and -
DYNAMIC DIGITAL DEPTH (AUSTRALIA) PTY LTD (ACN 060 154 949) of 41 Walters Drive,
Herdsman Business Park, Osborne Park in the State of Western Australia ("the
Lessee");
- - and -
DYNAMIC DIGITAL DEPTH INCORPORATED of care of Suite 1600, 407 Second Street,
S.W. Calgary, Canada ("the Guarantor").
WHEREAS:
A. The Lessor is the registered proprietor of an estate in fee simple in
the Land on which is constructed the Premises.
B. At the request of the Guarantor and the Lessee the Lessor has agreed to
lease and the Lessee has agreed to take on lease the Premises for the
Term on the terms and conditions contained herein.
NOW THIS DEED WITNESSES:
1. INTERPRETATION
1.1 In this Lease unless the context otherwise requires the following
terms shall have the following meanings:
"AIR-CONDITIONING PLANT" means any plant, machinery or equipment
for heating, cooling or circulating air or water provided or
installed in the Premises by the Lessor;
"COMMENCEMENT DATE" means the date specified in Item 2 of the
Schedule;
"COMMON PROPERTY" means the common property comprised in the Strata
Plan;
"CORPORATION" means any body corporate;
"CURRENT MARKET RENTAL VALUE" means the current market rental value
specified in Item 9 of the Schedule;
"EXPIRATION DATE" means the date specified in Item 2 of the
Schedule;
"EXTENDED TERM" means the term (if any) specified in Item 7 of the
Schedule;
"FITOUT WORKS" means those works to be carried out by the Lessee to
prepare the Premises
<PAGE>
for occupation and use by the Lessee, details of which shall be set
out in plans and specifications to be approved by the parties and
signed by them to evidence their approval;
"GUARANTOR" if a natural person includes the Guarantor and the
executors and administrators of the Guarantor and if a corporation
includes the successors and assigns of the Guarantor;
"INSTITUTE OF VALUERS" means the Australian Institute of Valuers
and Land Economists (Inc.) (Western Australian Division) or if that
body should cease to exist any other body which the Lessor may
notify the Lessee in writing from time to time is to be the
Institute of Valuers for the purposes of this Lease;
"LAND" means the land specified in Item 1 of the Schedule;
"LEASE" means this lease and the Schedule;
"LESSEE" if a natural person includes the Lessee and the executors
administrators and permitted assigns of the Lessee and if a
Corporation includes the Lessee and its successors and permitted
assigns and in either case where not repugnant to the context
includes the Lessee's Employees or Visitors;
"LESSEE'S COVENANTS" means the covenants terms and conditions
herein expressed or implied to be observed or performed by the
Lessee;
"LESSEE'S EMPLOYEES OR VISITORS" means every employee of the Lessee
and the Lessee's agents customers clients visitors invitees
licensees contractors and any other person at any time upon the
Premises;
"LESSEE'S FITTINGS" means all those fixtures, fittings and
furnishings comprising part of the Fitout Works;
"LESSOR" means the Lessor and its successors and assigns and where
not repugnant to the context its employees and agents;
"LESSOR'S AGENT" means any Person or Corporation which the Lessor
may from time to time notify the Lessee in writing is an agent of
the Lessor;
"LESSOR'S EXPENSES" means the Lessor's expenses of operating,
repairing, or maintaining a building of which the Premises forms a
part;
"LESSOR'S PURPOSES" means the passage or flow of water gas fuel
electricity sewerage garbage sullage air conditioning heating
cooling and ventilation telephone public address fire detection and
protection and other services in or about or through above or below
the Premises;
"LOCAL OR PUBLIC AUTHORITY" means every Governmental or
Semi-Governmental body, authority or commission, Municipal Council,
Health Board, Health Commissioner, Water Authority, Water Sewerage
and Drainage Board, Metropolitan Water Board, Fire Brigades Board,
Insurance Council and every and any other board person or authority
whatsoever now or hereafter exercising under any Act or by-law any
control or jurisdiction over or
<PAGE>
power in connection with the Premises or any part thereof or
with any business now or hereafter carried on thereon or with any
water gas fuel electricity sewerage garbage sullage heating cooling
ventilation or other services in or about the Premises and every
officer or person acting under the authority of any Act by-law or
Local or Public Authority;
"OUTGOINGS" means the outgoings specified in Item 8 of the
Schedule;
"PERSON" means a natural person or corporation;
"PREMISES" means the premises (if any) specified in Item 1 of the
Schedule erected on the land together with the fixtures fittings
chattels furnishings plant machinery and equipment of the Lessor
(if any) therein from time to time details of which or some of
which are specified in Item 1 of the Schedule;
"PRESCRIBED RATE" means the rate of interest specified in Item 4 of
the Schedule;
"RENT" means the rent specified in Item 3 of the Schedule as
subsequently reviewed and varied pursuant to the provisions of this
Lease;
"RENT REVIEW DATE" means each of the dates specified in Item 5 of
the Schedule;
"SCHEDULE" means the schedule to this Lease;
"STRATA COMPANY" means the owners of the building and its
successors created upon the registration of the Strata Plan;
"STRATA COMPANY BY-LAWS" means Parts I and II of the By-laws of the
Strata Company as adopted by the Strata Company and includes any
amendments thereto;
"STRATA PLAN" means a Strata Plan registered or to be registered
pursuant to the provisions of the Strata Titles Act and all matters
contained or endorsed upon or annexed to the Strata Plan and
includes any amendments thereof;
"TERM" means the term of this Lease specified in Item 2 of the
Schedule which term shall commence on the Commencement Date and
expire on the Expiration Date and includes any extension or renewal
of the Term; and
"VALUER" or "VALUERS" means a valuer of not less than five (5)
years experience in valuing commercial properties who is a member
of the Institute of Valuers nominated by the President for the time
being of the Institute of Valuers at the request of the Lessor.
1.2 In this Lease unless the context otherwise requires:
1.2.1 a reference to any Act shall include all amendments or
re-enactments thereof for the time being in force;
1.2.2 any covenant entered into by more than one person
shall be deemed to have been entered into by them and
any two or more of them jointly and by each of them
severally; and
<PAGE>
1.2.3 the captions and the headings to the Clauses of this
Lease are for index purposes only and this Lease is to
be read and construed as though the captions and
headings were not part of this Lease and without
reference to the captions and headings.
1.3 The covenants herein on the part of the Lessee to be performed and
observed shall be deemed to be made by the Lessee to the intent
that such obligations may continue throughout the whole of the Term
and during any period of holding over and be binding upon and
enforceable not only against the Lessee but also against any
occupier whomsoever for the time being of the Premises or any part
thereof.
2. LEASE AND RENT
2.1 LEASE
The Lessor leases to and the Lessee takes the Premises for the Term
subject to the covenants implied by the Transfer of Land Act 1893
except as herein amended or negatived and upon and subject to the
terms, covenants, conditions and stipulations contained herein
PROVIDED THAT (without limiting any other right hereby granted or
becoming vested in the Lessor) the Lessor shall be entitled to
access to and the rights reserved in respect of the Premises in the
terms hereof.
2.2 RENT
The Lessee shall pay the Rent for the Premises to the Lessor in the
manner provided in clause 3.1.
2.3 DATES FOR PAYMENT OF RENT
The Rent shall be paid in advance by equal monthly instalments on
the dates specified in Item 3 of the Schedule.
2.4 RENT REVIEW
[intentionally deleted]
3. LESSEE'S COVENANTS
The Lessee COVENANTS with the Lessor that:
3.1 PAYMENT OF RENT
The Rent shall be paid by the Lessee free of deductions to the
Lessor at the times, in the manner and at the address in Perth
referred to in Item 3 of the Schedule or to such other place or to
such agent or to such bank or other financial institution account
as the Lessor shall from time to time specify by notice in writing
to the Lessee.
3.2 OUTGOINGS
3.2.1 The Lessee shall throughout the Term duly and
punctually pay the Outgoings.
<PAGE>
Where any Outgoings are not separately assessed or
charged in respect of the Premises the Lessee shall
pay the same proportion thereof as the area of the
Premises bears to the net lettable area of the land or
premises the subject of the assessment or charge. At
the commencement of the Term and at the expiration or
sooner determination thereof the Outgoings shall (if
necessary) be apportioned as between the Lessor and
the Lessee.
3.2.2 In connection with payment of the Outgoings the Lessor
may serve on the Lessee notice of the Outgoings or any
of them and the Lessee shall pay to the Lessor (or as
the Lessor may otherwise direct) the amount of the
Outgoings stated in the notice and shall indemnify and
keep indemnified the Lessor against all claims,
penalties, fines or charges arising from late payment
of any of the Outgoings.
3.3 POWER TELEPHONE AND OTHER SERVICES
3.3.1 The Lessee shall pay not later than the due date for
payment specified in the first account or demand
received in respect thereof all charges for water,
excess water, gas, electricity, fuel, telephone or
other services, utilities or facilities (in respect of
meter rental use or consumption calls reconnection
relocation or otherwise) relating to the Premises or
the use or occupation thereof.
3.4 PAYMENT OF COSTS
The Lessee shall pay on demand to the Lessor:
3.4.1 all reasonable legal costs charges and expenses
incurred by the Lessor as a result of or attributable
to any default by the Lessee in observing or
performing any of the Lessee's Covenants including
without limitation all costs charges expenses and fees
relating to the preparation and service of a notice
under Section 81 of the Property Law Act 1969
requiring the Lessee to remedy any breach of any of
the Lessee's covenants notwithstanding that forfeiture
for the breach shall be avoided otherwise than by
relief granted by the Court;
3.4.2 the costs of the Lessor's solicitors of and incidental
to the instructions for and drawing and engrossing and
stamping and registering this Lease and all
counterparts thereof and all negotiations and drafts
in respect thereto;
3.4.3 interest at the Prescribed Rate on all Rent and other
moneys payable by the Lessee to the Lessor under this
Lease but unpaid for more than fourteen (14) days from
the respective due date computed on a daily basis on
the amount from time to time remaining owing from and
including the due date until the date of payment.
3.5 INDEMNITIES
The Lessee shall use occupy and keep the Premises at the risk of
the Lessee in all respects and releases to the full extent
permitted by law the Lessor its employees agents and contractors
from all costs claims actions proceedings demands expenses
judgments damages or losses of any kind whatever resulting from or
attributable to any accident damage loss death or injury occurring
at in or on or in the vicinity of the Premises except to the extent
<PAGE>
that the same is caused by any act, neglect, default or omission on
the part of the Lessor its employees agents or contractors. Without
limiting the generality of the foregoing the Lessee shall indemnify
and keep indemnified the Lessor from and against:
3.5.1 all costs claims actions proceedings demands expenses
judgments damages and losses suffered or incurred by
the Lessor in connection with or resulting from the
loss of life of or personal injury to any person or
damage to any property wherever occurring arising from
or out of or attributable to any occurrence in or
about the Premises occasioned wholly or in part by any
act neglect default or omission by the Lessee or any
of the Lessee's Employees or Visitors at in or on or
in the vicinity of the Premises; and
3.5.2 any damage to the Premises or any other land or
building or other property arising from or
attributable to the negligent use or misuse by the
Lessee or any of the Lessee's Employees or Visitors of
any fixtures and fittings furnishings plant or
equipment used or required in connection with the
Lessor's Purposes or to the negligent use, misuse,
waste or abuse of the water, gas, fuel, electricity,
or other services or utilities or facilities in the
Premises.
3.6 INSURANCE
3.6.1 Notwithstanding Item 8(b) of the Schedule the Lessee
shall at the Lessee's expense effect and at all times
maintain with a public insurance office approved by
the Lessor on behalf of the Lessee and the Lessor for
their respective rights and interests:
3.6.1.1 a policy to cover all plate glass (if
any) in the Premises against damage or
destruction to the full insurable value
thereof; and
3.6.1.2 a public liability policy with a cover of
not less than TEN MILLION DOLLARS
($10,000,000) or any increased sum which
the Lessor may from time to time specify
in respect of any one occurrence. The
policy of insurance shall cover all
claims demands proceedings judgments
damages costs and losses of any nature
whatsoever in connection with the loss of
life of and or personal injury to any
person and or damage to any property
(wheresoever occurring) arising from or
out of any occurrence at or in the
vicinity of the Premises or any part
thereof or occasioned wholly or in part
by any act neglect default or omission by
the Lessee or by the Lessee's Employees
or Visitors.
3.6.2 All moneys recovered in respect of any insurance under
paragraphs 3.6.1.1 and 3.6.1.2 above shall be
forthwith expended by the Lessee in the satisfaction
reinstatement or replacement of those items for which
the moneys are received to the extent that those
moneys are sufficient for the purpose and the Lessee
shall make up any deficiency from the Lessee's own
moneys.
3.7 EVIDENCE OF INSURANCE AND RENEWAL
The Lessee shall pay not later than the date for payment specified
in the first premium
<PAGE>
notice or demand received in respect thereof all premiums in
respect of the insurances to be effected and maintained by the
Lessee as herein provided and on demand shall produce any evidence
of the policies and of the renewal thereof which the Lessor may
from time to time require.
3.8 VOIDING INSURANCE POLICIES
The Lessee shall not at any time during the Term do, permit or
suffer to be done any act matter or thing upon the Premises whereby
any insurances in respect of the Premises may be vitiated or
rendered void or voidable or whereby the rate of premium on any
insurance shall be liable to be increased. If the Lessee shall do
or permit to be done any act matter or thing which has the effect
of invalidating or avoiding any policy of insurance taken out by
the Lessor or the Lessee then the Lessee shall be responsible for
any damage or loss which they may suffer or incur as a result
thereof and shall pay to the Lessor any increased amount of premium
over the existing premium which may be charged on any insurance
covering the Premises (and anything contained therein) if the
increased amount is caused by the nature of the business from time
to time carried on by the Lessee or other occupier of the Premises
or by reason of any act or omission of the Lessee or other occupier
of the Premises.
3.9 HAZARDS
The Lessee shall not without obtaining the Lessor's prior written
consent bring onto or keep or permit to be brought onto or kept in
or about the Premises any article thing or substance of a dangerous
hazardous or inflammable nature or permit any conduct in or about
the Premises which shall or may increase the rate of any premium
payable in respect of any policy of insurance in relation to the
Premises. If:
3.9.1 in contravention of the above any policy of insurance
is invalidated avoided or the payment of any moneys
thereunder refused then without prejudice to any other
claims or rights of the Lessor against the Lessee or
any other person in respect thereof the Lessee shall
pay on demand the full amount of any damage loss or
deficiency as the case may be incurred by the Lessor
as a result of or attributable to the breach; and
3.9.2 as a result of a contravention of the above any extra
premium shall be payable in respect of any insurance
policy the Lessee shall forthwith pay all extra
premiums.
3.10 REPAIRS AND MAINTENANCE
The Lessee shall at the Lessee's expense:
3.10.1 keep the Premises and all additions thereto the
exterior and interior entrances thereto and all plate
glass (if any) all sewerage water electrical and
plumbing installations fixtures and fittings all
Air-Conditioning Plant floor coverings windows
partitions fixtures fittings plant equipment and
furnishings including doors door locks and fittings
therein clean and in good substantial and functional
repair order and condition (damage by fair wear and
tear or any risk insured against to the extent of the
moneys recovered under any insurance cover
<PAGE>
excepted);
3.10.2 repair and make good any damage to the Premises or any
fixtures and fittings furnishings plant and equipment
respectively comprised therein resulting from or
attributable to the want of care negligence misuse or
abuse by the Lessee or any of the Lessee's Employees
or Visitors or from any breach of any of the Lessee's
Covenants; and
3.10.3 replace forthwith in the Premises all electric light
fittings light bulbs globes and fluorescent tubes
which may become damaged broken or which shall fail to
function,
Provided that nothing in this clause shall require the Lessee to
carry out any structural or capital maintenance, replacement or
repair except where rendered necessary by any act or omission of
the Lessee or the Lessee's Employee's or Visitors or where any
structural or capital maintenance replacement or repair is
necessary by virtue of any works carried out to the Premises by the
Lessee or caused to be carried out by the Lessee.
3.11 PAINTING
Unless specified to the contrary in Item 10 of the Schedule during
the final two (2) months of the Term or upon the earlier
determination of the Term and if the Term is extended or renewed
during the last two (2) months of any extended or renewed term or
upon the earlier determination thereof the Lessee shall paint,
paper and decorate all those parts of the interior and exterior of
the Premises as have been previously painted papered or decorated
in a good and tradesmanlike manner and with good quality and
suitable materials in colours and designs previously approved of by
the Lessor.
3.12 CLEANING
The Lessee shall at the Lessee's expense:
3.12.1 keep the Premises and its entrances and surrounds in a
thorough state of cleanliness and not allow to
accumulate or remain therein or thereabouts any
discarded rubbish papers cartons boxes containers or
other waste products and shall leave rubbish
containers outside the Premises only in those areas
and at those times and for those periods from time to
time prescribed for that purpose by the Lessor;
3.12.2 keep the Premises free and clear of all rodents vermin
insects birds animals termites and other pests and if
the Lessee fails to do so the Lessee shall if and so
often as necessary employ pest exterminators approved
by the Lessor to carry out the necessary work; and
3.12.3 if required by the Lessor permit access by any
cleaning contractor and its employees and
sub-contractors nominated by the Lessor to the
Premises at all necessary times for cleaning purposes.
3.13 FURTHER REPAIRS AND MAINTENANCE
<PAGE>
The Lessee shall at the Lessee's expense:
3.13.1 employ forthwith upon the same becoming necessary such
qualified tradesmen or contractors approved by the
Lessor to remedy any malfunction in any fixtures
fittings furnishings plant and equipment;
3.13.2 clean regularly any grease traps (whether within the
Premises or not) serving the Premises;
3.13.3 keep and maintain all gardens, lawns, court yards,
grounds and yards (if any) in a good, clean, neat and
tidy state of repair and condition; and
3.13.4 keep the Lessor indemnified in respect of all the
matters referred to in paragraphs 3.13.1, 3.13.2 and
3.13.3 above,
Provided that nothing in this clause shall require the Lessee to
carry out any structural or capital maintenance, replacement or
repair except where rendered necessary by any act or omission of
the Lessee or the Lessee's Employee's or Visitors or where any
structural or capital maintenance replacement or repair is
necessary by virtue of any works carried out to the Premises by the
Lessee or caused to be carried out by the Lessee.
3.14 MALFUNCTIONS IN THE PREMISES
The Lessee shall pay to the Lessor forthwith upon demand the
reasonable cost of remedying any malfunction in or damage to any of
the Lessor's fixtures fittings furnishings plant and equipment in
the Premises caused by or contributed to by any act neglect or
default on the part of the Lessee or the Lessee's Employees or
Visitors.
3.15 PROTECTION OF FLOOR COVERINGS
3.15.1 The Lessee shall at the Lessee's expense:
3.15.1.1 keep and maintain any floor coverings
from time to time installed by the Lessor
in the Premises in good clean and
substantial repair and condition (damage
by fair wear and tear and by any risk
insured against to the extent of the
moneys recovered under any insurance
cover excepted); and
3.15.1.2 protect the floor coverings from
excessive wear by the provision of any
protective devices which the Lessor may
from time to time reasonably require.
3.15.2 The Lessee shall not without obtaining the prior
written approval of the Lessor cut alter or replace
any floor coverings installed by the Lessor in the
Premises or install any other floor coverings therein.
3.16 NO ALTERATIONS OR ADDITIONS
3.16.1 The Lessee shall not without obtaining the prior
written approval of the Lessor and all necessary Local
or Public Authorities (which approval shall not be
<PAGE>
unreasonably withheld):
3.16.1.1 make or permit to be made any alterations
or additions in the construction or
arrangement of the Premises (including
without limitation any partitions or any
major plumbing electrical airconditioning
emergency or other installations or
services in or used in connection with
the Premises);
3.16.1.2 cut maim or injure any of the walls roofs
partitions timbers doors or floors of the
Premises; or
provided that the Lessee may at any time and from time
to time erect or install any internal partitions
fixtures or fittings in the Premises without having to
obtain the prior written approval of the Lessor.
3.16.2 Any works approved by the Lessor shall be carried out:
3.16.2.1 only by contractors or tradesmen approved
of by the Lessor (which approval shall
not be unreasonably withheld) and in
accordance with plans specifications and
schedules of works materials and finishes
approved in writing by the Lessor before
any works are commenced; and
3.16.2.2 at the Lessee's expense in all respects
including the reasonable costs of any
architects builders or other qualified
persons consulted by the Lessor in
considering any proposals and in
examining the progress and completion
thereof and all costs in relation to the
relocation or alteration of or adjustment
to any major plumbing electrical
air-conditioning emergency or other
installations and services affected by
those works.
3.17 LEGISLATION ORDERS AND REGULATIONS
3.17.1 The Lessee shall at the Lessee's expense duly and
punctually comply with and observe and indemnify the
Lessor in respect of all present and future Acts
(State or Federal) ordinances orders regulations and
by-laws and all orders requirements and notices from
or by any Local or Public Authority which relate or
apply to the Premises or any part thereof or the use
or occupancy thereof or the number or sex of the
persons working in or from or at any time occupying or
visiting the Premises including the carrying out of
any repairs alterations or works to or the provision
of fire alarms or other emergency services in or for
the Premises.
3.17.2 If any compliance or observance includes a requirement
for structural alterations or additions to the
Premises the Lessee's obligations hereunder shall in
respect thereof only apply thereto insofar as they
relate to the Lessee's business or the use to which
the Premises are put by the Lessee or the number or
sex of the Lessee's Employees or Visitors.
3.17.3 All works which the Lessee is required to carry out
shall be carried out only by
<PAGE>
contractors and tradesmen approved of by the Lessor
and in accordance with plans specifications and
schedules of works materials and finishes approved in
writing by the Lessor before any works are commenced.
3.18 PERMITTING LESSOR TO ENTER AND INSPECT
When and so often as the Lessor shall reasonably require the Lessor
may accompanied by a representative of the Lessee enter the
Premises at all reasonable times and upon giving reasonable prior
notice (except in case of emergency) to view the state of repair
and condition thereof and to make any reasonable investigations
which the Lessor may deem necessary to ascertain whether or not
there has been any breach of any of the Lessee's Covenants and to
serve upon the Lessee a notice in writing of any default there
found requiring the Lessee to remedy the default in accordance with
any covenant.
3.19 LESSOR'S RIGHTS TO REPAIR
3.19.1 If the Lessee fails to remedy any breach of any of the
Lessee's obligations to repair under the terms of this
Lease within fourteen (14) days of the date of service
of a notice upon the Lessee requiring the Lessee to
remedy the breach the Lessor without being under any
obligation so to do may itself or by its employees
agents and contractors without further notice enter
the Premises at any reasonable time and to any extent
necessary remain thereon with all necessary plant
equipment and materials and carry out any repairs
which the Lessor shall think fit.
3.19.2 If in the Lessor's opinion any repairs for which the
Lessee is liable are required to be carried out as
emergency repairs the Lessor shall use its best
endeavours to notify the Lessee of its intention to
enter the Premises and carry out emergency repairs and
the Lessor and the Lessor's employees agents and
contractors may to any extent necessary remain on the
Premises at any time to carry out any of those repairs
and in respect of any work carried out by the Lessor
pursuant to this subclause or the preceding subclause
the Lessee shall pay on demand to the Lessor the
reasonable cost and expenses (including interest at
the Prescribed Rate) incurred in making the repairs
and shall indemnify the Lessor from and against any
loss or liability incurred by the Lessor in respect of
the default.
3.20 AIR-CONDITIONING PLANT
Where any Air-Conditioning Plant is provided or installed in the
Premises by the Lessor:
3.20.1 the Lessee shall at all times comply with and observe
the reasonable requirements of the Lessor in relation
to the Air-Conditioning Plant and shall not do, or
permit or suffer to be done, anything in relation to
the same or otherwise which might interfere with or
impair the efficient operation of the Air-Conditioning
Plant;
3.20.2 the Lessee shall allow the Lessor and the Lessor's
engineers, mechanics, consultants and workmen at
reasonable times and upon giving reasonable prior
notice to the Lessee to enter and to the extent
necessary to remain on the Premises to examine all or
any of the Air-Conditioning Plant but that in carrying
out such examination the Lessor shall not cause any
undue interference to the
<PAGE>
Lessee in the conduct of business in the Premises;
3.20.3 the Lessee shall not cover or obstruct any ducts
inlets or outlets of the Air- Conditioning Plant;
3.20.4 the Lessee shall at all times during the Term keep the
Air-Conditioning Plant in good working order (fair
wear and tear excepted) and shall repair and maintain
the Air-Conditioning Plant whenever required in
accordance with the manufacturer specifications
relating to the same provided that nothing in this
clause shall require the Lessee to carry out any
structural or capital maintenance, replacement or
repair except where rendered necessary by any
deliberate or negligent act or omission of the Lessee
or the Lessee's Employee's or Visitors.
3.21 NO AUCTION SALES
The Lessee shall not hold nor permit any auction fire or bankruptcy
sale in the Premises without obtaining the prior written consent of
the Lessor.
3.22 NO OVERLOADING
3.22.1 The Lessee shall not without obtaining the prior
written consent of the Lessor bring on to or permit to
remain in the Premises any heavy machinery plant or
equipment unless it is reasonably necessary or proper
for the conduct of the Lessee's permitted use of the
Premises but in no event shall any item be of a
nature, size, weight or design as to cause or in the
reasonable opinion of the Lessor be likely to cause
any structural or other damage to the floors walls
pillars ceilings or other parts of the Premises and/or
the Land.
3.22.2 The Lessee shall take all steps reasonably necessary
to ensure that no floors walls pillars ceilings or
other parts of the Premises and/or the Land are broken
over-stressed or damaged by any overloading from any
cause whatsoever and shall observe the maximum floor
loading weights in respect of the respective portions
of the Premises and/or the Land specified from time to
time by the Lessor or the Lessor's Agent.
