<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10
General Form For Registration of Securities
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
USA VIDEO INTERACTIVE CORP.
(Exact name of registrant as specified in its charter)
Wyoming 95-43707-25
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
70 Essex Street,
Mystic, Connecticut 06355
(Address, including postal code, of registrant's principal executive offices)
Registrant's telephone number, including area code: 1 (800) 625-2200
Securities to be registered under Section 12(b) of the Exchange Act: None
Securities to be registered under Section 12(g) of the Exchange Act:
Common Shares
- --------------------------------------------------------------------------------
<PAGE>
USA VIDEO INTERACTIVE CORP.
FORM 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
----
<S> <C>
Item 1. Business........................................................... 3
Item 2. Financial Information.............................................. 19
Item 3. Properties......................................................... 21
Item 4. Security Ownership of Certain Beneficial Owners and Management..... 22
Item 5. Directors and Executive Officers................................... 23
Item 6. Executive Compensation............................................. 25
Item 7. Certain Relationships and Related Transactions..................... 27
Item 8. Legal Proceedings.................................................. 28
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters........................................ 30
Item 10. Recent Sales of Unregistered Securities............................ 31
Item 11. Description of Registrant's Securities to be Registered............ 32
Item 12. Indemnification of Directors and Officers.......................... 33
Item 13. Financial Statements and Supplementary Data........................ 33
Item 14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................... 33
Item 15. Financial Statements and Exhibits.................................. 34
</TABLE>
<PAGE>
ITEM 1. Business
Description of Business
Introduction
------------
USA Video Interactive Corp.'s (The "Company") technology offers businesses
and individuals the capability of using high-quality full-motion video or still
images on the Web to educate, sell, train, inform and entertain. The Company
designs and supplies Store and Forward Video-on-Demand/TM/ ("VoD") and Wavelet
services, which include the following features: Wavelet compression of video
content for full-motion viewing on the Internet; content server and video
editing suite sales and installation; content hosting and video editing services
on a project basis; content production for full-motion Internet advertising; and
customized solutions to Internet and intranet video requirements. Simply
defined, VoD is an electronic video distribution method capable of delivering
user-selected video information on a user-specified schedule; that is, a video
that can be requested at any time and is available at the discretion of the end-
user. VoD encompasses the entire service category that enables an information
consumer to select the type of information, as well as the time, place and
frequency of reception.
The Company's high quality, full-motion video (existing content or live
streaming video) turns a personal computer into a television with fully user-
interactive capabilities, or turns televisions, via set-top boxes, into fully
user-interactive entertainment and education modules. The technology provides
video via existing twisted-pair telephone systems, set-top boxes or cable modems
with copper or fiber-optic cable, wireless, satellite, Ethernet and ATM
networks. Digitized content includes movies, sports, music and entertainment,
educational resources, corporate training seminars, and other libraries and
archives. The technology gives users the unique flexibility of standard, VCR-
like controls of play, fast-forward, reverse and pause, and the convenience of a
standard Internet-browser format for access. The technology can accommodate
10,000 or more streams (simultaneous users) accessing a single source with
unlimited content, with each user having full and independent control of the
viewing function.
The Company also has a division to create and supply content, and a
division to digitize existing single videos or entire video libraries, so they
can be placed on computer servers or CD-ROMs for access over Internet or
intranet systems. The Company digitizes videos using any compression technique
desired by the customer: MPEG-1, MPEG-2, MPEG-4 or the Company's Interactive
Wavelet Technology.
Evolution of the Company
------------------------
. April 18, 1986, the Company was incorporated as First Commercial
Financial Group Inc. in the Province of Alberta, Canada.
. September 1, 1989, the Company changed its name to Micron Metals
Canada Corp. and forward split its common shares on a two for one
basis.
. November 1991, the Company acquired 100% of the outstanding shares of
USA Video Inc., which was incorporated in Texas in 1990, pursuant to a
purchase agreement dated November 21, 1991 and amended March 6, 1992,
July 28, 1992 and September 15, 1992.
3
<PAGE>
. December 24, 1991, the Company incorporated a wholly-owned subsidiary,
USA Video Corp., in the State of Nevada.
. April 6, 1992, the Company changed its name to USA Video Corporation.
. May 4, 1993, USA Video Corp. changed its name to USA Video
(California) Corporation.
. July 28, 1993, USA Video Inc. changed its name to USA Video
Corporation.
. January 3, 1995, the Company changed its name to USA Video Interactive
Corp.
. February 16, 1995 the Company continued its corporate jurisdiction
from the Province of Alberta to the State of Wyoming.
. February 23, 1995, the Company consolidated its common shares on a
one for five basis.
. In July, 1998, the Company created the USA Video Interactive
Programming division.
. In June 14, 1999, the Company incorporated another wholly-owned
subsidiary, Merging Rivers Media Corporation, Inc., in the State of
Wyoming.
During 1999, the Company formed several new operational divisions of the
company:
. A Media Services division to create and/or digitize video content for
Internet advertisers, advertising agencies, theater studios, and
others.
. An Engineering Services division to handle sales and service of its
servers, switches and telecommunications equipment.
. A West Coast subsidiary, Merging Rivers Media, an Internet-television
advertising agency, to focus on entertainment-related activities.
. A Programming Division, for the express purpose of negotiating and
finalizing contracts related to content services.
The Company is a public company in the development stage listed on the
Canadian Venture Exchange under the trading symbol "US" and the NASD OTC
Bulletin Board under the trading symbol "USVO".
The Company's executive offices are located at 70 Essex Street, Mystic,
Connecticut 06355, telephone: (800) 625-2200 and its corporate offices are
located at #507, 837 West Hastings Street, Vancouver, B.C., V6C 3N6 , telephone:
(604) 685-1017, (800) 321-8564, Fax: (604) 685-5777.
The Company's Technology
------------------------
The Company has designed and patented a technology known as "Store and
Forward Vision" ("SFV") for the delivery of video programs and interactive
services to remote locations such as schools, libraries and businesses. The SFV
system is the critical technology behind the Company's VoD systems and services.
Simply defined, VoD is an electronic video distribution method capable of
delivering user-selected video information on a user-specified schedule.
4
<PAGE>
Video Systems. The Company's VoD technology can be implemented in a VoD
system, which is an enhanced data server with peripheral components that make
use of a distributed multi-processing architecture to provide access to and
retrieval of large quantities of digital data.
The system design is based on a unique architecture that is flexible and
scaleable, and that addresses the needs of high-volume markets (e.g., cable,
telephone companies). The system also can be scaled to medium and low capacity
markets in a cost-effective manner because it can be configured using a broad
range of commercial, off-the-shelf (COTS) hardware components.
System Components. The VoD system has five primary components that
together provide the VoD service. These components can be co-located or
separated by a local or wide-area distribution network.
Video Library or "Content" - The original video source material. The Video
Library contains the collection of video material in its original format,
which is normally a high quality Beta-SP or D1 format.
Encoder - Where analog video is digitized, encoded, and compressed for
storage in a digital medium. The Encoder converts the original video to a
computer-based digital format while preserving the initial quality,
compresses the digitized video using one of several industry standard
compression algorithms, and delivers compressed video to the archive, which
is maintained on CD-ROM, DVD or any digital medium. Archived files are
sized to attain delivery data rates from 0.015 to 6.0 megabits per second.
Video Server - The device that stores video in a digital format for
retrieval on demand; also performs several management functions. The Video
Server accesses archived video data and is responsible for receiving and
servicing user requests for programming. The Company establishes a
connection between its server and the client's computer to provide access
to its VoD programs. The Video Server also can track viewership and manage
billing information if these services are required. The Video Server is
designed in a highly modular fashion, allowing support for additional users
to be added as system usage increases.
Distribution Network - The connectivity for distribution of video data and
client interaction; i.e. Internet, intranet, Ethernet, fiber, telephone
line or cable. The Distribution Network is the infrastructure by which
video is transmitted and accessed by users. Digitized video content can be
streamed over the Internet (via existing twisted-pair telephone systems or
cable modems with copper or fiber-optic cable). Video also can be streamed
via wireless, intranet, satellite, cable-TV, set-top box, Ethernet, and ATM
networks.
Video Client - The Web Browser software and host system or other viewing
device that is run to request and view digitized video. The Video Client
is the user's workstation and can be any device (TV, PC, workstation) where
digitized video can be decoded and processed for viewing.
System Architecture. The architecture is optimized for the delivery of
video data and is able to support from one to tens of thousands of simultaneous
subscribers. The video server design is based on scaleable processing elements
interconnected by independent load-sharing data paths that facilitate inter-
processor communication and provide access to multiple storage devices and user
access ports.
Every processing element is connected to every other processing element via
an independent
5
<PAGE>
inter-processor bus. In a fully connected network of processing nodes, each node
can reach a storage device or user access port either directly or indirectly
through a connecting node.
The server is designed in an open manner, using standard Unix-based or
Windows NT-based workstations, FiberChannel, SCSI-II I/O bus, and Fast Ethernet
technology with COTS equipment. This approach allows continual evolution of the
hardware by automatically accommodating the incorporation of any mix of current
and future digital storage, processing and transmission technologies and is
intended to result in economical solutions with full capability and high
performance. The system design is intended to permit each major hardware
component to be individually upgraded as its respective price/performance ratio
is improved by evolving industry standards or technical advances .
The Company's VoD system has several attributes that it believes provide
benefits unique in the industry:
Flexibility - Configuration design tailored to unique client requirements
and budgets.
Scaleability - Paths to system expansion for those who want to start small
and grow later.
Modularity - No single point of failure for improved reliability and
maintenance.
Affordability - COTS hardware and a software-based architecture, offering
cost-effective alternatives to total hardware solutions.
Non-Obsolescence - Upgrades and updates through software rather than
through costly hardware equipment upgrades.
Wavelet Compression. Although the Company's system is not constrained to a
particular compression technique, advanced Wavelet compression technology is an
integral part of the solution for the marketing of the Company's product.
Wavelet compression allows high-speed, high-quality streaming video to be
provided via the Internet using existing telephone lines and standard TV-cable.
It also allows the Company to optimize the use of fiber-optic cable, which is
being installed worldwide. The Company's Wavelet compression can be used cost-
effectively for broadcast video and still images and outperform any existing
compression technology.
During compression, video files are made smaller by reducing the amount of
data required to represent an image. "Lossless" compression provides total
restoration of the original image, but cannot reduce file size by more than
about one-third. On the contrary, "lossy" compression cannot restore the total
original image, but can yield compression ratios of on the order of 7,000-to-1
for streaming video content, truly improving the efficiency of bandwidth use.
The challenge is to achieve such a high degree of compression while
retaining a high-fidelity video image. Successful lossy compression
(compression which retains the maximum fidelity of the video image) discards
information that contributes little to the original image and then smoothes the
remaining information to restore homogeneity. Unlike compression using the
Discrete Cosine Transform (e.g., MPEG1 and MPEG2), which segments the original
image and can create a visually unpleasant blockiness or jitteriness, Wavelet
processing is applied across the entire image, allowing higher compression
ratios without blockiness.
The art of Wavelet compression is in apportioning the discarded data so
that the eye-brain
6
<PAGE>
combination does not notice the impact of the data loss, so the decompressed
video image is barely distinguishable from the original image even at fairly
high compression ratios. Because of this superior approach, an increasing number
of companies are exploring use of Wavelet; by virtue of its early development
and incorporation of Wavelet, the Company believes it has a timing advantage in
the market. For these principal reasons, the Company's technology focus is
integrating Wavelet coders-decoders (codecs) into its VoD solution.
The Company believes that the Wavelet technology is superior to Digital
Cosine Transform compression (subdivides the image into small square segments
and treats each segment as an individual image during the compression process)
because it allows for high levels of compression while retaining higher
resolution than methods used by competitors, which allows significantly more
material to be stored on a server or CD-ROM at a lower cost. Wavelet-encoded
video has none of the blocky, jittery images inherent in MPEG videos. Because
the Company's Wavelet technology produces a video that is much closer to the
original quality than MPEG-based video, compressed to a fraction of the original
file size, it requires much less bandwidth for transmission.
The Company's Wavelet compression technology gives users a greater degree
of compression when compared to competitive solutions. In tests performed with
existing and commercially available compression methods, the Company's Wavelet
compression outperformed the competitors by a factor of at least 3:1.
While initially the Company's Wavelet compression has been used to encode
and store video content for the education markets, the Company is applying its
Wavelet technology to the Internet. The Company also is working on a number of
revenue generating opportunities for Wavelet compression in applications focused
on the installed base of dial-up modem users; for example, video conferencing
and video security monitoring.
Research & Development
----------------------
Prior to 1999, the Company conducted seven years of research and
development of its compression VoD technology. In 1999, the Company's focus
shifted to promoting and marketing its products and services, with research and
development directed primarily at supporting sales. The costs of research and
development have been absorbed by the Company and will not be borne by its
customers. The Company has begun to build a sales force and is pursuing
alliances and contracts necessary to generate interest in the technology and
sell its products and services within targeted industries.
The Company spent the following amounts in the past three years on research
and development:
-----------------------------------------------
1997 1998 1999
-----------------------------------------------
$2,668 $24,000 $90,966 *
-----------------------------------------------
\\ *Subject to year-end audit adjustment.\\
The Patents
-----------
The Company controls multiple patents in the critical path to exploiting
VoD technology and developing VoD systems. Ownership of these patents brings
value to the Company but the patents are not critical to the current development
of business. The Company applied for an exclusive U.S. patent for its SFV VoD
technology on
7
<PAGE>
February 1, 1990. The Company was granted U.S. Patent # 5,130,792 on July 14,
1992. The market for VoD technology has since expanded and the Company is
investigating the applicability of its patent to the multiple VoD deployments
now under way using any kind of switched connection, such as telephone lines, in
video transmission to educational institutions, corporations, government
entities, and home end-users.
In 1999, the U.S. Patent Office declined a request to reinstate this
patent, which had expired because of an administrative oversight that led to
late payment of fees in 1995. The Company has further investigated reasons for
this administrative oversight and determined that additional factors beyond its
control were present; the Company has appealed the denial of the patent
reinstatement and has reason to believe the matter will be resolved in favor of
the Company.
In 1999, the Company received approval of its SFV system patent
applications in five European countries: England, France, Germany, Italy and
Spain. The technological characteristics of the European Patents are based on
the U.S. Patent, covering systems for transmitting video programs to remote
locations over a switched telephone network, but provide more comprehensive
protection. The Company believes that these patents extend to any video on the
Internet, regardless of its geographic origin, that can be received in any of
these five countries. Identical patents are pending in Canada and Japan. The
Company is in the process of arranging to enforce its patents.
The Company's VoD Patent has been extensively searched by the Company's
patent attorneys as to the technical prior art. It is believed that the claims
of the Company's VoD patent are broad and may be of significant value in the VoD
market.
The scope of the market for licensing of the Company's VoD patent will be
determined by how expansive the market for VoD products becomes and how many
major industry players develop profitable VoD markets. The Company intends to
vigorously defend its existing VoD Patents from infringement and continue to
apply for additional patents in the global market place.
Evolution of the Industry
-------------------------
Until recently, VoD was marketed as a service that was to be provided by
cable operators to the average consumer's home television using set-top boxes
and digital video systems. It was touted as offering scaleable video service to
between ten thousand and one million households, which households would
presumably be willing and desirous to pay for such convenient at-home service.
Ultimately, there were many problems including unrealistic throughputs and
bandwidth requirements, slow digital upgrades to cable systems, insufficient
set-top box manufacturing, and different interfacing requirements. Consumers
were not willing to pay for these amenities until they saw some real value and
the technology deployment costs were too high to allow a reasonable business
model. Disillusionment was rampant among even the ardent supporters because the
promises of TV-based VoD were not being met and there were insufficient library
choices of 20 to 30 titles, not allowing for sufficient testing of consumer
demand.
Today, with the explosion of the Internet, access to information among
multiple users is taken for granted. However, to date, distribution of video has
been bottlenecked due to its requirement for broadband services. Now, with more
and more bandwidth being installed, the potential for market acceptance of video
distribution is coming closer to being a reality. A single short video clip can
still provide more information and visual appeal than pages and pages of HTML
text. The cost of bandwidth has been decreasing over the past few years, and
prices are expected to decrease even more dramatically over the next two years,
which will bring increased use of
8
<PAGE>
high bandwidth applications to the general market as related transmission costs
are reduced. In addition, the cost of cable modems, ADSL modems, ATM to the
desktop, and ISDN modems will bring these services more in line with customer
expectations and open up opportunities in the marketplace.
According to Nathan G. Muller of Strategic Information Resources, VoD buy
rates are more than 12 times stronger than the pay-per-view industry average buy
rate. As reported by The 1996 Pay-Per-View Report, published by Paul Kagan
Associates, Inc., VoD has the potential to challenge video tape rental as the
top revenue generator in the home video industry, which Kagan estimates at $417
billion overall.
According to Veronis, Suhler & Associates, communications industry
analysts, total U.S. spending on media will reach $663.3 billion by 2003. The
7.5% combined annual growth rate will make communications the second fastest-
growing industry (behind telecommunications) among the top 12 U.S. industries.
As for growing end-user markets, in 1998, households spent $6.1 billion
accessing the Internet, up 33.7% over 1997, and an additional $8.5 billion
purchasing products over the Internet, more than seven times the 1997 total.
Business-to-business electronic commerce was nearly five times higher than
consumer purchases in 1998, totaling an estimated $40 billion.
Revenues of publicly reporting subscription video services (SVS) companies
rose 17.7% to $34.4 billion in 1997, the third consecutive year of double-digit
growth. SVS operators accounted for $27.9 billion of the total, while cable and
pay-per-view networks accounted for $6.4 billion. Total SVS spending, including
advertising, subscriber and pay-per-view, is forecasted to rise to $66.4 billion
in 2002 from $38.5 billion in 1997, an 11.6% compound annual growth rate.
The Company is participating in these markets by working with a number of
broadcast companies to move content onto the Internet through a variety of
means.
Competitive Conditions
----------------------
The Company competes in the VoD, streaming video, video services and
Internet services markets involving transmission of data by wired and wireless
methods including satellite, radio and other signals, telephone wires, cable,
etc.
Where once the market was relatively limited, video via the Internet has
become the "hot application" for the present and near future. Many large
companies (Microsoft, IBM, and others) which had been relatively small players
in the field are now entering in a very significant way. There currently are
several hundred competitors offering identical or nearly identical products and
services. The Company believes it has an advantage, however, in that it
integrates the latest form of compression (Wavelet, which is quickly becoming a
standard in competition with the long-established MPEG). The Company utilizes
patented video technology to produce what it believes to be the highest quality
digital video available on the Internet to regular modem users (28.8k and 56k).
The Company believes its video is superior to that of competitors' at the high-
bandwidth (200k) level as well, providing significant advantages in storage and
overall cost requirements.
The products offered by the Company include turnkey VoD systems and
services, development and hosting of content, services related to streaming
video; VoD, Internet transmission of data; satellite transmission of data; other
wired and wireless transmission of data; compression and decompression of data,
particularly high quality digital video. The Company focuses on the sectors of
education,
9
<PAGE>
entertainment, training, and corporate and industrial services.
The Company believes there are a handful of dominant players in the
Internet video field including Real Networks, Microsoft (via its Windows Media
Player), Broadcast.com, Intervu, and several others. Because of the extreme
interest in the field, many mergers are underway and major players change fairly
regularly. The Company believes that the fluid nature of the industry allows
newcomers to thrive and emerge in leadership positions if they have technically
superior, cost effective, properly marketed products and services.
Competition is by direct competition in the marketplace, through
affiliations with other companies with dominant positions in their fields, and
through pure dint of high-profile, capital-intensive marketing and advertising
campaigns.
General Development of the Business
Development Plan
----------------
An integral part of the Company's strategy is to develop as a market leader
to take advantage of the demand for VoD and streaming video products and
services and the many applications they serve. The Company's business
development approach includes the following key elements with the goal of
focusing on specific markets while creating a broad market awareness of its
unique technology:
. Complete building the sales and marketing teams and equip them with
the tools and information they need to be successful;
. Expand current sales contracts and other income-generating licensing
agreements;
. Identify and penetrate niche markets and increase Internet
applications;
. Continue developing a significant content library that includes
educational, entertainment, and other content with the objective of
providing turnkey packages;
. Use the technology itself, as well as more traditional advertising and
marketing, to create an industry-wide awareness of the Company's
unique and patented VoD technology;
. Based on a solid licensing program, identify potential patent
infringements and aggressively enforce technology ownership rights;
. Pursue grants and other non-traditional sources of revenue as well as
service contracts;
. Establish strategic and synergistic alliances and partnerships for:
* Multiplying marketing efforts,
* Developing and exploiting complementary technology,
* Performing specific project work,
* Seeking opportunities for licensing of patent and content
rights;
. Continue with research and development in order to maintain leading-
edge VoD technology; and
. Develop feedback mechanisms to drive market-driven product
development.
Currently, maximum emphasis is being placed on raising public, industry and
market awareness of the capabilities of the Company's technology. The major
industry markets targeted are education,
10
<PAGE>
entertainment (including movies, music and music videos, and sports), training
and e-commerce.
Education includes colleges, universities, and elementary and high schools
where video can be delivered to classrooms or offices and viewed on desktop
computers or television. With instant digital access to enormous libraries,
instructors will be able to create specialized video programs and students will
be able to access material at their convenience. The current inefficient method
of copying, mailing and logging videotapes will be eliminated.
Entertainment includes residential access to movies, sports and other
entertainment resources at the user's convenience, eliminating the time
restrictions and limited choices of cable television and pay-per-view
television. Additionally, people will have instant access to regional
information services such as weather, traffic conditions, sightseeing
destinations, and similar choices.
Training includes corporate and motivational training procedures and other
instructions needed by workers in any profession from medical and surgical, to
architecture and design and factory and construction workers.
E-Commerce will be greatly enhanced by true, high quality VoD technology as
research has shown that interactive video is far more effective than static
banners or other advertising currently deployed on the Internet. The targeted
markets are vast and include books, music, videos, travel and hospitality,
clothing, and many others.
The transmission vehicles targeted for the VoD technology are the Internet,
intranet systems, cable television, wireless, and satellite. Although optimally
designed for fiber optic cable, which is currently being installed worldwide and
which provides almost unlimited bandwidth for video and data transmission, the
VoD technology provides fast, high quality, full screen, full motion video and
audio using even existing twisted pair technology and a common home modem.
The Company has fully operational pilot systems the education, home
entertainment and corporate training markets. Additional deployments, sales and
contracts are being aggressively pursued in the airport security, sports,
college, public education, home entertainment and advertising markets.
Marketing Plan
--------------
The Company's focus is to expand market awareness of its VoD technology.
The Company believes its unique and proprietary architecture and applications
provide distinct advantages to users. In this light, the near-term corporate
vision is to deploy media server solutions targeted to corporate, campus, cable,
and telephone company VoD applications. The Company believes that with a set of
strategic partners, which are discussed below, it is uniquely positioned to
provide complete solutions.
The Company believes the initial appeal of its VoD system will be its
ability to deliver to its customers all the technological advantages that
provide access on-demand to their specialized content, be it educational video
resources, corporate records and training resources, government archive
retrieval and legislative activities, or other content.
The VoD technology will allow users to access digital video information
whenever desired, eliminating the need for videocassettes and other analog
formats. Budget constraints in the public sector
11
<PAGE>
and downsizing in the corporate sector provide opportunities for the Company to
introduce its cost-effective VoD solutions to a multi-billion dollar customer
base in North America's schools, corporations, and government entities.
The Company and its strategic allies are positioning for this mission by
deploying technologies in arenas where it will be utilized immediately such as
with students, educators, corporate leaders, and government workers who require
continuous access to specialized video content. Through deployments to these
customer bases, the Company will expose the users to the various specialized
configurations available through the VoD technology which hopefully will lead
the users to fully utilize emerging Internet video capabilities in their fields.
The Company is using a number of market models to gain market entry with
sales of video servers, content and services. One successful model is to
partner with education content providers and to convert the videos from VHS tape
directly to Wavelet encoded digital media. This gives the Company the ability
to sell complete turnkey solutions with educational content, and should generate
a distinct stream of licensing revenue.
VoD can be extrapolated to cover a variety of "on-demand" information
applications. Within each of these application areas, revenues can be generated
from several sources, including services, systems, licenses, and advertising.
Specifically, the Company plans to recognize revenue through sales of video and
encoding servers, hardware, software and services, and contracted systems
integration, design and support services.
The Company has learned from its initial sales opportunities that its best
success is going to be providing video services. Although the "early adopters"
are buying the video servers and placing them on their own networks, most
companies in discussions with the Company want the Company to host the video
server and sell this as a service. This drastically reduces the costs to
companies interested in VoD, as companies do not have to train employees on new
hardware and software, no major capital expenditure is required, and no new
management or maintenance of multiple networks is required. The Company
provides all these services for a fee. The service to the customer is complete
and turnkey. This type of service is of interest to both current and potential
customers.
Compared with short-term revenue from the one-time sale of video server
services or hosting solutions, longer-term revenue is greater because it
provides the Company a recurring revenue stream
12
<PAGE>
with profit margins on all components of the services, including:
. Hosting of video server;
. Content management and encoding; and
. Network setup and maintenance costs, primarily Internet.
The cost of the services are amortized into the service charge to the customer,
with a profit margin for the Company. The cost of these services will be
standardized so that sales and channel representatives can quote these services
on the spot. A pricing matrix is currently being developed for this purpose and
the matrix will include the following pricing:
. Compression method and MPEG 1, MPEG 2, MPEG 4 and Wavelet;
. Encoding services by length of content, size and frames per second;
. Amount of available concurrent users (streams), or broadcast method;
. Length of time content is available on network;
. Security of content; and
. Whether content is to be delivered or archived on any media.
The Company has completed agreements with UUNET in order
to sell turnkey video on demand solutions and services.
The Company's sales cycle is substantially reduced when selling video
services, as clients typically do not need budget approvals or to budget for
future purchasing periods due to the fact that no major capital outlay is
required to purchase the service.
The pricing matrix was completed in the fourth quarter of fiscal 1999.
The Company will focus its marketing of total system solutions on the
target markets it believes will not only benefit greatly from the VoD
technology, but which are likely to be the most receptive to these solutions due
to increasing budget allocations for technology, notably the:
. Educational setting;
. Corporate sector; and
. Government agencies.
These entities base their purchasing choices on the stability of the
service provider, the total cost of ownership, the technology, and the service
provider's ability to provide complete turn-key solutions, or specific
components of the solution. The Company believes it has competitive advantages
in all these areas and has the further advantage of a flexible set of support
options.
For the corporate and government markets, the Company will continue to use
a direct sales approach until a suitable distribution channel for these markets
is established. The Company plans to set up a General Services Administration
("GSA") listing once there is a steady amount of government orders. GSA listings
simplify the purchasing process for government users by pre-qualifying the
products, cost and services.
13
<PAGE>
Strategic Alliances
-------------------
During the first nine months of 1999, the Company expanded its management
team, obtained European patents, added Wavelet compression technologies to
standard MPEG offerings, founded Merging Rivers Media Corporation, a full-
service ad subsidiary on the West Coast focusing on entertainment-related
applications, and began generating sales and revenues.
