<PAGE>
As filed with the Securities and Exchange Commission on March 26, 1998
Registration No. 333-36755
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
to
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
INNOPET BRANDS CORP.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 2047 65-0639984
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
1 East Broward Boulevard, Suite 1100
Fort Lauderdale, Florida 33301
(954) 453-2400
(Address and Telephone Number of Principal Executive Offices)
---------------------
Marc Duke
Chief Executive Officer
1 East Broward Boulevard, Suite 1100
Fort Lauderdale, Florida 33301
(954) 453-2400
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(Name, Address and Telephone Number of Agent for Service)
Copies to:
Daniel I. DeWolf, Esq.
Willie E. Dennis, Esq.
Camhy Karlinsky & Stein LLP
1740 Broadway, 16th Floor
New York, New York 10019-4315
(212) 977-6600
---------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, 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 of
1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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. [ ]
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>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
Proposed Proposed
Maximum Maximum
Title Of Each Class Of Securities Amount To Be Offering Price Aggregate Offering Amount Of
To Be Registered Registered Per Share(1) Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value
(2) ................................. 7,184,241 shares $ 1.5313 $ 11,001,228.24 $ 3,245.36
- ------------------------------------------------------------------------------------------------------------------------
Redeemable Warrants .................. 768,200 $ 0.3750 $ 288,075.00 $ 84.98
- ------------------------------------------------------------------------------------------------------------------------
Common Stock underlying the
Redeemable Warrants (3) ............. 768,200 shares $ 6.00 $ 4,609,200.00 $ 1,359.71
- ------------------------------------------------------------------------------------------------------------------------
Total .................................................................... $ 15,898,503.24 $ 4,690.05(4)
========================================================================================================================
</TABLE>
(1) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933 (the "Act") on the basis of the
average of the bid and asked prices of the Common Stock and Redeemable
Warrants of InnoPet Brands Corp. as quoted on the OTC Electronic Bulletin
Board on March 23, 1998.
(2) Includes: (i) 1.0 million shares being registered for offer by the Company
in connection with (a) a proposed financing whereby the Company will issue a
total of $3.6 million of Common Stock over a twenty-four month period based
upon the payment of $150,000 each month and a per share purchase price equal
to 80% of the lowest closing bid price for the Common Stock for the twenty
trading days preceding each investment date, and (b) the grant by the
Company of an option to purchase up to a total of $50.0 million of Common
Stock over a twenty-four month period based upon a per share purchase price
equal to 85% of the lowest closing bid price for the Common Stock for the
five trading days preceding each investment date; (ii) 625,000 shares of
Common Stock being registered on behalf of an investor in a $2.5 million
private placement financing (which the Company completed on April 29, 1997
(the "Series A Private Placement")) which underlie 625,000 shares of Series
A 4% Cumulative Convertible Preferred Stock (the "Series A Preferred Stock")
which are convertible at any time, at the option of the holder, into shares
of Common Stock; (iii) 131,509 shares of Common Stock which will be issued
as a dividend on the Series A Preferred Stock, which pays a quarterly
dividend of 4% per annum (represents the aggregate dividend for a period
from the date of issuance through December 31, 1998) (such number of shares
to be registered is estimated based upon a per share purchase price equal to
the closing bid price as quoted on the OTC Electronic Bulletin Board on
March 23, 1998); (iv) 62,500 shares of Common Stock underlying an option for
62,500 shares of Series A Preferred Stock granted to the placement agent in
the Series A Private Placement; (v) 600,000 shares of Common Stock being
registered on behalf of a loan creditor, in connection with a $1.5 million
loan, which the Company completed on July 9, 1997 (the "Loan") which shares
were issued as security for the Loan; (vi) 23,334 shares of Common Stock to
be issued to the Loan creditor as interest on the Loan through its January
15, 1998 maturity date (the Company shall pay interest on the Loan at a rate
of 14% per annum and may, at the option of the Holder, pay the interest in
Common Stock valued at $4.50 per share); (vii) 2,222,222 shares of Common
Stock being registered on behalf of an investor in three private placement
financings which underlie 20,000 shares of Series B 8% Cumulative
Convertible Preferred Stock (the "Series B Preferred Stock"), which are
convertible at any time, at the option of the holder, into that number of
shares of Common Stock which is equal to $100 divided by 80% of the average
closing bid price for the Common Stock as quoted on the OTC Electronic
Bulletin Board for the five trading days preceding the date of conversion
(such number of shares to be registered is estimated upon the basis of a per
share purchase price equal to $100 divided by 80% of the closing bid price
for the Common Stock as quoted on the OTC Electronic Bulletin Board on March
23, 1998); (viii) 189,761 shares of Common Stock which will be issued as a
dividend on the Series B Preferred Stock, which pays a quarterly dividend of
8% per annum (represents the aggregate dividend for a period from the date
of issuance through December 31, 1998) (such number of shares to be
registered is estimated based upon a per share purchase price equal to the
lowest closing bid price for the Common Stock as quoted on the OTC
Electronic Bulletin Board on March 23, 1998) and (ix) 3,098,115 shares of
Common Stock being registered on behalf of certain other Securityholders.
(3) Pursuant to Rule 416, this Registration Statement is intended to include any
additional shares of Common Stock which may become issuable pursuant to the
antidilution provisions of the Redeemable Warrants.
(4) The Company has previously paid $2,361.79 in connection with the original
filing.
<PAGE>
INNOPET BRANDS CORP.
Shares of Common Stock and Redeemable Warrants
This Prospectus covers an aggregate of 7,952,441 shares of common stock,
par value $.01 per share (the "Common Stock") and 768,200 redeemable warrants
(the "Redeemable Warrants," collectively with the Common Stock hereinafter
sometimes referred to as the "Securities") of InnoPet Brands Corp, a Delaware
corporation (the "Company" or the "Registrant") which may be offered, from time
to time, by the Company, certain selling shareholders named herein (the "Selling
Securityholders") or by the transferees of the Selling Securityholders. The
Company is offering 1.0 million shares in connection with (i) a proposed
financing whereby the Company will issue a total of $3.6 million of Common Stock
to an investor based upon the payment, over a twenty-four month period, of
$150,000 each month, at a per share purchase price equal to 80% of the lowest
closing bid price for the Common Stock for the twenty trading days preceding the
date of issuance; provided, however, that if the average closing bid price for a
share of Common Stock for the five trading days preceding any investment date
falls below $2.00 per share, the investor will forgo funding such monthly
investment (the "Investment") and (ii) the grant by the Company of an option,
exercisable at any time within two years, to purchase up to $50.0 million of
Common Stock based upon a per share purchase price equal to 85% of the lowest
closing bid price for the Common Stock for the five trading days preceding the
date of issuance (the "Option"). The actual number of shares of Common Stock
offered by the Company will, in certain cases, be subject to increase or
decrease dependent upon the purchase price per share in effect on the actual
date of sale by the Company. The Company shall receive no part of the proceeds
of the sales by the Selling Securityholders, although the Company shall receive
proceeds upon the exercise of the Redeemable Warrants. See "Use of Proceeds."
The Company has agreed to pay all costs and expenses incurred in connection with
the registration of the Securities offered hereby, except that the Selling
Securityholders shall be responsible for all selling commissions, transfer
taxes, fees of counsel to the Selling Securityholders and related charges in
connection with the offer and sale of the Securities. See "Plan of
Distribution."
The Common Stock and Redeemable Warrants of the Company are quoted on the
OTC Electronic Bulletin Board under the symbols "INBC" and "INBCW",
respectively. On March 23, 1998, the closing bid price of the Company's Common
Stock and Redeemable Warrants as quoted on the OTC Electronic Bulletin Board
was $1.125 and $0.156, respectively. The Selling Securityholders may sell all
or a portion of the Securities offered hereby in private transactions or in the
over-the-counter market at prices related to the prevailing prices of the
Common Stock and Redeemable Warrants on Nasdaq at the time of sale. The Selling
Securityholders may effect such transactions by selling to or through one or
more broker-dealers, and such broker-dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Securityholders. The Selling Securityholders and any broker-dealers that
participate in the distribution may, under certain circumstances, be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), and any commissions received by such broker-dealers and
any profits realized on their resale of Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. The Company
and the Selling Securityholders may agree to indemnify such broker-dealers
against certain liabilities, including liabilities under the Securities Act. In
addition, the Company has agreed to indemnify the Selling Securityholders, with
respect to the registration of the Securities, against certain liabilities,
including certain liabilities under the Securities Act. To the extent required,
the specified number of Securities to be sold, the names of the Selling
Securityholders, the public offering price, the names of any such
broker-dealers, and any applicable commissions or discounts with respect to any
particular offer will be set forth in a supplement to this Prospectus. Each of
the Selling Securityholders reserves the right to accept or reject, in whole or
in part, any proposed purchase of the Securities. See "Plan of Distribution."
Any securities covered by this Prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than
pursuant to this Prospectus.
---------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON 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.
---------------------
March ___, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission" or "SEC"). Such reports,
proxy statements and other information filed by the Company can be inspected and
copied, at the prescribed rates, at the public reference facilities of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Northeast Regional Office of the Commission located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at the Midwest
Regional Office of the Commission located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies may be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address of
the Commission's Web site is http://www.sec.gov.
The Company has filed with the Commission, in Washington, D.C., a
Registration Statement on Form SB-2 (together with all amendments thereto, the
"Registration Statement"), under the Securities Act, with respect to the
Securities offered hereby. This Prospectus, filed as part of such Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules filed therewith, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any contract or other
document are not necessarily complete and, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being deemed to be qualified in its
entirety by such reference. The Registration Statement, including all exhibits
and schedules thereto, may be inspected, without charge, at the principal office
of the Commission, at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at the Midwest Regional Office of the Commission located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and at the Northeast Regional Office of the Commission located at
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon the payment of
the prescribed fees therefor.
This Prospectus contains certain forward-looking statements or statements
which may be deemed or construed to be forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the financial condition and business of the Company. The words "estimate,"
"plan," "intend," "expect" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements involve, and are
subject to, known and unknown risks (including the ones set forth below),
uncertainties and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ from the future
results, performance (financial or operating) or achievements expressed or
implied by such forward-looking statements. Investors are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
2
<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.
THE COMPANY
The Company produces, markets and sells premium dog food through
supermarkets and grocery stores under the name InnoPet Veterinarian Formula(TM)
Dog Food ("Veterinarian Formula"). In June 1996, the Company commenced sales of
its beef formula dog food to supermarkets in the Greater Metropolitan New York
area. As of March 6, 1998, the Company's products have been sold in the
following markets: the Greater Metropolitan New York area; the New England area;
Philadelphia, Pennsylvania and other areas of Pennsylvania; the Baltimore,
Maryland and Washington, D.C. area; Virginia; North Carolina; South Carolina;
Georgia; Alabama; Tennessee; Florida; and Texas.
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 to supermarkets a brand of
competitively-priced premium pet food to enable supermarkets to recapture a
share of the premium pet food market that they have lost to specialty pet
stores; (ii) expanding distribution to supermarkets and grocery stores
throughout the United States; (iii) increasing consumer awareness and market
penetration throughout the Company's market areas; and (iv) packaging its
products in unique single serving-sized inner- bags which are designed to
increase convenience of feeding, regulate portions, reduce product deterioration
and prevent contamination.
In June 1997, the Company began expansion of its line of dog foods with the
introduction of lamb and rice with barley formula in its existing markets. At
the same time, the Company also entered into long-term agreements with the North
Shore Animal League and Pet Savers Foundation, whereby Veterinarian Formula will
be exclusively fed to in-house dogs and recommended to adopters by both of these
not-for-profit humane organizations which place animals through thousands of
shelters each year. In addition, adopters will be provided with product samples,
literature and coupons, and will be able to purchase the products in retail
stores of some participating adoption centers. The Company was also recently
selected by The Kroger Co. ("Kroger"), one of the nation's largest supermarket
chains, to provide a full line of private label premium pet food to the chain's
approximately 1,300 retail outlets. This product line will initially target dog
owners; it is anticipated that cat food will be introduced at a later date. The
first products which the Company expects to introduce will be beef, lamb and
rice, and chicken-flavored dry dog foods. The Company anticipates that more than
ten stock keeping units will be brought to Kroger shelves in the first round of
product offerings.
The Company is in the process of implementing its overall marketing
strategy which commenced in February 1997. The Company's strategy is to provide
premium pet food products that are good for the pet and easy to use for the
owner. Programs include: radio and newspaper advertising; free-standing inserts;
in-store couponing; shopping cart signage and floorminders; trial size displays;
store feature ads and circulars; direct mail sampling programs to targeted
consumers, veterinarians and breeders; newspaper sample pouches; and extensive
in-store demonstrations with sampling. In addition, the Company participates in,
and supports with sampling, local pet-related events (e.g., pet walkathons, pet
shows, etc.) within its market areas, both independently and in conjunction with
local supermarkets.
3
<PAGE>
THE OFFERING
Securities Offered by the
Company................. 1.0 million shares of Common Stock(1)
Securities Offered by Selling
Security Holders........ 6,952,441 shares of Common Stock(2).
768,200 Redeemable Warrants.
Use of Proceeds.......... Assuming all payments are made in connection with
the Investment the Company will receive net proceeds
of approximately $3,510,310. Such net proceeds will
be used for repayment of existing debt and general
corporate purposes, including working capital. See
"Use of Proceeds."
Risk Factors............. The purchase of the Securities offered hereby
involves a high degree of risk. Prospective
investors should review carefully and consider the
information set forth under "Risk Factors."
- -------------
(1) Includes: 1.0 million shares being registered for offer by the Company in
connection with (i) a proposed financing whereby the Company will issue a
total of $3.6 million of Common Stock over a twenty-four month period based
upon the payment of $150,000 each month and a per share purchase price equal
to 80% of the lowest closing bid price for the Common Stock for the twenty
trading days preceding each investment date; and (ii) the grant by the
Company of an option to purchase up to a total of $50.0 million of Common
Stock over a twenty-four month period based upon a per share purchase price
equal to 85% of the lowest closing bid price for the Common Stock for the
five trading days preceding each investment date.
(2) Includes: (i) 625,000 shares of Common Stock being registered on behalf of
an investor in a $2.5 million private placement financing (the "Series A
Private Placement") which underlie 625,000 shares of Series A 4% Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock") which are
convertible at any time, at the option of the holder, into shares of Common
Stock; (ii) 131,509 shares of Common Stock which will be issued as a
dividend on the Series A Preferred Stock, which pays a quarterly dividend of
4% per annum (represents the aggregate dividend for a period from the date
of issuance through December 31, 1998, (such number of shares to be
registered is estimated based upon a per share purchase price equal to the
closing bid price as quoted on the OTC Electronic Bulletin Board on March
23, 1998); (iii) 62,500 shares of Common Stock underlying an option for
62,500 shares of Series A Preferred Stock granted to the placement agent in
the Series A Private Placement; (iv) 600,000 shares of Common Stock being
registered on behalf of a loan creditor in connection with a $1.5 million
loan which the Company completed on July 9, 1997 (the "Loan"), which shares
were issued as security for the Loan; (v) 23,334 shares of Common Stock to
be issued to the Loan creditor as interest on the loan through its January
15, 1998 maturity date (the Company shall pay interest on the Loan at a rate
at 14% per annum and may, at the option of the holder pay the interest in
Common Stock valued at $4.50 per share); (vi) 2,222,222 shares of Common
Stock being registered on behalf of an investor in three private placement
financings (the "Series B Private Placement"), which underlie 20,000 shares
of Series B 8% Cumulative Convertible Preferred Stock (the "Series B
Preferred Stock"), which are convertible at any time, at the option of the
holder, into that number of shares of Common Stock which is equal to $100
divided by 80% of the average closing bid price for the Common Stock as
quoted on the OTC Electronic Bulletin Board for the five trading days
preceding the date of conversion (such number of shares to be registered is
estimated based upon a per share purchase price equal to 80% of the closing
bid price as quoted on the OTC Electronic Bulletin Board on March 23, 1998);
(vii) 189,761 shares of Common Stock which will be issued as a dividend on
the Series B Preferred Stock for a period from the date of issuance through
December 31, 1998 (such
4
<PAGE>
number of shares to be registered is estimated based upon a per share
purchase price equal to the closing bid price as quoted on the OTC Electronic
Bulletin Board on March 23, 1998); and (viii) 3,098,115 shares of Common
Stock being registered on behalf of certain Securityholders.
5
<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.
<TABLE>
<CAPTION>
Inception
(January 11, 1996) (January 1, 1997)
to to
December 31, 1996 December 31, 1997
-------------------- ------------------
<S> <C> <C>
Statement of Operations Data:
Net sales .................................................... 1,859,936 3,066,489
Net loss ..................................................... (16,530,047) (10,011,743)
Net loss per common share .................................... (3.11) (2.24)
Weighted average number of common shares outstanding ......... 2,094,000 4,474,000
</TABLE>
As of As of
December 31, 1996 December 31,1997
------------------- -----------------
Balance Sheet Data:
Working capital .............. 4,113,187 (1,262,152)
Total assets ................. 7,566,713 5,565,933
Total liabilities ............ 3,023,689 5,741,433
Stockholders' equity ......... 4,533,024 (555,814)
6
<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 Securities involves a
high degree of risk, only investors who can accommodate such risks, including a
complete loss of their investment, should purchase the Securities. Each
prospective investor should carefully consider, in addition to the other
information contained in this Prospectus, the following information in
evaluating the Company and its business before making an investment decision.
This Prospectus contains certain forward-looking statements or statements which
may be deemed or construed to be forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition and business of the Company. The words "estimate," "plan,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements involve, and are
subject to, known and unknown risks (including the ones set forth below),
uncertainties and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ from the future
results, performance (financial or operating) or achievements expressed or
implied by such forward- looking statements. Investors are cautioned not to
place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to release publicly
any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Recent Delisting from Nasdaq Small-Cap Market for Failure to Meet Net
Tangible Assets Requirement. On March 20, 1998, the Company was delisted by the
Nasdaq Small-Cap Market ("Nasdaq") for failing to meet the current net tangible
asset requirement of Nasdaq, which is $2.0 million. As of December 31, 1997, the
Company had net tangible assets of $555,814. There can be no assurances that the
Company will in the future satisfy the net tangible assets requirement of
Nasdaq. The Company's securities as of March 23, 1998 are quoted on the OTC
Electronic Bulletin Board, an inter-dealer automated quotation system sponsored
and operated by the National Association of Securities Dealers ("NASD"). See
"Listing on OTC Electronic Bulletin Board; Disclosure Relating to Low Priced
Stocks."
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 limited 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 December 31, 1997,
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, has incurred a net loss and reflects
a deficit accumulated during this period of $16,530,047. The Company expects to
continue to incur losses at least through fiscal year 1998. 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,
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Need for Future Capital; Uncertainty of Additional Funding. In order to
accomplish its business objectives, the Company requires significant additional
financing. The Company is actively seeking such financing and if it is unable
to obtain it the Company will be required to substantially alter its business
objectives. 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 "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Default on Certain Obligations Relating to Short Term Debt. On July 9,
1997, the Company issued a senior convertible note to Entrepreneurial
Investors, Ltd., ("EIL") a Bahamas corporation and principal stockholder of the
Company, in the principal amount of $1.5 million (the "Senior Note"). The
Senior Note has a stated interest rate of 14% per annum and matured on January
15, 1998. To date, the Company has not made any payment of principal or
interest under the Senior Note and is in default on the Senior Note. On March
16, 1998,
7
<PAGE>
EIL commenced an action against the Company in the Court of Chancery of the
State of Delaware in and for New Castle County seeking specific performance of
the Company's obligation to register shares of Common Stock which were issued as
collateral for such Note. The action is currently in its preliminary stage.
Although the Company denies liability, it is contemplated that the Registration
Statement filed in connection with this Prospectus, in the form that it becomes
effective, will satisfy EIL's claims as asserted in the Court of Chancery. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and "Business -- Litigation".
On January 28, 1998, the Company issued to Interbank Special Purpose
Corporation II ("IBF") a secured promissory note in the principal amount of
$762,500 (the "IBF Note"). The IBF Note bears interest at the rate of 1.5% per
month (18% per annum) and matures on April 28, 1998. Interest on the IBF Note
is payable on a monthly basis. The IBF Note is secured by, among other things,
all inventory, equipment, vehicles, accounts receivables, trade names and
trademarks of the Company (the "Collateral"). As of the date hereof, the
Company has failed to make interest payments totalling $12,200 to IBF. On March
17, 1998, IBF declared the IBF Note to be in default and accelerated the
payments due thereunder. IBF also made a written demand requesting that the
Company immediately deliver to IBF the Collateral. The Company intends to use a
portion of the proceeds received from the Investment to pay the principal,
outstanding interest and fees on the IBF Notes. See "Management's Discussion
Analysis of Financial Condition and Results of Operations."
Uncertainty of Completion of the Investment. Pursuant to the terms of a
subscription agreement (the "Subscription Agreement") between the Company and
HSBC James Capel Canada, Inc. ("HSBC") the Company will issue a total of $3.6
million of Common Stock over a twenty-four month period based upon the payment
of $150,000 each month. The Subscription Agreement provides however that HSBC
will forego funding the monthly investment in the event that the average
closing bid price for a share of Common Stock as quoted on the OTC Bulletin
Board for the five trading days preceding any monthly investment falls below
$2.00 per share. On March 23, 1998, the closing bid price for a share of Common
Stock as quoted on the OTC Bulletin Board was $1.125. There can be no
assurances that the closing bid price for a share of Common Stock will equal or
exceed $2.00 in the future. If the Investment is not completed, the Company
will receive significantly less proceeds than is estimated in this Prospectus.
As a result, the financial condition and results of operations of the Company
could be materially adversely affected.
Uncertainty of Exercise of Option; Insufficient Common Stock
Available. Although the Company has granted to HSBC an option to purchase up to
$50 million of Common Stock, there can be no assurances that HSBC will ever
exercise such option. In addition, in the event that the option is exercised in
full, the Company does not presently have a sufficient number of authorized and
unissued shares to issue. The Company anticipates seeking shareholders approval
to amend its certificate of incorporation accordingly. The amendment of the
certificate of incorporation requires affirmative vote of a majority of all
issued and outstanding shares entitled to vote. There can be no asurances that
such amendment will be effected.
New Product Introductions. The Company's success with its new line of
private label premium pet food is dependent upon its ability to market and
deliver this new product. As is typical with new products, demand for and
market acceptance of new products introduced by the Company are subject to
uncertainty. Achieving market acceptance for new products may require
substantial marketing and other efforts and the expenditure of significant
funds to create customer demand. There can be no assurance that the Company's
efforts will be successful. In addition, the failure of new products to gain
sufficient market acceptance could adversely affect the image of the Company's
brand name and demand for other products of the Company.
Highly Competitive Nature of the Pet Food Business. 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 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
Veterinarian Formula, 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, there can
8
<PAGE>
be no assurance that this situation will continue. In addition, no barriers to
entry exist with respect to such brands. 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. See
"Business -- Competition."
Ability of the Company to Control the Costs of Raw Materials, Manufacturing
and Packaging. 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, unless terminated earlier by
either party on 60 days notice. 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, would 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."
Broad Discretion Over Application of Proceds. The Company intends to use
approximately $3,510,310 of the estimated net proceeds to repay outstanding
indebtedness and the balance for general corporate purposes, including working
capital. See "Use of Proceeds." Although the Company's current estimate as to
the amount of such net proceeds that will be used for each such other purpose is
set forth under "Use of Proceeds," the Company reserves the right to change the
amount of such net proceeds that will be used for any purpose to the extent that
management determines that such change is advisable. Consequently, management of
the Company will have broad discretion in determining the manner in which the
net proceeds are applied.
The Company's Ability to Manage Growth Effectively. The Company's planned
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
9
<PAGE>
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "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 success of the Company is also
dependent upon its ability to hire and retain qualified 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 InnoPet Inc.
("IPI") and its subsidiaries. IPI is the former parent company of the Company
and is its largest shareholder. As of March 23, 1998, IPI owns 1,611,899 shares
of Common Stock, which represents 32.7% of the shares outstanding. Although his
employment agreement requires him to devote substantially his full time and
attention to the Company, there can be no assurance that 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 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. It is the responsibility of the Company's manufacturers to obtain
and maintain the manufacturing approvals. The Company's labels 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. 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. Mr. Duke, through his position at IPI,
and by proxies granted to him, has voting power over 2,263,391 shares of Common
Stock (40.8% of such shares). Accordingly, he may be able to control the
election of all of the Company's directors and otherwise may control most
matters requiring approval by the stockholders of the Company, including
approval of significant corporate transactions. See "Principal Stockholders."
Absence of Dividends on Common Stock. The Company has not paid any cash
dividends on its Common Stock and does not expect to do so in the foreseeable
future. The Company is required to pay a quarterly dividend equal to 4% per
annum payable in shares of Common Stock, on its Series A Preferred Stock and a
quarterly
10
<PAGE>
dividend, payable in shares of Common Stock or in cash at the sole option of
the Company, equal to 8% per annum on its Series B Preferred Stock. As of the
date hereof, the Company has not issued any shares of Common Stock in
connection with the payment of dividends on the Series A and Series B Preferred
Stock. 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. As
of March 25, 1998, 625,000 shares of Series A Preferred Stock and 20,000 shares
of Series B Preferred Stock have been issued and are outstanding and options to
purchase an additional 62,500 shares of Series A Preferred Stock have been
granted. 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 right 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."
Listing on OTC Electronic Bulletin Board; Disclosure Relating to Low Priced
Stocks. The Securities are quoted on the OTC Electronic Bulletin Board, an NASD
sponsored and operated inter-dealer automated quotation system for equity
securities. The OTC Electronic Bulletin Board was introduced [seven] years ago
as an alternative to the NQB Pink sheets published by the National quotation
Bureau Incorporated for the trading of over-the-counter securities. There can be
no assurance that the OTC Electronic Bulletin Board will be recognized by the
brokerage community as an accepted alternative to quotation on Nasdaq or in the
NQB Pink Sheets. In the absence of such recognition, the liquidity and stock
price of the Securities in the secondary market may be adversely affected, and
there can be no assurance that a public market for the Securities will be
sustained.
The Securities are also 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 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 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 SEC, any equity
security not traded on an exchange or quoted on Nasdaq 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 Securities and the
ability of purchasers to sell their Securities in the secondary market.
THE COMPANY
The Company was incorporated under the laws of the State of Delaware on
January 11, 1996. 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) 453-2400. The Company's Web Site is
http://www.innopet.com.
USE OF PROCEEDS
Assuming all payments are made in connection with the Investment the
Company will receive net proceeds (after deduction of estimated offering
expenses payable by the Company) of approximately $3,510,310. The Company
expects to use the net proceeds from this offering for: (i) repayment in full to
Inter Bank Special Purpose Corporation II of existing debt, bearing interest at
1.5% monthly maturing on April 28, 1998, which the Company estimates will be
$858,200; (ii) repayment of existing notes issued in December, 1997 and
February,
11
<PAGE>
1998, bearing interest at 10% per annum and maturing 90 days from the respective
dates of issuance, which the Company estimates will be $433,000; and (iii)
general corporate purposes, including working capital. Pending their application
as described above, such proceeds will be invested in short-term, investment
grade, interest-bearing securities.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Securityholders, except that the Company will receive proceeds upon
the exercise of the Redeemable Warrants. See "Selling Securityholders."
PRICE RANGE OF COMMON STOCK
AND REDEEMABLE WARRANTS
The Common Stock and Redeemable Warrants are currently quoted on the OTC
Electronic Bulletin Board under the symbols "INBC" and "INBCW", respectively. On
March 20, 1998, the Company's Securities were delisted from Nasdaq. See "Risk
Factors -- Recent Delisting from Nasdaq Small-Cap Market for Failure to Meet Net
Tangible Assets Requirement." The following table sets forth for the fiscal
periods indicated (beginning with the date of the Company's initial public
offering) the high and low bid price information for the Common Stock and
Redeemable Warrants as quoted on the OTC Electronic Bulletin Board.
<TABLE>
<CAPTION>
Common Stock Redeemable Warrants
High Bid Low Bid High Bid Low Bid
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
First Quarter ............................. $ 6.125 $ 4.000 $ 2.375 $ 1.375
Second Quarter ............................ $ 5.875 $ 4.250 $ 2.250 $ 1.125
Third Quarter ............................. $ 6.125 $ 4.250 $ 2.125 $ 1.000
Fourth Quarter ............................ $ 5.375 $ 3.875 $ 1.750 $ 0.812
------- ------- ------- -------
Year Ended December 31, 1996:
December 5, 1996 through year end ......... $ 6.000 $ 4.000 $ 2.375 $ 1.375
</TABLE>
On March 23, 1998, the closing bid price as quoted by the OTC Electronic
Bulletin Board for the Common Stock and Redeemable Warrants were $1.125 and
$0.1563, respectively. As of March 6, 1998, there were 40 holders of record of
the Common Stock and 27 holders of record of the Redeemable Warrants.
There is no public trading market for any of the Company's preferred stock.
12
<PAGE>
DIVIDEND POLICY
The Company has never 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. The Company's Series A Preferred Stock pays a dividend equal to 4%
per annum. The dividend is payable by the issuance of shares of Common Stock.
The number of shares to be issued as a dividend is determined based on the
average closing bid price for a share of Common Stock as quoted on the OTC
Electronic Bulletin Board for the 20 trading days preceding the record date for
the declaration of the dividend. The Company's Series B Preferred Stock pays a
cumulative dividend equal to 8% per annum, payable, at the Company's sole
option, by the issuance of shares of Common Stock, or in cash. The number of
shares to be issued as a dividend is equal to the amount of the dividend accrued
divided by the average closing bid price of the Common Stock as quoted on the
OTC Electronic Bulletin Board for the 5 trading days preceding the record date
for the declaration of the dividend.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 on a historical and a pro forma basis (see Note 15q Notes to
Financial Statements). This table should be reviewed in conjunction with the
Company's financial statements and related notes appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
As of
December 31, 1997 Pro Forma
Historical Adjusted
------------------- ----------------
<S> <C> <C>
Short Term Debt
Notes payable to EIL ..................................... $1,500,000 $ --
Notes payable to IBF ..................................... 262,500 262,500
Notes payable to Curi Oil Co. LLC ........................ 100,000 100,000
Less: Unamortized Discount ............................... (146,103) (146,103)
--------- --------
Total Short Term Debt ................................. 1,716,397 216,397
========= ========
Long Term Debt
Notes to IPI ............................................. 159,000 159,000
Capital Lease Obligations ................................ 16,500 16,500
--------- --------
Total Long Term Debt .................................. 175,500 175,500
--------- --------
Stockholder's equity (deficiency):
Series A 4% convertible preferred stock, $.01 par
value; issued and outstanding 625,000 shares; stated
at liquidation value .................................... 2,500,000 2,500,000
Series B 8% convertible preferred stock, $100 par
value; issued and outstanding 10,000 shares; stated
at liquidation value .................................... 1,000,000 2,000,000
Common Stock, $.01 par value; authorized
25,000,000 shares; issued and outstanding
4,927,768 shares ........................................ 49,287 55,287
Additional paid-in capital ............................... 14,702,788 16,301,788
Deficit accumulated during the development stage ......... (16,530,047) (16,530,047)
Notes and interest receivable on sale of common stock (2,274,606) (2,274,606)
Treasury stock at cost ................................... (3,236) (3,236)
----------- -----------
Total stockholders' equity (deficiency) ............... (555,814) 2,049,186
----------- -----------
Total capitalization ........................................ $ (380,314) $ 2,224,686
============= =============
</TABLE>
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data for the two year period ended December 31,
1997 are derived from the Company's financial statements audited by Rachlin
Cohen & Holtz, independent certified public accountants. The results for the
period which ended December 31, 1997 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
Inception
(January 11, 1996)
Year Ended to
December 31, 1997 December 31, 1996
------------------- -------------------
<S> <C> <C>
Statement of Operations Data:
Revenue .................................................. $ 3,066,489 $ 1,859,936
Cost of sales ............................................ 2,183,275 1,498,486
------------- ------------
Gross profit ............................................. 883,214 361,450
Sales, general and administrative expenses:
Marketing and Distribution ............................ 6,077,555 3,140,114
Product development ................................... 434,334 584,976
General and administrative ............................ 3,751,917 1,782,795
------------- ------------
Operating loss ........................................... (10,263,806) (5,146,436)
Interest, financing and other costs and expenses ......... (631,151) (1,371,868)
------------- ------------
Net loss ................................................. $ (10,011,743) $ (6,518,304)
............................................... .........
Net loss per common share ................................ $ (2.24) $ (3.11)
Common shares outstanding ................................ 4,474,000 2,094,000
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1997
-------------------
<S> <C>
Balance Sheet Data:
Working capital ................................................ $ (1,262,152)
Total assets ................................................... 5,565,933
Long term debt, note payable to IPI (1996), IPI note and capital
lease obligation (1997) ....................................... 175,500
Total liabilities ........................................... 5,741,433
Stockholders' equity ........................................... (555,814)
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
Overview
The Company produces, markets and sells premium dog food through
supermarkets and grocery stores under the name InnoPet Veterinarian Formula(TM)
Dog Food. The Company was created on January 11, 1996 to acquire the KenVet
Nutritional Care Line of dog and cat foods from a subsidiary of ConAgra.
The Company's objective is to become a national provider of premium pet
foods through supermarket and grocery store outlets. The Company intends to
achieve its objective by: (1) providing supermarkets a brand of
competitively-priced premium pet food to enable supermarkets to recapture a
share of the premium pet food market they have lost to specialty pet stores;
(ii) expanding distribution to supermarkets and grocery stores throughout the
United States; (iii) increasing consumer awareness and market penetration
throughout the Company's market areas; and (iv) packaging its products in
unique single serving-sized inner-bags which are designed to increase
convenience of feeding, regulate portions, reduce product deterioration and
prevent contamination. The Company's strategy is to provide premium pet food
products that are good for the pet and easy to use for the owner.
Since 1988, supermarkets' share of pet food sales in the United States has
fallen from 95% to 58%, mainly due to increased sales of premium pet foods
through specialty pet stores. Until the introduction of Veterinarian Formula,
premium pet foods, which represent approximately 20% of the total pet food
market, were not available in supermarkets. The Company believes that the
availability of a full line of premium pet foods at supermarkets will allow
supermarkets to stop the erosion of their market share and perhaps allow them
to recapture market share.
In June 1996, the Company commenced sales of its beef formula dog food to
supermarkets in the Greater Metropolitan New York area. As of March 6, 1998,
the Company's products have been sold in the following markets: the Greater
Metropolitan New York area; the New England area; Philadelphia, Pennsylvania
and other areas of Pennsylvania; the Baltimore, Maryland and Washington D.C.
area; Virginia; North Carolina; South Carolina; Georgia; Alabama; Tennessee;
Florida; and Texas.