3.22.3 Before bringing or permitting to be brought into the
Premises and/or the Land any item by which any floor
wall pillar ceiling or other part may be so broken
overstressed or damaged the Lessee shall in writing
inform the Lessor of the Lessee's intention so to do
and shall comply with every direction that the Lessor
may give in respect to the delivery times routing
installation and location of the item and when
appropriate the removal thereof.
3.23 NO SIGN ANTENNA OR AMPLIFIER
3.23.1 The Lessee shall not without obtaining the prior
written consent of the Lessor or the Lessor's Agent
place or permit to be placed or maintained on any
external door wall or window of the Premises any
television or radio antenna or mast or other apparatus
or any sign awning canopy decoration lettering
advertising device
<PAGE>
notice matter or thing or place or permit to be placed
or maintained in or on any part of the Premises any
radio or television receiver loudspeaker amplifier or
other similar device (other than any emergency
communication apparatus installed by the Lessor)
visible or audible from outside of the Premises or
place or maintain in any place visible from the
exterior of the Premises any decoration lettering or
advertising matter of any nature which does not comply
in every respect with the requirements of all statutes
regulations by-laws and orders applicable thereto. The
Lessor shall not unreasonably withhold its consent or
approval to any request made by the Lessee pursuant to
this sub-clause.
3.23.2 Prior to vacating the Premises the Lessee shall at the
Lessee's expense remove any antenna mast apparatus
sign awning canopy decoration lettering advertising
device notice or thing displayed affixed or exhibited
upon or within the Premises and shall make good any
damage or disfigurement caused thereby or by the
removal thereof.
3.24 KEEPING AUTHORISED SIGNS IN GOOD ORDER
The Lessee shall at all times maintain in good order condition and
repair (damage by any risk insured against to the extent of the
moneys recoverable under any insurance cover excepted) and if
appropriate pay all moneys payable under and comply with all
licence or leasing agreements in respect of any television or radio
antenna or mast or other apparatus sign awning canopy decoration
lettering advertising device notice matter or thing approved by the
Lessor in accordance with the above.
3.25 NUISANCE
The Lessee shall not do or permit to be done in or about the
Premises:
3.25.1 anything which may be a nuisance grievance disturbance
or annoyance to the Lessor or to any tenant or
occupier of other premises in the vicinity of the
Premises; or
3.25.2 any act matter or thing whereby a nuisance or anything
in the nature of or which may be deemed to be a
nuisance by any Local or Public Authority body or
person or within the meaning of any Act (State or
Federal) now or hereafter in force or any regulations
or by-laws made thereunder may exist arise or continue
upon or in connection with the Premises or any
business carried on therein or therefrom or the use or
occupation thereof and to abate forthwith any nuisance
or alleged nuisance and carry out and comply with the
provisions of every Act regulations and by-laws and
with every order notice or requirement of any Local or
Public Authority in reference thereto.
3.26 EQUIPMENT RESTRICTIONS
The Lessee shall not without obtaining the prior written approval
of the Lessor (which approval shall not be unreasonably withheld)
use or permit or suffer to be used in or in connection with the
Premises:
3.26.1 any form of lighting heating cooling or ventilation
other than as installed therein
<PAGE>
at the commencement of the Term; and
3.26.2 any electrical equipment that does or may overload any
cable switchboard or sub-board through which
electricity is conveyed to or through the Premises or
any part thereof.
3.27 NO DROPPING OR THROWING
The Lessee shall not drop or throw or permit to be dropped or
thrown anything from the Premises.
3.28 SANITARY APPLIANCES
The Lessee shall not use or permit to be used the toilets sinks
drains and other plumbing facilities in the Premises for any
purpose other than that for which they were respectively designed
constructed or provided and shall not deposit or permit to be
deposited therein any sweepings rubbish or other matter.
3.29 USE OF PREMISES
The Lessee shall:
3.29.1 use the Premises only for the purpose of conducting
therein the business described in Item 6 of the
Schedule and shall not without obtaining the prior
written consent of the Lessor use the Premises for any
other purpose;
3.29.2 obtain from any Local or Public Authority any
approvals permits consents or licences required by law
to carry on the Lessee's business from the Premises;
3.29.3 not use or permit to be used the Premises for any
unlawful immoral noxious noisy offensive trade
business occupation or calling; and
3.29.4 not use or permit to be used the Premises for any
residential purposes.
3.30 TOWN PLANNING
The Lessee shall not do or permit to be done anything in breach of
any applicable town planning scheme or zoning or whereby the zoning
or permitted use of the Premises for their present purposes under
any Act by-law order or scheme relating to town planning may be
prejudiced or altered.
3.31 LESSEE'S REPRESENTATIVE
The Lessee shall notify the Lessor and the Lessor's Agent (if any)
of the name address and business and after hours telephone number
of a person to be authorised by the Lessee to control any internal
security system within the Premises to enable the Lessor or the
Lessor's agents or contractors to gain access to the Premises
whenever pursuant to the terms of this Lease access is required or
permitted and to advise the Lessor forthwith in writing of any
change of the nominated person or other particulars.
<PAGE>
3.32 ACCESS TO PREMISES
The Lessor shall be entitled by itself and by its employees
consultants inspectors agents and contractors whenever deemed
necessary by the Lessor to enter (and to the extent necessary to
remain on) the Premises at all reasonable times and upon giving
reasonable prior notice to the Lessee with all necessary plant
equipment and materials to erect make excavate lay or install in on
over or under the Premises and to make use of any pipe wire
amplifier light alarm channel drain sump vent duct inlet outlet
plant or machinery or other thing requisite for or in addition to
any of the Lessor's Purposes and to enter upon the Premises at
those times for the purpose of inspecting removing maintaining
replacing repairing servicing altering or adding thereto in or
about the Premises or the walls floors and ceilings thereof and the
Lessor shall cause as little inconvenience disruption or damage to
the Lessee as possible in so doing.
3.33 ASSIGNMENT AND SUBLETTING
3.33.1 The Lessee shall not assign sublet transfer or part
with possession of or mortgage charge or otherwise
encumber the Premises or any part thereof or the
benefit of this Lease or any estate or interest
therein or herein without obtaining the prior written
consent of the Lessor and the provisions of Sections
80 and 82 of the Property Law Act 1969 shall not apply
to this Lease. Subject to the provisions of this
sub-clause the Lessor's consent shall not be
unreasonably withheld if:
3.33.1.1 the Lessee shall prove to the reasonable
satisfaction of the Lessor that the
proposed sub-lessee or assignee is a
respectable responsible and solvent
person of sound financial standing;
3.33.1.2 all Rent and other moneys (and interest)
then due and payable by the Lessee
pursuant to this Lease shall have been
paid;
3.33.1.3 there shall not be at the time the
consent is sought or at the date any
sublease or assignment is to take effect
any subsisting breach of any of the
Lessee's Covenants;
3.33.1.4 in the case of an assignment the assignee
executes a Deed of Covenant whereby the
assignee covenants with the Lessor to
observe and perform all of the Lessee's
Covenants the assignment to be prepared
and approved by the Lessor's solicitors;
3.33.1.5 in the case of a mortgage charge or
encumbrance the encumbrancer enters into
a deed with the Lessor in a form
reasonably required by the Lessor's
solicitors to protect the Lessor in case
of default powers being exercised;
3.33.1.6 the Lessee pays to the Lessor all
reasonable costs and expenses including
legal costs administrative costs stamp
duty and other disbursements incurred or
to be incurred by the Lessor in respect
of the Deed of Covenant and a fee to
cover administrative expenses and the
Lessor's reasonable legal costs;
<PAGE>
3.33.1.7 where any proposed assignee is a
Corporation (not being a company whose
shares are listed on any Stock Exchange
in Australia) the directors and principal
shareholder thereof at their expense
execute and complete a Deed of Guarantee
and Indemnity in a form approved by the
Lessor's solicitors in favour of the
Lessor in respect to the payment of all
Rent and the observance and performance
of all of the Lessee's Covenants.
3.33.2 Where the Lessee is a corporation (not being a company
whose shares are listed on any Stock Exchange in
Australia) any change of the beneficial ownership or
substantial shareholding (within the meaning of
Chapter 6.7 of the Corporations Law) in the
corporation or any related corporation (within the
meaning of Section 50 of the Corporations Law) shall
be deemed to be an assignment of the Premises and the
benefit of this Lease and shall be subject to the
terms specified above provided that this clause shall
not apply so long as Dynamic Digital Depth (Australia)
Pty Ltd remains the Lessee.
3.33.3 Notwithstanding any other provision in this Lease so
long as Dynamic Digital Depth (Australia) Pty Ltd
remains the Lessee it shall be entitled to sub-let or
otherwise part with possession of the Premises or any
part thereof provided that:
3.33.3.1 the sub-lessee shall be a person, persons
or corporation approved by the Lessee;
and
3.33.3.2 the parting with possession by Dynamic
Digital Depth (Australia) Pty Ltd shall
not relieve it from any of its
obligations expressed or implied pursuant
to the terms of this Lease.
If at any time Dynamic Digital Depth (Australia) Pty
Ltd grants a sub-lease it shall notify the Lessor of
the sub-lessee's name and address (and after hours
contact number) as soon as is reasonably practicable
thereafter.
3.34 LESSEE'S LIABILITIES TO CONTINUE
The covenants and agreements on the part of any assignee or
sub-lessee with the Lessor expressed or implied in any Deed
evidencing any assignment or sub-lease shall be deemed to be
supplementary to those contained in this Lease and shall not in any
way relieve or be deemed to relieve the Lessee from the Lessee's
liabilities hereunder during the term of the lease and the Extended
Term (if any) of this lease.
3.35 CAVEATS
The Lessee may during the Term lodge a subject to claim caveat
against the Land. The Lessee shall not at any time lodge an
absolute caveat against the Land. The Lessee shall at the
expiration or sooner determination of the Term or upon assigning
this Lease or at any time at the request of the Lessor sign and
lodge at the Lessee's expense a proper registrable withdrawal of
any subject to claim caveat lodged against the Land by the Lessee.
If the Lessee lodges an absolute caveat or fails to withdraw any
subject to claim caveat the Lessee in consideration of the Lessor
granting this Lease to the Lessee irrevocably APPOINTS the Lessor
the agent and attorney of the Lessee to sign and lodge any
withdrawal of caveat the
<PAGE>
cost of which shall be borne and paid by the Lessee forthwith upon
demand.
3.36 GIVE NOTICES
The Lessee shall forthwith:
3.36.1 on receipt thereof give to the Lessor copies of any
notice received by the Lessee from any court or Local
or Public Authority relating to the Premises or any
part thereof or the use or occupation thereof;
3.36.2 upon any person dying or receiving any injury in the
Premises or upon any accident occurring to or defect
being found in any sanitary water gas or electric
pipes or wires fixtures fittings plant or equipment or
furnishings in the Premises give to the Lessor written
notice and those full particulars thereof known to the
Lessee; and
3.36.3 give to the Lessor and any appropriate Local or Public
Authority written notice of any infectious illness
occurring on the Premises and shall at the Lessee's
expense thoroughly fumigate and disinfect the Premises
to the satisfaction of the Lessor and those
authorities and otherwise comply with their reasonable
requirements in regard thereto.
3.37 PERMIT INTENDING TENANTS OR PURCHASERS TO INSPECT
3.37.1 At all times within the period of three (3) months
immediately prior to the expiration or sooner
determination of the Term the Lessee shall permit the
Lessor and the Lessor's Agent at all reasonable times
and upon giving reasonable prior notice to the Lessee
to enter the Premises with and exhibit the same to
prospective tenants and the Lessee shall allow the
Lessor to affix and exhibit where the Lessor shall
think fit any notice or sign for reletting the
Premises.
3.37.2 The Lessee shall allow the Lessor and the Lessor's
Agent at reasonable times and upon giving reasonable
prior notice to the Lessee during the Term to enter
the Premises with and exhibit the same to prospective
purchasers and the Lessee shall allow the Lessor to
affix and exhibit where the Lessor shall think fit any
notice or sign for selling the Premises and the Lessee
shall not without obtaining the Lessor's consent
remove deface or obscure any notice or sign nor permit
the same to be removed defaced or obscured.
3.38 REMOVE FIXTURES AND FITTINGS
Before the expiration or sooner determination of the Term the
Lessee shall:
3.38.1 remove from the Premises the Lessee's Fittings; and
3.38.2 remove from the Premises all items which shall have
been erected placed or installed by the Lessee or any
previous tenant or occupier of the Premises after the
date of completion of the Fitout Works (other than any
fixtures and fittings plant equipment and furnishings
which in the reasonable opinion of the Lessor form an
integral part of the Premises including without
limitation all light fittings
<PAGE>
located in or affixed to the Premises and nominated as
such by notice in writing by the Lessor to the Lessee
on or before the expiration or sooner determination of
the Term),
and make good to the reasonable satisfaction of the Lessor any
damage whatsoever caused to the Premises by such erection
installation or removal. If required by the Lessor the Lessee shall
also re-alter any alterations made to the Premises after the date
of completion of the Fitout Works so that the Premises are restored
to their condition as at the date of completion of the Fitout
Works. Any fittings fixtures plant equipment and furnishings not
removed by the Lessee either as of right or by requirement of the
Lessor after the expiration or other termination of this Lease
shall be deemed to have been abandoned by the Lessee and shall be
and become the property of the Lessor without any right by the
Lessee to make any claim whatever against the Lessor in respect
thereof.
3.39 KEEP SECURE
The Lessee shall:
3.39.1 use its best endeavours to protect and keep safe the
Premises and any property contained therein from theft
or robbery; and
3.39.2 keep all doors windows and other openings closed and
securely fastened when the Premises are not in use.
3.40 YIELD UP
At the expiration or sooner determination of the Term the Lessee
shall yield and deliver up possession of the Premises to the Lessor
in a good and substantial repair order and condition and state of
cleanliness and decoration consistent with the due and punctual
observance and performance by the Lessee of the Lessee's Covenants
and shall surrender to the Lessor or the Lessor's Agent all keys
cards switching equipment combinations identification cards or
other devices for or enabling the Lessee or the Lessee's Employees
or Visitors to gain access to the Premises or any part thereof.
4. LESSOR'S COVENANTS
4.1 QUIET ENJOYMENT
The Lessor COVENANTS with the Lessee that the Lessee duly paying
the Rent and other moneys hereby reserved and observing and
performing the other Lessee's Covenants shall peaceably and quietly
hold and enjoy the Premises during the Term without any
interruption by the Lessor or any person rightfully claiming
through under or in trust for the Lessor except as herein
authorised.
4.2 MORTGAGEE'S CONSENT
The Lessor shall forthwith obtain the unconditional written consent
to this Lease of all mortgagees under any mortgage registered
against all or any of the Certificates of Title comprising the
Premises.
<PAGE>
4.3 LESSOR'S CONSENT
Unless otherwise specifically provided in this Lease in every case
where the Lessee requires a consent or approval of the Lessor:
4.3.1 that consent or approval shall not be unreasonably
withheld; and
4.3.2 the Lessor shall promptly consider the Lessee's
application for that consent or approval provided that
this clause shall not apply to any assignee or
sub-lessee of the Lessee.
4.4 LESSOR ENTERING THE PREMISES
In any case where the Lessor or any person authorised by the Lessor
(including without limitation, any servant agent contractor or
workmen of the Lessor) is entitled under this Lease to enter upon
the Premises, the Lessor and all those persons shall:
4.4.1 except in the case of emergency, give reasonable
notice to the Lessee prior to entering upon the
Premises; and
4.4.2 at all times cause as little inconvenience as is
practicable to the Lessee and its business.
4.5 PAYMENT OF OUTGOINGS NOT THE RESPONSIBILITY OF THE LESSEE
At all times during the term the Lessor shall duly and punctually
pay or cause to be paid all rates taxes and outgoings in respect of
the Premises that are not the responsibility of the Lessee under
this Lease and from time to time and upon request by the Lessee
shall produce to the Lessee such evidence as the Lessee reasonably
requires as to the payment thereof.
4.6 STRUCTURAL REPAIRS
Subject to the provisions of clause 3.10 excluding certain
obligations on the part of the Lessor in this regard, the Lessor
shall at all times during the Term and any extension or holding
over at its own cost and expense, keep the structure of the
Premises in good repair and condition and carry out any structural
maintenance, replacement or repair and make good any damage (except
where rendered necessary by any deliberate or negligent act or
omission of the Lessee or the Lessee's Employees or Visitors)
within a reasonable time having regard to the extent of the damage
and the work required.
4.7 STRUCTURAL WORKS
Subject to the provisions of clause 3.10 excluding certain
obligations on the part of the Lessor in this regard, without
limiting the generality of clause 4.6, the Lessor shall at its own
cost and expense after receiving written notice by the Lessee
comply with and observe all notices and requirements of any Local
or Public Authority with respect to the building constructed on the
Land and owned by the Lessor, whether or not involving structural
alterations, where compliance with and observance of such notices
and requirements is not the obligation of the Lessee pursuant to
this Lease.
<PAGE>
5. MUTUAL COVENANTS
The Lessor and the Lessee MUTUALLY COVENANT that:
5.1 DAMAGES
5.1.1 The Lessee's obligations to observe or perform the
Lessee's Covenants shall survive the expiration or
other termination of this Lease and if the Lessee
shall not have observed and performed the same the
Lessor may in addition to any of other rights at its
option cause or do all things necessary for the
observance and performance and the Lessor may recover
from the Lessee as a liquidated debt payable on demand
the costs and expenses thereof together with interest
at the Prescribed Rate on the amount thereof from time
to time remaining owing from the date of the
expenditure of the costs to the date of repayment
thereof by the Lessee to the Lessor.
5.1.2 In respect of each day following the date of the
expiration or sooner determination of this Lease until
the date on which the Lessee shall complete the
observance and performance of the obligations of the
Lessee's Covenants or any earlier date on which the
Lessor shall in exercise of its powers conferred by
this Lease cause any default by the Lessee in the
observance or performance of its obligations to be
remedied the Lessee shall pay to the Lessor and the
Lessor may recover from the Lessee as and by way of
liquidated damages a daily sum equal to 1/365th of the
aggregate of the Rent and Outgoings payable by the
Lessee for or in respect of the Premises for the
twelve (12) months immediately preceding the date of
termination.
5.2 DEFAULT PROVISIONS
If:
5.2.1 the Rent or any part thereof shall at any time be
unpaid after becoming due for more than seven (7) days
(or, such further time as the Lessor may in any case
specify) after written notice to the Lessee to pay the
same; or
5.2.2 the Lessee breaches or fails to observe or perform any
other of the Lessee's Covenants and the breach
non-observance or non-performance shall continue after
the expiration of (14) days (or, such further time as
the Lessor may in any case specify) of written notice
to the Lessee to remedy the same; or
5.2.3 the Lessee shall go into liquidation or become
bankrupt or enter into any composition arrangement
with or assignment for the benefit of the Lessee's
creditors; or
5.2.4 the Lessee shall have appointed under any Act or
instrument or by order of any court a manager and
administrator a trustee a receiver or a receiver and
manager or liquidator in relation to any part of the
Lessee's undertakings assets or property; or
5.2.5 the Premises shall be abandoned or otherwise left
vacant,
<PAGE>
THEN and in any such case (but subject to and this clause shall not
apply to the extent of inconsistency with the Bankruptcy Act 1966)
the Lessor may at its option re-enter occupy and resume possession
of the Premises or any part thereof (with or without re-entering
the Premises) by written notice to the Lessee to terminate this
Lease and thereupon this Lease (other than the provisions hereof
applying for the benefit of the Lessor after the expiration of the
Term) and the Term shall cease and determine but without releasing
the Lessee from the obligation to pay the Rent and Outgoings
accrued up to the time of the re-entry and without prejudice to the
right of action of the Lessor in respect of any breach of the
Lessee's Covenants.
5.3 ESSENTIAL TERMS
The Lessee's covenants:
5.3.1 to pay the Rent and the Outgoings; and
5.3.2 not to assign, sublet, transfer or part with
possession of the Premises or any part thereof or of
the benefit of this Lease without obtaining the prior
written consent of the Lessor,
are essential terms of this Lease and any breach of any of those
covenants shall be regarded by the Lessor and the Lessee as a
fundamental breach and repudiation by the Lessee of this Lease. If
the Lessor determines this Lease following such a breach and
repudiation then (without prejudicing or limiting any other right
or remedy of the Lessor arising from the breach or otherwise under
this Lease) the Lessor shall be entitled to recover from the Lessee
and the Lessee covenants to pay to the Lessor as and by way of
liquidated damages for the breach and repudiation the aggregate of
the Rent and Outgoings which would have been payable by the Lessee
for the unexpired residue of the Term remaining after the
determination after making allowance for Rent and Outgoings which
the Lessor by taking reasonable steps to re-let the Premises
obtains or could reasonably be expected to obtain by reletting the
Premises for the unexpired residue of the Term on reasonable terms
as to Rent and otherwise PROVIDED THAT:
5.3.3 any reletting shall not be required to be on like
terms as are herein expressed and implied;
5.3.4 the acceptance by the Lessor of arrears or any late
payment of the Rent or Outgoings shall not constitute
a waiver of the essentiality of the Lessee's
obligations to make these payments;
5.3.5 the Lessor's entitlement to recover damages as
specified above shall not be prejudiced or limited if:
5.3.5.1 the Lessee abandons or vacates the
Premises;
5.3.5.2 the Lessor elects to re-enter the
Premises or to determine this Lease;
5.3.5.3 the Lessor accepts the Lessee's
repudiation of this Lease; or
<PAGE>
5.3.5.4 the parties' conduct constitutes a
surrender by operation of law;
5.3.6 the Lessor shall be entitled to institute proceedings
to recover damages as specified above either before or
after any of the events or matters referred to in
paragraph 5.3.5 above;
5.3.7 any conduct by the Lessor to mitigate damages shall
not of itself constitute acceptance of the Lessee's
breach or repudiation or a surrender by operation of
law; and
5.3.8 nothing herein expressed or implied shall be construed
to mean that none of the other Lessee's Covenants may
be an essential term.
5.4 DAMAGE TO THE PREMISES
If the Premises or any part thereof at any time during the Term is
resumed or taken for any public purpose by any competent authority
or is declared unfit for occupation or ordered to be demolished by
any competent authority or is destroyed or damaged by any risk
insured against so as to render the same substantially unfit for
the use and occupation of the Lessee or so as (in either case) to
deprive the Lessee of substantial use of the same or so as (in the
case of damage or destruction) to render the rebuilding or
reconstruction of the Premises in its previous form impracticable
or undesirable in the opinion of the Lessor, THEN:
5.4.1 this Lease may be terminated without compensation by
either the Lessor or the Lessee by notice in writing
to the other PROVIDED THAT the Lessee shall only be
entitled to terminate this Lease if any policy of
insurance effected in respect of any damage or
destruction shall not have been vitiated or payment of
the policy moneys refused in consequence of some act
or default of the Lessee or any of the Lessee's
Employees or Visitors;
5.4.2 any termination shall be without prejudice to the
rights of either party in respect of any antecedent
breach matter or thing;
5.4.3 nothing herein expressed or implied shall be deemed to
impose any obligation upon the Lessor to rebuild or
reinstate the Premises or to make the same fit for use
and occupation of the Lessee;
5.4.4 if any such resumption damage or destruction of the
Premises occurs the Rent and Outgoings or a
proportionate part thereof depending on the nature or
extent of the resumption destruction or damage shall
abate until the Premises shall have been rebuilt or
reinstated or made fit for the occupation and use of
the Lessee or until the Lease shall have been
terminated pursuant to the provisions of paragraph
5.4.1 above as the case may be. Until mutual agreement
between the Lessor and the Lessee as to the extent of
the abatement or until determined as provided herein
the Lessee shall continue to pay the Rent and
Outgoings in full and upon any agreement or
determination the Lessor shall refund free of interest
to the Lessee any Rent and Outgoings which according
to the agreement or determination has been overpaid.
If any dispute arises with respect to the extent of
the abatement it shall be determined by arbitration as
provided in clause 5.13.
<PAGE>
5.4.5 Notwithstanding anything in this sub-clause expressed
or implied the Lessee shall have no right of
termination and the Rent and Outgoings shall not abate
if the destruction or damage or the fact of the
Premises being declared unfit for occupation or
ordered to be demolished was caused or contributed to
by the Lessee or the Lessee's Employees or Visitors.
5.5 EXCLUSION OF WARRANTIES
The Lessee acknowledges and declares that no promise representation
warranty or undertaking has been made or given by or on behalf of
the Lessor in regard to the suitability of the Premises for any
business to be carried on therein or therefrom or in regard to any
fixtures fittings furnishings finish plant machinery or equipment
of or in the Premises or as to the management or security of the
Premises otherwise than as herein expressly contained.
5.6 OWNERSHIP OF FIXTURES AND FITTINGS
Any fixtures fittings chattels plant equipment and furnishings and
other material or articles installed or left by the Lessor in the
Premises at the Lessor's cost shall be deemed for all purposes to
be part of the Premises and shall remain the property of the Lessor
and the Lessee shall not at any time remove damage destroy alter or
otherwise dispose of the same without the prior written consent of
the Lessor.
5.7 HOLDING OVER
If the Lessee continues to occupy the Premises after the expiration
or sooner determination of the Term with the consent of the Lessor
then the Lessee shall become a monthly tenant only of the Lessor
but (unless otherwise agreed) at a rent equal to one twelfth of the
aggregate of the Rent and Outgoings payable by the Lessee
immediately preceding the expiration or sooner determination and
otherwise on and subject to the same covenants and conditions
mutatis mutandis as are herein expressed or implied except that the
monthly tenancy may be determined by one month's notice in writing
by the Lessor or the Lessee to the other expiring at any time.
5.8 MORATORIUM
The application to this Lease of any moratorium or Statute (State
or Federal) having the effect of extending the Term reducing or
postponing the payment of the Rent or any part thereof or otherwise
affecting the operation of the Lessee's Covenants or providing for
compensation rights or privileges at the expense of the Lessor in
favour of the Lessee or any other person is expressly excluded.