The Company is in active negotiations with a number of companies to
establish partnerships and other alliances of mutual benefit. These alliances
are updated regularly on the Company's website. The Company believes that the
following alliances will play a central role in its ability to succeed in the
marketplace:
VIANET: The Company has a strategic alliance with Vianet Technologies,
which is a research company that has developed a wavelet technology utilized by
the Company. As part of this agreement, the Company will develop a Unix-
compliant Wavelet codec, allowing for expansion of the market to include Unix-
based operating systems such as those used by Sun Microsystems.
UUNET: The Company has signed an agreement to co-locate its servers in the
UUNET data center in Vienna, Virginia, and to collaborate in providing an
overall package of Internet services as part of the Company's turnkey solution.
EXODUS COMMUNICATIONS: The Company has a similar agreement with Exodus
Communications for bandwidth and other services as well as access to Exodus
Communications marketing organization and services. Exodus Communications hosts
some 40 percent of the US corporate websites.
Plan of Operation Over the Next Twelve Months
---------------------------------------------
The Company has cash and other liquid assets with which to fund its
business plan. However, it also will be necessary for the Company to sell
additional common stock in order for it to put its business plan into operation.
Specifically, the Company must raise the funds necessary to launch its products
and services and continue research and development. If it can raise the funds to
do so, the Company anticipates cash expenditures of between $2.5 million and $4
million. There can be no guarantee that the Company will be able to raise funds
on acceptable terms, or at all. If the Company succeeds in raising additional
funds through the sale of common stock, the ownership interest of holders of
existing shares of the Company's common stock will be diluted. The principal
aspects of its business plan for the next 12 months include the following:
Organizational Expenses: The Company has incurred and will continue to
incur organizational expenses, including legal and accounting fees, in
connection with corporate matters, and raising the capital necessary to carry
out its business plan.
Marketing and Sales Expenses: In order to market and sell its services and
products, the Company will incur expenses for salaries, for marketing and sales
personnel, for renting and furnishing office space, for acquiring computers and
software, and for telephone lines, Internet access, travel, and advertising. The
Company will also incur expenses to expand its corporate website in order to
support its marketing, sales, and customer support activities. These expenses
will include the cost of fees for consulting services and for purchasing
additional server hardware.
Product Support Expense: The Company will incur expenses to hire personnel
to provide technical support for customers who purchase its VoD product.
14
<PAGE>
Administrative Expense: The Company will also incur expenses for hiring
personnel and acquiring equipment for processing sales orders, and for routine
administrative support of its operations.
Product Development/Acquisition: The Company will incur expenses
principally for fees paid to third parties for development of its products, or
for the acquisition of the rights to other products.
Research & Development: The Company has carried out some preliminary
investigation into the development of an advanced Wavelet algorithm to adapt
the existing Wavelet algorithm to other operating platforms such as Unix.
Additional staff has been identified to commence development and integration of
these algorithms into initial Wavelet properties. The program commenced during
the first quarter of 2000.
Employees: The Company currently has a total of 25 employees, consisting
of 13 full-time employees. The Company anticipates that the number of employees
will grow to 33 over the next year, including 3 in the sales division, 2 in the
engineering division, 2 in the operations division, and 1 administrative person.
Outlook: Issues and Uncertainties
----------------------------------
Business Risks
This Form 10 contains forward-looking statements. The words, "anticipate",
"believe", expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions are intended to identify forward-looking
statements. The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and Notes thereto and other financial
information included elsewhere in this Form 10. This Form 10 contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual result could differ materially
from the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Form 10.
The Company operates in a highly competitive business, which has a number
of inherent risks. These may be summarized as follows:
1. Limited Operating History: Because the Company has been in its
development stage until recently, it is difficult to evaluate its business and
prospects. The Company's revenue and income potential is not proven and its
business model is still emerging. An investor in the Company's common stock must
consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets. There can be no assurance that
the Company's products and services will achieve commercial success and, if they
do not, the price of the Company's common stock will decline.
2. Lack of Recent Profitable Operations: The Company has not achieved
profitability. The Company expects to incur net losses for the foreseeable
future and may never become profitable. The Company's net losses for the years
ended December 31, 1998 and December 31, 1997 were $981,598 and $678,156,
respectively. Through the nine months ended September 30, 1999, the Company's
net losses were $971,547. The Company's limited operating history makes it
difficult to forecast its future operating results. The Company expects to
continue to increase its marketing and sales, product development and general
and administrative expenses. As a result it will need to generate significant
additional revenue and/or raise additional funds to achieve profitability. If
the Company does achieve profitability, it cannot be certain that it sustain or
increase it.
3. Competition: The Company's services compete against those of other
established companies, some of which have greater financial, marketing and other
resources than those of the Company. These competitors may be able to institute
and sustain price wars, or imitate features of the Company's services, resulting
in a reduction of Company's share of the market. In addition, there are no
significant barriers to new competitors entering the market place.
4. Need for a Broad Customer Base: The Company will need to build and
sustain a large customer base. Failure to do so may result in continued losses.
5. Reliance on New Products and Services: The Company's business and
financial plans focus on products and services which are relatively new. There
can be no assurance that existing sales levels, which are still quite small, can
be maintained or that increased sales levels can be achieved. Internal cash
generated by operations may not permit the level of research and development
spending required to maintain the stream of new service improvements that may
become necessary and outside financing may not be available. The Company is
using certain relatively new software products and the developers of this
software are, in some cases, still working to improve certain essential features
of the software including a feature to allow the transfer of data to be done on
a secure and confidential basis.
6. Obsolescence: The Company is at risk if it does not continue to
upgrade and improve its services. Typically, the high technology industry is
characterized by a consistent flow of new and improved products and services
which render existing products and services obsolete. The Company's sales may
decline if it is unable to adapt its products to changes in technology. The
Company may incur significant expenses in developing new products and may not be
successful in either developing such products or timely introducing them to the
market. The Company will have to improve its methods for measuring the
performance and commercial success of its different products to better respond
to
15
<PAGE>
customer demands for information on product effectiveness and to better
determine which products and services can be developed most profitably.
7. Marketplace: The marketplace for the Company's services is relatively
new and will be undergoing rapid and constant change. As a result, it is
difficult to predict the continued demand for the Company's services. The
Company's success is dependent on its ability to adjust to change and meet new
demands. It is also dependent on continued use and expansion of the Internet
and intranets. The Internet infrastructure may not be able to support the
demands placed on it by continued growth. The growth in volume of Internet
traffic may create instabilities in its structure such as shortages in Internet
addresses and overworked search engines. Such instabilities may have an adverse
affect on the Company's operations and business if they are not addressed. The
Internet could also lose its viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of Internet
activity, security, reliability, cost, ease of use, accessibility, and quality
of service.
8. Management: The Company is dependent on a relatively small number of
key employees to implement its business plan, the loss of any of whom may affect
its ability to provide the required quality service and technical support to
achieve and maintain a competitive market position. The Company does not have
an employment agreement with any of the key employees, and, as a result, there
is no assurance that they will continue to manage the Company's affairs in the
future. The Company has not obtained any key man insurance with respect to such
employees.
9. Marketing Plan: The Company's internal marketing plan is based on a
number of assumptions which may or may not prove valid. Marketing expenditures
are to be funded partly from the proceeds of private placements, exercise of
stock options and warrants and cash flow from operations. Poor market
acceptance of the Company's services or other unanticipated events may result in
lower revenues than anticipated, making the planned expenditures on marketing
and promotion unachievable.
10. Personnel and Resources: Limitations on the Company's personnel and
resources may affect the ability of the Company to provide the required quality
service and technical support to achieve and maintain a competitive market
position.
11. Third Parties: The Company utilizes the services of third party
contractors to provide certain technical services, telecommunications hardware,
computers, software and communication lines. Therefore, the performance of the
Company will be affected by the quality of the goods and services provided by,
and the reputations of, such third parties. In addition, there can be no
assurance that the Company will successfully maintain relationships and
affiliations with third parties on terms satisfactory to the Company. An
unanticipated termination of a relationship with any third party could adversely
affect the Company's results of operations even if the Company were able to
establish a relationship with an alternative third party.
12. Insurance Risks: The Company has not acquired liability insurance
with respect to the provision of services by the Company.
13. Government Regulation of the Internet Possible: The laws and
regulations applicable to the Internet and the Company's products and services
are evolving and unclear and could damage the business. There are currently few
laws or regulations directly applicable to access to the Internet. Due to the
increasing popularity and use of the Internet, it is possible that laws and
regulations may be adopted, covering issues such as user privacy, defamation,
pricing, taxation, content regulation, quality of products and services, and
intellectual property ownership and infringement. Such legislation could
dampen the growth in use of the Internet, decrease the acceptance of the
Internet as a communications and commercial medium, or require the Company to
incur significant expenses in complying with any new regulations. Increased
regulation or the imposition of access fees could substantially increase the
costs of communication on the Internet, potentially decreasing the demand for
the Company's services. A number of proposals have been made at the federal,
state and local level that would impose additional taxes on the sale of goods
and services through the Internet. Such proposals, if adopted, could
substantially impair the growth of electronic commerce and could adversely
affect the Company. Any new legislation or regulation in the United States or
aboard or the application of existing laws and regulations to the Internet could
damage the Company's business and cause the price of its common stock to
decline.
16
<PAGE>
14. Requirement of New Capital: The Company will need to continually
expand and upgrade its infrastructure and systems and ensure high levels of
service, speedy operation, and reliability. As a growing business, the Company
typically needs more capital than it has available to it or can expect to
generate through the sale of its services. In its short history, the Company
has had to raise, by way of debt and equity financing, considerable funds to
meet its needs. There is no guarantee that the Company will be able to continue
to raise the funds needed for the Company's business. Failure to raise the
necessary funds in a timely fashion will limit the Company's growth.
15. Year 2000 Issues: The Company's products did not require any
significant modifications for the Year 2000. However, the Company may face Year
2000 issues as it seeks to coordinate with other entities with which it
interacts electronically, including suppliers, customers and distribution
partners. If the Company discovers that certain of its services need
modification, or certain of its hardware and software is not year 2000
compliant, it will attempt to make modifications to its services and systems on
a timely basis. The Company does not believe that the cost of these
modifications will materially affect its operating results. However, it cannot
provide assurance that it will be able to modify these products, services and
systems in a timely, cost-effective and successful manner, and the failure to do
so could have a material adverse effect on the Company's business and operating
results.
16. Protection of Intellectual Property, Trade Secrets and Know-How: The
Company regards its intellectual property as critical to its success and,
therefore, it employs various methods, including trademarks, patents, copyrights
and confidentiality agreements with employees, consultants and marketing
partners, to protect its intellectual property and trade secrets. There can be
no assurance, however, that the Company will be able to maintain the
confidentiality of any of its proprietary technology, know-how or trade secrets,
or that others will not independently develop substantially equivalent
technology. The failure or inability to protect these rights could have a
material adverse effect on the Company's results of operations. Furthermore, the
Company cannot assure that its business activities will not infringe upon the
proprietary rights of others, or that other parties will not assert infringement
claims against the Company. Should it occur, such claims and any resultant
litigation could subject the Company to significant liability for damages and
could result in invalidation of its proprietary rights. Even if not meritorious,
these potential claims could be time-consuming and expensive to defend or
prosecute, and could result in the diversion of management time and attention
away from the Company's business.
17. General Factors: The Company's areas of business may be affected from
time to time by such matters as changes in general economic conditions, changes
in laws and regulations, taxes, tax laws, prices and costs, and other factors of
a general nature which may have an adverse effect on the Company's business.
Risks Related to the Company's Securities
1. Issuance of Additional Shares: A substantial portion of the
250,000,000 authorized common shares of the Company are unissued. The Board of
Directors has the power to issue such shares without shareholder approval. None
of the 250,000,000 authorized preferred shares of the Company have been issued.
The preferred shares may be issued in series from time to time with such
designation, rights, preferences and limitations as the Board of Directors may
determine by resolution and without shareholder approval. There are outstanding
warrants and options whose holders may acquire additional common shares. The
Company fully intends to issue additional common shares or preferred shares if
necessary in order to acquire products, properties, capital, businesses or for
any other corporate purposes. Any additional issuances by the Company from its
authorized but unissued shares would have the effect of further diluting the
percentage interest of existing shareholders.
2. Cumulative Voting and Preemptive Rights: There are no pre-emptive
rights in connection with the Company's common shares. Cumulative voting in the
election of directors is not permitted. Accordingly, the holders of a majority
of the common shares, present in person or by proxy, will be able to elect all
of the Company's Board of Directors.
17
<PAGE>
3. Concentration of Ownership: The Executive Officers and Directors own
or exercise full or partial control over more than 20% of the Company's
outstanding shares. As a result, other investors in the Company's common shares
may not have as much influence on corporate decision making.
4. Preferred Stock Change in Control: Preferred Stock may be issued in
series from time to time with such designation, rights, preferences and
limitations as the Board of Directors may determine by resolution. The Board of
Directors could use an issuance of Preferred Stock with dilutive or voting
preferences to delay, defer or prevent a change in control of the Company. In
addition, the concentration of control over the Company's common stock in the
Directors and Executive Officers could prevent any change in control of the
Company not acceptable to the existing Directors and Executive Officers.
5. Estimates and Financial Statements: Some of the information in this
Form 10 consists of and relies upon evaluations and estimates made by management
and other professionals. Even though management believes in good faith that
such estimates are reasonable, based upon market studies and data provided by
sources knowledgeable in the field, there can be no assurance that such
estimates will ultimately be found to be accurate or even based upon accurate
evaluations. Any management errors in evaluations or estimates could have a
significant negative effect upon the Company's profitability or even its
viability.
6. No Foreseeable Dividends: The Company has not paid dividends on its
common shares and does not anticipate paying dividends on its common shares in
the foreseeable future.
7. Possible Volatility of Securities Prices: The market for the
Company's stock is highly volatile and will likely continue to behave in this
manner in the future. Additionally, market prices for securities of many
smaller companies have experienced wide fluctuations not necessarily related to
the operating performance of the companies themselves. The stock markets may
continue to experience volatility that may inflate or deflate the market price
of the Company's common stock.
8. Requirements of SEC With Regard to Low-Priced "Penny Stock"
Securities: The Company's securities are subject to Rule 15g-9 under the 1934
Act, which imposes additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and
"accredited investors" (generally, an individual with a net worth in excess of
$1,000,000 or an annual income exceeding $200,000, or $300,000 together with his
or her spouse). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, the
rule may adversely affect the ability of broker-dealers to sell the Company's
securities and may adversely affect the ability of shareholders to sell their
shares in the secondary market.
9. Limited Liability of Executive Officers and Directors: The Company's
by-laws contain provisions that limit the liability of directors for monetary
damages and provide for indemnification of officers and directors under certain
circumstances. These provisions may discourage shareholders from bringing a
lawsuit against the directors for breaches of fiduciary duty and may also reduce
the likelihood of derivative litigation against directors and officers even
though such action, if successful, might otherwise have benefited the
shareholders. In addition, a shareholder's investment in the Company may be
adversely affected to the extent that costs of settlement and damage awards
against the officers or directors are paid by the Company pursuant to the
indemnification provisions of the articles of incorporation and by-laws. The
impact on a shareholder's investment in terms of the cost of the defending a
lawsuit may deter a shareholder from bringing suit against one of the Company's
officers or directors.
Financial Information About Industry Segments
The information in the financial statements provided with this registration
statement are incorporated by reference as though set forth here.
18
<PAGE>
ITEM 2. Financial Information
Selected Financial Data
The following selected financial data reflects the fact that the Company is
emerging from its development stage and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition", "Plan of
Operations Over the Next Twelve Months" and the financial statements appearing
elsewhere in this registration statement.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Item Sept. 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 10,000 $ 0 $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------------------------------
Income / Loss ($ 983,768) ($ 981,598) ($ 678,156) ($ 658,983) ($ 3,168,518)
- --------------------------------------------------------------------------------------------------------
Income / Loss
per share ($ 0.014) ($ 0.02) ($ 0.02) ($ 0.03) ($ 0.22)
- --------------------------------------------------------------------------------------------------------
Total assets $1,444,597 $ 435,232 $ 418,354 $ 470,553 $ 303,260
- --------------------------------------------------------------------------------------------------------
Long-term
obligations $ 0 $ 0 $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------------------------------
Cash dividends
per share $ 0 $ 0 $ 0 $ 0 $ 0
- --------------------------------------------------------------------------------------------------------
</TABLE>
Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
This Form 10 contains forward-looking statements. The words, "anticipate",
"believe", expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions are intended to identify forward-looking
statements. The following discussion and analysis should be read in conjunction
with the Company's Financial Statements and Notes thereto and other financial
information included elsewhere in this Form 10. This Form 10 contains, in
addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from the results discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include those discussed below, as
well as those discussed elsewhere in this Form 10.
Revenue
The Company has not earned any significant revenue during the last two
fiscal years. Revenue-generating contracts have been signed in the first
quarter 2000.
19
<PAGE>
The Company provides a number of revenue generating services to the
interactive video industry, including:
. Content encoding services to all MPEG and Wavelet formats on any
media;
. Deployment of media services and related equipment;
. Requirements analysis and application development for media server
applications, installation and deployment of complete digital video
management solutions including network infrastructure;
. Customization of user friendly browser-based video management tools
for off-the-shelf media servers;
. Content Services -- negotiating and finalizing agreements pertaining
to the production, distribution, and exhibition of VoD (Programming
Division); and
. Post-sale technical support options and packages.
The Company has an encoding suite at its facilities in Mystic, Connecticut,
for encoding content.
The Company's systems integration team provides engineering and
installation services to customers who are implementing interactive video
solutions. Services can be provided for an end-to-end solution for the customer
or a specific area within a project.
20
<PAGE>
General and Administrative Expenses
General administrative expenses remained constant during the fiscal years
1998 and 1997. Both of these years resulted in a 30% decrease in expenses from
1996. Management fees were reduced significantly in 1998 and 1997 as the former
President, Gordon Lee, resigned his position as President and his contract was
settled and discontinued. Product marketing costs rose significantly during 1998
as the Company commenced a marketing program for its technology.
Liquidity and Capital Resources
The Company has historically satisfied its capital needs primarily by
issuing equity securities. Its operating activities used $698,224 and $651,072
for the years ended December 31, 1998 and 1997, respectively. During the nine
months ended September 30, 1999, the Company's operating activities used
$996,016. To fund its operations, the Company generated $977,630 and $937,126 in
1998 and 1997, respectively, through sales of its common stock. During the nine
months ended September 30, 1999, the Company generated $2,025,492 through sales
of its common stock. The operation, development and expansion of the Company's
business will likely require additional capital infusions for the foreseeable
future. The Company plans to manage its payables balances and satisfy its
operating and capital needs partially from cash generated by operating
activities and partially through sales of equity securities.
Exposure to Market Risk
-----------------------
The Company believes its exposure to overall foreign currency risk is
immaterial. The Company does not manage or maintain market risk sensitive
instruments for trading or other purposes and is, therefore, not subject to
multiple foreign exchange rate exposures.
The Company reports its operations in US dollars and its currency exposure,
although considered by the Company as immaterial, is primarily between the US
and Canadian dollars. Exposure to the currencies of other countries is also
immaterial as international transactions are settled in US dollars. Any future
financing undertaken by the Company will be denominated in US dollars. As the
Company increases its marketing efforts, the related expenses are basically in
US dollars except for the marketing efforts in Canada. If these advertisements
are coordinated through a US agency, then the expenses are in US dollars. The
Company is not exposed to the effects of interest rate fluctuations as it does
not carry any long-term debt.
ITEM 3. Properties
The Company's headquarters and executive offices are located at 70 Essex
Street, Unit 1C, Mystic, Connecticut 06355 and the telephone number is (800)
625-2200. The Company leases this space on an annual basis from Wharf Building
Associates at a monthly rent fee of $1,509.00.
The Company also has additional office space at 100 Essex Street, Unit 1A,
Mystic, Connecticut 06355. The Company leases this space on an annual basis
from Mystic Shipyard, LLC at a monthly rent fee of $1,700.00.
21
<PAGE>
The Company also has corporate offices located at Suite 507, 837 West
Hastings Street, Vancouver, British Columbia, V6C 3N6 and the telephone number
is (604) 685-1017. The Company leases this space on a month-to-month basis from
Graystone Property Management Ltd. at a monthly rent fee of U.S. $1,780.00. The
Company paid a security deposit of U.S. $20,500.00 upon leasing the property.
The Company believes that its present facilities will be suitable for the
operation of its business for the foreseeable future. The facilities are
adequately insured against perils commonly covered by business insurance
policies. These locations could be replaced without significant disruption to
the Company.
ITEM 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of January 31, 2000, the outstanding
common shares of the Company owned of record or beneficially by each Executive
Officer and Director and by each person who owned of record, or was known by the
Company to own beneficially, more than 5% of the Company's common shares, and
the shareholdings of all Executive Officers and Directors as a group.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Name Shares Owned Percentage of
Shares Owned
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Edwin Molina (1) 5,085,400 6.59%
President, Chief Executive Officer and member of the
Board of Directors
- ---------------------------------------------------------------------------------------------------------
Anton J. Drescher (2) 5,334,385 7.03%
Chief Financial Officer, Secretary and member of the
Board of Directors
- ---------------------------------------------------------------------------------------------------------
Ronald L. Patton (3) 1,002,000 1.35%
Chief Technical Officer
- ---------------------------------------------------------------------------------------------------------
Anthony J. Castagno (4) 1,513,000 2.02%
Chief Operating Officer
- ---------------------------------------------------------------------------------------------------------
Gerhard J. Drescher (5) 271,598 0.37%
Director
- ---------------------------------------------------------------------------------------------------------
Norman Bonin (6) 50,000 0.07%
Director
- ---------------------------------------------------------------------------------------------------------
ALL EXECUTIVE OFFICERS & DIRECTORS AS A 15,710,383 21.14%
GROUP (7 Persons) (7)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Except as noted below, all shares are held of record and each record
shareholder has sole voting and investment power.
1) Includes 1,200,000 options and 1,685,000 warrants that are currently
exercisable. Mr. Molina's address is the same as the Company's executive
offices in Mystic, Connecticut.
2) Includes 1,000,000 options and 520,000 warrants that are currently
exercisable. Mr. Drescher's address is the same as the Company's corporate
office in Vancouver, British Columbia.
3) Includes 50,000 warrants. Mr. Patton's address is the same as the Company's
executive offices in Mystic, Connecticut.
4) Includes 470,000 warrants. Mr. Castagno's address is the same as the
Company's executive offices in Mystic, Connecticut.
5) Includes 50,000 options and 221,598 warrants that are currently
exercisable. Mr Drescher's address is the same as the Company's corporate
office in Vancouver, British Columbia.
6) Includes 50,000 options that are currently exercisable. Mr Bonin's address
is the same as the Company's corporate office in Vancouver, British
Columbia.
7) Includes 2,450,000 options and 3,275,000 warrants that are currently
exercisable.
There are no arrangements known to the Company the operation of which may
result in a change of control of the Company.
22
<PAGE>
ITEM 5. Directors and Executive Officers
The following table sets forth the name, age and position of each director and
executive officer of the Company:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
NAME AGE POSITION PERIOD SERVED
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edwin Molina 44 Director, Chief Executive Officer and President since 1998
- -------------------------------------------------------------------------------------------------------
Anton J. Drescher 43 Director, Chief Financial Officer and Secretary since 1994
- -------------------------------------------------------------------------------------------------------
Gerhard J. Drescher 39 Director since 1992
- -------------------------------------------------------------------------------------------------------
Norman J. Bonin 47 Director since 1998
- -------------------------------------------------------------------------------------------------------
Anthony J. Castagno 50 Chief Operating Officer since 1998
- -------------------------------------------------------------------------------------------------------
Ronald L. Patton 45 Chief Technical Officer since 1999
- -------------------------------------------------------------------------------------------------------
Daniel L. Sciro 34 Vice-President, Sales since 1998
- -------------------------------------------------------------------------------------------------------
</TABLE>
Gerhard Drescher, Anton Drescher, Edwin Molina and Norman Bonin were
elected directors of the Company in June 1999. Each director will serve until
the next annual meeting of shareholders and their respective successors are
elected and qualified. All officers currently devote part-time to the operation
of the Company.
Executive Officers, Directors and Other Significant Employees of the Company:
Edwin Molina - President, Chief Executive Officer and Director
- --------------------------------------------------------------
Mr. Molina served as a Senior Administrator with the Company from June 1992 to
June 30, 1998, when he was appointed as President, Principal Executive Officer
and a member of the Board of Directors. Prior to joining the Company he was a
Senior Administrator with Adnet USA LLC, a private California company, from May
1996 to June 1998. Mr. Molina was also a Senior Administrator with Future Link
Systems Inc., a Vancouver Stock Exchange listed company, from January 1988 to
June 1992. Mr. Molina works a minimum of 60 hours per week on Company
activities. His duties include overseeing all activities of the Company
including providing strategic direction, managing and directing personnel and
budgets, overseeing the activities of other corporate officers and staff, and
directly overseeing all investor-related activities of the Company.
Anton J. Drescher - Chief Financial Officer, Secretary and Director
- -------------------------------------------------------------------
Mr. Drescher has been Chief Financial Officer of the Company since December
1994. He has been a Certified Management Accountant since 1981. He has been a
director and Secretary/Treasurer of Future Link Systems Inc. since 1997;
Director and Secretary/Treasurer of Interlink Systems Inc., a public company
listed on The Canadian Dealing Network, since 1996; President of Westpoint
Management Consultants Limited, a private British Columbia company, since 1979;
President of Harbour Pacific Capital Corp., a private British Columbia company,
since 1998. Gerhard Drescher and Anton Drescher are brothers. Mr. Drescher works
a minimum of 60 hours per week on Company activities. His duties include
overseeing all financial activities of the company including direct oversight of
budgets, accounts receivable and accounts payable, interactions with regulatory
authorities in the United States and Canada, and consultation on strategic
direction.
Gerhard J. Drescher - Director
- ------------------------------
Mr. Drescher has been a director of the Company since February 1992. Mr.
Drescher is the President and sole shareholder of Python Technologies Ltd., of
Vancouver, British Columbia, an electronics consulting firm, since 1989. He has
been a director of Future Link Systems Inc. since 1994.
23
<PAGE>
Norman J. Bonin - Director
- --------------------------
Mr. Bonin has been a director of the Company since June 1998. Mr. Bonin is
President and a director of Direct Disposal Corp., a private British Columbia
company, since 1993. He has been a director of Future Link Systems Inc. since
1998.
Anthony J. Castagno - Chief Operating Officer
- ---------------------------------------------
Mr. Castagno has been with the Company since December 1998. Mr. Castagno
provides business development, investment and marketing strategy. He also is
President of The Rowe Group, an independent consulting firm specializing in
start-up and rapidly growing high-tech companies. Mr. Castagno has more than 20
years business, corporate public relations and marketing experience, teaches
Mass Media and Communications at the University of Connecticut, and has authored
numerous articles and reference materials. Mr. Castagno works a minimum of 60
hours per week on Company activities. His duties include providing strategic
direction and overseeing all marketing, sales, public relations and media
relations, initiating and negotiating contracts, overseeing technological
fulfillment of contracts, and overseeing day-to-day operations of the Company.