During the next twelve months the Company anticipates that it will
increase its penetration into supermarkets throughout the central and western
United States. During 1998, the Company plans to increase its lamb and rice
flavor dog food offering to 9 stock keeping units ("SKUs"), and to introduce 4
SKUs each of liver flavor and chicken flavor cat food. Additionally, the
Company plans to commence its first shipment of private label product, in April
1998. The Company was selected by The Kroger Co. ("Kroger"), one of the
nation's largest supermarket chains, to provide a full line of private label
premium pet food to the chain's approximately 1,300 retail outlets. This
product line will initially target dog owners; it is anticipated that cat food
will be introduced at a later date. The first products which the Company
expects to introduce will be beef, lamb and rice, and chicken flavor dry dog
foods. The Company anticipates that more than ten SKUs will be brought to
Kroger shelves in the first round of product offerings.
Results of Operations
1997 Compared to 1996
Net Loss. The Company reported a net loss of $10,011,743, or ($2.24) per
share in 1997, an increase of 54% from a net loss of $6,518,304 for the initial
period of operations, from inception (January 11, 1996) through December 31,
1996 (the "prior period"). The 1997 net loss resulted chiefly from substantial
costs of marketing and expansion during this period, as the Company expanded
into new markets in the eastern portion of the United States.
Revenues. Revenues increased 65% to $3,066,489 during 1997, from
$1,859,936 in 1996. Revenue increases resulted from expansion markets
throughout the eastern United States, as well as increased penetration
16
<PAGE>
in markets entered during the prior period (Greater New York Metropolitan area
and Philadelphia). Cost of sales totaled $2,183,275 in 1997, an increase of 46%
from $1,498,486 for the prior period. Gross profit margin of 29% was increased
from the prior period, reflecting substantial improvements in manufacturing and
logistics efficiency.
Operating Expenses. Costs and expenses for the period totaled $10,263,806
in 1997 versus $5,507,886 for the prior period. These costs and expenses are
detailed below.
Marketing and Distribution Expenses. Marketing and distribution expenses of
$6,077,555 increased 94% versus $3,140,127 for the prior period. The 1997
marketing and distribution expenses includes sales department expense of
approximately $675,000 (including 5% broker commissions), slotting allowances of
approximately $1,244,000, and distribution expense of approximately $484,000.
The Company incurred substantial marketing costs in support of the introduction
of its products.
Product Development Expenses. Product development expenses, including
personnel and related costs, were $434,334, or 26% less than the $584,976
incurred during the prior period. This reflects the 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.
General and Administrative Expenses. General and administrative expenses
were $3,751,917, or 110% greater than the $1,782,796 incurred during the prior
period. These 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 $944,000,
approximately $244,000 of depreciation and amortization of intangibles (formulae
acquisition costs and the ConAgra non-complete agreement), $594,000 in bad debt
expense, and $439,000 in outside legal and professional fees.
Interest and Financing Costs. Interest and financing costs totaled
$631,151, or 54% less than the $1,371,868 incurred during the prior period.
These were primarily $470,372 amortization of original issue discount associated
with the Entrepreneurial Investors, Ltd. borrowing, and approximately $190,000
in other interest expense. The prior period included amortization of financing
costs associated with the start-up of the business, which were fully amortized
during 1996.
Income Taxes
Net Operating losses generated in fiscal 1997 will be carried forward and
utilized to offset future income tax expense. The Company has a net operating
loss carryforward of approximately $16,500,000 for federal income tax purposes
at December 31, 1997. This net operating loss carryforward will be subject to
annual limitations in future periods pursuant to the "change in ownership" rules
under Section 382 of the Internal Revenue Code of 1986, as amended. The
Company's utilization of its tax benefit carryforward may be further restricted
in the event of subsequent changes in ownership.
Liquidity and Capital Resources
Working Capital. At December 31, 1997, the Company had working capital
deficit of $1,262,152, compared to working capital of $4,113,187 at December 31,
1996. The change in working capital was primarily due to the loss incurred in
the current period, partially offset by the sale of Series A 4% Cumulative
Convertible Preferred Stock on April 29, 1997 and the sale of Series B
Cumulative Convertible Preferred Stock on December 18, 1997.
Cash Flow. In 1997, the Company had net cash used by operating activities
of $8,680,394. The primary uses of cash were the net loss incurred for the
period, combined with increased inventories and accounts receivable.
The Company had net cash used by investing activities of $379,907. The
primary use of cash was for acquisition of property and equipment.
17
<PAGE>
The net cash provided from financing activities reflects the net proceeds
of a $2,500,000 private placement, a $1,000,000 private placement, and
short-term loans. The $2,500,000 private placement consisted of the sale of
625,000 shares of the Company's Series A 4% Cumulative Convertible Preferred
Stock, par value $.01 per share, at $4.00 per share. The net proceeds from the
sale approximated $1,988,000. The $1,000,000 private placement consisted of the
sale of 10,000 shares of the Company's Series B 8% Cumulative Convertible
Preferred Stock, par value $100 per share. The net proceeds from the sale
approximated $1,000,000 The short-term loans carry interest notes of between
10% and 18% per annum and mature through April 30, 1998.
The Company entered into an Exchange Agreement with InnoPet Inc. ("IPI")
to convert $1,317,531 of its debt to IPI, consisting of $641,000 principal of
an existing $800,000 note payable, $132,702.97 in interest and $543,828.42 in
current accounts payable, in exchange for 396,847 shares of the Company's
Common Stock, par value $.01 per share, at $3.32 per share.
The proceeds of these offerings were used for the purchase of inventory
(includes raw materials, manufacturing and packaging), expansion of
distribution (includes marketing allowances supporting supermarket distribution
and slotting allowances), increases in marketing (includes advertising,
in-store coupons, floor walker displays, direct sampling programs and in-store
demonstrations), product development (including palatability and
bioavailablility tests of products to be introduced during the next year, as
well as pilot manufacturing runs) and working capital.
Default on Short-Term Debt Obligations
The Company is in default of certain short-term debt obligations in the
aggregate amount of approximately $2.5 million. On July 9, 1997, the Company
issued a senior convertible note to Entrepreneurial Investors, Ltd., ("EIL") a
Bahamas corporation and principal stockholder of the Company, in the principal
amount of $1.5 million (the "Senior Note"). The Senior Note has a stated
interest rate of 14% per annum and matured on January 15, 1998. To date, the
Company has not made any payment of principal or interest under the Senior Note
and is in default on the Senior Note. On March 16, 1998, EIL commenced an action
against the Company in the Court of Chancery of the State of Delaware in and for
New Castle County seeking specific performance of the Company's obligation to
register shares of Common Stock which were issued as collateral for such Note.
The action is currently in its preliminary stage. Although the Company denies
liability, it is contemplated that the Registration Statement filed in
connection with this Prospectus, in the form that it becomes effective, will
satisfy EIL's claims as asserted in the Court of Chancery. See "Business --
Litigation".
On January 28, 1998, the Company issued to Interbank Special Purpose
Corporation II ("IBF") a secured promissory note in the principal amount of
$762,500 (the "IBF Note"). The IBF Note bears interest at the rate of 1.5% per
month (18% per annum) and matures on April 28, 1998. Interest on the IBF Note
is payable on a monthly basis. The IBF Note is secured by, among other things,
all inventory, equipment, vehicles, accounts receivables, trade names and
trademarks of the Company (the "Collateral"). As of the date hereof, the
Company has failed to make interest payments totalling $12,200 to IBF. On March
17, 1998, IBF declared the IBF Note to be in default and accelerated the
payments due thereunder. IBF also made a written demand requesting that the
Company immediately deliver to IBF the Collateral. The Company intends to use a
portion of the proceeds received from the Investment to pay the principal,
outstanding interest and fees on the IBF Notes. See "Management's Discussion
Analysis of Financial Condition and Results of Operations." In order to remedy
such default and achieve its financial plan, the Company is seeking additional
funding, which may consist of debt, equity or a combination thereof. If the
Company is unable to obtain additional funding, the Company will be required to
modify its current business plan. There can be no assurance that the Company
will be able to obtain such additional funding. The Company has discussed
working capital financing with banks and factors. There can be no assurance that
any credit facility will be available to the Company, or if available, that it
will be available on acceptable terms.
On December 31, 1997, stockholders' equity approximated $(555,814) and
working capital deficit approximated $1,262,152.
Readiness for the Year 2000
The Company has taken actions to make its systems, products and
infrastructure Year 2000 compliant. The Company is also beginning to inquire as
to the status of its key suppliers and vendors with respect to the Year 2000.
The Company believes it is taking the necessary steps to resolve Year 2000
issues, however, there can be no assurance that a failure to resolve any such
issue would not have a material adverse effect. Management believes, based on
available information, that it will be able to manage its total Year 2000
transition without any material adverse effect on its business operations,
products or financial prospects.
18
<PAGE>
BUSINESS
The Company
The Company produces, markets and sells premium dog food through
supermarkets and grocery stores under the name InnoPet Veterinarian Formula(TM)
Dog Food ("Veterinarian Formula"). In June 1996, the Company commenced sales of
its beef formula dog food to supermarkets in the Greater Metropolitan New York
area. As of March 6, 1998, the Company's products have been sold in the
following markets: the Greater Metropolitan New York area; the New England area;
Philadelphia, Pennsylvania and other areas of Pennsylvania; the Baltimore,
Maryland and Washington, D.C. area; Virginia; North Carolina; South Carolina;
Georgia; Alabama; Tennessee; Florida; and Texas.
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 to supermarkets a brand of
competitively-priced premium pet food to enable supermarkets to recapture a
share of the premium pet food market that they have lost to specialty pet
stores; (ii) expanding distribution to supermarkets and grocery stores
throughout the United States; (iii) increasing consumer awareness and market
penetration throughout the Company's market areas; and (iv) packaging its
products in unique single serving-sized inner-bags which are designed to
increase convenience of feeding, regulate portions, reduce product deterioration
and prevent contamination.
In June 1997, the Company began expansion of its line of dog foods with the
introduction of lamb and rice with barley formula in its existing markets. At
the same time, the Company also entered into long-term agreements with the North
Shore Animal League and the Pet Savers Foundation, whereby InnoPet Veterinarian
Foods will be exclusively fed to in-house dogs and recommended to adopters by
both of these not-for-profit humane organizations which adopt out animals
through thousands of shelters each year. In addition, adopters will be provided
with product samples, literature and coupons, and will be able to purchase the
products in retail stores of some participating adoption centers.
The Company was recently selected by The Kroger Co. ("Kroger"), one of the
nation's largest supermarket chains, to provide a full line of private label
premium pet food to the chain's approximately 1,300 retail outlets. This product
line will initially target dog owners; it is anticipated that cat food will be
introduced at a later date. The first products which the Company expects to
introduce will be beef, lamb and rice, and chicken-flavored dry dog foods. The
Company anticipates that more than ten stock keeping units ("SKUs") will be
brought to Kroger shelves in the first round of product offerings.
The Company is in the process of implementing its overall marketing
strategy, which commenced in February 1997. The Company's strategy is to provide
premium pet food products that are good for the pet and easy for the owner.
Programs include: radio and newspaper advertising; free-standing inserts;
in-store couponing, shopping cart signage and floorminders; trial size displays;
store feature ads and circulars; direct mail sampling programs to targeted
consumers, veterinarians and breeders; newspaper sample pouches; and extensive
in-store demonstrations with sampling. In addition, the Company participates in,
and supports with sampling, local pet-related events (e.g., pet walkathons, pet
shows, etc.) within its market area, both independently and in conjunction with
local supermarkets.
Industry Background
In 1996, approximately 53 million United States households, or over
one-half of all United States households, owned at least one pet; over half of
these pet-owning households owned more than one pet.1 Retail sales of pet food
in the United States in 1996 were approximately $9.4 billion (an increase of 3%
over 1995), of which approximately 25% was estimated to be premium pet food.(1)
The Company believes sales of premium pet food
- ------------
1. This information is derived from The Maxwell Consumer Report, Wheat First
Butcher Singer (June 25, 1997 and May 24, 1996); J. Palmer, Well, Aren't You
the Cat's Meow, Barron's, April 1, 1996 at p.29; and Packaged Facts for the
Pet Food Market (February 1997 and February 1996); The Information Catalogue,
Marketing Intelligence Studies, Find/SVP Worldwide Consulting Research and
Advisory Services (1997 and 1996, respectively).
19
<PAGE>
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.(1) From 1988 to 1996, however, the percentage of pet food sales made
through supermarkets and grocery stores decreased from approximately 95% to 56%,
mainly due to increased sales of premium pet foods through specialty pet
stores.(1) These premium pet foods are currently not available to supermarkets
and grocery stores. Between 1989 and 1996, sales of pet foods through outlets
other than the supermarket/grocery store segment rose approximately 103%.(1)
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. The Company believes that manufacturers of
premium pet foods have not supplied supermarkets and grocery stores in order to
preserve their primary distribution channel, the specialty pet store. Market
research commissioned by the Company, and conducted by Bruskin Goldring
Research, indicates that approximately one-half of households in the United
States with one or more dogs would be likely to try a line of premium dog food
if it were available in supermarkets.
Products
In January 1996, the Company acquired from a subsidiary of ConAgra the
formulas for 51 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. Further, the Company repackaged and repositioned the
product for sales in the supermarkets. 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 12 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. Both beef and lamb and rice with
barley products are available for adult dogs and beef product is available for
puppies and seniors. The outer bag sizes are 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 puppy and senior lamb and rice with
barley formulas, 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
20
<PAGE>
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' desire for the convenience of purchasing a premium pet
food in the supermarket. The Company currently sells its products primarily
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 premium 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. Similar research conducted under the auspices of Woman's
Day Magazine in June 1997, concerning the willingness of consumers to try such
product, resulted with 60% or more positive responses.
The Company generates brand awareness of its products through integrated
marketing communications programs. The Company plans to use in-store promotions,
such as floorminders, trial size displays, in-store sampling, instantly
redeemable coupons and point of purchase displays. The Company also uses free
standing inserts in newspapers and mails product samples, literature and coupons
to demographically targeted consumers, veterinarians and breeders. 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.
As an additional marketing tool, in June 1997, the Company became the pet
food partner of the North Shore Animal League of Long Island ("NSAL") and the
international Pet Savers Foundation, which NSAL administers. This program, which
had featured Iams products for several years, targets 6,000 animal shelters,
accounting for 2.5 million pet adoptions annually, where the Company's products
are exclusively fed to sheltered animals, given away as a free sample when a dog
or cat is adopted and sold in over 400 animal shelter store participating in the
pet Savers program. The Company views this program, which is structured under a
multi-year contract (due to expire in 2002) as a vital way to introduce pet
owners to the Company's products at the earliest possible point in pet ownership
and, in addition, as a valuable sales channel.
The Company's suggested retail prices for its products are approximately
15% below comparable specialty pet store prices for premium brands and are
significantly higher than the highest priced branded products sold through the
supermarkets, thereby providing supermarkets with a higher profit margin with
the Company's products than with other pet food products.
In March 1996, the Company began contacting supermarkets in the Greater
Metropolitan New York area which, eventually, 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 March 6, 1998, the
Company's products have been sold in the following markets: the Greater
Metropolitan New York area; the New England area; Philadelphia, Pennsylvania and
other areas of Pennsylvania; the Baltimore, Maryland and Washington, D.C. area;
Virginia; North Carolina; South Carolina; Georgia; Alabama; Tennessee; Florida;
and Texas.
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
21
<PAGE>
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, all of whom are
paid on a commission basis, on an exclusive basis with respect to premium pet
food.
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 supermarkets.
The Company outsources the manufacturing, packaging and transporting of its
products. The Company does not maintain supply agreements with any 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'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, unless terminated earlier by either party on 60 days notice.
This agreement provides for the delivery of up to 15 million pounds of beef per
year at a fixed price. The fixed price is comparable to current beef prices.
Accordingly, if beef prices fall, the Company will be able to terminate the
agreement. Conversely, if beef prices increase, Monfort will be able to
terminate the agreement. In addition, 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, would 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.
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
22
<PAGE>
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. It is expected that the
advertisements of North Shore Animal League and the Pet Savers Foundation will
partially offset this concern. In addition, the Company competes with current
supermarket high-priced dog foods which are not considered premium when compared
to Veterinarian Formula 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, there can be no assurance that
this will continue. In addition, no barriers to entry exist with respect to such
brands. 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 with other premium
products. There can be no assurance, however, that these perceived advantages
will enable the Company to compete successfully.
Intellectual Property
InnoPet is a registered trademark of the Company. The Company has filed
applications for trademarks covering 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. The Company believes
it is in material compliance with such regulations.
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 March 6, 1998, the Company employed 35 people, one of whom is
employed on a part time basis. This includes ten persons engaged in sales, eight
in marketing, four in manufacturing/research and development, and 13 in
administration/accounting and support. Management believes its labor relations
are satisfactory.
Litigation
On March 16, 1998, Entrepreneurial Investors, Ltd., a Bahamas company
("EIL"), commenced an action against the Company in the Court of Chancery of the
State of Delaware in and for New Castle County, seeking specific performance of
the Company's obligations under a registration rights agreement dated April 28,
1997 (the "Registration Rights Agreement"), and a bridge loan agreement, dated
July 9, 1997 (the "Loan Agreement"). The Complaint alleges that the Company had
an obligation to register shares of Common Stock underlying 625,000 shares of
the Company's Series A Convertible Preferred Stock purchased by EIL pursuant to
a subscription agreement dated as of April 28, 1997, in exchange for $2.5
million. The complaint further alleges that the Company is obligated to register
certain securities, including shares of Common Stock relating to Warrants
acquired by EIL.
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<PAGE>
The action is currently in its preliminary stages. Although the Company
denies liability, it is contemplated that this Registration Statement, in the
form that it becomes effective, will satisfy all of EIL's claims as asserted in
the Court of Chancery thereby rendering that action moot.
On December 22, 1997, Ryt-Way Industries, Inc. d/b/a Ryt-way Packaging
Company commenced an action against the Company in the District Court, State of
Minnesota, for alleged non-payment for packaging services. Plaintiff seeks money
damages of $119,084.33, plus interest. Plaintiff filed a motion for summary
judgment on the ground of account stated. The Company filed a cross-motion for
lack of personal jurisdiction and opposed the motion by plaintiff for sumamry
judgment. The Company previously answered the complaint, denying all liability,
and asserted counter-claims.
Properties
The Company currently leases from IPI under a facilities agreement its
corporate office located at 1 East Broward Boulevard, Suite 1100, Fort
Lauderdale, Florida 33301, where the Company occupies approximately 11,900
square feet of office space. The monthly rent is approximately $22,650. The
facilities agreement with respect to the offices expires April 30, 2001. See
"Certain Transactions." The Company believes it has adequate space to conduct
its operations.
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MANAGEMENT
The following table sets forth certain information with respect to the
Company's Directors and Executive Officers:
<TABLE>
<CAPTION>
Company Position
Name Age and Offices Held
- ---- ----- ------------------------------------------------------
<S> <C> <C>
Marc Duke 51 Chairman of the Board and Chief Executive Officer
John Bieber 53 Vice President of Marketing and Director
Albert A. Masters 66 Vice President, Private Label Sales and Director
Linda Duke 51 Vice President of Operations
Michael L. Winer 38 Vice President, Chief Financial Officer and Secretary
Curtis Granet 48 Director
Richard P. Greene 41 Director
Burnett W. Donoho 58 Director
</TABLE>
Marc Duke is the Chairman of the Board of Directors and Chief Executive
Officer of the Company and has held such positions since January 1996. He is
also the Chairman of the Board of Directors and Chief Executive Officer of IPI
and its subsidiaries, and has held such positions since September 1995. From
1993 to 1995, he was President of The Original Pet Drink Company, a subsidiary
of IPI. From 1990 to 1992, he was President of Madison South International, Inc.
("Madison"), a national and international marketing consulting company.
John Bieber is the Vice President of Marketing of the Company and has held
such position since January 1997. From 1990 to 1996 Mr. Bieber was an
independent marketing consultant. From April 1989 to January 1990, he was
President and Chief Operating Officer of the MD&A Group, Inc. ("MD&A"), an
advertising and marketing consulting firm. From 1987 to 1989, Mr. Bieber was
Vice President and Director of Account Services with MD&A. From 1976 to 1986,
Mr. Bieber was Vice President/Account Supervisor with BBDO Advertising Inc.
Albert A. Masters is the Vice President, Private Label Sales of the Company
and has held such position since June 1996. From September 1995 to May 1996, Mr.
Masters was the Vice President of Sales of IPI. From 1991 to 1995, he was a Vice
President of Sales for Professional Laboratory Systems.
Linda Duke is Vice President of Operations and has held such position since
June 1996. From September 1995 to May 1996, she was the Director of Operations
for IPI. From 1993 to 1995, she was the Director of Operations for The Original
Pet Drink Company. From 1990 to 1992 she was Vice President of Operations of
Madison. Linda Duke is married to Marc Duke.
Michael L. Winer is Vice President, Chief Financial Officer and Secretary
of the Company and has held such positions since October 1997. From March 1997
to September 1997, Mr. Winer was the Executive Vice President of Operations and
Finance for L. Luria's & Sons, Inc., a retail chain. From March 1996 to
February 1997, Mr. Winer was Chief Financial Officer/Comptroller of CardioLife
Corporation, a healthcare company. From June 1987 to March 1996, Mr. Winer
served as Assistant Vice President of Finance (1987-1992), and later Vice
President of Finance (1992-1996) for several subsidiaries of Citibank, N.A. and
Citicorp, Inc. Mr. Winer holds Certified Public Accountant, Certified
Management Accountant, and Certified in Financial Management credentials.
Curtis Granet is a partner in the certified public accounting firm of
Levine & Granet, C.P.A. in the State of New York, and has held such position
since 1981.
Richard P. Greene is an attorney engaged in the practice of corporate and
securities law in the State of Florida and has maintained his own practice since
1988. He is the Secretary of IPI.
Burnett W. Donoho has 33 years of experience in top positions in retailing,
more recently as Vice Chairman and Chief Operating Officer of Montgomery Ward.
From June 1995 to January 1996, Mr. Donoho served as a consultant and chief
operating officer of Broadway, a retail chain. From July 1992 to December 1994,
Mr. Donoho served as the Vice Chairman and Chief Operating Officer of Macy's
East. Prior to that he had also served as President and Chief Executive Officer
of Marshall Field in Chicago and Gimbel's Midwest in Milwaukee.
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<PAGE>
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 Company's Stock Option 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 began in November 1997.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following table sets forth certain information for the fiscal year
ended December 31, 1997 with respect to the compensation earned by the Company's
Chief Executive Officer. No other executive officers received salary and bonus
compensation for the fiscal year ended December 31, 1997 exceeding $100,000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------------------------- -------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation Options Compensation
- ----------------------------- ------ ----------- ------- ---------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marc Duke, 1997 $150,000 -0- $ 12,000(1) -0- -0-
Chief Executive Officer
</TABLE>
- ------------
(1) Represents car allowance payments to Mr. Duke.
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements
The following is a description of the employment contracts between the
Company and its executive officers. In June 1997, the Company and each executive
officer, other than the current Chief Financial Officer, agreed to reduce
immediately each executive's salary by 25%. As of March 23, 1998 this reduction
in base salary was still in place.
The Company has entered into an employment agreement with Mr. Marc Duke,
Chief Executive Officer, which expires on May 31, 2000. Mr. Duke currently
receives a base salary of $250,000. Under the terms of the agreement, Mr. Duke
is eligible to receive a bonus of up to 25% of his base salary at the discretion
of the Board of Directors and a performance bonus to be determined each year by
the Board of Directors. If the agreement is terminated by the Company without
cause, he is entitled to receive three times his average annual salary over the
course of the previous 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
previous 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 contains certain restrictions on
competition.
The Company entered into an employment agreement with Mr. John Bieber, Vice
President of Marketing, as of January 6, 1997, which expires on December 31,
1999. The agreement will automatically renew for one (1) additional year unless
terminated by the Company or Mr. Bieber. Mr. Bieber currently receives a base
salary of $100,000. Under the terms of the agreement, Mr. Bieber is eligible to
receive a merit bonus at the discretion of the Board of Directors. The agreement
provides that if Mr. Bieber 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. As part of the agreement, Mr.
Bieber has been granted options to purchase 25,000 shares of Common Stock of the
Company. The options vest over three years beginning on December 31, 1997. The
agreement also contains certain restrictions on competition.
The Company has entered into an employment agreement with Ms. Linda Duke,
Vice President of Operations. The agreement expires on May 31, 1999 and
contains an automatic renewal for one (1) additional year
26
<PAGE>
unless terminated by the Company or Ms. Duke. Ms. Duke currently receives a
base salary of $82,500. Under the terms of the agreement, Ms. Duke is eligible
to receive a merit bonus at the discretion of the Board of Directors. The
agreement provides that if Ms. Duke is terminated without cause, she is
entitled to receive a severance payment equal to six months of her annual
salary payable over the six months following her termination. The agreement
also contains certain restrictions on competition.
The Company has entered into an employment agreement with Mr. Michael
Winer, Vice President and Chief Financial Officer. The agreement expires on
December 31, 2000 and contains an automatic renewal for one (1) additional year
unless terminated by the Company or Mr. Winer. Mr. Winer currently receives a
base salary of $104,000. Under the terms of the agreement, Mr. Winer is eligible
to receive a merit bonus at the discretion of the Board of Directors. Mr.
Winer's base salary will increase by $25,000 when the Company reports net income
after taxes, in accordance with generally accepted accounting principles
consistently applied, for three (3) consecutive calendar months. The agreement
provides that if Mr. Winer 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 agreement also contains
certain restrictions on competition.
The Company has entered into an employment agreement with Mr. Albert
Masters, Vice President, Private Label Sales. The agreement expires on May 31,
1999 and contains an automatic renewal for one (1) additional year unless
terminated by the Company or Mr. Masters. Mr. Masters currently receives a base
salary of $104,000. Under the terms of the agreement, Mr. Masters is eligible
to receive a merit bonus at the discretion of the Board of Directors. The
agreement provides that if Mr. Masters 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 agreement
also contains certain restrictions on competition.
27
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
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.
The Company has acquired directors' and officers' liability insurance
providing aggregate coverage of $5,000,000.
28
<PAGE>
STOCK OPTION PLAN
A total of 400,000 shares of Common Stock are reserved for issuance under
the Stock Option Plan, of which 168,500 have been granted as of March 23, 1998.
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 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.
29
<PAGE>
CERTAIN TRANSACTIONS
Capital for the development of the Company has been provided by IPI. From
January 1996 through August 31, 1996, IPI made capital contributions of
$2,221,348 in the form of costs and expenses ($1,323,125), funds used to
purchase the KenVet formulations and inventories ($699,794), and financing costs
($198,429). In return, IPI received 1,182,432 shares of Common Stock.
Additionally, on June 1, 1996, the Company sold 43,497 shares of Common Stock to
IPI in exchange for $139,190. Mr. Duke is the principal shareholder of IPI.
The Company also issued a note, dated June 5, 1996, to IPI in the amount of
$1,000,000 (the "IPI Note") which bears interest at one percent above the prime
rate (on March 6, 1998 the prime rate was 8.50%). The IPI Note has a term of
five years. Interest is payable quarterly and principal is payable annually. On
June 1, 1996, the Company entered into a facilities agreement with IPI (the
"Facilities Agreement") pursuant to which the Company has agreed to lease its
offices, furnishings and equipment from IPI until April 30, 2001. The Company is
required to pay an annual amount of approximately $349,000 to IPI 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. In addition, through December 23, 1997, IPI also provided $724,394 in
working capital for inventories, costs and expenses, which were recorded as
accounts payable by the Company. As of December 23, 1997, the balance payable
for IPI was $543,828, reflecting the above working capital advances plus
balances due less amounts paid under the facilities agreement.
In August 1997, IPI cancelled $91,000 of debt owed to it as consideration
for the issuance of 26,000 shares of Common Stock by the Company in settlement
of claims brought against IPI and the Company by certain investors.
On December 23, 1997 the Company entered into an exchange agreement with
IPI (the "Exchange Agreement") pursuant to which, (i) principal and accrued
interest in the aggregate amount of $773,702.97 payable pursuant to the IPI Note
and (ii) accounts payable in the amount of $543,828.42, pursuant to the
Facilities Agreement (collectively, the "Debt") was satisfied in exchange for
Common Stock of the Company. On January 30, 1998 and February 26, 1998, the
Company issued and delivered to IPI, and IPI accepted 317,478 and 79,329 shares
of Common Stock, respectively, and discharged the Debt. Pursuant to the terms of
the Exchange Agreement, the number of shares of Common Stock delivered to IPI
was that number of shares of Common Stock equal to the sum of the Debt divided
by a number equal to eighty percent (80%) of the average closing bid price for a
share of Common Stock as reported on the Nasdaq Small-Cap Market for the five
(5) trading days immediately preceding the December 31, 1997 closing date (the
"Exchange Rate"). Pursuant to the Exchange Agreement, the Exchange Rate shall be
adjusted such that if, at any time during the one year period following the
closing date, the average closing bid price for a share of the Company's Common
Stock, as quoted on the OTC Electronic Bulletin Board, is less than or equal to
$2.50 per share of Common Stock for forty-five (45) consecutive days, the
Company shall issue to IPI additional shares of Common Stock equal to the
difference between (a) the number of shares of Common Stock which would have
resulted if the Debt had been exchanged at an Exchange Rate of $2.50 and (b) the
number of the shares previously issued.
On July 9, 1997, the Company issued a senior convertible note (the "Note")
to Entrepreneurial Investors, Ltd. ("EIL"), a Bahamas corporation and principal
stockholder of the Company, in the principal amount of $1.5 million. The Note
has a stated interest rate of 14% per annum and matured on January 15, 1998,
such interest to be paid, at the option of the holder, in Common Stock valued at
$4.50 per share. The Note is collateralized by 600,000 shares of Common Stock
being registered in this offering and may be converted, at the option of EIL,
into Common Stock at a conversion price of $4.50 per share. EIL has taken
possession of the collateral and commenced an action for specific performance
demanding, among other items, that such collateral be registered. See "Business
- -- Litigation". In connection with the loan, the Company issued 225,000
Redeemable Warrants to purchase 225,000 shares of Common Stock to EIL.
On December 18, 1997 the Company entered into a private placement of up to
$4.0 million, consisting of the sale of shares of 8% Series B Cumulative
Convertible Preferred Stock of the Company (the "Series B Preferred Stock") at
$100 per share, to Explorer Partners LLC ("Explorer"). Explorer purchased
10,000, 2,000 and 8,000 shares of the Series B Preferred on December 18, 1997,
February 20, 1998 and March 18, 1998, respectively. Net proceeds to the Company
to date from such private placement are approximately $2.0 million. In
30
<PAGE>
accordance with the Company's December 17, 1997 Certificate of Designation, each
share of Series B Preferred Stock is convertible at any time, at the option of
the holder thereof, into that number of shares of Common Stock which is equal to
$100 divided by 80% of the average closing bid price for a share of Common Stock
as quoted on the OTC Electronic Bulletin Board for the five trading days
preceding the conversion date, provided that such conversion price shall not
exceed $6.00 per share of Common Stock. The Series B Preferred Stock pays a
quarterly dividend of 8% per annum, and is payable, at the Company's sole
option, in cash or by the issuance of shares of Common Stock. The number of
shares of Common Stock to be issued as a dividend shall be determined based upon
the average closing bid price for a share of Common Stock as quoted on the OTC
Electronic Bulletin Board for the five trading days preceding the last day of
the calendar quarter for the applicable dividend period. In connection with the
private placement, the Company issued 40,000, 8,000 and 32,000 Redeemable
Warrants to Explorer Fund Management, L.L.C. on December 18, 1997, February 20,
1998 and March 18, 1998, respectively.
On June 1, 1996, the Company sold a total of 652,449 shares of Common Stock
to Messrs. Duke and Masters and Ms. Duke and to 14 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. On February 6, 1998,
Dana Vaughn, a former vice president of the Company, assigned his shares of
Common Stock (86,993 issued in connection with the delivery of a promissory
note) and all the rights and obligations of the promissory note securing such
shares to Michael Winer and John Bieber.
On December 4, 1997, the Company completed a private placement of 4 units
(the "Units") to Curi Oil Co. LLC, each Unit consisting of a promissory note of
the Company in the principal amount of $25,000, bearing interest at the rate of
10% per annum and maturing 90 days from the date of issuance, and redeemable
warrants to purchase 30,000 shares of Common Stock, expiring on December 5,
2001, at an exercise price of $6.00 per share. Curtis Granet, a director of the
Company, holds a 40% membership interest in Curi Oil Co. LLC, and received
10,000 Redeemable Warrants in connection with the private placement.
Richard Greene is a Director of the Company. The Company has paid Mr.
Greene approximately $96,446 for various legal and other services which he has
provided to the Company.
Mr. Duke is the Chief Executive Officer, Chairman of the Board of
Directors and a significant shareholder in IPI as well as an officer of the
three other subsidiaries of IPI. 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."
All completed, on-going and future transactions between the Company and its
officers, directors, principal stockholders or other affiliates have been and
will be on terms no less favorable to the Company then could be obtained from
unaffiliated third parties on an arm's-length basis, and will be approved by a
majority of the Company's independent and disinterested directors.
31
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 6, 1998 (i) by each person
who is known by the Company to beneficially own more than 5% of the Company's
Common Stock, fully diluted, (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. The table assumes that
5,553,169 shares of Common Stock are outstanding as of March 6, 1998.
<TABLE>
<CAPTION>
Name and Address of Number of Shares
Beneficial Owner (1) Beneficially Owned Percentage (2)
- --------------------------------- -------------------------- ---------------
<S> <C> <C>
Marc Duke 2,263,391(3) 40.8%
John Bieber 48,497(4) *
Albert A. Masters 43,497 *
Michael L. Winer 43,496
Linda Duke 34,797
Richard Greene 5,000 (4) *
Curtis Granet 120,000 (5) 2.1%
Burnett W. Donoho 100,000 (6) 1.8%
InnoPet Inc. 1,611,899 29.5%
One East Broward Boulevard
Fort Lauderdale,
Florida 33301
Entrepreneurial Investors, Ltd. 1,604,843 (7) 22.4%
Citibank Building
East Mall Drive
Freeport, Bahamas
Joseph Stevens & Company, L.P. 450,000 (8) 7.5%
33 Maiden Lane
New York, New York
Explorer Partners LLC 2,411,983 (9) 30.3%
444 N. Michigan Avenue
Suite 2910
Chicago, Illinois 60611
HSBC James Capel Canada, Inc. 1,000,000 (10) 15.3%
105 Adelaide Street West
Suite 1200
Toronto, Ontario M5H 1P9
Canada
All Officers and Directors 2,493,391 43.1%
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 233,926 shares of Common Stock owned by management and current and
former employees of the Company (including 34,797 shares owned by Linda
Duke, Mr. Duke's wife) of which Mr. Duke has been granted a proxy to vote
the shares. This number also includes 1,611,899 shares of Common Stock owned
by IPI as to which Mr. Duke disclaims beneficial ownership. Mr. Duke is the
record owner of 417,566 shares of Common Stock.