5.9 SEVERANCE
If any condition covenant or stipulation of this Lease or the
application thereof to any person or circumstances shall be or
become invalid or unenforceable the remaining covenants conditions
and stipulations shall not be affected thereby and each covenant
condition and stipulation of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
<PAGE>
5.10 WAIVER
5.10.1 The Lessor's failure to take advantage of any default
or breach of covenant on the part of the Lessee shall
not be or be construed as a waiver thereof, nor shall
any custom or practice which may grow up between the
parties in the course of administering this Lease be
construed to waive or reduce the right of the Lessor to
insist upon the observance or performance by the Lessee
of any of the Lessee's Covenants.
5.10.2 No consent or waiver expressed or implied by the Lessor
or on behalf of the Lessor to or in respect of any
particular breach of any of the Lessee's Covenants
shall be construed as a consent or waiver to or of any
other breach of the same or any other of the Lessee's
Covenants.
5.10.3 The acceptance by the Lessor of Rent under the Lease
shall not be nor be deemed to be a waiver of any
default or breach by the Lessee of any of the Lessee's
Covenants or the Lessor's knowledge thereof at the time
of acceptance of the Rent.
5.11 SERVICE OF NOTICES
Any notice demand or request required to be made or given pursuant
to this Lease shall be in writing signed by the party giving the
notice or its agent or solicitors and may be served personally or
may be served by being delivered or by being sent by prepaid
certified post:
5.11.1 to the address specified herein of the party unless
that party has given notice of a substituted address
for service of notices and then at that substituted
address; or
5.11.2 in the case of a person to the usual place of abode or
business of the person; or
5.11.3 in the case of a corporation to its registered office
principal place of business or principal office;
and shall be deemed to have been served:
5.11.4 on the day of delivery if delivered before 5.00 pm on
a business day, and otherwise on the business day next
following; or
5.11.5 on the business day next following the day of posting.
5.12 OPTION OF RENEWAL
If the Lessee desires to take a renewal of the Term and gives to
the Lessor notice in writing at least three (3) months before the
expiration of the relevant Term of the Lessee's intent to do so and
if at the time of giving that notice and at the expiration of the
Term there shall be no outstanding breach or non-observance of any
of the Lessee's Covenants of which notice has been given by the
Lessor which notice is not complied with within the time properly
specified in that notice and if in the meantime the Lessor's right
of re-entry shall not have otherwise arisen then the Lessor shall
grant to the Lessee an extension of the Term for the extended term
or terms referred to in Item 7 of the Schedule (together the
"Extended
<PAGE>
Term") containing like covenants and provisos as are herein
expressed and implied (save for the right of extension the subject
of this Clause which right shall be expressly excluded from the
Lease for the extended Term or from the Lease for the last extended
term if there shall be more than one extended term as the case may
be) and reserving to the Lessor a rent from the commencement date
of and during each Extended Term to be calculated and determined in
accordance with the rent review provisions contained herein.
5.13 ARBITRATION
If any difference or dispute shall arise between the Lessor and the
Lessee as to the interpretation of this Lease or concerning any act
matter or thing to be performed or observed hereunder and if there
shall be no express provision in this Lease for resolving the
difference or dispute then the difference or dispute shall be
determined by the arbitration of a single arbitrator nominated by
the President for the time being of the Law Society of Western
Australia (Inc.) and otherwise in accordance with the provisions of
the Commercial Arbitration Act 1985 and the award of the arbitrator
shall be final and binding upon the Lessor and the Lessee. The
Lessor and the Lessee may be represented by a duly qualified legal
practitioner in any arbitration proceedings.
5.14 SPECIAL CONDITIONS
This Lease shall be subject to the special conditions (if any)
contained in Item 11 of the Schedule.
5.15 STATE PLANNING COMMISSION APPROVAL
If the aggregate of the Term exceeds twenty one (21) years or if
for any other reason this Lease shall require the consent of the
State Planning Commission of Western Australia then this Lease
shall be subject to that consent being given.
5.16 GOVERNING LAW
The laws of the State of Western Australia (and where applicable
the Commonwealth of Australia) shall apply to this Lease.
5.17 STRATA TITLES ACT
The Lessor shall not register a Strata Plan in respect of the whole
or part of the Land including the Premises without the prior
written approval of the Lessee which approval may be given or
refused by the Lessee or given subject to whatever conditions the
Lessee in its absolute discretion determines.
6. POWER OF ATTORNEY
The Lessee irrevocably makes, nominates, constitutes and APPOINTS
the Lessor and its nominee and their substitute or substitutes
jointly and severally to be the true and lawful attorney or
attorneys of the Lessee to act at any time after the power to
re-enter herein contained shall have been exercised (a sufficient
proof whereof shall be the statutory declaration of any officer or
agent of the Lessor duly authorised by the Lessor in that behalf)
to execute and sign a transfer or a surrender of this Lease and to
procure the same
<PAGE>
(if necessary) to be registered and for any of these purposes to
use the name of the Lessee and generally to do, execute and perform
any act, deed, matter or thing relative to the Premises as fully
and effectually as the Lessee could do in and about the Premises
and the Lessee covenants to ratify and confirm all and whatsoever
the attorney or attorneys shall lawfully do or cause to be done in
and about the Premises.
7. GUARANTEE
7.1 GUARANTEE AND INDEMNITY
In consideration of the Lessor entering into this Lease at the
request of the Guarantor (which request is testified by the
Guarantor's execution of this Deed), the Guarantor HEREBY JOINTLY
AND SEVERALLY GUARANTEES payment to the Lessor on demand of the
whole of the Secured Moneys and the performance and observance of
all the Secured Obligations AND as an independent liability
INDEMNIFIES AND AGREES TO KEEP INDEMNIFIED the Lessor against any
loss, damage, action, demand, expense, claim or obligation which
the Lessor has or may suffer or incur by reason of or in any way
consequent upon, arising out of or incidental to the non-payment of
the Secured Moneys or the non-performance or non-observance of the
Secured Obligations. This indemnity shall not be limited or
affected in any way whatsoever by the fact that the Secured Moneys
or the Secured Obligations cannot be or could never be recovered
from or enforced against the Lessee for any reason.
7.2 UNLIMITED LIABILITY
Each Guarantor's liability under paragraph 7.1 of this clause is
unlimited.
7.3 CONTINUING GUARANTEE AND INDEMNITY
This Guarantee and Indemnity is a continuing security and shall not
be wholly or partially discharged (even upon payment of all or the
Secured Moneys that are presently owing) as long as any of the
Secured Moneys are owing or payable, are contingently owing or
payable or may in the Lessor's opinion become owing or payable or
as long as any of the Secured Obligations have not been performed
and the Guarantor shall have no right to discontinue this Guarantee
and Indemnity.
7.4 PRESERVATION OF GUARANTOR'S LIABILITY
Neither the Guarantor's liability nor the Lessor's rights under
this Guarantee and Indemnity or otherwise shall be prejudiced or
discharged by any act or omission or the incapacity of any person
or any event, circumstance or securities of any description which
might otherwise have the effect (whether at law in equity or under
statute) of prejudicing, affecting or discharging the liability of
the Guarantor hereunder either as a guarantor or principal debtor
or as an indemnifier AND without limiting the generality of the
foregoing, the Guarantor's liability and the Lessor's rights
hereunder shall not be prejudiced, affected or discharged in any of
the following events or circumstances:
7.4.1 any loss, release or impairment of any securities held
in respect of the Secured Moneys or the Secured
Obligations through any act or omission of the Lessor
or through any other cause whatsoever;
<PAGE>
7.4.2 the granting of any time, credit or any indulgence or
concession to or composition with or release or
discharge by novation of the Lessee or any Guarantor
or any other person whatsoever by the Lessor;
7.4.3 any variation whatsoever of the terms governing the
Secured Moneys or the Secured Obligations including
without limitation any conditions imposed in respect
of advances;
7.4.4 any release, failure or agreement not to sue,
variation, exchange, renewal or modification made or
any other dealing, act or omission whether
constituting a waiver, election, estoppel or otherwise
by the Lessor with respect to any person or with
respect to any judgment, order for payment of moneys,
speciality, instrument (negotiable or otherwise) or
other security whatsoever held, recovered or
enforceable by the Lessor or any obligation or
liability whatsoever in respect of all or any of the
Secured Moneys or any or all of the Secured
Obligations;
AND each of the above circumstances shall be construed separately
and independently and so as not to limit the meaning of any other
listed circumstance.
7.5 SUSPENSION OF GUARANTOR'S RIGHTS
As long as any of the Secured Moneys are owing or payable by the
Lessee to the Lessor (whether or not the Guarantor has become
liable for those moneys under this Guarantee), the Guarantor shall
not:
7.5.1 claim any set-off or make any counter-claim against
the Lessee or the Lessor;
7.5.2 make any claim or enforce any right against the Lessee
or any other guarantor or (where the Lessee or any
other Guarantor dies) against his estate;
7.5.3 prove in competition with the Lessor if the Lessee or
any Guarantor becomes insolvent, whether in respect of
any amount paid by the Guarantor under this Guarantee
and Indemnity, in respect of any other amount
(including the proceeds of any security) applied by
the Lessor in reduction of the Guarantor's liability
under this Guarantee and Indemnity, or otherwise; or
7.5.4 be entitled to the benefit of any security or
guarantee or any share therein now or subsequently
held by the Lessor in respect of the Secured Moneys or
the Secured Obligations or any of them.
7.6 NO DEDUCTION FROM PAYMENTS
All payments under this Guarantee and Indemnity shall be made
without deduction for any tax duty or other governmental charge.
7.7 PAYMENTS IN GROSS
All moneys received by the Lessor which are capable of being
applied by the Lessor towards payment of the Secured Moneys shall
be regarded as payments in gross and the
<PAGE>
Guarantor shall have no right to claim the benefit of moneys so
received until the Lessor has received all of the Secured Moneys
which are owing or payable, are contingently owing or payable, or
may become owing or payable.
7.8 SECURITIES
Until all claims of the Lessor in respect of the Secured Moneys and
the Secured Obligations are discharged in full, any security taken
by the Guarantor from the Lessee or any co-guarantor or
co-indemnifier shall be held in trust for the Lessor as security
for the Guarantor's liability under this Guarantee and Indemnity
and the Guarantor shall upon request by the Lessor deposit that
security with or assign it to the Lessor.
7.9 OTHER SECURITIES AND OBLIGATIONS OF GUARANTOR
The Lessor's rights under this Guarantee and Indemnity shall be
additional to and shall not merge with, affect or be affected by:
7.9.1 any other securities now or subsequently held by the
Lessor from the Lessee, the Guarantor or any co-surety
or co-indemnifier; or
7.9.2 any other obligation of the Guarantor to the Lessor;
notwithstanding any rule of the law or equity or any statutory
provision to the contrary.
7.10 OWNERSHIP OF THIS DOCUMENT
This document is the property of the Lessor and shall remain the
Lessor's property after the Guarantor's liability has been
discharged in full.
7.11 NON-LIABILITY OF OTHER PERSONS
The Guarantor's liability under this Guarantee and Indemnity shall
not be affected by:
7.11.1 the fact that any other person who was intended to
execute this Guarantee and Indemnity, or otherwise to
become a co-surety for payment of the Secured Moneys
or the Secured Obligations or any of them, has not
done so or has not done so effectively; or
7.11.2 the discharge under statute or any principle of law or
equity of any person who is a co-surety or
co-indemnifier for payment of the Secured Moneys or
any part thereof.
7.12 REINSTATEMENT OF THE LESSOR'S RIGHTS
If any claim is made that all or part of any payment, obligation,
conveyance or transfer affecting or relating in any way to the
Secured Moneys or the Secured Obligations is void or voidable under
any law relating to bankruptcy, liquidation or the protection of
creditors and such claim is upheld, conceded or compromised:
7.12.1 the Lessor shall be entitled immediately as against
the Guarantor to the rights in
<PAGE>
respect of the Secured Moneys and the Secured
Obligations to which it would have been entitled if
all or that part of such payment, settlement,
transaction, obligation, conveyance or transfer had
not taken place;
7.12.2 the Guarantor shall immediately do any act and sign
any document at the Lessor's request to restore to the
Lessor any securities or guarantees held by it
immediately prior to such payment, settlement,
transaction, obligation, conveyance or transfer.
7.13 NOTICES
Any notice or certificate to be given to or demand to be made on
the Guarantor by or on behalf of the Lessor shall be deemed to have
been duly given or made if it is in writing, signed by an
Authorised Officer of the Lessor and left at or sent by prepaid
mail to:
7.13.1 the address of the Guarantor as shown herein;
7.13.2 where a new address has been notified in writing by
the Guarantor to the Lessor, that new address; or
7.13.3 in the case of a corporate Guarantor, its registered
office.
7.14 CERTIFICATE AS TO THE SECURED MONEYS
A certificate signed by the Lessor or its solicitors as to any sum
payable to the Lessor pursuant to this Guarantee and Indemnity as
at the date set out in the certificate shall be conclusive evidence
of the facts stated herein.
7.15 APPLICATION OF MONEYS
The Lessor may apply any moneys paid by the Lessee, or the
Guarantor or otherwise towards satisfaction of the Secured Moneys
in any manner it sees fit. The Lessor may place to the credit of a
suspense account for so long as it considers desirable any money
received under this Guarantee and Indemnity without any obligation
to apply it towards the repayment of the Secured Moneys.
7.16 ACKNOWLEDGMENT BY GUARANTOR
The Guarantor acknowledges that:
7.16.1 there is no condition affecting the operation of this
Guarantee and Indemnity that is not contained herein;
7.16.2 no person has any authority to vary the terms of this
Guarantee and Indemnity or to waive any of the
Lessor's rights, except by an instrument in writing
executed by the Lessor or by an Authorised Officer of
the Lessor on its behalf; and
7.16.3 any securities now or subsequently held by the Lessor
from the Guarantor shall extend to secure the
Guarantor's liability under this Guarantee and
Indemnity.
<PAGE>
7.17 INTERPRETATION
In this clause unless the context otherwise requires:
"AUTHORISED OFFICER" means any director, associate director,
secretary or any class of manager of the Lessor and any other
person appointed as such by the Lessor and any person for the time
being acting in any of those capacities;
"INSOLVENCY" means:
(i) in the case of a company - liquidation or official
management;
(ii) in the case of an individual - bankruptcy; and
(iii) in either case - entry into a composition; assignment
or arrangement with creditors;
and "INSOLVENT" has a corresponding meaning;
"PERSON" includes corporation, partnership and unincorporated body;
"SECURED MONEYS" means all and any moneys (including damages and
interest) payable by the Lessee to the Lessor under or by virtue of
this Lease;
"SECURED OBLIGATIONS" means all obligations, covenants, warranties,
terms and conditions express or implied and all provisions
stipulations and work to be observed, performed or fulfilled by the
Lessee or any Guarantor whether pursuant to this Lease or any
document or security or pursuant to any agreement between the
Lessee and the Lessor or otherwise;
Words importing the singular include the plural and vice versa;
Words importing any gender include all other genders; and,
Each of the provisions of this Deed shall be severable and distinct
from one another.
8. SECURITY DEPOSIT
8.1 PAYMENT OF SECURITY DEPOSIT
The Lessee shall pay to Chesterton International of 200 St George's
Terrace, Perth (in this clause referred to as "the Lessor's Agent")
by way of a security deposit on the signing hereof (if it has not
already done so) an amount equal to twenty thousand dollars
($20,000.00).
8.2 STAKEHOLDER
The Lessor's Agent shall hold the security deposit as stakeholder.
8.3 INVEST SECURITY DEPOSIT
<PAGE>
The Lessor and the Lessee authorise and direct the Lessor's Agent
to invest the security deposit at the risk of the Lessee in the
name of the Lessor's Agent in an interest bearing account with a
banking or financial institution nominated by the Lessee upon the
signing of this Lease.
8.4 INTEREST
The parties acknowledge and agree that all interest earned on the
security deposit shall be added to and form part of the security
deposit.
8.5 RETURN OF SECURITY DEPOSIT
The Lessor's Agent shall immediately upon the expiration of the
Term or any extension or removal thereof or upon the date of any
assignment of this Lease pay the balance of the security deposit
remaining and any interest earned upon it to the Lessee.
8.6 APPLYING THE SECURITY DEPOSIT
The Lessor may after the expiration of fourteen (14) days notice in
writing to the Lessee (of the Lessor's intention to apply all or
any part of the security deposit) require the Lessor's Agent to
apply all or any part of the security deposit towards recouping the
Lessee for any loss or damage which it may suffer by reason of any
default by the Lessee in performing, observing or complying with
clause 3.38 and the Lessor's Agent shall be obliged to make payment
under the security deposit, to the Lessor where the demand is
accompanied by a statutory declaration by or on behalf of the
Lessor verifying the default and the amount claimed and the Lessor
has given the Lessee the notice referred to in this clause.
Contemporaneously with the making of any demand under the security
deposit the Lessor must serve a copy of the demand and accompanying
statutory declaration on the Lessee.
EXECUTED as a Deed.
<PAGE>
THE SCHEDULE
ITEM 1 (Clause 1.1)
Land: All that piece of land situated and known as 6-8
Brodie Hall Drive, Technology Park, Bentley being part
lot 53 on Diagram 74187 and being the whole of the
land comprised in Certificate of Title Volume 2103
Folio 138.
Premises: The whole of the Land.
Lessors chattels: All chattels, plant and equipment of the Lessor in or
about the Premises.
ITEM 2 (Clause 1.1)
The term of this Lease: One (1) year
Commencement Date: 17 December 1998
Expiration Date: 16 December 1999
ITEM 3 (Clause 1.1)
Rent: Two Hundred and Forty Thousand Dollars
($240,000.00) per annum payable calendar
monthly in advance by 12 equal calendar
monthly instalments of Twenty Thousand
Dollars ($20,000.00) per month.
Address for payment of Rent: To the Lessor at its address herein
unless otherwise specified in writing by
the Lessor.
Dates for payment of Rent: Calendar monthly on the first day of each
and every month the first payment to be
made on the 17th day of December, 1998.
ITEM 4 (Clause 1.1)
Prescribed Rate: Twelve per cent per annum.
ITEM 5 (Clause 1.1)
Rent Review Dates: Not applicable
ITEM 6 (Clause 3.29)
Permitted Use: Any use to which the Premises may be lawfully put.
ITEM 7 (Clause 1.1)
The Extended Term: Not applicable
<PAGE>
ITEM 8 (Clause 1.1)
Outgoings: All reasonable costs and expenses incurred or payable by the
Lessor (to the extent that they have not already been
separately paid by the Lessee) for or in respect of the
Premises in connection with:
(a) all charges for and costs in relation to the supply of
water and sewerage services, excess water and the
removal of all waste and other garbage and sullage
from the Land and the Premises;
(b) premiums for insurances effected by the Lessor
including (without limitation):
(i) insurances on the Premises; and
(ii) insurances on the Lessor's chattels, fixtures
and fittings plant equipment and machinery
installed in the Premises against loss or
damage by fire fusion storm tempest lightning
explosion sprinkler leakage flood earthquake
riot civil commotion impact damage from
aircraft and articles dropped therefrom and
malicious damage;
(c) costs of cleaning the Premises, windows and signs;
(d) the supply of light and power to the Premises;
(e) costs and expenses of maintenance operation inspection
servicing and upkeep of and repairs to the Premises
(and all gardens and yards (if any)) including
(without limitation) pest control, the servicing and
inspection of heating and cooling appliances, drains
and sewers, toilets, fire fighting equipment,
plumbing, security and emergency installations systems
and equipment and garbage fixtures fittings plant and
equipment;
(f) all management fees and other charges payable by the
Lessor to any managing agent of the Premises not
exceeding the scale prescribed by the Real Estate and
Business Agents Act 1978;
(g) a sum equivalent to interest at the Prescribed Rate on
any moneys expended by the Lessor and not recovered
from the Lessee in carrying out work other than
structural alterations required by any Local or Public
Authority;
(h) all rates taxes charges assessments outgoings
impositions duties and fees whatsoever assessed
charged or imposed on the Premises or any part thereof
or on the owner of occupier thereof including (without
limitation) municipal water sewerage and drainage
rates land and metropolitan region improvement tax
(calculated on the basis that the Land is the only
land owned by the Lessor);
(i) all taxes and statutory charges associated with the
matters mentioned in this Item including but not
limited to payroll-tax, financial institutions duty,
bank debits tax, tax on goods and services and taxes
of a type not charged at the commencement date but
excluding only income tax or other tax imposed upon
the Lessor otherwise than in respect of ownership or
operation of the building.
<PAGE>
ITEM 9
Current Market Rental
Value: (1) The annual Rent that can be reasonably obtained for the
Premises in a free and open market and on the basis of the
Premises being available for leasing with vacant possession by
a willing lessor to a willing lessee for a period equal to the
Term and:
(a) assuming that the Premises are available for
leasing for a term equal to the Term;
(b) on the terms and conditions and for the
permitted use contained in this Lease and any
other use to which the Premises may be
lawfully put;
(c) assuming that all of the covenants and
obligations on the part of the Lessee and the
Lessor contained in this Lease have been
fully performed and observed at the relevant
Rent Review Date;
(d) having regard to the current market rental
values of comparable premises of a similar
size and location to the Premises in the
Perth Metropolitan Area;
(e) if at the relevant Rent Review Date the
Premises have been wholly or partially
damaged or destroyed assuming that the
Premises have been reinstated pursuant to
clause 5.4;
but disregarding:
(f) any increase or decrease in the value of the
Premises as lettable premises by reason of
the occupancy or use of the same by the
Lessee or any sub-lessee assignee or
transferee of the Lessee or any other person
deriving an interest in the Premises through
the Lessee;
(g) any value attaching to goodwill created by
the Lessee's occupation of the Premises or to
any licence or permit belonging to the Lessee
in respect of the business carried on by the
Lessee at the Premises;
(h) any deleterious condition of the Premises if
the condition results from any work carried
out on the Premises by the Lessee or by any
breach of any term of this Lease by the
Lessee; and
(i) the Lessee's trade fixtures and fittings and
any improvements racking or installations
erected or installed at the Lessee's expense
and which the Lessee is permitted to remove
at the expiration of this Lease but taking
into account permanent structural
improvements installed at the Lessee's
expense and which the Lessee may not remove
at the expiration of this Lease.
<PAGE>
ITEM 10 (Clause 3.11)
Painting obligations of Lessee: As specified in Clause 3.11
ITEM 11 (Clause 5.16)
Special Conditions: Nil
<PAGE>
THE COMMON SEAL of )
DYNAMIC DIGITAL DEPTH )
(AUSTRALIA) PTY LTD )
(ACN 060 154 949) )
was hereunto affixed by )
authority of the )
Directors in the )
presence of: )
Director:
Director/Secretary:
THE COMMON SEAL of )
BOSTON TOWER PTY LTD )
(ACN 071 187 187) )
was hereunto affixed by )
authority of the )
Directors in the )
presence of: )
Director:
Director/Secretary:
DYNAMIC DIGITAL DEPTH INCORPORATED
a Canadian corporation
By:
----------------------
----------------------
<PAGE>
MORTGAGEE'S CONSENT
of
("the Mortgagee") as mortgagee under a Mortgage numbered and registered on
the day of 19 ("the Mortgage") CONSENTS AND AGREES to this Lease
and ACKNOWLEDGES that subject to the Lessee and the Lessor duly observing and
performing the covenants and agreements on their parts respectively contained
in this Lease and in any security taken in support of those covenants and
agreements, the Mortgagee will only exercise its rights and remedies under
the Mortgage subject to this Lease and the Lessee's rights thereunder but
save as aforesaid without prejudice to and reserving to the Mortgagee all its
rights and remedies against the land upon which the Premises are located
("the Land") comprised in the Mortgage and also subject to the condition that
the Mortgagee (whether or not it has entered into possession of the Land)
shall in no way be bound to perform and shall not incur any liability in
respect of the covenants and agreements expressed or implied in this Lease
and on the part of the Lessor to be observed and performed.
Dated the day of 19 .
--------------------------------------------------
An Authorised Signatory for
and on behalf of the Mortgagee
<PAGE>
THIS LEASE IS NOT TO BE CONSTRUED AS AN OFFER AND IS NOT BINDING ON
BARRISTER EXECUTIVES SUITES, INC. UTILITIES SIGNED BY AN OFFICER OF
BARRISTER EXECUTIVE SUITES, INC.
LEASE AGREEMENT
THIS LEASE is made on July 31, 1998 between Barrister Executive Suites, Inc., a
California Corporation (hereinafter referred to as "Lessor"), and Xenotech USA,
Inc. (hereinafter referred as "Lessee").
Lessor has entered into a master lease for the floor (the "Suite") described
below:
Floor or Suite Number: Suite 550
Name of Building: MOM Plaza (Building E)
Address: 2450 Broadway
City and State: Santa Monaco, California, 90404
This Lease is subordinate to the lease with the Building ("Master Lease") dated
February 18, 1987 (as amended).
Lessee desire to lease from Lessor a certain portion of the Suite for the
purposes of conducting Lessee's business together with rights in common to the
"common areas" of the Suite.
In consideration of the covenants and promises each to the other made
herein, the parties hereto agree as follows:
1. LEASED PREMISES, Lessor agrees to lease to Lessee and Lessee agrees
to lease from Lessor portions of the Suite described below (the "Premises") and
on the floor plan attached hereto as Exhibit A. In addition to the exclusive use
of the Premises. Lessee shall have the non-exclusive right in common with
Lessor's other lessees to use all common areas and facilities available in the
Suite. Except as otherwise agreed to in writing, Lessee takes the premises in an
"as is" condition.
(a) Office No(s) 4, 5, 6
(b) Desk Space No.(s) 29 & 30
Lessee shall be prohibited from using or occupying any premises other
than those premises designated in this Lease as the Premises. In the event that
Lessee uses or occupies any space other than the premises without Lessor's
written consent, Lessee shall pay Lessor a sum designated by Lessor for the
unauthorized use of said space.
