<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
MICRA SOUNDCARDS INC.
---------------------
(Exact name of Small Business Issuer in its Charter)
Ontario, Canada N/A
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of I.R.S. Employer Identification No.
Incorporation or Organization)
2916 South Sheridan Way, 3/rd/ Floor, Oakville, Ontario, Canada L6J 7J8
- --------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(905) 829-2300
--------------
(Issuer's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class to Name of Each Exchange on which
be so Registered Class is to be Registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Shares, without nominal or par value
-------------------------------------------
(Title of Class)
<PAGE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
Micra Soundcards Inc. ("Micra" or the "Company") was incorporated as "1095137
Ontario Limited" in August, 1994 pursuant to the Business Corporations Act
(Ontario) (the "OBCA"). The Company subsequently changed its name to "Micra
Soundcards Inc." in July, 1996 and amended its authorized share capital in
April, 1999. The Company has two wholly-owned subsidiaries incorporated under
the OBCA, Micra Sound Sports Inc. ("Micra Sound Sports") and Mitaca Marketing
Inc. ("Mitaca"). Unless otherwise indicated, all references in this registration
statement to the Company include Micra and each of its subsidiaries. The
Company's principal business office is located at 2916 South Sheridan Way, 3rd
Floor, Oakville, Ontario, Canada and its telephone number is (905) 829-2300 and
facsimile number is (905) 829-2308.
(b) BUSINESS OF THE COMPANY
Products and Services
The Company is in the business of manufacturing and marketing "talking" cards
which combine images of certain personalities or events and digital audio
recordings concerning that person or event ("Soundcards") with playback units
("Players") which enable the users to playback the audio recordings on the
Soundcards. Micra has devoted several years to developing the proprietary
technology embedded in the Soundcards to permit high quality digital sound,
whether voice or music, to be played and replayed through the Players.
Micra currently markets two distinct models of its products: (i) a Soundcard and
Player combination, featuring replaceable batteries, volume control and an
on/off switch, designed for the card collector and mass retail markets; and (ii)
a stand alone Soundcard, where all the electronics are embedded in the card
itself, designed for the promotional market. Both versions of the Soundcard
measure 2.5 inches by 3.5 inches, while the player Soundcard is only 2 mm thin
and the stand alone Soundcard is 3 mm thin. All Soundcards and Players can be
manufactured to meet customer requirements. The audio recording can range in
duration from 3 to 90 seconds for the stand alone version and from 3 to 180
seconds for the Player version. The selling price for each Soundcard will vary
depending on the quantity ordered as well as the duration and frequency of the
audio recording. Each of the Soundcards as well as the Player have been
patented. See "Business of the Company - Intellectual Property".
Initially, the Company concentrated on the trading card sector, aiming to
"revolutionize" a market which it perceived was ripe for a new idea. While Micra
continues to focus on the trading card market, the market response to the
Soundcard to date has dictated that the Company look beyond traditional retail
markets for trading card type products. As a result of these diversification
efforts, the Company has identified and intends to target three distinct markets
for the Soundcard: (i) the traditional sports trading card market; (ii) non-
traditional markets for trading cards; and (iii) the corporate promotional
market.
The Sports Trading Card Market: The sports trading card market is over 100 years
old and has evolved into a sophisticated business appealing to a broad cross
section of the population, from serious collectors to school age children
looking to collect memorabilia about their sports heroes. In 1997, Robert Brill,
the founder of "The Brill Report", now entitled "Tradefax", was engaged on
behalf of the Company to prepare a report on the state of the sports trading
card industry (the "Brill Study"). According to the Brill Study, new
technologies and marketing strategies have driven up the price of sports trading
cards in recent years. Increases in selling prices for sports trading cards in
recent years are attributable to technological advances such as the enhanced
quality of the cards through higher quality finishes, the use of holograms and
ultraviolet ("UV") coatings. Industry participants such as The Upper Deck
Company LLC ("Upper Deck"), Playoff Corp. ("Playoff") and Fleer/Skybox
International ("Fleer/Skybox") have also undertaken many changes in product
design and packaging with the introduction of low to high quality sets of
trading cards, autographed cards, limited production runs and cards with "game
worn" pieces of equipment woven into the card itself. In 1998, Fleer/Skybox
released metal cards as an insert into a regular pack of cards, which retail for
US$6.00 per pack.
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Furthermore, The Topps Company ("Topps") is about to release metal cards where
seven packs of cards and one chromium card are packaged in a tin with a
suggested retail price of US$20.00 per tin. In management's opinion, these
trends demonstrate that the market has accepted pricing based on perceived
differences in product quality and value. As a result, the Company intends to
position the Soundcard as a premium quality product. The proposed retail price
of US$6.95 to US$7.95 for the Soundcard is expected to compare favourably with
other, lesser quality cards.
The Brill Study also confirmed that during the period 1992 to 1997 overall
revenue of trading card manufacturers peaked at approximately US$1.0 billion in
1994 as follows:
(in millions of US $)
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
912.5 927.4 1,027.7 858.9 734.8 532.3
With the overall sports trading card market facing declining sales, industry
participants are actively searching for new and innovative products such as the
Soundcard to revitalize the sports trading card business. Accordingly, the
Company is currently examining the possibility of obtaining licenses from the
National Hockey League, Major League Baseball and the National Football League.
Non-Traditional Markets for Trading Cards: Historically, the term "trading
cards" has been reserved for use in connection with cards bearing images of
baseball, football, basketball and hockey personalities. These cards are
typically sold through three venues, namely (i) hobby shops and similar
retailers that specialize in trading cards and related memorabilia; (ii)
convenience stores and select department stores; and (iii) vending machines.
However, based on market research over the past five years and inquiries from
various entities regarding the Company's products, the Company believes that
significant opportunities for its Soundcards exist beyond the traditional major
league sports properties and typical distribution channels. As a result, the
Company intends to pursue licenses for various properties from or relating to
the World Wrestling Federation Entertainment Inc. ("World Wrestling
Federation"), World Championship Wrestling, Playboy, the Audubon Society, the
National Collegiate Athletic Association, Star Trek, Formula 1 Racing and
Pokemon. Similarly, the Company has also received inquiries from, and is
currently exploring potential distribution possibilities through, alternative
distribution channels such fast food outlets, breweries, soft drink
manufacturers, gas stations and direct mail.
The Corporate Promotional Market: Various corporations and other entities have
also expressed to the Company an interest in using the Soundcard as a vehicle
for corporate promotions. The Company believes that the Soundcard is an
excellent vehicle to promote new products and distribute corporate mission
statements. Micra therefore intends to pursue sales opportunities for the
Soundcard by working directly with corporations and other entities to develop
Soundcards for use in connection with specific corporate promotions and
marketing campaigns.
Sales and Marketing
To date, distribution of the Soundcards has been restricted primarily to sales
of Paul Henderson's "Goal of the Century" card and Michael Jordan's "Game Call"
card over the Internet through Bid.Com International Inc. ("Bid.Com"). These
sales represented the first "as-marketed test" of the Soundcard. Based on this
experience, management is confident that the concept of a "talking card" has
gained consumer acceptance and can be commercially successful at the price
points established by the Company.
In July 1999, Micra participated in The 20/th/ National Sports Collectors
Convention in Atlanta, Georgia (the "National"), the trading card industry's
premier showcase event. At the National, the "talking card" concept and
suggested pricing was well received. In addition, Micra gained further insight
into the marketing requirements for its Soundcards. Specifically, the Company
determined that: (i) the Soundcards should be launched as a series of at least
three Soundcards per property or personality; (ii) the commercial success of
each
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Soundcard will be contingent on the popularity of the property or personality;
and (iii) the target market need not be limited to individuals between the ages
of four and fourteen years of age.
Micra has also concluded that currently one of the most popular properties is
World Wrestling Federation personalities and events. Consequently, Micra intends
to launch an initial series of three Soundcards featuring World Wrestling
Federation personalities in November 1999 via a direct response program through
an official World Wrestling Federation publication. Concurrently, the Soundcards
will also be featured for sale on Bid.Com's website.
The Company's sales and marketing plan contemplates that Micra secure 3 to 6
additional licenses prior to the end of December 1999, yielding 12 to 24
additional Soundcards. In the meantime, management has developed and is now
finalizing retail packaging and trade presenter kits and, as soon as the first
12 cards have been manufactured, a major retail initiative will be launched. In
anticipation of its retail launch, the Company has been actively identifying and
initiating discussions with potential sales agents, distributors and dealers to
penetrate three distinct market segments: (i) the hobby segment, (ii) the mass
retail segment, and (iii) the promotional, business to business segment. In the
future, the Company also intends to expand its sales and marketing program by
actively participating in additional trade shows, implementing advertising
campaigns through various forms of media and pursuing other direct marketing
initiatives.
Until its Soundcards are launched on a retail basis, Micra will continue to work
with three corporations to sell and distribute its Soundcards, either directly
to consumers or via corporate promotions. The following is a brief summary of
the Company's existing sales and distribution arrangements.
In 1998, the Company entered into a distribution agreement with Bid.Com for the
sale of the Company's products through Bid.Com's Internet online auction site.
Pursuant to that agreement, the Company granted to Bid.Com the exclusive,
world-wide right to market, distribute and sell selected Soundcards and the
Player over the Internet and any other form of computer-generated electronic
commerce. The Company also granted Bid.Com a right of first opportunity to
negotiate, on a case by case basis, the non-exclusive world-wide right to
market, distribute and sell the Player and selected Soundcards through other
means. In order for the exclusivity to remain in effect, Bid.Com must place
minimum orders of 50,000 Soundcards for each card developed by Micra. To date,
Bid.Com has ordered an aggregate of 155,000 Soundcards and 150,000 Players from
the Company.
Micra has also entered into an agreement with Intervisual Books, Inc. ("IBI"), a
world leader in creating and developing pop-up and dimensional books for all
ages, whereby the Company has agreed to manufacture, and IBI has agreed to
purchase from the Company, Soundcards bearing images and audio recordings
relating to selected World Wrestling Federation events and personalities. IBI, a
public company trading on NASDAQ, is an authorized licensee of the World
Wrestling Federation which enables IBI to market and sell Soundcards relating to
World Wrestling Federation events and personalities. To date, IBI has purchased
35,000 Soundcards from the Company for resale through its distribution channels.
Micra also intends to sell Soundcards on a retail basis and directly to
consumers through a direct response program through advertisements in the World
Wrestling Federation's official magazine.
In addition, Micra has entered into a distribution agreement with HA-LO Canada
Inc. ("HA-LO"). With over 30,000 corporate clients, 2,000 selling agents and 45
offices throughout the world, HA-LO is the largest distributor of promotional
products in North America. Pursuant to its agreement with HA-LO, the Company has
granted to HA-LO the non-transferable, worldwide right and license to market,
distribute and sell Soundcard to corporate clients of HA-LO. Although the
Company has yet to make any sales of its product through HA-LO, the Company
understands that HA-LO is currently in the final stages of developing
promotional campaigns for at least three significant clients which utilize the
Soundcards.
Competition
The Company expects that substantially all of its revenues will be derived from
the manufacture and distribution of its Soundcards and Players. Although Micra's
Soundcard and Player combination has no direct competition of which the Company
is aware, the Soundcard and Player compete generally with several traditional
paper based trading cards, some of which include audio features, as well as
numerous other toys and novelty items. Micra's products compete primarily on the
basis of uniqueness, quality, price and reliability.
<PAGE>
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The traditional trading card market in North America is intensely competitive
and is dominated by several large trading card companies such as Upper Deck,
Topps, Playoff, Pacific Trading Cards and Fleer/SkyBox. Typically, these
competitors are fully integrated companies that have greater resources that the
Company, their own manufacturing capabilities, established licensing
arrangements and extensive sales and distribution channels.
In addition to traditional trading card companies, the Company is aware of at
least three other companies that manufacture or have manufactured "talking"
trading cards which compete or may compete with the Company's patented
Soundcards. To the best of the Company's knowledge, none of these companies
offers a card and player combination. The first card, which has a lenticular
front thereby adding motion to the image, was manufactured briefly by Topps in
1998. The Company understands that Topps no longer produces its "talking"
trading card on a commercial basis. Micra nevertheless believes that the
Soundcard compares favourably with the Topps card, as the Topps card is
approximately one quarter of an inch in thickness which is significantly bulkier
than the Company's Soundcard, has relatively poor sound quality and, as of 1998,
was priced considerably higher than the Soundcard. The second card was
manufactured briefly by Prime Time, but management has been informed that Prime
Time has ceased doing business. The third card is a relatively new card which is
marketed under the name Protalk Talking Card. The Protalk Talking Card is
similar in design to Micra's stand-alone Soundcard in many respects. In
addition, it has good sound quality and the batteries are replaceable. However,
the Protalk Talking Card is not patented and the Company is currently
investigating whether it infringes certain of the Company's patents. See "Legal
Proceedings".
Raw Materials and Supplies
The principal raw materials used in the production of the Company's products are
silicon voice chips and standard, readily available electronic, plastic and
hardware components. The Company does not anticipate difficulties in obtaining
raw materials as all the raw materials it uses are readily available from a
number of different sources. The Company may be vulnerable to price fluctuations
with respect to the silicon voice chips used in its products. These voice chips
have experienced a high level of price volatility in the past depending upon
supply and demand conditions in the marketplace. Although this has not proven to
be a problem to date, the Company has adopted a policy of quoting final pricing
to its customers only after securing firm quotes from its suppliers in order to
address any potential volatility in the price of voice chips.
Micra does not have any production facilities and therefore subcontracts its
manufacturing requirements to third parties. Techno Mind Ltd. ("Techno Mind")
manufactures the Soundcards and Players for the Company. Techno Mind, which is
located in Hong Kong and has production facilities in China, specializes in
voice and music related products. Micra has been informed that Techno Mind has
been involved in the manufacture of products using sound chip technology for
over ten years and is an ISO 9001 registered company. The standalone Soundcard
is manufactured for the Company by Bliss Electronics ("Bliss") which has
production facilities located in Taiwan and Shenzhen, China. All of the
Company's graphic design, printing and packaging requirements and purchasing of
electronic components are subcontracted to third parties at prevailing market
rates.
In order to produce the Soundcards, the Company has and continues to seek
licences of intellectual property granting to it or its wholly-owned subsidiary,
Micra Sound Sports, the right and license to use, print, duplicate and otherwise
reproduce names, likenesses and voices of certain personalities or events. To
assist the Company in obtaining these licenses, the Company and Micra Sound
Sports have retained Price International Inc. on a non-exclusive basis to
identify appropriate licensing opportunities, assist in the preparation of
proposals and to facilitate negotiations with potential licensors. See "Business
of the Company - Intellectual Property".
Customers
Although the Company to date has made sales of its product only to Bid.Com and
IBI, it has entered into agreements for the distribution and acquisition of its
products with Bid.Com, HA.LO and IBI. Furthermore, the Company is currently in
the process of identifying and negotiating similar agreements with distributors,
<PAGE>
-6-
retailers and business entities in order to penetrate its three target markets.
See "Business of the Company - Sales and Marketing."
Intellectual Property
In order to protect its rights to its intellectual property, the Company relies
on a combination of patent, trademark and copyright law and confidentiality and
assignment of intellectual property arrangements with its employees,
consultants, suppliers, customers and others. To the extent commercially
reasonable, the Company seeks to patent all key concepts, components, protocols
and other inventions and obtain trademark protection for all trade names,
business names and logos that it considers to have value. The objective of the
Company's patent strategy is to obtain an exclusive and preferential position in
product concept, design features, performance and cost, while the objective of
its trademark strategy is to establish and preserve name recognition and brand
loyalty within its target markets.
The following table summarizes the Company's patents and registered and common
law trademarks, as well as all applications for patents and trademark
applications made on behalf of the Company to date.
<TABLE>
<CAPTION>
Title Status Jurisdictions
----- ------ -------------
<S> <C> <C> <C>
PATENTS: Squeezable Talking Trading Granted United States (3 patents),
Cards Australia, Germany, France, Italy,
Sweden and Great Britain
Pending Canada, Spain and Australia
Talking Trading Card Granted United States
Player System
Pending United States (CIP filings), Canada
and Europe
Talking Trading Card with Pending United States
Hinged Face Panel
Talking Motion Card and Player Pending United States
Backlit Talking Motion Card and Pending United States
Player
Talking LCD Card and Player Pending United States
TRADEMARKS: MICRA Granted United States and Canada
MICRA SOUNDCARDS Granted United States and Canada
MICRA TALKING CARDS Granted United States and Canada
Stylized Speaker Design Allowed United States and Canada
</TABLE>
<PAGE>
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In order to manufacture and distribute its products, the Company licenses
certain intellectual property rights from third parties. To date, the Company
has entered into licensing arrangements with the following third parties
pursuant to which the Company has been granted a license to use certain
likenesses, images and voices in the production of Soundcards:
<TABLE>
<CAPTION>
Licensor Licensed Rights
- -------- ---------------
<S> <C>
Ficel Marketing Corp. . likeness and image of Paul Henderson scoring the winning goal in the final
game of the 1972 Canada-Soviet Union hockey series
. voice of Foster Hewitt broadcasting the winning goal by Paul Henderson
The Upper Deck Company, LLC . name, likeness and voice of Michael Jordan scoring the winning basket in
the final game of the 1998 National Basketball Association playoffs
. voice of Bob Costas broadcasting the winning basket by Michael Jordan in
. the final game of the 1998 National Basketball Association playoffs
. specified trademarks of Upper Deck
Intervisual Books, Inc. . likenesses, physical characteristics and sound recordings relating to World
Wrestling Federation personalities and events
. specified trademarks of the World Wrestling Federation
</TABLE>
Governmental Regulations
No governmental license or approval known to the Company is required in
connection with the manufacture or sale of the Company's current products and
there are no extraordinary governmental regulations known to the Company which
affect its ability to sell or produce its products.
Research and Development
Since its formation, Micra has undertaken significant research and development
to prepare its products for market. During the three year period ended August
31, 1998, the Company spent an aggregate of C$332,070 on research and
development of its products. The Company's current research and development
efforts are primarily directed to reducing production costs, improving product
quality and consistency and identifying new features and innovations for future
products such as motion cards. To the extent that the Company is successful in
developing new products, features and innovations, the Company is committed to
making all necessary filings and applications under applicable intellectual
property legislation to fully protect such developments.
Environmental Compliance
There are no environmental laws known to the Company which affect any of its
operations or which would affect its operations as they are currently
constituted. The Company is not involved in a business which involves the use of
materials which are likely to result in the violation of any existing
environmental rules and or regulations nor does it own any real property which
would lead to liability as a land owner.
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Employees
The Company currently has three full time employees and two contract employees.
The Company has no collective bargaining agreements with any of its employees
and believes that its relations with its employees are satisfactory. As the
business of the Company develops, it is expected that additional employees will
be hired by the Company. See "Management's Discussion and Analysis - Plan of
Operation".
Reports to Security Holders
The Company does not currently file any reports with the Securities Exchange
Commission (the "SEC"). In the event that the Company files any materials with
the SEC, the public may read and copy such materials at the SEC's Public
Reference Room located at 450 Fifth Street, N. W., Washington, D. C., 20549 or
utilize the SEC's website at http://www.sec.gov. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
(c) FOREIGN (CANADIAN) COMPANY
Enforceability of Civil Liabilities Against Foreign Persons
The Company and its officers, directors and auditors are residents of Canada and
all of the assets of the Company are or may be located outside the United
States. As a result, service of process may be effected upon the Company through
the officers of the Company, in Canada, but it may be difficult for investors to
effect service of process within the United States upon non-resident officers
and directors, or to enforce against them judgments obtained in the United
States courts predicated upon the civil liability provision of the United States
Securities Act of 1933, as amended (the "Securities Act") or state securities
laws. The Company believes that a judgment of a United States court predicated
solely upon civil liability under the Securities Act would probably be
enforceable in Canada if the United States court in which the judgment was
obtained has a basis for jurisdiction in the matter that was recognized by a
Canadian court for such purposes. However, there is substantial doubt whether an
action could be brought in Canada in the first instance on the basis of
liability predicated solely upon such laws. If investors have questions with
regard to these issues, they should seek the advice of their individual counsel.
The Company has also been informed by its Canadian legal counsel, Wildeboer Rand
Thomson Apps & Dellelce, that pursuant to the Currency Act (Canada), a judgment
by a court in any Province of Canada may only be awarded in Canadian currency.
Pursuant to the provision of the Courts of Justice Act (Ontario), however, a
court in the Province of Ontario shall give effect to the manner of conversion
to Canadian currency of an amount in a foreign currency, where such manner of
conversion is provided for in an obligation enforceable in Ontario.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
General Description of the Company
The Company was incorporated as "1095137 Ontario Limited" in August, 1994
pursuant to the Business Corporations Act (Ontario) (the "OBCA"). The Company
subsequently changed its name to "Micra Soundcards Inc." in July, 1996.
Basis of Discussion
The following discussion is based primarily on the financial statements of the
Company for the years ended August 31, 1998 and 1997. The following discussion
and analysis of the financial position of the Company should be read in
conjunction with the aforesaid financial statements.
The contents of this management discussion and analysis include statements about
the future prospects of the Company and may be forward looking statements.
Reliance should not be placed on these forward looking statements because they
involve risks and uncertainties which may cause actual performance and results
to
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differ materially from the performance and results implied in such forward
looking statements. The Company has identified certain factors which may cause
the actual results to be materially different from those expressed or implied by
such forward looking statements. Such factors include but are not limited to:
product development and technological change, ability to manage growth, product
acceptance, manufacturing risk, competition, industry growth, potential
fluctuations in quarterly financial results, protecting proprietary technology,
risk of third party claims for infringement, product defects and product
liability, control of production and product quality, reliance on a limited
number of suppliers, customer dependency, limited financial resources/needs for
future financing, dependence on key personnel, currency risk, continued use and
expansion of the internet, control of shares by management, enforceability of
civil liabilities, possible anti-takeover effect of certain charter provisions
and risks relating to the year 2000. See "Exhibit 99 - Risk Factors".
Plan of Operation
Substantially all of Micra's resources and efforts to date have been devoted to
the development and commercialization of its products. As at August 31, 1999,
Micra had recorded revenues of only C$1.1 million and had incurred expenses in
the aggregate of C$1.2 million in connection with its initial operations.
Presently, the Company has sufficient capital resources to satisfy its working
capital requirements for approximately the next six months.
Over the next twelve months, the Company anticipates that significant capital
expenditures and additions to corporate overhead will be incurred. These
expenses include retaining wholesalers, distributors, sales agents and dealers
to penetrate the Company's target markets; hiring a Chief Financial Officer and
additional office staff, development of new products and innovations to existing
products, obtaining licenses for specific properties and personalities, and
acquiring additional moulds for use in the production of the Company's products.
To satisfy these requirements, the Company intends to raise approximately C$1.0
million over the next twelve months. The Company believes that the proceeds of
such financings, together with anticipated revenues from the sale of its
products, will be sufficient to satisfy its ongoing working capital
requirements. Until such time as the Company is generating sufficient cash from
sales of its products, the survival of the Company will be dependent largely on
its ability to continue to raise capital through the issuance of stock.
Fiscal 1998 compared to Fiscal 1997
During the period from incorporation to August 31, 1998, the Company incurred
aggregate costs of C$472,857 to develop its products. These costs have been
capitalized and remain the largest asset of the Company as at August 31, 1998.
Throughout the period from the date of incorporation to August 31, 1998, the
Company has had no revenues and has incurred losses in each year. The loss for
the year ended August 31, 1998 totaled C$281,004 and for the year ended August
31, 1997 was C$66,691.
The Company has financed development costs and operating costs through the
issuance of common shares. Until recently, common shares had been issued at
prices from C$0.25 to C$0.50 per share, with a total of C$150,502 raised in
fiscal 1997 and a further C$829,873 raised in fiscal 1998.
In the future, the performance of the Company will be measured by the net income
and earnings per share generated once product sales commence.
Recent Developments
Since August 31, 1998, several key events have taken place as described below:
. The Company received a patent for its Soundcard/Player combination in
December, 1998 and was issued a third patent for its stand-alone Soundcard
in August, 1999.
<PAGE>
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. The Company raised an additional C$735,000 through the issuance of 550,278
shares of common stock at prices ranging from C$0.65 to C$1.75 per share and
warrants to purchase an additional 155,857 shares of common stock at
exercise prices of C$1.75 per share or US$1.65 per share.
. The Company incorporated two subsidiaries: Micra Sound Sports and Mitaca.
Micra Sound Sports was incorporated in May, 1999, and is engaged in the
business of obtaining product licenses for use in producing Soundcards.
Mitaca was incorporated in October, 1999, and is engaged in the business of
distributing the Company's products through retail channels.
ITEM 3. PROPERTY
The Company currently leases 4,000 square feet of office space at 2916 South
Sheridan Way, Oakville, Ontario. The lease for the premises expires in April,
2004 and provides for annual net lease payments of C$10.50 per square foot in
the first year, increasing by C$0.50 per square foot each year during the five
year term of the lease.
The Company does not currently maintain any investments in real estate, real
estate mortgages or persons primarily engaged in real estate activities, nor
does it expect to do so in the foreseeable future.
ITEM 4. SECURITY OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERS OF 5% OF
STOCK
The following table sets forth certain information regarding the beneficial
ownership of the common shares of the Company as of October 13, 1999 by (i) each
person who is known by the Company to beneficially own more than 5% of the
issued and outstanding common shares of the Company; (ii) each of the Company's
executive officers and directors; and (iii) all of the Company's executive
officers and directors as a group. Unless otherwise indicated, the persons named
below have sole voting and investment power with respect to all shares
beneficially owned by them subject to community property law where applicable.
As of October 13, 1999, there were 5,856,478 common shares of the Company issued
and outstanding. Each common share entitles the holder thereof to one vote in
respect of any matters that may properly come before the shareholders of the
Company. To the best of the knowledge of the Company, there exist no
arrangements that could cause a change in voting control of the Company.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Common Shares Percentage of
Name Address Issued Shares/(8)/
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dieter Doederlein 2046 Kawartha Crescent 1,107,500/(1)/ 18.9%
Mississauga, Ontario
Canada
L5H 3P9
- --------------------------------------------------------------------------------------------
Dale Newman 125 Gidleigh Park Crescent 1,745,000/(2)/ 29.8%
Woodbridge, Ontario
Canada
L4H 1H9
- --------------------------------------------------------------------------------------------
James Lewis R.R. #1 20,000/(3)/ 0.3%
Kirkfield, Ontario
Canada
K0M 2B0
- --------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Common Shares Percentage of
Name Address Issued Shares/(8)/
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paul Sansom 1438 Chasehurst Drive 20,000/(4)/ 0.3%
Mississauga, Ontario
Canada
L5J 3A7
- ----------------------------------------------------------------------------------------------
Troy Pocaluyko 2258 Heidi Avenue 20,000/(5)/ 0.3%
Burlington, Ontario
Canada
L7M 3W4
- ----------------------------------------------------------------------------------------------
Michael Knowlton 2000 The Collegeway 150,000/(6)/ 2.6%
Unit 24
Mississauga, Ontario
Canada
L5L 5Y9
- ----------------------------------------------------------------------------------------------
Tony Sharp 43 Macklingate Court 300,000/(7)/ 5.2%
Toronto, Ontario
Canada
M1V 3W4
- ----------------------------------------------------------------------------------------------
Officers and 3,362,500 57.4%
Directors as a Group
- ----------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Includes 107,500 common shares registered in the name of 879314 Ontario
Inc., a company controlled by Mr. Doederlein's spouse.
Mr. Doederlein also holds options to acquire 100,000 common shares. See
"Description of Securities - Stock Options".
(2) Includes 1,425,000 common shares registered in the name of The M2000 Group
Inc., a company controlled by Dale Newman. Mr. Newman also holds options to
acquire 100,000 common shares. See "Description of Securities - Stock
Options".
(3) Mr. Lewis also holds options to acquire 134,400 common shares and as of
July 1, 1999 was entitled to be issued a further 100,000 common shares
pursuant to a financial advisory agreement with the Company. See
"Description of Securities - Stock Options" and "Certain Relationships and
Related Transactions".
(4) Mr. Sansom also holds options to acquire 608,000 common shares. See
"Description of Securities - Stock Options".
(5) Mr. Pocaluyko also holds options to acquire 100,000 common shares. See
"Description of Securities - Stock Options".
(6) Mr. Knowlton also holds options to acquire 100,000 common shares. See
"Description of Securities - Stock Options".
(7) The shares beneficially owned by Mr. Sharp are registered in the name of
Tideway Designs.
(8) Based on 5,856,478 common shares outstanding as of October 13, 1999 and
assuming no exercise of outstanding options or warrants to acquire common
shares.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Control of the Company resides with its shareholders which elect a Board of
Directors to oversee the business and operations of the Company. The Board of
Directors elects officers who are charged with carrying out the directions of
the Board of Directors and conducting the day to day business affairs of the
Company. The Company is authorized, pursuant to its articles of incorporation,
to have a Board of Directors comprised of not less than three and not more than
ten directors. The Board of Directors is currently comprised of six persons.
Each director is elected by the shareholders to serve until the next annual
meeting or until a successor is elected or appointed. The following table sets
forth the name, municipality of residence, age, office held with the Company and
the period during which such person has served as a director (if applicable).
<PAGE>
-12-
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Name and Municipality of Residence Age Office Held Director Since
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dieter Doederlein 57 President, Chief Executive Officer August 31, 1994
Mississauga, Ontario and Director
- ------------------------------------------------------------------------------------------------------------
Dale Newman/(2)/ 55 Chairman and Director August 31, 1994
Woodbridge, Ontario
- ------------------------------------------------------------------------------------------------------------
Paul Sansom/(1)/ 45 Vice-President, and Marketing Sales December 3, 1997
Mississauga, Ontario and Director
- ------------------------------------------------------------------------------------------------------------
Troy Pocaluyko/(2)/ 34 Corporate Secretary and Director March 25, 1999
Burlington, Ontario
- ------------------------------------------------------------------------------------------------------------
James Lewis/(1)//(2)/ 65 Director December 3, 1997
Kirkfield, Ontario
- ------------------------------------------------------------------------------------------------------------
Michael Knowlton/(1)/ 48 Director March 25, 1999
Mississauga, Ontario
- ------------------------------------------------------------------------------------------------------------
Tony Sharp 67 Vice-President, Engineering N/A
Agincourt, Ontario
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Except as otherwise indicated below, each of the directors and officers has held
the position set forth above for each of the last five years.
Dieter Doederlein - President, Chief Executive Officer and Director, is a co-
founder of the Company and has worked exclusively in his capacity as President
and Chief Executive Officer since 1994. Mr. Doederlein has a Bachelor of Arts
Degree from the University of Toronto and a Masters of Business Administration
from the University of Western Ontario. Prior to 1994, Mr. Doederlein spent 30
years in senior management capacities in the packaged goods marketing field,
with both established multi-national firms and start-up or turnaround
situations, two of which were public companies. From 1982 to 1984, Mr.
Doederlein was President and Chief Executive Officer of Beauty Counselors
International Inc., a cosmetics and skin care company which was then listed on
The Toronto Stock Exchange. From 1980 to 1982, Mr. Doederlein was a Director of
North American Combustion Technologies Inc. and the President and Chief
Executive Officer of its wholly-owned subsidiary, Sparktec Engine Performance
Additives Inc., which marketed and distributed engine additives. At that time,
North American Combustion Technologies Inc. was listed on the Vancouver Stock
Exchange.
Dale Newman - Chairman and Director, is a co-founder of the Company and the
founder and President of The M2000 Group Inc., a graphic design company with
full service capabilities, including design, mechanical artwork, film and
printing. Mr. Newman is also a director of The M2000 Group Inc. and DNH Mada
Corporation.
Paul Sansom - Vice President, Sales and Marketing and Director, has been
associated with the Company since September, 1997 and became a full-time
employee of the Company on July 5, 1999. From 1991 to July, 1999, Mr. Sansom
worked for Gelco Information Network, where he was responsible for sales and
strategic relationships in Canada. Prior to that time, Mr. Sansom was a co-
founder, Director and Vice-President of Spring Valley Water Company, a bottled
water company in Southern Ontario.
<PAGE>
-13-
Troy Pocaluyko - Corporate Secretary and Director, has been a partner in the law
firm of Wildeboer Rand Thomson Apps & Dellelce for the past three years where he
specializes in securities law and advises several Canadian public companies.
Prior to that time, Mr. Pocaluyko was an associate with Wildeboer Rand Thomson
Apps & Dellelce and, from January to May, 1994, was seconded to the Corporate
Finance branch of the Ontario Securities Commission. Mr. Pocaluyko has a
Bachelor of Physical Education Degree from McMaster University and a Bachelor of
Laws Degree from the University of Toronto.
James Lewis - Director, is an independent consultant who has provided financial
advisory services to early stage companies for the past 25 years and has worked
on a variety of investment banking projects, including the disposition and
financing of a number of public companies. Among the public companies that Mr.
Lewis has represented are Lacana Mines Ltd., Stroud Resources Ltd. and Magnifoam
Technology International Inc., all of which are listed on The Toronto Stock
Exchange, and Noble Peak Resources, which is listed on the Alberta Stock
Exchange. From 1956 to 1974, Mr. Lewis was the Executive Vice-President and
Director of Standard Securities Ltd.
J. Michael Knowlton - Director, is a Chartered Accountant and has a Bachelor of
Engineering Science Degree and a Masters of Business Administration from Queen's
University. Mr. Knowlton is currently the Executive Vice-President and Chief
Operating Officer of Dundee Realty Corporation, a real estate company listed on
The Toronto Stock Exchange. From 1998 to 1999, Mr. Knowlton was the Managing
Director, Limited Partnerships for Dundee Realty Corporation and, from 1990 to
1998, Mr. Knowlton served as Senior Vice-President and Chief Financial Officer
of OMERS Realty Corporation.
Tony Sharp - Vice-President, Engineering, has a Masters of Engineering from the
University of Toronto and has been involved in the design, development and
marketing of a broad range of products using a variety of engineering
disciplines. During the past five years, Mr. Sharp has served as the principal,
and is the owner of Tideway Designs, which provides electrical, electronic and
mechanical design and consulting services to manufacturing clients. Mr. Sharp
has also been involved in the sale of custom opto-electronics in Japan and has
been responsible for telecommunications and instrumentation installation on a
crude oil pipeline in India.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth all compensation earned during each of the fiscal
years ended August 31, 1999, 1998 and 1997 by Dieter Doederlein, the President
and Chief Executive Officer of the Company (the "Named Executive Officer"). No
other officer of the Company or its subsidiaries earned greater than US$100,000
in total salary and bonus during the most recently completed fiscal year of the
Company. Effective July 29, 1999, the Company retained Paul Sansom as Vice-
President, Sales and Marketing at an annual salary of C$120,000. See "Executive
Compensation - Employee Agreements".