32
<PAGE>
(4) Includes 5,000 shares of Common Stock that may be acquired upon the
exercise of a presently exercisable option.
(5) Includes 120,000 shares held by Curi Oil LLC. Mr. Granet is one of two
members of this limited liability company and owns a 40% membership
interest therein.
(6) Includes 100,000 shares of Common Stock that may be acquired upon the
exercise of a presently exercisable option.
(7) This number includes: (i) 625,000 shares of Common Stock issuable upon
conversion of 625,000 shares of Series A Preferred Stock at a conversion
ratio of one share of Common Stock for one share of Series A Preferred
Stock; (ii) 131,509 shares of Common Stock which will be issued as a
dividend on the Series A Preferred Stock (represents the aggregate 4%
dividend for a period of one year from the date of issuance assuming a
price of $1.125, representing the closing bid price for the Common Stock of
the Company as quoted on the OTC Electronic Bulletin Board on March 23,
1998); (iii) 225,000 shares of Common Stock underlying 225,000 currently
exercisable Redeemable Warrants; (iv) 600,000 shares of Common Stock being
registered in connection with a $1.5 million loan (the "Loan") pursuant to
which such shares were issued as security; and (v) 23,334 shares of Common
Stock to be issued as interest on the Loan through January 15, 1998.
(8) Consists of (i) 225,000 shares of Common Stock which may be acquired, upon
the exercise of warrants to purchase 225,000 units, each unit consisting of
one share of Common Stock and one warrant to purchase one share of Common
Stock for $8.70 per share; and (ii) 225,000 shares of Common Stock
underlying the warrants that may be acquired upon the exercise of the
warrant to purchase the units.
(9) Represents: (i) 2,222,222 shares of Common Stock issuable upon conversion
of 20,000 shares of Series B Preferred Stock at a conversion price of $100
divided by $0.90 (represents 80% of the closing bid price for the Common
Stock of the Company on the OTC Electronic Bulletin Board on March 23,
1998); and (ii) 189,761 shares of Common Stock which will be issued as a
dividend on the Series B Preferred Stock (represents the aggregate 8%
dividend for a period from the date of issuance through December 31, 1998,
assuming a price of $1.125, representing the closing bid price for the
Common Stock of the Company on the OTC Electronic Bulletin Board on March
23, 1998).
(10) Includes 1,000,000 shares of Common Stock being registered for offer by the
Company in connection with (i) a proposed financing whereby the Company
will issue a total of $3.6 million of Common Stock over a twenty-four month
period based upon the payment of $150,000 each month at a per share
purchase price equal to 80% of the lowest closing bid price for the Common
Stock for the twenty trading days preceding each investment date; and (ii)
the grant by the Company of an option to purchase up to a total of $50.0
million of Common Stock over a twenty-four month period commencing on the
date of this offering based upon a per share purchase price equal to 85% of
the lowest closing bid price for the Common Stock for the five trading days
preceding each investment date.
33
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the number of shares of Common Stock and
Redeemable Warrants covered by this Prospectus with respect to each Selling
Securityholder, and the amount and percentage ownership of each Selling
Securityholder after the offering of the Securities offered hereby, assuming all
of the Securities covered by this Prospectus are sold by the Selling
Shareholders. Except as otherwise indicated by footnote below, none of the
Selling Securityholders has had any position, office or other material
relationship with the Company within the past three years, other than as a
result of the ownership of the Securities or other securities of the Company.
<TABLE>
<CAPTION>
Common Stock Redeemable Warrants
---------------------------------------- ----------------------------------
Number Owned Number Owned
Prior to and Percent of Prior to and Percent of
Registered in Class After Registered in Class After
Name of Selling Securityholder the Offering the Offering (1) the Offering the Offering(1)
- --------------------------------- ------------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C>
Explorer Partners LLC 2,411,983 (2) 0% -- 0%
InnoPet, Inc. (3) 1,611,899 (4)(5) 0% -- 0%
Entrepreneurial Investors, Ltd. 1,604,843 (6) 0% 225,000 0%
HSBC James Capel Canada, Inc. 1,000,000 (7) 0% -- 0%
Marc Duke (8) 417,566 (4) 0% -- 0%
Curi Oil LLC (9) 120,000 (10) 0% 120,000 0%
Coleman and Company Securities,
Inc. 100,000 (11) 0% 100,000 0%
Manuel Arvesu 85,000 (12) 0% 75,000 0%
Explorer Fund Management LLC 80,000 (13) 0% 80,000 0%
Equity Services, Ltd. 62,500 (14) 0% -- 0%
Rafael Pratts, Jr. 50,000 (15) 0% 50,000 0%
John Bieber (16) 43,497 (17)(4) 0% -- 0%
Albert A. Masters (18) 43,497 (4) 0% -- 0%
Michael L. Winer (19) 43,496 (17)(4) 0% -- 0%
National Securities Corp. 40,000 0% -- 0%
Linda Duke (20) 34,797 (4) 0% -- 0%
Ted Benghiat 25,000 (21) 0% 25,000 0%
Lynn M. Esco 25,000 (21) 0% 25,000 0%
Joaquin Soler 25,000 (21) 0% 25,000 0%
Southlake Trading 25,000 (21) 0% 25,000 0%
Eric Zurbuchen 17,399 (4) 0% -- 0%
Charles Johnston 13,000 (22) 0% -- 0%
Beverage Canners International
Corporation 10,877 (23) 0% -- 0%
Manuel Arvesu & Maria Celeste
Arvesu, Trustees for Julian
Arvesu 10,000 (22) 0% -- 0%
Carl Levine 10,000 (24) 0% 10,000 0%
Oppenheimer FBO Ronald Rust 6,500 (22) 0% -- 0%
Ashley Rust 5,000 (22) 0% -- 0%
MW Houck 4,444 0% -- 0%
Joanne & Howard Brandish Trust 3,400 (25) 0% 1,600 0%
Mark Houzer 3,000 (26) 0% 1,500 0%
John Quigley 2,600 (27) 0% 1,300 0%
Robert C. Lammert & Kathleen E.
Lammert 2,000 (28) 0% 1,000 0%
Steven A. Werber 2,000 (28) 0% 1,000 0%
Susan Leonhardt 1,740 (4) 0% -- 0%
Margaret Rust 1,500 (22) 0% -- 0%
John Jablonski 1,305 (4) 0% -- 0%
Will Berry 1,000 (29) 0% 500 0%
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Common Stock Redeemable Warrants
-------------------------------------- ----------------------------------
Number Owned Number Owned
Prior to and Percent of Prior to and Percent of
Registered in Class After Registered in Class After
Name of Selling Securityholder the Offering the Offering (1) the Offering the Offering(1)
- ---------------------------------- ----------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C>
Salvatore J. Mancuso 1,000 0% -- 0%
Michael Patoff 1,000 (28) 0% 1,000 0%
Henry Ford 783 (4) 0% -- 0%
Tara Slack 783 (4) 0% -- 0%
Deardra Thompson 783 (4) 0% -- 0%
Francis Rufty, Custodian for Sara
F. Parkton 600 (30) 0% 300 0%
Michael Zealy 522 (4) 0% -- 0%
David Santos 435 (4) 0% -- 0%
Mary Lou Bole 348 (4) 0% -- 0%
Gabriel Iglesias 300 0% -- 0%
James Kane 261 (4) 0% -- 0%
Pamela Medlin 261 (4) 0% -- 0%
Mary Huff 174 (4) 0% -- 0%
Michelle Raglind 174 (4) 0% -- 0%
Eve Uydess 174 (4) 0% -- 0%
</TABLE>
- ------------
(1) Assumes no purchase by any Selling Securityholder of any Common Stock or
Redeemable Warrants in the offering.
(2) This number represents: (i) 2,222,222 shares of Common Stock issuable upon
conversion of 20,000 shares of Series B Preferred Stock at a conversion rate
of $100 divided by $0.90 (represents 80% of the closing bid price for the
Common Stock of the Company on the OTC Electronic Bulletin Board on March
23, 1998); and (ii) 189,761 shares of Common Stock which will be issued as a
dividend on the Series B Preferred Stock (represents the aggregate 8%
dividend for a period from the date of issuance through December 31, 1998,
assuming a price of $1.125, representing the closing bid price for the
Common Stock of the Company on the OTC Electronic Bulletin Board on March
23, 1998).
(3) The Company was incorporated on January 11, 1996 as a wholly-owned
subsidiary of InnoPet, Inc. ("IPI"). From inception until approximately June
30, 1996, substantially all of the Company's costs and expenses, and the
acquisition of the Company's assets, were paid or incurred on behalf of the
Company by its parent, IPI.
(4) Each of the Company's officers, directors, stockholders and holders of
warrants at the time of the Company's initial public offering (December 5,
1996) agreed that for a period of 18 months from December 5, 1996, they will
not sell any of the Company's securities without the consent of the
underwriter of the initial public offering.
(5) Excludes 10,877 shares of Common Stock which IPI has agreed to transfer to
Beverage Canners International Corporation.
(6) This number includes: (i) 625,000 shares of Common Stock issuable upon
conversion of 625,000 shares of Series A Preferred Stock at a conversion
ratio of one share of Common Stock for one share of Series A Preferred
Stock; (ii) 131,509 shares of Common Stock which will be issued as a
dividend on the Series A Preferred Stock (represents the aggregate 4%
dividend for a period of one year from the date of issuance assuming a price
of $1.125, representing the closing bid price for the Common Stock of the
Company as quoted on the OTC Electronic Bulletin Board on March 23, 1998);
(iii) 225,000 shares of Common Stock underlying 225,000 currently
exercisable Redeemable Warrants; (iv) 600,000 shares of Common Stock being
registered in connection with a $1.5 million loan (the "Loan") pursuant to
which such shares were issued as security; and (v) 23,334 shares of Common
Stock to be issued as interest on the Loan through January 15, 1998.
(7) Includes 1,000,000 shares of Common Stock being registered for offer by the
Company in connection with (i) a proposed financing whereby the Company will
issue a total of $3.6 million of Common Stock over a
35
<PAGE>
twenty-four month period based upon the payment of $150,000 each month at a
per share purchase price equal to 80% of the lowest closing bid price for
the Common Stock for the twenty trading days preceding each investment
date; and (ii) the grant by the Company of an option to purchase up to a
total of $50.0 million of Common Stock over a twenty-four month period
commencing on the date of this offering based upon a per share purchase
price equal to 85% of the lowest closing bid price for the Common Stock for
the five trading days preceding each investment date.
(8) Marc Duke is Chairman of the Board and Chief Executive Officer of the
Company and has been Chairman of the Board and Chief Executive Officer of
IPI since September, 1995.
(9) Curtis Granet, a director of the Company since June, 1996, is one of two
members of this limited liability company and owns a 40% percent membership
interest therein.
(10) Includes 120,000 shares of Common Stock underlying 120,000 Redeemable
Warrants.
(11) Includes 100,000 shares of Common Stock underlying 100,000 Redeemable
Warrants.
(12) Includes 75,000 shares of Common Stock underlying 75,000 Redeemable
Warrants.
(13) Includes 80,000 shares of Common Stock underlying 80,000 Redeemable
Warrants.
(14) Represents 62,500 shares of Common Stock issuable upon conversion of 62,500
shares of Series A Preferred Stock which are the subject of an option.
(15) Includes 50,000 shares of Common Stock underlying 50,000 Redeemable
Warrants.
(16) John Bieber has been Vice President of Marketing and a Director of the
Company since January 1997.
(17) On February 6, 1998, Dana Vaughn, a former vice president of the Company,
assigned his shares of Common Stock (86,993 issued in connection with the
delivery of a promissory note) and all the rights and obligations of the
promissory note securing such shares to Michael Winer and John Bieber.
(18) Albert A. Masters has been a Director and Vice President of Sales of the
Company since June 1996 and was Vice President of Sales of IPI from
September 1995 to May 1996.
(19) Michael Winer has been Vice President and Chief Financial Officer of the
Company since October, 1997.
(20) Linda Duke has been Vice President of Operations of the Company since June
1996 and was Director of Operations of IPI from September 1995 to May 1996.
(21) Includes 25,000 shares of Common Stock underlying 25,000 Redeemable
Warrants.
(22) Includes shares of Common Stock issued in settlement of threatened
litigation, which shares may not be transferred or sold by the holder for a
period of twelve months from the date of issuance.
(23) Includes shares to be issued in connection with the settlement of certain
litigation, which shares may not be transferred or sold by the holder prior
to June 6, 1998.
(24) Includes 10,000 shares of Common Stock underlying 10,000 Redeemable
Warrants.
(25) Includes 1,600 shares of Common Stock underlying 1,600 Redeemable Warrants.
(26) Includes 1,500 shares of Common Stock underlying 1,500 Redeemable Warrants.
(27) Includes 1,300 shares of Common Stock underlying 1,300 Redeemable Warrants.
(28) Includes 1,000 shares of Common Stock underlying 1,000 Redeemable Warrants.
(29) Includes 500 shares of Common Stock underlying 500 Redeemable Warrants.
(30) Includes 300 shares of Common Stock underlying 300 Redeemable Warrants.
36
<PAGE>
PLAN OF DISTRIBUTION
The shares being registered for offer by the Company will be issued
directly to HSBC James Capel Canada, Inc. ("HSBC") in connection with a proposed
financing whereby the Company (i) agreed to issue to HSBC a total of $3.6
million of Common Stock over a twenty-four month period based upon the payment
of $150,000 each month and a per share purchase price equal to 80% of the lowest
closing bid price for the Common Stock for the twenty days preceding each
investment date, and (ii) granted HSBC an option to purchase up to a total of
$50.0 million of Common Stock over a twenty-four month period based upon a per
share purchase price equal to 85% of the lowest closing bid price for the Common
Stock for the five trading days preceding each investment date.
The sale of all or a portion of the Securities by the Selling
Securityholders may be effected, from time to time, in private transactions or
in the over-the-counter market at prices related to the prevailing prices of the
Securities on the OTC Electronic Bulletin Board at the time of the sale, or at
negotiated prices. The Selling Securityholders may effect such transactions by
selling to or through one or more broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Securityholders. The Selling Securityholders and
any broker-dealers that participate in the distribution of the Securities may,
under certain circumstances, be deemed to be "underwriters" within the meaning
of the Securities Act, and any commissions received by such broker-dealers and
any profits realized on the resale of Securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act. The Company and
the Selling Securityholders may agree to indemnify such broker-dealers against
certain liabilities, including liabilities under the Securities Act. In
addition, the Company has agreed to indemnify the Selling Securityholders, with
respect to the Securities offered hereby, against certain liabilities, including
certain liabilities under the Securities Act.
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing (a) the name of any such broker-dealers, (b) the
number of Securities involved, (c) the price at which such Securities are to be
sold, (d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) that such broker-dealers did not conduct
any investigation to verify the information set out in this Prospectus, as
supplemented, and (f) other facts material to the transaction.
Each Selling Securityholder may be subject to applicable provisions of the
Exchange Act and the rules and regulations promulgated thereunder, including,
without limitation, Regulation M, which provisions may limit the timing of
purchases and sales of any of the Company's securities by the Selling
Securityholders.
There is no assurance that any of the Selling Securityholders will sell any
of the Securities.
The Company has agreed to pay all costs and expenses incurred in connection
with the registration of the Securities offered hereby, except that the Selling
Securityholders shall be responsible for all selling commissions, transfer taxes
and related charges in connection with the offer and sale of such Securities and
the fees of the Selling Securityholders' counsel.
The Company has agreed to keep the Registration Statement relating to the
offering and sale, by the Selling Securityholders, of the Securities,
continuously effective until the earlier of sale of all the securities or 12
months.
37
<PAGE>
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.
Common Stock
The Company's authorized Common Stock consists of 25,000,000 shares of
Common Stock. As of March 23, 1998, there were issued and outstanding 5,553,169
shares of Common Stock of the Company. Additionally, stock options to purchase
up to 168,500 shares of Common Stock have been granted. In addition, the Company
has issued preferred stock convertible into shares of Common Stock and
Redeemable Warrants that may be exercised to purchase shares of Common Stock as
detailed below. 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,
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.
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. As of March 25, 1998, there were
issued and outstanding 625,000 shares of Series A 4% Cumulative Preferred Stock
(the "Series A Preferred Stock"). The holders of Series A Preferred Stock have
no voting power whatsoever, except as otherwise provided by the General
Corporation Law of the State of Delaware. Pursuant to the terms of the Company's
April 28, 1997 Certificate of Designation of Preferred Stock, each share of
Series A Preferred Stock is convertible at any time, at the option of the holder
thereof, into one share of Common Stock. The Series A Preferred Stock pays a
dividend equal to 4% per annum. The dividend shall be payable by the issuance of
additional shares of Common Stock. The number of shares to be issued as a
dividend shall be determined based on the average closing bid price for a share
of Common Stock as quoted on the OTC Electronic Bulletin Board for the twenty
trading days preceding the applicable record date for the declaration of the
dividend. Additionally, as of March 25, 1998 options have been granted to
purchase 62,500 shares of Series A Preferred Stock. The option has a term of
five years commencing on April 29, 1998.
As of March 23, 1998 there were issued and outstanding 20,000 shares of
Series B 8% Cumulative Convertible Preferred Stock (the "Series B Preferred
Stock"). The holders of Series B Preferred Stock have no voting power
whatsoever, except as otherwise provided by the General Corporation Law of the
State of Delaware. Each share of Series B Preferred Stock is convertible at any
time, at the option of the holder thereof, into shares of Common Stock. Each
share of Series B Preferred Stock shall convert into that number of shares of
Common Stock which is equal to $100 divided by 80% of the average closing bid
price for the Common Stock as quoted on the OTC Electronic Bulletin Board for
the five trading days preceding the applicable conversion date (the "Series B
Conversion Price"); provided, however, that in no event shall the Series B
Conversion Price exceed $6.00 per share of Common Stock. All shares of Series B
Preferred Stock outstanding and not converted prior to the date which is three
(3) years from the date of their issuance shall automatically convert on such
date into shares of Common Stock. The Series B Preferred Stock pays a dividend
of 8% per annum, and is payable, at the Company's sole option, in cash or by the
issuance of shares of Common Stock. The number of shares of Common Stock to be
issued as a dividend, if applicable, shall be determined based on the average
closing bid price for a share of Common Stock as quoted on the OTC Electronic
Bulletin Board for the five trading days preceding the last day of the calendar
quarter for the applicable dividend period.
The Board of Directors, without shareholder approval, may issue additional
Preferred Stock with voting and conversion rights which could materially
adversely affect the voting power of the holders of Common Stock.
38
<PAGE>
The issuance of additional Preferred Stock could also decrease the amount of
earnings and assets available for distribution to holders of Common Stock. In
addition, the issuance of additional Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company. 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 $6.00 per share, subject to adjustment,
commencing immediately. As of March 23, 1998, 4,107,500 Redeemable Warrants were
issued and outstanding. The Redeemable Warrants expire on December 5, 2001. The
Redeemable Warrants are subject to redemption, subject to the prior written
consent of the underwriter of the Company's initial public offering, at a price
of $.05 per Redeemable Warrant commencing immediately on 30 days' written notice
provided the average closing bid price of the Common Stock as quoted on the OTC
Electronic Bulletin Board (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.
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, New York 10004.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 23, 1998, the Company has 5,553,169 shares of Common Stock and
4,107,500 Redeemable Warrants outstanding. Of these securities, 2,578,800 shares
of Common Stock and 2,904,300 Redeemable Warrants are currently freely tradeable
in the public market. 5,695,670 shares of Common Stock and 768,200 Redeemable
Warrants included 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 and 1,000,000 shares of Common Stock
underlying such warrants, were registered in the Company's December 5, 1996
initial public offering but cannot be sold without the consent of the
underwriter thereof as described below. The remaining 2,256,771 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 one year 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 2,256,771 shares,
1,225,929 are currently eligible for sale under Rule 144. Of the remaining
1,030,842 shares of Common Stock, 26,000 shares were issued in settlement of
certain litigation and 396,847 were issued
39
<PAGE>
in exchange for the cancellation of certain indebtedness. Such shares will not
be eligible for sale under Rule 144 until, at the earliest, one year from the
date of issuance thereof. The remaining 607,995 shares were purchased by
employees in exchange for notes. Accordingly, 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 March, 1999, if the
notes were to be satisfied in March, 1998.
Each of the Company's officers, directors, stockholders and holders of
warrants at the time of the Company's initial public offering (December 5, 1996)
agreed that for a period of 18 months from December 5, 1996, they will not sell
any of the Company's securities without the consent of the underwriter of the
initial public offering.
The foregoing is a summary of all material 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. One partner in the
firm has options to purchase 8,000 shares of Common Stock and one partner may be
deemed to have beneficial ownership (although such beneficial ownership is
disclaimed) of options to purchase 32,000 shares of Common Stock.
EXPERTS
The financial statements as of December 31, 1997, 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.
40
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
PAGE
------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS .......... F-2
FINANCIAL STATEMENTS
Balance Sheets ........................................... F-3 to F-4
Statements of Operations ................................. F-5
Statements of Stockholders' Equity (Deficiency) .......... F-6
Statements of Cash Flows ................................. F-8
Notes to Financial Statements ............................ F-9 to F-25
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
December 31, 1997, and the related statements of operations, stockholders'
equity (deficiency), and cash flows for each of the two years in the period
ended December 31, 1997 and cumulative from inception. 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 audits 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 audits provide 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
December 31, 1997, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1997 and cumulative from
inception in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully discussed in Note 2 to
the financial statements, the Company is in the development stage and has, among
other things, incurred net losses in 1997 and 1996 and reflects a deficit
accumulated during the development stage as of December 31, 1997. These
conditions raise 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
March 23, 1998
F-2
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
BALANCE SHEETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................................ $ 378,528 $ 578,528
Funds held in escrow ................................................. -- 800,000
Accounts receivable .................................................. 1,160,610 1,160,610
Inventories .......................................................... 1,921,199 1,921,199
Prepaid expenses and other current assets ............................ 843,444 843,444
----------- -----------
Total current assets .............................................. 4,303,781 5,303,781
----------- -----------
Property and Equipment .................................................. 426,611 426,611
----------- -----------
Intangible Assets:
Deferred slotting fees, net of accumulated amortization of $2,338,936 110,933 110,933
Product formulae acquisition costs, net of accumulated amortization of
$54,116.............................................................. 223,871 223,871
Non-compete agreement, net of accumulated amortization of $195,363 . 110,423 110,423
----------- -----------
445,227 445,227
----------- -----------
Other Assets ............................................................ 10,000 10,000
----------- -----------
Total assets ...................................................... $ 5,185,619 $ 6,185,619
=========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
BALANCE SHEETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
---------------- ----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Notes payable .......................................................... $ 1,716,397 $ 216,397
Accounts payable:
Slotting fees ....................................................... 536,675 536,675
Trade ............................................................... 2,729,400 2,729,400
Accrued expenses and other current liabilities ......................... 568,861 463,861
Current maturities of obligations under capital leases ................. 14,600 14,600
------------- -------------
Total current liabilities ........................................... 5,565,933 3,960,933
------------- -------------
Long-Term Liabilities:
Capital lease obligations, net of current maturities ................... 16,500 16,500
Note payable to InnoPet, Inc. .......................................... 159,000 159,000
------------- -------------
175,500 175,500
------------- -------------
Commitments, Contingencies and Subsequent Events .......................... -- --
Stockholders' Equity (Deficiency):
Series A 4% convertible preferred stock, $.01 par value; issued and out-
standing 625,000 shares at liquidation value .......................... 2,500,000 2,500,000
Series B 8% convertible preferred stock, $100 par value; issued and
outstanding 10,000 shares (historical) and 20,000 shares (pro forma)
at liquidation value .................................................. 1,000,000 2,000,000
Common stock, $.01 par value; authorized 25,000,000 shares; issued
4,928,725 (historical) and 5,528,725 (pro forma) ...................... 49,287 55,287
Additional paid-in capital ............................................. 14,702,788 16,301,788
Deficit accumulated during the development stage ....................... (16,530,047) (16,530,047)
Notes and interest receivable on sale of common stock .................. (2,274,606) (2,274,606)
Treasury stock, 957 shares of common stock, at cost and 600,000
collateral shares ..................................................... (3,236) (3,236)
------------- -------------
(555,814) 2,049,186
------------- -------------
$ 5,185,619 $ 6,185,619
============= =============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Inception
Year (January 11,
Ended 1996) to Cumulative
December 31, December 31, from
1997 1996 Inception
----------------- ----------------- ----------------
<S> <C> <C> <C>
Net Sales .................................................. $ 3,066,489 $ 1,859,936 $ 4,926,425
Cost of Sales .............................................. 2,183,275 1,498,486 3,681,761
------------- ------------- -------------
Gross Profit ............................................... 883,214 361,450 1,244,664
------------- ------------- -------------
Other Operating Expenses:
Marketing and distribution .............................. 6,077,555 3,140,114 9,217,669
Product development ..................................... 434,334 584,976 1,019,310
General and administrative .............................. 3,751,917 1,782,796 5,534,713
------------- ------------- -------------
10,263,806 5,507,886 15,771,692
------------- ------------- -------------
Loss Before Other Expenses ................................. (9,380,592) (5,146,436) (14,527,028)
------------- ------------- -------------
Other Income (Expenses):
Interest income ......................................... 64,540 21,570 86,110
Interest expense, including amortization of discount of
$470,372 in 1997 and $250,000 in 1996 .................. (660,429) (408,901) (1,069,330)
Financing costs, including amortization of $424,329
in 1996 ................................................ (29,500) (773,772) (803,272)
Costs in connection with unsuccessful financing ......... -- (161,289) (161,289)
Other expenses .......................................... (5,762) (49,476) (55,238)
------------- ------------- -------------
(631,151) (1,371,868) (2,003,019)
------------- ------------- -------------
Net Loss ................................................... $ (10,011,743) $ (6,518,304) $ (16,530,047)
============= ============= =============
Net Loss per Common Share .................................. $ (2.24) $ (3.11)
============= =============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Class A Preferred Stock Class B Preferred Stock Common Stock
------------------------- ----------------------- ------------------------
Shares Amount Shares Amount Shares Amount
---------- ------------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Inception (January 11, 1996)
to December 31, 1996:
Capital contribution
represented by costs and
expenses paid on behalf of
the Company by Innopet,
Inc. ($1.88 per share) ........ -- $ -- -- $ -- 1,182,432 $ 11,824
Sale of common stock
($3.20 per share):
InnoPet, Inc. ................. -- -- -- -- 43,497 435
Officers and employees, in
exchange for notes
receivable ................... -- -- -- -- 652,449 6,524
Interest accrued on notes
receivable on sale of
common stock ................. -- -- -- -- -- --
Estimated fair value of
warrants issued in con-
nection with private
placement financing .......... -- -- -- -- -- --
Sale of units (common
stock and warrants) in
Initial Public Offering
($4.00 per unit), net of
related costs ................ -- -- -- -- 2,587,500 25,875
Sale of warrants to under-
writer ....................... -- -- -- -- -- --
Net loss ...................... -- -- -- -- -- --
-- ----------- -- ----------- --------- --------
Balance, December 31, 1996 -- -- -- -- 4,465,878 44,658
Year Ended December 31,
1997:
Sale of Series A preferred
stock $4.00 per share,
net of related costs ......... 625,000 2,500,000 -- -- -- --
Preferred stock warrants ...... -- -- -- -- -- --
Sale of Series B preferred
stock, $100 per share,
net of related costs ......... -- -- 10,000 1,000,000 -- --
Estimated fair value of
common stock warrants
issued in connection
with preferred stock and
notes payable ................ -- -- -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes and
Deficit Interest
Accumulated Receivable
Additional During the on Sale of Treasury Stock
Paid-In Development Common ------------------
Capital Stage Stock Shares Amount Total
-------------- --------------- --------------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Inception (January 11, 1996)
to December 31, 1996:
Capital contribution
represented by costs and
expenses paid on behalf of
the Company by Innopet,
Inc. ($1.88 per share) ........ $ 2,209,524 $ -- $ -- -- $ -- $ 2,221,348
Sale of common stock
($3.20 per share):
InnoPet, Inc. ................. 138,755 -- -- -- -- 139,190
Officers and employees, in
exchange for notes
receivable ................... 2,081,315 -- (2,087,839) -- -- --
Interest accrued on notes
receivable on sale of
common stock ................. 70,350 -- (70,350) -- -- --
Estimated fair value of
warrants issued in con-
nection with private
placement financing .......... 250,020 -- -- -- -- 250,020
Sale of units (common
stock and warrants) in
Initial Public Offering
($4.00 per unit), net of
related costs ................ 8,414,872 -- -- -- -- 8,440,747
Sale of warrants to under-
writer ....................... 23 -- -- -- -- 23
Net loss ...................... -- (6,518,304) -- -- -- (6,518,304)
----------- ------------- ------------- ---- ----- ------------
Balance, December 31, 1996 13,164,859 (6,518,304) (2,158,189) -- -- 4,533,024
Year Ended December 31,
1997:
Sale of Series A preferred
stock $4.00 per share,
net of related costs ......... (513,200) -- -- -- -- 1,986,800
Preferred stock warrants ...... 100 -- -- -- -- 100
Sale of Series B preferred
stock, $100 per share,
net of related costs ......... (188,489) -- -- -- -- 811,511
Estimated fair value of
common stock warrants
issued in connection
with preferred stock and
notes payable ................ 676,964 -- -- -- -- 676,964
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Class B Preferred
Class A Preferred Stock Stock Common Stock
------------------------ ---------------------- ------------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ -------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued to
InnoPet, Inc. in satisfac-
tion of debt ($3.32 per
share) ......................... -- -- -- -- 396,847 3,969
Common stock issued for
services in connection
with issuance of com-
mon shares, ($4.00 per
share) ........................ -- -- -- -- 40,000 400
Common stock issued in
settlement of dispute
($5.00 per share) ............. -- -- -- -- 26,000 260
Acquisition of treasury
stock ($3.45 per share) ....... -- -- -- -- -- --
Collateral shares held in
treasury ...................... -- -- -- -- -- --
Interest accrued on notes
receivable on sale of
common stock .................. -- -- -- -- -- --
Net loss ....................... -- -- -- -- -- --
-- -- -- -- ------- -----
Balance, December 31,
1997 (Historical) ............. 625,000 2,500,000 10,000 1,000,000 4,928,725 49,287
Pro Forma Adjustments
(Unaudited)
Sale of Series B preferred
stock ($100 per share),
net of related costs .......... -- -- 10,000 1,000,000 -- --
Conversion of debt into
common stock ($2.50
per share) .................... -- -- -- -- 600,000 6,000
------- --------- ------ --------- --------- ------
Balance, December 31,
1997 (Pro Forma)
(Unaudited) ................... 625,000 $2,500,000 20,000 $2,000,000 5,528,725 $55,287
======= ========== ====== ========== ========= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Notes and
Deficit Interest
Accumulated Receivable
Additional During the on Sale of Treasury Stock
Paid-In Development Common --------------------------
Capital Stage Stock Shares Amount
-------------- ---------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Common stock issued to
InnoPet, Inc. in satisfac-
tion of debt ($3.32 per
share) ......................... 1,313,561 -- -- -- --
Common stock issued for
services in connection
with issuance of com-
mon shares, ($4.00 per
share) ........................ (400) -- -- -- --
Common stock issued in
settlement of dispute
($5.00 per share) ............. 129,740 -- -- -- --
Acquisition of treasury
stock ($3.45 per share) ....... -- -- 3,236 957 (3,236)
Collateral shares held in
treasury ...................... -- -- -- 600,000 --
Interest accrued on notes
receivable on sale of
common stock .................. 119,653 -- (119,653) -- --
Net loss ....................... -- (10,011,743) -- -- --
--------- ----------- -------- ------- ------
Balance, December 31,
1997 (Historical) ............. 14,702,788 (16,530,047) (2,274,606) 600,957 (3,236)
Pro Forma Adjustments
(Unaudited)
Sale of Series B preferred
stock ($100 per share),
net of related costs .......... -- -- -- -- --
Conversion of debt into
common stock ($2.50
per share) .................... 1,599,000 -- -- (600,000) --
---------- ----------- ---------- -------- ------
Balance, December 31,
1997 (Pro Forma)
(Unaudited) ................... $16,301,788 $ (16,530,047) $ (2,274,606) 957 $ (3,236)
=========== ============= ============ ======== ========
<CAPTION>
Total
----------------
<S> <C>
Common stock issued to
InnoPet, Inc. in satisfac-
tion of debt ($3.32 per
share) ......................... 1,317,530
Common stock issued for
services in connection
with issuance of com-
mon shares, ($4.00 per
share) ........................ --
Common stock issued in
settlement of dispute
($5.00 per share) ............. 130,000
Acquisition of treasury
stock ($3.45 per share) ....... --
Collateral shares held in
treasury ...................... --
Interest accrued on notes
receivable on sale of
common stock .................. --
Net loss ....................... (10,011,743)
-----------
Balance, December 31,
1997 (Historical) ............. (555,814)
Pro Forma Adjustments
(Unaudited)
Sale of Series B preferred
stock ($100 per share),
net of related costs .......... 1,000,000
Conversion of debt into
common stock ($2.50
per share) .................... 1,605,000
-----------
Balance, December 31,
1997 (Pro Forma)
(Unaudited) ................... $ 2,049,186
==============
</TABLE>
See notes to financial statements.