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<PAGE>
2. TERM. Except as it may be modified by the applicable provisions of
this Agreement, the term of this Lease shall be for a period of 17 months,
commencing on September 1, 1998, and expiring on January 31, 2000. If the term
commences on a day other than the first of the month, the term shall expire on
the lst day of the month identified herein, provided at least two (2) full
calendar months advance written notice of termination has been provided to
Lessor in the manner described in section 3 of this Lease.
In the event the Premises are not ready for occupancy on the
commencement date, this Lease shall remain in full force and effect provided
Lessor makes the Premises available for occupancy within forty-five (45) days of
the scheduled commencement date. In such case, all rent shall be abated until
Lessor makes the Premises available for occupancy. Lessor shall not be liable to
Lessee for any loss or damage arising from any delays; Lessee's sole remedy
shall be the right to cancel this Lease in the event Lessor fails to deliver
possession of the premises as set forth herein. Lessee is advised that any floor
plans provided by Lessor are not to scale, the measurements are not always
accurate, and the premises are not always built exactly as shown on the floor
plans.
3. LEASE TERMINATION. Either party may terminate this Lease at the
expiration date set forth herein by giving two (2) calendar months advance
written notice effective on the expiration date set forth on page one (1) of
this Lease. If neither party sends written notice of termination to the other
party two (2) calendar months in advance of the expiration date, this Lease
shall automatically become a month-to-month agreement REQUIRING AT LEAST TWO (2)
FULL CALENDAR MONTHS ADVANCE WRITTEN NOTICE TO TERMINATE THE LEASE, EFFECTIVE
THE END OF THE SECOND FULL CALENDAR MONTH. IF THE LEASE HAS EXPIRED ND BECOME A
MONTH-TO-MONTH..OR IF THE ORIGINAL TERM OF THE LEASE WAS MONTH-TO-MONTH TWO (2)
FULL CALENDAR MONTHS ADVANCE WRITTEN NOTICE OF TERMINATION IS REQUIRED, AND ANY
SUCH TERMINATION SHALL ONLY BE EFFECTIVE THE END OF THE SECOND FULL CALENDAR
MONTH. FOR EXAMPLE: IF WRITTEN NOTICE OF TERMINATION IS RECEIVED BY EITHER PARTY
BY APRIL 30th, ANY SUCH NOTICE SHALL BE EFFECTIVE JUNE 30TH. IF WRITTEN NOTICE
OF TERMINATION IS RECEIVED BY EITHER PARTY ON MAY 1ST OR ANY LATER DATE IN MAY,
ANY SUCH NOTICE SHALL NOT BE EFFECTIVE UNTIL JULY 31ST. Lessor's rent increase
notice is after the initial expiration date of this lease shall not to be
construed s a termination notice. All notices must be given pursuant to section
13.
If Lessee fails to vacate the premises for any reason after the
termination date or purports to rescind the termination notice after Lessor has
already leased Lessee's terminated space. Lessee will pay the rent the new
tenant had agreed to pay, plus any and all resulting damages and losses incurred
by Lessor because the new tenant cannot move into the space previously
terminated by Lessee.
2
<PAGE>
4. RENT. Lessee agrees to pay Lessor as rental for the premises the
following monthly sums:
$ 3700.00 Office(s)#4 ($1050.00), #5 ($1050.00), #6 ($1600.00)
$1300.00 Desk space(s) #29 (600), #30 ($700.00)
$N/A Telephone Equipment and Service
$ N/A Voicemail Box(es)
$N/A Furniture Rental (See Page 2A)
$5000.00 Total monthly rent
In addition to the above rent, Lessee shall be obligated to pay rent
for any space within the Suite which Lessee occupies but which is not included
in the premises (the "unrented space") Lessee's obligation for said unrented
space shall be at the rate set forth in Lessor's written notice to Lessee
concerning Lessee's occupancy of the unrented space. Lessee's obligation to pay
rent for the unrented space shall be effective as of the date in which Lessor
gives Lessee written notice of the rent to be paid for said space, and occupancy
of the unrented space shall be subject to all terms and conditions of this
Lease.
The terms and conditions of this Lease are confidential and Lessee
agrees not to reveal said terms and conditions to ANY third parties. Lessee's
disclosure of the terms and conditions of this Lease shall be cause for Lessor
at Lessor's sole discretion to immediately terminate this Lease, or increase
Lessee's rental rates to Lessor's current asking price.
Rent shall be payable on or before the first day of each and every
calendar month during the term hereof. If the term commences on a day other than
the first day of the calendar month, rent shall be prorated based on the portion
of the calendar month remaining. Lessee's first payment shall include one
month's full rent, plus any partial calendar month's rent for the first month of
the Lease, plus the lst month's rent. Plus the security deposit and set-up fee
of $150.00. At all times Lessee shall maintain the last month's rent with Lessor
in an amount equal to one (1) times the monthly rent paid by lessee for the
premises.
In addition to payment of the rent set forth herein, Lessee agrees to
the following: from any payment made by Lessee, Lessor shall first apply such
sums as are necessary to meet any of Lessee's outstanding obligations to Lessor.
Said obligations may arise from matters such as services Lessor provides Lessee.
Any remaining balance shall then be applied to lessee's rent obligation in the
amount set forth above. In the event such remaining balance is not sufficient to
meet Lessee's rental obligation, Lessee shall pay upon written demand by Lessor
any remaining sums due. Failure to pay said sums when so demanded shall
constitute an event of default under this Lease.
Any and all sums Lessee is obligated to pay under the terms of this
Lease shall be construed as rent obligations in addition to the monthly rent set
forth herein. Such additional rent
3
<PAGE>
shall include a service charge of Fifty Dollars ($50.00) for each of Lessee's
dishonored checks returned by the institution on which said checks are drawn. If
at any time during the term of this Lease Lessee has tendered payment by check
and lessee's bank returns more than one such payment for any reason including
insufficient funds, Lessor may, at its option, require all future payments be by
cashier's check. A Two Hundred dollar ($200.00) handling charge for each Three
Day Notice of Notice of Termination of Services which Lessor is required to
serve upon Lessee due to Lessee's failure to make timely rent payments or breach
of any other term or condition of this Lease shall be assessed against Lessee to
be paid with the monthly rent in the event more than one of either notice is
served during the term of the lease. A Seven Hundred Fifty Dollar ($650.00)
handling charge will be further assessed against Lessee in the event that Lessee
does not render payment after service of a Three Day Notice and Lessor then
serves Lessee with an Unlawful Detainer Action. Should Lessee not tender payment
of the rent by the first (1st) business day of each month, a late charge shall
be assessed in an amount of five cents ($0.05) for each dollar ($1.00) so
overdue for the purpose of defraying the expense incident to handling such
delinquent payment. In addition, Lessor may discontinue any and all service
provided Lessee, including, but not limited to use of all common areas, e.g.,
library and conference room, telephone answering service, photocopying, word
processing, fax and legal research. Should Lessor discontinue any service above
for non-payment, an administrative fee of One Hundred Dollars ($100.00) will be
assessed to reinstate said services. Lessee hereby releases Lessor, its
employees, agents, principals and contractors from any liability for damages
which Lessee may suffer as a result of Lessor's suspension of services for the
reasons stated herein.
5. SECURITY DEPOSIT. Upon executive of this Lease by Lessee, Lessee
will pay a security deposit in an amount of $15,000.00. In the event Lessee is
current with all rent payments to Lessor, Lessee may utilize a portion of the
security deposit towards rent in the 145h and 15th month. (December 1, 1999 and
January 1, 2000.) However, Lessee will continue to maintain the monthly rent
paid by Lessee for the Premises rent. Lessor shall bill Lessee for any such
additional security deposit as required. Lessor will refund Lessee's security
deposit, less any offsets as set forth in this paragraph, approximately thirty
(3) days after Lessee's tenancy has terminated and lessee's has vacated,
returned keys and removed any and all items of personal property from the
Premises.
USE Lessee shall use the premises solely for business purposes, and for
no other purpose. Lessee shall not do or permit anything to be done in or about
the Suite and Premises which will in any way obstruct or interfere with the
rights or other tenants or occupants of the Suite, or injure or annoy them, or
use or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, not shall Lessee use, maintain or permit any nuisance in
on or about the Premises. Lessee shall not commit or suffer to be committed any
waste in or upon the Premises. Lessee agrees that Lessee will not offer or use
the Premises to provide to others, services provided by Lessor to Lessor's other
Lessee. (I.E., Fax Machines, Copiers, etc.). If Lessee leases one or more desk
spaces, no desk space may be occupied by more than one person. Lessee agrees
that no office shall be occupied by more than two (2) persons without the prior
written consent of Lessor. Only two (2) computers or similar electronic devises
are allowed to be located in each office and not more than one in each desk
space. Lessor will provide all photocopy and
4
<PAGE>
fax services for the premises and Lessee shall not be permitted to install any
fax or photocopy machines in the Leased premises.
6. DEFAULTS AND REMEDIES
LESSEE'S DEFAULTS. Any of the following defaults shall
constitute a material default by Lessee:
(a) If Lessee fails to make any payment of rent, additional
security deposit or any other payment required to be made by Lessee hereunder
within 5 business days of notice.
(b) If Lessee withholds rent, deducts or offsets from rent or
services due hereunder any amount for any reason.
(c) If Lessee occupies, uses or stores any personal property
in any unrented office in the Suite, or stores any personal property in any
unrented desk space or unrented office in the Suite, or stores any personal
property in any common area after reasonable mail notice from Lessor.
(d) If Lessee fails to observe or perform any of the
provisions of this Lessee, where such failure shall continue for a period of ten
(10) days after written notice thereof from Lessor to Lessee.
If Lessee defaults under this Lease, (I) Lessor may terminate
this Lease, (ii) Lessor may recover in addition to any rent and other charges
already due and payable, all rent for the entire unexpired balance of the stated
term of this Lease and all costs incurred by Lessor to recover such sums from
Lessee, including reasonable attorney's fees and/or Lessor may recover damages
from lessee. All rights and remedies of Lessor under this Lease shall be
cumulative and in addition to any other rights or remedies available at law or
in equity. No failure by Lessor to exercise any rights or remedy or to insist
upon strict performance following a default by Lessee shall constitute a waiver
of such default by Lessor, (iii) Lessor may terminate all services provided
Lessee, including, but not limited to, use of all common areas, e.g., library
and conference room, telephone answering service, photocopying, word processing,
fax and legal research.
7. HIRING LESSOR'S EMPLOYEES. Lessor spends a great deal of time to
hire and train employees for the operation of the Suite and other suites. Lessee
derives the benefit of Lessor's experience in operating the Suite and of such
hiring and training procedures. Lessee realizes the time and expense Lessor
incurs to obtain personnel, and Lessee therefore agrees not to offer or accept
for hire any of Lessor's employees at any time during the term of any extension
or renewal of this Lease. "Lessor's employees" include Lessor's employees during
the period of their employment with Lessor and for a period of one hundred
eighty (180) days thereafter. Lessor and lessee have considered the matter and
have reasonably endeavored to estimate the actual damages to Lessor in the event
lessee breaches this provision and offers or accepts for hire any of Lessor's
employees, and both realizing that it would be impractical or extremely
difficult to fix the actual damage to Lessor resulting from such offer or hiring
of Lessor's employees. Lessor and Lessee therefore agree that if Lessee offers
or accepts for hire any of Lessor's employees at
5
<PAGE>
any time during the term or any extension of renewal of this Lease, or within
one hundred eighty (180) days after lessee moves out of Lessor's offices, Lessee
agrees to pay Lessor the sum of Five Thousand dollars ($5,000.00) for the
employee so hired to compensate Lessor for Lessor's loss in hiring and training
said employee. Said sum represents the amount agreed upon by the parties as
Lessor's liquidated damages.
8. INSURANCE. Lessor has blanket liability insurance coverage for the common
areas in the Suite. Lessor's insurance does not cover the Lessee's premises or
lessee's property in the Suite and premises. Lessor shall not be libel to
lessee, or to any other person, for any damages or business interruption on
account of loss, damage, fire or theft of any personal or business property,
including, but not limited to property left with the floor receptionist or
telephone operators, door lettering or other property purchased by or belonging
to, Lessee.
Lessee shall indemnify and hold harmless Lessor from and against any
and all claims arising from Lessee's use of the premises, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by lessee in the premises and shall further indemnify and hold harmless
Lessor from and against any and all claims arising from any breach or default in
the performance under the terms of this Lease, or arising from any negligence of
the Lessee or any of Lessee's agents, contractors, visitors, or employees, and
from and against all cost, attorney's fees, expenses and liabilities incurred in
the defense of any claim or any action or proceeding brought thereon, and in
case any action or proceeding be brought against Lessor by reason of any such
claim. Lessee upon notice from Lessor shall defend the same at lessee's expense
by counsel satisfactory to Lessor and Lessor's landlord except to the extent of
Lessor's negligence or willful misconduct.
Lessee shall maintain a policy (issued by a company reasonably
acceptable to Lessor) of comprehensive general liability insurance with a
combined single limit of not less than $1,000,000 insuring against all liability
of Lessee and its gents arising out of Lessee's use or occupancy of the Premises
and including contractual liability coverage for the indemnification obligations
of Lessee under this lease. This policy of insurance shall name the Lessor as ad
additional insured and shall include cross liability endorsements in favor of
the Lessor. Lessee's insurance shall be primary and non contributing with any
insurance carried by Lessor, and shall contain an endorsement requiring at least
sixty (60) days prior written notice of cancellation to Lessor. Lessee shall
deliver a certificate of insurance to Lessor prior to taking occupancy of the
premises and shall provide evidence or renewed insurance coverage prior to the
expiration of any policies. No insurance required or obtained by lessee
hereunder shall limit any liabilities or obligations of lessee to Lessor under
this Lease.
6
<PAGE>
9. COMMON AREA. All areas not designated for exclusive use of tenants
or available for lease to prospective tenants constitute the Suite's common
areas. Lessee shall have the non-exclusive right of access and use of the common
areas and facilities contained therein. Conference room(s) may be used on a
reservation basis only subject to Lessor's rules and regulations governing use
of the same (see section 9 of exhibit D).
10. MASTER LEASE. Lessee shall have no greater rights to the use and
occupancy of the Suite and Premises than Lessor has with the Building under
Lessor' Master Lease: in particular, Lessee's term under this agreement shall
not be greater than Lessor's term under the Master Lease. Lessee is bound to
Lessor in the same manner as Lessor is bound to the Building with respect to all
standard lease provision (e.g., eminent domain, destruction of building, etc.),
as well as the rules and regulations of the Building attached hereto as Exhibit
C.
Termination of the Master Lease shall terminate this Lease and all of Lessor's
obligations hereunder. If Lessor's interest is so terminated, Lessee shall, at
the option of Lessor's landlord, attorn to Lessor's landlord and recognize
Lessor's landlord as Lessor under this Lease. Lessee shall execute and deliver
at any time when requested by Lessor's landlord an instrument to evidence such
attorment. Lessee waives the provision of any law which may give Lessee any
right of election to terminate this Lease or to surrender possession of the
premises by reason of the termination of the Master Lease. This paragraph does
not obligate Lessee in any way to the Master Lessor of the Building or to anyone
else, for anyone else's rent, or any payment whatever, except as expressly set
forth in this Lease.
At any time, Lessor may terminate this Lease upon sixty (60) days written notice
to Lessee in the event that Lessor's interest in the master Lease is terminated.
In the event Lessor's interest in the Master Lease is terminated, Lessee shall,
at the option of Lessor's landlord, attorn to Lessor's landlord or Lessor's
landlord's designee, and recognize Lessor's landlord or Lessor's landlord's
designee s Lessor under the Sublease. Lessee shall execute and deliver at any
time when requested by Lessor's landlord an instrument to evidence such
attornment. In no event, however, shall Lessor' landlord or Lessor's landlord's
designee be liable for any previous act or omission by Lessor under this
Sublease, or fro the return of any advance rental payments or deposits under
such agreements that have not been actually delivered to Lessor' landlord or
Lessor's landlord's designee, nor shall Lessor's landlord or Lessor's landlord's
designee be bound by any modification to any such agreements executed without
Landlord's consent, or for any advance rental payments in excess of one month's
rent. Lessee waives the provision of any law which may give Lessee any right of
election to terminate this Lease or to surrender possession of the Premises by
reason of the termination of the Master Lease.
11. SUBLETTING. Lessee shall not sublet or assign the Premises or any
part therefor for any period of time. Any subletting or assignment of this Lease
which is not in compliance with the provisions of this paragraph shall be void
and shall, at the option of Lessor, terminate this Lease. In such event, Lessee
shall be liable for any expenses Lessor may incur in
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regaining possession of the premises or so much of the premises as Lessee may
have subleased or assigned without Lessor's consent.
NOTICE TO LESSOR. Any notice regarding a breach of this lease or
termination thereof shall be in writing and sent by certified mail or personal
delivery to Barrister Executive Suites, Inc., Attention: lease Termination
Department, 233 Wilshire Boulevard, Suite 500, Santa Monica, California 90401
(in the case of Lessor), or to Lessee c/o the address of the Premises (in the
case of Lessee). Certified mail notice shall be deemed given forty-eight (48)
hours after the date is placed, postage prepaid, in a depository for United
States mail. PERSONAL DELIVERY TO THE FLOOR MANAGER, RECEPTIONIST OR TELEPHONE
OPERATOR DOES NOT CONSTITUTE NOTICE TO LESSOR. Either party may provide for a
different address by notifying the other part of said change as provided for
herein.
12. SUBSTITUTION
13. RULES AND REGULATIONS. Lessee shall observe at all times Lessor's
Rules and Regulations, a copy of which is attached hereto as Exhibit D.
14. REPAIRS. The landlord which leases the Suite to Lessor is
responsible for construction of the building, parking garage or lot, and repairs
to elevators, air conditioning, electrical, plumbing and structural supports
under the Master Lease. Lessor is not liable to Lessee by reason of any defect,
inadequacy or insufficiency in same. Lessee may not deduct or offset any amount
from rent due herein because of any problem regarding construction, access to
services, repairs or lack thereof. Lessor will coordinate any repair or
complaint of Lessee. However, any claim by lessee with respect thereto shall be
made solely again the Building and Lessor hereby assigns to Lessee, solely for
the purpose of making and prosecuting any such claim, all rights which Lessor
has under the Master Lease. Lessor will coordinate all repairs for dangerous
conditions existing in the common areas within the Suite. Lessee responsible
for, and shall indemnify and hold Lessor harmless from and against, any damage
to persons or property caused by Lessee, or Lessee's employees, agents, clients,
guests or invitees, as well as any business interruption, lost business or
income cause by phone system problems, long distance and local phone service
problems, photocopies problems, and/or fax machine problems.
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15. RIGHT OF ENTRY. If Lessee has given notice to terminate or Lessee
is in default of rental payments, or if Lessee is on a Month -to-Month Lease,
Lessor's employees may show the premises to prospective tenants between 9:00
a.m. and 6:00 p.m., Monday through Friday. If during the last month of the term
Lessee shall have removed all or substantially all of Lessee's property, Lessor
may immediately allow anyone else to occupy the Premises without relieving
Lessee of liability for rent for that period of time unless Lessor receives
rental income from Lessee's space, in which event such payment shall be credited
against Lessee's rent obligation for the period of time the space is occupied by
someone else.
16. UTILITIES, SERVICES, MAINTENANCE AND CONSTRUCTION. Under Lessor's
Master Lease, the Building provides utilities, services (janitorial,
heat and air conditioning) and maintenance. Janitorial services include
carpet vacuuming, but not shampooing. Heat and air conditioning is
provided during generally recognized business days and hours. Lessee is
allowed access to the premises twenty-four (24) hours a day, seven (7)
days a week, subject to the Building's rules requiring proper
identification after normal business hours. Lessor is not liable to
Lessee by reason of any failure to provide or the inadequacy of
utilities, janitorial, heat or air conditioning services, parking,
elevators, or maintenance. Lessor is not responsible for any negligence
of the Building's agents or employees. Lessee may not deduct or offset
any amount from rent due herein because of any problem regarding
utilities, heat, air conditioning, parking, elevators, janitorial
services, maintenance services defective construction of premises. Upon
request by lessee, Lessor will write the Building regarding any
immediate complaint by Lessee regarding utilities, heat, air
conditioning, janitorial services, maintenance of construction;
however, any claim by Lessee with respect thereto shall be made by
Lessee directly to the Building, and Lessor hereby assigns to Lessee,
solely for the purpose of making and prosecuting any such claim, all
rights which Lessor has against the Building under the Master Lease.
Lessor is responsible for maintaining the common areas within the
Suite, however, Lessor is not responsible for maintaining, repairing or
cleaning the floor covering, wall covering or drapes/window blinds
within Lessee's premises, other than the normal janitorial service
provided by the Building.
17. ATTORNEY'S FEES. In the event legal proceedings to regain
possession of the premises or to collect moneys owed are instituted because of
Lessee's failure to pay rent, security deposit, cost of repair of the Premises
or to cure any breach of this Lease, the prevailing party shall be entitled to
recover an element of his cost of suit, and not as damages, reasonable
attorney's fees to be fixed by the court. The "prevailing party" shall be the
party who is entitled to recover his costs of suit, weather or not the suit
proceeds to final judgment. The party not entitled to recover his costs shall
not recover attorney's fees. No sum for attorney's fees shall be counted in
calculating the amount of a judgment for purposes of determining whether a party
is entitled to recover his costs of attorney's fees reciprocal.
18. ENTIRE AGREEMENT, MERGER AND WAIVER. This Lease Agreement
supersedes and cancels any and all previous negotiations, arrangements, offers,
brochures, agreements or understandings, if any, between the parties hereto.
This Lease Agreement
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expresses and contains the entire agreement of the parties hereto and there are
no expressed or implied representations, warranties or agreements between them,
except as herein contained. This Lease Agreement may not be modified, amended or
supplemented except by a writing signed by both Lessor and Lessee. No consent
given or waiver made by Lessor of any breach by lessee of any provision of this
Lease Agreement shall operate or be construed in any manner as a waiver of any
subsequent breach of the same or of any other provision.
BARRISTER EXECUTIVE SUITES, INC.
LESSEE LESSOR
- -------------------------------- -------------------------------------
Neil W. Speakman (Chairman)
Date: JULY 31, 1998 Date:
--------------------------- --------------------------------
*YOUR SIGNATURE IS ALSO REQUIRED ON PAGE 6 OF EXHIBIT D.*
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EXHIBIT B
Not applicable to this Lease Agreement.
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EXHIBIT C
RULES AND REGULATIONS
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1. WHICH CONSTITUTE A PART OF THE LEASE The common area sidewalks,
entrances, passages, courts, elevators, vestibules, stairways, corridors or
halls shall not be obstructed or used for any purpose other than Negroes and
egress.
2. No awnings or other projection shall be attached to the outside
walls of any building or balcony without the prior written consent of the
Landlord. No curtains, blinds, shades or screens shall be attached to or hung
in, or used in connection with, any window or door of the Premises, without the
prior written consent of the Landlord. Such awnings, projections, curtains,
blinds, shades, screens or other fixtures must be of a quality, type, design and
color, and attached in the manner approved by the Landlord. All electrical
ceiling fixtures must be fluorescent, of a quality, type, design and color
approved by Landlord.
3. No sign, advertisement, notice, insignia, trademark, logo or the
like shall be exhibited, painted or affixed by any tenant on any part of, or so
as to be seen from the outside of, the premises or the Project without the prior
written consent of the Landlord. In the event of the violation of the foregoing
by any tenant, Landlord may remove same without any liability, and may charge
the expense incurred in such removal to the tenant violating the rule. Interior
designs on doors and directory tables shall be inscribed, painted or affixed for
each tenant by the Landlord at the expense of such tenant, and shall be of
building standard material, size, color and style or as otherwise approved and
acceptable to the Landlord. Tenant shall not solicit any business in Common
Areas of the Project.
4. The windows and doors that reflect or admit light and air into the
halls, passageways or other public places in the Project shall not be covered or
obstructed by any tenant, nor shall any bottles, parcels or other articles be
placed on the windowsills.
5. The water and wash closets and other plumbing textures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rages or other substances shall be thrown therein. All
damages resulting from any misuse of the fixture shall be borne by the tenant
who, or whose servants, employees, agents, visitors or licenses shall have
caused the same.
6. No tenant shall mark, paint, drill into, or in any way deface any
part of the premises or the project except for standard, customary office
decorations. No boring, cutting or stringing of wires or laying of linoleum or
other similar floor coverings shall be permitted except with the prior written
consent of the Landlord, or as the Landlord may direct.
7. No bicycles, or animals of any kind shall be brought into or kept in
or about the premises. No tenant shall cause or permit any unusual objects odors
to be produced upon or permeate the Premises.
8. The Premises shall not be used for manufacturing or the storage of
merchandise except as much storage may e incidental to the use of the premises
for general office purpose. No tenant shall occupy not permit any portion of his
premises to be occupied for the manufacturer or sale of narcotics, liquor, or
Tobacco in any form, as a barber or manicure shop. No tenant shall
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engage or pay any employees on the premises except those actually working for
such ______ on the Premises nor advertise for laborers giving an address at the
premises or Project. The Premises shall not be used for lodging or sleeping or
for any immoral or illegal purposes.
9. No tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Building or any
neighboring buildings or premises whether by the use of any musical instrument,
radio, phonograph, unusual noise, or in any other way. No tenant shall throw
anything out of the doors or windows or down the passageway.
10. No tenant, nor any of tenant's servants, employees, agents,
visitors or licensees, shall at any time bring or keep upon the premises any
inflammable, combustible or explosive fluid, chemical or substance or any foul
or noxious gases or substance.
11. No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any tenant, nor shall any changes be made in existing
locks or the mechanism thereof. Each tenant must, upon the termination of his
tenancy, restore to the Landlord all keys of offices, toilet rooms and all other
enclosed areas, either furnished to, or otherwise procured by, such tenant, and
in the event of the lost of any keys so furnished, such tenant shall pay to the
Landlord the cost of replacing the same or of changing the lock or locks opened
by such lost key if Landlord shall deem it necessary to make such change.