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term
Compensation
- ------------------------------------------------------------------------------------------------------------------
Name and Position Fiscal Year Salary Bonus Other Annual Securities All Other
($) ($) Compensation under Options Compensation
($) (#) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dieter Doederlein, 1999 nil nil C$89,500/(1)/ 100,000 C$26,093.40/(2)/
President and 1998 nil nil C$78,000/(1)/ 100,000 C$21,839.60/(2)/
Chief Executive Officer 1997 nil nil C$78,000/(1)/ 1,000,000 C$6,155.85/(2)/
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Payments in respect of services provided by Mr. Doederlein were made to
879314 Ontario Inc., a management company controlled by Mr. Doederlein's
spouse.
(2) Represents payments made to Mr. Doederlein as reimbursement for travel and
other out-of-pocket expenses incurred in connection with services provided
to the Company, including applicable taxes.
(3) No options were granted to the Company's Named Executive Officer during the
fiscal year ended August 31, 1999.
(4) No options were exercised by the Named Executive Officer during the fiscal
year ended August 31, 1999.
<PAGE>
-14-
Compensation of Directors
The directors of the Company do not receive salaries or fees for serving as
directors of the Company, nor do they receive any compensation for attending
meetings of the Board of Directors or serving on committees of the Board of
Directors. The Company may, however, determine to compensate its directors in
the future. In addition, the directors of the Company are entitled to
participate in the Company's stock option plan. See "Description of Securities-
Stock Options".
Employment Agreements
Dieter Doederlein and the Company have entered into an employment agreement (the
"Doederlein Agreement") dated as of August 1, 1999 pursuant to which Mr.
Doederlein has been retained as the President and Chief Executive Officer of the
Company. The term of the Doederlein Agreement is for three years expiring on
August 30, 2002, and is automatically renewed for successive one year terms
unless notice is otherwise provided by either party. Pursuant to the Doederlein
Agreement, Mr. Doederlein is paid a monthly salary of C$11,000. The Doederlein
Agreement contains customary non-competition and non-solicitation provisions.
The Company has also entered into an employment agreement (the "Sansom
Agreement") dated as of July 29, 1999 with Paul Sansom who is also a director of
the Company, pursuant to which the Company has retained Mr. Sansom as Vice-
President, Sales and Marketing at an annual salary of C$120,000. The Sansom
Agreement has a two year term expiring June 30, 2001, and is automatically
renewed for successive one year terms unless notice is otherwise provided by
either party. The Sansom Agreement contains customary non-competition and non-
solicitation provisions.
The Company does not currently have any formal benefit plans. It does intend,
however, to establish an employee benefit plan comparable to employee benefit
plans established by companies that are similar to the Company. The Company also
intends to establish an annual bonus pool to be created from the annual profits
earned by the Company and awarded at the discretion of the Company's directors.
The Company also has a stock option plan for directors, senior officers and
employees of, and for consultants and other service providers to, the Company
and its subsidiaries, enabling them to purchase common shares of the Company.
See "Description of Securities - Stock Options".
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a financial advisory agreement dated as of July 1,
1997 with James Lewis, a director of the Company. Pursuant to the agreement, the
Company has retained Mr. Lewis on a non-exclusive basis as a financial advisor
to the Company for a period of three years. In consideration of such services,
Mr. Lewis is paid C$25,000 per year during the term of the agreement to be
satisfied by the issuance to Mr. Lewis by the Company of 50,000 common shares of
the Company per year having an ascribed value of C$0.50 per share. The agreement
may be terminated by either the Company or Mr. Lewis at any time.
Under an agreement dated December 3, 1997 between the Company and The M2000
Group Inc. ("M2000"), M2000 granted to the Company an option (the "M2000
Option") to purchase 1,600,000 common shares of the Company owned by M2000 at
any time up to 5:00 p.m. (Toronto time) on May 1, 1999 at a price of C$0.25 per
common share. On May 6, 1999, the Company partially exercised the M2000 Option
and purchased 175,000 common shares from M2000 for cancellation. M2000 is
controlled by Dale Newman, a director and the Chairman of the Company.
The Company and M2000 have also entered into a right of first refusal agreement
dated May 4, 1999. Pursuant to that agreement, the Company has agreed that until
5:00 p.m. (Toronto time) on September 27, 2002, the Company will not purchase or
agree to purchase any art, film or printing supplies or services from any third
party unless the Company has given M2000 the right of first refusal to provide
such products and services. Under the terms of the agreement, the Company is
entitled to source and obtain these products and services from third party
suppliers in the event that M2000 is unable or unwilling to match more
favourable terms provided by such third party suppliers.
<PAGE>
-15-
Troy Pocaluyko, who is a director of the Company, is a partner of Wildeboer Rand
Thomson Apps & Dellelce, which has rendered and from time to time will render
legal services to the Company.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital of the Company consists of an unlimited number of common
shares and an unlimited number of Class A Preference Shares, issuable in two
series, of which 500,000 Series 1 Class A Preference Shares and 1,000,000 Series
2 Class A Preference Shares have been authorized for issuance. As at October 13,
1999, the Company had 5,856,478 common shares, no Series 1 Class A Preference
Shares and no Series 2 Class A Preference Shares issued and outstanding as fully
paid and non-assessable shares in the capital of the Company. The Company has
also issued, and there remain outstanding, warrants to purchase an aggregate of
113,000 common shares and options to purchase an aggregate of 1,335,800 common
shares.
Common Shares
The holders of common shares are entitled to receive notice of all meetings of
shareholders and to attend and vote on the basis of one vote in respect of each
common share held in connection with any matter to be acted upon at a meeting of
the shareholders. Holders of common shares are entitled to receive dividends if,
as and when declared by the board of directors of the Company and to receive all
of the property remaining after the Company has paid out its liabilities,
subject to the prior rights of holders of the Preference Shares.
Preference Shares
The Class A Preference Shares are issuable in two series and carry the
designation, rights, privileges, restrictions and conditions set forth in the
Articles of the Company appended hereto. The Company has no current intention to
issue any Class A Preference Shares. If issued, however, the Preference Shares
of each series shall be entitled to a preference over the common shares and the
shares of any other class ranking junior to the Preference Shares with respect
to the payment of dividends and the distribution of assets in the event of the
liquidation, dissolution or winding-up of the Company and shall have the
following additional rights, privileges and restrictions.
Series 1 Preference Shares
The first series of Class A Preference Shares consists of up to 500,000 Class A
Preference Shares, designated as Series 1 Class A Preference Shares (the "Series
1 Shares"). The Series 1 Shares are issuable for a subscription price of $1.75
per Series 1 Share (the "Series "Subscription Price"). The holders of Series 1
Shares are entitled to receive notice of and to attend and to vote at all
meetings of shareholders of the Company, with each holder of Series 1 Shares
being entitled to one vote per Series 1 Share held in connection with each
matter to be voted upon at a meeting of shareholders.
The holders of Series 1 Shares are entitled to receive preferential cumulative
dividends at the rate of 8% per annum on the Series 1 Subscription Price, as and
when declared by the Board of Directors out of moneys of the Company properly
applicable to the payment of dividends, calculated on a per diem basis from the
date of issuance and payable semi-annually to holders of outstanding Series 1
Shares on the first day of March and September of each year. If the Company has
not completed a Going Public Transaction (as hereinafter defined) by 5:00 p.m.
(Toronto time) on August 31, 2000 (the "Transaction Deadline"), the holders of
Series 1 Shares shall be entitled to receive additional preferential cumulative
dividends equivalent to one percent (1%) of the annual net income of the Company
after income taxes, amortization and depreciation as reported in the Company's
audited financial statements for the immediately preceding fiscal year for each
$100,000 stated capital amount of Series 1 Shares held by them calculated on a
per diem basis from September 1, 2000 and payable quarterly to holders of
outstanding Series 1 Shares on the first day of March, June, September and
December of each year commencing December 1, 2000.
Any holder of Series 1 Shares shall be entitled at the holder's option at any
time and from time to time on or before 5:00 p.m. (Toronto time) (the "Automatic
Conversion Time") on the date on which the Company completes a Going Public
Transaction (as hereinafter defined) to have all or any of the Series 1 Shares
held by
<PAGE>
-16-
the holder converted into common shares of the Company upon the basis of one
common share for each Series 1 Share in respect of which the conversion right is
exercised. The term "Going Public Transaction" means a transaction or series of
transactions, whether by means of an initial public offering, a reverse take-
over, merger, amalgamation, arrangement, take-over bid, insider bid,
reorganization, joint venture, sale of all or substantially all assets, exchange
of assets or similar transaction or other combination with a public corporation
or, if none of the foregoing is completed, any other transaction acceptable to
the holders of Series 1 Shares, which results in the common shares of the
Company, or the capital stock of a reporting issuer under the securities
legislation of one or more of the provinces of Canada or similar legislation of
one or more of the states in the United States of America received in exchange
for common shares of the Company, being conditionally approved for trading on a
stock exchange or on an over-the-counter market in Canada or the United States
of America. If the Company has not completed a Going Public Transaction prior to
the Transaction Deadline, all holders of Series 1 Shares whose Series 1 Shares
have not been converted on or prior to the Transaction Deadline shall be
entitled to receive 1.1 common shares of the Company (in lieu of one common
share) for each Series 1 Share converted.
If the Company has not completed a Going Public Transaction on or before 5:00
p.m. (Toronto time) on August 31, 2002, the Company shall redeem, out of moneys
of the Company properly applicable to such redemption, the whole of the then
outstanding Series 1 Shares on payment of the Redemption Price for each Series 1
Share to be redeemed on September 1, 2002 (the "Redemption Date"). The term
"Redemption Price" means that price per Series 1 Share which shall provide the
holder thereof with a compounded annual return upon the Series 1 Subscription
Price of 40% calculated from the date of issuance to and including the
Redemption Date, plus the amount of any accrued but unpaid dividends, whether or
not declared.
Series 2 Preference Shares
The second series of Preference Shares consists of 1,000,000 Preference Shares,
which are designated as Series 2 Class A Preference Shares (the "Series 2
Shares"). The Series 2 Shares entitle the holders thereof to the same rights and
privileges as the Series 1 Shares except that the Series 2 Shares are issuable
for a subscription price of $2.00 per Series 2 Share (the "Series 2 Subscription
Price") and upon any redemption of the Series 2 Shares holders are entitled to
receive the Series 2 Subscription Price.
Warrants
On June 30, 1999, the Company issued two series of common share purchase
warrants entitling the holders thereof to subscribe for and purchase at any time
prior to 5:00 p.m. (Toronto time) on June 30, 2001 up to an aggregate of 113,000
common shares of the Company. Each Series 1 Warrant, of which there are 25,000
issued and outstanding, entitles the holder to subscribe for and purchase one
common share at a price of C$2.00 per share. Each Series 2 Warrant, of which
there are 88,000 issued and outstanding, entitles the holder to subscribe for
and purchase one common share at a price of US$1.64 per share.
Stock Options
The Company has established a stock option plan (the "Plan") for directors,
senior officers and employees of, and for consultants and other service
providers to, the Company and its subsidiaries, enabling them to purchase common
shares of the Company. Under the Plan, options ("Options") for the purchase of
common shares may be granted to employees, directors and senior officers of, and
to consultants and other service providers to, the Company and its designated
affiliates (the "Optionees"). In determining the number of common shares subject
to each Option, consideration is given to the Optionee's present and potential
contribution to the success of the Company. The exercise price per share shall
not be less than the closing price of the common shares on any stock exchange on
which the common shares may then be listed for trading on the trading day
immediately prior to the date of grant, less any permitted discount. The period
during which Options may be exercised is determined by the board of directors,
in its discretion, to a maximum of five years from the date of grant.
Subject to adjustment in certain events, the maximum number of common shares
reserved for issuance under the Plan is 1,000,000, being approximately 17% of
the total number of the issued and outstanding common shares of the Company. The
maximum number of common shares reserved for issue to any one person under the
Plan may not exceed 5% of the total number of common shares outstanding
immediately prior to such issuance and the maximum number of common shares that
may be reserved for issue to Insiders (as that term is
<PAGE>
-17-
defined in the Securities Act (Ontario)) under the Plan may not exceed 10% of
the number of common shares outstanding immediately prior to the grant of any
such option or result in the issuance to Insiders, within a one year period, of
in excess of 10% of the number of common shares outstanding immediately prior to
the grant of any such option. All Options granted under the Plan are non-
assignable, other than to a Company that is wholly-owned by the Optionee or to a
registered retirement savings plan of which the Optionee is the beneficiary. As
of October 13, 1999, the Company had granted to Optionees, and there were issued
and outstanding, Options to acquire up to 700,000 common shares. The following
table sets forth certain information concerning outstanding Options granted to
the directors, executive officers and all other employees of the Company as of
October 13, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Number of Common
Shares Under Option Date of Grant Expiry Date Exercise Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Directors (other than 200,000 December 31, 1997 December 31, 2001 C$0.55
Executive Officers) 200,000 April 22, 1999 December 31, 2001 C$1.75
(4 persons)
- ---------------------------------------------------------------------------------------------------------------
Executive Officers 200,000 December 31, 1997 December 31, 2001 C$0.55
(2 persons)
- ---------------------------------------------------------------------------------------------------------------
Former Director 100,000 December 31, 1997 December 31, 2001 C$0.55
(1 person)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, options to acquire an aggregate of 635,800 common shares have been
granted by the Company other than pursuant to the Plan in consideration of
services provided to the Company. The following table sets forth certain
information concerning outstanding options to acquire common shares which are in
addition to those granted under the Plan as of October 13, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Number of Common
Shares Under Option Date of Grant Expiry Date Exercise Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
93,400 December 31, 1997 December 31, 2001 C$0.20
- ---------------------------------------------------------------------------------------------
144,400 December 31, 1997 December 31, 2001 C$0.25
- ---------------------------------------------------------------------------------------------
198,000 December 31, 1997 December 31, 2001 C$0.55
- ---------------------------------------------------------------------------------------------
200,000/(1)/ July 1, 1999 December 31, 2001 C$2.25
- ---------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Vest as to 100,000 options, on July 1, 1999, and as to the remaining
100,000 options, on July 1, 2000.
<PAGE>
-18-
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At the time of filing this Registration Statement, there is no established
trading market for the Company's common shares. As of October 13, 1999, the
Company had approximately 79 shareholders of record for its common shares and
5,856,478 common shares issued and outstanding.
The Company has not paid any dividends on its common shares to date. The board
of directors of the Company intends to retain future earnings for reinvestment
in the Company's business and therefore has no current intention to pay
dividends as the common shares in the foreseeable future. The future payment of
dividends is within the discretion of the Board of Directors of the Company and
will depend on the Company's earnings, its capital requirements and financial
condition and other relevant factors.
ITEM 2. LEGAL PROCEEDINGS
In September, 1999, the Company was served with a statement of claim by Lead Dog
Capital Inc. ("LDC"). Under the claim, LDC is seeking damages in the aggregate
amount of C$25,000 for non-payment of fees which LDC alleges are owed by the
Company as a result of certain due diligence performed by LDC on behalf of the
Company. The Company believes that the claim is without merit and therefore
intends to vigorously defend the claim.
In July, 1999, the Company became aware of the Protalk Talking Card, a trading
card which incorporates audio technology. The Protalk Talking Card is
manufactured by Telestar Interactive Corporation which is based in Cincinnati,
Ohio. After a review of the Protalk Talking Card, the Company is investigating
whether the Protalk Talking Card infringes certain claims of the Company's
patents. The Company intends to diligently enforce and protect its intellectual
property rights in respect of this alleged patent violation.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 25, 1999, the shareholders of the Company appointed KPMG to replace
Feldstein and Associates as its auditors. Feldstein and Associates concurred
with the change and at no time has there been any disagreement on accounting or
financial disclosure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following are the only transactions involving the issuance of securities
(other than stock options) by the Corporation during the preceding three years:
1. In May, 1996, the Company issued an aggregate of 35,000 common shares at a
subscription price of C$0.20 per share to purchasers resident in the
Province of Ontario.
2. In March 1997, the Company issued an aggregate of 55,000 common shares at a
subscription price of C$0.50 per share to purchasers resident in the
Province of Ontario.
3. In October, 1997, the Company issued an aggregate of 550,000 common shares
at a subscription price of C$0.50 per share to purchasers resident in the
Province of Ontario.
4. In December, 1997, the Company issued an aggregate of 550,000 common shares
at a subscription price of C$0.50 per share to purchasers resident in the
Province of Ontario.
<PAGE>
-19-
5. In December, 1997, the Company issued an aggregate of 32,500 common shares
to a director of the Company at a price of C$0.20 per share upon the
conversion of a loan made to the Company in the principal amount of
C$6,500.
6. In December, 1997, the Company issued an aggregate of 25,600 common shares
to a director of the Company at a price of C$0.25 per share upon the
conversion of a loan made to the Company in the principal amount of
C$6,400.
7. From March to May, 1998, the Company issued an aggregate of 655,000 common
shares at a subscription price of C$0.50 per share to purchasers resident
in the Province of Ontario.
8. In November, 1998, the Company issued 5,000 common shares to a resident of
the Province of Ontario and 12,000 common shares to a resident of the
United States, in each case at a price of C$0.55 per share, in
consideration of consulting services rendered to the Company.
9. In February, 1999, the Company issued 150,000 common shares to a purchaser
resident in the Province of Ontario at a subscription price of C$0.65 per
share.
10. In March, 1999, the Company issued 10,000 common shares to two residents of
the United States at a price of US$1.00 per share in consideration of legal
services provided to the Company.
11. In March, 1999, the Company issued an aggregate of 88,564 common shares at
a subscription price of C$1.75 per share to a resident of the Province of
Ontario.
12. In April, 1999, the Company issued 5,000 common shares to a resident of the
United States at a price of C$1.75 per share in consideration of consulting
and advisory services provided to the Company.
13. In June, 1999, the Company issued 50,000 units, each unit consisting of one
common share and one half of one common share purchase warrant, at a
subscription price of C$1.75 per unit to a resident in the Province of
Ontario.
14. In June, 1999, the Company issued 176,000 units, each unit consisting of
one common share and one half of one common share purchase warrant, at a
subscription price of US$1.25 per unit to two residents of the United
States.
15. In October, 1999, the Company issued 85,714 units, each consisting of one
common share and one half of one common share purchase warrants at a
subscription price of C$1.75 per unit to a resident of the Province of
Ontario.
All issuances of securities by the Company have been made pursuant to the
exemption provided by Section 4(2) under the Securities Act.
ITEM 5. INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The by-laws of the Company provide that the Company shall indemnify to the
fullest extent permitted by Canadian law directors and officers (and former
officers and directors) of the Company. Such indemnification includes all costs
and expenses and charges reasonably incurred in connection with the defence of
any civil, criminal or administrative action or proceeding to which such person
is made a party by reason of being or having been an officer or director of the
Company if such person was substantially successful on the merits in his or her
defence of the action and he or she acted honestly and in good faith with a view
to the best interests of the Company, and if a criminal or administrative action
that is enforced by a monetary penalty, such person had reasonable grounds to
believe his or her conduct was lawful.
Insofar as indemnification for liabilities arising under applicable securities
legislation may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise,
<PAGE>
-20-
the Company has been advised that such indemnification may be against public
policy as expressed in the applicable securities legislation and may therefore
be unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses, incurred or paid
by a director, officer or controlling person of the Company in the successful
defence of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the applicable securities legislation and will be governed by the
final adjudication of such issue.
It is the intention of the Company to obtain standard officers and directors
insurance once it can be obtained on reasonably acceptable commercial terms.
ITEM 6. FINANCIAL STATEMENTS
The following are the audited financial statements of the Company for the fiscal
years ended August 31, 1998 and 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
MICRA SOUNDCARDS INC.
By: /s/ Dieter Doederlein
----------------------------------------
Dieter Doederlein,
President and Chief Executive Officer
Dated: October 14, 1999
<PAGE>
MICRA SOUNDCARDS INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
(with comparative figures for 1997 - note 7)
<PAGE>
MICRA SOUNDCARDS INC.
AUGUST 31, 1998
I N D E X
Page
Auditors' report 1.
Balance sheet 2.
Statement of deficit 3.
Statement of operations 4.
Statement of changes in financial position 5.
Notes to financial statements 6.
F-1-1
<PAGE>
A U D I T O R S' R E P O R T
To the Shareholders of
Micra Soundcards Inc.
We have audited the balance sheet of Micra Soundcards Inc. as at August 31, 1998
and the statements of operations, deficit and changes in financial position for
the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at August 31, 1998 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
FELDSTEIN & ASSOCIATES LLP
Chartered Accountants
Markham, Ontario
October 22, 1998
F-1-2
<PAGE>
MICRA SOUNDCARDS INC.
BALANCE SHEET
AS AT AUGUST 31, 1998
(with comparative figures for 1997 - note 7)
<TABLE>
<CAPTION>
Restated
1998 1997
(unaudited)
$ $
A S S E T S
<S> <C> <C>
Current assets
Cash 136,590 5,486
GST receivable 0 6,310
Prepaid expenses 4,743 0
Income taxes receivable - note 2 27,000 24,900
-------- --------
Total current assets 168,333 36,696
-------- --------
Capital assets - note 1(a)
Computer equipment 6,898 2,317
Furniture and fixtures 1,184 500
-------- --------
8,082 2,817
Less: accumulated amortization 2,978 1,523
-------- --------
5,104 1,294
-------- --------
Other assets
Incorporation costs - net 619 722
Development costs - note 1(b) 472,857 235,368
-------- --------
473,476 236,090
-------- --------
Total assets 646,913 274,080
======== ========
</TABLE>
Approved on behalf of the Board:
_____________________ Director
_____________________ Director
F-1-3
<PAGE>
MICRA SOUNDCARDS INC.
BALANCE SHEET
AS AT AUGUST 31, 1998
(with comparative figures for 1997 - note 7)
<TABLE>
<CAPTION>
Restated
1998 1997
(unaudited)
$ $
<S> <C> <C>
L I A B I L I T I E S
Current liabilities
Accounts payable and accrued liabilities 74,926 117,358
Loans payable 0 30,500
------- --------
74,926 147,858
------- --------
S H A R E H O L D E R S ' E Q U I T Y
Capital stock - note 3 829,873 157,502
Contributed surplus 33,935 33,935
Deficit - page 3 (291,821) (65,215)
-------- --------
571,987 126,222
-------- --------
646,913 274,080
======== ========
</TABLE>
Contingency - note 10
The accompanying notes are an integral part of these financial statements.
F-1-4
<PAGE>
MICRA SOUNDCARDS INC.
STATEMENT OF DEFICIT
FOR THE YEAR ENDED AUGUST 31, 1998
(with comparative figures for 1997 - note 7)
1998 1997
(unaudited)
$ $
(Deficit) retained earnings, beginning of year
- as previously reported (26,955) 5,528
Retroactive change in accounting policy - note 5 (38,260) (13,360)
---------- --------
As restated (65,215) (7,832)
Net loss - page 4 (188,656) (56,390)
Adjustment of prior year's refundable investment
tax credits 0 (993)
Share issue costs (37,950) 0
---------- --------
Deficit, end of year (291,821) (65,215)
========= ========
The accompanying notes are an integral part of these financial statements.
F-1-5
<PAGE>
MICRA SOUNDCARDS INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
(with comparative figures for 1997 - note 7)
Restated
1998 1997
(unaudited)
$ $
Revenue 0 0
------- -------
Expenses
Management 41,586 39,000
Travel 31,177 1,355
Professional fees 29,853 9,485
Consulting 29,000 0
Advertising and promotion 27,670 0
Office and general 15,281 1,934
Rent 8,000 0
Meetings and conferences 4,531 4,015
Amortization 1,558 601
--------- --------
Total expenses 188,656 56,390
--------- --------
Net loss (188,656) (56,390)
========= ========
The accompanying notes are an integral part of these financial statements.
F-1-6
<PAGE>
MICRA SOUNDCARDS INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED AUGUST 31, 1998
(with comparative figures for 1997 - note 7)
1998 1997
(unaudited)
$ $
Operating activities
Net loss (188,656) (56,390)
Items not affecting working capital:
Amortization of capital assets 1,558 601
Retroactive change in accounting policy (38,260) (13,360)
--------- --------
(225,358) (69,149)
Net changes in non-cash working capital items:
GST receivable 6,310 (1,307)
Prepaid expenses (4,743) 0
Accounts payable and accrued liabilities (42,432) 107,469
Income taxes recoverable (2,100) 1,004
--------- --------
Total cash (utilized in) generated from operations (268,323) 38,017
--------- --------
Investing activities
Purchase of capital assets (5,265) 0
Development costs (199,229) (59,071)
--------- --------
Total cash utilized in investing activities (204,494) (59,071)
--------- --------
Financing activities
Loans payable (30,500) 30,500
Issue of shares 672,371 0
Shareholder's loan 0 (150)
Adjustment of refundable investment tax credits 0 (993)
Share issue costs (37,950) 0
--------- --------
Total cash generated from financing activities 603,921 29,357
--------- --------
Increase in cash during year 131,104 8,303
Cash (bank indebtedness), beginning of year 5,486 (2,817)
--------- --------
Cash, end of year 136,590 5,486
========= ========
The accompanying notes are an integral part of these financial statements.
F-1-7
<PAGE>
MICRA SOUNDCARDS INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
1. Summary of significant accounting policies
The accounting policies of the company are in accordance with generally
accepted accounting principles.
a) Capital assets and amortization
Capital assets are recorded at cost.
Amortization is intended to write off the cost of the capital assets
over their estimated useful lives. Amortization is provided as follows:
Computer equipment - 30% on a declining balance basis
Furniture and fixtures - 20% on a declining balance basis
b) Development costs
Product development costs are capitalized once technical feasibility of
the product has been established. The company has identified a market
for the product and intends to market the developed product. No other
development costs are capitalized. Such capitalized costs will be
amortized over the expected life of the related product once commercial
production has commenced.
Amortization of development cost has been deferred to a future period as
commercial production has not yet commenced.
2. Income taxes receivable
Income taxes receivable consist of refundable investment tax credits earned
on scientific research and development (R&D) expenditures.
The income tax claim for scientific R&D may be audited by taxation
authorities and as such may be subject to material adjustments.
F-1-8
<PAGE>
MICRA SOUNDCARDS INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
3. Capital stock
(a) Authorized and issued share capital
The authorized share capital consists of an unlimited number of common
shares.
The company had the following share transactions during the year:
<TABLE>
<CAPTION>
# of Common Amount
Shares issued $
<S> <C> <C>
Balance at August 31, 1997 3,636,000 157,502
Shares issued on exercise of options by
directors, officers and other related
parties 1,229,100 7,020
Shares issued for cash 1,353,100 660,401
Shares issued for consulting services rendered 9,000 4,950
--------- --------
Balance at August 31, 1998 6,227,200 829,873
========= ========
</TABLE>
(b) Share repurchase
The company has the option to repurchase 2,400,000 shares from two
shareholders at an exercise price of $.25 per share. The option expires
May 1, 1999.
(c) Stock options
The company has granted options to purchase common shares to directors,
officers and other related parties under the company's stock option
plan. A summary of the activity of the company's stock option plan for
the year ended August 31, 1998 is summarized below:
<TABLE>
<CAPTION>
Weighted average
Exercise price
# $
<S> <C> <C>
Outstanding, beginning of year 0 0.0000
Options granted 2,374,900 0.4800
Exercised (1,229,100) (0.0057)
---------- --------
Outstanding and exercisable at year end 1,145,800 0.4800
========== ========
Stock options outstanding at August 31, 1998 have the following expiration dates:
# Date
945,800 Dec. 31, 2001
200,000 July 16, 2003
----------
1,145,800
==========
</TABLE>
F-1-9
<PAGE>
MICRA SOUNDCARDS INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
4. Financial instruments and risk management
Financial instruments recognized in the balance sheet include cash and
accounts payable.
a) Foreign exchange risk
A portion of the company's accounts payable is dominated in US
dollars. The company has not hedged this exposure.
b) Fair value
The company believes that the carrying value in the financial
statements of its cash, income taxes receivable and accounts
payable and accrued liabilities approximate fair value because of
their short-term to maturity.
5. Retroactive change in accounting policy
Prior year's financial statements did not conform to generally accepted
accounting principles as the investment tax credits for development costs
were recorded as a credit to the provision for income taxes. The 1997
comparative figures have been restated to reflect the investment tax
credits as a reduction of development costs under the cost reduction method
in accordance with generally accepted accounting principles.
6. Related party transactions
In addition to the related party transactions disclosed in note 3, the
following related party transactions took place during the year.
a) Management fees in the amount of $78,000 were paid to a company
controlled by the spouse of a director.
b) Consulting fees in the amount of $29,000 were paid to a company
controlled by a director.
c) Engineering fees in the amount of $15,138 were paid to a company
controlled by an officer.
d) Rent in the amount of $8,000 was paid to a company controlled by a
director.
7. Comparative figures
The comparative figures presented in these financial statements were issued
with a Notice to Reader.
F-1-10
<PAGE>
MICRA SOUNDCARDS INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1998
8. Loss carry-forwards
The company has non-capital loss carry-forwards in the amount of $369,891.
These losses can be applied against future taxable income and expire as
follows:
2002 $ 11,431
2003 10,765
2004 66,691
2005 281,004
--------
$369,891
========
9. Year 2000
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
10. Contingency
During the year, a company provided certain financial services to Micra
Soundcards Inc. which were considered unsatisfactory. Accordingly, Micra
Soundcards Inc. has paid only a partial amount to the company, leaving an
outstanding balance of $28,500. Micra Soundcards Inc. has no intention to
pay this outstanding balance.
F-1-11
<PAGE>
MICRA SOUNDCARDS INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1997
(with comparative figures for 1996 - note 8)
<PAGE>
MICRA SOUNDCARDS INC.
AUGUST 31, 1997
I N D E X
Page
Auditors' report 1.
Balance sheet 2.
Statement of deficit 3.
Statement of operations 4.
Statement of changes in financial position 5.
Notes to financial statements 6.
F-2-1
<PAGE>
A U D I T O R S ' R E P O R T
To the Shareholders of
Micra Soundcards Inc.
We have audited the balance sheet of Micra Soundcards Inc. as at August 31, 1997
and the statements of operations, deficit and changes in financial position for
the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at August 31, 1997 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
FELDSTEIN & ASSOCIATES LLP
Chartered Accountants
Markham, Ontario
August 12, 1999
F-2-2
<PAGE>
MICRA SOUNDCARDS INC.
BALANCE SHEET
AS AT AUGUST 31, 1997
(with comparative figures for 1996 - note 8)
1997 1996
(unaudited)
$ $
A S S E T S
Current assets
Cash 5,486 0
GST receivable 6,310 5,003
Income taxes receivable - note 2 24,900 25,904
------- -------
Total current assets 36,696 30,907
------- -------
Capital assets - note 1(a)
Computer equipment 2,317 2,317
Furniture and fixtures 500 500
------- -------
2,817 2,817
Less: accumulated amortization 1,523 1,025
------- -------
1,294 1,792
------- -------
Other assets
Incorporation costs - net 722 825
Development costs - note 1(b) 235,368 176,297
------- -------
236,090 177,122
------- -------
Total assets 274,080 209,821
======= =======
Approved on behalf of the Board:
_______________ Director
_______________ Director
F-2-3
<PAGE>
MICRA SOUNDCARDS INC.
BALANCE SHEET
AS AT AUGUST 31, 1997
(with comparative figures for 1996 - note 8)
1997 1996
(unaudited)
$ $
L I A B I L I T I E S
Current liabilities
Bank indebtedness 0 2,817
Accounts payable and accrued liabilities 117,358 9,889
Loans payable - note 3 30,500 0
Shareholders' loan 0 150
------- ------
147,858 12,856
------- ------
S H A R E H O L D E R S ' E Q U I T Y
Capital stock
Common shares
Authorized: an unlimited number of shares
Issued and fully paid: 3,601,000 shares 157,502 157,502
Contributed surplus 33,935 33,935
(Deficit) retained earnings - page 3 (65,215) 5,528
------- -------
126,222 196,965
------- -------
274,080 209,821
======= =======
The accompanying notes are an integral part of these financial statements.
F-2-4
<PAGE>
MICRA SOUNDCARDS INC.
STATEMENT OF DEFICIT
FOR THE YEAR ENDED AUGUST 31, 1997
(with comparative figures for 1996 - note 8)
1997 1996
(unaudited)
$ $
Retained earnings, beginning of year
- as previously reported 5,528 4,011
Retroactive change in accounting policy - note 6 (13,360) 0
--------- -------
As restated (7,832) 4,011
(Net loss) income - page 4 (56,390) 1,517
Adjustment of prior year's refundable investment
tax credits (993) 0
--------- -------
Deficit, end of year (65,215) 5,528
========= =======
The accompanying notes are an integral part of these financial statements.
F-2-5
<PAGE>
MICRA SOUNDCARDS INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1997
(with comparative figures for 1996 - note 8)
1997 1996
(unaudited)
$ $
Revenue 0 0
--------- --------
Expenses
Management 39,000 0
Travel 1,355 0
Professional fees 9,485 10,695
Office and general 1,934 20
Meetings and conferences 4,015 0
Amortization 601 1,128
--------- --------
Total expenses 56,390 11,843
--------- --------
Loss before provision for income taxes (56,390) (11,843)
Provision for income taxes
Refundable investment tax credits 0 13,360
--------- --------
Net (loss) income (56,390) 1,517
========= ========
The accompanying notes are an integral part of these financial statements.
F-2-6
<PAGE>
MICRA SOUNDCARDS INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED AUGUST 31, 1997
(with comparative figures for 1996 - note 8)
1997 1996
(unaudited)
$ $
Operating activities
Net (loss) income (56,390) 1,517
Items not affecting working capital:
Amortization of capital assets 601 1,128
Retroactive change in accounting policy (13,360) 0
-------- --------
(69,149) 2,645
Net changes in non-cash working capital items:
GST receivable (1,307) 155
Accounts payable and accrued liabilities 107,469 8,389
Income taxes receivable 1,004 (10,413)
-------- --------
Total cash generated from operations 38,017 776
-------- --------
Investing activities
Development costs (59,071) (73,770)
-------- --------
Total cash utilized in investing activities (59,071) (73,770)
-------- --------
Financing activities
Loans payable 30,500 0
Issue of shares 0 7,000
Shareholders' loan (150) 0
Adjustment of refundable investment tax credits (993) 0
Contributed surplus 0 33,935
-------- --------
Total cash generated from financing activities 29,357 40,935
-------- --------
Increase (decrease) in cash during year 8,303 (32,059)
(Bank indebtedness) cash, beginning of year (2,817) 29,242
-------- --------
Cash (bank indebtedness), end of year 5,486 (2,817)
======== ========
The accompanying notes are an integral part of these financial statements.
F-2-7
<PAGE>
MICRA SOUNDCARDS INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1997
1. Summary of significant accounting policies
The accounting policies of the company are in accordance with generally
accepted accounting principles.
a) Capital assets and amortization
Capital assets are recorded at cost.
Amortization is intended to write off the cost of the capital assets
over their estimated useful lives. Amortization is provided as follows:
Computer equipment - 30% on a declining balance basis
Furniture and fixtures - 20% on a declining balance basis
b) Development costs
Product development costs are capitalized once technical feasibility of
the product has been established. The company has identified a market
for the product and intends to market the developed product. No other
development costs are capitalized. Such capitalized costs will be
amortized over the expected life of the related product once commercial
production has commenced.