F-7
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year
Ended
December 31,
1997
-----------------
<S> <C>
Cash Flows from Operating Activities:
Net loss ...................................................................... $ (10,011,743)
Adjustments to reconcile net loss to net cash used in operating activities:
Costs and expenses paid on behalf of Company by InnoPet, Inc. ................ --
Depreciation ................................................................ 114,933
Amortization:
Slotting fees ............................................................. 1,244,091
Financing costs ........................................................... --
Original issue discount ................................................... 472,372
Other ..................................................................... 129,470
Provision for doubtful accounts ............................................. 574,181
Interest paid from proceeds of public offering .............................. --
Offsets against accounts receivable for slotting fees ....................... (395,402)
Loss on disposal of equipment ............................................... 341
Non-cash expense related to issuance of shares in settlement of dispute ..... 39,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ....................................................... (1,120,377)
Inventories ............................................................... (863,091)
Prepaid expenses and other current assets ................................. (1,255,148)
Deposits and other assets ................................................. 143,728
Increase (decrease) in:
Accounts payable, trade ................................................... 2,245,965
Accounts payable, slotting fees ........................................... (2,420)
Accounts payable, InnoPet Inc. ............................................ (158,373)
Accrued expenses and other current liabilities ............................ 162,096
-------------
Net cash used in operating activities .................................... (8,680,377)
-------------
Cash Flows from Investing Activities:
Acquisition of property and equipment ......................................... (379,907)
-------------
Cash Flows from Financing Activities:
Payments on capital lease obligation .......................................... (24,900)
Proceeds from initial public offering ......................................... --
Proceeds from issuance of preferred stock ..................................... 2,986,900
Proceeds of long-term financing from InnoPet Inc., net ........................ --
Proceeds from private placement financing ..................................... --
Proceeds from notes payable ................................................... 1,862,500
Offering costs ................................................................ --
Deferred financing costs ...................................................... --
-------------
Net cash provided by financing activities ................................ 4,824,500
-------------
Net Increase (Decrease) in Cash and Cash Equivalents ........................... (4,235,784)
Cash and Cash Equivalents, Beginning ........................................... 4,614,312
-------------
Cash and Cash Equivalents, Ending .............................................. $ 378,528
=============
Supplemental Disclosures of Cash Flow Information:
Non-cash investing and financing activities:
Common stock issued to InnoPet, Inc. in satisfaction of debt ................. $ 1,317,530
=============
Common stock issued on behalf of InnoPet, Inc. as settlement of dispute ...... $ 91,000
=============
Capital lease obligation incurred for acquisition of equipment ............... $ 44,000
=============
Expenditures for various assets paid on behalf of Company by InnoPet Inc.:
Product formulae, non-compete agreement and inventory .......................
Deferred financing costs ....................................................
Deferred slotting fees ......................................................
Property and equipment and other assets .....................................
Deferred financing costs paid from proceeds of
private placement financing .................................................
Offering costs paid from proceeds of Initial Public Offering .................
Notes payable paid from the proceeds of Initial Public Offering ..............
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Inception
(January 11,
1996) to Cumulative
December 31, from
1996 Inception
----------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ...................................................................... $ (6,518,304) $ (16,530,047)
Adjustments to reconcile net loss to net cash used in operating activities:
Costs and expenses paid on behalf of Company by InnoPet, Inc. ................ 1,580,327 1,580,327
Depreciation ................................................................ 27,354 142,287
Amortization:
Slotting fees ............................................................. 1,094,845 2,338,936
Financing costs ........................................................... 872,759 872,759
Original issue discount ................................................... -- 472,372
Other ..................................................................... 120,009 249,479
Provision for doubtful accounts ............................................. -- 574,181
Interest paid from proceeds of public offering .............................. 61,944 61,944
Offsets against accounts receivable for slotting fees ....................... (881,117) (881,117)
Loss on disposal of equipment ............................................... -- 341
Non-cash expense related to issuance of shares in settlement of dispute ..... 39,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ....................................................... (219,011) (1,734,790)
Inventories ............................................................... (554,077) (1,417,168)
Prepaid expenses and other current assets ................................. (951,010) (2,206,158)
Deposits and other assets ................................................. (143,728) --
Increase (decrease) in:
Accounts payable, trade ................................................... 483,435 2,729,400
Accounts payable, slotting fees ........................................... 539,095 536,675
Accounts payable, InnoPet Inc. ............................................ 724,394 566,021
Accrued expenses and other current liabilities ............................ 276,765 438,861
------------- -------------
Net cash used in operating activities .................................... (3,486,320) (12,166,697)
------------- -------------
Cash Flows from Investing Activities:
Acquisition of property and equipment ......................................... (84,540) (464,447)
------------- -------------
Cash Flows from Financing Activities:
Payments on capital lease obligation .......................................... -- (24,900)
Proceeds from initial public offering ......................................... 6,851,487 6,851,487
Proceeds from issuance of preferred stock ..................................... -- 2,986,900
Proceeds of long-term financing from InnoPet Inc., net ........................ 202,014 202,014
Proceeds from private placement financing ..................................... 1,672,236 1,672,236
Proceeds from notes payable ................................................... -- 1,862,500
Offering costs ................................................................ (472,641) (472,641)
Deferred financing costs ...................................................... (67,924) (67,924)
------------- -------------
Net cash provided by financing activities ................................ 8,185,172 13,009,672
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents ........................... 4,614,312 378,528
Cash and Cash Equivalents, Beginning ........................................... -- --
------------- -------------
Cash and Cash Equivalents, Ending .............................................. $ 4,614,312 $ 378,528
============= =============
Supplemental Disclosures of Cash Flow Information:
Non-cash investing and financing activities:
Common stock issued to InnoPet, Inc. in satisfaction of debt .................
Common stock issued on behalf of InnoPet, Inc. as settlement of dispute ......
Capital lease obligation incurred for acquisition of equipment ...............
Expenditures for various assets paid on behalf of Company by InnoPet Inc.:
Product formulae, non-compete agreement and inventory ....................... $ 1,072,772
=============
Deferred financing costs .................................................... $ 227,071
=============
Deferred slotting fees ...................................................... $ 291,957
=============
Property and equipment and other assets ..................................... $ 195,732
=============
Deferred financing costs paid from proceeds of
private placement financing ................................................. $ 327,764
=============
Offering costs paid from proceeds of Initial Public Offering ................. $ 1,436,611
=============
Notes payable paid from the proceeds of Initial Public Offering .............. $ 2,000,000
=============
</TABLE>
See notes to financial statements.
F-8
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 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 8), 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 InnoPet Inc. (see
Note 8). On December 10, 1996, the Company completed the Initial Public Offering
of its securities. The offering resulted in the issuance of 2,250,000 units,
each unit consisting of one share of common stock and one redeemable warrant.
Shortly thereafter, an additional 337,500 units were sold upon the exercise of
an over-allotment option by the underwriter resulting in an aggregate of
2,587,500 units sold at a price of $4.00 per unit. Subsequent to the initial
public offering, the Company ceased being a subsidiary of InnoPet Inc.
During 1997, the Board of Directors authorized the issuance of two series
of preferred stock, Series A and Series B. Series A is a 4% cumulative
convertible preferred stock with a $.01 per share par value and a $4.00
liquidation value. Each share is convertible into one share of the Company's
common stock. The Series B is an 8% cumulative convertible preferred stock with
a $100 per share par value and a $100 per share liquidation value. Each share is
convertible into common shares at 80% of the average closing bid price for five
trading days prior to conversion, or a maximum of $6.00.
Business
The Company produces, markets and sells premium dog food through
supermarkets and grocery stores under the name InnoPet Veterinarian Formula 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 sheet
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 allowance for doubtful accounts receivable,
the estimated net realizable value of certain elements of inventories, the
estimated amortization period of certain intangible assets and the estimated
liability for coupon redemptions. 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 InnoPet Inc. on behalf
of the Company, which have been recorded as capital contributions by InnoPet
Inc. (see
Note 8).
F-9
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Revenue Recognition
The Company recognizes revenue from product sales when products are shipped
to customers. The Company does not grant return privileges to customers, but
does recognize credits for damaged goods when such claims are appropriately
filed by customers.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, money market funds at
broker/dealers and accounts receivable.
Cash and Money Market Funds
At various times during the year, the Company had deposits in financial
institutions in excess of federally insured limits. At December 31, 1997, the
Company had deposits in excess of federally insured limits of approximately
$445,000. The Company maintains its cash, which consists primarily of demand
deposits, with high quality financial institutions, which the Company believes
limits these risks.
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. Such allowances
represent the amounts which, in management's judgment, are considered adequate
to absorb charge-offs of accounts which may become uncollectible. The adequacy
of the allowances is determined by management's continuing evaluation of the
components of accounts receivable in light of expected loss experience, present
economic conditions, and other factors considered relevant by management.
Cash Equivalents
For the purpose of the statement of cash flows, the Company classifies all
highly liquid investments with original maturities of three months or less as
cash equivalents. Such investments are comprised of money market funds
maintained with a financial institution.
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 are stated at cost. Equipment under capital leases
are stated at the present value of minimum lease payments or at cost, whichever
is less. 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.
F-10
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Property and Equipment
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Equipment under capital
leases and leasehold improvements are amortized on the straight-line method over
the shorter of the lease term or estimated useful life of the asset. The
estimated useful lives of the furniture, fixtures and equipment range generally
from 1 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
6), 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 10 years. Amortization expense
totaled $27,542 for 1997 and $26,574 for 1996.
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). The
practice by retailers of charging slotting fees is a standard industry practice.
Many retailers, rather than remitting payment for amounts due for the
purchase of product to the Company and receiving payment of slotting fees from
the Company, choose to offset slotting fees against amounts due for product and
pay only the balance. During the periods ended December 31, 1997 and 1996,
$395,400 and $881,000, respectively, of accounts receivable were settled by
offsetting slotting fees due to the retailer.
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. In September 1997, the Company began to
require that the retailers comply with the specifications of the slotting
agreement for at least twelve months in order to remain eligible for slotting
allowances. Slots will be made available to the Company for a period of time
ranging from six months to indefinitely. Slotting fees are recorded by the
Company upon agreement by the retailer to carry the Company's product and
execution of the slotting agreement.
The benefits to be derived 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 or
twelve months, beginning when the retailer accepts delivery of the first
shipment of product.
Estimated Liability for Coupon Redemptions
The Company utilizes promotional coupons as a component of its marketing
strategy. The financial statements include an accrual for the estimated
liability for coupons which are circulated, but not redeemed as of the
F-11
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
balance sheet date. This estimated liability is net of an estimate of the
percentage of coupons which the Company believes will not be redeemed based upon
industry practice and the Company's limited experience to date. As of December
31, 1997, the estimated liability for promotional coupon redemptions was
approximately $27,000.
Offering Costs
Costs incurred in connection with the initial public offering of securities
and the subsequent private placements of convertible preferred stock, consisting
of professional fees directly associated with the sale of those securities, have
been charged to additional paid in capital in December 1997 and 1996,
respectively.
Certain other professional fees which were incurred in connection with
other financings, but only indirectly associated with the initial public
offering, aggregated $161,289, and have been charged to expense during the
period from inception (January 11, 1996) to December 31, 1996.
Financing Costs
Financing costs represent the costs incurred by InnoPet Inc. 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
InnoPet Inc. have been assigned to the Company and recorded as a capital
contribution by InnoPet Inc. These costs were amortized over the term of the
related debt (six to twelve months) and at December 31, 1996 were fully
amortized.
In addition, the Company has incurred costs in connection with the private
placement financing which was consummated in August 1996. These costs were
amortized over the outstanding four-month term of the private placement
financing debt, as measured by the date of repayment of this debt from the
proceeds of the initial public offering in December, 1996 (see Note 11).
Non-Compete Agreement
The allocated costs attributable to the non-compete agreement, included as
part of the Asset Purchase Agreement (see Note 6) have been deferred and are
being amortized over the three-year term of the covenant.
Income Taxes
The Company accounts for its income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax liabilities and assets for expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
Advertising Costs
Advertising costs, included in marketing and distribution costs, are
charged to expense as incurred. Advertising costs incurred for 1997 amounted to
approximately $140,000; advertising costs for 1996 were not material.
F-12
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation," which is effective for the accompanying financial
statements of the Company. SFAS 123 requires extended disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to apply Accounting
Principles Board Opinion No. 25 (APB 25), which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company
accounts for its stock-based compensation awards to employees under the
provisions of APB 25, and will disclose the required pro forma effect on net
income and earnings per share at such time as a material number of options are
granted.
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 prior to the initial public offering
have been treated as outstanding during the entire period in contemplation of
the initial public offering (see Note 11), pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins. Diluted earnings per share,
assuming exercising of the options, warrants granted, convertible preferred
stock, and convertible debt is not presented as the effect of conversion is
antidilutive. The number of shares used in the computation was as follows:
1997 ........................................ 4,474,000 shares
1996 ........................................ 2,094,000 shares
NOTE 2. BASIS OF PRESENTATION
As described above, the Company was incorporated on January 11, 1996, and,
since that time, together with InnoPet Inc., 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 revenue therefrom generated to date is
not considered significant in relation to the Company's strategic plan.
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 net
losses of approximately $10,012,000 in 1997 and $6,518,000 in 1996, and reflects
a deficit accumulated during the development stage of approximately $16,530,000
as of December 31, 1997. Additionally, from time to time the Company has been
unable to make principal and interest payments on debt instruments on a timely
basis and, consequently, has been in default of those agreements (see Note 14).
Further, on March 20, 1998 the Company was delisted by the NASDAQ Small Cap
market for failing to meet the current net tangible asset requirement of NASDAQ,
which is $2,000,000 (see Note 14). These conditions raise substantial doubt as
to the ability of the Company to continue as a going concern.
F-13
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 2. BASIS OF PRESENTATION -- (Continued)
Management's plans with regard to this matter encompass the following
actions:
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 formula dog food to supermarkets in the
Greater Metropolitan New York area. As of December 31, 1997, the Company has
sold product in the following markets: the Greater Metropolitan New York
area; Philadelphia and other areas of Pennsylvania; the Baltimore/Washington,
DC area; Virginia; North Carolina; South Carolina; Georgia; Alabama;
Tennessee; Texas; and Florida.
As of August, 1997, the Company has increased its distribution in existing
markets through initial deliveries to the Stop & Shop, Price Chopper, Winn
Dixie/Atlanta Division, and BiLo chains. In 1998, the Company anticipates it
will continue implementation of its national distribution rollout, with an
emphasis on expanding into the western states.
In 1997, the Company began expansion of its line of dog foods with the
introduction of Lamb and Rice with Barley formula in its existing markets.
Additionally, the Company plans to introduce a line of dry cat foods within
the next twelve months.
Marketing Plan
The Company is in the process of implementing an overall marketing strategy
which commenced in February, 1997. Programs include: radio and newspaper
advertising; free-standing inserts; in-store couponing, shopping cart signage
and floorminders; trial size displays; store feature ads and circulars;
direct mail sampling programs to targeted consumers, veterinarians and
breeders; newspaper sample pouches; and extensive in-store demonstrations
with sampling.
In June 1997, the Company entered into long-term agreements with North Shore
Animal League and the Pet Savers Foundation, whereby InnoPet Veterinarian
Formula pet foods will be exclusively fed to in-house animals and recommend
to adopters by both of these not-for-profit humane organizations which adopt
out more than one million animals per year. In addition, adopters will be
provided with product samples, literature and coupons, and will be able to
purchase the products exclusively in retail stores of participating adoption
centers.
In connection with the above ventures, the Company is currently participating
in a cross-promotion program with Warner Home Video that includes a consumer
cash rebate and donation to the Pet Savers Foundation for the combined
purchase of InnoPet products and the "Shiloh" home video cassette.
Subsequent Financing
On March 23, 1998 the Company entered into a Subscription Agreement whereby
the Company will issue a total of $3,600,000 of common stock over a
twenty-four month period based upon the payment of $150,000 each month and a
per share purchase price equal to 80% of the lowest closing bid price for the
Common Stock for the twenty trading days preceding each investment date; and
the grant by the Company of an option to purchase up to a total of
$50,000,000 of common stock over a twenty-four month period based upon a per
share purchase price equal to 85% of the lowest closing bid price for the
Common Stock for the five trading days preceding each investment date. The
Subscription Agreement provides however that the investor will forego funding
the monthly investment in the event that the average closing bid price
F-14
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 2. BASIS OF PRESENTATION -- (Continued)
for a share of commmon stock as quoted on the OTC Bulletin Board for the five
trading days preceding any monthly investment falls below $2.00 per share. On
March 23, 1998 the closing bid price was $1.125. There can be no assurances
that the closing bid price for a share of common stock will equal or exceed
$2.00. Additionally, the Company does not presently have a sufficient number
of authorized and unissued shares to issue should the investors choose to
exercise the option. The Company plans to seek stockholder approval to amend
its certificate of incorporation accordingly.
In February 1998, the Company issued units consisting of a 10% promissory
note in the principal amount of $25,000 and a warrant to purchase 25,000
shares of the Company's common stock. The note has a stated interest rate of
10% per annum and a maturity date 90 days after the date of execution. The
warrant is exercisable as of the closing and expires on December 5, 2001 at
an exercise price of $6.00 per share. Proceeds from the sale of the units
approximated $200,000.
In order to achieve its financial plan, the Company is seeking additional
funding, which may consist of debt, equity or a combination thereof. If the
Company is unable to obtain additional funding, the Company will be required
to modify its current business plan. There can be no assurance that the
Company will be able to obtain such additional funding. The Company has
discussed working capital financing with banks and factors. There can be no
assurance that any credit facility will be available to the Company, or if
available, that it will be available on acceptable terms.
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. ACCOUNTS RECEIVABLE
Trade ........................................ $ 739,298
Slotting fee chargebacks ..................... 369,529
Reclamation and other chargebacks ............ 626,783
----------
1,735,610
Less allowance for doubtful accounts ......... 575,000
----------
$1,160,610
==========
The Company, in the ordinary course of business, has three components of
accounts receivable; trade, slotting fee chargebacks and reclamation and other
chargebacks. Slotting fee chargebacks result from customer non-compliance with
the slotting agreements. If the Company determines that a customer is not in
compliance with the slotting agreement, it is Company policy to bill the
customer for slotting credits previously taken against the purchase of
merchandise.
Reclamation and other chargebacks result from billing the customer for
credits taken for returned product or other items which the Company determines
are outside the parameters allowed by the Company's policies relating to these
items.
NOTE 4. INVENTORIES
Raw materials ................................. $1,177,771
Work in process ............................... 101,625
Finished product .............................. 641,803
----------
$1,921,199
==========
F-15
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 5. PROPERTY AND EQUIPMENT
Die plates ....................................... $104,221
Computers, office equipment and software ......... 395,522
Furniture and fixtures ........................... 59,555
Leasehold improvements ........................... 9,147
--------
568,444
Less accumulated depreciation .................... 141,831
--------
$426,611
========
The Company is obligated under a capital lease that expires in January,
2000. At December 31, 1997, the gross amount of property and equipment and
related accumulated amortization relating to the capital lease was as follows:
Computers, office equipment and software ......... $ 56,000
Less accumulated amortization .................... 9,333
--------
$ 46,667
========
Amortization of the asset held under the capital lease is included with
depreciation expense. Depreciation expense for 1997 and 1996 was $114,933 and
$27,354, respectively.
NOTE 6. ACQUISITION OF PRODUCT FORMULAE AND INVENTORY AND NON-COMPETE AGREEMENT
In accordance with the terms of an Asset Purchase Agreement dated January
16, 1996 among the Company, InnoPet Inc. 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.
Additionally, the Company agreed to purchase and ConAgra agreed to supply
certain products at stipulated prices for the next three years, subject to
cancellation by either party without penalty upon sixty days notice.
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. The $250,000 was paid
by InnoPet Inc. on the Initial Closing Date, and has been recorded as a capital
contribution by InnoPet Inc.. The $391,021 was paid by InnoPet Inc. in April and
May 1996 and has been reflected as a capital contribution by InnoPet Inc.
in the accompanying financial statements.
The Company has allocated the various rights and resources inherent in the
agreement as follows: $250,000 as product formulae acquisition costs, based on
the negotiated amount contained in the agreement; $116,021 as inventory, based
upon management's estimate of the liquidation value of the inventory; and
$275,000 as a non-compete agreement, based upon management's evaluation of the
estimated economic benefit expected to be derived from this right. The Company
believes that the allocation made to the tangible and intangible assets set
forth above is a reasonable measurement of the rights and resources inherent in
the agreement.
F-16
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
In connection with the acquisition of the formulae, non-compete agreement
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 InnoPet Inc.'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 considered the purchase of the inventory as incidental to the
acquisition of the formulae, and utilized the raw material portion of the
inventory in the production of the Company's pet food products when possible,
recouped its investment in the remainder of the inventory wherever possible and
disposed of the portion which was neither useable or salable prior to December
31, 1996. 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.
NOTE 7. NOTES PAYABLE
EIL (a) ...................................... $1,500,000
IBF (b) ...................................... 262,500
Other (c) .................................... 100,000
1,862,500
----------
Less unamortized discount .................... 146,103
----------
$1,716,397
==========
(a) On July 9, 1997, the Company secured short-term financing in the form
of a senior convertible note of $1,500,000 from Entrepreneurial Investors, Ltd.
("EIL"), a Bahamas corporation and principal stockholder of the Company. The
note has a stated interest rate of 14%, matures on January 15, 1998 and is
collateralized with 600,000 shares of the Company's common stock, held in escrow
at December 31, 1997. The principal and interest may be converted into common
stock of the Company at $4.50 per share at the option of the holder.
Additionally, the agreement provides that the Company shall issue 225,000
warrants to purchase shares of the Company's common stock at $6.00 per share to
the holder. These warrants are subject to the same terms and conditions as the
warrants currently publicly traded. The fair value of these warrants was
estimated to be $415,575, based on the market value of the warrants currently
traded. This amount has been recorded in these financial statements as a
discount on notes payable with a corresponding credit to additional paid-in
capital and is being amortized over the term of the note. The Company has failed
to make any interest or principal payments of the senior notes and,
consequently, EIL is seeking release of the collateral shares as satisfaction of
the debt.
(b) On December 3, 1997, the Company borrowed $262,500 from a financial
institution, Interbank Special Purpose Corporation II ("IBF"). The note matures
90 days from issuance, has a stated interest rate of 18% and is collateralized
by the Company's receivables at the issuance date. Subsequently, on January 28,
1998, the loan was extended and increased to $762,500; the net proceeds amounted
to approximately $350,000. The new note matures April 27, 1998, has a stated
interest rate of 18% and is collateralized by, among other things, all
inventory, equipment, vehicles, accounts receivable, trade names and trademarks
of the Company (see Note 14).
(c) In December 1997, the Company completed a private placement consisting
of promissory notes in the principal amount of $125,000 including $100,000
payable to a company in which a director of the Company holds a membership
interest. The notes have stated interest rates of 10% and mature 90 days from
issuance. Additionally, the loan agreements provide that the Company issue a
total of 145,000 warrants to purchase shares of the Company's common stock at
$6.00 per share. These warrants are subject to the same terms and conditions as
the warrants currently publicly traded. The fair value of these warrants was
estimated to be $172,900 based on the market value of the warrants as currently
traded. This amount has been reflected in these financial statements as a
discount on notes payable with a corresponding credit to additional paid-in
capital, and is being amortized over the term of the notes.
F-17
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 8. RELATED PARTY TRANSACTIONS
Transactions with InnoPet Inc.
As discussed above, the Company was incorporated on January 11, 1996 as a
wholly-owned subsidiary of InnoPet Inc. During the period inception through
approximately June 30, 1996, substantially all of the Company's costs and
expenses, and the acquisition of the Company's assets, were paid or incurred on
behalf of the Company by InnoPet Inc. Such amounts have been accounted for as
capital contributions by InnoPet Inc. to the Company, and are analyzed as
follows:
<TABLE>
<S> <C>
Costs and expenses charged to operations ............................................... $1,323,125
Initial purchase price for the acquisition of product formulae, covenant not to compete
and inventory, including $58,773 of directly associated costs.......................... 699,794
Deferred financing costs ............................................................... 198,429
----------
$2,221,348
==========
</TABLE>
The costs and expenses expended on behalf of the Company by InnoPet Inc.
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. Personnel costs were allocated based upon estimates
of the actual time devoted by individual employees to the Company's activities
on a monthly basis. General and administrative expenses were allocated based on
the overall average percentage derived from the personnel allocation described
above on a monthly basis. Marketing and distribution and product development
costs were primarily allocated on a direct basis. In the opinion of management,
the method used to allocate costs to the Company was considered to be fair and
reasonable under the circumstances.
See Note 12 regarding a facilities agreement with InnoPet Inc.
Debt Financing by InnoPet Inc.
On June 5, 1996, InnoPet Inc. 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 (8.5% at
12/31/97) payable quarterly commencing September 1, 1996, and contains no
prepayment penalty. This note was substantially satisfied in an Exchange
Agreement dated December 23, 1997 (see below).
Accounts Payable, InnoPet Inc.
In addition to the debt financing described above, InnoPet Inc. 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 were paid in
full with the Exchange Agreement dated December 23, 1997 (see below).
Exchange Agreement With InnoPet, Inc.
On December 23, 1997, the Company entered into an Exchange Agreement with
InnoPet, Inc. Pursuant to the terms of the Exchange Agreement, the Company
satisfied $641,000 of the remaining unpaid principal of the note payable to
InnoPet, Inc., accrued interest in the amount of $132,703, and full payment of
the intercompany payable of $543,828 by the issuance of common stock shares. The
number of common shares issued in this transaction was 396,847, which was
determined by dividing the sum of the debt to be satisfied by eighty percent of
the average closing bid price for a share of common stock as reported by the
NASDAQ Small Cap Market for the five trading days preceding the closing date.
These shares will remain restricted for a period of one year.
F-18
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 8. RELATED PARTY TRANSACTIONS -- (Continued)
Note Payable InnoPet, Inc.
Subsequent to the conversion of the InnoPet, Inc. debt to common shares of
the Company, the remaining outstanding debt of $159,000 was renegotiated to come
due in June 2001. This loan will bear interest at 1% over prime (9.5% at
December 31, 1997) with interest payable quarterly.
Sale of Common Stock to Officers and Employees and InnoPet Inc.
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 InnoPet Inc. 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 InnoPet Inc. was applied against the then outstanding
balance due to InnoPet Inc. arising from costs and expenses expended on behalf
of the Company by InnoPet Inc. In 1997, one ex-employee relinquished his right
to an aggregate of 957 shares of common stock as satisfaction of his
indebtedness to the Company. At December 31, 1997, the relinquished shares were
held in treasury at the cost of $3,236. On February 6, 1998, a former officer
assigned his 86,993 shares of common stock from this transaction and all rights
and obligations of the note serving such shares to two present officers.
In August 1997, InnoPet, Inc. canceled $91,000 of debt owed to it as
consideration for the issuance of 26,000 shares of common stock by the Company
in settlement of claims brought against InnoPet, Inc. and the Company by
certain investors.
Other
In 1997, the Company paid a director of the Company approximately $96,000
for various legal and other services which he has provided to the Company.
NOTE 9. 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 does not plan to file a consolidated income tax return with
InnoPet Inc. The successful completion of the initial public offering (see Note
11) and the sale of common stock to certain officers and employees of the
Company (see Note 8), had the effect of disqualifying the Company as a member of
the consolidated group with InnoPet Inc.
As of December 31, 1997, on a separate return basis, the Company had a net
operating loss carryforward for Federal income tax reporting purposes amounting
to approximately $16,500,000, of which approximately $6,500,000 expires in 2011
and the remaining $10,000,000 expires in 2012.
F-19
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 9. INCOME TAXES -- (Continued)
The Company presently has no significant temporary differences between
financial reporting and income tax reporting. The components of the deferred tax
asset as of December 31, 1997 were as follows:
Benefit of net operating loss carryforwards ......... $6,100,000
Less valuation allowance ............................ 6,100,000
----------
Net deferred tax asset .............................. $ --
==========
As of December 31, 1997, sufficient uncertainty exists regarding the
realizability of these operating loss carryforwards and, accordingly, a
valuation allowance of $6,100,000, 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 occurred in
1996, based upon the sale of common stock to certain officers and employees of
the Company in June 1996 (see Note 6), and the successful completion of the
Company's initial public offering prior to December 31, 1996 (the end of the
Company's taxable year). As a result, based upon the amount of the taxable loss
incurred to December 31, 1996, the Company estimates that an annual limitation
of approximately $990,000 will apply to the net operating loss carryforward
existing as of that date ($6,500,000). 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 10. PRIVATE PLACEMENT FINANCING
Debt
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 $424,000 resulting in net proceeds to the Company of approximately
$1,576,000. 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 entitled 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 initial public offering, each private placement warrant was
automatically converted into a redeemable warrant having terms identical to that
of the redeemable warrants underlying the units of the initial public offering
(see Note 11).
The fair value of these warrants was estimated to be $250,000 ($.25 per
warrant) based, among other things, upon a financial analysis of the term of the
warrants. This amount has been reflected in the accompanying financial
statements as a discount on the notes payable, with a corresponding credit to
additional paid-in capital, and was amortized over the term of the notes (four
months).
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. These placement agent
warrants were canceled upon the consummation of the initial public offering.
F-20
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 10. PRIVATE PLACEMENT FINANCING -- (Continued)
Simultaneously with the closing of the initial public offering, these
notes, together with accrued interest, were paid in full from the proceeds. The
total amount paid aggregated $2,061,944, which included $61,944 of accrued
interest.
Equity
On April 29, 1997, the Company completed a $2,500,000 private placement of
625,000 shares of Series A 4% cumulative preferred stock, par value of $.01 per
share, at $4.00 per share. The Series A Preferred Stock is convertible at the
holder's option, into common stock, on a one share for one share basis, and
bears a cumulative dividend of 4% per annum, payable quarterly by the issuance
of additional common stock. The number of shares of common stock to be issued as
a dividend shall be determined based on the average closing bid price for shares
of the common stock for the twenty trading days preceding the record date for
the declaration of the dividend. The placement agent for this private placement
received an option to purchase 62,500 shares of Series A Preferred Stock, which
has a term of five years commencing on April 29, 1998.
On December 18, 1997, the Company entered into a private placement of up to
$4,000,000, consisting of the sale of shares of 8% Series B Cumulative
Convertible Preferred Stock of the Company at $100 per share, to Explorer
Partners LLC ("Explorer"). Explorer purchased 10,000 shares of the Series B
Preferred on December 18, 1997, for gross proceeds of $1,000,000. In accordance
with the Company's December 17, 1997 Certificate of Designation, each share of
Series B Preferred Stock is convertible at any time, at the option of the holder
thereof, into that number of shares of Common Stock which is equal to $100
divided by 80% of the average closing bid price for a share of Common Stock for
the five trading days preceding the conversion date, provided that such
conversion price shall not exceed $6.00 per share of Common Stock. The Series B
Preferred Stock pays a quarterly dividend of 8% per annum, and is payable, at
the Company's sole option, in cash or by the issuance of shares of Common Stock.
The number of shares of Common Stock to be issued as a dividend shall be
determined based upon the average closing bid price for a share of Common Stock
for the five trading days preceding the last day of the calendar quarter for the
applicable dividend period. In connection with the private placement, the
Company issued 40,000 Redeemable Warrants to Explorer Fund Management, LLC on
December 18, 1997.
In February and March 1998, the Company sold a total of an additional
10,000 shares of the Series B Preferred Stock for gross proceeds of $1,000,000.
In connection with this sale, the Company issued a total of 40,000 Redeemable
Warrants.
NOTE 11. INITIAL PUBLIC OFFERING
In December 1996, the Company raised additional capital through an initial
public offering of its securities. The public offering consisted of 2,250,000
units, each unit consisting of one share of common stock and one redeemable
warrant. Each redeemable warrant entitles the holder to purchase one share of
common stock at 150% of the initial public offering price per unit, subject to
adjustment. In addition, there was an over-allotment option which was exercised
by the underwriter resulting in a total of 2,587,500 units being sold. Gross
proceeds totaled $10,350,000 and offering expenses aggregated $1,909,253,
resulting in net proceeds of $8,440,747.
In addition, the underwriter purchased warrants to purchase from the
Company 225,000 units for nominal consideration, which may be exercised anytime
in the four year period commencing at the beginning of the second year following
issuance, at an exercise price of 165% of the initial public offering price.
At the time the initial public offering was completed, the Company ceased
being a subsidiary of InnoPet Inc. inasmuch as InnoPet Inc.'s ownership of the
Company's common stock amounted to only approximately 27.5% following the
completion of the public offering.
F-21
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 12. COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company entered into an employment agreement with the chief executive
officer dated as of June 1, 1996 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
executive officers, which terminate from May, 1999 to December, 2000, contain a
one-year renewal option, generally provide for a severance payment equal to six
months of annual salary payable over six months following termination, contain
certain restrictions on competition, and provide for aggregate annual salaries
of approximately $373,000.
In June 1997, the Company and substantially all executive officers agreed
to reduce immediately each executive's salary by 25%. As of March 23, 1998 this
reduction in base salary was still in place.
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.
During 1997, 67,500 incentive stock options were granted under the Plan.
These options have an exercise price equal to the market price on January 2,
1997, which is considered to be a price at least equal to market value.
In the first quarter of 1998, 101,000 incentive stock options were granted
under the Plan, at an exercise price equal to market value.
F-22
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 12. COMMITMENTS AND CONTINGENCIES -- (Continued)
Capital Leases
The Company is obligated under a lease for certain office equipment
expiring January, 2000. Future minimum capital lease payments and the net
present value of the future minimum lease payments at December 31, 1997 are as
follows:
Year Ending December 31,
1998 ................................................ $ 15,600
1999 ................................................ 15,600
2000 ................................................ 1,300
--------
Total minimum lease payments ............. ......... 32,500
Less amount representing interest ................... 1,400
--------
Present value of net minimum lease payments ......... 31,100
Current maturities .................................. 14,600
--------
$ 16,500
========
Facilities Agreement
The Company has entered into a facilities agreement with InnoPet Inc.
whereby it has agreed to lease its premises, furnishings and equipment from
InnoPet Inc. until April 30, 2001. The future minimum lease payments due under
this agreement are as follows:
Year ending December 31,
1998 ................................................ $ 310,000
1999 ................................................ 325,000
2000 ................................................ 341,000
2001 ................................................ 114,000
----------
$1,090,000
==========
Financing Consulting Agreement
On December 5, 1996, the Company entered into a financial advisory and
consulting agreement with Joseph Stevens & Company, L.P. the underwriter
involved in the initial public offering (the "Consultant"). The agreement
outlines the Consultant's duties to include, but not be limited to, rendering
advice with regards to financial reports, press releases, meetings with
securities analysts, and internal operations of the Company. The term of the
agreement is twenty-four months commencing on December 5, 1996, with
compensation of $48,000 due at commencement.
Litigation
On March 16, 1998, Entrepreneurial Investors, Ltd., a Bahamas company
("EIL"), commenced an action against the Company seeking specific performance
of the Company's obligations under a registration rights agreement dated April
28, 1997 and a bridge loan agreement, dated July 9, 1997. The complaint alleges
that the Company had an obligation to register shares of common stock
underlying 625,000 shares of the Company's Series A Convertible Preferred Stock
purchased by EIL pursuant to a subscription agreement dated as of April 28,
1997, in exchange for $2,500,000. The complaint further alleges that the
Company is obligated to register certain securities, including shares of common
stock relating to warrants acquired by EIL.