12. All removals, or the carrying in or out of any freight, furniture,
or bulky matter of any description must take place during the hours which the
landlord may determine from time to time. The moving of fixtures of bulky matter
of any kind must be made upon previous notice to the manager of the project and
under his supervision, and the persons employed by any tenant for such work must
be acceptable to the Landlord. The Landlord reserves the right to inspect all
freight or other bulky articles which violate any of these Rules and Regulations
or the lease of which these Rules and regulations are a part. The Landlord
reserves the right to prescribe the weight and position of all safes or other
heavy objects, which shall are to be located in the premises and, in any event,
shall be placed upon supports approved by Landlord to distribute the weight.
Landlord will not be responsible for loss or of damage to any such safe or
property from any cause and all damage done to the project by moving or
maintaining any such safe or other property shall be repaired at the expense of
tenant.
13. The requirements of tenants will be attended to only upon
application to the manager of the Project.
14. All office equipment of any electrical or mechanical nature shall
be placed by tenants in the premises in settings approved by landlord, to absorb
or prevent any vibration, noise or annoyance.
15. No heating or air conditioning unit or other similar apparatus
shall be installed or used by any tenant without the written consent of
Landlord.
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16. There shall not be used in any space, or in the common areas of the
Project, either by any tenant or others, any hand trucks except those equipped
with rubber tires and side guards.
17. Tenant shall not conduct any action, fire, bankruptcy, going out of
business, liquidation of similar sales.
18. Landlord shall have the right at any time to expel peddlers,
beggars, solicitors and loiterers.
19. Tenant shall not place any radio or television antennae on the roof
of the Project or on any exterior part of the premises or the project.
20. Landlord shall have the right to prohibit any display or
advertising by any tenant which, the Landlord's sole opinion, may tend to impair
the reputation of the Project or less desirability as an office and retail
development. Upon written notice from Landlord, tenant shall within five (5)
days thereafter discontinue or cause to be discontinued all such advertising.
21. On Saturdays, Sundays and legal holiday, and on other days between
the hours of 6:00 p.m. and 8:00 a.m. the following day, access to the Project or
to the halls, corridors, elevators or stairways in the project, or to the
Premises, may be refused unless the person seeking access is known to the person
or employee of the project in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the project of any person. In case of
invasion, mob, riot, public excitement, or other commotion, the Landlord
reserves the right to prevent access to the project during the continuance of
the same by closing of the doors or otherwise, for the safety of the tenants and
protection of property in the Project.
22. Any person or entity employed by any tenant to do janitorial work,
shall, while in the project and adjacent to the Premises, be subject to and
under the control and direction of the manage of the project (but not as an
agent or servant of said superintendent or of the Landlord) and Tenant shall be
responsible for all acts of such persons. No such person shall be responsible
for all acts of such persons. No such person shall be allowed in the project
after regular hours without the prior approval of Landlord.
23. Canvassing, soliciting and peddling in the project are prohibited
and each tenant shall cooperate to prevent the same.
24. No vending machine or machines of any description shall be
installed, maintained or operated upon the premises without the written consent
of Landlord.
25. Tenant shall not overload the floor of the premises or in any way
deface the premises or any part thereof.
26. No cooking shall be done or permitted by any tenant on the Premises
(except for use of a coffee maker and microwave), nor shall the Premises be used
for the storage of
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merchandise, for washing clothes, for lodging , or for any improper,
objectionable or immoral purposes.
27. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Landlord. The location of telephones, call
boxes and other office equipment affixed to the premises shall be subject to the
approval of Landlord.
28. Landlord reserves the right to exclude or expel from the Project
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the project.
29. Landlord shall have the right, execrable without notice and without
liability to Tenant, to change the name and street address of the Project of
which the Premises are a part.
30. Without the written consent of Landlord, Tenant shall not use the
name of the project in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
31. Landlord shall have the right to control and operate the public
portions of the Project, and the public facilities, and heating and air
conditioning, as well as, facilities furnished for the common use of the
Tenants, in such manner as it deems best for the benefit of the Tenants
generally.
All entrance doors in the premises shall be left locked when the Premises are
not is use, and all doors opening to public corridors shall be kept closed
except for normal ingress and egress from the Premises.
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EXHIBIT D
BARRISTER EXECUTIVE SUITES, INC.
RULES AND REGULATIONS
ATTACHED AND MADE A PART OF LEASE
Lessor has adopted these Rules and Regulations for the purpose of
assuring Lessee of the quiet enjoyment of the Suite. Lessee agrees to abide by
the Rules and Regulations so long as Lessee remains in occupancy of the
premises.
1. COMMON AREAS. The sidewalks, hallways, passages, exits, entrances,
elevators, escalators and stairways shall not be obstructed by Lessee or used by
him for any purpose other than for ingress to and egress from the premises. The
halls, passages, exits, entrances, escalators and stairways are not for the use
of the general public and Lessor shall in all cases retain the right to control
and prevent access hereto by all persons whose presence in the judgment of
Lessor shall be prejudicial to the safety, character, reputation and interests
of the suite and its Lessee, provided that nothing herein contained shall be
construed to prevent such access to persons with whom Lessee normally deals in
the ordinary course of such Lessee's business unless such persons engaged in
illegal activities.
2. DISPLAY OF SIGNS. No sign, placard, picture, name, advertisement or
notice, visible from the exterior of the premises shall be inscribed painted,
affixed or otherwise displayed by lessee on the premises or any part of the
building without the prior written consent of Lessor, and Lessor shall have the
right to remove any such sign, placard, picture, name, advertisement or notice
without notice to and at the expense of Lessee. Lessor's consent, whether before
or after the execution of the Lease, shall in no way operate as waiver or
release of any of the provisions hereof or of the Lease, and shall be deemed to
relate only to the particular sign, placard, picture, name, advertisement or
notice so consented to by Lessor and shall not be construed as dispensing with
the necessity of obtaining the specific written consent of Lessor with respect
to any other such sign, placard, picture, name, advertisement or notice.
3. DIRECTORY. Subject to the Building's rules and regulations, Lessee
may have Lessee's business name of the Building's lobby and parking-level
directories. Lessor will order the installation of directory listings for the
name(s) designated as "Lessee" on this Lease. Lessee shall pay the Lessor's
prevailing charge for any Directory Listing. If Lessee desires a different
listing, additional listings, or does not want a name on the directories. Lessee
will note that fact at the bottom of this page and at the discretion of Lessor
and the Building, such additional listings may be provided.
4. DOOR LETTERING. Lessee may, at Lessee's expense have the occupant's
name placed on lessee's office door in the uniform size, style, place and manner
selected by
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Lessor. If lessee requires door signs, Lessee shall pay Lessor for same at
Lessor's prevailing rate. Lessee shall not install a title, company name or
anything else on the outside of Lessee's door or any other location visible form
the common area. For attorneys, a law firm name on the door is permissible, so
long as it does not exceed one line. Lessor recommends the use of a single
occupant's name, or no name at all. If Lessee's office is within a private
suite, Lessee shall not place any name on the entrance door to the private suite
unless Lessee has leased the entire mini-suite , or each office desk space
within that private suite is occupied and Lessee obtains written consent of all
other tenants within that private suite. If at any time lessee does not lease an
entire min-suite or private suite and Lessee does not have the consent of all
other occupants of the mini-suite or private suite, including Lessor's in the
event a vacancy exits. Lessee shall remove, at its own expense, all lettering
from the entrance door to the mini-suite or private suite. If Lessee's door
lettering is not installed by the office of the building or the company
recommended by Lessor, of if the next lessee does not immediately install door
lettering. Lessee is responsible for the cost o professional removal of Lessee's
door lettering as well as any damage to the door cause by the removal of
lessee's door lettering. If any co-Lessee complains that Lessee's door lettering
is not in keeping with the provisions herein, Lessee will alter at Lessee's
expense the door lettering to comply with these provision.
5. KEYS. Lessor will supply one key to the door of each office of desk
area (including one key for each existing desk lock if the former tenant
returned the key) rented by Lessee. If Lessee does not receive a door key for
space rented within 5 days after the commencement date of this Lease, Lessee
shall send Lessor a certified letter with return receipt asking for the key(s)
and if such letter is not received by Lessor, Lessee will be deemed to have
received the key(s). and Lessee will be responsible for replacing the keys(s)
when Lessee moves out. Lessee will pay the Lessor's prevailing charge for
elevator keys, security cards or keys to enter the Building after normal
business hours, or additional office or desk area keys. Lessor is not
responsible for changing any lock for any reasoning including, but not limited
to the master key kept by Lessor's employees, or any other key with opens the
Lessee's space being stolen, lost or misplaced. Lessee understands that Lessor
is not liable for theft. Subject to the approval of the Building manager, Lessee
may install a deadbolt lock on or change the tumbler on any door(s) leading to
an area within which Lessee has leased all the space. Deadbolts must be
installed above the doorknob with precisely 7 1/2" between the center of the
knob and the center of the dead bolt. If Lessee chooses to change the tumbler or
to install a dead bolt, Lessee realizes that maintenance personnel will not e
able to enter and clean Lessee's office(s). Lessee shall be responsible for the
return of all keys to the premises. In the event Lessee fails to do so, Lessee
shall pay Lessor for the cost of re-keying all doors to the premises. If Lessee
requires Lessor to admit Lessee into the premises. Lessee will be assessed
Lessor's standard charge for admitting Lessee for each occurrence after the
first.
6. CARPETING AND WALL COVERING. Lessee accepts the carpeting, flooring
and walls on an "as is" basis. Lessee shall return the carpeting, flooring,
walls, and wall covering to Lessor in their installed condition less normal wear
and tear. Lessee may not make changes in floor covering or wall covering without
the prior written consent of Lessor. Upon termination of the Lease whether upon
expiration of the term or sooner. Lessee agrees to pay Lessor One Hundred
Dollars ($100.00) per leased office and per leased desk space to cover the
painting and
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cleaning costs for each such space. The applicable amounts for painting and
cleaning costs shall be deducted from Lessee's security deposit should Lessee
fail to pay Lessor for same upon lease termination.
7. DRAPES (OR VENETIAN BLINDS). Lessor shall provide drapes or blinds
(whichever is standard for the Building) in exterior window offices (excluding
offices with atrium exposures) at no expense to Lessee. Lessor is not obligated
to clean or repair the drapes (or blinds). Lessee shall return same to Lessor in
their present condition less normal wear and tear. As required by the Building,
Lessee must use the building standard drapes or blinds. Lessee may install
overdrapes (visible only from within the office) in the texture and color of
Lessee's choice, which must be removed at lease termination. If the Building has
special sun-resistant glass treatment and does not provide drapes or blinds for
other floors in the building, Lessor shall not be required to provide drapes or
blinds to Lessee.
8. IMPROVEMENTS. Lessee may make cosmetic improvements within the
office(s) and/or desk space(s) leased herein subject to Lessor's prior written
approval and provided that Lessee pays for any such improvements and further
provided said improvements do not affect the structural integrity of the
Building or violate Lessor's Master Lease. All improvements (other than floor
covering or wall covering changes) must be done by the Building's general
contractor or a contractor of lessee's choice with the prior written prior
written permission of the Office of the Building and Lessor. Lessee may remove
any improvements paid for by Lessee provided that Lessee repairs any holes, gaps
or other damage to walls, ceiling, flooring or their coverings. Lessee will
remove any improvements (other than additional, normal-height electrical outlets
or shelves within a cabinet or closet occupied by Lessee) installed by Lessee
and restore the premises to the condition prior to Lessee's occupancy if
requested to do so by Lessor. Lessee shall not remove any improvement for which
Lessor contributed payment without Lessor's prior written consent. During the
restoration period, Lessee shall pay rent to Lessor as provided herein as if
said space were otherwise occupied by Lessee.
9. CONFERENCE ROOM. Lessee may use the conference room(s) on a
reservation basis only. Lessee may not have a standing or permanent reservation
of the conference room. Lessee will not reserve the conference room on more than
3 occasions in any 30-day period nor may Lessee reserve use of the conference
room for an entire day more than one day at a time, unless Lessor's floor
manager confirms that such excess use does not conflict or interfere with any
other co-tenant's reasonable pro rate use of the conference room. Excess usage
will be charged to Lessee at Lessor's prevailing rate. Lessee understands the
conference room is for meetings, depositions or other conferences and is not to
be used for lunches or any other purpose which causes loud noise. Offensive
odors or any other environmental situation which disturbs other tenants. Use of
the conference room at any other suite operated by Lessor is permitted one time
in any 30-day period on a reservation basis. Such usage is limited to normal
business hours when the floor manager is present.
10. LIBRARY. Lessor will provide access to a Law Library, consisting of
one set of each major multi-volume publication (other than desk or specialized
sets) used most frequently by
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most lawyers as determined by Lessor's experience (said law library may be
comprised of CD-ROM disks or books). Lessee shall not mark, mar, tear or
otherwise deface any book.
Lessee shall refrain from smoking, eating and drinking in the library
and shall be bound by the rules made by Lessor with respect to the use of the
library, including but not limited to the following:
a) Lessee will return to the shelf each book that Lessee
removes from the shelf.
b) Lessee will complete an "out card" for each book
removed from the library.
c) Lessee will not keep any book out of the library
overnight.
Lessor is not responsible for repurchasing lost, stolen or missing
books or supplements.
If the number of lost, stolen or missing books is unusually large, ad
determined by Lessor's experience in running numerous law suites, Lessor may
lock the library after normal business hours or institute other security
measures Lessor deems appropriate, including inspection of all offices in the
Suite to locate missing books.
Lessee realizes that every book or supplement needed by Lessee will not
always be in the library as some books or supplements may be missing, stolen or
have been removed by tenants. Lessee acknowledge that Lessor is not responsible
to Lessee or any other persons in the event that research by, or on behalf of
Lessee is inadequate or incomplete because some books or supplements have not
been updated, have been removed, or are missing or stolen. Lessor may at any
time and without prior notice to Lessee remove the on-site library, however,
Lessee shall have the right to use the library of any other law suite operated
by Lessor but may not remove any book from said library. The Law Library is
provided for the convenience of the tenants and Lessor can not be held
responsible for any inadequacy therein.
11. TELEPHONE, MAIL SORTING AND RECEPTION. Lessor agrees to provide
standard telephone answering, mail sorting and reception services as reasonably
required by Lessee from 9:00 a.m. to 5:30 p.m., Monday through Friday, national
and/or state holidays excepted. Lessee shall be responsible for its own
telephone expense, and the installation and monthly service charges, if any,
from the telephone company by reason of Lessee's lines being connected to the
reception desk and telephone room consoles. Any telephone expense billed to
Lessor (including any telephone company double charge) shall be paid or
reimbursed by Lessee to Lessor. Lessee agrees to use only the telephone
equipment and services of the vendor authorized by Lessor if Lessee wishes to
connect its telephones lines to Lessor's switchboard and have Lessor answer
Lessee's telephone lines. Lessee may not install more than two incoming lines on
Lessor' switchboard for each office and one incoming line for each desk space,
and all such lines are to be answered with the same greeting. Telephone
equipment shall only be moved by Lessor
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or its authorized vendor and Lessee shall be responsible to pay all costs of
such moves at the current rates charged by Lessor's authorized vendor.
In the event that Lessee receives excessive incoming telephone calls
through Lessor's switchboard (Greater than 1,000 calls per month per office
rented will be considered excessive). Lessor may impose a reasonable charge for
such excessive usage or require Lessee to disconnect its telephone lines from
Lessor's switchboard and have Lessee answer its own telephone lines. Lessee is
encouraged to have a private line that bypasses Lessor switchboard for important
clients and personal callers so as to help ensure that Lessee does not receive
excessive calls through Lessor's switchboard.
Lessee is required to maintain voice-mail access so that
Lessor's telephone operators may route Lessee's callers that need to leave a
message into said voice-mail. Should Lessor's operators e required to take a
paper message for any reason, Lessee agrees to pay Lessor's standard charge for
each such message written.
Should Lessee choose not to connect to Lessor's switchboard
and not have Lessor answer its telephone, Lessee may use its own telephone
equipment provided Lessee obtains said equipment from a telephone vendor
approved by Lessor. Lessee acknowledges that the telephone cabling which
currently exits in the suite is the property of Lessor and Lessor may have
provided the rights to use the existing cabling to its authorized telephone
vendor. Therefore, if Lessee chooses to use its own telephone equipment, Lessee
may be charged a monthly fee by Lessor or its authorized telephone vendor for
use for the existing telephone cabling. In the event Lessee replaced Lessor's
cabling with Lessee's own vendor's cabling, Lessee shall reimburse Lessor for
any expense Lessor's phone vendor assesses to switch out its cabling and to
restore it after Lessee vacates the Premises.
Lessee agrees that Lessor is not responsible for the acts or
omissions of Lessor's telephone vendor. Lessor is not responsible for telephone
equipment breakdowns, and Lessee understands that telephone service may not
always be continuous. Further, Lessee agrees to release and hold Lessor harmless
from any loss, damage, claim or liability arising out of or in connection with
any telephone equipment failure, including lost business or income. Services
offered by Lessor are subject to human, electrical and mechanical error failure,
or illness which may result in the delay or discontinuation of these services.
Lessee acknowledges that Lessor is not responsible for telephone equipment
breakdowns and that telephone service may not always be continuous.
If the telephone company does not install Lessee's phone on or
before the commencement date of this Lease, the commencement date shall not be
extended, nor shall rent be abated, since Lessee is responsible for insuring
that Lessee's telephone lines are installed in Lessee's office and connected to
Lessor's central call director. If Lessee desires a floor telephone outlet or
any other telephone outlet not already provided, Lessee will pay the Building's
relocation charge and any additional conduit and electrical work charges.
Lessee recognizes that telephone answering, mail sorting and
reception services are never perfect and that all receptionists and telephone
operators make mistakes. Lessor strives to provide excellent telephone
answering, mail sorting and reception services, however it will not
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be error-free. Lessee may perform telephone answering and mail service directly
or through Lessee's employees. Lessee agrees that Lessor shall not be liable for
any loss of business or damages of any sort occurring through or in connection
with, or incidental to the furnishing of, or the failure to furnish, telephone
answering, mail sorting or reception service. Further, Lessee agrees to release
and hold Lessor harmless from any loss, damage, claim or liability arising out
of or in connection with any telephone answering, mail sorting and/or reception
service provided or not provided by Lessor's employees to Lessee or to any
caller, visitor or associate of Lessee, or mail or deliveries of any goods or
merchandise intended for lessee. IN THE EVENT OF THIS LEASE TERMINATES, OR
LESSEE IS IN DEFAULT HEREUNDER, LESSOR MAY, AT ITS ELECTION, REFUSE TO PROVIDE
TELEPHONE ANSWERING SERVICE, LIBRARY AND CONFERENCE ROOM USAGE, PHOTOCOPYING,
WORD PROCESSING, FAX AND LEGAL RESEARCH AND LESSOR SHALL NOT BE IN BREACH OF ANY
OF ITS OBLIGATIONS HEREUNDER. NOR SHALL REFUSAL BE DEEMED AN EVICTION OF LESSEE
UNDER THIS LEASE.
Lessor provides open message and mail slots to all tenants.
Lessee acknowledges that Lessor is not responsible for loss or theft of messages
or mail. Lessee may install at Lessee's expense a locking cover over the mail
slot or one or both sides of the message slot provided that Lessee will be
responsible for any damage to said mail or message slot s well as for restoring
the slot to its original condition when Lessee moves out. Lessee understands
that any covered slot will not be in alphabetical order and will be at the
beginning or end of the row of slots at the telephone operator's discretion.
Lessee further understands that a key must be given to the telephone operators
in order form them to insert mail and/or messages into the respective slots or
the covers must be designed with a small opening for this purpose. Lessor's sole
obligation to answer telephones or sort mail shall be limited to Lessee's name
or associates of Lessee occupying individual offices. Services in addition to
the foregoing shall be subject to a charge to be determined by Lessor.
Upon termination of this Lease, Lessor will write on all mail
"Return to Sender" and return to the post office. Lessor will not store mail nor
place a forwarding address on it unless Lessee pays the then-prevailing charge
for said service.
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12. PHOTOCOPYING AND FAX. Lessor will provide all photocopy and fax
services for the premises and Lessee shall be permitted to install any fax or
table top photocopy machines in the Leased premises. If Lessee desire to use
these services, Lessee shall execute separate services agreements for same, and
charges arising from these services shall appear on Lessee's monthly statements
and shall be paid for together with the monthly rent for the premises. Lessee
recognizes that photocopy and fax machines do break down and that repair persons
do not come over promptly. Lessee acknowledges that Lessor is not responsible
for machine breakdowns.
13. PARKING. Lessee and Lessee's visitors may have validated and
monthly automobile parking (if available) in the Building's parking facilities,
if any, according to the Building's rules and regulations. Lessor is under no
obligation to provide parking. Lessee's failure to obtain parking shall in no
way affect Lessee's obligation to pay rent.
14. PROFESSIONAL CONDUCT. If Lessee conducts himself or his business in
such a manner that reflects unfavorably on them or the Suite, Lessor may
terminate this Lease on 15 days notice to Lessee and any rent paid in advance
will be returned to lessee on a pro rate basis. Lessor further reserves the
right to exclude, expel from the Suite or terminate the Lease of (on 5 days
notice to Lessee) any person who, in the sole judgment of Lessor is abusive to
Lessor's employees, tenants or visitors to the premises, is intoxicated or under
the influence of liquor or drugs, or who shall in any manner do any act in
violation of any these rules and regulations or applicable laws.
15. SMOKING. Smoking is expressly prohibited in all areas of the Suite.
16. AMENDMENTS. lessor may, without further notice, make changes or
adopt any such other and further rules and regulations which in its sold
judgment may be necessary for the proper operation of the Suite. Lessee agrees
to abide by all such rules and regulations hereinabove stated and any additional
rules and regulations which are adopted. So long as Lessee is not in violation
of its obligations under the Lease of these rules and regulations. Lessor shall
observe the rules and regulations.
BARRISTER EXECUTIVE SUITES, INC.
LESSEE LESSOR
- -------------------------------- -------------------------------------
Neil W. Speakman (Chairman)
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Date: JULY 31, 1998 Date:
---------------------------- -------------------------------
YOUR SIGNATURE IS ALSO REQUIRED ON PAGE 8 OF THE LEASE
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Exhibit 3(11)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and
entered into as of this __ day of May, 1998 by and between XENOTECH, INC., a
Canadian corporation (the "Company"), and Neil W. Speakman (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee as the
Executive Vice President and Chief Operating Officer of the Company; and
WHEREAS, the Employee desires to serve the Company as its
Executive Vice President and Chief Operating Officer; and
WHEREAS, the Company and the Employee desire to enter into an
employment agreement that shall set forth their respective duties, obligations
and responsibilities;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Employee agree as set forth below.
1. EMPLOYMENT AND DUTIES. The Company agrees to and does
hereby employ the Employee, and the Employee does hereby accept employment with
the Company, as the Vice President and Chief Operating Officer of the Company,
to operate and manage the business and operations of the Company with all the
authority customarily afforded to a chief operating officer subject to the
normal supervision and authority of the Board of Directors of the Company, and
to perform such other duties which are consistent with such position as are from
time to time delegated to the Employee by the Board of Directors of the Company.
The Employee will perform all services and acts necessary in such capacities to
properly manage the Company, and the Employee shall endeavor in good faith to
perform his duties in an efficient, faithful and businesslike manner.
2. TERM OF AGREEMENT. The provisions of this Agreement shall
remain in full force and effect and the employment of the Employee with the
Company shall continue until terminated by a written Notice of Termination (as
described in Section 5(c)) provided by either the Company or the Employee. In
addition, notwithstanding the previous sentence, this Agreement may be
terminated at any time by mutual agreement of the parties hereto or by the
Company at any time following the date on which the Employee attains age
sixty-five (65) (hereinafter termination of this Agreement by the Company after
the Employee has attained age sixty-five (65) shall be referred to as
"Retirement").
<PAGE>
3. COMPENSATION. During the term of this Agreement, the
Employee shall be paid a base salary, payable in accordance with the Company's
normal payroll practice. The Employee's initial base salary shall be Fifteen
Thousand Dollars ($15,000) per month. The base salary payable to the Employee
shall be reviewed annually for increase effective each July 1st during the term
of this Agreement. In addition, the Employee shall participate in any bonus plan
which is currently in effect or which may be established by the Company (the
"Bonus Plan"). Any bonus payable shall be determined under the provisions of the
Bonus Plan, and shall be payable as soon as practical after determination of the
bonus amount, but not later than seventy-five (75) days after the end of the
Company's fiscal year.
4. OTHER EMPLOYEE FRINGE BENEFITS.
a. IN GENERAL. The Company shall further provide
the Employee with health and life insurance coverage, sick leave and disability
programs, tax-qualified retirement plan contributions, stock option plans, paid
holidays and vacations, perquisites, and such other fringe benefits of
employment as the Company may provide from time to time to actively employed,
disabled, deceased, retired, or otherwise terminated, as applicable, senior
executives of the Company.
b. SUPPLEMENTAL BENEFITS. The Company shall also
provide the Employee with the following supplemental benefits:
(i) VACATION. The Employee will be
entitled to total vacation leave during the term of this Agreement of four (4)
weeks per year at such time as agreed between the Employee and the Company.
(ii) AUTOMOBILE. The Company shall lease on
behalf of the Employee during the term of this Agreement an automobile with a
retail value up to forty thousand dollars ($40,000).
(iii) SERP. The Employee will be entitled to
participate, at a level commensurate with his position and his base salary, in
any Supplemental Executive Retirement Plan (the "SERP") which is currently in
effect or which may be established by the Company. The Employee's participation
in and benefit under the SERP shall be determined in accordance with the terms
and conditions of the SERP.
(iv) STOCK OPTION PLAN. The Employee will
be entitled to participate, at a level commensurate with his position and his
base salary, in any stock option plan which is currently in effect or which may
be established by the Company (the "Stock Plan"). The Employee's participation
in the Stock Plan shall be determined in accordance with the terms and
conditions of the Stock Plan.