Ronald L. Patton - Chief Technical Officer
- ------------------------------------------
Mr. Patton has been with the Company since January 1999. Mr. Patton formerly
served for 20 years as Vice President of Integrated Performance Decisions at
Analysis & Technology and Senior Vice President of Research and Development at
Sonalysts, Inc. He worked with a team from Paramount Pictures to create special
audio effects for "Hunt for Red October," which received an Academy Award for
sound effects. Mr. Patton works a minimum of 60 hours per week on Company
activities. His duties include directing and overseeing all technology
activities of the Company, including developing and modifying products and
services to support sales and marketing; developing new products and services to
introduce to market, and directing a team of technology professionals.
Daniel J. Sciro - Vice-President, Sales
- ---------------------------------------
Mr. Sciro has been with the Company since June 1998. Mr. Sciro previously
served as President of two telecommunication companies based in New York. He
developed and deployed global telecommunication technologies for clients
including the U.S. government, supplying ship-to-shore communication technology
during the Gulf War. Mr. Sciro works a minimum of 60 hours per week on Company
activities. His duties include developing and implementing sales and sales
strategies, establishing new clients and designing systems to meet the
requirements of clients, negotiating contracts, and directing a teams of sales
professionals.
24
<PAGE>
ITEM 6. Executive Compensation
Compensation of "Named Executive Officers"
The following table sets forth compensation awarded to, earned by or paid
to Named Executives for the designated fiscal years. Other than set forth below,
no employee of the Company earned salary and bonus of $100,000 or more in fiscal
year 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------
Name Other Securities
and Annual Restricted Underlying
Principal Compen- Stock Options/ LTIP All Other
Position Year Salary ($) Bonus ($) sation ($) Award(s) ($) SARs (#) Payouts ($) Compensation ($)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Molina, 1999 $120,000 $200,665 1,200,000
Edwin (1)
(CEO)
1998 $ 60,500 $ 3,172 1,300,000
(2) (1)
1997 250,000
- ---------------------------------------------------------------------------------------------------------------------------
Drescher, 1999 $120,000 $146,060 1,000,000
Anton (3)
(CFO)
1998 $ 77,270 $ 34,429 1,000,000
(4)
1997 $ 65,517 $ 27,782 500,000
(5)
- ---------------------------------------------------------------------------------------------------------------------------
Patton, 1999 $120,000 $ 49,580 500,000
Ronald (6)
(CTO)
- ---------------------------------------------------------------------------------------------------------------------------
Castagno, 1999 $120,000 $194,300 250,000
Anthony (7)
(COO)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On February 23, 1999, Mr. Molina exercised 100,000 stock options at an
exercise price of $0.067 per option, resulting in compensation of
$2,680.00. On March 9, 1999, Mr. Molina exercised 200,000 stock options at
an exercise price of $0.067 per option, resulting in compensation of
$4,020.00. On March 22, 1999, Mr. Molina exercised 100,000 stock options
at an exercise price of $0.067 per option, resulting in compensation of
$2,010. On April 7, 1999, Mr. Molina exercised 50,000 stock options at an
exercise price of $0.067 per option, resulting in compensation of
$10,050.00. On May 3, 1999, Mr. Molina exercised 100,000 stock options at
an exercise price of $0.067 per option, resulting in compensation of
$32,830.00. On June 18, 1999, Mr. Molina exercised 250,000 stock options
at an exercise price of $0.067 per option, resulting in compensation of
$149,075.00.
(2) On May 6, 1998, Mr. Molina exercised 250,000 stock options at an exercise
price of $0.067 per option, resulting in compensation of $3,350.00. On
November 3, 1998, Mr. Molina exercised 100,000 options at an exercise price
of $0.067 per option, resulting in compensation of $0.00. On November 10,
1998, Mr. Molina exercised 150,000 stock options at an exercise price of
$0.067 per option, resulting in a realized value of ($1,005.00). On
December 17, 1998, Mr. Molina exercised 250,000 stock options at an
exercise price of $0.067 per option, resulting in compensation of $827.00.
(3) On February 2, 1999, Mr. Drescher exercised 200,000 stock options at an
exercise price of $0.067 per option, resulting in a realized value of
($2,010.00). On February 17, 1999, Mr. Drescher exercised 300,000 stock
options at an exercise price of $0.067 per option, resulting in
compensation of $15.075.00. On March 9, 1999, Mr. Drescher exercised
100,000 stock options at an exercise price of $0.067 per option, resulting
in compensation of $2,010.00. On April 28, 1999, Mr. Drescher exercised
250,000 stock options at an exercise price of $0.067 per option, resulting
in compensation of $55,275.00. On May 26, 1999, Mr. Drescher exercised
100,000 stock options at an exercise price of $0.067 per option, resulting
in compensation of $36,850.00. On June 10, 1999, Mr. Drescher exercised
50,000 stock options at an exercise price of $0.067 per option, resulting
in compensation of $38,860.00.
(4) On January 28, 1998, Mr. Drescher exercised 500,000 stock options at an
exercise price of $0.067 per option, resulting in compensation of
$10,050.00. In 1998, Mr. Drescher received interest on loans to the
Company in the amount of $24,379.00.
(5) On June 20, 1997, Mr. Drescher exercised 500,000 stock options at an
exercise price of $0.072 per option, resulting in a realized value of
($1,800.00). In 1997, Mr. Drescher received interest on loans to the
Company in the amount of $29,582.00.
(6) On May 12, 1999, Mr. Patton exercised 100,000 stock options at an exercise
price of $0.067 per option, resulting in compensation of $49,580.00.
(7) On July 6, 1999, Mr. Castagno exercised 250,000 stock options at an
exercise price of $0.067 per option, resulting in compensation of
$194,300.00.
25
<PAGE>
The following table sets forth certain information concerning grants of
stock options pursuant to stock option plans to the Named Executive Officer
during the year ended December 31, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
- -----------------------------------------------------------------------------------------------------------------------
% of Total
Options /
Number of SARs Market
Securities Granted to Price
Underlying Employees on
Options/SARs in Fiscal Exercise Date of Expira-
Granted Year (1) Price Grant tion
($/Sh) ($/Sh) Date 0% ($) 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Molina, 1,200,000 23.53% $ 1.00 $ 1.04 7/16/01 $48,000 $110,400 $172,800
Edwin
- -----------------------------------------------------------------------------------------------------------------------
Drescher, 1,000,000 23.53% $ 1.00 $ 1.04 7/16/01 $40,000 $ 92,000 $144,000
Anton
- -----------------------------------------------------------------------------------------------------------------------
Patton, 500,000 11.76% $0.067 $0.065 1/31/01 $ 625 $ 2,250
Ronald
- -----------------------------------------------------------------------------------------------------------------------
Castagno, 250,000 5.88% $0.067 $0.060 1/12/01 N/A N/A
Anthony
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A total of 4,250,000 stock options were granted to employees in 1999.
The following table sets forth certain information concerning exercises of
stock options pursuant to stock option plans by the Named Executive Officer
during the year ended December 31, 1999 and stock options held at year end.
Aggregated Option / SAR Exercises in Last Fiscal Year
and FY-End Option / SAR Values
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options / SARs Options / SARs
at FY-End (#) at FY-End ($)
Shares Acquired Exercisable / Exercisable /
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Molina, Edwin 800,000 $200,665 1,200,000 / 0 N/A (2) / $0
- --------------------------------------------------------------------------------------------------------------------
Drescher, Anton 1,000,000 $146,060 1,000,000 / 0 N/A (3) / $0
- --------------------------------------------------------------------------------------------------------------------
Patton, Ronald 100,000 $ 49,580 400,000 / 0 $ 365,200 / $0
- --------------------------------------------------------------------------------------------------------------------
Castagno, Anthony 250,000 $194,300 0 / 0 $ 0 / $0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) On December 31, 1999, the average of the high and low price of the stock
trading on the OTC BB was $0.98.
(2) Mr. Molina's 1,200,000 options, with an exercise price of $1.00, were not
in-the-money based on the December 31, 1999 closing price of $0.98 per share for
the Company's common stock.
(3) Mr. Drescher's 1,000,000 options, with an exercise price of $1.00, were not
in-the-money based on the December 31, 1999 closing price of $0.98 per share for
the Company's common stock.
26
<PAGE>
Compensation of Directors
Directors receive no compensation for their service as such, although they
do receive reimbursement for consulting services provided to the Company. In
addition to Mr. Molina, Mr. Anton Drescher, Mr. Gerhard Drescher and Mr. Bonin
each were granted options to purchase an aggregate of 2,300,000 common shares of
the Company, due in part to their service as directors. All of the options are
fully vested, have an exercise price of $1.00 per share and must be exercised by
July 16, 2001. The Company has no obligation or policy to grant stock options to
directors.
Employment Contracts
The Company does not have an employment contract with Mr. Molina and it has
no obligation to provide compensation to him in the event of his resignation,
retirement or termination, or a change in control.
The Company may in the future create retirement, pension, profit sharing,
insurance and medical reimbursement plans covering its Executive Officers and
Directors. At the present time, no such plans exist. No advances have been made
or are contemplated by the Company to any of its Officers or Directors.
ITEM 7. Certain Relationships and Related Transactions
Transactions with Management and Others
---------------------------------------
No director, executive officer or nominee for election as a director of the
Company, and no owner of five percent or more of the Company's outstanding
shares or any member of their immediate family has entered into or proposed any
transaction in which the amount involved exceeds $60,000.
Certain Business Relationships
------------------------------
No directors or nominee for director is or has been during the Company's
last fiscal year an executive officer or beneficial owner of more than 10% of
any other entity that has engaged in a transaction with the Company in excess of
5% of either company's revenues or assets.
Indebtedness of Management
--------------------------
There are no persons who are directors, executive officers of the Company,
nominees for election as a director, immediate family members of the foregoing,
corporations or organizations (wherein the foregoing are executive officers or
partners, or 10% of the shares of which are directly or beneficially owned by
the foregoing), trusts or estates (wherein the foregoing have a substantial
beneficial interest or as to which the foregoing serve as a trustee or in a
similar capacity) are indebted to the Company in an amount in excess of $60,000.
27
<PAGE>
ITEM 8. Legal Proceedings
The following are pending legal proceedings in which the Company is a
party:
1. USA Video Interactive Corp. v. Wegener Communications, Inc.
-----------------------------------------------------------
This case was commenced by the Company against Wegener Communications,
Inc., a Georgia corporation, on January 7, 2000 in the U.S. District Court for
the District of Connecticut.
The facts of the case follow. In early February, 1999, the defendant agreed
to pay the Company five percent of the value of any orders from customers
referred to it by the Company. In reliance on this agreement, the Company
expended efforts to find the defendant compatible clients and introduced the
defendant to Autotote Communications. The defendant secured a contract with
Autotote Communications worth $4 million. The defendant failed to pay the
Company the agreed upon commission of five percent and this suit was ultimately
commenced to seek relief in the form of compensatory damages, punitive damages,
and attorney fees.
2. USA Video Interactive Corp. and Merging Rivers Media Corp. v. Rafael
--------------------------------------------------------------------
O. Quezada
- ----------
This case was commenced by the Company and its subsidiary, Merging Rivers
Media Corp., against Rafael O. Quezada, former president of Merging Rivers, on
January 10, 2000 in the U.S. District Court for the District of Connecticut.
The facts of the case follow. In mid-April, 1999, the Company entered into
a Confidentiality and Non-Disclosure Agreement with the defendant, prohibiting
him from disclosing and using the Company confidential information without prior
written consent of the Company. The Agreement also provided that the Company
would retain all publication and ownership rights to all intellectual property.
In mid-June, 1999, the Company and Merging Rivers entered into a Consulting
Agreement with the defendant which provided that the defendant was to represent
Merging Rivers and the Company to clients and prospective clients for purposes
of selling video and other multimedia advertising. At the end of July, 1999,
the Company provided a laptop computer to the defendant containing proprietary
information.
The defendant later registered domain names and trademarks in his own name,
charging the expenses to the Company. While a consultant to the Company and
president of Merging Rivers, the defendant sought employment with a competitor
to work on an identical project for which he was doing work for the Company.
Following termination of his consulting agreement with the Company and his
employment with Merging Rivers, the defendant interfered with a business
relationship between the Company and one of its customers.
The plaintiffs are seeking full compensatory and consequential damages, an
award of treble damages, and other equitable relief.
28
<PAGE>
3. SABA Energy Ltd. v. USA Video Interactive Corp.
-----------------------------------------------
This case was commenced by SABA Energy Ltd. against the Company on October
23, 1996 in the Court of Queen's Bench of Alberta Judicial Centre of Calgary.
This case involves a failed assignment of a Petroleum and Natural Gas
Lease. The plaintiff and the Company entered into an agreement to transfer the
rights to the Lease. The Company registered the assignment of the Lease but
failed to register the well licenses with Alberta Energy. The agreement provides
that the Company indemnify the plaintiff for any liability, loss, claim or
damages arising out of any act, omission, matter or thing done by the defendant.
In May, 1995, the Company failed to pay rent for the Lease and failed to take
responsibility for abandoning the wells.
On April 14, 1997, a Default Judgment was awarded to SABA Energy in the
amount of Cdn $78,265.53 including interest and taxable costs. Settlement
negotiations are underway to reach agreement on the amount to ultimately be paid
by the Company.
4. DCC Building #4 Limited Partnership v. USA Video Corporation
------------------------------------------------------------
This case was commenced by DCC Building #4 Limited Partnership against USA
Video Corporation, a subsidiary of the Company, on September 7, 1995 in the
District Court of Dallas County, Texas. A default judgment was entered by the
court on November 10, 1995.
There is a contingent liability in the amount of $505,169 ($25,399 included
in accounts payable December 31, 1998) in respect to the default judgment
entered against USA Video Corporation. This suit was in regard to a lease of
premises by USA Video Corporation in Dallas, Texas. USA Video Corporation
vacated the premises in Dallas, Texas during the year ended December 31, 1995
and a claim was made to the company for the total amount payable under the terms
of the lease through the term of the lease, ending in 2002. Management of the
Company is of the opinion that the amount payable under the terms of this
judgment is not determinable at this time as the damages may be substantially
mitigated by the landlords renting the property to another party. Settlement
talks are underway. Any settlement resulting from the resolution of this
contingency will be accounted for during the year of the settlement.
To the knowledge of the Company's Executive Officers and Directors, the
Company is not a party to any other legal proceeding or litigation and none of
its property is the subject of a pending legal proceeding. Further, the Officers
and Directors know of no other threatened or contemplated legal proceedings or
litigation.
29
<PAGE>
ITEM 9. Market Price of and Dividends on the Company's Common Equity and
Related Stockholder Matters
There is a limited public market for the common shares of the Company which
currently trades on the Canadian Venture Exchange under the symbol "US" where it
has been traded since February 23, 1995 and on the NASD OTC Bulletin Board under
the symbol "USVO" where it has been traded since February 22, 1995. The
following quotations reflect inter-dealer prices, without retail mark-up, mark-
down or commission and may not represent actual transactions:
Canadian Venture Exchange
(Symbol "US")
Quarter High * Low *
------- ---- ---
(Cdn $) (Cdn $)
First Quarter 1998 .245 .105
Second Quarter 1998 .18 .075
Third Quarter 1998 .18 .07
Fourth Quarter 1998 .115 .06
First Quarter 1999 .80 .07
Second Quarter 1999 1.83 .25
Third Quarter 1999 1.69 1.02
Fourth Quarter 1999 1.65 .90
* The prices are high and low sale prices. This information was provided by
Bloomberg Professional.
OTC Bulletin Board
(Symbol "USVO")
Quarter High * Low *
------- ---- ---
($US) ($US)
First Quarter 1998 0.13 0.08
Second Quarter 1998 0.01 0.03
Third Quarter 1998 0.12 0.04
Fourth Quarter 1998 .063 0.035
First Quarter 1999 0.75 0.045
Second Quarter 1999 1.95 0.16
Third Quarter 1999 1.17 0.66
Fourth Quarter 1999 1.39 0.62
* The prices are high and low bid prices. This information was provided by
NASDAQ, Trading & Marketing Services.
As of January 31, 2000, there were 74,322,089 common shares outstanding,
held by 1,118 shareholders of record and by various broker/dealers on behalf of
an indeterminate number of street
30
<PAGE>
name shareholders.
To date the Company has not paid any dividends on its common shares and
does not expect to declare or pay any dividends on such common shares in the
foreseeable future. Payment of any dividends will depend upon future earnings,
if any, the financial condition of the Company, and other factors as deemed
relevant by the Company's Board of Directors.
ITEM 10. Recent Sales of Unregistered Securities
Set forth below is information regarding the issuance and sales of
securities of the Company without registration for the past three (3) years. No
such sales involved the use of an underwriter and no commissions were paid in
connection with the sale of any securities.
a) In January, 2000, the Company concluded an offering of units. Each unit
consisted of one common share and one warrant to acquire an additional share at
US $1.10 per share by January 26, 2002. On completion of the offering, a total
of 250,000 units were issued at US $4.00 per unit for total proceeds of US
$1,000,000.00. The offer and sale of the units were exempt from registration
under Rule 506 of Regulation D and under Section 4(2) of the Securities Act of
1933. The Company limited the manner of the offering and there were no non-
accredited investors. If the foregoing exemptions are not available, the Company
believes that US $200,000.00 of these sales were also exempt under Regulation S
under the Securities Act of 1933, as amended, due to the foreign nationality of
the relevant purchasers.
b) In July 1999, the Company concluded an offering of units. Each unit
consisted of one common share and one warrant to acquire an additional share at
US $1.10 per share by July 15, 2001. On completion of the offering, a total of
750,000 units were issued at US $1.00 per unit for total proceeds of US
$750,000.00. The offer and sale of the units were exempt from registration under
Rule 504 and Rule 506 of Regulation D under Sections 3(b) and 4(2),
respectively, of the Securities Act of 1933. The Company limited the manner of
the offering and the number of non-accredited investors to five (5) investors.
If the foregoing exemptions are not available, the Company believes that US
$150,000.00 of these sales were also exempt under Regulation S under the
Securities Act of 1933, as amended, due to the foreign nationality of the
relevant purchasers.
c) In May 1999, the Company concluded an offering of units. Each unit
consisted of one common share and one warrant to acquire an additional share at
Cdn $0.73 per share by May 19, 2001. On completion of the offering, a total of
500,000 units were issued at Cdn $0.58 per unit for total proceeds of Cdn
$290,000.00. The offer and sale of the units were exempt from registration under
Rule 504 and Rule 506 of Regulation D under Sections 3(b) and 4(2),
respectively, of the Securities Act of 1933. The Company limited the manner of
the offering and the number of non-accredited investors to four (4) investors.
If the foregoing exemptions are not available, the Company believes that Cdn
$56,550.00 of these sales were also exempt under Regulation S under the
Securities Act of 1933, as amended, due to the foreign nationality of the
relevant purchasers.
d) In March 1999, the Company concluded an offering of units. Each unit
consisted of one common share and one warrant to acquire an additional share at
Cdn $0.19 per share by March 23, 2001. On completion of the offering, a total of
1,000,000 units were issued at Cdn $0.17 per unit for total proceeds of Cdn
$170,000.00. The offer and sale of the units were exempt from registration under
Rule 504 and Rule 506 of Regulation D under Sections 3(b) and 4(2),
respectively, of the Securities Act of 1933. The Company limited the manner of
the offering and the number of non-accredited investors to two (2) investors. If
the foregoing exemptions are not available, the Company believes that $59,500.00
of these sales were also exempt under Regulation S under the Securities Act of
1933, as amended, due to the foreign nationality of the relevant purchasers.
e) In January 1999, the Company concluded an offering of units. Each unit
consisted of one common share and one warrant to acquire an additional share at
Cdn $0.10 per share by March 23, 2001. On completion of the offering, a total of
2,000,000 units were issued at Cdn $0.10 per unit for total proceeds of Cdn
$200,000.00. The offer and sale of the units were exempt from registration under
Rule 504 and Rule 506 of Regulation D under Sections 3(b) and 4(2),
respectively, of the Securities Act of 1933. The Company limited the manner of
the offering and the number of non-accredited investors to two (2) investors. If
the foregoing exemptions are not available, the Company believes that $72,500.00
of these sales were also exempt under Regulation S under the Securities Act of
1933, as amended, due to the foreign nationality of the relevant purchasers.
f) During the nine months ended September 30, 1999, the Company issued
4,981,000 shares pursuant to options exercised at between US$0.067 and US$1.00
per share for total proceeds of US$410,705. The sale of the shares was exempt
from registration under Rule 701 under the Securities Act of 1933. The sales
were made on exercise of grants under the Company's written share option plan, a
copy of which the Company has provided to its participants.
31
<PAGE>
g) In September 1998, the Company concluded an offering of units. Each unit
consisted of one common share and one warrant to acquire an additional share at
Cdn $0.10 per share by September 30, 2000. On completion of the offering, a
total of 6,000,000 units were issued at Cdn $0.10 per unit for total proceeds
of Cdn $600,000.00. The offer and sale of the units were exempt from
registration under Rule 504 and Rule 506 of Regulation D under Sections 3(b) and
4(2), respectively, of the Securities Act of 1933. The Company limited the
manner of the offering and the number of non-accredited investors to four (4)
investors. If the foregoing exemptions are not available, the Company believes
that $260,000.00 of these sales were also exempt under Regulation S under the
Securities Act of 1933, as amended, due to the foreign nationality of the
relevant purchasers.
h) During the year ended December 31, 1998, the Company issued 3,450,000
shares pursuant to options exercised at US$0.067 per share for total proceeds of
US$232,558.00. The sale of the shares was exempt from registration under Rule
701 under the Securities Act of 1933. The sales were made on exercise of grants
under the Company's written share option plan, a copy of which the Company has
provided to its participants.
i) In October 1997, the Company concluded an offering of units. Each unit
consisted of one common share and one warrant to acquire an additional share at
Cdn $0.10 per share by October 3, 1999. On completion of the offering, a total
of 1,250,000 units were issued at Cdn $0.10 per unit for total proceeds of Cdn
$125,000.000. The offer and sale of the units were exempt from registration
under Rule 504 and Rule 506 of Regulation D under Sections 3(b) and 4(2),
respectively, of the Securities Act of 1933. The Company limited the manner of
the offering and there were no non-accredited investors. If the foregoing
exemptions are not available, the Company believes that $20,000.00 of these
sales were also exempt under Regulation S under the Securities Act of 1933, as
amended, due to the foreign nationality of the relevant purchasers.
j) In June 1997, the Company concluded an offering of units. Each unit
consisted of one warrant to acquire an additional share at Cdn $0.10 per share
by June 27,1999. On completion of the offering, a total of 2,500,000 units were
issued at Cdn $0.10 per unit for total proceeds of Cdn $250,000.00. The offer
and sale of the units were exempt from registration under Rule 504 and Rule 506
of Regulation D under Sections 3(b) and 4(2), respectively, of the Securities
Act of 1933. The Company limited the manner of the offering and there were no
non-accredited investors. If the foregoing exemptions are not available, the
Company believes that $150,000.00 of these sales were also exempt under
Regulation S under the Securities Act of 1933, as amended, due to the foreign
nationality of the relevant purchasers.
k) During the year ended December 31, 1997, the Company issued 650,000 shares
pursuant to options exercised at US$0.072 per share for total proceeds of
US$46,952.00. The sale of the shares was exempt from registration under Rule 701
under the Securities Act of 1933. The sales were made on exercise of grants
under the Company's written share option plan, a copy of which the Company has
provided to its participants.
ITEM 11. Description of Securities to Be Registered
The following description of the Company's capital stock does not purport
to be complete and is subject to and qualified in its entirety by the Company's
articles of incorporation and bylaws, which are included as exhibits to the
registration statement and by the applicable provisions of Wyoming law.
The authorized capital stock of the Company consists of 250,000,000 common
shares without nominal or par value and 250,000,000 preferred shares without
nominal or par value.
Common Stock
------------
Dividends: The holders of common shares are entitled to dividends, out of
funds legally available therefore, when and as declared by the Board of
Directors. The Board of Directors have never declared a dividend and do not
anticipate declaring a dividend in the future.
Voting Rights: Each outstanding common share entitles the holder thereof to
one vote per share on all matters. Cumulative voting is not provided for in
connection with the election of the Board of Directors, which means that the
holders of more than 50% of such outstanding shares, voting for the election of
directors, can elect all of the directors to be elected, if they so choose, and,
in such event, the holders of the remaining shares will not be able to elect any
of the Company's directors.
Preemption Rights: The holders of the common shares have no preemptive or
subscription rights.
Each outstanding share of common stock entitles the holder thereof to one
vote per share on all matters and cumulative voting is not provided for in
connection with the election of the Board of Directors. This means that the
holders of more than 50% of such outstanding shares, voting for the election of
directors, can elect all of the directors to be elected, if they so choose, and,
in such event, the holders of the remaining shares will be able to elect any of
the Company's directors.
Preferred Stock
---------------
The Board of Directors will determine, in whole or in part, the
preferences, limitations and relative rights, within the limits set forth by the
laws of the state of incorporation, or any successor statute, of any class of
its preferred shares before the issuance of any shares of that class or one or
more series within that class before the issuance of any shares of that series.
The Board of Directors could use an issuance of preferred stock with dilutive or
voting preferences to delay, defer or prevent a change in control of the
Company.
Stock Options
-------------
A total of 6,718,000 stock options, convertible on a one for one basis,
were outstanding as at February 17, 2000:
Exercise Price
No. of Options Date of Grant Expiry Date Per Option
- -------------- ------------- ----------- ----------
80,000 October 20, 1998 October 20, 2000 $0.067
875,000 January 31, 1999 January 31, 2000 $0.067
500,000 March 9, 1999 March 9, 2001 $0.095
2,944,000 July 16, 1999 July 16, 2001 $ 1.00
669,000 November 25, 1999 November 25, 2001 $ 1.00
750,000 (1) December 22, 1999 December 22, 2001 $ 1.00
900,000 (1) February 17, 2000 February 17, 2002 $ 5.00
(1) These options are subject to Regulatory Acceptance.
For further information on the Company's stock options, please see the
Company's Share Option Plan attached as an exhibit to the registration
statement.
Warrants
--------
A total of 5,675,000 warrants, convertible on a one for one basis, were
outstanding as a January 31, 2000:
No. of Warrants Expiry Date Exercise Price
- --------------- ----------- --------------
2,275,000 September 30, 2000 $0.067
925,000 January 31, 2001 $0.067
975,000 March 23, 2001 $0.129
500,000 May 19, 2001 $0.495
750,000 July 15, 2001 $ 1.10
250,000 (1) January 26, 2002 $ 4.00
(1) These warrants are subject to Regulatory Acceptance.
The Board of Directors may determine and from time to time vary the
conditions upon which share warrants are issued. The bearer of a share warrant
shall be entitled to attend and vote at general meetings. A share warrant may be
surrendered and the name of the holder of the shares may be entered in the
register. The bearer of a share warrant is considered a shareholder of the
Company. The holder of the share warrant is subject to the conditions in force
with respect to share warrants whether made before or after the issue of the
warrant.
