<PAGE>
As filed with the Securities and Exchange Commission on September 19, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INNOPET BRANDS CORP.
(Name of Small Business Issuer in its Charter)
Delaware 2047 65-0639984
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
One East Broward Boulevard, Suite 1100
Ft. Lauderdale, Florida 33301
(954) 356-0036
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(Address and telephone number of principal executive offices and
principal place of business or intended principal place of business)
Marc Duke
Chief Executive Officer
InnoPet Brands Corp.
One East Broward Boulevard, Suite 1100
Fort Lauderdale, Florida 33301
(954) 356-0036
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(Name, address and telephone number
of agent for service)
Copies of all communications to:
Daniel I. DeWolf, Esq. Rubi Finkelstein, Esq.
Robert S. Matlin, Esq. Orrick, Herrington & Sutcliffe LLP
Camhy Karlinsky & Stein LLP 666 Fifth Avenue, Eighteenth Floor
1740 Broadway, Sixteenth Floor New York, New York 10103
New York, New York 10019-4315 (212) 506-5000
(212) 977-6600
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Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
please check the following box. [x]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Per Aggregate Offering Amount of Registration
To Be Registered Registered Unit (1) Price (1) Fee
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<S> <C> <C> <C> <C>
Units, each consisting of one share 2,587,500 $4.00 $10,350,000.00 $3,568.97
of Common Stock, $.01 par value,
and one Redeemable Warrant to
purchase one share of Common
Stock (2)
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Common Stock underlying the 2,587,500 $6.00 $15,525,000.00 $5,353.45
Redeemable Warrants (3)
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Selling Securityholders' 1,000,000 $0.25 $250,000.00 $86.21
Redeemable Warrants (4)
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Common Stock underlying the 1,000,000 $6.00 $6,000,000.00 $2,068.97
Selling Securityholders'
Redeemable Warrants (4)
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Underwriter's Warrants to 225,000 .0001 $22.50 (5)
purchase Units
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Units issuable upon the exercise of 225,000 $4.80 $1,080,000.00 $372.41
the Underwriter's Warrants (6)
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Common Stock underlying the 225,000 $6.00 $1,350,000.00 $465.52
Redeemable Warrants included in
the Underwriter's Warrants (7)
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Total $34,555,022.50 $11,915.53
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</TABLE>
(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended (the "Securities Act"), for purposes of calculating the
registration fee.
(2) Includes 337,500 Units which the Underwriter has an option to purchase from
the Registrant to cover over-allotments, if any.
(3) Issuable upon the exercise of Redeemable Warrants to be offered to the
public. Pursuant to Rule 416 under the Securities Act, this Registration
Statement covers any additional shares of Common Stock which may become
issuable by virtue of the anti-dilution provisions of such Redeemable
Warrants.
(4) Offered by certain selling security holders of the Registrant and
registered for offer on a delayed basis pursuant to Rule 415 under the
Securities Act.
(5) No fee is required pursuant to Rule 457(g) under the Securities Act.
(6) These Units are identical to the Units offered to the public. Pursuant to
Rule 416 under the Securities Act, this Registration Statement also covers
any additional Units which may become issuable by virtue of the
anti-dilution provision of the Underwriter's Warrants.
(7) Issuable upon the exercise of the Redeemable Warrants included in the
Underwriter's Warrants. Pursuant to Rule 416 under the Securities Act, this
Registration Statement also covers any additional shares of Common Stock
which may become issuable by virtue of the anti-dilution provision of the
Redeemable Warrants.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there
be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 1996
PROSPECTUS
[Company Logo: InnoPet Brands with an outline of a dog and cat in a box.]
INNOPET BRANDS CORP.
2,250,000 Units
Each Unit Consisting of One Share of Common Stock
and One Redeemable Warrant
This Prospectus relates to an offering (the "Offering") of 2,250,000
Units (the "Units") by InnoPet Brands Corp., a Delaware corporation (the
"Company"). Each Unit consists of one share of common stock, par value $.01 per
share (the "Common Stock") and one redeemable warrant (the "Redeemable
Warrants," collectively with the Units and the Common Stock hereinafter
sometimes referred to as the "Securities"). The shares of Common Stock and
Redeemable Warrants comprising the Units will be detachable and separately
transferable immediately upon issuance. See "Description of Securities."
Each Redeemable Warrant entitles the holder to purchase one share of
Common Stock at a price of $____ [150% of the initial public offering per Unit]
per share, subject to adjustment, at any time from issuance until , 2001 [60
months from the date of this Prospectus] and is redeemable by the Company, with
the prior written consent of Joseph Stevens & Company, L.P. (the "Underwriter"),
at a redemption price of five cents ($.05) commencing , 1997 [12 months from the
date of this Prospectus] on thirty (30) days' prior written notice, provided
that the average closing bid price of the Common Stock equals or exceeds $____
[150% of the Redeemable Warrant exercise price] for any twenty trading days
within a period of thirty consecutive trading days ending on the fifth trading
day immediately prior to the notice of redemption. See "Description of
Securities."
Prior to this Offering, there has been no public market for the Units,
the Common Stock or the Redeemable Warrants and there can be no assurance that
any such market will develop after the completion of this Offering or, if
developed, that it will be sustained. It is currently anticipated that the
initial public offering price will be $4.00 per Unit. See "Underwriting" for a
discussion of the factors considered in determining the offering price.
Application has been made to include the Units, the Common Stock and the
Redeemable Warrants for quotation on the Nasdaq SmallCap Market (the "Nasdaq
SmallCap") under the proposed symbols "INBCU," "INBC," and "INBCW,"
respectively, and on The Boston Stock Exchange (the "BSE") under the proposed
symbols "IBCU," "IBC," and "IBCW," respectively. The Company and the Underwriter
may jointly determine, based upon market conditions, to delist the Units upon
the expiration of the 30 day period commencing on the date of this Prospectus.
-----------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
AND "DILUTION," BEGINNING AT PAGE 8.
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
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Underwriting Proceeds to the
Price to public discounts (1) Company (2)
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Per Unit .......... $ $ $
- --------------------------------------------------------------------------------
Total (3).......... $ $ $
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(1) Does not include additional compensation payable to the Underwriter in the
form of a 3% non-accountable expense allowance, warrants to purchase
225,000 Units (the "Underwriter's Warrants"), and a financial consulting
fee. The Company has also agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $________,
including the non-accountable expense allowance payable to the Underwriter.
(3) The Company has granted the Underwriter an option to purchase up to 337,500
additional Units (the "Over-allotment Option"), on the same terms as set
forth above, solely for the purpose of covering over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts, and Proceeds to the Company will be $_____, $_____ and $_____,
respectively. See "Underwriting."
This Prospectus also relates to the registration by the Company, at its
expense, for the account of certain security holders (the "Selling
Securityholders") of 1,000,000 Redeemable Warrants (the "Selling
Securityholders' Warrants") and 1,000,000 shares of Common Stock underlying such
Warrants (the "Selling Securityholders' Shares"). The Selling Securityholders'
Warrants and the Selling Securityholders' Shares are collectively referred to as
the "Selling Securityholders' Securities." The Selling Securityholders' Warrants
will be issued upon consummation of the Offering as a result of the automatic
conversion of warrants (the "Private Placement Warrants") issued to the Selling
Securityholders in a private placement financing by the Company which occurred
in August 1996 (the "Private Placement Financing"). The Selling Securityholders
have agreed that for a period of 18 months from the date of this Prospectus,
they may not sell the Selling Securityholders' Warrants or the Selling
Securityholders' Shares without the prior written consent of the Underwriter.
Neither the Selling Securityholders' Warrants nor the Selling Securityholders'
Shares are being offered or sold pursuant to this Offering. The Company will not
receive any proceeds from the conversion of the Private Placement Warrants. The
Company will, however, receive proceeds upon the exercise, if any, of the
Selling Securityholders' Warrants. See "Selling Securityholders."
The Units are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriter reserve the right to withdraw, cancel or modify the
offering and to reject any order in whole or in part. It is expected that
delivery of the Units will be made against payment therefor at the offices of
Joseph Stevens & Company, L.P., New York, New York, on or about ____ ___, 1996.
JOSEPH STEVENS & COMPANY, L.P.
__________ ___, 1996
<PAGE>
[The Registrant will include a picture in the Registration Statement,
the background of which will be the Company's kibble product with pictures of
the Company's bagged products, logo and two puppies overlayed. One puppy is at
the top of the picture, the other is next to the bags of product in the middle
of the picture.]
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as the
Company deems appropriate or as may be required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS,
THE COMMON STOCK AND/OR THE REDEEMABLE WARRANTS AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE BOSTON STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements and related notes thereto appearing elsewhere in this Prospectus.
Each prospective investor is urged to read this Prospectus in its entirety.
Unless otherwise indicated, all information in this Prospectus: (i) assumes
no exercise of the Over-allotment Option, (ii) excludes shares of Common
Stock issuable upon exercise of the Redeemable Warrants included in the
Units hereby, (iii) excludes shares of Common Stock issuable upon exercise
of the Selling Securityholders' Warrants, and (iv) excludes securities
issuable upon exercise of the Underwriter's Warrants. See "Plan of
Operations."
The Company
InnoPet Brands Corp. (the "Company") produces, markets and sells premium
dog food through supermarkets and grocery stores under the name InnoPet
Veterinarian Formula(TM) Dog Food ("InnoPet Foods"). The Company began marketing
InnoPet Foods in March 1996. In June 1996, it commenced sales of its dog food to
supermarkets located in the Greater Metropolitan New York area. As of August 31,
1996, the Company has sold product into the following markets: the Greater
Metropolitan New York area; the Philadelphia, Pennsylvania area and other areas
in Pennsylvania; the Baltimore, Maryland/Washington, D.C. area, and the Tampa
Bay, Florida and South Florida areas. Supermarket chains which have received
product include: Great Atlantic & Pacific Tea Company (representing A&P,
Waldbaum, Super Fresh, Food Emporium and Food Mart); Acme Markets, Inc.;
Albertsons', Inc. (Florida Division); C&S Wholesale Grocers (representing Grand
Union Company and other supermarket chains); Fleming Companies, Inc.
(representing Hyde Park Markets and other supermarket chains); Kash N' Karry
Food Stores, Inc.; Key Food Stores Cooperative, Inc.; Pathmark Stores, Inc.;
Super Rite Foods and Weiss Markets, Inc. As of August 31, 1996, the Company has
recorded approximately $845,000 in sales. In support of purchase orders received
and to establish inventories, the Company has produced in the aggregate
approximately 3,655,000 pounds of dog food through August 31, 1996.
Retail sales of pet food in the United States in 1995 were approximately
$9.3 billion (an increase of 6% over 1994), of which approximately 20% was
premium pet food. From 1991 through 1995, sales of premium pet food have
increased at a compound annual growth rate of approximately 18% in recent years,
compared to a compound annual growth rate of less than 3% for total pet food
sales. The Company believes sales of premium pet food have increased in recent
years primarily due to heightened concern for animal welfare and nutrition.
Premium pet food is generally characterized by quality ingredients, such as pure
meat, higher nutritional value, increased digestibility, increased nutrient
absorption and higher pricing. The Company believes that its product qualifies
as premium because of, among other things, its use of pure beef as the primary
source of protein, corn gluten instead of corn meal, and rice instead of other
grains.
While sales of premium pet foods are increasing, the percentage of pet
food sales made through supermarkets and grocery stores decreased from
approximately 85% to 62%, from 1988 to 1995, due to increased sales of premium
pet foods through specialty pet stores. Between 1989 and 1995, sales of pet
foods through outlets other than the supermarket/grocery store segment, have
risen approximately 71%. The Company believes supermarkets and grocery stores
have been unable to reverse their loss of pet food market share because of their
inability to obtain a full line of premium pet foods. Market research
commissioned by the Company indicates that approximately one-half of households
in the United States with one or more dogs would be willing to try a line of
premium dog food if it were available in supermarkets.
The Company's objective is to become a national provider of premium pet
foods through supermarket and grocery store retail outlets. The Company intends
to achieve its objective by (i) providing exclusively to supermarkets a brand of
competitively-priced premium pet food to enable them to recapture a share of the
premium pet food market that they have lost to specialty pet stores; (ii)
expanding distribution to supermarket and grocery stores in the majority of the
eastern United States during approximately the next 12 months; (iii) increasing
consumer awareness and market penetration throughout the Company's market areas;
(iv) expanding
-4-
<PAGE>
its product lines over the next 12 months to include dry dog food product line
extensions, such as lamb and rice formulations, dry cat food for the kitten and
adult life stages; and (v) packaging its products in unique single serving-sized
inner-bags which are designed to increase convenience of feeding, regulate
portions, and to reduce product deterioration and to prevent contamination.
The Offering
Units to be Offered by the
Company...................... 2,250,000 Units, each Unit consisting of one
share of Common Stock and one Redeemable
Warrant. The Common Stock and Redeemable
Warrants will be detachable and separately
transferable immediately upon issuance.
Each Redeemable Warrant entitles the holder to
purchase one share of Common Stock for 150% of
the initial public offering price per Unit,
subject to adjustment. Commencing 12 months
from the date of this Prospectus, the
Redeemable Warrants will be subject to
redemption, subject to the prior written
consent of the Underwriter, at a price of $.05
per Redeemable Warrant on 30 days' written
notice provided the average closing bid price
of the Common Stock equals or exceeds 150% of
the exercise price of the Redeemable Warrant
for any 20 trading days within a period of 30
consecutive trading days ending on the fifth
trading day prior to the date of the notice of
redemption. See "Description of Securities."
Securities Offered by Selling
Securityholders .............. 1,000,000 Selling Securityholders' Warrants,
which will be issued to the Selling
Securityholders upon the automatic conversion
of the Private Placement Warrants, and an
aggregate of 1,000,000 shares of Common Stock
issuable upon exercise of the Selling
Securityholders' Warrants. The Selling
Securityholders' Warrants and the shares of
Common Stock being registered for the account
of the Selling Securityholders at the
Company's expense are not being underwritten
in the Offering, but may be offered for resale
at any time on or after the date hereof by the
Selling Securityholders provided prior consent
is given by the Underwriter to the Selling
Securityholders. The Company will not receive
any proceeds from the sale of these
securities, although it will receive proceeds
from the exercise, if any, of the Selling
Securityholders' Warrants. See "Recent Private
Placement Financing" and "Selling
Securityholders."
Common Stock Outstanding(1)
Before this Offering........ 1,878,378 shares.
After this Offering......... 4,128,378 shares.
- ---------------------
1 Excludes 400,000 shares of Common Stock reserved for issuance upon exercise
of options available for future grant under the Company's 1996 Stock Option
Plan (the "Stock Option Plan"). See "Management--Stock Option Plan,"
"Description of Securities" and "Underwriting."
-5-
<PAGE>
Redeemable Warrants to be
Outstanding After this
Offering.................... 3,250,000 Redeemable Warrants.
Proposed Nasdaq SmallCap Symbols:
Units....................... INBCU
Common Stock ............... INBC
Redeemable Warrants......... INBCW
Proposed BSE Symbols:
Units....................... IBCU
Common Stock................ IBC
Redeemable Warrants......... IBCW
Use of Proceeds................ For purchase of inventory; expansion of retail
distribution; marketing and sales; repayment
of debt; working capital; and general
corporate purposes. See "Use of Proceeds."
Risk Factors and Dilution ..... The purchase of the Units offered hereby
involves a high degree of risk and immediate
and substantial dilution. Prospective
investors should review carefully and consider
the information set forth under "Risk Factors"
and "Dilution."
-6-
<PAGE>
Summary Financial Information
The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
January 11, 1996 (Inception)
to
June 30, 1996
----------------------------
Statement of Operations Data:
Net sales..................................... $153,061
Net (loss).................................... (2,125,157)
Net (loss) per common share................... ($1.13)
Weighted average number of common
shares outstanding......................... 1,878,378
As of June 30, 1996
---------------------------------------------
Pro forma as
Actual Pro forma (1) adjusted (2)
------ ------------- ------------
Balance Sheet Data:
Working capital (deficiency) ..... $ (264,167) $ (395,506) $6,884,494
Total assets...................... 2,567,907 4,567,907 9,410,254
Total liabilities ................ 2,332,526 4,082,526 2,332,526
Stockholders' equity.............. $ 235,381 $ 485,381 $7,077,728
- ---------------------
1 Gives effect to the consummation during August 1996 of the Private
Placement Financing pursuant to which the Company issued an aggregate of
(i) $2,000,000 principal amount of promissory notes (the "Notes") which
bear interest at the rate of 10% per annum and will be repaid from the
proceeds of the Offering and (ii) 1,000,000 Private Placement Warrants. The
Private Placement Warrants will be automatically converted to an equal
number of Redeemable Warrants upon consummation of the Offering. As part of
the Private Placement Financing, $410,000 and $250,000 have been reflected
as deferred financing costs and original issue discount, respectively. See
"Recent Private Placement Financing."
2 As adjusted to reflect the sale of the Units offered by the Company hereby
at the assumed initial public offering price of $4.00 per Unit and the
initial application of the net proceeds therefrom. Also adjusted to reflect
the amortization of deferred financing costs ($410,000) and original issue
discount ($250,000) arising from the Private Placement Financing which will
be repaid out of the proceeds of this offering. See "Use of Proceeds."
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<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the
securities offered hereby. Because any investment in the Units involves a high
degree of risk, only investors who can accommodate such risks, including a
complete loss of their investment, should purchase the Units.
Limited Revenues and Operating History; Going Concern Qualification. The
Company was incorporated on January 11, 1996 to acquire certain pet food
formulas. As of the date of this Prospectus, the Company has generated limited
revenues. Accordingly, the Company has no operating history upon which an
evaluation of its prospects can be made. The report of the Company's independent
auditors for the period from inception to June 30, 1996, contains an explanatory
paragraph raising the independent auditor's substantial doubt about the
Company's ability to continue as a going concern because the Company has been in
its development stage, and consequently, has incurred a net loss and reflects a
deficit accumulated during this period of $2,125,157. The Company expects to
continue to incur losses at least through 1996 and operating losses may
increase, at least in the short term, as the Company increases its expenditures
to effect its business plan. The Company's ability to achieve a profitable level
of operations will depend in large part on the market acceptance of its
products. There can be no assurance that the Company will achieve profitable
operations. See the Company's Financial Statements and related notes thereto
appearing elsewhere in this Prospectus.
Substantial Financial Leverage; Future Capital Needs; Uncertainty of
Additional Funding. After giving effect to the sales of the Units offered hereby
(and based on June 30, 1996 financial statements), the Company's total debt will
be approximately $2,333,000. Historically, the Company has been dependent upon
debt and equity financing from InnoPet Inc., the parent company (the "Parent
Company") of the Company, and from the Private Placement Financing. The Company
believes the net proceeds of this Offering, together with cash on hand and cash
expected to be generated from operations, will be adequate to satisfy its
capital requirements for a period of at least 12 months from the date of this
Prospectus. However, if the Company expands sales of its products beyond
currently planned levels then it may be necessary to seek additional financing.
Such additional financing, if any, may be either debt, equity or a combination
of debt and equity. An equity financing could result in dilution in the
Company's net tangible book value per share of Common Stock. There can be no
assurance that the Company will be able to secure additional debt or equity
financing or that such financing will be available on favorable terms. See
"Business" and "Plan of Operations."
Management of Growth. The Company will use a substantial portion of the
proceeds of this Offering to expand its current level of operations. The
Company's growth will result in increased responsibility for both existing and
new management personnel. Effective growth management will depend upon the
Company's ability to integrate new personnel, to improve its operational,
management and financial systems and controls, to train, motivate and manage its
employees, and to increase its sources of raw materials, product manufacturing
and packaging. If the Company is unable to manage growth effectively, the
Company's business, results of operations and financial condition would be
materially and adversely affected. In addition, there can be no assurance that
any growth will occur or that growth will produce profits for the Company.
Untested Distribution Strategy. The success of the Company depends upon
its ability to sell premium pet foods through supermarkets and grocery stores.
Although as of the date of this Prospectus, the Company has delivered its
product, on a limited basis, to certain supermarkets in the Greater Metropolitan
New York area, the Pennsylvania area, the Baltimore, Maryland/Washington, D.C.
area, and the Tampa Bay, Florida and South Florida areas, there can be no
assurance that the Company will be successful in obtaining adequate shelf space
for its products in these or any other areas. No data is available to determine
the viability of the Company's strategy. There also can be no assurance that the
Company's current customers will continue buying products from the Company or
that other supermarkets or grocery stores will buy the Company's products.
Competition. The pet food business is highly competitive. Virtually all
of the manufacturers, distributors and marketers of pet food have substantially
greater financial, research and development, marketing and manufacturing
resources than the Company. Competitors in the premium pet food market include,
among others: Colgate-Palmolive Co. (Hills' Science Diet), Iams Co. and Ralston
Purina Co. Brand loyalty to existing products may prevent the Company
-8-
<PAGE>
from achieving its sales objectives. Additionally, the long-standing
relationships maintained by existing premium pet food manufacturers with
veterinarians and pet breeders may prevent the Company from obtaining
professional recommendations for its products. In addition, the Company competes
with current supermarket high-priced dog foods, which are not considered premium
when compared to InnoPet Foods, and to the premium dog foods offered in the
specialty pet stores. Although the dominant existing premium pet food brands are
not currently available in supermarkets, and the Company believes will not be
available in the foreseeable future, there can be no assurance that this
situation will continue. The entrance into the supermarket distribution channel
of an existing or new premium pet food by any of the Company's competitors could
have a material adverse effect on the Company.
Raw Materials; Manufacturing and Packaging Costs. The Company's
financial results will depend to a large extent on the cost of raw materials,
manufacturing and packaging and the ability of the Company to pass along
increases in these costs to the supermarkets and grocery stores. Except as
described below, the Company has no other agreements to purchase raw materials.
Fluctuations in prices of food stocks have historically resulted from a number
of factors, including changes in United States government farm support programs,
changes in international agricultural and trading policies and weather
conditions during growing and harvesting seasons. Fluctuations in paper prices
have historically resulted from changes in supply and demand, general economic
conditions and other factors. Although the Company is unaware of any currently
pending price increases, future price increases in raw materials or packaging
could have a material adverse effect on the Company. See "Business --
Manufacturing and Distribution."
Dependence on Third-Party Suppliers; Manufacturers and Food Brokers. The
Company has been and will continue to be dependent on third parties for the
supply, manufacture, packaging and sale of its pet foods. Currently, the Company
relies on two manufacturers and two packagers. The Company obtains beef for its
products pursuant to an agreement with Monfort, Inc. ("Monfort") a subsidiary of
ConAgra Inc. ("ConAgra") that terminates in 1999. Any failure by Monfort to
fulfill its obligations under the agreement, or the failure by the Company to
secure an alternative source of beef at comparable prices upon the termination
of the Monfort agreement, whether at its expiration date or earlier, could have
a material adverse effect on the Company. In addition, to the extent the Company
requires other meats, (e.g., lamb or liver), to produce its products, it may
have difficulty acquiring sufficient amounts on a timely basis, and at
acceptable prices, to satisfy production schedules. The Company does not
maintain supply agreements with any other third party suppliers, but instead
purchases products pursuant to purchase orders in the ordinary course of
business. The Company will be substantially dependent on the ability of its
manufacturers and suppliers to, among other things, meet the Company's
performance and quality specifications. Failure by the Company's manufacturers
and suppliers to comply with these and other requirements could have a material
adverse effect on the Company. Furthermore, there can be no assurance that the
Company's manufacturers and suppliers will dedicate sufficient production
capacity to meet the Company's scheduled delivery requirements or that the
Company's suppliers or manufacturers will have sufficient production capacity to
satisfy the Company's requirements during any period of sustained demand. Their
failure to supply, or delay in supplying, the Company with products could have a
material adverse effect on the Company. See "Business -- Manufacturing and
Distribution."
In addition, the Company's ability to obtain authorizations to sell its
products in supermarkets and grocery stores depends upon the efforts and skill
of brokers retained by the Company. Although the Company believes it will be
able to locate and retain qualified brokers throughout the United States on
acceptable terms, there can be no assurance that the Company will be able to do
so. The failure to obtain authorizations or to locate and retain qualified
brokers could have a material adverse effect on the Company. See "Business --
Marketing and Sales."
Dependence on Key Personnel; Potential Conflicts of Interests. The
success of the Company will be largely dependent on the personal efforts of Marc
Duke, its Chairman and Chief Executive Officer. Although the Company has entered
into an employment agreement with Mr. Duke which expires in 2000, the loss of
his services or certain other key management or scientific personnel could have
a material adverse effect on the Company. The Company has applied for "Key-man"
life insurance on the life of Mr. Duke, of which the Company will be sole
beneficiary, in the amount of $1 million. The success of the Company is also
dependent upon its ability to hire and retain qualified marketing and other
personnel. There can be no assurance that the Company will be able to hire or
retain such necessary personnel. Mr. Duke is also a director and executive
officer of the Parent Company and its subsidiaries. Although his employment
agreement requires him to devote substantially his full time and attention to
the Company, there can be no assurance that
-9-
<PAGE>
Mr. Duke's other responsibilities will not have a material adverse effect on the
Company. In addition, Mr. Duke may have a conflict of interest with respect to
business opportunities presented to him. There can be no assurance that such
opportunities will first be offered to the Company. See "Management" and
"Certain Transactions."
Government Regulation. The manufacturing, labelling and marketing of
the Company's products are subject to regulation by federal agencies, including
the United States Department of Agriculture, and by various state and local
authorities. Any failure to comply with applicable regulatory requirements could
have a material adverse effect on the Company. See "Business -- Government
Regulation."
Dependence Upon Proprietary Formulations; Intellectual Property Claims.
The Company's success depends in part upon its ability to protect its
proprietary formulations and trademarks. The Company relies on a combination of
copyright, trademark, and trade secret laws, nondisclosure and other contractual
agreements with employees and third parties, and technical measures to protect
its proprietary formulations and trademarks. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will be adequate to
protect misappropriation of such rights or that third parties will not
independently develop equivalent or superior formulations. The Company has no
patents, and existing trade secret and copyrights laws provide only limited
protection. The Company may be subject to or may initiate interference
proceedings in the United States Patent and Trademark Office, which can demand
significant financial and management resources. Although the Company believes
that its products and formulations do not infringe upon the proprietary rights
of others, there can be no assurance that third parties will not assert
infringement claims against the Company in the future. Litigation, which could
result in substantial cost to and diversion of effort by the Company, may be
necessary to enforce intellectual property rights of the Company or to defend
the Company against claimed infringement of the rights of others. The failure to
obtain necessary licenses or other rights or litigation arising out of
infringement claims could have a material adverse effect on the Company. See
"Business -- Intellectual Property."
Control by Principal Stockholders. When this Offering is completed,
current stockholders will beneficially own 1,878,378 shares or 45% of the Common
Stock outstanding. Through his positions at the Parent Company and by proxies
granted to him, Mr. Duke will have voting power over all of such shares.
Accordingly, he will be able to elect all of the Company's directors and
otherwise control all matters requiring approval by the stockholders of the
Company, including approval of significant corporate transactions. See
"Principal Stockholders."
Absence of Dividends. The Company has not paid any cash dividends on
its Common Stock and does not expect to do so in the foreseeable future. See
"Dividend Policy."
Possible Adverse Effects of Authorization of Preferred Stock. The
Company's Certificate of Incorporation provides that up to 5,000,000 shares of
Preferred Stock may be issued by the Company from time to time in one or more
series. The Board of Directors is authorized to determine the rights,
preferences, privileges and restrictions granted to and imposed upon any wholly
unissued series of Preferred Stock and to fix the number of shares of any series
of Preferred Stock and the designation of any such series, without any vote or
action by the Company's stockholders. The Board of Directors may authorize and
issue Preferred Stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of Common Stock. In
addition, the potential issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of the Common Stock. See
"Description of the Company's Securities--Preferred Stock."
Forward-Looking Information May Prove Inaccurate. This Prospectus
contains various forward-looking statements and information that are based on
management's beliefs, as well as assumptions based upon information currently
available to management. When used in the Prospectus, the words "expect,"
"anticipate," "estimate," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks,
uncertainties and assumptions including those identified above. Should one or
more of these risks or circumstances materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.
Immediate and Substantial Dilution. Purchasers of Units offered hereby
will incur an immediate and substantial dilution in the net tangible book value
of their Common Stock. Dilution represents the difference between the price of
-10-
<PAGE>
the Common Stock sold hereby and the pro forma net tangible book value per share
of the Company after the Offering. Additional dilution to future net tangible
book value per share may occur upon exercise of the Redeemable Warrants, the
Underwriter's Warrants and certain options that may be issued or exercised under
the Plan. The immediate dilution per share of Common Stock to purchasers of the
Units offered hereby is $2.50 per share, or 63% per share. See "Dilution."
Arbitrary Offering Price of the Units and Exercise Price of the
Redeemable Warrants. The offering price of the Units and the exercise price of
the Redeemable Warrants are completely arbitrary and are not based upon the
Company's assets, book value, cash flow, potential earnings or any other
established criteria of value. The initial public offering price for the Units
and the exercise price of the Redeemable Warrants were determined by
negotiations between the Company and the Underwriter, and should not be regarded
as indicative of any future market price of the Units, Common Stock or
Redeemable Warrants. See "Underwriting."
Broad Discretion in Application of Proceeds. Approximately $1,050,000 or
approximately 14% of the estimated net proceeds of this offering has been
allocated to working capital and general corporate purposes. Accordingly, the
Company's management will have broad discretion as to the application of such
proceeds.
Redeemable Warrants; Underwriter's Warrants; Future Financings. The
holders of the Redeemable Warrants and the Underwriter's Warrants will have the
opportunity to profit from a rise in the price of the Common Stock. The
existence of these warrants may adversely affect the terms on which the Company
can obtain additional equity financing in the future and the holders can be
expected to exercise them when the Company would, in all likelihood, be able to
obtain additional capital by offering additional shares of its unissued Common
Stock on terms more favorable to the Company than the terms provided by these
warrants.
Potential Adverse Effect of Redemption of the Redeemable Warrants. The
Redeemable Warrants are redeemable by the Company, with the prior written
consent of the Underwriter, at a price of $.05 per Redeemable Warrant commencing
12 months from the date of this Prospectus, provided that (i) 30 days' prior
written notice is given to the holders of the Redeemable Warrants, and (ii) the
closing bid price per share of the Common Stock as reported on the Nasdaq
SmallCap (or the last sale price, if quoted on a national securities exchange)
for any 20 trading days within a period of 30 consecutive trading days, ending
on the fifth day prior to the date of the notice of redemption, has been at
least 150% of the exercise price per share, subject to adjustment in certain
events. The holders of the Redeemable Warrants will automatically forfeit their
rights to purchase the shares of Common Stock issuable upon exercise of such
Redeemable Warrants unless the Redeemable Warrants are exercised before they are
redeemed. Notice of redemption of the Redeemable Warrants could force the
holders to exercise the Redeemable Warrants and pay the respective exercise
prices at a time when it may be disadvantageous for them to do so, to sell the
Redeemable Warrants at the market price when they might otherwise wish to hold
the Redeemable Warrants, or to accept the redemption price which is likely to be
substantially less than the market value of the Redeemable Warrants at the time
of redemption. See "Description of Securities--Redeemable Warrants."
Current Prospectus and State Blue Sky Registration Required to Exercise
Redeemable Warrants. Holders will have the right to exercise the Redeemable
Warrants and purchase shares of Common Stock only if a current prospectus
relating to such shares is then in effect and only if the shares are qualified
for sale under the securities laws of the applicable state or states, or there
is an exemption from the applicable qualification requirements. The Company has
undertaken and intends to file and keep effective and current a prospectus which
will permit the purchase and sale of the Common Stock underlying the Redeemable
Warrants, but there can be no assurance that the Company will be able to do so.
Although the Company intends to qualify for sale the shares of Common Stock
underlying the Redeemable Warrants in those states in which the securities are
to be offered, no assurance can be given that such qualification will occur.
Holders of the Redeemable Warrants may be deprived of any value if a prospectus
covering the shares issuable upon the exercise thereof is not kept effective and
current or if such underlying shares are not, or cannot be, registered in the
applicable states. Although the Company does not presently intend to do so, the
Company reserves the right to call the Redeemable Warrants for redemption
whether or not a current prospectus is in effect or such underlying shares are
not, or cannot be, registered in the applicable states. See "Description of
Securities--Redeemable Warrants."
-11-
<PAGE>
Shares Eligible for Future Sales. Sales of shares of Common Stock by
existing shareholders, or by holders of Redeemable Warrants, under Rule 144 of
the Securities Act could have an adverse effect on the trading price of the
Units, the Common Stock or the Redeemable Warrants. The Company has agreed with
the Underwriter to cause all holders of the shares of Common Stock and Private
Placement Warrants outstanding prior to this offering to execute lock-up
agreements with the Underwriter that restrict the sale or disposition of shares
of Common Stock and/or Redeemable Warrants for 18 months from the date of this
Prospectus without the prior written consent of the Underwriter. In addition,
for 24 months from the date of this Prospectus, these shares and warrants will
be sold only through the Underwriter. The Underwriter may consent to a waiver of
this lock-up period without prior public notice. Subject to this lock-up
restriction, of the 4,128,378 shares of Common Stock that will be outstanding
after this Offering, 1,182,432 shares will be eligible for sale beginning in
March 1998. See "Description of the Company's Securities" and "Shares Eligible
for Future Sale."
No Prior Public Trading Market; Possible Delisting from Nasdaq SmallCap;
Disclosure Relating to Low Priced Stocks. Prior to the Offering there has been
no public trading market for the Units, the Common Stock or the Redeemable
Warrants. Although the Units, the Common Stock and the Redeemable Warrants have
been approved for quotation on the Nasdaq SmallCap, there can be no assurance
that a trading market will develop or, if developed, that it will be maintained.
In addition, there can be no assurance that the Company will in the future meet
the maintenance criteria for continued quotation of the securities on the Nasdaq
SmallCap. The maintenance criteria for the Nasdaq SmallCap include, among other
things, $2,000,000 in total assets, $1,000,000 in capital and surplus, a public
float of 100,000 shares with a market value equal to $200,000, two market makers
and a minimum bid price of $1.00 per share of common stock. If an issuer does
not meet the $1.00 minimum bid price standard, it may, however, remain on the
Nasdaq SmallCap if the market value of its public float is at least $1,000,000
and the issuer has at least $2,000,000 in equity. If the Company were removed
from the Nasdaq SmallCap, trading, if any, in the Units, the Common Stock or the
Redeemable Warrants would thereafter have to be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
the NASD's OTC Electronic Bulletin Board. As a result, an investor would find it
more difficult to dispose of, and to obtain accurate quotations as to the value
of such securities.
In addition, if the Common Stock is delisted from trading on the Nasdaq
SmallCap and the trading price of the Common Stock is less than $5.00 per share,
trading in the Common Stock would also be subject to the requirements of Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under such rule, broker/dealers who recommend such low-priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements, including a requirement that
they make an individualized written suitability determination for the purchaser
and receive the purchaser's written consent prior to the transaction. The
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires
additional disclosure in connection with any trades involving a stock defined as
a penny stock (generally, according to recent regulations adopted by the
Securities and Exchange Commission (the "Commission"), any equity security not
traded on an exchange or quoted on Nasdaq SmallCap that has a market price of
less than $5.00 per share, subject to certain exceptions), including the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith. Such
requirements could severely limit the market liquidity of the Units, the Common
Stock and the Redeemable Warrants and the ability of purchasers in this Offering
to sell their Securities in the secondary market. There can be no assurance that
the Units, the Common Stock and the Redeemable Warrants will not be delisted or
treated as a penny stock.
Lack of Experience of Underwriter. Although the Underwriter commenced
operations in May 1994, it does not have extensive experience as an underwriter
of public offerings of securities. The firm is relatively small and no assurance
can be given that it will be able to participate as a market maker in the
Securities, and no assurance can be given that any broker-dealer will make a
market in the Units, the Common Stock or the Redeemable Warrants. See
"Underwriting."
Underwriter's Potential Influence on the Market. It is anticipated that
a significant amount of the Units will be sold to customers of the Underwriter.
Although the Underwriter has advised the Company that it intends to make a
market in the Securities, it will have no legal obligation to do so. Such market
making activity may be discontinued at any time. Moreover, if the Underwriter
sells the securities issuable upon exercise of the Underwriter's Warrants, it
may be required under the Exchange Act to suspend temporarily its market-making
activities. The prices and the liquidity of the Units, the Common Stock and the
Redeemable Warrants may be significantly affected by the degree, if any, of the
Underwriter's
-12-
<PAGE>
participation in the market. No assurance can be given that any market
activities of the Underwriter, if commenced, will be continued. See
"Underwriting."
THE COMPANY
The Company was incorporated under the laws of the State of Delaware on
January 11, 1996. The Company is a subsidiary of the Parent Company, a Delaware
corporation, and was formed to acquire and market InnoPet Foods. The Parent
Company is a creator and marketer of products for the pet industry, including
ThirstyDog!(TM) and ThirstyCat!(TM) through its wholly-owned subsidiary The
Original Pet Drink Company, a Florida corporation ("OPD"). See "Certain
Transactions."
The Company maintains its principal business operations at One East
Broward Boulevard, Suite 1100, Fort Lauderdale, Florida 33301. The Company's
telephone number is (954) 356-0036.
RECENT PRIVATE PLACEMENT FINANCING
In August 1996 the Company consummated the Private Placement Financing,
pursuant to which it issued an aggregate of (i) $2,000,000 principal amount of
promissory notes (the "Notes") which bear interest at the rate of 10% per annum
and are due and payable upon the earlier of (a) the consummation of any
financing of the Company from which the Company receives gross proceeds of at
least $4,000,000 or (b) one year from the date of issuance, and (ii) 1,000,000
Private Placement Warrants, each Private Placement Warrant entitling the holder
to purchase one share of Common Stock at an initial exercise price of $2.00
(subject to adjustment upon the occurrence of certain events) during the
three-year period commencing one year from the date of issuance. The net
proceeds of the Private Placement Financing were used by the Company to purchase
inventory, to expand distribution, to initiate marketing programs and to meet
working capital and general corporate requirements. The Company intends to use a
portion of the proceeds of this Offering to repay the entire principal amount
of, and accrued interest on, the Notes. See "Use of Proceeds."
Upon consummation of the Offering, each Private Placement Warrant shall
automatically be converted into a Redeemable Warrant (referred to herein as the
Selling Securityholders' Warrants) having terms identical to those of the
Redeemable Warrants underlying the Units offered hereby. The Selling
Securityholders' Warrants and the underlying shares of Common Stock issuable
upon exercise of the Selling Securityholders' Warrants are included in the
Registration Statement of which this Prospectus is a part. See "Concurrent
Offering."
CONCURRENT OFFERING
The Registration Statement of which this Prospectus is a part also
includes 1,000,000 Redeemable Warrants and 1,000,000 shares of Common Stock
underlying such warrants, owned by the Selling Securityholders. The Selling
Securityholders' Securities are not being offered or sold pursuant to the
Offering. Such Selling Securityholders' Securities may be sold in the open
market, in privately negotiated transactions or otherwise, directly by the
Selling Securityholders. The Company will not receive any proceeds from the sale
of such Selling Securityholders' Warrants; however, the Company will receive
proceeds from the exercise, if any, of the Selling Securityholders' Warrants.
Expenses of the concurrent offering by the Selling Securityholders, other than
fees and expenses of counsel to the Selling Securityholders and selling
commissions, will be paid by the Company. Neither the Selling Securityholders'
Warrants nor the Selling Securityholders' Shares may be sold for a period of 18
months from the effective date of the Registration Statement without the prior
written consent of the Underwriter. Sales of such Selling Securityholders'
Securities by the Selling Securityholders or the potential of such sales may
have an adverse effect on the market price of the securities offered hereby. See
"Risk Factors."
-13-
<PAGE>
USE OF PROCEEDS
By the Company. The net proceeds to the Company from the sale of the
Units offered hereby are estimated to be $7,530,000 ($8,704,500 if the
Over-allotment Option is exercised in full). The principal purposes for which
the net proceeds are currently intended, and the approximate amounts intended
for each such purpose, are set forth below:
Amount Percentage
------ ----------
Repayment of Notes (1) ...................... $2,050,000 27.2%
Inventory (2)................................ 1,750,000 23.2%
Marketing (3)................................ 1,330,000 17.7%
Distribution expansion (4)................... 1,150,000 15.3%
Product development (5)...................... 200,000 2.6%
Working capital.............................. 1,050,000 14.0%
----------- -------
Total........................................ $7,530,000 100.0%
========== ======
- ----------------
1 The Company's repayment of the Notes will include accrued interest thereon.
See "Recent Private Placement Financing."
2 Includes raw materials, manufacturing and packaging.
3 Includes advertising, in-store coupons, floor walker displays, direct
sampling programs and in-store demonstrations.
4 Includes marketing allowances provided directly to supermarkets and
slotting allowances.
5 Includes palatability and bioavailability tests of formulations to be
introduced during the next year as well as pilot manufacturing runs.
The above represents the Company's best estimate based upon its present
plans and certain assumptions regarding general economic conditions and the
Company's future revenues and expenditures. The Company, therefore, reserves the
right to reallocate the net proceeds of this Offering among the various
categories set forth above as it, in its sole discretion, deems necessary or
advisable.
Any additional net proceeds realized from the exercise of the
Over-allotment Option will be added to the Company's working capital.
Historically, the Company has been dependent upon debt and equity
financing from its Parent Company and from the Private Placement Financing. The
Company believes the net proceeds of this Offering, together with cash on hand
and cash expected to be generated from operations, will be adequate to satisfy
its capital requirements for a period of at least 12 months from the date of
this Prospectus. Thereafter, if the Company has insufficient funds for its
needs, there can be no assurance that additional funds can be obtained on
acceptable terms, if at all. If necessary funds are not available, the Company's
business would be materially and adversely affected. Also, if the Company
expands sales of its products beyond currently planned levels it may be
necessary to seek additional financing. Such additional financing, if any, may
be either debt, equity or a combination of debt and equity. An equity financing
could result in dilution in the Company's net tangible book value per share of
Common Stock. There can be no assurance that the Company will be able to secure
additional debt or equity financing or that such financing will be available on
favorable terms.
Prior to expenditure, the net proceeds will be invested in short-term
interest bearing securities or money market funds.
-14-
<PAGE>
By the Selling Securityholders. The Private Placement Warrants and
Selling Securityholders' Shares are not being underwritten in this Offering and
the Company will not receive any proceeds from their sale. The Company has
agreed to bear the cost of preparing the Registration Statement of which the
Prospectus is a part and all filing fees and legal and accounting expenses in
connection with the registration of the Private Placement Warrants and Selling
Securityholders' Shares offered hereby under federal and state securities laws.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its Common Stock.
It presently intends to retain earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future. The payment of
future cash dividends by the Company on its Common Stock will be at the
discretion of the Board of Directors and will depend on its earnings, financial
condition, cash flows, capital requirements and other considerations as the
Board of Directors may consider relevant with respect to the payment of
dividends.
DILUTION
After giving pro forma effect to the Private Placement Financing,
pursuant to which the Company issued an aggregate of $2,000,000 principal amount
of promissory notes and incurred approximately $660,000 of financing costs and
original issue discount, the Company had a pro forma net tangible book value of
$(1,102,781) or $(.59) per share, as of June 30, 1996, based upon 1,878,378
shares of Common Stock outstanding. Net tangible book value per share is equal
to the Company's total tangible assets less its total liabilities, divided by
the total number of shares of its Common Stock outstanding. After giving effect
to the sale of the 2,250,000 Units offered hereby at an initial public offering
price of $4.00 per Unit (assuming no value is attributed to the Redeemable
Warrants included in the Units) and the application of the net proceeds
therefrom (after deducting estimated underwriting discounts and other expenses
of the offering), the net tangible book value of the Common Stock as of June 30,
1996 would have been $6,177,219 or $1.50 per share. This would represent an
immediate increase in net tangible book value of $2.09 per share to existing
stockholders and an immediate dilution of $2.50 per share or 63% to new
investors. Dilution is determined by subtracting net tangible book value per
share after this Offering from the amount paid by new investors per share of
Common Stock. The following table illustrates this dilution on a per share
basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock........................... $4.00
Pro forma net tangible book value per share prior to this Offering................ $(.59)
Increase attributable to new investors............................................ $2.09
-----
Pro forma net tangible book value per share after this Offering........................... $1.50
-----
Dilution per share to new investors....................................................... $2.50
</TABLE>
If the Over-allotment Option is exercised in full, the increase in pro
forma net tangible book value per share as of June 30, 1996 attributable to new
investors would have been $2.24, the pro forma net tangible book value per share
of Common Stock after the Offering would be $1.65 and the dilution per share to
new investors would be $2.35 or 59%.
The following table summarizes the number of shares of Common Stock
purchased, the percentage of total consideration paid, and the average price per
share paid by the existing stockholders and new investors in this Offering. The
calculation below is based on an initial public offering price of $4.00 per Unit
(before deducting the underwriting discounts and commissions and other estimated
expenses of the offering payable by the Company).
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------------------- --------------------------------- Average Price
Number % $ % Per Share
------------------- ----------- ------------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 1,878,378 45.5% $ 4,448,377(1) 33.1% $2.37
New Investors 2,250,000 54.5% $ 9,000,000 66.9% $4.00
--------- -----------
Total 4,128,378 100% $13,448,377 100%
</TABLE>
-15-
<PAGE>
- --------------------
1 Includes the notes, totaling $2,087,839, received from management and
employees in exchange for 652,449 shares of Common Stock. See "Certain
Transactions."
CAPITALIZATION
The following table sets forth the capitalization of the Company as
of June 30, 1996; actual; pro forma to give effect to the consummation of
the Private Placement Financing during August 1996 and the application by
the Company of the aggregate net proceeds therefrom; and pro forma as
adjusted to give effect to the issuance and sale of the Units offered by the
Company hereby (at an assumed initial public offering price of $4.00 per
Unit) and the initial application by the Company of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Recent Private Placement
Financing." This table should be reviewed in conjunction with the Company's
financial statements and related notes appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
---------------------------------------------------
Pro forma as
Actual Pro forma adjusted(1)
------ --------- -----------
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt ................... $ 200,000 $ 200,000 $ 200,000
Notes payable - Private Placement,
net of unamortized discount of $250,000 .......... 0 1,750,000 0
------------ ------------ ------------
Total short-term debt .................................. $ 200,000 $ 1,950,000 $ 200,000
============ ============ ============
Long-term debt:
Note payable to Parent Company,
net of current portion ........................... $ 800,000 $ 800,000 $ 800,000
------------ ------------ ------------
Stockholders' equity:
Preferred Stock, $.01 par value 5,000,000 shares
authorized, 0 shares issued and outstanding . 0 0 0
Common Stock, $.01 par value, 25,000,000 shares
authorized, 1,878,378 shares
issued and outstanding at June 30,
1996, actual and pro forma;
4,128,378 shares issued
and outstanding pro forma as adjusted ....... 18,783 18,783 41,283
Additional paid-in capital .......................... 4,439,449 4,689,449 11,919,296
Deficit accumulated during development stage ........ (2,125,157) (2,125,157) (2,785,157)
Notes and interest receivable on sale of common stock (2,097,694) (2,097,694) (2,097,694)
------------ ------------ ------------
Total stockholders' equity ............................. 235,381 485,381 7,077,728
------------ ------------ ------------
Total capitalization ................................... $ 1,035,391 $ 1,285,381 $ 7,877,728
============ ============ ============
</TABLE>
- ----------
1 As adjusted to reflect (i) the sale of the Units by the Company at the
assumed initial public offering price of $4.00 per Unit and the initial
application of the net proceeds therefrom, and (ii) the amortization of
deferred financing costs ($410,000) and original issue discount ($250,000)
arising from the Private Placement Financing which will be repaid out of
the proceeds of the Offering. See "Use of Proceeds."
-16-
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data for the period ended June 30, 1996 are
derived from the Company's financial statements audited by Rachlin Cohen &
Holtz, independent certified public accountants. The results for the period
which ended June 30, 1996 are not necessarily indicative of results that may be
expected for any other interim period or for the full year. The selected
financial data should be read in conjunction with, and are qualified by
reference to, the Company's Financial Statements and Notes thereto and "Plan of
Operations" included elsewhere in the Prospectus.
January 11, 1996 (Inception)
to June 30, 1996
----------------------------
Statement of Operations Data:
Revenue........................................ $153,061
--------
Costs and expenses:
Cost of sales............................... 132,776
Marketing and distribution.................. 611,130
Product development......................... 399,542
General and administrative.................. 915,929
Financing costs............................. 218,841
------------
Total costs and expenses....................... 2,278,218
------------
Net loss ...................................... $ (2,125,157)
============
Net loss per common share ..................... $(1.13)
=======
Weighted average number of common
shares outstanding.......................... 1,878,378
=========
<TABLE>
<CAPTION>
As of June 30, 1996
-------------------
Balance Sheet Data: Actual Pro forma(1)
------ ------------
<S> <C> <C>
Working capital (deficiency)............................................ $ (264,167) $ (395,506)
Total assets............................................................ 2,567,907 4,567,907
Notes payable, Private Placement, net of unamortized
discount of $250,000................................................. 0 1,750,000
Long term debt, note payable to Parent Company,
net of current portion............................................... 800,000 800,000
Total liabilities ...................................................... 2,332,526 4,082,526
Stockholders' equity.................................................... $ 235,381 $ 485,381
</TABLE>
- ---------------------
1 Gives effect to the consummation of the Private Placement Financing. As
part of such financing, $410,000 and $250,000 have been reflected as
deferred financing costs and original issue discount, respectively. See
"Recent Private Placement Financing."
-17-
<PAGE>
PLAN OF OPERATIONS
Overview
On January 11, 1996, the Company was created to acquire the KenVet
Nutritional Care line of dog and cat foods from a subsidiary of ConAgra. The
Company also began the creation of a management team for its pet food product
line and the development of a strategic plan for the introduction of the InnoPet
Foods into the supermarket and grocery stores distribution network. During the
period from January through May 1996, the Company identified manufacturers,
co-packers, and suppliers and began test runs of product. Brokers were also
identified which support the Greater Metropolitan New York area, the initial
market of the Company's products, and the Company's overall marketing plan was
developed. By May 31, 1996, the core of the Company's management team was in
place. The management team includes a Chief Executive Officer, Vice Presidents
of Manufacturing, Sales, Operations and Research and Development and a Chief
Financial Officer. The Company's marketing program has been developed and
implemented by the Company's Chief Executive Officer. It is anticipated that a
Vice President of Marketing will be hired during the next twelve months.
During March 1996 the Company began marketing its line of pet foods
into the Greater Metropolitan New York area. From March 1996 through May
1996 retailer specific marketing plans and regional marketing plans were
developed. Sales presentations were made to leading supermarket chains and
wholesalers. In June 1996, the Company commenced sales of its dog food to
supermarkets located in the Greater Metropolitan New York area. As of August
31, 1996, the Company has sold product into the following markets: the
Greater Metropolitan New York area, the Philadelphia, Pennsylvania area and
other areas in Pennsylvania, the Baltimore, Maryland/Washington, D.C. area,
and the Tampa Bay, Florida and South Florida areas. Supermarket chains which
have received product include: Great Atlantic & Pacific Tea Company
(representing A&P, Waldbaum, Super Fresh, Food Emporium and Food Mart); Acme
Markets, Inc.; Albertsons', Inc. (Florida Division); C&S Wholesale Grocers
(representing Grand Union Company and other supermarket chains); Fleming
Companies, Inc. (representing Hyde Park Markets and other supermarket
chains); Kash N' Karry Food Stores, Inc.; Key Food Stores Co-operative,
Inc.; Pathmark Stores, Inc.; Super Rite Foods and Weiss Markets, Inc. As of
August 31, 1996, the Company has recorded approximately $845,000 in sales
(June $153,000, July $146,000 and August $546,000). In support of the
purchase orders received and to establish inventories, the Company has
produced in the aggregate approximately 3,655,000 pounds of dog food through
August 31, 1996.
Plan of Operations
During the next twelve months, the Company anticipates that it will
continue to sell products in the areas it is currently supplying and that it
will begin sales throughout the majority of the eastern United States. An
extension of the Company's line of dog foods is also anticipated for early 1997
and the Company plans to introduce its line of cat foods during 1997. The
Company expects to continue to incur losses at least through 1996 and operating
losses may increase, at least in the short term, as the Company increases its
expenditures to effect its business plan. The Company's ability to achieve a
profitable level of operations will depend in large part on the market
acceptance of its products. There can be no assurance that the Company will
achieve profitable operations. The Company believes the net proceeds of this
Offering, together with cash on hand and cash expected to be generated from
operations, will be adequate to satisfy its capital requirements for a period of
at least 12 months from the date of this Prospectus. If the Company, however,
expands sales of its products beyond currently planned levels then it may be
necessary to seek additional financing. There can be no assurance that the
Company will be able to secure additional debt or equity financing or that such
financing will be available on favorable terms.
Distribution of the Company's products through the supermarket and
grocery store distribution network necessitates that the Company incurs slotting
fees. Slotting fees are fees charged manufacturers by retailers in order to
facilitate the introduction of new products. The fees represent charges for
warehouse space (slots) to be used to store a manufacturer's products, charges
for retail shelf space and related "shelf sets" to make room for the products
and reimbursement of retailer expenses (entering new items into their computer
systems and in some cases marketing support provided by the retailer). The
practice by retailers of charging slotting fees is a standard industry practice.
Depending on the type of
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<PAGE>
product, slotting fees are either a fixed one-time fee or a recurring charge per
unit of product sold. Slotting fees for pet foods are generally fixed one time
fees. The benefits to be determined from slotting fees extend for a period of
time estimated to range from six months to indefinitely. The period of benefit
begins when the retailer receives its first delivery of product. Accordingly,
the Company capitalizes these costs and amortizes them over a period of six
months, beginning when the retailer accepts delivery of the first shipment of
product. As of June 30, 1996, deferred slotting fees (net of amortization) were
approximately $478,000. The Company expects expenses for slotting fees to
increase in the short-term.
Results of Operations
Net Loss. The Company reported a net loss of $(2,125,157) or $(1.13) per
common share for its initial period of operations from inception (January 11,
1996) to June 30, 1996. The loss is primarily the result of limited sales
generated for that period as compared to costs and expenses incurred pertaining
primarily to the organizational and developmental activities of the Company to
date.
Revenues. Revenues for the period were $153,061 reflecting initial sales
into the Greater Metropolitan New York area. Cost of sales totaled $132,776
resulting in gross profit of $20,285 or 13% of revenues.
Costs and Expenses. Costs and expenses for the period totaled
$2,145,442. These costs and expenses are detailed below.
Marketing and Distribution Expenses. Marketing and distribution expenses
were $611,130 which were primarily composed of marketing costs of approximately
$332,000 (including market research, design of product packaging, in-house
preparation of advertising and marketing pieces); sales department expenses of
approximately $235,000 (including regional sales force and related travel
expenses); and the amortization of slotting fees of approximately $44,000. The
composition of marketing and distribution expenses include expenses that are
both fixed and variable in nature. The Company plans to increase marketing
expenditures to support the introduction of its products. Additionally, the
in-house sales force will be increased to manage adequately the anticipated
growth in sales.
Product Development Expenses. Product development expenses, including
personnel and related costs, were $399,542. This primarily reflects testing of
formulations (e.g. palatability and bioavailability), expenses associated with
locating manufacturers and suppliers and of certifying their facilities and
processes. Product development expenses will continue to be expended to manage
manufacturers and co-packers and to facilitate extension of the Company's
product lines and new product introductions, but at a lower level. It is not
anticipated that the level of expenditure in these areas will increase
substantially with the anticipated product introductions and line extension
included in the business plan. See "Use of Proceeds."
General and Administrative Expenses. General and administrative expenses
were $915,929 which were primarily composed of costs associated with the
development and implementation of the overall business strategy, marketing and
financial plans. Costs included personnel expenses of approximately $525,000,
legal fees of approximately $71,000, accounting and other professional expenses
of approximately $49,000, rent of approximately $47,000 and other expenses. For
1997, the Company will have an annual management salary commitment of $670,000,
without discretionary bonuses, pursuant to employment agreements. It is
anticipated that a Vice President of Marketing will be hired during the next
twelve months and that minor increases in staffing will also be needed.
Financing Costs. Financing costs were $218,841 which represent the
allocable portion of the financing costs incurred by the Parent Company to raise
certain debt financing. The proceeds of such debt financing were used for the
development activities of the Company.
Liquidity and Capital Resources
Capital for the development of the Company has been provided by the
Parent Company. Through the period ended June 30, 1996, the Parent Company made
capital contributions of $2,360,538 to the Company in the form of costs and
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<PAGE>
expenses ($1,301,026), funds used to purchase the KenVet formulations
($699,794), offering costs ($161,289) and financing costs ($198,429).
Additionally, on June 5, 1996 the Parent Company provided the Company $1,000,000
in financing in exchange for a five-year note, from the Company. Through June
30, 1996, the Parent Company also provided $846,824 in working capital for
inventories, costs and expenses, which were recorded as accounts payable
to the Parent Company. See "Certain Transactions." These funds have been or will
be used to fund introductory marketing allowances, the acquisition of inventory
and operating expenses.
Stockholders' equity totaled $235,381 on June 30, 1996 and the working
capital (deficit) was ($264,167).
During June 1996, the Company entered into a five-year facilities
agreement with the Parent Company which provides for a pass-through of rent
costs and reimbursement to the Parent Company for funds expended for equipment,
furniture and fixtures. Under the terms of the agreement, the Company is
obligated for $278,143 in payments over the next twelve months and $1,785,722
over the term of the agreement. The Company is obligated to pay approximately
$670,000 in annual salaries to management. The Company has no material
commitments for capital expenditures over the next twelve months.
In August 1996 the Company consummated the Private Placement Financing,
pursuant to which it issued an aggregate of (i) $2,000,000 principal amount of
Notes, and (ii) 1,000,000 Private Placement Warrants. The net proceeds of the
Private Placement Financing, $1,590,000, were used by the Company to purchase
inventory, to expand distribution, to initiate marketing programs and to meet
working capital and general corporate requirements. See "Recent Private
Placement Financing."