The action is currently in its preliminary stages. Although the Company
denies liability, it is contemplated that a contemplated registration
statement, when it becomes effective, will satisfy all of EIL's claims as
asserted, thereby rendering that action moot.
F-23
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 12. COMMITMENTS AND CONTINGENCIES -- (Continued)
On December 22, 1997, a vendor commenced an action against the Company for
alleged non-payment for packaging services. Plaintiff seeks money damages of
approximately $119,000, plus interest. Plaintiff filed a motion for summary
judgment on the ground of account stated. The Company filed a cross-motion for
lack of personal jurisdiction and opposed the motion by plaintiff for summary
judgment. The Company answered the complaint denying all liability and asserted
counter-claims.
NOTE 13. 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 December 31, 1997.
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 December 31, 1997 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 December 31, 1997, 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 14. SUBSEQUENT EVENTS
Debt Financing
In January 1998, the Company increased its borrowings from IBF from
$262,500 to $762,500 (see Note 7). The net proceeds from the increase amounted
to approximately $350,000. The new note matures April 27, 1998, has a stated
interest rate of 18% payable monthly and is collateralized by the Company's
receivables, inventories, and property and equipment. In March 1998, the
Company was notified by IBF that it had failed to make interest payments in the
amount of $12,200 and, therefore, was in default under the terms of the loan.
As a result, on March 17, 1998 IBF made a written demand requesting that the
Company immediately deliver to IBF collateral.
Conversion of Debt to Equity
On January 15, 1998, the Company's failed to make payment on the debt to
EIL of $1,500,000 plus interest when due. The satisfaction of the debt was to
be either in cash or stock, at the lender's discretion. EIL contends that since
the Company was not able to repay the principal and interest in cash when
requested, the Company is in default, and all 600,000 common shares in escrow,
held as collateral for the loan, should be issued. While the Company agrees
that common shares are to be issued in connection with the conversion of this
debt, the number of shares to be issued is currently being disputed (see Note
7).
F-24
<PAGE>
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS -- (Continued)
NOTE 14. SUBSEQUENT EVENTS -- (Continued)
Subscription Agreement for Sale of Common Shares
On March 23, 1998 the Company entered into a Subscription Agreement
whereby the Company will issue a total of $3,600,000 of common stock over a
twenty-four month period based upon the payment of $150,000 each month and a
per share purchase price equal to 80% of the lowest closing bid price for the
Common Stock for the twenty trading days preceding each investment date; and
the grant by the Company of an option to purchase up to a total of $50,000,000
of common stock over a twenty-four month period based upon a per share purchase
price equal to 85% of the lowest closing bid price for the Common Stock for the
five trading days preceding each investment date. The Subscription Agreement
provides however that the investor will forego funding the monthly investment
in the event that the average closing bid price for a share of commmon stock as
quoted on the OCT Bulletin Board for the five trading days preceding any
monthly investment falls below $2.00 per share. On March 23, 1998 the closing
bid price was $1.125. There can be no assurances that the closing bid price for
a share of common stock will equal or exceed $2.00. Additionally, the Company
does not presently have a sufficient number of authorized and unissued shares
to issue should the investor choose to exercise the option. The Company plans
to seek stockholder approval to amend its certificate of incorporation
accordingly.
NASDAQ Listing Qualifications
On March 20, 1998, the Company was delisted by the NASDAQ Small-Cap Market
for failing to meet the current net tangible asset requirement of NASDAQ, which
is $2,000,000. There can be no assurances that the Company will in the future
satisfy the net tangible assets requirement of NASDAQ. The Company's securities
as of March 23, 1998 are quoted on the OTC Electronic Bulletin Board, an
inter-dealer automated quotation system sponsored and operated by the National
Association of Securities Dealers.
NOTE 15. PRO FORMA PRESENTATION (UNAUDITED)
The historical financial statements as of December 31, 1997 have been
supplemented to present on a pro forma basis the following transaction which
occurred subsequent to December 31, 1997, assuming that these transactions had
been consummated as of December 31, 1997.
Conversion of Debt to Equity
In connection with the conversion of the EIL debt to common shares, the
conversion of the maximum number of shares to be issued upon conversion
(600,000 shares) is presented on a pro forma basis. The amount converted to
equity was $1,605,000, comprised of $1,500,000 of principal and $105,000 of
accrued interest.
Issuance of Preferred Shares
Subsequent to December 31, 1997, the Company sold a total of 10,000 shares
of Series B 8% Cumulative Convertible Preferred Stock for total gross proceeds
of $1,000,000. These shares are convertible into common stock, have a $100 per
share par value and a liquidating value of $100.00 per share. A portion of the
proceeds of the sale of these securities ($800,000)is to be held in escrow by a
third party until the registration of the underlying shares is complete.
F-25
<PAGE>
===============================================================================
No underwriter, dealer, salesperson or other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any date subsequent to the date hereof. 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 in which such offer or
solicitation is not authorized or in which the person making the offer is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any offer or sale made
hereunder shall, under any circumstances, create any implication that there has
been no change 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
Section Page
- ------- ----
Available Information ............................ 2
Summary .......................................... 3
The Company ...................................... 3
The Offering ..................................... 4
Summary Financial Information .................... 6
Risk Factors ..................................... 7
The Company ...................................... 11
Use of Proceeds .................................. 11
Price Range of Common Stock and
Redeemable Warrants ........................... 11
Dividend Policy .................................. 13
Capitalization ................................... 14
Selected Financial Data .......................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 16
Business ......................................... 18
Management ....................................... 24
Executive Compensation and Other
Information ................................... 25
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities 27
Stock Option Plan ................................ 28
Certain Transactions ............................. 29
Principal Stockholders ........................... 31
Selling Securityholders .......................... 33
Plan of Distribution ............................. 36
Description of the Company's Securities .......... 37
Shares Eligible for Future Sale .................. 38
Legal Matters .................................... 39
Experts .......................................... 39
===============================================================================
<PAGE>
===============================================================================
INNOPET BRANDS
CORP.
Shares of Common Stock
and Redeemable Warrants
----------
PROSPECTUS
----------
March , 1998
===============================================================================
<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 Eight of the Certificate of Incorporation of
the Registrant for the provisions which the Registrant has adopted relating to
the indemnification of officers, directors, employees and agents.
The Registrant has purchased directors' and officers liability insurance.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, payable in
connection with the sale of the Common Stock and Redeemable Warrants
(collectively the "Securities") being registered hereby. Except for the SEC
registration fee, all expenses are estimated.
Item Amount
- ---- --------------
SEC registration fee ............................ $ 4,690.05
Printing and engraving expenses ................. 20,000.00
Legal fees and expenses ......................... 50,000.00
Auditors' accounting fees and expenses .......... 15,000.00
-----------
TOTAL ........................................... $ 89,690.05
===========
In addition, the holders of the Securities being registered hereby will be
responsible for all selling commissions, transfer taxes and related charges in
connection with the offer and sale of the Securities offered hereby.
Item 26. Recent Sales of Unregistered Securities.
From January through August 1996, IPI contributed capital of $2,221,348 in
exchange for 1,182,432 shares of Common Stock. In June 1996, IPI also purchased
43,497 shares of Common Stock in exchange for $139,190 in financing. In August,
1997, IPI cancelled $91,000 of debt owed to it by the Company as consideration
for the issuance of 26,000 shares of Common Stock by the Company in settlement
of claims brought against IPI and the Company by certain investors.
On December 31, 1997, IPI exchanged (i) principal and accrued interest in
the aggregate amount of $773,702.97, payable pursuant to a five year note dated
June 5, 1996 from the Company to IPI, in the principal amount of $1.0 million,
which bears interest at one percent above the prime rate, and (ii) accounts
payable in
II-1
<PAGE>
the amount of $543,828.42, pursuant to a facilities agreement with the Company
(collectively, the "Debt"), for 396,847 shares of Common Stock of the Company,
which represents a number equal to the Debt divided by a number equal to eighty
percent of the average closing bid price for a share of Common Stock as then
reported by Nasdaq for the five trading days immediately preceding the closing
date (the "Exchange Rate"). The shares of Common Stock issued to IPI are not
transferable for a period of twelve months from the closing date without the
prior written consent of the Company. Pursuant to the Exchange Agreement, the
Exchange Rate shall be adjusted such that if, at any time during the one year
period following the closing date, the average closing bid price for a share of
the Company's Common Stock is less than or equal to $2.50 per share of Common
Stock for forty-five (45) consecutive days, the Company shall issue to IPI
additional shares of Common Stock equal to the difference between (a) the number
of shares of Common Stock which would have resulted if the Debt had been
exchanged at an Exchange Rate of $2.50 and (b) 396,847. Accordingly, the Company
may issue additional shares of Common Stock to IPI in the future.
On June 1, 1996, the Company sold a total of 652,449 shares of Common Stock
to Messrs. Duke and Masters, Ms. Duke and to 14 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. Listed below are the names of
the employees who purchased the shares of Common Stock, the number of shares
purchased and the consideration paid.
Shares Consideration
---------- --------------
Linda Duke 34,797 $ 111,350
Marc Duke 417,566 $1,336,213
Robin Hunter (1) 43,497 $ 139,190
Albert A. Masters 43,497 $ 139,190
Dana Vaughn (2) 86,993 $ 278,378
Eric Zurbuchen 17,399 $ 55,677
Susan Leonhardt 1,740 $ 5,568
John Jablonski 1,305 $ 4,176
Francis Daily (1) 435 $ 1,392
Tara Slack 783 $ 2,506
Deardra Thompson 783 $ 2,506
Henry Ford 783 $ 2,506
Debra Iannaci (1) 522 $ 1,670
Michael Zealy 522 $ 1,670
Mary Lou Bole 348 $ 1,114
Pamela Medlin 261 $ 835
David Santos 435 $ 3,392
James Kane 261 $ 835
Mary Huff 174 $ 557
Eve Uydess 174 $ 557
Michelle Raglind 174 $ 557
------- ----------
TOTAL 652,449 $2,098,839
- ------------
(1) These shares have been repurchased by the Company for the value of the
underlying loan plus accrued interest.
(2) On February 6, 1998, Dana Vaughn, a former vice president of the Company,
assigned his shares of Common Stock (86,993 issued in connection with the
delivery of a promissory note) and all the rights and obligations of the
note secured by such shares, to Michael Winer and John Bieber.
II-2
<PAGE>
Pursuant to a private placement 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
- ---- ------------
Daniel R. Lee 250,000
Jerry Finkelstein 50,000
Laurence Heller 50,000
Ralph K. Kato IRA 50,000
Barry J. Lind, Neil G. Blum (2) 50,000
Barry J. Lind, Revocable Trust 50,000
Peter Maher and Patricia Maher (1) 50,000
Alfred S. Palagonia 50,000
Nancy A. Roehl 50,000
Peter G. Roehl 50,000
Francine Urdang 50,000
Joseph V. DiMauro 25,000
Joseph V. DiMauro, as Custodian for Joseph Robert DiMauro 25,000
Jack Kaster 25,000
Steven H. Kessler 25,000
Frank C. Rathge Trust 25,000
M. Jerome Rieger 25,000
-------
TOTAL 1,000,000
- ------------
(1) Joint tenants with rights of survivorship.
(2) Tenants-in-Common.
On April 29, 1997, the Company completed a $2.5 million private placement
(the "Private Placement") of 625,000 shares of Series A 4% Cumulative
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), at $4.00 per share, to Entrepreneurial Investors, Ltd., a Bahamas
company ("EIL"). The Series A Preferred Stock is convertible, at the holder's
option, into Common Stock, on a one share for one share basis, and bears a
cumulative dividend of four percent (4%) per annum, payable quarterly by the
issuance of additional Common Stock. The number of shares of Common Stock to be
issued as a dividend shall be determined based upon the average closing bid
price for shares of the Common Stock as quoted on the OTC Bulletin Board for the
twenty trading days preceding the record date for the declaration of the
dividend. The placement agent for this Private Placement, Equity Services, Ltd.,
a Bahamas company, received an option to purchase 62,500 shares of Series A
Preferred Stock, which has a term of five years commencing on April 29, 1998.
On July 9, 1997, the Company issued a senior convertible note (the "Note")
to EIL, in the principal amount of $1.5 million, with a stated interest rate of
14% per annum and a maturity date of January 15, 1998. Any interest under the
Note may be paid, at the option of the holder, in Common Stock valued at $4.50
per share. The Note is collateralized by 600,000 shares of Common Stock being
registered in this offering and may be converted, at the option of EIL, into
Common Stock at a conversion price of $4.50 per share. EIL has taken possession
of the collateral and commenced an action for specific performance demanding,
among other items, that such collateral be registered. See "Business --
Litigation". Additionally, in connection with the loan, the Company issued
225,000 Redeemable Warrants to Equity Services Ltd., an affiliate of EIL.
Pursuant to a Settlement Agreement dated August 29, 1997 among the Company
and Charles Johnston, the Company issued, on behalf of IPI, 13,000 shares of
Common Stock, which shares are not transferable for a period of twelve months
from their date of issuance.
Pursuant to a Settlement Agreement dated August 5, 1997 among the Company,
IPI and Ronald H. and Margaret T. Rust, the Company issued 13,000 shares of
Common Stock, which shares are not transferable for a period of twelve months
from their date of issuance.
II-3
<PAGE>
On December 18, 1997 the Company entered into a private placement of up to
$4.0 million, consisting of the sale of shares of Series B Preferred Stock of
the Company at $100 per share, to Explorer Partners LLC ("Explorer"). Explorer
purchased 10,000, 2,000 and 8,000 shares of the Series B Preferred on December
18, 1997, February 20, 1998 and March 18, 1998, respectively. Net proceeds to
the Company to date from such private placement are approximately $2.0 million.
Each share of Series B Preferred Stock is convertible at any time, at the option
of the holder thereof, into that number of shares of Common Stock which is equal
to $100 divided by 80% of the average closing bid price for a share of Common
Stock as quoted on the OTC Electronic Bulletin Board for the five trading days
preceding the conversion date, provided, that such conversion price shall not
exceed $6.00 per share of Common Stock. The Series B Preferred Stock pays a
quarterly dividend of 8% per annum, and is payable, at the Company's option, in
cash or by the issuance of shares of Common Stock. The number of shares of
Common Stock to be issued as a dividend, if applicable, shall be determined
based on the average closing bid price for a share of Common Stock as quoted on
the OTC Electronic Bulletin Board for the five trading days preceding the last
day of the calendar quarter for the applicable dividend period. In connection
with the private placement, the Company issued 40,000, 8,000 and 32,000
Redeemable Warrants to Explorer Fund Management, L.L.C. on December 18, 1997,
February 20, 1998 and March 18, 1998, respectively. In addition, the Company
issued 100,000 Redeemable Warrants to Coleman and Coleman Securities, Inc.
In December 1997, the Company completed a private placement of 4 units (the
"Units") to Curi Oil Co. LLC, each Unit consisting of a promissory note of the
Company in the principal amount of $25,000, bearing interest at the rate of 10%
per annum and maturing 90 days after the date of issuance, and redeemable
warrants to purchase 30,000 shares of Common Stock expiring on December 5, 2001,
at an exercise price of $6.00 per share. Curtis Granet, a director of the
Company holds a 40% membership interest in Curi Oil Co. LLC, and was issued
10,000 Redeemable Warrants in connection with this transaction.
In December, 1997, the Company completed a private placement of 1 unit,
each unit consisting of a promissory note in the principal amount of $25,000,
bearing interest at the rate of 10% per annum and maturing 90 days from the
issuance thereof, and Redeemable Warrants to purchase 25,000 shares of Common
Stock, expiring on December 5, 2001, at an exercise price of $6.00 per share.
On December 3, 1997, the Company issued to Interbank Special Purpose
Corporation II ("IBF"), a wholly- owned special purpose subsidiary of Coleman
and Coleman Securities, Inc. ("Coleman"), a secured promissory note in the
principal amount of $262,500 (the "IBF Note"). Subsequently on January 28, 1998,
the loan was increased to $762,500. The IBF Note bears interest at the rate of
1.5% per month (18% per annum) and matures on April 28, 1998. Interest on the
IBF Note is payable on a monthly basis. The IBF Note is secured by, among other
things, all inventory, equipment, vehicles, accounts receivables, trade names
and trademarks of the Company (the "Collateral"). On March 17, 1998, IBF
notified the Company of its default under the IBF Note and made a written demand
requesting that the Company immediately deliver to IBF the Collateral. The
Company intends to use a portion of the proceeds received from the Investment to
pay the outstanding principal, interest and fees on the IBF Notes.
In February 1998, the Company completed a private placement of units, each
unit consisting of a promissory note in the principal amount of $25,000, bearing
interest at the rate of 10% per annum and maturing 90 days from the issuance
thereof, and Redeemable Warrants to purchase 25,000 shares of Common Stock,
expiring on December 5, 2001, at an exercise price of $6.00 per share. The
following persons purchased from the Company the number of Redeemable Warrants
set forth next to each of their names:
NAME WARRANTS
- ---- --------
Manuel Arvesu 50,000
SFG Financial Services, Inc. 50,000
Rafael Pratts, Jr. 50,000
Southlake Trading Corp. 25,000
Lynn M. Esco 25,000
On February 10, 1998, the Company agreed to issue 4,444 shares to M.W.
Houck as payment in full for broker fees outstanding.
II-4
<PAGE>
Pursuant to a Settlement Agreement dated March 9, 1998 among the Company,
the predecessor to IPI, Beverage Canners International Corporation ("BCIC"), and
others, the Company agreed to issue shares of Common Stock equal to $38,750 or
10,000 shares of Common Stock, whichever is greater, to BCIC.
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 Registrant's knowledge,
the purchase of the securities described above acquired them for their own
account, and with the view to any distribution thereof to the public.
Item 27. Exhibits.
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Description of Document
- ------- -----------------------
3.1 Certificate of Incorporation, as amended*
3.2 Certificate of Designation of Series A Preferred Stock*
3.3 By-Laws of the Registrant*
3.4 Certificate of Designation of Series B Preferred Stock+
4.1 Redeemable Warrant Agreement entered into between Registrant and
Continental Stock Transfer & Trust Co., including form of Redeemable
Warrant Certificate*
4.2 Form of Representative's Warrant Agreement including Form of
Representative's Warrant*
4.3 Specimens of Registrant's Common Stock, and Redeemable Warrant
Certificate*
4.4 Investor Subscription Agreement between Registrant and Entrepreneurial
Investors, Ltd.*
4.5 Registration Rights Agreement between Registrant and Entrepreneurial
Investors, Ltd.*
4.6 Loan Agreement between Registrant and Entrepreneurial Investors, Ltd.
with exhibits*
4.7 Exchange Agreement between Registrant and InnoPet Inc., with exhibits+
4.8 Form of Investor Subscription Agreement and Investment Representation
between Registrant and Explorer Partners LLC+
4.9 Form of Subscription Agreement between Registrant and Explorer Fund
Management, L.L.C.+
4.10 Form of Registration Rights Agreement between Registrant and Explorer
Partners LLC+
4.11 Form of Subscription Agreement and Investment Representation between
Registrant and December, 1997 and February, 1998 private placement
investors+
4.12 Form of Promissory Note between Registrant and December, 1997 and
February, 1998 private placement investors+
4.13 Amended Secured Promissory Note from Registrant in favor of Interbank
Special Purpose Corporation II+
4.14 Subscription Agreement and Investment Representation between Registrant
and HSBC James Capel Canada, Inc.+
5.1 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 John Bieber*
10.4 Employment Agreement between Registrant and Linda Duke with exhibits*
10.5 Employment Agreement between Registrant and Albert Masters with
exhibits*
10.6 Facilities Agreement between Registrant and InnoPet Inc.*
10.7 Supply Agreement between Registrant and Monfort, Inc.*
10.8 Employment Agreement between Registrant and Michael L. Winer+
11.1 Statement re: Computation of Earnings per Share+
23.1 Consent of Camhy Karlinsky & Stein LLP - included in Exhibit 5.1
II-5
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
23.2 Consent of Rachlin Cohen & Holtz+
24 Power of Attorney for Michael L. Winer (contained on page II-6 of this
Registration Statement)++
- ------------
* Previously filed.
+ Filed herewith.
++ Power of Attorney for all other officers and directors, other than Burnett W.
Donoho filed with September 30, 1997 Registration Statement.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales of the Securities
are being made, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933, as amended (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) may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in 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) To include any additional or changed material information on the
plan of distribution.
2. That, for the purpose of determining liability under the Securities Act,
it shall treat each post-effective amendment as a new registration statement of
the securities offered, and treat the offering of the securities at that time as
an initial bona fide offering.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remains unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 15, or otherwise, the Company has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer of controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the Shares being registered hereby, the Company will,
unless, in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question as to
whether such indemnification by the Company against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such
issue.
II-6
<PAGE>
SIGNATURES
Pursuant to 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 for filing on Form SB-2 and has duly caused this Registration
Statement on its behalf by the undersigned, thereunto duly authorized, in the
City of Fort Lauderdale, State of Florida, on the 26th day of March, 1998.
INNOPET BRANDS CORP.
By: /s/ Marc Duke
-----------------------------------
Marc Duke
Chief Executive Officer and
Chairman of the Board
KNOW ALL PERSONS BY THESE PRESENTS, that Michael L. Winer whose signature
appears below constitutes and appoints Marc Duke, 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 same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, 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 so in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael L. Winer Vice-President, Chief Financial Officer March 26, 1998
- ------------------------------- and Secretary
Michael L. Winer (Principal Financial and Accounting
Officer)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------- -----------------------
3.1 Certificate of Incorporation, as amended*
3.2 Certificate of Designation of Series A Preferred Stock*
3.3 By-Laws of the Registrant*
3.4 Certificate of Designation of Series B Preferred Stock+
4.1 Redeemable Warrant Agreement entered into between Registrant and
Continental Stock Transfer & Trust Co., including form of Redeemable
Warrant Certificate*
4.2 Form of Representative's Warrant Agreement including Form of
Representative's Warrant*
4.3 Specimens of Registrant's Common Stock, and Redeemable Warrant
Certificate*
4.4 Investor Subscription Agreement between Registrant and Entrepreneurial
Investors, Ltd.*
4.5 Registration Rights Agreement between Registrant and Entrepreneurial
Investors, Ltd.*
4.6 Loan Agreement between Registrant and Entrepreneurial Investors, Ltd.
with exhibits*
4.7 Exchange Agreement between Registrant and InnoPet Inc., with exhibits+
4.8 Form of Investor Subscription Agreement and Investment Representation
between Registrant and Explorer Partners LLC+
4.9 Form of Subscription Agreement between Registrant and Explorer Fund
Management, L.L.C.+
4.10 Form of Registration Rights Agreement between Registrant and Explorer
Partners LLC+
4.11 Form of Subscription Agreement and Investment Representation between
Registrant and December, 1997 and February, 1998 private placement
investors+
4.12 Form of Promissory Note between Registrant and December, 1997 and
February, 1998 private placement investors+
4.13 Amended Secured Promissory Note from Registrant in favor of Interbank
Special Purpose Corporation II+
4.14 Subscription Agreement and Investment Representation between Registrant
and HSBC James Capel Canada, Inc.+
5.1 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 John Bieber*
10.4 Employment Agreement between Registrant and Linda Duke with exhibits*
10.5 Employment Agreement between Registrant and Albert Masters with
exhibits*
10.6 Facilities Agreement between Registrant and InnoPet Inc.*
10.7 Supply Agreement between Registrant and Monfort, Inc.*
10.8 Employment Agreement between Registrant and Michael L. Winer+
11.1 Statement re: Computation of Earnings per Share+
23.1 Consent of Camhy Karlinsky & Stein LLP - included in Exhibit 5.1
23.2 Consent of Rachlin Cohen & Holtz+
24 Power of Attorney for Michael L. Winer (contained on page II-6 of this
Registration Statement)++
- ------------
* Previously filed.
+ Filed herewith.
++ Power of Attorney for all other officers and directors, other than Burnett W.
Donoho filed with September 30, 1997 Registration Statement.
<PAGE>
Exhibit 3.4
CERTIFICATE OF DESIGNATION OF
PREFERRED STOCK
OF
INNOPET BRANDS CORP.
InnoPet Brands Corp. (the "Company"), a corporation organized
and existing under the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
that, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Company, and pursuant to the provisions of
Section 151 of Title 8 of the Delaware Code of 1953, said Board of Directors, by
unanimous written consent of its members, filed with the minutes of the Board of
Directors, adopted a resolution providing for the issuance of a series of shares
of Series B Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of the Company in accordance with the provisions of its Certificate
of Incorporation, a series of Preferred Stock of the Company be and hereby is
created, such series of Preferred Stock to be designated Series B Cumulative
Convertible Preferred Stock, to consist of shares, par value $100 per share,
which shall possess the rights and preferences set forth below:
Section 1. Designation and Amount. The shares of such series
shall have a par value of $100 per share and shall be designated as Series B
Cumulative Convertible Preferred Stock (the "Series B Preferred Stock" or the
"Series B Preferred Shares") and the number of shares constituting the Series B
Preferred Stock shall be Forty Thousand (40,000). The Series B Preferred Stock
shall be issued for and shall be deemed to have an original issue price of $100
per share.
Section 2. Rank. The Series B Preferred Stock shall rank: (i)
prior to all of the Company's common stock, $.01 par value per share (the
"Common Stock" or the "Common Shares"); (ii) prior to any class or series of
capital stock of the Company hereafter created not specifically ranking by its
terms senior to or on parity with any Preferred Stock of whatever subdivision
(collectively, with the Common Shares, "Junior Securities"); (iii) on parity
with the Company's previously designated Series A Preferred Stock; and (iv) on
parity with any class or series of capital stock of the Company hereafter
created specifically ranking by its terms on parity with the Series B Preferred
Stock ("Parity Securities") in each case as to distributions of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
<PAGE>
Section 3. Dividends. The Series B Preferred Stock will bear a
cumulative dividend equal to 8% per annum, payable quarterly. Dividends shall
accrue on each share of Series B Preferred Stock from day to day from the date
of initial issuance through the date of each share's conversion. The dividend is
payable, at the Company's sole option, by the issuance of shares of Common
Stock, or in cash. Dividends shall be payable, to the extent accrued, to the
holders of record of the Series B Preferred Stock at the close of business on
the last day of each calendar quarter (each such day a "Record Date") and if a
record holder has converted any shares of Series B Preferred Stock, pursuant to
Section 5 hereof, prior to a Record Date; such dividend shall be payable to such
holder of record of the Series B Preferred Stock on the date of conversion. All
dividends shall be paid on the tenth day after the applicable Record Date. The
number of shares of Common Stock to be issued as a dividend shall be equal to
the amount of the dividend accrued divided by the average closing bid price of
the Common Stock as reported by the Nasdaq SmallCap System (or other quotation
system or national exchange on which the Common Stock is then listed or quoted
(the "Applicable Quotation System or Exchange")) for the five (5) trading days
preceding the last day of each calendar quarter for the applicable dividend
period.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of the Company, either voluntary or involuntary, the holders of
Series B Preferred Stock (the "Holders") shall be entitled to receive, prior in
preference to any distribution to Junior Securities but in parity with any
distribution to Parity Securities, an amount per share equal to the par value of
the Series B Preferred Stock. If upon the occurrence of such event, and after
payment in full of the preferential amounts with respect to Senior Securities
(as defined herein), the assets and funds available to be distributed among the
Holders of the Series B Preferred Stock and Parity Securities shall be
insufficient to permit the payment to such Holders of the full preferential
amounts due to the Holders of the Series B Preferred Stock and the Parity
Securities, respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the Holders of the
Series B Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Company's Certificate of Incorporation and any certificate(s) of designation
relating thereto. The term "Senior Securities" shall mean, for purposes of this
Section 4, any class or series of stock of the Company hereafter created ranking
senior to the Series B Preferred Stock in respect of the right to receive assets
upon the liquidation, dissolution or winding up of the affairs of the Company.
(b) Upon the completion of the distribution required
by Section 4(a), if assets remain in this Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation including any duly adopted certificate(s) of designation.
-2-
<PAGE>
(c) At each Holder's option, a sale, conveyance or
disposition of all or substantially all the assets of the Company to a private
entity, the common stock of which is not publicly traded, shall be deemed to be
a liquidation, dissolution or winding up within the meaning of this Section 4;
provided, however, that an event described in the prior clause that the Holder
does not elect to treat as a liquidation and a consolidation, merger,
acquisition or other business combination of the Company with or into any other
company or companies shall not be treated as a liquidation, dissolution or
winding up within the meaning of this Section 4, but instead shall be treated
pursuant to Section 5(d)(ii) hereof (a Holder who elects to have the transaction
treated as a liquidation is herein referred to as a "Liquidating Holder").
(d) Prior to the closing of a transaction described
in Section 4(c) which would constitute a liquidation event, the Company shall
either: (i) make all cash distributions it is required to make to the
Liquidating Holders pursuant to the first sentence of Section 4(a); (ii) set
aside sufficient funds from which the cash distributions required to be made to
the Liquidating Holders can be made; or (iii) establish an escrow or other
similar arrangement with a third party pursuant to which the proceeds payable to
the Company from a sale of all or substantially all the assets of the Company
will be used to make the liquidating payments to the Liquidating Holders
immediately after the consummation of such sale. In the event that the Company
has not fully complied with either of the foregoing alternatives, the Company
shall either: (x) cause such closing to be postponed until such cash
distributions have been made; or (y) cancel such transaction, in which event the
rights of the Holders or other arrangements shall be the same as existing
immediately prior to such proposed transaction.
Section 5. Conversion. The record Holders of the Series B
Preferred Stock shall have conversion rights as follows:
(a) Right to Convert; Automatic Conversion. Each
record Holder of Series B Preferred Stock may convert whole shares of Series B
Preferred Stock into Common Shares issuable upon conversion of the Series B
Preferred Stock at any time as long as the Holder follows the procedures set
forth herein. All shares of Series B Preferred Stock outstanding and not
converted prior to the date which is three (3) years from the date of their
issuance shall automatically convert on such date (the "Automatic Conversion
Date") into shares of Common Stock.
(b) Rate of Conversion; Conversion Price. Each whole
share of Series B Preferred Stock shall convert into that number of shares of
Common Stock which is equal to $100 divided by the Conversion Price (as defined
herein), subject to adjustment as provided in Section 5(d) hereof. The number of
Common Shares issuable upon the conversion of one share of Series B Preferred
Stock is herein referred to as the "Conversion Rate". The conversion price (the
"Conversion Price") of the Series B Preferred Shares will be equal to 80% of the
average closing bid price for a share of Common Stock as reported on the
Applicable Quotation System or Exchange for the five (5) trading days preceding
-3-
<PAGE>
the Date of Conversion (as defined herein); provided, however, that in no event
shall the Conversion Price exceed $6.00 per share of Common Stock.
(c) Mechanics of Conversion. In order to convert
Series B Preferred Stock into full Common Shares, the Holder shall (i) fax, on
or prior to 6:00 p.m., New York City time on the Date of Conversion, a copy of a
fully executed Notice of Conversion to the Company at the office of the Company
or to the Company's designated transfer agent (the "Transfer Agent") for the
Series B Preferred Stock stating that the Holder elects to convert, which notice
shall specify the date of conversion and the number of shares of Series B
Preferred Stock to be converted, and (ii) surrender to a common courier for
either overnight or two (2) day delivery to the office of the Company or the
Transfer Agent, the original certificates representing the Series B Preferred
Stock being converted (the "Series B Preferred Stock Certificates"), duly
endorsed for transfer; provided, however, that the Company shall not be
obligated to issue certificates evidencing the Common Shares issuable upon such
conversion unless the Series B Preferred Stock Certificates are delivered to the
Company or the Transfer Agent as provided above, or the Holder notifies the
Company or the Transfer Agent that such certificates have been lost, stolen or
destroyed (subject to the requirements of subparagraph (i) below). Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Series B Preferred Stock surrendered for conversion or
upon the written order of the Holder of the certificate so surrendered for
conversion, the Company shall issue and deliver a new certificate covering the
number of shares of Series B Preferred Stock representing the unconverted
portion of the certificate so surrendered.
(i) Lost or Stolen Certificates. Upon
receipt by the Company of evidence of the loss, theft, destruction or mutilation
of any Series B Preferred Stock Certificates representing shares of Series B
Preferred Stock, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon surrender and
cancellation of the Series B Preferred Stock Certificate(s), if mutilated, the
Company shall execute and deliver new Series B Preferred Stock Certificate(s) of
like tenor and date. However, the Company shall not be obligated to re-issue
such lost or stolen Series B Preferred Stock Certificates if the Holder
contemporaneously requests the Company to convert such Series B Preferred Stock
into Common Shares.
(ii) Delivery of Common Shares Upon
Conversion. The Company, no later than 6:00 p.m. (New York City time) on the
third (3rd) business day after receipt by the Company or its Transfer Agent of
all necessary documentation duly executed and in proper form required for
conversion, including the original Series B Preferred Stock Certificates to be
converted (or after provision for security or indemnification in the case of
lost, stolen or destroyed certificates, if required), shall issue and deliver to
the Holder as shown on the stock records of the Company a certificate for the
number of Common Shares to which the Holder shall be entitled as aforesaid.
-4-
<PAGE>
(iii) No Fractional Shares. If any
conversion of the Series B Preferred Stock would create a fractional Common
Share or a right to acquire a fractional Common Share, such fractional share
shall be disregarded and the number of Common Shares issuable upon conversion,
in the aggregate, shall be the next higher number of shares.
(iv) Date of Conversion. The date on which
conversion occurs (the "Date of Conversion") shall be deemed to be (a) the date
on which a notice of conversion (the "Notice of Conversion") is faxed to the
Company or the Transfer Agent, as the case may be, provided an advance copy of
such Notice of Conversion is faxed to the Company on or prior to 6:00 p.m, New
York City time on the Date of Conversion, or (b) the Automatic Conversion Date.
The original Series B Preferred Stock Certificates representing the shares of
Series B Preferred Stock to be converted shall be surrendered by depositing such
certificates with a common courier for either overnight or two (2) day delivery,
as soon as possible following the Date of Conversion. The person or persons
entitled to receive the Common Shares issuable and in whose name the certificate
or certificates for Common Stock are to be issued upon such conversion shall be
treated for all purposes as the record Holder or Holders of such Common Shares
on the Date of Conversion.
(d) Adjustment to Conversion Rate.