Amortization of development cost has been deferred to a future period as
commercial production has not yet commenced.
c) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
that affect the amounts reported and disclosed in the financial
statements. Actual results could differ from those estimates.
2. Income taxes receivable
Income taxes receivable consist of refundable investment tax credits earned
on scientific research and development (R&D) expenditures.
The income tax claim for scientific R&D may be audited by taxation
authorities and as such may be subject to material adjustments.
3. Loans payable
Loans payable bear interest at prime and are due on demand.
F-2-8
<PAGE>
MICRA SOUNDCARDS INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1997
4. Subsequent event
a) Subsequent to the year end, the company issued and redeemed shares as
follows:
<TABLE>
<CAPTION>
# of
Shares common shares $
<S> <C> <C>
Shares issued by exercise of options
by directors, officers and other
related parties 1,239,100 12,120
Shares issued for cash 1,637,664 998,388
Shares issued for consulting services 325,000 333,200
Shares redeemed (975,000) (243,750)
--------- ----------
2,226,764 1,099,958
--------- ----------
</TABLE>
b) The company has subsequently granted options to purchase common shares
to directors, officers and other related parties under the company's
stock option plan (see below). The options expire on December 31, 2001
and have a weighted average exercise price of approximately $1 each.
Options granted 2,889,900
Options exercised (1,239,100)
Options cancelled (200,000)
----------
1,450,800
==========
c) Share repurchase
Subsequent to the year end, the company was granted an option to
repurchase 2,400,000 shares from two shareholders at $0.25 per share.
The company repurchased 975,000 shares for $243,750. The remaining
options have expired.
5. Financial instruments and risk management
Financial instruments recognized in the balance sheet include cash and
accounts payable.
a) Foreign exchange risk
A portion of the company's accounts payable is denominated in US
dollars. The company has not hedged this exposure.
b) Fair value
The company believes that the carrying value in the financial statements
of its cash, GST receivable, income taxes receivable and accounts
payable and accrued liabilities and loans payable approximate fair value
because of their short-term to maturity.
F-2-9
<PAGE>
MICRA SOUNDCARDS INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED AUGUST 31, 1997
6. Retroactive change in accounting policy
Prior year's financial statements did not conform to generally accepted
accounting principles as the investment tax credits for development costs
were recorded as a credit to the provision for income taxes. The 1997
figures have been adjusted to reflect the prior year's investment tax
credits as a reduction of development costs under the cost reduction method
in accordance with generally accepted accounting principles. The 1996
comparative figures have not been restated.
7. Related party transactions
In addition to the related party transactions disclosed in note 4, the
following related party transactions took place during the year.
a) Consulting fees in the amount of $29,000 were paid to a company
controlled by a director.
b) Engineering fees in the amount of $8,707 were paid to a company
controlled by an officer.
8. Comparative figures
The comparative figures presented in these financial statements were issued
with a Notice to Reader.
9. Loss carry-forwards
The company has non-capital loss carry-forwards in the amount of $88,887.
These losses can be applied against future taxable income and expire as
follows:
2002 $11,431
2003 10,765
2004 66,691
-------
$88,887
=======
10. Year 2000
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F-2-10
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
3(i). Articles of Incorporation and Amendments
3(ii). By-laws
4. Instruments Defining Rights of Securityholders
10. Material Contracts
(i) Employment Agreement of Dieter Doederlein
(ii) Employment Agreement of Paul Sansom
(iii) Employee Stock Option Plan
(iv) Financial Advisory Agreement - Howard Tepper
(v) Financial Advisory Agreement - James Lewis
(vi) Memorandum of Agreement - Robert Brill
(vii) Right of First Refusal Agreement - Micra and The M2000 Group
(viii) Consulting Agreement - Price International Inc.
(ix) Distribution Agreement - Bid-Com International Inc.
(x) Distribution Agreement - HA.LO Canada Inc.
(xi) Marketing Agreement - Ficel Marketing Group
(xii) Joint Development and Marketing Agreement - Upper Deck
21. Subsidiaries
99. Risk Factors
<PAGE>
Exhibit 99.1
Articles of Incorporation and Amendments
<PAGE>
Exhibit 99.2
By-Laws
BY-LAW NO. 1
BY-LAW RELATING GENERALLY TO THE TRANSACTION
OF THE BUSINESS AND AFFAIRS OF
1095137 ONTARIO LIMITED
(hereinafter called the "Corporation")
BE IT ENACTED as a by-law of the Corporation as follows:
INTERPRETATION
Definitions
1. In this by-law and all other by-laws and resolutions of the
Corporation, unless the context otherwise requires:
"Act" means the Business Corporations Act (Ontario) and any statute that may be
substituted therefor, as from time to time amended, and includes the regulations
made pursuant thereto;
"appoint" includes "elect" and vice versa;
"articles" means the original or restated articles of incorporation, articles of
amendment, articles of amalgamation, articles of continuance, articles of
reorganization, articles of arrangement, articles of dissolution, articles of
revival, letters patent or any other instrument of incorporation of the
Corporation and any amendments thereto;
"board" means the board of directors of the Corporation;
"by-laws" means this by-law and all other by-laws of the Corporation from time
to time in force and effect;
"meeting of shareholders" includes an annual meeting of shareholders and a
special meeting of shareholders; "special meeting of shareholders" includes a
meeting of any class or classes of shareholders and a special meeting of all
shareholders entitled to vote at an annual meeting of shareholders;
"non-business day" means Saturday, Sunday and any other day that is a holiday as
defined in the Interpretation Act (Ontario);
"recorded address" means, in the case of a shareholder, his address as recorded
in the securities register, and in the case of joint shareholders the address
appearing in the securities register in respect of such joint holding or the
first address so appearing if there are more than one, and in the case of a
director, officer, auditor or member of a committee of the board, his latest
address as recorded in the records of the Corporation;
"signing officer" means, in relation to any instrument, any person authorized to
sign the same on behalf of the Corporation by paragraph 5 or by a resolution
passed pursuant thereto;
"unanimous shareholder agreement" means a written agreement among all the
shareholders of the Corporation, or among all such shareholders and a person who
is not a shareholder, or a written declaration of the beneficial owner of all of
the issued shares of the Corporation, that restricts, in whole or in part, the
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powers of the directors to manage the business and affairs of the Corporation as
from time to time amended;
save as aforesaid, words and expressions defined in the Act have the same
meanings when used herein; and words importing number include the singular and
the plural, words importing gender include the masculine, feminine and neuter
genders and words importing a person include an individual, sole proprietorship,
partnership, unincorporated association, unincorporated syndicate,
unincorporated organization, trust, body corporate and a natural person in his
capacity as trustee, executor, administrator or other legal representative.
GENERAL BUSINESS OF THE CORPORATION
Registered Office
2. The registered office of the Corporation shall be at a place within
Ontario as specified in the articles and thereafter as the board may by
resolution from time to time determine.
Corporate Seal
3. The Corporation may have one or more different seals, which may be
adopted or changed from time to time by resolution of the board, and on which
the name of the Corporation appears in the language or one or more of the
languages set out in the articles.
Financial Year
4. Until changed by resolution of the board, the financial year of the
Corporation shall end on the day of August in each year.
Execution of Instruments
5. Deeds, transfers, assignments, contracts, and obligations, certificates and
other instruments in writing requiring the signature of the Corporation may be
signed on behalf of the Corporation by two persons, one of whom holds the office
of chairman of the board, managing director, president, vice-president, or
director and the other of whom holds one of the said offices or the office of
secretary, treasurer, assistant secretary, assistant treasurer or director or
any other office created by by-laws or by resolution of the board, or where the
Corporation has only one director and such person holds the office of president,
by that person alone. 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 (if any) to any instrument. Any signing officer may certify a
copy of any instrument, resolution, by-law or other document of the Corporation
to be a true copy thereof. Any articles, notice, resolution, requisition,
statement or other document required or permitted to be executed by more than
one person may be executed in several documents of like form each of which is
executed by one or more of such persons, and such documents, when duly executed
by all persons required or permitted, as the case may be, to do so, shall be
deemed to constitute one document and to bear date as of the date of execution
thereof by the last such person.
Banking Arrangements
6. The banking business of the Corporation 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 including, without
limitation, the borrowing of money and the giving of security therefor, and
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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.
Borrowing, Issuing Debt Obligations and Securing Liabilities
7. Without limiting the borrowing powers of the Corporation as set forth in the
Act, but subject to the articles and any unanimous shareholder agreement, the
board may from time to time and without authorization of the shareholders:
(a) borrow money upon the credit of the Corporation;
(b) issue, re-issue, sell or pledge any debt obligation of the
Corporation, whether secured or unsecured;
(c) to the extent permitted by the Act, give a guarantee on behalf of
the Corporation to secure performance of an obligation of any
person; or
(d) mortgage, hypothecate pledge or otherwise create a security
interest in all or any currently owned or subsequently acquired
real, personal, movable or immovable property of the Corporation,
including) without limitation, book debts, rights, powers,
franchises and undertakings, to secure any such borrowing, any
bonds, debentures, notes or other evidences of indebtedness, any
such debt obligations, any such guarantee or any other present or
future indebtedness, liability or obligation of the Corporation.
Nothing in this section limits or restricts 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.
Voting Rights in Other Bodies Corporate
8. The signing officers of the Corporation may execute and deliver proxies 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 proxies, certificates or other evidence shall be in favour of
such person or persons as may be determined by the officers signing or arranging
for them. In addition, the board may from time to time 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.
Withholding Information from Shareholders
9. No shareholder shall be entitled to discovery of any information respecting
any details or conduct of the Corporation's business which, in the opinion of
the board, it would not be expedient in the interests of the shareholders or the
Corporation to communicate to the public. The board may from time to time
determine whether and to what extent and at what time and place and under what
conditions or regulations the accounts, records and documents of the Corporation
or any of them shall be open to the inspection of shareholders and no
shareholder shall have any right of inspecting any account, record or document
of the Corporation except as conferred by the Act or authorized by the board or
by resolution passed at a meeting of shareholders.
Creation and Consolidation of Divisions
10. The board may cause the business and operations of the Corporation or any
part thereof to be divided or to be segregated into one or more divisions upon
such basis, including without limitation,
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character or type of operation, geographical territory, product manufactured or
service rendered, as the board may consider appropriate in each case. The board
may also cause the business and operations of any such division to be further
divided into sub-units and the business and operations of any such divisions or
sub-units to be consolidated upon such basis as the board may consider
appropriate in each case.
Name of Division
11. Subject to compliance with law, any division or sub-unit of the Corporation
may be designated by such name as the board may from time to time determine and
may transact business under such name, provided that the Corporation sets out
its name in legible characters in all contracts, invoices, negotiable
instruments and orders for goods or services issued, or made by, or on behalf
of, the Corporation.
Officers of Division
12. The board or, if authorized by the board, the chief executive officer, may
from time to time appoint one or more officers for any division, prescribe their
powers and duties and settle their terms of employment and remuneration. The
board, or, if authorized by the board, the chief executive officer, may remove
at its or his pleasure any officer so appointed, without prejudice to such
officer's rights under any employment contract. Officers of divisions or their
sub-units shall not, as such, be officers of the Corporation.
DIRECTORS
Duties of Directors
13. Subject to any unanimous shareholder agreement, the directors shall manage
or supervise the management of the business and affairs of the Corporation.
Number of Directors and Quorum
14. Subject to the articles, the board shall consist of the number of directors
specified in the articles (or such number as has most recently been specified by
a special by-law under the predecessor of the Act); if the articles provide for
a minimum and m ' number of directors, the board shall consist of the number of
directors determined from time to time by a special resolution (or, if the
directors are empowered by a special resolution to determine the number, by a
resolution of the board) within such minimum and maximum. Subject to paragraph
16, a majority of the number of directors so specified or determined shall
constitute a quorum at any meeting of the board but where the board consists of
fewer than three directors, all directors shall constitute a quorum at any
meeting of the board.
Qualifications
15. No person shall be qualified for election as a &rector if he is less than
eighteen years of age, if he is of unsound mind and has been so found by a court
in Canada or elsewhere, if he is not an individual, or if he has the status of a
bankrupt. A director need not be a shareholder.
Resident Canadians
16. Unless otherwise provided by the Act, a majority of directors shall be
resident Canadians and where the Corporation has only one or two directors, at
least one director shall be a resident Canadian. Unless otherwise provided by
the Act, the board may not transact business at a meeting other than filling a
vacancy in the board, unless a majority of directors present are resident
Canadians except where:
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(a) a resident Canadian 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) a majority of resident Canadian would have been present had that
director been present at the meeting.
Election and Term
17. The election of directors shall take place at the first meeting of
shareholders and at each annual meeting of shareholders, and all the directors
then in office shall retire, but, if qualified, are eligible for re-election.
The election shall be by ordinary resolution of the shareholders. If an
election of directors is not held at the proper time, the incumbent directors
shall continue until their successors are elected.
Removal of Directors
18. A director may be removed from office by ordinary resolution of the
shareholders at an annual or special meeting of shareholders. Notice of
intention to pass any such resolution shall be provided in the notice calling
the meeting, and at that time the shareholders may, by a majority of votes cast,
elect a person qualified to fill the vacancy of the director's seat, failing
which, it may be filled by the board.
Vacation of Office
19. A director ceases to hold office when he dies, is removed from office by
the shareholders acting pursuant to the Act or ceases to be qualified for
election as a director, or earlier if he shah have submitted his written
resignation to the Corporation, in which case he shall cease to hold office at
the later of:
(a) the time when such written resignation is sent or delivered to the
Corporation; and
(b) the time, if any specified in such written resignation as the
effective time of such resignation.
Vacancies
20. Subject to the Act, a quorum of the board may fill a vacancy in the board,
except a vacancy resulting from an increase in the number or maximum number of
directors or from a failure by the shareholders to elect the number or minimum
number of directors at any meeting of shareholders. Notwithstanding the
foregoing exception, a quorum of the board may fill a vacancy resulting from an
increase in the number of directors where the directors are authorized by
special resolution to determine the number of directors, but only if the
appointment of an additional director would not result in a total number of
directors greater than one and one-third times the number of directors required
to have been elected at the last annual meeting of shareholders. In the absence
of a quorum of the board, or if a vacancy has occurred due to a failure to elect
the required number or minimum number of directors by the shareholders at a
meeting, the board then in office shall forthwith call a special meeting of
shareholders to fill the vacancy. If the board fails to call such a meeting or
if there are no directors then in office, the meeting may be called by any
shareholder.
Action by the Board
21. Subject to paragraphs 16 and 28, the powers of the board may be exercised
at a meeting at which a quorum is present or by resolution 'in writing signed by
all the directors entitled to vote on that resolution at a meeting of the board.
Where there is a vacancy in the board, the remaining directors may exercise all
the powers of the board so long as a quorum remains in office. Where the
Corporation has only one director, that director may constitute a meeting. The
board may from time to time delegate to a committee of the board, a director or
= officer of the Corporation or any other person as may be designated by the
board all
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or any of the powers conferred on the board hereunder or by the Act to such
extent and in such manner as the board may determine at the time of each such
delegation.
Calling of Meetings
22. Meetings of the board shall be held from time to time at such place and
such time as the president, the board, the chairman of the board, the managing
director or any two directors may determine. Notice of every board meeting
shall be given in the manner provided in paragraph 89 to each director not less
than forty-eight hours prior the time when the meeting is to be held, and such
notice 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.
No notice of a meeting shall be necessary if all directors are in attendance and
do not object to the holding of the meeting, or if those directors absent have
waived notice of, or have given their consent, in one form or another, to the
holding of the meeting.
First Meeting of the New Board
23. Provided that a quorum of directors is present, each newly elected board
may hold its first meeting after the meeting of shareholders at which such board
is elected without having to give prior notice.
Place of Meeting
24. Meetings of the board may be held at any place within or outside Ontario
and a majority of such meetings in any financial year of the Corporation need
not be held in Canada.
Adjourned Meetings
25. 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.
Regular Meetings
26. The board may 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, but no other notice shall be
required for any such regular meeting except where the Act requires the purpose
thereof or the business to be transacted thereat to be specified.
Chairman
27. 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, president,
or a vice-president. If no such officer is present, the directors present shall
choose one of their number to be chairman.
Participation in Meeting by Communications Facilities
28. If all the directors present at or participating in the meeting consent, a
meeting of the board or of a committee of the board may be held by means of such
telephone, electronic or other communications facilities as permit all persons
participating 'n the meeting to communicate simultaneously and instantaneously,
and a director participating in such a meeting by such means shall be deemed to
be present at the meeting. Any such consent shall be effective whether given
before or after the meetings, to which it relates and may be given with respect
to all meetings of the board and of committees of the board.
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Votes to Govern
29. At all meetings of the board, every question shall be decided by a majority
of the votes cast on the question. In case of an equality of votes, the
chairman of the meeting shall be entitled to a second or casting vote.
One Director
30. Where the Corporation has only one director, that director may constitute a
meeting.
Transaction of Business by Signature
31. Where a resolution in writing is signed by all the directors entitled to
vote on that resolution at a meeting of directors or a committee of directors,
it shall be considered as valid as if it had been passed at a meeting of
directors or a committee of directors.
Remuneration of Directors
32. Subject to any unanimous shareholder agreement, the directors of the
Corporation shall be paid such remuneration as the board may from time to time
determine. Any remuneration shall be in addition to any salary of a director
employed by the Corporation. The directors also shall be entitled to be
reimbursed for travelling and other expenses properly incurred by them in
attending meetings of the board or any committee thereof.
Declaration of Interest
33. Every director or officer of the Corporation who is a party to, or who is a
director or officer of, or has a material interest in, any person who is a party
to a material contract or proposed material contract with the Corporation, shall
inform the Corporation of the nature and extent of his interest at the time and
in the manner provide by the Act. Such director shall refrain from voting in
respect of any such proposal or transaction unless permitted by the Act.
COMMITTEES
Committees of the Board
34. The board may appoint one or more committees of the board, however
designated, and delegate to any such committee any of the powers of the board
except those which, under the Act, a committee of the board has no authority to
exercise. A majority of the members of any such committee shall be resident
Canadians unless the Act permits otherwise.
Transaction of Business
35. Subject to the provisions of paragraph 28, the powers of a committee of the
board may be exercised by a meetings, at which a quorum is present or by
resolution in writing signed by all members of such committee who would have
been entitled to vote on that resolution at a meeting of the committee.
Meetings of such committees may be held at any place within or outside Ontario.
Advisory Bodies
36. The board may from time to time appoint such advisory bodies as it may deem
advisable.
Procedure
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37. Each committee and advisory body shall have power to fix its quorum at not
less than a majority of its members, to elect its chairman and to regulate its
procedure, unless otherwise directed by the board.
OFFICERS
Appointed Officers
38. Subject to any unanimous shareholder agreement, the board may from time to
time appoint a president, one or more vice-presidents (to which title may be
added words indicating seniority or function), a secretary, a treasurer and such
other officers as the board may determine, including one or more assistants to
any of the officers 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 them powers to manage the business and affairs of the Corporation. Subject
to paragraphs 39 and 40, an officer may but need not be a director and one
person may hold more than one office.
Chairman of the Board
39. The board may from time to time appoint a chairman of the board who shall
be a director. If appointed, the board may assign to him any of the powers and
duties that are by any provisions of this by-law assigned to the managing
director or to the president; and he shall, subject to the provisions of the
Act, have such powers and duties as the board may specify. During the absence
or disability of the chairman of the board, the managing director, if any, or
the president shall have the powers and duties of that office.
Managing Director
40. If appointed, the managing director shall be the chief executive officer
and, subject to the authority of the board, shall have 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. During the absence or disability of the president, or if no president
has been appointed, the managing director shall also have the powers and duties
of that office. The managing director shall be a director and a resident
Canadian.
President
41. If appointed, the president shall be the chief operating officer and,
subject to the authority of the board, shall have 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. 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.
Vice-President
42. A vice-president shall have such powers and duties as may be delegated to
him by the board or the chief executive officer.
Secretary
43. The secretary, as and when requested to do so, shall attend and be the
secretary of all meetings of shareholders, the board and committees of the board
and shall enter or cause to be entered in the books kept for that purpose,
minutes of all proceedings at such meetings; he shall give or cause to be given
as and when instructed, all notices required to be given to shareholders,
directors, officers, auditors and members of committees; he shall be the
custodian of the stamp or mechanical device generally used for affixing the
corporate seal of the Corporation, if any, and of all books, papers, records,
documents and other
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instruments belonging to the Corporation, except -where some other officer or
agent has been appointed for the purpose; and he shall have such powers and
duties as may be delegated to him by the board or the chief executive officer.
Treasurer
44. 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
provide upon request of the board a complete statement of all his transactions
as treasurer and of the financial position of the Corporation; and he shall have
such powers and duties as may be delegated to him by the board or the chief
executive officer.
Powers and Duties of Other Officers
45. The duties of all officers shall be such as the terms of their engagement
call for or as may be prescribed by the board or the chief executive officer.
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 otherwise directs.
Variation of Powers and Duties; Term of Office
46. Subject to the provisions of the Act, the board may from time to time vary,
add to or limit the powers and duties of any officer, without prejudice to such
officer's rights under any employment contract. The board may, in its
discretion, remove any officer of the Corporation. Otherwise, each officer
shall hold office until his successor is appointed, or until his earlier
resignation, and shall be deemed to have resigned if not reappointed at any
meeting of the board held immediately following an annual meeting of
shareholders of the Corporation.
Terms of Employment and Remuneration
47. The terms of employment and the remuneration of an o officer appointed by
the board shall be settled by it from time to time.
Declaration of Interest
48. A-n officer shall disclose his material interest, if any, in any material
contract or proposed material contract with the Corporation in accordance with
paragraph 33.
Agents and Attorneys
49. The Corporation, by or under the authority of the board, shall have the
power to appoint agents or attorneys for the Corporation in or outside Canada
with such powers of management, administration or otherwise (including the power
to sub-delegate) as may be deemed fit and necessary.
Fidelity Bonds
50. The board may direct any one or more officers, agents and employees of the
Corporation to furnish bonds for the faithful discharge of their duties, in such
form and with such surety as the board may from time to time prescribe.
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PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
Limitation of Liability
51. No director or officer shall be liable for the acts, receipts, neglects or
defaults of any other director, officer or employee, or for joining in any
receipt or other 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 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 the Corporation shall be invested, 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 which shall happen in the execution of the
duties of his office or in relation thereto; provided that nothing herein shall
relieve any director of officer from the duty to act in accordance with the Act
or from liability for any breach thereof.
Indemnity
52. Subject to the limitations contained in the Act, the Corporation shall
indemnify a director or officer of the Corporation or a body corporate of which
the Corporation is or was a shareholder or creditor (or any person who
undertakes-- or has undertaken any liability on behalf of the Corporation or any
such body corporate) 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 such 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 person in such other
circumstances as the Act permits or requires. Nothing in this by-law shall
limit the right of any person entitled to indemnity apart from the provisions of
this by-law.
Insurance
53. Subject to the limitations contained in the Act, the Corporation may
purchase and maintain liability insurance for the benefit of any person referred
to in paragraph 52.
SHARES
Allotment of Shares
54. Subject to the Act, the articles and any unanimous shareholder agreement,
the board may from time to time allot or grant options to purchase the whole or
any part of the authorized and unissued shares of the Corporation to such person
or persons or class of persons and for such consideration as the board shall
determine, provided that no share shall be issued until it is fully paid for.
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Payment of Commission
55. The board may authorize the Corporation to pay a reasonable commission
to any person in consideration of his purchasing or agreeing to purchase shares
of the Corporation from the Corporation or from another person, or procuring or
agreeing to procure purchasers for any such shares.
Registration of Transfer
56. Subject to the provisions of the Act, no transfers of shares shall be
registered on a securities register or on one of the branch registers of
transfer (if any) except upon presentation of the certificate representing such
shares with a transfer endorsed thereon or delivered therewith duly executed by
an appropriate person, together with such reasonable assurance that the
endorsement is genuine and effective as the board may from time to time
prescribe, upon payment of all applicable taxes and any reasonable fees
prescribed by the board, upon compliance with such restrictions on transfer as
are authorized by the articles, and upon satisfaction of any lien referred to in
paragraph 58.
Central and Branch Registers
57. The Corporation shall maintain in respect of each class of securities of
the Corporation issued by it in registered form a central securities register
and a central register of transfers at its registered. office or any other place
which the board may authorize. The board may appoint one or more registrars or
agents to oversee the registers of security holders and such person may but need
not be the same individual or corporation. The board may terminate such an
appointment at any time.
Lien on Shares
58. If the articles provide that the Corporation shall have a lien on shares
registered in the name of a shareholder indebted to the Corporation, such lien
may be enforced, subject to any other provision in the articles and to any
unanimous shareholder agreement, by the sale of the shares thereby affected or
by any other action, suit, remedy or proceeding authorized or permitted by law
or by equity and, pending such enforcement, the Corporation may refuse to
register a transfer of the whole or any part of such shares.
Non-Recognition of Trusts
59. Subject to the provisions of the Act, the Corporation may treat the person
in whose name a share is registered in the securities register as the person
exclusively entitled to vote, to receive notices, to receive any dividend or
other payment in respect of the share, and otherwise to exercise all the rights
and powers of an owner of the share.
Share Certificates
60. Every holder of one or more shares of the Corporation shall be entitled, at
his option, to a share certificate, or to a non-transferable written
acknowledgement of his right to obtain a share certificate, stating the number
and class or series of shares held by him as shown on the securities register.
Share certificates, and acknowledgements of a shareholder's right to a share
certificate, respectively, shall be in such form as the board shall from time to
time approve. Any share certificate shall be signed in accordance with paragraph
5 and need not be under corporate seal, provided that, unless the board
otherwise determines, certificates representing shares in respect of which a
transfer agent and/or registrar has been appointed 91 shall not be valid unless
countersigned by or on behalf of such transfer agent and/or registrar. The
signature of one of the signing officers or, in the case of certificates which
are not valid unless countersigned by or on behalf of a transfer agent and/or
registrar, the signatures of both signing officers, may be printed or
mechanically reproduced in facsimile upon certificates and every such facsimile
signature shall for all purposes be deemed to be the signature of the officer
whose signature it reproduces and shall be binding upon the Corporation. A share
certificate executed as aforesaid shall be valid
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notwithstanding that one or both of the directors or officers whose facsimile
signature appears thereon no longer holds office at the date of issue of the
certificate.
Replacement of Share Certificates
61. The board or any officer or agent designated by the board may in its or his
discretion direct the issue of a new share certificate or certificate of
acknowledgement, 'in lieu of and upon cancellation of a certificate that has
been damaged, or 'in substitution for a certificate claimed to have been lost,
stolen or destroyed, 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.
Joint Shareholders
62. If two or more persons are registered as joint holders of any share, the
Corporation shall not be bound to issue more than one certificate 'in respect
thereof and delivery of such certificate to one of such persons shall be
sufficient delivery to all of them. Any one of such persons may give effectual
receipt 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 share.
Deceased Shareholders
63. In the event of the death of a single or joint holder of any share of the
Corporation, the Corporation shall not be required to make any entry in the
securities register in respect thereof or to make any dividend or other payment
in respect thereof except upon production of all such documents as may be
required by law and upon compliance with the provisions of the Act and the
reasonable requirements of the Corporation and its transfer agents.
DIVIDENDS AND RIGHTS
Dividends
64. Subject to the provisions of the Act and the articles, the board may from
time to time declare dividends payable to the shareholders according to their
respective rights and interests in the Corporation. Dividends may be paid in
money or property or by issuance fully paid shares of the Corporation or by
offering options or rights to acquire fully paid shares. Where a dividend
remains unclaimed for a period of six years from the date on which the same has
been declared, it shall be forfeited and shall revert to the Corporation.
Dividend Cheques
65. A dividend payable in money shall be paid by cheque drawn on the
Corporation's bankers to the order of each registered holder of shares of the
class or series in respect of which it has been declared and mailed by prepaid
ordinary mail to such registered holder at his last address appearing on the
records of the Corporation. In the case of joint holders the cheque shall 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.
Non-Receipt of Cheque
66. In the event of non-receipt of any dividend cheque by the person to whom it
is so sent as aforesaid, the Corporation, upon proof of such non-receipt, upon
satisfactory indemnity and upon
<PAGE>
-13-
reimbursement of expenses, all as the board may from time to time prescribe,
whether generally or in any particular case, shall issue to such a person a
replacement cheque for a like amount.
Record Date for Dividends and Rights
67. The board may fix in advance a date, preceding by not more than fifty days
the date for the payment of any dividend or the date for the issue of any
warrant or other evidence of the right to subscribe for securities of the
Corporation, as a record date for the determination of the persons entitled to
receive payment of such dividend or to exercise the right to subscribe for such
securities and notice of such record date shall be given not less than seven
days before such record date in the manner provided by the Act. If no record
date is so fixed, the record date for the determination of persons entitled to
receive payment of any dividend or to exercise the right to subscribe for
securities of the Corporation shall be at the dose of business on the day on
which the resolution relating to such dividend or right to subscribe is passed
by the board.
MEETINGS OF SHAREHOLDERS
Annual Meetings
68. The annual meeting of shareholders shall be held at such time in each year,
and subject to paragraph 70 shall be held at such place within or outside
Ontario as the directors may determine, for the purpose of considering minutes
of earlier meetings and the financial statements and auditor's reports required
by the Act to be placed before the annual meeting, electing directors,
appointing or re-appointing, an auditor and fixing or authorizing the board to
fix his remuneration. No other business shall be undertaken at an annual
------
meeting unless it is also constituted as a special meeting.
Special Meeting
69. The board, the chairman of the board, the managing director or the
president shall have power to call a special meeting of shareholders at any
time.
Place of Meeting
70. Meetings of shareholders shall be held at the registered office of the
Corporation or elsewhere in the municipality in which the registered office is
situate, or at some other place within or outside Ontario, or, if all the
shareholders entitled to vote at the meeting so agree, at some place outside
Canada.
Notice of Meeting
71. Notice of the time and place of each meeting of shareholders shall be
given in the manner provided in paragraph 89 not less than ten days and not more
than fifty days prior to the meeting, to each director, to the auditor, and to
each shareholder -who at the close of business on the record date for notice is
entered in the securities register as the holder of one or more shares carrying
the right to vote at the meeting. Notice of a special meeting must be
accompanied by a notice stating the business of that meeting 'in sufficient
detail an d the text of any special resolution to be submitted at that meetings
in order that the shareholder can be informed and can form a reasoned judgment
thereon.
List of Shareholders Entitled to Notice
72. For every meeting of shareholders, the Corporation shall prepare within
the time specified by the Act 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 entitled to vote at the meeting. If a record date for
the meeting is fixed pursuant to paragraph
<PAGE>
-14-
73 The shareholders listed shall be those registered at the close of business
on such record date. If no record date is fixed, the shareholders listed shall
be those registered:
(a) at the close of business on the day immediately preceding on which
notice of the meeting is given; or
(b) on the day on which the meeting is held where no such notice is given.
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 the central securities register is maintained and at
the meeting for which the list was prepared.
Record Date for Notice
73. The board may decide upon a date in advance preceding by not more than
fifty days and by not less than twenty-one days a record date for the
determination of persons entitled to receive notice of a meeting of shareholders
and notice thereof shall be given not less than twenty-one days before such
record date by newspaper advertisement in the manner provided in the Act. If no
record date is so fixed, the record date for determination of the shareholders
entitled to receive notice of the meeting shall be at the close of business on
the day immediately preceding the day on which the notice is given, or, if no
notice is given, the day on which the meeting is held.
Meetings Without Notice
74. A meeting of shareholders may be held without notice or on shorter notice
than that provided for herein at any time and place permitted by the Act, the
articles or the bylaws:
(a) if all the shareholders entitled to vote thereat are present in person
or duly represented (other than those present expressly to object that
the meeting is not lawfully called) or if those not present or
represented waive notice of or otherwise consent to such meeting being
held;
(b) if the auditors and the directors present are not attending for the
express purpose of objecting to the transaction of any business on the
grounds that the meeting is not lawfully called; and
(c) if the auditors and the directors not present waive notice of or
otherwise consent to such meeting being held. At such a meeting 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 duly represented, but who have
waived notice of or otherwise consented to such meeting, shall also
be deemed to have consented to the meeting being held at such place.
Chairman and Secretary
75. The chairman of any meeting of shareholders shall be the first mentioned--
of such of the following officers as have been appointed and who is present at
the meeting: president, managing director, chairman of the board, or a vice-
president who is a director. Should none of the aforementioned officers be
present within fifteen minutes from the time fixed for holding 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.
<PAGE>
-15-
Scrutineers
76. At each meeting of shareholders, either the chairman, with consent of
meeting, or a resolution of the shareholders may appoint a scrutineer who need
not be a shareholder of the Corporation.
Persons Entitled to be Present
77. Only voting shareholders, the chairman of the board (if any), the
president, the directors, the auditor or any others entitled to or required by
the Act, the articles or the bylaws, or any unanimous shareholder agreement to
be present ' are entitled to attend a shareholders meeting. All others must
obtain the permission of the chairman of the meeting to attend or the consent of
those present at the meeting.
Quorum
78. Subject to the provisions of the Act, if the Corporation has two or more
shareholders (or two or more holders of any class or series of shares) a quorum
for the transaction of business at any meeting of shareholders (or of such class
or series) shall be two 'persons present in person, each being a shareholder
entitled to vote thereat or a duly appointed representative or proxyholder for
an absent shareholder so entitled and holding or representing in the aggregate
not less than fifty-one percent of the outstanding shares of the Corporation
entitled to vote at the meeting. If a quorum is present at the opening of the
meeting of -shareholders, the shareholders present or represented may proceed
with the meeting. If a quorum is present at the opening of any 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. If the
Corporation has only one shareholder (or only one holder of any class or series
of shares) then the sole shareholder (or such holder) present in person or by
proxy constitutes a meeting of shareholders (or of such class or series).
Effective April 27, 1999
"78. Quorum. Subject to the provisions of the Act, a quorum for the transaction
------
of business at any meeting of shareholders shall be two persons present in
person, each being a shareholder entitled to vote thereat or a duly appointed
proxy holder or representative of a shareholder so entitled, irrespective of the
number of shares held by such persons. If a quorum is present at the opening of
any meeting of shareholders, the shareholder or 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
time appointed for the meeting or within such reasonable time thereafter as the
shareholders may determine, the shareholders present or represented may adjourn
the meeting to a fixed time and place but may not transact any other business";
Right to Vote
79. Subject to the provisions of the Act as to authorized representatives of
any other body corporate or association, every person named in the list referred
to in paragraph 72 shall be entitled to vote the shares opposite his name except
to the extent that:
(a) where the Corporation has fixed a record date in respect of such
meeting such person has transferred any of his shares after such date,
or where the Corporation has not fixed a record date in respect of
such meeting, such person has transferred any of his shares after the
date on which such list is prepared; and
(b) the transferee, having produced properly endorsed certificates
evidencing such shares or having otherwise established that he owns
such shares has demanded not later than ten days before the meeting
that his name be included in such list. In any such excepted case the
transferee shall be entitled to vote the transferred shares at such
meeting. At any meeting
<PAGE>
-16-
of shareholders for which the Corporation has not prepared the list
referred to in paragraph 72, every person shall be entitled to vote at
the meeting who at the time is entered in the securities register as
the holder of one or more shares carrying the right to vote at such
meeting.