32
<PAGE>
ITEM 12. Indemnification of Directors and Officers
Subject to the applicable corporate law, the Company's bylaws limit the
liability of directors and officers for any loss, damage or expense to the
Company in their capacity as directors and officers and provide for the
indemnification of directors and officers. The effect of these provisions is
potentially to indemnify the Company's directors and officers from all costs and
expenses of liability incurred by them in connection with any action, suit or
proceeding in which they are involved by reason of their affiliation with the
Company.
These provisions in the bylaws do not eliminate a director's or officer's
duty of care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available. Each
director and officer will continue to be subject to liability for breach of the
his or her duty of loyalty to the Company, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for acts
or omissions that the director or officer believes to be contrary to the best
interests of the Company or the Company's stockholders, for any transaction from
which the director or officer derived an improper personal benefit, for improper
transactions between the director or officer and the Company and for improper
loans to stockholders and loans to directors or officers. This provision also
does not affect a director's or officer's responsibilities under any other laws,
such as the federal securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving the Company's
directors or officers as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.
ITEM 13. Financial Statements and Supplementary Data
The information in the financial statements provided with this registration
statement are incorporated by reference as though set forth here.
ITEM 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No changes in and disagreements with accountants are reportable pursuant to
this item.
33
<PAGE>
ITEM 15(a). Financial Statements
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Auditors.............................................................................. F-1
Balance Sheets as of September 30, 1999 (Unaudited), December 31, 1998, and December 31, 1997............... F-2
Income Statements for the nine months ended September 30, 1999 and 1998 (Unaudited) and the years
ended December 31, 1998 and 1997............................................................................ F-4
Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 (Unaudited) and the years
ended December 31, 1998 and 1997............................................................................ F-7
Statement of Stockholders Equity for the years ended December 31, 1986 to December 31, 1998 and
January 1, 1992 to December 31, 1998........................................................................ F-11
Notes to Financial Statements (Unaudited as to periods after December 31, 1998)............................. F-17
</TABLE>
ITEM 15(b). Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- -------------- ------------------------------------------------------------
<S> <C>
3.1 Articles of Continuance (Wyoming) filed February 16, 1995
3.2 Articles of Amendment (Alberta) filed January 3, 1995
3.3 Articles of Amendment (Alberta) filed June 28, 1993
3.4 Articles of Amendment (Alberta) filed April 6, 1992
3.5 Articles of Amendment (Alberta) filed September 1, 1989
3.6 Articles of Incorporation (Alberta) filed April 18, 1986
3.7 Bylaws
4.1 Specimen Share Certificate for Common Shares
4.2 Form of Warrants
4.3 Share Option Plan
4.4 Form of Share Option Agreement (Directors)
4.5 Form of Share Option Agreement (Consultant/Employee)
10.1 Letter Agreement dated February 7, 2000 between VIANET and
registrant
10.2* Client Referral Agreement dated May 3, 1999 between UUNET
Technologies, Inc. and registrant
10.3* Co-Location Services Agreement dated June 3, 1999 between UUNET
Technologies, Inc. and registrant
10.4* Alliance Partner Agreement dated November 11, 1999 between Exodus
Communications, Inc. and registrant
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
* To be filed by amendment.
34
<PAGE>
F-1
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
AUDITORS' REPORT
To the Stockholders,
USA Video Interactive Corp.
We have audited the consolidated balance sheets of USA Video Interactive Corp.
as at December 31, 1998 and 1997 and the consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1998 and for the period from inception of the
development stage, January 1, 1992 to December 31, 1998. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 1998
and 1997 and the results of its operations and cash flows for each of the years
in the three year period ended December 31, 1998 and for the period from
inception of the development stage, January 1, 1992 to December 31, 1998, in
accordance with generally accepted accounting principles in the United States.
Vancouver, Canada "AMISANO HANSON"
April 21, 1999, except as to Note 14, which is as Chartered Accountants
of May 3, 1999
Comments by Auditors for U.S. Readers on Canada - U.S. Reporting Conflict
- -------------------------------------------------------------------------
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is
substantial doubt about a company's ability to continue as a going concern. The
accompanying consolidated financial statements have been prepared on the basis
of accounting principles applicable to a going concern which assumes the
realization of assets and discharge of liabilities in the normal course of
business. As discussed in Note 1 to the accompanying financial statements and
in respect of the company's substantial losses from operations, substantial
doubt about the company's ability to continue as a going concern exists. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Our report to the shareholders dated April 21, 1999 is expressed in accordance
with Canadian reporting standards which do not permit a reference to such
uncertainty in the auditors' report when the uncertainty is adequately disclosed
in the consolidated financial statements.
Vancouver, Canada "AMISANO HANSON"
April 21, 1999, except as to Note 14, which is as Chartered Accountants
of May 3, 1999
<PAGE>
F-2
USA VIDEO INTERACTIVE CORP.
CONSOLIDATED BALANCE SHEET
as at September 30, 1999
(Unaudited)
(Prepared by Management)
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
ASSETS
------
1999 1998
--------------------- ---------------------
<S> <C> <C>
Current
Cash and term deposit $ 737,235 $ 76,005
Marketable securities 155,065 164,333
Accounts receivable 23,209 30,789
Prepaid expenses 53,310 2,418
--------------------- ---------------------
968,819 273,545
Advance on investment 25,000 49,300
Capital assets 410,052 226,396
(Net of accumulated amortization 1999 - $81,249)
Deferred development costs --- 363,364
Patents 40,726 36,159
--------------------- ---------------------
$ 1,444,597 $ 948,764
===================== =====================
LIABILITIES
-----------
Current
Accounts payable $ 563,695 $ 432,187
Due to related parties 60,353 146,271
--------------------- ---------------------
624,048 578,458
--------------------- ---------------------
STOCKHOLDERS' EQUITY
--------------------
Common stock 20,748,458 18,128,407
Shares Subscribe --- 394,400
Deficit (19,927,909) (18,152,501)
--------------------- ---------------------
820,549 370,306
--------------------- ---------------------
$ 1,444,597 $ 948,764
===================== =====================
</TABLE>
APPROVED BY THE DIRECTORS:
"Anton J. Drescher" "Edwin Molina"
________________________, Director ______________________, Director
<PAGE>
F-3
USA VIDEO INTERACTIVE CORP.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
ASSETS
------
1998 1997
-------------------- --------------------
<S> <C> <C>
Current
Cash $ 2,618 $ 23,751
Marketable securities - Note 3 73,920 160,940
Accounts receivable - Note 8 21,049 16,211
Prepaid expenses - Note 5 70,862 -
-------------------- -------------------
168,449 200,902
Advance on investment - Note 5 - 52,481
Capital assets - Note 6 236,961 138,400
Patents - Note 7 29,822 26,571
-------------------- -------------------
$ 435,232 $ 418,354
==================== ===================
LIABILITIES
-----------
Current
Accounts payable - Note 8 $ 494,600 $ 467,319
Due to related parties - Note 8 174,028 180,463
-------------------- -------------------
668,628 647,782
-------------------- -------------------
STOCKHOLDERS' DEFICIENCY
------------------------
Common stock - Note 9 18,722,966 17,631,628
Common stock subscribed - Notes 8 and 9 - 113,708
Deficit accumulated during the development stages (18,956,362) (17,974,764)
-------------------- -------------------
(233,396) (229,428)
-------------------- -------------------
$ 435,232 $ 418,354
==================== ===================
</TABLE>
Nature and Continuance of Operations - Note 1
Commitments - Notes 5, 9, 13 and 14
Subsequent Events - Note 14
Contingent Liability - Note 16
APPROVED BY THE DIRECTORS:
"Anton J. Drescher" "Edwin Molina"
__________________________, Director ___________________, Director
<PAGE>
F-4
USA VIDEO INTERACTIVE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
for the nine months ended September 30, 1999
(Unaudited) (Prepared by Management)
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
<S> <C> <C>
Revenue $ 10,000 $ ---
Interest earned 2,248 ---
-------------------- --------------------
12,248 ---
-------------------- --------------------
Expenses
Amortization of capital assets 43,568 6,941
Amortization of patents 787 ---
Advertising 6,811 ---
Consulting fees 98,952 49,141
Filing fees 13,498 3,655
Insurance 3,305 ---
Interest expense 5,053 11,594
LA Music Awards 43,206 ---
License fees 17,345 ---
Management fees 22,500 15,000
Office 133,207 29,486
Printing 59,411 2,620
Product marketing costs 244,903 ---
Professional fees 54,088 35,569
Public relations 17,580 ---
Rent 35,895 17,184
Research and development costs 47,470 ---
Telephone and utilities 48,825 5,954
Transfer agent fee 7,621 5,015
Travel and promotion 41,746 6,529
Webb site costs 50,245 5,164
-------------------- --------------------
996,016 193,852
-------------------- --------------------
Loss for the year (983,768) (193,852)
Other
Foreign exchange gain 12,221 105,769
Gain on sale of capital assets --- 188
Loss on sale of marketable securities --- (697)
Severance pay --- (89,145)
-------------------- --------------------
Net (loss) for the period (971,547) (177,737)
Deficit, beginning of the period (18,956,362) (17,974,764)
-------------------- --------------------
Deficit, end of the period $ (19,927,909) $ (18,152,501)
==================== ====================
</TABLE>
<PAGE>
F-5
USA VIDEO INTERACTIVE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
and January 1, 1992 (Date of Inception of Development Stage) to December 31,
1998
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
January 1, 1992
(Date of Incep-
tion of Develop-
ment Stage) to
Years ended December 31, December 31,
1998 1997 1996 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expenses
Amortization of capital assets $ 38,473 $ 4,605 $ 5,509 $ 129,555
Amortization of goodwill - - - 228,023
Amortization of patents 2,508 2,170 1,841 12,836
Automobile expenses 5,127 - - 51,974
Consulting fees - Note 8 84,611 108,197 218,873 1,805,779
Delivery costs - - - 56,042
Equipment rental - - - 95,136
Filing fees 8,326 6,581 11,923 74,099
Insurance 928 - - 52,732
Interest and bank charges - Note 8 24,665 46,164 67,798 530,373
Interest on convertible debentures
- Note 8 - - 64,868 160,641
Management fees - Note 8 27,000 174,025 359,947 1,916,845
Product marketing costs - Note 8 209,553 85,865 - 366,405
Office and general - Note 8 32,919 27,764 103,581 738,439
Office assistance - Note 8 40,881 14,328 - 55,209
Printing 21,786 - - 162,413
Professional fees - Note 8 48,611 65,147 73,510 690,726
Public relations 13,050 39,494 - 359,400
Rent - Note 8 33,214 17,278 19,922 446,346
Repairs and maintenance 2,638 - - 20,817
Research and development costs
- Note 8 24,000 2,668 - 3,638,920
Salaries and benefits - Note 8 - - - 1,798,755
Telephone and utilities 35,511 25,460 17,125 484,216
Transfer agent fees 5,960 7,216 5,171 45,551
Travel and entertainment 26,072 6,038 14,244 704,017
Web site costs 12,391 18,072 - 30,463
---------- ---------- ---------- -------------
Loss before other items ( 698,224) ( 651,072) ( 964,312) ( 14,655,712)
---------- ---------- ---------- -------------
</TABLE>
<PAGE>
F-6
USA VIDEO INTERACTIVE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
and January 1, 1992 (Date of Inception of Development Stage) to December 31,
1998
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
January 1, 1992
(Date of Incep-
tion of Develop-
ment Stage) to
Years ended December 31, December 31,
1998 1997 1996 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other items
Interest income - - - 5,020
Foreign exchange gain 70,328 5,074 5,987 251,659
Gain (loss) on sale of marketable
securities - Note 8 ( 688) 64,213 375,236 428,878
Gain on disposal of capital assets
- Note 8 77 - - 67,122
Gain on settlement of accounts
payable - - 69,691 197,228
Gain on write-off of accounts
payable - 26,760 41,742 68,502
Severance pay - Note 8 ( 90,000) - - ( 90,000)
Oil well closure costs - ( 3,092) ( 57,397) ( 79,702)
Write-down of marketable securities
- Note 8 ( 118,807) ( 86,680) ( 129,840) ( 1,007,897)
Write-down of advances - Note 8 ( 130,631) - - ( 137,958)
Write-down of capital assets ( 13,653) ( 33,359) - ( 791,124)
Write-off of resource properties - - - ( 717,789)
Write-off of goodwill - - - ( 640,639)
----------- ----------- ----------- -----------
( 283,374) ( 27,084) 305,419 ( 2,446,700)
----------- ----------- ----------- -----------
Net loss $( 981,598) $( 678,156) $( 658,893) $(17,102,412)
=========== =========== =========== ===========
Net loss per share $( 0.02) $( 0.02) $( 0.03)
=========== =========== ===========
Weighted average shares outstanding 50,457,546 37,878,380 24,608,793
=========== =========== ===========
</TABLE>
<PAGE>
F-7
USA VIDEO INTERACTIVE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1999
(Unaudited)
(Prepared by Management)
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash provided by (used in):
Operations
Net (loss) $ (971,547) $ (177,737)
Gain on sale of capital asset --- (188)
Loss on sale of marketable securities --- 697
Items not involving cash:
Amortization 44,355 6,941
Accounts receivable (2,160) (14,578)
Prepaid expense 17,552 (2,418)
Accounts payable 69,095 (35,132)
Due to related parties (113,675) (34,192)
----------- ----------
(956,380) (256,607)
----------- ----------
Financing
Issue of common stock for cash 2,025,492 496,779
Common stock subscribe --- 280,692
Sale proceeds of capital assets 683
Sale proceeds of marketable securities --- 19,796
----------- ----------
2,025,492 797,950
----------- ----------
Investing
Deferred exploration expenditures --- (363,364)
Marketable securities (81,145) (23,886)
Advance on investment (25,000) 3,181
Patents (11,691) (10,991)
Capital assets (216,659) (94,029)
----------- ----------
(334,495) (489,089)
----------- ----------
Net increase in cash 734,617 52,254
Cash, beginning of the period 2,618 23,751
----------- ----------
Cash, end of the period $ 737,235 $ 76,005
=========== ==========
</TABLE>
<PAGE>
F-8
USA VIDEO INTERACTIVE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
and January 1, 1992 (Date of Inception of Development Stage) to December 31,
1998
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
January 1, 1992
(Date of Incep-
tion of Develop
ment Stage) to
Years ended December 31, December 31,
------------------------
1998 1997 1996 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net loss $ ( 981,598) $ ( 678,156) $ ( 658,893) $ ( 17,102,412)
Adjustments to reconcile net loss to net cash used in operations:
Amortization of capital assets 38,473 4,605 5,509 129,555
Amortization of goodwill - - - 228,023
Amortization of patents 2,508 2,170 1,841 12,836
Foreign exchange ( 38,773) ( 5,074) ( 5,987) ( 87,735)
Loss (gain) on sale of marketable securities 688 ( 64,213) ( 375,236) ( 428,878)
Gain on disposal of capital assets ( 77) - - ( 67,122)
Gain on settlement of accounts payable - - ( 69,691) ( 197,228)
Gain on write-off of accounts payable - ( 26,760) ( 41,742) ( 68,502)
Write-down of marketable securities 128,312 86,680 129,840 1,032,518
Write-down of advances 130,631 - - 137,958
Write-down of capital assets 13,653 33,359 - 791,124
Write-off of resource properties - - - 717,789
Write-off of goodwill - - - 640,639
Accounts receivable 3,077 204,951 ( 202,645) ( 1,427)
Prepaid expenses ( 30,084) 1,087 4,300 ( 63,091)
Accounts payable 35,798 ( 202,100) 94,426 1,137,655
Due to related parties 1,252 ( 82,309) 229,852 ( 86,759)
----------- ----------- ----------- ------------
Net cash used in operating activities ( 696,140) ( 725,760) ( 888,426) ( 13,275,057)
----------- ----------- ----------- ------------
</TABLE>
<PAGE>
F-9
USA VIDEO INTERACTIVE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
and January 1, 1992 (Date of Inception of Development Stage) to December 31,
1998
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
January 1, 1992
(Date of Incep-
tion of Develop
ment Stage) to
Year ended December 31, December 31,
-----------------------
1998 1997 1996 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flow provided by (used in) investing activities:
Proceeds on sale of marketable securities $ 26,045 $ 123,415 $ 589,991 $ 1,304,328
Purchase of marketable securities ( 58,520) ( 139,948) ( 342,253) 1,957,267)
Advances ( 113,779 ( 52,481) - ( 137,958)
Investment - - - 246,571
Goodwill - - - ( 868,662)
Proceeds on sale of capital assets 674 - - 279,528
Purchases of capital assets ( 151,284) ( 127,632) ( 33,148) ( 1,370,046)
Patent fees ( 5,759) ( 5,599) ( 817) ( 42,658)
Resource properties - - - 19,213
------------ ------------- ------------- -------------
Net cash provided by (used in) investing activities ( 302,623) ( 202,245) 213,773 ( 2,526,951)
------------ ------------- ------------- -------------
Cash flow provided by (used in) financing activities:
Cash in trust - - 75,236 -
Note payable - ( 114,857) ( 1,022) -
Convertible debenture - - ( 10,880) 1,558,438
Common shares issued for cash 977,630 938,275 518,417 15,192,649
Common share subscriptions - 113,708 106,827 -
Reserved earnout shares acquired and cancelled - - - ( 947,200)
------------ ------------- ------------- -------------
Net cash provided by financing activities 977,630 937,126 688,578 15,803,887
------------ ------------- ------------- -------------
Net increase (decrease) in cash ( 21,133) 9,121 13,925 1,879
Cash, beginning of the period 23,751 14,630 705 739
------------ ------------- ------------- -------------
Cash, end of the period $ 2,618 $ 23,751 $ 14,630 $ 2,618
============ ============= ============= =============
</TABLE>
Supplementary Information - Note 10
<PAGE>
F-11
USA VIDEO INTERACTIVE CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIENCY)
for the years ended December 31, 1986 to December 31, 1998
and January 1,1992 (Date of Inception of Development Stage) to
December 31, 1998 (Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Number Common Stock Common Share Development
of Shares Price Amount Subscriptions Stages Total
--------- ------------ ---------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Issued on incorporation 500,000 $0.038 $ 18,855 $ - $ - $ 18,855
Issued for prospectus 1987 2,000,000 0.038 75,421 75,421
Exercise of share purchase options 1987 237,500 0.298 70,660 70,660
Exercise of share purchase options 1988 152,500 0.800 122,044 122,044
Issued for private placement 1989 237,280 0.667 158,149 158,149
Issued for resource property finders
fee 1989 20,000 0.422 8,445
Stock split 1989 3,147,280
Exercise of share purchase options 1989 133,000 0.416 55,314 55,314
Issued for resource property finders
fee 1989 29,000 0.416 12,060
Issued for settlement of debt 1989 20,000 0.422 8,445 8,445
Issued for loan repayment 1989 200,000 0.422 84,445 84,445
Exercise of share purchase options 1990 304,500 0.429 130,490 130,490
Issued for private placement 1990 795,500 0.370 294,086 294,086
Issued on conversion of debenture 1990 1,000,000 0.129 128,536 128,536
Exercise of share purchase options 1991 425,000 0.044 18,546 18,546
Exercise of share purchase warrants 1991 300,000 0.175 52,365 52,365
Net loss from inception to
December 31, 1991 ( 906,750) ( 906,750)
Share subscriptions at
December 31, 1991 6,923 6,923
---------- --------- ------ --------- ---------
Balance December 31, 1991 9,501,560 1,237,861 6,923 ( 906,750) ( 338,034)
</TABLE>
<PAGE>
F-12
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
USA VIDEO INTERACTIVE CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIENCY)
for the years ended December 31, 1986 to December 31, 1998
and January 1, 1992 (Date of Inception of Development Stage) to December 31,
1998
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Number Common Stock Common Share Development
of Shares Price Amount Subscriptions Stages Total
---------- ----- ------ ------------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Issued for cash:
Private placement 3,000,000 $0.141 $ 422,081 $ 422,081
Private placement 1,625,669 0.629 1,022,518 1,022,518
Share purchase options 450,000 0.041 18,621 $ ( 6,923) 11,698
Share purchase options 371,000 0.414 153,521 153,521
Share purchase warrants 700,000 0.166 115,865 115,865
Share purchase warrants 283,250 0.414 117,210 117,210
Convertible debenture warrants 8,297,320 0.041 343,347 343,347
Issued for conversion of debenture 8,297,320 0.031 257,511 257,511
Issued for settlement of debt 1,031,332 0.093 96,023 96,023
Issued for settlement of debt 134,800 0.414 55,781 55,781
Net loss for year (2,721,567) (2,721,567)
Share subscriptions at
December 31, 1992 154,181 154,181
---------- ----------- ------------ ---------- -----------
Balance December 31, 1992 33,692,251 3,840,339 154,181 (3,628,317) 366,203
</TABLE>
<PAGE>
F-13
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
USA VIDEO INTERACTIVE CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIENCY)
for the years ended December 31, 1986 to December 31, 1998
and January 1, 1992 (Date of Inception of Development Stage) to December 31,
1998
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Number Common Stock Common Share Development
of Shares Price Amount Subscriptions Stages Total
---------- ----- ------ ------------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Issued for cash:
Private placement 500,000 $0.395 $ 197,705 $ 197,705
Private placement 1,000,000 0.465 465,188 465,188
Private placement 2,328,615 0.636 1,480,436 $ ( 154,181) 1,326,255
Issue costs ( 18,938) ( 18,938)
Private placement 50,000 1.287 64,351 64,351
Share purchase options 2,521,320 0.388 977,407 977,407
Share purchase options 150,000 0.465 69,778 69,778
Share purchase warrants 50,000 0.644 32,175 32,175
Convertible debenture warrants 1,146,485 0.039 44,444 44,444
Issued for conversion of debenture 666,666 0.029 19,383 19,383
Issued for conversion of debenture 781,250 0.821 641,098 641,098
Issued in payment of debenture
interest 479,819 0.029 13,950
Issued for settlement of debt 473,273 0.594 281,321 281,321
Net loss for year ( 3,526,607) (3,526,607)
Share subscriptions at
December 31, 1993 485,900 485,900
---------- ----------- ------------- ------------ -----------
Balance December 31, 1993 43,839,679 8,108,637 485,900 ( 7,154,924) 1,439,613
</TABLE>
<PAGE>
Consolidated Financial Statements F-14
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
USA VIDEO INTERACTIVE CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIENCY)
for the years ended December 31, 1986 to December 31, 1998
and January 1, 1992 (Date of Inception of Development Stage) to December 31,
1998
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Number Common Stock Common Share Development
of Shares Price Amount Subscriptions Stages Total
-------------- ------------ ----------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 43,839,679 $ 8,108,637 $ 485,900 $ (7,154,924) $ 1,439,613
Issued for cash:
Private placement 3,000,000 $0.732 2,196,354 (485,900) 1,710,454
Private placement 22,261,000 0.183 4,074,420 4,074,420
Share purchase options 52,180 0.366 19,101 19,101
Share purchase options 87,900 0.439 38,612 38,612
Share purchase warrants 100,000 0.549 54,909 54,909
Share purchase warrants 300,000 0.498 149,352 149,352
Issued for conversion of debenture 78,125 0.813 63,552 63,552
Reserved earnout shares acquired
and cancelled (947,200) (947,200)
Net loss for year (5,367,073) (5,367,073)
------------- ----------- ----------- -------------- ------------
Balance December 31, 1994 69,718,884 14,704,937 (13,469,197) 1,235,740
Issued for settlement of debt 150,000 0.255 38,249 38,249
Issued for settlement of debt 10,720 0.182 1,952 1,952
Share consolidation - 1 share for
5 shares (55,903,643)
Issued for cash:
Private placement 510,000 0.219 111,467 111,467
Issued for settlement of debt 7,574 0.546 4,138 4,138
</TABLE>
<PAGE>
F-15
Consolidated Financial Statements
December 31, 1998 and 1997
(State in U.S. dollars)
---------------------
USA VIDEO INTERACTIVE CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIENCY)
for the years ended December 31, 1986 to December 31, 1998
and January 1, 1992 (Date of Inception of Development Stage) to December 31,
1998
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Number Common Stock Common Share Development
of Shares Price Amount Subscriptions Stages Total
--------- ----- ------ ------------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Net loss for year $( 3,168,518) $( 3,168,518)
Share subscriptions
at December 31, 1995 $ 394,791 394,791
----------- ----------- ---------- ------------- ------------
Balance December 31, 1995 14,493,535 $14,860,743 394,791 ( 16,637,715) ( 1,382,181)
Issued for cash:
Private placement 9,950,000 $0.088 875,623 ( 394,791) 480,832
Share purchase options 205,000 0.183 37,585 37,585
Issued for settlement of debt 9,233,553 0.088 812,575 812,575
Net loss for year ( 658,893) ( 658,893)
Share subscriptions at
December 31, 1996 106,827 106,827
----------- ----------- ---------- ------------- ------------
Balance December 31, 1996 33,882,088 16,586,526 106,827 ( 17,296,608) ( 603,255)
Issued for cash:
Private placement 4,000,000 0.072 288,933 ( 106,827) 182,106
Private placement 1,250,000 0.235 293,448 293,448
Share purchase warrants 749,000 0.079 59,513 59,513
Share purchase warrants 3,000,000 0.108 325,051 325,051
Share purchase warrants 270,000 0.116 31,205 31,205
Share purchase options 650,000 0.072 46,952 46,952
</TABLE>
<PAGE>
F-16
Consolidated Financial Statements
December 31, 1998 and 1997
(State in U.S. dollars)
---------------------
USA VIDEO INTERACTIVE CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIENCY)
for the years ended December 31, 1986 to December 31, 1998
and January 1, 1992 (Date of Inception of Development Stage) to December 31,
1998
(Stated in US Dollars)
--------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Number Common Stock Common Share Development
of Shares Price Amount Subscriptions Stages Total
--------- ------------ ------ ------------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Net loss for year $ ( 678,156) $ 678,156)
Share subscriptions at
December 31, 1997 $ 113,708 113,708
----------- ----------- ----------- ------------ -----------
Balance December 31, 1997 43,801,088 $17,631,628 113,708 ( 17,974,764) ( 229,428)
Issued for cash:
Private placement 6,000,000 $0.067 404,449 404,449
Share purchase warrants 2,000,000 0.101 202,224 ( 75,835) 126,389
Share purchase warrants 550,000 0.074 40,782 40,782
Share purchase warrants 300,000 0.108 32,356 32,356
Share purchase warrants 2,655,000 0.067 178,969 178,969
Share purchase options 3,450,000 0.067 232,558 ( 37,873) 194,685
Net loss for year ( 981,598) ( 981,598)
----------- ----------- ----------- ------------- -----------
Balanced December 31, 1998 58,756,088 $18,722,966 $ - $ 18,956,362) $ 233,396)
=========== =========== =========== ============= ===========
</TABLE>
<PAGE>
F-17
USA VIDEO INTERACTIVE GROUP
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(Stated in U.S. Dollars)
----------------------
Note 1 Nature and Continuance of Operations
------------------------------------
USA Video Interactive Corp. is a public company in the development
stage listed on the Alberta Stock Exchange and NASD Bulletin Board and
is developing and testing a video-on-demand technology.