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5. TERMINATION OF EMPLOYMENT.
a. TERMINATION OF EMPLOYMENT BY THE COMPANY. The
Employee's employment hereunder may be terminated by the Company without any
breach of this Agreement only under the following circumstances:
(i) DEATH, DISABILITY OR RETIREMENT. The
Employee's employment hereunder shall terminate upon his death and may be
terminated by the Company in the event of his Disability or Retirement. For
purposes of this Agreement, the term "Disability" shall mean the inability of
the Employee due to illness (mental or physical), accident, or otherwise, to
perform his duties for any period of ninety (90) consecutive days, as determined
by an independent physician selected by the Company and reasonably acceptable to
the Employee (or his legal representative), provided that the Employee does not
return to work on substantially a full-time basis within thirty (30) days after
Notice of Termination is given by the Company pursuant to the provisions of
Sections 5(c) and 5(d)(ii).
(ii) CAUSE. The Company may terminate the
Employee's employment hereunder for Cause. For purposes of this Agreement, the
Company shall have "Cause" to terminate the Employee's employment hereunder only
upon (a) his conviction of a felony involving moral turpitude, provided that
such conviction would at the time have a material adverse effect on the Company
in the reasonable opinion of the Board of Directors of the Company, (b) gross
and willful misconduct by the Employee which is deemed, by the Company's Board
of Directors, to be injurious to the Company, (c) a finding of gross dishonesty
of the Employee, (d) willful malfeasance or gross negligence, or failure to act
involving material non-feasance, provided that in the case of such gross
negligence or material non-feasance it would at the time have a material adverse
effect on the Company in the reasonable opinion of the Board of Directors of the
Company, (e) insubordination or refusal to perform assigned duties consistent
with those contained in Section 1, or (f) the Employee's material breach of his
obligations contained in Section 8.
b. TERMINATION OF EMPLOYMENT BY EMPLOYEE. The
Employee may terminate his employment at any time. However, he shall be deemed
to have terminated his employment for "Good Reason" only if he terminated his
employment by giving Notice of Termination pursuant to Sections 5(c) and
5(d)(iii) within ninety (90) days after the occurrence of any of the following
events (provided the Company does not cure such event within thirty (30) days
following its receipt of the Employee's Notice of Termination):
(i) Without the Employee's prior written
consent, the Company assigns the Employee to duties materially inconsistent in
any respect with his position, authority, duties or responsibilities as set
forth in Section 1, or takes any other action that results in a material
diminution in such position, authority, duties, or responsibilities, including,
but not limited to, failing to re-appoint or reelect the Employee to any such
position (other than upon Retirement).
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(ii) The Employee's base salary, or his
annual or long-term Bonus Award under any Bonus Plan of the Company which is
then in effect, is reduced for any reason other than in connection with the
termination of his employment.
(iii) After a Change in Control (as defined
in Section 7), within each twelve (12) month period (as described in Section 3),
the Company increases the base salary for senior executive officers of the
Company generally without similarly increasing the base salary of the Employee.
(iv) For any reason other than in
connection with the termination of the Employee's employment, the Company
materially reduces fringe benefits provided to the Employee under Section 4,
unless the Company agrees, as evidenced by the Employee's written consent, to
fully compensate the Employee for any such material reduction.
(v) The assignment of the Employee,
without his prior written consent, to a Company office located outside of the
State of California.
(vi) The Company's failure to obtain an
agreement from any successor or assign of the Company to assume and to agree to
perform this Agreement.
(vii) The Company otherwise materially
breaches its obligations to make payments to the Employee under this Agreement.
c. NOTICE OF TERMINATION. Any termination of the
Employee's employment by the Company hereunder, or by the Employee other than
termination upon the Employee's death, shall be communicated by written Notice
of Termination to the other party. For purposes of this Agreement, a "Notice of
Termination" means a notice that shall indicate the specific termination
provision in this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Employee's employment under the provision so indicated.
d. DATE OF TERMINATION. For purposes of this
Agreement, an applicable "Date of Termination" means:
(i) If the Employee's employment is
terminated by his death, the date of his death.
(ii) If the Employee's employment is
terminated by the Company as a result of Disability or Retirement pursuant to
Section 5(a)(i) or for Cause pursuant to Section 5(a)(ii), the date that is
thirty (30) days after Notice of Termination is given (provided that in the case
of termination for Disability, the Employee shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period).
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(iii) If the Employee terminates his
employment for Good Reason pursuant to Section 5(b), the date that is thirty
(30) days after Notice of Termination is given (provided that the Company does
not cure such event during that thirty (30) day period).
(iv) If the Employee terminates his
employment other than for Good Reason, the date that is one (1) month after
Notice of Termination is given.
(v) If the Employee's employment is
terminated by the Company other than for Cause, the date that is one (1) month
after Notice of Termination is given.
6. AMOUNTS PAYABLE UPON TERMINATION OF EMPLOYMENT OR DURING
DISABILITY.
a. DEATH OR RETIREMENT. If the Employee's
employment is terminated by his death or at Retirement, the Employee's
beneficiary (in the case of death) (as designated by the Employee in writing
with the Company prior to his death) or the Employee (in the case of Retirement)
shall be entitled to the following payments and benefits: (i) any portion of the
Employee's base salary that is accrued but unpaid, any vacation that is accrued
but unused, and any business expenses that are unreimbursed, all determined as
of the Date of Termination and payable within thirty (30) days of such date;
(ii) a single lump sum payment equal to a pro rata award under any Bonus Plan of
the Company then in effect, payable in accordance with the terms of any such
Bonus Plan within thirty (30) days of the Date of Termination and (iii) any
benefits resulting from the fringe benefits described in Section 4 upon the
Employee's death or Retirement (whichever is applicable) in accordance with the
provisions of the plan or program that provides each applicable fringe benefit.
In the absence of a beneficiary designation by the Employee, or, if the
Employee's designated beneficiary does not survive the Employee, benefits
described in this Section 6(a) shall be paid to the Employee's estate.
b. DISABILITY.
(i) During any period that the Employee
fails to perform his duties hereunder as a result of incapacity due to physical
or mental illness ("Disability Period"), the Employee shall continue to receive
his base salary and any bonus under any Bonus Plan then in effect at the rate
then in effect for such period until his employment is terminated pursuant to
Section 5(a)(i); provided, however, that payments of base salary and bonus so
made to the Employee shall be reduced by the sum of the amounts, if any, that
were payable to the Employee at or before the time of any such salary or bonus
payment under any disability benefit plan or plans of the Company and that were
not previously applied to reduce any payment of base salary or bonus.
(ii) Upon his termination of employment
because of Disability (as defined in Section 5(a)(i)), the Employee shall be
entitled to the following payments and benefits:
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A. Those described in Section 6(a);
B. For a period of thirty-six (36)
months following his Date of
Termination, severance pay, paid
monthly, equal to his base salary
in effect at the Date of
Termination;
C. For a period of thirty-six (36)
months following his Date of
Termination, monthly payments
equal to one-twelfth (1/12th) of
the Employee's annual bonus,
determined under the provisions
of any Bonus Plan then in effect,
based upon his base salary at the
Date of Termination;
D. For a period of thirty-six (36)
months following his Date of
Termination, continuation of all
fringe benefits described in
Section 4, except for group
medical insurance, in effect at
the Date of Termination; and
E. For a period of forty-eight (48)
months following his Date of
Termination, continuation of the
Company's group medical insurance
for the Employee and his
dependents, as in effect at the
Date of Termination.
Notwithstanding any provision of this Section 6(b)(ii),
severance payments made to the Employee pursuant to Sections 6(b)(ii)(B) or (C)
shall be reduced by the sum of the amounts, if any, that were payable to the
Employee at or before the time of any such severance payment under any
disability benefit plan or plans of the Company and that were not previously
applied to reduce either any such severance payment or any payment of base
salary or bonus under Section 6(b)(i).
c. TERMINATION BY COMPANY WITHOUT CAUSE, OR
TERMINATION BY EMPLOYEE FOR GOOD REASON. In the event that the Company
terminates the Employee's employment without Cause or the Employee terminates
his employment for Good Reason, the Employee shall be entitled to the following
payments and benefits:
(i) Those described in Section 6(b)(ii);
(ii) As of his Date of Termination, the
Employee shall become fully vested in
all employee benefit programs (other
than any tax qualified retirement or
savings plan, the Employee's interest
in which shall vest in accordance with
such plan's
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<PAGE>
terms), including, without limitation,
any stock options and awards under any
Stock Plan in effect and all benefits
under any SERP in effect, in which he
was a participant at the time of the
termination of his employment;
(iii) Reimbursement of all expenses incurred
by the Employee through the use of any
executive out-placement services to
assist him to seek other employment,
which shall include, but not be
limited to (A) secretarial services,
use of an office, phone, office
supplies and office services
comparable to the level of such
services and supplies available to the
Employee prior to the Date of
Termination and (B) all unreimbursed
travel expenses incurred by the
Employee to seek other employment up
to a maximum amount of Five Thousand
Dollars ($5,000); and
(iv) A single lump sum payment, payable
within thirty (30) days of the Date of
Termination, equal to the Employee's
non-vested interest under any tax
qualified retirement or savings plan
maintained by the Company which is
forfeited by the Employee under such
plan's terms upon his termination of
employment.
d. TERMINATION BY EMPLOYEE OTHER THAN FOR GOOD
REASON OR TERMINATION BY COMPANY FOR CAUSE. In the event that the Employee
terminates his employment other than for Good Reason or the Company terminates
his employment for Cause, the Employee shall not be entitled to any compensation
except as set forth below:
(i) Any base salary that is accrued but
unpaid, any vacation that is accrued
but unused, and any business expenses
that are unreimbursed, all as of the
Date of Termination;
(ii) In the case of termination by the
Employee other than for Good Reason, a
pro rata award under any Bonus Plan
then in effect (as described in
Section 6(a)(ii)); and
(iii) Any other rights and benefits (if any)
provided under plans and programs of
the Company, determined in accordance
with the applicable terms and
provisions of such plans and programs.
e. MITIGATION OF DAMAGES. Following any Date of
Termination, the Employee shall have no obligation to seek other employment.
However, except in cases of termination of employment after a Change in Control,
as described in Section 7, to the extent that
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<PAGE>
the Employee becomes employed following his termination of employment with the
Company without Cause or for Good Reason, the payments and benefits described in
Section 6(c) shall be reduced as follows:
(i) Severance payments (as described in
Sections 6(b)(ii)(B) and (C)) shall be
reduced by fifty cents (50 CENTS) for
every one dollar ($1) in compensation
(either base salary or bonus) that the
Employee receives through his new
employment; provided, however, during
the first twelve (12) months following
the Employee's Date of Termination,
such severance payments shall not be
reduced pursuant to this provision by
more than fifty percent (50%); and
(ii) The fringe benefits provided by the
Company to the Employee at the Date of
Termination (as described in Sections
6(b)(ii)(D) and (E)) shall terminate
upon the earlier of (A) the Employee's
reemployment and (B) the applicable
date specified under either Section
6(b)(ii)(D) or
(E); provided, however, that the Employee's
coverage and/or the coverage of his dependents
under the Company's group medical insurance
shall continue in effect following the
Employee's reemployment with respect to claims
excluded by reason of any preexisting condition
clause in the group medical plan maintained by
the Employee's new employer until the earlier of
(1) the applicable date specified in Section
6(b)(ii)(E) or (2) the date on which such
pre-existing condition exclusion is no longer
applicable to the Employee or, to the extent
that coverage is continued pursuant to this
provision for a dependent of the Employee, such
dependent.
7. CHANGE IN CONTROL. A "Change in Control" shall mean the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more
of the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors ("Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a change in control: (i) a change in the composition of a majority of
the Board of Directors of the Company within a three (3) year period, which
change shall not have been approved by a majority of the persons then surviving
as Directors who also comprised the Board of Directors of the Company
immediately prior to the commencement of such period; or (ii) the consummation
of any reorganization, merger or consolidation other than a reorganization,
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent
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(either by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least sixty percent (60%) of the combined voting power
of the Voting Securities of the Company or such surviving entity outstanding
immediately after such reorganization, merger or consolidation; or (iii) the
consummation of a plan of complete liquidation of the Company or of an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company's assets.
b. TERMINATION OF EMPLOYMENT. If, at any time within
two (2) years following a Change in Control, the Company terminates the
Employee's employment without Cause or the Employee terminates his employment
for Good Reason, the provisions of this Section 7(b) shall be applicable,
instead of the provisions of Section 6(c). To the extent that the provisions of
this Section 7(b) are applicable, the Employee shall be entitled to the
following payments and benefits without any mitigation under Section 6(e)
hereof:
(i) Those described in Section 6(a),
provided all cash payments required
under such section shall be made
within five (5) days of the Date of
Termination;
(ii) Continuation of fringe benefits, as
described in Sections 6(b)(ii)(D) and
(E);
(iii) A single lump sum payment, payable
within five (5) days of the Date of
Termination, equal to the sum of (A)
twice the Employee's base salary in
effect upon the Date of Termination,
plus (B) twice the Employee's target
annual bonus, determined under any
Bonus Plan of the Company then in
effect, based upon the Employee's base
salary at the Date of Termination,
plus (C) the maximum three-year bonus
payment possible under the terms of
any Bonus Plan minus amounts already
paid to the Employee with respect to
such three-year period.
(iv) Those described in Sections 6(c)(iii)
and (iv); and
(v) Reimbursement for any excise tax
incurred by the Employee under Section
4999 of the Internal Revenue Code due
to any payment under this section,
plus reimbursement for any additional
income taxes incurred by the Employee
resulting from the reimbursement by
the Company of such excise tax.
8. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE.
(a) The Employee hereby agrees that, during the term
of the Agreement and thereafter, he will not disclose to any person or otherwise
use or exploit any of the
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proprietary or confidential information, including, without limitation, trade
secrets, processes, records of research, proposals, programming, budgets or
customer lists, regarding the Company, its business, properties, or affairs
obtained by him at any time prior to or subsequent to the execution of this
Agreement, except to the extent required by his performance of assigned duties
for the Company.
(b) The Employee hereby agrees that during the term
hereof and, unless his employment is terminated by the Company without Cause or
is terminated by the Employee for Good Reason, for a period of two (2) years
after his termination of employment (including upon Retirement), he will not:
(i) authorize his name to be used by any
person, partnership, corporation or
other business entity; or
(ii) engage in or carry on, directly or
indirectly, whether as advisor,
principal, agent, partner, officer,
director, employee, stockholder,
associate or consultant of any person,
partnership, corporation or other
business entity
which is in material competition with any business carried on, directly or
indirectly (through one or more subsidiaries or otherwise), by the Company prior
to the date hereof or hereafter conducted by the Company during the term of this
Agreement, directly or indirectly (through one or more subsidiaries or
otherwise) in any county of the State of California or any other county of any
state in the United States or municipality of a foreign country where business
is then carried on or conducted by the Company.
The Employee shall be deemed to be engaged or
concerned with a duty or pursuit which is contrary to any provision of this
Agreement only if he receives written notice to such effect, setting forth with
reasonable specificity the basis of such claim, from the Company. If, within
thirty (30) days from the date of his receipt of any such written notice, the
Employee shall take such steps as shall eliminate his engagement in or concern
with such duties or pursuits as are specified in such notice as being contrary
to this Agreement, the Employee shall not be deemed to have breached any of the
provisions of this Agreement in connection therewith or with respect thereto.
(c) The Employee agrees that the remedy at law for
any breach by him or any of the covenants and agreements set forth in this
Section 8 will be inadequate and that in the event of any such breach, the
Company may, in addition to the other remedies which may be available to it at
law, obtain injunctive relief prohibiting him (together with all those persons
associated with him) from the breach of such covenants and agreements.
(d) The parties hereto agree that the duration and
area for which the covenant not to compete is set forth in subparagraph (b)
above is to be effective are reasonable. In the event that any court determines
that the time period and/or the area covered thereby are
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unreasonable and that such covenant is to that extent unenforceable, the parties
hereto agree that the covenant shall remain in full force and effect would not
render it unenforceable. The parties intend that this covenant shall be deemed
to be a series of separate covenants, one for each and every county of each and
every state within the United States of America and one for each municipality of
any foreign country where this covenant is intended to be effective.
(e) The Employee will sign separate agreements,
policies or certifications regarding Intellectual Property, Ethical Business
Practices and Conflicts of Interest, on such forms as are adopted by the Company
from time to time for its executives.
9. GENERAL PROVISIONS.
(a) NOTICES. Any notice to be given pursuant to this
Agreement shall be in writing and shall be deemed duly given three (3) days
after deposit in the mail, certified mail, return receipt requested, to the
party to receive such notice at the address specified below:
If to the Company, to:
Xenotech, Inc.
Attn: Mr. Robert G. Baker
Suite 1/41 Walters Drive
Osborne Park, 6017
Western Australia
Fax: 011-61-09-446-3340
If to the Employee, to:
Mr. Neil W. Speakman
Minwood, Golf Club Road
Woking, Surrey
United Kingdom GU222 OLU
Fax: 011-01-48-372-0429
Either party may change its name and/or address for purposes of this
Section by giving the other written notice of the new name and/or address in the
manner set forth above.
(b) ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
executors, administrators, heirs, personal representatives, successors and
assigns, but neither this Agreement nor any right hereunder may be assigned or
transferred by either party hereto, any beneficiary or any other person, nor be
subject to alienation, anticipation, sale, pledge, encumbrance, execution, levy
or other legal process of any kind against the Employee, his beneficiary, or any
other person. Notwithstanding the foregoing, the Company will assign this
Agreement to any corporation or other business entity succeeding to
substantially all of the business and assets of the Company by merger,
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consolidation, sale of assets, or otherwise and shall obtain the assumption of
this Agreement by such successor.
(c) WAIVER OF BREACH. The waiver by the Company or
the Employee of a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent breach by the other.
(d) NONEXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Employee's continuing or future
participation in any incentive, fringe benefit, deferred compensation, or other
plan or program provided by the Company and for which the Employee may qualify,
nor shall anything herein limit or reduce such rights as the Employee may have
under any other agreements with the Company. Amounts that are vested benefits or
that the Employee is otherwise entitled to receive under any plan or program of
the Company at or after the Date of Termination, shall be payable in accordance
with such plan or program.
(e) ENTIRE AGREEMENT/MODIFICATION. This Agreement,
shall supersede any and all other agreements, either oral or written, between
the parties hereto with respect to the employment of the Employee by the
Company. Each party to this Agreement acknowledges that no other
representations, inducements, promises or agreements, orally or otherwise, have
been made by any party or anyone acting on behalf of any party, and that no
other agreement, statement or promise with respect to the employment of the
Employee by the Company not contained in this Agreement shall be valid or
binding. Any modification of this Agreement will be effective only if it is in
writing, signed by the party to be charged.
(f) PARTIAL INVALIDITY. If any provision of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall nevertheless continue in full
force without being impaired or invalidated in any way.
(g) GOVERNING LAW. The validity of this Agreement
and the interpretation and performance of all of its terms shall be governed by
the laws of Canada.
(h) ARBITRATION. Any controversy, claim or dispute
between the parties directly or indirectly concerning this Agreement or the
breach hereof, or the subject matter hereof (except in instances where only
injunctive relief is sought by the Company), shall be finally settled by
arbitration held in the State of California. Any legal expenses incurred by the
Company in connection with any such claim or dispute shall be paid by the
Company. To the extent that the Employee prevails in any claim or dispute to
enforce or defend his rights under this Agreement, any legal expenses incurred
by the Employee in such claim or dispute shall be paid by the Company; provided
that, in addition, if the Employee does not prevail in any claim or dispute to
enforce or defend his rights under this Agreement following a Change in Control,
the Company shall nevertheless pay fifty percent (50%) of any legal expenses
incurred by the Employee in such claim or dispute.
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<PAGE>
(i) CAPTIONS. The captions in this Agreement are for
convenience and for identification purposes only, are not an integral part of
this Agreement and are not to be considered in the interpretation of any part
hereof.
(j) COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but
together which shall constitute one and the same document.
IN WITNESS WHEREOF, Xenotech, Inc., has caused this Agreement
to be executed by an appropriate officer and the Employee has executed the same
as of the day and year first above written.
XENOTECH, INC.
a Canadian corporation
By:
------------------------------------
Robert G. Baker
President
-----------------------------------
Neil W. Speakman
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Exhibit 3(12)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and
entered into as of this __ day of May, 1998 by and between XENOTECH, INC., a
Canadian corporation (the "Company"), and Robert G. Baker (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee as the
President and Chief Executive Officer of the Company; and
WHEREAS, the Employee desires to serve the Company as its
President and Chief Executive Officer; and
WHEREAS, the Company and the Employee desire to enter into an
employment agreement that shall set forth their respective duties, obligations
and responsibilities;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Employee agree as set forth below.
1. EMPLOYMENT AND DUTIES. The Company agrees to and does
hereby employ the Employee, and the Employee does hereby accept employment with
the Company, as the President and Chief Executive Officer of the Company, to
operate and manage the business and operations of the Company with all the
authority customarily afforded to a chief executive officer subject to the
normal supervision and authority of the Board of Directors of the Company, and
to perform such other duties which are consistent with such position as are from
time to time delegated to the Employee by the Board of Directors of the Company.
The Employee will perform all services and acts necessary in such capacities to
properly manage the Company, and the Employee shall endeavor in good faith to
perform his duties in an efficient, faithful and businesslike manner.
2. TERM OF AGREEMENT. The provisions of this Agreement shall
remain in full force and effect and the employment of the Employee with the
Company shall continue until terminated by a written Notice of Termination (as
described in Section 5(c)) provided by either the Company or the Employee. In
addition, notwithstanding the previous sentence, this Agreement may be
terminated at any time by mutual agreement of the parties hereto or by the
Company at any time following the date on which the Employee attains age
sixty-five (65) (hereinafter termination of this Agreement by the Company after
the Employee has attained age sixty-five (65) shall be referred to as
"Retirement").
<PAGE>
3. COMPENSATION. During the term of this Agreement, the
Employee shall be paid a base salary, payable in accordance with the Company's
normal payroll practice. The Employee's initial base salary shall be Twelve
Thousand Five Hundred Dollars ($12,500) per month. The base salary payable to
the Employee shall be reviewed annually for increase effective each July 1st
during the term of this Agreement. In addition, the Employee shall participate
in any bonus plan which is currently in effect or which may be established by
the Company (the "Bonus Plan"). Any bonus payable shall be determined under the
provisions of the Bonus Plan, and shall be payable as soon as practical after
determination of the bonus amount, but not later than seventy-five (75) days
after the end of the Company's fiscal year.
4. OTHER EMPLOYEE FRINGE BENEFITS.
a. IN GENERAL. The Company shall further provide
the Employee with health and life insurance coverage, sick leave and disability
programs, tax-qualified retirement plan contributions, stock option plans, paid
holidays and vacations, perquisites, and such other fringe benefits of
employment as the Company may provide from time to time to actively employed,
disabled, deceased, retired, or otherwise terminated, as applicable, senior
executives of the Company.
b. SUPPLEMENTAL BENEFITS. The Company shall also
provide the Employee with the following supplemental benefits:
(i) VACATION. The Employee will be
entitled to total vacation leave during the term of this Agreement of four (4)
weeks per year at such time as agreed between the Employee and the Company.
(ii) AUTOMOBILE. The Company shall lease on
behalf of the Employee during the term of this Agreement an automobile with a
retail value up to forty thousand dollars ($40,000).
(iii) SERP. The Employee will be entitled to
participate, at a level commensurate with his position and his base salary, in
any Supplemental Executive Retirement Plan (the "SERP") which is currently in
effect or which may be established by the Company. The Employee's participation
in and benefit under the SERP shall be determined in accordance with the terms
and conditions of the SERP.
(iv) STOCK OPTION PLAN. The Employee will
be entitled to participate, at a level commensurate with his position and his
base salary, in any stock option plan which is currently in effect or which may
be established by the Company (the "Stock Plan"). The Employee's participation
in the Stock Plan shall be determined in accordance with the terms and
conditions of the Stock Plan.
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<PAGE>
5. TERMINATION OF EMPLOYMENT.
a. TERMINATION OF EMPLOYMENT BY THE COMPANY. The
Employee's employment hereunder may be terminated by the Company without any
breach of this Agreement only under the following circumstances:
(i) DEATH, DISABILITY OR RETIREMENT. The
Employee's employment hereunder shall terminate upon his death and may be
terminated by the Company in the event of his Disability or Retirement. For
purposes of this Agreement, the term "Disability" shall mean the inability of
the Employee due to illness (mental or physical), accident, or otherwise, to
perform his duties for any period of ninety (90) consecutive days, as determined
by an independent physician selected by the Company and reasonably acceptable to
the Employee (or his legal representative), provided that the Employee does not
return to work on substantially a full-time basis within thirty (30) days after
Notice of Termination is given by the Company pursuant to the provisions of
Sections 5(c) and 5(d)(ii).
(ii) CAUSE. The Company may terminate the
Employee's employment hereunder for Cause. For purposes of this Agreement, the
Company shall have "Cause" to terminate the Employee's employment hereunder only
upon (a) his conviction of a felony involving moral turpitude, provided that
such conviction would at the time have a material adverse effect on the Company
in the reasonable opinion of the Board of Directors of the Company, (b) gross
and willful misconduct by the Employee which is deemed, by the Company's Board
of Directors, to be injurious to the Company, (c) a finding of gross dishonesty
of the Employee, (d) willful malfeasance or gross negligence, or failure to act
involving material non-feasance, provided that in the case of such gross
negligence or material non-feasance it would at the time have a material adverse
effect on the Company in the reasonable opinion of the Board of Directors of the
Company, (e) insubordination or refusal to perform assigned duties consistent
with those contained in Section 1, or (f) the Employee's material breach of his
obligations contained in Section 8.
b. TERMINATION OF EMPLOYMENT BY EMPLOYEE. The
Employee may terminate his employment at any time. However, he shall be deemed
to have terminated his employment for "Good Reason" only if he terminated his
employment by giving Notice of Termination pursuant to Sections 5(c) and
5(d)(iii) within ninety (90) days after the occurrence of any of the following
events (provided the Company does not cure such event within thirty (30) days
following its receipt of the Employee's Notice of Termination):
(i) Without the Employee's prior written
consent, the Company assigns the Employee to duties materially inconsistent in
any respect with his position, authority, duties or responsibilities as set
forth in Section 1, or takes any other action that results in a material
diminution in such position, authority, duties, or responsibilities, including,
but not limited to, failing to re-appoint or reelect the Employee to any such
position (other than upon Retirement).