Proxyholders and Representatives
80. Each shareholder entitled to vote at a meeting of shareholders may appoint
a proxyholder, or one or more alternate proxyholders, to attend and act as his
representative at the meeting in the manner and to the extent authorized and
with the authority conferred by the proxy. A proxy shall be in writing executed
by the shareholder or his attorney and shall conform to the requirements of the
Act. Where such shareholder is a body corporate or association it may authorize
by resolution of its directors or governing body any individual to represent it
at a meeting of shareholders and such individual may exercise on the
shareholder's behalf all the powers it could exercise if it were = individual
shareholder. Such an individual shall establish his authority by depositing with
the Corporation a certified copy of such resolution, or in such other manner as
------
may be satisfactory to the secretary of the Corporation or the chairman of the
meeting. Any such proxyholder or representative need not be a shareholder.
Time for Deposit of Proxies
81. 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 hours exclusive
of non-business days, 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 is specified in such notice, if 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.
Joint Shareholders
82. Where two or more persons hold shares jointly, any one of them present in
person or by proxy may vote the shares in the absence of the other or others;
but if two or more are present in person or by proxy, they shall vote as one the
shares jointly held by them.
Votes to Govern
83. A majority of votes cast at a meeting will decide each question excluding,
those which must be dealt with by the articles or by-laws of the Corporation. In
case of an equality of votes either upon a show of hands or upon a poll, the
chairman of the meeting shall be entitled to a second or casting vote.
Show of Hands
84. Subject to the provisions of the Act, any question at a meeting of
shareholders shall be decided by a show of hands, unless a shareholder demands a
poll. Upon a show of hands each person who is present and entitled to vote
shall have one vote. Unless a poll thereon is so required or demanded the
chairman after the show of hands shall inform the voters whether the question
has been carried (and by what majority) or not carried, and an entry to that
effect in the minutes of the meeting will supply prima facie evidence of the
fact without proof of the number or proportions of the votes recorded in favour
or against any resolution or other proceedings in respect of the said question,
and the result of the vote so taken shall be the decision of the shareholders
upon the said question.
<PAGE>
-17-
Polls
85. On any question proposed for consideration at a meeting of shareholders,
and whether or not a show of hands has been taken thereon, the chairman may
require a poll or any person present and entitled to vote on such question at
the meeting may demand a poll. . poll so required or demanded shall be taken in
such manner as the chairman shall direct. . requirement or demand for a poll may
be withdrawn at any time prior to the taking of the poll. If the poll is taken
each person present shall be entitled, 'in respect of the shares -which he is
entitled to vote at the meeting, upon the question, to that number of votes
provided by the Act or the articles and the result of the poll so taken shall be
the decision of the shareholders at the meeting.
Adjournment
86. If a meeting of shareholders is adjourned for less than thirty days, it
shall not be necessary to give notice of the adjourned meeting other than by
announcement at the earlier meeting that is adjourned. If a meeting of
shareholders is adjourned by one or more adjournments for an aggregate of thirty
days or more, notice of the adjourned meeting shall be given as for an original
meeting.
Resolution in 'Writing
87. Subject to the provisions of the Act, a resolution in writing signed by all
voting shareholders is as valid as if it had been passed at a meeting of
shareholders unless a written statement with respect to the subject matter of
the resolution is submitted by a director or the auditors.
One Shareholder
88. Where the Corporation has but one shareholder or only one holder of any
class or series of shares, that shareholder present in person or by proxy
constitutes a meeting.
NOTICES
Method of Giving Notices
89. Any notice, communication or document which is to be given, sent, delivered
or served to a shareholder, director, officer, auditor or member of a committee
of the board under any provision of the Act, the articles or by-laws or
otherwise shall be sufficiently given if delivered personally to the person to
whom it is to be given or if delivered to his recorded address or if mailed to
him at his recorded address by prepaid ordinary or air mail or if sent to him at
his recorded address by any means of prepaid transmitted or recorded
communication. A notice shall be deemed to have been given when it is delivered
personally or to the recorded address as aforesaid; a notice so mailed shall be
deemed to have been received by the addressee on the fifth day after mailing;
and -a notice sent by any means of transmitted or recorded communication shall
be deemed to have been given when dispatched or delivered to the appropriate
communication company, agency or its representative. The secretary may change or
cause to be changed the recorded address of any shareholder, director, auditor
or member of a committee of the board in accordance with any information
believed by him to be reliable. Where a notice, communication or document is
sent by prepaid mail and is consecutively returned three times to the
Corporation because a shareholder cannot be found, the Corporation is under no
obligation to send any further notice, communication or document to such
shareholder until informed of his new address.
Computation of Time
90. The date of giving of any notice and the date of any meeting or other event
shall both be excluded when determining the date when notice must be given under
any provision of the articles or by-laws requiring a specified number of days'
notice of any meeting or other event.
<PAGE>
-18-
Notice to joint Shareholders
91. If two or more persons are registered as joint holders of any share, any
notice shall be addressed to all of such joint holders but notice to one of such
persons shall be sufficient notice to all of them.
Omissions and Errors
92. The accidental omission to give any notice to a shareholder, director,
officer, auditor or member of a committee of the board or the non-receipt of any
notice by any of the aforementioned 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.
Persons Entitled by Death or Operation of Law
93. 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 to such share which shall have been duly given to the
shareholder from whom he derives his title prior to his name being entered on
the records of the Corporation ('Whether such notice was given before or after
the happening of the event upon which he become so entitled) and prior to his
furnishing to the Corporation the proof of authority or evidence of his
entitlement prescribed by the Act.
Waiver of Notice
94. Any shareholder (or his duly appointed proxyholder), director, officer,
auditor or member of a committee of the board may at any time waive or abridge
the time of any notice required to be given to him under any of the provisions
of the Act, the articles, the bylaws or otherwise and such waiver or abridgement
whether given before or after the meeting or other event of which notice is
required to be given, shall cure any default in giving or in the time of such
notice, as the case may be. Any such waiver or abridgement shall be in writing
except a waiver of notice of a meeting of shareholders or of the board which may
be given in any manner.
Effective Date
95. This by-law comes into effect when made by the board.
Repeal
96. As of the coming into effect of this by-law, By-Law Number of the
Corporation dated the _____ day of 19 is repealed provided
that such repeal does not 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, or the validity of any articles
or predecessor charter documents of the Corporation obtained pursuant to, any
such by-law prior to its repeal. All officers and persons acting under any bylaw
so repealed shall continue to act as if appointed under the provisions of this
by-law and all resolutions of the shareholders or the board with continuing
effect passed under any repealed by-law shall continue good and valid except to
the extent inconsistent with this bylaw and until amended or repealed.
PASSED by the board pursuant to the Act the 31st day Of August, 1994
(signed) Dieter Doederlein (signed) Dieter Doederlein
President Secretary
or
<PAGE>
-19-
THE FOREGOING BY-LAW is hereby consented to by the sole director of the
Corporation pursuant to the Act, as evidenced by such director's signature
hereto.
Dated the 31st day of August, 1999
(signed) Dieter Doederlein
<PAGE>
-20-
BY-LAW NO. 2
1095137 ONTARIO LIMITED
(hereinafter called the "Corporation")
TO AUTHORIZE THE BOARD OF DIRECTORS TO BORROW AND PLEDGE
BE IT ENACTED THAT:
The Board of Directors is hereby authorized:
(a) to borrow money and obtain advances upon the credit of the Corporation,
from the Royal Bank of Canada (hereinafter called the "Bank"), at such
time, in such amounts and on such terms as it may deem appropriate by
discounting or causing to be discounted negotiable paper or instruments
made, drawn, accepted or endorsed by the Corporation, by overdraft, by
arranging for credits, or by way of loans, advances and otherwise
howsoever;
(b) to issue bonds, debentures or other securities of the Corporation, to give
them as security or otherwise assign them to the Bank under such terms,
conditions and considerations as it may deem appropriate;
(c) to hypothecate, mortgage, pledge, assign, transfer or affect in whatsoever
manner all or any real or personal property, moveable and immovable,
enterprises, rights or choses in action, present or future of the
Corporation, to secure the said bonds, debentures or securities issued, or
to secure any loans, debts, responsibilities or commitments whatsoever,
present or future, direct or indirect, of the Corporation towards the Bank;
(e) to delegate from time to time, in its discretion, by resolution to one or
several directors, officers or other employees of the Corporation or to any
other person or persons, all or any of the above-mentioned powers.
The powers provided for in this By-law are in addition to those which the
directors or officers of the Corporation may hold pursuant to any applicable law
or instrument governing the Corporation.
This By-law shall remain in full force and effect insofar as it affects the
Bank, until a written notice of the repeal or the alteration thereof shall have
been given to the Bank and acknowledged in writing by the latter.
MADE by the board as of the 31st day of August, 1994.
(signed) Dieter Doederlein (signed) Dieter Doederlein
President Secretary
CONFIRMED by the sole shareholder in accordance with the Business
Corporations Act (Ontario) as of the 31 " day of August, 1994.
(signed) Dieter Doederlein
Secretary
<PAGE>
Exhibit 99.3
Instruments Defining Rights of Securityholders
<PAGE>
The rights of the holders of common shares in the capital of the Company are
governed by the rights attaching thereto as set forth in the Articles of
Incorporation of the Company as amended. The holders of common shares are
entitled to receive notice of all meetings of shareholders and to attend and
vote on the basis of one vote in respect of each common share held in connection
with any matter to be acted upon at a meeting of the shareholders. Holders of
common shares are entitled to receive dividends if, as and when declared by the
board of directors of the Company and to receive all of the property remaining
after the Company has paid out its liabilities, subject to the prior rights of
holders of the Preference Shares. The provisions of the Articles of
Incorporation as amended which define the rights of holders of common shares are
as follows:
COMMON SHARES
-------------
The Common Shares as a class shall carry and be subject to the following rights,
privileges, restrictions and conditions:
(a) The holders of the Common Shares are entitled among other things:
(i) to vote at all meetings of shareholders, except meetings at
which only holders of specified class of shares are entitled to
vote; and
(ii) subject to the rights, privileges, restrictions and conditions
attaching to any other class of shares of the Corporation, to
receive the remaining property of the Corporation upon
dissolution.
For further detail, reference should be had to the Articles of Incorporation
as amended, which are reproduced in their entirety and attached hereto as
Exhibit 1.
<PAGE>
Exhibit 99.4(i)
Employment Agreement of Dieter Doederlein
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of this 1st day of August, 1999.
BETWEEN:
MICRA SOUNDCARDS INC.
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
DIETER DOEDERLEIN
(hereinafter called the "Employee")
OF THE SECOND PART
WHEREAS the Employee is to be employed by the Corporation;
AND WHEREAS the Employee and the Corporation are mutually desirous in
commencing the Employee's employment upon the terms and conditions set forth
herein;
NOW THEREFORE in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties covenant and agree as
follows:
1. Appointment and Duties
----------------------
1.1 The Corporation shall employ the Employee in the capacity of President and
Chief Executive Officer. The Employee shall report to the Board of Directors
and shall perform such duties and exercise such powers as are normally
associated with and incidental and ancillary to such position and shall perform
such additional duties and exercise such additional powers as may be accorded to
him from time to time.
1.2 The Employee shall well and faithfully serve the Corporation and use his
best efforts to promote the interests and goodwill of the Corporation during the
term of his employment hereunder. The Employee shall devote his full time and
energy to the Corporation and shall not, without the prior consent of the Board
of Directors, engage in any other business, occupation or professional activity
or become an employee, director, manager or agent of any other company, firm,
association, organization or individual.
2. Term of Employment
------------------
2.1 The initial term of this Agreement (the "Initial Term") shall be for a
period of three (3) years, commencing on or about September 1, 1999 and
concluding August 30, 2002. Unless either party provides written notice to the
contrary not less than ninety (90) days prior to the end of the Initial Term or
any renewal thereof (as the case may be), this Agreement shall be automatically
renewed for successive terms (each, a "Renewal Term") of one (1) year each, on
the same terms and conditions as contained herein. In the case of any change in
control of the Corporation, at any time, this Agreement will deemed to be
renewed for a term of one (1) year on the date prior to the change in control.
The Initial Term and any Renewal Terms are hereinafter collectively referred to
as the "Term".
3. Compensation and Benefits
-------------------------
3.1 During the Initial Term, the Corporation shall pay the Employee an annual
salary of Cdn.$11,000 per month, less statutory deductions. Immediately
following the first three months of the Initial Term, the Employee's salary will
be reviewed by the Compensation Committee and adjusted accordingly based on the
Employee's performance,
<PAGE>
-2-
competitive salaries in the market place for similar positions, and the
Corporation's financial condition, but in no case will the salary be less than
Cdn. $11,000 per month.
3.2 The Corporation covenants and agrees to implement as soon as practicable an
employee benefit plan (the "Benefit Plan") that is comparable to employee
benefit plans established by companies that are similarly situated as the
Corporation having regard to the nature of its business, the number of employees
and other relevant considerations. Pursuant to the Benefit Plan, the
Corporation shall provide the Employee with employee benefits comparable to
those provided by the Corporation from time to time to other employees of the
Corporation, and shall permit the Employee to participate in any life insurance
plan, private medical expenses plan, share option plan, share purchase plan,
retirement plan or similar plan offered by the Corporation from time to time to
its employees in the manner and to the extent authorized by the Board of
Directors, subject to the rules of the Benefit Plan from time to time.
3.3 The Employee shall be entitled to participate in the annual bonus pool (the
"Bonus Pool") to be created from the profits earned by the Corporation. The
Bonus Pool shall be created annually at the discretion of the Board of Directors
on the recommendation of the Compensation Committee.
4. Expenses and Vacation
---------------------
4.1 The Employee shall be reimbursed for all reasonable and necessary
travelling (excluding the Employee's personal use of his own automobile),
entertainment and other expenses actually and properly incurred by the Employee
from time to time in connection with the carrying out of his duties hereunder
upon submission of proper receipts, vouchers and other reasonable confirming
documentation. The budget for such expenses shall be reviewed at the beginning
of each fiscal year during the Term.
4.2 The Employee shall be entitled to all statutory holidays and to a minimum
of three (3) weeks paid vacation per year at such time or times as the Employee
may reasonably request and the Board of Directors approve, provided that no
vacation entitlement may be carried over from one calendar year to another and
the Employee will not be entitled to cash payment in lieu of vacation.
5. Non-Competition and Non-Solicitation
------------------------------------
5.1 The Employee, in his capacity as an employee of the Corporation, covenants
and agrees that, except with the prior written approval of the Corporation, the
Employee will not at any time within the period of one (1) year days following
the earlier of the expiration of the Term of this Agreement or any termination
of the Employee's employment hereunder:
(a) either individually or in partnership or jointly or in conjunction with any
person or persons as principal, agent, consultant, shareholder (except as a
shareholder holding not more that five (5) percent of the outstanding shares
from time to time from any class of shares of a publicly traded corporation) or
in any other manner whatsoever carry on or be engaged in or concerned with or
interested in, or advise, lend money to, guarantee the debts of or obligations
of, or permit his name or any part thereof to be used or employed by or
associated with, any person or persons engaged in or concerned with or
interested in, any business that is the same or similar to or competitive with
the business or any other business now or at any time during the course of
employment of the Employee hereunder carried on by the Corporation within any
territory where the Corporation is carrying on business at the time of the
termination of the Employee's employment hereunder;
(b) either directly or indirectly, by any means or in any capacity, approach,
solicit or contact in the course of being engaged in a business competitive with
the Corporation any person solicited, serviced, or contacted by the Employee on
behalf of the Corporation during the Employee's employment or any person known
by the Employee to have been a supplier, client or customer of the Corporation
during the term of the Employee's employment; and
(c) interfere with the employment arrangements between the Corporation or any
of its employees and will not in any way solicit, recruit, hire, assist others
in recruiting or hiring, or discuss employment or similar arrangements with any
employees of the Corporation.
<PAGE>
-3-
5.2 If any covenant or provision herein is determined to be void or
unenforceable in whole or in part, it shall not be deemed to affect or impair
the validity of any other covenant or provision and subsections 5.1(a), (b) and
(c) are each declared to be separate and distinct covenants.
5.3 The Employee agrees that all restrictions contained in Section 5.1 are
reasonable and valid and all defences to the strict enforcement thereof by the
Corporation are hereby waived by the Employee. The Employee agrees that the
covenants in Section 5.1 shall not terminate upon the termination of the
Employee's employment hereunder. The Employee acknowledges that a violation of
any of the provisions of Section 5.1 will result in immediate and irreparable
damage to the Corporation and agrees that in the event of such violation the
Corporation, in addition to any other right of relief, shall be entitled to
equitable relief by way of a temporary or permanent injunction and to such other
relief that any court of competent jurisdiction may deem just and proper. If
the Employee is in breach of any such restrictions, the running of the period of
such restrictions shall be stayed and shall recommence upon the date the
Employee ceases to be in breach thereof, whether voluntarily or by injunction.
6. Termination
-----------
6.1 The employment of the Employee hereunder may be terminated in the following
manner and in the following circumstances:
(a) at any time by notice in writing from the Corporation to the Employee for
cause;
(b) automatically without notice upon the death of the Employee;
(c) if the Employee shall become permanently disabled, then at any time by
notice in writing from the Corporation to the Employee. For purposes of this
subsection, the Employee shall be deemed to be permanently disabled immediately
following any period of 365 consecutive days during which the Employee is
prevented from performing his essential duties as an Employee of the Corporation
for more than 250 days in the aggregate by reason of illness or mental or
physical disability; or
(d) in any other case, by 180 days' notice given by the Corporation in writing,
or equivalent severance in lieu thereof, provided that severance in lieu of
notice may, in the discretion of the Corporation, be paid on the same basis as
set forth in Section 3.1.
6.2 Any payment to the Employee under Section 6.1 shall be deemed to include
all required payments pursuant to the provisions of the Employment Standards Act
(Ontario).
6.3 The Employee may, by providing ninety (90) days' notice in writing to the
Corporation (the "Notice Period"), terminate this Agreement and his employment
with the Corporation. In the event the Employee provides such notice to the
Corporation, the Corporation may request that the Employee cease duties prior to
the expiry of the Notice Period. The Corporation shall in such event pay to the
Employee an amount equal to the difference between what the Employee would have
received had the employment of the Employee been continued for the Notice Period
and the amount actually paid by the Corporation to the Employee during the
Notice Period.
7. Legal Advice
------------
7.1 The Employee hereby represents and warrants to the Corporation and
acknowledges and agrees that he had the opportunity to seek and was not
prevented nor discouraged by the Corporation from seeking independent legal
advice ("ILA") prior to the execution and delivery of this Agreement and that,
in the event that he did not avail himself with the opportunity prior to signing
this Agreement, he did so voluntarily without any undue pressure and agrees that
his failure to obtain ILA shall not be used by him as a defence to the
enforcement of his obligations under this Agreement.
8. General
-------
8.1 Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered in person, transmitted by
telecopy or similar means of recorded electronic communication or sent by
registered mail, charges prepaid, addressed as follows or to such other address
as the relevant party may specify from time to time:
<PAGE>
-4-
(a) if to the Corporation:
Micra Soundcards Inc.
2916 South Sheridan Way
3rd Floor
Mississauga, Ontario
L6J 7J8
Attention: Board of Directors
Telecopier: (905) 829-2308
(b) if to the Employee:
Dieter Doederlein
2046 Kawartha Crescent
Mississauga, Ontario
L5H 3P9
Telecopier: (905) 829-2308
Any such notice or other communication shall be deemed to have been given and
received on the day on which it was delivered or transmitted (or, if such day
is not a business day, on the next following business day) or, if mailed, on
the third business day following the date of mailing; provided, however, that if
at the time of mailing or within three (3) business days thereafter there is or
occurs a labour dispute or other event which might reasonably be expected to
disrupt the delivery of documents by mail, any notice or other communication
hereunder shall be delivered or transmitted by means of recorded electronic
communication as aforesaid.
8.2 This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral. There
are no covenants, conditions, agreements, representations, warranties or any
other terms or provisions, express or implied, collateral, statutory or
otherwise, relating to the subject matter hereof, except as herein provided.
8.3 No amendment or waiver of any provision of this Agreement shall be binding
on any party unless consented to in writing by such party. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision nor
shall any waiver constitute a continuing waiver unless otherwise provided.
8.4 This Agreement shall enure to the benefit of and shall be binding upon and
enforceable by the parties hereto, and the heirs, executors, administrators and
legal personal representatives of the Employee and the successors and assigns of
the Corporation. This Agreement is personal to the Employee and may not be
assigned by the Employee.
<PAGE>
-5-
8.5 This Agreement shall be construed, interpreted and enforced in accordance
with, and the respective rights and obligations of the parties shall be governed
by, the laws of the Province of Ontario and the federal laws of Canada
applicable therein.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of
the date first above written.
Signed, sealed and delivered in the presence of: )
)
)
) (signed) "Dieter Doederlein"
- ---------------------------- ----------------------------
Witness: Dieter Doederlein
MICRA SOUNDCARDS INC.
Per: (signed) "Dale Newman"
----------------------
Dale Newman
Chairman
<PAGE>
Exhibit 99.4(ii)
Employment Agreement of Paul Sansom
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made this ______ day of July, 1999.
BETWEEN:
MICRA SOUNDCARDS INC.
(hereinafter called the "Corporation")
OF THE FIRST PART
- and -
PAUL SANSOM
(hereinafter called the "Employee")
OF THE SECOND PART
WHEREAS the Employee is to be employed by the Corporation;
AND WHEREAS the Employee and the Corporation are mutually desirous in
commencing the Employee's employment upon the terms and conditions set forth
herein;
NOW THEREFORE in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties covenant and agree as
follows:
1. Appointment and Duties
----------------------
1.1 The Corporation shall employ the Employee in the capacity of Vice-
President, Sales. The Employee shall report to the Chief Executive Officer and
shall perform such duties and exercise such powers as are normally associated
with and incidental and ancillary to such position and shall perform such
additional duties and exercise such additional powers as may be accorded to him
from time to time.
1.2 The Employee shall well and faithfully serve the Corporation and use his
best efforts to promote the interests and goodwill of the Corporation during the
term of his employment hereunder. The Employee shall devote his full time and
energy to the Corporation and shall not, without the prior consent of the Board
of Directors, engage in any other business, occupation or professional activity
or become an employee, director, manager or agent of any other company, firm,
association, organization or individual.
2. Term of Employment
------------------
2.1 The initial term of this Agreement (the "Initial Term") shall be for a
period of two (2) years, commencing on or about July 1, 1999 and concluding June
30, 2001. Unless either party provides written notice to the contrary not less
than ninety (90) days prior to the end of the Initial Term or any renewal
thereof (as the case may be), this Agreement shall be automatically renewed for
successive terms (each, a "Renewal Term") of one (1) year each, on the same
terms and conditions as contained herein. In the case of any change in control
of the Corporation, at any time, this Agreement will be deemed to be renewed for
a term of one (1) year on the day immediately prior to the change in control.
The Initial Term and any Renewal Terms are hereinafter collectively referred to
as the "Term".
3. Compensation and Benefits
-------------------------
3.1 During the first three (3) months of the Initial Term, the Corporation
shall pay the Employee a salary of Cdn.$10,000 per month, less statutory
deductions. Immediately following the first three months of the Initial Term,
the
<PAGE>
-2-
Employee's salary will be reviewed by the Compensation Committee and adjusted
accordingly based on the Employee's performance, competitive salaries in the
market place for similar positions, and the Corporation's financial condition,
but in no case will the salary be less than Cdn. $10,000 per month or greater
than Cdn. $15,000 per month.
3.2 The Corporation covenants and agrees to implement as soon as practicable an
employee benefit plan (the "Benefit Plan") that is comparable to employee
benefit plans established by companies that are similarly situated as the
Corporation having regard to the nature of its business, the number of employees
and other relevant considerations. Pursuant to the Benefit Plan, the
Corporation shall provide the Employee with employee benefits comparable to
those provided by the Corporation from time to time to other employees of the
Corporation, and shall permit the Employee to participate in any life insurance
plan, private medical expenses plan, share option plan, share purchase plan,
retirement plan or similar plan offered by the Corporation from time to time to
its employees in the manner and to the extent authorized by the Board of
Directors, subject to the rules of the Benefit Plan from time to time.
3.3 The Employee shall be entitled to participate in the annual bonus pool (the
"Bonus Pool") to be created from the profits earned by the Corporation. The
Bonus Pool shall be created annually at the discretion of the Board of Directors
on the recommendation of the Compensation Committee.
4. Expenses and Vacation
---------------------
4.1 The Employee shall be reimbursed for all reasonable and necessary
travelling (excluding the Employee's personal use of his own automobile),
entertainment and other expenses actually and properly incurred by the Employee
from time to time in connection with the carrying out of his duties hereunder
upon submission of proper receipts, vouchers and other reasonable confirming
documentation. The budget for such expenses shall be reviewed at the beginning
of each fiscal year during the Term.
4.2 The Employee shall be entitled to all statutory holidays and to a minimum
of three (3) weeks paid vacation per year at such time or times as the Employee
may reasonably request and the Chief Executive Officer approves, provided that
no vacation entitlement may be carried over from one calendar year to another
and the Employee will not be entitled to cash payment in lieu of vacation.
5. Non-Competition and Non-Solicitation
------------------------------------
5.1 The Employee, in his capacity as an employee of the Corporation, covenants
and agrees that, except with the prior written approval of the Corporation, the
Employee will not at any time within the period of one (1) year days following
the earlier of the expiration of the Term of this Agreement or any termination
of the Employee's employment hereunder:
(a) either individually or in partnership or jointly or in conjunction with any
person or persons as principal, agent, consultant, shareholder (except as a
shareholder holding not more that five (5) percent of the outstanding shares
from time to time from any class of shares of a publicly traded corporation) or
in any other manner whatsoever carry on or be engaged in or concerned with or
interested in, or advise, lend money to, guarantee the debts of or obligations
of, or permit his name or any part thereof to be used or employed by or
associated with, any person or persons engaged in or concerned with or
interested in, any business that is the same or similar to or competitive with
the business or any other business now or at any time during the course of
employment of the Employee hereunder carried on by the Corporation within any
territory where the Corporation is carrying on business at the time of the
termination of the Employee's employment hereunder;
(b) either directly or indirectly, by any means or in any capacity, approach,
solicit or contact in the course of being engaged in a business competitive with
the Corporation any person solicited, serviced, or contacted by the Employee on
behalf of the Corporation during the Employee's employment or any person known
by the Employee to have been a supplier, client or customer of the Corporation
during the term of the Employee's employment; and
(d) interfere with the employment arrangements between the Corporation or any
of its employees and will not in any way solicit, recruit, hire, assist others
in recruiting or hiring, or discuss employment or similar arrangements with any
employees of the Corporation.
<PAGE>
-3-
5.2 If any covenant or provision herein is determined to be void or
unenforceable in whole or in part, it shall not be deemed to affect or impair
the validity of any other covenant or provision and subsections 5.1(a), (b) and
(c) are each declared to be separate and distinct covenants.
5.3 The Employee agrees that all restrictions contained in Section 5.1 are
reasonable and valid and all defences to the strict enforcement thereof by the
Corporation are hereby waived by the Employee. The Employee agrees that the
covenants in Section 5.1 shall not terminate upon the termination of the
Employee's employment hereunder. The Employee acknowledges that a violation of
any of the provisions of Section 5.1 will result in immediate and irreparable
damage to the Corporation and agrees that in the event of such violation the
Corporation, in addition to any other right of relief, shall be entitled to
equitable relief by way of a temporary or permanent injunction and to such other
relief that any court of competent jurisdiction may deem just and proper. If
the Employee is in breach of any such restrictions, the running of the period of
such restrictions shall be stayed and shall recommence upon the date the
Employee ceases to be in breach thereof, whether voluntarily or by injunction.
6. Termination
-----------
6.1 The employment of the Employee hereunder may be terminated in the following
manner and in the following circumstances:
(a) at any time by notice in writing from the Corporation to the Employee for
cause;
(b) automatically without notice upon the death of the Employee;
(c) if the Employee shall become permanently disabled, then at any time by
notice in writing from the Corporation to the Employee. For purposes of this
subsection, the Employee shall be deemed to be permanently disabled immediately
following any period of 365 consecutive days during which the Employee is
prevented from performing his essential duties as an Employee of the Corporation
for more than 250 days in the aggregate by reason of illness or mental or
physical disability; or
(d) after the date that is 18 months following the Initial Term, by 180 days'
notice given by the Corporation in writing, or equivalent severance in lieu
thereof, provided that severance in lieu of notice may, in the discretion of the
Corporation, be paid on the same basis as set forth in Section 3.1.
6.3 Any payment to the Employee under Section 6.1 shall be deemed to include
all required payments pursuant to the provisions of the Employment Standards Act
(Ontario).
6.3 The Employee may, by providing ninety (90) days' notice in writing to the
Corporation (the "Notice Period"), terminate this Agreement and his employment
with the Corporation. In the event the Employee provides such notice to the
Corporation, the Corporation may request that the Employee cease duties prior to
the expiry of the Notice Period. The Corporation shall in such event pay to the
Employee an amount equal to the difference between what the Employee would have
received had the employment of the Employee been continued for the Notice Period
and the amount actually paid by the Corporation to the Employee during the
Notice Period.
7. Legal Advice
------------
7.1 The Employee hereby represents and warrants to the Corporation and
acknowledges and agrees that he had the opportunity to seek and was not
prevented nor discouraged by the Corporation from seeking independent legal
advice ("ILA") prior to the execution and delivery of this Agreement and that,
in the event that he did not avail himself with the opportunity prior to signing
this Agreement, he did so voluntarily without any undue pressure and agrees that
his failure to obtain ILA shall not be used by him as a defence to the
enforcement of his obligations under this Agreement.
<PAGE>
-4-
8. General
-------
8.1 Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be delivered in person, transmitted by
telecopy or similar means of recorded electronic communication or sent by
registered mail, charges prepaid, addressed as follows or to such other address
as the relevant party may specify from time to time:
(a) if to the Corporation:
Micra Soundcards Inc.
135 West Beaver Creek Road
Richmond Hill, Ontario
L4B 1C6
Attention: Board of Directors
Telecopier: (905) 889-4124
(b) if to the Employee:
Paul Sansom
1438 Chasehurst Drive
Mississauga, Ontario
L5J 3A7
Any such notice or other communication shall be deemed to have been given and
received on the day on which it was delivered or transmitted (or, if such day
is not a business day, on the next following business day) or, if mailed, on
the third business day following the date of mailing; provided, however, that if
at the time of mailing or within three (3) business days thereafter there is or
occurs a labour dispute or other event which might reasonably be expected to
disrupt the delivery of documents by mail, any notice or other communication
hereunder shall be delivered or transmitted by means of recorded electronic
communication as aforesaid.
8.2 This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral. There
are no covenants, conditions, agreements, representations, warranties or any
other terms or provisions, express or implied, collateral, statutory or
otherwise, relating to the subject matter hereof, except as herein provided.
8.3 No amendment or waiver of any provision of this Agreement shall be binding
on any party unless consented to in writing by such party. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision nor
shall any waiver constitute a continuing waiver unless otherwise provided.
8.4 This Agreement shall enure to the benefit of and shall be binding upon and
enforceable by the parties hereto, and the heirs, executors, administrators and
legal personal representatives of the Employee and the successors and assigns of
the Corporation. This Agreement is personal to the Employee and may not be
assigned by the Employee.
<PAGE>
-5-
8.5 This Agreement shall be construed, interpreted and enforced in accordance
with, and the respective rights and obligations of the parties shall be governed
by, the laws of the Province of Ontario and the federal laws of Canada
applicable therein.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of
the date first above written.
Signed, sealed and delivered in
the presence of: )
)
)
)(signed) "Paul Sansom"
- -------------------------- ---------------------------------------
Witness: Paul Sansom
MICRA SOUNDCARDS INC.
Per:(signed) "Dieter Doederlein
-----------------------------------
Dieter Doederlein
President and Chief Executive Officer
<PAGE>
Exhibit 99.4(iii)
Employee Stock Option Plan
<PAGE>
MICRA SOUNDCARDS INC.
STOCK OPTION PLAN
ARTICLE ONE
PURPOSE AND INTERPRETATION
Section 1.01 Purpose. The purpose of this Plan is to advance the interests of
-------
the Corporation by encouraging equity participation in the Corporation by its
directors, senior officers and employees and by consultants and other service
providers to the Corporation through the acquisition of Common Shares of the
Corporation.
Section 1.02 Definitions. In this Plan, the following capitalized words and
-----------
terms shall have the following meanings:
(a) "Act" the Business Corporations Act (Ontario), and any Act that may be
substituted therefor, as from time to time amended.
(b) "Affiliate" shall have the meaning ascribed thereto in the Securities Act.
(c) "Associate" shall have the meaning ascribed thereto in the Securities Act.
(d) "Board of Directors" means the board of directors of the Corporation as
constituted from time to time and any committee of the board of directors.
(e) "Common Shares" means the common shares of the Corporation as constituted
on the date hereof.
(f) "Compensation Committee" means the Compensation Committee of the Board of
Directors as constituted from time to time.
(g) "Corporation" means Micra Soundcards Inc., a corporation incorporated under
the Act, and its successors from time to time.
(h) "Designated Affiliate" means the Affiliates of the Corporation designated
by the Board of Directors for purposes of this Plan from time to time.
(i) "Holding Company" shall have the meaning specified in Section 2.02 hereto.
(j) "Insider" shall have the meaning ascribed thereto in the Securities Act,
other than a person who is an Insider solely by virtue of being a director or
senior officer of a subsidiary of the Corporation and any Associate of an
Insider.
(k) "Issuer Bid" shall have the meaning ascribed thereto in the Securities Act.
(l) "Option Period" means the period of time an option may be exercised as
specified in Subsection 2.07(a) of this Plan.
(m) "Participant" means a participant under this Plan.
(n) "Plan" means the stock option plan provided for herein.
(o) "Previously Issued Options" shall mean incentive options to purchase an
aggregate of 700,000 Common Shares issued to certain directors, officers and
employees of the Corporation prior to the date of this Plan.
(p) "RRSP" shall have the meaning specified in Section 2.02 hereof.
(q) "Securities Act" means the Securities Act (Ontario) or its successor, as
amended from time to time.
<PAGE>
-2-
(r) "Share Compensation Arrangement" means a stock option, stock option plan,
employee stock purchase plan or any other compensation or incentive mechanism
involving the issuance or potential issuance of securities of the Corporation to
one or more service providers, including a share purchase from treasury which is
financially assisted by the Corporation by way of a loan, guarantee or
otherwise.
(s) "Stock Exchange" shall mean any recognized stock exchange or quotation
system in Canada or the United States upon which the Common Shares are then
listed and posted or quoted for trading, as the case may be.