The Company anticipates using the net proceeds from this Offering as
follows: repayment of the Notes, purchase of inventory (includes raw materials,
manufacturing and packaging), expansion of distribution (includes marketing
allowances supporting supermarket distribution and slotting allowances),
increase in marketing (includes advertising, in-store coupons, floor walker
displays, direct sampling programs and in-store demonstrations), product
development (including palatability and bio-availability tests of formulation to
be introduced during the next year, as well as pilot manufacturing runs) and
working capital. Based on its current operating plan, the Company believes the
net proceed of this Offering, together with cash on hand and cash expected to be
generated from operations, will be adequate to satisfy its capital requirements
for a period of at least twelve months from the date of this Prospectus. There
can be no assurance, however, that such resources will be adequate to satisfy
such capital requirements. If the Company expands sales of its products beyond
currently planned levels then it may be necessary to seek additional financing.
The Company has discussed working capital financing with banks. It is the
intention of the Company to enter into a relationship with a bank to assure
availability of credit facilities in the event that increased working capital is
required. Although there can be no assurance that any credit facility will be
available to the Company, or if available, it will be available on acceptable
terms.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation." SFAS No. 123 encourages the
accounting for stock-based employee compensation programs to be reported within
the financial statements on a fair value-based method. If the fair value-based
method is not adopted, then SFAS No. 123 requires pro forma disclosure of net
income and earnings per share as if the fair value-based method had been
adopted. The Company has not yet determined how SFAS No. 123 will be implemented
or its impact on the financial statements. The Company, however, does not expect
such impact to be material. SFAS No. 123 is effective for transactions entered
into after December 15, 1995.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which must also be adopted by the Company in 1996. The impact of the adoption of
this standard on the Company's financial position and results of operations is
not expected to be material.
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<PAGE>
BUSINESS
The Company
The Company produces, markets and sells premium dog food through
supermarkets and grocery stores under the name InnoPet Veterinarian FormulaTM
Dog Food. The Company began marketing InnoPet Foods in March 1996. In June 1996,
it commenced sales of its dog food to supermarkets located in the Greater
Metropolitan New York area. As of August 31, 1996, the Company had sold product
into the following markets: Greater Metropolitan New York area; the
Philadelphia, Pennsylvania area and other areas in Pennsylvania; the Baltimore,
Maryland/Washington, D.C. area, and the Tampa Bay, Florida and South Florida
areas. Supermarket chains which have received product include: Great Atlantic &
Pacific Tea Company (representing A&P, Waldbaum, Super Fresh, Food Emporium and
Food Mart); Acme Markets, Inc.; Albertsons', Inc. (Florida Division); C&S
Wholesale Grocers (representing Grand Union Company and other supermarket
chains); Fleming Companies, Inc. (representing Hyde Park Markets and other
supermarket chains); Kash N' Karry Food Stores, Inc.; Key Food Stores
Co-operative, Inc.; Pathmark Stores, Inc.; Super Rite Foods and Weiss Markets,
Inc. As of August 31, 1996, the Company has recorded approximately $845,000 in
sales. In support of purchase orders received and to establish inventories, the
Company has produced in the aggregate approximately 3,655,000 pounds of dog food
through August 31, 1996.
The Company's objective is to become a national provider of premium pet
foods through supermarket and grocery store retail outlets. The Company intends
to achieve its objective by (i) providing exclusively to supermarkets a brand of
competitively-priced premium pet food to enable them to recapture a share of the
premium pet food market that they have lost to specialty pet stores; (ii)
expanding distribution to supermarket and grocery stores in the majority of the
eastern United States during approximately the next 12 months; (iii) increasing
consumer awareness and market penetration throughout the Company's market areas;
(iv) expanding its product lines over the next 12 months to include dry dog food
product line extensions, such as lamb and rice formulations, dry cat food for
the kitten and adult life stages; and (v) packaging its products in unique
single serving-sized inner-bags which are designed to increase convenience of
feeding, regulate portions, and to reduce product deterioration and to prevent
contamination.
Industry Background
In 1995, approximately 53 million United States households, or over
one-half of all United States households, owned at least one pet and over half
of these pet-owning households owned more than one pet. Retail sales of pet food
in the United States in 1995 were approximately $9.3 billion (an increase of 6%
over 1994), of which approximately 20% was premium pet food. From 1991 through
1995, sales of premium pet food have increased at a compound annual growth rate
of approximately 18% in recent years, compared to a compound annual growth rate
of less than 3% for total pet food sales. The Company believes sales of premium
pet food have increased in recent years primarily due to heightened concern for
animal welfare and nutrition. Premium pet food is generally characterized by
quality ingredients, such as pure meat, higher nutritional value, increased
digestibility, increased nutrient absorption and higher pricing. The Company
believes that its product qualifies as premium because of, among other things,
its use of pure beef as the primary source of protein, corn gluten instead of
corn meal, and rice instead of other grains.
Historically, the pet food industry was dominated by relatively low
priced, grain-based or animal byproduct-based nationally branded products sold
through supermarkets. In the early 1980's, supermarkets sold in excess of 90% of
all pet foods. From 1988 to 1995, however, the percentage of pet food sales made
through supermarkets and grocery stores decreased from approximately 85% to 62%,
mainly due to increased sales of premium pet foods through specialty pet stores.
These premium pet foods are currently not available to supermarkets and grocery
stores. Between 1989 and 1995, sales of pet foods through outlets other than the
supermarket/grocery store segment have risen approximately 71%.
The Company believes supermarkets and grocery stores have been unable to
reverse their loss of pet food market share because of their inability to obtain
a full line of premium pet foods. Market research commissioned by the Company
indicates that approximately one-half of households in the United States with
one or more dogs would be willing to try a complete life-stage line of premium
dog food if it was available in supermarkets.
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<PAGE>
Products
In January 1996, the Company acquired from a subsidiary of ConAgra the
formulas for 51 stock keeping units ("SKUs") of premium dog and cat foods
grouped in 14 basic formulations, including both dry and canned foods. The
formulas were developed by ConAgra under the name KenVet Nutritional Care to be
prescribed and sold only through veterinarians. Some of these formulations have
been used to create the Company's initial products. The Company's current
products are based on 100% beef protein. The Company believes its use of pure
beef protein, corn gluten instead of corn meal, and rice instead of other grains
makes its product premium as compared to other pet food currently sold in
supermarkets and grocery stores. Independent laboratory tests commissioned by
the Company indicated that its dog food products meet or exceed other national
premium food products in digestibility and are comparable in palatability. These
tests determine the percentage of protein, fat and energy used by the dog as
compared to the contents of the food prior to ingestion. The high degree of
nutrient absorption of the Company's products, known as "bioavailability,"
promotes less body fat by decreasing the dog's ingestion of nonuseable calories
and increases the per dollar value of the food by reducing the volume of food
required to deliver the appropriate nutrient level.
Existing Products. The Company currently offers nine SKUs of dry dog
food for puppies, adults and seniors to meet the nutritional requirements of
pets at each stage of their lives, in three outer and three inner bag sizes. The
3.75-, 8.125- and 15-pound outer bag sizes provide approximately one week's food
supply for small, medium and large dogs, respectively. The outer bag sizes were
designed to promote weekly purchases during the consumer's normal food buying
trip to the supermarket or grocery store.
Future Products. During the next 12 months, the Company anticipates
introducing additional products, including four life stage SKUs for cats and
special needs SKUs for dogs and cats. The Company's planned special needs
products will be formulated to meet specific dietary needs, such as obesity and
allergies, and in response to the dictates of the consumer, such as lamb and
rice formulations.
Packaging. Unlike conventional bulk packaging in large bags, the Company
uses inner-seal packs inside larger bags. This packaging system is comparable in
cost to traditional dry food bulk packaging since the Company's outer-bag does
not require an oxidation or fat transfer barrier. Products for different sized
animals are packaged in different sized inner-seal bags. The inner-seal bags
contain a single suggested serving for the animal's size. The inner-seal bags
help prevent oxidation of protein, fat, vitamins and minerals in the pet food, a
process that begins immediately upon exposure to air and lowers the nutritional
value of bulk-packed dry foods. Additionally, contamination of product due to
insects, vermin and other sources can be substantially reduced because the
packaging for a single portion need not be opened until the pet's feeding time.
The inner-seal packaging helps maintain the appeal of the product to the pet,
thus helping to reduce waste and cost to the owner. The Company's inner-seal
packaging also promotes portion control feeding recommended by veterinarians to
prevent obesity, a leading ailment among dogs and cats. The inner-seal bags are
easily transported which allow owners traveling with pets or leaving pets in
kennels to more easily feed their pets. Each inner-seal bag is also labeled for
resale, which the Company believes increases the potential number of retail
outlets for the Company's products by allowing single serving sales in
supermarkets and smaller stores.
Marketing and Sales
The Company's marketing strategy is designed to respond to both the
supermarket's need to stem the loss of pet food customers to specialty pet
stores and the consumers's desire for the convenience of purchasing a premium
pet food in the supermarket. The Company currently intends to sell its initial
products exclusively through supermarkets and grocery stores. The Company
believes its products are nutritionally superior to currently available branded
products sold through supermarkets and specialty pet stores` premium products.
Market research commissioned by the Company indicates that approximately
one-half of United States homeowners with a dog would be willing to try a
product defined as the Company's dog food formulations if it was available in
supermarkets. Fewer than 3% of the respondents who would not try such a product
expressed doubts that supermarkets would offer a premium dog food. A similar
small percentage responded that price would be a barrier to trying such a
product.
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<PAGE>
The Company intends to generate brand awareness of its products through
integrated marketing communications programs. The Company plans to use in-store
promotions, such as floor minders, in-store sampling, instantly redeemable
coupons and point of purchase displays. The Company also intends to use free
standing inserts in newspapers and to mail product samples, literature and
coupons to demographically targeted consumers. The Company plans to participate
in pet-related events, such as dog walks and pet welfare fundraisers, as well as
general events such as tennis tournaments and veterinarian conferences.
The Company's suggested retail prices for its products are approximately
15% below comparable specialty pet store prices and are approximately equal to
or slightly higher than the highest priced branded product sold through the
supermarkets.
In March 1996, the Company began its marketing efforts in the Greater
Metropolitan New York area which resulted in authorization from a majority of
the supermarket and grocery store chains in this territory. In June 1996,
shipments of the Company's dog food began. As of August 31, 1996, the Company
had delivered its products to Great Atlantic & Pacific Tea Company (representing
A&P, Waldbaum, Super Fresh, Food Emporium and Food Mart); Acme Markets, Inc.;
Albertsons', Inc. (Florida Division); C&S Wholesale Grocers (representing Grand
Union Company and other supermarket chains); Fleming Companies, Inc.
(representing Hyde Park Markets and other supermarket chains); Kash N' Karry
Food Stores, Inc.; Key Food Stores Co-operative, Inc.; Pathmark Stores, Inc.;
Super Rite Foods and Weiss Markets, Inc.
In order to make sales to supermarkets and wholesalers, who function as
distribution organizations for supermarkets and other grocery stores, the
Company, using brokers and field sales managers, must first obtain authorization
for its pet foods. Generally, authorizations are made by the supermarket's
corporate buying office or buying committee. An authorization from a supermarket
or similar organization is the acceptance of the Company's pet foods for sale in
the supermarket's stores. Obtaining an authorization involves the presentation
of the Company's products, and the negotiation of product set-up or slotting
fees, minimum order quantities, initial scope and duration of product shelf
space allocation, and marketing program participation. The Company works closely
with its independent food brokers in obtaining authorizations.
Once an authorization has been obtained, the Company's brokers, overseen
by its field sales managers, coordinate initial orders with the supermarket's
pet products category buyer. The Company engages its food brokers on an
exclusive basis with respect to premium pet food. In addition to its broker for
the Greater Metropolitan New York area, the Company has appointed five brokers
covering most of the East Coast of the United States, in support of the
Company's expansion plan for 1996-1997. The brokers provide representation of
the Company's products to approximately 70 supermarket chains and 10,191 retail
supermarket outlets. The Company's brokers, all of whom are paid on a commission
basis only, employ an aggregate sales force in excess of 2,500 people. The
Company oversees its broker network with field sales managers under the
direction of the Company's Vice President of Sales. The brokers, their service
areas and the number of chain and retail supermarkets they serve are as follows:
<TABLE>
<CAPTION>
No. of No. of Retail
Supermarket Supermarket
Broker Market Areas Chains Outlets
- ------ ------------ ------ -------
<S> <C> <C> <C>
M&H Sales & Marketing N.Y. Metropolitan area, New Jersey, Portions 9 1,656
Tarrytown, NY of Pennsylvania and Connecticut
RMC and Associates Central Pennsylvania, Scranton/Harrisburg areas 6 691
Harrisburg, PA
RMC and Associates Philadelphia, Pennsylvania area 4 500
Wayne, PA
RMI and Associates Maryland, Delaware and Washington, D.C. 5 437
Columbia, MD
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
No. of No. of Retail
Supermarket Supermarket
Broker Market Areas Chains Outlets
- ------ ------------ ------ -------
<S> <C> <C> <C>
Acosta Sales Co., Inc. Florida, Georgia, Alabama, North Carolina, 36 5,966
Charlotte, NC South Carolina and Tennessee
Johnson O'Hare Co., Inc. New England and Albany, New York areas 10 941
Billarica, MA
TOTAL 70 10,191
== ======
</TABLE>
The Company's ability to obtain authorizations to sell its products in
supermarkets and grocery stores depends upon the efforts and skills of brokers
retained by the Company. Although the Company believes it will be able to locate
and retain qualified brokers throughout the United States on acceptable terms,
there can be no assurance that the Company will be able to do so. The failure to
obtain authorizations or to locate and retain qualified brokers could have a
material adverse effect on the Company.
Manufacturing and Distribution
The manufacture of the Company's dog food begins with the purchase of
the raw materials which are then processed into kibble. The kibble is then
transported in bulk to companies which package the kibble for retail sale. The
packaged food is then distributed to the supermarkets.
The Company outsources the manufacturing, packaging and transporting of
its products. The Company does not maintain supply agreements with any other
third party suppliers, but instead purchases products pursuant to purchase
orders in the ordinary course of business. The Company will be substantially
dependent on the ability of its manufacturers and suppliers to, among other
things, meet the Company's performance and quality specifications. Failure by
the Company's manufacturers and suppliers to comply with these and other
requirements could have a material adverse effect on the Company. Furthermore,
there can be no assurance that the Company's manufacturers and suppliers will
dedicate sufficient production capacity to meet the Company's scheduled delivery
requirements or that the Company's suppliers or manufacturers will have
sufficient production capacity to satisfy the Company's requirements during any
period of sustained demand. Their failure to supply, or delay in supplying, the
Company with products could have a material adverse effect on the Company. The
Company believes that its suppliers' manufacturing capacity will be adequate for
the Company's needs for the foreseeable future. The inability of the Company's
current suppliers to fulfill the Company's production requirements, or the
Company's failure to obtain alternative production supply relationships, would
have a material adverse effect on the Company. The Company is currently in
negotiation with other manufacturers to produce its dog and cat food products.
The Company's sub-contracted manufacturers are responsible for the
emulsification of the meat and the purchase and preparation of the other raw
materials that make up the Company's pet food. The principal raw material
required for the Company's products is beef. The Company obtains beef for its
products pursuant to an agreement with Monfort, a subsidiary of ConAgra, that
terminates in 1999, which provides for the delivery of up to 15 million pounds
of beef per year at a fixed price. Any failure by Monfort to fulfill its
obligations under the agreement, or the failure by the Company to secure an
alternative source of beef at comparable prices upon the termination of the
Monfort agreement, whether at its expiration date or earlier, could have a
material adverse effect on the Company.
The Company owns no warehouses, trucks or other distribution facilities
or equipment. The Company distributes its products directly to supermarket
distribution centers and distribution centers operated by grocery store
wholesalers. The Company may lease space in public warehouses from time to time.
All transport and distribution of the Company's products will be done through
common carriers or fleets operated by the Company's customers.
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<PAGE>
Competition
The pet food business is highly competitive. Virtually all of the
manufacturers, distributors and marketers of pet food have substantially greater
financial, research and development, marketing and manufacturing resources than
the Company does. Competitors in the premium pet food market include, among
others, Colgate-Palmolive Co. (Hills' Science Diet), Iams Co. and Ralston Purina
Co. Brand loyalty to existing products may prevent the Company from achieving
its sales objectives. Additionally, the long-standing relationships maintained
by existing premium pet food manufacturers with veterinarians and pet breeders
may prevent the Company from obtaining professional recommendations for its
products. In addition, the Company competes with current supermarket high-priced
dog foods which are not considered premium when compared to InnoPet Foods and to
the premium dog foods offered in the specialty pet stores.
Although the dominant existing premium pet foods are not currently
available in supermarkets and grocery stores, and the Company believes will not
be available in the foreseeable future, there can be no assurance that this will
continue. The entrance into the supermarket and grocery store distribution
channel of an existing or new premium pet food by any of the Company's
competitors could have a material adverse effect on the Company.
As compared to its competition, the Company believes that its products
offer the following advantages: (i) a premium pet food available exclusively in
supermarkets, (ii) a superior packaging system, (iii) a supermarket and grocery
store distribution network, and (iv) competitive pricing. There can be no
assurance, however, that these perceived advantages will enable the Company to
compete successfully.
Intellectual Property
The Company has filed applications for trademarks covering InnoPet,
InnoPet Brands and InnoPet Veterinarian Formula.
Government Regulation
The Company's products must be produced in USDA approved facilities. It
is the responsibility of the Company's manufacturers to obtain and maintain such
approvals. In addition, the Company's products are subject to federal and state
labelling regulations and must be registered in each state that the products are
sold to consumers. If the Company fails to register its labels or satisfy
relevant labelling regulations, it may be subject to fines or prohibited from
selling its products until such regulations are satisfied.
Insurance
The Company has obtained product liability insurance and excess
liability insurance which provide aggregate coverage of $1,000,000 and
$2,000,000, respectively.
Employees
As of August 31, 1996, the Company employed 24 people, one of whom is
employed on a part time basis. This includes 7 persons engaged in
sales/marketing/public relations, 1 in manufacturing, 1 in research and
development, and 15 in administration/accounting and support. Management
believes its labor relations are satisfactory.
Litigation
The Company is currently not a party to any legal proceedings.
Properties
The Company currently leases from the Parent Company under a facilities
agreement its corporate office located at 1 East Broward Boulevard, Suite 1100,
Fort Lauderdale, Florida 33301, where the Company occupies approximately
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<PAGE>
10,500 square feet of office space. The monthly rent is $18,500. The facilities
agreement with respect to the offices expires April 30, 2001. See
"Certain Transactions."
MANAGEMENT
Directors and Executive Officers
The following sets forth the names of the Company's directors and
executive officers.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Marc Duke 49 Chairman of the Board and Chief Executive Officer
Dr. Dana Vaughn 42 Vice President, Research and Development
Robin Hunter 40 Vice President, Chief Financial Officer and Secretary
Edwin H. Christensen 54 Vice President of Manufacturing and Director
Albert A. Masters 65 Vice President of Sales and Director
Linda Duke 49 Vice President of Operations
Richard P. Greene 39 Director
Curtis Granet 46 Director
</TABLE>
Marc Duke has been the Chairman of the Board of Directors and the Chief
Executive Officer of the Company since January 1996. Mr. Duke is currently the
Chairman of the Board of Directors and Chief Executive Officer of the Parent
Company and Chief Executive Officer and Director of AniVet, Inc. and OPD, both
subsidiaries of the Parent Company and has held such positions since September
1995 to the present. From 1992-1995, he was President of OPD. From 1990-1992, he
was President of Madison South International, Inc. ("Madison"), a national and
international marketing consulting company.
Dana Vaughn has been Vice President of Research and Development since
June 1996. Dr. Vaughn has been a Director of the Parent Company since 1994. From
December 1995 until May 1996, he was the Vice President and Managing Director,
Animal Sciences Division of the Parent Company. From 1985-1995, Dr. Vaughn was
the Director of the Laboratory of Nutritional & Medicinal Biochemistry at the
College of Veterinary Medicine of Auburn University. His work included
development of medicine and food products for pets, under both government and
private grants from leading pet food and pharmaceutical manufacturers. Dr.
Vaughn is the author and co-author of numerous articles in the fields of pet
nutrition and pet pharmacology.
Robin Hunter has been the Vice President and Chief Financial Officer and
Secretary of the Company since January 1996. From October 1995 until May 1996,
Mr. Hunter was the Vice President and Chief Financial Officer of the Parent
Company. From 1988-1995, Mr. Hunter was employed by Petri Baking Products, Inc.
where he was first the controller from 1988 to 1991, and was then promoted to
Director of Finance from 1991-1995.
Edwin H. Christensen has been the Vice President of Manufacturing of the
Company since June 1996 and a Director since June 1996. From January 1996 until
May 1996, he was Vice President of Manufacturing of the Parent Company. He was
founder and principal of Christensen Consulting, a consulting firm specializing
in food and non-food uses of grain, since November 1993. From 1990 to November
1993, Mr. Christensen was vice president and general manager of Nutrition
Products - A Brown Forman Company, a manufacturer and marketer of fiber and
yeast. Previously, he held management positions with the pet food subsidiaries
of Quaker Oats, during which time he invented the Kibbles 'N' Bits(TM) product.
-26-
<PAGE>
Albert A. Masters has been the Vice President of Sales of the Company
since June 1996 and a Director since June 1996. From September 1995 until May
1996, Mr. Masters was the Vice President of Sales of the Parent Company. From
1991 until 1995, he was a vice president of sales for Professional Laboratory
Systems, where he was responsible for the sales and marketing of diagnostic and
testing equipment sold across the United States. From 1989-1991, he was the
executive vice president of sales and marketing for Old Tyme Soft Drinks, Inc.,
and was responsible for the distribution and marketing of gourmet soft drink
products.
Linda Duke has been the Vice President of Operations since June 1996.
From September 1995 to May 1996 she was the Director of Operations for the
Parent Company. From 1993 to 1995 she was the Director of Operations of OPD.
From 1990 to 1992 she was vice president of operations of Madison. Linda Duke is
married to Marc Duke.
Richard P. Greene has been a Director of the Company since June 1996. He
has been the Secretary of the Parent Company since August 1995. From 1988 to the
present date, Mr. Greene has maintained his law practice, which is engaged in
the practice of corporate law in the State of Florida.
Curtis Granet has been a Director of the Company since June 1996 and has
been a partner in the certified public accounting firm of Levine & Granet,
C.P.A. since 1981 in the State of New York.
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and have qualified.
Director Compensation
Non-employee directors receive a fee of $250 for each meeting of the
Board attended and a fee of $125 for each meeting of any committee of the Board
attended and reimbursement of their actual expenses. In addition, pursuant to
the Plan, each non-employee director will be granted options to purchase 2,500
shares of Common Stock per annum at an exercise price equal to the fair market
value of the underlying common stock on the date of grant which shall be the
last trading date in November of each year. These option grants will not begin
until November 1996.
Executive Compensation
Summary Compensation Table. Since the Company has not been in existence
for a full year the following summarizes the aggregate cash compensation to be
paid during 1996 to the Company's Chief Executive Officer and any officer who is
expected to earn more than $100,000 in salary and bonus pursuant to their
contracts. Currently, no options have been granted to management.
<TABLE>
<CAPTION>
Name and Principal Position 1996 Salary 1996 Bonus Options
- --------------------------- ------------------- ------------------- -------------
<S> <C> <C> <C>
Marc Duke, Chief Executive Officer $200,000 * 0
Dana Vaughn, Vice President of Research
and Development $125,000 * 0
Albert Masters, Vice President of Sales $104,000 * 0
</TABLE>
- -----------------
* See description below.
Employment Agreements
Mr. Duke and the Company entered into an employment agreement dated as
of June 1, 1996 and expires May 31, 2000. The agreement provides that he will
act as Chief Executive Officer of the Company, devote substantially his full
working time and attention to the Company and provides for an annual salary of
$200,000, plus a discretionary bonus up to 25% of the annual salary to be
determined by the Board of Directors. In addition, Mr. Duke is entitled to
receive a
-27-
<PAGE>
performance bonus as will be determined each year by the compensation committee
of the Board of Directors based upon the net earnings of the Company. His annual
salary increases to $250,000 beginning January 1998. If this agreement is
terminated by the Company without cause he is entitled to receive three times
his average annual salary over the prior five years, or for whatever lesser
period he has been employed. Such payment shall be paid half on the date of
termination and the balance six months thereafter. In the event there is a
change in control of the Company, and Mr. Duke is terminated, he is entitled to
receive a payment equal to three times his average annual salary and bonus over
the course of the last five years, or for whatever lesser period he has been
employed. Such payment shall be paid half on the date of the change-in-control
and the other half six months thereafter. The agreement also provides for a one
year non-compete following the termination of Mr. Duke's employment.
The Company has also entered into employment agreements with Messrs.
Christensen, Hunter, Masters and Vaughn which all expire May 31, 1999 and
provide for merit bonuses at the discretion of the Board of Directors. These
agreements provide that if the executive is terminated without cause he is
entitled to receive a severance payment equal to six months of his annual salary
payable over the six months following his termination. The contracts state that
Messrs. Christensen, Hunter, Masters, Vaughn and Ms. Duke shall receive base
salaries of $90,000, $85,000, $104,000, $125,000 and $65,000, respectively.
These agreements also contain six month non-compete clauses if any of these
executives should leave the employ of the Company.
Limitation of Liability and Indemnification Matters
The Company's certificate of incorporation and by-laws provide that the
Company shall indemnify all directors and officers of the Company to the fullest
extent permitted by the Delaware General Corporation Law. Under such provisions,
any director or officer, who in his capacity as such is made or threatened to be
made, party to any suit or proceeding, shall be indemnified if it is determined
that such director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and persons controlling the Company pursuant to
the foregoing provision, or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Stock Option Plan
A total of 400,000 shares of Common Stock are reserved for issuance
under the Stock Option Plan. The plan provides for the award of options, which
may either be incentive stock options ("ISOs") within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended (the "Code") or
non-qualified options ("NQOs") which are not subject to special tax treatment
under the Code. The Stock Option Plan is administered by the Board or a
committee appointed by the Board (the "Administrator"). Officers, directors, and
employees of, and consultants to, the Company or any parent or subsidiary
corporation selected by the Administrator are eligible to receive options under
the plan. Subject to certain restrictions, the Administrator is authorized to
designate the number of shares to be covered by each award, the terms of the
award, the dates on which and the rates at which options or other awards may be
exercised, the method of payment and other terms.
The exercise price for ISOs cannot be less than the fair market value of
the stock subject to the option on the grant date (110% of such fair market
value in the case of ISOs granted to a stockholder who owns more than 10% of the
Company's Common Stock). The exercise price of a NQO shall be fixed by the
Administrator at whatever price the Administrator may determine in good faith.
Unless the Administrator determines otherwise, options generally have a 10- year
term (or five years in the case of ISOs granted to a participant owning more
than 10% of the total voting power of the Company's capital stock). Unless the
Administrator provides otherwise, options terminate upon the termination of a
participant's employment, except that the participant may exercise an option to
the extent it was exercisable on the date of termination for a period of time
after termination.
Generally, awards must be exercised by cash payment to the Company of
the exercise price. However, the Administrator may allow a participant to pay
all or a portion of the exercise price by means of a promissory note, stock or
other lawful consideration. The Stock Option Plan also allows the Administrator
to provide for withholding and employment taxes payable by a participant to the
Company upon exercise of the award. Additionally, the Company may
-28-
<PAGE>
make cash grants or loans to participants relating to the participant's
withholding and employment tax obligations and the income tax liability incurred
by a participant upon exercise of an award.
In the event of any change in the outstanding shares of Common Stock by
reason of any reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants or rights or
debentures, stock dividend, stock split or reverse stock split, cash dividend,
property dividend or similar change in the corporate structure, the aggregate
number of shares of Common Stock underlying any outstanding options may be
equitably adjusted by the Administrator in its sole discretion.
The Administrator may, at any time, modify, amend or terminate the plan
as is necessary to maintain compliance with applicable statutes, rules or
regulations; provided, however, that the Administrator may condition the
effectiveness of any such amendment on the receipt of stockholder approval as
may be required by applicable statute, rule or regulation. In addition, this
Stock Option Plan may be terminated by the Board of Directors as it shall
determine in its sole discretion, in the absence of stockholder approval;
provided, however, that any such termination will not adversely alter or impair
any option awarded under the Stock Option Plan prior to such termination without
the consent of the holder thereof.
The Company has agreed with the Underwriter that for a 24 month period
following the effective date of the registration statement in connection with a
public offering of the securities of the Company that it will not, without the
consent of the Underwriter, adopt or propose to adopt any plan or arrangement
permitting the grant, issue or sale of any shares of its securities or issue,
sell or offer for sale any of its securities, or grant any option for its
securities of Common Stock which shall: (x) have an exercise price per share no
less than the greater of (a) the initial public offering price of the offered
securities and (b) the fair market value of the Common Stock on the date of
grant, and (y) not be granted to any existing officers, directors, employees or
consultants of the Company or to any direct or indirect beneficial holder on the
date hereof of more than 5% of the issued and outstanding shares of Common
Stock. No option or other right to acquire Common Stock granted, issued or sold
during this period shall permit (a) the payment with any form of consideration
other than cash, (b) payment of less than the full purchase or exercise price
for such shares of Common Stock or other securities of the Company on or before
the date of issuance, or (c) the existence of stock appreciation rights, phantom
options or similar arrangements.
CERTAIN TRANSACTIONS
Capital for the development of the Company has been provided by the
Parent Company. From January 1996 through June 30, 1996, the Parent Company made
capital contributions of $2,221,348 in the form of costs and expenses
($1,161,836), funds used to purchase the KenVet formulations and inventories
($699,794), offering costs ($161,289) and financing costs ($198,429). In return,
the Parent Company received 1,182,432 shares of Common Stock. Additionally, on
June 1, 1996, the Company sold 43,497 shares of Common Stock to the Parent
Company in exchange for $139,190.
The Company also issued a note, dated June 5, 1996, to the Parent
Company in the amount of $1,000,000 which bears interest at one percent above
the prime rate (on August 30, 1996 the prime rate was 8.25%). The note has a
term of five years. Interest is payable quarterly and principal is payable
annually. Through June 30, 1996, the Parent Company also provided $846,824 in
working capital for inventories, costs and expenses, which were recorded as
accounts payable by the Company.
On June 1, 1996, the Company sold a total of 652,449 shares of Common
Stock to Messrs. Duke, Vaughn, Masters and Hunter, Ms. Duke and to 12 other
employees of the Company at that time, in exchange for three-year notes to the
Company bearing interest at 5.75% annually, in the aggregate principal amount of
$2,087,839. The notes are secured by the shares owned by the employees.
The Company has entered into a facilities agreement pursuant to which it
has agreed to lease its offices, furnishings and equipment from the Parent
Company until April 30, 2001. The Company shall pay an annual amount of $278,143
to the Parent Company for the lease of the offices, furnishings and equipment
which represents a direct pass through of the rent expenses and reimbursement
for the costs of equipment, furniture and fixtures.
-29-
<PAGE>
Mr. Duke is the Chief Executive Officer, Chairman of the Board of
Directors and a significant shareholder in the Parent Company as well as an
officer of the two other subsidiaries of the Parent Company. While it is
expected that Mr. Duke will continue to hold these positions in the immediate
future, during the term of his employment agreement, Mr. Duke will devote
substantially all of his time and efforts to the management and development of
the Company. See "Risk Factors -- Dependence on Key Personnel; Conflict of
Interests." Dr. Vaughn is a Director of the Parent Company. During the term of
his employment agreement, Dr. Vaughn will devote all of his time and efforts to
the management and development of the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 31, 1996, (i) by each
person who is known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) by each of the Company's directors, (iii) by each
officer named under "Management -- Executive Compensation -- Summary
Compensation Table" and (iv) by all officers and directors as a group. Except as
indicated in the footnotes to this table, the persons named in the table have
sole voting and investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. No Preferred Stock of the
Company is issued or outstanding. The table assumes that prior to the Offering
1,878,378 shares of Common Stock are outstanding and after the Offering
4,128,378 shares will be outstanding.
<TABLE>
<CAPTION>
Number of Shares Percent Owned Percent to be Owned
Name and Address of Beneficial Owner(1) Beneficially Owned(2) Before Offering After Offering
- ------------------------------------ -------------------------- -------------------------- -------------------
<S> <C> <C> <C>
Marc Duke (3) 1,878,378 100% 45%
Dana Vaughn 86,993 5% 2%
Albert A. Masters 43,497 2% 1%
Robin Hunter 43,497 2% 1%
Linda Duke 34,797 2% *
Richard Greene 0 0 0
Curtis Granet 0 0 0
InnoPet Inc. 1,225,929 65% 30%
One East Broward Boulevard
Fort Lauderdale, Florida 33301
All Officers and Directors 1,878,378 100% 45%
as a Group (8 persons)
</TABLE>
- ---------------------
* Less than one percent (1%).
1 Unless otherwise indicated, all addresses are c/o InnoPet Brands Corp., One
East Broward Boulevard, Suite 1100, Fort Lauderdale, Florida 33301.
2 Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act and unless otherwise indicated, represents shares
for which the beneficial owner has sole voting and investment power. The
percentage of class is calculated in accordance with Rule 13d-3.
3 Includes 234,883 shares owned by management and current and former
employees of the Company, of which Mr. Duke has been granted a proxy to
vote the shares. Also includes 1,225,929 shares owned by the Parent Company
as to which Mr. Duke disclaims beneficial ownership. Mr. Duke is the record
owner of 417,566 shares of Common Stock.
-30-
<PAGE>
SELLING SECURITYHOLDERS
An aggregate of 1,000,000 Redeemable Warrants which will be issued to
the Selling Securityholders in exchange for the Private Placement Warrants,
together with 1,000,000 shares of Common Stock issuable upon their exercise, are
being offered hereby, at the expense of the Company, for the account of such
Selling Securityholders. See "Recent Private Placement Financing," "Concurrent
Offering" and "Shares Eligible for Future Sale." The Private Placement Warrants
were issued as part of a private placement by the Company of Units consisting of
$2,000,000 aggregate principal amount of 10% promissory notes and the Private
Placement Warrants which was completed in August 1996. The aggregate $2,000,000
principal amount of the Notes, including accrued interest thereon, are to be
repaid out of the proceeds of this Offering. See "Use of Proceeds."
Sales of the Selling Securityholders' Warrants and the underlying shares
of Common Stock may depress the price of the Units and the Common Stock or
Redeemable Warrants underlying the Units in any markets for such securities.
The following table sets forth information with respect to persons for
whom the Company is registering the Selling Securityholders' Warrants and the
Selling Securityholders' Shares for resale to the public in the Concurrent
Offering. Ownership of the Redeemable Warrants and Common Stock by the Selling
Securityholders after the Offering will depend on the number of such securities
sold by each Selling Securityholder in the Concurrent Offering and if all
Selling Securityholders' Securities are sold in such offering the Selling
Securityholders will own no Securities.
<TABLE>
<CAPTION>
Redeemable Warrants(1) Common Stock(1)
---------------------- ---------------
Number of
Securities Owned
Prior to and Number of Securities
Registered in the Percent of Owned Prior to and Percent of
Concurrent Class after the Registered in the Class after the
Selling Securityholder Offering Offerings(2) Concurrent Offering Offerings(3)
- ---------------------- -------- ------------ ------------------- ------------
<S> <C> <C> <C> <C>
Carmine Agnello 25,000 * 25,000 *
Stanley Arkin 50,000 1.5% 50,000 *
William Cutolo and Marguerite Cutolo (4) 25,000 * 25,000 *
Joseph V. DiMauro 25,000 * 25,000 *
Joseph V. DiMauro, as Custodian
for Joseph Robert DiMauro 25,000 * 25,000 *
Jerry Finkelstein 50,000 1.5% 50,000 *
Laurence Heller 50,000 1.5% 50,000 *
Jack Kaster 25,000 * 25,000 *
Ralph K. Kato IRA 50,000 1.5% 50,000 *
Steven H. Kessler 25,000 * 25,000 *
Daniel R. Lee 250,000 8% 250,000 5%
Barry J. Lind, Neil G. Blum (5) 50,000 1.5% 50,000 *
Barry J. Lind, Revocable Trust 50,000 1.5% 50,000 *
Peter Maher and Patricia Maher (4) 50,000 1.5% 50,000 *
Alfred S. Palagonia 50,000 1.5% 50,000 *
Frank C. Rathge Trust 25,000 * 25,000 *
M. Jerome Rieger 25,000 * 25,000 *
Nancy A. Roehl 50,000 1.5% 50,000 *
Peter G. Roehl 50,000 1.5% 50,000 *
Francine Urdang 50,000 1.5% 50,000 *
------ ---- ------ --
TOTAL 1,000,000 31% 1,000,000 19%
</TABLE>
- ----------------------
* Less than one percent (1%).
1 Assumes no purchase by any Selling Securityholder of any Units, Common
Stock or Redeemable Warrants in the Offering. The Offering and the
Concurrent Offering are collectively referred to as the "Offerings."
2 Assumes none of Selling Stockholders' Warrants were exercised and is
therefore based upon 3,250,000 Redeemable Warrants outstanding after the
Offering.
3 Assumes the exercise of all Selling Securityholders' Warrants and is
therefore based upon 5,128,378 shares of Common Stock outstanding after the
Offering and such exercise.
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<PAGE>
4 Joint tenants with rights of survivorship.
5 Tenants-in-Common.
There are no material relationships between any of the Selling
Securityholders and the Company or any of its predecessors or affiliates. The
Selling Securityholders' Securities are not being underwritten by the
Underwriter. The Selling Securityholders may sell the Selling Securityholders'
Securities at any time on or after the date hereof, provided prior consent is
given by the Underwriter during 18 months commencing on the date of this
Prospectus. In addition, the Selling Securityholders have agreed with the
Company that, during the period ending on the second anniversary of the date of
this Prospectus, the Selling Securityholders will not sell such securities other
than through the Underwriter, and that the Selling Securityholders shall
compensate the Underwriter in accordance with its customary compensation
practices. Subject to these restrictions, the Company anticipates that sales of
the Selling Securityholders' Securities may be effected from time to time in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, or at negotiated prices. The Selling Securityholders may effect such
transactions by selling the Selling Securityholders' Securities directly to
purchasers or through broker-dealers that may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders for whom such broker-dealers may
act as agents or to whom they sell as principals, or both (which compensation as
to a particular broker-dealer might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers that act in
connection with the sale of the Selling Securityholders' Securities as
principals may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of such securities as principals might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Securityholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of such securities against certain
liabilities, including liabilities arising under the Securities Act. The Company
will not receive any proceeds from the sales of the Selling Securityholders'
Securities by the Selling Securityholders. Sales of the Selling Securityholders'
Securities by the Selling Securityholders, or even the potential of such sales,
would likely have an adverse effect on the market price of the Units, the
Redeemable Warrants and Common Stock.
At the time a particular offer of Selling Securityholders' Securities is
made, except as herein contemplated, by or on behalf of a Selling
Securityholder, to the extent required, a Prospectus will be distributed which
will set forth the number of Selling Securityholders' Securities being offered
and the terms of the offering, including the name or names of any underwriters,
dealers or agents, if any, the purchase price paid by any underwriter for shares
purchased from the Selling Securityholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers.
Under the Exchange Act, and the regulations thereunder, any person
engaged in a distribution of the securities of the Company offered by this
Prospectus may not simultaneously engage in market-making activities with
respect to such securities of the Company during the applicable "cooling-off"
period (two or nine days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Securityholders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7, in
connection with transactions in such securities, which provisions may limit the
timing of purchases and sales of such securities by the Selling Securityholders.
DESCRIPTION OF THE COMPANY'S SECURITIES
The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock.
Units
Upon consummation of this Offering, the Company will have outstanding
2,250,000 Units, each Unit consisting of one share of Common Stock, $.01 par
value, and one Redeemable Warrant. The Common Stock and Redeemable Warrants may
only be purchased as United in the Offering, but are immediately detachable and
separately tradeable. The Company and the Underwriter may jointly determine,
based upon market conditions, to delist the Units upon the expiration of the 30
day period commencing on the date of this Prospectus.
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<PAGE>
Common Stock
The Company's authorized common stock consists of 25,000,000 shares of
Common Stock. As of August 30, 1996, there were issued and outstanding 1,878,378
shares of Common Stock of the Company. The holders of Common Stock are entitled
to one vote for each share held of record on all matters submitted to a vote of
shareholders. Subject to preferences that may be applicable to outstanding
shares of Preferred Stock, if any, the holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Company's Board of
Directors out of funds legally available therefor. Holders of Common Stock have
no preemptive, subscription or redemption rights, and there are no conversion or
similar rights with respect to such shares. The outstanding shares of Common
Stock are fully paid and nonassessable. The holders of Common Stock are entitled
to one vote per share on all matters to be voted upon by the shareholders.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of
undesignated Preferred Stock. The Board of Directors has the authority to issue
the undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock, as well as to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the shareholders. The Board of Directors, without
shareholder approval, may issue Preferred Stock with voting and conversion
rights which could materially adversely affect the voting power of the holders
of Common Stock. The issuance of Preferred Stock could also decrease the amount
of earnings and assets available for distribution to holders of Common Stock. In
addition, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. At present, the
Company has no plans to issue any shares of Preferred Stock. See "Risk Factors
- -- Possible Adverse Effects of Authorized Preferred Stock."
Redeemable Warrants
Each Redeemable Warrant entitles the registered holder thereof to
purchase one share of Common Stock at a price of $______ [150% of the initial
public offering per Unit] per share, subject to adjustment, commencing
immediately. The Redeemable Warrants expire on _________ __, 2001 [60
months from the date of this Prospectus]. The Redeemable Warrants will be
subject to redemption, subject to the prior written consent of the Underwriter,
at a price of $.05 per Redeemable Warrant commencing ____________, 1997 [12
months from the date of this Prospectus] on 30 days' written notice provided the
average closing bid price of the Common Stock as reported by Nasdaq (or the last
sale price if listed on a national securities exchange), equals or exceeds 150%
of the warrant exercise price per share for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption. The holder of a Redeemable Warrant will lose his
right to purchase if such right is not exercised prior to redemption by the
Company on the date for redemption specified in the Company's notice of
redemption or any later date specified in a subsequent notice. Notice of
redemption by the Company shall be given by first class mail to the holders of
the Redeemable Warrants at their addresses set forth in the Company's records.
The exercise price of the Redeemable Warrants and the number and kind of
shares of Common Stock or other securities and property to be obtained upon
exercise of the Redeemable Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock. Additionally,
an adjustment would be made upon the sale of all or substantially all of the
assets of the Company so as to enable Redeemable Warrant holders to purchase the
kind and number of shares of stock or other securities or property (including
cash) receivable in such event by a holder of the number of shares of Common
Stock that might otherwise have been purchased upon exercise of such Redeemable
Warrant. No adjustment for previously paid cash dividends, if any, will be made
upon exercise of the Redeemable Warrants.
The Redeemable Warrants do not confer upon the holder any voting or any
other rights of a stockholder of the Company. Upon notice to the Redeemable
Warrant holders, the Company has the right to reduce the exercise price or
extend the expiration date of the Redeemable Warrants.
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<PAGE>
Transfer Agent, Warrant Agent and Registrar
The Company's Transfer Agent, Warrant Agent and Registrar is Continental
Stock Transfer & Trust Company, 2 Broadway, New York, NY 10004.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Units,
the Common Stock or the Redeemable Warrants. No prediction can be made of the
effect, if any, that future market sales of the Common Stock, the Redeemable
Warrants or the availability of such shares or warrants for sale will have on
the prevailing market price of the Securities following this Offering.
Nevertheless, sales of substantial amounts of such shares or warrants in the
open market following this Offering could adversely affect the prevailing market
price of the Units, Common Stock or Redeemable Warrants.
Upon completion of this Offering, the Company will have 4,128,378 shares
of Common Stock outstanding. All of the 2,250,000 shares of Common Stock and
2,250,000 Redeemable Warrants included in the Units sold in this Offering will
be freely tradeable without restriction or further registration under the
Securities Act unless held by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act. In addition, 1,000,000 Redeemable
Warrants, held by the Selling Securityholders, and 1,000,000 shares of Common
Stock underlying such warrants, are being registered on this Offering, but
cannot be sold without the consent of the Underwriter as described below. The
remaining 1,878,378 shares may be deemed "restricted securities," and may not be
sold except in compliance with Rule 144 under the Securities Act. Rule 144, in
essence, provides that a person holding restricted securities for a period of
two years may publicly sell in brokerage transactions at an amount equal to one
percent of the Company's outstanding Common Stock every three months or, if
greater, a percentage of the shares publicly traded during a designated period.
Of such 1,878,378 shares, 100 shares will be eligible for sale under Rule 144
beginning in January, 1998, 1,182,332 shares will be eligible for sale under
Rule 144 beginning in March, 1998; and 43,497 shares will be eligible for sale
under Rule 144 beginning in June, 1998. The remaining 652,449 shares were
purchased by employees by notes and at this time it is not possible to state
when such shares will be eligible for sale under Rule 144 other than the
earliest they might be eligible for sale under Rule 144 is September, 1998 if
the notes were to be satisfied in September, 1996.
Each of the Company's officers and directors and all stockholders and
Selling Securityholders have agreed that for a period of 18 months from the date
of this Prospectus they will not sell any of the Company's securities without
the prior written consent of the Underwriter. They have further agreed that any
sales of the Company's securities owned by them will be executed through the
Underwriter for a 24 month period from the date hereof.
UNDERWRITING
Joseph Stevens & Company, L.P. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriter on a firm commitment basis all
of the Units offered by the Company hereby.
The Underwriter has advised the Company that the Underwriter initially
proposes to offer the Units to the public at the public offering price set forth
on the cover page of this Prospectus and that the Underwriter may allow to
certain dealers concessions not in excess of $______ per Unit, of which amount a
sum not in excess of $______ per Unit may in turn be reallowed by such dealers
to other dealers. After the commencement of this Offering, the public offering
price, the concessions and the allowances may be changed. The Underwriter has
informed the Company that the Underwriter does not expect sales to discretionary
accounts by the Underwriter to exceed five percent of the securities offered by
the Company hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments that the Underwriter may be required to make. The Company has agreed to
pay to the Underwriter a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds derived from the sale of the Units
underwritten, $25,000 of which has been paid to date.
-34-
<PAGE>
The Company has granted to the Underwriter an option, exercisable within
45 days of the date of this Prospectus to purchase from the Company at the
offering price less underwriting discounts and the non-accountable expense
allowance, up to an aggregate of 337,500 additional Units for the sole purpose
of covering over-allotments, if any. To the extent such option is exercised in
whole or in part, each Underwriter will have a firm commitment, subject to
certain conditions, to purchase the number of additional Units proportionate to
its initial commitment.
Upon the exercise of any Redeemable Warrants more than one year after
the date of this Prospectus, which exercise was solicited by the Underwriter,
and to the extent not inconsistent with the guidelines of the NASD and the Rules
and Regulations of the Commission, the Company has agreed to pay the Underwriter
a commission which shall not exceed five percent (5%) of the aggregate exercise
price of such Redeemable Warrants in connection with bona fide services provided
by the Underwriter relating to any warrant solicitation. In addition, the
individual must designate the firm entitled to payment of such warrant
solicitation fee. No compensation, however, will be paid to the Underwriter in
connection with the exercise of the Redeemable Warrants if (a) the market price
of the Common Stock is lower than the exercise price, (b) the Redeemable
Warrants were held in a discretionary account, or (c) the Redeemable Warrants
are exercised in an unsolicited transaction. Unless granted an exemption by the
Commission from its Rule 10b-6 under the Exchange Act, the Underwriter will be
prohibited from engaging in any market-making activities with regard to the
Company's securities for the period from nine business days (or other such
applicable periods as Rule 10b-6 may provide) prior to any solicitation of the
exercise of the Redeemable Warrants until the later of the termination of such
solicitation activity or the termination (by waiver or otherwise) of any right
the Underwriter may have to receive a fee. As a result, the Underwriter may be
unable to continue to provide a market for the Company's Securities during
certain periods while the Redeemable Warrants are exercisable. If the
Underwriter has engaged in any of the activities prohibited by Rule 10b-6 during
the periods described above, the Underwriter undertakes to waive unconditionally
its right to receive a commission on the exercise of such Redeemable Warrants.
Each director and officer of the Company, as well as all holders of the
Common Stock and the Selling Securityholders, have agreed not to, directly or
indirectly, offer, sell, transfer, pledge, assign, hypothecate or otherwise
encumber any shares of Common Stock or Redeemable Warrants, or otherwise dispose
of any interest therein, for a period of 18 months from the date of this
Prospectus without the prior written consent of the Underwriter. An appropriate
legend shall be marked on the face of certificates representing all such
securities. They have further agreed that any sales of the Company's securities
owned by them will be executed through the Underwriter for 24 months from the
date of this Prospectus.
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, warrants to purchase from the Company
225,000 Units (the "Underwriter's Warrants"). The Underwriter's Warrants are
initially exercisable at $____ [120% of the initial public offering price per
Unit]. The shares of Common Stock and Redeemable Warrants issuable upon exercise
of the Underwriter's Warrants are identical to those offered to the public. The
Underwriter's Warrants contain provisions providing for adjustment of the number
of warrants and exercise price under certain circumstances. The Underwriter's
Warrants grant to the holders thereof certain rights of registration of the
securities issuable upon exercise of the Underwriter's Warrants.
The Company has also agreed to retain the Underwriter as the Company's
financial consultant for a period of 24 months from the date hereof and to pay
the Underwriter $2,000 per month, all payable in advance on the closing date as
set forth in the Underwriting Agreement. The Underwriting Agreement also
provides that the Underwriter has a right of first refusal for a period of three
years from the date of this Prospectus with respect to any sale of securities by
the Company or any of its present or future subsidiaries.
The Company has agreed that, for a period of five years from the date of
the Prospectus, the Underwriter shall have the right to nominate one member of
the Company's Board of Directors and the Company shall use its best efforts to
have such nominee appointed or elected to the Company's Board of Directors.
Prior to this Offering there has been no public market for the Units,
the Common Stock or the Redeemable Warrants. Accordingly, the initial public
offering price of the Units and the terms of the Redeemable Warrants were
determined in negotiation between the Company and the Underwriter. Other factors
considered in determining such price and terms, in addition to prevailing market
conditions, included the history of and the prospects for the industry in which
-35-
<PAGE>
the Company competes, an assessment of the Company's management, the prospects
of the Company, its capital structure and such other factors that were deemed
relevant.
The Underwriter acted as Placement Agent for the Private Placement
Financing and received in connection therewith a commission of $200,000, a
non-accountable expense allowance of $60,000 and 200,000 placement agent
warrants (the "Placement Agent's Warrants") to purchase 200,000 shares of Common
Stock at an exercise price of $2.00 per share. The Placement Agent's Warrants
will be canceled upon the consummation of this Offering.
The Underwriter commenced operations in March 1994. Therefore, it does
not have extensive experience as an underwriter of public offerings of
securities. The firm is relatively small and no assurance can be given that the
firm will be able to participate as a market maker in the Units, the Common
Stock or the Redeemable Warrants and no assurance can be given that another
broker-dealer will make a market in the Units, the Common Stock or the
Redeemable Warrants. The Underwriter has acted as managing underwriter of only
six initial public offerings.
The Company and the Underwriter may jointly determine, based upon market
conditions, to delist the Units upon the expiration of the 30 day period
commencing on the date of this Prospectus.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for
the Company by Camhy Karlinsky & Stein LLP, New York, New York. Orrick
Herrington & Sutcliffe LLP, New York, New York, has acted as counsel for the
Underwriter in connection with this Offering.
EXPERTS
The financial statements as of June 30, 1996, included in this
Prospectus and in the Registration Statement, have been included herein in
reliance upon the report of Rachlin Cohen & Holtz, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
As of the date of this Prospectus, the Company will become subject to
the reporting requirements of the Exchange Act and in accordance therewith will
file reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the Commission's principal offices at 450 Fifth Street, N.W., Washington, D.C.
20549; at its New York Regional Office, 7 World Trade Center, New York, New York
10048; and at its Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of such material
can be obtained from the Commission's Public Reference Section at prescribed
rates.
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") under the Securities Act with respect to the Units
offered by this Prospectus. This Prospectus, filed as part of such Registration
Statement, does not contain all of the information set forth in, or annexed as
exhibits to, the Registration Statement, certain portions of which have been
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and this offering, reference is
made to the Registration Statement including the exhibits filed therewith. The
Registration Statement may be inspected and copies may be obtained from the
Public Reference Section at the Commission's principal office, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549, and the New York Regional Office,
7 World Trade Center, New York, New York 10048, upon payment of the fees
prescribed by the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and
where the contact or other document has been filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by such
reference to the applicable document filed with the Commission.
-36-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants................F-2
Balance Sheet.....................................................F-3
Statement of Operations...........................................F-4
Statement of Stockholders' Equity.................................F-5
Statement of Cash Flows...........................................F-6
Notes to Financial Statements.....................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
InnoPet Brands Corp.
We have audited the accompanying balance sheet of InnoPet Brands Corp. as of
June 30, 1996, and the related statements of operations, stockholders' equity,
and cash flows from inception (January 11, 1996) to June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InnoPet Brands Corp. as of June
30, 1996, and the results of its operations and its cash flows from inception
(January 11, 1996) to June 30, 1996 in conformity with generally accepted
accounting principles.
As more fully discussed in Note 2 to the financial statements, the Company is in
the development stage and, consequently, has incurred a net loss and reflects a
deficit accumulated during the development stage as of and for the period ended
June 30, 1996. This condition raises substantial doubt as to the ability of the
Company to continue as a going concern. Management's plans with regard to this
matter are also described in Note 2 to the financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
RACHLIN COHEN & HOLTZ
Fort Lauderdale, Florida
September 3, 1996
F-2
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
ASSETS Historical Pro Forma
----------- ----------- --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 202,004 $ 1,820,665
Accounts receivable 114,657 114,657
Inventories 865,362 865,362
Prepaid expenses and other current assets 86,336 86,336
----------- -----------
Total current assets 1,268,359 2,887,020
----------- -----------
Property and Equipment 32,121 32,121
----------- -----------
Intangible Assets:
Deferred slotting fees 521,500 521,500
Product formulae acquisition costs 310,074 310,074
Deferred offering costs 277,653 277,653
Deferred financing costs 227,071 608,410
----------- -----------
1,336,298 1,717,637
Less accumulated amortization 129,475 129,475
----------- -----------
1,206,823 1,588,162
----------- -----------
Other Assets 60,604 60,604
----------- -----------
Total Assets $ 2,567,907 $ 4,567,907
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------
Current Liabilities:
Accounts Payable:
Parent $ 846,824 $ 846,824
Slotting fees 229,543 229,543
Trade 256,159 256,159
Current portion of long-term debt due to Parent 200,000 200,000
Notes payable - private placement financing, net of unamortized
discount of $250,000 -- 1,750,000
----------- -----------
Total current liabilities 1,532,526 3,282,526
----------- -----------
Long-Term Debt:
Note payable to Parent, net of current portion 800,000 800,000
----------- -----------
Commitments and Other Matters -- --
Stockholders' Equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized 25,000,000 shares; issued and
outstanding 1,878,378 shares 18,783 18,783
Additional paid-in capital 4,439,449 4,689,449
Deficit accumulated during the development stage (2,125,157) (2,125,157)
Notes and interest receivable on sale of common stock (2,097,694) (2,097,694)
----------- -----------
235,381 485,381
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,567,907 $ 4,567,907
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
INCEPTION (JANUARY 11, 1996) TO JUNE 30, 1996
Revenues:
Net sales $ 153,061
-------------
Costs and Expenses:
Cost of sales 132,776
Marketing and distribution 611,130
Product development 399,542
General and administrative 915,929
Financing costs 218,841
-------------
2,278,218
-------------
Net Loss $ (2,125,157)
============
Net Loss per Common Share $ (1.13)
============
See notes to financial statements.
F-4
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
INCEPTION (JANUARY 11, 1996) TO JUNE 30, 1996
<TABLE>
<CAPTION>
Notes and
Deficit Interest
Accumulated Receivable
Common Stock Additional During the on Sale of
------------------------ Paid-In Development Common
Shares Amount Capital Stage Stock Total
-------- --------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Capital contribution represented by
costs and expenses paid on behalf
of Company by Parent ($1.88 per
share) 1,182,432 $11,824 $2,209,524 $ - $ - $ 2,221,348
Sale of common stock ($3.20
per share):
Parent 43,497 435 138,755 - - 139,190
Officers and employees, in
exchange for notes receivable 652,449 6,524 2,081,315 - (2,087,839) -
Interest accrued on notes receivable
on sale of common stock - - 9,855 - (9,855) -
Net loss - - - (2,125,157) - (2,125,157)
--------- ------ --------- ---------- ---------- -------
Balance, June 30, 1996 (historical) 1,878,378 18,783 4,439,449 (2,125,157) (2,097,694) 235,381
Pro forma adjustments (unaudited):
Estimated fair value of warrants
issued in connection with private
placement financing - - 250,000 - - 250,000
--------- ------ --------- ---------- ---------- -------
Balance, June 30, 1996 (pro forma)
(unaudited) 1,878,378 $18,783 $4,689,449 $(2,125,157) $(2,097,694) $485,381
========= ======= ========== =========== =========== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
INCEPTION (JANUARY 11, 1996) TO JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Cash Flows from Operating Activities:
Net loss $(2,125,157)
Adjustments to reconcile net loss to net cash used in operating activities:
Costs and expenses paid on behalf of Company by Parent 1,301,026
Depreciation and amortization 130,393
Changes in Operating Assets and Liabilities:
Increase in:
Accounts receivable (114,657)
Inventory (229,398)
Accounts payable, trade 190,959
Accounts payable, Parent 846,824
-----------
Net cash used in operating activities (10)
-----------
Cash Flows from Investing Activities:
Deferred slotting fees, net of accounts payable of $229,543 -
-----------
Cash Flows from Financing Activities:
Proceeds of long-term financing from Parent, net 202,014
Deferred offering costs, net of accounts payable of $65,200 -
------------
Net cash provided by financing activities 202,014
------------
Net Increase in Cash 202,004
Cash, Beginning -
------------
Cash, Ending $ 202,004
============
Supplemental Disclosure of Cash Flow Information:
Non-Cash Investing and Financing Activities:
Expenditures for various assets paid on behalf of Company by Parent:
Product formulae and inventory $ 958,366
============
Deferred offering costs $ 277,653
============
Deferred financing costs $ 227,071
============
Deferred slotting fees $ 291,957
============
Property and equipment and other assets $ 179,979
============
</TABLE>
See notes to financial statements.