These financial statements have been prepared on a going concern
basis. The company has a working capital deficiency of $500,179 as at
December 31, 1998 and has accumulated a deficit of $18,956,362 since
inception. Its ability to continue as a going concern is dependent
upon the ability of the company to generate profitable operations in
the future and/or to obtain the necessary financing to meet its
obligations and repay its liabilities arising from normal business
operations when they come due.
Note 2 Summary of Significant Accounting Principles
--------------------------------------------
The consolidated financial statements of the company have been
prepared in accordance with generally accepted accounting principles
in the United States. Because a precise determination of many assets
and liabilities is dependent upon future events, the preparation of
financial statements for a period necessarily involved the use of
estimates which have been made using careful judgement. Actual results
may differ from these estimates.
The financial statements, in management's opinion, have been properly
prepared within reasonable limits of materiality and within the
framework of the significant accounting policies summarized below:
Organization
------------
USA Video Interactive Corp.'s corporate jurisdiction is the State of
Wyoming and it is extra-provincially registered in British Columbia,
Canada and Alberta, Canada. The company was incorporated in Alberta,
Canada on April 18, 1986 as First Commercial Financial Group Inc. On
September 1, 1989 the company changed its name to Micron Metals Canada
Corp. and forward split its common shares on a one old for two new
basis.
By a purchase agreement dated November 21, 1991 and amended March 6,
1992; July 28, 1992; and September 15, 1992 the company acquired 100%
of the outstanding shares of USA Video Inc., a corporation
incorporated on January 29, 1990 in the state of Texas. On July 28,
1993 USA Video Inc. changed its name to USA Video Corporation.
On December 24, 1991 the company incorporated a wholly-owned
subsidiary USA Video Corp. in the state of Nevada. On May 4, 1993 USA
Video Corp. changed its name to USA Video (California) Corporation.
On April 6, 1992 the company changed its name to USA Video
Corporation. On January 3, 1995 the company changed its name to USA
Video Interactive Corp. and on February 16, 1995 the company continued
its corporate jurisdiction from Alberta, Canada to the State of
Wyoming. On February 23, 1995 the company consolidated its common
shares on a five old for one new basis.
<PAGE>
F-18
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Note 2 Summary of Significant Accounting Principles - (cont'd)
--------------------------------------------
Development Stage Company
-------------------------
The company is a development stage company as defined in Statement of
Financial Accounting Standards No. 7.
Principles of Consolidation
---------------------------
These consolidated financial statements include the accounts of USA
Video Interactive Corp. and its wholly owned subsidiaries, USA Video
(California) Corporation and USA Video Corporation, both inactive
companies. The company accounts for its investment in these
subsidiaries by using the purchase method of accounting. All
significant inter-company transactions and balances have been
eliminated on consolidation.
The consolidated financial statements also include the accounts of
Adnet USA LLC, a 50% owned inactive joint venture. Investments in
joint ventures are accounted for using the proportionate consolidation
method, whereby the company's proportionate share of revenues,
expenses, assets and liabilities are included in the accounts. All
inter-company balances and transactions have been eliminated on
consolidation.
Capital Assets and Amortization
-------------------------------
Capital assets are recorded at historical cost. Amortization is
calculated at the following rates:
<TABLE>
<CAPTION>
<S> <C>
Office equipment - 7 years on a graduated straight line basis
Computer and Testing equipment - 7 years on a graduated straight line basis
Video server prototypes - 7 years on a graduated straight line basis
</TABLE>
The specific rates used on a 7 year graduated straight line basis are:
<TABLE>
<S> <C>
Year 1 14.29%
Year 2 24.49%
Year 3 17.49%
Year 4 12.49%
Year 5 8.93%
Year 6 8.92%
Year 7 8.93%
Year 8 4.46%
</TABLE>
Capital assets not put into use during the year are not amortized.
Patent
------
The company owns the patent for the Store and Forward Video System.
The patent is being amortized on a straight line basis over 17 years.
Research and Development Costs
------------------------------
Research and development costs are expensed as incurred.
<PAGE>
F-19
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Note 2 Summary of Significant Accounting Principles - (cont'd)
--------------------------------------------
Foreign Currency Translation
----------------------------
Foreign currency transactions are translated into U.S. dollars by the
use of the exchange rate in effect at the date of the transaction. The
company has operations in Canada and these accounts are translated
using the temporal method. Under this method, monetary items are
translated at the year-end exchange rate. Non-monetary items are
translated at the historical exchange rate, unless such items are
carried at market, in which case they are translated at the year-end
exchange rate. Revenue and expense items are translated at the average
exchange rate during the year.
Income Taxes
------------
The company uses the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes".
Loss per Share
---------------
Loss per share computations are based on the weighted average number
of shares outstanding during the year.
Fair Market Value of Financial Instruments
------------------------------------------
The carrying value of cash, marketable securities, accounts
receivable, accounts payable and due to related parties approximate
fair value because of the short maturity of those instruments.
Note 3 Marketable Securities - Note 8
------------------------------
<TABLE>
<CAPTION>
1998
Fair 1998 1997
Market Value Cost Cost
------------ ---- ----
<S> <C> <C> <C>
Future Media Technologies Corp.
(1997: 750,000 common shares) $ - $ 107,672
Write-down to market value - (86,680)
--------- -------- ---------
$ - - 20,992
--------- -------- ---------
Glassmaster Industries Inc.
2,850,000 common shares
(1997: 2,000,000 common shares) 192,727 139,948
Write-down to market value (118,807) -
--------- ---------
73,920 139,948
--------- --------- ---------
$ 73,920 $ 73,920 160,940
========= ========= =========
</TABLE>
<PAGE>
F-20
USA Video Interactive Corp.
Consolidated Financial Statement
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Note 3 Marketable Securities - Note 8 - (cont'd)
---------------------
The company also holds share purchase warrants that entitle it to
purchase one common share in the following company for each warrant
held:
<TABLE>
<CAPTION>
Number of Exercise Expiry
Warrants Price Date
-------- ----- ----
<S> <C> <C> <C>
Glassmaster Industries Inc. 1,150,000 CDN$ 0.115 November 1, 1999
</TABLE>
Future Media Technologies Corp. and Glassmaster Industries Inc. are
related to the company by virtue of common directors.
<PAGE>
F-21
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Note 4 Adnet USA LLC Joint Venture - Notes 6 and 8
---------------------------
The company owns a 50% interest in a joint venture which has
incorporated a California limited liability company, Adnet USA LLC.
The purpose of the joint venture company was to provide internet
advertising and web page facilities to corporate customers. The
company's joint venture partner is a related company by virtue of
common directors The company has included in its accounts the
following amounts in respect of the joint venture:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Capital assets (net) $ - $13,653
Current liabilities $ - $ 7,962
</TABLE>
Joint venture expenses consist of the following:
<TABLE>
<CAPTION>
January 1, 1992
(Date of Incep-
tion of
Develop-
ment Stage) to
December 31,
1998 1997 1996 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Amortization of capital assets $ - $ 3,243 $ 2,417 $ 5,660
Market consulting 2,500 17,502 22,500 42,502
Office administration - 3,412 750 4,162
Professional fees - - 862 862
Public relations and advertising - 8,376 2,745 11,121
Rent - 2,976 4,856 7,832
Telephone 1,189 16,434 13,642 31,265
Web site 500 12,533 - 13,033
Write-off of capital assets 12,245 45,462 - 57,707
------- -------- ------- --------
Company's share of joint venture
expenses $16,434 $109,938 $47,772 $174,144
======= ======== ======= ========
Company's share of joint venture loss $16,434 $109,938 $47,772 $174,144
======= ======== ======= ========
</TABLE>
The company and its joint venture partner have agreed to abandon the
joint venture and consequently Adnet USA LLC is inactive.
Note 5 Advance on Investment
---------------------
The company had entered into negotiations to purchase a 50% interest
in a company for CDN$2,500,000 payable in stages. As at December 31,
1997, the company had advanced CDN$75,000 toward the CDN$2,500,000 of
which CDN$50,000 was refundable if the agreement is not proceeded with
and the balance of CDN$25,000 was non-refundable. As at December 31,
1998 the company has decided not to proceed with the investment,
consequently the non-
<PAGE>
F-22
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
refundable portion of CDN$25,000, ($16,852), has been written-off. The
balance of CDN$50,000, ($32,423), is included in prepaid expenses and is
to be applied under the terms of the license agreement (Note 13).
Note 6 Capital Assets - Note 4
--------------
<TABLE>
<CAPTION>
Accumulated Net Carrying Value
Cost Amortization 1998 1997
---- ------------ ---- ----
<S> <C> <C> <C> <C>
Office equipment $ 73,698 $10,669 $ 63,029 $ 2,107
Computer and Testing Equipment 30,737 4,485 26,252
Video Server Prototype 170,916 23,236 147,680 124,493
-------- ------- -------- --------
275,351 38,390 236,961 126,600
Adnet USA LLC Joint Venture
Computer and testing equipment - - - 11,800
-------- ------- -------- --------
$275,351 $39,390 $236,961 $138,400
======== ======= ======== ========
</TABLE>
Note 7 Patents
-------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cost $ 42,658 $ 36,899
Accumulated amortization (12,836) (10,328)
---------- ----------
$ 29,822 $ 26,571
========== ==========
</TABLE>
<PAGE>
F-23
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Note 8 Related Party Transactions - Notes 3, 4, 9 and 14
--------------------------
The company has incurred costs paid to directors, former directors,
officers, companies controlled by directors of the company, and
companies with directors in common with the company as follows:
<TABLE>
<CAPTION>
January 1, 1992
(Date of Incep-
tion of Develop-
ment Stage) to
December 31,
1998 1997 1996 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Consulting fees $ 84,611 $ 63,982 $ 122,182 $1,062,044
Interest and bank charges 24,379 44,342 58,612 318,059
Interest on convertible debentures - - 51,075 133,144
Management fees 27,000 174,025 359,947 1,916,845
Product marketing costs 82,000 - - 82,000
Office and general - - 74,330 236,989
Office assistance 21,739 14,328 - 36,067
Professional fees 5,270 5,508 32,032 98,272
Rent - - - 12,950
Research and development costs 24,000 - - 443,198
Salaries and benefits - - - 219,177
Loss (gain) on sale of marketable
securities 688 (64,213) (375,236) (428,878)
Gain on disposal of capital assets - - - (48,133)
Severance pay 90,000 - - 90,000
Write-down of marketable securities 118,807 86,680 129,840 1,007,897
Write-down of advances 113,779 - - 121,106
-------- --------- ---------- ----------
$592,273 $ 324,652 $ 452,782 $5,300,737
======== ========= ========== ==========
</TABLE>
Included in accounts receivable at December 31, 1998 is $12,590 (1997:
$7,986) due from companies related by virtue of having directors in
common.
Included in accounts payable at December 31, 1998 is $19,372 (1997:
$15,669) in fees due to directors and companies controlled by directors
of the company.
Due to related parties at December 31, 1998 includes $130,961 (1997:
$180,463) due to directors in respect to advances to the company that
accrue interest at 1.25% per month, compound monthly, are unsecured and
are payable on thirty days notice of demand. Due to related parties at
December 31, 1998 also includes $43,067 due to a director and officer of
the company with respect to advances to the company that are non-
interest bearing, unsecured and are payable on demand.
Share subscriptions of $113,708 outstanding at December 31, 1997
consisted of subscriptions from directors of the company.
<PAGE>
F-24
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Note 9 Capital Stock - Notes 8 and 14
-------------
Authorized:
250,000,000 common shares without nominal or par value
250,000,000 preferred shares without nominal or par value
Commitments:
Share Purchase Options
The following common share purchase options were outstanding at December
31, 1998 entitling the holders thereof the right to purchase one common
share for each option held:
<TABLE>
<CAPTION>
Exercise Price
Number of Options Per Share Expiry Date
----------------- --------- -----------
<S> <C> <C> <C>
Directors 1,900,000 CDN$ 0.10 July 14, 2000
Employees 1,010,000 CDN$ 0.10 July 14, 2000
100,000 CDN$ 0.10 Oct. 20, 2000
Consultants 225,000 CDN$ 0.10 June 26, 1999
250,000 CDN$ 0.10 July 10, 2000
600,000 CDN$ 0.10 July 14, 2000
250,000 CDN$ 0.10 Oct. 20, 2000
---------
4,335,000
=========
</TABLE>
Share Purchase Warrants
The following share purchase warrants were outstanding entitling the
holders thereof the right to acquire one common share for each warrant
held at December 31, 1998:
<TABLE>
<CAPTION>
Number of Exercise Price
Warrants Per Share Expiry Date
-------- --------- -----------
<S> <C> <C>
845,000 CDN$ 0.10 July 15, 1999
1,250,000 CDN$ 0.43 October 3, 1999
5,000,000 CDN$ 0.10 September 30, 2000
---------
7,095,000
=========
</TABLE>
Other Reserved Earn-out Shares
At December 31, 1998, the company has 3,328,000 reserved shares
outstanding that may be issued on the basis of one share for each
CDN$4.80 of cash flow generated by the company's subsidiary, USA Video
Corporation. Any reserved shares not issued by September 22, 1999, will
not be issued.
<PAGE>
F-25
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Note 9 Capital Stock - Notes 8 and 14 - (cont'd)
-------------
Commitments:
Common Stock Subscribed
At December 31, 1997, the company had received share subscriptions
totalling $113,708. During the year ended December 31, 1998, these
subscriptions were utilized for the issuance of 750,000 common shares
pursuant to the exercise of share purchase warrants and 500,000 common
shares pursuant to the exercise of share purchase options.
Note 10 Supplementary Cash Flow Information
-----------------------------------
The company has issued common shares for non-cash consideration as
follows:
<TABLE>
<CAPTION>
January 1, 1992
(Date of Incep-
tion of Develop-
ment Stage) to
Type of December 31,
Issuance 1998 1997 1996 1998
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
In settlement of debt $ - $ - $812,575 $1,290,039
For payment of interest - - - 13,950
Conversion of debenture - - - 981,544
---------- ---------- -------- ----------
$ - $ - $812,575 $2,285,533
========== ========== ======== ==========
</TABLE>
Note 11 Deferred Tax Assets
-------------------
The Financial Accounting Standards Board issued Statement Number 109 in
Accounting for Income Taxes ("FAS 109") which is effective for fiscal
years beginning after December 15, 1992. FAS 109 requires the use of
the asset and liability method of accounting of income taxes. Under the
assets and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to temporary differences between the financial statements carrying
amounts of existing assets and liabilities and loss carryforwards and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled.
<PAGE>
F-26
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Note 11 Deferred Tax Assets - (cont'd)
-------------------
The following table summarizes the significant components of the
company's deferred tax assets:
<TABLE>
<CAPTION>
Total
-----
<S> <C>
Deferred Tax Assets
Net operating loss carryforward $ 13,000,000
Capital asset amortization 55,000
------------
$ 13,055,000
============
Gross deferred tax assets $ 6,527,500
Valuation allowance for deferred tax asset (6,527,500)
------------
$ -
============
</TABLE>
The amount taken into income as deferred tax assets must reflect that
portion of the income tax loss carryforwards which is likely to be
realized from future operations. The company has chosen to provide an
allowance of 100% against all available income tax loss carryforwards,
regardless of their time of expiry.
Note 12 Income Taxes
------------
No provision for income taxes has been provided in these financial
statements due to the net loss. At December 31, 1998, the company has
net operating loss carryforwards, which expire commencing in 2005
totalling approximately $13,000,000, the benefit of which has not been
recorded in the financial statements.
Note 13 Commitments
-----------
i) The company has entered into an operating lease for office
equipment which requires monthly payments of CDN$397, expiring
February 2002. Minimum lease payments under the terms of the lease
are as follows:
<TABLE>
<CAPTION>
CDN
<S> <C>
1999 $ 4,764
2000 4,764
2001 4,764
2002 793
-------
$15,085
=======
</TABLE>
<PAGE>
F-27
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Note 13 Commitments - (cont'd)
-----------
ii) The company has entered into an agreement dated April 14, 1998 and
amended March 24, 1999 whereby the company has the exclusive right
to sell a certain software application system until October 14,
1999. In consideration of this right the company has agreed to
order a minimum of $150,000 of systems during the period of the
agreement. If the minimum order amount is not met the company is
required to pay a penalty of 30% of the unordered amount. At
December 31, 1998 the unordered amount was $125,625. The advance
of CDN$50,000 ($32,423) included in prepaid expenses at December
31, 1998 is to be applied against the outstanding penalty, if any,
at October 14, 1999.
Note 14 Subsequent Events - Note 13
-----------------
i) Subsequent to December 31, 1998, the company issued the following
common shares:
<TABLE>
<CAPTION>
Number Exercise Price Nature of Cash
of Shares Per Share Transaction Proceeds
--------- --------- ----------- --------
<S> <C> <C> <C>
2,800,000 CDN$0.10 Share purchase options CDN$280,000
935,000 CDN$0.10 Share purchase warrants CDN$93,500
2,000,000 CDN$0.10 Private Placement CDN$200,000
--------- -----------
5,735,000 CDN$573,500
========= ===========
</TABLE>
The private placement included 2,000,000 share purchase warrants
which entitle the holders thereof the right to purchase 2,000,000
common share at CDN$0.10 per share. The warrants expire January
31, 2001.
ii) Subsequent to December 31, 1998, the company granted
directors, employees and a consultant share purchase options which
entitle the holders thereof the right to purchase up to 2,900,000
common shares of the company as follows:
<TABLE>
<CAPTION>
Number Exercise Price
of Shares Per Share
--------- ---------
<S> <C>
1,800,000 CDN$0.10
1,100,000 CDN$0.14
---------
2,900,000
=========
</TABLE>
<PAGE>
F-28
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
The above-noted options expire in two years from the date the
options were granted. The options at CDN$0.14 are subject to
regulatory approval.
ii) On February 15, 1999, the company cancelled 250,000 share
purchase options outstanding at December 31, 1998 to purchase
250,000 common shares at CDN$0.10 per share.
iii) Subsequent to December 31, 1998, the company entered into
a private placement agreement to sell 1,000,000 units at CDN$0.17
per unit. Each unit consists of 1 common share and 1 share
purchase warrant to purchase 1 common share at $0.19 per share,
exercisable for 2 years from the receipt of the private placement
funds.
Note 15 New Accounting Standard
-----------------------
In March, 1995, Statement of Financial Accounting Standards No. 12
("SFAS-121") "Accounting for Impairment of long-lived assets and for
long-lived assets to be disposed of" was issued. Certain long-lived
assets held by the company must be reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. Accordingly, the impairment loss is
recognized in the period it is determined. The company has adopted
these standards and there was no material effect on its financial
position or results of operations of the company from its adoption.
Note 16 Contingent Liability
--------------------
There is a contingent liability in respect to a default judgement
entered against the company's subsidiary, USA Video Corporation, in
Texas, USA with regard to the company's lease of premises in Dallas,
Texas in the amount of $505,169 ($25,399 included in accounts payable
at December 31, 1998). The company vacated its premises in Dallas,
Texas during the year ended December 31, 1995 and a claim was made to
the company for the total amount payable under the terms of the lease
through the term of the lease, ending in 2002. Management of the
company is of the opinion that the amount payable under the terms of
this judgement is not determinable at this time as the damages may be
substantially mitigated by the landlords renting the property to
another party. Any settlement resulting from the resolution of this
contingency will be accounted for during the year of the settlement.
Note 17 Uncertainty Due to the Year 2000 Issue
--------------------------------------
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using the year 2000 date 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 system 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.
Note 18 Comparative Figures
-------------------
<PAGE>
F-29
USA Video Interactive Corp.
Consolidated Financial Statements
December 31, 1998 and 1997
(Stated in U.S. dollars)
- ------------------------
Certain figures for the comparative year ended December 31, 1997 have
been restated to conform with the current year's presentation.
<PAGE>
F-30
USA VIDEO INTERACTIVE CORP.
for the nine months ended September 30, 1999
(Unaudited)
(Prepared by Management)
(Stated in US Dollars)
---------------------
Note 1 Development Costs
Research & Development $ 47,470
Note 2 Common shares Issued during the period
(a) 4,741,000 common shares were issued pursuant to the exercise
of stock options for net proceeds of $360,169
(b) 2,745,000 common shares were issued pursuant to the exercise
of share purchase warrants for net proceeds of $468,411
(c) 4,250,000 common shares were issued pursuant to private
placement agreement for net proceeds $1,196,912
Note 3 (a) Outstanding as at this period end
<TABLE>
<CAPTION>
Authorized Issued Issued
Class Par Value Number Number Amount
<S> <C> <C> <C> <C>
Common NPV 250,000,000 70,517,088 $20,748,458
Preferred --- 250,000,000 --- ---
</TABLE>
(b) Share Purchase Options
The following common share purchase options were outstanding at
September 30, 1999 entitling the holders thereof the right to
purchase one common share for each option held:
<TABLE>
<CAPTION>
Number of Options Exercise Price
Per Share Expiry Date
<S> <C> <C> <C>
Employees 100,000 CDN$ 0.10 Jan. 20, 2001
1,425,000 CDN$ 0.10 Jan. 31, 2001
550,000 CDN$ 0.14 Mar. 9, 2001
500,000 CDN$ 0.86 May 15, 2001
2,924,000 US$ 1.00 July 16, 2001
Consultants 50,000 CDN$ 0.10 July 14, 2000
95,000 CDN$ 0.10 Oct. 20, 2000
100,000 US$ 1.00 July 16, 2001
---------
5,744,000
=========
</TABLE>
<PAGE>
F-31
USA VIDEO INTERACTIVE CORP.
for the nine months ended September 30, 1999
(Unaudited -Prepared by Management)
(Stated in US Dollars)
---------------------
Page 2
(c) Share Purchase Warrants
The following share purchase warrants were outstanding entitling
the holders thereof the right to acquire one common share for each
warrant held at September 30, 1999:
<TABLE>
<CAPTION>
Number of Exercise Price
Warrants Per Share Expiry Date
<S> <C> <C>
4,400,000 CDN$ 0.10 September 30, 2000
1,800,000 CDN$ 0.10 January 31, 2001
975,000 CDN$ 0.19 March 23, 2001
500,000 CDN$ 0.73 May 19, 2001
750,000 US$ 1.10 July 15, 2001
---------
8,425,000
=========
</TABLE>
(d) Other Reserved Earn-out Shares
Effective September 23, 1999 the reservation for 3,328,000 shares
had expired, these shares were to be issued on the basis of one
share for each CDN$4.80 of cash flow generated by the company's
subsidiary, USA Video Corporation. Any reserved shares not issued
by September 22, 1999 will not be issued.
Note 4 Related party Transactions
As at September 30, 1999, the aggregate compensation paid or was
payable to the Company's (including its two subsidiaries) executive
officers and directors, including salaries, management and consulting
fees, interest, commissions and benefits was $171,000.
Included in Due to related parties is the following: 1999
----
Due to directors/officers $ 60,353
========
Note 5 List of Directors as at September 30, 1999
Gerhard Drescher, Anton, J. Drescher, Edwin Molina and Norman Bonin
Note 6 Contingent Liabilities
There is a contingent liability in respect to a default judgement
entered against the Company's subsidiary in the State of Texas with
respect to the lease of premises in Dallas, Texas in the amount of
$505,169 US ($25,399 US included in accounts payable at December 31,
1995). The subsidiary vacated its premises in Dallas, Texas during the
year ended December 31, 1995 and was sued for the total amount payable
under the terms of the lease through the term of the lease, ended in
2002. Management of the Company is of the opinion that the amounts
payable under the terms of this judgement is not determinable at this
time as the damages may be substantially mitigated by the landlord
renting the property to another party. Any settlement resulting from
the resolution of this contingency will be accounted for as a prior
record adjustment or as a charge to income of the period in which the
costs would relate to.
Note 7 Basis of preparation: These unaudited interim financial statements have
been prepared by management and reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the results
for the interim periods presented.
<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.
USA VIDEO INTERACTIVE CORP.
Date: February 22, 2000
By: /s/ Edwin Molina
------------------------------------
Edwin Molina, President
Chief Executive Officer and Director
35
<PAGE>
Item 15(b). Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------------- ---------------------------------------------------------------
<S> <C>
3.1 Articles of Continuance (Wyoming) filed February 16, 1995
3.2 Articles of Amendment (Alberta) filed January 3, 1995
3.3 Articles of Amendment (Alberta) filed June 28, 1993
3.4 Articles of Amendment (Alberta) filed April 6, 1992
3.5 Articles of Amendment (Alberta) filed September 1, 1989
3.6 Articles of Incorporation (Alberta) filed April 18, 1986
3.7 Bylaws
4.1 Specimen Share Certificate for Common Shares
4.2 Form of Warrants
4.3 Share Option Plan
4.4 Form of Share Option Agreement (Directors)
4.5 Form of Share Option Agreement (Consultant/Employee)
10.1 Letter Agreement dated February 7, 2000 between VIANET and
registrant
10.2* Client Referral Agreement dated May 3, 1999 between UUNET
Technologies, Inc. and registrant
10.3* Co-Location Services Agreement dated June 3, 1999 between UUNET
Technologies, Inc. and registrant
10.4* Alliance Partner Agreement dated November 11, 1999 between Exodus
Communications, Inc. and registrant
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
* To be filed by amendment.
<PAGE>
Exhibit 3.1
Secretary of State
State of Wyoming
The Capitol
Cheyenne, WY 82002-0020
STATE OF WYOMING
APPLICATION FOR
CERTIFICATION OF REGISTRATION
AND ARTICLES OF CONTINUANCE
Pursuant to W.S. 17-16-1710 of the Wyoming Business Corporation Act, the
undersigned hereby submits the following Articles of Continuance:
1. The name of the Corporation is USA VIDEO INTERACTIVE CORP.
2. It is incorporated under the laws of the Province of Alberta, Canada.
3. The date of its incorporation is April 18, 1986 and the period of its
duration is perpetual and unlimited.
4. The address of the principal office is:
2200, AGT Tower
411 - 1st Street S.E.
Calgary, Alberta
Canada, T2G 5E7
5. The mailing address where correspondence and annual reports can be sent:
2200, AGT Tower
411 - 1st Street S.E.
Calgary, Alberta
Canada, T2G 5E7
6. The physical address of its registered office in Wyoming and name of its
registrant at that address is:
Registered Agencies Services, Inc.
1912 Capitol Avenue
Cheyenne, Wyoming 82001
<PAGE>
-2-
7. The purpose or purpose of the corporation which it proposes to pursue
in the transaction of business in this state.
All purposes permitted to a corporation by the laws of the State of
Wyoming.