(t) "Take-over Bid" shall have the meaning ascribed thereto in the Securities
Act.
ARTICLE TWO
STOCK OPTION PLAN
Section 2.01 The Plan. The Plan is hereby established for certain directors,
--------
senior officers and employees of, and consultants and other service providers
to, the Corporation and its Designated Affiliates.
Section 2.02 Participants. Participants in the Plan shall be directors, senior
------------
officers or employees of, or consultants or other service providers to, the
Corporation or any of its Designated Affiliates (including officers thereof,
whether or not directors) who, by the nature of their positions or jobs are, in
the opinion of the Board of Directors, upon the recommendation of the
Compensation Committee, in a position to contribute to the success of the
Corporation. At the request of any Participant, options granted to such
Participant may be issued to and registered in the name of a personal holding
company controlled by such Participant ("Holding Company") or to a registered
retirement savings plan established by such Participant ("RRSP") and, in such
event, the provisions of this Plan shall apply to such options mutatis mutandis
as though they were issued to and registered in the name of the Participant.
Section 2.03 Amount of Options. The determination regarding the aggregate
-----------------
number of Common Shares subject to options in favour of any Participant will
take into consideration the Participant's present and potential contribution to
the success of the Corporation and shall be determined from time to time by the
Board of Directors upon the recommendation of the Compensation Committee. The
aggregate number of Common Shares reserved for issuance upon the exercise of
options pursuant to this Plan and any other Share Compensation Arrangements,
subject to adjustment or increase of such number pursuant to Section 2.10
hereof, shall be 1,000,000. The maximum number of Common Shares reserved for
issuance to any one Participant upon the exercise of options shall not exceed 5%
of the total number of Common Shares outstanding immediately prior to such
issuance. The Previously Issued Options are hereby adopted and deemed to be
issued under this Plan and, subject to the specific terms and conditions
thereof, shall be governed by the terms and conditions of this Plan.
Section 2.04 Limits with respect to Insiders.
-------------------------------
(a) The number of Common Shares issuable to Insiders pursuant to options
granted under this Plan, together with Common Shares issuable to Insiders under
any other Share Compensation Arrangement of the Corporation, shall not:
(i) exceed 10% of the number of Common Shares outstanding immediately
prior to the grant of any such option; or
(ii) result in the issuance to Insiders, within a one year period, of in
excess of 10% of the number of Common Shares outstanding immediately
prior to the grant of any such option.
(b) The number of Common Shares issuable to any Insider and such Insider's
Associates pursuant to options granted under this Plan, together with Common
Shares issuable to such Insider or such Insider's Associates under any other
Share Compensation Arrangement of the Corporation shall not, within a one year
period, exceed 5% of the number of Common Shares outstanding immediately prior
to the grant of any such option.
(c) Any Common Shares issuable pursuant to an option granted to a Participant
prior to the Participant becoming an Insider shall be excluded for the purposes
of the limits set out in Subsections 2.04(a) and 2.04(b) hereof.
<PAGE>
-3-
Section 2.05 Price. The exercise price per Common Share shall be determined by
-----
the Board of Directors at the time the option is granted, but such price shall
not be less than the closing price of the Common Shares on the Stock Exchange on
which the Common Shares may then be listed and posted for trading on the last
trading day preceding the date on which the grant of the option is approved by
the Board of Directors, less any applicable discount permitted by the Stock
Exchange. In the event that the Common Shares did not trade on such last
trading day, the exercise price shall be the average of the bid and the ask
prices in respect of the Common Shares for the previous five trading days. In
the event that the Common Shares are not listed and posted for trading on any
stock exchange or other quotation system, the exercise price shall be the fair
market value of the Common Shares as determined by the Board of Directors in its
sole discretion.
Section 2.06 Lapsed Options. In the event that options granted under this Plan
--------------
are surrendered, terminate or expire without being exercised in whole or in
part, the Common Shares reserved for issuance but not purchased under such
lapsed options shall be available for subsequent options to be granted under the
Plan.
Section 2.07 Consideration, Option Period and Payment.
----------------------------------------
(a) The period during which options may be exercised shall be determined by the
Board of Directors upon the recommendation of the Compensation Committee, in its
discretion, to a maximum of five (5) years from the date the option is granted
(the "Option Period"), except as the same may be reduced with respect to any
option as provided in Sections 2.08 and 2.09 hereof respecting termination of
employment or death of the Participant.
(b) Subject to any other provision of this Plan, an option may be exercised
from time to time during the Option Period by delivery to the Corporation at its
registered office of a written notice of exercise addressed to the Secretary of
the Corporation specifying the number of Common Shares with respect to which the
option is being exercised and accompanied by payment in full of the exercise
price therefor. Certificates for such Common Shares shall be issued and
delivered to the Participant as soon as practicable following receipt of such
notice and payment.
(c) Except as set forth in Sections 2.08 and 2.09 hereof, no option may be
exercised unless the Participant is, at the time of such exercise, a director or
senior officer of or in the employ of, or a consultant or other service
providers to, the Corporation or any of its Designated Affiliates and shall have
been continuously a director, senior officer, employer, consultant or service
provider since the grant of his or her option. Absence on leave with the
approval of the Corporation or a Designated Affiliate shall not be considered an
interruption of employment for purposes of this Plan.
(d) The exercise of any option will be contingent upon receipt by the
Corporation of cash payment of the full exercise price of the Common Shares
which are the subject of the exercised option. No Participant or his or her
legal representatives, legatees or distributees will be, or will be deemed to
be, a holder of any Common Shares with respect to which he or she was granted an
option under this Plan, unless and until certificates for such Common Shares are
issued to him or her under the terms of this Plan.
(e) Notwithstanding any other provision of this Plan or in any option granted
to a Participant, the Corporation's obligation to issue Common Shares to a
Participant pursuant to the exercise of an option shall be subject to:
(i) completion of such registration or other qualification of such Common
Shares or obtaining approval of such regulatory authorities as the
Corporation shall determine to be necessary or advisable in
connection with the authorization, issuance or sale thereof;
(ii) the admission of such Common Shares for quotation or listing and
posting for trading, as the case may be, on the Stock Exchange on
which the Common Shares may then be listed and posted or quoted for
trading; and
(iii) the receipt from the Participant of such representations, warranties,
agreements and undertakings, including as to future dealings in such
Common Shares, as the Corporation or its counsel determines to be
necessary or advisable in order to ensure compliance with all
applicable securities laws.
<PAGE>
-4-
(f) A Participant may, rather than exercise options which he or she is entitled
to exercise under Subsection 2.07(b), elect in lieu of receiving the Common
Shares to which such Participant would have been entitled on exercise of such
options ("Designated Shares"), receive instead the number of Common Shares,
disregarding fractions which, when multiplied by the fair value per share (which
shall be the weighted average trading price of the Common Shares on the Stock
Exchange during the five (5) days preceding the date of determination) of the
Designated Shares, is equal to the product of the number of Designated Shares
times the difference between the fair value and the exercise price per share of
the Designated Shares.
(g) If there is a Take-over Bid or Issuer Bid made for all or any of the issued
and outstanding Common Shares, then the Board of Directors may, by resolution,
permit all options outstanding under the Plan to become immediately exercisable
in order to permit Common Shares issuable under such options to be tendered to
such bid.
Section 2.08 Termination of Employment. If a Participant shall:
-------------------------
(a) cease to be a director or senior officer of, or consultant or service
provider to, the Corporation or any of its Designated Affiliates (and is not or
does not continue to be an employee thereof); or
(b) cease to be employed by the Corporation or any of its Designated Affiliates
(and is not or does not continue to be a director or senior officer thereof) for
any reason (other than death) or shall receive notice from the Corporation or
any of its Designated Affiliates of the termination of his or her employment;
(collectively, "Termination") he or she may, but only within 60 days next
succeeding such Termination, exercise his or her options to the extent that he
or she was entitled to exercise such options at the date of such Termination,
including the rights under Subsection 2.07(f); provided that in no event shall
such right extend beyond the Option Period. Notwithstanding the foregoing, this
section is subject to any agreement with any director or senior officer of the
Corporation or any of its Designated Affiliates with respect to the rights of
such director or senior officer upon Termination or change in control of the
Corporation.
Section 2.09 Death of Participant. In the event of the death of a Participant
--------------------
who is a director or senior officer of the Corporation or any of its Designated
Affiliates or who is an employee having been continuously in the employ of or
retained by (as the case may be) the Corporation or any of its Designated
Affiliates for one year from and after the date of the granting of his or her
option, the option theretofore granted to him or her shall be exercisable within
the six months next succeeding such death (including the rights under Subsection
2.07(f)) 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) to the extent that he or she was entitled to exercise the option at the
date of his or her death, provided that in no event shall such right extend
beyond the Option Period.
Section 2.10 Adjustment in Shares Subject to the Plan. In the event that:
----------------------------------------
(a) there is any change in the Common Shares of the Corporation through
subdivisions or consolidations of the share capital of the Corporation, or
otherwise;
(b) the Corporation declares a dividend on Common Shares payable in Common
Shares or securities convertible into or exchangeable for Common Shares; or
(c) the Corporation issues Common Shares, or securities convertible into or
exchangeable for Common Shares, in respect of, in lieu of, or in exchange
for, existing Common Shares,
the number of Common Shares available for option, the Common Shares subject to
any option, and the option price thereof, shall be adjusted appropriately by the
Board of Directors and such adjustment shall be effective and binding for all
purposes of this Plan.
Section 2.11 Record Keeping. The Corporation shall maintain a register in
--------------
which shall be recorded:
<PAGE>
-5-
(a) the name and address of each Participant in this Plan; and
(b) the number of options granted to a Participant and the number of options
outstanding.
ARTICLE THREE
GENERAL
Section 3.01 Transferability. The benefits, rights and options accruing to any
---------------
Participant in accordance with the terms and conditions of this Plan shall not
be transferable by the Participant except (i) from the Participant to his or her
Holding Company or RRSP or from a Holding Company or RRSP to the Participant
and, in either such event, the provisions of this Plan shall apply mutatis
mutandis as though they were originally issued to and registered in the name of
the Participant, or (ii) as otherwise specifically provided herein. During the
lifetime of a Participant, all benefits, rights and options shall only be
exercised by the Participant or by his or her guardian or legal representative.
Section 3.02 Employment. Nothing contained in this Plan shall confer upon any
----------
Participant any right with respect to employment or continuance of employment
with the Corporation or any Affiliate, or interfere in any way with the right of
the Corporation or any Affiliate to terminate the Participant's employment at
any time. Participation in this Plan by a Participant shall be voluntary.
Section 3.03 Delegation to Compensation Committee. All of the powers
------------------------------------
exercisable by the Board of Directors under this Plan may, to the extent
permitted by applicable law and authorized by resolution of the Board of
Directors of the Corporation, be exercised by a Compensation Committee of not
less than three (3) directors. A majority of the members of any such
Compensation Committee shall not be employees or senior officers of the
Corporation. In addition, if determined appropriate by the Board of Directors
of the Corporation, the Board of Directors may delegate any or all of the powers
of the Board of Directors of the Corporation under the Plan to an independent
consultant.
Section 3.04 Administration of the Plan. This Plan shall be administered by
--------------------------
the Board of Directors of the Corporation. The Board of Directors shall be
authorized to interpret and construe this Plan and may, from time to time,
establish, amend or rescind rules and regulations required for carrying out the
purposes, provisions and administration of this Plan and determine the
Participants to be granted options, the number of Common Shares covered thereby,
the exercise price therefor and the time or times when they may be exercised.
Any such interpretation or construction of this Plan shall be final and
conclusive. All administrative costs of this Plan shall be paid by the
Corporation. The directors and senior officers of the Corporation are hereby
authorized and directed to do all things and execute and deliver all
instruments, undertakings and applications and writings as they, in their
absolute discretion, consider necessary for the implementation of this Plan and
of the rules and regulations established for administering this Plan.
Section 3.05 Amendment, Modification or Termination of the Plan. Subject to
--------------------------------------------------
Section 3.03, the Board of Directors reserves the right to amend, modify or
terminate this Plan at any time if and when it is advisable in the absolute
discretion of the Board of Directors. However, any amendment of this Plan which
would:
(a) materially increase the benefits under this Plan;
(b) materially increase the number of Common Shares which may be issued under
this Plan; or
(c) materially modify the requirements as to the eligibility for participation
in this Plan;
shall be effective only upon the approval of the shareholders of the
Corporation. Any material amendment to any provision of this Plan shall be
subject to any necessary approvals by the ASE or any stock exchange or
regulatory body having jurisdiction over the securities of the Corporation.
Section 3.06 Consolidation, Merger, etc. If there is a consolidation, merger
--------------------------
or statutory amalgamation or arrangement of the Corporation with or into another
corporation, a separation of the business of the Corporation into two or more
entities or a transfer of all or substantially all of the assets of the
Corporation to another entity, upon the exercise of an option under this Plan,
the holder thereof shall be entitled to receive the securities, property or cash
which the holder would have received upon such consolidation, merger,
amalgamation, arrangement, separation or transfer if the holder
<PAGE>
-6-
had exercised the option immediately prior to such event, unless the directors
of the Corporation otherwise determine the basis upon which such option shall be
exercisable.
Section 3.07 No Representation or Warranty. The Corporation makes no
-----------------------------
representation or warranty as to the future market value of any Common Shares
issued in accordance with the provisions of this Plan.
Section 3.08 Interpretation. This Plan shall be governed by and construed in
--------------
accordance with the laws of the Province of Ontario.
Section 3.09 Approval and Effective Date. This Plan shall be effective as of
---------------------------
the date it is approved by the shareholders of the Corporation and any
regulatory body having jurisdiction over the securities of the Corporation.
Dated: April 27, 1999
<PAGE>
Exhibit 99.4(iv)
Financial Advisory Agreement - Howard Tepper
<PAGE>
FINANCIAL ADVISORY AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 1st day of April, 1999.
BETWEEN:
MICRA SOUNDCARDS INC., a
corporation governed by the laws of the Province of
Ontario
(hereinafter referred to as the "Company")
OF THE FIRST PART
-and-
HOWARD TEPPER, an
individual resident in the State of Alabama
(hereinafter referred to as the "Advisor")
OF THE SECOND PART
WHEREAS the Company is desirous of retaining the Advisor as its agent, on a non-
exclusive basis, to provide certain financial advisory services based on his
knowledge, experience, reputation and contacts and to assist the Company in the
analysis of United States equity markets;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises
and the covenants and agreements hereinafter contained, it is mutually agreed by
and between parties hereto as follows:
1. The Company hereby agrees to retain the Advisor on a non-exclusive basis as
the financial advisor to the Company for a period of eighteen (18) months from
the date hereof; provided, however, that either party may, at its option by
written notice to the other party, terminate this Agreement at any time.
2. As the financial advisor to the Company, the Advisor hereby agrees to
provide to the Company, as and when mutually agreed upon by the parties hereto
from time to time, the following specific services:
(a) an ongoing assessment of the available methods of financing the
operations and undertakings of the Company in the United States;
(b) general advice as to accessing public and private capital markets in
the United States;
(c) an assessment of the impact on the market in the United States for
securities of the Company; and
(d) strategic planning services and negotiations with potential investors,
joint venture partners, venture capital firms and other financiers
identified by the Advisor.
3. The Advisor agrees to perform his services during the term of this
Agreement honestly and in good faith with a view to the best interests of the
Company.
4. The Advisor represents and warrants to the Company that, under applicable
United States laws, that either he has all registrations, licences, permits and
authorization necessary or desirable in order to perform the services provided
for hereunder or that no such registrations, licences, permits and
authorizations are necessary.
<PAGE>
-2-
5. (a) In consideration for the services to be rendered by the Advisor
hereunder, the Company hereby agrees to pay to the Advisor a fee of U.S.$3,000
per month during each month of the term of this Agreement, such fee to be
satisfied through the issuance to the Advisor (or as he may otherwise direct) of
common shares of the Company having an ascribed value of US$1.00 per share, such
shares to be issued at the end of the term of this Agreement. If the Company
should, at any time, or from time to time hereafter, effect a stock split, a
reverse stock split, or a recapitalization, the number of common shares issuable
to the Advisor shall be proportionately adjusted. In connection with such
issuance of shares, the Advisor acknowledges that such shares will be imprinted
with a restrictive legend representing that it is acquiring the shares for
investment purposes only and not with a view towards distribution or resale.
(b) In addition to any applicable standard fees payable to the Advisor in
connection with the services to be provided by the Advisor hereunder, the
Company shall reimburse the Advisor for all reasonable expenses that he may
incur in providing the services contemplated hereunder forthwith upon receipt of
the Advisor's account with supporting documentation therefor; provided, however,
that all such expenses shall have been approved by the Company in advance.
6. The Company hereby undertakes and agrees to provide the Advisor with all
information, documentation, reports and assistance, which the Advisor may
require from time to time in order to adequately perform his obligations under
this Agreement. The Company hereby further undertakes and agrees to deliver to
the Advisor copies of any and all information released to the public and/or
filed with any regulatory body contemporaneously with such release and/or
filing.
7. (a) The Company hereby agrees to indemnify and hold the Advisor harmless
from and against any and all losses, claims, damages, liabilities, costs or
expenses (collectively "Claims") arising out of any action or cause of action
brought against the Advisor in connection with the services rendered under this
Agreement, except for (i) any Claims resulting from any violation by the Advisor
of applicable laws and regulations including, without limitation, those of the
National Association of Securities Dealers, Inc. and the United States
Securities and Exchange Commission or any state securities commission; (ii)
Claims resulting from any act of negligence or wilful misconduct by the Advisor;
and (iii) any amount paid in settlement of any Claim that is settled without the
Company's prior written consent.
(b) The Advisor hereby agrees to indemnify and hold the Company and its
directors, officers and employees harmless from and against any and all Claims
resulting from (i) any violation by the Advisor of applicable laws and
regulations in Canada or the United States including, without limitation, those
of the National Association of Securities Dealers, Inc., the United States
Securities and Exchange Commission or any state securities commission; or (ii)
any act of negligence or wilful misconduct by the Advisor.
8. Time shall in all respects be of the essence of this Agreement.
9. Nothing in this Agreement shall be construed to constitute the Advisor as a
partner, employee, or agent of the Company; nor shall either party have any
authority to bind the other in any respect, it being intended that the Advisor
is and shall remain an independent contractor.
10. This Agreement may not be assigned by either party hereto, shall be
interpreted in accordance with the laws of the Province of Ontario and shall be
binding upon the successors of the parties.
11. Any notice, document or other communication required or permitted by this
Agreement to be given by a party hereto shall be in writing and will be
sufficiently given if delivered personally, or if sent by prepaid ordinary mail
posted in Canada, or if transmitted by any form of telecommunication (which is
tested prior to transmission, confirms to the sender the receipt of the entire
transmission by the recipient and reproduces a complete written version of the
transmission at the point of reception) to such party addressed as follows:
(a) if to Micra SoundCards Inc., at:
135 West Beaver Creek Road
Richmond Hill, Ontario
L4B 1C6
<PAGE>
-3-
(b) if to the Advisor, at:
P.O. Box 1175
Orange Beach, Alabama
USA
36561
Any notice so mailed shall be deemed to have been given on the third business
day after deposit in a post office or public letterbox. Neither party shall
mail any notice, request or other communication hereunder during any period in
which Canadian or United States postal workers are on strike or if such strike
is imminent and may reasonably be anticipated to affect normal delivery of mail.
Notice transmitted by a form of recorded telecommunication or delivered
personally shall be deemed given on the day of transmission or personal
delivery, as the case may be. Any party may from time to time notify the other
in the manner provided herein of any change of address which thereafter, until
changed by like notice, shall be the address of such party for all purposes
hereof.
12. The parties agree to execute and deliver to each other such further
instruments and other written assurances and to do or cause to be done such
further acts or things as may be necessary or convenient to carry out and give
effect to the provisions of this Agreement or as any of the parties may
reasonably request in order to carry out the transaction contemplated herein.
13. This Agreement sets forth the entire agreement among the parties hereto
pertaining to the specific subject matter hereof and replaces and supersedes all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties hereto, and there are no warranties, representations or
other agreements, whether oral or written, express or implied, statutory or
otherwise, between the parties hereto in connection with the subject matter
hereof except as specifically set forth herein. No supplement, modification,
waiver or termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby.
14. This Agreement shall be binding upon and shall ensure to the benefit of the
parties hereto and their respective successors and permitted assigns.
15. This Agreement may be executed and delivered by facsimile transmission and
in counterparts, each of which when taken together shall be deemed to constitute
one and the same legally binding instrument.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement on the
date first above written.
MICRA SOUNDCARDS INC.
Per: (signed) "Dieter Doederlein"
--------------------------------------
Dieter Doederlein,
President and Chief Executive Officer
(signed) "Howard Tepper"
- ------------------------ --------------------------------------
Witness Howard Tepper
<PAGE>
Exhibit 99.4(v)
Financial Advisory Agreement - James Lewis
<PAGE>
FINANCIAL ADVISORY AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 1st day of July, 1997.
BETWEEN:
MICRA SOUNDCARDS INC., a
corporation governed by the laws of the Province of Ontario
(hereinafter referred to as the "Company")
OF THE FIRST PART
-and-
JAMES LEWIS, an
individual resident in the Province of Ontario
(hereinafter referred to as the "Advisor")
OF THE SECOND PART
WHEREAS the Company is desirous of retaining the Advisor as its agent, on a
non-exclusive basis, to provide certain financial advisory services based on his
knowledge, experience, reputation and contacts and to assist the Company in the
analysis of Canadian and United States equity markets;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the premises
and the covenants and agreements hereinafter contained, it is mutually agreed by
and between parties hereto as follows:
1. The Company hereby agrees to retain the Advisor on a non-exclusive basis as
the financial advisor to the Company for a period of three (3) years from the
date hereof; provided, however, that either party may, at its option, terminate
this Agreement at any time.
2. As the financial advisor to the Company, the Advisor hereby agrees to provide
to the Company, as and when mutually agreed upon by the parties hereto from time
to time, the following specific services:
(a) an ongoing assessment of the available methods of financing the
operations and undertakings of the Company in Canada and the
United States;
(b) general advice as to accessing public and private capital markets
in Canada and the United States;
(c) an assessment of the impact on the market in Canada and the
United States for securities of the Company; and
(d) strategic planning services and negotiations with potential
investors, joint venture partners, venture capital firms and
other financiers identified by the Advisor.
3. The Advisor agrees to perform his services during the term of this Agreement
honestly and in good faith with a view to the best interests of the Company.
4. The Advisor represents and warrants to the Company that, under applicable
Canadian laws, that either he has all registrations, licences, permits and
authorization necessary or desirable in order to perform the services provided
for hereunder or that no such registrations, licences, permits and
authorizations are necessary.
<PAGE>
-2-
5. (a) In consideration for the services to be rendered by the Advisor
hereunder, the Company hereby agrees to pay to the Advisor a fee of CDN$25,000
per year during each year of the term of this Agreement, such fee to be
satisfied through the issuance to the Advisor (or as he may otherwise direct) of
common shares of the Company having an ascribed value of $0.50 per share. If the
Company should, at any time, or from time to time hereafter, effect a stock
split, a reverse stock split, or a recapitalization, the number of common shares
issuable to the Advisor shall be proportionately adjusted.
(b) In addition to any applicable standard fees payable to the Advisor in
connection with the services to be provided by the Advisor hereunder, the
Company shall reimburse the Advisor for all reasonable expenses that he may
incur in providing the services contemplated hereunder forthwith upon receipt of
the Advisor's account with supporting documentation therefor; provided, however,
that all such expenses shall have been approved by the Company in advance.
6. The Company hereby undertakes and agrees to provide the Advisor with all
information, documentation, reports and assistance, which the Advisor may
require from time to time in order to adequately perform his obligations under
this Agreement. The Company hereby further undertakes and agrees to deliver to
the Advisor copies of any and all information released to the public and/or
filed with any regulatory body contemporaneously with such release and/or
filing.
7. (a) The Company hereby agrees to indemnify and hold the Advisor harmless from
and against any and all losses, claims, damages, liabilities, costs or expenses
(collectively "Claims") arising out of any action or cause of action brought
against the Advisor in connection with the services rendered under this
Agreement, except for (i) any Claims resulting from any violation by the Advisor
of applicable laws and regulations including, without limitation, those of the
Ontario Securities Commission; (ii) Claims resulting from any act of negligence
or wilful misconduct by the Advisor; and (iii) any amount paid in settlement of
any Claim that is settled without the Company's prior written consent.
(b) The Advisor hereby agrees to indemnify and hold the Company and its
directors, officers and employees harmless from and against any and all Claims
resulting from (i) any violation by the Advisor of applicable laws and
regulations in Canada or the United States including, without limitation, those
of the Ontario Securities Commission; or (ii) any act of negligence or wilful
misconduct by the Advisor.
8. Time shall in all respects be of the essence of this Agreement.
9. Nothing in this Agreement shall be construed to constitute the Advisor as a
partner, employee, or agent of the Company; nor shall either party have any
authority to bind the other in any respect, it being intended that the Advisor
is and shall remain an independent contractor.
10. This Agreement may not be assigned by either party hereto, shall be
interpreted in accordance with the laws of the Province of Ontario and shall be
binding upon the successors of the parties.
11. Any notice, document or other communication required or permitted by this
Agreement to be given by a party hereto shall be in writing and will be
sufficiently given if delivered personally, or if sent by prepaid ordinary mail
posted in Canada, or if transmitted by any form of telecommunication (which is
tested prior to transmission, confirms to the sender the receipt of the entire
transmission by the recipient and reproduces a complete written version of the
transmission at the point of reception) to such party addressed as follows:
(a) if to Micra SoundCards Inc., at:
135 West Beaver Creek Road
Richmond Hill, Ontario
L4B 1C6
<PAGE>
-3-
(b) if to the Advisor, at:
R.R. #1
Kirkfield, Ontario
K0M 2B0
Any notice so mailed shall be deemed to have been given on the third business
day after deposit in a post office or public letterbox. Neither party shall mail
any notice, request or other communication hereunder during any period in which
postal workers are on strike or if such strike is imminent and may reasonably be
anticipated to affect normal delivery of mail. Notice transmitted by a form of
recorded telecommunication or delivered personally shall be deemed given on the
day of transmission or personal delivery, as the case may be. Any party may from
time to time notify the other in the manner provided herein of any change of
address which thereafter, until changed by like notice, shall be the address of
such party for all purposes hereof.
12. The parties agree to execute and deliver to each other such further
instruments and other written assurances and to do or cause to be done such
further acts or things as may be necessary or convenient to carry out and give
effect to the provisions of this Agreement or as any of the parties may
reasonably request in order to carry out the transaction contemplated herein.
13. This Agreement sets forth the entire agreement among the parties hereto
pertaining to the specific subject matter hereof and replaces and supersedes all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties hereto, and there are no warranties, representations or
other agreements, whether oral or written, express or implied, statutory or
otherwise, between the parties hereto in connection with the subject matter
hereof except as specifically set forth herein. No supplement, modification,
waiver or termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby.
14. This Agreement shall be binding upon and shall ensure to the benefit of the
parties hereto and their respective successors and permitted assigns.
15. This Agreement may be executed and delivered by facsimile transmission and
in counterparts, each of which when taken together shall be deemed to constitute
one and the same legally binding instrument.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement on the
date first above written.
MICRA SOUNDCARDS INC.
Per: (signed) "Dieter Doederlein"
--------------------------------
Dieter Doederlein,
President and Chief Executive Officer
(signed) "James Lewis"
___________________________ --------------------------------
Witness James Lewis
<PAGE>
Exhibit 99.4(vi)
Memorandum of Agreement - Robert Brill
<PAGE>
MEMORANDUM OF AGREEMENT made as of this 5th day of May, 1998.
B E T W E E N:
MICRA SOUNDCARDS INC., a corporation
governed by the laws of the Province
of Ontario with offices at 135 West
Beaver Creek Road, Richmond Hill,
Ontario, Canada L4B 1C6
(hereinafter referred to as "Micra")
OF THE FIRST PART
- and -
ROBERT BRILL, an individual resident at 301
Dayloma Avenue, Venture, California 93003
(hereinafter referred to as the "Brill")
OF THE SECOND PART
WHEREAS Brill has duly signed a non-disclosure agreement dated February
3, 1998 relating to a new concept/product referred to as "Talking Trading
Cards";
AND WHEREAS Brill is aware of and acknowledges that the "Talking
Trading Cards" is the invention and exclusive property of Micra;
AND WHEREAS Brill has expertise in the media and in the trading card
market in general, in terms of market trends, new products, corporate
information, they key personnel and the general value of collectible trading
cards;
AND WHEREAS Micra wishes to retain the services of Brill to keep Micra
informed of key developments in the market and act as a public relations
consultant to Micra;
AND WHEREAS Micra wishes to retain the services of Brill in preparing,
from time to time, press releases and arranging press conferences;
AND WHEREAS Micra wishes to retain the services of Brill to assist,
from time to time, in future product launches and advise on marketing strategies
related thereto;
AND WHEREAS Brill acknowledges that Micra has disclosed to Brill all
current and future business plans as they relate to the "Talking Trading Cards";
and
AND WHEREAS Brill has expressed its full understanding of and agreement
with said business plans;
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the
premises and the covenants and agreements hereinafter contained, and for other
good and valuable consideration (the receipt and sufficiency of which is hereby
acknowledged), it is mutually agreed by and between the parties hereto as
follows:
1. (a) Brill hereby represents and warrants the veracity and accuracy of
the first, second, third, seventh and eighth recitals set forth above and
acknowledges and agrees that Micra is relying on the veracity and accuracy of
such recitals in entering into this Agreement.
(b) Micra hereby represents and warrants the veracity and accuracy of
the fourth, fifth and sixth recitals set forth above and acknowledges and agrees
that Brill is relying on the veracity and accuracy of such recitals in entering
into this Agreement.
<PAGE>
-2-
2. Micra hereby agrees to retain Brill on a non-exclusive basis to provide such
consulting, public relations, marketing and other services as the parties hereto
may mutually agree upon from time to time in connection with the marketing and
promotion of the "Talking Trading Cards". In particular, as and when mutually
agreed upon by the parties hereto from time to time, Brill agrees to:
(a) write and issue press releases with respect to the "Talking Trading
Cards";
(b) promote the "Talking Trading Cards" in his feature or regular columns;
(c) arrange for and attend at press conferences and product launches in
respect of the "Talking Trading Cards; and
(d) obtain and provide to Micra such non-confidential information with
respect to the trading card market, including with respect to
participants and new products, as may from time to time come into the
possession of Brill.
3. Micra hereby undertakes and agrees to provide Brill with all information,
documentation, reports and assistance which Brill may require from time to time
in order to adequately perform its obligations under this Agreement.
4. Brill agrees to perform its services during the term of this Agreement
honestly and in good faith with a view to the best interests of Micra. Brill
further agrees to maintain in strict confidence all of Micra's current and
future plans, designs, product developments and other confidential information
pertaining to the "Talking Trading Cards" and acknowledges and agrees that all
such plans, designs, product developments and other confidential information are
and shall remain at all times the exclusive property of Micra.
5. Notwithstanding any other provision of this Agreement, Brill shall not have
the authority to negotiate or enter into any negotiations with any customer,
supplier or potential customer or supplier of Micra, nor the authority to issue
press releases or reveal Micra's plans, designs or product developments, without
the prior express written consent of Micra.
6. Brill represents and warrants to Micra that, under applicable United States
laws, he has all registrations, licences, permits and authorizations necessary
or desirable in order to perform the services provided for hereunder. In
carrying out his obligations hereunder, Brill covenants and agrees to comply
with all laws, regulations, rules and other requirements of all federal, state,
provincial, municipal, regional and other applicable regulatory authorities.
7. Brill shall be compensated for his services hereunder as follows:
(a) a monthly fee of U.S. $500 to be earned as of the end of each month of
the term of this Agreement and paid within 15 days of receipt by Micra
from Brill of an invoice therefor;
(b) the issuance to Brill of 1,000 common shares in the issued and
outstanding share capital of Micra during each month of the term of
this Agreement;
(c) Brill shall be reimbursed for all out-of-pocket expenses incurred by
Brill in performing his services pursuant to this Agreement, such
reimbursement to be made within 15 days of receipt by Micra of receipts
and/or an invoice supporting such expenses, provided that all such
expenses shall have received the prior written approval of Micra;
(d) a daily fee of U.S. $500 for any event that Brill attends on behalf of
or at the request of Micra related to the promotion of the "Talking
Trading Cards", provided that such event requires Brill to leave his
normal place of business and that Micra shall have given its prior
written approval.
8. Unless terminated earlier pursuant to section 9 or 10, this Agreement shall
be for an initial term of 12 months commencing on May 1, 1998, subject to
possible extension at the sole discretion of Micra for a further period of 8
<PAGE>
-3-
months until January 31, 2000 such that, in no event, shall Micra be required to
issue to Brill more than 20,000 common shares.
9. Either party may, at its election, declare this Agreement breached and,
without prejudice to any other of its rights, forthwith terminate this Agreement
by written notice to the other party upon the occurrence of any of the following
events:
(a) the substantial failure by the other party to perform any of its
obligations hereunder, which failure shall not have been cured within
thirty (30) days of such failure; or
(b) if the other party becomes insolvent or unable to discharge its
liabilities as they become due or makes an assignment for the benefit
of its creditors or a petition of bankruptcy is made against it.
10. Micra may declare this Agreement breached and, without prejudice to any
other of its rights, forthwith terminate this Agreement by written notice to
Brill on the occurrence of any of the following events:
(a) any term or condition of the confidentiality agreement between Brill
and Micra dated February 3, 1998 is breached; or
(b) upon Micra determining that Brill is acting, or is likely to act, in a
manner detrimental to Micra.
11. In the event that the Agreement is terminated pursuant to section 9 or 10,
Micra shall be required to pay to Brill only that portion of the total
remuneration payable under section 7 which has been earned and accrued up to and
until the effective date of termination. Upon the termination of this Agreement
and payment as required hereunder, Micra shall have no further obligation or
liability to Brill in connection with this Agreement or its termination.
12. (a) Micra agrees to indemnify and hold Brill harmless from and against any
and all losses, claims, damages, liabilities, costs or expenses (collectively
"Claims") arising out of any action or cause of action brought against Brill in
connection with Brill rendering services in accordance with this Agreement,
except for (i) any Claims resulting from any violation by Brill of any laws,
regulations, rules or other requirements of applicable regulatory authorities,
including without limitation, any applicable libel or slander laws or rules or
regulations of the National Association of Securities Dealers, Inc., the United
States Securities and Exchange Commission or any state securities commission;
(ii) Claims resulting from any act of negligence or wilful misconduct by Brill;
and (iii) any amount paid in settlement of any Claim that is settled without
Micra's prior written consent.
(b) Brill hereby agrees to indemnify and hold Micra and its directors, officers
and employees harmless from and against any and all Claims resulting from (i)
any violation or alleged violation by Brill of any laws, regulations, rules or
other requirements of applicable regulatory authorities including, without
limitation, any applicable libel or slander laws or rules or regulations of the
National Association of Securities Dealers, Inc., the United States Securities
and Exchange Commission or any state securities commission; or (ii) any act of
negligence or wilful misconduct by Brill or any of his agents.