F-6
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
InnoPet Brands Corp. (the "Company") was incorporated as InnoPet
Products Corp. under the laws of the state of Delaware on January 11,
1996.
On May 15, 1996, the Company amended its Certificate of Incorporation
to change its name to InnoPet Brands Corp., and to increase the
Company's authorized common stock to consist of 25,000,000 shares of
common stock, with a par value of $.01 per share, and 5,000,000 shares
of undesignated preferred stock. The Board of Directors has the
authority to issue the undesignated preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions
of designated preferred stock.
After having amended the Certificate of Incorporation, the Company
issued shares of common stock to InnoPet, Inc. in consideration for the
capital contributions made by InnoPet, Inc. (see Note 6), resulting in
a total of 1,182,432 shares of common stock being issued and
outstanding.
On June 1, 1996, the Company sold 652,449 shares of common stock to
officers and employees and 43,497 shares of common stock to the Parent
(see Note 6).
Business
The Company produces, markets and sells premium dog food through
supermarkets and grocery stores under the name InnoPet Veterinarian
Formula(TM) Dog Food.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheets and operations for the periods.
Material estimates as to which it is reasonably possible that a change
in the estimate could occur in the near term relate to the
determination of the estimated net realizable value of certain elements
of inventories and the estimated amortization period of certain
intangible assets. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the future,
they may ultimately differ from actual results.
Period of Operations
As described above, the Company was incorporated on January 11, 1996.
However, for financial reporting purposes, the accompanying financial
statements include all of the costs and expenses paid or incurred by
the Parent on behalf of the Company, which have been recorded as
capital contributions by the Parent (see Note 6).
F-7
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of accounts
receivable. The Company sells products to grocery chain stores and
supermarkets and extends credit based on an evaluation of the
customer's financial condition, generally without requiring collateral.
Exposure to losses on receivables is expected to vary by customer due
to the financial condition of each customer. The Company monitors
exposure to credit losses and maintains allowances for anticipated
losses considered necessary under the circumstances. As of June 30,
1996, no allowance for losses was considered necessary.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method, and market by estimated
net realizable value.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major
betterments and additions are charged to the asset accounts, while
replacements, maintenance and repairs which do not extend the lives of
the respective assets are charged to expense currently.
Depreciation is computed using the straight-line method at rates based
generally on the estimated useful lives of the assets. The estimated
useful lives of the furniture, fixtures and equipment are from 5 to 10
years.
Product Formulae Acquisition Costs
Product formulae acquisition costs represent the cost of acquiring the
formulae to the pet food products that the Company produces and sells
(see Note 3), together with the incremental costs incurred (primarily
professional fees) that were directly related to the acquisition of the
formulae. These costs are being amortized over an estimated useful life
of 15 years. Amortization during the period totalled $12,248.
The Company evaluates the recoverability of the product formulae
acquisition costs on a regular periodic basis, based upon the projected
future amount of profits reasonably expected to be generated from sales
of such products. Any diminution in value of such costs will be charged
to expense when determined.
Deferred Slotting Fees
Slotting fees are fees charged manufacturers by retailers in order to
facilitate the introduction of new products. The fees represent charges
for warehouse space (slots) to be used to store a manufacturer's
products, charges for retail shelf space and related shelf sets to make
room for the products and reimbursement of retailer expenses (entering
new items into their computer systems and in some cases marketing
support provided by the retailer).
F-8
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Deferred Slotting Fees
It is the expectation of the Company that all slots acquired will be
available for the Company's products indefinitely. At a minimum,
however, retailers allow new products six to twelve months to
demonstrate that they can contribute to profitability. Retailers will
continue to carry products which are profitable; products which do not
provide an adequate return may be discontinued. The Company has created
a formal policy with regard to slotting, whereby the Company requires
that retailers confirm that the product will be carried for a minimum
of six months. Slots will be made available to the Company for a period
of time ranging from six months to indefinitely.
The benefits to be determined from slotting fees extend for a period of
time estimated to range from six months to indefinitely. The period of
benefit begins when the retailer receives its first delivery of
product. Accordingly, the Company capitalizes these costs, and
amortizes them over a period of six months, beginning when the retailer
accepts delivery of the first shipment of product.
Deferred Offering Costs
Costs incurred in connection with the proposed offering of securities,
consisting of professional fees associated with the proposed offering,
have been deferred. Such costs will be charged against stockholders'
equity upon the successful completion of the offering, or charged to
operations in the event the offering is not successfully completed.
Deferred Financing Costs
Deferred financing costs represent the costs incurred by the Parent to
raise certain debt financing, the proceeds of which were used for the
developmental activities of the Company. Those costs incurred relating
to debt obligations of the Parent have been assigned to the Company and
recorded as a capital contribution by the Parent. These costs are being
amortized over the term of the related debt (six to twelve months).
In addition, the Company has incurred costs in connection with the
private placement financing which was consummated in August 1996. These
costs have been deferred, and will be amortized over the estimated
outstanding term of the private placement financing debt, which
management estimates to be approximately four months, as measured by
the expected date of repayment of this debt from the proceeds of the
proposed public offering (see Note 9).
Advertising Costs
Advertising costs, included in marketing and distribution costs, are
charged to expense as incurred. Advertising costs incurred for the
period ended June 30, 1996 were not material.
F-9
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss Per Common Share
Net loss per common share has been computed based on the weighted
average number of shares of common stock outstanding during the period.
In addition, all the common shares sold during the period have been
treated as outstanding during the entire period in contemplation of the
proposed public offering (see Note 9), pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins. The number of shares
used in the computation was 1,878,378 shares.
NOTE 2. BASIS OF PRESENTATION
As described above, the Company was incorporated on January 11, 1996,
and, since that time, together with its Parent, has been primarily
involved in organizational activities, developing a strategic plan for
the marketing and distribution of its pet food products, and raising
capital. Planned operations, as described above, have commenced, but
little revenue has been generated to date. Accordingly, the Company is
considered to be in the development stage, and the accompanying
financial statements represent those of a development stage enterprise.
The accompanying financial statements have been presented in accordance
with generally accepted accounting principles, which assume the
continuity of the Company as a going concern. However, as discussed
above, the Company is in the development stage and, therefore has
generated little revenue to date. As reflected in the accompanying
financial statements, the Company has incurred a net loss and reflects
a deficit accumulated during the development stage of $2,125,157 as of
and for the period ended June 30, 1996. This condition raises
substantial doubt as to the ability of the Company to continue as a
going concern.
Management's plans with regard to this matter encompass the following
actions:
1. Business Plan
The Company has adopted, and is in the process of implementing, a
business plan intended to define the Company's strategy for growth.
In June 1996, the Company commenced sales of its dog food to
supermarkets located in the Greater New York Metropolitan area. By
the end of August 1996, the Company had begun selling product into
various other markets in the Greater Metropolitan New York region,
the Pennsylvania and Baltimore/Washington marketing areas and
Florida. During the next twelve months, the Company anticipates that
it will sell products in the majority of the east coast of the
United States. An extension of the Company's line of dog foods is
anticipated for 1997, and the Company plans to introduce its line of
cat foods during 1997.
F-10
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. BASIS OF PRESENTATION
2. Equity Infusion by Means of Proposed Public Offering
The Company raised working capital in August 1996 by means of
private placement financing (see Note 11) and plans to raise
additional working capital by means of a proposed public
offering of securities (see Note 9).
The eventual outcome of the success of management's plans cannot be
ascertained with any degree of certainty. The accompanying
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
NOTE 3. ACQUISITION OF PRODUCT FORMULAE AND INVENTORY
In accordance with the terms of an Asset Purchase Agreement dated
January 16, 1996 among the Company, the Parent and a subsidiary of
ConAgra, Inc., on the Initial Closing Date, as defined (January 16,
1996), the Company acquired all of the right, title and interest in and
to the formulae which were used in connection with the pet food
business that had been known as KenVet Nutritional Care. On the Final
Closing Date, as defined (on or before February 15, 1996), the Company
acquired all of the right, title and interest in and to certain other
assets, as defined, comprised primarily of the current inventory
existing as of the Final Closing Date. The Company did not assume any
liabilities, obligations or commitments relating to the business. In
addition, in order to induce the Company to purchase the assets
pursuant to the agreement, ConAgra agreed that for a three year period
following the Initial Closing Date, it will not manufacture or sell
certain nutritional finished pet food products.
The purchase price for the assets, as finally negotiated, was a total
of $641,021. Of this total amount, $250,000 was paid on the Initial
Closing Date in exchange for the formulae, and the balance of $391,021
was to be paid on the Final Closing Date in exchange for the remaining
assets. Accordingly, the Company has allocated $250,000 of the total
purchase price as product formulae acquisition costs and the balance of
$391,021 as inventory in the accompanying financial statements. The
$250,000 was paid by the Parent on the Initial Closing Date, and has
been recorded as a capital contribution by the Parent. The $391,021 was
paid by the Parent in April and May 1996 and has been reflected as a
capital contribution by the Parent in the accompanying financial
statements.
In connection with the acquisition of the formulae and inventory
pursuant to the Asset Purchase Agreement, it was intended by the
Company that the substance of the transaction was to acquire the
formulae to the pet food products in order to gain entrance into this
line of business and augment the Parent's pet food business. However,
in order to effect the acquisition of the formulae, it was necessary to
purchase the inventory as part of the acquisition transaction. The
Company considers the purchase of the inventory as incidental to the
acquisition of the formulae, and intends to utilize the raw material
portion of the inventory in the production of the Company's pet food
products and recoup its investment in the remainder of the inventory as
expeditiously as possible. Additionally, the Company's business plan
for the pet food business contemplates operation of this business in a
manner significantly different from that employed by ConAgra, including
such attributes as trade name, market distribution system, employee
base, physical facilities, production techniques and sales force.
F-11
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVENTORIES
Raw materials $527,532
Work in process 211,470
Finished product 126,360
--------
$865,362
========
At June 30, 1996, the inventory purchased from ConAgra, Inc. (see Note
3) comprised approximately 44% of total inventories. The Company has
developed a program to utilize a significant portion of this inventory
in its production process over the next year, and believes that no loss
will be incurred on the utilization or other disposition of such
inventory. No estimate can be made of the range of loss that is
reasonably possible should the program be unsuccessful.
NOTE 5. PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment $33,039
Less accumulated depreciation 918
-------
$32,121
=======
NOTE 6. RELATED PARTY TRANSACTIONS
Transactions with the Parent
As discussed above, the Company was incorporated on January 11, 1996 as
a wholly-owned subsidiary of InnoPet, Inc. Since inception,
substantially all of the Company's costs and expenses, and the
acquisition of the Company's assets, have been paid or incurred on
behalf of the Company by its Parent, InnoPet, Inc. Such amounts have
been accounted for as capital contributions by the Parent to the
Company, and are analyzed as follows:
Costs and expenses charged to operations $1,161,836
Initial purchase price for the acquisition of product
formulae and inventory, including $58,773 of
directly associated costs 699,794
Deferred offering costs 161,289
Deferred financing costs 198,429
----------
$2,221,348
==========
The costs and expenses expended on behalf of the Company by the Parent
were determined based upon an analysis of those costs directly
associated with or reasonably allocated to the Company's operational
activities related to the premium pet food business.
See Note 8 regarding a facilities agreement with the Parent.
F-12
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. RELATED PARTY TRANSACTIONS
Debt Financing by the Parent
On June 5, 1996, the Parent provided debt financing to the Company in
the amount of $1,000,000. The note is a five-year unsecured note,
providing for annual principal payments of $200,000 and interest at 1%
over prime payable quarterly, and contains no prepayment penalty.
Accounts Payable, Parent
In addition to the debt financing described above, the Parent has also
provided working capital financing to the Company on open account. Such
funds were used primarily for inventories, operating costs and
expenses, and deferred offering costs and financing costs. These
working capital advances, which have a balance of $846,824 at June 30,
1996, are due on demand, are non-interest bearing, and are presented in
the accompanying financial statements as accounts payable, Parent.
Sale of Common Stock to Officers and Employees and Parent
On June 1, 1996, the Company sold an aggregate of 652,449 shares of
common stock to certain officers and employees of the Company,
including the chairman of the board and chief executive officer, for a
total amount of $2,087,839, and 43,497 shares to the Parent for
$139,190 ($3.20 per share). The officers and employees purchased their
shares by means of three-year notes which bear interest at 5.75%
annually. The notes are of full recourse to the officers and employees
during the first two years of the term of the notes, and are secured by
the shares owned by the officers and employees. The purchase price of
the shares purchased by the Parent was applied against the then
outstanding balance due to the Parent arising from costs and expenses
expended on behalf of the Company by the Parent.
NOTE 7. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards (SFAS) No.109, Accounting for Income
Taxes. SFAS No.109 is an asset and liability approach for computing
deferred income taxes.
The provision for income taxes has been computed on a separate return
basis. The Company plans to file a consolidated income tax return with
its Parent while it is a qualified member of the consolidated group.
However, upon successful completion of the proposed public offering
(see Note 9) and the sale of common stock to certain officers and
employees of the Company (see Note 6), the Company would no longer
qualify as a member of the consolidated group with the Parent.
As of June 30, 1996, on a separate return basis, the Company had a net
operating loss carryforward for Federal income tax reporting purposes
amounting to approximately $2,125,000, which expires in 2011.
F-13
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. INCOME TAXES
The Company presently has no significant temporary differences between
financial reporting and income tax reporting. The components of the
deferred tax asset as of June 30, 1996 were as follows:
Benefit of net operating loss carryforwards $722,000
Less valuation allowance 722,000
--------
Net deferred tax asset $ -
========
As at June 30, 1996, sufficient uncertainty exists regarding the
realizability of these operating loss carryforwards and, accordingly, a
valuation allowance of $722,000, which related to the net operating
losses, has been established.
In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of greater than 50% of a corporation within a three
year period will place an annual limitation on the corporation's
ability to utilize its existing tax benefit carryforwards. Such a
change in ownership is expected to occur in 1996, based upon the sale
of common stock to certain officers and employees of the Company in
June 1996 (see Note 6), and assuming successful completion of the
Company's proposed public offering (see Note 9) prior to December 31,
1996 (the end of the Company's current taxable year). As a result,
based upon the amount of the taxable loss incurred to June 30, 1996,
the Company estimates that an annual limitation of approximately
$990,000 would apply to the net operating loss carryforward existing as
of that date. However, to the extent that the Company may generate
taxable income prior to the end of its current taxable year ending
December 31, 1996, the amount of the net operating loss would be
reduced. The Company's utilization of its tax benefit carryforwards may
be further restricted in the event of subsequent changes in the
ownership of the Company.
NOTE 8. COMMITMENTS
Employment Agreements
The Company entered into an employment agreement with the chief
executive officer dated as of June 1, 1996 and which expires on May 31,
2000. The agreement provides, among other things, for an annual salary
of $200,000 to December 31, 1997 and $250,000 thereafter; a
discretionary bonus up to 25% of the annual salary to be determined by
the board of directors; and a performance bonus to be determined by the
compensation committee of the board of directors, based upon the net
earnings of the Company in any given year. The agreement also provides
for life insurance, auto and office expense reimbursements and a stock
option plan. If this agreement is terminated by the Company without
cause, the officer will be entitled to a severance payment equal to
three times his average annual salary, as defined.
The Company has also entered into employment agreements with several
other members of management, which terminate May 31, 1999, contain a
one-year renewal option, and provide for aggregate annual salaries of
approximately $470,000.
F-14
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS
Incentive Stock Plan
The Company has reserved a total of 400,000 shares of common stock for
issuance under the 1996 Stock Option Plan. The Plan provides for the
award of options, which may be either incentive stock options (ISO's)
within the meaning of the Internal Revenue Code or non-qualified
options (NQO's) which are not subject to special tax treatment. The
Plan is administered by the board of directors or a committee appointed
by the board (the Administrator). Subject to certain restrictions, the
Administrator is authorized to designate the number of shares to be
covered by each award, the terms of the award, the dates on which and
the rates at which options or other awards may be exercised, the method
of payment and other terms.
The exercise price for ISO's cannot be less than the fair market value
of the stock subject to the option on the grant date. The exercise
price of a NQO shall be fixed by the administrator at whatever price
the administrator may determine in good faith. Unless the administrator
determines otherwise, options generally have a 10-year term. Unless the
administrator provides otherwise, options terminate upon the
termination of a participant's employment, except that a participant
may exercise an option to the extent that it was exercisable on the
date of termination for a period of time after termination.
As of August 31, 1996, no options had been granted under the Plan.
Facilities Agreement
The Company has entered into a facilities agreement with the Parent
whereby it has agreed to lease its premises, furnishings and equipment
from the Parent until April 30, 2001, for an annual amount of
approximately $278,000.
NOTE 9. PROPOSED PUBLIC OFFERING
The Company is in the process of raising additional capital through an
initial public offering of its securities. The proposed public offering
is currently anticipated to consist of 2,250,000 units, each unit
consisting of one share of common stock and one redeemable warrant.
Each redeemable warrant entities the holder to purchase one share of
common stock at 150% of the initial public offering price per unit,
subject to adjustment. The proposed public offering is anticipated to
result in gross proceeds of approximately $9,000,000.
F-15
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The information set forth below provides disclosure of the estimated
fair value of the Company's financial instruments presented in
accordance with the requirements of Statement of Financial Accounting
Standards (SFAS) No.107. Fair value estimates discussed herein are
based upon certain market assumptions and pertinent information
available to management as of June 30, 1996. Since the reported fair
values of financial instruments are based upon a variety of factors,
they may not represent actual values that could have been realized as
of June 30, 1996 or that will be realized in the future.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These financial instruments
include cash, accounts receivable, accounts payable and debt maturing
within one year. Fair values were assumed to approximate carrying
values for these financial instruments since they are short term in
nature and their carrying amounts approximate fair values or they are
receivable or payable on demand.
The fair value of non-current debt instruments and notes receivable
have been estimated using discounted cash flow models incorporating
discount rates based on current market interest rates for similar types
of instruments or quoted market prices, when applicable. At June 30,
1996, the differences between the estimated fair value and the carrying
value of non-current debt instruments and notes receivable were
considered immaterial in relation to the Company's financial position.
NOTE 11. SUBSEQUENT EVENTS AND PRO FORMA PRESENTATION
Private Placement Financing
In August 1996, the Company completed certain private placement
financing involving a total of $2,000,000 of promissory notes and
1,000,000 common stock purchase warrants (private placement warrants).
Related costs amounted to approximately $410,000 resulting in net
proceeds to the Company of approximately $1,590,000. The promissory
notes bear interest at 10% per annum. Principal and accrued interest
are payable upon the earlier of the closing of the sale of securities
or other financing yielding gross proceeds of $4,000,000 to the
Company, or twelve months from date of issue. The terms of the note
contain, among other things, certain restrictions on the payment of
dividends by the Company or incurring any liability for borrowed money,
except in the ordinary course of business. Each private placement
redeemable warrant entitles the holder to purchase one share of common
stock at a price equal to 150% of the initial public offering price per
unit, subject to adjustment, during the 36-month period commencing one
year from the date the warrants are issued. Upon consummation of the
proposed public offering, each private placement warrant shall
automatically be converted into a redeemable warrant having terms
identical to that of the redeemable warrants underlying the units of
the proposed public offering (see Note 9).
In connection with the private placement financing, the Company issued
to the placement agent 200,000 placement agent warrants to purchase
200,000 shares of common stock at an exercise price of $2 per share.
The placement agent warrants will be cancelled upon the consummation of
the proposed public offering.
F-16
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11. SUBSEQUENT EVENTS AND PRO FORMA PRESENTATION
Pro Forma Financial Statement Presentation (Unaudited)
The accompanying historical balance sheet has been supplemented to
present on a pro forma basis the transactions described above. The
following is a condensed summary of this pro forma presentation,
assuming that the transactions had occurred on June 30, 1996:
Pro Forma
Historical Adjustments Pro Forma
---------- ------------------ -------------
(Unaudited) (Unaudited)
Current Assets $1,268,359 $1,618,661(1) $2,887,020
Intangible Assets 1,206,823 381,339(2) 1,588,162
Other Assets 92,725 - 92,725
---------- ---------- ----------
$2,567,907 $2,000,000 $4,567,907
========== ========== ==========
Current Liabilities $1,532,526 $1,750,000(1) $3,282,526
Long-Term Debt 800,000 - 800,000
Stockholders' Equity 235,381 250,000(3) 485,381
---------- ---------- ----------
$2,567,907 $2,000,000 $4,567,907
========== ========== ==========
(1) Proceeds of private placement financing.
(2) Deferred financing costs relating to private placement financing.
(3) Estimated fair value of warrants issued in connection with private
placement financing.
F-17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
================================================================= ==========================================================
No underwriter, dealer, salesperson or any other
person has been authorized to give any information or [Company Logo: InnoPet Brands with
to make any representations other than those
contained in this Prospectus and, if given or made, such an outline of a dog and cat in a box.]
information or representations must not be relied
upon as having been authorized by the Company or
the Underwriter. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction INNOPET BRANDS CORP.
in which such offer or solicitation is not authorized or
in which the person making such offer or solicitation
is not qualified to do so or to any person to whom it is 2,250,000 Units
unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus nor any offer or Each Unit Consisting of
sale made hereunder shall, under any circumstances, One Share of Common Stock and
create any implication that there has been no change One Redeemable Warrant
in the affairs of the Company since the date hereof or
that the information contained in this Prospectus is
correct as of any date subsequent to the date hereof.
----------
TABLE OF CONTENTS PROSPECTUS
----------
Page
Prospectus Summary....................................... 4
Risk Factors............................................. 8
The Company ............................................. 13
Recent Private Placement Financing....................... 13
Concurrent Offering...................................... 13
Use of Proceeds.......................................... 14
Dividend Policy.......................................... 15
Dilution................................................. 15
Capitalization........................................... 16 JOSEPH STEVENS & COMPANY, L.P.
Selected Financial Data.................................. 17
Plan of Operations....................................... 18
Business................................................. 21
Management............................................... 26
Certain Transactions..................................... 29 , 1996
Principal Stockholders ................................. 30
Selling Securityholders.................................. 31
Description of the Company's Securities.................. 32
Shares Eligible for Future Sale.......................... 34
Underwriting............................................. 34
Legal Matters ........................................... 36
Experts.................................................. 36
Additional Information................................... 36
Index to Financial Statements............................ F-1
Until , 1996 (25 days after the date of this Prospectus),
all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be
required to deliver a Prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
================================================================= ==========================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 102(b) of the Delaware General Corporation Law (the "DGCL")
permits a provision in the certificate of incorporation of each corporation
organized thereunder eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Certificate of Incorporation of the Registrant eliminates the personal liability
of directors to the fullest extent permitted by the DGCL.
Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by them
in connection with any nonderivative suit or proceeding, if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interest of the corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
With respect to derivative actions, Section 145 permits a corporation to
indemnify its officers, directors, employees and agents against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such action or suit, provided such person meets the
standard of conduct described in the preceding paragraph, except that no
indemnification is permitted in respect of any claim where such person has been
found liable to the corporation, unless the Court of Chancery or the court in
which such action or suit was brought approves such indemnification and
determines that such person is fairly and reasonably entitled to be indemnified.
Reference is made to Article Eighth of the Certificate of Incorporation
of the Registrant for the provisions which the Registrant has adopted relating
to indemnification of officers, directors, employees and agents.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
Reference is also made to Section 7 of the Underwriting Agreement filed
as Exhibit 1 to this Registration Statement.
The Registrant has purchased directors' and officers' liability
insurance.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses to be incurred in connection with the offering
are as follows:
SEC registration fee...................................$11,915
NASD filing fee.........................................$3,956
NASDAQ listing fee......................................$9,128
Boston Stock Exchange listing fee......................$15,000
Blue Sky expenses and legal fees.......................$35,000
Printing and engraving expenses........................$60,000
Registrar and transfer agent fees and expenses..........$5,000
Accounting fees and expenses...........................$25,000
Legal fees and expenses...............................$125,000
Miscellaneous fees and expenses........................$10,001
TOTAL.................................................$300,000
========
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
From January through March 1996, InnoPet Inc. (the "Parent Company")
contributed capital of $2,221,348 in exchange for 1,182,432 shares of Common
Stock. In June 1996, the Parent Company also purchased 43,497 shares of Common
Stock in exchange for $139,190 in financing.
In June 1996, the employees of the Company also purchased the
corresponding number of shares listed next to their names in exchange for a
3-year interest-bearing note in the amount set forth below:
Shares Consideration
------ -------------
Linda Duke 34,797 $111,350
Marc Duke 417,566 $1,336,213
Robin Hunter 43,497 $139,190
Albert A. Masters 43,497 $139,190
Dana Vaughn 86,993 $278,378
Eric Zurbuchen 17,399 $55,675
Susan Leonhardt 1,740 $5,568
John Jablonski 1,305 $4,176
Francis Daily 435 $1,392
Tara Slack 783 $2,506
Deardra Thompson 783 $2,506
Henry Ford 783 $2,506
Debra Iannaci 522 $1,670
Michael Zealy 522 $1,670
Mary Lou Bole 348 $1,114
Pamela Medlin 261 $835
David Santos 435 $1,392
James Kane 261 $835
Mary Huff 174 $557
Eve Uydess 174 $557
Michelle Raglind 174 $557
--------- ------------
TOTAL 652,449 $2,087,839
Pursuant to a private placement (the "Private Placement Financing") of
units, each unit consisting of a $50,000 10% promissory note and warrants to
purchase 25,000 shares of Common Stock, the following persons purchased from the
Company the number of Private Placement Warrants set forth next to each of their
names during August 1996:
NAME WARRANTS
- ---- --------
Carmine Agnello 25,000
Stanley Arkin 50,000
William Cutolo and Marguerite Cutolo (1) 25,000
Joseph V. DiMauro 25,000
Joseph V. DiMauro, as Custodian for Joseph Robert DiMauro 25,000
Jerry Finkelstein 50,000
Laurence Heller 50,000
Jack Kaster 25,000
Ralph K. Kato IRA 50,000
Steven H. Kessler 25,000
Daniel R. Lee 250,000
Barry J. Lind, Neil G. Blum (2) 50,000
Barry J. Lind, Revocable Trust 50,000
II-2
<PAGE>
NAME WARRANTS
- ---- --------
Peter Maher and Patricia Maher (1) 50,000
Alfred S. Palagonia 50,000
Frank C. Rathge Trust 25,000
M. Jerome Rieger 25,000
Nancy A. Roehl 50,000
Peter G. Roehl 50,000
Francine Urdang 50,000
---------
TOTAL 1,000,000
- ----------
1 Joint tenants with rights of survivorship.
2 Tenants-in-Common.
The sales of the aforementioned securities were made in reliance upon
the exemption from the registration provisions of the Act afforded by section
4(2) thereof and/or Regulation D promulgated thereunder, as transactions by an
issuer not involving a public offering. To the best of the Registrant's
knowledge, the purchasers of the securities described above acquired them for
their own account and not with the view to any distribution thereof to the
public. The placement agent on the Private Placement Financing was Joseph
Stevens & Company, L.P.
Item 27. Exhibits.
The following exhibits are filed as part of this Registration Statement:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
3.2 By-Laws of the Registrant.
4.1 Form of Redeemable Warrant Agreement to be entered
into between Registrant and Continental Stock Transfer
& Trust Co., including form of Redeemable Warrant
Certificate.
4.2 Form of Underwriter's Warrant Agreement including
Form of Underwriter's Warrant Certificate.
4.3 Specimen of Registrant's Common Stock.*
4.4 Form of Private Placement Promissory Note.
4.5 Form of Private Placement Warrant Certificate.
5 Opinion and Consent of Camhy Karlinsky & Stein LLP.
10.1 1996 Stock Option Plan.
10.2 Employment Agreement between Registrant and Marc
Duke with exhibits.
10.3 Employment Agreement between Registrant and Edwin
Christensen with exhibits.
II-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
10.4 Employment Agreement between Registrant and
Linda Duke with exhibits.
10.5 Employment Agreement between Registrant and
Robin Hunter with exhibits.
10.6 Employment Agreement between Registrant and Albert
Masters with exhibits.
10.7 Employment Agreement between Registrant and
Dr. Dana Vaughn with exhibits.
10.8 Facilities Agreement between Registrant and InnoPet
Inc.
10.9 Supply Agreement between the Registrant and Monfort,
Inc.
10.10 Form of Financial Advisory and Consulting Agreement
with Underwriter.
11 Statement re: Computation of Earnings per Share.
23.1 Consent of Camhy Karlinsky & Stein LLP - included in
Exhibit 5.
23.2 Consent of Rachlin Cohen & Holtz.
24 Power of Attorney (contained on page II-6 of this
Registration Statement).
- ----------------------------------
* To be filed by Amendment.
Item 28. Undertakings.
The Registrant hereby undertakes to provide to the Underwriter at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
The Registrant has agreed to indemnify the Underwriter and its officers,
directors, partners, employees, agents and controlling persons as to any losses,
claims, damages, expenses or liabilities arising out of any untrue statement or
omission of a material fact contained in the registration statement. The
Underwriter has agreed to indemnify the Registrant and its directors, officers
and controlling persons as to any losses, claims, damages, expenses or
liabilities arising out of any untrue statement or omission in the registration
statement based on information relating to the Underwriter furnished by it for
use in connection with the registration statement.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
II-4
<PAGE>
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Registrant hereby also undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of Ft.
Lauderdale, State of Florida on September 17, 1996.
INNOPET BRANDS CORP.
By: /s/ Marc Duke
---------------------------------
Marc Duke
Chief Executive Officer and
Chairman of the Board
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Marc Duke and Robin Hunter, separately,
as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments and related registration statements, to this Registration Statement,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do separately and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 has been signed below by the following
persons in the capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Marc Duke Chairman of the Board and September 17, 1996
- ------------------------------- Chief Executive Officer
Marc Duke (Principal Executive Officer)
/s/ Robin Hunter Vice President, Chief Financial September 17, 1996
- ------------------------------- Officer and Secretary
Robin Hunter (Principal Financial and
Accounting Officer)
/s/ Edwin H. Christensen Vice President of Manufacturing September 17, 1996
- ---------------------------- and Director
Edwin H. Christensen
/s/ Albert A. Masters Vice President of Sales September 17, 1996
- ------------------------------ and Director
Albert A. Masters
/s/ Richard P. Greene Director September 17, 1996
- ------------------------------
Richard P. Greene
/s/ Curtis Granet Director September 17, 1996
- ------------------------------
Curtis Granet
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ----------------------- ----
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
3.2 By-Laws of the Registrant.
4.1 Form of Redeemable Warrant Agreement to be entered
into between Registrant and Continental Stock Transfer
& Trust Co., including form of Redeemable Warrant
Certificate.
4.2 Form of Underwriter's Warrant Agreement including
Form of Underwriter's Warrant Certificate.
4.3 Specimens of Registrant's Common Stock.*
4.4 Form of Private Placement Promissory Note.
4.5 Form of Private Placement Warrant Certificate.
5 Opinion and Consent of Camhy Karlinsky & Stein LLP.
10.1 1996 Stock Option Plan.
10.2 Employment Agreement between Registrant and Marc
Duke with exhibits.
10.3 Employment Agreement between Registrant and Edwin
Christensen with exhibits.
10.4 Employment Agreement between Registrant and
Linda Duke with exhibits.
10.5 Employment Agreement between Registrant and
Robin Hunter with exhibits.
10.6 Employment Agreement between Registrant and Albert
Masters with exhibits.
10.7 Employment Agreement between Registrant and
Dr. Dana Vaughn with exhibits.
10.8 Facilities Agreement between Registrant and InnoPet
Inc.
10.9 Supply Agreement between the Registrant and Monfort,
Inc.
10.10 Form of Financial Advisory and Consulting Agreement
with Underwriter.
11 Statement re: Computation of Earnings per Share.
23.1 Consent of Camhy Karlinsky & Stein LLP - included in
Exhibit 5.
23.2 Consent of Rachlin Cohen & Holtz.
24 Power of Attorney (contained on page II-6 of this
Registration Statement).
- ----------------------------
* To be filed by Amendment.
<PAGE>
OHS DRAFT
9/16/96
2,250,000 Units, Each
Unit Consisting of One Share of
Common Stock and One Redeemable Warrant
INNOPET BRANDS CORP.
UNDERWRITING AGREEMENT
New York, New York
September __, 1996
JOSEPH STEVENS & COMPANY, L.P.
33 Maiden Lane, 8th Floor
New York, New York 10038
Ladies and Gentlemen:
InnoPet Brands Corp., a Delaware corporation (the "Company"),
confirms its agreement with Joseph Stevens & Company, L.P. (hereinafter referred
to as "you" or the "Underwriter"), with respect to the sale by the Company and
the purchase by the Underwriter of 2,250,000 units (the "Units"), each Unit
consisting of one (1) share of common stock, $.01 par value (the "Common Stock")
and one (1) redeemable warrant (the "Redeemable Warrants"). Each Redeemable
Warrant is exercisable for one share of Common Stock. The Common Stock and
Redeemable Warrants will be separately tradeable upon issuance and are
hereinafter referred to as the "Firm Units." The Redeemable Warrants are
exercisable commencing ________________, 1996 [the effective date of the
Registration Statement] until _____________, 2001 [60 months from the effective
date of the Registration Statement], unless previously redeemed by the Company,
at an initial exercise price equal to $______ [150% of the initial public
offering price per Unit], per share, subject to adjustment. The Redeemable
Warrants may be redeemed by the Company, in whole, and not in part, at a
redemption price of five cents ($.05) per Redeemable Warrant at any time
commencing ______________, 1997 [12 months after the effective date of the
Registration Statement] on 30 days' prior written notice provided that the
average closing bid price (or sale price) of the Common Stock equals or exceeds
150% of the then exercise price per share (subject to adjustment) for any twenty
(20) trading days within a period of thirty (30) consecutive trading days ending
on the fifth (5th) trading day prior to the date of the notice of redemption and
the Company shall have obtained the prior written consent of the Underwriter.
Upon the Underwriter's request, as provided in Section 2(b) of this Agreement,
the Company shall also issue and sell to the Underwriter up to an additional
337,500 Units for the purpose of covering over-allotments, if any. Such 337,500
Units are hereinafter
<PAGE>
collectively referred to as the "Option Units." The Company also proposes to
issue and sell to the Underwriter or its designees warrants (the "Underwriter's
Warrants"), pursuant to the Underwriter's Warrant Agreement (the "Underwriter's
Warrant Agreement"), for the purchase of an additional 225,000 Units (the
"Underwriter's Units"). The Underwriter's Units, the shares of Common Stock and
the Redeemable Warrants underlying the Underwriter's Units and the shares of
Common Stock issuable upon exercise of the Redeemable Warrants underlying the
Underwriter's Units are hereinafter collectively referred to as the
"Underwriter's Securities." The shares of Common Stock issuable upon exercise of
the Redeemable Warrants, including the Redeemable Warrants underlying the
Underwriter's Units, are hereinafter referred to as the "Warrant Shares."
Further, an additional 1,000,000 Redeemable Warrants (the "Selling
Securityholder Warrants") and 1,000,000 shares of Common Stock underlying the
Selling Securityholder Warrants (the "Selling Securityholder Shares"), are being
registered for the account of certain selling security holders in connection
with this offering which are not being underwritten by the Underwriter. The
Selling Securityholder Warrants and the Selling Securityholder Shares are
hereinafter collectively referred to as the "Selling Securityholder Securities."
The Firm Units, the Option Units, the Underwriter's Warrants, the Underwriter's
Units, the Selling Securityholder Securities and the Warrant Shares are
hereinafter collectively referred to as the "Securities" and are more fully
described in the Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Underwriter as of
the date hereof, and as of the Closing Date (hereinafter defined) and the Option
Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form SB-2 (Registration No. 333-_____), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not file
any other amendment to such registration statement which the Underwriter shall
have objected to in writing after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time it becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to, those documents or that information incorporated by reference
therein) and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430A of the rules and regulations under the
Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
2
<PAGE>
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus and the
Registration Statement and the Prospectus, at the time of filing thereof,
conformed in all material respects with the requirements of the Act and the
Rules and Regulations, and none of the Preliminary Prospectus, the Registration
Statement nor the Prospectus, at the time of filing thereof, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
this representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriter and its proposed method of
distribution of the Units by or on behalf of the Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or the Prospectus.
The Company has filed all reports, forms or other documents required to be filed
by the Company under the Act and the Exchange Act and the respective Rules and
Regulations thereunder, and all such reports, forms or other documents, when so
filed or as subsequently amended, complied in all material respects with the Act
and the Exchange Act and the respective Rules and Regulations thereunder.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter and its proposed method
of distribution of the Units by or on behalf of the Underwriter expressly for
use in the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto.
(d) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its operations
require such qualification or licensing. The Company does not own, directly or
indirectly, an interest in any other corporation, partnership, trust, joint
venture or other business entity. The Company has all requisite power and
authority (corporate and other), and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
conducted on the date hereof
3
<PAGE>
and as described in the Prospectus; the Company is and has been doing business
in compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and with all federal, state, local and
foreign laws, rules and regulations to which it is subject; and the Company has
not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company. The disclosure in the Registration Statement concerning the effects of
federal, state, local and foreign laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all respects
and do not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement (as defined in
Section 1(ff) hereof of this Agreement) and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company on or
prior to the Closing Date and each Option Closing Date, if any, conform or, when
issued and paid for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holder of any security of the Company
or any similar contractual right granted by the Company. The Securities to be
sold by the Company hereunder and pursuant to the Underwriter's Warrant
Agreement and the Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable and conform to
the descriptions thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the Securities,
when delivered by the Company, will be in due and proper form. Upon the issuance
and delivery of the Securities, pursuant to the terms hereof, and pursuant to
the Warrant Agreement and the Underwriter's Warrant Agreement, to be sold by the
Company hereunder and thereunder to the Underwriter, the Underwriter will
acquire good and marketable title to such Securities, free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever asserted against the Company or any
affiliate (within the meaning of the Rules and Regulations) of the Company.
4
<PAGE>
(f) The audited financial statements of the Company and the
notes thereto included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position, income,
changes in stockholders' equity and the results of operations of the Company at
the respective dates and for the respective periods to which they apply. Such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved. There has been no adverse change or development
involving a material prospective change in the condition, financial or
otherwise, or in the earnings, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus;
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conform in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. The financial
information set forth in the Prospectus under the headings "The Company,"
"Summary Financial Information," "Capitalization," "Selected Financial Data" and
"Plan of Operations" fairly presents, on the basis stated in the Prospectus, the
information set forth therein and such financial information has been derived
from or compiled on a basis consistent with that of the audited financial
statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has furnished all information returns
it is required to furnish pursuant to the Code, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriter in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriter of the
Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement, the Warrant Agreement, or the Underwriter's
Warrant Agreement, or (iv) resales of the Securities in connection with the
distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but
not limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees against
such losses and risks generally insured against by comparable businesses. The
Company (i) has not failed to give notice or present any insurance claim with
respect to any insurable matter under the appropriate insurance policy or surety
bond in a due and timely manner, (ii) has no disputes or claims against any
underwriter of such insurance policies or surety bonds, nor has the Company
failed to pay any premiums due and payable thereunder, or (iii) has not failed
to comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company.
5
<PAGE>
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those pertaining to environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
which (i) questions the validity of the capital stock of the Company, this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement (as defined in Section 1(gg) hereof) or of any action taken
or to be taken by the Company pursuant to or in connection with this Agreement,
the Underwriter's Warrant Agreement, the Warrant Agreement or the Consulting
Agreement, (ii) is required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all respects), or (iii) might materially
and adversely affect the condition, financial or otherwise, or the earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Underwriter's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for in such agreements;
and each of this Agreement, the Underwriter's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement have been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement, the Underwriter's
Warrant Agreement, the Warrant Agreement and the Consulting Agreement
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles in any motion,
legal or equitable, and except as obligations to indemnify or contribute to
losses may be limited by applicable law). None of the Company's issue and sale
of the Securities, execution or delivery of this Agreement, the Underwriter's
Warrant Agreement, the Warrant Agreement or the Consulting Agreement, its
performance hereunder or thereunder, its consummation of the transactions
contemplated herein or therein, or the conduct of its business as described in
the Registration Statement and the Prospectus and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (i) the
certificate of incorporation or by-laws of the Company, (ii) any license,
contract, indenture, mortgage, lease, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or other agreement or
instrument evidencing an obligation for borrowed money, or any other agreement
or instrument to which the Company is a party or by which the Company is or may
be bound or to which its properties or assets (tangible or intangible) are or
may be subject, or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties.
6
<PAGE>
(l) No consent, approval, authorization or order of, and no
filing with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement, the Underwriter's Warrant Agreement and the Warrant
Agreement, the performance of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement and the Consulting Agreement and the
transactions contemplated hereby and thereby, except such as have been obtained
under the Act, state securities laws and the rules of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the Underwriter's
purchase and distribution of the Securities.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which the
Company may be bound or to which its assets, properties or business may be
subject have been duly and validly authorized, executed and delivered by the
Company, and constitute legal, valid and binding agreements of the Company,
enforceable against the Company, in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any motion, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law). The descriptions in the Registration Statement of agreements,
contracts and other documents are accurate and fairly present the information
required to be shown with respect thereto by Form SB-2; and there are no
agreements, contracts or other documents which are required by the Act to be
described in the Registration Statement or filed as exhibits to the Registration
Statement which are not described or filed as required; and the exhibits which
have been filed are complete and correct copies of the documents of which they
purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of any class of its capital stock; and,
subsequent to such dates, and except as may otherwise be disclosed in the
Prospectus, there has not been any change in the capital stock, debt (long or
short term) or liabilities of the Company or any material change in the
condition, financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company is or may be bound or to which the
property or assets (tangible or intangible) of the Company is or may be subject.
7
<PAGE>
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and the Company is in
compliance with all federal, state, local and foreign laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company by the United States Department of Labor or any other governmental
agency responsible for the enforcement of any federal, state, local or foreign
laws, rules and regulations relating to employment. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists or is imminent.
(q) The Company does not maintain, sponsor or contribute to
any program or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan" or a "multiemployer plan," as such terms are
defined in Sections 3(2), 3(l) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans").
The Company does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(r) Neither the Company, nor any of its respective employees,
directors, stockholders or affiliates (within the meaning of the Rules and
Regulations), has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in, under the Exchange Act or otherwise, the stabilization or
manipulation of the price of any security of the Company, whether to facilitate
the sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, none of the
trademarks, trade names, service marks, service names, copyrights, patents and
patent applications, and none of the licenses and rights to the foregoing,
presently owned or held by the Company are in dispute or are in conflict with
the right of any other person or entity. The Company (i) owns or has the right
to use, free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever, all trademarks, trade names, service marks, service names,
copyrights, patents and patent applications, and licenses and rights with
respect to the foregoing, used in the conduct of its business as now conducted
8
<PAGE>
or proposed to be conducted without infringing upon or otherwise acting
adversely to the right or claimed right of any person, corporation or other
entity under or with respect to any of the foregoing and (ii) is not obligated
or under any liability whatsoever to make any payments by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any trademark,
trade name, service mark, service name, copyright, patent or patent application
except as set forth in the Registration Statement or the Prospectus. There is no
action, suit, proceeding, inquiry, arbitration, investigation, litigation or
governmental or other proceeding, domestic or foreign, pending or threatened (or
circumstances that may give rise to the same) against the Company which
challenges the exclusive rights of the Company with respect to any trademarks,
trade names, service marks, service names, copyrights, patents, patent
applications or licenses or rights to the foregoing used in the conduct of its
business.
(t) The Company owns and has the unrestricted right to use all
trade secrets, know-how (including all unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
technology, designs, processes, works of authorship, computer programs and
technical data and information that are material to the development,
manufacture, operation and sale of all products and services sold or proposed to
be sold by the Company, free and clear of and without violating any right, lien,
or claim of others, including, without limitation, former employers of its
employees.
(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
currently used in the conduct of business or stated in the Prospectus to be
owned or leased by it, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, other than liens for taxes not yet due and
payable.
(v) Rachlin, Cohen & Holtz whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(w) The holders of all shares of Common Stock of the Company,
including each director, officer and principal stockholder of the Company's
Common Stock, have executed an agreement (collectively, the "Lock-Up
Agreements") pursuant to which he, she or it has agreed, (i) for a period
extending eighteen (18) months following the effective date of the Registration
Statement (the "Lock-Up Period"), not to, directly or indirectly, offer, offer
to sell, sell, grant an option for the purchase or sale of, transfer, assign,
pledge, hypothecate or otherwise encumber (whether pursuant to Rule 144 of the
Rules and Regulations or otherwise) any securities issued or issuable by the
Company, whether or not owned by or registered in the name of such persons, or
dispose of any interest therein, without the prior written consent of the
Underwriter and (ii) for a period extending twenty-four (24) months following
the effective date of the Registration Statement, that all sales of such
securities issued by the Company shall be made through the Underwriter in
accordance with its customary brokerage policies. The Company will cause its
transfer agent to mark an appropriate legend on the face of stock certificates
representing all of such securities and to place "stop transfer" orders on the
Company's stock ledgers.
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(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriter's compensation, as determined by the NASD.
(y) The Units, the Common Stock and the Redeemable Warrants
have been approved for quotation on the Nasdaq SmallCap Market ("Nasdaq") and
approved for listing on the Boston Stock Exchange.
(z) Neither the Company, nor any of its directors, officers,
stockholders, employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or any official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or any other person who was, is or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company or any other such person to any damage or penalty in any civil, criminal
or governmental litigation or proceeding (domestic or foreign), (ii) if not
given in the past, might have had a material and adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company, or (iii) if not continued in the future, might
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(aa) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(bb) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company and no affiliate or associate (as these
terms are defined in the Rules and Regulations) of any of the foregoing persons
or entities, has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
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purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial interest in any contract or agreement to which the Company is
a party or by which the Company may be bound. Except as set forth in the
Prospectus under "Certain Transactions," there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company and
any officer, director or any person listed in the "Principal Stockholders"
section of the Prospectus or any affiliate or associate of any of the foregoing
persons or entities.
(cc) The minute books of the Company have been made available
to the Underwriter, contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of incorporation,
and reflect all transactions referred to in such minutes accurately in all
respects.
(dd) Except and to the extent described in the Prospectus, no
holder of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. Except as set forth in the Prospectus, no person
or entity holds any anti-dilution rights with respect to any securities of the
Company.
(ee) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel (as defined in Section
4(d) herein), shall be deemed a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
(ff) The Company has entered into a warrant agreement,
substantially in the form filed as Exhibit ___ to the Registration Statement
(the "Warrant Agreement"), with Continental Stock Transfer & Trust Company, in
form and substance satisfactory to the Underwriter, with respect to the
Redeemable Warrants and providing for the payment of warrant solicitation fees
contemplated by Section 4(x) hereof. The Warrant Agreement has been duly and
validly authorized by the Company and, assuming due execution by the parties
thereto other than the Company, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law).
(gg) The Company has entered into a financial advisory and
consulting agreement substantially in the form filed as Exhibit ____ to the
Registration Statement (the "Consulting Agreement") with the Underwriter, with
respect to the rendering of consulting services by the Underwriter to the
Company. The Consulting Agreement provides that the Underwriter shall be
retained by the Company commencing on the consummation of the proposed public
offering and ending 24 months thereafter, at a monthly retainer of $2,000, all
of which is payable on consummation of the proposed public offering. The
Consulting Agreement has been duly and validly authorized by the Company and
assuming due execution
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by the parties thereto other than the Company, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law).
(hh) The Company has filed a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and such
Form 8-A has been declared effective by the Commission.
(ii) Each warrant issued in connection with the Private
Placement financing completed in August 1996, (each a "Selling Securityholder
Warrant") has been automatically converted into a Redeemable Warrant without any
action by the holder thereof and all of such Redeemable Warrants, as converted
and the Selling Securityholder Shares, have been registered in the Registration
Statement.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter, and the Underwriter
agree to purchase from the Company, the Firm Units at a price equal to $_____
per Unit [90% of the initial public offering price per Unit].
(b) In addition, on the basis of the representations,
warranties, covenants and agreement, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Units at a price equal to
$_____ per Unit [90% of the initial public offering price per Unit]. The option
granted hereby will expire forty-five (45) days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Units upon notice by the Underwriter to
the Company setting forth the number of Option Units as to which the Underwriter
is then exercising the option and the time and date of payment and delivery for
any such Option Units. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Underwriter, but shall not be later than seven
(7) full business days after the exercise of said option, nor in any event prior
to the Closing Date, unless otherwise agreed upon by the Underwriter and the
Company. Nothing herein contained shall obligate the Underwriter to exercise the
option granted hereby. No Option Units shall be delivered unless the Firm Units
shall be simultaneously delivered or shall theretofore have been delivered as
herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Units shall be made at the offices of the Underwriter
at 33 Maiden Lane, New York, New York 10038, or at such other place as shall be
agreed upon by the Underwriter and the
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Company. Such delivery and payment shall be made at 10:00 a.m. (New York City
time) on _________, 1996 or at such other time and date as shall be agreed upon
by the Underwriter and the Company, but not less than three (3) nor more than
seven (7) full business days after the effective date of the Registration
Statement (such time and date of payment and delivery being herein called the
"Closing Date"). In addition, in the event that any or all of the Option Units
are purchased by the Underwriter, payment of the purchase price for, and
delivery of certificates for, such Option Units shall be made at the above
mentioned office of the Underwriter or at such other place as shall be agreed
upon by the Underwriter and the Company. Delivery of the certificates for the
Firm Units and the Option Units, if any, shall be made to the Underwriter
against payment by the Underwriter of the purchase price for the Firm Units and
the Option Units, if any, to the order of the Company by New York Clearing House
funds. Certificates for the Firm Units and the Option Units, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriter may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Units and the Option Units, if any, shall be made available to the
Underwriter at such offices or such other place as the Underwriter may designate
for inspection, checking and packaging no later than 9:30 a.m. on the last
business day prior to the Closing Date or the relevant Option Closing Date, as
the case may be.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriter or its designees the Underwriter's Warrants for an aggregate
purchase price of $.0001 per warrant, which warrants shall entitle the holders
thereof to purchase an aggregate of an additional 225,000 Units. The
Underwriter's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement at
a price equaling one hundred and twenty percent (120%) of the initial public
offering price of the Units. The Underwriter's Warrant Agreement and the form of
the certificates for the Underwriter's Warrant shall be substantially in the
form filed as Exhibit ____ to the Registration Statement. Payment for the
Underwriter's Warrants shall be made on the Closing Date.
3. Public Offering of the Units. As soon after the
Registration Statement becomes effective as the Underwriter deems advisable, the
Underwriter shall make a public offering of the Firm Units and such of the
Option Units as the Underwriter may determine (other than to residents of or in
any jurisdiction in which qualification of the Units is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the Units has been completed to such
extent as the Underwriter, in its sole discretion, deems advisable. The
Underwriter may enter into one or more agreements as the Underwriter, in its
sole discretion, deems advisable with one or more broker-dealers who shall act
as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any
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<PAGE>
time, whether before or after the effective date of the Registration Statement,
file any amendment to the Registration Statement or supplement to the Prospectus
or file any document under the Act or the Exchange Act before termination of the
offering of the Securities to the public by the Underwriter, of which the
Underwriter shall not previously have been advised and furnished with a copy, or
to which the Underwriter shall have objected or which is not in compliance with
the Act, the Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriter and confirm the same in
writing, (i) when the Registration Statement, as amended, becomes effective,
when any post-effective amendment to the Registration Statement becomes
effective and, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding the outcome of which may
result in the suspension of the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the receipt of any comments from the Commission, and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If the
Commission or any state securities regulatory authority shall enter a stop order
or suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriter) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if
applicable and if consented to by the Underwriter, pursuant to Rule 424(b)(4) of
the Rules and Regulations) within the time period specified in Rule 424(b)(1)
(or, if applicable and if consented to by the Underwriter, Rule 424(b)(4)).
(d) The Company will give the Underwriter notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
in connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the Underwriter
or Orrick, Herrington & Sutcliffe LLP, its counsel ("Underwriter's Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the
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Securities for offering and sale under the securities laws of such jurisdictions
as the Underwriter may reasonably designate to permit the continuance of sales
and dealings therein for as long as may be necessary to complete the
distribution contemplated hereby, and shall make such applications, file such
documents and furnish such information as may be required for such purpose;
provided, however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Exchange Act and the Rules
and Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriter's Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
prospectus to comply with the Act, the Company will notify the Underwriter
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriter's Counsel, and the Company will
furnish to the Underwriter copies of such amendment or supplement as soon as
available and in such quantities as the Underwriter may request.
(g) As soon as practicable, but in any event not later than
forty five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the Underwriter,
an earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11(a) of the Act and Rule
158(a) of the Rules and Regulations, which statement need not be audited unless
required by the Act, covering a period of at least twelve (12) consecutive
months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings and will deliver to the
Underwriter:
i) concurrently with furnishing such quarterly
reports to its stockholders statements of income of the
Company for such quarter in the form
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<PAGE>
furnished to the Company's stockholders and certified by the
Company's principal financial and accounting officer;
ii) concurrently with furnishing such annual reports
to its stockholders, a balance sheet of the Company as at the
end of the preceding fiscal year, together with statements of
operations, stockholders' equity and cash flows of the Company
for such fiscal year, accompanied by a copy of the report
thereon of the Company's independent certified public
accountants;
iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with
the Commission, the NASD or any securities exchange;
v) every press release and every material news item
or article of interest to the financial community in respect
of the Company or its affairs which was released or prepared
by or on behalf of the Company; and
vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
business which the Underwriter may request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for the Units,
the Common Stock and the Redeemable Warrants.
(j) The Company will furnish to the Underwriter, without
charge and at such place as the Underwriter may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which will be signed and will include
all financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Underwriter may request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Underwriter with originally-executed
copies of duly executed, legally binding and enforceable Lock-Up Agreements
which are in form and substance satisfactory to the Underwriter. On or before
the Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the certificates
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representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of eighteen (18)
months commencing on the effective date of the Registration Statement, and
except as contemplated by this Agreement, it and its present and future
subsidiaries will not, without the prior written consent of the Underwriter (i)
issue, sell, contract or offer to sell, grant an option for the purchase or sale
of, assign, transfer, pledge, distribute or otherwise dispose of, directly or
indirectly, any shares of capital stock or any option, right or warrant with
respect to any shares of capital stock or any security convertible, exchangeable
or exercisable for capital stock, except pursuant to stock options or warrants
issued by the Company or any other person or entity on the date hereof or (ii)
file any registration statement for the offer or sale by the Company or any
other person or entity securities issued or to be issued by the Company or any
present or future subsidiaries.
(m) Neither the Company nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of
the Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(j) hereof.
(q) The Company shall cause the Units, the Common Stock and
the Redeemable Warrants to be quoted on Nasdaq and listed on the Boston Stock
Exchange and, for a period of seven (7) years from the date hereof, use its best
efforts to maintain the Nasdaq quotation and the Boston Stock Exchange listing
of the Units, the Common Stock and the Redeemable Warrants to the extent
outstanding.
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(r) For a period of five (5) years from the Closing Date, the
Company shall at the request of the Underwriter, furnish or cause to be
furnished to the Underwriter and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Units, the Common Stock and the
Redeemable Warrants and (ii) a list of holders of all of the Company's
securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Underwriter, upon any and all requests of the Underwriter, with a "blue sky
trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty
(30) days after the effective date of the Registration Statement, the Company
agrees to take all necessary and appropriate actions to be included in Standard
and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such
inclusion for a period of not less than seven (7) years.
(u) Without the prior written consent of the Underwriter, the
Company hereby agrees that it will not, for a period of eighteen (18) months
from the effective date of the Registration Statement, (i) adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or arrangement permitting the grant, issue, sale or entry
into any agreement to grant, issue or sell any option, warrant or other contract
right (x) at an exercise price that is less than the greater of (a) the initial
public offering price of the Units set forth herein and (b) the fair market
value per share of Common Stock on the date of grant or sale or (y) to any of
its executive officers or directors or to any holder of five percent (5%) or
more of the Common Stock or any holder of five percent (5%) or more of the
Common Stock as the result of the exercise or conversion of equivalent
securities, including, but not limited to options, warrants or other contract
rights and securities convertible, directly or indirectly, into shares of Common
Stock or any affiliate of the foregoing; (ii) permit the maximum number of
shares of Common Stock or other securities of the Company purchasable at any
time pursuant to options, warrants or other contract rights to exceed [400,000]
shares of Common Stock, excluding the Underwriter's Warrants and the Redeemable
Warrants; (iii) permit the existence of stock appreciation rights, phantom
options or similar arrangements; or (iv) permit the payment for such securities
with any form of consideration other than cash.
(v) Until the completion of the distribution of the Units to
the public, and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of the
Underwriter, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
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(w) For a period of five (5) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual selected
by the Underwriter, subject to the good faith approval of the Company, to be
elected to the Board of Directors of the Company (the "Board"), if requested by
the Underwriter. In the event the Underwriter shall not have designated such
individual at the time of any meeting of the Board or such person has not been
elected or is unavailable to serve, the Company shall notify the Underwriter of
each meeting of the Board. An individual selected by the Underwriter shall be
permitted to attend all meetings of the Board and to receive all notices and
other correspondence and communications sent by the Company to members of the
Board. The Company shall reimburse the Underwriter's designee for his or her
out-of-pocket expenses reasonably incurred in connection with his or her
attendance of the Board meetings.