8. The names and respective addresses of its officers and directors are:
<TABLE>
<CAPTION>
==============================================================================================
OFFICE NAME ADDRESS
==============================================================================================
<S> <C> <C>
President Frank Bowden 5837 Sky Park Drive
Plano, Texas 75093
- ----------------------------------------------------------------------------------------------
Vice-President N/A
- ----------------------------------------------------------------------------------------------
Secretary Anton J. Drescher 5561 Rugby Avenue
Burnaby, British Columbia, Canada
- ----------------------------------------------------------------------------------------------
Treasurer Anton J. Drescher 5561 Rugby Avenue
Burnaby, British Columbia, Canada
V5E 2N2
- ----------------------------------------------------------------------------------------------
Director Gordon F. Lee 526 Maple
Beverly HIlls, California 90210
- ----------------------------------------------------------------------------------------------
Director Andrew Prowse 2659 West 34th Avenue
Vancouver, British Columbia,
Canada
Y6N 213
- ----------------------------------------------------------------------------------------------
Director Gerhard Drescher 76 West 14th Avenue
Vancouver, British Columbia,
Canada
V5Y 1W6
- ----------------------------------------------------------------------------------------------
Director Frank Bowden 5837 Sky Park Drive
Plano, Texas 75093
- ----------------------------------------------------------------------------------------------
Director Norman J.Bonin 5769 Anchor Road
British Columbia, Canada
3A0
- ----------------------------------------------------------------------------------------------
Director Robert E. Runlce 10940 South Parker Road
Box 503, Parker, Colorado 80134-
7440
- ----------------------------------------------------------------------------------------------
Director Anton J. Drescher 5561 Rugby Avenue
Burnaby, British Columbia, Canada
V5E 2N2
==============================================================================================
</TABLE>
<PAGE>
-3-
9. The aggregate number of shares or other ownership units which it has the
authority to issue, itemized by classes, par value or shares, shares
without par value and series, if any, within a class is:
================================================================================
NUMBER OF SHARES CLASS SERIES PAR VALUE
PER SHARE
================================================================================
250,000,000 Common N/A N/A
- --------------------------------------------------------------------------------
250,000,000 Preferred N/A N/A
================================================================================
10. The aggregate number of issued or other ownership units itemized by
classes, par value of shares, shares without par value and series, if any,
within a class is:
================================================================================
NUMBER OF SHARES CLASS SERIES PAR VALUE
PER SHARE
================================================================================
13,975,940 Common N/A N/A
- --------------------------------------------------------------------------------
NIL Preferred N/A N/A
================================================================================
11. The corporation accepts the Constitution of this state in compliance with
the requirements of article 10, section 5 of the Wyoming constitution.
12. The Board of Directors may determine, in whole or in part, the preferences,
limitations and relative rights, within the limits set forth in W.S. SS 17-
16-601, or any successor statute, of any class of its preferred shares
before the issuance of any shares of that class or one or more series
within that class before the issuance of any shares of that series.
DATED This 14 day of February, 1995:
USA VIDEO INTERACTIVE CORP.
per: /s/ Anton J. Drescher
-------------------------
ANTON J. DRESCHER,
Secretary/Treasurer,
Director, Chief Financial Officer
<PAGE>
Exhibit 3.2
BUSINESS CORPORATIONS ACT Form 4
(SECTION 27 OR 171)
ALBERTA CONSUMER AND
CORPORATE AFFAIRS
ARTICLES OF AMENDMENT
- --------------------------------------------------------------------------------
1. NAME OF THE CORPORATION 2. CORPORATE ACCESS NUMBER
USA VIDEO CORPORATION 20347253
- --------------------------------------------------------------------------------
3. ITEM NO. 1 OF THE ARTICLES OF THE ABOVE NAMED CORPORATION IS AMENDED IN
ACCORDANCE WITH SUBSECTION 167(1)(a) OF THE BUSINESS CORPORATIONS ACT.
By changing the name of the Corporation to USA VIDEO INTERACTIVE CORP.
ITEM NO. 2 OF THE ARTICLES OF THE ABOVE NAMED CORPORATION IS AMENDED IN
ACCORDANCE WITH SUBSECTION 167(1)(f) OF THE BUSINESS CORPORATIONS ACT.
By changing all of the currently issued and outstanding common shares in
the capital stock of the Corporation into a different number of shares such
that one (1) common share in the capital stock of the Corporation shall be
issued for every five (5) currently issued common shares without amending
the stated capital account of the common shares of the Corporation and
without reducing the authorized capital of the Corporation.
- --------------------------------------------------------------------------------
DATE SIGNATURE TITLE
December 22, 1994 /s/ Gordon F. Lee President
------------------
Gordon F. Lee
- -------------------------------------------------------------------------------
FOR DEPARTMENT USE ONLY FILED
<PAGE>
EXHIBIT 3.3
ALBERTA CONSUMER AND CORPORATE AFFAIRS
BUSINESS CORPORATIONS ACT
(Section 27 or 171)
ARTICLES OF AMENDMENT
---------------------
- --------------------------------------------------------------------------------
1. Name of Corporation 2. Corporate Access Number
USA VIDEO CORPORATION 20347253
- --------------------------------------------------------------------------------
3. Item No. 2 of the Articles of the above named Corporation is amended in
accordance with Section 167(1)(c) of the Business Corporation Act as
follows:
(a) The maximum number of Common Shares which the Corporation is authorized
to issue shall be 250,000,000 rather than an unlimited number of Common
Shares.
(b) The maximum number of Preferred Shares which the Corporation is
authorized to issue shall be 250,000,000 rather than an unlimited
number of Preferred Shares.
4. Item 6 of the Articles of the above named Corporation is amended in
accordance with Section 167(1)(m) of the Business Corporations Act to
provide that meetings of the shareholders of the Corporation may be held
outside of Alberta at Los Angeles, California; Dallas, Texas; Las Vegas,
Nevada; and New York, New York.
- --------------------------------------------------------------------------------
Date Signature Title
June 22, 1993 /s/ Andrew Prowse Director
- ----------------------- -------------------- -------------------
Andrew R. Prowse
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY Filed
<PAGE>
Exhibit 3.4
IMPORTANT: PLEASE READ INSTRUCTIONS ON THE BACK OF THIS FORM
- --------------------------------------------------------------------------------
BUSINESS CORPORATIONS ACT FORM 4
(Section 27 or 171)
CONSUMER AND
Alberta CORPORATE AFFAIRS ARTICLES OF AMENDMENT
- --------------------------------------------------------------------------------
1. NAME OF CORPORATION: 2. CORPORATE ACCESS NUMBER:
MICRON METALS CANADA CORP. 20347253
- --------------------------------------------------------------------------------
3. ITEM NO. 1 OF THE ARTICLES OF THE ABOVE NAMED CORPORATION ARE AMENDED IN
ACCORDANCE WITH SECTION 167(1)(a) OF THE BUSINESS CORPORATIONS ACT.
TO CHANGE THE NAME OF THE CORPORATION TO USA VIDEO CORPORATION.
- --------------------------------------------------------------------------------
DATE SIGNATURE TITLE
Apr. 3/92 /s/ Gordon Lee PRESIDENT
-----------------------
GORDON F. LEE
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY FILED
<PAGE>
Exhibit 3.5
- --------------------------------------------------------------------------------
BUSINESS CORPORATIONS ACT
CONSUMER AND
Alberta CORPORATE AFFAIRS ARTICLES OF AMENDMENT
- --------------------------------------------------------------------------------
1. NAME OF CORPORATION 2. CORPORATE ACCESS NUMBER:
FIRST COMMERCIAL FINANCIAL GROUP, INC. 20347253
- --------------------------------------------------------------------------------
3. THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
1. Pursuant to subsection 167(1)(a) of the Business Corporations Act
(Alberta), the Articles of Incorporation of the Corporation be amended by
changing its name from First Commercial Financial Group Inc. to Micron
Metals Canada Corp.;
2. Pursuant to subsection 167(1)(f) of the Business Corporations Act
(Alberta), the Articles of Incorporation of the Corporation be amended by
changing all of the currently issued and outstanding commom voting shares
into a different number of shares such that two common voting shares in the
capital stock of the Corporation shall be issued for every one common
voting share without amending the stated capital account for the common
voting shares of the Corporation.
- --------------------------------------------------------------------------------
DATE SIGNATURE TITLE
August 30, 1989 /s/ Gordon F. Lee President
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY FILED
<PAGE>
Exhibit 3.6
SCHEDULE "A"
The Company is authorized to issue an unlimited amount of common
shares.
The shares will have the following rights:
(a) to be entitled to dividends as and when declared by the Board of
Directors.
(b) to one vote per share at meetings of Shareholders of the
Corporation.
(c) upon liquidation, to receive such assets of the Corporation as
are remaining and distributable to the holders of the common
shares.
- --------------------------------------------------------------------------------
BUSINESS CORPORATIONS ACT
(SECTION 0)
CONSUMER AND
Alberta CORPORATE AFFAIRS ARTICLES OF INCORPORATION
- --------------------------------------------------------------------------------
1. NAME OF CORPORATION.
FIRST COMMERCIAL FINANCIAL GROUP INC.
- --------------------------------------------------------------------------------
2. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS
AUTHORIZED TO ISSUE.
See Attached Schedule "A" and "B"
- --------------------------------------------------------------------------------
3. RESTRICTIONS IF ANY ON SHARE TRANSFERS.
NONE
- --------------------------------------------------------------------------------
4. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS.
Minimum 1 Maximum - 15
- --------------------------------------------------------------------------------
5. IF THE CORPORATION IS RESTRICTED FROM CARRYING ON A CERTAIN BUSINESS, SPECIFY
THESE RESTRICTIONS.
There are no restrictions placed on the business of the Corporation.
- --------------------------------------------------------------------------------
6. OTHER PROVISIONS IF ANY.
None
- --------------------------------------------------------------------------------
7. DATE
April 15, 1986
- --------------------------------------------------------------------------------
INCORPORATORS NAME ADDRESS (INCLUDE POSTAL CODE) SIGNATURE
- --------------------------------------------------------------------------------
Robert A.M. McNeilly 600, 10130 - 103 Street /s/Robert A.M. McNeilly
Edmonton, Alberta T5J 3R2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY
INCORPORATION DATE 86/04/18
CORPORATE ACCESS NO. [_][_][_][_][_][_][_][_]
<PAGE>
SCHEDULE "B"
The Corporation is authorized to issue an unlimited amount of preferred
shares which may be issued in one or more series, and the directors are
authorized to fix the number of shares in each series, and determine the
designation, rights, privileges, restrictions and conditions attached to the
shares of each series.
<PAGE>
EXHIBIT 3.7
BY-LAW NO. 1
A by-law relating generally to the transaction of the business and affairs
of FIRST COMMERCIAL FINANCIAL GROUP INC.
CONTENTS
--------
ONE - INTERPRETATION
TWO - BUSINESS OF THE CORPORATION
THREE - BORROWING AND SECURITY
FOUR - DIRECTORS
FIVE - COMMITTEES
SIX - OFFICERS
SEVEN - CONFLICT OF INTEREST AND PROTECTION OF DIRECTORS, OFFICERS AND
OTHERS
EIGHT - SHARES
NINE - DIVIDENDS AND RIGHTS
TEN - MEETINGS OF SHAREHOLDERS
ELEVEN - DIVISIONS AND DEPARTMENTS
TWELVE - INFORMATION AVAILABLE TO SHAREHOLDERS
THIRTEEN - NOTICES
BE IT ENACTED as a by-law of First Commercial Financial Group Inc.
(hereinafter called "the Corporation") as follows:
1.01 Definitions
-----------
In the by-laws of the Corporation, unless the context otherwise
requires:
"Act" means The Business Corporations Act of Alberta, and any statute
that may be substituted therefor, as from time to time amended;
"appoint" includes "elect" and vice versa;
"articles" means the articles attached to the Certificate of
Incorporation of the Corporation as from time to time amended or
restated;
"board" means the board of directors of the Corporation;
<PAGE>
-2
"by-laws" mean this by-law and all other by-laws of the Corporation
from time to time in force and effect;
"meeting of shareholders" means an annual meeting of shareholders and
a special meeting of shareholders; "special meeting of shareholders"
means 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 (Alberta);
"ordinary resolution" means a resolution passed by a majority of the
votes cast by the shareholders who voted, either in person or by
proxy, in respect of that resolution;
"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 Clause
2.04 or by a resolution passed pursuant thereto.
Save as aforesaid, words and expressions defined in the Act have the
same meanings when used herein; and words importing the singular number include
the plural and vice versa; words importing gender include the masculine,
feminine and neuter genders; and words importing persons include individuals,
bodies corporate, partnerships, trusts and unincorporated organizations.
SECTION TWO
BUSINESS OF THE CORPORATION
---------------------------
2.01 Registered Office, Records Office and Address for Service
---------------------------------------------------------
The registered office, the designated records office (if separate from
the registered office) and the post office box (if any) of the Corporation shall
be at the address or addresses in Alberta as may from time to time be determined
by the board.
2.02 Corporate Seal
--------------
The Corporation may have a corporate seal of such design as may be
approved by the board. The seal, if any, shall be kept in charge of the
secretary or other person appointed by the board and shall be used as provided
<PAGE>
-3-
in the by-laws
Whenever determined by the board that such is necessary the Corporation may
have and use an official facsimile of its seal for use in any province of Canada
not being the province in which the registered office is situate or for use in
any territory, district or place outside Canada and in the preparation, adoption
and authorization of the use of such seal, the board shall at all times comply
with the Statues and the Articles.
2.03 Financial Year
--------------
The financial year of the Corporation shall end on such date in
each year as the board may from time to time determine.
2.04 Execution of Instruments
------------------------
Deeds, transfers, assignments, contracts, obligations, certificates
and other instruments in writing requiring the signature of the Corporation may
be signed by any one of the persons who is a director and officer of the
Corporation. In addition, the board may from time to time direct the manner in
which and the person or persons by whom any particular instrument or class of
instruments may or shall be signed. Any signing officer may affix the corporate
seal to any instrument requiring the same.
2.05 Banking Arrangements
--------------------
The banking business of the Corporation including, without
limitation, the borrowing of money and the giving of security therefor, shall be
transacted with such banks, trust companies or other bodies corporate or
organizations as may from time to time be designated by or under authority of
the board. Such banking business or any part thereof shall be transacted under
such agreements, instructions and delegations of powers as may from time to time
by prescribed or authorized by the board.
2.06 Voting Rights in Other Bodies Corporate
---------------------------------------
Any officer 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 instruments, certificates or other evidence shall be in favour
of such person or persons as may be determined by the officer executing such
proxies or arranging for the issuance of voting certificates or such other
evidence of the right to exercise such voting rights. In addition, the board, or
failing the board, the signing officer of the Corporation, 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.
<PAGE>
- 4 -
SECTION THREE
BORROWING AND SECURITY
----------------------
3.01 Borrowing Power
---------------
Without limiting the borrowing powers of the Corporation as set forth in
the Act, but subject to the Articles, the board may from time to time on behalf
of the Corporation, without authorization of the shareholders:
(a) borrow money upon the credit of the Corporation in such amounts and on
such terms as may be deemed expedient by obtaining loans or advances
or by way of overdraft or otherwise;
(b) issue, reissue, sell or pledge bonds, debentures, notes or other
evidences of indebtedness or guarantee of the Corporation, whether
secured or unsecured, for such sums and at such prices as may be
deemed expedient;
(c) to the extent permitted by the Act, give a guarantee on behalf of the
Corporation to secure performance of any present or future
indebtedness, liability or obligation of any person;
(d) mortgage, hypothecate, pledge or otherwise create a security interest
in all or any present and future property, real and personal,
immoveable and moveable, of the Corporation, including its
undertakings and rights, to secure any bonds, debentures, notes or
other evidences of indebtedness or guarantee or any other
indebtedness, liability or obligation of the Corporation, present or
future; and
(e) delegate to a committee of the board, a director or an officer of the
Corporation all or any of the powers conferred in this clause or by
the Act to such extent and in such manner as the directors may
determine.
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.
SECTION FOUR
DIRECTORS
---------
4.01 Number of Directors and Quorum
------------------------------
Until changed in accordance with the Act, the Board shall consist of not
fewer than the minimum number and not more than the maximum number of directors
provided in the Articles. Subject to Clauses 4.08 and 4.09, the quorum for the
transaction of business at any meeting of the board shall consist of two
directors or such greater or lesser number of directors as the board may from
time to time determine.
<PAGE>
-5-
4.02 Qualification
-------------
No person shall be qualified for election as a director who is:
(a) less than eighteen years of age;
(b) if he is a dependent adult as defined in The Dependant Adults
Act (Alberta) or is the subject of a certificate of incapacity
under that Act;
(c) if he is a formal patient as defined in The Mental Health Act
(Alberta);
(d) if he is the subject of an order under The Mentally Incapacitated
Persons Act (Alberta) appointing a committee of his person or
estate or both;
(e) if he has been found to be a person of unsound mind by a court
elsewhere than in Alberta;
(f) if he is not an individual; or,
(g) if he has the status of a bankrupt.
A director need not be a shareholder. At least half of the directors shall be
resident Canadians. As long as required by the Act, at least two directors
shall not be officers or employees of the Corporation or its affiliates.
4.03 Consent to Act
--------------
A person who is elected or appointed a director is not a director
unless:
(a) he was present at the meeting when he was elected or appointed
and did not refuse to act as a director, or
(b) if he was not present at the meeting when he was elected or
appointed, he consented to act as a director in writing before
his election or appointment or within ten days after it, or he
has acted as a director pursuant to the election or appointment.
A person who is elected or appointed as a director and who refuses or
fails to consent or act shall be deemed not to have been elected or appointed as
a director.
4.04 Election and Term
-----------------
Shareholders of the Corporation shall, by ordinary resolution at the
first meeting of shareholders and at each succeeding annual meeting at which an
election of directors is required, elect directors to hold office for a term
<PAGE>
-6-
expiring not later than the close of the third annual meeting of shareholders
following the election. At each annual meeting of shareholders, all directors
whose term of office has expired or then expires shall retire but, if qualified,
shall be eligible for re-election. A director not elected for an expressly
stated term ceases to hold office at the close of the first annual meeting of
shareholders following his election. Notwithstanding the foregoing, if directors
are not elected at a meeting of shareholders, the incumbent directors continue
in office until their successors are elected. The number of directors to be
elected at any such meeting shall be the number of directors whose term of
office has expired or then expires unless the directors or the shareholders
otherwise determine. It is not necessary that all directors elected at a meeting
of shareholders hold office for the same term. If the articles so provide, the
directors may, between annual meetings of shareholders, appoint one or more
additional directors of the Corporation to serve until the next annual meeting
of shareholders, but the number of additional directors shall not at any time
exceed one-third of the number of directors who held office at the expiration of
the last annual meeting of the Corporation.
4.05 Removal of Directors
--------------------
Subject to the provisions of the Act, the shareholders may by ordinary
resolution passed at a special meeting remove any director or directors from
office and the vacancy created by such removal may be filled at the same meeting
failing which it may be filled by the directors.
4.06 Vacation of Office
------------------
A director ceases to hold office when he dies or resigns, he is
removed from office by the shareholders or he ceases to be qualified as a
director under Clause 4.02. A resignation of a director becomes effective at the
time a written resignation is sent to the corporation, or at the time specified
in the written resignation, whichever is later.
4.07 Vacancies
---------
Subject to the Act, a quorum of the board may fill a vacancy in the
board. In the absence of a quorum of the board, the directors then in office
shall forthwith call a special meeting of shareholders to fill the vacancy and
if they fail to call such meeting or if there are no directors then in office,
any shareholder may call the meeting.
4.08 Action by the Board
-------------------
The board shall manage the business and affairs of the Corporation.
Subject to Clause 4.09 and the articles, the powers of the board may be
exercised by resolution passed at a meeting at which a quorum is present or by
resolution in writing signed by all the directors who would be entitled to vote
on that resolution at a meeting of the board.
<PAGE>
-7-
4.09 Resolution Without Meeting Together
-----------------------------------
Notwithstanding anything to the contrary in this by-law:
(a) a resolution or resolutions signed by all members of the board as
such without meeting together, whether embodies in the form of
minutes of a meeting of directors or not, shall be as valid and
effectual as if passed at a meeting of the board duly called and
constituted and shall be entered in the minute book of the
Corporation accordingly and shall be held to relate back to any
date therein stated to be the date thereof and a director may
signify his assent to such resolution or resolutions in writing
under his hand or by telegram or cable;
(b) any written resolution made under this clause may be signed in
several counterparts, each of which so executed shall be deemed
to be an original and such counterparts together shall constitute
but one and the same instrument;
(c) where the board consists of a sole director, a resolution or
resolutions assented to and adopted in writing under the hand of
that director whether embodied in the form of a minute of that
director or not shall be as valid and effectual as if passed at a
meeting of the board duly called and constituted and shall be
entered in the minute book of the Corporation accordingly and
shall be held to relate back to any date therein stated to be the
date thereof and the sole director may also signify his assent to
such resolution or resolutions by telegram or cable.
4.10 Canadian Majority
-----------------
The board shall not transact business at a meeting, other than filling
a vacancy in the board, unless at least half of the directors present are
resident Canadians, except where:
(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) the number of resident Canadian directors present at the meeting,
together with any resident Canadian director who gives his
approval under clause (a), totals at least half of the directors
present at the meeting.
4.11 Meetings by Telephone
---------------------
A director may participate in a meeting of the board or of a committee
of the board by means of telephone or other communication facilities that permit
all persons participating in the meeting to hear each other, and a director
participating in a meeting by those means is deemed to be present at the
meeting.
<PAGE>
-8-
4.12 Place of Meeting
----------------
Subject to the articles, meetings of the board may be held at any
place in or outside Canada.
4.13 Calling of Meetings
-------------------
Meetings of the board shall be held at such time and at such place as
the board, the chairman of the board, the managing director, the president or
any two directors may determine.
4.14 Notice of Meetings
------------------
Notice of the time and place of each meeting of the board shall be
given in the manner provided in Clause 13.01 to each director not less than
forty-eight hours before the time when the meeting is to be held. Meetings of
the board may be summoned by the secretary or an assistant secretary at the
request of the president or the chairman and failing them, at the request of a
vice-president or a director. A notice of a meeting of directors need not
specify the purpose of or the business to be transacted at the meeting, except
where the Act requires such purpose or business to be specified including any
proposal to:
(a) submit to the shareholders any question or matter requiring
approval of the shareholders;
(b) fill a vacancy among the directors or in the office of auditors;
(c) issue securities;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares of the Corporation;
(f) pay a commission for the sale of shares;
(g) approve a management proxy circular;
(h) approve any annual financial statement; or
(i) adopt, amend or repeal by-laws.
A director may in any manner waive notice of or otherwise consent to a
meeting of the board, and attendance of a director at a meeting of directors is
a waiver of notice of the meeting, except when a director attends a meeting for
the express purpose of objecting to the transaction of any business on the
grounds that the meeting is not lawfully called.
<PAGE>
-9-
4.15 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.
4.16 Provided a quorum of directors is present, the board may without
notice hold a meeting immediately following an annual meeting of shareholders.
4.17 The board may from time to time appoint a day or days in any month or
months for regular meetings of the board at a place and hour to be named. A copy
of any resolution of the board fixing the place and time of such regular
meetings shall be sent to each director forthwith after being passed, or
forthwith after such director's appointment, whichever is later, but no other
notice shall be required for any such regular meeting except where the Act or
this by-law requires the purpose thereof or the business to be transacted
thereat to be specified.
4.18 Chairman
--------
The chairman of any meeting of the board shall be the first mentioned
of such of the following officers as have been appointed and who is a director
and is present at the meeting: chairman of the board, president or a vice-
president (in order of seniority). If no such officer is present, the directors
present shall choose one of their number to be chairman.
4.19 Votes to Govern
---------------
At all meetings of the board, every question shall be decided by a
majority of the votes cast on the question. In case of any equality of votes,
the chairman of the meeting shall be entitled to a second or casting vote.
4.20 Powers of Attorney
------------------
The board may at any time and from time to time by power of attorney
under the seal appoint any person or persons to be the attorney or attorneys of
the Corporation for such purposes and with such powers, authorities and
discretions (not exceeding those vested in or exercisable by the board under
this by-law) and for such period and subject to such conditions as the board may
from time to time think fit and any such appointment may (if the board think
fit) be made in favour of the members or any of the members of any committee
established as aforesaid or in favour of any corporation or of the members,
directors, nominees or managers of any corporation or firm or otherwise in
favour of any fluctuating body of persons whether nominated directly or
indirectly by the board. Any such power of attorney may contain such powers for
the protection or convenience of persons dealing with such attorneys as the
board may think fit.
<PAGE>
-10-
4.21 Any attorneys may be authorized by the board to delegate all or any of
the powers, authorities and discretions for the time being vested in them
subject to the board's confirmation.
4.22 Trustees
--------
The board may appoint a corporation or any two or more responsible
individuals to be a trustee or trustees for the Corporation for any purpose for
which it is deemed advisable to have the intervention of a trustee or trustees
and in particular the whole or any part of the property of the Corporation may
be vested in such trustee or trustees either for the benefit of the shareholders
or to secure to the creditors or obligees of the Corporation the payment of any
money or for securing any bonds, debentures or debenture stock of the
Corporation or for the payment or performance of any obligations which the
Corporation ought to pay or perform and the board may at any time fill any
vacancy in the office of the trustee.
4.23 The remuneration of a trustee or trustees shall be such as the Board
shall determine and shall be paid by the Corporation.
4.24 The board may delegate to any creditors or other persons the power of
appointing or removing a trustee or trustees and may by contract in writing
limit or surrender its power of appointing or removing a trustee or trustees.
4.25 Remuneration and Expenses
-------------------------
The directors may fix the remuneration, if any, of the directors of
the Corporation.
SECTION FIVE
COMMITTEES
----------
5.01 Committee of Directors
----------------------
The board may appoint a committee of one or more directors, however designated,
and delegate to such committee any of the powers of the board except those
which, under the Act, a committee of directors has no authority to exercise.
Unless otherwise provided in the Act, at least half of the members of each such
committee shall be resident Albertans.
5.02 Transaction of Business
-----------------------
The powers of a committee of directors may be exercised at a meeting
at which a quorum is present or by resolution in writing signed by all the
members of such committee who would have been entitled to vote on that
resolution at a meeting of the committee. Meetings of such committee may be held
at any place in or outside Canada.
<PAGE>
-11-
5.03 Audit Committee
---------------
If required by the Act, the board shall elect annually from among its
number an audit committee to be composed of not fewer than three directors of
whom a majority shall not be officers or employees of the corporation or its
affiliates.
5.04 The audit committee shall review the financial statements of the
Corporation before they are approved by the directors.
5.05 The auditor of the Corporation is entitled to receive notice of every
meeting of the audit committee, and, at the expense of the Corporation, to
attend and be heard at the meeting.
5.06 The auditor of the Corporation or a member of the audit committee may
call a meeting of the committee.
5.07 Procedure
---------
Unless otherwise provided herein or determined by the board, each
committee shall have the power to fix its quorum, to elect its chairman and to
regulate its procedure.
SECTION SIX
OFFICERS
--------
6.01 Appointment
-----------
Subject to the articles, 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 so appointed. One person may hold more than one office. The board
may specify the duties of, and, in accordance with this by-law and subject to
the Act, delegate powers to manage the business and affairs of the Corporation
to such officers. Subject to Clauses 6.02, 6.03 and 6.04 an officer may, but
need not be, a director.
6.02 The President
-------------
The board from time to time may elect a president from amongst their
number.