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<PAGE>
(ii) The Employee's base salary, or his
annual or long-term Bonus Award under any Bonus Plan of the Company which is
then in effect, is reduced for any reason other than in connection with the
termination of his employment.
(iii) After a Change in Control (as defined
in Section 7), within each twelve (12) month period (as described in Section 3),
the Company increases the base salary for senior executive officers of the
Company generally without similarly increasing the base salary of the Employee.
(iv) For any reason other than in
connection with the termination of the Employee's employment, the Company
materially reduces fringe benefits provided to the Employee under Section 4,
unless the Company agrees, as evidenced by the Employee's written consent, to
fully compensate the Employee for any such material reduction.
(v) The assignment of the Employee,
without his prior written consent, to a Company office located outside of the
State of California.
(vi) The Company's failure to obtain an
agreement from any successor or assign of the Company to assume and to agree to
perform this Agreement.
(vii) The Company otherwise materially
breaches its obligations to make payments to the Employee under this Agreement.
c. NOTICE OF TERMINATION. Any termination of the
Employee's employment by the Company hereunder, or by the Employee other than
termination upon the Employee's death, shall be communicated by written Notice
of Termination to the other party. For purposes of this Agreement, a "Notice of
Termination" means a notice that shall indicate the specific termination
provision in this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Employee's employment under the provision so indicated.
d. DATE OF TERMINATION. For purposes of this
Agreement, an applicable "Date of Termination" means:
(i) If the Employee's employment is
terminated by his death, the date of his death.
(ii) If the Employee's employment is
terminated by the Company as a result of Disability or Retirement pursuant to
Section 5(a)(i) or for Cause pursuant to Section 5(a)(ii), the date that is
thirty (30) days after Notice of Termination is given (provided that in the case
of termination for Disability, the Employee shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period).
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<PAGE>
(iii) If the Employee terminates his
employment for Good Reason pursuant to Section 5(b), the date that is thirty
(30) days after Notice of Termination is given (provided that the Company does
not cure such event during that thirty (30) day period).
(iv) If the Employee terminates his
employment other than for Good Reason, the date that is one (1) month after
Notice of Termination is given.
(v) If the Employee's employment is
terminated by the Company other than for Cause, the date that is one (1) month
after Notice of Termination is given.
6. AMOUNTS PAYABLE UPON TERMINATION OF EMPLOYMENT OR DURING
DISABILITY.
a. DEATH OR RETIREMENT. If the Employee's employment
is terminated by his death or at Retirement, the Employee's beneficiary (in the
case of death) (as designated by the Employee in writing with the Company prior
to his death) or the Employee (in the case of Retirement) shall be entitled to
the following payments and benefits: (i) any portion of the Employee's base
salary that is accrued but unpaid, any vacation that is accrued but unused, and
any business expenses that are unreimbursed, all determined as of the Date of
Termination and payable within thirty (30) days of such date; (ii) a single lump
sum payment equal to a pro rata award under any Bonus Plan of the Company then
in effect, payable in accordance with the terms of any such Bonus Plan within
thirty (30) days of the Date of Termination and (iii) any benefits resulting
from the fringe benefits described in Section 4 upon the Employee's death or
Retirement (whichever is applicable) in accordance with the provisions of the
plan or program that provides each applicable fringe benefit. In the absence of
a beneficiary designation by the Employee, or, if the Employee's designated
beneficiary does not survive the Employee, benefits described in this Section
6(a) shall be paid to the Employee's estate.
b. DISABILITY.
(i) During any period that the Employee
fails to perform his duties hereunder as a result of incapacity due to physical
or mental illness ("Disability Period"), the Employee shall continue to receive
his base salary and any bonus under any Bonus Plan then in effect at the rate
then in effect for such period until his employment is terminated pursuant to
Section 5(a)(i); provided, however, that payments of base salary and bonus so
made to the Employee shall be reduced by the sum of the amounts, if any, that
were payable to the Employee at or before the time of any such salary or bonus
payment under any disability benefit plan or plans of the Company and that were
not previously applied to reduce any payment of base salary or bonus.
(ii) Upon his termination of employment
because of Disability (as defined in Section 5(a)(i)), the Employee shall be
entitled to the following payments and benefits:
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<PAGE>
A. Those described in Section 6(a);
B. For a period of thirty-six (36)
months following his Date of
Termination, severance pay, paid
monthly, equal to his base salary
in effect at the Date of
Termination;
C. For a period of thirty-six (36)
months following his Date of
Termination, monthly payments
equal to one-twelfth (1/12th) of
the Employee's annual bonus,
determined under the provisions
of any Bonus Plan then in effect,
based upon his base salary at the
Date of Termination;
D. For a period of thirty-six (36)
months following his Date of
Termination, continuation of all
fringe benefits described in
Section 4, except for group
medical insurance, in effect at
the Date of Termination; and
E. For a period of forty-eight (48)
months following his Date of
Termination, continuation of the
Company's group medical insurance
for the Employee and his
dependents, as in effect at the
Date of Termination.
Notwithstanding any provision of this Section 6(b)(ii),
severance payments made to the Employee pursuant to Sections 6(b)(ii)(B) or (C)
shall be reduced by the sum of the amounts, if any, that were payable to the
Employee at or before the time of any such severance payment under any
disability benefit plan or plans of the Company and that were not previously
applied to reduce either any such severance payment or any payment of base
salary or bonus under Section 6(b)(i).
c. TERMINATION BY COMPANY WITHOUT CAUSE, OR
TERMINATION BY EMPLOYEE FOR GOOD REASON. In the event that the Company
terminates the Employee's employment without Cause or the Employee terminates
his employment for Good Reason, the Employee shall be entitled to the following
payments and benefits:
(i) Those described in Section 6(b)(ii);
(ii) As of his Date of Termination, the
Employee shall become fully vested in
all employee benefit programs (other
than any tax qualified retirement or
savings plan, the Employee's interest
in which shall vest in accordance with
such plan's
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<PAGE>
terms), including, without limitation,
any stock options and awards under any
Stock Plan in effect and all benefits
under any SERP in effect, in which he
was a participant at the time of the
termination of his employment;
(iii) Reimbursement of all expenses incurred
by the Employee through the use of any
executive out-placement services to
assist him to seek other employment,
which shall include, but not be
limited to (A) secretarial services,
use of an office, phone, office
supplies and office services
comparable to the level of such
services and supplies available to the
Employee prior to the Date of
Termination and (B) all unreimbursed
travel expenses incurred by the
Employee to seek other employment up
to a maximum amount of Five Thousand
Dollars ($5,000); and
(iv) A single lump sum payment, payable
within thirty (30) days of the Date of
Termination, equal to the Employee's
non-vested interest under any tax
qualified retirement or savings plan
maintained by the Company which is
forfeited by the Employee under such
plan's terms upon his termination of
employment.
d. TERMINATION BY EMPLOYEE OTHER THAN FOR GOOD REASON
OR TERMINATION BY COMPANY FOR CAUSE. In the event that the Employee terminates
his employment other than for Good Reason or the Company terminates his
employment for Cause, the Employee shall not be entitled to any compensation
except as set forth below:
(i) Any base salary that is accrued but
unpaid, any vacation that is accrued
but unused, and any business expenses
that are unreimbursed, all as of the
Date of Termination;
(ii) In the case of termination by the
Employee other than for Good Reason, a
pro rata award under any Bonus Plan
then in effect (as described in
Section 6(a)(ii)); and
(iii) Any other rights and benefits (if any)
provided under plans and programs of
the Company, determined in accordance
with the applicable terms and
provisions of such plans and programs.
e. MITIGATION OF DAMAGES. Following any Date of
Termination, the Employee shall have no obligation to seek other employment.
However, except in cases of termination of employment after a Change in Control,
as described in Section 7, to the extent that
7
<PAGE>
the Employee becomes employed following his termination of employment with the
Company without Cause or for Good Reason, the payments and benefits described in
Section 6(c) shall be reduced as follows:
(i) Severance payments (as described in
Sections 6(b)(ii)(B) and (C)) shall be
reduced by fifty cents (50 CENTS) for
every one dollar ($1) in compensation
(either base salary or bonus) that the
Employee receives through his new
employment; provided, however, during
the first twelve (12) months following
the Employee's Date of Termination,
such severance payments shall not be
reduced pursuant to this provision by
more than fifty percent (50%); and
(ii) The fringe benefits provided by the
Company to the Employee at the Date of
Termination (as described in Sections
6(b)(ii)(D) and (E)) shall terminate
upon the earlier of (A) the Employee's
reemployment and (B) the applicable
date specified under either Section
6(b)(ii)(D) or
(E); provided, however, that the Employee's
coverage and/or the coverage of his dependents
under the Company's group medical insurance
shall continue in effect following the
Employee's reemployment with respect to claims
excluded by reason of any preexisting condition
clause in the group medical plan maintained by
the Employee's new employer until the earlier of
(1) the applicable date specified in Section
6(b)(ii)(E) or (2) the date on which such
pre-existing condition exclusion is no longer
applicable to the Employee or, to the extent
that coverage is continued pursuant to this
provision for a dependent of the Employee, such
dependent.
7. CHANGE IN CONTROL. A "Change in Control" shall mean the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more
of the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors ("Voting
Securities"); provided, however, that the following acquisitions shall not
constitute a change in control: (i) a change in the composition of a majority of
the Board of Directors of the Company within a three (3) year period, which
change shall not have been approved by a majority of the persons then surviving
as Directors who also comprised the Board of Directors of the Company
immediately prior to the commencement of such period; or (ii) the consummation
of any reorganization, merger or consolidation other than a reorganization,
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent
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<PAGE>
(either by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least sixty percent (60%) of the combined voting power
of the Voting Securities of the Company or such surviving entity outstanding
immediately after such reorganization, merger or consolidation; or (iii) the
consummation of a plan of complete liquidation of the Company or of an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company's assets.
b. TERMINATION OF EMPLOYMENT. If, at any time within
two (2) years following a Change in Control, the Company terminates the
Employee's employment without Cause or the Employee terminates his employment
for Good Reason, the provisions of this Section 7(b) shall be applicable,
instead of the provisions of Section 6(c). To the extent that the provisions of
this Section 7(b) are applicable, the Employee shall be entitled to the
following payments and benefits without any mitigation under Section 6(e)
hereof:
(i) Those described in Section 6(a),
provided all cash payments required
under such section shall be made
within five (5) days of the Date of
Termination;
(ii) Continuation of fringe benefits, as
described in Sections 6(b)(ii)(D) and
(E);
(iii) A single lump sum payment, payable
within five (5) days of the Date of
Termination, equal to the sum of (A)
twice the Employee's base salary in
effect upon the Date of Termination,
plus (B) twice the Employee's target
annual bonus, determined under any
Bonus Plan of the Company then in
effect, based upon the Employee's base
salary at the Date of Termination,
plus (C) the maximum three-year bonus
payment possible under the terms of
any Bonus Plan minus amounts already
paid to the Employee with respect to
such three-year period.
(iv) Those described in Sections 6(c)(iii)
and (iv); and
(v) Reimbursement for any excise tax
incurred by the Employee under Section
4999 of the Internal Revenue Code due
to any payment under this section,
plus reimbursement for any additional
income taxes incurred by the Employee
resulting from the reimbursement by
the Company of such excise tax.
8. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE.
(a) The Employee hereby agrees that, during the term
of the Agreement and thereafter, he will not disclose to any person or otherwise
use or exploit any of the
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proprietary or confidential information, including, without limitation, trade
secrets, processes, records of research, proposals, programming, budgets or
customer lists, regarding the Company, its business, properties, or affairs
obtained by him at any time prior to or subsequent to the execution of this
Agreement, except to the extent required by his performance of assigned duties
for the Company.
(b) The Employee hereby agrees that during the term
hereof and, unless his employment is terminated by the Company without Cause or
is terminated by the Employee for Good Reason, for a period of two (2) years
after his termination of employment (including upon Retirement), he will not:
(i) authorize his name to be used by any
person, partnership, corporation or
other business entity; or
(ii) engage in or carry on, directly or
indirectly, whether as advisor,
principal, agent, partner, officer,
director, employee, stockholder,
associate or consultant of any person,
partnership, corporation or other
business entity
which is in material competition with any business carried on, directly or
indirectly (through one or more subsidiaries or otherwise), by the Company prior
to the date hereof or hereafter conducted by the Company during the term of this
Agreement, directly or indirectly (through one or more subsidiaries or
otherwise) in any county of the State of California or any other county of any
state in the United States or municipality of a foreign country where business
is then carried on or conducted by the Company.
The Employee shall be deemed to be engaged or
concerned with a duty or pursuit which is contrary to any provision of this
Agreement only if he receives written notice to such effect, setting forth with
reasonable specificity the basis of such claim, from the Company. If, within
thirty (30) days from the date of his receipt of any such written notice, the
Employee shall take such steps as shall eliminate his engagement in or concern
with such duties or pursuits as are specified in such notice as being contrary
to this Agreement, the Employee shall not be deemed to have breached any of the
provisions of this Agreement in connection therewith or with respect thereto.
(c) The Employee agrees that the remedy at law for
any breach by him or any of the covenants and agreements set forth in this
Section 8 will be inadequate and that in the event of any such breach, the
Company may, in addition to the other remedies which may be available to it at
law, obtain injunctive relief prohibiting him (together with all those persons
associated with him) from the breach of such covenants and agreements.
(d) The parties hereto agree that the duration and
area for which the covenant not to compete is set forth in subparagraph (b)
above is to be effective are reasonable. In the event that any court determines
that the time period and/or the area covered thereby are
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<PAGE>
unreasonable and that such covenant is to that extent unenforceable, the parties
hereto agree that the covenant shall remain in full force and effect would not
render it unenforceable. The parties intend that this covenant shall be deemed
to be a series of separate covenants, one for each and every county of each and
every state within the United States of America and one for each municipality of
any foreign country where this covenant is intended to be effective.
(e) The Employee will sign separate agreements,
policies or certifications regarding Intellectual Property, Ethical Business
Practices and Conflicts of Interest, on such forms as are adopted by the Company
from time to time for its executives.
9. GENERAL PROVISIONS.
(a) NOTICES. Any notice to be given pursuant to this
Agreement shall be in writing and shall be deemed duly given three (3) days
after deposit in the mail, certified mail, return receipt requested, to the
party to receive such notice at the address specified below:
If to the Company, to:
Xenotech, Inc.
Suite 1/41 Walters Drive
Osborne Park, 6017
Western Australia
Fax: 011-61-09-446-3340
If to the Employee, to:
Mr. Robert G. Baker
Suite 1/41 Walters Drive
Osborne Park, 6017
Western Australia
Fax: 011-61-09-446-3340
Either party may change its name and/or address for purposes of this
Section by giving the other written notice of the new name and/or address in the
manner set forth above.
(b) ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
executors, administrators, heirs, personal representatives, successors and
assigns, but neither this Agreement nor any right hereunder may be assigned or
transferred by either party hereto, any beneficiary or any other person, nor be
subject to alienation, anticipation, sale, pledge, encumbrance, execution, levy
or other legal process of any kind against the Employee, his beneficiary, or any
other person. Notwithstanding the foregoing, the Company will assign this
Agreement to any corporation or other business entity succeeding to
substantially all of the business and assets of the Company by merger,
11
<PAGE>
consolidation, sale of assets, or otherwise and shall obtain the assumption of
this Agreement by such successor.
(c) WAIVER OF BREACH. The waiver by the Company or
the Employee of a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent breach by the other.
(d) NONEXCLUSIVITY OF RIGHTS. Nothing in this
Agreement shall prevent or limit the Employee's continuing or future
participation in any incentive, fringe benefit, deferred compensation, or other
plan or program provided by the Company and for which the Employee may qualify,
nor shall anything herein limit or reduce such rights as the Employee may have
under any other agreements with the Company. Amounts that are vested benefits or
that the Employee is otherwise entitled to receive under any plan or program of
the Company at or after the Date of Termination, shall be payable in accordance
with such plan or program.
(e) ENTIRE AGREEMENT/MODIFICATION. This Agreement,
shall supersede any and all other agreements, either oral or written, between
the parties hereto with respect to the employment of the Employee by the
Company. Each party to this Agreement acknowledges that no other
representations, inducements, promises or agreements, orally or otherwise, have
been made by any party or anyone acting on behalf of any party, and that no
other agreement, statement or promise with respect to the employment of the
Employee by the Company not contained in this Agreement shall be valid or
binding. Any modification of this Agreement will be effective only if it is in
writing, signed by the party to be charged.
(f) PARTIAL INVALIDITY. If any provision of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall nevertheless continue in full
force without being impaired or invalidated in any way.
(g) GOVERNING LAW. The validity of this Agreement
and the interpretation and performance of all of its terms shall be governed by
the laws of Canada.
(h) ARBITRATION. Any controversy, claim or dispute
between the parties directly or indirectly concerning this Agreement or the
breach hereof, or the subject matter hereof (except in instances where only
injunctive relief is sought by the Company), shall be finally settled by
arbitration held in the State of California. Any legal expenses incurred by the
Company in connection with any such claim or dispute shall be paid by the
Company. To the extent that the Employee prevails in any claim or dispute to
enforce or defend his rights under this Agreement, any legal expenses incurred
by the Employee in such claim or dispute shall be paid by the Company; provided
that, in addition, if the Employee does not prevail in any claim or dispute to
enforce or defend his rights under this Agreement following a Change in Control,
the Company shall nevertheless pay fifty percent (50%) of any legal expenses
incurred by the Employee in such claim or dispute.
12
<PAGE>
(i) CAPTIONS. The captions in this Agreement are for
convenience and for identification purposes only, are not an integral part of
this Agreement and are not to be considered in the interpretation of any part
hereof.
(j) COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but
together which shall constitute one and the same document.
IN WITNESS WHEREOF, Xenotech, Inc., has caused this Agreement
to be executed by an appropriate officer and the Employee has executed the same
as of the day and year first above written.
XENOTECH, INC.
a Canadian corporation
By:
------------------------------------
Neil W. Speakman
Chairman of the Board of Directors
------------------------------------
Robert G. Baker
13
<PAGE>
Exhibit 3(13)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into as of this
3rd day of August, 1998 by and between XENOTECH, INC., a Canadian corporation
(the "Company"), and Christopher Michael Yewdall (the "Employee").
WITNESSETH:
WHEREAS, the Company desires to employ the Employee as a Vice
President of Sales and Marketing of the Company; and
WHEREAS, the Employee desires to serve the Company as a Vice
President of Sales and Marketing; and
WHEREAS, the Company and the Employee desire to enter into an employment
agreement that shall set forth their respective duties, obligations and
responsibilities;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the Company and the Employee agree as set forth below.
1. EMPLOYMENT AND DUTIES
a. The Company agrees to and does hereby employ the
Employee, and the Employee does hereby accept
employment with the Company, as a Vice President
of Sales and Marketing for such territories as the
Company may nominate from time to time, to operate
and manage the sales and marketing of the Company's
products and technologies in such territories with
all the authority customarily afforded to a Vice
President subject to the normal supervision and
authority of the Board of Directors of the Company,
and to perform such other reasonable duties which
are consistent with such position as are from time
to time delegated to the Employee by the Board of
Directors of the Company. The Employee will perform
all services and acts necessary in such capacities
to properly manage sales and marketing of
Company's products and services, and the Employee
shall endeavour in good faith to perform his duties
in an efficient, faithful and businesslike manner.
b. The Employee acknowledges that the Company has an
international presence and that the Employee will be
required to travel internationally as part of his
duties. Such travel may include, but not be limited
to, Europe, Australia, North America (Canada and the
United States) and Asia. The Company shall provide
assistance with any applicable permits and visas
which may be necessary for the Employee to undertake
these duties.
2. TERM OF AGREEMENT
The provisions of this Agreement shall remain in full force and effect
and the employment of the Employee with the Company shall continue
until terminated by a
<PAGE>
written Notice of Termination (as described in Section 5(c)) provided
by either the Company or the Employee. In addition, notwithstanding the
previous sentence, this Agreement may be terminated at any time by
mutual agreement of the parties hereto or by the Company at any time
following the date on which the Employee attains age sixty-fiv (65)
(hereinafter termination of this Agreement by the Company after the
Employee has attained age sixty-five (65) shall be referred to as
"Retirement").
3. COMPENSATION
a. BASE SALARY
During the term of this Agreement, the Employee shall be paid
a base salary, payable in accordance with the Company's normal
payroll practice. The Employee's initial base salary shall be
One Hundred Twenty Thousand US Dollars (US$120,000) per annum
payable in equal bi-weekly installments.
b. BONUS
Employee shall be eligible for a bonus plan (the "Bonus Plan")
up to a maximum annual bonus of Eighty Thousand US Dollars
(US$80,000). The Bonus Plan shall be based upon a combination
of reasonable financial and operational objectives established
by the Company. The Bonus Plan will be payable quarterly based
upon successful achievement of the financial objectives and
fiscally based upon successful achievement of the operational
objectives. The Company shall pay any annual Bonus Plan
payments due to the Employee no later than 90 days following
the Company's fiscal year end.
c. BUSINESS EXPENSES
The Company shall reimburse the Employee for all reasonable
business expenses incurred by the Employee in pursuit of
carrying out the duties defined in 1. The Employee shall incur
such expenditure in accordance with the Company's then current
practices for business expenditure. The Company shall not
unreasonably withhold reimbursement of such expenses to the
Employee and shall reimburse the Employee at least once during
each calendar month.
d. REVIEW
The Employee shall be entitled to an annual Compensation
review on each anniversary of the Employee joining the
Company.
4. OTHER EMPLOYEE FRINGE BENEFITS
a. IN GENERAL
The Company shall further provide the Employee with medical,
dental and life insurance coverage, sick leave and statutory
paid holidays, and such other fringe benefits of employment as
the Company may provide from time to time to actively employed
executives of the Company in such amounts or at such rates or
levels as the Company shall reasonably determine.
<PAGE>
b. SUPPLEMENTAL BENEFITS
The Company shall also provide the Employee with the following
supplemental benefits:
(i) VACATION
The Employee will be entitled to (20) days paid leave
per year in addition to statutory holidays at such
time as agreed between the Employee and the Company.
(ii) STOCK OPTION PLAN
The Employee will be entitled to one million
(1,000,000) stock options on the conditions, and at
the times set forth below provided however, that
Employee continues to be employed by the Company and
otherwise fulfills his obligationS under this
Agreement:
1) Employee shall have the option to purchase 250,000
shares of the Company's common stock at a price of
Canadian $0.30 per share upon the Employee joining
the Company.
2) Employee shall have the option to purchase 250,000
shares of the Company's common stock at a price of
Canadian $0.30 per share upon the one year
anniversary of Employee's commencement of work
with Company.
3) Employee shall have the option to purchase 250,000
shares at the Company's common stock at a price of
Canadian $0.30 per share upon the two year
anniversary of Employee's commencement of work
with the Company.
4) Employee shall have the option to purchase 250,000
shares of the Company's common stock at a price of
Canadian $0.30 per share upon the three year
anniversary of Employee's commencement of work
with the Company.
(iii) RELOCATION ALLOWANCE
The Company shall pay Employee the sum of Five
Thousand Dollars ($5,000) to defer Employee's
expenses of relocating in order to commence
employment with the Company.
(iv) AIRFARE
The Company shall provide Employee with two (2)
economy class, round-trip airline tickets per year to
the United Kingdom from wherever the Employee is
stationed at the time that he takes leave.
(v) RETIREMENT SAVINGS
<PAGE>
The Employee shall, from the first anniversary of
Employee's commencement to work for the Company, be
entitled to participate in any employee pension
scheme that the Company may institute. The amount of
reasonable annual contribution by the Company to the
scheme for the benefit of the Employee shall be
determined at the annual Compensation Review.
5. TERMINATION OF EMPLOYMENT
a. TERMINATION OF EMPLOYMENT BY THE COMPANY
Employee's employment hereunder may be terminated by the
Company without any breach of this Agreement only under the
following circumstances:
(i) DEATH, DISABILITY OR RETIREMENT
The Employee's employment hereunder shall terminate
upon his death and may be terminated by the Company
in the event of his Disability or Retirement. For
purposes of this Agreement, the term "Disability"
shall mean the inability of the Employee due to
illness (mental or physical), accident, or otherwise,
to perform his duties for any period of ninety (90)
consecutive days, as determined by an independent
physician selected by the Company and reasonably
acceptable to the Employe (or his legal
representative), provided that the Employee does not
return to work on substantially a full-time basis
within thirty (30) days after Notice of Termination
is given by the Company pursuant to the provisions of
Sections 5(c) and 5(d)(ii). In the event of
termination for Death, Employee's estate shall be the
beneficiary of any accrued unexercised Stock and/or
unpaid Compensation benefits at the time of Death.
(ii) CAUSE
The Company may terminate the Employee's employment
hereunder for Cause. For the purposes of this
Agreement, the Company shall have "Cause" to
terminate the Employee's employment hereunder only
upon:
(a) his conviction of a felony involving moral
turpitude, provided that such conviction would
at the time have a material adverse effect on
the Company in the reasonable opinion of the
Board of Directors of the Company;
(b) gross and willful misconduct by the Employee
which is deemed, by the Company's Board of
Directors, to be injurious to the Company;
(c) a finding of gross dishonesty of the Employee;
(d) willful malfeasance or gross negligence, or
failure to act involving material non-feasance,
provided that, in the case of such gross
negligence or material non-feasance, it would at
the
<PAGE>
time have a material adverse effect on the
Company in the reasonable opinion of the Board
of Directors of the Company;
(e) insubordination or refusal to perform reasonable
assigned duties consistent with those contained
in Section 1;
(f) the Employee's material breach of his
obligations contained in Section 7; or
(g) the Employee's failure to meet the agreed upon
annual sales and management objective for any
fiscal year for the Company.