(x) Commencing one year from the date hereof, to pay the
Underwriter a warrant solicitation fee equal to five percent (5%) of the
exercise price of the Redeemable Warrants, payable on the date of the exercise
thereof on terms provided in the Warrant Agreement. The Company will not solicit
the exercise of the Redeemable Warrants through any solicitation agent other
than the Underwriter. The Underwriter will not be entitled to any warrant
solicitation fee unless the Underwriter provides bona fide services in
connection with any warrant solicitation and the investor designates, in
writing, that the Underwriter is entitled to such fee.
(y) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Underwriter's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 or S-1 (or other appropriate form) for
the registration under the Act of the Underwriter's Securities.
(z) For a period of twenty four (24) months after the
effective date of the Registration Statement, the Company shall not restate,
amend or alter any term of any written employment, consulting or similar
agreement entered into between the Company and any officer, director or key
employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of the Underwriter.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five years after the
date hereof.
(bb) The Company agrees that, for a period of three (3) years
beginning with the effective date of the Registration Statement, the Underwriter
shall have a right of first refusal for all sales of any securities made by the
Company or any of its present or future affiliates or subsidiaries.
(cc) The Company agrees, that for a period of twenty-four (24)
months from the effective date of the Registration Statement, it will not
without the prior written consent of the Underwriter (i) declare or pay any
dividend or make any other distribution on any equity securities of the Company,
(ii) purchase, redeem or otherwise acquire or retire for value any equity
securities of the Company, except for the Redeemable Warrants, or (iii) permit a
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subsidiary of the Company to purchase, redeem or otherwise acquire or retire for
value any equity securities of the Company, except for the Redeemable Warrants.
5. Payment of Expenses.
(a) The Company hereby agrees to pay (such payment to be made,
at the discretion of the Underwriter, on the Closing Date and any Option Closing
Date (to the extent not paid on the Closing Date or a previous Option Closing
Date)) all expenses and fees (other than fees of Underwriter's Counsel) incident
to the performance of the obligations of the Company under this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) of the Registration Statement
and the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage, overnight delivery or courier charges
with respect thereto) and delivery of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement, and agreements with selected dealers, and
related documents, including the cost of all copies thereof and of each
Preliminary Prospectus and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Underwriter and such dealers as the
Underwriter may request, in such quantities as the Underwriter may request,
(iii) the printing, engraving, issuance and delivery of the Securities, (iv) the
qualification of the Securities under state or foreign securities or "blue sky"
laws and determination of the status of such securities under legal investment
laws, including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection therewith,
(v) advertising costs and expenses, including, but not limited to costs and
expenses in connection with "road shows," information meetings and
presentations, bound volumes and prospectus memorabilia and "tombstone"
advertisement expenses, (vi) costs and expenses in connection with due diligence
investigations, including, but not limited to, the fees of any independent
counsel or consultants, (vii) fees and expenses of a transfer and warrant agent
and registrar for the Securities, (viii) applications for assignments of a
rating of the Securities by qualified rating agencies, (ix) the fees payable to
the Commission and the NASD, and (x) the fees and expenses incurred in
connection with the quotation of the Securities on Nasdaq and listing on the
Boston Stock Exchange and any other exchange.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof,
the Company shall reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of Underwriter's
Counsel, less any amounts already paid pursuant to Section 5(c) hereof. In
addition, the Company shall remain liable for all Blue Sky counsel fees and
expenses and Blue Sky filing fees.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to Section 5(a) hereof, it will pay to the Underwriter
on the Closing Date by certified or bank cashier's check, or, at the election of
the Underwriter, by deduction from the proceeds
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<PAGE>
of the offering of the Firm Units, a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds received by the Company from the sale
of the Firm Units, twenty-five thousand dollars ($25,000) of which has been paid
to date by the Company. In the event the Underwriter elects to exercise the
overallotment option described in Section 2(b) hereof, the Company further
agrees to pay to the Underwriter on each Option Closing Date, by certified or
bank cashier's check, or, at the Underwriter's election, by deduction from the
proceeds of the Option Units purchased on such Option Closing Date, a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of such Option Units.
6. Conditions of the Underwriter's Obligations. The
obligations of the Underwriter hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date and each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date and each
Option Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; the performance by the Company on and as of
the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriter, and,
at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriter's Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Units and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriter of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material, or omits to
state a fact which, in the Underwriter's opinion, is material and is required to
be stated therein or is necessary to make the statements therein, in light of
the circumstances in which they were made not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Underwriter's opinion, is material, or omits to state a fact
which, in the Underwriter's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
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<PAGE>
(c) On or prior to the Closing Date, the Underwriter shall
have received from Underwriter's Counsel such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Underwriter may request and Underwriter's Counsel shall have received such
papers and information as they may request in order to enable them to pass upon
such matters.
(d) On the Closing Date, the Underwriter shall have received
the favorable opinion of Camhy Karlinsky & Stein LLP, counsel to the Company,
dated the Closing Date, addressed to the Underwriter, in form and substance
satisfactory to Underwriter's Counsel, to the effect that:
i) The Company (A) has been duly organized and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, (B) is duly
qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all
requisite power and authority (corporate and other) and has
obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its
properties and conduct its business as described in the
Prospectus; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits obtained by it
from governmental or regulatory officials and agencies and all
federal, state, local and foreign laws, rules and regulations
to which it is subject; and, the Company has not received any
notice of proceedings relating to the revocation or
modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in
the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the
condition, financial or otherwise, or the earnings, prospects,
stockholders' equity, value, operations, properties, business
or results of operations of the Company. The disclosure in the
Registration Statement concerning the effects of federal,
state, local and foreign laws, rules and regulations on the
Company's business as currently conducted and as contemplated
are correct in all respects and do not omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading;
ii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus
under "Capitalization" and except as set forth in the
Prospectus, the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement and as described
in the Prospectus. The Securities and all other securities
issued or issuable by the
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<PAGE>
Company conform, or when issued and paid for, will conform, in
all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of
rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or any
similar contractual right granted by the Company. The
Securities to be sold by the Company hereunder and under the
Underwriter's Warrant Agreement and the Warrant Agreement are
not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms
hereof and thereof, will be validly issued, fully paid and
non-assessable and conform to the descriptions thereof
contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate
action required to be taken for the authorization, issue and
sale of the Securities has been duly and validly taken; and
the certificates representing the Securities are in due and
proper form. The Underwriter's Warrants constitute valid and
binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement of
the Securities to be sold by the Company hereunder and
thereunder, the Underwriter will acquire good and marketable
title to such Securities, free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever asserted against
the Company or any affiliate (within the meaning of the Rules
and Regulations) of the Company. No transfer tax is payable by
or on behalf of the Underwriter in connection with (A) the
issuance by the Company of the Securities, (B) the purchase by
the Underwriter of the Securities from the Company, (C) the
consummation by the Company of any of its obligations under
this Agreement, the Underwriter's Warrant Agreement or the
Warrant Agreement, or (D) resales of the Securities in
connection with the distribution contemplated hereby;
iii) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or the Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending, threatened
or contemplated under the Act;
iv) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments
or supplements thereto (other than the financial statements
and schedules and other financial and statistical data
included
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<PAGE>
therein, as to which no opinion need be rendered) comply as to
form in all material respects with the requirements of the Act
and the Rules and Regulations;
v) to such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act
to be described in the Registration Statement and the
Prospectus or required to be filed as exhibits to the
Registration Statement (or required to be filed under the
Exchange Act if upon such filing they would be incorporated,
in whole or in part, by reference therein) other than those
described in the Registration Statement and the Prospectus and
filed as exhibits thereto, and the exhibits which have been
filed are correct copies of the documents of which they
purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment
thereto of agreements, contracts and other documents to which
the Company is a party or by which the Company is bound are
accurate and fairly represent the information required to be
shown by Form SB-2; (C) there is no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or
governmental proceeding (including, without limitation, those
pertaining to environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that
may give rise to the same), or involving the properties or
business of, the Company which (I) is required to be disclosed
in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration
Statement are accurately summarized in all respects), or (II)
questions the validity of the capital stock of the Company or
of this Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement or the Consulting Agreement or of any action
taken or to be taken by the Company pursuant to or in
connection with any of the foregoing; (D) no statute or
regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and
(E) there is no action, suit or proceeding pending or
threatened against or affecting the Company before any court,
arbitrator or governmental body, agency or official (or any
basis thereof known to such counsel) in which there is a
reasonable possibility of an adverse decision which may result
in a material adverse change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity,
value, operation, properties, business or results of
operations of the Company taken as a whole, which could
adversely affect the present or prospective ability of the
Company to perform its obligations under this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement or which in any manner draws into
question the validity or enforceability of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement;
vi) the Company has full legal right, power and
authority to enter into each of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement and to consummate the transactions
provided for herein and therein; and each of this Agreement,
the Underwriter's Warrant Agreement, the Warrant Agreement and
the Consulting Agreement has been duly authorized, executed
and delivered by the Company. Each of this
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<PAGE>
Agreement, the Underwriter's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement, assuming due
authorization, execution and delivery by each other party
thereto, constitutes a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance
with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the
application of equitable principles in any action, legal or
equitable, and except as obligations to indemnify or
contribute to losses may be limited by applicable law). None
of the Company's execution or delivery of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated
herein and therein, or the conduct of the Company's business
as described in the Registration Statement and the Prospectus
and any amendments or supplements thereto, conflicts with or
will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or result in the creation
or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (A) the
certificate of incorporation or bylaws of the Company, (B) any
license, contract, indenture, mortgage, lease, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by
which the Company is or may be bound or to which its
properties or assets (tangible or intangible) are or may be
subject, (C) any statute applicable to the Company or (D) any
judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body
(including, without limitation, those having jurisdiction over
environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or
properties;
vii) no consent, approval, authorization or order of,
and no filing with, any arbitrator, court, regulatory body,
administrative agency, government agency or other body,
domestic or foreign (other than such as may be required under
"blue sky" laws, as to which no opinion need be rendered), is
required in connection with the issuance of the Securities
pursuant to the Prospectus, the Registration Statement, this
Agreement, the Underwriter's Warrant Agreement and the Warrant
Agreement, or the performance of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement and the transactions contemplated hereby
and thereby;
viii) the properties and business of the Company conform
to the description thereof contained in the Registration
Statement and the Prospectus; and the Company has good and
marketable title to, or valid and enforceable
25
<PAGE>
leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, in each
case free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than
those referred to in the Prospectus and liens for taxes not
yet due and payable;
ix) the Company is not in breach of, or in default
under, any term or provision of any license, contract,
indenture, mortgage, lease, deed of trust, voting trust
agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the
Company is or may be bound or to which its property or assets
(tangible or intangible) are or may be subject; and the
Company is not in violation of any term or provision of (A)
its certificate of incorporation or by-laws, (B) any
authorization, approval, order, license, certificate,
franchise or permit of any governmental or regulatory official
or body, or (C) any judgement, decree, order, statute, rule or
regulation to which it is subject;
x) the statements in the Prospectus under "Prospectus
Summary," "Risk Factors," "The Company," "Recent Bridge
Financings," "Concurrent Offering," "Business," "Management,"
"Principal Stockholders," "Selling Securityholders," "Certain
Transactions," "Shares Eligible For Future Sale," and
"Description of Securities" have been reviewed by such
counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
xi) the Units, the Common Stock and the Redeemable
Warrants have been accepted for quotation on Nasdaq and
listing on the Boston Stock Exchange;
xii) the Company owns or possesses, free and clear of
all liens or encumbrances and right thereto or therein by
third parties, the requisite licenses or other rights to use
all trademarks, service marks, copyrights, service names,
tradenames, patents, patent applications and licenses
necessary to conduct its business (including without
limitation any such licenses or rights described in the
Prospectus as being owned or possessed by the Company) and
there is no claim or action by any person pertaining to, or
proceeding, pending or threatened, which challenges the
exclusive rights of the Company with respect to any
trademarks, service marks, copyrights, service names, trade
names, patents, patent applications and licenses used in the
conduct of the Company's business (including, without
limitation, any such licenses or rights described in the
Prospectus as being owned or possessed by the Company);
xiii) the persons listed under the captions "Principal
Stockholders" and "Selling Securityholders" in the Prospectus
are the respective "beneficial owners" (as such phrase is
defined in Rule 13d-3 under the Exchange Act) of the
securities
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<PAGE>
set forth opposite their respective names thereunder as and to
the extent set forth therein;
xiv) except as disclosed in the Prospectus, no person,
corporation, trust, partnership, association or other entity
has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any
security in such registration statement;
xv) there are no claims, payments, issuances,
arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriter's compensation, as determined by the NASD; and
xvi) assuming due execution by the parties thereto, the
Lock-Up Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against such parties and any
subsequent holder of the securities subject thereto in
accordance with their terms.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriter's
Counsel) of other counsel acceptable to Underwriter's Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written
27
<PAGE>
statements of responsible officers of the Company and certificates or other
written statements of officers of departments of jurisdictions having custody of
documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to Underwriter's Counsel, if requested. The opinion of such counsel for the
Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Underwriter and they are justified in
relying thereon. Such opinion shall also state that Underwriter's Counsel is
entitled to rely thereon. Such opinion shall not state that it is to be governed
or qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991)
or any comparable state accord.
At each Option Closing Date, if any, the Underwriter shall
have received the favorable opinion of Camhy, Karlinsky & Stein LLP counsel to
the Company, dated the relevant Option Closing Date, addressed to the
Underwriter, and in form and substance satisfactory to Underwriter's Counsel
confirming as of the Option Closing Date, the statements made by Camhy,
Karlinsky & Stein LLP in its opinion delivered on the Closing Date.
(e) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriter's Counsel shall have been furnished with such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
Section 6(c) hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(f) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
or the earnings, stockholders' equity, value, operations, properties, business
or results of operations of the Company, whether or not in the ordinary course
of business, from the latest dates as of which such matters are set forth in the
Registration Statement and the Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and the Prospectus; (iii) the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any securities
(other than the Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there shall not
have been any change in the capital stock, debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise) from the
latest dates as of which such matters are set forth in the Registration
Statement and the Prospectus; (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and the Prospectus; (vi) no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
28
<PAGE>
financial or otherwise, or the earnings, stockholders' equity, value,
operations, properties, business or results of operations of the Company taken
as a whole, except as set forth in the Registration Statement and Prospectus;
and (vii) no stop order shall have been issued under the Act with respect to the
Registration Statement and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(g) At the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as
of the Closing Date or the Option Closing Date, as the case
may be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus or any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading and neither the Preliminary
Prospectus nor any supplement thereto included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) the Company has not incurred any material
liabilities or obligations, direct or contingent; (B) the
Company has not paid or declared any dividends or other
distributions on its capital stock; (C) the Company has not
entered into any transactions not in the ordinary course of
business; (D) there has not been any change in the capital
stock or long-term debt or any increase in the short-term
borrowings (other than any increase in short-term borrowings
in the ordinary course of business) of the Company; (E) the
Company has not sustained any material loss or damage to its
property or assets, whether or not insured; (F) there is no
litigation which is
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<PAGE>
pending or threatened (or circumstances giving rise to same)
against the Company or any affiliate (within the meaning of
the Rules and Regulations) of the foregoing which is required
to be set forth in an amended or supplemented Prospectus which
has not been set forth; and (G) there has occurred no event
required to be set forth in an amended or supplemented
Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this Section 6(g)
are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriter will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriter
shall have received a letter, dated such date, addressed to the Underwriter and
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter and Underwriter's Counsel, from Rachlin, Cohen & Holtz.
i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations;
ii) stating that it is their opinion that the
consolidated financial statements of the Company included in
the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations and that the Underwriter may
rely upon the opinion of Rachlin, Cohen & Holtz with respect
to such financial statements and supporting schedules included
in the Registration Statement;
iii) stating that, on the basis of a limited review
which included a reading of the latest unaudited interim
financial statements of the Company, a reading of the latest
available minutes of the stockholders and board of directors
and the various committees of the board of directors of the
Company, consultations with officers and other employees of
the Company responsible for financial and accounting matters
and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A)
the unaudited financial statements and supporting schedules of
the Company included in the Registration Statement do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements of the Company included in the Registration
Statement, or (B) at a specified date nor more than five (5)
days prior to the effective date of the Registration
Statement, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the
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<PAGE>
stockholders' equity or net current assets or net assets of
the Company as compared with amounts shown in the June 30,
1996 balance sheet included in the Registration Statement,
other than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (C) during
the period from June 30, 1996 to a specified date not more
than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net
revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period
beginning March 31, 1996, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
iv) setting forth, at a date not later than five (5)
days prior to the effective date of the Registration
Statement, the amount of liabilities of the Company (including
a break-down of commercial paper and notes payable to banks);
v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus, in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an audit in accordance
with generally accepted auditing standards) set forth in the
letter and found them to be in agreement; and
vi) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriter may
request.
(j) At the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received from Rachlin, Cohen & Holtz a letter, dated
as of the Closing Date or the relevant Option Closing Date, as the case may be,
to the effect that (i) it reaffirms the statements made in the letter furnished
pursuant to Section 6(i), (ii) if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that Rachlin, Cohen & Holtz
has carried out procedures as specified in clause (v) of Section 6(i) hereof
with respect to certain amounts, percentages and financial information as
specified by the Underwriter and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(k) The Company shall have received a letter, dated such date,
addressed to the Company, in form and substance satisfactory in all respects to
the Underwriter, from Rachlin, Cohen & Holtz stating that they have not during
the immediately preceding five (5) year period brought to the attention of the
Company's management any "weakness," as defined
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<PAGE>
in Statement of Auditing Standard No. 60 "Communication of Internal Control
Structure Related Matters Noted in an Audit," in any of the Company's internal
controls.
(l) On each of the Closing Date and Option Closing Date, if
any, there shall have been duly tendered to the Underwriter the appropriate
number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to Section 4(e) hereof shall
have been issued on either the Closing Date or the Option Closing Date, if any,
and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(n) On or before the effective date of the Registration
Statement, the Company shall have executed and delivered to the Underwriter, the
Underwriter's Warrant Agreement, substantially in the form filed as Exhibit to
the Registration Statement. On or before the Closing Date, the Company shall
have executed and delivered to the Underwriter the Underwriter's Warrants in
such denominations and to such designees as shall have been provided to the
Company.
(o) On or before Closing Date, the Units, the Common Stock and
the Redeemable Warrants shall have been duly approved for quotation on Nasdaq,
subject to official notice of issuance and listing on the Boston Stock Exchange.
(p) On or before Closing Date, there shall have been delivered
to the Underwriter all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriter's Counsel.
(q) On or before the Closing Date, the Company shall have (i)
executed and delivered to the Underwriter the Consulting Agreement,
substantially in the form filed as Exhibit ____ to the Registration Statement
and (ii) paid the Underwriter $48,000 representing the retainer fee pursuant to
the Consulting Agreement.
(r) On or before the effective date of the Registration
Statement, the Company and Continental Stock Transfer & Trust Company shall have
executed and delivered to the Underwriter the Warrant Agreement, substantially
in the form filed as Exhibit to the Registration Statement.
(s) At least two (2) full business days prior to the date
hereof, the Closing Date and each Option Closing Date, if any, the Company shall
have delivered to the Underwriter the unaudited interim consolidated financial
statements required to be so delivered pursuant to Section 4(p) of this
Agreement.
If any condition to the Underwriter's obligations hereunder to
be fulfilled prior to or at the Closing Date or at any Option Closing Date, as
the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
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<PAGE>
7. Indemnification
(a) The Company agrees to indemnify and hold harmless the
Underwriter (for purposes of this Section 7, "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter), and each person, if any, who controls the Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions, proceedings,
investigations, inquiries and suits in respect thereof), whatsoever (including
but not limited to any and all costs and expenses whatsoever reasonably incurred
in investigating, preparing or defending against such action, proceeding,
investigation, inquiry or suit commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act or any other statute
or at common law or otherwise or under the laws of foreign countries, arising
out of or based upon (A) any untrue statement or alleged untrue statement of a
material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any application or
other document or written communication (in this Section 7, collectively
referred to as "applications") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the NASD, Nasdaq or any securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances in which they were made); or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this Section 7(a) shall be in addition to any liability which the Company may
have at common law or otherwise.
(b) The Underwriter agrees, to indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto or in any application made in
reliance upon, and in strict conformity with, written information furnished to
the Company with respect to the Underwriter by the Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or the Prospectus directly
33
<PAGE>
relating to the transactions effected by the Underwriter in connection with the
offering contemplated hereby. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition to
any liability which the Underwriter may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it or they may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, an indemnified party shall
have the right to employ its own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of such counsel shall have been authorized in writing
by the indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to one or all of the
indemnifying parties (in which event the indemnifying parties shall not have the
right to direct the defense of such action, investigation, inquiry, suit or
proceeding on behalf of the indemnified party or parties), in any of which
events such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action, investigation, inquiry, suit or proceeding or separate but
similar or related actions, investigations, inquiries, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written consent
of the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party. Anything in this Section
34
<PAGE>
7 to the contrary notwithstanding, an indemnifying party shall not be liable for
any settlement of any claim or action effected without its written consent;
provided, however, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriter is the indemnified party, the relative benefits received by
the Company, on the one hand, and the Underwriter, on the other, shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting discounts
received by the Underwriter hereunder, in each case as set forth in the table on
the cover page of the Prospectus. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriter, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions, investigations, inquiries, suits or proceedings in
respect thereof) referred to in the first (1st) sentence of this Section 7(d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action, claim, investigation, inquiry suit or proceeding. Notwithstanding the
provisions of this Section 7(d), the Underwriter shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriter hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7(d), each person, if
any, who controls the Company or the Underwriter within the meaning of the Act,
each officer of the Company who has signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company or the Underwriter, as the case may be, subject in each case to this
Section 7(d). Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit, inquiry, investigation or
proceeding, against such party in respect to which a claim for contribution may
be made against
35
<PAGE>
another party or parties under this Section 7(d), notify such party or parties
from whom contribution may be sought, but the omission to so notify such party
or parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have hereunder or otherwise than under
this Section 7(d), or to the extent that such party or parties were not
adversely affected by such omission. Notwithstanding anything in this Section 7
to the contrary, no party will be liable for contribution with respect to the
settlement of any action or claim effected without its written consent. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution agreements contained in Section 7 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Underwriter, the Company, any controlling person of the
Underwriter or the Company, and shall survive the termination of this Agreement
or the issuance and delivery of the Securities to the Underwriter.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriter, in its discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to Section 10(b) hereof, the Underwriter shall
have the right to terminate this Agreement: (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Underwriter's opinion will in the immediate future materially adversely disrupt,
the financial markets; or (ii) if any material adverse change in the financial
markets shall have occurred; or (iii) if trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock
Exchange, the Commission or any governmental authority having jurisdiction over
such matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities, or
a national emergency shall have been declared in the United States; or (vi) if a
banking moratorium shall have been declared by any
36
<PAGE>
state or federal authority; or (vii) if a moratorium in foreign exchange trading
shall have been declared; or (viii) if the Company shall have sustained a
material or substantial loss by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Underwriter's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (ix) if there
shall have occurred any outbreak or escalation of hostilities or any calamity or
crisis or there shall have been such a material adverse change in the conditions
or prospects of the Company, or if there shall have been such a material adverse
change in the general market, political or economic conditions, in the United
States or elsewhere, as in the Underwriter's judgment would make it inadvisable
to proceed with the offering, sale and/or delivery of the Securities:
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof
the Company shall promptly reimburse and indemnify the Underwriter for all its
actual out-of-pocket expenses, including the fees and disbursements of
Underwriter's Counsel, less amounts previously paid pursuant to Section 5(c)
hereof. In addition, the Company shall remain liable for all "blue sky" counsel
fees and expenses and "blue sky" filing fees. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement (including, without limitation, pursuant to Sections 6, 10(a)
and 11 hereof), and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 and Section 7 shall not be in any way be affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof.
11. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Units to be purchased on an Option Closing Date, the Underwriter may,
at its option, by notice from the Underwriter to the Company, terminate the
Underwriter's obligation to purchase Option Units from the Company on such date)
without any liability on the part of any non-defaulting party other than
pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant
to this Section 11 shall relieve the Company from liability, if any, in respect
of such default.
12. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at Joseph Stevens & Company, L.P., 33 Maiden Lane, 8th Floor, New
York, New York 10038, Attention: Mr. Joseph Sorbara, with a copy to Orrick,
Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Rubi Finkelstein, Esq. Notices to the Company shall be directed to
the Company at InnoPet Brands Corp., 1 East Broward Boulevard, Suite 1100, Fort
Lauderdale, Florida 33301, Attention: Marc Duke, Chairman of the Board and Chief
Executive Officer, with a copy to Camhy, Karlinsky & Stein LLP, 1740 Broadway,
16th Floor, New York, New York 10019, Attention: Robert S. Matlin, Esq.
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<PAGE>
13. Parties. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Units from the Underwriter shall be deemed to be a
successor by reason merely of such purchase.
14. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof and thereof. This Agreement may not be amended except in a writing signed
by the Underwriter and the Company.
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If the foregoing correctly sets forth the understanding
between the Underwriter and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
INNOPET BRANDS CORP.
By:_______________________________________
Name: Marc Duke
Title: Chairman of the Board
and Chief Executive Officer
Confirmed and accepted as of
the date first above written.
JOSEPH STEVENS & COMPANY, L.P.
By:________________________________________
Name:
Title:
39
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INNOPET PRODUCTS CORP.
INNOPET PRODUCTS CORP. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by the
unanimous written consent of its members, adopted resolutions proposing and
declaring advisable the following amendments to the Certificate of Incorporation
of the Corporation. The resolutions setting forth the proposed amendment are as
follows:
RESOLVED, that Article FIRST of the Certificate of
Incorporation of the Corporation be amended to read as
follows:
"FIRST: The name of the Corporation is InnoPet Brands Corp."
RESOLVED, that Article FOURTH of the Certificate of
Incorporation of the Corporation be amended to read as
follows:
"FOURTH: Authorized Shares.
1. The aggregate number of shares which the Corporation shall
have authority to issue is 30,000,000, of which 5,000,000
shares shall be designated Preferred Shares, with a par value
of $0.01 per share, and 25,000,000 shares shall be designated
Common Shares, with a par value of $0.01 per share.
2. Authority is hereby expressly granted to the Board of
Directors from time to time to issue the Preferred Shares as
Preferred Shares of any series and, in connection with the
creation of such series, to fix by the resolution or
resolutions providing for the issue of shares thereof, the
number of shares of such series, and the designations, powers,
preferences, and rights and the qualifications, limitations,
and restrictions, of such series, to the
<PAGE>
full extent now or hereafter permitted by the laws of the
State of Delaware."
SECOND: That in lieu of a meeting and vote of stockholders,
the stockholder has given unanimous written consent to said amendments in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed by Marc Duke, its Chairman of the Board and
Chief Executive Officer, this 17th day of May, 1996.
INNOPET PRODUCTS CORP.
By: /s/ Marc Duke
-------------------------------------------
Name: Marc Duke
Title: Chairman of the Board and
Chief Executive Officer
-2-
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
InnoPet Products Corp.
FIRST. The name of the Corporation is InnoPet Products Corp.
SECOND. The address of the Corporation's registered office in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH. The total number of shares of stock which the
Corporation shall have authority to issue is 1,000 shares of common stock of the
par value of $.01 per share, all of the same class.
FIFTH. The name and mailing address of the incorporator is
William N. Haddad, Esq., c/o Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th
Floor, New York, New York 10019.
SIXTH. Election of directors need not be by written ballot.
<PAGE>
SEVENTH. The Board of Directors is authorized to adopt, amend,
or repeal By-Laws of the Corporation (except as and to the extent provided in
the By-Laws).
EIGHTH. Any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (whether
or not by or in the right of the Corporation) by reason of the fact that he is
or was a director, officer, incorporator, employee, or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
incorporator, employee, partner, trustee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise (including an employee
benefit plan), shall be entitled to be indemnified by the Corporation to the
full extent then permitted by law against expenses (including reasonable counsel
fees and disbursements), judgments, fines (including excise taxes assessed on a
person with respect to an employee benefit plan), and amounts paid in settlement
incurred by him in connection with such action, suit, or proceeding. Such right
of indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Article EIGHTH. Such right of
indemnification shall continue as to a person who has ceased to be a director,
officer, incorporator, employee, partner, trustee, or agent and shall inure to
the benefit of the heirs and personal representatives of such a person. The
indemnification provided by this Article EIGHTH shall not be deemed exclusive of
any other rights which may be provided now or in the future under any provision
currently in effect or hereafter adopted of the By-Laws, by any agreement, by
vote of stockholders, by resolution of disinterested directors, by provision of
law, or otherwise.
-2-
<PAGE>
NINTH. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision does not eliminate
the liability of the director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any
transaction from which the director derived an improper personal benefit. For
purposes of the prior sentence, the term "damages" shall, to the extent
permitted by law, include without limitation, any judgment, fine, amount paid in
settlement, penalty, punitive damages, excise or other tax assessed with respect
to an employee benefit plan, or expense of any nature (including, without
limitation, reasonable counsel fees and disbursements). Each person who serves
as a director of the corporation while this Article NINTH is in effect shall be
deemed to be doing so in reliance on the provisions of this Article NINTH, and
neither the amendment or repeal of this Article NINTH, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
NINTH, shall apply to or have any effect on the liability or alleged liability
of any director or the Corporation for, arising out of, based upon, or in
connection with any acts or omissions of such director occurring prior to such
amendment, repeal, or adoption of an inconsistent provision. The provisions of
this Article NINTH are cumulative and shall be in addition to and independent of
any and all other limitations on or eliminations of the liabilities of directors
of the Corporation, as such, whether such limitations or eliminations arise
under or are created by any law, rule, regulation, by-law, agreement, vote of
shareholders or disinterested directors, or otherwise.
-3-
<PAGE>
IN WITNESS WHEREOF, I have made, signed, and sealed this
Certificate of Incorporation this 11th day of January, 1996.
/s/ William N. Haddad
-----------------------------------
William N. Haddad, Incorporator
-4-
<PAGE>
EXHIBIT 3.2
BY-LAWS
of
INNOPET BRANDS CORP.
As adopted January 12, 1996
<PAGE>
INNOPET BRANDS CORP.
A Delaware Corporation
BY-LAWS
-------------------
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting.
An annual meeting of stockholders for the purpose of electing
directors and of transacting such other business as may come before it shall be
held each year at such date, time, and place, either within or without the State
of Delaware, as may be specified by the Board of Directors.
Section 1.2 Special Meetings.
Special meetings of stockholders for any purpose or purposes
may be held at any time upon call of the Chairman of the Board, if any, the
President, the Secretary, or a majority of the Board of Directors, at such time
and place either within or without the State of Delaware as may be stated in the
notice. A special meeting of stockholders shall be called by the President or
the Secretary upon the written request, stating time, place, and the purpose or
purposes of the meeting, of stockholders who together own of record a majority
percentage of the outstanding stock of all classes entitled to vote at such
meeting.
<PAGE>
Section 1.3 Notice of Meetings.
Written notice of stockholders meetings, stating the place,
date, and hour thereof, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given by the Chairman of the
Board, if any, the President, any Vice President, the Secretary, or an Assistant
Secretary, to each stockholder entitled to vote thereat at least ten (10) days
but not more than sixty (60) days before the date of the meeting, unless a
different period is prescribed by law.
Section 1.4 Quorum.
Except as otherwise provided by law or in the Certificate of
Incorporation or these By-Laws, at any meeting of stockholders, the holders of a
majority of the outstanding shares of each class of stock entitled to vote at
the meeting shall be present or represented by proxy in order to constitute a
quorum for the transaction of any business. In the absence of a quorum, a
majority in interest of the stockholders present or the chairman of the meeting
may adjourn the meeting from time to time in the manner provided in Section 1.5
of these By-Laws until a quorum shall attend.
Section 1.5 Adjournment.
Any meeting of stockholders, annual or special, may adjourn
from time to time to reconvene at the same or some other place, and notice need
not be given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than
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<PAGE>
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.6 Organization.
The Chairman of the Board, if any, or in his absence the
President, or in their absence any Vice President, shall call to order meetings
of stockholders and shall act as chairman of such meetings. The Board of
Directors or, if the Board fails to act, the stockholders may appoint any
stockholder, director, or officer of the Corporation to act as chairman of any
meeting in the absence of the Chairman of the Board, the President, and all Vice
Presidents.
The Secretary of the Corporation shall act as secretary of
all meetings of stockholders, but, in the absence of the Secretary, the chairman
of the meeting may appoint any other person to act as secretary of the meeting.
Section 1.7 Voting.
Except as otherwise provided by law or in the Certificate of
Incorporation or these By-Laws and except for the election of directors, at any
meeting duly called and held at which a quorum is present, a majority of the
votes cast at such meeting upon a given question by the holders of outstanding
shares of stock of all classes of stock of the Corporation entitled to vote
thereon who are present in person or by proxy shall decide such question. At any
meeting duly called and held for the election of directors at which a quorum is
present, directors shall be
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<PAGE>
elected by a plurality of the votes cast by the holders (acting as such) of
shares of stock of the Corporation entitled to elect such directors.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office.
The business, property, and affairs of the Corporation shall
be managed by or under the direction of a Board of between one (1) and seven (7)
directors; provided, however, that the Board, by resolution adopted by vote of a
majority of the then authorized number of directors, may increase or decrease
the number of directors. The directors shall be elected by the holders of shares
entitled to vote thereon at the annual meeting of stockholders, and each shall
serve (subject to the provisions of Article IV) until the next succeeding annual
meeting of stockholders and until his respective successor has been elected and
qualified.
Section 2.2 Chairman of the Board.
The directors may elect one of their members to be Chairman of
the Board of Directors. The Chairman shall be subject to the control of and may
be removed by the Board of Directors. He shall perform such duties as may from
time to time be assigned to him by the Board.
5
<PAGE>
Section 2.3 Meetings.
The annual meeting of the Board of Directors, for the election
of officers and the transaction of such other business as may come before the
meeting, shall be held without notice at the same place as, and immediately
following, the annual meeting of the stockholders.
Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by the
Board.
Special meetings of the Board of Directors shall be held at
such time and place as shall be designated in the notice of the meeting whenever
called by the Chairman of the Board, if any, the President, or by a majority of
the directors then in office.
Section 2.4 Notice of Special Meetings.
The Secretary, or in his absence any other officer of the
Corporation, shall give each director notice of the time and place of holding of
special meetings of the Board of Directors by mail at least five (5) days before
the meeting, or by facsimile, cable, or telegram, overnight courier, or personal
service at least three (3) days before the meeting. Unless otherwise stated in
the notice thereof, any and all business may be transacted at any meeting
without specification of such business in the notice.
Section 2.5 Quorum and Organization of Meetings.
A majority of the total number of members of the Board of
Directors as constituted from time to time shall constitute a quorum for the
transaction of business, but, if at any meeting of the Board of Directors
(whether or not adjourned from a previous meeting) there shall be less than a
quorum present, a majority of those present may adjourn the meeting
6
<PAGE>
to another time and place, and the meeting may be held as adjourned without
further notice or waiver. Except as otherwise provided by law or in the
Certificate of Incorporation or these By-Laws, a majority of the directors
present at any meeting at which a quorum is present may decide any question
brought before such meeting. Meetings shall be presided over by the Chairman of
the Board, if any, or in his absence by the President, or in the absence of both
by such other person as the directors may select. The Secretary of the
Corporation shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.6 Committees.
The Board of Directors may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business, property, and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee shall have power or
authority in reference to: (i) amending the Certificate of Incorporation of the
Corporation
7
<PAGE>
(provided, however, that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors pursuant to authority expressly granted to the Board
of Directors by the Corporation's Certificate of Incorporation, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation, or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
Corporation), (ii) adopting an agreement of merger or consolidation under
Section 251 or 252 of the General Corporation Law of the State of Delaware,
(iii) recommending to the stockholders the sale, lease, or exchange of all or
substantially all of the Corporation's property and assets, (iv) recommending to
the stockholders a dissolution of the Corporation or a revocation of
dissolution, or amending these By-Laws; and, unless the resolution expressly so
provided, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
the State of Delaware. Each committee which may be established by the Board of
Directors pursuant to these By-Laws may fix its own rules and procedures. Notice
of meetings of committees, other than of regular meetings provided for by the
rules, shall be given to committee members. All action taken by committees shall
be recorded in minutes of the meetings.
Section 2.7 Action Without Meeting.
Nothing contained in these By-Laws shall be deemed to restrict
the power of members of the Board of Directors or any committee designated by
the Board to take any action required or permitted to be taken by them without a
meeting.
8
<PAGE>
Section 2.8 Telephone Meetings.
Nothing contained in these By-Laws shall be deemed to restrict
the power of members of the Board of Directors, or any committee designated by
the Board, to participate in a meeting of the Board, or committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
ARTICLE III
OFFICERS
Section 3.1 Executive Officers.
The executive officers of the Corporation shall be a
President, (one or more vice Presidents, a Treasurer, and a Secretary, each of
whom shall-be elected by the Board of Directors. The Board of Directors may
elect or appoint such other officers (including a Controller and one or more
Assistant Treasurers and Assistant Secretaries) as it may deem necessary or
desirable. Each officer shall hold office for such term as may be prescribed by
the Board of Directors from time to time. Any person may hold at one time two or
more offices.
Section 3.2 Powers and Duties.
The Chairman of the Board, if any, or, in his absence, the
President, shall preside at all meetings of the stockholders and of the Board of
Directors. In the absence of the President, a Vice President appointed by the
President or, if the President fails to make such appointment, by the Board,
shall perform all the duties of the President. The officers and agents of the
Corporation shall each have such powers and authority and shall perform such
duties in
9
<PAGE>
the management of the business, property, and affairs of the Corporation as
generally pertain to their respective offices, as well as such powers and
authorities and such duties as from time to time may be prescribed by the Board
of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS, AND VACANCIES
Section 4.1 Resignations.
Any director or officer of the Corporation, or any member of
any committee, may resign at any time by giving written notice to the Board of
Directors, the President, or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time be
not specified therein, then upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective.
Section 4.2 Removals.
The Board of Directors, by a vote of not less than a majority
of the entire Board, at any meeting thereof, or by written consent, at any time,
may, to the extent permitted by law, remove with or without cause from office or
terminate the employment of any officer or member of any committee and may, with
or without cause, disband any committee.
Any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares entitled at
the time to vote at an election of directors.
10
<PAGE>
Section 4.3 Vacancies.
Any vacancy in the office of any director or officer through
death, resignation, removal, disqualification, or other cause, and any
additional directorship resulting from increase in the number of directors, may
be filled at any time by a majority of the directors then in office (even though
less than a quorum remains) or, in the case of any vacancy in the office of any
director, by the stockholders, and, subject to the provisions of this Article
IV, the person so chosen shall hold office until his successor shall have been
elected and qualified; or, if the person so chosen is a director elected to fill
a vacancy, he shall (subject to the provisions of this Article IV) hold office
for the unexpired term of his predecessor.
ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates.
The certificates for shares of the capital stock of the
Corporation shall be in such form as shall be prescribed by law and approved,
from time to time, by the Board of Directors.
Section 5.2 Transfer of Shares.
Shares of the capital stock of the Corporation may be
transferred on the books of the Corporation only by the holder of such shares or
by his duly authorized attorney, upon the surrender to the Corporation or its
transfer agent of the certificate representing such stock properly endorsed.
11
<PAGE>
Section 5.3 Fixing Record Date.
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof (or to express consent to corporate action in writing
without a meeting), or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which, unless otherwise provided by law, shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action.
Section 5.4 Lost Certificates.
The Board of Directors or any transfer agent of the
Corporation may direct a new certificate or certificates representing stock of
the Corporation to be issued in place of any certificate or certificates
theretofore issued by the Corporation, alleged to have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen, or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors (or any transfer agent
of the Corporation authorized to do so by a resolution of the Board of
Directors) may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as the Board of Directors (or any transfer agent so authorized) shall
direct to indemnify the Corporation against any claim that may be made against
the Corporation with respect to the certificate alleged to have been
12
<PAGE>
lost, stolen, or destroyed or the issuance of such new certificates, and such
requirement may be general or confined to specific instances.
Section 5.5 Regulations.
The Board of Directors shall have power and authority to make
all such rules and regulations as it may deem expedient concerning the issue,
transfer, registration, cancellation, and replacement of certificates
representing stock of the Corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal.
The corporate seal shall have inscribed thereon the name of
the Corporation and shall be in such form as may be approved from time to time
by the Board of Directors.
Section 6.2 Fiscal Year.
The fiscal year of the Corporation shall be determined by
resolution of the Board of Directors.
Section 6.3 Notices and Waivers Thereof.
Whenever any notice whatever is required by law, the
Certificate of Incorporation, or these By-Laws to be given to any stockholder,
director, or officer, such notice, except as otherwise provided by law, may be
given personally, or by mail, or, in the case of directors or officers, by
facsimile, telegram, or cable, addressed to such address as appears on the books
of the Corporation. Any notice given by facsimile, telegram, or cable, shall be
deemed to have
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<PAGE>
been given when transmission is confirmed and any notice given by mail shall be
deemed to have been given when it shall have been deposited in the United States
mail with postage thereon prepaid.
Whenever any notice is required to be given by law, the
Certificate of Incorporation, or these By-Laws, a written waiver thereof, signed
by the person entitled to such notice, whether before or after the meeting or
the time stated therein, shall be deemed equivalent in all respects to such
notice to the full extent permitted by law.
Section 6.4 Stock of Other Corporations or Other Interests.
Unless otherwise ordered by the Board of Directors, the
President, the Secretary, and such attorneys or agents of the Corporation as may
be from time to time authorized by the Board of Directors or the President,
shall have full power and authority on behalf of this Corporation to attend and
to act and vote in person or by proxy at any meeting of the holders of
securities of any corporation or other entity in which this Corporation may own
or hold shares or other securities, and at such meetings shall possess and may
exercise all the rights and powers incident to the ownership of such shares or
other securities which this Corporation, as the owner or holder thereof, might
have possessed and exercised if present. The President, the Secretary, or such
attorneys or agents, may also execute and deliver on behalf of this Corporation
powers of attorney, proxies, consents, waivers, and other instruments relating
to the shares or securities owned or held by this Corporation.
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<PAGE>
ARTICLE VII
AMENDMENTS
The holders of shares entitled at the time to vote for the
election of directors shall have power to adopt, amend, or repeal the By-Laws of
the Corporation by vote of not less than a majority of such shares, and except
as otherwise provided by law, the Board of Directors shall have power equal in
all respects to that of the stockholders to adopt, amend, or repeal the By-Laws
by vote of not less than a majority of the entire Board. However, any By-Law
adopted by the Board may be amended or repealed by vote of the holders of a
majority of the shares entitled at the time to vote for the election of
directors.
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==============================================================================
INNOPET BRANDS CORP.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
----------------
WARRANT AGREEMENT
Dated as of ______________, 1996
==============================================================================
<PAGE>
WARRANT AGREEMENT, dated this ___ day of ________ 1996 [the effective
date of the Registration Statement], by and between INNOPET BRANDS CORP., a
Delaware corporation (the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST
COMPANY.
WITNESSETH:
WHEREAS, in connection with (i) the offering (the "Offering") to the
public of 2,250,000 units (the "Units"), each Unit consisting of one share of
the Company's common stock, $.01 par value per share (the "Common Stock"), and
one redeemable warrant (the "Warrants"), each redeemable warrant entitling the
holder thereof to purchase one share of Common Stock, (ii) the over-allotment
option granted to Joseph Stevens & Company, L.P., (the "Underwriter") in the
public offering referred to above, to purchase up to an additional 337,500 Units
(the "Over-Allotment Option"), and (iii) the sale to the Underwriter of warrants
(the "Underwriter's Warrants") to purchase up to 225,000 Units, the Company will
issue up to 2,812,500 Warrants (subject to increase as provided herein);
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent (as defined in Section
1(u) hereof) to act on behalf of the Company, and the Warrant Agent is willing
to so act, in connection with the issuance, registration, transfer and exchange
of certificates representing the Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder
<PAGE>
of the Company, the Underwriter, the holders of certificates representing the
Warrants and the Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Commission" shall mean the Securities and Exchange
Commission.
(c) "Common Stock" shall have the meaning set forth in Section
8(d) hereof.
(d) "Company" shall have the meaning assigned to such term in
the first (1st) paragraph of this Agreement.
(e) "Corporate Office" shall mean the office of the Warrant
Agent at which at any particular time its principal business in New York, New
York shall be administered, which office is located on the date hereof at 2
Broadway, New York, New York 10004.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder (as
defined in Section 1(m) hereof) thereof or his attorney duly authorized in
writing, and (ii) payment in cash or by check made payable to the Warrant Agent
for the account of the Company of an amount in lawful money of the United States
of America equal to the applicable Purchase Price (as defined in Section 1(k)
hereof).
(h) "Initial Warrant Exercise Date" shall mean __________,
1996 [the effective date of the Registration Statement].
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<PAGE>
(i) "Initial Warrant Redemption Date" shall mean __________,
1997 [the date twelve (12) months after the effective date of the Registration
Statement].
(j) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(k) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8 hereof, $_____ [150% of the initial public
offering price per Unit] per Share.
(l) "Redemption Date" shall mean the date (which may not occur
before the Initial Warrant Redemption Date) fixed for the redemption of the
Warrants in accordance with the terms hereof.
(m) "Registered Holder" shall mean the person in whose name
any certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6(b) hereof.
(n) "Underwriter's Warrant Agreement" shall mean the agreement
dated as of __________, 1996 [the effective date of the Registration Statement]
between the Company and the Underwriter relating to and governing the terms and
provisions of the Underwriter's Warrants.
(o) "Subsidiary" or "Subsidiaries" shall mean any corporation
or corporations, as the case may be, of which stock having ordinary power to
elect a majority of the board of directors of such corporation or corporations
(regardless of whether or not at the time the stock of any other class or
classes of such corporation shall have or may have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
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<PAGE>
(p) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company of New York, New York or its authorized successor.
(q) "Underwriting Agreement" shall mean the underwriting
agreement dated _______________, 1996 [the effective date of the Registration
Statement] between the Company and the Underwriter relating to the purchase for
resale to the public of 2,250,000 Units (without giving effect to the
Over-Allotment Option).
(r) "Warrant Agent" shall mean Continental Stock Transfer &
Trust Company of New York, New York or its authorized successor.
(s) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(t) "Warrant Expiration Date" shall mean, unless the Warrants
are redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New
York time) on __________, 2001 [the 60 month anniversary of issuance] or, if
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 5:00 p.m. (New York time) on the next following
day which in the State of New York is not a holiday or a day on which banks are
authorized to close, subject to the Company's right, prior to the Warrant
Expiration Date, with the consent of the Underwriter, to extend such Warrant
Expiration Date on five (5) business days prior written notice to the Registered
Holders.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) One Warrant shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase at the Purchase
Price therefor from the Initial Warrant Exercise Date until the Warrant
Expiration Date one (1) share of Common Stock upon the exercise thereof, subject
to modification and adjustment as provided in Section 8 hereof.
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(b) Upon execution of this Agreement, Warrant Certificates
representing 2,250,000 Warrants to purchase up to an aggregate of 2,250,000
shares of Common Stock (subject to modification and adjustment as provided in
Section 8 hereof), shall be executed by the Company and delivered to the Warrant
Agent.
(c) Upon exercise of the Over-Allotment Option, in whole or in
part, Warrant Certificates representing up to 337,500 Warrants to purchase up to
an aggregate of 337,500 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Underwriter's Warrants as provided
therein, Warrant Certificates representing 225,000 Warrants to purchase up to an
aggregate of 225,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof and in the Underwriter's Warrant
Agreement), shall be countersigned, issued and delivered by the Warrant Agent
upon written order of the Company signed by its Chairman of the Board, President
or a Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary.
(e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7 hereof, and (iv) Warrant Certificates issued pursuant to
the Underwriter's Warrant Agreement (including Warrants in
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excess of the 225,000 Underwriter's Warrants issued as a result of the
antidilution provisions contained in the Underwriter's Warrant Agreement) and
(v) at the option of the Company, Warrant Certificates in such form as may be
approved by its Board of Directors, to reflect any adjustment or change in the
Purchase Price, the number of shares of Common Stock purchasable upon the
exercise of a Warrant or the redemption price therefor.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates).
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before
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the date of issuance of the Warrant Certificates or before countersignature by
the Warrant Agent and issue and delivery thereof, such Warrant Certificates,
nevertheless, may be countersigned by the Warrant Agent and issued and delivered
with the same force and effect as though the officer of the Company who signed
such Warrant Certificates had not ceased to hold such office.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples
thereof may be exercised commencing at any time on or after the Initial Warrant
Exercise Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein (including the provisions set forth
in Sections 5 and 9 hereof) and in the applicable Warrant Certificate. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date, provided that the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, together
with payment in cash or by check made payable to the Warrant Agent for the
account of the Company of an amount in lawful money of the United States of
America equal to the applicable Purchase Price, have been received by the
Warrant Agent. The person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of such securities
as of the close of business on the Exercise Date. As soon as practicable on or
after the Exercise Date and in any event within five (5) business days after
such date, the Warrant Agent, on behalf of the Company, shall cause to be issued
to the person or persons entitled to receive the same a Common Stock certificate
or certificates for the shares of Common Stock deliverable upon such exercise,
and the Warrant Agent shall deliver the same to the person or persons entitled
thereto. Upon the exercise of any Warrants, the Warrant Agent shall promptly
notify the Company in writing of such fact and of
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the number of securities delivered upon such exercise and, subject to Section
4(b) hereof, shall cause all payments in cash or by check made payable to the
order of the Company in respect of the Purchase Price to be deposited promptly
in the Company's bank account or delivered to the Company.
(b) At any time upon the exercise of any Warrants after one
year and one day from the date hereof, the Warrant Agent shall, on a daily
basis, within two business days after such exercise, notify the Underwriter, its
successors or assigns of the exercise of any such Warrants and shall, on a
weekly basis (subject to collection of funds constituting the tendered Purchase
Price, but in no event later than five business days after the last day of the
calendar week in which such funds were tendered), for services rendered by the
Underwriter to the Registered Holders of the Warrants then being exercised,
remit to the Underwriter an amount equal to five percent (5%) of the Purchase
Price of such Warrants then being exercised unless the Underwriter shall have
notified the Warrant Agent that the payment of such amount with respect to such
Warrant is violative of the General Rules and Regulations promulgated under the
Exchange Act, or the rules and regulations of the NASD or applicable state
securities or "blue sky" laws, or the Warrants are those underlying the
Underwriter's Warrants in which event, the Warrant Agent shall have to pay such
amount to the Company; provided, that, the Warrant Agent shall not be obligated
to pay any amounts pursuant to this Section 4(b) during any week that such
amounts payable are less than $1,000 and the Warrant Agent's obligation to make
such payments shall be suspended until the amount payable aggregates $1,000, and
provided further, that, in any event, any such payment (regardless of amount)
shall be made not less frequently than monthly.
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(c) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any Warrant
or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fractional interest shall be eliminated by rounding
any fraction up to the next full share or Warrant, as the case may be, or other
securities, properties or rights.
SECTION 5. Reservation of Shares, Listing, Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that, upon exercise of the Warrants and payment of the
Purchase Price for the shares of Common Stock underlying the Warrants, all
shares of Common Stock which shall be issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable, free from all preemptive or
similar rights, and free from all taxes, liens and charges with respect to the
issuance thereof, and that upon issuance such shares shall be listed or quoted
on each securities exchange, if any, on which the other shares of outstanding
Common Stock are then listed or quoted, or if not then so listed or quoted on
each place (whether the Nasdaq Stock Market, Inc., the NASD OTC Electronic
Bulletin Board, the National Quotation Bureau "pink sheets" or otherwise) on
which the other shares of outstanding Common Stock are listed or quoted.
(b) The Company covenants that if any securities reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the
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federal securities laws or a post-effective amendment to a registration
statement, use its best efforts to cause the same to become effective, keep such
registration statement current while any of the Warrants are outstanding and
deliver a prospectus which complies with Section 10(a)(3) of the Act, to the
Registered Holder exercising the Warrant (except, if in the opinion of counsel
to the Company, such registration is not required under the federal securities
law or if the Company receives a letter from the staff of the Commission stating
that it would not take any enforcement action if such registration is not
effected). The Company will use its best efforts to obtain appropriate approvals
or registrations under the state "blue sky" securities laws of all states in
which Registered Holders reside. Warrants may not be exercised by, nor may
shares of Common Stock be issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided, however, that if shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
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SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
assignment form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
subscription or assignment, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney duly
authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
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(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal number of Warrants. Applicants for a
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. Adjustments to Purchase Price and Number of Securities.
(a) Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Purchase Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
(b) Stock Dividends and Distributions. In case the Company
shall pay dividend in, or make a distribution of, shares of Common Stock or of
the Company's capital stock convertible into Common Stock, the Purchase Price
shall forthwith be proportionately
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decreased. An adjustment made pursuant to this Section 8(b) shall be made as of
the record date for the subject stock dividend or distribution.
(c) Adjustment in Number of Securities. Upon each adjustment
of the Purchase Price pursuant to the provisions of this Section 8, the number
of Warrant Securities issuable upon the exercise at the adjusted Purchase Price
of each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Purchase Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Purchase Price.
(d) Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event the Company shall after the date
hereof issue Common Stock with greater or superior voting rights than the shares
of Common Stock outstanding as of the date hereof, each Holder, at its option,
may receive upon exercise of any Warrant either shares of Common Stock or a like
number of such securities with greater or superior voting rights.
(e) Merger or Consolidation or Sale.
(i) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common
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Stock), the corporation formed by such consolidation or surviving such merger
shall execute and deliver to the Holder a supplemental warrant agreement
providing that the holder of each Warrant then outstanding or to be outstanding
shall have the right thereafter (until the expiration of such Warrant) to
receive, upon exercise of such Warrant, the kind and amount of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale or transfer by a Holder of the number of shares of Common Stock of the
Company for which such Warrant might have been exercised immediately prior to
such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in this Section 8. The above provision of this subsection
shall similarly apply to successive consolidations or mergers.
(ii) In the event of (A) the sale by the Company of all or
substantially all of its assets, or (B) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Exchange Act or (C) a
distribution to the Company's stockholders of any cash, assets, property,
rights, evidences of indebtedness, securities or any other thing of value, or
any combination thereof, the Holders of the unexercised Warrants shall receive
notice of such sale, transaction or distribution twenty (20) days prior to the
date of such sale or the record date for such transaction or distribution, as
applicable, and, if they exercise such Warrants prior to the date of such
transaction or distribution, they shall be entitled, in addition to the shares
of Common Stock issuable upon the exercise thereof, to receive such property,
cash, assets, rights, evidence of indebtedness, securities or any other thing of
value, or any combination thereof, on the payment date of such sale, transaction
or distribution.
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(f) No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents ($.10) per share of Common Stock, provided,
however, that in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
so carried forward, shall amount to at least ten cents ($.10) per share of
Common Stock.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the
Company may (but only with the prior written consent of the Underwriter), on
thirty (30) days' prior written notice, redeem all of the Warrants, in whole and
not in part, at a redemption price of five cents ($.05) per Warrant; provided,
however, that before any such call for redemption of Warrants can take place,
the (i) average closing bid price for the Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System, or (ii)
if not so quoted, as reported by any other recognized quotation system on which
the Common Stock is quoted, shall have for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth (5th) trading
day prior to the date on which the notice contemplated by Sections 9(b) and 9(c)
hereof is given, equalled or exceeded 150% of the then exercise price per share
of Common Stock (subject to adjustment in the event of any stock splits or other
similar events as provided in Section 8 hereof).
(b) In case the Company shall exercise its right to redeem all
of the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the
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manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice. Not less than five
(5) business days prior to the mailing to the Registered Holders of the Warrants
of the notice of redemption, the Company shall deliver or cause to be delivered
to the Underwriter or its successors or assigns a similar notice telephonically
and confirmed in writing, together with a list of the Registered Holders
(including their respective addresses and number of Warrants beneficially owned
by them) to whom such notice of redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificates shall be delivered and the redemption price shall be
paid, and (iv) that the Underwriter is the Company's exclusive warrant
solicitation agent and shall receive the commission contemplated by Section 4(b)
hereof and (v) that the right to exercise the Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the date fixed
for redemption. The date fixed for the redemption of the Warrants shall be the
"Redemption Date" for purposes of this Agreement. No failure to mail such notice
nor any defect therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption except as to a holder (A) to whom notice was
not mailed or (B) whose notice was defective. An affidavit of the Warrant Agent
or the Secretary or Assistant Secretary of the Company that notice of redemption
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the Redemption
Date. The redemption price payable to the Registered Holders shall be mailed to
such persons at their addresses of record.
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(e) The Company shall indemnify the Underwriter and each
person, if any, who controls the Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from the registration statement or prospectus referred to in Section 5(b) hereof
to the same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the company has agreed to
indemnify the Underwriter contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date, the
Company shall furnish to the Underwriter (i) opinions of counsel to the Company,
dated such date and addressed to the Underwriter, and (ii) a "cold comfort"
letter dated such date addressed to the Underwriter, signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities, including, without limitation, those matters covered in Sections
6(d), 6(e) and 6(j) of the Underwriting Agreement.
(g) The Company shall as soon as practicable after the
Redemption Date, and in any event within 15 months thereafter, make "generally
available to its security holders" (within the meaning of Rule 158 under the
Act) an earnings statement (which need not be
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audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the Redemption Date.