(i) Adjustment Due to Stock Split, Stock
Dividend, etc. If, prior to the conversion of all the Series B Preferred Stock,
the number of outstanding Common Shares is increased by a stock split, stock
dividend, or other similar event, the Conversion Rate shall be proportionately
increased, or if the number of outstanding Common Shares is decreased by a
combination or reclassification of shares, or other similar event, the
Conversion Rate shall be proportionately decreased.
(ii) Adjustment Due to Merger,
Consolidation, etc. If, prior to the conversion of all the Series B Preferred
Stock, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
Common Shares of the Company shall be changed into the same or a different
number of shares of the same or another class or classes of stock or securities
of the Company or another entity or there is a sale of all or substantially all
the Company's assets that is not deemed to be a liquidation pursuant to Section
4(c), then the Holders of Series B Preferred Stock shall thereafter have the
right to receive upon conversion of Series B Preferred Stock, upon the basis and
upon the terms and conditions specified herein and in lieu of the Common Shares,
immediately theretofore issuable upon conversion, such stock, securities and/or
other assets which the Holder would have been entitled to receive in such
transaction had the Series B Preferred Stock been converted immediately prior to
such transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holders of the Series B Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for the adjustment of the Conversion Rate and of the number of shares
issuable upon conversion of the Series B Preferred Stock) shall thereafter be
applicable, as nearly as may be practicable in relation to any securities
-5-
<PAGE>
thereafter deliverable upon the conversion thereof. The Company shall not effect
any transaction described in this subsection 5(d)(ii) unless (a) it first gives
fifteen (15) calendar days prior notice of such merger, consolidation, exchange
of shares, recapitalization, reorganization, or other similar event (during
which time the Holders shall be entitled to convert their Series B Preferred
Stock into Common Shares to the extent permitted hereby) and (b) the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation of the Company under this Certificate of Designation, including
the obligation of this subsection 5(d)(ii).
(iii) No Fractional Shares. If any
adjustment under this Section 5(d) would create a fractional Common Share or a
right to acquire a fractional Common Share, such fractional share shall be
disregarded and the number of Common Shares issuable upon conversion shall be
the next higher number of shares.
Section 6. Voting Rights. The Holders of the Series B
Preferred Stock shall have no voting power whatsoever, except as otherwise
provided by the General Corporation Law of the State of Delaware ("Delaware
Law"), and no Holder of Series B Preferred Stock shall vote or otherwise
participate in any proceeding in which actions shall be taken by the Company or
the shareholders thereof or be entitled to notification as to any meeting of the
shareholders.
Notwithstanding the above, the Company shall provide the
Holders of the Series B Preferred Stock with notification of any meeting of the
shareholders regarding any major corporate events affecting the Company. In the
event of any taking by the Company of a record of its shareholders for the
purpose of determining shareholders who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property
(including by way of merger, consolidation or reorganization), or to receive any
other right, or for the purpose of determining shareholders who are entitled to
vote in connection with any proposed sale, lease or conveyance of all or
substantially all the assets of the Company, or any proposed liquidation,
dissolution or winding up of the Company, the Company shall mail a notice to
such Holders, at least five (5) days prior to the record date specified therein,
of the date on which any such record is to be taken for the purpose of such
dividend, distribution, right or other event, and a brief statement regarding
the amount and character of such dividend, distribution, right or other event to
the extent known at such time.
To the extent that under Delaware Law the vote of the Holders
of the Series B Preferred Stock, voting separately as a class, is required to
authorize a given action of the Company, the affirmative vote or consent of the
Holders of at least a majority of the shares of the Series B Preferred Stock,
represented at a duly held meeting at which a quorum is present or by written
consent of a majority of the shares of Series B Preferred Stock (except as
otherwise may be required under Delaware Law) shall constitute the approval of
such action by the class. To the extent that under Delaware Law the Holders of
the Series B Preferred Stock are entitled to vote on a matter with holders of
Common Shares, voting together as one (1) class, each share of Series B
-6-
<PAGE>
Preferred Stock shall be entitled to a number of votes equal to the number of
Common Shares into which it is then convertible using the record date for the
taking of such vote of stockholders as the date as of which the Conversion Rate
is calculated. Holders of the Series B Preferred Stock also shall be entitled to
notice of all shareholder meetings or written consents with respect to which
they would be entitled to vote, which notice would be provided pursuant to the
Company's by-laws and applicable statutes.
Section 7. Status of Converted Stock. In the event any Series
B Preferred Stock shall be converted pursuant to Section 5 hereof, the shares so
converted shall be canceled, shall return to the status of authorized but
unissued Preferred Shares of no designated series, and shall not be issuable by
the Company as Series B Preferred Stock.
Section 8. Preference Rights. Nothing contained herein shall
be construed to prevent the Board of Directors of the Company from issuing one
(1) or more series of Series of Preferred Shares with dividend and/or
liquidation preferences junior to or in parity with the dividend and liquidation
preferences of the Series B Preferred Stock.
Signed on December ___, 1997
__________________________________
Marc Duke, Chief Executive Officer
Attest:
___________________________________
Michael L. Winer, Secretary
-7-
<PAGE>
Exhibit 4.7
EXCHANGE AGREEMENT
------------------
AGREEMENT (the "Exchange Agreement"), dated as of December 23,
1997, by and between InnoPet Inc., a Delaware corporation ("IPI"), with offices
located at 1 East Broward Boulevard, Ft. Lauderdale, Florida 33301, and InnoPet
Brands Corp., a Delaware corporation ("INBC"), with offices located at 1 East
Broward Boulevard, Ft. Lauderdale, Florida 33301.
WHEREAS, as of December 23, 1997, principal and accrued
interest in the aggregate amount of $932,702.97 is due and payable pursuant to a
certain note dated June 5, 1996, issued by INBC to IPI in the principal amount
of $1,000,000, bearing interest at one percent (1%) above prime rate (the
"Note");
WHEREAS, INBC and IPI acknowledge and agree that as of
December 23, 1997, IPI has provided to INBC $543,828.42 pursuant to the
Facilities Agreement dated as of June 1, 1996, by and between IPI and INBC and
as working capital for inventories, costs and expenses (the "Current Accounts
Payable"); and
WHEREAS, IPI and INBC desire to exchange principal on the
Note, in the amount of $641,000.00 and $543,828.42 in current accounts payable
(collectively, the "Debt"), interest due on the note in the amount of
$132,702.97 for the number of shares of the common stock of INBC, $.01 par value
per share (the "Common Stock") determined in accordance with Section 1(a)
hereunder, on the terms and subject to the conditions set forth in this Exchange
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. EXCHANGE OF INBC SHARES.
(a) The Exchange. Subject to the terms and conditions
of this Exchange Agreement, INBC shall issue and deliver to IPI, and IPI shall
accept, that number of shares of the Common Stock of INBC (the "INBC Shares")
which is equal to the sum of the Debt divided by a number equal to eighty
percent (80%) of the average closing bid price for a share of Common Stock as
reported by the Nasdaq SmallCap Market (or other quotation system or national
exchange on which similar securities issued by INBC are then listed or quoted
(the "Applicable Quotation System")) for the five (5) trading days immediately
preceding the Closing Date (as defined herein) (the "Exchange Rate"), subject to
adjustment as provided in Section 1(d).
<PAGE>
(b) IPI hereby acknowledges that upon completion of
the exchange, the Note and Current Accounts Payable shall be cancelled and
discharged and of no further force or effect.
(c) Closing of the Exchange. The exchange of the Note
and the Current Accounts Payable for the INBC Shares will take place at a
closing (the "Closing") to be held at the offices of INBC on December 31, 1997
at 10:00 a.m., Eastern Standard Time or on such other business day thereafter as
may be agreed upon by INBC and IPI (the "Closing Date").
(d) Adjustment to Exchange Rate. The Exchange Rate
shall be adjusted if, at any time during the one (1) year period following the
Closing Date, the average closing bid price for the INBC Common Stock as
reported on the Applicable Quotation System is less than or equal to $2.50 per
share of Common Stock for forty-five (45) consecutive days. The adjustment shall
be as follows: INBC shall issue to IPI additional shares of Common Stock equal
to the difference between (a) the number of shares of Common Stock which would
have resulted if the Debt had been exchanged at an Exchange Rate of $2.50 and
(b) the number of the INBC Shares previously issued pursuant to Section 1(a)
herein. INBC shall immediately issue to IPI the additional shares of Common
Stock of INBC.
(e) The INBC Shares and any shares of Common Stock
issued upon adjustment of the Exchange Rate shall have registration rights as
set forth in the attached Registration Rights Agreement.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF IPI.
IPI represents, warrants and covenants to INBC as follows:
(a) IPI is purchasing the INBC Shares and any shares
of Common Stock which IPI might acquire by reason of adjustment as set forth in
Section 1(d) herein (sometimes referred to herein collectively as the
"Securities"), for its own account and not for the beneficial interest of any
other person and not with a view to the resale or distribution thereof and that
IPI will not distribute, sell or otherwise dispose of the Securities except as
permitted under the Securities Act of 1933, as amended (the "Act"), the General
Rules and Regulations thereunder, and all applicable State "Blue Sky" laws. IPI
understands and agrees that it must bear the economic risks of its investment
for an indefinite period of time. IPI has been afforded access to information
and has been informed fully concerning INBC, its financial condition and
business prospects. IPI has received and carefully reviewed copies of the Public
Documents (as defined in Section 3). IPI understands that the offer to exchange
the Securities is being made only by means of this Agreement. No representations
or warranties have been made to IPI by INBC, the officers or directors of INBC,
or any agent, employee or affiliate of any of them, except as specifically set
forth herein or as set forth in documents referenced herein. IPI is aware that
its purchase of the Securities involves a high degree of risk and that it may
sustain, and has the financial ability to sustain, the loss of its entire
-2-
<PAGE>
investment. IPI understands that no federal or state governmental authority has
made any finding or determination relating to the fairness of an investment in
the Securities and that no federal or state governmental authority has
recommended or endorsed, or will recommend or endorse, the investment herein.
IPI, in making the decision to purchase the Securities subscribed for, has
relied upon independent investigation made by it and has not relied on any
information or representations made by third parties. IPI has significant assets
and upon consummation of the purchase of the Securities will continue to have
significant assets exclusive of the Securities;
(b) IPI is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Act;
(c) IPI shall execute the Registration Rights
Agreement in the form annexed hereto as Exhibit A;
(d) IPI understands that the Securities have not been
registered under the Act and therefore it cannot dispose of any or all of the
INBC Shares or Common Stock issuable upon adjustment unless and until such
Securities are subsequently registered under the Act or exemptions from such
registration are available. IPI acknowledges that a legend substantially as
follows will be placed on the certificates representing the Securities:
THE SECURITIES REPRESENTED HEREBY ARE RESTRICTED SECURITIES
WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS. THE ISSUER OF THESE
SECURITIES WILL NOT TRANSFER SUCH SECURITIES EXCEPT UPON
RECEIPT OF EVIDENCE SATISFACTORY TO THE ISSUER THAT THE
REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR
THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH TRANSFER
WILL NOT VIOLATE ANY APPLICABLE FEDERAL OR STATE SECURITIES
LAWS;
(e) IPI agrees that for a twelve (12) month period
from the Closing Date, it will not, without the prior written consent of INBC,
offer, sell, contract to sell, grant any option to purchase, transfer or
otherwise dispose of any INBC Shares or any shares issued upon adjustment. IPI
consents to a stop order being placed with INBC's transfer agent with respect
-3-
<PAGE>
to such Securities and acknowledges that the following legend shall be placed on
the certificates reflecting this limitation on transfer:
THE TRANSFER OR EXCHANGE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH AN EXCHANGE
AGREEMENT BETWEEN THE ISSUER AND INNOPET INC. DATED AS OF
DECEMBER 23, 1997, A COPY OF WHICH IS ON FILE AND MAY BE
INSPECTED AT THE PRINCIPAL OFFICE OF THE ISSUER;
(f) IPI is duly organized and validly existing in
good standing under the laws of the state in which it is organized, and has full
power and authority to enter into and perform this Exchange Agreement, and to
execute and deliver the various instruments and documents provided for herein.
The execution, delivery and performance by IPI of this Exchange Agreement, and
the making, execution and delivery by IPI of the instruments contemplated
hereby, have been duly authorized by all necessary corporate action and will not
violate any provision of law, court order or decree, or of its charter or
bylaws, or result in the breach of, or constitute a default under, or result in
the creation of any lien, charge or encumbrance upon any property or assets of
IPI pursuant to any agreement or instrument to which it is a party, or by which
it or its property may be bound or affected. No governmental permit, consent,
approval or authorization is required in connection with the execution and
delivery of this Exchange Agreement by IPI or the purchase of the Securities
contemplated hereby. This Exchange Agreement is a valid and binding obligation
of IPI, enforceable in accordance with its terms, subject to general principles
of equity and of bankruptcy or other laws affecting the enforcement of
creditors' rights;
(g) IPI understands that the Securities are being
offered and sold to it in reliance on specific provisions of federal and state
securities laws and that INBC is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgements and understandings of
IPI set forth herein in order to determine the applicability of such provisions;
and
(h) IPI is capable of evaluating the risks and merits
of this investment by virtue of its experience as an investor and its knowledge,
experience, and sophistication in financial and business matters.
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<PAGE>
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF INBC.
INBC represents, warrants and covenants to IPI as follows:
(a) INBC has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as currently conducted, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure to
register or qualify is not reasonably anticipated to have a material adverse
effect on the condition (financial or otherwise), business, properties, net
worth or results of operations of INBC;
(b) INBC has registered shares of its Common Stock
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is in full compliance with all reporting requirements of the
Exchange Act, and the Common Stock is quoted on the Nasdaq SmallCap Market
(trading symbol INBC);
(c) INBC has furnished IPI with copies of INBC's most
recent Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission, Form 10-QSB for the quarterly period ended June 30, 1997 and Form
10-QSB for the quarterly period ended September 30, 1997 (collectively, the
"Public Documents"). The Public Documents at the time of their filing did not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading;
(d) The shares of Common Stock issuable under this
Exchange Agreement shall have been, on the Closing Date, duly authorized and,
when issued against payment therefor, will be validly issued, fully paid and
non-assessable;
(e) INBC has granted IPI registration rights pursuant
to the terms and conditions of the Registration Rights Agreement annexed hereto
as Exhibit A, which INBC agrees to execute at Closing;
(f) INBC acknowledges that IPI's obligations
hereunder are conditioned upon the receipt by IPI from National Securities
Corporation, a registered broker-dealer ("National"), of a fairness opinion (the
"Opinion") with regard to the transactions contemplated by this Exchange
Agreement. INBC agrees that, in connection with IPI's engagement of National,
INBC shall pay to National, on the Closing Date, a fee consisting of 40,000
shares of INBC's Common Stock, such shares to be "restricted securities" as
defined within Rule 144 promulgated under the Act and not transferable for a
period of six (6) months commencing on the Closing Date without the prior
written consent of INBC. INBC shall grant to National
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<PAGE>
incidental registration rights with respect to said shares similar to those
granted to IPI pursuant to the Registration Rights Agreement annexed hereto as
Exhibit A. In addition, INBC shall reimburse National in an amount not to exceed
$5,000 for National's actual accountable out-of-pocket expenses incurred in
connection with rendering the Opinion upon presentation by National of an
invoice or invoices for such expenses;
(g) The execution, delivery and performance by INBC
of this Exchange Agreement, and the making, execution and delivery by INBC of
the instruments contemplated hereby, have and will have been duly authorized by
all necessary corporate action and will not violate any provision of law, court
order or decree, or of its Certificate of Incorporation or Bylaws, or result in
the breach of, or constitute a default under, or result in the creation of any
lien, charge or encumbrance upon any property or assets of INBC pursuant to any
agreement or instrument to which it is a party, or by which it or its property
may be bound or affected. This Exchange Agreement is a valid and binding
obligation of INBC, enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application now or
hereafter in effect relating to or affecting the enforcement of creditors' right
generally and the application of general equitable principles in any action,
legal or equitable;
(h) No authorization, approval, filing with or
consent of any governmental body is required for the issuance and sale of the
shares of Common Stock contemplated hereby;
(i) There is no action, suit or proceeding before or
by any court or governmental agency or body, domestic or foreign, now pending
against or affecting INBC, or any of its properties, which would reasonably be
anticipated to result in any material adverse change in the condition (financial
or otherwise) or in the earnings, business affairs, business prospects,
properties or assets of INBC;
(j) Subsequent to the dates as of which information
is given in the Public Documents, except as contemplated herein, INBC has not
incurred any material liabilities or material obligations, direct or contingent,
or entered into any material transactions other than in the ordinary course of
business, and there has not been any change in its capitalization or any
material adverse change in its condition (financially or other), net worth or
results of operations;
(k) INBC has conducted, is conducting and will
conduct its business so as to comply in all material respects with all
applicable statutes and regulations, and INBC is not charged with and, to the
knowledge of INBC, is not under investigation with respect to any violation of
any statutes or regulations nor is it the subject of any pending or threatened
adverse proceedings by any regulatory authority having jurisdiction over its
business or operations except as disclosed in the Public Documents;
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<PAGE>
(l) Except as set forth in the Public Documents, INBC
has good and marketable title to all properties and assets described therein as
owned by it, free and clear of all liens, charges, encumbrances, or
restrictions;
(m) INBC has filed all necessary federal and state
income and franchise tax returns and has paid all taxes shown as due thereon;
(n) INBC has no knowledge of any tax deficiency that
might be asserted against it that might materially and adversely affect its
business or properties;
(o) INBC maintains insurance of the types and in
amounts generally deemed adequate for its business and consistent with insurance
coverage maintained by similar companies and businesses, including, but not
limited to, insurance covering all real and personal property owned or leased by
INBC against theft, damage, destruction, acts of vandalism, products liability
and all other risks customarily insured against, all of which insurance is in
full force and effect;
(p) No labor disturbance by the employees of INBC
exists or is imminent that could reasonably be expected to have a material
adverse affect on the conduct of the business, operations, financial condition
or income of INBC;
(q) To the best of the knowledge of INBC's
management, neither INBC nor any employee or agent of INBC has made any payment
of funds of INBC or received or retained any funds in violation of law;
(r) Subject in part to the truth and accuracy of
IPI's representations set forth in this Exchange Agreement, and the
representations and covenants of INBC made in this Exchange Agreement being
true, the offer, sale and issuance of the Shares are exempt from registration
requirements of the Act, and neither INBC nor any authorized agent acting on its
behalf will take any action hereafter that will cause the loss of such
exemption;
(s) INBC has sufficient title and ownership of all
trademarks, service marks, trade names, copyrights, patents, trade secrets and
other proprietary rights necessary for its business as now conducted and as
proposed to be conducted as described in the Public Documents without any
conflict with or infringement of the rights of others. Except as set forth in
the Public Documents, there are no material outstanding options, licenses or
agreements of any kind relating to the foregoing, nor is INBC bound by or party
to any material options, licenses or agreements of any kind with respect to the
trademarks, service marks, trade names, copyrights, patents, trade secrets,
licenses and other proprietary rights of any other person or entity. INBC is not
aware that any of its executive officers is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency that would interfere with
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<PAGE>
the use of his or her best efforts to promote the interest of INBC or that would
conflict with INBC's business as proposed to be conducted; and
(t) Except for agreements explicitly contemplated
hereby or set forth in the Public Documents, there are no other agreements
between INBC and any of its officers, directors, affiliates or any affiliate
thereof.
4. DELIVERIES AT CLOSING.
(a) IPI shall deliver to INBC at Closing the Note and
such information, documents and certificates as INBC may reasonably require in
order for INBC to complete the cancellation and discharge of the Note and the
Current Accounts Payable as contemplated herein, and, in addition, shall execute
and deliver the Registration Rights Agreement.
(b) INBC shall deliver to IPI, following the Closing,
the appropriate number of INBC Shares in the name of IPI and, in addition, shall
execute and deliver the Registration Rights Agreement.
5. MISCELLANEOUS.
(a) Governing Law. This Exchange Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Delaware applicable to contracts made and to be performed wholly within that
state, without giving effect to the rules governing conflicts of laws.
(b) Notices. Any notice or demand required or
permitted under this Exchange Agreement shall be given in writing and shall be
delivered in person or by telecopy or by overnight courier guaranteeing no later
than second business day delivery, directed to the parties hereto at the address
set forth in the preamble to this Exchange Agreement (with a copy, which copy
shall not constitute notice, to Camhy Karlinsky & Stein LLP, 1740 Broadway, New
York, New York 10019 Attention Daniel I. DeWolf, Esq.) Any party may change its
address for notice by giving ten (10) days advance written notice to the other
parties. Every notice or other communication hereunder shall be deemed to have
been duly given or served on the date on which personally delivered, or on the
date actually received, if sent by telecopy or overnight courier service, with
receipt acknowledged.
(c) Successors and Assigns. Except as otherwise
expressly provided herein, the terms and conditions of this Exchange Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. Nothing in this Exchange Agreement, express or
implied, is intended to confer upon any person other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Exchange Agreement, except as expressly
provided herein.
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<PAGE>
(d) Headings. Section and other headings herein are
for reference purposes only, and shall not be used in any way to govern, limit,
modify, construe or otherwise affect this Exchange Agreement.
(e) Counterparts. This Exchange Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
(f) Entire Agreement. This Exchange Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior oral or written proposals or agreements
relating thereto. This Exchange Agreement may not be amended or any provision
hereof waived in whole or in part, except by a written amendment signed by both
of the parties.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Exchange Agreement to be duly executed as of the date first above written.
INNOPET INC.
By: _________________________________
Name: Marc Duke
Title: Chairman and CEO
INNOPET BRANDS CORP.
By: ___________________________________
Name: Michael Winer
Title: Vice President and CFO
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<PAGE>
Attachment to Exhibit 4.7
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of the 23rd day of December, 1997 by and between INNOPET
BRANDS CORP., a Delaware corporation (the "Company") and INNOPET INC. (the
"Shareholder").
R E C I T A L S :
WHEREAS, in connection with that certain Exchange Agreement
dated as of December 23, 1997, by and between the Company and the Shareholder
(the "Exchange Agreement"), the Company has agreed, upon the terms and subject
to the conditions contained therein, to issue and sell to the Shareholder shares
of the Company's common stock, par value $.01 per share (the "Shares", or
sometimes hereinafter referred to as the "Securities"); and
WHEREAS, the Company desires to grant to the Shareholder
certain registration rights relating to the Shares and the Shareholder desires
to obtain such registration rights, subject to the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions and References. For purposes of this Agreement,
in addition to the definitions set forth above and elsewhere herein, the
following terms shall have the following meanings:
(a) The term "Commission" shall mean the Securities and
Exchange Commission and any successor agency.
(b) The terms "register", "registered" and
"registration" shall refer to a registration effected by
preparing and filing a registration statement or similar
document in compliance with the 1933 Act (as herein defined)
and the declaration or ordering of effectiveness of such
registration statement or document.
(c) For purposes of this Agreement, the term
"Registrable Stock" shall mean (i) any shares of common stock
issued or issuable upon the conversion of Shares, (ii) any
shares of common stock issued or issuable upon the adjustment
of the Exchange Rate (as defined in the Exchange Agreement),
(iii) any common stock issued by way of a stock split, and
(iv) any common stock issued as a stock
<PAGE>
dividend of the Shares. For purposes of this Agreement, any
Registrable Stock shall cease to be Registrable Stock when (v)
a registration statement covering such Registrable Stock has
been declared effective and such Registrable Stock has been
disposed of pursuant to such effective registration statement,
(w) such Registrable Stock is sold pursuant to Rule 144 (or
any similar provision then in force) under the 1933 Act, (x)
such Registrable Stock is eligible to be sold pursuant to Rule
144(k) under the 1933 Act, (y) such Registrable Stock has been
otherwise transferred, no stop transfer order affecting such
stock is in effect and the Company has delivered new
certificates or other evidences of ownership for such
Registrable Stock not bearing any legend indicating that such
shares have not been registered under the 1933 Act, or (z)
such Registrable Stock is sold by a person in a transaction in
which the rights under the provisions of this Agreement are
not assigned.
(d) The term "Holder" shall mean the Shareholder or any
transferee or assignee thereof to whom the rights under this
Agreement are assigned in accordance with Section 10 hereof,
provided that the Shareholder or such transferee or assignee
shall then own the Registrable Stock.
(e) The term "1933 Act" shall mean the Securities Act
of 1933, as amended.
(f) An "affiliate of such Holder" shall mean a person
who controls, is controlled by or is under common control with
such Holder, or the spouse or children (or a trust exclusively
for the benefit of the spouse and/or children) of such Holder,
or, in the case of a Holder that is a partnership, its
partners.
(g) The term "Person" shall mean an individual,
corporation, partnership, trust, limited liability company,
unincorporated organization or association or other entity,
including any governmental entity.
(h) The term "Requesting Holder" shall mean a Holder or
Holders of in the aggregate of at least a majority of the
Registrable Stock.
(i) References in this Agreement to any rules,
regulations or forms promulgated by the Commission shall
include rules, regulations and forms succeeding to the
functions thereof, whether or not bearing the same
designation.
2. Demand Registration.
(a) Commencing six (6) months after the Closing Date
(as defined in the Exchange Agreement), any Requesting Holders
may make a written request to the Company (specifying that it
is being made pursuant to this Section 2) that the Company
file a registration statement under the 1933 Act (or a similar
document
<PAGE>
pursuant to any other statute then in effect corresponding to
the 1933 Act) covering the registration of Registrable Stock.
In such event, the Company shall (x) within ten (10) days
thereafter notify in writing all other Holders of Registrable
Stock of such request, and (y) use its best efforts to cause
to be registered under the 1933 Act all Registrable Stock that
the Requesting Holders and such other Holders have, within ten
(10) days after the Company has given such notice, requested
be registered. The Requesting Holders shall be entitled to
exercise their rights under this Section 2(a) twice.
(b) If the Requesting Holders intend to distribute the
Registrable Stock covered by their request by means of an
underwritten offering, they shall so advise the Company as a
part of their request pursuant to Section 2(a) above, and the
Company shall include such information in the written notice
referred to in clause (x) of Section 2(a) above. In such
event, the Holder's right to include its Registrable Stock in
such registration shall be conditioned upon such Holder's
participation in such underwritten offering and the inclusion
of such Holder's Registrable Stock in the underwritten
offering to the extent provided in this Section 2. All Holders
proposing to distribute Registrable Stock through such
underwritten offering shall enter into an underwriting
agreement in customary form with the underwriter or
underwriters. Such underwriter or underwriters shall be
selected by a majority in interest of the Requesting Holders
and shall be approved by the Company, which approval shall not
be unreasonably withheld; provided, that all of the
representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such
Holders and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting
agreement shall be conditions precedent to the obligations of
such Holders; and provided further, that no Holder shall be
required to make any representations or warranties to or
agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such
Holder, the Registrable Stock of such Holder and such Holder's
intended method of distribution and any other representation
required by law or reasonably required by the underwriter.
(c) Notwithstanding any other provision of this Section
2 to the contrary, if the managing underwriter of an
underwritten offering of the Registrable Stock requested to be
registered pursuant to this Section 2 advises the Requesting
Holders in writing that in its opinion marketing factors
require a limitation of the number of shares to be
underwritten, the Requesting Holders shall so advise all
Holders of Registrable Stock that would otherwise be
underwritten pursuant hereto, and the number of shares of
Registrable Stock that may be included in such underwritten
offering shall be allocated among all such Holders, including
the Requesting Holders, in proportion (as nearly as
practicable) to the amount of Registrable Stock requested to
be included in such registration by each Holder at the time of
filing the registration statement; provided, that in the event
of such
<PAGE>
limitation of the number of shares of Registrable Stock to be
underwritten, the Holders shall be entitled to an additional
demand registration pursuant to this Section 2. If any Holder
of Registrable Stock disapproves of the terms of the
underwriting, such Holder may elect to withdraw by written
notice to the Company, the managing underwriter and the
Requesting Holders. The securities so withdrawn shall also be
withdrawn from registration.
(d) Notwithstanding any provision of this Agreement to
the contrary, the Company shall not be required to effect a
registration pursuant to this Section 2 during the period
starting with the fourteenth (14th) day immediately preceding
the date of an anticipated filing by the Company of, and
ending on a date ninety (90) days following the effective date
of, a registration statement pertaining to a public offering
of securities for the account of the Company; provided, that
the Company shall actively employ in good faith all reasonable
efforts to cause such registration statement to become
effective; and provided further, that the Company's estimate
of the date of filing such registration statement shall be
made in good faith.
(e) The Company shall be obligated to effect and pay
for a total of only one (1) registration pursuant to this
Section 2, unless increased pursuant to Section 2(c) hereof;
provided, that a registration requested pursuant to this
Section 2 shall not be deemed to have been effected for
purposes of this Section 2(e), unless (i) it has been declared
effective by the Commission, (ii) the offering of Registrable
Stock pursuant to such registration is not subject to any stop
order, injunction or other order or requirement of the
Commission (other than any such action prompted by any act or
omission of the Holders), and (iii) no limitation of the
number of shares of Registrable Stock to be underwritten has
been required pursuant to Section 2(c) hereof.
3. Obligations of the Company. Whenever required under Section
2 to use its best efforts to effect the registration of any Registrable Stock,
the Company shall, as expeditiously as possible:
(a) prepare and file with the Commission, not later
than ninety (90) days after receipt of a request to file a
registration statement with respect to such Registrable Stock,
a registration statement on any form for which the Company
then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the sale of
such issue of Registrable Stock in accordance with the
intended method of distribution thereof, and use its best
efforts to cause such registration statement to become
effective as promptly as practicable thereafter; provided that
before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will (i)
furnish to one (1) counsel selected by the Requesting Holders
copies of all such documents proposed to be filed, and (ii)
notify each such Holder of any stop order
<PAGE>
issued or threatened by the Commission and take all reasonable
actions required to prevent the entry of such stop order or to
remove it if entered;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement (and
any prospectus used in connection therewith) as may be
necessary to keep such registration statement effective for a
period of not less than one (1) year or such shorter period
which will terminate when all Registrable Stock covered by
such registration statement has been sold (but not before the
expiration of the forty (40) or ninety (90) day period
referred to in Section 4(3) of the 1933 Act and Rule 174
thereunder, if applicable), and comply with the provisions of
the 1933 Act with respect to the disposition of all securities
covered by such registration statement during such period in
accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each Holder and any Underwriter of
Registrable Stock to be included in a registration statement
copies of such registration statement as filed and each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus)
and such other documents as such Holder may reasonably request
in order to facilitate the disposition of the Registrable
Stock owned by such Holder;
(d) use its best efforts to register or qualify such
Registrable Stock under such other securities or blue sky laws
of such jurisdictions as any selling Holder or any Underwriter
of Registrable Stock reasonably requests, and do any and all
other acts which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in such
jurisdictions of the Registrable Stock owned by such Holder;
provided that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this Section 3(d)
hereof, (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process
in any such jurisdiction;
(e) use its best efforts to cause the Registrable Stock
covered by such registration statement to be registered with
or approved by such other governmental agencies or other
authorities as may be necessary by virtue of the business and
operations of the Company to enable the selling Holders
thereof to consummate the disposition of such Registrable
Stock;
(f) notify each selling Holder of such Registrable
Stock and any Underwriter thereof, at any time when a
prospectus relating thereto is required to be delivered under
the 1933 Act (even if such time is after the period referred
to in Section 3(b)), of the happening of any event as a result
of which the
<PAGE>
prospectus included in such registration statement contains an
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
being made not misleading, and prepare a supplement or
amendment to such prospectus so that, as thereafter delivered
to the purchasers of such Registrable Stock, such prospectus
will not contain an 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 being made not misleading;
(g) make available for inspection by any selling
Holder, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), and
cause the Company's officers, directors and employees to
supply all information reasonably requested by any such
Inspector, as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, in connection
with such registration statement. Records or other information
which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records or other information is
necessary to avoid or correct a misstatement or omission in
the registration statement, or (ii) the release of such
Records or other information is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction. Each
selling Holder shall, upon learning that disclosure of such
Records or other information is sought in a court of competent
jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate
action to prevent disclosure of the Records or other
information deemed confidential;
(h) furnish, at the request of any Requesting Holder,
on the date that such shares of Registrable Stock are
delivered to the underwriters for sale pursuant to such
registration or, if such Registrable Stock is not being sold
through underwriters, on the date that the registration
statement with respect to such shares of Registrable Stock
becomes effective, (1) a signed opinion, dated such date, of
the legal counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and
if such Registrable Stock is not being sold through
underwriters, then to the Requesting Holders as to such
matters as such underwriters or the Requesting Holders, as the
case may be, may reasonably request and as would be customary
in such a transaction; and (2) a letter dated such date, from
the independent certified public accountants of the Company,
addressed to the underwriters, if any, and if such Registrable
Stock is not being sold through underwriters, then to the
Requesting Holders and, if such accountants refuse to deliver
such letter to such Holder, then to the Company (i) stating
that they are independent certified public accountants within
the meaning of the 1933
<PAGE>
Act and that, in the opinion of such accountants, the
financial statements and other financial data of the Company
included in the registration statement or the prospectus, or
any amendment or supplement thereto, comply as to form in all
material respects with the applicable accounting requirements
of the 1933 Act, and (ii) covering such other financial
matters (including information as to the period ending not
more than five (5) business days prior to the date of such
letter) with respect to the registration in respect of which
such letter is being given as the Requesting Holders may
reasonably request and as would be customary in such a
transaction;
(i) enter into customary agreements (including if the
method of distribution is by means of an underwriting, an
underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Stock to be so
included in the registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement
covering the period of at least twelve (12) months beginning
not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration
Statement; and
(k) use its best efforts to cause all such Registrable
Stock to be listed on the Nasdaq SmallCap Market and/or any
other securities exchange on which similar securities issued
by the Company are then listed or traded.
The Company may require each selling Holder of Registrable
Stock as to which any registration is being effected to furnish to the Company
such information regarding the distribution of such Registrable Stock as the
Company may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f)
hereof, such Holder will forthwith discontinue disposition of Registrable Stock
pursuant to the registration statement covering such Registrable Stock until
such Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Stock current at the time of receipt of such notice.
In the event the Company shall give any such notice, the Company shall extend
the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including the period referred to in
Section 3(b)) by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 3(f) hereof to and
including the date when each selling Holder of Registrable
<PAGE>
Stock covered by such registration statement shall have received the copies of
the supplemented or amended prospectus contemplated by Section 3(f) hereof.