13. Brill hereby covenants and agrees that it will not make any Claim whatsoever
against any or all of the directors, officers or shareholders of Micra and that
it will not make any Claim against Micra other than in respect of the
compensation payable pursuant to section 7 hereof. Brill further acknowledges
and agrees that Micra has neither represented nor guaranteed a market for or
assigned a value to the common shares of Micra to be issued to Brill pursuant to
paragraph 7(b) and that the certificates representing such shares shall include
an appropriate legend indicating that such shares are subject to applicable
resale restrictions in the United States and Canada.
14. Nothing in this Agreement shall be construed to constitute Brill as a
partner, employee, or agent of Micra; nor shall either party have any authority
to bind the other in any respect, it being intended that Brill is, and shall
remain an independent contractor.
15. This Agreement (i) shall not be assigned by either party hereto without the
prior written consent of the other party and (ii) shall enure to the benefit of
and be binding upon the respective successors and permitted assigns of the
parties.
<PAGE>
-4-
16. Time shall in all respects be of the essence of this Agreement.
17. Any notice, document or other communication required or permitted by this
Agreement to be given by a party hereto shall be in writing and will be
sufficiently given if delivered personally, or if sent by prepaid ordinary mail
posted in Canada or the United States, or if transmitted by any form of
telecommunication (which is tested prior to transmission, confirms to the sender
the receipt of the entire transmission by the recipient and reproduces a
complete written version of the transmission at the point of reception) to such
party addressed as follows:
(a) if to Micra, at:
Micra SoundCards Inc.
135 West Beaver Creek Road
Richmond Hill, Ontario
L4B 1C6
Attention: Dieter Doederlein
Telecopier: (905) 889-4124
(b) if to Brill, at:
Robert Brill
301 Dayloma Avenue
Ventura, California
93003
Telecopier: (805) 658-1718
Any notice so mailed shall be deemed to have been given on the third business
day after deposit in a post office or public letterbox. Neither party shall mail
any notice, request or other communication hereunder during any period in which
Canadian or United States postal workers are on strike or if such strike is
imminent and may reasonably be anticipated to affect the normal delivery of
mall. Notice transmitted by a form of recorded telecommunication or delivered
personally shall be deemed given on the day of transmission or personal
delivery, as the case may be. Any party may from time to time notify the other
in the manner provided herein of any change of address which thereafter, until
changed by like notice, shall be the address of such party for all purposes
hereof.
18. The parties agree to execute and deliver to each other such further
instruments and other written assurances and to do or cause to be done such
further acts or things as may be necessary or convenient to carry out and give
effect to the provisions of this Agreement or as any of the parties may
reasonably request in order to carry out the transactions contemplated herein.
19. This Agreement sets forth the entire agreement among the parties hereto
pertaining to the specific subject matter hereof and replaces and supersedes all
prior Agreements (other than the non-disclosure agreement between the parties
dated February 3, 1998), understandings, negotiations and discussions, whether
oral or written, of the parties hereto, and there are no warranties,
representations or other agreements, whether oral or written, express or
implied, statutory or otherwise, between the parties hereto in connection with
the subject matter hereof except as specifically set forth herein.
20. No supplement, modification, waiver or termination of this Agreement shall
be binding unless executed in writing by the party to be bound thereby.
21. This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable
therein and Brill hereby agrees to attorn to the exclusive jurisdiction of the
Courts of the Province of Ontario in the event of any dispute or litigation
arising.
<PAGE>
-5-
22. This Agreement may be executed and delivered in one or more counterparts
and/or via facsimile transmission, each of which when taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF the parties hereto have duly executed this Agreement on the
date first above written.
MICRA SOUNDCARDS INC.
Per: (signed) "Dieter Doederlein")
--------------------------------
Authorized Signing Officer
SIGNED, SEALED AND DELIVERED
in the presence of: )
)
_______________________________ ) (signed) "Robert Brill"
Witness ---------------------------------
) Robert Brill
<PAGE>
Exhibit 99.4(vii)
Right of First Refusal Agreement
<PAGE>
RIGHT OF FIRST REFUSAL
THIS AGREEMENT made as of the 4th day of May, 1999.
B E T W E E N :
MICRA SOUNDCARDS INC., a corporation
duly incorporated under the laws of the Province
of Ontario
(hereinafter referred to as "Micra")
OF THE FIRST PART
- and -
THE M2000 GROUP INC., a corporation duly incorporated
under the laws of the Province of Ontario
(hereinafter referred to as "M2000")
OF THE SECOND PART
WHEREAS M2000 has granted to Micra the right to purchase for
cancellation certain common shares of Micra pursuant to a memorandum of
agreement dated December 3, 1997 and amended and restated as of May 4, 1999 (the
"Option Agreement");
AND WHEREAS it was a condition of the execution and delivery of the
Option Agreement that Micra and M2000 enter into this Agreement;
NOW THEREFORE THIS MEMORANDUM OF AGREEMENT WITNESSETH THAT in
consideration of these premises and the sum of $1.00 in lawful money of Canada
now paid by M2000 to Micra (the receipt and sufficiency of which is hereby
acknowledged), it is hereby covenanted, agreed and declared as follows:
1. For and throughout the period commencing on the date hereof and expiring at
5:00 p.m. (Toronto time) on September 27, 2002 (the "Term"), Micra shall not
purchase or agree to purchase any art, film or printing supplies or services
(collectively, the "Products and Services") from any third party (a "Third
Party") unless and until it shall have given M2000 the right of first refusal to
provide such Products and Services, pursuant to and in accordance with the
provisions of this Memorandum of Agreement. If, at any time during the Term,
Micra requires Products or Services, Micra shall request and obtain quotes for
such Products and Services from M2000 and from such other bona fide Third
Parties as Micra deems appropriate. In the event that any quote received from a
bona fide Third Party (a "Third Party Quote") is more favourable to Micra than
the quote provided by M2000 having regard to quality, quantity, delivery
requirements and other relevant factors, Micra shall forthwith notify M2000 and
provide M2000 with a copy of the Third Party Quote and an opportunity to issue a
new quote (the "Revised M2000 Quote") on the same or more favourable terms to
Micra than the Third Party Quote. If M2000 issues a Revised M2000 Quote, Micra
hereby agrees to accept the Revised M2000 Quote and issue a purchase order to
M2000 on the terms and conditions specified in the Revised M2000 Quote. In the
event that M2000 does not wish to or is unable to match the Third Party Quote,
Micra shall be free to issue a purchase order invoice for such Products and
Services to such Third Party, provided that Micra shall provide M2000 with
finished examples of the Products and Services and a copy of the Third Party's
invoices forthwith upon completion of the order by the Third Party. If, for any
reason, the Products and Services supplied by such Third Party and the invoices
therefore do not correspond to or match the Third Party Quote in any material
manner, then Micra shall compensate M2000 in full for the value of the Revised
M2000 Quote or the initial quote of M2000 (as the case may be) as though M2000
had provided the Products and Services. The provisions of this section 1 shall
only apply for so long as Dale Newman remains a director of M2000.
<PAGE>
-2-
2. Any notice required or permitted hereunder to be given shall be given by
personal delivery or facsimile communication, to the respective parties at the
addresses set forth below or at such other addresses as the parties may
designate in writing from time to time:
Micra: Micra Soundcards Inc.
135 West Beaver Creek Road
Richmond Hill, Ontario
L4B 1C6
Attention: Dieter Doederlein
Fax: (905) 889-4124
M2000: M2000 Group Inc.
135 West Beaver Creek Road
Richmond Hill, Ontario
L4B 1C6
Attention: Dale Newman
Fax: (905) 889-4124
Any notice, direction or other instrument aforesaid if delivered or if
sent by facsimile shall be deemed to have been given or made on the date on
which it was delivered or sent by facsimile, Saturdays, Sundays and statutory
holidays excepted. Any of the parties may change its address for service from
time to time by written notice in accordance with the foregoing.
3. This Memorandum of Agreement shall enure to the benefit of and be binding
upon the parties and their respective heirs, executors and administrators,
successors and assigns.
4. The parties agree that they each will execute or cause to be executed and
delivered all such further and other documents and assurances, and to cause to
be done all such further acts and things as may be reasonably necessary or
desirable to carry out this Memorandum of Agreement according to its true
intent.
5. This Memorandum of Agreement may be executed by the parties hereto in
separate counterparts each of which when so executed and delivered shall be an
original but all such counterparts shall together constitute one and the same
instrument.
6. This Memorandum of Agreement may be delivered by facsimile transmission.
7. This Memorandum of Agreement shall be governed by and construed in accordance
with the laws of Ontario and the federal laws of Canada applicable therein.
IN WITNESS WHEREOF this Memorandum of Agreement has been executed by
the parties hereto as of the 4th day of May, 1999.
MICRA SOUNDCARDS INC.
Per: (signed) "Dieter Doederlein"
---------------------------------
THE M2000 GROUP INC.
Per: (signed) "Dale Newman"
---------------------------------
<PAGE>
Exhibit 99.4(viii)
Consulting Agreement - Price International
<PAGE>
This CONSULTING agreement is made effective as of June 1, 1999
AMONG:
MICRA Sound Sports Inc.,
a corporation incorporated under the laws of the Province of Ontario
("MSSI")
- and -
MICRA SOUNDCARDS INC.,
a corporation incorporated under the laws of the Province of Ontario
("MICRA")
- and -
PRICE INTERNATIONAL INC.,
a corporation incorporated under the laws of the Province of Ontario
("PII")
WHEREAS MICRA is engaged in the business of developing and manufacturing talking
trading cards ("Soundcards") which combine images of certain notable
personalities or events and an audio recording concerning that person or event
and playback units ("Players") which enable users to playback the audio
recording on the Soundcards;
AND WHEREAS MSSI is a wholly-owned subsidiary of MICRA engaged in the business
of developing and manufacturing Soundcards ("Sports Soundcards") which combine
images and audio recordings concerning personalities ("Personalities") or events
("Events") in sports ("Sports") including, without limitation, the following:
baseball, hockey, basketball, football, wrestling, soccer, auto racing and
boxing.
AND WHEREAS MICRA and MSSI desire to obtain licenses (the "Licenses") of
intellectual property granting MSSI the right to use, print, duplicate and
otherwise reproduce the names, likenesses and voices of certain Personalities or
Events involved in the Sports and the trademarks and logos for use in connection
with Sports Soundcards;
AND WHEREAS PII has agreed to assist MSSI in obtaining the Licenses;
AND WHEREAS MICRA, MSSI and PII wish to enter into this agreement to establish
the terms of their relationship in connection with the Licenses;
NOW THEREFORE THIS AGREEMENT WITNESSES that for the premises and mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Agreement
1.1 Subject to the terms and conditions of this Agreement, MSSI and MICRA hereby
appoint PII as their exclusive licensing agent for Sports Soundcards, and PII
hereby agrees, to:
(a) identify and recommend specific Personalities and Events which PII believes
would be appropriate for the development and manufacture of Sports Soundcards;
(b) present proposals to MICRA and MSSI in respect of the principal terms and
conditions on which PII believes that Licenses could be secured for such
Personalities and Events, including, without limitation a summary of all
royalties and other fees and expenses payable in order to secure such Licenses;
<PAGE>
-2-
(c) for each such License that MICRA and MSSI wishes to pursue on the terms and
conditions presented by PII, assist MICRA and MSSI in the negotiation and
finalization of such License and assist in the development, creation and design
of the Sports Soundcard(s) to be produced under such License; and
(d) provide advice with respect to the administration of the sports licenses,
relationships and programs previously obtained or established by MICRA.
(collectively, the "Services").
1.2 PII hereby covenants and agrees to make itself available to MICRA and MSSI
in connection with the provision of the Services at such times as MICRA and MSSI
reasonably require throughout the term of this Agreement.
1.3 Subject to the provisions of Section 1.1, MICRA and MSSI agree to enter into
such agreements with applicable Personalities and/or leagues, associations, or
other licensing agents (collectively, "Licensing Agents") as are necessary in
order to obtain the Licenses and to abide by the covenants and to fully perform
the obligations contained in the Licenses and such other agreements pertaining
to the Licenses and not to do or omit to do anything which might constitute a
breach under the terms of any such License, provided, however, that the
obligation of MICRA and MSSI to accept and enter into any License which has been
arranged by PII shall be subject to MICRA and MSSI's approval of the subject
matter and terms and conditions of the License, acting reasonably.
1.4 PII shall have creative input for of all Sports Soundcards to be
manufactured pursuant to the Licenses in order to ensure that such Sports
Soundcards satisfy all requirements of the Licenses.
1.5 The parties acknowledge that the obligations of PII to provide the Services
do not extend in any manner whatsoever to the manufacture of the Sports
Soundcards and that MICRA and MSSI shall be solely responsible for obtaining all
permissions and approvals authorizing MICRA to engage in the manufacture of the
Sports Soundcards and the Players, other than the Licenses.
2. Ownership
2.1 PII acknowledges and agrees that MICRA or MSSI shall be the lawful owner of
any License. Nothing herein contained shall be construed as conferring upon PII
any right, interest or claim in and to the Licenses. PII hereby covenants and
agrees that it shall not contest or challenge the ownership or validity of the
Licenses at any time, whether during the term of this Agreement or otherwise.
PII shall have no right, interest or claim in and to the Licenses and shall not
use the same in any manner whatsoever without obtaining MICRA's or MSSI's prior
written permission to such use in each instance.
3. Costs, Royalties and Payments
3.1 MICRA and MSSI shall be responsible for all out-of-pocket costs and expenses
associated with obtaining the Licenses including, for greater certainty, any
deposits, upfront fees, minimum guarantees or similar assurances payable as a
condition of obtaining the Licenses and hereby covenants and agrees to report
all such payments on a timely basis. Provided that a budget of any such costs
and expenses have been approved in writing by MICRA and MSSI, MICRA and MSSI
shall also be responsible for all out-of-pocket costs and expenses reasonably
incurred by PII in the performance of the Services.
<PAGE>
-3-
3.2 MICRA and MSSI shall be responsible for the payment in accordance with the
terms of the Licences of all royalties (the "Royalties") and other costs
associated with maintaining and administering the Licenses in accordance with
the terms of the Licenses.
3.3 In consideration of the services performed by PII hereunder, MICRA and MSSI
agree to pay a fee for every Sports Soundcard manufactured pursuant to (i) any
Licenses obtained by PII equal to U.S. $0.50 per card sold; and (ii) any Sports
licenses currently held or obtained by MICRA and MSSI equal to U.S. $0.25 per
card sold; and (iii) for any other transaction not contemplated in either (i) or
(ii) PII will be paid an amount to be negotiated by PII, MICRA and MSSI, each
acting reasonably, having regard to prevailing market conditions, proposed
pricing of the Sports Soundcards and other relevant considerations.
3.4 Notwithstanding the fees outlined in section 3.3, no fees shall be paid to
PII for the first Michael Jordan card produced under an agreement with Upper
Deck, the Paul Henderson card produced under an agreement with Ficel Marketing
and the first four wrestling cards produced under an agreement with Intervisual
Books Inc.
4. Representations, Warranties and Covenants
4.1 Each of MICRA and MSSI hereby represents, warrants and covenants to PII that
(i) it has the right, power and authority to enter into this Agreement and to
fully perform its obligations hereunder; and (ii) the making of this Agreement
does not violate any separate agreement, whether oral or written, existing
between MICRA or MSSI and any other person or entity.
4.2 PII hereby represents, warrants and covenants to each of MICRA and MSSI that
(i) PII has the right, power and authority to enter into this Agreement and to
fully perform its obligations hereunder; (ii) the making of this Agreement by
PII does not violate any separate agreement, whether oral or written, existing
between PII and any other person or entity; and (iii) it shall well and
faithfully use its best efforts to promote the interests and goodwill of MICRA
and MSSI during the term of this Agreement.
5. Term; Termination
5.1 Subject to the provisions of this Section 5, this Agreement shall commence
on the date hereof and shall expire on May 31, 2002.
5.2 In the event that Brian Price for any reason whatsoever ceases to be
actively involved in the business, operations and affairs of PII, including for
greater certainty the performance of PII's duties hereunder, or PII takes any
action, step or proceeding which materially and adversely affects the reputation
or business of either MSSI or MICRA, this Agreement shall immediately terminate
and be of no further force or effect. Any termination of this Agreement by MSSI
or MICRA pursuant to this Section 5.3 shall be without prejudice to the rights
of MSSI or MICRA and shall not relieve PII of any of its obligations that may
arise as a result of a prior breach of its obligations hereunder.
5.3 Each of the parties shall have the right to terminate this Agreement upon
the giving of ten (10) days written notice to the other parties upon the
occurrence of any of the following: (i) any breach by any of the parties of any
of the provisions of this Agreement if such breach has not been cured within ten
(10) days from the date of the notice; (ii) any breach of the representations,
warranties, covenants of any of the parties contained herein if such breach has
not been cured within ten (10) days from the date of the notice; (iii) the
appointment of any receiver or trustee to take possession of the properties or
assets of any of the other parties; (iv) the insolvency of or filing of a
petition or commencement of any proceeding to have any of the other parties
declared bankrupt or insolvent, the appointment of a receiver or trustee for, or
the execution by the other parties of an assignment for benefit of creditors, or
failure or inability by any of the other parties to pay its debts as they become
due; or (v) if PII acquires any interest in a business in competition with MICRA
or MSSI or is in any way taken over by a business in competition with MICRA or
MSSI.
<PAGE>
-4-
5.4 Notwithstanding any termination of this Agreement pursuant to Section 5.1 or
by MSSI or MICRA pursuant to Sections 5.2 or 5.3, MSSI and MICRA shall remain
responsible for the payment of all fees otherwise payable to PII pursuant to
Section 3.3(i) for so long as such Licenses are in full force and effect,
including any renewals thereof.
6. Indemnification.
6.1 MICRA and MSSI hereby covenant and agree to indemnify and hold harmless PII,
its subsidiaries, affiliates, related companies, assigns, directors, officers,
agents and employees from any and all losses, damages, liabilities, claims,
actions, disbursements, and legal costs and attorneys' fees arising out of or
connected with (a) any breach or alleged breach of their representations,
warranties or covenants contained herein or in any License; (b) any actual or
alleged defect in the Sports Soundcards (other than the failure to obtain all
necessary consents, approvals, licenses or similar rights of the Personalities
and/or Licensing Agents), and (c) any alleged unauthorized use of any
copyrights, trademarks or logos by MICRA or MSSI, as the case may be.
6.2 PII hereby covenants and agrees to indemnify and hold harmless each of MICRA
and MSSI, their subsidiaries, affiliates, related companies, assigns, directors,
officers, agents and employees from any and all losses, damages, liabilities,
claims, actions, disbursements, and legal costs and attorneys' fees arising out
of or connected with (a) any breach or alleged breach of PII's representations,
warranties or covenants contained herein, and (b) any failure of PII to secure
for and on behalf of MSSI all necessary consents, approvals, licenses or similar
rights of the Personalities and/or Licensing Agents necessary to develop,
manufacture and sell the Sports Soundcards.
6.3 Each of the parties agrees to give the other notice of any action, suit,
proceeding, claim, demand, inquiry or investigation that creates an obligation
to indemnify as required under this Section 6. Said notice shall tender defence
of any said claim. If the indemnifying party refuses to timely provide a defence
to said claim, the other party may elect to undertake the defence of any such
claim without in any way diminishing the duty of the indemnifying party to
indemnify the other party.
6.4 The indemnifications set forth in this Section 6 shall survive any
expiration or termination of this Agreement.
7. Non-Disclosure. The parties agree that all information, materials,
documentation, data and reproductions relating to either the terms of this
Agreement, the businesses of the parties, the Licenses, the Soundcards or the
Sports Soundcards (the "Confidential Information") shall be held in strict
confidence by the parties. The nature and contents of the Confidential
Information shall not be disclosed to any employee, person, firm or entity
(other than prospective licensors on a "need-to-know" basis provided that such
licensors shall have executed such confidentiality and non-disclosure agreements
as the other party may reasonably require), or used without the prior written
permission of the other party. It is agreed that Confidential Information shall
not include any information or data which (a) is already known, independent of
the party providing the Confidential Information; (b) is or becomes publicly
known through no wrongful act of the other party; or (c) is independently
developed by the party without reference to any Confidential Information
provided by the other party. The parties acknowledge that a breach of any of the
promises and covenants set forth herein will have a material and adverse effect
upon the other party and that damages arising from said breach may be difficult
to ascertain. Consequently, the other party agrees that in addition to, and
without limiting any other remedy or right the other party may have, the
non-breaching party shall have the right to an immediate injunction enjoining
such breach.
8. Non-Competition and Non-Solicitation
8.1 PII, in its capacity as a consultant to MICRA and MSSI, covenants and agrees
that it will not at any time during the term of this Agreement and for a period
of one (1) year following the termination of this Agreement:
(a) either individually or in partnership or jointly or in conjunction with any
person or persons as principal, agent, consultant, shareholder (except as a
shareholder holding not more that five (5) percent of the outstanding shares
from time to time from any class of shares of a publicly traded corporation) or
in any other manner whatsoever carry on or be engaged in or concerned with or
interested in, or advise, lend money to, guarantee the debts of or obligations
of, or permit its name or any part thereof to be used or employed by or
associated with, any person or persons engaged in or concerned with or
interested in, any business the same or similar to or competitive with the
development and
<PAGE>
-5-
manufacture of Soundcards or any other business now or at any time during the
term of this Agreement carried on by MICRA or MSSI within any territory where
MICRA or MSSI is carrying on business at the time of the termination of this
Agreement;
(b) either directly or indirectly, by any means or in any capacity, approach,
solicit or contact in the course of being engaged in a business competitive with
the development and manufacture of Soundcards or any other business now or at
any time during the term of this Agreement carried on by MICRA or MSSI, any
person solicited, serviced, or contacted by PII on behalf of MICRA or MSSI
during the term of this Agreement or any person known by PII to have been a
supplier, client or customer of MICRA or MSSI during the term of this Agreement;
and
(c) interfere with the employment arrangements between MICRA or MSSI and any of
its employees and will not in any way solicit, recruit, hire, assist others in
recruiting or hiring, or discuss employment or similar arrangements with any
employees of MICRA or MSSI.
8.2 If any covenant or provision herein is determined to be void or
unenforceable in whole or in part, it shall not be deemed to affect or impair
the validity of any other covenant or provision and subsections 8.1(a), (b) and
(c) are each declared to be separate and distinct covenants.
8.3 PII agrees that all restrictions contained in Section 8.1 are reasonable and
valid and all defences to the strict enforcement thereof by MICRA or MSSI are
hereby waived by PII. PII agrees that the covenants in Section 8.1 shall not
terminate upon the termination of this Agreement. PII acknowledges that a
violation of any of the provisions of Section 8.1 will result in immediate and
irreparable damage to MICRA or MSSI and agrees that in the event of such
violation MICRA or MSSI, in addition to any other right of relief, shall be
entitled to equitable relief by way of a temporary or permanent injunction and
to such other relief that any court of competent jurisdiction may deem just and
proper. If PII is in breach of any such restrictions, the running of the period
of such restrictions shall be stayed and shall recommence upon the date PII
ceases to be in breach thereof, whether voluntarily or by injunction.
8.4 Notwithstanding anything to the contrary in this Section 8, MICRA and MSSI
hereby acknowledge that:
(a) PII, its principal, Brian Price, and certain companies under the control of
Brian Price are in the business of manufacturing trading cards;
(b) such trading cards may in the future incorporate sound or audio recordings;
and
(c) the manufacture of such trading cards shall not be deemed to violate or
contravene the provisions of this Section 8 provided that the technology used to
manufacture such trading cards does not violate or infringe any of MICRA's
patents or proprietary rights.
9. Notices. All notifications, requests or other communications required or
permitted by this Agreement shall be in writing and directed as indicated below.
Any such notice shall be deemed given and effective when (a) delivered
personally, by telex or telecopier, or by overnight courier, or (b) three (3)
days after the postmark date if mailed by certified or registered mail, postage
prepaid, return receipt requested and addressed as follows:
If sent to PII, address to:
Price International Inc.
22 St. Joseph Street
Toronto, Ontario
M4Y 1J9
Attention: Brian Price
<PAGE>
-6-
Telecopier: (416) 513-9466
If Sent to MSSI, address to:
Micra Sound Sports Inc.
135 West Beaver Creek Road
Richmond Hill, Ontario
Canada L4B 1C6
Attention: Dieter Doederlein
Telecopier: (905) 889-4124
If sent to MICRA, address to:
Micra Soundcards, Inc.
135 West Beaver Creek Road
Richmond Hill, Ontario
Canada L4B 1C6
Attention: Dieter Doederlein
Telecopier: (905) 889-4124
Addresses may be modified at any time by written notification from one party to
the other party.
10. No Assignment. This Agreement may not be assigned by any party without the
prior written consent of the other parties, except in connection with a bona
fide sale of all or substantially all of the assets of the party to a third
party provided that such third party agrees in writing to be bound by the terms
and conditions of this Agreement as though an original signatory hereto.
11. Non-Waiver and Amendment. Failure by either party to enforce or take
advantage of any provision of this Agreement shall not constitute a waiver of
the right to enforce or take advantage of such provision. Except as otherwise
provided herein, this Agreement or any of the terms and provisions thereof may
not be changed, amended or waived, in any manner whatsoever, except by written
agreement executed by an authorized officer of each party.
12. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario. Any action
brought to resolve a dispute arising from the interpretation or construction of
or to enforce this Agreement shall be brought in a court of appropriate
jurisdiction in the Province of Ontario and both parties hereby consent to the
personal jurisdiction of any such court.
13. Relationship between the Parties. This Agreement shall not give rise to any
relationship of employment, commission agency, agency, partnership, joint
venture or company between the parties. None of the parties shall have power to
represent any of the other parties or have the authority, whether express or
implied, to assume or create any obligation on, behalf of the other parties.
14. Severability. If any of the provisions of this Agreement are declared to be
invalid, such provisions shall be severed from this Agreement and the other
provisions herein shall remain in full force and effect.
15. Section References and Captions. Any reference in this Agreement to a
section or subsection shall be deemed to include a reference to any subsidiary
sections whenever the context requires. The captions of the sections and
subsidiary sections of this Agreement are included for reference purposes only
and are not intended to be a part of the Agreement or in any way to define,
limit or describe the scope or intent of the particular provision to which they
refer.
16. Entire Agreement. This Agreement, including any attachments, exhibits or
appendices attached hereto, sets forth all of the promises, agreements,
conditions and understandings, written or oral, between the parties hereto with
respect to the subject matter hereof and constitutes the entire agreement
between the parties, superseding any prior or contemporaneous oral or written
agreements or understandings.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate copies
on the day and year first above set forth.
MICRA Sound SPORTS Inc. PRICE INTERNATIONAL INC.
By: (signed) "Brian Price"
By: (signed) "Dieter Doederlein" --------------------------------
--------------------------------
Name:-------------------------------- Name:--------------------------------
Title:------------------------------- Title:-------------------------------
Date:-------------------------------- Date:--------------------------------
MICRA SOUNDCARDS INC.
By: (signed) "Dieter Doederlein"
--------------------------------
Name:--------------------------------
Title:-------------------------------
Date:--------------------------------
<PAGE>
Exhibit 99.4(ix)
Distribution Agreement - Bid-Com International Inc.
<PAGE>
DISTRIBUTION AGREEMENT
THIS AGREEMENT made as of the 17th day of November, 1998 between Micra
Soundcards Inc., a corporation incorporated under the laws of the Province of
Ontario ("MICRA"), and Bid.Com International Inc., a corporation incorporated
under the laws of the Province of Ontario ("BID.COM").
WHEREAS MICRA has developed a card (the "SoundCard") which will carry (i) an
image of an athlete or other notable person, and (ii) an audio or video
recording concerning that person. MICRA has also developed a playback unit (the
"Player") with the ability to play back the audio recording on the SoundCard;
AND WHEREAS through the registration of patents and other means of protecting
intellectual property, MICRA has taken such steps as it has deemed necessary to
ensure that (i) it has all necessary intellectual property rights to make and
distribute the SoundCard and Player, and (ii) the SoundCard and Player do not
offend or infringe any other person's intellectual property rights;
AND WHEREAS MICRA will use its commercially reasonable efforts to ensure that
all licences and rights it deems necessary are obtained for the use of the
intellectual and proprietary property embodied in all SoundCards distributed
pursuant to this agreement.
NOW THEREFORE IN CONSIDERATION of the premises and mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. Distributorship
MICRA grants to BID.COM:
(a) the exclusive, world-wide right to market, distribute and sell the Player
(or any other player using technology owned or controlled by MICRA) through the
Internet and any other form of computer-assisted electronic commerce, whether
via cable, satellite and other means through televisions, computers and other
receivers (collectively, "Electronic Distribution");
(b) the exclusive, world-wide right to market, distribute and sell selected
SoundCards through Electronic Distribution (the parties intend to jointly agree
on the series and individual SoundCards most likely to be successful for the
purposes of this provision); and
(c) the right of first opportunity to negotiate, on a case by case basis, the
non-exclusive, world-wide right to market, distribute and sell the Player (or
any other player using technology owned or controlled by MICRA) and selected
SoundCards manufactured by MICRA through means of trade or distribution other
than Electronic Distribution; provided that, for greater certainty, this
paragraph (c) shall not impact, limit, restrict or otherwise affect MICRA's
ability to consummate any marketing, distribution or sales arrangements or
agreements entered into or being pursued by MICRA as of the date hereof.
Subject to the terms of this agreement, MICRA will offer for sale to BID.COM all
SoundCards which are available for distribution or sale except certain
"proprietary" SoundCards manufactured for the exclusive use of specific
customers of MICRA for the purpose of promoting their products or services and
BID.COM hereby acknowledges and agrees that such SoundCards will not be offered
to it for sale.
2. No Rights of Ownership
The grant of the right to market, distribute and sell the Player and SoundCards
contemplated by Section 1 shall not include or create any right or interest of
BID.COM in the Player or SoundCards or give BID.COM the right to modify or make
alterations or improvements thereto or otherwise reverse engineer or disassemble
the Player or SoundCards.
<PAGE>
-2-
3. Term of Agreement
Subject to the provisions of Section 8 of this agreement, the rights granted to
BID.COM under this agreement will continue until December 31, 2001. This
agreement shall be automatically renewed for consecutive terms of two years
subject to notice of intention not to renew given by either party at least six
months prior to the expiration of the original or any renewal term.
4. Purchase by BID.COM
(1) BID.COM will:
(a) within 30 days of receipt of notification from MICRA that such SoundCards
have been approved for distribution, purchase at least 100,000 Players and
100,000 SoundCards with the image of and a recording about Michael Jordan;
(b) place orders for additional Players and other SoundCards at the earliest
appropriate opportunity following the completion by MICRA of arrangements
necessary to manufacture and market those SoundCards;
(c) meet with MICRA every three months during the first year of the initial term
of this agreement and every six months thereafter to determine and establish
commercially reasonable quarterly sales targets;
(d) not remove or allow any employee or agent of BID.COM to remove any of
MICRA's product identifications or copyright, trademark or patent notifications;
(e) give prominence to the MICRA trademark notice on all marketing materials it
produces as part of its promotional efforts; and
(f) not market, distribute or sell or offer to market, distribute or sell any
other "talking trading card" or product reasonably similar to or competitive
with the SoundCards.
(2) MICRA will:
(a) ensure that all licences and rights as it deems necessary are obtained
for the manufacture and marketing of the Players and SoundCards;
(b) provide a minimum one year replacement or full refund warranty on all
SoundCards and Players;
(c) make the necessary arrangements to ensure the availability of the SoundCards
and Players in sufficient quantities to meet BID.COM's orders promptly;
(d) sell Players to BID.COM at U.S. $2.50 per unit and sell SoundCards at
commercially reasonable prices to be negotiated between BID.COM and MICRA in
good faith based on the guidelines set forth in the attached Schedule "A"; and
(e) not sell or offer to sell the Players and SoundCards to other purchasers at
prices and on terms that are materially higher or less favourable than the price
and terms offered to BID.COM for the same products and similar quantities
thereby resulting in a competitive disadvantage.
The quantities ordered by BID.COM will be in commercially reasonable amounts
given the methods of marketing used by it. BID.COM understand that (i) there
will be a minimum order quantity of 50,000 SoundCards for each order of
SoundCards, (ii) delivery and payment will be F.O.B. MICRA's Toronto facility or
such other location as BID.COM may reasonably request, and (iii) payment shall
be made as to 30% of the purchase price, by cash, certified cheque, bank draft
or money order, and as to the balance, by irrevocable, transferable letter of
credit, in each case delivered with the order.
<PAGE>
-3-
5. BID.COM Promotion
BID.COM will actively market and promote the sale of the Players and the
SoundCards in a commercially reasonable fashion with a view to maximizing the
profit earned by BID.COM on the sale of Players and SoundCards and maximizing
the volume of Players and SoundCards ordered from MICRA, subject to BID.COM's
merchandising, inventory control and promotional techniques. BID.COM shall
consult with and advise MICRA of its proposed pricing policy and any changes
thereto.
6. MICRA
Notwithstanding any other provision of this agreement, nothing herein shall
restrict, impair or otherwise limit MICRA's right and ability to market,
distribute and sell the Players and Soundcards to any customer which markets,
distributes or sells or intends to market, distribute or sell its products and
services through Electronic Distribution, provided that:
(a) such customer is not engaged primarily in the business of marketing,
distributing and selling products and services through Electronic Distribution;
(b) MICRA advises such customers of the rights held by BID.COM and introduces
BID.COM to such customers to facilitate negotiations by BID.COM of exclusive
sales by way of Electronic Distribution; and
(c) MICRA takes all action it reasonably deems necessary to prevent an
infringement of the rights held by BID.COM by any of MICRA's customers.
7. Rights of Other Parties
Except in respect of any SoundCards which may be manufactured from time to time
at the specific request of BID.COM, MICRA shall be responsible for obtaining all
consents, licences, rights or permits required to manufacture and to sell the
SoundCards and the Players throughout the world and shall ensure that all
royalties, fees and any other expenses are accounted for and paid. MICRA's
aggregate liability for costs or damages under this agreement shall be limited
to the purchase price for the Players and SoundCards purchased hereunder. MICRA
shall not be liable for any indirect, incidental, special or consequential
damages in connection with or arising out of the sale or use of the Player and
SoundCards.
8. Termination
Either MICRA or BID.COM (the "Terminating Party") may terminate this agreement:
(a) on 60 days written notice provided that:
(i) the other party has committed a material breach of its obligations under
this agreement including, for greater certainty, the failure to satisfy any
sales targets established by MICRA and BID.COM pursuant to subsection 4(1)(c);
(ii) the Terminating Party has given written notice to the other party of the
material breach together with sufficient information about the breach to permit
the other party to respond to the notice; and
(iii) the other party has not cured the breach within 60 days of the date of
the receipt of the notice by the order party, or
(b) immediately, if the other party is declared bankrupt or insolvent or files
for voluntary bankruptcy, insolvency or similar creditor protection or otherwise
ceases to carry on its business.