(h) The Company shall deliver within five business days prior
to the Redemption Date copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to such registration statement and
permit the Underwriter to do such investigation, upon reasonable advance notice,
with respect to information contained in or omitted from the registration
statement as it deems reasonably necessary to comply with applicable securities
laws or rules of the NASD. Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as the Underwriter shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Underwriter, and its duties shall
be determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and non-assessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price provided in this Agreement, or to
determine whether any fact exists which
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may require any such adjustment, or with respect to the nature or extent of any
such adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of fact contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or other document or instrument believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own gross negligence or willful
misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or the Underwriter) and
shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board of Directors, President or any Vice
President (unless other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action taken,
suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and hold it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything
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done or omitted by the Warrant Agent in the execution of its duties and powers
hereunder except losses, expenses and liabilities arising as a result of the
Warrant Agent's gross negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own gross negligence or willful misconduct),
after giving thirty (30) days' prior written notice to the Company. At least
fifteen (15) days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation the Company shall appoint in writing a new warrant agent. If
the Company shall fail to make such appointment within a period of thirty (30)
days after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than ten million
dollars ($10,000,000) or a stock transfer company doing business in New York,
New York. After acceptance in writing of such appointment by the new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the warrant agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the
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effective date of any such appointment, the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two (2)
years from the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make
any changes or corrections in this Agreement (a) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained,
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or (b) that they may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Warrant Certificates; provided, however,
that this Agreement shall not otherwise be modified, supplemented or altered in
any respect except with the consent in writing of the Registered Holders holding
not less than sixty-six and two-thirds percent (66-2/3%) of the Warrants then
outstanding; provided, further, that no change in the number or nature of the
securities purchasable upon the exercise of any Warrant, and no change that
increases the Purchase Price of any Warrant, other than such changes as are
specifically set forth in this Agreement as originally executed, shall be made
without the consent in writing of each Registered Holders affected by such
change. In addition, this Agreement may not be modified, amended or supplemented
without the prior written consent of the Underwriter or its successors or
assigns, other than to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained or to make
any such change that the Warrant Agent and the Company deem necessary or
desirable and which shall not adversely affect the interests of the Underwriter
or its successors or assigns.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid or delivered to a telegraph office for
transmission, if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at InnoPet Brands Corp., 1 East Broward Boulevard,
Suite 1100, Fort Lauderdale, Florida 33301, Attention: Marc Duke, Chairman of
the Board and Chief Executive Officer, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; and if to the Warrant
Agent, at its Corporate Office. Copies of any
22
<PAGE>
notice delivered pursuant to this Agreement shall be delivered to Joseph Stevens
& Company, L.P., 33 Maiden Lane, 8th Floor, New York, NY 10038, Attention:
Joseph Sorbara, Chief Executive Officer or at such other address as may have
been furnished to the Company and the Warrant Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of laws
rules or principals.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Underwriter is, and shall at
all times irrevocably be deemed to be, a third-party beneficiary of this
Agreement, with full power, authority and standing to enforce the rights granted
to it hereunder.
SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
INNOPET BRANDS CORP. CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
As Warrant Agent
By:________________________________ By:_______________________________
Name: Marc Duke Name:
Title: Chairman of the Board and Title:
Chief Executive Officer
24
<PAGE>
EXHIBIT A
No. W ___________ VOID AFTER ____________________, 2001
_________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
INNOPET BRANDS CORP.
CUSIP____
THIS CERTIFIES THAT, FOR VALUE RECEIVED __________________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, $.01 par
value per share, of Innopet Brands Corp., a Delaware corporation (the
"Company"), at any time from _____________, 1996 [the effective date of the
Registration Statement] and prior to the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company, 2 Broadway, New York, New
York 10004 as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $_____ [150% of the initial public offering price per Unit]
subject to adjustment (the "Purchase Price"), in lawful money of the United
States of America in cash or by check made payable to the Warrant Agent for the
account of the Company.
This Warrant Certificate is, and each Warrant represented hereby are,
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated __________,
1996 [the effective date of the Registration Statement], by and between the
Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
A-1
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2001 [the 60 month anniversary of the issuance of the Warrant]. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) on the next day which in the State of New York is not a holiday or a day
on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole and not in part, at a redemption
price of $.05 per Warrant, at any time commencing __________, 1997 [twelve (12)
months from issuance] provided that the average closing bid price for the
Company's Common Stock, as reported by the National Association of Securities
Dealers Automated Quotation System (or, if not so quoted, as reported by any
other recognized quotation system on which the price of the Common Stock is
quoted), shall have, for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth (5th) trading day prior to the
date on which the Notice of Redemption (as defined below) is given, equalled or
exceeded 150% of the then exercise price per share (subject to adjustment in the
event of any stock splits or other similar events). Notice of redemption (the
"Notice of Redemption") shall be given not later than the thirtieth (30th) day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to this Warrant except to receive the $.05 per Warrant upon
surrender of this Certificate.
A-2
<PAGE>
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ___________, 1996
INNOPET BRANDS CORP.
[SEAL]
By: ________________________________
Name: Marc Duke
Title: Chairman of the Board and
Chief Executive Officer
ATTEST:
By: ________________________________
Name:
Title:
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: _________________________
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
----------------------------
----------------------------
----------------------------
----------------------------
(please print or type name and address)
and be delivered to
----------------------------
----------------------------
----------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
A-4
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was
solicited by Joseph Stevens & Company,
L.P. please check the
following box / /
2. The exercise of this Warrant was
solicited by / /
--------------------------
3. If the exercise of this Warrant was
not solicited, please check the
following box / /
Dated: ______________________ X_________________________________
_________________________________
_________________________________
Address
--------------------------------
Social Security or Taxpayer
Identification Number
--------------------------------
Signature Guaranteed
--------------------------------
A-5
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________, hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
----------------------------------
----------------------------------
----------------------------------
(please print or type name and address)
________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: _______________________ X__________________________
---------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
INNOPET BRANDS AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST
BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
A-6
<PAGE>
===============================================================================
INNOPET BRANDS CORP.
AND
JOSEPH STEVENS & COMPANY L.P.
-----------------
UNDERWRITER'S
WARRANT AGREEMENT
________, 1996
==============================================================================
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of _______ ____, 1996
by and between INNOPET BRANDS CORP., a Delaware corporation (the "Company"), and
JOSEPH STEVENS & COMPANY, L.P. ("Joseph Stevens") (Joseph Stevens is hereinafter
referred to variously as the "Holder" or the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter or
its designee(s) warrants ("Warrants") to purchase up to 225,000 Units (as
defined in Section 1 hereof, each Unit consisting of one (1) share of common
stock, $.01 par value per share, of the Company ("Common Stock") and one (1)
redeemable Common Stock purchase warrant, each to purchase one additional share
of Common Stock ("Redeemable Warrants")); and
WHEREAS, the Underwriter has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
between the Underwriter and the Company in connection with the proposed public
offering of 2,250,000 Units at a public offering price of $4.00 per Unit; and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter in consideration for, and as part
of the Underwriter's compensation in connection with, Joseph Stevens acting as
the Underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of twenty-two dollars and fifty cents
($22.50), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
<PAGE>
1. Grant. The Underwriter (or its designee(s)) is hereby
granted the right to purchase, at any time from __________, 1997 [one year from
the date hereof] until 5:00 p.m., New York time, on __________, 2001, [5 years
from the date hereof] up to 225,000 Units at an initial exercise price (subject
to adjustment as provided in Section 8 hereof) of $__________ [120% of the
initial public offering price per Unit] per Unit subject to the terms and
conditions of this Agreement. A "Unit" consists of one (1) share of Common Stock
and one (1) Redeemable Warrant. Each Redeemable Warrant is exercisable to
purchase one additional share of Common Stock at an initial exercise price of
$____ [150% of the initial public offering price per Unit] per share, commencing
on the date of issuance (the "Initial Exercise Date") and ending, at 5:00 p.m.
New York time on __________, 2001 [60 months from the date hereof] (the
"Redeemable Warrant Expiration Date") at which time the Redeemable Warrants
shall expire. Except as set forth herein, the Units issuable upon exercise of
the Warrants are in all respects identical to the Units being purchased by the
Underwriter for resale to the public pursuant to the terms and provisions of the
Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants are initially exercisable
at an initial exercise price per Unit set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate, together with the annexed Form of Election to
2
<PAGE>
Purchase duly executed and payment of the Exercise Price (as hereinafter
defined) for the Units purchased at the Company's principal offices in Fort
Lauderdale, Florida (presently located at 1 East Broward Boulevard, Suite 1100,
Fort Lauderdale, Florida 33301) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased and a certificate or
certificates for the Redeemable Warrants so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock and Redeemable Warrants underlying the Warrants). In the event the
Company redeems all of the outstanding Redeemable Warrants, the Redeemable
Warrants underlying the Warrants may only be exercised if such exercise is
simultaneous with the exercise of the Warrants. Warrants may be exercised to
purchase all or part of the Units represented thereby. In the case of the
purchase of less than all the Units purchasable under any Warrant Certificate,
the Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Units purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the
method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1 in
exchange for the number of Units equal to the product of (x) the number of Units
as to which the Warrants are being exercised, multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined in Section 3.3 hereof) of the
Units minus the Exercise Price of the Units and the denominator of which is the
Market Price per Unit. Solely for the purposes of
3
<PAGE>
this Section 3.2, Market Price shall be calculated either (i) on the date on
which the form of election attached hereto is deemed to have been sent to the
Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the average of
the Market Price for each of the five trading days immediately preceding the
Notice Date, whichever of (i) or (ii) results in a greater Market Price.
3.3 Definition of Market Price.
(a) As used herein, the phrase "Market Price" of the Units,
the Common Stock or the Redeemable Warrants, respectively, at any date shall be
deemed to be the last reported sale price, or, in case no such reported sale
takes place on such day, the average of the last reported sale prices for the
last three (3) trading days, in either case as officially reported by the
principal securities exchange on which the Units, the Common Stock or the
Redeemable Warrants, as the case may be, are listed or admitted to trading or by
the Nasdaq National Market ("Nasdaq National Market") or the Nasdaq Small Cap
Market ("Nasdaq Small Cap"), or, if the Units, the Common Stock or the
Redeemable Warrants, as the case may be, are not listed or admitted to trading
on any national securities exchange or quoted by the National Association of
Securities Dealers Automated Quotation System ("Nasdaq"), the average closing
bid price as furnished by the National Association of Securities Dealers, Inc.
("NASD") through Nasdaq or similar organization if Nasdaq is no longer reporting
such information (collectively, the "Appropriate Market Price").
(b) If the Market Price of Units cannot be determined pursuant
to Section 3.3(a), the Market Price of the Units at any date shall be deemed to
be the sum of the Market Price of the Common Stock and the Market Price of the
Redeemable Warrants.
4
<PAGE>
(c) If the Market Price of the Common Stock cannot be
determined pursuant to Section 3.3(a) above, the Market Price of the Common
Stock shall be determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it.
(d) If the Market Price of the Redeemable Warrants cannot be
determined pursuant to Section 3.3(a) above, the Market Price of a Redeemable
Warrant shall equal the difference between the Market Price of the Common Stock
and the Exercise Price of the Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates for shares of Common Stock and Redeemable
Warrants or other securities, properties or rights underlying such Warrants, and
upon the exercise of the Redeemable Warrants, the issuance of certificates for
shares of Common Stock or other securities, properties or rights underlying such
Redeemable Warrants shall be made forthwith (and in any event such issuance
shall be made within five (5) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof.
The Warrant Certificates and the certificates representing the
shares of Common Stock and the Redeemable Warrants underlying the Warrants and
the shares of Common Stock underlying each Redeemable Warrant or other
securities, property or rights shall be executed on behalf of the Company by the
manual or facsimile signature of the then present Chairman or Vice Chairman of
the Board of Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then
5
<PAGE>
present Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof; that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers or partners of the
Underwriter.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be $____ per Unit [120% of the initial public offering price per Unit]. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants, the shares of Common Stock and the Redeemable Warrants underlying the
Warrants and the shares of Common Stock issuable upon exercise of the Redeemable
Warrants underlying the Warrants and the other securities issuable upon exercise
of the Warrants (collectively, the "Warrant Securities") have been registered
under the Securities Act of 1933, as amended (the "Act") pursuant to the
Company's Registration Statement on Form SB-2 (Registration No. __________)
6
<PAGE>
(the "Registration Statement"). All the representations and warranties of the
Company contained in the Underwriting Agreement relating to the Registration
Statement, the Preliminary Prospectus and Prospectus (as such terms are defined
in the Underwriting Agreement) and made as of the dates provided therein, are
hereby incorporated by reference. The Company agrees and covenants promptly to
file post effective amendments to such Registration Statement as may be
necessary to maintain the effectiveness of the Registration Statement as long as
any Warrants are outstanding. In the event that, for any reason, whatsoever, the
Company shall fail to maintain the effectiveness of the Registration Statement,
upon exercise, in part or in whole, of the Warrants, certificates representing
the shares of Common Stock and the Redeemable Warrants underlying the Warrants,
and upon exercise, in whole or in part of the Redeemable Warrants, certificates
representing the shares of Common Stock underlying the Redeemable Warrants and
the other securities issuable upon exercise of the Warrants shall bear the
following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), and may not be offered, sold, pledged, hypothecated,
assigned or transferred except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii)
an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing after
the date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-8,
S-4 or a comparable registration statement) the Company will give written notice
by registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to the Underwriter and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If the
Underwriter or other Holders of
7
<PAGE>
the Warrants and/or Warrant Securities notifies the Company within twenty (20)
days after receipt of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford the
Underwriter and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holders of the Warrants and/or Warrant Securities
representing a "Majority" (as hereinafter defined) of such securities (assuming
the exercise of all of the Warrants and the Redeemable Warrants underlying the
Warrants) shall have the right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to the Company,
to have the Company prepare and file with the Securities and Exchange Commission
(the "Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Underwriter and Holders, in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other Holders of the Warrants and/or Warrant
8
<PAGE>
Securities who notify the Company within ten (10) days after receiving notice
from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrant
Securities within the time period specified in Section 7.4(a) hereof pursuant to
the written notice specified in Section 7.3(a) of a Majority of the Holders of
the Warrants and/or Warrant Securities, the Company shall have the option, upon
the written notice of election of a Majority of the Holders of the Warrants
and/or Warrant Securities to repurchase (i) any and all Warrant Securities at
the higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(c).
(d) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time commencing after the date
hereof and expiring five (5) years thereafter, any Holder of Warrants and/or
Warrant Securities shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and sale
for nine (9)
9
<PAGE>
consecutive months by any such Holder of its Warrant Securities provided,
however, that the provisions of Section 7.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request.
7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within forty-five (45) days of receipt of any
demand therefor, shall use its best efforts to have any registration
statement declared effective at the earliest possible time, and shall
furnish each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration
statements filed pursuant to Sections 7.2 and 7.3(a) hereof including,
without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs,
fees and expenses in connection with any registration statement filed
pursuant to Section 7.3(d). If the Company shall fail to comply with
the provisions of Section 7.4(a), the Company shall be liable for any
equitable or other relief available at law to the Holder(s) requesting
registration of their Warrant Securities, excluding consequential
damages.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included
in a registration statement for
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offering and sale under the securities or blue sky laws of such states
as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement but only to the
same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Underwriter contained in
Section 7 of the Underwriting Agreement. The Company further agree(s)
that upon demand by an indemnified person, at any time or from time to
time, it will promptly reimburse such indemnified person for any loss,
claim, damage, liability, cost or expense actually and reasonably paid
by the indemnified person as to which the Company has indemnified such
person pursuant hereto. Notwithstanding the foregoing provisions of
this Section 7.4(d) any such payment or reimbursement by the Company of
fees, expenses or disbursements incurred by an indemnified person in
any proceeding in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time to appeal) is
entered against the Company or such indemnified person as a direct
result
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of the Holder(s) or such person's gross negligence or willful
misfeasance will be promptly repaid to the Company.
(e) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers
and directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from
information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which
the Underwriter have agreed to indemnify the Company. The Holder(s)
further agree(s) that upon demand by an indemnified person, at any time
or from time to time, they will promptly reimburse such indemnified
person for any loss, claim, damage, liability, cost or expense actually
and reasonably paid by the indemnified person as to which the Holder(s)
have indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 7.4(e) any such payment or
reimbursement by the Holder(s) of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final
judgment by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against the Company or such
indemnified person as a direct result of the
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Company or such person's gross negligence or willful misfeasance will
be promptly repaid to the Holder(s).
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Securities to be included in any
registration statement filed pursuant to Section 7.3 hereof without the
prior written consent of the Holders of the Warrants and Warrant
Securities representing a Majority of such securities (assuming the
exercise of all of the Warrants and the Redeemable Warrants underlying
the Warrants).
(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, an
opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public
accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to events subsequent
to the date of such financial
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statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security
holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of
the Act and covering a period of at least 12 consecutive months
beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriter, if any,
copies of all correspondence between the Commission and the Company,
its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement
and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Holder or
underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested to be included
in such underwriting, which may be the
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Underwriter. Such agreement shall be satisfactory in form and substance
to the Company, each Holder and such managing underwriter, and shall
contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that
type used by the managing underwriter. The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their
Warrant Securities and may, at their option, require that any or all of
the representations, warranties and covenants of the Company to or for
the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their
intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written
request therefor by any Holder(s), the Company shall include in the
registration statement any other securities of the Company held by such
Holder(s) as of the date of filing of such registration statement,
including without limitation, restricted shares of Common Stock,
options, warrants or any other securities convertible into shares of
Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrants or Warrant Securities shall mean
in excess of fifty percent (50%) of the then outstanding Warrants or
Warrant Securities that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith and (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under
the Act.
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8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company shall
pay dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased. An adjustment made pursuant to this
Section 8.2 shall be made as of the record date for the subject stock dividend
or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted Exercise Price of
each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended or restated as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
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8.5 Merger or Consolidation or Sale.
(a) In case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or
substantially all of its assets, or (ii) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (iii) a distribution to the Company's stockholders
of any cash, assets, property, rights, evidences of indebtedness, securities or
any other thing of value, or any combination thereof, the Holders of the
unexercised Warrants shall receive notice of such sale, transaction or
distribution twenty (20) days prior to the date of such sale or the record date
for such transaction or distribution, as applicable, and, if they exercise such
Warrants prior to such date, they shall be entitled, in addition to the shares
of Common
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Stock issuable upon the exercise thereof, to receive such property, cash,
assets, rights, evidence of indebtedness, securities or any other thing of
value, or any combination thereof, on the payment date of such sale, transaction
or distribution.
8.6 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made if the amount of said adjustment
shall be less than ten cents ($.10) per Warrant Security, provided, however,
that in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least ten cents ($.10) per Warrant Security.
8.7 Adjustment of Redeemable Warrants' Exercise Price. With
respect to any of the Redeemable Warrants whether or not the Redeemable Warrants
have been exercised (or are exercisable) and whether or not the Redeemable
Warrants are issued and outstanding, the Redeemable Warrant exercise price and
the number of shares of Common Stock underlying such Redeemable Warrants shall
be automatically adjusted in accordance with Section 8 of the Warrant Agreement
between the Company and Continental Stock Transfer & Trust Company dated
__________, 1996 (the "Redeemable Warrant Agreement"), upon the occurrence of
any of the events described therein. Thereafter, the underlying Redeemable
Warrants shall be exercisable at such adjusted Redeemable Warrant exercise price
for such adjusted number of underlying shares of Common Stock or other
securities, properties or rights.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and
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<PAGE>
date representing in the aggregate the right to purchase the same number of
Units in such denominations as shall be designated by the Holder thereof at the
time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or Redeemable Warrants upon the exercise of the Warrants, or fractions of
shares of Common Stock upon the exercise of the Redeemable Warrants underlying
the Warrants, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
shares of Common Stock or Redeemable Warrants, as the case may be, or other
securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and payment
of the Exercise Price therefor, all shares of Common Stock and other securities
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. The
Company further covenants and agrees that
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upon exercise of the Redeemable Warrants underlying the Warrants and payment of
the respective Redeemable Warrant exercise price therefor, all shares of Common
Stock and other securities issuable upon such exercises shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants and the Redeemable Warrants and all Redeemable
Warrants underlying the Warrants to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock or the
Redeemable Warrants issued to the public in connection herewith may then be
listed and/or quoted on Nasdaq National Market or Nasdaq Small Cap Market.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or
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<PAGE>
exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Redeemable Warrants. The form of the certificate
representing Redeemable Warrants (and the form of election to purchase shares of
Common Stock upon the exercise of Redeemable Warrants and the form of assignment
printed on the reverse thereof) shall be substantially as set forth in Exhibit
"A" to the Redeemable Warrant Agreement. Each Redeemable Warrant issuable upon
exercise of the Warrants shall evidence the right to initially purchase one
fully paid and non-assessable share of Common Stock at an initial purchase price
of $____ [150% of the initial public offering price per Unit] per share
commencing on the Initial Exercise Date and ending at 5:00 p.m. New York time on
the Redeemable Warrant Expiration
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Date at which time the Redeemable Warrants shall expire. The exercise price of
the Redeemable Warrants and the number of shares of Common Stock issuable upon
the exercise of the Redeemable Warrants are subject to adjustment, whether or
not the Warrants have been exercised and the Redeemable Warrants have been
issued, in the manner and upon the occurrence of the events set forth in Section
8 of the Redeemable Warrant Agreement, which is hereby incorporated herein by
reference and made a part hereof as if set forth in its entirety herein. Subject
to the provisions of this Agreement and upon issuance of the Redeemable Warrants
underlying the Warrants, each registered holder of such Redeemable Warrants
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully paid and non-assessable
shares of Common Stock (subject to adjustment as provided herein and in the
Redeemable Warrant Agreement), free and clear of all preemptive rights of
stockholders, provided that such registered holder complies with the terms
governing exercise of the Redeemable Warrants set forth in the Redeemable
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Redeemable Warrant Agreement. Upon exercise of
the Redeemable Warrants, the Company shall forthwith issue to the registered
holder of any such Redeemable Warrant in his name or in such name as may be
directed by him, certificates for the number of shares of Common Stock so
purchased. Except as otherwise provided herein, the Redeemable Warrants
underlying the Warrants shall be governed in all respects by the terms of the
Redeemable Warrant Agreement. The Redeemable Warrants shall be transferable in
the manner provided in the Redeemable Warrant Agreement, and upon any such
transfer, a new Redeemable Warrant Certificate shall be issued promptly to the
transferee. The Company covenants to, and agrees with, the Holder(s) that
without the prior written consent of the Holder(s), the Redeemable Warrant
Agreement will
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not be modified, amended, cancelled, altered or superseded, and that the Company
will send to each Holder, irrespective of whether or not the Warrants have been
exercised, any and all notices required by the Redeemable Warrant Agreement to
be sent to holders of Redeemable Warrants.
14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice
to the Holders.
15. Supplements and Amendments. The Company and the
Underwriter may from time to time supplement or amend this Agreement without the
approval of any Holders of Warrant Certificates (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem shall not adversely affect the interests of
the Holders of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
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17. Termination. This Agreement shall terminate at the close
of business on __________, 2003 [7 years from the date hereof]. Notwithstanding
the foregoing, the indemnification provisions of Section 7 shall survive such
termination until the close of business on __________, 2008 [12 years from the
date hereof.]
18. Governing Law, Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that
any action, proceeding or claim against it arising out of, or relating in any
way to, this Agreement shall be brought and enforced in the courts of the State
of New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby irrevocably waive
any objection to such exclusive jurisdiction or inconvenient forum. Any such
process or summons to be served upon any of the Company, the Underwriter and the
Holders (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to it at the address as set
forth in Section 14 hereof. Such mailing shall be deemed personal service and
shall be legal and binding upon the party so served in any action, proceeding or
claim. The Company, the Underwriter and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
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19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) and the Redeemable Warrant Agreement contain the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Underwriter and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Underwriter and any other Holder(s) of the
Warrant Certificates or Warrant Securities.
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall to either constitute but one and
the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
INNOPET BRANDS CORP.
By:______________________________________________________
Marc Duke
Chairman of the Board and Chief Executive Officer
Attest:
____________________
Secretary
JOSEPH STEVENS & COMPANY, L.P.
By:___________________________________________
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, ________, 2001
No. W- ____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Joseph Stevens &
Company, L.P., or registered assigns, is the registered holder of __________
Warrants to purchase initially, at any time from ____________, 1997 [one year
from the effective date of the Registration Statement] until 5:00 p.m. New York
time on ____________, 2001 [five years from the effective date of the
Registration Statement] ("Expiration Date"), up to ______________ Units, each
Unit consisting of one (1) fully-paid and non-assessable share of common stock,
$.01 par value ("Common Stock") of INNOPET BRANDS CORP., a Delaware corporation
(the "Company"), and one (1) redeemable common stock purchase warrant
("Redeemable Warrants") (each Redeemable Warrant entitling the holder to
purchase one fully-paid and non-assessable share of Common Stock), at the
initial exercise price, subject to adjustment in certain events (the "Exercise
Price"), of $_____________ [120% of the public offering price per Unit] per Unit
upon surrender of this Warrant Certificate and payment of the Exercise Price at
an office or agency of the Company, or by surrender of this Warrant Certificate
in lieu of cash payment, but subject to the conditions set forth herein and in
the warrant agreement dated as of _________________, 1996 between the Company
and Joseph Stevens & Company, L.P. (the "Warrant Agreement"). Payment of the
Exercise Price shall be made by certified or official bank check in New York
Clearing House funds payable to the order of the Company or by surrender of this
Warrant Certificate.
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No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such Warrant.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of , 1996
INNOPET BRANDS CORP.
[SEAL] By:______________________________________________________
Marc Duke
Chairman of the Board and Chief Executive Officer
Attest:
____________________
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _____________ Units
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of INNOPET BRANDS
CORP. in the amount of $__________, all in accordance with the terms of Section
3.1 of the Underwriter's Warrant Agreement dated as of ___________, 1996 between
INNOPET BRANDS CORP. and Joseph Stevens & Company, L.P. The undersigned requests
that certificates for such securities be registered in the name of
_______________ whose address is __________________________ and that such
certificates be delivered to ______________________________ whose address is
- ----------------------------.
Dated:
Signature______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________ Units
all in accordance with the terms of Section 3.2 of the Underwriter's Warrant
Agreement dated as of ______________, 1996 between INNOPET BRANDS CORP. and
Joseph Stevens & Company, L.P. The undersigned requests that certificates for
such securities be registered in the name of __________________ whose address is
___________________________________________ and that such certificates be
delivered to __________________________ whose address is _____________________.
Dated:
Signature______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers
unto _________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
Signature______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
6
<PAGE>
Exhibit 4.4
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT
TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION
UNDER THE ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN
OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO
THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE
SECURITIES LAW.
INNOPET BRANDS CORP.
PROMISSORY NOTE
The Transferability of this Note
is Restricted as Provided in Section 3
N-___ Dated: August 12, 1996
$100,000 New York, New York
FOR VALUE RECEIVED, InnoPet Brands Corp., a Delaware corporation (the
"Company"), promises to pay to __________ or assigns (the "Holder") the
principal amount of $ONE HUNDRED THOUSAND DOLLARS ($100,000) (the "Principal
Amount"), in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, together with simple interest thereon at the rate of ten percent (10%)
per annum (calculated on the basis of a 360-day year of 30-day months), at the
principal office of the Company, upon the earlier of (a) the closing of the sale
of securities or other financing of the Company from which the Company or any of
its subsidiaries or affiliates receives gross proceeds of at least four million
dollars ($4,000,000) or (b) August 11, 1997 [twelve months from the date
hereof]. No payments of principal and/or interest shall be due until maturity.
Notwithstanding anything to the contrary herein contained, the
Principal Amount of this Note or any interest hereon may be prepaid at any time
or from time to time, prior to the maturity of this Note, in whole or in part,
without prior notice and without penalty or premium. Prepayments shall be
applied first to interest due and then to principal.
<PAGE>
1. The Notes: This Note is one of several promissory notes made and
issued by the Company which may aggregate to a principal amount of two million
dollars ($2,000,000) (individually, a "Note," and together, the "Notes")
assuming all Units are sold, pursuant to the terms and subject to the conditions
of Subscription Agreements and Investment Representations (the "Subscription
Agreements"), by and among the Company and certain investors. Reference is made
to the Subscription Agreements for agreements of the parties applicable to this
Note.
2. Covenants: The Company covenants and agrees that, so long as any of
the Notes shall be outstanding and unpaid:
2.1 Payment of Notes. The Company will punctually pay or cause
to be paid the Principal Amount and interest on this Note. Any sums required to
be withheld from any payment of Principal Amount or interest on this Note by
operation of law or pursuant to any order, judgment, execution, treaty, rule or
regulation may be withheld by the Company and paid over in accordance therewith.
Nothing in this Note or in any other agreement between the Holder and
the Company shall require the Company to pay, or the Holder to accept, interest
in an amount which would subject the Holder to any penalty or forfeiture under
applicable law. In the event that the payment of any charges, fees or other sums
due under this Note or provided for in any other agreement between the Company
and the Holder are or could be held to be in the nature of interest and would
subject the Holder to any penalty or forfeiture under applicable law, then ipso
facto the obligations of the Company to make such payment to the Holder shall be
reduced to the highest rate authorized under applicable law and, in the event
that the Holder shall have ever received, collected, accepted or applied as
interest any amount in excess of the maximum rate of interest permitted to be
charged by applicable law, such amount which would be excess interest under
applicable law shall be applied first to the reduction of principal then
outstanding, and, second, if such principal amount is paid in full, any
remaining excess shall forthwith be returned to the Company.
2.2 Maintenance of Corporate Existence; Merger and Consolidation.
The Company will at all times cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence and all of its rights
and franchises and shall not be consolidated with or merge into any other
corporation or transfer all or substantially all of its assets to any person
unless (i) the survivor of such consolidation or merger is the Company, (ii) the
corporation formed by such consolidation or into which the Company is merged or
to which the assets of the Company are transferred is a corporation which
expressly assumes all of the obligations of the Company under the Notes, and
(iii) after giving effect to such transaction, no Event of Default (as
hereinafter defined), and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have occurred and be continuing.
2.3 Maintenance of Properties. The Company will reasonably
maintain in good repair, working order and condition its properties and other
assets, and from time to time make all reasonably necessary or desirable
repairs, renewals and replacements thereto.
2
<PAGE>
2.4 Payment of Taxes. The Company will cause to be paid, set aside
for payment, or cause to be discharged, before the same shall become
delinquent, all taxes, assessments and governmental charges levied or imposed
upon the Company or upon its income, profits or property; provided, however,
that the Company shall not be required to cause to be paid or discharged any
such tax, assessment or charge whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
2.5 Compliance with Statutes. The Company will comply in all
material respects with all applicable statutes and regulations of the United
States of America and of any state or municipality, and of any agency of any
thereof, in respect of the conduct of business, and the ownership of property by
the Company; provided, however, that nothing contained in this Section 2.5 shall
require the Company to comply with any such statute or regulation so long as its
legality or applicability shall be contested in good faith; and provided further
that an unintentional violation of this covenant done in good faith or
inadvertently shall not be deemed an Event of Default under Section 4 hereof.
2.6 Liens. The Company will not create, incur or suffer to
exist any liens, claims or encumbrances upon any of its assets or properties,
except for those incurred in the ordinary course of business.
2.7 Restrictions on Dividends, Redemptions, etc. The Company
will not (i) declare or pay any dividend or make any other distribution on any
equity securities of the Company, except dividends or distributions payable in
equity securities of the Company, (ii) purchase, redeem or otherwise acquire or
retire for value any equity securities of the Company, except equity securities
acquired upon conversion thereof into other equity securities of the Company, or
(iii) permit a subsidiary of the Company to purchase, redeem or otherwise
acquire or retire for value any equity securities of the Company, if, upon
giving effect to such dividend, distribution, purchase, redemption, or other
acquisition or retirement, the net worth of the Company would be reduced to less
than an amount equal to the remaining indebtedness outstanding under the Notes.
2.8 Transactions with Affiliates. The Company will not itself,
and will not permit any subsidiary to, engage in any transaction of any kind or
nature with any affiliate (as such term is used in Rule 405 under the Act) of
the Company, other than a wholly-owned subsidiary, unless such transaction is
upon terms which are fair to the Company or such subsidiary, as the case may be,
and which are reasonably similar to, or more beneficial to the Company or such
subsidiary than the terms deemed likely to occur in similar transactions with
unrelated persons under the same circumstances.
2.9 Indebtedness. The Company shall not incur any liability or
obligation, direct or contingent, for borrowed money, except for those incurred
in the ordinary course of business.
3. Restrictions Upon Transferability. This Note has not been
registered under the Act, and may not be offered, sold, pledged, hypothecated,
assigned or transferred except (i) pursuant to a registration statement under
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<PAGE>
the Act which has become effective and is current with respect to this Note, or
(ii) pursuant to a specific exemption from registration under the Act but only
upon a Holder hereof first having obtained the written opinion of counsel to
the Company, or other counsel reasonably acceptable to the Company, that the
proposed disposition is consistent with all applicable provisions of the Act as
well as any applicable "blue sky" or other state securities law.
4. Events of Default and Remedies. An "Event of Default" shall occur
if:
4.1 Payment of Notes. The Company defaults in the payment of
Principal Amount or interest of this Note, when and as the same shall become due
and payable whether at maturity thereof, or by acceleration or otherwise, which
default shall continue uncured for a period of thirty (30) days from the date
thereof; or
4.2 Performance of Covenants, Conditions or Agreements. The
Company fails to comply with any of the covenants, conditions or agreements set
forth in this Note and such default shall continue uncured for a period of
thirty (30) days after receipt of written notice to the Company from any Holder
stating the specific default or defaults; or
4.3 Bankruptcy, Insolvency, etc. The Company shall file or
consent by answer or otherwise to the entry of an order for relief or approving
a petition for relief, reorganization or arrangement or any other petition in
bankruptcy for liquidation or to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or shall make an assignment for the benefit of its
creditors, or shall consent to the appointment of a custodian, receiver, trustee
or other officer with similar powers of itself or of any substantial part of its
property, or shall be adjudicated a bankrupt or insolvent, or shall take
corporate action for the purpose of any of the foregoing, or if a court or
governmental authority of competent jurisdiction shall enter an order appointing
a custodian, receiver, trustee or other officer with similar powers with respect
to the Company or any substantial part of its property or an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law, or an order for the dissolution, winding up or liquidation of
the Company, or if any such petition shall be filed against the Company and such
petition shall not be dismissed within sixty (60) days.
4.4. Remedies. In case an Event of Default (other than an Event of
Default resulting from the Company's failure to pay the Principal Amount of, or
any interest upon, this Note, when the same shall be due and payable in
accordance with the terms hereof (after giving affect to applicable "cure"
provisions herein) and an Event of Default resulting from bankruptcy,
insolvency or reorganization) shall occur and be continuing, the Holders of the
Notes representing at least fifty-one percent (51%) in the aggregate of the
Principal Amount of all Notes then outstanding, may declare by notice in writing
to the Company all unpaid Principal Amount and accrued interest on all of the
Notes then outstanding to be due and payable immediately. In case an Event of
Default resulting from the Company's nonpayment of Principal Amount of, or
interest upon, this Note shall occur, the Holder may declare all unpaid
Principal Amount and accrued interest on this Note held by such Holder to be due
and payable immediately. In case an Event of Default resulting from bankruptcy,
insolvency or reorganization shall occur, all unpaid principal and accrued
4
<PAGE>
interest on the Notes held by each Holder shall be due and payable immediately
without any declaration or other act on the part of such Holders. Any such
acceleration may be annulled and past defaults (except, unless theretofore
cured, a default in payment of Principal Amount or interest on the Notes) may be
waived by the Holders of a majority in Principal Amount of the Notes then
outstanding.
5. Costs of Collection. Should the indebtedness represented by this
Note or any part thereof be collected in any proceeding, or this Note be placed
in the hands of attorneys for collection after default, the Company agrees to
pay as an additional obligation under this Note, in addition to the Principal
Amount and interest due and payable hereon, all costs of collecting this Note,
including reasonable attorneys' fees.
6. Waiver and Amendments. This Note may be amended, modified,
superseded, canceled, renewed or extended, and the terms hereof may be waived
only by a written instrument signed by the Company and Holders of at least
fifty-one percent (51%) in Principal Amount of the Notes at the time
outstanding; provided, however, that the consent of a Holder shall be required
to modify the terms of this Note affecting the payment of Principal Amount of,
or interest on, such Holder's Note or the term of such Holder's Note. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver hereof, nor shall any waiver on the part of any party
of any right, power or privilege or privilege hereunder preclude any other or
further exercise hereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies provided herein are cumulative and are not
exclusive of any rights or remedies which any party may otherwise have at law or
in equity.
7. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and of indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note, if mutilated, the Company will make and deliver a new Note of like
tenor, in lieu of this Note. Any Note made and delivered in accordance with the
provisions of this Section 7 shall be dated as of the date to which interest has
been paid on this Note, or if no interest has theretofore been paid on this
Note, then dated the date hereof.
8. Notice. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed or
sent by certified, registered, or express mail, postage prepaid, and shall be
deemed given when so delivered personally, telegraphed or, if mailed, five (5)
days after the date of deposit in the United States mails, as follows:
(i) if to the Company, to:
InnoPet Brands Corp.
1 East Broward Boulevard
Suite 1100
Fort Lauderdale, Florida 33301
Attn: Marc Duke
Chief Executive Officer
5
<PAGE>
(ii) if to the Holder, to the address of such Holder as shown on the
books of the Company.
9. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
conflicts of law principles. The Company agrees that any dispute or controversy
arising out of this Note shall be adjudicated in a court located in New York
City, and hereby submits to the exclusive jurisdiction of the courts of the
State of New York located in New York, New York and of the federal courts in the
Southern District of New York, and irrevocably waives any objection it now or
hereafter may have respecting the venue of such action or proceeding brought in
such a court or respecting the fact that such court is an inconvenient forum,
and consents to the service of process in any such action or proceeding by means
of registered or certified mail, return receipt requested.
10. Successors and Assigns. All the covenants, stipulations, promises
and agreements in this Note contained by or on behalf of the Company shall bind
its successors and assigns, whether or not so expressed.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its corporate name by a duly authorized officer and to be dated as of the date
first above written.
INNOPET BRANDS CORP.
By:______________________________________
Name: Marc Duke
Title: Chairman of the board and
Chief Executive Officer
7
<PAGE>
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED
OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT
WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR
(ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY
UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS
WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
August 12, 1996
INNOPET BRANDS CORP.
COMMON STOCK PURCHASE WARRANT
The Transferability of this Warrant is
Restricted as Provided in Section 3
W- ____ Warrants
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by InnoPet Brands Corp., a Delaware
corporation (the "Company"),___________________________________________________
__________ is hereby granted the right to purchase, at the initial exercise
price of $2.00 per share (subject to adjustment as provided herein), at any time
from August 11, 1997 [12 months from the date hereof] until 5:00 p.m. on August
11, 2000 [4 years from the date hereof], Twenty-Five Thousand (25,000) shares of
common stock of the Company, $.01 par value per share (the "Shares").
<PAGE>
Each Common Stock Purchase Warrant (the "Warrant") is
initially exercisable at a price of $2.00 per Share, payable in cash or by
certified or official bank check in New York Clearing House funds, subject to
adjustments as provided in Section 5 hereof. Upon surrender of this Warrant,
with the annexed Subscription Form duly executed, together with payment of the
Purchase Price (as hereinafter defined) for the Shares purchased at the offices
of the Company, the registered holder of this Warrant (the "Holder") shall be
entitled to receive a certificate or certificates for the Shares so purchased.
1. Exercise of Warrant.
The purchase rights represented by this Warrant are
exercisable at the option of the Holder, in whole or in part (but not as to
fractional Shares underlying this Warrant), during any period in which this
Warrant may be exercised as set forth above. In the case of the purchase of less
than all the Shares purchasable under this Warrant, the Company shall cancel
this Warrant upon the surrender hereof and shall execute and deliver a new
Warrant of like tenor for the balance of the Shares purchasable hereunder.
2. Issuance of Certificates.
Upon the exercise of this Warrant and payment in full for the
Shares, the issuance of certificates for Shares underlying this Warrant shall be
made forthwith (and in any event within five (5) business days thereafter)
without charge to the Holder, including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Section 3 hereof) be issued in the name of, or in
such names as may be directed by, the Holder; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the
2
<PAGE>
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid. The certificates representing the Shares
underlying this Warrant shall be executed on behalf of the Company by the manual
or facsimile signature of the present or any future President or Vice President
and Secretary or Assistant Secretary of the Company.
3. Restriction on Transfer; Registration Under the Securities
Act of 1933, as amended.
3.1 Neither this Warrant nor any Share issuable upon exercise
hereof has been registered under the Securities Act of 1933, as amended (the
"Act"), and none of such securities may be offered, sold, pledged, hypothecated,
assigned or transferred except (i) pursuant to a registration statement under
the Act which has become effective and is current with respect to such
securities, or, (ii) pursuant to a specific exemption from registration under
the Act but only upon a Holder hereof first having obtained the written opinion
of counsel to the Company, or other counsel reasonably acceptable to the
Company, that the proposed disposition is consistent with all applicable
provisions of the Act as well as any applicable "Blue Sky" or similar state
securities law. Upon exercise, in part or in whole, of this Warrant, each
certificate issued representing the Shares underlying this Warrant shall bear a
legend to the foregoing effect.
3.2 If at any time commencing August 11, 1997 [12 months from
the date hereof] and expiring five (5) years thereafter, the Company proposes to
register any of its securities under the Act (other than in connection with a
merger, acquisition or exchange offer on Form S-4 or pursuant to Form S-8 or
successor forms), it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such registration statement to the
Holder(s) of the Warrants and/or Shares of its intention to do so. Upon the
written
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<PAGE>
request of any Holder of the Warrants and/or Shares given within ten (10) days
after receipt of any such notice of its or their desire to include any such
Warrants and/or Shares in such proposed registration statement, the Company
shall afford such Holder(s) of the Warrants and/or Shares the opportunity to
have any such Warrants and/or Shares registered under such registration
statement.
Notwithstanding the provisions of this Section 3.2, the
Company shall have the right at any time after it shall have give written notice
pursuant to this Section 3.2 (irrespective of whether a written request for
inclusion of any such securities shall have been made) to elect not to file any
such proposed registration statement, or to withdraw the same after the filing
but prior to the effective date hereof.
If any registration pursuant to this Section 3.2 shall be
underwritten in whole or in part, the Company may require that the Warrants
and/or Shares requested for inclusion pursuant to this Section 3.2 be included
in the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriter(s).
3.3 Subject to the provisions of Section 6 hereof, at any time
during the five-year period commencing_________, 1997 [12 months from the date
hereof], if the Company is subject to the reporting requirements of Section 13
or Section 15(g) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Holders of the Warrants and/or Shares representing a
"Majority" (as hereinafter defined) of such securities (assuming the exercise of
all of the Warrants) shall have the right (which right is in addition to the
registration rights under Sections 3.2 and 6 hereof), exercisable by written
notice to the Company, to have the Company prepare and file with the Securities
and Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for
4
<PAGE>
the Company and counsel for the Underwriter and the Holders, in order to comply
with the provisions of the Act, so as to permit a public offering and sale of
their respective Shares for nine (9) consecutive months by such Holders and any
other Holders of the Warrants and/or Shares who notify the Company within ten
(10) days after receiving notice from the Company of such request;
The Company covenants and agrees to give written notice of any
registration request under this Section 3.3 by any Holder or Holders to all
other registered Holders of the Warrants and/or Shares within ten (10) days from
the date of the receipt of any such registration request.
3.4 In connection with any registration under Sections 3.2,
3.3 or 6 hereof, the Company covenants and agrees as follows:
(a) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions or
other charges of any broker-dealer acting on behalf of Holder(s)), fees and
expenses in connection with all registration statements filed pursuant to
Sections 3.2, 3.3 and 6 hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(b) The Company will take all necessary action which may be
required in qualifying or registering the Warrants and Shares or New Warrants
and New Warrant Shares, as defined in Section 6 hereof, (collectively, the
"Warrant Securities") included in a registration statement for offering and sale
under the securities or blue sky laws of such states as reasonably are requested
by the Holder(s), provided that the Company shall not be obligated to qualify as
a foreign corporation to do business under the laws of any such jurisdiction.
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<PAGE>
(c) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or any other statute, common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in such registration statement executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in order
to qualify the Warrant Securities under the securities laws thereof or filed
with the Securities and Exchange Commission (the "Commission"), any state
securities commission or agency, the National Association of Securities Dealers,
Inc., The Nasdaq Stock Market or any securities exchange, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements contained therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company by the Holder(s) expressly for use in such
registration statement, any amendment or supplement thereto or any application,
as the case may be. If any action is brought against the Holder(s) or any
controlling person of the Holder(s) in respect of which indemnity may be sought
against the Company pursuant to this Section 3.3(c), the Holder(s) or such
controlling person shall within thirty (30) days after the receipt thereby of a
summons or complaint notify the Company in writing of the institution of such
action and the Company shall assume the defense of such action, including the
employment and payment of reasonable fees and expenses of counsel (which counsel
shall be reasonably satisfactory to the
6
<PAGE>
Holder(s) or such controlling person), but the failure to give such notice shall
not affect such indemnified person's right to indemnification hereunder except
to the extent that the Company's defense of such action was materially adversely
affected thereby. The Holder(s) or such controlling person shall have the right
to employ its or their own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of the Holder(s) or such controlling
person unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action, the
Company shall not have employed counsel to have charge of the defense of such
action or such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events the fees and expenses of
not more than one additional firm of attorneys for the Holder(s) and/or such
controlling person shall be borne by the Company. Except as expressly provided
in the previous sentence, in the event that the Company shall not previously
have assumed the defense of any such action or claim, the Company shall not
thereafter be liable to the Holder(s) or such controlling person in
investigating, preparing or defending any such action or claim. The Company
agrees promptly to notify the Holder(s) of the commencement of any litigation or
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the resale of the Warrant Securities or in connection
with such registration statement.
(d) The Holder(s) of the Warrant Securities to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act,
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<PAGE>
against all loss, claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished in writing by or on behalf of such
Holders, or their successors or assigns, for specific inclusion in such
registration statement. The Holder(s) further agree(s) that upon demand by an
indemnified person, at any time or from time to time, they will promptly
reimburse such indemnified person for any loss, claim, damage, liability, cost
or expense actually and reasonably paid by the indemnified person as to which
the Holder(s) have indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 3.3(d), any such payment or reimbursement
by the Holder(s) of fees, expenses or disbursements incurred by an indemnified
person in any proceeding in which a final judgment by a court of competent
jurisdiction (after all appeals or the expiration of time to appeal) is entered
against the Company or such indemnified person as a direct result of the Company
or such person's gross negligence or willful misfeasance will be promptly repaid
to the Holder(s).
(e) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants or New Warrants prior to the
initial filing of any registration statement or the effectiveness thereof.
(f) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand made
pursuant to the provisions of Section 3.3 hereof, shall use its best efforts to
have any registration statement declared effective at the earliest possible
time, and shall furnish each Holder desiring to sell Warrant Securities such
number of prospectuses as shall reasonably be requested by such Holder.
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<PAGE>
(g) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders holding
a Majority of the Warrant Securities requested to be included in such
underwriting. Such agreement shall be satisfactory in form and substance to the
Company, each Holder and such managing underwriter, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Warrant Securities and may, at their option,
require that any or all of the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and for
the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(h) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrant Securities shall mean in excess of fifty
percent (50%) of the then outstanding Warrant Securities that (i) are not held
by the Company, an affiliate, officer, creditor, employee or agent thereof or
any of their respective affiliates, members of their family, persons acting as
nominees or in conjunction therewith and (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under the Act.
3.5 In connection with any registration made pursuant to
Sections 3.2, 3.3 or 6 hereof, the Holder(s) of the Warrant Securities agree(s)
as follows:
(a) Any public sale of the Warrant Securities included in such
registration statement shall be effected through the underwriter for such
registration and the Holder(s)
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<PAGE>
shall compensate the underwriter in accordance with its customary compensation
practices for such transactions.
4. Price.
4.1 Initial and Adjusted Purchase Price. The initial purchase
price shall be $2.00 per Share. The adjusted purchase price shall be the price
which shall result from time to time from any and all adjustments of the initial
purchase price in accordance with the provisions of Section 5 hereof and subject
to Section 6 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall
mean the initial purchase price or the adjusted purchase price, depending upon
the context.
5. Adjustments of Purchase Price and Number of Shares.
In the event that, prior to the issuance by the Company of all
the Shares issuable upon exercise of this Warrant, there shall be any change in
the outstanding common stock of the Company by reason of the declaration of
stock dividends, or through a recapitalization resulting from stock splits or
combinations, the remaining Shares still subject to this Warrant and the
purchase price thereof shall be appropriately adjusted (but without regard to
fractions) by the Board of Directors of the Company to reflect such change.
6. Automatic Conversion.
If the Company consummates a public offering of its securities
prior to the last day on which this Warrant may be exercised, which offering
includes warrants to purchase shares of common stock of the Company ("Redeemable
Warrants") and this Warrant shall not have been exercised in full, then the
unexercised portion of this Warrant shall automatically, without any action by
the Holder, be converted into Redeemable Warrants (the "New Warrants")
exercisable to purchase the same number of Shares as are purchasable upon the
exercise of the unexercised portion of this Warrant but having terms identical
to
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<PAGE>
those of the Redeemable Warrants, including, but not limited to, the
anti-dilution provisions contained therein and an exercise price per share equal
to the exercise price per share of the Redeemable Warrants offered in the public
offering. The Company shall cause the New Warrant and the underlying shares of
common stock of the Company (the "New Warrant Shares") to be included in the
registration statement for such offering. In the event that the provisions of
this Section 6 shall become applicable, the Holder shall be required to return
this Warrant Certificate to the Company for cancellation or, if this Warrant
Certificate cannot then be located, to execute and deliver to the Company a lost
security affidavit and indemnity agreement reasonably satisfactory to the
Company. In addition, in the event that the provisions of this Section 6 shall
become applicable, this Warrant Certificate shall no longer be of any force or
effect and the certificate representing the New Warrants shall set forth the
respective rights and obligations of the Holder and the Company.
7. Merger or Consolidation.
In case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding common stock of the Company), the corporation formed
by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the Holder shall have the right
thereafter (until the expiration of such Warrant) to receive, upon exercise of
his Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger by a holder of the number
of shares of common stock of the Company for which his Warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for the automatic conversion
provision of Section 6 and
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<PAGE>
adjustments which shall be identical to the adjustments provided in Section 5.
The above provisions of this Section 7 shall similarly apply to successive
consolidations or mergers.
8. Replacement of Warrant.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares on the exercise of this Warrant, nor shall it
be required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated.
10. Reservation of Securities.
The Company shall at all times reserve and keep available out
of its authorized common stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of Shares as shall be issuable upon the
exercise hereof. The Company covenants and agrees that, upon exercise of this
Warrant and payment of the Purchase Price therefor, all Shares issuable upon
such exercise shall be duly and validly issued, fully paid and nonassessable.
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<PAGE>
11. Notices to Warrant Holders.
Nothing contained in this Warrant shall be construed as
conferring upon the Holder hereof the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights whatsoever as
a stockholder of the Company.
12. Notices.
All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, telegraphed or sent by certified, registered, or express mail,
postage prepaid, and shall be deemed given when so delivered personally,
telegraphed or, if mailed, five days after the date of deposit in the United
States mails, as follows:
(a) If to the Company, to:
InnoPet Brands Corp.
1 East Broward Boulevard
Suite 1100
Fort Lauderdale, Florida 33301
Attn: Marc Duke,
Chief Executive Officer
(b) If to the registered Holder, to the address of such Holder
as shown on the books of the Company.
13. Successors.
All the covenants, agreements, representations and warranties
contained in this Warrant shall bind the parties hereto and their respective
heirs, executors, administrators, distributees, successors and assigns.
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<PAGE>
14. Headings.
The headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
15. Law Governing.
This Warrant is delivered in the State of New York and shall
be construed and enforced in accordance with, and governed by, the laws of the
State of New York, without giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed in its corporate name by, and such signature to be attested to by, a duly
authorized officer and has caused its corporate seal to be affixed hereto on the
date first above written.
INNOPET BRANDS CORP.
By: ______________________________________
Name: Marc Duke
Title: Chairman of the Board and Chief
Officer
Executive
[SEAL]
Attest:
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Secretary
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<PAGE>
SUBSCRIPTION FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned hereby irrevocably elects to exercise the
right to purchase Twenty-Five Thousand (25,000) Shares represented by this
Warrant in accordance to the conditions hereof and herewith makes payment of the
Purchase Price of such Shares in full.
------------------------------
Signature
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Address
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Dated: Social Security Number or
Taxpayer's Identification
Number
<PAGE>
CAMHY
KARLINSKY &
STEIN LLP 1740 BROADWAY 16TH FL. NEW YORK, NY 10019-4315
TELEPHONE (212) 977-660O FACSIMILE (212) 977-8389
September 13, 1996
InnoPet Brands Corp.
One East Broward Boulevard, Suite 1100
Fort Lauderdale, Florida 33301
Re: Registration Statement on Form SB-2
Dear Sirs:
You have requested our opinion in connection with the above-captioned
Registration Statement on Form SB-2 to be filed by InnoPet Brands Corp., a
Delaware corporation (the "Company"), with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations promulgated thereunder (the "Rules"). The Registration
Statement relates to the offering of up to 2,587,500 Units (the "Units"), each
unit consisting of one share of common stock, par value $.01 per share (the
"Common Stock") and one redeemable common stock purchase warrant (the
"Redeemable Warrants"); 2,587,500 shares of Common Stock underlying the
Redeemable Warrants; 1,000,000 Selling Securityholders' Redeemable Warrants;
1,000,000 shares of Common Stock underlying the Selling Securityholders'
Redeemable Warrants; 225,000 Representative's Warrants; 225,000 Units issuable
upon the exercise of the Representative's Warrants; and 225,000 shares of Common
Stock underlying the Redeemable Warrants included in the Representative's
Warrants.
We have examined such records and documents and have made such
examination of law as we considered necessary to form a basis for the opinions
set forth herein. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with the originals of all documents submitted to us as copies
thereof.
Based upon such examination, it is our opinion that when there has been
compliance with the Act and applicable state securities laws and when the
Underwriting Agreement, a form of which will be filed as an exhibit to the
Registration Statement, is duly
<PAGE>
Innopet Brands Corp.
September 13, 1996
Page 2
and validly executed and delivered, the Units; Warrants and Common Stock, when
issued, delivered and paid for in the manner described in such Underwriting
Agreement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Opinions" in the Registration Statement. In so doing, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or under the Rules.
Very truly yours,
CAMHY KARLINSKY & STEIN LLP
<PAGE>
Exhibit 10.1
INNOPET BRANDS CORP.
1996 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
1. Purpose
The purpose of this Stock Option Plan (the "Plan") is to encourage and
enable key employees (which term, as used herein, shall include officers), and
directors (other than members of the Committee, as hereinafter defined), of
InnoPet Brands Corp. or a parent (if any) or subsidiary thereof (collectively,
unless the context otherwise requires, the "Corporation"), consultants, and
advisors to the Corporation, and other persons or entities providing goods or
services to the Corporation to acquire a proprietary interest in the Corporation
through the ownership of common stock of the Corporation. As used herein, the
term "parent" or "subsidiary" shall mean any present or future corporation which
is or would be a "parent corporation" or "subsidiary corporation" of the
Corporation as the term is defined in section 424 of the Internal Revenue Code
of 1986, as amended (the "Code") (determined as if the Corporation were the
employer corporation). Such directors, consultants, advisors, and other persons
or entities providing goods or services to the Corporation and entitled to
receive options hereunder are hereinafter collectively referred to as the
"Associates," and the relationship of the Associates to the Corporation is
hereinafter referred to as "association with" the Corporation. An employee or
Associate to whom an option has been granted is referred to as a "Grantee". Such
ownership will provide such Grantees with a more direct stake in the future
welfare of the Corporation and encourage them to remain employed by or
associated with the Corporation. It is also expected that the Plan will
encourage qualified persons to seek and accept employment or association with
the Corporation.
2. Administration
(a) The Plan shall be administered by a Stock Option Committee (the
"Committee"), consisting of at least two members of the Board of Directors of
the Corporation who are disinterested persons within the meaning of Rule
16(b)-3(c)(2)(i) promulgated under the Securities Exchange Act of 1934, as
amended from time to time.
(b) A majority of the members of the Committee shall constitute a quorum,
and the action of a majority of the members of the Committee present at a
meeting at which a quorum is present, as well as actions taken pursuant to the
unanimous written consent of all of the members of the Committee without holding
a meeting, shall be deemed to be actions of the Committee. All actions of the
Committee and all interpretations and decisions made by the Committee with
respect to any question arising under the Plan shall be final and conclusive and
shall be binding upon the Corporation and all other interested parties.
(c) Subject to the terms and conditions of the Plan and such limitations
as the Board of Directors may from time to time impose, the Committee shall be
responsible for the overall management and administration of the Plan and shall
<PAGE>
have such authority as shall be necessary or appropriate in order to carry out
its responsibilities, including, without limitation, the authority to (i)
interpret and construe the Plan and to determine the terms of all options
granted pursuant to the Plan, including, but not limited to, the persons to
whom, and the time or times at which grants shall be made, the number of options
to be included in the grants, the number of options which shall be treated as
incentive stock options (in the case of options granted to employees) as
described in section 422 of the Code, the number of options which do not qualify
as incentive stock options ("nonqualified options"), and the terms and
conditions thereof; (ii) to adopt rules and regulations and to prescribe forms
for the operation and administration of the Plan; and (iii) to take any other
action not inconsistent with the provisions of the Plan that it may deem
necessary or appropriate.
3. Eligibility and Participation
(a) Key employees and Associates are eligible to receive options. Each
option shall be granted, and the number of shares subject thereto shall be
determined by the Committee.
(b) Directors who are not officers of the Corporation, including, without
limitations, Directors who serve as members of the Committee, shall receive as
formula grants, on an annual basis on the last trading day of each November,
starting November, 1996, stock options for 2,500 shares of the Corporation's
common stock, at an exercise price equal to the fair market value of the stock
on the date of grant. The fair market value shall be determined in accordance
with Section 8 hereof.
4. Shares Subject to the Plan
(a) Options shall be evidenced by written agreements which shall, among
other things (i) designate the option as either an incentive stock option or a
nonqualified stock option, (ii) specify the number of shares covered by the
option; (iii) specify the exercise price, determined in accordance with
paragraph 7 hereof, for the shares subject to the option; (iv) specify the
option period determined in accordance with paragraph 6 hereof; (v) set forth
specifically or incorporate by reference the applicable provisions of the Plan;
and (vi) contain such other terms and conditions consistent with the Plan as the
Committee may, in its discretion, prescribe.