4. Incidental Registration. For a period of four (4) years
commencing six (6) months after the Closing Date (as defined in the Exchange
Agreement), if the Company determines that it shall file a registration
statement under the 1933 Act (other than a registration statement on a Form S-4
or S-8 or filed in connection with an exchange offer or an offering of
securities solely to the Company's existing stockholders) on any form that would
also permit the registration of the Registrable Stock and such filing is to be
on its behalf and/or on behalf of selling holders of its securities for the
general registration of its common stock to be sold for cash, at each such time
the Company shall promptly give each Holder written notice of such determination
setting forth the date on which the Company proposes to file such registration
statement, which date shall be no earlier than forty (40) days from the date of
such notice, and advising each Holder of its right to have Registrable Stock
included in such registration. Upon the written request of any Holder received
by the Company no later than twenty (20) days after the date of the Company's
notice, the Company shall use its best efforts to cause to be registered under
the 1933 Act all of the Registrable Stock that each such Holder has so requested
to be registered. If, in the written opinion of the managing underwriter or
underwriters (or, in the case of a non-underwritten offering, in the written
opinion of the placement agent, or if there is none, the Company), the total
amount of such securities to be so registered, including such Registrable Stock,
will exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to the then current market value of such
securities, or (ii) without otherwise materially and adversely affecting the
entire offering, then the amount of Registrable Stock to be offered for the
accounts of Holders shall be reduced pro rata to the extent necessary to reduce
the total amount of securities to be included in such offering to the
recommended amount; provided, that if securities are being offered for the
account of other Persons as well as the Company, such reduction shall not
represent a greater fraction of the number of securities intended to be offered
by Holders than the fraction of similar reductions imposed on such other Persons
other than the Company over the amount of securities they intended to offer.
5. Holdback Agreement - Restrictions on Public Sale by Holder.
(a) To the extent not inconsistent with applicable law,
each Holder whose Registrable Stock is included in a
registration statement agrees not to effect any public sale or
distribution of the issue being registered or a similar
security of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 under the 1933 Act, during the
fourteen (14) days prior to, and during the ninety (90) day
period beginning on, the effective date of such registration
statement (except as part of the registration), if and to the
extent requested by the Company in the case of a
non-underwritten public offering or if and to the extent
requested by the managing underwriter or underwriters in the
case of an underwritten public offering.
<PAGE>
(b) Restrictions on Public Sale by the Company and
Others. The Company agrees (i) not to effect any public sale
or distribution of any securities similar to those being
registered, or any securities convertible into or exchangeable
or exercisable for such securities, during the fourteen (14)
days prior to, and during the ninety (90) day period beginning
on, the effective date of any registration statement in which
Holders are participating (except as part of such
registration), if and to the extent requested by the Holders
in the case of a non-underwritten public offering or if and to
the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering;
and (ii) that any agreement entered into after the date of
this Agreement pursuant to which the Company issues or agrees
to issue any securities convertible into or exchangeable or
exercisable for such securities (other than pursuant to an
effective registration statement) shall contain a provision
under which holders of such securities agree not to effect any
public sale or distribution of any such securities during the
periods described in (i) above, in each case including a sale
pursuant to Rule 144 under the 1933 Act.
6. Expenses of Registration. The Company agrees to pay all
expenses incurred in connection with each registration pursuant to Sections 2
and 4 of this Agreement, excluding underwriter's discounts and commissions, but
including, without limitation, all registration, filing and qualification fees,
word processing, duplicating, printers' and accounting fees (including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance), exchange listing fees or National
Association of Securities Dealers fees, messenger and delivery expenses, all
fees and expenses of complying with securities or blue sky laws, and fees and
disbursements of counsel for the Company. The selling Holders shall bear and pay
the underwriting commissions and discounts and broker commissions applicable to
the Registrable Stock offered for their account in connection with any
registrations, filings and qualifications made pursuant to this Agreement.
7. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees
to indemnify, to the full extent permitted by law, each
Holder, its officers, directors and agents and each Person who
controls such Holder (within the meaning of the 1933 Act)
against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or
preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement therein (in case of a
prospectus or preliminary prospectus, in the light of the
circumstances under which they were made) not misleading. The
Company will also indemnify any underwriters of the
Registrable Stock, their officers and directors and each
Person who controls such underwriters (within the meaning of
the 1933 Act) to the same extent as provided above with
respect to the indemnification of the selling Holders.
<PAGE>
(b) Indemnification by Holders. In connection with any
registration statement in which a Holder is participating,
each such Holder will furnish to the Company in writing such
information with respect to such Holder as the Company
reasonably requests for use in connection with any such
registration statement or prospectus and agrees to indemnify,
to the extent permitted by law, the Company, its directors and
officers and each Person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged
untrue statement of material fact or any omission or alleged
omission of a material fact required to be stated in the
registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or necessary to
make the statements therein (in the case of a prospectus or
preliminary prospectus, in the light of the circumstances
under which they were made) not misleading, to the extent, but
only to the extent, that such untrue statement or omission was
made in reliance upon and in conformity with any information
with respect to such Holder so furnished in writing by such
Holder. Notwithstanding the foregoing, the liability of each
such Holder under this Section 7(b) shall be limited to an
amount equal to the initial public offering price of the
Registrable Stock sold by such Holder, unless such liability
arises out of or is based on willful misconduct of such
Holder.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt
written notice to the indemnifying party after the receipt by
such Person of any written notice of the commencement of any
action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim
indemnification or contribution pursuant to this Agreement
and, unless in the reasonable judgment of such indemnified
party a conflict of interest may exist between such
indemnified party and the indemnifying party with respect to
such claim, permit the indemnifying party to assume the
defense of such claims with counsel reasonably satisfactory to
such indemnified party. Whether or not such defense is assumed
by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its
consent (but such consent will not be unreasonably withheld).
Failure by such Person to provide said notice to the
indemnifying party shall itself not create liability except to
the extent of any injury caused thereby. No indemnifying party
will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect
of such claim or litigation. If the indemnifying party is not
entitled to, or elects not to, assume the defense of a claim,
it will not be obligated to pay the fees and expenses of more
than one (1) counsel with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any
other such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay
the fees and expenses of such additional counsel or counsels.
<PAGE>
(d) Contribution. If for any reason the indemnity
provided for in this Section 7 is unavailable to, or is
insufficient to hold harmless, an indemnified party, then the
indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses,
claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the
indemnified party on the other, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable
law, or provides a lesser sum to the indemnified party than
the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received
by the indemnifying party on the one hand and the indemnified
party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any
other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or
indemnified parties; and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as
a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 7(c), any legal or
other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7 (d) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
If indemnification is available under this Section 7,
the indemnifying parties shall indemnify each indemnified
party to the full extent provided in Sections 7(a) and (b)
without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable
consideration provided for in this Section 7.
8. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's securities on the basis provided in any
underwriting arrangements approved by the Holders entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
<PAGE>
9. Rule 144. The Company covenants that it will file the
reports required to be filed by it under the 1933 Act and the Securities
Exchange Act of 1934, as amended, and the rules and regulations adopted by the
Commission thereunder; and it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Stock without registration under the 1933 Act within
the limitation of the exemptions provided by (a) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
10. Transfer of Registration Rights. The registration rights
of any Holder under this Agreement with respect to any Registerable Stock may be
transferred to any transferee of such Registrable Stock; provided that such
transfer may otherwise be effected in accordance with applicable securities
laws; provided further, that the transferring Holder shall give the Company
written notice at or prior to the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being transferred; provided further, that
such transferee shall agree in writing, in form and substance satisfactory to
the Company, to be bound as a Holder by the provisions of this Agreement; and
provided further, that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by such
transferee is restricted under the 1933 Act. Except as set forth in this Section
10, no transfer of Registrable Stock shall cause such Registrable Stock to lose
such status.
11. Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Company shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation or reorganization, agree
in writing to assume the obligations of the Company under this Agreement, and
for that purpose references hereunder to "Registrable Stock" shall be deemed to
be references to the securities which the Holders would be entitled to receive
in exchange for Registrable Stock under any such merger, consolidation or
reorganization; provided, however, that the provisions of this Section 11 shall
not apply in the event of any merger, consolidation or reorganization in which
the Company is not the surviving corporation if each Holder is entitled to
receive in exchange for its Registrable Stock consideration consisting solely of
(i) cash, (ii) securities of the acquiring corporation which may be immediately
sold to the public without registration under the 1933 Act, or (iii) securities
of the acquiring corporation which the acquiring corporation has agreed to
register within ninety (90) days of completion of the transaction for resale to
the public pursuant to the 1933 Act.
12. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its
securities which is inconsistent with the rights granted to
the Holders in this Agreement.
<PAGE>
(b) Remedies. Each Holder, in addition to being
entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance
of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of
this Agreement and hereby agrees to waive (to the extent
permitted by law) the defense in any action for specific
performance that a remedy of law would be adequate.
(c) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written
consent of the Holders of at least a majority of the
Registrable Stock then outstanding affected by such amendment,
modification, supplement, waiver or departure.
(d) Successors and Assigns. Except as otherwise
expressly provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to
confer upon any Person other than the parties hereto or their
respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
(e) Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the
State of Delaware applicable to contracts made and to be
performed wholly within that state, without giving effect to
the rules governing the conflict of laws.
(f) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
(g) Headings. The headings in this Agreement are used
for convenience of reference only and are not to be considered
in construing or interpreting this Agreement.
(h) Notices. Any notice required or permitted under
this Agreement shall be given in writing and shall be
delivered in person or by telecopy or by overnight courier
guaranteeing no later than second business day delivery,
directed to (i) the Company at the address set forth below its
signature hereof (with a copy, which copy shall not constitute
notice, to Camhy Karlinsky & Stein LLP, 1740 Broadway, New
York, New York 10019 Attention Daniel I. DeWolf, Esq.) or (ii)
a Holder at the address set forth below its signature hereof.
Any party may change its address for notice by giving ten (10)
days advance written notice to the
<PAGE>
other parties. Every notice or other communication hereunder
shall be deemed to have been duly given or served on the date
on which personally delivered, or on the date actually
received, if sent by telecopy or overnight courier service,
with receipt acknowledged.
(i) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in
any circumstances, is held invalid, illegal or unenforceable
in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be
in any way impaired thereby, it being intended that all of the
rights and privileges of the Holders shall be enforceable to
the fullest extent permitted by law.
(j) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
warranties or undertakings other than those set forth or
referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect
to such subject matter.
(k) Enforceability. This Agreement shall remain in full
force and effect notwithstanding any breach or purported
breach of, or relating to, the Exchange Agreement.
(l) Recitals. The recitals are hereby incorporated in
the Agreement as if fully set forth herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INNOPET BRANDS CORP.
By:___________________________________
Name: Michael Winer
Title: Vice President and CFO
One East Broward Boulevard
Suite 1100
Ft. Lauderdale, Florida 33301
Tel: (954) 453-2400
INNOPET INC.
By:___________________________________
Name: Marc Duke
Title: Chairman and CEO
One East Broward Boulevard
Suite 1100
Ft. Lauderdale, Florida 33301
Tel: (954) 453-2400
<PAGE>
Exhibit 4.8
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
OF INNOPET BRANDS CORP.
THIS SUBSCRIPTION AGREEMENT AND INVESTMENT
REPRESENTATION (the "Agreement") is made and entered into as of this 18th day of
December 1997, by and between INNOPET BRANDS CORP., a Delaware corporation
("Seller"), with offices at One East Broward Boulevard, Suite 1100, Ft.
Lauderdale, Florida 33301 and EXPLORER PARTNERS LLC, a Delaware Limited
Liability Company ("Buyer"), with offices at 444 N. Michigan Avenue, Suite 2910,
Chicago, Illinois 60611, providing for the purchase and sale of 10,000 shares
(the "Shares") of 8% Series B Cumulative Convertible Preferred Stock of Seller,
par value $100 per share (the "Series B Preferred Stock"), convertible into
shares of the common stock, par value $.01 per share (the "Common Stock"), of
Seller. Seller and Buyer (collectively, the "Parties") hereby represent and
agree as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(i) Buyer hereby subscribes for a total of 10,000
Shares of Series B Preferred Stock (the Shares") in exchange
for $1 million (the "Purchase Price"). Each Share of Series B
Preferred Stock shall be convertible into shares of Common
Stock in accordance with the terms set forth in the
Certificate of Designation attached as Exhibit A to this
Agreement. The Shares shall be freely convertible from the
date of issuance for a period of three (3) years thereafter.
On the third (3rd) anniversary of issuance, the Shares shall
automatically convert into that number of shares of Common
Stock which is equal to eighty percent (80%) of the average
closing bid price for a share of Common Stock as reported by
the Nasdaq Small-Cap System for the five (5) trading days
preceding such date; provided, however, that in no event shall
the Conversion Price exceed $6.00 per share of Common Stock.
(ii) The Series B Preferred Stock shall pay a
quarterly dividend equal to eight percent (8%) per annum,
subject to adjustment as set forth in the Certificate of
Designation. The dividend shall be payable, at Seller's sole
option, either in cash or by the issuance of additional shares
of Common Stock. The number of shares to be issued as a
dividend shall be determined based on the average closing bid
price for a share of Common Stock as reported by the Nasdaq
SmallCap System for the five (5) trading days preceding the
record date for the declaration of the dividend.
(iii) Buyer shall pay the aforesaid principal amount
as the purchase price for the Shares subscribed for by it by
wire transfer of immediately available, federal funds in
United States dollars against counter-delivery of the Shares
by Seller. The closings of the purchase and sale of the Shares
(the "Closing") shall take place as follows (subject to
acceleration upon written consent of both parties):
<PAGE>
(a) A Closing of $500,000 in exchange
for 5,000 Shares (the "First
Tranche") shall occur on or before
December 18, 1997 (the "First
Tranche Closing Date"); and
(b) A Closing of $500,000 in exchange
for 5,000 Shares (the "Second
Tranche") shall occur on or before
December 31, 1997.
(iv) Buyer and Seller may accelerate the dates of
Closing and modify the terms of each Closing upon the mutual
written consent of both parties.
(v) Buyer and Seller agree that Buyer has an option
to purchase up to 30,000 additional Shares in exchange for $3
million, if the Seller consents to such purchase. Seller
agrees that if it wishes to sell any or all of such 30,000
additional Shares, it will grant Buyer a 5 day right of first
refusal to purchase such Shares.
2. BUYER'S REPRESENTATIONS AND COVENANTS.
Buyer represents, warrants and covenants to Seller as
follows:
(i) This Agreement has been duly authorized, validly
executed and delivered on behalf of Buyer and is a valid and
binding agreement of Buyer enforceable in accordance with its
terms, subject to general principles of equity and of
bankruptcy or other laws affecting the enforcement of
creditors' rights;
(ii) Buyer is purchasing the Shares (sometimes
referred to herein as the "Securities") for its own account
for investment purposes only and not with a view towards
distribution. Buyer understands and agrees that it must bear
the economic risks of its investment for an indefinite period
of time. Buyer has received and carefully reviewed copies of
the Public Documents (as defined in Section 3). Buyer
understands that the offer and sale of the Securities are
being made only by means of this Agreement. No representations
or warranties have been made to Buyer by Seller, the officers
or directors of Seller, or any agent, employee or affiliate of
any of them, except as specifically set forth herein or as set
forth in documents referenced herein. Buyer is aware that the
purchase of the Securities involves a high degree of risk and
that it may sustain, and has the financial ability to sustain,
the loss of its entire investment. Buyer has had the
opportunity to ask questions of, and receive answers
satisfactory to it from Seller or its representatives,
regarding Seller. Buyer understands that no federal or state
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<PAGE>
governmental authority has made any finding or determination
relating to the fairness of an investment in the Securities
and that no federal or state governmental authority has
recommended or endorsed, or will recommend or endorse, the
investment herein. Buyer, in making the decision to purchase
the Securities subscribed for, has relied upon independent
investigation made by it and has not relied on any information
or representations made by third parties. Buyer has
significant assets and upon consummation of the purchase of
the Securities will continue to have significant assets
exclusive of the Securities. Buyer has not been organized for
the sole purpose of acquiring the Securities;
(iii) Buyer is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act");
(iv) Buyer understands that the Securities are being
offered and sold to it in reliance on specific provisions of
federal and state securities laws and that Seller is relying
upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of
Buyer set forth herein in order to determine the applicability
of such provisions;
(v) For as long as Buyer or any affiliate thereof is
a holder of securities of Seller, neither Buyer nor any
affiliate shall offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of any Common Stock
(any of the foregoing, a "Short-Sale") that Buyer or any
affiliate does not own as of such date; provided, however,
that no such restriction shall apply to any Shares issued upon
the conversion of any Series B Preferred Stock;
(vi) Neither Buyer nor any affiliate has committed a
Short-Sale of any security of Seller during the 30 days prior
to the date hereof;
(vii) Buyer is capable of evaluating the risks and
merits of this investment by virtue of its experience as an
investor and its knowledge, experience, and sophistication in
financial and business matters;
(viii) Buyer shall execute the Registration Rights
Agreement in the form attached hereto as Exhibit C;
(ix) Buyer has not employed any investment banker,
broker or finder or incurred any liability for any brokerage
fees, commissions or finder's fees in connection with the
transactions contemplated by this Agreement; and
(x) Buyer understands that neither the Shares nor the
shares of Common Stock issuable upon conversion have been
registered under the Securities Act and therefore it cannot
dispose of any or all of the Shares or Common Stock unless and
-3-
<PAGE>
until such Shares or Common Stock, as the case may be, are
subsequently registered under the Securities Act or exemptions
from such registration are available. Buyer acknowledges that
a legend substantially as follows will be placed on the
certificates representing the Shares and/or Common Stock:
THE SECURITIES REPRESENTED HEREBY ARE RESTRICTED
SECURITIES WITHIN THE MEANING OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH SUCH ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER OF
THESE SECURITIES WILL NOT TRANSFER SUCH SECURITIES
EXCEPT UPON RECEIPT OF EVIDENCE SATISFACTORY TO THE
ISSUER THAT THE REGISTRATION PROVISIONS OF SUCH ACT
HAVE BEEN COMPLIED WITH OR THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH TRANSFER WILL NOT VIOLATE
ANY APPLICABLE FEDERAL OR STATE SECURITIES LAWS.
3. SELLER'S REPRESENTATIONS AND COVENANTS.
Seller represents, warrants and covenants to Buyer as
follows:
(i) Seller has been duly incorporated and is validly
existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own,
lease and operate its properties and to conduct its business
as currently conducted, and is duly registered and qualified
to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or
the conduct of its business requires such registration or
qualification, except where the failure to register or qualify
is not reasonably anticipated to have a material adverse
effect on the condition (financial or otherwise), business,
properties, net worth or results of operations of Seller;
(ii) Seller has registered shares of its Common Stock
pursuant to Section 12 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), is in full compliance with
all reporting requirements of the Exchange Act, and the Common
Stock is quoted on the Nasdaq SmallCap System (trading symbol
INBC);
(iii) Seller has furnished Buyer with (a) copies of
Seller's Confidential Private Placement Memorandum dated
November 1, 1997, which contained, among other items, its most
recent Annual Report on Form 10-KSB (the "Form 10-KSB") filed
with the Securities and Exchange Commission (the "Commission")
and its Form 10-QSB for the quarterly period ended June 30,
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<PAGE>
1997 (the "June Form 10-QSB"), and (b) a copy of its Form
10-QSB for the quarterly period ended September 30, 1997
(collectively with the Form 10-KSB and the June Form 10-QSB,
the "Public Documents"). The Public Documents at the time of
their filing did not include any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading;
(iv) At the Closing, the Shares shall be duly
authorized and validly issued and when issued and delivered,
each of them shall be enforceable in accordance with their
terms (subject to general principles of equity and bankruptcy,
fraudulent conveyance, preference and other laws affecting
creditors' rights generally). The shares of Common Stock, when
issued and delivered upon conversion of the Series B Preferred
Stock, will be duly and validly authorized and issued, fully
paid and nonassessable, free from all encumbrances and
restrictions other than restrictions on transfer imposed by
applicable securities laws and/or this Agreement, and will not
subject the holders thereof to personal liability by reason of
being such holders;
(v) Seller has granted Buyer registration rights
pursuant to the terms and conditions of the Registration
Rights Agreement annexed hereto as Exhibit B which Seller
agrees to execute at Closing.
(vi) Seller agrees to execute the Escrow Agreement
attached hereto as Exhibit C.
(vii) Seller hereby grants to Buyer a security
interest in its registered trademark InnoPet Veterinarian
Formula filed with the U.S. Patent and Trademark Office, and
agrees to execute and deliver such further documents and
instruments and take such further actions as Buyer shall
reasonably request for the purpose of obtaining or preserving
such security interest, such security interest to be
enforceable in the event that Seller: (a) shall be adjudicated
insolvent or bankrupt; (b) shall seek dissolution or
reorganization or the appointment of a receiver, trustee,
custodian or liquidator for it or a substantial portion of its
property, assets or business or to effect a plan or other
arrangement with its creditors; (c) shall file a voluntary
petition under any bankruptcy, insolvency or similar law; or
(d) shall become the subject of an involuntary proceeding or
petition for its dissolution, reorganization, or the
appointment of a receiver, trustee, custodian or liquidator
and any such proceeding or petition shall not be dismissed
within ninety (90) days after commencement or filing, as the
case may be, or any order for relief shall be entered in any
such proceeding.
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<PAGE>
(viii) This Agreement has been duly authorized,
validly executed and delivered on behalf of Seller and is a
valid and binding agreement of Seller enforceable in
accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally, and Seller has
full power and authority to execute and deliver this Agreement
and the other agreements and documents contemplated hereby and
to perform its obligations hereunder and thereunder;
(ix) The execution and delivery of this Agreement,
the issuance of the Shares and the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock and
the consummation of the transactions contemplated by this
Agreement by Seller, will not conflict with or result in a
breach of or a default under any of the terms or provisions
of, Seller's certificate of incorporation or By-laws, or of
any material provision of any indenture, mortgage, deed of
trust or other material agreement or instrument to which
Seller is a party or by which it or any of its properties or
assets is bound, any material provision of any law, statute,
rule, regulation, or any existing applicable decree, judgment
or order by any court, federal or state regulatory body,
administrative agency, or other governmental body having
jurisdiction over Seller, or any of its properties or assets
or will result in the creation or imposition of any material
lien, charge or encumbrance upon any property or assets of
Seller or any of its subsidiaries pursuant to the terms of any
agreement or instrument to which any of them is a party or by
which any of them may be bound or to which any of their
property or any of them is subject;
(x) No authorization, approval, filing with or
consent of any governmental body is required for the issuance
and sale of the Shares;
(xi) There is no action, suit or proceeding before or
by any court or governmental agency or body, domestic or
foreign, now pending against or affecting Seller, or any of
its properties, which would reasonably be anticipated to
result in any material adverse change in the condition
(financial or otherwise) or in the earnings, business affairs,
business prospects, properties or assets of Seller;
(xii) Seller has not employed any investment banker,
broker or finder or incurred any liability for any brokerage
fees, commissions or finder's fees in connection with the
transactions contemplated by this Agreement, except that
Coleman and Company Securities, Inc. is entitled to receive a
fee consisting of an amount in cash equal to five percent (5%)
of the aggregate principal dollar value of the Shares at each
Closing;
(xiii) Subsequent to the dates as of which
information is given in the Public Documents, except as
contemplated herein, Seller has not incurred any material
liabilities or material obligations, direct or contingent, or
entered into any material transactions not in the ordinary
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<PAGE>
course of business, and there has not been any change in its
capitalization or any material adverse change in its condition
(financially or other), net worth, results of operations or
prospectus;
(xiv) Seller has conducted, is conducting and will
conduct its business so as to comply in all material respects
with all applicable statutes and regulations, and Seller is
not charged with and, to the knowledge of Seller, is not under
investigation with respect to any violation of any statutes or
regulations nor is it the subject of any pending or threatened
adverse proceedings by any regulatory authority having
jurisdiction over its business or operations except as
disclosed in the Public Documents;
(xv) Except as set forth in the Public Documents,
Seller has good and marketable title to all properties and
assets described therein as owned by it, free and clear of all
liens, charges, encumbrances, or restrictions;
(xvi) Seller has filed all necessary federal and
state income and franchise tax returns and has paid all taxes
shown as due thereon;
(xvii) Seller has no knowledge of any tax deficiency
that might be asserted against it that might materially and
adversely affect its business or properties;
(xviii) Seller maintains insurance of the types and
in amounts generally deemed adequate for its business and
consistent with insurance coverage maintained by similar
companies and businesses, including, but not limited to,
insurance covering all real and personal property owned or
leased by Seller against theft, damage, destruction, acts of
vandalism, products liability and all other risks customarily
insured against, all of which insurance is in full force and
effect;
(xix) No labor disturbance by the employees of Seller
exists or is imminent that could reasonably be expected to
have a material adverse affect on the conduct of the business,
operations, financial condition or income of Seller;
(xx) To the best of the knowledge of Seller's
management, neither Seller nor any employee or agent of Seller
has made any payment of funds of Seller or received or
retained any funds in violation of law;
(xxi) Subject in part to the truth and accuracy of
Buyer's representations set forth in this Agreement, and the
representations and covenants of Seller made in this Agreement
being true, the offer, sale and issuance of the Shares are
exempt from registration requirements of the 1933 Act, and
neither Seller nor any authorized agent acting on its behalf
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<PAGE>
will take any action hereafter that will cause the loss of
such exemption;
(xxii) Seller has sufficient title and ownership of
all trademarks, service marks, trade names, copyrights,
patents, trade secrets and other proprietary rights necessary
for its business as now conducted and as proposed to be
conducted as described in the Public Documents without any
conflict with or infringement of the rights of others. Except
as set forth in the Public Documents, there are no material
outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is Seller bound by or party to
any material options, licenses or agreements of any kind with
respect to the trademarks, service marks, trade names,
copyrights, patents, trade secrets, licenses and other
proprietary rights of any other person or entity. Seller is
not aware that any of its executive officers is obligated
under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to
any judgment, decree or order of any court or administrative
agency that would interfere with the use of his or her best
efforts to promote the interest of Seller or that would
conflict with Seller's business as proposed to be conducted;
and
(xxiii) Except for agreements explicitly contemplated
hereby or set forth in the Public Documents, there are no
other agreements between Seller and any of its officers,
directors, affiliates or any affiliate thereof.
4. INDEMNIFICATION BY BUYER.
Buyer hereby agrees to indemnify and hold harmless
Seller and its officers, directors, shareholders, employees, agents and
attorneys against any and all losses, claims, damages, liabilities and expenses
incurred by each such person in connection with defending or investigating any
such claims or liabilities, whether or not resulting in any liability to such
person, to which any such indemnified party may become subject under the
Securities Act, or under any other statute, at common law or otherwise, insofar
as such losses, claims, demands, liabilities and expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact made by Buyer, (ii) any omission or alleged omission of a material fact
with respect to Buyer or (iii) any breach of any representation, warranty or
agreement made by Buyer in this Agreement.
5. DELIVERIES AT CLOSINGS.
(i) Buyer shall deliver to Seller, at each Closing,
payment of the appropriate Purchase Price and, in addition, at
the Closing of the First Tranche, Buyer shall execute and
deliver the Registration Rights Agreement and Escrow
Agreement.
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<PAGE>
(ii) Seller shall deliver to Buyer at each Closing
the appropriate number of Shares in one (1) or more
certificates for the Series B Preferred Stock in such name or
names and denominations as may be designated by Buyer,
accompanied by appropriate stock powers and, in addition, at
the Closing of the First Tranche, Seller shall execute and
deliver the Registration Rights Agreement and Escrow
Agreement.
(iii) At the Closing of the First Tranche, Buyer
shall have received an opinion addressed to Buyer, from Camhy
Karlinsky & Stein LLP, stating the following:
(a) Seller has been duly incorporated and is
validly existing and in good standing under the laws
of the State of Delaware, with full corporate power
and authority to own, lease and operate its
properties and to conduct its business as currently
conducted;
(b) The Shares shall be duly authorized and
validly issued and when issued and delivered, each of
them shall be enforceable in accordance with their
terms (subject to general principles of equity and
bankruptcy, fraudulent conveyance, preference and
other laws affecting creditors' rights generally).
The shares of Common Stock, when issued and delivered
upon conversion of the Series B Preferred Stock, will
be duly and validly authorized and issued, fully paid
and nonassessable, free from all encumbrances and
restrictions other than restrictions on transfer
imposed by applicable securities laws and/or this
Agreement, and will not subject the holders thereof
to personal liability by reason of being such
holders;
(c) The Agreement has been duly authorized,
validly executed and delivered on behalf of Seller
and is a valid and binding agreement of Seller
enforceable in accordance with its terms, subject to
general principles of equity and to bankruptcy or
other laws affecting the enforcement of creditors'
rights generally, and Seller has full power and
authority to execute and deliver the Agreement and
the other agreements and documents contemplated
hereby and to perform its obligations thereunder; and
(d) The execution and delivery of the
Agreement, the issuance of the Shares and the shares
of Common Stock issuable upon conversion of the
Series B Preferred Stock and the consummation of the
transactions contemplated by this Agreement by
Seller, will not conflict with or result in a breach
of or a default under any of the terms or provisions
of, Seller's certificate of incorporation or By-laws.
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<PAGE>
6. MISCELLANEOUS.
(i) This Agreement shall be governed by and
interpreted in accordance with the laws of the State of
Delaware without giving effect to the rules governing the
conflicts of laws.
(ii) This Agreement may be executed by facsimile
signature and in counterparts, each of which shall be deemed
an original, but all of which together shall constitute one
and the same instrument.
(iii) Each of the parties agrees to pay its own
expenses incident to this Agreement and the performance of its
obligations hereunder, including, but not limited to, the fees
and expenses of each such party's legal counsel.
(iv) All notices and other communications provided
for or permitted hereunder shall be made in writing by hand
delivery, express overnight courier, registered first class
mail, overnight courier, or telecopier, initially to the
address set forth below, and thereafter at such other address,
notice of which is given in accordance with the provisions of
this Section 6.
if to Seller:
InnoPet Brands Corp.
One East Broward Boulevard, Suite 1100
Fort Lauderdale, Florida 33301
Attn: CEO
Telephone: 954-453-2400
Telecopier: 954-453-2500
with a copy (which shall not constitute notice) to:
Camhy Karlinsky & Stein LLP
1740 Broadway, 16th Floor
New York, New York 10019
Attn: Daniel I. DeWolf, Esq.
Telephone: 212-977-6600
Telecopier: 212-977-8389
if to Buyer:
Explorer Partners LLC
444 N. Michigan Avenue
Suite 2910
Chicago, Illinois 60611
Attn: Mr. Robert L. Holz
Telephone: 312-321-1600
Telecopier: 312-321-1660
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<PAGE>
with a copy (which shall not constitute notice) to:
Goldstein, Goldstein & Reis, LLP
65 Broadway, 10th Floor
New York, New York 10006
Attn: Sheldon E. Goldstein, Esq.
Telephone: 212-809-4220
Telecopier: 212-809-4228
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally
delivered; three (3) business days after being deposited in
the mail, postage prepaid, if mailed; the next business day
after being deposited with an overnight courier, if deposited
with a nationally recognized, overnight courier service; when
receipt is acknowledged, if telecopied.
(v) This Agreement together with the Exhibits hereto
constitutes the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior oral or
written proposals or agreements relating thereto. This
Agreement may not be amended or any provision hereof waived in
whole or in part, except by a written amendment signed by both
of the parties.
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<PAGE>
IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written above.
INNOPET BRANDS CORP.
By:______________________________________
Name: Marc Duke
Title: Chief Executive Officer
EXPLORER PARTNERS LLC
By:______________________________________
Name: Robert L. Holz
Title:
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<PAGE>
Exhibit 4.9
INVESTOR SUBSCRIPTION AGREEMENT
OF INNOPET BRANDS CORP.
THIS INVESTOR SUBSCRIPTION AGREEMENT (the "Agreement") is made
and entered into as of this 18th day of December 1997, by and between INNOPET
BRANDS CORP., a Delaware corporation (the "Company"), with offices at One East
Broward Boulevard, Suite 1100, Ft. Lauderdale, Florida 33301 and EXPLORER FUND
MANAGEMENT, L.L.C. (the "Fund"), with offices at 444 N. Michigan Avenue, Suite
2910, Chicago, Illinois 60611.
WHEREAS, the Fund has assisted in the investment in the
Company by Explorer Partners LLC (the "Investor") pursuant to the Subscription
Agreement and Investment Representation of even date herewith by and between the
Company and the Investor (the "Investor Agreement");
WHEREAS, in connection with the Investor Agreement, the
Company desires to issue to the Fund redeemable common stock purchase warrants
(the "Warrants") to purchase that number of shares (the "Warrant Shares") of the
common stock, par value $.01 per share, of the Company (the "Common Stock")
determined in accordance with Section 1(i) hereunder; and
WHEREAS, the Warrants are subject to the terms and conditions
set forth in the Warrant Agreement dated December 5, 1996 between the Company
and Continental Stock Transfer & Trust Company, as amended (the "Warrant
Agreement").
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 respective rights and obligations
thereunder, the parties hereto represent and agree as follows:
1. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(i) The Fund hereby subscribes for a total number of
Warrants to purchase that number of Warrant Shares equal to the greater of (a)
40,000 shares of Common Stock or (b) twenty percent (20%) of the number of
shares of Common Stock issuable upon conversion of the Series B Cumulative
Convertible Preferred Stock of the Company (the "Series B Preferred Stock")
issued to the Investor pursuant to the Investor Agreement, as if conversion of
such Series B Preferred Stock was to occur on each date of Closing (as such term
is defined in the Investor Agreement), at an exercise price of $6.00 per share
(the "Exercise Price"), in exchange for an aggregate of $.0001 per Warrant Share
in cash and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged (the "Purchase Price").
<PAGE>
(ii) The Fund shall pay the Purchase Price for the
Warrants subscribed for by the Fund either in cash or by check payable to the
Company, to be delivered at each Closing in exchange for Warrant Certificates to
be issued by the Company. The closings of the purchase and sale of the Warrants
shall take place on each date of Closing. The Company shall issue the Warrants
pro rata based upon the sum of money paid to the Company by the Investor at each
Closing.
(iii) The Company's obligation to issue any Warrants
to the Fund is conditioned upon the occurrence of the corresponding Closing. If
any specific Closing does not occur, then the Company is not obligated to issue
to the Fund the Warrants corresponding to such Closing.
(iv) The description of the terms and provisions of
the Warrants and the respective rights and obligations thereunder, including but
not limited to the form of Warrant Certificate and those regarding term,
exercise, taxes, exchange and redemption thereof by the Company, are more fully
set forth in the Warrant Agreement, a copy of which is on file at the principal
offices of the Company.
(v) The Company shall use its reasonable best efforts
to cause the Warrants and the Warrant Shares to be registered in accordance with
and upon the same terms and conditions as are set forth in the Registration
Rights Agreement of even date hereof between the parties (the "Registration
Rights Agreement").