(iii) FAILURE TO OBTAIN WORK AUTHORISED VISA STATUS
The Company may terminate the Employee's employment
immediately in the event the Employee is not granted
work authorised visa status with the Company by the
government of any territory in which the Company
wishes to carry on a significant part of the
Company's sales and marketing efforts and which
efforts, in the reasonable opinion of the Board,
require that the Employee work in that territory.
b. TERMINATION OF EMPLOYMENT BY EMPLOYEE
The Employee may terminate his employment at any time.
However, he shall be deemed to have terminated his employment
for "Good Reason" only if he terminated his employment by
giving Notice of Termination pursuant to Sections 5(c) and
5(d)(iii) within ninety (90) days after the occurrence of any
of the following events (provided the Company does not cure
such event within thirty (30) days following its receipt of
the Employee's Notice of Termination):
(i) The Employee's compensation is reduced for any reason
other than in connection with the termination of his
employment.
(ii) For any reason other than in connection with the
termination of the Employee's employment, the Company
materially reduces fringe benefits provided to the
Employee under Section 4, unless the Company agrees, as
evidenced by the Employee's written consent, to fully
compensate the Employee for any such material reduction.
(iii) The Company's failure to obtain an agreement from any
successor or assign of the Company to assume and to
agree to perform this Agreement.
(iv) The Company otherwise materially breaches its
obligations to make payments to the Employee under this
Agreement.
Pursuant to termination under 5.b.(iii), Company acknowledges
that all accrued Compensation due to Employee shall become
immediately payable and all stock options including those
defined in 4.(ii) shall be deemed vested and exercisable.
<PAGE>
c. NOTICE OF TERMINATION
Any termination of the Employee's employment by the Company
hereunder, or by the Employee other than termination upon the
Employee's death, shall be communicated by written Notice of
Termination to the other party. For purposes of this
Agreement, a "Notice of Termination" means a notice that shall
indicate the specific termination provision in this Agreement
relied upon, and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of th Employee's employment under the provision so
indicated.
d. DATE OF TERMINATION
For purposes of this Agreement, an applicable "Date of
Termination" means:
(i) If the Employee's employment is terminated by his death,
the date of his death.
(ii) If the Employee's employment is terminated by the
Company as a result of Disability or Retirement pursuant
to Section 5(a)(i) or for Cause pursuant to Section
5(a)(ii), the date that is ninety (90) days after Notice
of Termination is given (provided that in the case of
termination for Disability, the Employee shall not have
returned to the performance of his duties on a full-time
basis during such ninety (90) day period).
(iii) If the Employee terminates his employment for Good
Reason pursuant to Section 5(b), the date that is ninety
(90) days after Notice of Termination is given (provided
that the Company does not cure such event during that
ninety (90) day period).
(iv) If the Employee terminates his employment other than for
Good Reason, the date that is ninety (90) days after
Notice of Termination is given.
(v) If the Employee's employment is terminated by the
Company other than for Cause, the date that is ninety
(90) days after Notice of Termination is given.
6. AMOUNTS PAYABLE UPON TERMINATION OF EMPLOYMENT OR DURING DISABILITY
a. TERMINATION PAYMENT
In the event that Employee's employment is terminated pursuant
to Section 5 hereof, the Employee shall not be entitled to any
compensation except as set forth below.
(i) Any compensation that is accrued but unpaid, any
vacation that is accrued but unused, and any business
expenses that are payable, all as of the Date of
Termination.
<PAGE>
(ii) Any other rights and benefits (if any) provided under
plans and programs of the Company including accrued but
unexercised stock options, determined in accordance with
the applicable terms and provisions of such plans and
programs.
b. MITIGATION OF DAMAGES
Following any Date of Termination, the Employee shall have an
obligation to seek other employment provided that the Company
has performed its obligations in full as laid out in 6(a) as
at the Date of Termination.
7. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE
a. The Employee hereby agrees that, during the term of
the Agreement and thereafter, he will not disclose to any
person or otherwise use or exploit any of the proprietary or
confidential information, including, without limitation, trade
secrets, processes, records of research, proposals,
programming, budgets or customer lists, regarding the Company,
its business, properties, or affairs obtained by him at any
time prior to or subsequent to the execution of this
Agreement, except to the extent required by his performance of
assigned duties for the Company.
b. The Employee hereby agrees that during the term hereof and for
a period of one (1) year after his termination of employment
(including upon Retirement), he will not engage in or carry
on, directly or indirectly, whether as advisor, principal,
agent, partner, officer, director, employee, stockholder,
associate or consultant of any person, partnership,
corporation or other business entity which is in material
competition with any business carried on, directly or
indirectly (through one or more subsidiaries or otherwise), by
the Company prior to the date hereof or hereafter conducted by
the Company during the term of this Agreement, directly or
indirectly (through one or more subsidiaries or otherwise) in
any county of the State of California or any other county of
any state in the United States or municipality of a foreign
country where business is then carried on or conducted by the
Company.
c. The Employee agrees that the remedy at law for any breach by
him of any of the covenants and agreements set forth in this
Section 7 will be inadequate and that in the event of any such
breach, the Company may, in addition to the other remedies
which may be available to it at law, obtain injunctive relief
prohibiting him (together with all those persons associated
with him) from the breach of such covenants and agreements.
d. The parties hereto agree that the duration and area for which
the covenant not to compete is set forth in subparagraph (b)
above. The parties intend that this covenant shall be deemed
to be a series of separate covenants, one for each and every
county of each and every state within the United States of
America and one for each municipality of any foreign country
where this covenant is intended to be effective.
e. The Employee will sign separate agreements, policies or
certifications regarding Intellectual Property, Ethical
Business Practices and Conflicts of
<PAGE>
Interest, on reasonable terms and on such forms as are
adopted by the Company from time to time for its executives.
8. GENERAL PROVISIONS
a. NOTICES
Any notice to be given pursuant to this Agreement shall be in
writing and shall be deemed duly given three (3) days after
deposit in certified mail, return receipt requested, to the
party to receive such notice at the address specified below:
If to the Company, to:
Xenotech, Inc.
Attn: Mr. Robert G. Baker
Suite 1/41 Walters Drive
Osborne Park, 6017
Western Australia
Fax: 011-61-09-446-3340
If to the Employee, to
Mr. Christopher Yewdall
The Hayloft
3, Polebrook Mews
Spinney Drive
Kirby Grange
Botcheston
Leicestershire
LE9 9FG
United Kingdom
Email : [email protected]
Either party may change its name and/or address for purposes
of this Section by giving the other written notice of the new
name and/or address in the manner set forth above.
b. ASSIGNMENT
This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective executors,
administrators, heirs, personal representatives, successors
and assigns. Neither this Agreement nor any right hereunder
may be assigned or transferred by either party hereto, any
beneficiary or any other person, nor be subject to alienation,
anticipation, sale, pledge, encumbrance, execution, levy or
other legal process of any kind against the Employee, his
beneficiary, or any other person. Notwithstanding the
foregoing, the Company may assign this Agreement to any
corporation or other business entity succeeding to
substantially all of the business and assets of the Company
<PAGE>
by merger, consolidation, sale of assets, or otherwise and may
obtain the assumption of this Agreement by such successor.
c. WAIVER OF BREACH
The waiver by the Company or the Employee of a breach of any
provision of this Agreement by the other shall not operate or
be construed as a waiver of any subsequent breach by the
other.
d. NON-EXCLUSIVITY OF RIGHTS
Nothing in this Agreement shall prevent or limit the
Employee's continuing or future participation in any
incentive, fringe benefit, deferred compensation, or other
plan or program provided by the Company and for which the
Employee may qualify, nor shall anything herein limit or
reduce such rights as the Employee may have under any other
agreements with the Company. Amounts that are vested benefits
or that the Employee is otherwise entitled to receive under
any plan or program of the Company at or after the Date of
Termination, shall be payable in accordance with such plan or
program.
e. ENTIRE AGREEMENT/MODIFICATION
This Agreement, shall supersede any and all other agreements,
either oral or written, between the parties hereto with
respect to the employment of the Employee by the Company. Each
party to this Agreement acknowledges that no other
representations, inducements, promises or agreements, orally
or otherwise, have been made by any party or anyone acting on
behalf of any party, and that no other agreement, statement or
promise with respect to the employment of the Employee by the
Company not contained in this Agreement shall be valid or
binding. Any modification of this Agreement will be effective
only if it is in writing, signed by the party to be charged.
f. PARTIAL INVALIDITY
If any provision of this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions shall nevertheless continue in full
force without being impaired or invalidated in any way.
g. GOVERNING LAW
The validity of this Agreement and the interpretation and
performance of all of its terms shall be governed by the laws
of the State of California.
h. ARBITRATION
Any controversy, claim or dispute between the parties directly
or indirectly concerning this Agreement or the breach hereof,
or the subject matter hereof (except in instances where only
injunctive relief is sought by the either party), shall be
finally settled by arbitration held in the State of
California. Any legal expenses incurred by the Company in
connection with any such claim or dispute shall be paid by the
Company. To the extent that the Employee
<PAGE>
prevails in any claim or disput to enforce or defend his
rights under this Agreement, any legal expenses incurred by
the Employee in such claim or dispute shall be paid by the
Company.
i. CAPTIONS
The captions in this Agreement are for convenience and for
identification purposes only, are not an integral part of this
Agreement and are not to be considered in the interpretation
of any part hereof.
j. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but together which
shall constitute one and the same document.
IN WITNESS WHEREOF, Xenotech, Inc., has caused this Agreement to be executed by
an appropriate officer and the Employee has executed the same as of the day and
year first above written.
XENOTECH, INC.
a Canadian corporation
By:
------------------------------------
Robert G. Baker
President
By:
------------------------------------
Christopher M. Yewdall
<PAGE>
Exhibit 3(14)
XENOTECH AUSTRALIA PTY LTD
ACN 060 154 949
- and -
PHILIP HARMAN
---------------------------------------
EMPLOYMENT AGREEMENT
---------------------------------------
Solomon Brothers
Solicitors
Level 40
Exchange Plaza
2 The Esplanade
PERTH WA 6000
Tel: 221 5888
Fax: 221 5955
Ref: PFF/JMM/6446655
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made the 17th day of May 1996
BETWEEN
XENOTECH AUSTRALIA PTY LTD ACN 060 154 949 of Suite 1, 41 Walters Drive, Osborne
Park in the State of Western Australia ("the Company") of the first part;
- - and -
PHILIP HARMAN of 45 Ventnor Street, Scarborough in the State of Western
Australia, ("the Employee") of the second part;
RECITALS
A. The Company carries on the business of invention, research,
development, manufacture and marketing of three dimensional television
and related technology ("the Business").
B. The Company wishes to engage the Employee as the Director - Technical
Development of the Company.
NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:
1. INTERPRETATION
1.1 In this Agreement unless a contrary intention appears or the
context or subject matter otherwise requires:-
1.1.1 "the Company" means Xenotech Australia Pty Ltd;
1.1.2 "the Employee" means Philip Harman;
1.1.3 "Salary" means the salary specified in clause 6.1.1;
1
<PAGE>
1.1.4 "Term" shall mean the period described in Clause 3;
1.1.5 "Commencement Date" means 3 June 1996;
1.1.6 "Price" means TWENTY FIVE CANADIAN CENTS (CAN0.25(cent))
per issued Share;
1.1.7 "Related Corporation" means a corporation which is
deemed to be related to the Company by virtue of
Section 50 of the Corporations Law;
1.1.8 "Shares" means common shares in the capital stock of
Xenotech Incorporated ("XI");
1.1.9 "writing" includes typewriting, printing, lithography,
photography and other modes of representing or
reproducing words in a visible form and "written" has a
corresponding meaning;
1.1.10 "the Technology" means the stereoscopic three
dimensional television viewing system under development
by the Company and any improvements or alterations of
any kind to that system together with all parts,
attachments, accessories and related technology and any
patent relating thereto and any other inventions or
developments whatsoever which are or become the property
of the Company;
1.2 A reference in this Agreement to a party includes a reference to a
party's successors and permitted assigns.
1.3 Words and expressions denoting the singular number shall mean and
include the plural and vice-versa. Any gender shall mean and
include all genders.
1.4 Words and expressions denoting individual persons shall mean and
include companies and associations of persons whether or not
incorporated.
1.5 References to any statutory enactment or law shall mean and shall
be construed as
2
<PAGE>
reference to that enactment or law as amended or modified or
re-enacted from time to time and to all regulations thereunder and
to the corresponding provisions of any similar enactment or law of
any other relevant jurisdiction.
1.6 References to recitals, clauses, sub-clauses, paragraphs or
Schedules, whether by letter or number, are references to
recitals, clauses, sub-clauses, paragraphs or Schedules of this
Agreement. Schedules of this Agreement are incorporated in the
Agreement.
1.7 Headings shall not affect the construction or interpretation of
this Agreement.
1.8 References in this Agreement to money are, except where otherwise
specified, references to the currency of Australia.
1.9 Where a day appointed or specified by this Agreement for the
payment of any money falls on a Saturday, Sunday or a day
appointed as a bank holiday for the whole day the day so appointed
or specified shall be deemed to be the day preceding the day so
appointed or specified which is not in turn a Saturday, Sunday or
day so appointed as a holiday for the whole day.
1.10 If for any reason any provision or part of any provision of this
Agreement is unenforceable and cannot be construed so as to be
enforceable the remaining provisions hereof or part of any
provision shall nevertheless be carried into effect.
2. APPOINTMENT OF EMPLOYEE
2.1 The Company hereby appoints the Employee to the full-time position
of Director - Technical Development of the Company during the
Term.
2.2 The Employee hereby accepts such appointment.
2.3 The Employee shall perform the duties of Director - Technical
Development of the Company during the Term.
3
<PAGE>
3. TERM OF APPOINTMENT
The Employee's appointment under this Agreement shall be for a
three-year period commencing 3 June 1996 ending on 3 June 1999 provided
however that the period shall automatically be extended for a further
12 months from 3 June 1999 and from each succeeding anniversary of that
date unless either the Company or the Employee gives to the other
written notice of termination not less than 90 days prior to 3 June.
4. EMPLOYEE RESPONSIBLE TO MANAGING DIRECTOR OF THE COMPANY
The Employee shall in all respects comply with the directions of the
Managing Director of the Company. The duties of the Employee shall,
unless otherwise directed by the Managing Director, include those set
out in the Schedule.
5. EMPLOYEE TO BEHAVE DILIGENTLY
5.1 The Employee shall perform all obligations hereunder and conduct
all operations in a good, professional, workmanlike and
commercially reasonable manner with a standard of diligence,
competence and care appropriate in the circumstances to the office
of Director - Technical Development and in accordance with
generally accepted practices appropriate to the activities
undertaken.
5.2 The Employee shall use his best endeavours throughout the term to
promote, develop and extend the business of the Company.
6. REMUNERATION OF EMPLOYEE
6.1 In consideration for performing the duties of Director - Technical
Development for not less than 40 hours per week, and for such
additional hours as those duties may require, the Employee shall
be paid during the Term:
6.1.1 an annual base salary of $120,000 paid in fortnightly
increments. The annual base salary will be reviewed on 3
June 1997 and 3 June 1998;
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6.1.2 a discretionary performance bonus ("the Bonus") subject
to the following criteria:
6.1.2.1 the Bonus shall be payable only when, and in
amounts that, the Company in its sole
discretion may determine;
6.1.2.2 the Bonus shall be subject in any event to the
achievement by the Company of quarterly
targets mutually agreed between the Board of
Directors of XI and the Employee;
6.1.2.3 in any year of the Term in the event that the
Company achieves its targets in each quarter,
and determines to pay a bonus in each quarter,
it is intended that the total annual bonus
will amount to not less than $25,000 p.a;
6.2 The Company shall procure that XI, being a Related Corporation,
shall as soon as is practicable after the execution of this
Agreement grant to the Employee the options specified below to
purchase Shares for the Price. Any of the options that have not
been exercised by 3 June 2001 or by the date of termination of the
Term, whichever occurs first, shall expire at that time and be
incapable of exercise. The options may only be exercised by the
Employee and are not capable of transfer, assignment or
encumbrance in any manner whatsoever:
30,000 Shares exercisable from July 1st, 1996
20,000 Shares exercisable from January 1st, 1997
15,000 Shares exercisable from July 1st, 1997
15,000 Shares exercisable from January 1st, 1998
20,000 Shares exercisable from July 1st, 1998
7. ANNUAL LEAVE
7.1 The Employee shall be entitled to 4 weeks paid annual leave within
any 12 month period during the Term accumulated at the rate of
1.666 days per calendar month and to be taken at such times as may
be selected by the Employee and approved by the Company.
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7.2 The Employee shall not be required to work on those days
recognised from year to year as statutory public holidays in
Western Australia. In the event that the Employee does not less
than 8 hours work on a public holiday he shall be entitled to 1
days paid leave.
7.3 At the discretion of the Employee part or all of annual leave and
such days in lieu of public holidays may be accrued from year to
year up to a maximum of 12 weeks entitlement at any time and
thereafter the Employee's entitlement to any accrued leave shall,
unless the Company otherwise determines, lapse.
7.4 The Employee shall be entitled to take no more than 8 weeks of
such accumulated leave entitlement within any 12 month period
unless the Company determines otherwise.
8. SUPERANNUATION
Except to the extent required by law, the Company shall be under no
obligation to make any contribution or provision for superannuation
benefits with respect to the Employee, PROVIDED HOWEVER, and subject to
any statutory provision to the contrary, all contributions or
provisions required by law to be made for superannuation benefits for
the Employee shall be made payable to National Mutual Trustees Ltd -
LAMP P/S Ref: P V Harman 002019 and forwarded to Precedent Group (attn:
Mr Robin Walford), PO Box 26 Central Park, 152-158 St George's Terrace,
Perth 6000.
9. EMPLOYEE'S COSTS
The Company (in addition to the Salary) shall be responsible for:
9.1 all travelling and accommodation costs and other reasonable
out-of-pocket expenses incurred by the Employee, with the prior
written approval of the Company, in performing his duties as
Director - Technical Development. It is a condition precedent to
the entitlement of the Employee to the reimbursement of each such
cost that the Employee produce to the Company vouchers receipts or
other appropriate evidence of the incurring of the cost or
expense. Reimbursement is to be made to the Employee by the
Company not later than 7 days after production by the Employee of
the said vouchers, receipts or
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other appropriate evidence of the cost incurred.
9.2 the reasonable cost of a policy of insurance for the Employee with
respect to director's liability providing a reasonable level of
insurance cover.
10. POWERS OF THE EMPLOYEE
The Employee shall comply with the directions of the Managing Director
of the Company, the Company, its Articles of Association, the
Corporations Law and every other relevant law and shall otherwise
perform his duties in such manner as he may reasonably consider
necessary in order to fulfil his obligations under this Agreement.
11. CONFIDENTIAL INFORMATION
11.1 The Employee hereby covenants and agrees that all knowledge,
experience, know-how, expertise and information relating to the
Technology is valuable confidential property of the Company and/or
its Related Corporations and the Employee shall not either during
the continuance of this Agreement or thereafter, except in the
proper course of his duties or with the prior written consent of
the Company, divulge to any person, and shall use his best
endeavours to prevent the publication or disclosure of, any trade
secret of the Company or a Related Corporation or any information
concerning the Business, the Technology or the finances of the
Company or a Related Corporation or any of its dealings
transactions or affairs which may come to the knowledge of the
Employee during the course of this Agreement, and shall keep such
trade secrets and information confidential.
11.2 The following acts shall not constitute a breach of confidence by
the Employee:
11.2.1 disclosure to officers, employees, agents or
sub-contractors of the Company as may be necessary to
effectively carry out the terms of this Agreement;
11.2.2 disclosure to the extent required by any law applicable
to the Employee or by any authority or regulatory body
having jurisdiction over the Employee;
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11.2.3 disclosure to the extent that it can be shown that the
material disclosed had, at the time of disclosure and
through no wrongful act on the part of the Employee,
already come within the public domain or had generally
become known within the relevant industry.
12. RIGHTS TO INTELLECTUAL PROPERTY
12.1 The Employee hereby covenants and agrees with the Company that:-
12.1.1 copyright in all things produced by the Employee in the
course of performing his duties as Director - Technical
Development including without limitation information
recorded on computer disc or tape, audio tape or in
writing, shall vest in and become the property of the
Company immediately the thing is produced;
12.1.2 it shall be ensured that all information produced by the
Employee in the course of performance of his duties as
Director - Technical Development and recorded on
computer tape or disc shall be written in a computer
language which is compatible with the computer equipment
commonly used by the Company so that it may be readily
accessed by the Company using computer equipment in the
possession of the Company;
12.1.3 ownership of any invention, technology, prototype, or
know-how relating directly or indirectly to the
Technology its component parts and related products
developed, conceived or acquired by any means whatsoever
by or on behalf of the Employee during the course of
this Agreement shall be deemed to be immediately vested
in the Company and the Employee shall have no right or
interest therein whatsoever including any right to use
in any way for the benefit of the Employee.
12.2 The Company may, at its complete discretion, reward the Employee
as the Company deems appropriate for any invention made or other
outstanding contribution to the development of the Technology.
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13. EXCLUSIVE SERVICE
The Employee shall not without the prior written consent of the Company
during the Term provide services either directly or indirectly
(including without limiting the generality of the foregoing via
corporate body, trust or other entity) in any capacity in any trade,
business or occupation other than the Business.
14. TERMINATION
14.1 The Term may be terminated by the Company without prior notice if
the Employee shall at any time during the Employment Period:-
(a) be guilty of any grave misconduct or wilful neglect in
the discharge of his duties hereunder;
(b) die or become of unsound mind;
(c) commit an act of bankruptcy;
(d) be convicted of an indictable offence other than an
offence which relates to the ownership or driving of a
motor vehicle;
(e) for a period of 6 consecutive months or for a period
aggregating 6 months in any period of 12 months be
unable through accident illness or other physical or
mental incapacity to perform his duties hereunder.
14.2 The Term may be terminated by either party at any time upon giving
to the other party three (3) months written notice and is
considered to be terminated at the end of this three (3) month
period.
14.3 If the Company wishes to terminate the employment of the Employee
by reason of the fact that the Employee's position has become
redundant then the Company may terminate the Term without notice
in which event it shall pay to the Employee a bona fide redundancy
payment in the sum of thirty thousand dollars ($30,000.00).
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14.4 Upon the termination of the Term the rights and obligations of the
Parties shall, other than pursuant to clauses 11, 12 and 15 be at
an end and the Parties shall be free of and discharged from all
liabilities under this agreement save for the performance of those
covenants and agreements (if any) which theretofore should have
been performed and all damages for breach of any of the same.
15. UPON TERMINATION
The Employee shall within 24 hours of the date of termination of this
agreement deliver up to the Company at the address of the registered
office for the Company all books, papers, audio, video and computer
tapes, computer discs and other documents of whatever sort in the
possession or control of the Employee relating to the Business or the
affairs of the Company and each and every other item of property of the
Company. The said audio, video and computer tapes and discs shall be
delivered up with all information recorded thereon as at the date of
termination intact and without erasure.
16. ASSIGNMENT
The Employee may not assign his rights and obligations under this
Agreement.
17. SEVERANCE
In the event that any part of this Agreement is or becomes void or
unenforceable then that part shall be severed from this Agreement to
the intent that all parts that shall not be or become void or
unenforceable shall remain in full force and effect and unaffected by
any such severance.
18. PROPER LAW
This Agreement shall be governed by and construed according to the laws
of Western Australia and the parties hereby submit to the jurisdiction
of any competent court of Western Australia able to entertain claims
arising hereunder.
19. COSTS
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All costs incidental to the preparation and stamping of this Agreement
shall be paid by the Company.
20. ENTIRE AGREEMENT
This Agreement constitutes the entire Agreement between the parties
hereto with respect to the subject matter hereof, and supersedes and
replaces any and all prior agreements or understandings, written or
oral, express or implied, between the parties hereto concerning and
relating to any and all of the subjects and contents hereof.
21. VARIATION
This agreement shall not be changed or modified in any way except in
writing executed by both the Company and the Employee.
22. NOTICES
Any notice, offer, request, payment or demand required or permitted to
be given under the Agreement shall be in writing and shall be deemed
sufficiently served if delivered in person or by telex or telegraph or
facsimile or sent by security postage prepaid (and air mail if sent
from outside the State of the addressee) and addressed in the case of
the parties to their addresses aforesaid or to the latest address a
party shall have specified in a written notice given to the other
party. Notices given or payments made by security post as aforesaid
shall be deemed to have been given or made three (3) days after posting
and in the case of telex or telegraph or facsimile will be deemed to
have been given or made on the next business day in Western Australia
following the day of transmission. A notice, offer, request or demand
may be signed by a director, secretary, manager of or solicitor for a
party giving notice.
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SCHEDULE
DUTIES OF EMPLOYEE (Clause 4)
Directs and controls the research and development activities of the Company.
Evaluates, reports and makes recommendations on the technical viability of new
technologies that may be of interest to the Company.
Assists with the marketing of the Company's technologies, products and services.
Directs and manages staff involved in the activities under his direction.
Allocates projects and activities to technical staff as necessary.
Provides reports on the projects and activities under his control as requested.
Represents the Company at seminars, conferences and other functions as
requested.
Makes formal and informal presentations relating to the Company's technologies,
products and services.
Develops budgets for resources under his control and presents them for approval.
Manages resources under his control within approved budgets.
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DULY EXECUTED as at the date of this Agreement.
THE COMMON SEAL of XENOTECH )
AUSTRALIA PTY LTD )
ACN 060 154 949 was hereunto affixed )
by authority of the Directors in the )
presence of: )
Director:
Director/Secretary:
SIGNED BY the said )
PHILIP HARMAN )
in the presence of: )
Witness:
Address:
Occupation:
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