(b) The stock to be offered and delivered under the Plan, pursuant to the
exercise of an option, shall be both classes of shares of the Corporation's
authorized common stock and may be unissued shares or reacquired shares, as the
Committee may from time to time determine. Subject to adjustment as provided in
paragraph 13 hereof, the aggregate number of shares to be delivered under the
Plan shall not exceed four hundred thousand (400,000) shares of common stock. If
an option expires or terminates for any reason during the term of the Plan prior
to the exercise thereof in full, the shares subject to but not delivered under
such option shall be available for options thereafter granted.
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<PAGE>
5. Incentive Stock Options
(a) An option designated by the Committee as an "incentive stock option"
is intended to qualify as an "incentive stock option" within the meaning of
section 422 of the Code. An incentive stock option shall be granted only to an
employee of the Corporation.
(b) No incentive stock option shall provide any person with a right to
purchase shares to the extent that such right first becomes exercisable during a
prescribed calendar year and the sum of (i) the fair market value (determined as
of the date of grant) of the shares subject to such incentive stock option which
first become available for purchase during such calendar year, plus (ii) the
fair market value (determined as of the date of grant) of all shares subject to
incentive stock options previously granted to such person under all plans of the
Corporation first become available for purchase during such calendar year
exceeds $100,000.
(c) Without prior written notice to the Committee, a Grantee may not
dispose of shares acquired pursuant to the exercise of an incentive stock option
until after the later of (i) the second anniversary of the date on which the
incentive stock option was granted, or (ii) the first anniversary of the date on
which the shares were acquired; provided, however, that a transfer to a trustee,
receiver, or other fiduciary in any insolvency proceeding, as described in
section 422(c)(3) of the Code, shall not be deemed to be such a disposition. The
optionee shall make appropriate arrangements with the Corporation for any taxes
which the Corporation is obligated to collect in connection with any disposition
of shares acquired pursuant to the exercise of an incentive stock option,
including any Federal, state or local withholding taxes.
(d) Should Section 422 of the Code be amended during the term of the Plan,
the Committee may modify the Plan consistently with such amendment.
6. Term of Option Period
The term during which options may be granted under the Plan shall expire
on May 15, 2006 and the option period during which each option may be exercised
shall, subject to the provisions of paragraph 12 hereof, be during such period,
expiring not later than the tenth anniversary (the fifth anniversary in the case
of incentive stock options granted to a person who owns (within the meaning of
section 424(d) of the Code) more than 10 percent of the total combined voting
power of all classes of stock of the Corporation at the time such option is
granted) of the date the option is granted, as may be determined by the
Committee.
7. Option Price
The price at which shares may be purchased upon exercise of a particular
option shall be such price as may be fixed by the Committee but in no event less
than the minimum required in order to comply with any applicable law, rule or
regulation and, in the case of incentive stock options, shall not be less than
100 percent, or in the case of incentive stock options granted to an optionee
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<PAGE>
who is a 10 percent stockholder (within the meaning of paragraph 6 hereof),
shall not be less than 110 percent, of the fair market value (as defined in
paragraph 8) of such shares on the date such option is granted.
8. Stock as Form of Exercise Payment
At the discretion of the Committee, a Grantee who owns shares of the
Corporation's common stock may elect to use such shares, with the value thereof
to be determined as the fair market value of such shares on the day prior to the
date of exercise of the option, to pay all or part of the option price required
under the Plan. As used herein, fair market value shall be deemed to be the
closing price on such day of the Corporation's common stock (if the
Corporation's common stock is then traded on a national securities exchange or
in the NASDAQ National Market System or Small-Cap Market System) or, if not so
traded, the average of the closing bid and asked prices thereof on such day.
9. Exercise of Options
(a) Each option granted shall be exercisable in whole or in part at any
time, or from time to time, during the option period as the Committee may
provide in the terms of such option; provided that the election to exercise an
option shall be made in accordance with applicable federal and state laws and
regulations.
(b) No option may at any time be exercised with respect to a fractional
share.
(c) No shares shall be delivered pursuant to the exercise of any option,
in whole or in part, until qualified for delivery under such securities laws and
regulations as may be deemed by the Committee to be applicable thereto, until
such shares are listed on each securities exchange on which the Corporation's
common stock may then be listed, until, in the case of the exercise of an
option, payment in full of the option price is received by the Corporation in
cash or stock as provided in paragraph 8 and until payment in cash of any
applicable withholding taxes is received by the Corporation. Unless prior to the
exercise of the option the shares of the Corporation's common stock issuable
upon such exercise have been registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, the notice of exercise shall
be accompanied by a representation or agreement of the individual exercising the
option to the Corporation to the effect that such shares are being acquired for
investment and not with a view to the resale or distribution thereof or such
other documentation as may be required by the Corporation unless in the.opinion
of counsel to the Corporation such representation, agreement, or documentation
is not necessary to comply with said Act. No holder of an option, or such
holder's legal representative, legatee, or distributee shall be or be deemed to
be a holder of any shares subject to such option unless and until a certificate
or certificates therefor is issued in his name.
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<PAGE>
10. Acceleration of Vesting
(a) An option shall automatically be vested and immediately exercisable in
full upon the occurrence of any of the following events:
(i) Any person within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, other than the Corporation, has become
the beneficial owner, within the meaning of Rule 13d-3 under such Act, of
30 percent or more of the combined voting power of the Corporation's then
outstanding voting securities, unless such ownership by such person has
been approved by the Board of Directors immediately prior to the
acquisition of such securities by such person;
(ii) The first day on which shares of the Corporation's common stock
are purchased pursuant to a tender offer or exchange offer, unless such
offer is made by the corporation or unless such officer has been approved
or not opposed by the Board of Directors;
(iii) The stockholders of the Corporation have approved an agreement
to merge or consolidate with or into another corporation (and the
Corporation is not the survivor of such merger or consolidation) or an
agreement to sell or otherwise dispose of all or substantially all of the
Corporation's assets (including a plan of liquidation), unless the Board
of Directors has resolved that options shall not automatically vest; or
(iv) During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the
Corporation cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the election by the
Corporation's stockholders of each new director was approved by a vote of
at least a majority of the directors then still in office who were
directors at the beginning of the period.
(b) Other than upon the occurrence of any of the events described in
paragraph 10(a), the Committee shall have the authority at any time or from time
to time to accelerate the vesting of any individual option and to permit any
stock option not theretofore exercisable to become immediately exercisable.
11. Transfer of Options
Options granted under the Plan may not be transferred except by will or
the laws of descent and distribution and, during the lifetime of the Grantee to
whom granted, may be exercised only by such or by such Grantee's guardian or
legal representative.
12. Termination of Employment
(a) Except as specifically provided in this paragraph 12, an option shall
be exercisable only if the Grantee has maintained continuous status as an
employee of the Corporation or as an Associate since the date of grant of
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<PAGE>
such option. If the Grantee's status as an employee of the Corporation or as an
Associate is terminated by the Corporation for any reason whatsoever, including
death, Disability, Retirement, or with or without cause, that part of the Option
that has already vested shall be exercisable for the lesser of (i) three (3)
months from the date of such termination of employment or (ii) the balance of
such Option's term. In no event, however, shall any option be exercisable after
five years from the date it was granted. Nothing in the Plan or in any option
shall confer upon any Grantee the right to continue in the employ of or
association with the Corporation or interfere in any way with the right of the
Corporation to terminate the employment or association of a Grantee at any time.
The Committee's determination that a Grantee's employment or association has
terminated and the date thereof shall be final and conclusive on all persons
affected thereby.
(b) The Committee may, if it determines that to do so would be in the
Corporation's best interests, provide in a specific case or cases for the
exercise of options which would otherwise terminate upon termination of
employment or association with the Corporation for any reason, upon such terms
and conditions as the Committee determines to be appropriate.
(c) In the case of a Grantee on an approved leave of absence, the
Committee may, if it determines that to do so would be in the best interests of
the Corporation, provide in a specific case for continuation of options during
such leave of absence, such continuation to be on such terms and conditions as
the Committee determines to be appropriate. Leaves of absence for such period
and purposes conforming to the personnel policy of the Corporation as may be
approved by the Committee shall not be deemed terminations or interruptions of
employment.
13. Adjustments Upon Changes in Capitalization
(a) If the Corporation's outstanding common stock is hereafter changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination, or exchange of shares or the
like, or dividends payable in shares of the Corporation's common stock, an
appropriate adjustment shall be made by the Board upon recommendation of the
Committee in the aggregate number of shares available under the Plan and in the
number of shares and price per share subject to outstanding options. If the
Corporation shall be reorganized, consolidated, or merged with another
corporation, or if all or substantially all of the assets of the Corporation
shall be sold or exchanged, the holder of an option shall, after the occurrence
of such a corporate event, be entitled to receive upon the exercise of his
option the same number and kind of shares of stock or the same amount of
property, cash, or securities as he would have been entitled to receive upon the
happening of any such corporate event as if he had exercised such option and had
been, immediately prior to such event, the holder of the number of shares
covered by such option. All adjustments made pursuant to this paragraph to the
terms or conditions of an incentive stock option shall be subject to the
requirements of section 424 of the Code.
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<PAGE>
(b) Any adjustment in the number of shares shall apply proportionately to
only the unexercised portion of any option granted hereunder. If fractions of a
share would result from any such adjustment, the adjustment shall be revised to
the next higher whole number of shares.
14. Termination, Modification, and Amendment
(a) The Plan shall terminate 10 years from the earlier of the date of its
adoption by the Board of Directors or the date on which the Plan is approved by
the stockholders of the Corporation and no option shall be granted after
termination of the Plan.
(b) The Plan may from time to time be terminated, modified, or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
the Corporation entitled to vote thereon.
(c) The Board of Directors may at any time terminate the Plan or from time
to time make such modifications or amendments of the Plan as it may deem
advisable including, without limitation, modifications to reflect changes in
applicable law; provided, however, that the Board of Directors shall not (i)
modify or amend the Plan in any way that would disqualify any incentive stock
option issued pursuant to the Plan as an incentive stock option as defined in
section 422 of the Code or (ii) without approval by the affirmative vote of the
holders of a majority of the outstanding shares of the Corporation entitled to
vote thereon, increase (except as provided by paragraph 14) the maximum number
of shares as to which options may be granted under the Plan.
(d) No termination, modification, or amendment of the Plan, may, without
the consent of the Grantee, adversely affect the rights conferred by such
option.
15. Effective Date
The Plan shall become effective upon the adoption by the Board of
Directors, subject to the approval by the affirmative vote of the holders of a
majority of the outstanding shares of the Corporation present, in person, or by
proxy, at a stockholders meeting duly held within one year following adoption of
the Plan by the Board of Directors. All options granted prior to the date of
such stockholder approval shall be subject to such approval.
-7-
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made and is
effective as of the 1st day of June, 1996 between INNOPET BRANDS CORP., a
Delaware corporation (the "Company"), having its principal offices at One East
Broward Boulevard, Fort Lauderdale, Florida 33301 and MARC DUKE ("MD"), an
individual with an address at 633 Northeast Ninth Avenue, Ft. Lauderdale,
Florida 33304.
W I T N E S S E T H:
WHEREAS, the Company desires to continue to employ MD and MD
desires to continue to be employed by the Company as its Chief Executive Officer
upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual premises and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Nature of Employment; Term of Employment. The Company
hereby employs MD and MD agrees to continue to serve the Company as its Chief
Executive Officer, upon the terms and conditions contained herein, for a term
commencing as of June 1, 1996 and continuing until May 31, 2000 (the "Employment
Term").
2. Duties and Powers.
(a) During the Employment Term, MD shall be employed
by the Company as Chief Executive Officer, which position is the senior
executive officer of the Company. MD
<PAGE>
shall devote substantially his full working time to his duties as Chief
Executive Officer of the Company, except for the time he spends working for
InnoPet Inc. and its other subsidiaries. In performance of his duties, MD shall
be subject to the direction of the Board of Directors of the Company. As Chief
Executive Officer, MD shall be responsible for managing, directing, and
supervising all aspects of the business of the Company worldwide. The Chief
Executive Officer shall be responsible for developing the business plan and
objectives of the Company and managing the execution of such plan. Without
limiting the generality of the authority of the Chief Executive Officer, the
Chief Executive Officer has the right to hire and terminate any employee of the
Company.
(b) So long as MD is (i) an employee of the Company,
or (ii) owns more than 5% of the issued and outstanding common stock of the
Company (assuming and inclusive of the exercise by MD of any unexercised
warrants or options), MD shall be nominated as a director of the Company.
3. Compensation.
(a) Base Salary. As compensation for his services
hereunder, the Company shall pay MD, during the Employment Term, a salary (the
"Base Salary") payable in equal semi-monthly installments at the annual rate of
$200,000 through December 31, 1997, and thereafter, at the annual rate of
$250,000.
(b) Incentive Bonus. In addition to the salary
provided herein and subject to the discretion of the Compensation and Stock
Option Committee (the "Compensation Committee"), MD shall receive, an annual
bonus (the "Incentive Bonus"). The Incentive Bonus
-2-
<PAGE>
shall be an amount up to 25% of the annual Base Salary. Such bonus shall be paid
to MD within thirty (30) days after completion of the Company's annual audit.
(c) (i) Options. MD may be granted stock options in
the Company, on an annual basis, pursuant to the Company Stock Option Plan, at
the discretion of the Company's Compensation Committee. In the event that MD is
terminated for any reason other than "for cause" as specified in Section 10(d)
below, all options granted pursuant to this Section 4(c) shall vest immediately.
(d) Performance Bonus. In addition to the Base Salary
and Incentive Bonus set forth herein, MD shall be entitled to a performance
bonus (the "Performance Bonus") to be determined each year by the Compensation
Committee of the Board of Directors based on the Company's net earnings in any
given fiscal year. Such bonus shall be paid to MD within thirty (30) days after
completion of the Company's annual audit. Notwithstanding the foregoing, the
Performance Bonus shall not exceed three times the Base Salary for a particular
year. No Performance Bonus shall be payable for a particular year if net
earnings of the Company for such year are less that $100,000.
4. Expenses; Vacation; Insurance; Other Benefits.
(a) Reimbursement. MD shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses necessarily
incurred in the performance of his duties hereunder, upon submission and
approval of written statements and bills in accordance with the then regular
procedures of the Company.
-3-
<PAGE>
(b) Vacation. MD shall be entitled to four (4) weeks
vacation time per annum in accordance with the regular procedures of the Company
governing senior executive officers. Unused vacation time shall be paid to MD in
accordance with the regular procedures of the Company.
(c) Life Insurance. So long as MD is employed by the
Company, the Company shall provide MD with term life insurance in the face
amount of at least Five Hundred Thousand Dollars ($500,000) but not more then
One Million Dollars ($1,000,000.00). MD shall cooperate in submitting to any
physical exams that may be required by any appropriate provider of insurance.
(d) Automobile Expenses. So long as MD is employed by
the Company, the Company shall provide MD with an automobile allowance of Eight
Hundred Dollars ($800) per month to cover the costs of leasing an automobile,
insurance, and the maintenance of such automobile.
(e) Additional Office Expenses. MD shall be entitled
for reimbursement for all costs reasonably incurred in connection with providing
office equipment and related services at his home office, including, without
limitation, the costs of appropriate computer equipment, fax equipment, and
related telephone services.
5. Representations and Warranties.
(a) MD represents and warrants to the Company that
(i) MD is under no contractual or other obligation which is inconsistent with
the execution of this Agreement, the
-4-
<PAGE>
performance of his duties hereunder, or the other rights of the Company
hereunder and (ii) MD is under no physical or mental disability that would
hinder his performance of duties under this Agreement.
(b) The Company acknowledges that MD is and will
continue to be the Chief Executive Officer and Chairman of the Board of
Directors of InnoPet Inc., and be an officer and director of The Original Pet
Drink Co., Inc. and AniVet, Inc. (collectively, "InnoPet") during the term of
this Agreement and that such positions do not conflict in any way with his
obligations and duties to the Company. MD agrees to work a minimum of forty (40)
hours a week on behalf of the Company.
6. Non-Competition. MD agrees that he will not (a) during the
period he is employed by the Company engage in, or otherwise directly or
indirectly be employed by, or act as a consultant or lender to, or be a
director, officer, employee, owner, or partner of, any other business or
organization that is or shall then be competing with the Company, and (b) for a
period of one (1) year after he ceases to be employed by the Company, directly
or indirectly compete with or be engaged in the same business as the Company, or
be employed by, or act as consultant or lender to, or be a director, officer,
employee, owner, or partner of, any business or organization which, at the time
of such cessation, competes with or is engaged in the same business as the
Company, except that in each case the provisions of this Section 6 will not be
deemed breached merely because MD owns not more than five percent (5%) of the
outstanding common stock of a corporation, if, at the time of its acquisition by
MD, such stock is listed on a national securities exchange, is reported on
NASDAQ, or is regularly traded in the
-5-
<PAGE>
over-the-counter market by a member of a national securities exchange. Subject
to Section 5(b) hereof, these restrictions do not, and will not, apply in any
way to MD's positions and work for InnoPet Inc.
7. Patents; Copyrights. Any interest in patents, patent
applications, inventions, copyrights, developments, and processes ("Such
Inventions") which MD now or hereafter during the period he is employed by the
Company may own or develop relating to the fields in which the Company may then
be engaged shall belong to the Company; and forthwith upon request of the
Company, MD shall execute all such assignments and other documents and take all
such other action as the Company may reasonably request in order to vest in the
Company all his right, title, and interest in and to Such Inventions, free and
clear of all liens, charges and encumbrances.
8. Confidential Information. All confidential information
which MD may now possess or may obtain during the Employment Term relating to
the business of the Company shall not be published, disclosed, or made
accessible by him to any other person, firm, or corporation during the
Employment Term or any time thereafter without the prior written consent of the
Company. MD shall return all tangible evidence of such confidential information
to the Company prior to or at the termination of his employment.
9. Purchase of Shares. MD agrees to purchase 417,566 shares
(the "Shares") of common stock of the Company for $1,336,213 pursuant to the
terms of a note ("the Note") in the form attached hereto as Exhibit A. MD agrees
to execute the Note, a Stock Subscription
-6-
<PAGE>
and Security Agreement and a stock power in the forms attached hereto as
Exhibits B and C, respectively.
10. Termination.
(a) If MD is terminated other than pursuant to
Sections 10(b), (c), and (d) below, the Company shall be obligated to pay to MD
an amount equal to three times MD's average annual salary payments over the
course of the previous five years (or such period he is employed by the Company
if such term is less than five years). Such payment shall be made in two
installments; half on the date of termination and the balance six months
thereafter.
(b) Disability. In the event that MD shall be
physically or mentally incapacitated or disabled or otherwise unable fully to
discharge his duties hereunder for a period of six (6) months, then this
Agreement shall terminate upon thirty (30) days' written notice to MD, and MD
shall be entitled to receive an additional six months of Base Salary, as well as
any accrued but unpaid Incentive and Performance Bonus payments to the date of
termination, and any other payments provided under any disability insurance
policy carried by the Company.
(c) Death. In the event that MD shall die, then this
Agreement shall terminate on the date of MD's death, and no further compensation
shall be payable to MD, except for any accrued but unpaid Base Salary and/or
Incentive and Performance Bonus payments to the date of termination, and any
payments provided under the insurance policy referred to in Section 5(c) hereof.
-7-
<PAGE>
(d) For Cause. Notwithstanding anything herein
contained, if on or after the date hereof and prior to the end of the Employment
Term, MD is terminated "For Cause" (as defined below) then the Company shall
have the right to give notice of termination of MD's services hereunder as of a
date to be specified in such notice, and this Agreement shall terminate on the
date so specified. Termination "For Cause" shall mean MD shall (i) be convicted
of a felony crime, (ii) commit an act of fraud against the Company, or (iii)
materially breach any term of this Agreement and fail to correct such breach
within twenty days after notice of commission thereof.
11. Merger, Etc.
(a) In the event of a future disposition of the
properties and business of the Company, substantially as an entirety, by merger,
consolidation, sale of assets, sale of stock, or otherwise (each, a "Change of
Control Event"), then the Company shall assign this Agreement and all of its
rights and obligations hereunder to the acquiring or surviving corporation.
(b) In the event there is a Change of Control Event
and MD's employment is terminated within two (2) years from the date of the
Change of Control Event other than pursuant to Sections 10(b), (c) or (d), then
the Company shall, in addition to any payments due under Section 10(a), be
obligated to pay to MD an amount equal to three times MD's average annual salary
and bonus payments over the course of the previous five years (or such period he
is employed by the Company if such term of employment is less than five years).
Such payment
-8-
<PAGE>
shall be paid in two installments; half on the date of termination and the
balance six months thereafter.
12. Survival. The covenants, agreements, representations, and
warranties contained in or made pursuant to this Agreement shall survive MD's
termination of employment, irrespective of any investigation made by or on
behalf of any party.
13. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
14. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 14).
Notice to the estate of MD shall be sufficient if addressed to MD as provided in
this Section 14. Any notice or other communication given by certified mail shall
be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof.
15. Waiver. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such
-9-
<PAGE>
provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement. Any waiver
must be in writing.
16. Binding Effect. MD's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to encumbrance or the claims of MD's creditors, and any
attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of MD and his heirs and
personal representatives, and shall be binding upon and inure to the benefit of
the Company and its successors and those who are its assigns under Section 11.
17. Headings. The headings in this Agreement are solely for
the convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
18. Counterparts; Governing Law. This Agreement may be
executed in any number of counterparts (and by facsimile), each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument. It shall be governed by, and
-10-
<PAGE>
construed in accordance with, the laws of the State of Delaware, without giving
effect to the rules governing the conflicts of laws.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
INNOPET BRANDS CORP.
By: ____________________________________________
Name:
Title:
________________________________________________
MARC DUKE
-11-
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount: $__________ Ft. Lauderdale, Florida
Interest Rate: 5.75% June 1, 1996
FOR VALUE RECEIVED, the undersigned, _____________________________
- ------------------------------------------------------------------------------
("Maker"), promises to pay to the order of InnoPet Brands Corp. (formerly known
as InnoPet Products Corp.), a Delaware corporation ("Payee"), at One East
Broward Boulevard, Ft. Lauderdale, Florida 33301, or at such other place as
Payee may from time to time designate by written notice to Maker, in lawful
money of the United States of America, the sum of
- -----------------------------------------------------------------------------
Dollars ($____________) plus interest from the date of this Note on the unpaid
balance. All payments of principal and interest are to be made as set forth
below without setoff or counterclaim. Maker further agrees as follows:
Section 1. Interest Rate.
(a) Interest shall accrue at a rate equal to five and
three-quarters percent (5.75%) per annum.
(b) Interest shall be computed on the basis of a year of 365
days for the actual number of days elapsed. After maturity (whether by
acceleration or otherwise, and before as well as after judgments), all unpaid
principal and interest shall bear interest until it is paid at a rate equal to
the highest rate allowed by law.
Section 2. Payments.
(a) Together with each payment of principal of this Note there
shall also be due and payable and paid the amount of accrued unpaid interest on
said payment. All references herein to the unpaid portion of this Note shall be
deemed and treated as referring to and
EXH. A-1
<PAGE>
including both the then unpaid principal of this Note and the then accrued
unpaid interest thereon. The unpaid portion of the Note may be paid in dollars
or in property, including, without limitation, all or any part of the Shares, as
defined below. If the Note is paid by Shares then their value shall be equal to
their Fair Market Value, as defined herein. Fair Market Value shall mean the
average closing bid price as reported by the Nasdaq SmallCap Market (or such
other exchange or quotation system that is the then primary forum for trading
the Shares) for the five (5) trading days immediately preceding the day payment
of the Note is made by presentment of the Shares provided, however, that in no
event shall the Shares be deemed to have a Fair Market Value of less than $1.55
per share.
(b) Upon the sale of any shares of common stock (the "Shares")
of Payee issued originally by Payee to Maker against delivery to Payee of this
Note, and upon receipt by Payee of the proceeds from such sale, the Maker shall
promptly pay to Payee an amount equal to $3.20 per share sold and the then
unpaid portion of this Note shall be correspondingly reduced.
(c) The then unpaid portion of this Note shall be due and
payable on June 1, 1999.
(d) Maker shall have the right to prepay the unpaid portion of
this Note in full or in part at any time, without premium or penalty. All
prepayments shall be applied first to the then accrued unpaid interest and then
to the unpaid principal.
Section 2. Security.
This Note is secured by the Shares owned by the Maker.
EXH. A-2
<PAGE>
Section 3. Recourse.
Until June 1, 1998, the obligations of the Maker under this
Note shall be recourse against the Maker. Thereafter, the obligations of the
Maker under this Note shall be non-recourse and the Payee's sole recourse for
payment of this Note shall be the Shares (or any other property then pledged as
security for repayment of the Note).
Section 4. Default.
It shall be an event of default ("Event of Default"), and the
then unpaid portion of this Note shall become immediately due and payable, at
the election of Payee, upon the occurrence of any of the following events:
(a) any failure on the part of Maker to make any payment
hereunder when due, whether by acceleration or otherwise, and the continuation
of such failure for a period of ten (10) days after written notice thereof from
Payee;
(b) any failure on the part of Maker to keep or perform any of
the terms or provisions (other than payment) of this Note or the Stock
Subscription and Security Agreement executed herewith, or any amendments
thereof, and the continuation of such failure for more than ten (10) days after
written notice thereof from Payee.
(c) any failure on the part of Maker to pay any debt within
sixty (60) days of its due date (except where contested in good faith);
EXH. A-3
<PAGE>
(d) Maker shall commence (or take any action for the purpose
of commencing) any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, moratorium or similar law or statute;
(e) a proceeding shall be commenced against Maker under any
bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or
similar law or statute and relief is ordered against him, or the proceeding is
controverted but is not dismissed within sixty (60) days after the commencement
thereof;
(f) Maker consents to or suffers the appointment of a
receiver, trustee or custodian of any substantial part of his assets that is not
vacated within thirty (30) days;
(g) any information furnished to Payee by or on behalf of
Maker shall be false or misleading in any material respect.
Section 5. Jurisdiction and Service of Process.
Maker irrevocably consents to the jurisdiction of the courts
of the State of Florida and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this Note
or a breach of this Note. Maker waives, to the full extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any
action or proceeding arising out of or relating to this Note brought in the
State of Florida, and further irrevocably waives, to the full extent permitted
by law, any claim that any such action or proceeding brought in such State has
been brought in an inconvenient forum. In any such action or proceeding, Maker
waives, to the full extent permitted by law, personal service
EXH. A-4
<PAGE>
of any summons, complaint, or other process and agrees that service thereof may
be made on Maker by certified or registered U.S. mail or by personal delivery.
Within thirty (30) days after such service, or such other time as may be
mutually agreed upon in writing by the attorneys for the parties to such action
or proceeding Maker shall appear or answer such summons, complaint, or other
process. Should Maker so served fail to appear or answer within such thirty
(30)-day period or such extended period, as the case may be, Maker shall be
deemed in default and judgment may be entered by Payee against Maker for the
amount as demanded in any summons, complaint, or other process so served.
Section 6. Waivers.
(a) Maker waives demand, presentment, protest, notice of
protest, notice of dishonor, and all other notices or demands of any kind or
nature with respect to this Note.
(b) Maker agrees that a waiver of rights under this Note shall
not be deemed to be made by Payee unless such waiver shall be in writing, duly
signed by Payee, and each such waiver, if any, shall apply only with respect to
the specific instance involved and shall in no way impair the rights of Payee or
the obligations of Maker in any other respect at any other time.
(c) Maker agrees that in the event Payee demands or accepts
partial payment of this Note, such demand or acceptance shall not be deemed to
constitute a waiver of any right to demand the entire unpaid portion of this
Note at any time in accordance with the terms of this Note.
EXH. A-5
<PAGE>
(d) In any action or proceeding arising out of or relating to
this Note, Maker waives (to the full extent permitted by law) all right to a
trial by jury or to plead as a defense any statute of limitations or any other
similar law or equitable doctrine.
Section 7. Collection Costs.
Maker will upon demand pay to Payee the amount of any and all
reasonable costs and expenses, including, without limitation, the reasonable
fees and disbursements of its counsel (whether or not suit is instituted) and of
any experts and agents, which Payee may incur in connection with the following:
(i) the enforcement of this Note; and (ii) the enforcement of payment of all
obligations of Maker by any action or participation in, or in connection with, a
case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any
successor statute thereto.
Section 8. Assignment of Note.
Maker may not assign or transfer this Note or any of its
obligations under this Note in any manner whatsoever without the prior written
consent of Payee which shall not be unreasonably withheld. The Note may be
assigned at any time by Payee . Maker agrees not to assert against any assignee
of this Note any claim or defense which Maker may have against any assignor of
this Note.
Section 9. Miscellaneous.
(a) This Note may be altered only by prior written agreement
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought. This Note may not be modified by an oral
agreement, even if supported by new consideration.
EXH. A-6
<PAGE>
(b) This Note shall be governed by, and construed in
accordance with, the laws of the State of Florida, without giving effect to such
state's principles of conflict of laws.
(c) Subject to Section 8, the covenants, terms, and conditions
contained in this Note apply to and bind the heirs, successors, executors,
administrators and assigns of the parties.
(d) If any provision or any word, term, clause, or other part
of any provision of this Note shall be invalid for any reason, the same shall be
ineffective, but the remainder of this Note shall not be affected and shall
remain in full force and effect.
(e) All notices, consents, or other communications provided
for in this Note or otherwise required by law shall be in writing and may be
given to or made upon the respective parties at the following mailing addresses:
Payee: InnoPet Brands Corp.
One East Broward Boulevard
Ft. Lauderdale, Florida 33301
Attention: CEO
Maker: _____________________________
_____________________________
_____________________________
Such addresses may be changed by notice given as provided in this subsection.
Notices shall be effective upon the date of receipt; provided, however, that a
notice (other than a notice of a changed address) sent by certified or
registered U.S. mail, with postage prepaid, shall be presumed received not later
than three (3) business days following the date of sending.
(f) Time is of the essence under this Note.
EXH. A-7
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as
of the date first set forth above.
(Sign)
---------------------------------
Print Name:
Print SS#:_______________________
EXH. A-8
<PAGE>
EXHIBIT B
STOCK SUBSCRIPTION AND SECURITY AGREEMENT
June 1, 1996
To: InnoPet Brands Corp.
_______________ (the "Subscriber") hereby subscribes for
___________ shares (the "Shares") of common stock, par value $.01 per share, of
InnoPet Brands Corp (the "Company").
Subscriber hereby agrees, represents, and warrants that:
(1) Subscriber is acquiring such shares for
Subscriber's own account for investment purposes only and not with a view to the
distribution or resale thereof;
(2) By virtue of its position, Subscriber has access
to the same kind of information which would be available in a registration
statement filed under the Securities Act of 1933;
(3) Subscriber is a sophisticated investor;
(4) Subscriber understands that it may not sell or
otherwise dispose of such shares in the absence of either a registration
statement under the Securities Act of 1933 or an exemption from the registration
provisions under the Securities Act of 1933; and
(5) The certificates representing such shares may
contain a legend to the effect of (4) above.
(6) Subscriber grants the Company a security interest
in the Shares to secure the repayment of a certain note (the "Note") used to
purchase the Shares. The Subscriber agrees that the Company shall hold the
Shares until the Note is paid in full, except that upon written demand of the
Subscriber, his estate or heirs to release all or any part of the Shares to
effect a sale of such Shares by the Subscriber, his estate or heirs, the Company
shall immediately deliver the number of Shares requested to be released to the
transfer agent in escrow so that such sale may occur. The Company shall have a
security interest in the proceeds of the such sale to the extent set forth in
the Note until such proceeds are applied in accordance with the terms of the
Note. If the sale does not occur the Shares shall be immediately returned to the
Company as
EXH. B-1
<PAGE>
security for the repayment of the Note. The Subscriber agrees to execute a stock
power in blank with respect to the Shares and that the Company shall also hold
such stock power.
(Sign)
-----------------------------------
Print Name:
SS#:
Agreed to and Accepted:
INNOPET BRANDS CORP.
- ------------------------------
Name: Marc Duke
Title: CEO
EXH. B-2
<PAGE>
EXHIBIT C
STOCK POWER
FOR VALUE RECEIVED,_________________ hereby sells, assigns and transfers unto
INNOPET BRANDS CORP. shares of Common Stock of the INNOPET BRANDS CORP.
standing in its name on the books of said Corporation represented by
Certificate(s) No.(s). herewith, and do hereby irrevocably constitute and
appoint ______________________________________________________________________
attorney to transfer the said stock on the books of said Corporation with full
power of substitution in the premises.
Dated: June 1, 1996
(Sign)
----------------------------------
Print Name:
EXH. C-1
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this 1st
day of June, 1996 between InnoPet Brands Corp. (formerly known as InnoPet
Products Corp.), a Delaware corporation (the "Company"), having its principal
offices at One East Broward Boulevard, Ft. Lauderdale, Florida, and Edwin H.
Christensen (the "Employee"), an individual residing at _____________________
__________________________________________________________________ .
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company as its Vice President of Manufacturing
upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, and intending to be legally bound hereby,
the parties hereto agree as follows:
1. Nature of Employment; Term of Employment. The Company
hereby employs Employee and Employee agrees to serve the Company as its Vice
President of Manufacturing upon the terms and conditions contained herein, for a
term commencing as of June 1, 1996 and continuing until the close of business on
May 31, 1999 (the "Employment Term"). This Agreement will automatically renew
for one additional term of one year if notice of termination is not given by
either party at least forty-five (45) days prior to the end of the Employment
Term.
<PAGE>
2. Duties and Powers as Employee. During the Employment Term,
Employee agrees to devote all of his full working time, energy, and efforts to
the business of the Company. The Employee's duties shall include, without
limitation, the supervision of manufacturing activities of the Company and
related areas of responsibility. In performance of his duties, Employee shall be
subject to the direction of the Chief Executive Officer of the Company. Employee
shall be available to travel as the needs of the business require.
3. Compensation.
(a) As compensation for his services hereunder, the
Company shall pay Employee a salary, payable in equal semi-monthly installments,
at the annual rate of $90,000. Additionally, Employee shall participate in the
present or future employee benefit plans of the Company provided that he meets
the eligibility requirements therefor.
(b) Employee shall be eligible to receive raises each
year of the Employment Term at a minimum to reflect cost of living increases,
if any, and merit raises, subject to satisfactory performance as determined by
the Board of Directors.
(c) Employee shall be reimbursed for relocation
expenses of up to $12,500; which shall be paid upon submission of documented
relocation expenses actually incurred by the Employee.
(d) Employee shall be reimbursed for his reasonable
living expenses for an aggregate amount not to exceed $1,500 a month for up to
four (4) months from the date he relocates to Florida or until the Employee's
house is sold in Kentucky, whichever occurs first.
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<PAGE>
The Employee shall be reimbursed within thirty (30) days after the submission of
written documentation that such expenses were actually incurred.
(e) Upon execution of this Agreement and the Note,
defined below, the Employee shall purchase 43,497 shares (the "Shares") of
common stock of the Company at a purchase price of $139,190. The Shares shall be
purchased by a note (the "Note") in the form attached hereto as Exhibit A. The
Employee shall also execute a Stock Subscription and Security Agreement and a
proxy in the forms attached hereto as Exhibits B and C, Respectively.
(f) The Shares shall be held by the Company as
security for the repayment of the Note. The Company shall hold the Shares until
the Note is repaid in full. The Employee shall also execute a stock power with
respect to such shares in the firm attached hereto as Exhibit D.
4. Expenses; Vacations. Employee shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses necessarily
incurred in the performance of his duties hereunder, upon submission and
approval of written statements and bills in accordance with the then regular
procedures of the Company. Employee shall be entitled to thirty (30) days paid
vacation time in accordance with then regular procedures of the Company
governing executives as determined from time to time by the Company's Board of
Directors.
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his duties hereunder, or the other rights of
the Company hereunder; and (b) Employee is under no physical or mental
disability that would hinder his performance of duties under this Agreement.
-3-
<PAGE>
6. Non-Competition.
(a) The Employee agrees that during the Employment
Term he will not engage in, or otherwise directly or indirectly be employed by,
or act as a consultant, or be a director, officer, employee, owner, agent,
member or partner of, any other business or organization that is or shall then
be competing with the Company.
(b) If this Agreement is terminated pursuant to
Section 9(a), 9(c) or 9(e), Employee, for a period of six (6) months from the
date of termination, shall not, directly or indirectly, be engaged in the
marketing or manufacturing of (i) any form of pet food for cats, dogs, puppies
or kittens; or (ii) any products for cats, dogs, puppies or kittens similar to
those that he worked on or had knowledge of during the Employment Term.
(c) If this Agreement is terminated pursuant to
Section 9(b), Employee, for a period of six (6) months from the date of
termination, shall not, directly or indirectly, compete with or be engaged in
the same business as the company, or be employed by, or act as consultant, or
be a director, officer, employee, owner, agent, member or partner of, any
business or organization which, at the time of such termination, competes with
or is engaged in the same business as the Company. At the end of this period,
Employee, for a period of six (6) months thereafter, shall not, directly or
indirectly, be engaged in the marketing or manufacturing of (i) any pet food to
be given to cats, dogs, puppies or kittens; or (ii) any products for cats, dogs,
puppies or kittens similar to those that he worked on or had knowledge of
during the Employment Term.
-4-
<PAGE>
7. Inventions; Patents; Copyrights. Any interest in patents,
patent applications, inventions, copyrights, developments, and processes ("Such
Inventions") which Employee now or hereafter during the period he is employed by
the Company under this Agreement may, directly or indirectly, own or develop
relating to the fields in which the Company may then be engaged shall belong to
the Company; and forthwith upon request of the Company, Employee shall execute
all such assignments and other documents and take all such other action as the
Company may reasonably request in order to vest in the Company all his right,
title, and interest in and to Such Inventions, free and clear of all liens,
charges, and encumbrances.
8. Confidential Information. All confidential information
which Employee may now possess, may obtain during the Employment Term, or may
create prior to the end of the period he is employed by the Company under this
Agreement, relating to the business of the Company or of any customer or
supplier of the Company shall not be published, disclosed, or made accessible by
him to any other person, firm, or corporation during the Employment Term or any
time thereafter without the prior written consent of the Company. Employee shall
return all tangible evidence of such confidential information to the Company
prior to or at the termination of his employment.
9. Termination.
(a) Notwithstanding anything herein contained, if on
or after the date hereof and prior to the end of the Employment Term, Employee
is terminated "For Cause" (as defined below) then the Company shall have the
right to give notice of termination of Employee's services hereunder as of a
date to be specified in such notice, and this Agreement shall terminate on the
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<PAGE>
date so specified. Termination "For Cause" shall mean Employee shall (i) be
convicted of a felony crime, (ii) commit any act or omit to take any action in
bad faith and to the detriment of the Company, (iii) commit an act of moral
turpitude, (iv) commit an act of fraud against the Company, or (v) materially
breach any term of this Agreement and fail to correct such breach within ten
(10) days after commission thereof. In the event that this Agreement is
terminated "For Cause", pursuant to Section 9(a), then Employee shall be
entitled to receive only his salary at the rate provided in Section 3 to the
date on which termination shall take effect.
(b) In the event that Employee, prior to the end of
the Employment Term, is terminated by the Company other than pursuant to Section
9(a) hereof, he shall be entitled to receive six (6) months of his annual salary
at the rate provided in Section 3 (the "Severance Payment"). The Severance
Payment shall be paid by the Company in six (6) equal installments beginning
thirty (30) days after the date of termination and every thirty (30) days
thereafter until fully paid. The date of termination shall be specified in a
notice of termination to be provided by the Company.
(c) In the event that Employee shall be physically or
mentally incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of six (6) consecutive calendar months, then this
Agreement shall terminate upon 90 days' written notice to Employee, and no
further compensation shall be payable to Employee, except as may otherwise be
provided under any disability insurance policy.
(d) In the event that Employee shall die, then this
Agreement shall terminate on the date of Employee's death, and no further
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<PAGE>
compensation shall be payable to Employee, except as may otherwise be provided
under any insurance policy or similar instrument.
(e) The Employee may terminate this Agreement on sixty
(60) days notice. If the Employee terminates this Agreement pursuant to this
Section 9(e) he shall not be entitled to receive any Severance Payment.
(f) Nothing contained in this Section 9 shall be
deemed to limit any other right the Company may have to terminate Employee's
employment hereunder upon any ground permitted by law.
10. Merger, Etc. In the event of a future disposition of
the properties and business of the Company, as or substantially as an entirety,
by merger, consolidation, sale of assets, sale of stock, or otherwise, then the
Company may elect to assign this Agreement and all of its rights and obligations
hereunder to the acquiring or surviving corporation; and upon such assignment
Employee's rights and obligations hereunder shall continue with the same force
and effect as if such acquiring or surviving corporation had ab initio been a
party hereto in lieu and stead of InnoPet Brands Corp.
11. Survival. The covenants, agreements, representations,
and warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment, irrespective of any investigation made by
or on behalf of any party.
12. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
-7-
<PAGE>
13. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 13). In
the case of a notice to the Company, a copy of such notice (which copy shall not
constitute notice) shall be delivered to Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019, Attn. Daniel I. DeWolf, Esq.
Notice to the estate of Employee shall be sufficient if addressed to Employee as
provided in this Section 13. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
14. Waiver. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
15. Binding Effect. Employee's rights and obligations
under this Agreement shall not be transferable by assignment or otherwise, such
rights shall not be subject to encumbrance or the claims of Employee's
-8-
<PAGE>
creditors, and any attempt to do any of the foregoing shall be void. The
provisions of this Agreement shall be binding upon and inure to the benefit of
Employee and his heirs and personal representatives, and shall be binding upon
and inure to the benefit of the Company and its successors and those who are its
assigns under Section 10.
16. Headings. The headings in this Agreement are solely
for the convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
17. Counterparts; Governing Law. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. It shall be governed by, and construed in accordance with, the laws
of the State of Florida, without given effect to the rules governing the
conflicts of laws.
18. Termination of Contract with InnoPet Inc. The Employee
acknowledges that his employment agreement with InnoPet Inc. is terminated,
except that any options (the "Options") granted thereunder to the Employee will
continue to exist and be subject to the terms of any vesting schedule contained
therein. The Employee also releases InnoPet Inc. from all liabilities and
claims, if any, under such employment agreement. The Company acknowledges that
it has no rights or claims to any of the Options.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
INNOPET BRANDS CORP.
By:______________________________________________
Name: Marc Duke
Title: CEO
_________________________________________________
EDWIN H. CHRISTENSEN
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<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount: $__________ Ft. Lauderdale, Florida
Interest Rate: 5.75% June 1, 1996
FOR VALUE RECEIVED, the undersigned, _________________________
________________________________________________________________________________
("Maker"), promises to pay to the order of InnoPet Brands Corp. (formerly known
as InnoPet Products Corp.), a Delaware corporation ("Payee"), at One East
Broward Boulevard, Ft. Lauderdale, Florida 33301, or at such other place as
Payee may from time to time designate by written notice to Maker, in lawful
money of the United States of America, the sum of ______________________________
Dollars ($____________) plus interest from the date of this Note on the unpaid
balance. All payments of principal and interest are to be made as set forth
below without setoff or counterclaim. Maker further agrees as follows:
Section 1. Interest Rate.
(a) Interest shall accrue at a rate equal to five and
three-quarters percent (5.75%) per annum.
(b) Interest shall be computed on the basis of a year of 365
days for the actual number of days elapsed. After maturity (whether by
acceleration or otherwise, and before as well as after judgments), all unpaid
principal and interest shall bear interest until it is paid at a rate equal to
the highest rate allowed by law.
Section 2. Payments.
(a) Together with each payment of principal of this Note there
shall also be due and payable and paid the amount of accrued unpaid interest on
said payment. All references herein to the unpaid portion of this Note shall be
deemed and treated as referring to and including both the then unpaid principal
EXH. A-1
<PAGE>
of this Note and the then accrued unpaid interest thereon. The unpaid portion
of the Note may be paid in dollars or in property, including, without
limitation, all or any part of the Shares, as defined below. If the Note is paid
by Shares then their value shall be equal to their Fair Market Value, as defined
herein. Fair Market Value shall mean the average closing bid price as reported
by the Nasdaq SmallCap Market (or such other exchange or quotation system that
is the then primary forum for trading the Shares) for the five (5) trading days
immediately preceding the day payment of the Note is made by presentment of the
Shares provided, however, that in no event shall the Shares be deemed to have a
Fair Market Value of less than $1.55 per share.
(b) Upon the sale of any shares of common stock (the "Shares")
of Payee issued originally by Payee to Maker against delivery to Payee of this
Note, and upon receipt by Payee of the proceeds from such sale, the Maker shall
promptly pay to Payee an amount equal to $3.20 per share sold and the then
unpaid portion of this Note shall be correspondingly reduced.
(c) The then unpaid portion of this Note shall be due and
payable on June 1, 1999.
(d) Maker shall have the right to prepay the unpaid portion
of this Note in full or in part at any time, without premium or penalty. All
prepayments shall be applied first to the then accrued unpaid interest and then
to the unpaid principal.
Section 2. Security.
This Note is secured by the Shares owned by the Maker.
EXH. A-2
<PAGE>
Section 3. Recourse.
Until June 1, 1998, the obligations of the Maker under this
Note shall be recourse against the Maker. Thereafter, the obligations of the
Maker under this Note shall be non-recourse and the Payee's sole recourse for
payment of this Note shall be the Shares (or any other property then pledged as
security for repayment of the Note).
Section 4. Default.
It shall be an event of default ("Event of Default"), and the
then unpaid portion of this Note shall become immediately due and payable, at
the election of Payee, upon the occurrence of any of the following events:
(a) any failure on the part of Maker to make any payment
hereunder when due, whether by acceleration or otherwise, and the continuation
of such failure for a period of ten (10) days after written notice thereof from
Payee;
(b) any failure on the part of Maker to keep or perform any of
the terms or provisions (other than payment) of this Note or the Stock
Subscription and Security Agreement executed herewith, or any amendments
thereof, and the continuation of such failure for more than ten (10) days after
written notice thereof from Payee.
(c) any failure on the part of Maker to pay any debt within
sixty (60) days of its due date (except where contested in good faith);
(d) Maker shall commence (or take any action for the purpose
of commencing) any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, moratorium or similar law or statute;
EXH. A-3
<PAGE>
(e) a proceeding shall be commenced against Maker under any
bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or
similar law or statute and relief is ordered against him, or the proceeding is
controverted but is not dismissed within sixty (60) days after the commencement
thereof;
(f) Maker consents to or suffers the appointment of a
receiver, trustee or custodian of any substantial part of his assets that is not
vacated within thirty (30) days;
(g) any information furnished to Payee by or on behalf of
Maker shall be false or misleading in any material respect.
Section 5. Jurisdiction and Service of Process.
Maker irrevocably consents to the jurisdiction of the courts
of the State of Florida and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this Note
or a breach of this Note. Maker waives, to the full extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any
action or proceeding arising out of or relating to this Note brought in the
State of Florida, and further irrevocably waives, to the full extent permitted
by law, any claim that any such action or proceeding brought in such State has
been brought in an inconvenient forum. In any such action or proceeding, Maker
waives, to the full extent permitted by law, personal service of any summons,
complaint, or other process and agrees that service thereof may be made on Maker
by certified or registered U.S. mail or by personal delivery. Within thirty (30)
days after such service, or such other time as may be mutually agreed upon
EXH. A-4
<PAGE>
in writing by the attorneys for the parties to such action or proceeding Maker
shall appear or answer such summons, complaint, or other process. Should Maker
so served fail to appear or answer within such thirty (30)-day period or such
extended period, as the case may be, Maker shall be deemed in default and
judgment may be entered by Payee against Maker for the amount as demanded in any
summons, complaint, or other process so served.
Section 6. Waivers.
(a) Maker waives demand, presentment, protest, notice of
protest, notice of dishonor, and all other notices or demands of any kind or
nature with respect to this Note.
(b) Maker agrees that a waiver of rights under this Note shall
not be deemed to be made by Payee unless such waiver shall be in writing, duly
signed by Payee, and each such waiver, if any, shall apply only with respect to
the specific instance involved and shall in no way impair the rights of Payee or
the obligations of Maker in any other respect at any other time.
(c) Maker agrees that in the event Payee demands or accepts
partial payment of this Note, such demand or acceptance shall not be deemed to
constitute a waiver of any right to demand the entire unpaid portion of this
Note at any time in accordance with the terms of this Note.
(d) In any action or proceeding arising out of or relating to
this Note, Maker waives (to the full extent permitted by law) all right to a
trial by jury or to plead as a defense any statute of limitations or any other
similar law or equitable doctrine.
EXH. A-5
<PAGE>
Section 7. Collection Costs.
Maker will upon demand pay to Payee the amount of any and all
reasonable costs and expenses, including, without limitation, the reasonable
fees and disbursements of its counsel (whether or not suit is instituted) and of
any experts and agents, which Payee may incur in connection with the following:
(i) the enforcement of this Note; and (ii) the enforcement of payment of all
obligations of Maker by any action or participation in, or in connection with, a
case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any
successor statute thereto.
Section 8. Assignment of Note.
Maker may not assign or transfer this Note or any of its
obligations under this Note in any manner whatsoever without the prior written
consent of Payee which shall not be unreasonably withheld. The Note may be
assigned at any time by Payee . Maker agrees not to assert against any assignee
of this Note any claim or defense which Maker may have against any assignor of
this Note.
Section 9. Miscellaneous.
(a) This Note may be altered only by prior written agreement
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought. This Note may not be modified by an oral
agreement, even if supported by new consideration.
(b) This Note shall be governed by, and construed in
accordance with, the laws of the State of Florida, without giving effect to
such state's principles of conflict of laws.
EXH. A-6
<PAGE>
(c) Subject to Section 8, the covenants, terms, and conditions
contained in this Note apply to and bind the heirs, successors, executors,
administrators and assigns of the parties.
(d) If any provision or any word, term, clause, or other part
of any provision of this Note shall be invalid for any reason, the same shall be
ineffective, but the remainder of this Note shall not be affected and shall
remain in full force and effect.
(e) All notices, consents, or other communications provided
for in this Note or otherwise required by law shall be in writing and may be
given to or made upon the respective parties at the following mailing addresses:
Payee: InnoPet Brands Corp.
One East Broward Boulevard
Ft. Lauderdale, Florida 33301
Attention: CEO
Maker: _____________________________
_____________________________
_____________________________
Such addresses may be changed by notice given as provided in this subsection.
Notices shall be effective upon the date of receipt; provided, however, that a
notice (other than a notice of a changed address) sent by certified or
registered U.S. mail, with postage prepaid, shall be presumed received not later
than three (3) business days following the date of sending.
(f) Time is of the essence under this Note.
EXH. A-7
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as
of the date first set forth above.
(Sign)___________________________________
Print Name:
Print SS#:_______________________________
EXH. A-8
<PAGE>
EXHIBIT B
STOCK SUBSCRIPTION AND SECURITY AGREEMENT
June 1, 1996
To: InnoPet Brands Corp.
_______________ (the "Subscriber") hereby subscribes for
___________ shares (the "Shares") of common stock, par value $.01 per share, of
InnoPet Brands Corp (the "Company").
Subscriber hereby agrees, represents, and warrants that:
(1) Subscriber is acquiring such shares for Subscriber's
own account for investment purposes only and not with a view to the distribution
or resale thereof;
(2) By virtue of its position, Subscriber has access to
the same kind of information which would be available in a registration
statement filed under the Securities Act of 1933;
(3) Subscriber is a sophisticated investor;
(4) Subscriber understands that it may not sell or
otherwise dispose of such shares in the absence of either a registration
statement under the Securities Act of 1933 or an exemption from the registration
provisions under the Securities Act of 1933; and
(5) The certificates representing such shares may
contain a legend to the effect of (4) above.
(6) Subscriber grants the Company a security interest
in the Shares to secure the repayment of a certain note (the "Note") used to
purchase the Shares. The Subscriber agrees that the Company shall hold the
Shares until the Note is paid in full, except that upon written demand of the
Subscriber, his estate or heirs to release all or any part of the Shares to
effect a sale of such Shares by the Subscriber, his estate or heirs, the Company
shall immediately deliver the number of Shares requested to be released to the
transfer agent in escrow so that such sale may occur. The Company shall have a
security interest in the proceeds of the such sale to the extent set forth in
the Note until such proceeds are applied in accordance with the terms of the
Note. If the sale does not occur the Shares shall be immediately returned to the
Company as security for the repayment of the Note. The Subscriber agrees to
EXH. B-1
<PAGE>
execute a stock power in blank with respect to the Shares and that the Company
shall also hold such stock power.
(Sign)___________________________________
Print Name:
SS#:_____________________________________
Agreed to and Accepted:
INNOPET BRANDS CORP.
__________________________
Name: Marc Duke
Title: CEO
EXH. B-2
<PAGE>
EXHIBIT C
IRREVOCABLE PROXY
____________________ (the "Employee"), a stockholder of
InnoPet Brands Corp., hereby irrevocably appoints Marc Duke as proxy and
attorney-in-fact, with right of substitution, and hereby authorizes him to
represent and vote in his discretion ______________________________ shares of
common stock of InnoPet Brands Corp. owned by Employee at all shareholders
meetings, or any adjournment or adjournments thereof. This proxy is irrevocable
and shall remain in full force and effect until May 31, 1999.
Dated: June 1, 1996
(Sign)___________________________________
Print Name:
EXH. C-1
<PAGE>
EXHIBIT D
STOCK POWER
FOR VALUE RECEIVED, ______________________ hereby sells, assigns and transfers
unto INNOPET BRANDS CORP. shares of Common Stock of the INNOPET BRANDS CORP.
standing in its name on the books of said Corporation represented by
Certificate(s) No.(s). herewith, and do hereby irrevocably constitute and
appoint _______________________________________________________________________
attorney to transfer the said stock on the books of said Corporation with full
power of substitution in the premises.
Dated: June 1, 1996
(Sign)___________________________________
Print Name:
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this 1st
day of June, 1996 between InnoPet Brands Corp. (formerly known as InnoPet
Products Corp.), a Delaware corporation (the "Company"), having its principal
offices at One East Broward Boulevard, Ft. Lauderdale, Florida, and Linda Duke
(the "Employee"), an individual residing at 633 N.E. 9th Avenue, #3, Ft.
Lauderdale, Florida 33304.
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company as its Director of Operations upon the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, and intending to be legally bound hereby,
the parties hereto agree as follows:
1. Nature of Employment; Term of Employment. The Company
hereby employs Employee and Employee agrees to serve the Company as its Director
of Operations upon the terms and conditions contained herein, for a term
commencing as of June 1, 1996 and continuing until the end of business on May
31, 1999, (the "Employment Term"). This Agreement will automatically renew for
one additional term of one year if notice of termination is not given by either
party at least forty-five (45) days prior to the end of the Employment Term.
<PAGE>
2. Duties and Powers as Employee. During the Employment Term,
Employee agrees to devote all of her full working time, energy, and efforts to
the business of the Company. The Employee's duties shall include, without
limitation, those involving any of the operations of the Company and which are
assigned to her by any of the other officers of the Company and related areas of
responsibility. In performance of her duties, Employee shall be subject to the
direction of the Chief Executive Officer of the Company. Employee shall be
available to travel as the needs of the business require.
3. Compensation.
(a) As compensation for her services hereunder, the
Company shall pay Employee a salary, payable in equal semi-monthly installments,
at the annual rate of $65,000. Additionally, Employee shall participate in the
present or future employee benefit plans of the Company provided that she meets
the eligibility requirements therefor.
(b) Employee shall be eligible to receive raises each
year of the Employment Term at a minimum to reflect cost of living increases, if
any, and merit raises, subject to satisfactory performance as determined by the
Board of Directors.
(c) Upon execution of this Agreement and the Note,
defined below, the Employee shall purchase 34,797 shares (the "Shares") of
common stock of the Company at a purchase price of $111,350. The Shares shall be
purchased by a note (the "Note") in the form attached hereto as Exhibit A. The
Employee shall also execute a Stock Subscription and Security Agreement and a
proxy in the forms attached hereto as Exhibit B and C, respectively.
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<PAGE>
(d) The Shares shall be held by the Company as
security for the repayment of the Note. The Company shall hold the Shares until
the Note is repaid in full. The Employee shall also execute a stock power with
respect to such shares in the firm attached hereto as Exhibit D.
4. Expenses; Vacations. Employee shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses necessarily
incurred in the performance of her duties hereunder, upon submission and
approval of written statements and bills in accordance with the then regular
procedures of the Company. Employee shall be entitled to thirty (30) days paid
vacation time in accordance with then regular procedures of the Company
governing executives as determined from time to time by the Company's Board of
Directors.
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of her duties hereunder, or the other rights of
the Company hereunder; and (b) Employee is under no physical or mental
disability that would hinder her performance of duties under this Agreement.
6. Non-Competition.
(a) The Employee agrees that during the Employment
Term she will not engage in, or otherwise directly or indirectly be employed by,
or act as a consultant, or be a director, officer, employee, owner, agent,
member or partner of, any other business or organization that is or shall then
be competing with the Company.
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<PAGE>
(b) If this Agreement is terminated pursuant to
Section 9(a), 9(c) or 9(e), Employee, for a period of six (6) months from the
date of termination, shall not, directly or indirectly, be engaged in the
marketing or manufacturing of (i) any form of pet food for cats, dogs, puppies
or kittens; or (ii) any products for cats, dogs, puppies or kittens similar to
those that she worked on or had knowledge of during the Employment Term.
(c) If this Agreement is terminated pursuant to
Section 9(b), Employee, for a period of six (6) months from the date of
termination, shall not, directly or indirectly, compete with or be engaged in
the same business as the company, or be employed by, or act as consultant, or be
a director, officer, employee, owner, agent, member or partner of, any business
or organization which, at the time of such termination, competes with or is
engaged in the same business as the Company. At the end of this period,
Employee, for a period of six (6) months thereafter, shall not, directly or
indirectly, be engaged in the marketing or manufacturing of (i) any pet food to
be given to cats, dogs, puppies or kittens; or (ii) any products for cats, dogs,
puppies or kittens similar to those that he worked on or had knowledge of during
the Employment Term.