The president shall be the chief executive officer of the Corporation
and preside at all general meetings and in the absence or non-appointment of
the chairman of the board shall also preside at meetings of the board. He shall
have general and active management of the business and affairs of the Corpora-
<PAGE>
-12-
tion and without limiting the foregoing:
(a) he shall have general superintendence and direction of all the
other officers of the Corporation;
(b) he shall submit the annual report of the board if any and the
annual balance sheets and financial statements of the business
and affairs and reports on the financial position of the
Corporation as required by the Act to the annual meeting and from
time to time he shall report to the board all matters within his
knowledge which the interest of the Corporation require to be
brought to their attention;
(c) he shall be an ex-officio member of all standing committees of
the board.
6.03 Chairman of the Board and Officers Generally
--------------------------------------------
The board may elect one of their number to be chairman of the board
who may preside at any or all meetings of the board and who may also hold the
office of president or vice-president.
6.04 The Vice-President or Vice-Presidents
-------------------------------------
The board from time to time may also elect from amongst their number a
vice-president or vice-presidents in whom shall be vested all the powers and who
shall perform all the duties of the president in the absence of the latter from
his office and who may also preside at meetings of the board in the absence of
the president and the chairman of the board. Nothing, however, herein contained
shall prevent any director from presiding at meetings of the board if considered
advisable or being necessary and the directors being willing.
6.05 Secretaries or Assistant Secretaries
------------------------------------
The board may appoint a secretary and may also appoint one or more
assistant secretaries. The secretary or an assistant secretary shall attend any
meetings of the board and any general meeting and record the proceedings thereof
and all matters transacted and dealt with thereat and shall prepare and keep
minutes of all such meetings and record all votes and the minutes of all
proceedings in a book or books to be kept for any standing or executive
committee.
6.06 The Treasurer or Assistant Treasurer
------------------------------------
The board may appoint a treasurer and may also appoint one or more
assistant treasurers who shall keep or cause to be kept in books belonging to
the Corporation full and accurate accounts of receipts and disbursements and
shall deposit or cause to be deposited all moneys of the Corporation with the
<PAGE>
-13-
Corporation's bankers or otherwise deal with the same as the board may
determine. The treasurer or an assistant treasurer or assistant treasurers shall
disburse or cause to be disbursed the funds of the Corporation as may be ordered
by the board taking proper vouchers for such disbursements and shall render to
the president and to the board at the regular meetings of the board or at such
times as they may require an account of all transactions of the Corporation and
of the financial position of the Corporation.
6.07 Powers and Duties of Other Officers
-----------------------------------
The powers and duties of all other officers shall, subject to the Act,
be such as the terms of their engagement call for or as the board or (except for
those whose powers and duties are specified only by the board) the chief
executive officer may specify. Any of the powers and duties of an officer to
whom an assistant has been appointed may be exercised and performed by such
assistant, unless the board or the chief executive officer otherwise directs.
6.08 Variation of Powers and Duties
------------------------------
The board and (except as aforesaid) the chief executive officer may
from time to time and subject to the provisions of the Act, vary, add to or
limit the powers and duties of any officer.
6.09 Term of Office
--------------
The board, in its discretion, may remove any officer of the
Corporation, without prejudice to such officer's rights under any employment
contract. Otherwise, each officer appointed by the board shall hold office until
his successor is appointed or until his earlier resignation.
6.10 Terms of Employment and Remuneration
------------------------------------
The terms of employment and the remuneration of officers appointed by
the board shall be settled by it from time to time.
6.11 Agents and Attorneys
--------------------
The board shall have power from time to time to appoint agents or
attorneys for the Corporation in or outside Canada and with such powers of
management or otherwise (including the power to sub-delegate) as may be thought
fit.
6.12 Fidelity Bonds
--------------
The board may require such officers, employees and agents of the
Corporation as the board deems advisable to furnish bonds for the faithful
<PAGE>
- 14 -
discharge of their powers and duties, in such form and with such surety as the
board may from time to time determine.
SECTION SEVEN
INTEREST IN MATERIAL CONTRACTS AND PROTECTION
---------------------------------------------
OF DIRECTORS, OFFICERS AND OTHERS
---------------------------------
7.01 Interest in Material Contracts
------------------------------
Subject to any unanimous shareholder's agreement, a director or
officer 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 disclose in writing to the
Corporation or request to have entered in the minutes of meetings of directors
the nature and extent of his interest. The disclosure shall be made:
(a) in the case of a director, at a meeting in which the proposed
contract is first considered, or at the first meeting in which he
becomes so interested;
(b) in the case of an officer, forthwith after he becomes aware that
a contract is considered or has been considered at a meeting of
directors or forthwith after an officer has become so interested;
(c) in the case of a person who is interested in a contract who later
becomes a director or officer, forthwith after he becomes a
director or officer.
7.02 If a material contract or proposed material contract is one that is
the ordinary course of business would not require the consent of the board or
shareholders, a director or officer who has an interest in such contract shall
nevertheless disclose in writing to the Corporation or request to have entered
in the minutes of the meeting of directors, the nature and extent of his
interest forthwith after the director or officer becomes aware of the contract
or proposed contract.
7.03 A director referred to in Clause 7.01 shall not vote on any resolution
to approve the contract unless the contract is an arrangement by way of security
for money lent to or obligations undertaken by him, or by a body corporate, in
which he has an interest for the benefit of the Corporation or an affiliate, a
contract relating primarily to his remuneration as a director, officer, employee
or agent of the Corporation or an affiliate, a contract for indemnity or
insurance pursuant to the Act, or a contract with an affiliate.
7.04 Dissent by Director
-------------------
A director who is present at a meeting of directors or committee of
directors is deemed to have consented to any resolution passed or action taken
<PAGE>
-15-
at the meeting unless he requests that his abstention or dissent be, or his
abstention or dissent is, entered in the minutes of the meeting; he sends his
written dissent to the secretary of the meeting before the meeting is adjourned;
he sends his dissent by registered mail or delivers it to the registered office
of the Corporation immediately after the meeting is adjourned, or otherwise
proves that he did not consent to the resolution or action. A director who votes
for or consents to a resolution or action is not entitled to dissent as
aforesaid.
7.05 Limitation of Liability
-----------------------
Subject to the Act, no director or officer for the time being of the
Corporation shall be liable for the acts, receipts, neglects or defaults of any
other director or officer or employee, or for joining in any receipt or act for
conformity, or for any loss, damage or expense happening to the Corporation
through the insufficiency or deficiency of title to any property acquired by the
Corporation or for or on behalf of the Corporation or for the insufficiency or
deficiency of any security in or upon which any of the moneys of or belonging to
the Corporation shall be placed or invested, or for any loss or damage arising
from the bankruptcy, insolvency or tortious act of any person, firm or
corporation including and person, firm or corporation with whom or with which
any moneys, securities or effects shall be lodged or deposited, or for any loss,
conversion, misapplication or misappropriation of or any damage resulting from
any dealings with any moneys, securities or other assets of or belonging to the
Corporation or for any other loss, damage or misfortune whatsoever which may
happen in the execution of the duties of his respective office or trust or in
relation thereto unless the same shall happen by or through his failure to
exercise the powers and to discharge the duties of his office honestly and in
good faith with a view to the best interests of the Corporation and through a
failure to exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
7.06 Indemnity
---------
Subject to the Act, the Corporation shall indemnify a director or officer,
a former director or officer, and a person who acts or acted at the
Corporation's request as a director or officer of a body corporate of which the
Corporation is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including any 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 unlawful.
<PAGE>
-16-
7.07 Insurance
---------
The Corporation may, subject to and in accordance with the Act,
purchase and maintain insurance for the benefit of any director or officer as
such against any liability incurred by him.
SECTION EIGHT
SHARES
------
8.01 Allotment
---------
Subject to the articles, the board may from time to time allot, or
grant options to purchase, and issue the whole or any part of the authorized and
unissued shares of the Corporation at such times and to such persons and for
such consideration as the board shall determine, provided that no share shall
be issued until it is fully paid as provided by the Act.
8.02 Commissions
-----------
The board may from time to time authorize the Corporation to pay a
reasonable commission to any person in consideration of his purchasing or
agreeing to purchase shares of the Corporation, whether from the Corporation or
from any other person, or procuring or agreeing to procure purchasers for shares
of the Corporation.
8.03 Securities Register
-------------------
The Corporation shall maintain a securities register in which it
records the securities issued by it in registered form, showing with respect to
each class or series of securities:
(a) the names, alphabetically arranged, and the latest known address
of each person who is or has been a security holder;
(b) the number of securities held by each security holder; and
(c) the date and particulars of the issue and transfer of each
security.
8.04 Non-Recognition of Trusts
-------------------------
Subject to the provisions of the Act, the Corporation may treat as the
absolute owner of any share the person in whose name the share is registered in
the securities register as if that person had full legal capacity and authority
to exercise all rights of ownership, irrespective of any indication to the
contrary through knowledge or notice or description in the Corporation's records
or on the share certificate.
<PAGE>
-17-
8.05 Share Certificates
------------------
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
name of the person to whom the certificate or acknowledgement was issued, and
the number and class or series of shares held by him as shown on the securities
register. The Corporation may charge a fee of not more than $3.00 for a share
certificate issued in respect of a transfer. Share certificates and
acknowledgements of a shareholder's right to a share certificate, shall, subject
to the Act, be in such form as the board shall from time to time approve. Any
share certificate shall be signed in accordance with Clause 2.04 and need not be
under the 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 shall not be valid unless countersigned by or on
behalf of such transfer agent and/or registrar. The signature of one of the
signing offices or, in the case of share 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 share 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 notwithstanding that one or both of the
officers whose facsimile signature appears thereon no longer holds office at the
date of issue of the certificate.
8.06 Replacement of Share Certificates
---------------------------------
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 in lieu of and
upon cancellation of a share certificate that has been mutilated or in
substitution for a share certificate claimed to have been lost, destroyed or
wrongfully taken on payment of such fee, not exceeding $3.00 or such greater
amount as may be allowed by the Act, 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.
8.07 Joint Shareholders
------------------
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 shall be sufficient
delivery to all of them. Any one of such persons may give effectual receipts for
the certificate issued in respect thereof or for any dividend, bonus, return of
capital or other money payable or warrant issuable in respect of such share.
<PAGE>
-18-
8.08 Fractional Shares
-----------------
The Corporation may issue a certificate for a fractional share or may issue
in its place as may be determined by the board, scrip certificates in a form
that entitles the holder to receive a certificate for a full share by exchanging
scrip certificates aggregating a full share. The directors may attach conditions
to any scrip certificates including that the scrip certificates become void if
they are not exchanged for a share certificate representing a full share by a
specified date, and that any shares for which those scrip certificates are
exchangeable may, notwithstanding any pre-emptive right, be issued by the
Corporation to any person and the proceeds of those shares distributed rateable
to holders of the scrip certificates.
8.09 Surrender
---------
The directors of the Corporation are hereby authorized to require all
shareholders to surrender their share certificates immediately following the
issuance of a Certificate of Continuance by the Registrar of Corporations under
the Act for cancellation and replacement by new certificates in a form attached
to this by-law.
8.10 Transfer and Transmission of Shares
-----------------------------------
Shares of the Corporation may be transferred in the form of a transfer of
endorsement endorsed on the certificates issued for the shares of the
Corporation or in any form of transfer which may be approved by the board.
8.11 Registration of Transfer
------------------------
Subject to the provisions of the Act, no transfer of shares shall be
registered in a securities register except upon presentation of the certificate
representing such shares with a transfer endorsed thereon or delivered therewith
duly executed by the registered holder or by his attorney or successor duly
appointed, together with such reasonable assurance or evidence of signature,
identification and authority to transfer as the board may from time to time
prescribe, upon payment of all applicable taxes and any fees prescribed by the
board.
8.12 Subject to the provisions of the Act, the board may decline to register or
permit to be registered any transfer of shares where the holder thereof is
indebted to the Corporation or upon which the Corporation has a lien.
8.13 The Corporation may treat a person as a registered shareholder entitled to
exercise all rights of the shareholder he represents if that person produces to
the board such evidence as may be reasonably required that he is the executor,
administrator, heir or legal representative of the heirs of the estate of a
deceased shareholder, a guardian committee, trustee, curator or tutor
<PAGE>
- 19 -
representing a shareholder who is an infant, and incompetent person or a mining
person or a liquidation of, or a trustee in bankruptcy for, a registered
shareholder.
8.14 If a person on whom the ownership of a share devolves by operation of
law, other than a person described in Clause 8.13, furnishes proof of his
authority to exercise rights or privileges in respect of a share in the
Corporation that is not registered in his name, the Corporation shall treat that
person as entitled to exercise those rights or privileges.
8.15 The Corporation is not required to enquire into the existence of, or
see the performance or observance of, any duty owed to a third person by a
registered holder of any of its shares or by anyone whom it treats, subject to
the Act, as the owner or registered holder of the shares.
8.16 Subject to applicable law regarding the collection of taxes, a person
referred to in Clause 8.13 is entitled to become a registered holder or to
designate a registered holder upon his depositing with the board those documents
prescribed by the Act.
8.17 Transfer Agents and Registrars
------------------------------
The board may from time to time appoint one or more trust companies
registerd under The Trust Companies Act (Alberta) as its agent or agents to
maintain the central securities register or registers, and an agent or agents to
maintain branch securities registers. Such a person may be designated as
transfer agent or registrar according to his functions and one person may be
appointed both registrar and transfer agent. The board may at any time terminate
any such appointment.
8.18 Lien on Shares
--------------
The Corporation shall have a first and paramount lien upon all the
shares registered in the name of such shareholder whether solely or jointly with
others for his debts, liabilities and engagement solely or jointly with any
other person to or with the Corporation whether the period for the payment,
fulfilment or discharge thereof shall have actually arrived or not, including
any amount unpaid in respect of a share issued by the body corporate prior to
continuance; and not equitable interest in any share shall be created except
upon the footing and condition that Clause 8.04 hereof is to have full effect.
Such lien shall extend to all dividends from time to time declared in respect of
such shares.
8.19 The Corporation may cause a notation to be made on any share
certificate that the Corporation has a lien on the shares represented by the
share certificate. For the purpose of enforcing such lien, the board may sell
the shares subject thereto in such manner as it thinks fit but no sale shall be
<PAGE>
- 20 -
made until such time as the debt, liability or engagement ought to be paid,
discharged or fulfilled and until a demand and notice in writing stating the
amount due and demanding payment and giving notice of intention to sell shall
have been served on such shareholder or the person if any entitled to the share
in consequence of the death or bankruptcy of the shareholder and default shall
have been made by him or them in payment or discharge of such debt, liability
or engagement for seven days after such notice.
8.20 Upon any sale made by the board of any shares to satisfy the lien of
the Corporation thereon, the proceeds shall be applied: (firstly) in payment of
all costs of such sale and (secondly), in satisfaction of the debts or
obligations of the shareholder and the residue (if any) shall be paid to the
shareholder or as he shall direct.
8.21 Upon any such sale, the board may enter the purchaser's name in the
register as holder of the shares and the purchaser shall not be bound to see to
the regularity or validity of or be effected by any irregularity or invalidity
in the proceedings or be bound to see to the application of the purchase money
and after his name has been entered in the register, the validity of the sale
shall not be impeached by any person and the remedy of any person aggrieved by
the same shall be in damages only and against the Corporation exclusively.
8.22 Share Warrants
--------------
The Corporation, with respect to any fully paid-up shares, may issue
share warrants under its seal stating that the bearers thereof are entitled to
the shares therein respectively specified and may provide by coupons or
otherwise for the payment of future dividends on the shares included in such
warrants.
8.23 The board may determine and from time to time vary the conditions upon
which share warrants shall be issued and in particular upon which a new share
warrant or coupon will be issued in the place of one worn-out, defaced, lost or
destroyed upon which the bearer of a share warrant shall be entitled to attend
and vote at general meetings; and upon which a share warrant may be surrendered
and the name of the holder entered in the register in respect of the shares
therein specified. Subject to such conditions and to this by-law, the bearer of
a share warrant shall be shareholder of the Corporation. The holder of share
warrant shall be subject to the conditions for the time being in force with
respect to share warrants whether made before or after the issue of such
warrant.
<PAGE>
-21-
SECTION NINE
DIVIDENDS AND RIGHTS
--------------------
9.01 Dividends
---------
Subject to the rights of the holders of any shares entitled to any
priority, preference or special privileges, and subject to the provisions of the
Act, the board may from time to time declare dividends payable to the
shareholders according to their respective rights and interests in the
Corporation.
9.02 Record Date for Dividends and Rights
------------------------------------
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 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 receive the right to subscribe for such
securities, provided that if the Corporation is a distributing corporation, then
unless notice of the record date is waived in writing by every holder of a share
of the class or series affected, notice of such record date shall be given not
less than seven days before such record date, in the manner provided in the Act.
Where no record date is fixed in advance as aforesaid, the record date for the
determination of the persons entitled to receive payment of any dividend or to
receive the right to subscribe for securities of the Corporation shall be at the
close of business on the day on which the resolution relating to such dividend
or right to subscribe is passed by the board.
9.03 Dividend Resolution
-------------------
The resolution of the board declaring a dividend may direct payment of
such dividend wholly or in part by the distribution of specific assets and in
particular of paid-up shares, debenture or debenture stock of the Corporation or
of any other corporation or in any one or more of such ways and where any
difficulty arises in regard to the distribution the board may settle the same as
they think expedient and may fix the value for distribution of such specific
assets or any part thereof and may determine that such payments shall be made to
all parties and may vest any such specific assets in trustees upon such trust
for the persons entitled to the dividends as may seem expedient to the board.
9.04 Interest
--------
Interest may be paid out of capital where it is lawful to do so by
virtue of the Act but no dividend shall be payable except out of the profits
arising from the business of the Corporation.
<PAGE>
-22-
9.05 No dividend shall bear interest as against the Corporation.
9.06 Pre-Paid Shares
---------------
Where capital is paid up on any shares in advance, such capital shall
not confer a right to participate in profits whilst carrying interest.
9.07 Interim Dividends
-----------------
The board may from time to time pay to the shareholders such interim
dividends as appear to the board to be justified by the profits of the
Corporation.
9.08 Debt to Corporation
-------------------
Subject to the Act, the board shall deduct from the dividends payable
to any shareholder all sums of money as may be due from him to the Corporation
on account of calls or otherwise.
9.09 Payment of Dividends
--------------------
The Corporation may transmit any dividend or bonus payable in respect
of any share by cheque or warrant through the ordinary post to the registered
address of the holder of such share (unless he shall have given written
instructions to the contrary) and shall not be responsible for any loss arising
therefrom. Every cheque or warrant so sent shall be made payable to the order of
the person to whom it is sent.
9.10 Unclaimed Dividends
-------------------
All dividends unclaimed for one year after having been declared may be
vested in or otherwise made use of by the board for the benefit of the
Corporation.
9.11 Fractional Shares
-----------------
Subject to the Articles, a holder of a fractional share or scrip
certificate is not entitled to receive a dividend in respect of the fractional
share or scrip certificate unless the fractional share or scrip certificate
results from a consolidation of shares.
<PAGE>
-23-
SECTION TEN
MEETINGS OF SHAREHOLDERS
------------------------
10.01 First and Subsequent Annual Meetings
------------------------------------
The first annual meeting shall be held within such period as the board
shall determine is in accord with the most convenient date for closing the
Corporation's financial year but in any event shall be held within the period of
eighteen months from the date of incorporation and subject to the provisions of
the Act and the provisions of this by-law, subsequent annual meetings of the
Corporation shall be held once in each calendar year and not more than fifteen
months after the holding of the last annual meeting.
10.02 Annual Meeting
--------------
Subject to the Act, the annual meeting of shareholders shall be held
at such time in each year and, subject to Clause 10.03, at such place as the
board, the chairman of the board, the managing director or the president may
from time to time determine, for the purpose of considering the financial
statements and reports required by the Act to be placed before the annual
meeting, electing directors if required, appointing auditors if required and
transacting such other business as may properly be brought before the meeting.
10.03 Special Meetings
----------------
The board, the chairman of the board or the president shall have power
to call a special meeting of the shareholders at any time.
10.04 Requisition of Meeting
----------------------
The board may whenever it thinks fit and it shall upon the requisition
of the holders of not less than five (5%) percent of the issued voting share
capital of the Corporation forthwith proceed to convene an extraordinary general
meeting of the Corporation and any extraordinary general meeting called in
pursuance of a requisition shall be convened and held in accordance with the
provisions of the Act.
10.05 Place of Meetings
-----------------
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, if the board shall so determine, at some other place.
10.06 Telephone Meeting
-----------------
A shareholder or any other person entitled to attend a meeting of
shareholders may participate by means of telephone or other communication
<PAGE>
-24-
facilities that permit all persons participating to hear each other and a person
participating in such a meeting by those means is deemed to be present at the
meeting.
10.07 Notice of Meetings
------------------
Notice of the time and place of each meeting of shareholders shall be
given in the manner provided in Clause 13.01 not less than twenty one or more
than fifty days before the date of 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 meeting of shareholders
called for any purpose other than consideration of the financial statements and
auditor's report, election of directors and reappointment of the incumbent
auditor shall state the nature of such business in sufficient detail to permit
the shareholder to form a reasoned judgement thereon and shall state the text of
any special resolution to be submitted to the meeting. A shareholder may in any
manner waive notice of or otherwise consent to a meeting of shareholders.
10.08 Record Date for Notice
----------------------
The board may fix in advance a date, preceding the date of any meeting
of shareholders by not more than fifty days and not less than twenty one days,
as a record date for the determination of the shareholders entitled to notice of
the meeting, provided that if the Corporation is a distributing corporation,
then unless notice of the record date is waived in writing by every holder of a
share of the class or series affected, notice of any such record date shall be
given not less than seven days before such record date in the manner provided in
the Act. If no such record date is so fixed, the record date for the
determination of the shareholders entitled to receive notice of the meeting
shall be at the close of business on the date immediately preceding the day on
which the notice is sent or, if no notice is sent, shall be the day on which the
meeting is held.
10.09 List of Shareholders Entitled to Notice
---------------------------------------
If the Corporation has more than fifteen shareholders entitled to vote
at a meeting of shareholders, the Corporation shall prepare a list of
shareholders entitled to receive notice of the meeting, arranged in alphabetical
order and showing the number of shares held by each shareholder. If a record
date for the meeting is fixed pursuant to Clause 10.08, 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 at the
close of business on the day immediately preceding the day on which notice of
the meeting is given or, where no such notice is given, on the day on which the
meeting is held. The list shall be available for examination by any shareholder
during usual business hours at the records office of the Corporation or at the
place where the central securities office of the Corporation is maintained and
at the meeting for which the list was prepared.
<PAGE>
-25-
10.10 Fractional Shares
-----------------
Subject to the Articles, a holder of a fractional share or scrip
certificate is not entitled to exercise voting rights or receive notice of a
meeting of shareholders in respect of such fractional share or scrip certificate
unless the fractional share or scrip certificate results from a consolidation of
shares.
10.11 Meetings Without Notice
-----------------------
A meeting of shareholders may be held without notice at any time and
place permitted by the Act;
(a) if all the shareholders entitled to vote thereat are present in
person or represented or if those not present or represented
waive notice of or otherwise consent to such meeting being held;
and
(b) if the auditors and the directors are present or waive notice of
or otherwise consent to such meeting being held;
so long as such shareholders, auditors or directors present are not attending
for the express purpose of objection to the transaction of any business on the
grounds that the meeting is not lawfully called. 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 Alberta, shareholders not
present or represented by proxy, but who have waived notice of or otherwise
consented to such meeting, shall also be deemed to have consented to the meeting
being held at such place.
10.12 Chairman and Secretary
----------------------
The chairman of any meeting of shareholders shall be the president, or
in his absence, a vice-president who is a shareholder. If no such officer is
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.
10.13 Persons Entitled to be Present
------------------------------
The only persons entitled to be present at a meeting of shareholders
shall be those entitled to vote thereat, the directors and auditors of the
Corporation and others who, although not entitled to vote, are entitled or
required under any provision of the Act or the articles or by-laws to be present
at the meeting. Any other person may be admitted only on the invitation of the
chairman of the meeting or with the consent of the meeting.
<PAGE>
-26-
10.14 Quorum
------
A quorum for the transaction of business at any meeting of
shareholders shall be at least two persons present in person, each being a
shareholder entitled to vote thereat or a duly appointed proxy or representative
for an absent shareholder so entitled, and representing in the aggregate not
less than twenty-five (25%) percent of the outstanding shares of the Corporation
carrying voting rights at the meeting. If a quorum is present at the opening of
any meeting of shareholders, the shareholders present or represented may proceed
with the business of the meeting notwithstanding that a quorum is not present
throughout the meeting. If within half an hour of the time appointed for the
holding of a meeting of the shareholders a quorum is not present, the meeting,
if convened upon a requisition of shareholders, shall be dissolved. In any other
case, it shall stand adjourned to the same day in the next week at the same time
and place; and if at such adjourned meeting a quorum not be present, those
shareholders who are present shall be deemed to be a quorum and may transact all
business which a full quorum might have done.
10.15 Right to Vote
-------------
Every person named in the list referred to in Clause 10.09 shall be
entitled to vote the shares shown thereon opposite his name at the meeting to
which such list relates, 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 its shares after such
record 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. If the Corporation is not required to
prepare a list under Clause 10.08, subject to the provisions of the Act and this
by-law as to proxies and representatives, at any meeting of shareholders, 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.
10.16 Proxies and Representatives
---------------------------
Every shareholder entitled to vote at a meeting of shareholders may
appoint a proxyholder, or one or more alternate proxyholders, who need not be
shareholders, to attend and act 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 with the
<PAGE>
-27-
requirements of the Act. Alternatively, every such shareholder which is a body
corporate or association may authorize by resolution of its directors or
governing body an individual, who need not be a shareholder, 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 an individual shareholder.
The authority of such an individual shall be established 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.
10.17 Mandatory Solicitation of Proxies
---------------------------------
If the Corporation is a distributing Corporation having fifteen or
more shareholders entitled to vote at a meeting of shareholders, two or more
joint shareholders being counted as one shareholder, and the management of the
Corporation gives or intends to give a holder of its voting shares notice by a
meeting, subject to the Act, the management shall, concurrently with or prior to
giving of notice, send to each shareholder who is entitled to notice of meeting
a form of proxy which shall be nearly as circumstances permit be in a form or to
the effect of the following:
"I, ____________, of ___________________________, being a shareholder
in __________________________, hereby appoint ________________________
of ___________________, as my proxy to vote for me and on my behalf at
the annual (or extraordinary, as the case may be) meeting of the
Corporation to be held on the _____ day of _________, A.D. 198_ and at
every adjournment thereof and at every poll, which may take place in
consequence thereof. As witness my hand this _______ day of _______,
A.D. 198_".