<PAGE>
-4-
9. Intellectual Property
(a) All patents, trade secrets, copyright, trademarks, trade names, service
marks, quality designations and other proprietary words, symbols and technology
of MICRA (collectively, "Intellectual Property") are and remain the exclusive
property of MICRA, whether or not specifically registered or recognized under
applicable law. BID.COM will not take any action that jeopardizes MICRA's rights
in, or acquire any right to, the Intellectual Property except the limited rights
specified below in paragraph 9(b).
(b) BID.COM may use the trademarks, tradenames, service marks and quality
designations (collectively, the "Trademarks") exclusively to advertise and
promote the Player and Soundcards. All advertisements and promotional materials
shall (i) clearly identify MICRA as the owner of the Trademarks, (ii) conform to
MICRA's current trademark and logo type guidelines, and (iii) otherwise comply
with any applicable notice or marking requirement.
(c) Before publishing or disseminating any advertisement or promotional material
bearing a Trademark, BID.COM shall deliver a copy of the advertisement or
promotional materials to MICRA for approval. If MICRA gives notice within five
(5) business days of delivery that the proposed use of its Trademark is
inappropriate, BID.COM shall refrain from placing the advertisement or
promotional materials in circulation.
(d) BID.COM shall immediately notify MICRA if it learns (i) of any potential
infringement of MICRA's right in and to the Intellectual Property by a third
party, or (ii) the use of Intellectual Property may infringe the proprietary
rights of a third party.
10. Confidentiality
(a) Each party acknowledges that it may disclose to the other, in connection to
the performance of this agreement, data or other information which is
confidential or proprietary, the disclosure of which to or use by any
unauthorized party may be damaging (collectively, the "Confidential
Information"). No Confidential Information of a party shall be disclosed by the
other party to any person, except those of its employees or agents having a need
to know for the purposes contemplated by this agreement. If either party
discloses any of its Confidential Information to the other party, the party
receiving the Confidential Information shall (i) maintain it in confidence; (ii)
use at least the same degree of care in maintaining its secrecy as it uses in
maintaining the secrecy of its own proprietary confidential and trade secret
information, but in no event with less care than is reasonable given the nature
of the information; (iii) use it only to fulfil its obligations under this
agreement unless hereinafter agreed in writing by the other party; and (iv)
return all copies, notes, packages, diagrams, computer memory media and other
materials containing any portion of the Confidential Information to the
disclosing party upon its reasonable request given the rights and obligations of
the parties hereunder.
(b) Neither party shall have any obligations of non-disclosure concerning any
portion of the Confidential Information of the other party of which (i) is known
or independently developed by the non-disclosing party before receipt, directly
or indirectly, from the disclosing party; (ii) is lawfully obtained, directly or
indirectly, by the non-disclosing party under no obligation of confidentiality
from a third party acting in good faith; or (iii) is or becomes publicly
available other than its result to act or failure to act by the non-disclosing
party, its agent or employees.
11. General
(a) This agreement shall be governed by the laws of the Province of Ontario and
the parties hereby irrevocably attorn to the exclusive jurisdiction of the
Courts of the Province of Ontario in respect of the subject matter hereof.
(b) MICRA and BID.COM are independent contractors and neither is the agent,
representative, partner or joint venturer of the other.
(c) If any provision of this agreement is deemed to be invalid or unenforceable,
that provision shall be severed from this agreement and the remainder of this
letter agreement shall remain in full force and effect. If such severed
<PAGE>
-5-
provision is fundamental to the relationship governed by this agreement, then
either party shall have the right to terminate the distributorship and related
rights as if the severance of such provision was a material breach of this
letter agreement and such termination may only be effected in accordance with
Section 8 above.
(d) This agreement contains the entire understanding between the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous written or oral negotiations and agreements. This agreement may
be amended only in writing signed by both parties.
(e) Neither party may transfer or assign this agreement, or any part hereof,
without the prior written approval of the other, not to be unreasonably
withheld; provided, however, that MICRA may transfer or assign this agreement to
a third party without the prior written consent of BID.COM so long as the
assignment or transfer is in connection with the sale or transfer of all or
substantially all of the assets of MICRA and the assignee agrees in writing to
be bound by the terms and conditions of this agreement.
(f) This agreement shall be binding upon and enure to the benefit of the parties
hereto and their respective successors and permitted assigns.
(g) The provisions of Sections 7, 9, 10 and 11(a) shall survive any termination
of this agreement.
(h) Any notice required or permitted hereunder shall be deemed given when
personally delivered or sent by facsimile properly addressed to the party to
receive the notice at the following address or any other address given to the
other party as provided in this paragraph:
if to BID.COM:
Bid.Com International Inc.
2701 North Rocky Point Drive
Suite 510
Tampa, Florida
33607-5917
Attention: Jeff Lymburner
Facsimile: (813) 636-8026
Bid.Com International Inc.
6725 Airport Road
Suite 201
Mississauga, Ontario
L4V 1V2
Attention: Paul Godin
Facsimile: (905) 672-7514
if to MICRA:
Micra Soundcards
135 West Beaver Creek Road
Richmond Hill, Ontario
L4B 1C6
Attention: Dieter Doederlein
Facsimile: (905) 669-6778
<PAGE>
-6-
IN WITNESS WHEREOF the parties have executed this agreement as of the day and
year first written above.
MICRA SOUNDCARDS INC.
Per: (signed) "Dieter Doederlein"
---------------------------------------
Dieter Doederlein
BID.COM INTERNATIONAL INC.
Per: (signed) "Jeff Lymburner"
---------------------------------------
Jeff Lymburner
<PAGE>
-7-
SCHEDULE "A"
PRICING GUIDELINES AND TECHNICAL
--------------------------------
Specifications for Soundcards
-----------------------------
($ in U.S. funds and for 12 second message only)
<TABLE>
<CAPTION>
Quantity: 2,500 5,000 10,000 25,000 50,000 100,000
<S> <C> <C> <C> <C> <C> <C>
Masking: $ 3,500 $ 3,500 $ 3,500 $ 3,500 0 0
Cost/card: 7.26 3.81 1.59 1.41 $ 1.19 $ 1.15
Packaging: .35 .35 .35 .35 .35 .35
Royalties: 2.25 2.00 1.75 1.50 1.00 1.00
---------- ----------- ----------- ----------- --------- ---------
Cost to BID.COM $ 9.86 $ 6.16 $ 3.69 $ 3.26 $ 2.72 $ 2.50
</TABLE>
Players cost $2.50 each, including batteries.
Set forth below are the parameters if BID.COM wishes to produce its own licensed
SoundCards.
Required materials:
. Art on Mac Illustrator 6.0
. Film on CD Disc or Zip, 150-line screen. (Die lines and crop marks will
be supplied by MICRA).
. Bleed or borders are not subject to increases or discounts.
Timing:
. DAT tape: E-Prom available within 7 to 10 days.
. The voice chips take at least 35 days; production is at 300,000 a week,
building to 1 million per week in January 1999.
Other Specifications:
. Cards measure 2.5 x 3.5 inches.
. Caliper for stand-alone card: 3 mm; for player card: 2 mm.
. Weight: cards: 0.05 lbs.; player: 0.20 lbs.
. All product is F.O.B. Toronto and bulk packed, unless otherwise
requested:
- - cards are in 1.5 mill poly bags.
- - players are bubble packed.
. Terms are 30% with order and irrevocable and transferable LC for
balance, payable 30% when goods clear North American customs and 40% upon
delivery to BID.COM's warehouse.
<PAGE>
Exhibit 99.4(x)
Distribution Agreement - HA.LO Canada Inc.
<PAGE>
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT made as of the 10th day of December, 1998 between
MICRA SOUNDCARDS INC. ("Micra"), a corporation incorporated under the laws of
the Province of Ontario having its principal place of business at 135 West
Beaver Creek Road, Richmond Hill, Ontario and HA-LO CANADA INC. ("HA-LO"), a
corporation incorporated under the laws of the Province of Ontario having its
principal place of business at 707 Gordon Baker Road, Toronto, Ontario.
WHEREAS MICRA is engaged primarily in the development and manufacture of certain
talking trading cards products (collectively, "Micra Products");
AND WHEREAS HA-LO is in the business of marketing, selling and distributing
specialty advertising products;
AND WHEREAS HA-LO is desirous of acquiring the worldwide right and license to
sell the Products for corporate promotions ("Corporate Promotions"), with or
without corporate logos, whereby corporate clients of HA-LO ("HA-LO Clients")
purchase Micra Products from HA-LO for the purpose of consumer promotions, in
packs, give-aways, incentive program premiums, advertising specialities or for
any other related promotional purpose;
NOW THEREFORE IN CONSIDERATION of the premises and mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. Grant of Licenses. Subject to the terms and conditions hereof, Micra hereby
------------------
grants to HA-LO the non-transferable, worldwide right and license to market,
distribute and sell the Micra Products to HA-LO Clients for Corporate
Promotions:
(a) on an exclusive basis in connection with the 2000 Summer Olympics to be
held in Sydney, Australia and the 2002 Winter Olympics to be held in Salt Lake
City, Utah; and
(b) on a non-exclusive basis in connection with any other events or for any
other Corporate Promotion purpose, provided that upon receipt of written
notification by HA-LO satisfactory to MICRA that HA-LO has secured an order or
that HA-LO reasonably expects to secure within one month an order for MICRA
Products from a HA-LO Client, HA-LO shall thereafter have the non-transferable,
worldwide right and license to market, distribute and sell the Micra Products to
that HA-LO Client on an exclusive basis and MICRA shall thereafter cease to
market, distribute or sell or offer to market, distribute or sell Micra Products
to that HA-LO Client or any company or other business entity identified by HA-LO
as a competitor of that HA-LO Client.
2. Rights Retained by Micra. For greater certainty, HA-LO acknowledges and
-------------------------
agrees that the rights and licenses granted to HA-LO hereunder are limited to
Corporate Promotions and that no provision hereof shall prevent, restrict, limit
or otherwise affect MICRA's right and ability to market, distribute and sell
"licensed" Micra Products for which Micra is required to obtain a license from
or pay a royalty to a third party or Micra Products which are sold on a "retail"
basis.
3. Term. This Agreement shall remain in full force and effect for a term (the
-----
"Term") of approximately three (3) years commencing on the date hereof and
expiring on December 31, 2001.
4. Covenants of HA-LO. HA-LO hereby covenants and agrees:
-------------------
(a) to use its best commercial efforts to market, distribute and sell the Micra
Products to the HA-LO clients for Corporate Promotions on a worldwide basis;
<PAGE>
-2-
(b) to meet with MICRA at least once every six (6) months during the Term to
review HA-LO's efforts hereunder, discuss pending orders and identify any HA-LO
Clients in respect of which exclusivity is required in accordance with
subsection 1(b) hereof;
(c) to obtain all necessary consents, approvals, licenses, sub-licenses and
other rights (collectively, the "Approvals") necessary in connection with all
images, sounds, logos, trademarks and other markings incorporated in or on any
Micra Products ordered by HA-LO;
(d) to indemnify and save harmless Micra and its directors, officers,
shareholders, employees, agents, affiliates, associates and other
representatives from and against all claims, demands, costs, expenses, actions,
causes of actions and other liabilities whatsoever arising from any failure by
HA-LO to obtain all necessary Approvals; and
(e) not to market, distribute or sell or offer to market, distribute or sell,
and to use its reasonable best efforts to ensure that its agents, contractors
and other representatives do not market, distribute or sell or offer to market,
distribute or sell, any other "talking trading card" or products reasonably
similar to or competitive with Micra's Products.
5. Covenants of Micra. MICRA hereby covenants and agrees:
-------------------
(a) to provide a minimum one year replacement or full refund warranty on all
Micra Products;
(b) to make all necessary arrangements to ensure the availability of Micra
Products in sufficient quantities to meet HA-LO's orders promptly;
(c) not to retain the services or otherwise sell or offer to sell Micra
Products to any company or entity whose principal business activity is Corporate
Promotions;
(d) to provide HA-LO with a list of all companies or entities which Micra or
any of its agents or representatives have contacted or are in discussions with
in respect of Corporate Promotions and, where Micra deems appropriate on the
advice of HA-LO, to cease such discussions and/or refer such company or entity
to HA-LO;
(e) not to sell or offer to sell Micra Products directly to any HA-LO Client
from whom HA-LO has previously secured or reasonably anticipates securing an
order for Micra Products; and
(f) to indemnify and save harmless HA-LO and its directors, officers,
shareholders, employees, agents, affiliates, associates and other
representatives from and against all claims, demands, costs, expenses, actions,
causes of actions and other liabilities whatsoever arising from or in respect of
any of MICRA's patents, trademarks or other intellectual property;
6. Pricing and Payment Terms. Pricing of the Micra Products shall be
-------------------------
negotiated in good faith by MICRA and HA-LO in the context of each order placed
by HA-LO during the Term. Each order shall be payable, as to thirty per cent
(30%) of the purchase price, in cash and as to the balance of the purchase
price, by an irrevocable, transferable letter of credit of a recognized
financial institution, in each case, delivered with the purchase order.
7. Shipping. Micra shall use its best reasonable efforts to promptly and
--------
timely ship, and custom imprint where applicable, the Micra Products ordered by
HA-LO in order to meet the delivery dates requested by HA-LO.
8. Termination. This Agreement may be terminated by either party:
------------
(a) on 60 days prior written notice given to the other party; or
<PAGE>
-3-
(b) immediately if the other party is declared bankrupt or insolvent, files for
voluntary bankruptcy, insolvency or similar creditor protection or otherwise
ceases to carry on its business.
9. Intellectual Property.
----------------------
(a) All patents, trade secrets, copyright, trademarks, trade names, service
marks, quality designations and other proprietary words, symbols and technology
of MICRA (collectively, "Intellectual Property") are and remain the exclusive
property of MICRA, whether or not specifically registered or recognized under
applicable law. HA-LO will not take any action that jeopardizes MICRA's rights
in, or acquire any right to, the Intellectual Property except the limited rights
specified below in subsection 9(b).
(b) HA-LO may use the trademarks, tradenames, service marks and quality
designations (collectively, the "Trademarks") exclusively to advertise and
promote the Micra Products. All advertisements and promotional materials shall
(i) clearly identify MICRA as the owner of the Trademarks, (ii) conform to
MICRA's current trademark and logo type guidelines, and (iii) otherwise comply
with any applicable notice or marking requirement.
(c) Before publishing or disseminating any advertisement or promotional
material bearing a Trademark, HA-LO shall deliver a copy of the advertisement or
promotional materials to MICRA for approval. If MICRA gives notice within five
(5) business days of delivery that the proposed use of its Trademark is
inappropriate, HA-LO shall refrain from placing the advertisement or promotional
materials in circulation.
(d) HA-LO shall immediately notify MICRA if it learns (i) of any potential
infringement of MICRA's right in and to the Intellectual Property by a third
party, or (ii) the use of Intellectual Property may infringe the proprietary
rights of a third party.
10. Confidentiality.
---------------
(a) Each party acknowledges that it may disclose to the other, in connection to
the performance of this agreement, data or other information which is
confidential or proprietary, the disclosure of which to or use by any
unauthorized party may be damaging (collectively, the "Confidential
Information"). No Confidential Information (which shall be deemed to include the
content of this Agreement) of a party shall be disclosed by the other party to
any person, except those of its employees or agents having a need to know for
the purposes contemplated by this agreement. If either party discloses any of
its Confidential Information to the other party, the party receiving the
Confidential Information shall (i) maintain it in confidence; (ii) use at least
the same degree of care in maintaining its secrecy as it uses in maintaining the
secrecy of its own proprietary confidential and trade secret information, but in
no event with less care than is reasonable given the nature of the information;
(iii) use it only to fulfil its obligations under this agreement unless
hereinafter agreed in writing by the other party; and (iv) return all copies,
notes, packages, diagrams, computer memory media and other materials containing
any portion of the Confidential Information to the disclosing party upon its
reasonable request given the rights and obligations of the parties hereunder.
(b) Neither party shall have any obligations of non-disclosure concerning any
portion of the Confidential Information of the other party of which (i) is known
or independently developed by the non-disclosing party before receipt, directly
or indirectly, from the disclosing party; (ii) is lawfully obtained, directly or
indirectly, by the non-disclosing party under no obligation of confidentiality
from a third party acting in good faith; or (iii) is or becomes publicly
available other than its result to act or failure to act by the non-disclosing
party, its agent or employees.
<PAGE>
-4-
11. Notice. Any notice required to be given in writing under this Agreement
------
shall be delivered or telecopied to the respective address or telecopier number
of the parties set forth below:
HA-LO Canada Inc. Micra Soundcards Inc.
707 Gordon Baker Road 135 West Beaver Creek Road
Toronto, Ontario Richmond Hill, Ontario
M2H 2S6 L45 1C6
Attention: Howard Gold Attention: Dieter Doederlein, President
Telecopier: (416) 494-3028 Telecopier: (905) 889-4124
12. General.
-------
(a) This Agreement shall be governed by the laws of the Province of Ontario and
the parties hereby irrevocably attorn to the exclusive jurisdiction of the
Courts of the Province of Ontario in respect of the subject matter hereof.
(b) MICRA and HA-LO are independent contractors and neither is the agent,
representative, partner or joint venturer of the other.
(c) If any provision of this Agreement is deemed to be invalid or
unenforceable, that provision shall be severed from this agreement and the
remainder of this letter agreement shall remain in full force and effect. If
such severed provision is fundamental to the relationship governed by this
Agreement, then either party shall have the right to terminate the
distributorship and related rights as if the severance of such provision was a
material breach of this letter agreement and such termination may only be
effected in accordance with section 8 above.
(d) This Agreement contains the entire understanding between the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous written or oral negotiations and agreements. This Agreement may
be amended only in writing signed by both parties.
(e) Neither party may transfer or assign this Agreement, or any part hereof,
without the prior written approval of the other, not to be unreasonably
withheld; provided, however, that MICRA may transfer or assign this agreement to
a third party without the prior written consent of HA-LO so long as the
assignment or transfer is in connection with the sale or transfer of all or
substantially all of the assets of MICRA and the assignee agrees in writing to
be bound by the terms and conditions of this Agreement.
(f) This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(g) The provisions of sections 4(d), 9, 10 and 12(a) shall survive any
termination of this Agreement.
<PAGE>
-5-
(h) This Agreement may be executed in one or more counterparts and may be
executed and delivered by facsimile transmission and such counterparts and
facsimile transmissions, when taken together, shall be deemed to constitute one
and the same binding agreement.
DATED as of this 10th day of December, 1998.
HA-LO CANADA INC.
Per: (signed) "Howard Gold"
--------------------------------------
Authorized Signing Officer
MICRA SOUNDCARDS INC.
Per: (signed) "Dieter Doederlein"
--------------------------------------
Authorized Signing Officer
<PAGE>
Exhibit 99.4(xi)
Ficel Marketing Agreement
<PAGE>
AGREEMENT
B E T W E E N:
FICEL MARKETING CORP., an Ontario
corporation with offices
at 6-2400 Dundas Street West, Suite 127
Mississauga, Ontario
L5K 2R8
(hereinafter called "Ficel")
- and -
MICRA SOUNDCARDS INC., an Ontario corporation
with offices at 135 West Beaver Creek Road
Richmond Hill, Ontario
L4B 1C6
(hereinafter called "Micra")
WHEREAS Micra holds two patents and has several patents pending on a product
generally referred to as "Talking Trading Cards";
WHEREAS Ficel holds the rights to the likeness and image of Paul Henderson and
holds the rights to the voice of Foster Hewitt as he called the winning goal in
game 8 of the Canada vs. Soviet Union series in 1972;
WHEREAS Micra wishes to produce "player" cards and "stand-alone" cards with the
likeness and image of Paul Henderson scoring the winning goal in game 8 of the
1972 Canada vs. The Soviet Union series, complete with the voice of Foster
Hewitt as he called the play;
NOW THEREFORE, in consideration of the mutual promises, covenants and conditions
contained herein, both parties hereby agree to the following:
1. Micra will produce 2,000 "stand-alone" cards, 2,000 players and 2,000
"player" "Talking Trading Cards" utilizing the image of Paul Henderson. Micra
will retain 1,000 of each of these items to be used strictly as selling
samples/giveaways to potential customers and investors in Micra. They are not
to be utilized for sale by Micra. The remaining 1,000 "stand-alone" cards,
1,000 "player" cards and 1,000 players will be provided to Ficel to be used as
Ficel wishes; provided, however, that if Ficel breaches or otherwise fails to
comply with the terms of section 2 of this Agreement, Ficel will forthwith
return such "stand-alone" cards, "player" cards and players to Micra. The costs
of production of the cards and players will be Micra's costs in its totality.
2. Ficel will provide the approval to Micra for the use in both the production
and distribution of "Talking Trading Cards" of the image of Paul Henderson and
of the winning call by Foster Hewitt of the goal scored by Paul Henderson in
game 8 of the 1972 Canada vs. The Soviet Union series. Ficel represents and
warrants to Micra, and acknowledges that Micra is relying on such representation
and warranty in entering into this Agreement, that it has the rights for the use
of the image of Paul Henderson as described and the use of the "call" of the
goal and the authority to license, assign or otherwise transfer such rights to
Micra as herein contemplated.
3. The parties acknowledge that Ficel has provided final press sheets of the
front and back of the cards, and all work up to that point was approved by
Micra.
4. Ficel will only deal with Micra for the production of "Heritage Hockey
Talking Trading Cards" during the term of this Agreement. "Heritage Hockey" is
defined as all hockey players and personalities who have retired for at least 12
months from the NHL. Ficel hereby covenants and agrees to use its best efforts
to obtain and provide to Micra the right
<PAGE>
-2-
to use images and sounds of such other "Heritage Hockey" players and
personalities as Ficel and Micra may from time to time mutually agree. Subject
to section 6 of this Agreement, Micra will provide to Ficel world-wide and
exclusive rights to market and sell "Heritage Hockey Talking Trading Cards",
where the sound is manufactured by Micra. Any royalties that may have to be paid
to the NHL, the NHLPA or any other person or entity will be the sole
responsibility of Ficel. Ficel will indemnify and forever hold Micra harmless
from and against any and all claims respecting the use of the images or sounds
related to any "Heritage Hockey" players or personalities where royalties are
payable to the NHL , the NHLPA or any other person or entity.
5. Ficel will indemnify and forever hold Micra harmless from and against any
and all further claims respecting the use of the image of Paul Henderson as
provided for in the playing cards and the "call" of Foster Hewitt as provided in
the playing cards as set out above and for any and all claims respecting the use
of images and sounds of other "Heritage Hockey" players and personalities
provided by Ficel for use by Micra in the production, marketing and distribution
of "Heritage Hockey Talking Trading Cards". Ficel does not warrant that there
is any value to the cards or the "call" and does not guarantee any minimum price
that any individual will pay for such a card.
6. In the event that a customer of Micra wishes Micra to produce "Heritage
Hockey Talking Trading Cards" on its behalf, Micra shall be entitled to do so
provided that Micra has discussed each and every occurrence with Ficel and
agreed to pay Ficel a reasonable royalty or commission to be negotiated in good
faith by Ficel and Micra. If the customer wishes to retain the services of
Ficel for negotiations and other creative services, Micra will introduce Ficel
to the customer as part of the team, however, Micra will not be entitled to any
royalties as a result of such introduction.
7. The term of this Agreement (other than the indemnities set forth in sections
4 and 5 which shall not be limited) shall be for a period of three (3) years
from June 1, 1998, which term shall automatically renew for a further period of
two (2) years, provided Ficel has ordered a total of 600,000 "Talking Trading
Cards" on or before June 1, 2001. If Ficel does not achieve this goal, then
this Agreement will automatically terminate on May 31, 2001, unless it is
further extended in writing between Ficel and Micra.
8. Micra's selling price to Ficel on all orders that Ficel may place for
"Heritage Hockey Talking Trading Cards" is subject to the final quotes but will
be at a substantial, and not for publication, discount over the selling price
quoted to trading card companies. The formula employed will be finished cost
FOB Richmond Hill plus 15 percent profit. Ficel has the right to inspect the
quote to determine that the components that make up the quote are actual costs
to Micra. Ficel acknowledges that the finished cost shall include the cost of
any letters of credit that Micra is required to issue or cause to be issued to
its offshore suppliers. Payment terms will be negotiated in good faith by Ficel
and Micra for each order. In such negotiations, due consideration shall be
given to Micra's standard payment terms as dictated by its offshore suppliers,
namely payment of 20% of the aggregate purchase price payable in cash
concurrently with delivery of the order accompanied by a letter of credit posted
by a financial institution acceptable to Micra for the balance.
9. Each party agrees, both during and after the term of this Agreement, to
maintain in strict confidence all confidential and proprietary information
obtained from the other both pursuant to this Agreement and prior to it and all
other information that it may acquire from the other in the course of this
Agreement, to respect the other's proprietary rights therein, to use the same
exclusively for the purposes of this Agreement, and to disclose the same only to
those of its employees and contractors pursuant to this Agreement (if any) to
whom and to the extent that such disclosure is reasonably necessary for the
purpose of this Agreement. The foregoing obligations shall not apply to
confidential or proprietary information which:
(a) prior to receipt thereof from one party was in the possession of the other
and at its free disposal;
(b) is subsequently disclosed to the recipient party without any obligations of
confidence by a third party who has not derived it directly or indirectly from
the other;
(c) is or becomes generally available to the public through no act or default
of the recipient party or its agents or employees;
(d) is required to be disclosed as a matter of law or by a judicial or
regulatory body having jurisdiction over the recipient party; or
<PAGE>
-3-
(e) is reasonably required to be disclosed to actual or potential customers to
promote the sale or use of "Talking Trading Cards".
Each party shall also ensure that all its employees and contractors pursuant to
this Agreement (if any) who have access to any information of the other to which
the obligations of this section 9 apply shall be made aware of and subject to
these obligations.
10. During the term of this Agreement, Ficel agrees that it shall not be
engaged in, own, manage, operate or control any business that is engaged in the
production or manufacture of "Talking Trading Cards".
11. (a) Ficel hereby covenants and agrees not to do or permit to be done
any act which would or might jeopardize or invalidate Micra's operations or any
registration of Micra's patents or trademarks nor to do any act which might
assist or give rise to an application remove or invalidate any of Micra's
patents or trademarks or which might prejudice the right or title of Micra in or
to any of its patents or trademarks. Ficel further covenants and agrees that it
will not make any representation or do any act which may be taken to indicate
that it has any right, title or interest in or to the ownership or use of any of
Micra's patents or trademarks except under the terms of this Agreement, and
acknowledges that nothing contained in this Agreement shall give Ficel any
right, title or interest in or to Micra's patents or trademarks or other
property and assets save as granted hereby.
(b) Micra hereby covenants and agrees not to do or permit to be done any act
which would or might jeopardize or invalidate any of Ficel's operations and
acknowledges that nothing contained in this Agreement shall give Micra any
right, title or interest in or to Ficel's property and assets save as granted
hereby.
12. This Agreement shall immediately and automatically terminate, without
notice or other act,
(a) upon the commencement or happening of any occurrence connected with
insolvency, bankruptcy, dissolution and liquidation of either party to this
Agreement;
(b) if, in the opinion of Ficel, Micra has failed to provide working "Talking
Trading Cards" within thirty (30) days of notice by Ficel that the cards that
have been supplied are either malfunctioning or are not fit for the purpose for
which they are intended, and Micra has not corrected such defects;
(c) if either party breaches or otherwise fails to comply with any term or
provision of this Agreement and such breach or failure remains unremedied for a
period of thirty (30) days or longer; or
(d) upon the mutual agreement of Ficel and Micra.
13. Micra will indemnify and forever hold Ficel harmless from and against any
claims that are made against Ficel for any manufacturing defects respecting the
"Talking Trading Cards".
14. This Agreement will be binding upon Micra and Ficel, notwithstanding any
change of ownership of either of the companies and will be binding upon any
subsequent purchaser of either the assets of the companies or the companies in
whole.
<PAGE>
-4-
15. Any notice given by each of the parties to this Agreement should be well
and sufficiently given if mailed or delivered to the addresses as follows:
Notice to Ficel: 3100 Ridgeway Drive, Unit 35
Mississauga, Ontario
L5K 5M5
Notice to Micra: 135 West Beaver Creek Road
Richmond Hill, Ontario
L4B 1C6
Notice of change of address to each of the companies will be effective five (5)
days from the date of mailing.
16. Nothing in this Agreement shall be construed to constitute Ficel as a
partner, employee, or agent of Micra; nor shall either party have the authority
to bind the other in any respect, it being intended that Ficel and Micra are,
and shall remain independent contractors.
17. This Agreement (i) shall not be assigned by either party hereto without the
prior written consent of the other party; and (ii) shall enure to the benefit of
and be binding upon the respective successors and permitted assigns of the
parties.
18. Time shall in all respects be of the essence in this Agreement.
19. The parties agree to execute and deliver to each other such further
instruments and other written assurances and to do or cause to be done such
further acts or things as may be necessary or convenient to carry out and give
effect to the provisions of this Agreement or as either of the parties may
reasonably request in order to carry out the transactions contemplated herein.
20. This Agreement sets forth the entire agreement among the parties hereto
pertaining to the specific subject matter hereof and replaces and supersedes all
prior Agreements, understandings, negotiations and discussions, whether oral or
written, of the parties hereto, and there are no warranties, representations or
other agreements, whether oral or written, express or implied, statutory or
otherwise, between the parties hereto in connection with the subject matter
hereof except as specifically set forth herein.
21. No supplement, modification, waiver or termination of this Agreement shall
be binding unless executed in writing by the party to be bound thereby.
22. This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable
therein.
23. This Agreement may be executed in one or more counterparts and delivered
via facsimile transmission, each of which counterparts when taken together shall
constitute one and the same legal, valid and binding agreement.
<PAGE>
-5-
IN WITNESS WHEREOF the parties have set their hands and seals this day 4th
of June, 1998.
SIGNED, SEALED AND DELIVERED )
in the presence of )
) FICEL MARKETING CORP.
)
) Per: (signed) "Lillian"
) ------------------
) I have authority to bind the corporation
)
)
)
) MICRA SOUNDCARDS INC.
)
) Per: (signed) "Dieter Doederlein"
) ----------------------------
) I have authority to bind the corporation
<PAGE>
Exhibit 99.4(xii)
Joint Development and Marketing Agreement - Upper Deck
<PAGE>
JOINT DEVELOPMENT AND MARKETING AGREEMENT
THIS AGREEMENT, effective as of ______________________, 1999 by and between
Upper Deck Authenticated, Ltd., a Nevada limited liability corporation, with its
principal place of business at 5909 Sea Otter Place, Carlsbad, California 92008-
1989, The Upper Deck Company, LLC, a Delaware limited liability company, with
its principal place of business at 5909 Sea Otter Place, Carlsbad, California
92008-1989 (hereinafter collectively referred to as "Upper Deck") and Micra
Soundcards, Inc., with its principal place of business at 135 West Beaver Creek
Road, Richmond Hill, Ontario, Canada L4B 1C6 ("Micra").
WHEREAS, Upper Deck is the owner or licensee of the Upper Deck Proprietary Items
as defined herein below;
WHEREAS, Micra is in the business of developing, producing, distributing,
selling and otherwise utilizing sound trading cards; and
WHEREAS, Micra and Upper Deck wish to cooperate jointly and to use the Upper
Deck Proprietary Items to develop, sell or otherwise use the Products, as
defined herein below.
NOW, THEREFORE, in consideration of the following and of the premises and the
mutual promises contained herein, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
-----------
have the following meanings:
1.1 Joint Effort - the cooperative, joint effort of Upper Deck and Micra,
subject to the terms and conditions of this Agreement, to jointly develop,
market, sell or otherwise use the Products.
1.2 Products - One (1) Michael Jordan sound trading card with an edition of
approximately one hundred seven thousand five hundred (107,500) cards; provided,
however, such limited edition quantity may be increased upon the prior, written
approval of Upper Deck.
1.3 Territory - Worldwide.
1.4 Upper Deck Proprietary Items - the name, image and likeness of Michael
Jordan ("Jordan") and the voice of Bob Costas and the trademarks UPPER DECK(TM),
UPPER DECK AND DESIGN(TM) (as shown in Exhibit "A" attached hereto and
incorporated herein by this reference) and the UPPER DECK AUTHENTICATED(TM) logo
used in connection with the Products.
1.5 Third Party Proprietary Items - the trademarks and logos of the National
Basketball Association Properties, Inc. ("NBAP") used in connection with the
Products.
2. Joint Effort.
------------
2.1 Subject to the terms and conditions of this Agreement, Upper Deck and Micra
agree to collaborate and cooperate with one another during the term of this
Agreement to undertake and accomplish the Joint Effort; provided, however, that
the validity of this Agreement is conditioned upon Upper Deck obtaining the
express, written approval of NBA to use the Third Party Proprietary Items in
connection with the Joint Effort.
2.2 Upper Deck, as its contribution to the Joint Effort, hereby grants to Micra
a non-exclusive, non-transferable, non-assignable license, without the right to
grant sublicenses, to utilize the Upper Deck Proprietary Items in connection
with the sale of Products in the Territory. Without limiting the foregoing,
nothing in this Agreement shall be construed to prevent Upper Deck from granting
any other licenses or rights to other firms, companies, entities, groups or
individuals.
2.3 Micra agrees to use its best efforts to manufacture and sell the Products,
in consultation with Upper Deck and to Upper Deck's satisfaction, in the manner
and time frame as set forth herein in this Agreement.
2.4 Upper Deck shall use its best efforts to obtain the applicable third party
permissions and approvals to use the Third Party Proprietary Items and Upper
Deck Proprietary Items. Micra hereby agrees to abide by the covenants and to
fully perform the obligations contained in the agreements pertaining to any and
all such licenses, permissions and approvals and not to do or omit to do
anything which might constitute a breach under the terms of any such
<PAGE>
-2-
agreement. Micra shall be solely responsible for obtaining all other licenses,
permissions and approvals authorizing Micra to engage in the manufacture, sale,
distribution and advertising of the Products.
3. Representations, Warranties and Covenants.
-----------------------------------------
3.1 Micra warrants and represents that (i) Micra has the right, power and
authority to enter into this Agreement and to fully perform its obligations
hereunder; (ii) the making of this Agreement by Micra does not violate any
separate agreement existing between Micra and any other person or entity; and
(iii) all Products shall be manufactured, marketed, sold and distributed in
accordance with all applicable laws and regulations in the Territory.
3.2 Upper Deck warrants and represents that (i) Upper Deck has the right, power
and authority to enter into this Agreement and to fully perform its obligations
hereunder; (ii) the making of this Agreement by Upper Deck does not violate any
separate agreement existing between Upper Deck and any other person or entity;
and (iii) it is the owner or licensee of the Upper Deck Proprietary Items.