7. Inventions; Patents; Copyrights. Any interest in patents,
patent applications, inventions, copyrights, developments, and processes ("Such
Inventions") which Employee now or hereafter during the period she is employed
by the Company under this Agreement may, directly or indirectly, own or develop
relating to the fields in which the Company may then be engaged shall belong to
the Company; and forthwith upon request of the Company, Employee shall execute
all such assignments and other documents and take all such other action as the
-4-
<PAGE>
Company may reasonably request in order to vest in the Company all his right,
title, and interest in and to Such Inventions, free and clear of all liens,
charges, and encumbrances.
8. Confidential Information. All confidential information
which Employee may now possess, may obtain during the Employment Term, or may
create prior to the end of the period she is employed by the Company under this
Agreement, relating to the business of the Company or of any customer or
supplier of the Company shall not be published, disclosed, or made accessible by
her to any other person, firm, or corporation during the Employment Term or any
time thereafter without the prior written consent of the Company. Employee shall
return all tangible evidence of such confidential information to the Company
prior to or at the termination of his employment.
9. Termination.
(a) Notwithstanding anything herein contained, if on
or after the date hereof and prior to the end of the Employment Term, Employee
is terminated "For Cause" (as defined below) then the Company shall have the
right to give notice of termination of Employee's services hereunder as of a
date to be specified in such notice, and this Agreement shall terminate on the
date so specified. Termination "For Cause" shall mean Employee shall (i) be
convicted of a felony crime, (ii) commit any act or omit to take any action in
bad faith and to the detriment of the Company, (iii) commit an act of moral
turpitude, (iv) commit an act of fraud against the Company, or (v) materially
breach any term of this Agreement and fail to correct such breach within ten
(10) days after commission thereof. In the event that this Agreement is
terminated "For Cause", pursuant to Section 9(a), then Employee shall be
entitled to receive
-5-
<PAGE>
only her salary at the rate provided in Section 3 to the date on which
termination shall take effect.
(b) In the event that Employee, prior to the end of
the Employment Term, is terminated by the Company other than pursuant to Section
9(a) hereof, she shall be entitled to receive three (3) months of her annual
salary at the rate provided in Section 3 (the "Severance Payment"). The
Severance Payment shall be paid by the Company in three (3) equal installments
beginning thirty (30) days after the date of termination and every thirty (30)
days thereafter until fully paid. The date of termination shall be specified in
a notice of termination to be provided by the Company.
(c) In the event that Employee shall be physically or
mentally incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of six (6) consecutive calendar months, then this
Agreement shall terminate upon 90 days' written notice to Employee, and no
further compensation shall be payable to Employee, except as may otherwise be
provided under any disability insurance policy.
(d) In the event that Employee shall die, then this
Agreement shall terminate on the date of Employee's death, and no further
compensation shall be payable to Employee, except as may otherwise be provided
under any insurance policy or similar instrument.
(e) The Employee may terminate this Agreement on
sixty (60) days notice. If the Employee terminates this Agreement pursuant to
this Section 9(e) she shall not be entitled to receive any Severance Payment.
-6-
<PAGE>
(f) Nothing contained in this Section 9 shall be
deemed to limit any other right the Company may have to terminate Employee's
employment hereunder upon any ground permitted by law.
10. Merger, Etc. In the event of a future disposition of the
properties and business of the Company, as or substantially as an entirety, by
merger, consolidation, sale of assets, sale of stock, or otherwise, then the
Company may elect to assign this Agreement and all of its rights and obligations
hereunder to the acquiring or surviving corporation; and upon such assignment
Employee's rights and obligations hereunder shall continue with the same force
and effect as if such acquiring or surviving corporation had ab initio been a
party hereto in lieu and stead of InnoPet Brands Corp.
11. Survival. The covenants, agreements, representations, and
warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment, irrespective of any investigation made by
or on behalf of any party.
12. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
13. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given at the address of
-7-
<PAGE>
such party set forth in the preamble to this Agreement (or to such other address
as the party shall have furnished in writing in accordance with the provisions
of this Section 13). In the case of a notice to the Company, a copy of such
notice (which copy shall not constitute notice) shall be delivered to Camhy
Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New York 10019,
Attn. Daniel I. DeWolf, Esq. Notice to the estate of Employee shall be
sufficient if addressed to Employee as provided in this Section 13. Any notice
or other communication given by certified mail shall be deemed given at the time
of certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof.
14. Waiver. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
15. Binding Effect. Employee's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to encumbrance or the claims of Employee's creditors, and
any attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and those who are its assigns under
Section 10.
16. Headings. The headings in this Agreement are solely for
the convenience of
-8-
<PAGE>
reference and shall be given no effect in the construction or interpretation of
this Agreement.
17. Counterparts; Governing Law. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. It shall be governed by, and construed in accordance with, the laws
of the State of Florida, without given effect to the rules governing the
conflicts of laws.
18. Termination of Contract with InnoPet Inc. The Employee
acknowledges that her employment agreement with InnoPet Inc. is terminated,
except that any options (the "Options") granted thereunder to the Employee will
continue to exist and be subject to the terms of any vesting schedule contained
therein. The Employee also releases InnoPet Inc. from all liabilities and
claims, if any, under such employment agreement. The Company acknowledges that
it has no rights or claims to any of the Options.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
INNOPET BRANDS CORP.
By:________________________________________
Name: Marc Duke
Title: CEO
___________________________________________
LINDA DUKE
-9-
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount: $__________ Ft. Lauderdale, Florida
Interest Rate: 5.75% June 1, 1996
FOR VALUE RECEIVED, the undersigned, ________________________
- ------------------------------------------------------------------------------
("Maker"), promises to pay to the order of InnoPet Brands Corp. (formerly known
as InnoPet Products Corp.), a Delaware corporation ("Payee"), at One East
Broward Boulevard, Ft. Lauderdale, Florida 33301, or at such other place as
Payee may from time to time designate by written notice to Maker, in lawful
money of the United States of America, the sum of
- -------------------------------------------------------------------------------
Dollars ($____________) plus interest from the date of this Note on the unpaid
balance. All payments of principal and interest are to be made as set forth
below without setoff or counterclaim. Maker further agrees as follows:
Section 1. Interest Rate.
(a) Interest shall accrue at a rate equal to five and
three-quarters percent (5.75%) per annum.
(b) Interest shall be computed on the basis of a year of 365
days for the actual number of days elapsed. After maturity (whether by
acceleration or otherwise, and before as well as after judgments), all unpaid
principal and interest shall bear interest until it is paid at a rate equal to
the highest rate allowed by law. Section 2. Payments.
(a) Together with each payment of principal of this Note there
shall also be due and payable and paid the amount of accrued unpaid interest on
said payment. All references herein to the unpaid portion of this Note shall be
deemed and treated as referring to and
EXH. A-1
<PAGE>
including both the then unpaid principal of this Note and the then accrued
unpaid interest thereon. The unpaid portion of the Note may be paid in dollars
or in property, including, without limitation, all or any part of the Shares, as
defined below. If the Note is paid by Shares then their value shall be equal to
their Fair Market Value, as defined herein. Fair Market Value shall mean the
average closing bid price as reported by the Nasdaq SmallCap Market (or such
other exchange or quotation system that is the then primary forum for trading
the Shares) for the five (5) trading days immediately preceding the day payment
of the Note is made by presentment of the Shares provided, however, that in no
event shall the Shares be deemed to have a Fair Market Value of less than $1.55
per share.
(b) Upon the sale of any shares of common stock (the "Shares")
of Payee issued originally by Payee to Maker against delivery to Payee of this
Note, and upon receipt by Payee of the proceeds from such sale, the Maker shall
promptly pay to Payee an amount equal to $3.20 per share sold and the then
unpaid portion of this Note shall be correspondingly reduced.
(c) The then unpaid portion of this Note shall be due and
payable on June 1, 1999.
(d) Maker shall have the right to prepay the unpaid portion of
this Note in full or in part at any time, without premium or penalty. All
prepayments shall be applied first to the then accrued unpaid interest and then
to the unpaid principal.
Section 2. Security.
This Note is secured by the Shares owned by the Maker.
EXH. A-2
<PAGE>
Section 3. Recourse.
Until June 1, 1998, the obligations of the Maker under this
Note shall be recourse against the Maker. Thereafter, the obligations of the
Maker under this Note shall be non-recourse and the Payee's sole recourse for
payment of this Note shall be the Shares (or any other property then pledged as
security for repayment of the Note).
Section 4. Default.
It shall be an event of default ("Event of Default"), and the
then unpaid portion of this Note shall become immediately due and payable, at
the election of Payee, upon the occurrence of any of the following events:
(a) any failure on the part of Maker to make any payment
hereunder when due, whether by acceleration or otherwise, and the continuation
of such failure for a period of ten (10) days after written notice thereof from
Payee;
(b) any failure on the part of Maker to keep or perform any of
the terms or provisions (other than payment) of this Note or the Stock
Subscription and Security Agreement executed herewith, or any amendments
thereof, and the continuation of such failure for more than ten (10) days after
written notice thereof from Payee.
(c) any failure on the part of Maker to pay any debt within
sixty (60) days of its due date (except where contested in good faith);
(d) Maker shall commence (or take any action for the purpose
of commencing) any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt,
EXH. A-3
<PAGE>
moratorium or similar law or statute;
(e) a proceeding shall be commenced against Maker under any
bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or
similar law or statute and relief is ordered against him, or the proceeding is
controverted but is not dismissed within sixty (60) days after the commencement
thereof;
(f) Maker consents to or suffers the appointment of a
receiver, trustee or custodian of any substantial part of his assets that is not
vacated within thirty (30) days;
(g) any information furnished to Payee by or on behalf of
Maker shall be false or misleading in any material respect.
Section 5. Jurisdiction and Service of Process.
Maker irrevocably consents to the jurisdiction of the courts
of the State of Florida and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this Note
or a breach of this Note. Maker waives, to the full extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any
action or proceeding arising out of or relating to this Note brought in the
State of Florida, and further irrevocably waives, to the full extent permitted
by law, any claim that any such action or proceeding brought in such State has
been brought in an inconvenient forum. In any such action or proceeding, Maker
waives, to the full extent permitted by law, personal service of any summons,
complaint, or other process and agrees that service thereof may be made on Maker
by certified or registered U.S. mail or by personal delivery. Within thirty (30)
days after
EXH. A-4
<PAGE>
such service, or such other time as may be mutually agreed upon in writing by
the attorneys for the parties to such action or proceeding Maker shall appear or
answer such summons, complaint, or other process. Should Maker so served fail to
appear or answer within such thirty (30)-day period or such extended period, as
the case may be, Maker shall be deemed in default and judgment may be entered by
Payee against Maker for the amount as demanded in any summons, complaint, or
other process so served.
Section 6. Waivers.
(a) Maker waives demand, presentment, protest, notice of
protest, notice of dishonor, and all other notices or demands of any kind or
nature with respect to this Note.
(b) Maker agrees that a waiver of rights under this Note shall
not be deemed to be made by Payee unless such waiver shall be in writing, duly
signed by Payee, and each such waiver, if any, shall apply only with respect to
the specific instance involved and shall in no way impair the rights of Payee or
the obligations of Maker in any other respect at any other time.
(c) Maker agrees that in the event Payee demands or accepts
partial payment of this Note, such demand or acceptance shall not be deemed to
constitute a waiver of any right to demand the entire unpaid portion of this
Note at any time in accordance with the terms of this Note.
(d) In any action or proceeding arising out of or relating to
this Note, Maker waives (to the full extent permitted by law) all right to a
trial by jury or to plead as a defense
EXH. A-5
<PAGE>
any statute of limitations or any other similar law or equitable doctrine.
Section 7. Collection Costs.
Maker will upon demand pay to Payee the amount of any and all
reasonable costs and expenses, including, without limitation, the reasonable
fees and disbursements of its counsel (whether or not suit is instituted) and of
any experts and agents, which Payee may incur in connection with the following:
(i) the enforcement of this Note; and (ii) the enforcement of payment of all
obligations of Maker by any action or participation in, or in connection with, a
case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any
successor statute thereto.
Section 8. Assignment of Note.
Maker may not assign or transfer this Note or any of its
obligations under this Note in any manner whatsoever without the prior written
consent of Payee which shall not be unreasonably withheld. The Note may be
assigned at any time by Payee . Maker agrees not to assert against any assignee
of this Note any claim or defense which Maker may have against any assignor of
this Note.
Section 9. Miscellaneous.
(a) This Note may be altered only by prior written agreement
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought. This Note may not be modified by an oral
agreement, even if supported by new consideration.
(b) This Note shall be governed by, and construed in
accordance with, the laws
EXH. A-6
<PAGE>
of the State of Florida, without giving effect to such state's principles of
conflict of laws.
(c) Subject to Section 8, the covenants, terms, and conditions
contained in this Note apply to and bind the heirs, successors, executors,
administrators and assigns of the parties.
(d) If any provision or any word, term, clause, or other part
of any provision of this Note shall be invalid for any reason, the same shall be
ineffective, but the remainder of this Note shall not be affected and shall
remain in full force and effect.
(e) All notices, consents, or other communications provided
for in this Note or otherwise required by law shall be in writing and may be
given to or made upon the respective parties at the following mailing addresses:
Payee: InnoPet Brands Corp.
One East Broward Boulevard
Ft. Lauderdale, Florida 33301
Attention: CEO
Maker: _____________________________
_____________________________
_____________________________
Such addresses may be changed by notice given as provided in this subsection.
Notices shall be effective upon the date of receipt; provided, however, that a
notice (other than a notice of a changed address) sent by certified or
registered U.S. mail, with postage prepaid, shall be presumed received not later
than three (3) business days following the date of sending.
(f) Time is of the essence under this Note.
EXH. A-7
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as
of the date first set forth above.
(Sign)
----------------------------------
Print Name:
Print SS#:________________________
EXH. A-8
<PAGE>
EXHIBIT B
STOCK SUBSCRIPTION AND SECURITY AGREEMENT
June 1, 1996
To: InnoPet Brands Corp.
_______________ (the "Subscriber") hereby subscribes for
___________ shares (the "Shares") of common stock, par value $.01 per share, of
InnoPet Brands Corp (the "Company").
Subscriber hereby agrees, represents, and warrants that:
(1) Subscriber is acquiring such shares for
Subscriber's own account for investment purposes only and not with a view to the
distribution or resale thereof;
(2) By virtue of its position, Subscriber has access
to the same kind of information which would be available in a registration
statement filed under the Securities Act of 1933;
(3) Subscriber is a sophisticated investor;
(4) Subscriber understands that it may not sell or
otherwise dispose of such shares in the absence of either a registration
statement under the Securities Act of 1933 or an exemption from the registration
provisions under the Securities Act of 1933; and
(5) The certificates representing such shares may
contain a legend to the effect of (4) above.
(6) Subscriber grants the Company a security interest
in the Shares to secure the repayment of a certain note (the "Note") used to
purchase the Shares. The Subscriber agrees that the Company shall hold the
Shares until the Note is paid in full, except that upon written demand of the
Subscriber, his estate or heirs to release all or any part of the Shares to
effect a sale of such Shares by the Subscriber, his estate or heirs, the Company
shall immediately deliver the number of Shares requested to be released to the
transfer agent in escrow so that such sale may occur. The Company shall have a
security interest in the proceeds of the such sale to the extent set forth in
the Note until such proceeds are applied in accordance with the terms of the
Note. If the sale does not occur the Shares shall be immediately returned to the
Company as security for the repayment of the Note. The Subscriber agrees to
execute a stock power in blank
EXH. B-1
<PAGE>
with respect to the Shares and that the Company shall also hold such stock
power.
(Sign)
--------------------------
Print Name:
SS#:
Agreed to and Accepted:
INNOPET BRANDS CORP.
- ------------------------------
Name: Marc Duke
Title: CEO
EXH. B-2
<PAGE>
EXHIBIT C
IRREVOCABLE PROXY
____________________ (the "Employee"), a stockholder of
InnoPet Brands Corp., hereby irrevocably appoints Marc Duke as proxy and
attorney-in-fact, with right of substitution, and hereby authorizes him to
represent and vote in his discretion ______________________________ shares of
common stock of InnoPet Brands Corp. owned by Employee at all shareholders
meetings, or any adjournment or adjournments thereof. This proxy is irrevocable
and shall remain in full force and effect until May 31, 1999.
Dated: June 1, 1996
(Sign)
------------------------------
Print Name:
EXH. C-1
<PAGE>
EXHIBIT D
STOCK POWER
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
INNOPET BRANDS CORP. shares of Common Stock of the INNOPET BRANDS CORP. standing
in its name on the books of said Corporation represented by Certificate(s)
No.(s). herewith, and do hereby irrevocably constitute and appoint
____________________ attorney to transfer the said stock on the books of said
Corporation with full power of substitution in the premises.
Dated: June 1, 1996
(Sign)
----------------------------------
Print Name:
EXH. D-1
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this 1st
day of June, 1996 between InnoPet Brands Corp. (formerly known as InnoPet
Products Corp.), a Delaware corporation (the "Company"), having its principal
offices at One East Broward Boulevard, Ft. Lauderdale, Florida, and Robin Hunter
(the "Employee"), an individual residing at ___________________________________
________________________________________________________________.
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company as its Vice President and Chief Financial
Officer upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, and intending to be legally bound hereby,
the parties hereto agree as follows:
1. Nature of Employment; Term of Employment. The Company
hereby employs Employee and Employee agrees to serve the Company as its Vice
President and Chief Financial Officer upon the terms and conditions contained
herein, for a term commencing as of June 1, 1996 and continuing until the close
of business on May 31, 1999, (the "Employment Term"). This Agreement will
automatically renew for one additional term of one year if notice of termination
is not given by either party at least forty-five (45) days prior to the end of
the Employment Term.
<PAGE>
2. Duties and Powers as Employee. During the Employment
Term, Employee agrees to devote all of his full working time, energy, and
efforts to the business of the Company. The Employee's duties shall include,
without limitation, those normally performed by a chief financial officer of a
corporation including the supervision of all matters of finance relating to or
involving the Company and calling for action or inaction on its part and related
areas of responsibility. In performance of his duties, Employee shall be subject
to the direction of the Chief Executive Officer of the Company. Employee shall
be available to travel as the needs of the business require.
3. Compensation.
(a) As compensation for his services hereunder, the
Company shall pay Employee a salary, payable in equal semi-monthly installments,
at the annual rate of $85,000. Additionally, Employee shall participate in the
present or future employee benefit plans of the Company provided that he meets
the eligibility requirements therefor.
(b) Employee shall be eligible to receive raises each
year of the Employment Term at a minimum to reflect cost of living increases,
if any, and merit raises, subject to satisfactory performance as determined by
the Board of Directors.
(c) Upon execution of this Agreement and the Note,
defined below, the Employee shall purchase 43,497 shares (the "Shares") of
common stock of the Company at a purchase price of $139,190. The Shares shall
be purchased by a note (the "Note") in the form attached hereto as Exhibit A.
The Employee shall also execute a Stock Subscription and Security Agreement and
a proxy in the forms attached hereto as Exhibits B and C, respectively.
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<PAGE>
(d) The Shares shall be held by the Company as security
for the repayment of the Note. The Company shall hold the Shares until the Note
is repaid in full. The Employee shall also execute a stock power with respect
to such shares in the form attached hereto as Exhibit D.
4. Expenses; Vacations. Employee shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses necessarily
incurred in the performance of his duties hereunder, upon submission and
approval of written statements and bills in accordance with the then regular
procedures of the Company. Employee shall be entitled to thirty (30) days paid
vacation time in accordance with then regular procedures of the Company
governing executives as determined from time to time by the Company's Board of
Directors.
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his duties hereunder, or the other rights of
the Company hereunder; and (b) Employee is under no physical or mental
disability that would hinder his performance of duties under this Agreement.
6. Non-Competition.
(a) The Employee agrees that during the Employment Term
he will not engage in, or otherwise directly or indirectly be employed by, or
act as a consultant, or be a director, officer, employee, owner, agent, member
or partner of, any other business or organization that is or shall then be
competing with the Company.
(b) If this Agreement is terminated pursuant to Section
9(a), 9(c) or 9(e), Employee, for a period of six (6) months from the date of
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<PAGE>
termination, shall not, directly or indirectly, be engaged in the marketing or
manufacturing of (i) any form of pet food for cats, dogs, puppies or kittens;
or (ii) any products for cats, dogs, puppies or kittens similar to those that
he worked on or had knowledge of during the Employment Term.
(c) If this Agreement is terminated pursuant to Section
9(b), Employee, for a period of six (6) months from the date of termination,
shall not, directly or indirectly, compete with or be engaged in the same
business as the company, or be employed by, or act as consultant, or be a
director, officer, employee, owner, agent, member or partner of, any business
or organization which, at the time of such termination, competes with or is
engaged in the same business as the Company. At the end of this period,
Employee, for a period of six (6) months thereafter, shall not, directly or
indirectly, be engaged in the marketing or manufacturing of (i) any pet food to
be given to cats, dogs, puppies or kittens; or (ii) any products for cats, dogs,
puppies or kittens similar to those that he worked on or had knowledge of
during the Employment Term.
7. Inventions; Patents; Copyrights. Any interest in patents,
patent applications, inventions, copyrights, developments, and processes ("Such
Inventions") which Employee now or hereafter during the period he is employed by
the Company under this Agreement may, directly or indirectly, own or develop
relating to the fields in which the Company may then be engaged shall belong to
the Company; and forthwith upon request of the Company, Employee shall execute
all such assignments and other documents and take all such other action as the
Company may reasonably request in order to vest in the Company all his right,
title, and interest in and to Such Inventions, free and clear of all liens,
charges, and encumbrances.
-4-
<PAGE>
8. Confidential Information. All confidential information
which Employee may now possess, may obtain during the Employment Term, or may
create prior to the end of the period he is employed by the Company under this
Agreement, relating to the business of the Company or of any customer or
supplier of the Company shall not be published, disclosed, or made accessible
by him to any other person, firm, or corporation during the Employment Term or
any time thereafter without the prior written consent of the Company. Employee
shall return all tangible evidence of such confidential information to the
Company prior to or at the termination of his employment.
9. Termination.
(a) Notwithstanding anything herein contained, if on or
after the date hereof and prior to the end of the Employment Term, Employee is
terminated "For Cause" (as defined below) then the Company shall have the right
to give notice of termination of Employee's services hereunder as of a date to
be specified in such notice, and this Agreement shall terminate on the date so
specified. Termination "For Cause" shall mean Employee shall (i) be convicted
of a felony crime, (ii) commit any act or omit to take any action in bad faith
and to the detriment of the Company, (iii) commit an act of moral turpitude,
(iv) commit an act of fraud against the Company, or (v) materially breach any
term of this Agreement and fail to correct such breach within ten days after
commission thereof. In the event that this Agreement is terminated "For Cause",
pursuant to Section 9(a), then Employee shall be entitled to receive only his
salary at the rate provided in Section 3 to the date on which termination shall
take effect.
-5-
<PAGE>
(b) In the event that Employee, prior to the end of the
Employment Term, is terminated by the Company other than pursuant to Section
9(a) hereof, he shall be entitled to receive six (6) months of his annual
salary at the rate provided in Section 3 (the "Severance Payment"). The
Severance Payment shall be paid by the Company in six (6) equal installments
beginning thirty (30) days after the date of termination and every thirty (30)
days thereafter until fully paid. The date of termination shall be specified in
a notice of termination to be provided by the Company.
(c) In the event that Employee shall be physically or
mentally incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of six (6) consecutive calendar months, then this
Agreement shall terminate upon 90 days' written notice to Employee, and no
further compensation shall be payable to Employee, except as may otherwise be
provided under any disability insurance policy.
(d) In the event that Employee shall die, then this
Agreement shall terminate on the date of Employee's death, and no further
compensation shall be payable to Employee, except as may otherwise be provided
under any insurance policy or similar instrument.
(e) The Employee may terminate this Agreement on sixty
(60) days notice. If the Employee terminates this Agreement pursuant to this
Section 9(e) he shall not be entitled to receive any Severance Payment.
(f) Nothing contained in this Section 9 shall be deemed
to limit any other right the Company may have to terminate Employee's employment
hereunder upon any ground permitted by law.
-6-
<PAGE>
10. Merger, Etc. In the event of a future disposition of the
properties and business of the Company, as or substantially as an entirety, by
merger, consolidation, sale of assets, sale of stock, or otherwise, then the
Company may elect to assign this Agreement and all of its rights and obligations
hereunder to the acquiring or surviving corporation; and upon such assignment
Employee's rights and obligations hereunder shall continue with the same force
and effect as if such acquiring or surviving corporation had ab initio been a
party hereto in lieu and stead of InnoPet Brands Corp.
11. Survival. The covenants, agreements, representations,
and warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment, irrespective of any investigation made by
or on behalf of any party.
12. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
13. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
-7-
<PAGE>
furnished in writing in accordance with the provisions of this Section 13). In
the case of a notice to the Company, a copy of such notice (which copy shall not
constitute notice) shall be delivered to Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019, Attn. Daniel I. DeWolf, Esq.
Notice to the estate of Employee shall be sufficient if addressed to Employee
as provided in this Section 13. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
14. Waiver. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
15. Binding Effect. Employee's rights and obligations under
this Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to encumbrance or the claims of Employee's creditors, and
any attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and those who are its assigns under
Section 10.
16. Headings. The headings in this Agreement are solely for
the convenience of reference and shall be given no effect in the construction
or interpretation of this Agreement.
-8-
<PAGE>
17. Counterparts; Governing Law. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. It shall be governed by, and construed in accordance with, the laws
of the State of Florida, without given effect to the rules governing the
conflicts of laws.
18. Termination of Contract with InnoPet Inc. The Employee
acknowledges that his employment agreement with InnoPet Inc. is terminated,
except that any options (the "Options") granted thereunder to the Employee will
continue to exist and be subject to the terms of any vesting schedule contained
therein. The Employee also releases InnoPet Inc. from all liabilities and
claims, if any, under such employment agreement. The Company acknowledges that
it has no rights or claims to any of the Options.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
INNOPET BRANDS CORP.
By: ______________________________________________
Name: Marc Duke
Title: CEO
__________________________________________________
ROBIN HUNTER
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<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount: $__________ Ft. Lauderdale, Florida
Interest Rate: 5.75% June 1, 1996
FOR VALUE RECEIVED, the undersigned, _________________________
________________________________________________________________________________
("Maker"), promises to pay to the order of InnoPet Brands Corp. (formerly known
as InnoPet Products Corp.), a Delaware corporation ("Payee"), at One East
Broward Boulevard, Ft. Lauderdale, Florida 33301, or at such other place as
Payee may from time to time designate by written notice to Maker, in lawful
money of the United States of America, the sum of ______________________________
Dollars ($____________) plus interest from the date of this Note on the unpaid
balance. All payments of principal and interest are to be made as set forth
below without setoff or counterclaim. Maker further agrees as follows:
Section 1. Interest Rate.
(a) Interest shall accrue at a rate equal to five and
three-quarters percent (5.75%) per annum.
(b) Interest shall be computed on the basis of a year of 365
days for the actual number of days elapsed. After maturity (whether by
acceleration or otherwise, and before as well as after judgments), all unpaid
principal and interest shall bear interest until it is paid at a rate equal to
the highest rate allowed by law.
Section 2. Payments.
(a) Together with each payment of principal of this Note there
shall also be due and payable and paid the amount of accrued unpaid interest on
said payment. All references herein to the unpaid portion of this Note shall be
deemed and treated as referring to and including both the then unpaid principal
EXH. A-1
<PAGE>
of this Note and the then accrued unpaid interest thereon. The unpaid portion
of the Note may be paid in dollars or in property, including, without
limitation, all or any part of the Shares, as defined below. If the Note is paid
by Shares then their value shall be equal to their Fair Market Value, as
defined herein. Fair Market Value shall mean the average closing bid price as
reported by the Nasdaq SmallCap Market (or such other exchange or quotation
system that is the then primary forum for trading the Shares) for the five (5)
trading days immediately preceding the day payment of the Note is made by
presentment of the Shares provided, however, that in no event shall the Shares
be deemed to have a Fair Market Value of less than $1.55 per share.
(b) Upon the sale of any shares of common stock (the "Shares")
of Payee issued originally by Payee to Maker against delivery to Payee of this
Note, and upon receipt by Payee of the proceeds from such sale, the Maker shall
promptly pay to Payee an amount equal to $3.20 per share sold and the then
unpaid portion of this Note shall be correspondingly reduced.
(c) The then unpaid portion of this Note shall be due and
payable on June 1, 1999.
(d) Maker shall have the right to prepay the unpaid portion
of this Note in full or in part at any time, without premium or penalty. All
prepayments shall be applied first to the then accrued unpaid interest and then
to the unpaid principal.
Section 2. Security.
This Note is secured by the Shares owned by the Maker.
EXH. A-2
<PAGE>
Section 3. Recourse.
Until June 1, 1998, the obligations of the Maker under this
Note shall be recourse against the Maker. Thereafter, the obligations of the
Maker under this Note shall be non-recourse and the Payee's sole recourse for
payment of this Note shall be the Shares (or any other property then pledged as
security for repayment of the Note).
Section 4. Default.
It shall be an event of default ("Event of Default"), and the
then unpaid portion of this Note shall become immediately due and payable, at
the election of Payee, upon the occurrence of any of the following events:
(a) any failure on the part of Maker to make any payment
hereunder when due, whether by acceleration or otherwise, and the continuation
of such failure for a period of ten (10) days after written notice thereof from
Payee;
(b) any failure on the part of Maker to keep or perform any of
the terms or provisions (other than payment) of this Note or the Stock
Subscription and Security Agreement executed herewith, or any amendments
thereof, and the continuation of such failure for more than ten (10) days after
written notice thereof from Payee.
(c) any failure on the part of Maker to pay any debt within
sixty (60) days of its due date (except where contested in good faith);
(d) Maker shall commence (or take any action for the purpose
of commencing) any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, moratorium or similar law or statute;
EXH. A-3
<PAGE>
(e) a proceeding shall be commenced against Maker under any
bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or
similar law or statute and relief is ordered against him, or the proceeding is
controverted but is not dismissed within sixty (60) days after the commencement
thereof;
(f) Maker consents to or suffers the appointment of a
receiver, trustee or custodian of any substantial part of his assets that is not
vacated within thirty (30) days;
(g) any information furnished to Payee by or on behalf of
Maker shall be false or misleading in any material respect.
Section 5. Jurisdiction and Service of Process.
Maker irrevocably consents to the jurisdiction of the courts
of the State of Florida and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this Note
or a breach of this Note. Maker waives, to the full extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any
action or proceeding arising out of or relating to this Note brought in the
State of Florida, and further irrevocably waives, to the full extent permitted
by law, any claim that any such action or proceeding brought in such State has
been brought in an inconvenient forum. In any such action or proceeding, Maker
waives, to the full extent permitted by law, personal service of any summons,
complaint, or other process and agrees that service thereof may be made on Maker
by certified or registered U.S. mail or by personal delivery. Within thirty (30)
days after such service, or such other time as may be mutually agreed upon in
EXH. A-4
<PAGE>
writing by the attorneys for the parties to such action or proceeding Maker
shall appear or answer such summons, complaint, or other process. Should Maker
so served fail to appear or answer within such thirty (30)-day period or such
extended period, as the case may be, Maker shall be deemed in default and
judgment may be entered by Payee against Maker for the amount as demanded in
any summons, complaint, or other process so served.
Section 6. Waivers.
(a) Maker waives demand, presentment, protest, notice of
protest, notice of dishonor, and all other notices or demands of any kind or
nature with respect to this Note.
(b) Maker agrees that a waiver of rights under this Note shall
not be deemed to be made by Payee unless such waiver shall be in writing, duly
signed by Payee, and each such waiver, if any, shall apply only with respect to
the specific instance involved and shall in no way impair the rights of Payee or
the obligations of Maker in any other respect at any other time.
(c) Maker agrees that in the event Payee demands or accepts
partial payment of this Note, such demand or acceptance shall not be deemed to
constitute a waiver of any right to demand the entire unpaid portion of this
Note at any time in accordance with the terms of this Note.
(d) In any action or proceeding arising out of or relating to
this Note, Maker waives (to the full extent permitted by law) all right to a
trial by jury or to plead as a defense any statute of limitations or any other
similar law or equitable doctrine.
EXH. A-5
<PAGE>
Section 7. Collection Costs.
Maker will upon demand pay to Payee the amount of any and all
reasonable costs and expenses, including, without limitation, the reasonable
fees and disbursements of its counsel (whether or not suit is instituted) and of
any experts and agents, which Payee may incur in connection with the following:
(i) the enforcement of this Note; and (ii) the enforcement of payment of all
obligations of Maker by any action or participation in, or in connection with, a
case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any
successor statute thereto.
Section 8. Assignment of Note.
Maker may not assign or transfer this Note or any of its
obligations under this Note in any manner whatsoever without the prior written
consent of Payee which shall not be unreasonably withheld. The Note may be
assigned at any time by Payee. Maker agrees not to assert against any assignee
of this Note any claim or defense which Maker may have against any assignor of
this Note.
Section 9. Miscellaneous.
(a) This Note may be altered only by prior written agreement
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought. This Note may not be modified by an oral
agreement, even if supported by new consideration.
(b) This Note shall be governed by, and construed in
accordance with, the laws of the State of Florida, without giving effect to
such state's principles of conflict of laws.
EXH. A-6
<PAGE>
(c) Subject to Section 8, the covenants, terms, and conditions
contained in this Note apply to and bind the heirs, successors, executors,
administrators and assigns of the parties.
(d) If any provision or any word, term, clause, or other part
of any provision of this Note shall be invalid for any reason, the same shall
be ineffective, but the remainder of this Note shall not be affected and shall
remain in full force and effect.
(e) All notices, consents, or other communications provided
for in this Note or otherwise required by law shall be in writing and may be
given to or made upon the respective parties at the following mailing addresses:
Payee: InnoPet Brands Corp.
One East Broward Boulevard
Ft. Lauderdale, Florida 33301
Attention: CEO
Maker: _______________________________
_______________________________
_______________________________
Such addresses may be changed by notice given as provided in this subsection.
Notices shall be effective upon the date of receipt; provided, however, that a
notice (other than a notice of a changed address) sent by certified or
registered U.S. mail, with postage prepaid, shall be presumed received not later
than three (3) business days following the date of sending.
(f) Time is of the essence under this Note.
EXH. A-7
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as
of the date first set forth above.
(Sign)_____________________________________________
Print Name:
Print SS#:
EXH. A-8
<PAGE>
EXHIBIT B
STOCK SUBSCRIPTION AND SECURITY AGREEMENT
June 1, 1996
To: InnoPet Brands Corp.
_______________ (the "Subscriber") hereby subscribes for
___________ shares (the "Shares") of common stock, par value $.01 per share, of
InnoPet Brands Corp (the "Company").
Subscriber hereby agrees, represents, and warrants that:
(1) Subscriber is acquiring such shares for Subscriber's
own account for investment purposes only and not with a view to the
distribution or resale thereof;
(2) By virtue of its position, Subscriber has access to
the same kind of information which would be available in a registration
statement filed under the Securities Act of 1933;
(3) Subscriber is a sophisticated investor;
(4) Subscriber understands that it may not sell or
otherwise dispose of such shares in the absence of either a registration
statement under the Securities Act of 1933 or an exemption from the registration
provisions under the Securities Act of 1933; and
(5) The certificates representing such shares may
contain a legend to the effect of (4) above.
(6) Subscriber grants the Company a security interest
in the Shares to secure the repayment of a certain note (the "Note") used to
purchase the Shares. The Subscriber agrees that the Company shall hold the
Shares until the Note is paid in full, except that upon written demand of the
Subscriber, his estate or heirs to release all or any part of the Shares to
effect a sale of such Shares by the Subscriber, his estate or heirs, the
Company shall immediately deliver the number of Shares requested to be released
to the transfer agent in escrow so that such sale may occur. The Company shall
have a security interest in the proceeds of the such sale to the extent set
forth in the Note until such proceeds are applied in accordance with the terms
of the Note. If the sale does not occur the Shares shall be immediately
returned to the Company as security for the repayment of the Note.
EXH. B-1
<PAGE>
The Subscriber agrees to execute a stock power in blank with respect to the
Shares and that the Company shall also hold such stock power.
(Sign)_____________________________________________
Print Name:
SS#:
Agreed to and Accepted:
INNOPET BRANDS CORP.
________________________
Name: Marc Duke
Title: CEO
EXH. B-2
<PAGE>
EXHIBIT C
IRREVOCABLE PROXY
____________________ (the "Employee"), a stockholder of
InnoPet Brands Corp., hereby irrevocably appoints Marc Duke as proxy and
attorney-in-fact, with right of substitution, and hereby authorizes him to
represent and vote in his discretion ______________________________ shares of
common stock of InnoPet Brands Corp. owned by Employee at all shareholders
meetings, or any adjournment or adjournments thereof. This proxy is irrevocable
and shall remain in full force and effect until May 31, 1999.
Dated: June 1, 1996
(Sign)_____________________________________________
Print Name:
EXH. C-1
<PAGE>
EXHIBIT D
STOCK POWER
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
INNOPET BRANDS CORP. shares of Common Stock of the INNOPET BRANDS CORP.
standing in its name on the books of said Corporation represented by
Certificate(s) No.(s). herewith, and do hereby irrevocably constitute and
appoint _______________________________________________________________________
attorney to transfer the said stock on the books of said Corporation with full
power of substitution in the premises.
Dated: June 1, 1996
(Sign)_____________________________________________
Print Name:
EXH. D-1
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this 1st
day of June, 1996 between InnoPet Brands Corp. (formerly known as InnoPet
Products Corp.), a Delaware corporation (the "Company"), having its principal
offices at One East Broward Boulevard, Ft. Lauderdale, Florida, and Albert
Masters (the "Employee"), an individual residing at
.
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company as its Vice President of Sales upon the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, and intending to be legally bound hereby,
the parties hereto agree as follows:
1. Nature of Employment; Term of Employment. The Company
hereby employs Employee and Employee agrees to serve the Company as its Vice
President of Sales upon the terms and conditions contained herein, for a term
commencing as of June 1, 1996 and continuing until the close of business on May
31, 1999, (the "Employment Term"). This Agreement will automatically renew for
one additional term of one year if notice of termination is not given by either
party at least forty-five (45) days prior to the end of the Employment Term.
<PAGE>
2. Duties and Powers as Employee. During the Employment Term,
Employee agrees to devote all of his full working time, energy, and efforts to
the business of the Company. The Employee's duties shall include, without
limitation, the supervision of selling activities of the Company and related
areas of responsibility. In performance of his duties, Employee shall be subject
to the direction of the Chief Executive Officer of the Company. Employee shall
be available to travel as the needs of the business require.
3. Compensation.
(a) As compensation for his services hereunder, the
Company shall pay Employee a salary, payable in equal semi-monthly installments,
at the annual rate of $104,000. Additionally, Employee shall participate in the
present or future employee benefit plans of the Company provided that he meets
the eligibility requirements therefor.
(b) Employee shall be eligible to receive raises each
year of the Employment Term at a minimum to reflect cost of living increases, if
any, and merit raises, subject to satisfactory performance as determined by the
Board of Directors.
(c) Upon execution of this Agreement and the Note,
defined below, the Employee shall purchase 43,497 shares (the "Shares") of
common stock of the Company at a purchase price of $139,190. The Shares shall be
purchased by a note (the "Note") in the form attached hereto as Exhibit A. The
Employee shall also execute a Stock Subscription and Security Agreement and a
proxy in the forms attached hereto as Exhibits B and C, respectively.
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<PAGE>
(d) The Shares shall be held by the Company as
security for the repayment of the Note. The Company shall hold the Shares until
the Note is repaid in full. The Employee shall also execute a stock power with
respect to such shares in the form attached hereto as Exhibit D.
4. Expenses; Vacations. Employee shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses necessarily
incurred in the performance of his duties hereunder, upon submission and
approval of written statements and bills in accordance with the then regular
procedures of the Company. Employee shall be entitled to thirty (30) days paid
vacation time in accordance with then regular procedures of the Company
governing executives as determined from time to time by the Company's Board of
Directors.
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his duties hereunder, or the other rights of
the Company hereunder; and (b) Employee is under no physical or mental
disability that would hinder his performance of duties under this Agreement.
6. Non-Competition.
(a) The Employee agrees that during the Employment
Term he will not engage in, or otherwise directly or indirectly be employed by,
or act as a consultant, or be a director, officer, employee, owner, agent,
member or partner of, any other business or organization that is or shall then
be competing with the Company.
(b) If this Agreement is terminated pursuant to
Section 9(a), 9(c) or 9(e),
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<PAGE>
Employee, for a period of six (6) months from the date of termination, shall
not, directly or indirectly, be engaged in the marketing or manufacturing of (i)
any form of pet food for cats, dogs, puppies or kittens; or (ii) any products
for cats, dogs, puppies or kittens similar to those that he worked on or had
knowledge of during the Employment Term.
(c) If this Agreement is terminated pursuant to
Section 9(b), Employee, for a period of six (6) months from the date of
termination, shall not, directly or indirectly, compete with or be engaged in
the same business as the company, or be employed by, or act as consultant, or be
a director, officer, employee, owner, agent, member or partner of, any business
or organization which, at the time of such termination, competes with or is
engaged in the same business as the Company. At the end of this period,
Employee, for a period of six (6) months thereafter, shall not, directly or
indirectly, be engaged in the marketing or manufacturing of (i) any pet food to
be given to cats, dogs, puppies or kittens; or (ii) any products for cats, dogs,
puppies or kittens similar to those that he worked on or had knowledge of during
the Employment Term.
7. Inventions; Patents; Copyrights. Any interest in patents,
patent applications, inventions, copyrights, developments, and processes ("Such
Inventions") which Employee now or hereafter during the period he is employed by
the Company under this Agreement may, directly or indirectly, own or develop
relating to the fields in which the Company may then be engaged shall belong to
the Company; and forthwith upon request of the Company, Employee shall execute
all such assignments and other documents and take all such other action as the
Company may reasonably request in order to vest in the Company all his right,
title, and interest
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<PAGE>
in and to Such Inventions, free and clear of all liens, charges, and
encumbrances.
8. Confidential Information. All confidential information
which Employee may now possess, may obtain during the Employment Term, or may
create prior to the end of the period he is employed by the Company under this
Agreement, relating to the business of the Company or of any customer or
supplier of the Company shall not be published, disclosed, or made accessible by
him to any other person, firm, or corporation during the Employment Term or any
time thereafter without the prior written consent of the Company. Employee shall
return all tangible evidence of such confidential information to the Company
prior to or at the termination of his employment.
9. Termination.
(a) Notwithstanding anything herein contained, if on
or after the date hereof and prior to the end of the Employment Term, Employee
is terminated "For Cause" (as defined below) then the Company shall have the
right to give notice of termination of Employee's services hereunder as of a
date to be specified in such notice, and this Agreement shall terminate on the
date so specified. Termination "For Cause" shall mean Employee shall (i) be
convicted of a felony crime, (ii) commit any act or omit to take any action in
bad faith and to the detriment of the Company, (iii) commit an act of moral
turpitude, (iv) commit an act of fraud against the Company, or (v) materially
breach any term of this Agreement and fail to correct such breach within ten
days after commission thereof. In the event that this Agreement is terminated
"For Cause", pursuant to Section 9(a), then Employee shall be entitled to
receive only his salary at the rate provided in Section 3 to the date on which
termination shall take effect.
-5-
<PAGE>
(b) In the event that Employee, prior to the end of
the Employment Term, is terminated by the Company other than pursuant to Section
9(a) hereof, he shall be entitled to receive six (6) months of his annual salary
at the rate provided in Section 3 (the "Severance Payment"). The Severance
Payment shall be paid by the Company in six (6) equal installments beginning
thirty (30) days after the date of termination and every thirty (30) days
thereafter until fully paid. The date of termination shall be specified in a
notice of termination to be provided by the Company.
(c) In the event that Employee shall be physically or
mentally incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of six (6) consecutive calendar months, then this
Agreement shall terminate upon 90 days' written notice to Employee, and no
further compensation shall be payable to Employee, except as may otherwise be
provided under any disability insurance policy.
(d) In the event that Employee shall die, then this
Agreement shall terminate on the date of Employee's death, and no further
compensation shall be payable to Employee, except as may otherwise be provided
under any insurance policy or similar instrument.
(e) The Employee may terminate this Agreement on
sixty (60) days notice. If the Employee terminates this Agreement pursuant to
this Section 9(e) he shall not be entitled to receive any Severance Payment.
(f) Nothing contained in this Section 9 shall be
deemed to limit any other
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<PAGE>
right the Company may have to terminate Employee's employment hereunder upon any
ground permitted by law.
10. Merger, Etc. In the event of a future disposition of the
properties and business of the Company, as or substantially as an entirety, by
merger, consolidation, sale of assets, sale of stock, or otherwise, then the
Company may elect to assign this Agreement and all of its rights and obligations
hereunder to the acquiring or surviving corporation; and upon such assignment
Employee's rights and obligations hereunder shall continue with the same force
and effect as if such acquiring or surviving corporation had ab initio been a
party hereto in lieu and stead of InnoPet Brands Corp.
11. Survival. The covenants, agreements, representations, and
warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment, irrespective of any investigation made by
or on behalf of any party.
12. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
13. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party
-7-
<PAGE>
shall have furnished in writing in accordance with the provisions of this
Section 13). In the case of a notice to the Company, a copy of such notice
(which copy shall not constitute notice) shall be delivered to Camhy Karlinsky &
Stein LLP, 1740 Broadway, 16th Floor, New York, New York 10019, Attn. Daniel I.
DeWolf, Esq. Notice to the estate of Employee shall be sufficient if addressed
to Employee as provided in this Section 13. Any notice or other communication
given by certified mail shall be deemed given at the time of certification
thereof, except for a notice changing a party's address which shall be deemed
given at the time of receipt thereof.
14. Waiver. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
15. Binding Effect. Employee's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to encumbrance or the claims of Employee's creditors, and
any attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and those who are its assigns under
Section 10.
16. Headings. The headings in this Agreement are solely for
the convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
-8-
<PAGE>
17. Counterparts; Governing Law. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. It shall be
governed by, and construed in accordance with, the laws of the State of Florida,
without given effect to the rules governing the conflicts of laws.
18. Termination of Contract with InnoPet Inc. The Employee
acknowledges that his employment agreement with InnoPet Inc. is terminated,
except that any options (the "Options") granted thereunder to the Employee will
continue to exist and be subject to the terms of any vesting schedule contained
therein. The Employee also releases InnoPet Inc. from all liabilities and
claims, if any, under such employment agreement. The Company acknowledges that
it has no rights or claims to any of the Options.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
INNOPET BRANDS CORP.
By:_____________________________________
Name: Marc Duke
Title: CEO
________________________________________
ALBERT MASTERS
-9-
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount: $__________ Ft. Lauderdale, Florida
Interest Rate: 5.75% June 1, 1996
FOR VALUE RECEIVED, the undersigned, _________________________
- ------------------------------------------------------------------------------
("Maker"), promises to pay to the order of InnoPet Brands Corp. (formerly known
as InnoPet Products Corp.), a Delaware corporation ("Payee"), at One East
Broward Boulevard, Ft. Lauderdale, Florida 33301, or at such other place as
Payee may from time to time designate by written notice to Maker, in lawful
money of the United States of America, the sum of
- -------------------------------------------------------------------------------
Dollars ($____________) plus interest from the date of this Note on the unpaid
balance. All payments of principal and interest are to be made as set forth
below without setoff or counterclaim. Maker further agrees as follows:
Section 1. Interest Rate.
(a) Interest shall accrue at a rate equal to five and
three-quarters percent (5.75%) per annum.
(b) Interest shall be computed on the basis of a year of 365
days for the actual number of days elapsed. After maturity (whether by
acceleration or otherwise, and before as well as after judgments), all unpaid
principal and interest shall bear interest until it is paid at a rate equal to
the highest rate allowed by law.
Section 2. Payments.
(a) Together with each payment of principal of this Note there
shall also be due and payable and paid the amount of accrued unpaid interest on
said payment. All references herein to the unpaid portion of this Note shall be
deemed and treated as referring to and
EXH. A-1
<PAGE>
including both the then unpaid principal of this Note and the then accrued
unpaid interest thereon. The unpaid portion of the Note may be paid in dollars
or in property, including, without limitation, all or any part of the Shares, as
defined below. If the Note is paid by Shares then their value shall be equal to
their Fair Market Value, as defined herein. Fair Market Value shall mean the
average closing bid price as reported by the Nasdaq SmallCap Market (or such
other exchange or quotation system that is the then primary forum for trading
the Shares) for the five (5) trading days immediately preceding the day payment
of the Note is made by presentment of the Shares provided, however, that in no
event shall the Shares be deemed to have a Fair Market Value of less than $1.55
per share.
(b) Upon the sale of any shares of common stock (the "Shares")
of Payee issued originally by Payee to Maker against delivery to Payee of this
Note, and upon receipt by Payee of the proceeds from such sale, the Maker shall
promptly pay to Payee an amount equal to $3.20 per share sold and the then
unpaid portion of this Note shall be correspondingly reduced.
(c) The then unpaid portion of this Note shall be due and
payable on June 1, 1999. (d) Maker shall have the right to prepay the unpaid
portion of this Note in full or in part at any time, without premium or penalty.
All prepayments shall be applied first to the then accrued unpaid interest and
then to the unpaid principal.
Section 2. Security.
This Note is secured by the Shares owned by the Maker.
EXH. A-2
<PAGE>
Section 3. Recourse.
Until June 1, 1998, the obligations of the Maker under this
Note shall be recourse against the Maker. Thereafter, the obligations of the
Maker under this Note shall be non-recourse and the Payee's sole recourse for
payment of this Note shall be the Shares (or any other property then pledged as
security for repayment of the Note).
Section 4. Default.
It shall be an event of default ("Event of Default"), and the
then unpaid portion of this Note shall become immediately due and payable, at
the election of Payee, upon the occurrence of any of the following events:
(a) any failure on the part of Maker to make any payment
hereunder when due, whether by acceleration or otherwise, and the continuation
of such failure for a period of ten (10) days after written notice thereof from
Payee;
(b) any failure on the part of Maker to keep or perform any of
the terms or provisions (other than payment) of this Note or the Stock
Subscription and Security Agreement executed herewith, or any amendments
thereof, and the continuation of such failure for more than ten (10) days after
written notice thereof from Payee.
(c) any failure on the part of Maker to pay any debt within
sixty (60) days of its due date (except where contested in good faith);
(d) Maker shall commence (or take any action for the purpose
of commencing) any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt,
EXH. A-3
<PAGE>
moratorium or similar law or statute;
(e) a proceeding shall be commenced against Maker under any
bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or
similar law or statute and relief is ordered against him, or the proceeding is
controverted but is not dismissed within sixty (60) days after the commencement
thereof;
(f) Maker consents to or suffers the appointment of a
receiver, trustee or custodian of any substantial part of his assets that is not
vacated within thirty (30) days;
(g) any information furnished to Payee by or on behalf of
Maker shall be false or misleading in any material respect.
Section 5. Jurisdiction and Service of Process.
Maker irrevocably consents to the jurisdiction of the courts
of the State of Florida and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this Note
or a breach of this Note. Maker waives, to the full extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any
action or proceeding arising out of or relating to this Note brought in the
State of Florida, and further irrevocably waives, to the full extent permitted
by law, any claim that any such action or proceeding brought in such State has
been brought in an inconvenient forum. In any such action or proceeding, Maker
waives, to the full extent permitted by law, personal service of any summons,
complaint, or other process and agrees that service thereof may be made on Maker
by certified or registered U.S. mail or by personal delivery. Within thirty (30)
days after
EXH. A-4
<PAGE>
such service, or such other time as may be mutually agreed upon in writing by
the attorneys for the parties to such action or proceeding Maker shall appear or
answer such summons, complaint, or other process. Should Maker so served fail to
appear or answer within such thirty (30)-day period or such extended period, as
the case may be, Maker shall be deemed in default and judgment may be entered by
Payee against Maker for the amount as demanded in any summons, complaint, or
other process so served.
Section 6. Waivers.
(a) Maker waives demand, presentment, protest, notice of
protest, notice of dishonor, and all other notices or demands of any kind or
nature with respect to this Note.
(b) Maker agrees that a waiver of rights under this Note shall
not be deemed to be made by Payee unless such waiver shall be in writing, duly
signed by Payee, and each such waiver, if any, shall apply only with respect to
the specific instance involved and shall in no way impair the rights of Payee or
the obligations of Maker in any other respect at any other time.
(c) Maker agrees that in the event Payee demands or accepts
partial payment of this Note, such demand or acceptance shall not be deemed to
constitute a waiver of any right to demand the entire unpaid portion of this
Note at any time in accordance with the terms of this Note.
(d) In any action or proceeding arising out of or relating to
this Note, Maker waives (to the full extent permitted by law) all right to a
trial by jury or to plead as a defense
EXH. A-5
<PAGE>
any statute of limitations or any other similar law or equitable doctrine.
Section 7. Collection Costs.
Maker will upon demand pay to Payee the amount of any and all
reasonable costs and expenses, including, without limitation, the reasonable
fees and disbursements of its counsel (whether or not suit is instituted) and of
any experts and agents, which Payee may incur in connection with the following:
(i) the enforcement of this Note; and (ii) the enforcement of payment of all
obligations of Maker by any action or participation in, or in connection with, a
case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any
successor statute thereto.
Section 8. Assignment of Note.
Maker may not assign or transfer this Note or any of its
obligations under this Note in any manner whatsoever without the prior written
consent of Payee which shall not be unreasonably withheld. The Note may be
assigned at any time by Payee . Maker agrees not to assert against any assignee
of this Note any claim or defense which Maker may have against any assignor of
this Note.
Section 9. Miscellaneous.
(a) This Note may be altered only by prior written agreement
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought. This Note may not be modified by an oral
agreement, even if supported by new consideration.
(b) This Note shall be governed by, and construed in
accordance with, the laws
EXH. A-6
<PAGE>
of the State of Florida, without giving effect to such state's principles of
conflict of laws.
(c) Subject to Section 8, the covenants, terms, and conditions
contained in this Note apply to and bind the heirs, successors, executors,
administrators and assigns of the parties.
(d) If any provision or any word, term, clause, or other part
of any provision of this Note shall be invalid for any reason, the same shall be
ineffective, but the remainder of this Note shall not be affected and shall
remain in full force and effect.
(e) All notices, consents, or other communications provided
for in this Note or otherwise required by law shall be in writing and may be
given to or made upon the respective parties at the following mailing addresses:
Payee: InnoPet Brands Corp.
One East Broward Boulevard
Ft. Lauderdale, Florida 33301
Attention: CEO
Maker: _____________________________
_____________________________
_____________________________
Such addresses may be changed by notice given as provided in this subsection.
Notices shall be effective upon the date of receipt; provided, however, that a
notice (other than a notice of a changed address) sent by certified or
registered U.S. mail, with postage prepaid, shall be presumed received not later
than three (3) business days following the date of sending.
(f) Time is of the essence under this Note.
EXH. A-7
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as
of the date first set forth above.
(Sign)
---------------------------------
Print Name:
Print SS#:_______________________
EXH. A-8
<PAGE>
EXHIBIT B
STOCK SUBSCRIPTION AND SECURITY AGREEMENT
June 1, 1996
To: InnoPet Brands Corp.
_______________ (the "Subscriber") hereby subscribes for
___________ shares (the "Shares") of common stock, par value $.01 per share, of
InnoPet Brands Corp (the "Company").
Subscriber hereby agrees, represents, and warrants that:
(1) Subscriber is acquiring such shares for
Subscriber's own account for investment purposes only and not with a view to the
distribution or resale thereof;
(2) By virtue of its position, Subscriber has access to
the same kind of information which would be available in a registration
statement filed under the Securities Act of 1933;
(3) Subscriber is a sophisticated investor;
(4) Subscriber understands that it may not sell or
otherwise dispose of such shares in the absence of either a registration
statement under the Securities Act of 1933 or an exemption from the registration
provisions under the Securities Act of 1933; and
(5) The certificates representing such shares may
contain a legend to the effect of (4) above.
(6) Subscriber grants the Company a security interest
in the Shares to secure the repayment of a certain note (the "Note") used to
purchase the Shares. The Subscriber agrees that the Company shall hold the
Shares until the Note is paid in full, except that upon written demand of the
Subscriber, his estate or heirs to release all or any part of the Shares to
effect a sale of such Shares by the Subscriber, his estate or heirs, the Company
shall immediately deliver the number of Shares requested to be released to the
transfer agent in escrow so that such sale may occur. The Company shall have a
security interest in the proceeds of the such sale to the extent set forth in
the Note until such proceeds are applied in accordance with the terms of the
Note. If the sale does not occur the Shares shall be immediately returned to the
Company as security for the repayment of the Note. The Subscriber agrees to
execute a stock power in blank
EXH. B-1
<PAGE>
with respect to the Shares and that the Company shall also hold such stock
power.
(Sign)
----------------------------
Print Name:
SS#:
Agreed to and Accepted:
INNOPET BRANDS CORP.
- ------------------------------
Name: Marc Duke
Title: CEO
EXH. B-2
<PAGE>
EXHIBIT C
IRREVOCABLE PROXY
____________________ (the "Employee"), a stockholder of
InnoPet Brands Corp., hereby irrevocably appoints Marc Duke as proxy and
attorney-in-fact, with right of substitution, and hereby authorizes him to
represent and vote in his discretion ______________________________ shares of
common stock of InnoPet Brands Corp. owned by Employee at all shareholders
meetings, or any adjournment or adjournments thereof. This proxy is irrevocable
and shall remain in full force and effect until May 31, 1999.
Dated: June 1, 1996
(Sign)
---------------------------
Print Name:
EXH. C-1
<PAGE>
EXHIBIT D
STOCK POWER
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
INNOPET BRANDS CORP. shares of Common Stock of the INNOPET BRANDS CORP.
standing in its name on the books of said Corporation represented by
Certificate(s) No.(s). herewith, and do hereby irrevocably constitute and
appoint _________________________________________ attorney to transfer the said
stock on the books of said Corporation with full power of substitution in
the premises.