10.18 When Clause 10.06 applies, every form of proxy sent or delivered to a
shareholder shall indicate in bold-face type whether or not the proxy is
solicited by or on behalf of management of the Corporation and shall provide a
specifically designated space for dating and signing form of proxy. The form of
proxy shall also indicate that the shareholder has a right to appoint a person
or body corporate, if any, designated in the form of proxy and shall contain
instructions as to the manner in which the shareholder may exercise the right,
and a means for so doing. The form of proxy shall also provide a means for a
shareholder to specify that his shares be voted for or against each matter
identified therein, other than the appointment of an auditor and election of
directors, a means for the shareholder to specify that his shares shall be voted
or withheld from voting in respect of the appointment of an auditor or election
of directors, and a statement that the shares represented by the proxy will be
voted or withheld from voting in accordance with the instructions of the
shareholder on any ballot that may be called for and that, if the shareholder
specifies a choice with respect to any matter to be acted on, the shares shall
be voted accordingly. A proxy may confer discretionary authority with respect to
each matter indentified in the notice of meetings, other than the appointment of
an auditor and the election of directors, if the form of proxy states in
bold-face type how the shares represented by the proxy will be voted in respect
<PAGE>
-28-
of each matter or group of related matters.
10.19 Validity of Proxy
-----------------
The decision of the chairman of any general meeting as to the validity
of any instrument of proxy shall be final and conclusive.
10.20 Time for Deposit of Proxies
---------------------------
The board may specify in a notice calling a meeting of shareholders a
time, preceding the time of such meeting or an adjournment thereof by not more
than forty eight hours exclusive of non-business days, before which 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, 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.
10.21 Joint Shareholders
------------------
If two or more persons hold shares jointly, any one of them present in
person or represented at a meeting of shareholders may, in the absence of the
other or others, vote the shares, but if two or more of those persons are
present in person or represented and vote, they shall vote as one on the shares
jointly held by them.
10.22 Votes to Govern
---------------
At any meeting of shareholders, every question shall, unless otherwise
required by the articles or by-laws or by-law, be determined by the majority of
the votes cast on the question. 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.
10.23 Show of Hands
-------------
Subject to the provisions of the Act, any question at a meeting of
shareholders shall be decided by a show of hands unless a ballot thereon is
required or demanded as hereinafter provided. Upon a show of hands, every person
who is present and entitled to vote shall have one vote. Whenever a vote by a
show of hands shall have been taken upon a question, unless a ballot thereon is
so required or demanded, a declaration by the chairman of the meeting that the
vote upon the question has been carried or carried by a particular majority or
not carried and an entry to that effect in the minutes of the meeting shall be
prima facie evidence of the fact without proof of the number or proportion of
the votes recorded in favor of or against any resolution or other
<PAGE>
-29-
proceeding 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.
10.24 Ballots
-------
On any question proposed for consideration at a meeting of
shareholders, any shareholder or proxyholder entitled to vote at the meeting may
require or demand a ballot, either before or on the declaration of the result of
any vote by show of hands. A ballot so required or demanded shall be taken in
such manner as the chairman shall direct. A requirement or demand for a ballot
may be withdrawn at any time prior to the taking of the ballot. If a ballot is
taken, each person present shall be entitled, in respect of the shares 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 ballot so taken shall
be the decision of the shareholders upon the said question.
10.25 Admission or Rejection of a Vote
--------------------------------
In case of any dispute as to the admission or rejection of a vote,
the chairman shall determine the same and such determination made in good faith
shall be final and conclusive.
10.26 Adjournment
-----------
If a meeting of the shareholders is adjourned by one or more
adjournments for an aggregate of less than thirty days, it shall not be
necessary to give notice of the adjourned meeting, other than by announcement at
the time of an adjournment. If a meeting of shareholders is adjourned by one or
more adjournment for an aggregate of thirty days or more, notice of the
adjourned meeting shall be given as for an original meeting.
10.27 Only One Shareholder
--------------------
Where the Corporation has only one shareholder or only one holder of
any class or series of shares, the shareholder present in person or by proxy
constitutes a meeting.
10.28 Resolution Signed by all Shareholders
-------------------------------------
A resolution signed in writing by all the shareholders entitled to
vote on that resolution is as valid as if it had been passed at a meeting of
shareholders.
<PAGE>
-30-
SECTION ELEVEN
DIVISIONS AND DEPARTMENTS
-------------------------
11.01 Creation and Consolidation of Divisions
---------------------------------------
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, 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.
11.02 Name of Division
----------------
Subject to law, any division or its sub-units may be designated by
such name as the board may from time to time determine and may transact
business, enter into contracts, sign cheques and other documents of any kind and
do all acts and things under such name. Any such contract, cheque or document
shall be binding upon the Corporation as if it has been entered into or signed
in the name of the Corporation.
11.03 Officers of Divisions
---------------------
From time to time the board or, if authorized by the board, the chief
executive officer may 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.
SECTION TWELVE
INFORMATION AVAILABLE TO SHAREHOLDERS
-------------------------------------
12.01 Except as provided by the Act, or other bodies having jurisdiction, 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
directors would be inexpedient in the interests of the Corporation to
communicate to the public.
12.02 The directors may from time to time, subject to the rights conferred
by the Act, determine whether and to what extent and at what time and place and
under what circumstances or regulations the documents, books and registers and
accounting records of the Corporation or any of them shall be open to inspection
or shareholders and no shareholder shall have any right to inspect any document
or book or register or accounting records of the Corporation except as conferred
<PAGE>
-31-
by statute or authorized by the board of directors or by a resolution of the
shareholders.
SECTION THIRTEEN
NOTICES
-------
13.01 Method of Giving Notices
------------------------
Any notice (which term includes any communication or document) to be
given (which term includes sent, delivered or served) pursuant to the Act, the
regulations thereunder, the articles, the by-laws or otherwise to a shareholder,
director, officer, auditor or member of a committee of the board shall be given
by the president or secretary or in their absence an assistant secretary and
failing him any other officer of the Corporation and 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 so delivered 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 given when
deposited in a post office or public letter box; and a notice so 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 or
agency or its representative for dispatch. The secretary may change or cause to
be changed the recorded address of any shareholder, director, officer, auditor
or member of a committee of the board in accordance with any information
believed by him to be reliable.
13.02 Notice to Joint Shareholders
----------------------------
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.
13.03 Computation of Time
-------------------
In computing the date when notice must be given under any provision
requiring a specified number of days' notice of any meeting or other event, the
date of giving the notice shall be excluded and the date of the meeting or other
event shall be included.
13.04 Undelivered Notice
------------------
If notices given to a shareholder pursuant to Clause 13.01 are
returned on three consecutive occasions because he cannot be found, the
Corporation shall not be required to give any further notices to such
shareholder until he informs the Corporation in writing of his new address.
<PAGE>
-32-
13.05 Omissions and Errors
--------------------
The accidental omission to give any notice to any shareholders,
director, officer, auditor or member of a committee of the board of the non-
receipt of any notice by any such person or any error in any notice not
affecting the substance thereof shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.
13.06 Persons Entitled by Death or Operation of Law
---------------------------------------------
Every person who, by operation of law, transfer, death of a
shareholder or any other means whatsoever shall become entitled to any share,
shall be bound by every notice in respect of such share which shall have been
duly given to the shareholder from whom he derives his title to such share prior
to his name and address being entered on the securities register (whether such
notice was given before or after the happening of the event upon which he
becomes so entitled) and prior to his furnishings to the Corporation the proof
of authority or evidence of this entitlement prescribed by the Act.
13.07 Waiver of Notice
----------------
Any shareholder (or his duly appointed proxyholder), director,
officer, auditor or member of a committee of the board may at any time waive any
notice, or waive or abridge the time for any notice, required to be given to him
under any provision of the Act, the regulations thereunder, the articles, the
by-laws or otherwise and such waiver or abridgment shall cure any default in the
giving or in the time of such notice, as the case may be. Any such waiver or
abridgment 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.
MADE by the board the 18th day of April, A.D. 1986.
/s/ Robert A.M. McNeilly
---------------------------------------
ROBERT A.M. MCNEILLY
CONFIRMED by the Shareholders, the 18th day of April, A.D. 1986.
/s/ Brian Larsen
---------------------------------------
BRIAN LARSEN
<PAGE>
Exhibit 4.1
NUMBER SHARES
US
[LOGO] USA VIDEO
INTERACTIVE CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF WYOMING
CUSIP 902924 20 8
THIS CERTIFIES THAT
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK WITHOUT PAR VALUE
in the Capital of the above named Corporation transferable on the books of the
Corporation by the registered holder in person or by Attorney duly authorized in
writing upon surrender of this Certificate properly endorsed. This Certificate
and the shares represented hereby are subject to the laws of the State of
Wyoming, and to the Articles of Incorporation and Bylaws of the Corporation as
now or hereafter amended.
This Certificate is not valid unless countersigned by the Transfer Agent and
Registrar of the Corporation.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be signed on
its behalf by the facsimile signatures of its duly authorized officers.
/s/ Frank Bowden DATED
President COUNTERSIGNED AND REGISTERED
CIBC Mellon Trust Company CALGARY
TRANSFER AGENT AND REGISTRAR
/s/ Tony Drescher By _______________________________
Secretary Authorized Officer
The Shares represented by this Certificate are transferable at the offices
of CIBC Mellon Trust Company, Calgary, Alberta
<PAGE>
Exhibit 4.2
USA VIDEO INTERACTIVE CORP.
(incorporated under the laws of Wyoming)
CLASS "A" WARRANT CERTIFICATE
RIGHT TO PURCHASE ____________________ COMMON SHARES
THIS WARRANT IS NON-TRANSFERABLE
THIS IS TO CERTIFY that for value received,(Name) __________, of (Address)
__________, (City) __________,(State/ Province) __________________ (Postal/ Zip
Code) ________, is entitled to purchase __________ fully paid and non-assessable
common shares of USA Video Interactive Corp. (herein the "Company") as such
shares were constituted on __________, 2000, at any time up to the close of
business in the City of Vancouver, in the Province of British Columbia, on
___________, 200__ at and for a price of $____.__00 U.S. per common share.
Please note that the relevant share certificate(s) MUST bear the following
legend:
TRANSFER OF THESE SHARES IS RESTRICTED UNTIL ____________, 200___
This Warrant may be exercised only at the Company's office at 507, 837 West
Hastings Street, Vancouver, British Columbia V6C 3N6.
IN WITNESS WHEREOF the Company has caused this Warrant to be executed effective
the _______ day of _________, 2000.
USA VIDEO INTERACTIVE CORP.
Per:_____________________________________
(c/s)
SUBSCRIPTION FORM
-----------------
TO: USA VIDEO INTERACTIVE CORP.
507, 837 West Hastings Street
Vancouver, British Columbia V6C 3N6
(Name)__________, the holder of the above Class "A" Warrant, subscribes for
_______________ of the common shares of USA Video Interactive Corp. referred to
in the above Warrant according to the conditions thereof, and herewith makes
payment for the purchase price in full for the number of shares at and for a
price of $_______.__ U.S. per share. A certified cheque or bank draft is
enclosed herewith for such amount.
The undersigned hereby directs that the shares hereby subscribed for be issued
and delivered as follows:
Name in full Address Number of Shares
- ------------ ------- ----------------
________________________________________________________________________________
DATED this ____ day of ________________, _______.
________________________ (Name)
<PAGE>
Exhibit 4.3
MICRON METALS CANADA CORP.
--------------------------
SHARE OPTION PLAN
1. PURPOSE
The purpose of the Share Option Plan (the "Plan") is:
(i) to provide employees, officers and directors of Micron Metals Canada
Corp. (the "Corporation") and its subsidiaries an incentive, in the
form of a proprietary interest in the Corporation;
(ii) to increase their interest in the Corporation's welfare; and
(ii) to provide a means through which the Corporation can attract and
retain employees of outstanding abilities.
2. ADMINISTRATION
--------------
The Plan shall be administered by the Board of Directors (the "Board") of
the Corporation. The Board may make grants, subject to the terms of the Plan, to
such eligible persons and with respect to such number of shares in the common
share capital of the Corporation as the Board, in its sole discretion, may
determine.
Subject to the provisions of the Plan, the Board shall be authorized to
interpret the Plan and the grants made under the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan and to make all other
determinations necessary or advisable for the administration of the Plan. The
Board may correct any defect, supply any omission and reconcile any
inconsistency in the Plan or in any option or grant in the manner and to the
extent it shall be deemed desirable to carry it into effect. The determinations
of the Board in the administration of the Plan, as described herein, shall be
final and conclusive.
3. SHARES SUBJECT TO THE PLAN
--------------------------
Subject to adjustment as provided in paragraph 9, an aggregate of 10% of
the issued common shares of the Corporation (on a non-diluted basis) will be
available for issuance upon the exercise of options granted under the Plan. The
aggregate number of shares so reserved for issuance to any one person must not
exceed 5% of the outstanding issue (on a non-diluted basis). If any Plan option
shall terminate for any reason without having been exercised in full the
unpurchased shares subject thereto shall be available for future options.
4. ELIGIBILITY
-----------
Employees, officers and directors of the Corporation and its subsidiaries
shall be eligible for grants under the Plan. The term "subsidiaries" shall mean
any corporation now existing or hereafter organized or acquired (other than the
Corporation) in which the Corporation owns 50% or more of the total combined
voting shares of all classes of share capital.
5. GRANTING OF OPTIONS
-------------------
The Board may, from time to time, grant share options to eligible persons.
Except as hereinafter provided, options granted pursuant to the Plan shall be
<PAGE>
-2-
(a) Price
The purchase price per share deliverable upon the exercise of each
option shall be established in accordance with rules and regulations
of the Alberta Stock Exchange at the time the option is granted.
(b) Terms of Options
The term during which each option may be exercised shall be determined
by the Board, but in no event shall an option be exercisable in whole
or in part more than five years from the date it is granted. All
rights to purchase pursuant to an option shall, unless sooner
terminated, expire at the date designated by the Board. The Board
shall determine the date on which each option shall be exercisable and
may provide that an option shall become exercisable in instalments.
The shares comprising each instalment may be purchased in whole or
in part at any time after such instalment becomes purchasable. The
Board may, in its sole discretion accelerate the time at which any
option may be exercised in whole or in part.
(c) Termination of Employment, Term of Office or Directorship
Upon the termination by the Corporation of a grantee's employment term
of office or directorship for cause, his option shall be termination.
Upon the termination of a grantee's employment, term of office of
directorship for any other reason, no further instalments shall
accrue to the grantee and the grantee's right to exercise an option
shall be limited to the earlier of:
(i) thirty (30) days from the date of such termination: or
(ii) one year from the date of the grantee's death
but in no event beyond the expiration of the term of the option:
Subject to the foregoing, in the event of death, such option may be
exercised by a grantee's personal representative.
6. CERTIFICATE OF GRANT
Each grantee who receives a grant of option under the Plan shall receive a
certificate of grant from the Corporation which shall contain such provisions,
consistent with the provisions of the Plan, as may be established from time to
time by the Board.
7. TRANSFERABILITY OF GRANTS
No grant under the Plan shall be transferable by a grantee otherwise than
by Will or the laws of descent and distribution, and during the lifetime of the
grantee, such grants may be exercised only by him or by his guardian or personal
representative.
<PAGE>
-3-
8. LISTING AND REGISTRATION
------------------------
Each grant shall be subject to the requirement that, if at any time the
Board shall determine in its discretion that the listing, registration or
qualification of the shares subject to such grant upon any securities exchange
or under any provincial or federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, such grant or the issue or purchase of shares thereunder, no
such grant may be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effective or
obtained free of any conditions not acceptable to the Board.
9. ADJUSTMENT OF AND CHANGES TO COMMON SHARES OF THE CORPORATION
-------------------------------------------------------------
In the event of a reorganization, recapitalization, change of shares, share
spilt, spin-off, stock dividend, reclassification, subdivision or combination of
shares, merger, consolidation, rights offering, or any other changes in the
corporate structure or shares of the Corporation, the Board shall make such
adjustment as it deems appropriate in the number and kind of shares authorized
by the Plan, in the number and kind of shares covered by grants made under the
Plan and in the purchase prices of outstanding options. There shall be no change
to any outstanding options without the consent of the grantees, which consent
shall not be unreasonable withheld.
10. NO RIGHTS OF SHAREHOLDERS
-------------------------
Neither the grantee nor his personal representative shall be, or have any
of the rights and privileges of, a shareholder of the Corporation in respect of
any shares purchasable upon the exercise of any option in whole or in part,
unless and until certificates for such shares have been issued.
11. AMENDMENT AN TERMINATION
------------------------
The Plan may be amended by the Board as it shall deem advisable to conform
to any change in the law or regulation applicable thereto or in any other
respect which the board may deem to be in the best interest of the Corporation;
provided, however, that the Board may not, without the authorization and
approval of the shareholders increase the total number of securities which may
be issued under the Plan except pursuant to paragraph 9.
12. EFFECTIVE DATE OF THE PLAN
--------------------------
The Plan was created by the Board effective January 2, 1990, to be
confirmed by the shareholders of the Corporation on March 29, 1990.
<PAGE>
Exhibit 4.4
USA VIDEO INTERACTIVE CORP.
---------------------------
SHARE OPTION AGREEMENT
(DIRECTORS)
TO: ________________________
DATE: __________________, 2000
USA VIDEO INTERACTIVE CORP. (the "Corporation") is pleased to advise you
that by resolution of the Board of Directors (the "Board") of the Corporation
dated _____________, 2000, you have been granted options to subscribe for
and purchase from treasury common shares (the "Shares") of the Corporation.
The Share Option Plan (the "Plan") has been constituted pursuant to a
Resolution of the Board dated January 2, 1990, and confirmed by the shareholders
of the Corporation at the Annual General Meeting on April 27, 1990. This
agreement incorporates by reference the terms and conditions of the Plan, a copy
of which has been provided to you.
You have been granted the option to purchase a total of ________ Shares at
an exercise price of $ _________ U.S. per Share. All rights to purchase Shares
pursuant to these options shall expire at the close of business on
__________________, 200____.
You may exercise this option by delivering to the Corporation a notice
specifying the number of Shares in respect of which your option is being
exercised and a certified cheque for the option price of the Shares being
purchased. Upon receipt of the certified cheque the Corporation shall instruct
its transfer agent to issue a share certificate to you.
Yours very truly,
USA VIDEO INTERACTIVE CORP.
Per:__________________________
SIGNED, SEALED AND DELIVERED ACCEPTED AND AGREED TO this
in the presence of: ____ day of _________________, 2000.
____________________________ at ____________________________________.
Signature of Witness
____________________________ ________________________________________
Name of Witness (Print)
SHARE OPTION AGREEMENT-DIRECTOR
<PAGE>
Exhibit 4.5
USA VIDEO INTERACTIVE CORP.
---------------------------
SHARE OPTION AGREEMENT
(CONSULTANT/EMPLOYEE)
TO: ________________________
DATE: __________________, 2000
USA VIDEO INTERACTIVE CORP. (the "Corporation") is pleased to advise you
that by resolution of the Board of Directors (the "Board") of the Corporation
dated _____________, 2000, you have been granted an option to subscribe for
and purchase from treasury common shares (the "Shares") of the Corporation.
The Share Option Plan (the "Plan") has been constituted pursuant to a
Resolution of the Board dated January 2, 1990, and confirmed by the shareholders
of the Corporation at the Annual General Meeting on April 27, 1990. This
agreement incorporates by reference the terms and conditions of the Plan, a copy
of which has been provided to you.
You have been granted the option to purchase a total of ________ Shares at
an exercise price of $ _________ U.S. per Share. All rights to purchase Shares
pursuant to this option shall expire at the close of business on
__________________, 200____.
Under the terms of your Consulting/Employment Agreement with the
Corporation, you are to assist the Corporation with ________________. You are to
report to the _______________ of the Corporation who will determine whether the
tasks assigned to you have been completed in a satisfactory manner. Your right
to exercise the options is conditional upon and subject to the Corporation being
satisfied with your performance at the time you wish to exercise the options.
The Corporation reserves the right, in its sole discretion, to limit the number
of options you may exercise at any one time.
You may exercise this option by delivering to the Corporation a notice
specifying the number of shares in respect of which your option is being
exercised and a certified cheque for the option price of the Shares being
purchased. Upon receipt of the certified cheque the Corporation shall instruct
its transfer agent to issue a share certificate to you.
Yours very truly,
USA VIDEO INTERACTIVE CORP.
Per:__________________________
SIGNED, SEALED AND DELIVERED ACCEPTED AND AGREED TO this
in the presence of: ____ day of _________________, 2000.
____________________________ at ____________________________________.
Signature of Witness
____________________________ ________________________________________
Name of Witness (Print)
STOCK OPTION AGREEMENT-CONSULTANT OR EMPLOYEE
<PAGE>
EXHIBIT 10.1
LETTER OF AGREEMENT
-------------------
THIS LETTER OF AGREEMENT is made as of February 7, 2000.
BETWEEN:
USA VIDEO INTERACTIVE CORP.
of 70 Essex Street
Mystic, CT 06355
("USA")
OF THE FIRST PART
AND:
VIANET TECHNOLOGIES
3401 E. University #204
Denton, TX 76208
("VIANET")
OF THE SECOND PART
WHEREAS:
A. USA has USA Video-on-Demand(TM) and other expertise with Wavelet
technologies that can enhance delivery of video/audio via the Internet and
other systems, and expertise in designing and installing video solutions;
and
B. USA holds patents on store and forward video-on-demand technology;
C. USA has extensive experience in UNIX based software applications for Sun,
HP, and Silicon Graphics computer systems using C, C++, Java and X/Motif
languages and windowing systems; and
D. VIANET is a leading developer of Wavelet technology; and USA and VIANET
have a contract in place whereby VIANET provides USA with Wavelet
technology for use in USA service offerings, including an agreement that
VIANET will provide Wavelet technologies to USA for incorporation in
decoding applications.
E. USA and VIANET plan to develop a Wavelet technology that operates with Unix
operating systems.
NOW THEREFORE, in view of the premises and in consideration of the mutual
covenants and agreements hereinafter set forth, the parties hereto do hereby
covenant and agree as follows:
1. The companies will develop a Unix Wavelet product with completion of a
test/demonstration version targeted for the second or third quarter of
2000.
2. Vianet will port its LSRT, LSVM and LSVCPeak15 decoding codecs to the UNIX
Sun platform for use by USA.
3. USA will be allowed to use the object code in their USA Video developed
media players.
4. The end resulting decoding codecs will be licensed to USA at an exclusive
level for marketing to Unix-based educational and corporate training market
applications and our preferred marketing arm for all others.
5. USA agrees to a 50/50 revenue split or per unit cost (TBD), which ever is
greater, for all Unix based decoding
<PAGE>
-2-
applications sold with the Vianet Unix decoding codec included.
6. Ownership of the source code and ownership of the resultant decoding codec
remains solely that of Vianet.
7. USA will contract with VIANET for technical support and assistance at
competitive technical support rates; likewise, VIANET will contract with
USA for technical support and assistance at competitive technical support
rates.
8. USA will pay for 50% of the development costs of the ported unix decoding
codec. Costs and payment schedules to be determined based on work scope.
9. A joint press release will be released announcing the joint development
program stating that USA and VIANET are going to jointly develop a Unix
solution for the Sun Unix operating system and that USA has exclusive
marketing rights to the resultant product in the Unix educational and
corporate training market.
10. "Powered by Lightning Strike" will be in all future press releases where
USA describes its VIANET-licensed Wavelet product.
11. USA will be listed as "a preferred provider of VIANET-enabled Wavelet
compressed streaming video and video on demand" in all future Vianet press
releases where the Unix Wavelet product is described.
12. Both USA's and VIANET's websites will represent and display each other as a
partner.
13. USA will use the codecs under its own player.
14. USA will provide detailed product designs and plan of action and milestones
for all efforts related to the Unix system conversion(s) and system
improvements.
15. USA and VIANET will hold regular engineering and progress review meetings.
16. USA and VIANET will establish and document product test procedures.
17. USA and VIANET will collaborate on Alpha and Beta level products including
installation scripts/procedures and documentation for review prior to
product finalization.
18. VIANET and USA will publicize and otherwise promote this contract and
ongoing relationships as appropriate. There will be mutual review and
approval of press releases and other publicity regarding these projects and
relationships.
19. USA and VIANET will explore additional means of working together for
worldwide distribution of specific products and services.
20. The employees of USA or VIANET shall not be deemed to be employees of the
other party. Neither party shall be authorized to obligate or to bind, in
any manner, the other party to any contract, affirmation, representation,
warranty or other obligation concerning the sale of services, or to act in
the name of the other party.
21. Neither party shall, in any event, be liable to the other party for any
indirect, special, incidental or consequential damages, including, but not
limited to, loss of revenue, cost of capital, loss of business reputation
or opportunity arising from the good faith performance of this Agreement.
<PAGE>
-3-
22. Unless terminated earlier as provided herein, the term of this Agreement
shall commence on the date first set forth above and shall continue in
effect for twelve consecutive months (the "Term"). Thereafter, this
Agreement will be renewed annually by mutual agreement.
23. This Agreement may be terminated by either party during the Term or any
renewal thereafter on 30 days prior written notice to the other party,
subject to the terminating party fulfilling all outstanding commitments and
obligations thereto.
24. In the event either party has defaulted in its performance of this
Agreement, the other party shall provide written notification to the
defaulting party of such default. If the defaulting party fails to correct
such default within 30 days, the other party, upon written notice to the
defaulting party, may terminate this Agreement and recover whatever damages
may be recoverable against the defaulting party by operation of law.
25. This Agreement shall be governed and interpreted in accordance with the
laws of the State of Connecticut. The parties hereto agree to submit to the
exclusive jurisdiction of the Courts of Connecticut in the event of a
dispute.
26. This Agreement may be subject to regulatory approval.
USA VIDEO INTERACTIVE CORP. VIANET TECHNOLOGIES
_____________________________ ___________________________
Authorized Signatory Authorized Signatory
Edwin Molina, President ___________________________
Name
___________________________
Title
<PAGE>
Exhibit 21
List of Subsidiaries
1. U.S.A. Video Inc., a company incorporated under the laws of the
state of Texas, is a wholly owned subsidiary of U.S.A Video Interactive Corp.
2. Merging Rivers Media Corp., a company incorporated under the laws
of the state of Wyoming, is wholly owned subsidiary of USA Video Interactive
Corp.
3. U.S.A. Video Corp., a company incorporated under the laws of the
state of Nevada, is a wholly owned subsidiary of USA Video Interactive Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Financial Statements at September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 737,235 76,005
<SECURITIES> 155,065 164,333
<RECEIVABLES> 23,209 30,789
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 968,819 273,545
<PP&E> 491,301 237,788
<DEPRECIATION> 81,249 11,392
<TOTAL-ASSETS> 1,444,597 948,764
<CURRENT-LIABILITIES> 624,048 578,458
<BONDS> 0 0
0 0
0 0
<COMMON> 20,748,458 18,522,807
<OTHER-SE> (19,927,909) (18,152,501)
<TOTAL-LIABILITY-AND-EQUITY> 820,549 370,306
<SALES> 10,000 0
<TOTAL-REVENUES> 12,248 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 990,963 182,258
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,053 11,594
<INCOME-PRETAX> (983,768) (193,852)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (983,768) (193,852)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 12,221 16,115
<CHANGES> 0 0
<NET-INCOME> (971,547) (177,737)
<EPS-BASIC> (0.02) (0.01)
<EPS-DILUTED> 0 0
</TABLE>