3.3 Micra and Upper Deck accept the rights and privileges so granted and agree
to exercise such rights and privileges strictly in accordance with the terms and
conditions of this Agreement. Micra agrees that it will utilize the Upper Deck
Proprietary Items only in, upon or in connection with the Products. Except with
the prior written consent of Upper Deck, Micra shall not use the Upper Deck
Proprietary Items for publicity purposes, combination sales, premiums or
giveaways and will not sell Products to anyone who Micra has reason to believe
will use them for publicity purposes, combination sales, premiums or giveaways.
4. Quality Standards and Manufacture of Products.
---------------------------------------------
4.1 Upper Deck desires to secure Micra or its designee to create a requested
quantity of Products. In the event Micra is not the printer of the Products,
Micra shall be, subject to the prior written approval of Upper Deck (which
approval shall not be unreasonably withheld), entitled to utilize a third party
printer of the Products, provided that such printer shall execute a letter in
the form of Exhibit "B" attached hereto and incorporated herein by this
reference. In the event Micra uses a third party manufacturer and/or printer,
Micra shall remain primarily obligated under all provisions of the Agreement.
Micra agrees that the nature and quality of all Products manufactured and
distributed hereunder shall be of the comparable quality in design, material and
workmanship of the products currently produced by Micra and shall conform to
the standards set by Upper Deck at its sole and absolute discretion. Micra
further agrees that in no event shall it have the right hereunder to use the
Upper Deck Proprietary Items or Third Party Proprietary Items, or any of them,
in any manner whatsoever (including, without limitation, on any Products, or in
connection with any publicity or promotional activities hereunder), without
obtaining Upper Deck's prior, written approval of such use in each instance,
which approval shall not be unreasonably withheld.
4.2 Micra shall retain all risk of loss or damage to the Products.
4.3 Before commencing or authorizing third parties, other than Upper Deck, to
commence the development of Products, Micra shall submit, at its sole cost, to
Upper Deck, for approval, actual proofs or final pre-production samples of the
proposed Products. Micra shall not proceed beyond the prototype or sample stage
without first securing the prior, written approval of Upper Deck. Upper Deck
has approved the production of these Products. If any derivatives of these
Products are desired, Micra shall submit samples to Upper Deck for approval.
Upper Deck shall grant such approvals within forty-five (45) days. If at the
termination of such forty-five (45) day period, Upper Deck has not granted
approval, Upper Deck shall be deemed to have withheld approval and Micra shall
either forward to Upper Deck or destroy all written materials, including, but
not limited to, written descriptions, layouts, and prototypes in connection with
the Products with such option being at Upper Deck's sole and absolute
discretion.
4.4 Upper Deck may periodically, at reasonable intervals during the term of
this Agreement, require that Micra furnish to Upper Deck a reasonable number of
items of each Product, for subsequent review of the quality of and copyright and
trademark usage and notice on same, and for any other purpose that Upper Deck
deems appropriate.
4.5 After the required approvals have been secured from Upper Deck pursuant to
Section 4.3 above, Micra shall not depart from the specifications, quality or
appearance thereof of the Products in any material respect without first
obtaining the express, written approval of Upper Deck. Micra shall make
submissions to Upper Deck and obtain approvals in the manner required above each
time new or revised concepts, layouts, descriptions, artwork, models, prototypes
or production samples are created, developed or adopted by or for Upper Deck.
<PAGE>
-3-
4.6 To ensure that the provisions of this Agreement are being observed, Micra
agrees that it will allow Upper Deck or its designees to enter Micra's premises
and/or the premises where the Products are being manufactured during regular
business hours and upon reasonable notice, for the purpose of inspecting the
Products and the facilities in which the Products are being manufactured. Micra
shall keep complete and accurate books and records during the term of this
Agreement, and for at least two (2) years thereafter, regarding its sale of
Products and all transactions relating to this Agreement, including without
limitation, copies of pertinent invoices, and shall advise Upper Deck of the
dates upon which each of the Products is first placed on sale or sold and the
dates of first use anywhere in the Territory. Such books and records shall be
available at Micra's place of business and free from interference for inspection
and audit during or after the term of this Agreement during reasonable business
hours and upon reasonable notice by Upper Deck. In the event that such
inspections reveals an underpayment by Micra of the actual royalty owed to Upper
Deck in excess of five percent (5%), in addition to paying the interest as set
forth in Section 6.7, Micra shall also reimburse Upper Deck for the cost of such
inspection.
4.7 In order to ensure that the Products are manufactured as set forth herein,
in the event that the quality standards and/or trademark and copyright usage and
notice requirements herein referred to are not met or are not maintained
throughout the period of manufacture of the Products hereunder, then, in
addition to any other rights available to Upper Deck under this Agreement or
otherwise, upon receipt of written notice from Upper Deck, Micra shall
immediately discontinue any and all manufacture of such Products.
4.8 Micra may produce Products in quantities to satisfy sales and warranty
replacements, as estimated in Micra's reasonable judgement. Micra will advise
Upper Deck of the quantity produced and available for warranty claims and the
number of Products used for such claims. Micra shall not be required to pay
royalties to Upper Deck for the shipment of any replacement or warranty
Products.
5. Upper Deck Proprietary Items.
----------------------------
5.1 Nothing herein contained shall be construed as conferring upon Micra any
right or interest in and to the Upper Deck Proprietary Items. Micra shall
immediately discontinue the use of the Upper Deck Proprietary Items upon Upper
Deck's request and, in any event, upon expiration or termination of this
Agreement. Micra acknowledges that Upper Deck is the lawful owner or licensee
of the Upper Deck Proprietary Items and that Micra shall not contest or
challenge the ownership, validity or registration of the Upper Deck Proprietary
Items at any time during the term of this Agreement and thereafter. Micra shall
have no right or interest in or claim to the Upper Deck Proprietary Items and
shall not use the same in connection with any goods other than Products or in a
manner which might tend to defeat or dilute them.
5.2 Micra further agrees that in no event shall it have the right hereunder to
use the Upper Deck Proprietary Items in any manner whatsoever, without obtaining
Upper Deck's prior written permission of such use in each instance. Micra
agrees to use the Upper Deck Proprietary Items only in the form and manner and
with appropriate notices as prescribed in writing from time to time by Upper
Deck. Micra agrees that it will not manufacture, distribute, or sell or have
manufactured, distributed, or sold on Micra's behalf any products which do not
carry notices approved in writing by Upper Deck. The following language shall
appear on all Products:
"UPPER DECK/TM/ and the Upper Deck logos are trademarks of The Upper Deck
Company, LLC."
All Products shall bear such additional copyright, trademark and other
notices as Upper Deck shall direct from time to time. Micra shall use no
markings, legends, logos and/or notices on or in association with the Products
other than (i) those specified by Upper Deck; (ii) Micra's registered trademarks
and patents; or (iii) Micra's copyright notice, without obtaining Upper Deck's
prior, written approval.
6. Payments.
--------
6.1 In consideration of the mutual covenants and the license granted hereby,
Micra agrees to pay Upper Deck a royalty equal to One Dollar ($1.00) per Product
(excluding warranty replacements as set forth in Paragraph 4.8) sold or
otherwise distributed by Micra (the "Royalty Compensation").
6.2 Micra agrees to pay Upper Deck the guaranteed minimum compensation of One
Hundred Thousand Dollars ($100,000.00) (the "Minimum Compensation") which Micra
agrees to pay to Upper Deck as a minimum royalty on Net Sales of Products during
the term of this Agreement, with such sum due as follows: Twenty Thousand
Dollars ($20,000.00) within ten (10) days of Micra's execution of this
Agreement, Thirty Thousand
<PAGE>
-4-
Dollars ($30,000.00) due on or before March 31, 1999 and Fifty Thousand Dollars
($50,000.00) due on or before April 30, 1999. Such checks shall be made payable
to Upper Deck Authenticated, Ltd. Further, Micra agrees to pay Upper Deck Two
Thousand Dollars ($2,000.00) for Bob Costa's rights within ten (10) days of
execution.
6.3 Upper Deck shall be responsible for paying all royalties associated with
the Upper Deck Proprietary Items and the Third Party Proprietary Items. Unless
otherwise agreed, Micra shall be responsible for paying all other costs,
including but not limited to, manufacturing costs and marketing costs. Further,
Micra shall be solely responsible and liable for any payments of any and all
taxes, levies, fees, shipment costs, duties and any and all other charges
imposed by any national, state or local government authority arising from the
sale of the Products.
6.4 As used herein, the term "Net Sales" shall mean gross sales
of the Products by Micra less actual returns of such Products. No deductions
may be taken for commissions, taxes or any other expenses. Sales resulting from
sales to any party directly or indirectly related to or affiliated with Micra
shall be computed based on the regular selling price of the Products concerned
to unrelated third parties.
6.5 Within thirty (30) days after the close of each calendar
month during the term of this Agreement, Micra shall furnish to Upper Deck
complete and accurate statements showing the sales volume of each Product, gross
selling price, itemized deduction from the gross selling price and the Net Sales
of the Products distributed and sold by Micra during the preceding calendar
month and during the year to date, together with any returns made during the
preceding calendar month and during the year to date. At such time as Micra has
recouped the portion of the Minimum Compensation, as applicable, previously paid
in accordance with Section 6.2 above from the Royalty Compensation payable under
Section 6.1, Micra shall, together with each monthly statement, pay to Upper
Deck the Royalty Compensation due and payable to Upper Deck during the preceding
calendar month.
6.6 Receipt or acceptance by Upper Deck of any of the reports
furnished pursuant to this Agreement or of any sums paid hereunder shall not
preclude Upper Deck from questioning the correctness thereof. In the event that
any inconsistencies or mistakes are discovered in such statements or payments,
they shall immediately be rectified and the appropriate payments shall be made
by Micra.
6.7 Payments, if not paid in full when due, shall bear interest
on any unpaid portion at the rate of twelve percent (12%) per annum or the
maximum rate allowable by applicable law, whichever is less.
7. Term; Termination.
-----------------
7.1 Subject to the provisions of this Section, this Agreement
shall commence on the effective date of this Agreement and shall expire on
December 31, 1999.
7.2 Upper Deck shall have the right to terminate this Agreement upon the giving
of ten (10) days written notice to Micra upon the occurrence of any of the
following: (i) any breach by Micra of any of the provisions of this Agreement if
such breach has not been cured within ten (10) days from the date of the notice;
(ii) breach of representations and warranties or covenants of Micra contained
herein if such breach has not been cured within ten (10) days from the date of
the notice; (iii) the appointment of any receiver or trustee to take possession
of the properties or assets of Micra; (iv) the sale of Micra; (v) the insolvency
of or filing of a voluntary petition in bankruptcy by Micra, the filing of a
petition or commencement of any proceeding to have Micra declared bankrupt or
insolvent, the appointment of a receiver or trustee for, or the execution by
Micra of an assignment for benefit of creditors, or failure or inability by
Micra to pay its debts as they become due; (vi) Micra acquires any interest in a
business in competition with Upper Deck or is in any way taken over by a
competing business; or (vii) Micra undergoes a significant change in its
ownership and Micra is not the surviving entity. In the event Micra breaches the
Agreement, by (1) advertising or promoting the Products without the express,
prior written approval of Upper Deck or (2) producing Products in excess of the
limited edition size without the express prior written approval of Upper Deck,
Micra shall immediately pay to Upper Deck One Hundred Thousand Dollars
($100,000.00) per breach.
7.3 Following any termination of this Agreement, Micra shall cease all
manufacture, distribution and sale of Products.
<PAGE>
-5-
8. Indemnification.
---------------
8.1 Micra shall indemnify and hold harmless Upper Deck, its subsidiaries,
affiliates, related companies, assigns, directors, officers, agents and
employees from any and all losses, damages, liabilities, claims, actions,
disbursements, and legal costs and attorneys' fees arising out of or connected
with (a) any breach or alleged breach of Micra's representations or warranties,
or covenants contained herein, (b) any claim or suit relating to an actual or
alleged defect in the Products manufactured or prepared by or for Upper Deck,
(c) any alleged unauthorized use of any copyrights, trademarks or logos, or (d)
any claim or suit for personal injuries or damage to property arising from or in
connection with the sale or use of the Products.
8.2 Upper Deck shall indemnify and hold harmless Micra, its subsidiaries,
affiliates, related companies, assigns, directors, officers, agents and
employees from any and all losses, damages, liabilities, claims, actions,
disbursements, and legal costs and attorneys' fees arising out of or connected
with (a) any breach or alleged breach of Upper Deck's representations or
warranties, or covenants contained herein, (b) any claim or suit relating to or
resulting from the failure by Upper Deck to pay any and all royalties, licensing
fees or other payments due to third parties in connection with the Upper Deck
Proprietary Items; and (c) any failure by Upper Deck to obtain all necessary
consents, approvals, licenses or similar rights to use the Upper Deck
Proprietary Items.
8.3 Upper Deck agrees to give Micra notice of any action, suit, proceeding,
claim, demand, inquiry or investigation that creates an obligation to indemnify
as required under this Section. Said notice shall tender defense of any said
claim to Micra. If Micra refuses to timely provide a defense to said claim,
Upper Deck may elect to undertake the defense of any such claim without in any
way diminishing the duty of Micra to indemnify Upper Deck.
8.4 The indemnifications set forth in Sections 8.1 and 8.2 shall survive the
expiration or termination of this Agreement.
9. Insurance. Micra agrees to obtain, at its own cost and expense, a
----------
comprehensive general liability insurance policy, including product liability
insurance and advertisers liability insurance, to be in force at all times
during the term of this Agreement and thereafter for as long as Micra shall be
responsible hereunder for loss or damage. Such insurance policy shall be
obtained from an insurance company and on a policy form acceptable to Upper
Deck, providing adequate protection to Upper Deck in an amount no less than Two
Million Dollars ($2,000,000.00) combined single limits for each single
occurrence for bodily injury and One Hundred Thousand Dollars ($100,000U.S.) for
property damage. The amount of coverage under the advertiser's liability policy
shall be a minimum of $500,000/$1,000,000U.S. Within thirty (30) days from the
effective date of this Agreement, Micra shall submit to Upper Deck a certificate
of insurance naming Upper Deck as an additional insured party and require that
the insurer shall not terminate or materially modify such insurance certificate
or coverage without written notice to Upper Deck at least thirty (30) days in
advance thereof. In the event Micra does not obtain and maintain the insurance
coverage set forth herein, Upper Deck shall have the right, but not the
obligation, to purchase such insurance in Micra's name and at Micra's sole
expense.
10. Non-Disclosure. The parties agree that all information, materials,
--------------
documentation, data and reproductions relating to either the terms of this
Agreement, Upper Deck's business, Micra's business, trademarks or the Upper Deck
Proprietary Items (the "Confidential Information") shall be held in strict
confidence by the parties. The nature and contents of the Confidential
Information shall not be disclosed to any employee, person, firm or entity
(other than on a "need-to-know" basis), or used without the prior written
permission of the other party. It is agreed that Confidential Information shall
not include any information or data which (a) is already known, independent of
the party providing the Confidential Information; (b) is or becomes publicly
known through no wrongful act of the other party; or (c) is independently
developed by the party without reference to any Confidential Information
provided by the other party. The parties acknowledge that a breach of any of
the promises and covenants set forth herein will have a material and adverse
effect upon the other party and that damages arising from said breach may be
difficult to ascertain. Consequently, the other party agrees that in addition
to, and without limiting any other remedy or right the other party may have, the
non-breaching party shall have the right to an immediate injunction enjoining
such breach.
11. Notices. All notifications, requests or other communications required or
-------
permitted by this Agreement shall be in writing and directed as indicated below.
Any such notice shall be deemed given and effective when (a)
<PAGE>
-6-
delivered personally, by Telex or facsimile, or by overnight courier, or (b)
three (3) days after the postmark date if mailed by certified or registered
mail, postage prepaid, return receipt requested and addressed as follows:
If Sent to Upper Deck, Address to:
---------------------------------
THE UPPER DECK COMPANY, LLC
UPPER DECK AUTHENTICATED, LTD.
5909 Sea Otter Place
Carlsbad, California 92008-6621
Attention: Chief Executive Officer
If Sent to Micra, Address to:
----------------------------
Micra Soundcards, Inc. Attn: Dieter Doederlein
135 West Beaver Creek Road
Richmond Hill, Ontario
Canada L4B 1C6
Addresses may be modified at any time by written notification from one party to
the other party.
12. No Assignment. Upper Deck shall have the right to transfer, assign or
-------------
sublicense all or any part of this Agreement to any entity, including, without
limitation to, Upper Deck International, LLC, without the prior, written consent
of Micra. Micra shall not delegate any duties, nor assign any rights or claims
under this Agreement without the prior written consent of Upper Deck, and any
such attempted delegation or assignment shall be void. Notwithstanding the
foregoing, the obligations created by this Agreement are binding upon and insure
to the benefit of successors or assign of either of the parties.
13. Non-Waiver and Amendment. Failure by either party to enforce or take
-------------------------
advantage of any provision of this Agreement shall not constitute a waiver of
the right subsequently to enforce or take advantage of such provision. Except
as otherwise provided herein, this Agreement or any of the terms and provisions
thereof may not be changed, amended or waived, in any manner whatsoever, except
by written agreement executed by an authorized officer of each party.
14. Governing Law; Jurisdiction This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California. Any action
brought to resolve a dispute arising from the interpretation or construction of
or to enforce this Agreement shall be brought in a court of appropriate
jurisdiction in San Diego, California and both parties hereby consent to the
personal jurisdiction of any such court.
15. Relationship between the Parties. This Agreement shall not give rise to
--------------------------------
any relationship of employment, commission agency, agency, partnership, joint
venture or company between Upper Deck and Micra. Micra shall have no power to
represent Upper Deck or have the authority, whether express or implied, to
assume or create any obligation on behalf of Upper Deck.
16. Severability. If any provision is prohibited by or under the laws of any
------------
jurisdiction in which this Agreement may be used or to which it may be
applicable, said provision shall be, as to said jurisdiction, ineffective to the
extent of such prohibition, without invalidating thereby any of the remaining
provisions of this Agreement.
17. Force Majeure. If the performance of this Agreement or of any obligation
--------------
hereunder, except the making of payments, is prevented, restricted, or
interfered with by reason of fire or other casualty or accident; strikes or
labor disputes; inability to procure raw materials, power, or supplies; war or
other violence; any law, order, proclamation, regulation, ordinance, demand, or
requirement of any governmental agency; or any other act or condition whatsoever
beyond the reasonable control of the parties hereto; the party so affected, upon
giving prompt notice to the other party, shall be excused from such performance
to the extent of such prevention, restriction, or interference. The party so
affected, however, shall make its best efforts to avoid or remove such causes of
nonperformance and shall continue performance hereunder with the utmost dispatch
whenever such causes are removed.
<PAGE>
-7-
18. Section References and Captions. Any reference in this Agreement to a
-------------------------------
section or subsection shall be deemed to include a reference to any subsidiary
sections whenever the context requires. The captions of the sections and
subsidiary sections of this Agreement are included for reference purposes only
and are not intended to be a part of the Agreement or in any way to define,
limit or describe the scope or intent of the particular provision to which they
refer.
19. Entire Agreement. This Agreement, including any attachments, exhibits or
----------------
appendices attached hereto, sets forth all of the promises, agreements,
conditions and understandings, written or oral, between the parties hereto with
respect to the subject matter hereof and constitutes the entire agreement
between the parties, superseding any prior or contemporaneous oral or written
agreements or understandings.
20. Validity. This Agreement shall not be effective until it is signed by
---------
Micra and counter-signed by Upper Deck.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate
copies on the day and year first above set forth.
MICRA SOUNDCARDS, INC. THE UPPER DECK COMPANY, LLC
By: (signed) "Dieter Doederlein") By: (signed) "Richard P. McWilliam"
------------------------------ ----------------------------------------
Name: Dieter Doederlein Name: Richard P. McWilliam
---------------------------- --------------------------------------
Title: President Title: Chief Executive Officer
--------------------------- -------------------------------------
Date: Date:
---------------------------- --------------------------------------
UPPER DECK AUTHENTICATED, LTD.
By: (signed) "Richard P. McWilliam"
----------------------------------------
Name: Richard P. McWilliam
--------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
Date:
--------------------------------------
<PAGE>
-8-
EXHIBIT "A"
[LOGO OF UPPER DECK]
<PAGE>
-9-
EXHIBIT "B"
Date:
-----------
The Upper Deck Company, LLC
5909 Sea Otter Place
Carlsbad, California 92008-6621
Attention: Chief Executive Officer
Upper Deck Authenticated, Ltd.
5909 Sea Otter Place
Carlsbad, California 92008-6621
Attention: Chairman and Chief Executive
Gentlemen/Ladies:
This letter will serve as notice to you that pursuant to Section 4.1 of the
Agreement dated _________ between Micra Soundcards, Inc., The Upper Deck
Company, LLC and Upper Deck Authenticated, Ltd. (the "Agreement"), we have been
engaged as the manufacturer for Micra Soundcards, Inc. in connection with the
manufacture of the Products as defined in the Agreement. We hereby acknowledge
that we have received a copy and are cognizant of the terms and conditions set
forth in the Agreement and hereby agree to observe and be bound by the
provisions of the Agreement. It is understood that this engagement is on a
royalty free basis.
We understand that our engagement as the manufacturer for Micra Soundcards,
Inc. is subject to your written approval. We request, therefore, that you sign
in the space below, thereby showing your acceptance of our engagements as
aforesaid.
Very truly yours,
MANUFACTURER:
(Name Here)
By:
---------------------------
Name:
-------------------------
Title:
------------------------
AGREED TO AND ACCEPTED:
THE UPPER DECK COMPANY, LLC UPPER DECK AUTHENTICATED, LTD.
By: By:
-------------------------- ---------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------ ------------------------
Date: Date:
------------------------- -------------------------
<PAGE>
Exhibit 99.5
Subsidiaries
<PAGE>
The Company's only subsidiary is its wholly-owned subsidiary, Micra Sound Sports
Inc., which was incorporated pursuant to the Business Corporations Act
(Ontario).
<PAGE>
Exhibit 99.6
Financial Statements
<PAGE>
Exhibit 99
Risk Factors
<PAGE>
An investment in the securities of the Company involves a high degree of
risk. In addition to the other information in this Form 10-SB, the following
risk factors should be considered carefully in evaluating the Company and its
business. If any of the risks described below occurs, the business, results of
operations and financial condition of the Company could be materially adversely
affected.
Product Development and Technological Change
The trading card industry is characterized by rapid technological change
and frequent new product introductions. Accordingly, the Company believes that
its future success depends in part upon its ability to enhance current products
and develop and introduce new products offering at competitive prices. The
Company's inability, for technological or other reasons, to enhance, develop and
introduce products in a timely manner in response to changing market conditions
or customer requirements could have a material adverse effect on the Company's
results of operations or could result in its products becoming obsolete. The
ability of the Company to compete successfully will depend in large measure on
its ability to maintain a technically competent research and development staff
and to adapt to technological changes and advances in the industry.
Ability to Manage Growth
The Company's business plan contemplates significant growth in sales and
personnel which may place a strain upon its current management systems and
resources. As of August 31, 1999, the Company had 392 employees. In the
future, the Company will be required to continue to improve its financial and
management controls, reporting systems and procedures. In addition, the
Company's business plans and anticipated increased product sales will require
the Company to hire, train and manage additional employees and increase
production capacity. If the Company is unable to hire the skilled employees it
needs or increase its production capacity in a timely manner, it might be unable
to fulfill orders for its products or meet its business plans. There can be no
assurance that the Company will be able to effectively manage its anticipated
growth.
Product Acceptance
Although the Company has been able to sell its products, it still has not
been able to determine whether or not there is a sufficient level of acceptance
of its products at the retail prices in the range of $6.95 to $7.95 per
Soundcard for the Company to sell cards in sufficient volume to become
profitable.
Manufacturing Risk
The primary component of the Soundcard is a microchip embedded into each
Soundcard which contains a digitally encoded sound bit representing the
"message" being delivered by it. These chips are considered a commodity, the
cost of which varies depending on the supply\demand dynamics of the market for
them. Should the chips become in short supply, its products gross margins would
be negatively affected and the short supply may negatively affect sales.
Competition
The Company is engaged in a dynamic and evolving industry that is highly
competitive. The Company anticipates that the quality of its competitors'
products and range of product offerings may improve. The majority of the
Company's competitors have greater name recognition, larger customer bases and
significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources than the Company. There can be no assurance
that the Company will be able to compete effectively with such companies. In
addition, the Company expects that additional competition will develop, from
both existing businesses in the trading card industry and from new entrants.
Competition could also result in price reductions, fewer customer orders than
expected and reduced gross margin. As a result, the Company may not be able to
compete successfully and competitive pressures may harm the Company's business.
See "Business of the Company - Competition."
1
<PAGE>
Industry Growth
While the overall market for electronic devices such as the Soundcard has
experienced significant growth in recent years, the market for trading cards has
declined in recent years. There can be no assurance that the market for the
Company's existing products will grow, or that the Company will be successful in
independently establishing markets for its products. If the various markets in
which the Company's products compete fail to grow, or grow more slowly than the
Company currently anticipates, or if the Company is unable to establish markets
for its new products, the Company's revenue and net income growth may be lower
than expected.
Potential Fluctuations in Quarterly Financial Results
The Company's quarterly financial results could be impacted significantly
by the timing of orders and shipments as well as seasonal changes in the demand
for its products. The Company's operating expenses are in part based on
anticipated revenue levels in the short term, are relatively fixed, and are
incurred throughout the quarter. Additionally, the Company's products are
subject to relatively long sales and delivery cycles. As a result, if expected
revenues are not realized as anticipated, the Company's quarterly financial
results could be materially adversely affected. Quarterly financial results in
the future may be influenced by these or other factors, including possible
delays in the shipment of products. Accordingly, there may be significant
variations in the Company's quarterly financial results and such results may not
meet the expectations of the Company or investors.
Protecting Proprietary Technology
The Company relies on a combination of patent and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products and product designs, or to obtain and use information that the Company
regards as proprietary. Policing unauthorized use of the Company's proprietary
technology, if required, may be difficult, time-consuming and costly. In
addition, the laws of certain countries in which the Company's products may be
sold or licensed do not protect its products and related intellectual property
rights to the same extent as the laws of Canada or the United States. There can
be no assurance that the Company will be successful in protecting its
proprietary rights. See "Business of the Company - Intellectual Property".
Risk of Third Party Claims for Infringement
The Company does not believe that any of its products infringe the
proprietary rights of any third parties. From time to time, however, third
parties may contest the Company's rights to its intellectual property. In those
circumstances, the Company will review such matters to determine what, if any,
actions may be required or should be taken. There can be no assurance that
third parties will not claim such infringement by the Company or its licensors
with respect to current or future products. Any such claims, with or without
merit, could be time-consuming, result in costly litigation, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company. See "Business of the Company -
Intellectual Property".
Product Defects and Product Liability
Although the Company's products are not highly complex or sophisticated,
they may from time to time contain design defects that are difficult to detect
and correct. There can be no assurance that defects or flaws will not be found
in new products after commencement of commercial shipments or, if discovered,
that the Company will be able to successfully correct such defects or flaws in a
timely manner or at all. The occurrence of defects or flaws in the Company's
products could result in loss of or delay in market acceptance of the Company's
products, and correcting such defects or flaws could require significant
expenditure of capital by the Company. In addition, the failure of the
Company's products to perform to customer expectations could give rise to
warranty claims. The consequences of such defects and flaws could have a
material adverse effect on the Company's business, results of operations and
financial condition.
2
<PAGE>
Control of Production and Product Quality
The Company relies on third parties to produce its products. Anticipated
growth may require the Company to deliver substantial volumes of products
meeting stringent technical requirements of its customers. The failure by the
Company to successfully manage the production and supply of its products,
including the failure to meet scheduled production and delivery deadlines, or
the failure of products to meet the product quality requirements of its
customers, could materially adversely affect the financial position and future
prospects of the Company.
Reliance on Limited Number of Suppliers
The Company currently utilizes certain key components in the manufacture of
its products which are supplied by a single or limited source and depends on
these sources to meet its needs. Moreover, the Company depends on the quality
of the products supplied to it over which the Company has limited control. If
the Company cannot supply products due to a lack of components, or is unable to
redesign products with other components in a timely manner, its business will be
significantly harmed. A supplier could discontinue supplying components to the
Company without penalty. If a supplier discontinued supplying a component, the
Company's business may be harmed by the resulting product manufacturing and
delivery delays. See "Business of the Company - Raw Materials and Supplies".
Customer Dependency
The Company is currently dependent on a small number of customers with
respect to sales of the majority of its products, both in terms of numbers of
units sold and the aggregate dollar values of its sales. In fiscal 1999,
Bid.Com accounted for approximately 80% of the Company's revenues while IBI
accounted for the remaining 20%. If any one or more of these customers
discontinues its relationship with the Company for any reason, or reduces or
postpones current or expected purchase commitments for the Company's products,
the business prospects, operating results and financial condition of the Company
could be materially adversely affected.
Limited Financial Resources/Need for Future Financing
The Company is engaged in a capital intensive business and its financial
resources are substantially smaller than the financial resources of its
principal current competitors and potential competitors. If the Company meets
its growth expectations, it may require additional equity or debt financing.
There can be no assurance that the Company will be able to obtain the additional
financial resources required to successfully compete in its markets on
favourable commercial terms or at all. Failure to obtain such financing could
result in the delay or abandonment of some or all of the Company's plans for
development and expansion which could have a material adverse effect on the
operating results and financial condition of the Company.
Dependence on Key Personnel
The success of the Company is largely dependent on the performance of its
key employees, particularly its executive officers, Dieter Doederlein and Paul
Sansom. Loss of the services of these and other key employees or the failure to
attract and retain additional key employees with necessary skills could have a
material adverse impact upon the Company's growth and profitability. Competition
for highly skilled management, technical, research and development and other
employees is intense and the Company may not be able to attract or retain
highly qualified personnel in the future. The Company does not currently
maintain key person life insurance policies on any of its employees.
Currency Risk
A substantial portion of the Company's revenues are expected to be realized
in currencies other than Canadian dollars. The Company's operating expenses are
primarily paid in Canadian dollars. Fluctuations in the exchange rate between
the Canadian dollar and such other currencies may have a material effect on the
Company's results of operations. In particular, the Company may be adversely
affected by a significant strengthening of the Canadian dollar against the U.S.
dollar. The Company attempts to hedge its risk to the extent that it is able
to match its cash inflows and outflows in U.S. currency in the normal course of
business.
3
<PAGE>
Continued Use and Expansion of the Internet
Increased sales of the Company's products and services will depend upon the
expansion of the Internet as a leading platform for communication and commerce.
Usage of the Internet may be inhibited for a number of reasons. The Internet
infrastructure may not be able to support the demands placed on it by continued
growth and may lose its viability due to delays in the development or adoption
of new equipment, standards and protocols to handle increased levels of Internet
activity, security, reliability, cost, ease of use, accessibility and quality of
service. In addition, concerns about the transmission of confidential
information over the Internet has been a significant barrier to electronic
communications and commerce over the Internet. Any well-publicized compromise
of security could deter more people from using the Internet to transmit
confidential information or conduct commercial transactions. The possibility
that federal, state, provincial, local or foreign governments may adopt laws or
regulations limiting the use of the Internet or the use of information collected
from communications or transactions over the Internet or may seek to tax
Internet commerce could significantly reduce the use of the Internet. If the
Internet does not continue to become a widespread communications medium and
commercial marketplace, the demand for the Company's products and services may
be adversely affected.
Control of Shares by Management
Existing management of the Company maintains effective control of the
Company through its ownership of approximately 57.4% of the outstanding common
shares of the Company. As a result, these shareholders, acting together, will be
able to continue to exercise significant influence over all matters requiring
shareholder approval, including the ability to elect all of the directors and
approve fundamental changes to the Company. Such concentration of ownership may
have the effect of delaying or preventing a change in control of the Company,
its board of directors or management. See "Security Ownership of Management
and Beneficial Owners of 5% of Stock".
Enforceability of Civil Liabilities
The Company is an Ontario corporation with its principal place of business
in Canada. All of its directors and officers are residents of Canada and all or
a substantial portion of the assets of such persons and of the Company are
located outside the United States. Consequently, it may be difficult for United
States investors to effect service of process within the United States upon the
Company or its directors or officers, or to realize in the United States upon
judgments of courts of the United States predicated upon civil liabilities under
the United States Securities Act of 1933, as amended. Investors should not
assume that Canadian courts (i) would enforce judgments of United States courts
obtained in actions against the Company or such persons predicated upon the
civil liability provisions of the United States federal securities laws or the
securities or "blue sky" laws of any state within the United States or (ii)
would enforce, in original actions, liabilities against the Company or such
persons predicated upon the United States federal securities laws or any such
state securities or blue sky laws.
Possible Anti-Takeover Effect of Certain Charter Provisions
The authorized capital of the Company consists of an unlimited number of
common shares and an unlimited number of Class A Preference Shares, issuable in
series, of which 500,000 Series 1 Class A Preference Shares and 1,000,000 Series
2 Class A Preference Shares have been authorized for issuance. The rights of
the holders of common shares will be subject to, and may be adversely affected
by, the rights of holders of any Class A Preference Shares that may be issued in
the future. The issuance of Class A Preference Shares, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could make it more difficult for a third party to acquire a
majority of the outstanding voting shares of the Company the effect of which may
be to deprive the Company's shareholders of a control premium that might
otherwise be realized in connection with an acquisition of the Company. The
Company has no present plans to issue any Class A Preference Shares. See
"Description of Securities."
4
<PAGE>
Risks Relating to the Year 2000
Many existing computer programs were designed and developed without
considering the upcoming change in the century, which could lead to the failure
of computer applications or create erroneous results by or at the Year 2000. The
Year 2000 issue is a broad business issue, the impact of which extends beyond
traditional computer hardware and software to possible failure of other systems
and instrumentation, including equipment used by the Company and third parties
with which the Company does business. Although the Company does not rely
significantly on computer technology for its day to day operations, the Company
is in the process of assessing and remediating potential risks to its business
related to the Year 2000 issue. The principal Year 2000 concern for the Company
is to ensure that its products which incorporate microchip technology are Year
2000 compliant.
The costs associated with the Company achieving Year 2000 compliance to
date have not been material and the Company believes that future costs will not
be material either. However, there can be no assurance that the Company will
not incur unanticipated costs or that it will be able to successfully address
all Year 2000 issues. As a result, the Company could be at risk of experiencing
operational inconveniences and inefficiencies that may divert management's time
and attention from its ordinary business activities. The Company is also at
risk of experiencing a lesser number of serious system or product failures that
may require significant efforts by the Company to prevent or alleviate material
business disruptions. If the Company is unable to resolve its Year 2000 issues
in a timely and cost-efficient manner, such inability could have a material
adverse effect on the Company's business.
The impact of the Year 2000 issue on the Company will also be affected by
the Year 2000 readiness of its business partners, customers and suppliers. An
assessment of the readiness of these third parties is ongoing by the Company.
Failure by these third parties to be Year 2000 compliant may adversely affect,
among other things, the Company's production, revenue and the timing of
revenues. There can be no assurance that such third parties will address the
Year 2000 issue and complete their Year 2000 conversion in a timely fashion or
will not suffer a Year 2000 business disruption that may adversely affect the
Company's business.
5