Dated: June 1, 1996
(Sign)
----------------------------------
Print Name:
EXH. D-1
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this 1st
day of June, 1996 between InnoPet Brands Corp. (formerly known as InnoPet
Products Corp.), a Delaware corporation (the "Company"), having its principal
offices at One East Broward Boulevard, Ft. Lauderdale, Florida, and Dr. Dana
Vaughn (the "Employee"), an individual residing at _________________________
_____________________________________________________________________.
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee and Employee
desires to be employed by the Company as its Vice President of Research and
Development upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, and intending to be legally bound hereby,
the parties hereto agree as follows:
1. Nature of Employment; Term of Employment. The Company
hereby employs Employee and Employee agrees to serve the Company as its Vice
President of Research and Development upon the terms and conditions contained
herein, for a term commencing as of June 1, 1996 and continuing until the end of
business on May 31, 1999, (the "Employment Term"). This Agreement will
automatically renew for one additional term of one year if notice of termination
is not given by either party at least forty-five (45) days prior to the end of
the Employment Term.
<PAGE>
2. Duties and Powers as Employee. During the Employment Term,
Employee agrees to devote all of his full working time, energy, and efforts to
the business of the Company. The Employee's duties shall include, without
limitation, the supervision of research and development activities of the
Company and related areas of responsibility. In performance of his duties,
Employee shall be subject to the direction of the Chief Executive Officer of the
Company. Employee shall be available to travel as the needs of the business
require.
3. Compensation.
(a) As compensation for his services hereunder, the
Company shall pay Employee a salary, payable in equal semi-monthly installments,
at the annual rate of $125,000. Additionally, Employee shall participate in the
present and future employee benefit plans of the Company, including, without
limitation, all benefit plans customarily provided to senior level executives
of the Company, provided that he meets the eligibility requirements therefor.
(b) Employee shall be eligible to receive raises each year
of the Employment Term at a minimum to reflect cost of living increases, if
any, and merit raises, subject to satisfactory performance as determined by the
Board of Directors.
4. Expenses; Vacations. Employee shall be entitled to
reimbursement for reasonable travel and other out-of-pocket expenses necessarily
incurred in the performance of his duties hereunder, upon submission and
approval of written statements and bills in accordance with the then regular
procedures of the Company. Employee shall be entitled to thirty (30) days paid
vacation time per year in accordance with then regular procedures of the Company
governing executives as determined from time to time by the Company's Board of
Directors.
-2-
<PAGE>
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction or obligation which is inconsistent with the execution of
this Agreement, the performance of his duties hereunder, or the other rights of
the Company hereunder; and (b) Employee is under no physical or mental
disability that would hinder his performance of duties under this Agreement.
6. Non-Competition.
(a) The Employee agrees that during the Employment Term
he will not engage in, or otherwise directly or indirectly be employed by, or
act as a consultant, or be a director, officer, employee, owner, agent, member
or partner of, any other business or organization that is or shall then be
competing with the Company.
(b) If this Agreement is terminated pursuant to
Section 9(a), 9(c) or 9(e), Employee, for a period of six (6) months from the
date of termination, shall not, directly or indirectly, be engaged in the
marketing or manufacturing of (i) any form of pet food for cats, dogs, puppies
or kittens; or (ii) any products for cats, dogs, puppies or kittens similar to
those that he worked on or of which he had knowledge that the Company was
developing during the Employment Term.
(c) If this Agreement is terminated pursuant to
Section 9(b), Employee, for a period of six (6) months from the date of
termination, shall not, directly or indirectly, compete with or be engaged in
the same business as the company, or be employed by, or act as consultant, or be
a director, officer, employee, owner, agent, member or partner of, any
-3-
<PAGE>
business or organization which, at the time of such termination, competes with
or is engaged in the same business as the Company.
7. Inventions; Patents; Copyrights. Any interest in patents,
patent applications, inventions, copyrights, developments, and processes ("Such
Inventions") which Employee now or hereafter during the period he is employed by
the Company under this Agreement may, directly or indirectly, own or develop
relating to the fields in which the Company may then be engaged shall belong to
the Company; and forthwith upon request of the Company, Employee shall execute
all such assignments and other documents and take all such other action as the
Company may reasonably request in order to vest in the Company all his right,
title, and interest in and to Such Inventions, free and clear of all liens,
charges, and encumbrances.
8. Confidential Information. All confidential information
which Employee may now possess, may obtain during the Employment Term, or may
create prior to the end of the period he is employed by the Company under this
Agreement, relating to the business of the Company or of any customer or
supplier of the Company shall not be published, disclosed, or made accessible by
him to any other person, firm, or corporation during the Employment Term or any
time thereafter without the prior written consent of the Company. Employee shall
return all tangible evidence of such confidential information to the Company
prior to or at the termination of his employment.
9. Termination.
(a) Notwithstanding anything herein contained, if on or
after the date hereof and prior to the end of the Employment Term, Employee is
terminated "For Cause" (as defined below) then the Company shall have the right
-4-
<PAGE>
to give notice of termination of Employee's services hereunder as of a date to
be specified in such notice, and this Agreement shall terminate on the date so
specified. Termination "For Cause" shall mean Employee (i) has been convicted of
a felony crime, (ii) committed any act or omitted to take any action in bad
faith and to the detriment of the Company, (iii) committed an act of sexual
harassment, (iv) committed an act of fraud against the Company, or (v)
materially breached any term of this Agreement and failed to correct such breach
within ten (10) days after notice of commission thereof. In the event that this
Agreement is terminated "For Cause", pursuant to Section 9(a), then Employee
shall be entitled to receive only his salary at the rate provided in Section 3
to the date on which termination shall take effect.
(b) In the event that Employee, prior to the end of the
Employment Term, is terminated by the Company other than pursuant to Section
9(a) hereof, he shall be entitled to receive six (6) months of his annual salary
at the rate provided in Section 3 (the "Severance Payment"). The Severance
Payment shall be paid by the Company in six (6) equal installments beginning
thirty (30) days after the date of termination and every thirty (30) days
thereafter until fully paid. The date of termination shall be specified in a
notice of termination to be provided by the Company. Upon full payment of the
Severance Payment, the Company shall not have any further monetary obligations
to the Employee.
(c) In the event that Employee shall be physically or
mentally incapacitated or disabled or otherwise unable fully to discharge his
duties hereunder for a period of six (6) consecutive calendar months, then this
Agreement shall terminate upon 90 days' written notice to Employee, and no
-5-
<PAGE>
further compensation shall be payable to Employee, except as may otherwise be
provided under any disability insurance policy.
(d) In the event that Employee shall die, then this
Agreement shall terminate on the date of Employee's death, and no further
compensation shall be payable to Employee, except as may otherwise be provided
under any insurance policy or similar instrument.
(e) The Employee may terminate this Agreement on sixty
(60) days notice. If the Employee terminates this Agreement pursuant to this
Section 9(e) he shall not be entitled to receive any Severance Payment.
10. Survival. The covenants, agreements, representations,
and warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment, irrespective of any investigation made by
or on behalf of any party.
11. Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.
12. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 12). In
the case of a notice to the Company, a copy of such notice (which copy shall not
-6-
<PAGE>
constitute notice) shall be delivered to Camhy Karlinsky & Stein LLP, 1740
Broadway, 16th Floor, New York, New York 10019, Attn. Daniel I. DeWolf, Esq.
Notice to the estate of Employee shall be sufficient if addressed to Employee as
provided in this Section 12. Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof,
except for a notice changing a party's address which shall be deemed given at
the time of receipt thereof.
13. Waiver. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
14. Binding Effect. Employee's rights and obligations under
this Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to encumbrance or the claims of Employee's creditors, and
any attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and those who are its assigns under
Section 10.
15. Headings. The headings in this Agreement are solely for
the convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
-7-
<PAGE>
16. Counterparts; Governing Law. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. It shall be governed by, and construed in accordance with, the laws
of the State of Florida, without given effect to the rules governing the
conflicts of laws.
17. Termination of Contract with InnoPet Inc. The Employee
acknowledges that his employment agreement with InnoPet Inc. is terminated,
except that any options (the "Options") granted thereunder to the Employee will
continue to exist and be subject to the terms of any vesting schedule contained
therein. The Employee also releases InnoPet Inc. from all liabilities and
claims, if any, under such employment agreement. The Company acknowledges that
it has no rights or claims to any of the Options. The Company shall cause
InnoPet Inc. to deliver a letter to the Employee releasing the Employee of his
obligations to InnoPet Inc.
18. Purchase of Shares
(a) Upon the execution of this Agreement and the Note,
defined below, the Employee shall purchase 86,993 shares (the "Shares") of
common stock of the Company at a purchase price of $278,378. The Shares shall be
purchased by a note (the "Note") in the form attached hereto as Exhibit A. The
Employee shall also execute a Stock Subscription and Security Agreement and a
proxy in the forms attached hereto as Exhibits B and C, respectively.
(b) The Shares shall be held by the Company as security
for the repayment of the Note. The Company shall hold the Shares until the Note
is repaid in full. The Employee shall also execute a stock power with respect
to such shares in the firm attached hereto as Exhibit D. The Company shall
release one share to the Employee upon each payment in cash or stock of $3.20
per share.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first written above.
INNOPET BRANDS CORP.
By: ___________________________________________
Name: Marc Duke
Title: CEO
_______________________________________________
DANA VAUGHN
-9-
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount: $__________ Ft. Lauderdale, Florida
Interest Rate: 5.75% June 1, 1996
FOR VALUE RECEIVED, the undersigned, ________________________
_______________________________________________________________________________
("Maker"), promises to pay to the order of InnoPet Brands Corp. (formerly known
as InnoPet Products Corp.), a Delaware corporation ("Payee"), at One East
Broward Boulevard, Ft. Lauderdale, Florida 33301, or at such other place as
Payee may from time to time designate by written notice to Maker, in lawful
money of the United States of America, the sum of _____________________________
_______________________________________________________________________________
Dollars ($____________) plus interest from the date of this Note on the unpaid
balance. All payments of principal and interest are to be made as set forth
below without setoff or counterclaim. Maker further agrees as follows:
Section 1. Interest Rate.
(a) Interest shall accrue at a rate equal to five and
three-quarters percent (5.75%) per annum.
(b) Interest shall be computed on the basis of a year of 365
days for the actual number of days elapsed. After maturity (whether by
acceleration or otherwise, and before as well as after judgments), all unpaid
principal and interest shall bear interest until it is paid at a rate equal to
the highest rate allowed by law.
Section 2. Payments.
(a) Together with each payment of principal of this Note there
shall also be due and payable and paid the amount of accrued unpaid interest on
said payment. All references herein to the unpaid portion of this Note shall be
deemed and treated as referring to and including both the then unpaid principal
EXH. A-1
<PAGE>
of this Note and the then accrued unpaid interest thereon. The unpaid portion of
the Note may be paid in dollars or in property, including, without limitation,
all or any part of the Shares, as defined below. If the Note is paid by Shares
then their value shall be equal to their Fair Market Value, as defined herein.
Fair Market Value shall mean the average closing bid price as reported by the
Nasdaq SmallCap Market (or such other exchange or quotation system that is the
then primary forum for trading the Shares) for the five (5) trading days
immediately preceding the day payment of the Note is made by presentment of the
Shares provided, however, that in no event shall the Shares be deemed to have a
Fair Market Value of less than $1.55 per share.
(b) Upon the sale of any shares of common stock (the "Shares")
of Payee issued originally by Payee to Maker against delivery to Payee of this
Note, and upon receipt by Payee of the proceeds from such sale, the Maker shall
promptly pay to Payee an amount equal to $3.20 per share sold and the then
unpaid portion of this Note shall be correspondingly reduced.
(c) The then unpaid portion of this Note shall be due and
payable on June 1, 1999.
(d) Maker shall have the right to prepay the unpaid portion of
this Note in full or in part at any time, without premium or penalty. All
prepayments shall be applied first to the then accrued unpaid interest and then
to the unpaid principal.
Section 2. Security.
This Note is secured by the Shares owned by the Maker.
EXH. A-2
<PAGE>
Section 3. Recourse.
Until June 1, 1998, the obligations of the Maker under this
Note shall be recourse against the Maker. Thereafter, the obligations of the
Maker under this Note shall be non-recourse and the Payee's sole recourse for
payment of this Note shall be the Shares (or any other property then pledged as
security for repayment of the Note).
Section 4. Default.
It shall be an event of default ("Event of Default"), and the
then unpaid portion of this Note shall become immediately due and payable, at
the election of Payee, upon the occurrence of any of the following events:
(a) any failure on the part of Maker to make any payment
hereunder when due, whether by acceleration or otherwise, and the continuation
of such failure for a period of ten (10) days after written notice thereof from
Payee;
(b) any failure on the part of Maker to keep or perform any of
the terms or provisions (other than payment) of this Note or the Stock
Subscription and Security Agreement executed herewith, or any amendments
thereof, and the continuation of such failure for more than ten (10) days after
written notice thereof from Payee.
(c) any failure on the part of Maker to pay any debt within
sixty (60) days of its due date (except where contested in good faith);
EXH. A-3
<PAGE>
(d) Maker shall commence (or take any action for the purpose
of commencing) any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, moratorium or similar law or statute;
(e) a proceeding shall be commenced against Maker under any
bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or
similar law or statute and relief is ordered against him, or the proceeding is
controverted but is not dismissed within sixty (60) days after the commencement
thereof;
(f) Maker consents to or suffers the appointment of a
receiver, trustee or custodian of any substantial part of his assets that is not
vacated within thirty (30) days;
(g) any information furnished to Payee by or on behalf of
Maker shall be false or misleading in any material respect.
Section 5. Jurisdiction and Service of Process.
Maker irrevocably consents to the jurisdiction of the courts
of the State of Florida and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this Note
or a breach of this Note. Maker waives, to the full extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any
action or proceeding arising out of or relating to this Note brought in the
State of Florida, and further irrevocably waives, to the full extent permitted
by law, any claim that any such action or proceeding brought in such State has
been brought in an inconvenient forum. In any such action or proceeding, Maker
waives, to the full extent permitted by law, personal service of any summons,
EXH. A-4
<PAGE>
complaint, or other process and agrees that service thereof may be made on Maker
by certified or registered U.S. mail or by personal delivery. Within thirty (30)
days after such service, or such other time as may be mutually agreed upon in
writing by the attorneys for the parties to such action or proceeding Maker
shall appear or answer such summons, complaint, or other process. Should Maker
so served fail to appear or answer within such thirty (30)-day period or such
extended period, as the case may be, Maker shall be deemed in default and
judgment may be entered by Payee against Maker for the amount as demanded in any
summons, complaint, or other process so served.
Section 6. Waivers.
(a) Maker waives demand, presentment, protest, notice of
protest, notice of dishonor, and all other notices or demands of any kind or
nature with respect to this Note.
(b) Maker agrees that a waiver of rights under this Note
shall not be deemed to be made by Payee unless such waiver shall be in writing,
duly signed by Payee, and each such waiver, if any, shall apply only with
respect to the specific instance involved and shall in no way impair the rights
of Payee or the obligations of Maker in any other respect at any other time.
(c) Maker agrees that in the event Payee demands or accepts
partial payment of this Note, such demand or acceptance shall not be deemed to
constitute a waiver of any right to demand the entire unpaid portion of this
Note at any time in accordance with the terms of this Note.
EXH. A-5
<PAGE>
(d) In any action or proceeding arising out of or relating to
this Note, Maker waives (to the full extent permitted by law) all right to a
trial by jury or to plead as a defense any statute of limitations or any other
similar law or equitable doctrine.
Section 7. Collection Costs.
Maker will upon demand pay to Payee the amount of any and all
reasonable costs and expenses, including, without limitation, the reasonable
fees and disbursements of its counsel (whether or not suit is instituted) and of
any experts and agents, which Payee may incur in connection with the following:
(i) the enforcement of this Note; and (ii) the enforcement of payment of all
obligations of Maker by any action or participation in, or in connection with, a
case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any
successor statute thereto.
Section 8. Assignment of Note.
Maker may not assign or transfer this Note or any of its
obligations under this Note in any manner whatsoever without the prior written
consent of Payee which shall not be unreasonably withheld. The Note may be
assigned at any time by Payee . Maker agrees not to assert against any assignee
of this Note any claim or defense which Maker may have against any assignor of
this Note.
Section 9. Miscellaneous.
(a) This Note may be altered only by prior written agreement
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought. This Note may not be modified by an oral
agreement, even if supported by new consideration.
EXH. A-6
<PAGE>
(b) This Note shall be governed by, and construed in
accordance with, the laws of the State of Florida, without giving effect to such
state's principles of conflict of laws.
(c) Subject to Section 8, the covenants, terms, and conditions
contained in this Note apply to and bind the heirs, successors, executors,
administrators and assigns of the parties.
(d) If any provision or any word, term, clause, or other part
of any provision of this Note shall be invalid for any reason, the same shall be
ineffective, but the remainder of this Note shall not be affected and shall
remain in full force and effect.
(e) All notices, consents, or other communications provided
for in this Note or otherwise required by law shall be in writing and may be
given to or made upon the respective parties at the following mailing addresses:
Payee: InnoPet Brands Corp.
One East Broward Boulevard
Ft. Lauderdale, Florida 33301
Attention: CEO
Maker: _________________________________
_________________________________
_________________________________
Such addresses may be changed by notice given as provided in this subsection.
Notices shall be effective upon the date of receipt; provided, however, that a
notice (other than a notice of a changed address) sent by certified or
registered U.S. mail, with postage prepaid, shall be presumed received not later
than three (3) business days following the date of sending.
(f) Time is of the essence under this Note.
EXH. A-7
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as
of the date first set forth above.
(Sign) ____________________________________
Print Name:
Print SS#: ________________________________
EXH. A-8
<PAGE>
EXHIBIT B
STOCK SUBSCRIPTION AND SECURITY AGREEMENT
June 1, 1996
To: InnoPet Brands Corp.
_______________ (the "Subscriber") hereby subscribes for
___________ shares (the "Shares") of common stock, par value $.01 per share, of
InnoPet Brands Corp (the "Company").
Subscriber hereby agrees, represents, and warrants that:
(1) Subscriber is acquiring such shares for Subscriber's
own account for investment purposes only and not with a view to the
distribution or resale thereof;
(2) By virtue of its position, Subscriber has access to
the same kind of information which would be available in a registration
statement filed under the Securities Act of 1933;
(3) Subscriber is a sophisticated investor;
(4) Subscriber understands that it may not sell or
otherwise dispose of such shares in the absence of either a registration
statement under the Securities Act of 1933 or an exemption from the registration
provisions under the Securities Act of 1933; and
(5) The certificates representing such shares may
contain a legend to the effect of (4) above.
(6) Subscriber grants the Company a security interest
in the Shares to secure the repayment of a certain note (the "Note") used to
purchase the Shares. The Subscriber agrees that the Company shall hold the
Shares until the Note is paid in full, except that upon written demand of the
Subscriber, his estate or heirs to release all or any part of the Shares to
effect a sale of such Shares by the Subscriber, his estate or heirs, the
Company shall immediately deliver the number of Shares requested to be released
to the transfer agent in escrow so that such sale may occur. The Company shall
have a security interest in the proceeds of the such sale to the extent set
forth in the Note until such proceeds are applied in accordance with the terms
of the Note. If the sale does not occur the Shares shall be immediately
returned to the Company as security for the repayment of the Note. The
EXH. B-1
<PAGE>
Subscriber agrees to execute a stock power in blank with respect to the Shares
and that the Company shall also hold such stock power.
(Sign)________________________________________
Print Name:
SS#:
Agreed to and Accepted:
INNOPET BRANDS CORP.
_________________________________
Name: Marc Duke
Title: CEO
EXH. B-2
<PAGE>
EXHIBIT C
IRREVOCABLE PROXY
____________________ (the "Employee"), a stockholder of
InnoPet Brands Corp., hereby irrevocably appoints Marc Duke as proxy and
attorney-in-fact, with right of substitution, and hereby authorizes him to
represent and vote in his discretion ______________________________ shares of
common stock of InnoPet Brands Corp. owned by Employee at all shareholders
meetings, or any adjournment or adjournments thereof. This proxy is irrevocable
and shall remain in full force and effect until May 31, 1999.
Dated: June 1, 1996
(Sign)________________________________________
Print Name:
EXH. C-1
<PAGE>
EXHIBIT D
STOCK POWER
FOR VALUE RECEIVED, ________________ hereby sells, assigns and transfers unto
INNOPET BRANDS CORP. shares of Common Stock of the INNOPET BRANDS CORP.
standing in its name on the books of said Corporation represented by
Certificate(s) No.(s). herewith, and do hereby irrevocably constitute and
appoint _______________________________________________________________________
_______________________________________________________________________________
attorney to transfer the said stock on the books of said Corporation with full
power of substitution in the premises.
Dated: June 1, 1996
(Sign)________________________________________
Print Name:
EXH. D-1
<PAGE>
Exhibit 10.8
AGREEMENT made as of the 1st day of June, 1996, by and between InnoPet
Inc., a Delaware corporation ("Inc."), and InnoPet Brands Corp., a Delaware
corporation ("Brands").
WITNESSETH:
The parties to this Agreement DO HEREBY AGREE as follows:
1. Inc. has been making, and will continue to make, each of the
payments (the "Payments") required by, or pursuant to, an Agreement, dated
November 9, 1995, by and between RSP II Barnett Bank Plaza, Ltd. and The
Original Pet Drink Company (the "Agreement"). Brands agrees to, and will, pay to
Inc. monies in respective amounts equal to the respective amounts of the
Payments made by Inc. after the date hereof. Brands agrees to, and will, make
each of such Payments with reasonable promptness after being informed by Inc, of
the amount to be paid. Notwithstanding the preceding sentence, in the event that
Inc. and/or an entity (other than Brands) controlled by Inc. occupies or
otherwise uses on more than a cursory basis a material portion (as reasonably
determined) of the premises (the "Premises") which are the subject of the
Agreement, the amount of the Payments by Brands to Inc. thereafter to be made
shall be reasonably reduced.
2. For use of the furniture, fixtures, office equipment and the like
(collectively "Assets") now situated in the Premises (a list of which is annexed
hereto and made a part
<PAGE>
hereof), Brands will pay to Inc. a monthly fee equal to 1/60th of the aggregate
amount ("Assets Cost") paid by Inc. to acquire the Assets as reflected in the
books and records of Inc.
3. It is contemplated that all employees of Inc. (except Inc.'s chief
executive officer) will become the sole employees of Brands. Brands agrees to,
and will, hold Inc. harmless from and against any and all claims for
compensation made by any employee or alleged employee of Inc. for services
rendered or allegedly rendered to Inc. after the date hereof and during the term
of this Agreement. Both parties acknowledge that Inc.'s chief executive officer
will be Brands' chief executive officer and continue to hold both positions.
Neither party will receive compensation from the other party for the services
rendered by the chief executive officer.
4. To the extent that employees of Brands (the "Employees") provide
services (at the request or with the concurrence of Inc.) to or for the account
of Inc. or any subsidiary (other than Brands) of Inc., Inc. agrees to, and will,
pay Brands for such services with reasonable promptness after being informed by
Brands of the amount to be paid. Said amount to be paid by Inc. to Brands shall
be determined and be with respect to each employee of Brands providing said
services the compensation (reasonably determined by Brands) payable and paid by
Brands to such employee for the period of time spent by such employee providing
said Services to Inc.
5. Each of Brands and Inc. agrees to, and will, maintain complete and
accurate (in all material respects) books and records reflecting, inter alia,
the transactions contemplated
-2-
<PAGE>
by this Agreement. Each of Brands and Inc. shall upon request to the other be
permitted at reasonable intervals to examine the other's books and records.
6.1 With respect to the Premises, this Agreement will terminate on June
30, 2004, at Brand's sole option, immediately upon Inc. no longer leasing the
Premises.
6.2 With respect to the Employees, either party to this Agreement may
terminate this Agreement upon at least 60 days' prior written notice to the
other which shall specify the date of termination. Such termination shall be
without prejudice to any rights or nullify any obligations under this Agreement
arising prior to its termination.
6.3 With respect to the Assets, this Agreement will terminate on April
30, 2001 or, at Brands' sole option, immediately upon Inc. no longer owning or
leasing the Assets.
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement as of the date first above set forth.
INNOPET INC.
By:______________________________
INNOPET
By:______________________________
-3-
<PAGE>
Exhibit 10.9
SUPPLY AGREEMENT
THIS AGREEMENT is entered into as of May 15th, 1996, between InnoPet Brands
Corp., a Delaware corporation ("Purchaser") and Monfort, Inc., a Delaware
corporation d/b/a Platte River By-Products ("Supplier").
WHEREAS, Supplier wishes to sell to Purchaser certain meat by-products (the
"Product") described in Exhibit A, attached hereto and incorporated herein by
reference.
WHEREAS, Purchase desires to purchase the Product, subject to compliance by
Supplier with the terms and conditions of this Agreement, as amended from time
to time throughout the term hereof (this Agreement, togther with all amendments,
addenda and exhibits hereto, is referred to herein as the "Agreement").
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Purchaser and Supplier hereby
agree as follows:
1. Orders.
a. During the term of the Agreement, Supplier shall enter into
specific contracts and purchase orders with Purchaser or its affiliates
(collectively, the "Purchasers") and shall stand ready to accept orders from the
Purchasers to purchase the Product at prices, in quantities, and on terms
described herein, in such contracts or purchase orders, or as negotiated between
Supplier and the Purchasers from time to time. The purpose of this Agreement is
to set forth the general terms under which Supplier will provide the Product to
the Purchaser.
b. In the event Supplier is unable to supply the Product as specified
for any reason during the term of this Agreement or should such Product become
depleted, Supplier agrees to use reasonable efforts to provide substitute
product reasonably acceptable to Purchaser at the prices, quantities, and terms
as set forth on Exhibit B attached hereto or as set forth in separate agreements
negotiated between Supplier and the Purchasers.
2. Inspection. Purchaser shall have the right to inspect, during normal
business hours and with reasonable advance notice, (a) any plant and/or
manufacturing facilities of Suppliers at which the Product is produced, (b) all
of the Supplier's facilities and equipment relating to storage and deliver of
the Product and all components thereof, and (c) the Product (prior to its
shipment to any of the Purchasers). Purchaser shall treat all of Supplier's
information as confidential and agrees that if required by Supplier, Purchaser
shall execute a confidentiality agreement in form and content reasonably
acceptable to Purchaser and Supplier.
<PAGE>
3. Product Testing. If requested by Purchaser, Supplier shall promptly
submit to Purchaser or to a product testing laboratory designated by Purchaser,
at Purchaser's sole cost and expense, in accordance with a testing schedule
established by Purchaser, samples of the product produced by Supplier or samples
of any components thereof.
4. Indemnification. Supplier agrees to defend, indemnify and hold harmless
Purchaser of and from all claims, demands, losses, damages, liabilities, and
costs from any breach of the warranty set forth in Paragraph 12, hereinafter,
except and unless any such claim, demand or loss is caused by the misconduct or
negligence of Purchaser, its agents, officers and employees. Purchaser agrees to
defend, indemnify and hold harmless Supplier of and from all claims, demands,
losses, damages, liabilities, and costs for injury to person or damage to
property arising from Purchaser's operations including, but not limited to, the
selling, handling, using, processing, mixing, packaging or transporting of any
Product sold by supllier to Purchaser, except and unless any such claim, demand,
or loss is caused by the midconduct or negligence of Supplier, its agents,
officers and employees.
5. Insurance. Supplier agrees to maintain, during the entire term of this
Agreement, a comprehensive general liability insurance policy, including product
liability coverage and contractual liability coverage, or self insurance
insuring against the liabilities assumed under this Agreement, in minimum
amounts of $1,000,000 per occurrence for damage, injury and/or death to persons
and $500,000 per occurrence for damage and/or injury to property.
6. Recall. In the event it is deemed necessary by either Purchaser and/or
Supplier to recall from any Purchaser any quantity of the Product, as a result
of failure of the Product related to the quality, fitness and/or safety of the
Product, Supplier agrees to cooperate with Purchaser to insure expeditious
recall.
7. Term. The term of this Agreement shall commence on the date hereof and
shall expire on the date established by the parties by a separate addendum
hereto, unless earlier terminated pursuant to Paragraph 11 hereof. If no date is
so established for the end of the term of this Agreement, then the Agreement
shall continue until terminated pursuant to Paragraph 11 hereof.
8. Trademarks. During the term hereof, Supplier shall not use, without the
prior written consent of an officer of Purchaser, any trademarks or service
marks of Purchaser in any manner whatsoever.
9. Confidentiality. Supplier and Purchaser acknowledge that the terms of
this Agreement and any other information provided by either party pursuant to
this Agreement may include valuable, proprietary, and confidential matter or
information relating to trade secrets, concepts, formulas, product
configurations, designs, specifications, manufacturing processes, operational
processes, equipment, suppliers,
<PAGE>
customers, employees, research developments, inventions, engineering,
marketing, merchandising, purchasing, finances, and other information for a
valuable, proprietary, and confidential nature, ("Confidential Matter") and
shall be used only pursuant to the terms and for the purposes of this
Agreement. Supplier and Purchaser shall comply with reasonably prudent
procedures designed to maintain in confidence, safeguard such Confidential
Matter, and not use such Confidential Matter except consistent with this
Agreement and use reasonable efforts to prevent disclosure to others of the
Confidential Matter. The obligations of parties under this Agreement shall not
apply to anything (a) which is known to Supplier or Purchaser at the time of
disclosure to the other party; (b) which is or becomes publicly available
through no fault of the other party; (c) which is acquired by the other party
from a third party who has the legal right to make the disclosure to it; or
(d) the disclosure of which is required by law.
10. Subsequent Product. Notwithstanding anything herein to the contrary,
the manufacture, storage, shipment and/or distribution by Supplier of any new or
modified product development by Supplier shall be controlled by Supplier unless
the Product is based upon confidential matter supplied by Purchaser.
11. Termination. Notwithstanding the provisions of Paragraph 7 hereof,
Purchase or Supplier may cancel this Agreement without cause and without penalty
upon sixty (60) days written notice to the other party. In the event of such
termination, Purchaser shall be responsible for Supplier's finished inventory
not to exceed a sixy (60) day supply.
12. Warranties. Supplier warrants that the Product, as of the date of
shipment or delivery, to be:
a. Not adulterated or misbranded within the meaning of any federal or
state law or municipal ordinace related to the Product; and
b. Not a misbranded hazardous substance within the meaning of that
term in the federal Hazardous Substances Act.
Purchaser agrees to notify the Supplier in writing within a reasonable
time to any claim for violation of any of the above-mentioned laws, giving the
name and address of the complaining party and the product concerned.
13. Notices. All notices required hereunder shall be in writing and shall
be deemed given, whether actually received or not, (a) when delivered in person,
(b) five (5) business days after such item is deposited in the United States
mail, postage prepaid, certified or registered, return receipt requested, or (c)
one (1) business day after such item is deposited with Federal Express or other
generally recognized overnight courier, shipping charges prepaid, addressed to
the appropriate party hereto at its address set out below, or at such other
address as it shall have theretofore specified by written notice delivered in
accordance herewith:
<PAGE>
Supplier Purchaser
- -------- ---------
Monfort, Inc. InnoPet Products Corp.
d/b/a Platte River By-Products 1 East Broward Blvd.
P.O. Box G Suite 1100
Greeley, CO 80632 Ft. Lauderdale, FL 33301
14. Independent Contractor. Supplier acknowledges that it is an independent
contractor and is neither an agent, partner, joint venturer nor employee of
Purchaser. Supplier shall have no authority to bind or otherwise obligate
Purchaser in any manner nor shall Supplier represent to anyone that it has a
right to do so.
15. Survival. The provisions of Paragraphs 4, 6, 9 and 12 hereof, and any
provision hereof which imposed upon Supplier an obligation after termination or
expiration of this Agreement, shall survive termination or expiration hereof and
be binding upon Supplier.
16. Governing Law. THE AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF COLORADO.
17. Waiver, Modification or Amendment. Except for changes in the
Specifications which may be made by Purchaser at any time, neither this
Agreement nor any of its provisions may be waived, modified or amended except by
an instrument in writing signed by the parties hereto.
18. Entire Agreement. This Agreement, as supplemented or amended hereafter,
constitutes the entire agreement between Purchaser and Supplier and supersedes
any and all prior negotiations, understandings, and/or agreements, oral or
written, between the parties hereto with respect to the subject matter hereof.
19. Benefit of Agreement. The Agreement shall be binding upon, and shall
inure to the benefit of the parties hereto and their successors and assigns.
20. Compliance; No Waiver. The failure of Purchaser of Supplier to insist
upon strict compliance with any of the terms hereof shall not be considered to
be a waiver of any such terms nor shall it affect the right of either party to
insist upon strict compliance herewith at any time thereafter.
21. Severability. If any provision of this Agreement shall be contrary to
the laws or jurisdiction in which the same shall be sought to be enforced, the
illegality or unenforceability of any such provision shall not affect the other
terms, covenants, terms or conditions, hereof, and the remainder of the
Agreement, or the application of such
<PAGE>
illegal or unenforceable term or provision to persons or circumstances other
than those as to which this Agreement is held to be illegal or unenforceable,
shall not be affected thereby and each term and provision of this Agreement
shall be valid and enforced to the fullest extent permitted by law.
22. Compliance With Laws. Supplier shall comply with all applicable
federal, state and local laws and executive orders and regulations issued
pursuant thereto, including without limitation all laws relating to equal
employment opportunity.
IN WITNESS WHEREOF, Purchaser and Supplier have executed the Agreement on
the date or dates set forth below, to be effective as of the date first above
written.
MONFORT, INC. D/B/A PLATTE PURCHASER:
RIVER BY-PRODUCTS COMPANY
By: /s/ Roger Dreyer By: /s/ Edwin Christensen
------------------------- ------------------------------
Roger Dreyer Edwin Christensen
Title: V.P. Spec. Divs. Title:
----------------------- ------------------------------
Vice President of Manufacturing
<PAGE>
Supply Agreement
Monfort & InnoPet Inc.
Exhibit A
1. MDB Test #11
Description: 80% mechanically de-boned beef, 20% beef liver, and 20%
de-boned beef. No entrails or any other by-products are allowed with the
exception of liver and heart. Green de-naturant is not allowed. Must
comply with all USDA and state food laws.
This material should be free of foreign material of any kind. This
material will also be subject to random sampling to insure it is of high
quality and within InnoPet specifications. This product also needs to meet
all state and FDA regulations.
Product outside of specifications will be rejected.
Anti-oxidant will be supplied by InnoPet Inc.
Anti-oxidant will be added of a type and quantity requested by InnoPet.
A reasonable cost for this service will be charged.
Specifications: Percent (%)
Minimum Maximum
------- -------
Moisture 70 72
Protein 12 14
Fat 10 12
Ash 1.9 2.2
Quantity and Price: 6 to 15 million pounds per year for the next 3 years @
$.17 FOB Grand Island
Form: Frozen, palletized, nude blocks, stretch wrapped
Product released via shipping advisory. Exhibit B attached hereto, which
contains P.O. #.
Terms: $25,000 open credit line, net 14 days.
David Vinsonhaler
<PAGE>
Exhibit B
--------------
Delivery Date
--------------
INNOPET INC.
One East Broward Boulevard, Suite 1100
Fort Lauderdale, Florida 33301
Attention: Ed
Telephone: (954) 356-0036 Fax: (954) 356-0039
Shipping Advisory
Date: ___________________________ P.O. __________________________________
To: ___________________________ Ship To: ______________________________
Company: Platte River by Products Company: FS Freezer Services
Address: 1226 N. 11th Ave. Address: 455 S. 57th Avenue
Greeley, CO 80632 Phoenix, AZ 85043
Attention: David Vinsonhaler Attention:___________________________
Tel: (970) 353-2311 FAX: (970) 356-0863 Tel: (602) 936-1733 FAX:
- --------------------------------------------------------------------------------
Order Date Ship Via F.O.B. Delivery Date
- --------------------------------------------------------------------------------
UPS Ground [ ] Prepaid Grand Island, NE
[ ] Collect
- --------------------------------------------------------------------------------
Quantity Item Description Unit Cost Total Cost
- --------------------------------------------------------------------------------
6.2 million lbs. MDB Test # 11:80% mechanically .17/lb.
de-boned beef, 20% beef liver
and 20% de-boned beef. No
entrails or any other by-products
are allowed with the exception of
liver & heart. Green de-naturant is
not allowed. Must comply with all
USDA and state food laws.
Specifications: Percent (%)
Minimum Maximum
------- -------
Moisture 70 72
Protein 12 14
Fat 10 12
Ash 1.9 2.2
- --------------------------------------------------------------------------------
Terms: $25,000 open credit line, net 14 days.
- --------------------------------------------------------------------------------
SHIPPING INSTRUCTIONS
(1) Please facsimile copies of the Airway Bill or Bills of Lading upon release
of the order to the shipper, to InnoPet Inc. at (954) 356-0039. (2) Please
notify us immediately if you are unable to ship complete order by date
specified.
- --------------------------------------------------------------------------------
Company: InnoPet Inc.
____________________________________________________ _______________________
Authorized Signature Date
David Vinsonhaler 6-3-96
- ---------------------------------------------------- -----------------------
Accepted By:
____________________________________________________ _______________________
<PAGE>
2. BEEF LIVER
Description: 100% Beef Liver, without bile sacs attached. Green
de-naturant is not allowed. Must comply with all USDA and state food
laws.
This material should be free of foreign material of any kind. This
material will also be subject to random sampling to insure it is of high
quality and within InnoPet specifications. This product also needs to meet
all state and FDA regulations.
Product outside of specifications will be rejected.
Anti-oxidant will be supplied by InnoPet.
Anti-oxidant will be added of a type and quantity requested InnoPet.
A reasonable cost for this service will be charged.
Specifications: Percent (%)
Minimum Maximum
------- -------
Moisture 69 74
Protein 17 19
Fat 4 8
Ash 1.75 3.5
Quantity: Negotiated quarterly
Price: F.O.B. Greeley, CO or Grand Island, NE
Negotiated quarterly
Form: Frozen, palletized, nude blocks, stretch wrapped
Product released via shipping advisory. Exhibit B attached hereto, which
contains P.O. #.
Terms: $25,000 open credit line, net 14 days
<PAGE>
--------------
Delivery Date
--------------
INNOPET INC.
One East Broward Boulevard, Suite 1100
Fort Lauderdale, Florida 33301
Attention: Ed
Telephone: (954) 356-0036 Fax: (954) 356-0039
Shipping Advisory
Date: ___________________________ P.O. __________________________________
To: ___________________________ Ship To: ______________________________
Company: Platte River by Products Company: FS Freezer Services
Address: 1226 N. 11th Ave. Address: 455 S. 57th Avenue
Greeley, CO 80632 Phoenix, AZ 85043
Attention: David Vinsonhaler Attention:___________________________
Tel: (970) 353-2311 FAX: (970) 356-0863 Tel: (602) 936-1733 FAX:
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Order Date Ship Via F.O.B. Delivery Date
- --------------------------------------------------------------------------------
UPS Ground [ ] Prepaid Greeley, CO. or
[ ] Collect Grand Island, NE
- --------------------------------------------------------------------------------
Quantity Item Description Unit Cost Total Cost
- --------------------------------------------------------------------------------
Negotiated Beef liver 100% Beef liver, Negotiated
Quarterly without bile sacs attached. Quarterly
Green de-naturant is not
allowed.
Must comply with all USDA and
state food laws.
Specification: Percent (%)
Minimum Maximum
------- -------
Moisture 69 74
Protein 17 19
Fat 4 8
Ash 1.75 3.5
- --------------------------------------------------------------------------------
Terms: $25,000 open credit line, net 14 days.
- --------------------------------------------------------------------------------
SHIPPING INSTRUCTIONS
(1) Please facsimile copies of the Airway Bill or Bills of Lading upon release
of the order to the shipper, to InnoPet Inc. at (954) 356-0039. (2) Please
notify us immediately if you are unable to ship complete order by date
specified.
- --------------------------------------------------------------------------------
Company: InnoPet Inc.
____________________________________________________ _______________________
Authorized Signature Date
____________________________________________________ _______________________
Accepted By: Date
____________________________________________________ _______________________
<PAGE>
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This Agreement is made and entered into as of this __ day of
________, 1996, [the effective date of the Registration Statement] by and
between INNOPET BRANDS CORP., a Delaware corporation (the "Company"), and JOSEPH
STEVENS & COMPANY, L.P. (the "Consultant").
In consideration of and for the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. Purpose. The Company hereby retains the Consultant during
the term specified in Section 2 hereof to render consulting advice to the
Company as an investment banker relating to financial and similar matters, upon
the terms and conditions as set forth herein.
2. Term. Subject to the provisions of Sections 8, 9 and 10
hereof, this Agreement shall be effective for a period of twenty-four (24)
months commencing _______ __, 1996 [the effective date of the Registration
Statement].
3. Duties of Consultant. During the term of this Agreement,
the Consultant will provide the Company with such regular and customary
consulting advice as is reasonably requested by the Company, provided that the
Consultant shall not be required to undertake duties not reasonably within the
scope of the consulting advisory service contemplated by this Agreement. In
performance of these duties, the Consultant shall provide the Company with the
benefits of its best judgment and efforts. It is understood and acknowledged by
the parties that the value of the Consultant's advice is not measurable in any
quantitative manner, and that the Consultant shall be obligated to render
advice, upon the request of the Company, in good faith, but shall not be
obligated to spend any specific amount of time in doing so. The Consultant's
duties may include, but will not necessarily be limited to:
A. Providing sponsorship and exposure in connection with the
dissemination of corporate information regarding the Company to the investment
community at large under a systematic planned approach.
B. Rendering advice and assistance in connection with the
preparation of annual and interim reports and press releases.
C. Arranging, on behalf of the Company and its
representatives, at appropriate times, meetings with securities analysts of
major regional investment banking firms.
D. Assisting in the Company's financial public relations,
including discussions between the Company and the financial community.
<PAGE>
E. Rendering advice with regard to internal operations,
including:
(1) advice regarding formation of corporate goals and their
implementation;
(2) advice regarding the financial structure of the Company and its
divisions or subsidiaries or any programs and projects of such entities;
(3) advice concerning the securing, when necessary and if possible, of
additional financing through banks, insurance companies and/or other
institutions; and
(4) advice regarding corporate organization and personnel.
F. Rendering advice with respect to any acquisition program of
the Company.
G. Rendering advice regarding a future public or private
offering of securities of the Company or of any subsidiary.
4. Relationships with Others. The Company acknowledges that
the Consultant and its affiliates are in the business of providing financial
services and consulting advice (of all types contemplated by this Agreement) to
others. Nothing herein contained shall be construed to limit or restrict the
Consultant or its affiliates from rendering such services or advice to others.
5. Consultant's Liability. In the absence of gross negligence
or willful misconduct on the part of the Consultant, or the Consultant's breach
of this Agreement, the Consultant shall not be liable to the Company, or to any
officer, director, employee, shareholder or creditor of the Company, for any act
or omission in the course of or in connection with the rendering or providing of
advice hereunder. Except in those cases where the gross negligence or willful
misconduct of the Consultant or the breach by the Consultant of this Agreement
is alleged and proven, the Company agrees to defend, indemnify and hold the
Consultant harmless from and against any and all reasonable costs, expenses and
liability (including, but not limited to, attorneys' fees paid in the defense of
the Consultant) which may in any way result from services rendered by the
Consultant pursuant to or in any connection with this Agreement.
6. Expenses. The Company, upon receipt of appropriate
supporting documentation, shall reimburse the Consultant for any and all
reasonable out-of-pocket expenses incurred by the Consultant in connection with
services rendered by the Consultant to the Company pursuant to this Agreement,
including, but not limited to, hotel, food and associated expenses, all charges
for travel and long-distance telephone calls and all other expenses incurred by
the Consultant in connection with services rendered by the Consultant to the
Company pursuant to this Agreement. Expenses payable under this Section 6 shall
not include allocable overhead expenses of the Consultant, including, but not
limited to, attorneys' fees, secretarial charges and rent.
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<PAGE>
7. Compensation. As compensation for the services to be
rendered by the Consultant to the Company pursuant to Section 3 hereof, the
Company shall pay the Consultant a financial consulting fee of two thousand
dollars ($2,000) per month for twenty-four (24) months commencing on ______ __
1996 [the effective date of the Registration Statement]. Forty-Eight Thousand
Dollars ($48,000), representing payment in full of all amounts due the
Consultant pursuant to this Section 7, shall be paid by the Company on _______
__, 1996 [the closing of the initial public offering].
8. Other Advice. In addition to the duties set out in Section
3 hereof, the Consultant agrees to furnish advice to the Company in connection
with the acquisition of and/or merger with other companies, joint ventures with
any third parties, license and royalty agreements and any other financing (other
than the private or public sale of the Company's securities for cash),
including, but not limited to, the sale of the Company itself (or any
significant percentage, subsidiaries or affiliates thereof).
In the event that any such transactions are directly or
indirectly originated by the Consultant for a period of five (5) years from the
date hereof, the Company shall pay fees to the Consultant as follows:
Legal Consideration Fee
------------------- -----
1. $ -0- - $3,000,000 5% of legal consideration
2. $ 3,000,001 - $4,000,000 Amount calculated pursuant to line 1
of this computation, plus 4% of
excess over $3,000,000
3. $ 4,000,001 - 5,000,000 Amount calculated pursuant to lines
1 and 2 of this computation, plus 3%
of excess over $4,000,000
4. above $ 5,000,000 Amount calculated pursuant to lines
1, 2 and 3 of this computation, plus
2% of excess over $5,000,000.
Legal consideration is defined, for purposes of this
Agreement, as the total of stock (valued at market on the day of closing, or if
there is no public market, valued as set forth herein for other property), cash
and assets and property or other benefits exchanged by the Company or received
by the Company or its shareholders (all valued at fair market value as agreed
or, if not, by any independent appraiser), irrespective of period of payment or
terms.
9. Sales or Distributions of Securities. If the Consultant
assists the Company in the sale or distribution of securities to the public or
in a private transaction, the Consultant shall receive fees in the amount and
form to be arranged separately at the time of such transaction.
3
<PAGE>
10. Form of Payment. All fees due to the Consultant pursuant
to Section 8 hereof are due and payable to the Consultant, in cash or by
certified check, at the closing or closings of a transaction specified in such
Section 8 or as otherwise agreed between the parties hereto; provided, however,
that in the case of license and royalty agreements specified in Section 8
hereof, the fees due the Consultant in receipt of such license and royalty
agreements shall be paid as and when license and/or royalty payments are
received by the Company. In the event that this Agreement shall not be renewed
for a period of at least twelve (12) months at the end of the five (5) year
period referred to in Section 8 hereof or if terminated for any reason prior to
the end of such five (5) year period then, notwithstanding any such non-renewal
or termination, the Consultant shall be entitled to the full fee for any
transaction contemplated under Section 8 hereof which closes within twelve (12)
months after such non-renewal or termination.
11. Limitation Upon the Use of Advice and Services.
(a) No person or entity, other than the Company or any of its
subsidiaries, shall be entitled to make use of or rely upon the advice of the
Consultant to be given hereunder, and the Company shall not transmit such advice
to others, or encourage or facilitate the use of or reliance upon such advice by
others, without the prior written consent of the Consultant.
(b) It is clearly understood that the Consultant, for services
rendered under this Agreement, makes no commitment whatsoever as to making a
market in the securities of the Company or to recommend or advise its clients to
purchase the securities of the Company. Research reports or corporate finance
reports that may be prepared by the Consultant will, when and if prepared, be
done solely on the merits or judgment of analysts of the Consultant or senior
corporate finance personnel of the Consultant.
(c) The use of the Consultant's name in any annual report or
other report of the Company, or any release or similar document prepared by or
on behalf of the Company, must have the prior written approval of the Consultant
unless the Company is required by law to include the Consultant's name in such
annual report, other report or release, in which event the Consultant will be
furnished with a copy of such annual report, other report or release using
Consultant's name in advance of publication by or on behalf of the Company.
(d) Should any purchases of securities be requested to be
effected through the Consultant by the Company, its officers, directors,
employees or other affiliates, or by any person on behalf of any profit sharing,
pension or similar plan of the Company, for the account of the Company or the
individuals or entities involved, such orders shall be taken by a registered
account executive of the Consultant, shall not be subject to the terms of this
Agreement, and the normal brokerage commission as charged by the Consultant will
apply in conformity with all rules and regulations of the New York Stock
Exchange, the National Association of Securities Dealers, Inc. or other
regulatory bodies. Where no regulatory body sets the fee, the normal established
fee as used by the Consultant shall apply.
4
<PAGE>
(e) The Consultant shall not disclose confidential information
which it learns about the Company as a result of its engagement hereunder,
except as such disclosure as may be required for Consultant to perform its
duties hereunder.
12. Indemnification. Since the Consultant will be acting on
behalf of the Company in connection with its engagement hereunder, the Company
and Consultant have entered into a separate indemnification agreement
substantially in the form attached hereto as Exhibit A and dated the date
hereof, providing for the indemnification of Consultant by the Company. The
Consultant has entered into this Agreement in reliance on the indemnities set
forth in such indemnification agreement.
13. Severability. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is deemed unlawful or
invalid for any reason whatsoever, such unlawfulness or invalidity shall not
affect the validity of the remainder of this Agreement.
14. Miscellaneous.
(a) Any notice or other communication between the parties
hereto shall be sent by certified or registered mail, postage prepaid, if to the
Company, addressed to it at 1 East Broward Boulevard, Suite 1100, Fort
Lauderdale, Florida 33301, Attention: Marc Duke, President and Chief Executive
Officer, with a copy to Camhy Karlinsky & Stein LLP, 1740 Broadway, Sixteenth
Floor, New York, New York 10019-4315, Attention: Robert S. Matlin, Esq., or, if
to the Consultant, addressed to it at 33 Maiden Lane, 8th Floor, New York, New
York 10038, Attention: Joseph Sorbara, Chief Executive Officer, with a copy to
Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Rubi Finkelstein, Esq., or to such address as may hereafter be
designated in writing by one party to the other. Such notice or other
communication shall be deemed to be given on the date of receipt.
(b) If, during the term hereof, the Consultant shall cease to
do business, the provisions hereof relating to the duties of the Consultant and
compensation by the Company as it applies to the Consultant shall thereupon
cease to be in effect, except for the Company's obligation of payment for
services rendered prior thereto. This Agreement shall survive any merger of,
acquisition of, or acquisition by the Consultant and, after any such merger or
acquisition, shall be binding upon the Company and the corporation surviving
such merger or acquisition.
(c) This Agreement embodies the entire agreement and
understanding between the Company and the Consultant and supersedes any and all
negotiations, prior discussions and preliminary and prior agreements and
understandings related to the central subject matter hereof.
(d) This Agreement has been duly authorized, executed and
delivered by and on behalf of the Company and the Consultant.
(e) This Agreement shall be construed and interpreted in
accordance with
5
<PAGE>
laws of the State of New York, without giving effect to conflicts of laws.
(f) This Agreement and the rights hereunder may not be
assigned by either party (except by operation of law) and shall be binding upon
and inure to the benefit of the parties and their respective successors, assigns
and legal representatives.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date hereof.
INNOPET BRANDS CORP.
By:
-----------------------------
Marc Duke
Chairman of the Board and
Chief Executiv Officer
JOSEPH STEVENS & COMPANY, L.P.
By:
-------------------------------
6
<PAGE>
EXHIBIT A
_________________, 1996
JOSEPH STEVENS & COMPANY, L.P
33 Maiden Lane
8th Floor
New York, New York 10038
Ladies and Gentlemen:
In connection with our engagement of JOSEPH STEVENS & COMPANY,
L.P. (the "Consultant") as our financial advisor and investment banker, we
hereby agree to indemnify and hold the Consultant and its affiliates, and the
directors, officers, partners, shareholders, agents and employees of the
Consultant (collectively the "Indemnified Persons"), harmless from and against
any and all claims, actions, suits, proceedings (including those of
shareholders), damages, liabilities and expenses incurred by any of them
(including, but not limited to, fees and expenses of counsel) which are (A)
related to or arise out of (i) any actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
us, or (ii) any actions taken or omitted to be taken by any Indemnified Person
in connection with our engagement of the Consultant pursuant to the Financial
Advisory and Consulting Agreement, of even date herewith, between the Consultant
and us (the "Consulting Agreement"), or (B) otherwise related to or arising out
of the Consultant's activities on our behalf pursuant to the Consultant's
engagement under the Consulting Agreement, and we shall reimburse any
Indemnified Person for all expenses (including, but not limited to, fees and
expenses of counsel) incurred by such Indemnified Person in connection with
investigating, preparing or defending any such claim, action, suit or proceeding
(collectively a "Claim"), whether or not in connection with pending or
threatened litigation in which any Indemnified Person is a party. We will not,
however, be responsible for any Claim which is finally judicially determined to
have resulted exclusively from the gross negligence or willful misconduct of any
person seeking indemnification hereunder. We further agree that no Indemnified
Person shall have any liability to us for or in connection with the Consultant's
engagement under the Consulting Agreement except for any Claim incurred by us
solely as a direct result of any Indemnified Person's gross negligence or
willful misconduct.
We further agree that we will not, without the prior written
consent of the Consultant settle, compromise or consent to the entry of any
judgment in any pending or threatened Claim in respect of which indemnification
may be sought hereunder (whether or not
<PAGE>
any Indemnified Person is an actual or potential party to such Claim), unless
such settlement, compromise or consent includes a legally binding,
unconditional, and irrevocable release of each Indemnified Person hereunder from
any and all liability arising out of such Claim.
Promptly upon receipt by an Indemnified Person of notice of
any complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution, but failure
to so notify us shall not relieve us from any obligation we may have hereunder,
unless, and only to the extent that, such failure results in the forfeiture by
us of substantial rights and defenses, and such failure to so notify us will not
in any event relieve us from any other obligation or liability we may have to
any Indemnified Person otherwise than under this Agreement. If we so elect or
are requested by such Indemnified Person, we will assume the defense of such
Claim, including the employment of counsel reasonably satisfactory to such
Indemnified Person and the payment of the fees and expenses of such counsel. In
the event, however, that such Indemnified Person reasonably determines in its
sole judgment that having common counsel would present such counsel with a
conflict of interest or such Indemnified Person concludes that there may be
legal defenses available to it or other Indemnified Persons different from or in
addition to those available to us, then such Indemnified Person may employ its
own separate counsel to represent or defend it in any such Claim and we shall
pay the reasonable fees and expenses of such counsel. Notwithstanding anything
herein to the contrary, if we fail timely or diligently to defend, contest, or
otherwise protect against any Claim, the relevant Indemnified Party shall have
the right, but not the obligation, to defend, contest, compromise, settle,
assert crossclaims or counterclaims, or otherwise protect against the same, and
shall be fully indemnified by us therefor, including, but not limited to, for
the fees and expenses of its counsel and all amounts paid as a result of such
Claim or the compromise or settlement thereof. In any Claim in which we assume
the defense, the Indemnified Person shall have the right to participate in such
defense and to retain its own counsel therefor at its own expense.
We agree that if any indemnity sought by an Indemnified Person
hereunder is held by a court to be unavailable for any reason, then (whether or
not the Consultant is the Indemnified Person) we and the Consultant shall
contribute to the Claim for which such indemnity is held unavailable in such
proportion as is appropriate to reflect the relative benefits to us, on the one
hand, and the Consultant, on the other, in connection with the Consultant's
engagement by us under the Consulting Agreement, subject to the limitation that
in no event shall the amount of the Consultant's contribution to such Claim
exceed the amount of fees actually received by the Consultant from us pursuant
to the Consultant's engagement under the Consulting Agreement. We hereby agree
that the relative benefits to us, on the one hand, and the Consultant, on the
other hand, with respect to the Consultant's engagement under the Consulting
Agreement shall be deemed to be in the same proportion as (a) the total value
paid or proposed to be paid or received by us or our stockholders as the case
may be, pursuant to the transaction (whether or not consummated) for which the
Consultant is engaged to render services bears to (b) the fee paid or proposed
to be paid to the Consultant in connection with such engagement.
2
<PAGE>
Our indemnity, reimbursement and contribution obligations
under this Agreement shall be in addition to, and shall in no way limit or
otherwise adversely affect any rights that an Indemnified Part may have at law
or at equity.
Should the Consultant, or any of its directors, officers,
partners, shareholders, agents or employees, be required or be requested by us
to provide documentary evidence or testimony in connection with any proceeding
arising from or relating to the Consultant's engagement under the Consulting
Agreement, we agree to pay all reasonable expenses (including but not limited to
fees and expenses of counsel) in complying therewith and one thousand dollars
($1,000) per day for any sworn testimony or preparation therefor, payable in
advance.
We hereby consent to personal jurisdiction and service of
process and venue in any court in which any claim for indemnity is brought by
any Indemnified Person.
It is understood that, in connection with the Consultant's
engagement under the Consulting Agreement, the Consultant may be engaged to act
in one or more additional capacities and that the terms of the original
engagement or any such additional engagement may be embodied in one or more
separate written agreements. The provisions of this Agreement shall apply to the
original engagement and any such additional engagement and shall remain in full
force and effect following the completion or termination of the Consultant's
engagement(s).
Very truly yours,
INNOPET BRANDS CORP.
By:
----------------------------
Marc Duke
Chairman of the Board and
Chief Executive Officer
CONFIRMED AND AGREED TO:
JOSEPH STEVENS & COMPANY, L.P.
By:
----------------------------
3
<PAGE>
INNOPET BRANDS CORP. Exhibit 11
(A Development Stage Enterprise)
STATEMENT RE: COMPUTATION OF NET LOSS PER COMMON SHARE
INCEPTION (JANUARY 11, 1996) TO JUNE 30, 1996
Net loss $(2,125,157)
Weighted average common shares outstanding 1,298,423
Adjustments to reflect requirements of the
Securities and Exchange Commission SAB 83:
Common stock issued to Parent and officers and
employees within the period 579,955
Total weighted average common shares and equivalents 1,878,378
Net loss per common share $ (1.13)
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated September 3, 1996 (which
report contains an explanatory paragraph that describes a condition that raises
substantial doubt as to the ability of the Company to continue as a going
concern) relating to the financial statements of InnoPet Brands Corp. appearing
in such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus.
RACHLIN COHEN & HOLTZ
Fort Lauderdale, Florida
September 18, 1996