2. THE FUND'S REPRESENTATIONS AND COVENANTS.
The Fund represents, warrants and covenants to the
Company as follows:
(i) This Agreement has been duly authorized, validly
executed and delivered on behalf of the Fund and is a valid and binding
agreement of the Fund enforceable in accordance with its terms, subject to
general principles of equity and of bankruptcy or other laws affecting the
enforcement of creditors' rights;
(ii) The Fund is purchasing the Warrants
(collectively with the Warrant Shares, referred to herein as the "Securities")
for its own account, for investment purposes only and not with a view towards
distribution. The Fund understands and agrees that it must bear the economic
risks of its investment for an indefinite period of time. The Fund has received
and carefully reviewed copies of the Public Documents (as defined in the
Investor Agreement). The Fund understands that the offer and sale of the
Securities are being made only by means of this Agreement. No representations or
warranties have been made to the Fund by the Company, the officers or directors
of the Company, or any agent, employee or affiliate of any of them, except as
specifically set forth herein or as set forth in documents referenced herein.
The Fund is aware that the purchase of the Securities involves a high degree of
risk and that it may sustain, and has the financial ability to sustain, the loss
of its entire investment. The Fund has had the opportunity to ask questions of,
and receive answers satisfactory to it from, the Company or its representatives,
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<PAGE>
regarding the Company. The Fund understands that no federal or state
governmental authority has made any finding or determination relating to the
fairness of an investment in the Securities and that no federal or state
governmental authority has recommended or endorsed, or will recommend or
endorse, the investment herein. The Fund, in making the decision to purchase the
Securities subscribed for, has relied upon independent investigation made by it
and has not relied on any information or representations made by third parties.
The Fund has significant assets and upon consummation of the purchase of the
Securities will continue to have significant assets exclusive of the Securities.
The Fund has not been organized for the sole purpose of acquiring the
Securities;
(iii) The Fund is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act");
(iv) The Fund understands that the Securities are
being offered and sold to it in reliance on specific provisions of federal and
state securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgements and
understandings of the Fund set forth herein in order to determine the
applicability of such provisions;
(v) The Fund is capable of evaluating the risks and
merits of this investment by virtue of its experience as an investor and its
knowledge, experience, and sophistication in financial and business matters;
(vi) The Fund understands that neither the Warrants
nor the Warrant Shares have been registered under the Securities Act and
therefore it cannot dispose of any or all of the Warrants or Warrant Shares
unless and until such Warrants or Warrant Shares, as the case may be, are
subsequently registered under the Securities Act or exemptions from such
registration are available. The Fund acknowledges that a legend substantially as
follows will be placed on the certificates representing the Warrants and/or
Warrant Shares:
THE SECURITIES REPRESENTED HEREBY ARE RESTRICTED
SECURITIES WITHIN THE MEANING OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH SUCH ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER OF
THESE SECURITIES WILL NOT TRANSFER SUCH SECURITIES
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<PAGE>
EXCEPT UPON RECEIPT OF EVIDENCE SATISFACTORY TO THE
ISSUER THAT THE REGISTRATION PROVISIONS OF SUCH ACT
HAVE BEEN COMPLIED WITH OR THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT SUCH TRANSFER WILL NOT VIOLATE
ANY APPLICABLE FEDERAL OR STATE SECURITIES LAWS.
(vii) The Fund understands that the description
herein regarding the rights and obligations with respect to the Warrants is a
summary and does not purport to be complete, and is further qualified in its
entirety by reference to the Warrant Agreement, which is incorporated herein by
reference.
3. THE COMPANY'S REPRESENTATIONS AND COVENANTS.
The Company represents, warrants and covenants to the
Fund as follows:
(i) The Company has registered warrants to purchase
shares of its Common Stock pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), is in full compliance with all
reporting requirements of the Exchange Act, and the Common Stock is quoted on
the Nasdaq SmallCap Market (trading symbol INBCW);
(ii) At the Closing, the Warrants shall be duly
authorized and validly issued and when issued and delivered, each of them shall
be enforceable in accordance with their terms (subject to general principles of
equity and bankruptcy, fraudulent conveyance, preference and other laws
affecting creditors' rights generally). The Warrant Shares, when issued and
delivered upon proper exercise of the Warrants, will be duly and validly
authorized and issued, fully paid and nonassessable, free from all encumbrances
and restrictions other than restrictions on transfer imposed by applicable
securities laws and/or this Agreement or such agreements as may be incorporated
herein by reference or entered into between the parties hereto, and will not
subject the holders thereof to personal liability by reason of being such
holders;
(iii) The Company has granted the Fund registration
rights pursuant to the terms and conditions of the Registration Rights
Agreement. The description of such rights contained herein is a summary and is
qualified in its entirety by the detailed information appearing in the
Registration Rights Agreement, a copy of which has been provided to the Fund;
and
(iv) This Agreement has been duly authorized, validly
executed and delivered on behalf of the Company and is a valid and binding
agreement of the Company enforceable in accordance with its terms, subject to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally, and the Company has full power and
authority to execute and deliver this Agreement and the other agreements and
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<PAGE>
documents contemplated hereby and to perform its obligations hereunder and
thereunder.
4. INDEMNIFICATION BY THE FUND.
The Fund hereby agrees to indemnify and hold harmless
the Company and its officers, directors, shareholders, employees, agents and
attorneys against any and all losses, claims, damages, liabilities and expenses
incurred by each such person in connection with defending or investigating any
such claims or liabilities, whether or not resulting in any liability to such
person, to which any such indemnified party may become subject under the
Securities Act, or under any other statute, at common law or otherwise, insofar
as such losses, claims, demands, liabilities and expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact made by the Fund, (ii) any omission or alleged omission of a material fact
with respect to the Fund or (iii) any breach of any representation, warranty or
agreement made by the Fund in this Agreement.
5. DELIVERIES AT CLOSINGS.
(i) The Fund shall deliver to the Company, at each
Closing, payment of the appropriate Purchase Price.
(ii) The Company shall deliver to the Fund, on or
before ten (10) days after each Closing, the appropriate number of
certificates for the Warrants in the name of Explorer Fund Management L.L.C.
6. MISCELLANEOUS.
(i) This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware without giving
effect to the rules governing the conflicts of laws.
(ii) This Agreement may be executed by facsimile
signature and in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
(iii) Each of the parties agrees to pay its own
expenses incident to this Agreement and the performance of its obligations
hereunder, including, but not limited to, the fees and expenses of each such
party's legal counsel.
(iv) All notices and other communications provided
for or permitted hereunder shall be made in writing by hand delivery, express
overnight courier, registered first class mail, overnight courier, or
telecopier, initially to the address set forth in the preamble to this
Agreement, and thereafter at such other address, notice of which is given to the
other party hereto in writing.
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<PAGE>
(v) This Agreement, together with such other
agreements as may be incorporated herein by reference, constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
all prior oral or written proposals or agreements relating thereto. This
Agreement may not be amended or any provision hereof waived in whole or in part,
except by a written amendment signed by both of the parties.
IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written above.
INNOPET BRANDS CORP.
By: ________________________________
Name: Marc Duke
Title: Chief Executive Officer
EXPLORER FUND MANAGEMENT, L.L.C.
By: ________________________________
Name: Robert L. Holz
Title:
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<PAGE>
Exhibit 4.10
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of the 18th day of December, 1997 by and between INNOPET
BRANDS CORP., a Delaware corporation (the "Company") and EXPLORER PARTNERS LLC
(sometimes referred to herein as "EP" or the "Shareholders").
R E C I T A L S :
WHEREAS, in connection with that certain Subscription
Agreement and Investment Representation dated as of December 18, 1997 by and
between the Company and EP (the "Investor Agreement"), the Company has agreed,
upon the terms and subject to the conditions contained therein, to issue and
sell to the Shareholders Series B Convertible Preferred Stock (the "Preferred
Stock") convertible into shares of the Company's common stock, par value $.01
per share (the "Common Stock", the Preferred Stock, and the Common Stock into
which the Preferred Stock is convertible, are sometimes hereinafter referred to
as the "Securities"); and
WHEREAS, the Company desires to grant to the Shareholders
certain registration rights relating to the Securities and the Shareholders
desire to obtain such registration rights, subject to the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions and References. For purposes of this Agreement,
in addition to the definitions set forth above and elsewhere herein, the
following terms shall have the following meanings:
(a) The term "Commission" shall mean the United States
Securities and Exchange Commission and any successor agency.
(b) The terms "register", "registered" and
"registration" shall refer to a registration effected by
preparing and filing a registration statement or similar
document in compliance with the 1933 Act (as herein defined)
and the declaration or ordering of effectiveness of such
registration statement or document.
(c) For purposes of this Agreement, the term
"Registrable Securities" shall mean (i) any shares of Common
Stock issued or issuable upon the proper conversion of the
Preferred Stock; (ii) any Securities issued by way of a stock
split; and (iii) any Common Stock issued as a stock dividend
on the Preferred
<PAGE>
Stock. For purposes of this Agreement, any Registrable
Securities shall cease to be Registrable Securities when (w) a
registration statement covering such Registrable Securities
has been declared effective and such Registrable Securities
have been disposed of pursuant to such effective registration
statement, (x) such Registrable Securities are eligible to be
sold pursuant to Rule 144 (or any similar provision then in
force) under the 1933 Act, (y) such Registrable Securities
have been otherwise transferred, no stop transfer order
affecting such Securities is in effect and the Company has
delivered new certificates or other evidences of ownership for
such Registrable Securities not bearing any legend indicating
that such Securities have not been registered under the 1933
Act, or (z) such Registrable Securities are sold by a person
in a transaction in which the rights under the provisions of
this Agreement are not assigned.
(d) The term "Holder" shall mean the Shareholders or
any transferee or assignee thereof to whom the rights under
this Agreement are assigned in accordance with Section 7
hereof and in accordance with the Investor Agreement, provided
that the Shareholder or such transferee or assignee shall then
own the Registrable Securities.
(e) The term "1933 Act" shall mean the Securities Act
of 1933, as amended.
(f) An "affiliate of such Holder" shall mean a person
who controls, is controlled by or is under common control with
such Holder, or the spouse or children (or a trust exclusively
for the benefit of the spouse and/or children) of such Holder,
or, in the case of a Holder that is a partnership, its
partners.
(g) The term "Person" shall mean an individual,
corporation, partnership, trust, limited liability company,
unincorporated organization or association or other entity,
including any governmental entity.
(h) References in this Agreement to any rules,
regulations or forms promulgated by the Commission shall
include rules, regulations and forms succeeding to the
functions thereof, whether or not bearing the same
designation.
2. Registration.
(a) Mandatory Registration. The Company shall prepare,
and within 30 days after the Second Tranche Closing Date (as
defined in the Investor Agreement), file with the Commission a
registration statement (the "Registration Statement") on Form
S-3 (or if Form S-3 is not then available, on such form of
Registration Statement as is then available to effect a
registration of all the Registrable Securities) covering the
resale of all of the Registrable Securities, which
Registration Statement, to the extent allowable under the 1933
Act and the Rules promulgated thereunder (including Rule 416),
shall state that such Registration Statement also covers such
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indeterminate number of additional shares of Common Stock as
may become issuable upon proper conversion of the
Preferred Stock (i) to prevent dilution resulting from stock
splits, stock dividends or similar transactions or (ii) by
reason of reductions in the conversion price of the Preferred
Stock in accordance with the terms thereof, including, but not
limited to, the terms which cause the conversion price to
decrease to the extent the average bid price of the Common
Stock decreases. The Registration Statement (and each
amendment or supplement thereto) shall be provided to the
Shareholders.
(b) Possible Payments by the Company.
(i) The Company shall file the Registration
Statement pursuant to Section 2(a) hereof not later
than 30 days from the Second Tranche Closing Date. If
the Registration Statement is not filed by the Company
within 30 days of the Second Tranche Closing Date, then
the Company shall pay Holders of the Preferred Stock a
cash penalty at the rate of one percent of the
Shareholders' aggregate investment paid to the Company
for each month (or a portion thereof) that such
Registration Statement has not been filed by the
Company.
(ii) The Company shall use its best efforts to
cause the Registration Statement to be filed pursuant
to Section 2(a) hereof to become effective not later
than 60 days from the Second Tranche Closing Date. If
(a) the Registration Statement is not declared
effective by the Commission within 60 days of the
Second Tranche Closing Date or (b) during the
Registration Period (as hereinafter defined) and after
the Registration Statement has been declared effective
by the Commission, sales of all the Registrable
Securities cannot be made pursuant to the Registration
Statement (by reason of a stop order or the Company's
failure to update the Registration Statement or any
other reason outside the control of and not caused by
any Holder or otherwise agreed to in writing by the
Shareholders or such Holder), then the Company shall
pay Holders of the Preferred Stock a cash penalty at
the rate of one percent of the Shareholders' aggregate
investment paid to the Company for each month (or a
portion thereof) that such Registration Statement has
not been declared effective.
3. Obligations of the Company. Whenever required under Section
2 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as possible:
(a) prepare and file with the Commission such
amendments and supplements to such Registration Statement (and
any prospectus used in connection therewith) as may be
necessary to keep such Registration Statement effective for a
period of not less than one year, or such shorter period which
will terminate when all Registrable Securities covered by such
Registration Statement have been sold (the "Registration
Period"), and comply with the provisions of the 1933 Act with
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respect to the disposition of all Securities covered by such
Registration Statement during such period in accordance with
the intended methods of disposition by the sellers thereof set
forth in such Registration Statement;
(b) furnish to each Holder of Registrable Securities to
be included in the Registration Statement copies of such
Registration Statement as filed and each amendment and
supplement thereto, and such other documents as such Holder
may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Holder;
(c) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky
laws of such jurisdictions as any selling Holder of
Registrable Securities reasonably requests, and do any and all
other acts which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such
Holder; provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this
Section 3(c) hereof, (ii) subject itself to taxation in any
such jurisdiction, or (iii) consent to general service of
process in any such jurisdiction;
(d) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, but not later than 90 days after the close of the
period covered thereby, an earnings statement covering the
period of at least twelve (12) months beginning not later than
the first day of the Company's fiscal quarter next following
the effective date of the Registration Statement;
(e) notify each selling Holder of such Registrable
Securities, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act (even if such time
is after the period referred to in Section 3(a)), of the
happening of any event as a result of which the prospectus
included in such Registration Statement contains an 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 being made
not misleading, and prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not
contain an 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 being made not misleading;
(f) use its best efforts to cause all such Registrable
Securities to be listed on the Nasdaq SmallCap Market and/or
any other securities exchange or quotation system on which
similar securities issued by the Company are then listed or
traded.
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The Company may require each selling Holder of Registrable
Securities as to which any registration is being effected to furnish to the
Company such information regarding the distribution of such Registrable
Securities as the Company may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e)
hereof, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) hereof, and, if so directed by
the Company, such Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the prospectus covering such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice, the
Company shall extend the Registration Period by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 3(e) hereof to and including the date when each selling Holder of
Registrable Securities covered by such Registration Statement shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 3(e) hereof.
4. Expenses of Registration. The Company agrees to pay all
expenses incurred in connection with the registration pursuant to Section 2 of
this Agreement including, without limitation, all registration, filing and
qualification fees, word processing, duplicating, printers' and accounting fees
(including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance), exchange listing fees or
National Association of Securities Dealers fees, messenger and delivery
expenses, all fees and expenses of complying with securities or blue sky laws,
and fees and disbursements of counsel for the Company. The selling Holders shall
bear and pay the underwriting commissions and discounts and broker commissions
applicable to the Registrable Securities offered for their account in connection
with any registrations, filings and qualifications made pursuant to this
Agreement.
5. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees
to indemnify, to the full extent permitted by law, each
Holder, its officers, directors and agents and each Person who
controls such Holder (within the meaning of the 1933 Act)
against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material
fact contained in the Registration Statement, prospectus or
preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement therein (in case of a
prospectus or preliminary prospectus, in the light of the
circumstances under which they were made) not misleading.
(b) Indemnification by Holders. In connection with the
Registration Statement in which a Holder is participating,
each such Holder will furnish to the Company in writing such
information with respect to such Holder as the Company
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reasonably requests for use in connection with such
Registration Statement or prospectus and agrees to indemnify,
to the extent permitted by law, the Company, its directors and
officers and agents and each Person who controls the Company
(within the meaning of the 1933 Act) against any losses,
claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact or any
omission or alleged omission of a material fact required to be
stated in the Registration Statement, prospectus or
preliminary prospectus or any amendment thereof or supplement
thereto or necessary to make the statements therein (in the
case of a prospectus or preliminary prospectus, in the light
of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such
untrue statement or omission was made in reliance upon and in
conformity with any information with respect to such Holder so
furnished in writing by such Holder.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt
written notice to the indemnifying party after the receipt by
such Person of any written notice of the commencement of any
action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim
indemnification or contribution pursuant to this Agreement
and, unless in the reasonable judgment of such indemnified
party a conflict of interest may exist between such
indemnified party and the indemnifying party with respect to
such claim, permit the indemnifying party to assume the
defense of such claims with counsel reasonably satisfactory to
such indemnified party. Whether or not such defense is assumed
by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its
consent (but such consent will not be unreasonably withheld).
Failure by such Person to provide said notice to the
indemnifying party shall itself not create liability except to
the extent of any injury caused thereby. No indemnifying party
will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect
of such claim or litigation. If the indemnifying party is not
entitled to, or elects not to, assume the defense of a claim,
it will not be obligated to pay the fees and expenses of more
than one (1) counsel with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any
other such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay
the fees and expenses of such additional counsel or counsels.
(d) Contribution. If for any reason the indemnity
provided for in this Section 5 is unavailable to, or is
insufficient to hold harmless, an indemnified party, then the
indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses,
claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the
indemnified party on
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<PAGE>
the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, or provides a lesser
sum to the indemnified party than the amount hereinafter
calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other
but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such
indemnifying party or indemnified parties; and the parties'
relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in
Section 5(c), any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
If indemnification is available under this Section 5,
the indemnifying parties shall indemnify each indemnified
party to the full extent provided in Sections 5(a) and (b)
without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable
consideration provided for in this Section 5.
6. Rule 144. The Company covenants that it will file the
reports required to be filed by it under the 1933 Act and the Securities
Exchange Act of 1934, as amended, and the rules and regulations adopted by the
Commission thereunder; and it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the 1933 Act
within the limitation of the exemptions provided by (a) Rule 144 under the 1933
Act, as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
7. Transfer of Registration Rights. The registration rights of
any Holder under this Agreement with respect to any Registrable Securities may
be transferred to any transferee of such Registrable Securities; provided that
such transfer may otherwise be effected in
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accordance with applicable securities laws; provided further, that such transfer
is in accordance with the terms of the Investor Agreement; provided further,
that the transferring Holder shall give the Company written notice at or prior
to the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which the rights under this Agreement
are being transferred; provided further, that such transferee shall agree in
writing, in form and substance satisfactory to the Company, to be bound as a
Holder by the provisions of this Agreement; and provided further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by such transferee is restricted under
the 1933 Act. Except as set forth in this Section 7, no transfer of Registrable
Securities shall cause such Registrable Securities to lose such status.
8. Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Company shall not be the surviving corporation unless the proposed surviving
corporation shall, prior to such merger, consolidation or reorganization, agree
in writing to assume the obligations of the Company under this Agreement, and
for that purpose references hereunder to "Registrable Securities" shall be
deemed to be references to the securities which the Holders would be entitled to
receive in exchange for Registrable Securities under any such merger,
consolidation or reorganization; provided, however, that the provisions of this
Section 8 shall not apply in the event of any merger, consolidation or
reorganization in which the Company is not the surviving corporation if each
Holder is entitled to receive in exchange for its Registrable Securities
consideration consisting solely of (i) cash, (ii) securities of the acquiring
corporation which may be immediately sold to the public without registration
under the 1933 Act, or (iii) securities of the acquiring corporation which the
acquiring corporation has agreed to register within ninety (90) days of
completion of the transaction for resale to the public pursuant to the 1933 Act.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its
securities which is inconsistent with the rights granted to
the Holders in this Agreement.
(b) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written
consent of the Holders of at least a majority of the
Registrable Securities then outstanding affected by such
amendment, modification, supplement, waiver or departure.
(c) Successors and Assigns. Except as otherwise
expressly provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to
confer upon any Person other than the parties hereto or their
respective successors and assigns any
-8-
<PAGE>
rights, remedies, obligations, or liabilities under or by
reason of this Agreement, except as expressly provided in this
Agreement.
(d) Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the
State of Delaware applicable to contracts made and to be
performed wholly within that state, without regard to the
conflict of law rules thereof.
(e) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
(f) Headings. The headings in this Agreement are used
for convenience of reference only and are not to be considered
in construing or interpreting this Agreement.
(g) Notices. Any notice required or permitted under
this Agreement shall be given in writing and shall be
delivered in person or by telecopy or by overnight courier
guaranteeing no later than second business day delivery,
directed to (i) the Company at the address set forth below its
signature hereof (with a copy, which copy shall not constitute
notice, to Camhy Karlinsky & Stein LLP, 1740 Broadway, New
York, New York 10019 Attention Daniel I. DeWolf, Esq. or (ii)
a Holder at the address set forth below its signature hereof.
Any party may change its address for notice by giving ten (10)
days advance written notice to the other parties. Every notice
or other communication hereunder shall be deemed to have been
duly given or served on the date on which personally
delivered, or on the date actually received, if sent by
telecopy or overnight courier service, with receipt
acknowledged.
(h) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in
any circumstances, is held invalid, illegal or unenforceable
in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be
in any way impaired thereby, it being intended that all of the
rights and privileges of the Holders shall be enforceable to
the fullest extent permitted by law.
(i) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
warranties or undertakings other than those set forth or
referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect
to such subject matter.
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<PAGE>
(j) Recitals. The recitals are hereby incorporated in
the Agreement as if fully set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
INNOPET BRANDS CORP.
By: _________________________________________
Name: Marc Duke
Title: Chairman and CEO
One East Broward Boulevard
Suite 1100
Ft. Lauderdale, Florida 33301
Telephone: (954) 453-2400
EXPLORER PARTNERS LLC
By: _________________________________________
Name: Robert L. Holz
Title:
444 N. Michigan Avenue
Suite 2910
Chicago, Illinois 60611
Telephone: (312) 321-1600
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Exhibit 4.11
NAME OF SUBSCRIBER: Manuel M. Arvesu, Esq.
To: InnoPet Brands Corp.
One East Broward Blvd., Suite 1100
Fort Lauderdale, Florida 33301
Attention: CEO
INNOPET BRANDS CORP.
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
SECTION 1.
1.1 Subscription.
(a) The undersigned, intending to be legally bound, hereby
irrevocably subscribes for and agrees to purchase the amount of units (the
"Units") of InnoPet Brands Corp., a Delaware corporation (the "Company"),
indicated on page 8 hereof, on the terms and conditions described herein and in
the Term Sheet, dated December 2, 1997, a copy of which has been received by the
undersigned. Each Unit consists of (a) a 10% promissory note (the "Note") of the
Company in the principal amount of $25,000; and (b) a warrant (the "Warrant") to
purchase 25,000 shares of the Company's Common Stock, exercisable as of the
Closing and expiring on December 5, 2001 at an exercise price of $6.00 per
share.
(b) The minimum number of Units which may be purchased is one
(1) Unit. Partial Units may be accepted at the discretion of the Company.
1.2 Purchase of Units.
The undersigned understands and acknowledges that the purchase
price to be remitted to the Company in exchange for the Units, if any, shall be
twenty-five thousand dollars ($25,000) per Unit. Payment for the Units shall be
made by certified check or wire transfer in accordance with the instructions of
the Company, together with an executed copy of this Agreement and any other
required documents.
<PAGE>
SECTION 2.
2.1 Acceptance or Rejection.
(a) The undersigned understands and agrees that the Company
reserves the right to reject this subscription for the Units in whole or part,
if, in its reasonable judgment, it deems such action in the best interest of the
Company, at any time prior to the applicable Closing (as hereinafter defined),
notwithstanding prior receipt by the undersigned of notice of acceptance of the
undersigned's subscription.
(b) The undersigned understands and agrees that subscriptions
may be revoked provided that written notice of revocation is sent by certified
or registered mail, return receipt requested, and is received by the Company at
least two business days prior to the applicable Closing.
(c) In the event of rejection of this subscription, or in the
event the sale of the Units subscribed for by the undersigned is not consummated
by the Company for any reason (in which event this Subscription Agreement shall
be deemed to be rejected), this Subscription Agreement and any other agreement
entered into between the undersigned and the Company relating to this
subscription shall thereafter have no force or effect and the Company shall
promptly return or cause to be returned to the undersigned the purchase price
remitted to the Company by the undersigned, without interest thereon or
deduction therefrom, in exchange for the Units.
2.2 Closing; Closing Date.
The closing (the "Closing") shall take place at the offices of
the Company or such other place as determined by the Company, on such date as is
set by the Company. The Company's acceptance of the undersigned's subscription
shall be evidenced by the Company's execution of this Agreement. Subsequent
Closings, if any, will be held at such times as are determined by the Company.
At the Closing of the purchase and sale of the Units subscribed to by the
undersigned, the Company shall prepare for delivery to the undersigned a Note
and the certificate for the Warrants to be issued and sold to the undersigned,
duly registered in the undersigned's name against payment in full by the
undersigned of the aggregate purchase price of the Units.
<PAGE>
SECTION 3
3.1 Investor Representations and Warranties.
The undersigned hereby acknowledges, represents and warrants
to, and agrees with, the Company and its affiliates as follows:
(a) The undersigned is acquiring the Units for his own account
as principal, not as a nominee or agent, for investment purposes only, and not
with a view to, or for, resale, distribution or fractionalization thereof in
whole or in part and no other person has a direct or indirect beneficial
interest in such Units or any of the components of the Units. Further, the
undersigned does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Units for which the undersigned is
subscribing or any of the components of the Units.
(b) The undersigned has full power and authority to enter into
this Agreement, the execution and delivery of this Agreement has been duly
authorized, if applicable, and this Agreement constitutes a valid and legally
binding obligation of the undersigned.
(c) The undersigned acknowledges his understanding that the
offering and sale of the Units is intended to be exempt from registration under
the Securities Act of 1933, as amended (the "Securities Act") by virtue of
Section 4(2) of the Securities Act. In furtherance thereof, the undersigned
represents and warrants to and agrees with the Company and its affiliates as
follows:
(i) The undersigned realizes that the basis for the
exemption may not be present if, notwithstanding such
representations, the undersigned has in mind merely acquiring
Units for a fixed or determinable period in the future, or for
a market rise, or for sale if the market does not rise. The
undersigned does not have any such intention;
(ii) The undersigned has the financial ability to bear
the economic risk of his investment, has adequate means for
providing for his current needs and personal contingencies and
has no need for liquidity with respect to his investment in
the Company;
(iii) The undersigned is sophisticated in financial
matters and has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and
risks of the prospective investment in the Units. If
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<PAGE>
other than an individual, the undersigned also represents it
has not been organized for the purpose of acquiring the Units.
(d) The undersigned:
(i) Has been provided an opportunity for a reasonable
period of time prior to the date hereof to obtain information
concerning the offering of the Units, the Company and all
other information to the extent the Company possesses such
information or can acquire it without unreasonable effort or
expense;
(ii) Has been given the opportunity for a reasonable
period of time prior to the date hereof to ask questions of,
and receive answers from, the Company or its representatives
concerning the terms and conditions of the offering of the
Units and other matters pertaining to this investment, and has
been given the opportunity for a reasonable period of time
prior to the date hereof to obtain such additional information
necessary to verify the accuracy of the information provided
in order for him to evaluate the merits and risks of purchase
of the Units to the extent the Company possesses such
information or can acquire it without unreasonable effort or
expense; and
(iii) Has determined that the Units are a suitable
investment for the undersigned and that at this time the
undersigned could bear a complete loss of such investment.
(e) The undersigned understands and agrees that the
certificates for the Warrants shall bear, substantially, the following legend
until (i) such securities shall have been registered under the Securities Act
and effectively been disposed of in accordance with a registration statement
that has been declared effective; or (ii) in the opinion of counsel for the
Company such securities be may sold without registration under the Securities
Act as well as any applicable "Blue Sky" or state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME
EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii)
PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN
OPINION OF COUNSEL TO THE
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CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION,
THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE BLUE SKY OR
SIMILAR SECURITIES LAW."
(f) The undersigned understands that an investment in the
Units is a speculative investment which involves a high degree of risk and the
potential loss of his entire investment.
(g) The undersigned's overall commitment to investments which
are not readily marketable is not disproportionate to the undersigned's net
worth, and an investment in the Units will not cause such overall commitment to
become excessive.
(h) The foregoing representations, warranties and agreements
shall survive the Closing.
SECTION 4.
4.1 Registration Rights.
(a) The Company has agreed to file a suitable registration
statement covering the resale of the shares of Common Stock underlying the
Warrants (the "Warrant Shares"), and the Warrants promptly as practicable after
the Closing Date and to use its best efforts to cause such registration
statement to be declared effective by the Commission within 60 days after the
Closing Date.
(b) The holder(s) of the 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
Securities 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 Securities Act, the Exchange Act or otherwise,
arising from written information furnished by or on behalf of such holders, or
their successors or assigns, for specific inclusion in such registration
statement.
4.2 No Short Sales. The undersigned agrees that for a period
of 12 months from the date of Closing he shall not offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any Common Stock that
the undersigned does not own as of such date.
5
<PAGE>
SECTION 5.
5.1 Indemnity. The undersigned agrees to indemnify and hold
harmless the Company, its officers and directors, employees and its affiliates
and each other person, if any, who controls any thereof, against any loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation commenced or threatened or any claim
whatsoever) arising out of or based upon any false representation or warranty or
breach or failure by the undersigned to comply with any covenant or agreement
made by the undersigned herein or in any other document furnished by the
undersigned to any of the foregoing in connection with this transaction.
5.2 Modification. Neither this Agreement nor any provisions
hereof shall be modified, discharged or terminated except by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
5.3 Notices. Any notice, demand or other communication which
any party hereto may be required, or may elect, to give to anyone interested
hereunder shall be sufficiently given if (a) deposited, postage prepaid, in a
United States mail letter box, registered or certified mail, return receipt
requested, addressed to such address as may be given herein, or (b) delivered
personally at such address.
5.4 Counterparts. This Agreement may be executed through the
use of separate signature pages or in any number of counterparts (and by
facsimile signature), and each of such counterparts shall, for all purposes,
constitute one agreement binding on all parties, notwithstanding that all
parties are not signatories to the same counterpart.
5.5 Binding Effect. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
assigns. If the undersigned is more than one person, the obligation of the
undersigned shall be joint and several and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed to be made by
and be binding upon each such person and his heirs, executors, administrators
and successors.
5.6 Entire Agreement. This Agreement and the documents
referenced herein contain the entire agreement of the parties and there are no
representations, covenants or other agreements except as stated or referred to
herein and therein.
5.7 Assignability. This Agreement is not transferable or
assignable by the undersigned.
6
<PAGE>
5.8 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, without giving
effect to conflicts of law principles.
5.9 Pronouns. The use herein of the masculine pronouns "he",
"him" or "his" or similar terms shall be deemed to include the feminine and
neuter genders as well and the use herein of the singular pronoun shall be
deemed to include the plural as well.
7
<PAGE>
ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
_____ day of December, 1997.
ONE (1) X $25,000 Per Unit = $$25,000
Units Subscribed For Purchase Price
Manner in which Title is to be held (Please Check One):
1. |_| Individual 7. |_| Trust/Estate/Pension or Profit
Sharing Plan
Date Opened:__________________
2. |_| Joint Tenants with Right of 8. |_| As a Custodian for
Survivorship ______________________________
Under the Uniform Gift to
Minors Act of the State of
______________________________
3. |_| Community Property 9. |_| Married with Separate
Property
4. |_| Tenants in Common 10. |_| Keogh
5. |_| Corporation/Partnership/ 11. |_| Tenants by the Entirety
Limited Liability Company
6. |_| IRA
- --------------------------------------------------------------------------------
IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBES MUST COMPLETE PAGE 9.
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGES 10.
8
<PAGE>
EXECUTION BY NATURAL PERSONS
----------------------------
Exact Name in Which Title is to be Held
Name:
Manuel M. Arvesu, Esq.
Residence:
100 S.E. 2nd Street
Suite 3700
Miami, Florida 33131
- -----------------------------------------
(Signature)
ACCEPTED this ______ day of December, 1997 on behalf of the Company.
BY:-----------------------------------------
Name:
Title:
9
<PAGE>
EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
------------------------------------------
(Corporation, Partnership, Trust, Etc.)
Name of Entity (Please Print)
Date of Incorporation or Organization:
State of Principal Offices:
Federal Taxpayer Identification Number:
BY:
TITLE:
[seal]
Attest:
(If Entity is a Corporation)
Address
Taxpayer Identification Number
ACCEPTED this ______ day of December, 1997 on behalf of the Company.
BY:-----------------------------------------
Name:
Title:
10
<PAGE>
Exhibit 4.12
PROMISSORY NOTE
December 8, 1997
$25,000 Fort Lauderdale, Florida
FOR VALUE RECEIVED, the undersigned, InnoPet Brands Corp., a
Delaware corporation ("Maker"), promises to pay to Manuel M. Arvesu, Esq.
("Payee") at the offices of Maker, One East Broward Blvd., Suite 1100, Fort
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 aggregate sum of Twenty-Five Thousand Dollars ($25,000).
Maker further agrees as follows:
Section 1. Interest Rate.
Interest shall accrue at a rate of ten percent (10%) per annum,
compounded annually.
Section 2. Payments.
(a) Principal and interest shall be due and payable on or before 90
days from the date hereof (the "Maturity Date"); provided, however, at the
option of the Maker, upon written notice to the Payee, the Maturity Date may be
extended by an additional 90 days;
(b) Maker shall have the right to prepay this Note in full or in part
at any time, without premium or penalty.
<PAGE>
Section 3. Default.
It shall be an event of default ("Event of Default"), and the
entire unpaid principal of this Note, together with accrued interest, 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 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) 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;
(c) 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 it, or the proceeding is
controverted but is not dismissed within ninety (90) days after the commencement
thereof;
-2-
<PAGE>
(d) Maker consents to or suffers the appointment of a guardian,
receiver, trustee or custodian to any substantial part of its assets that is not
vacated within ninety (90) days;
(e) the dissolution, termination of existence, or insolvency of Maker;
or
(f) Maker consents to or suffers an attachment, garnishment, execution
or other legal process against any of his assets that is not released within
ninety (90) days.
Section 4. Waivers.
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.
Section 5. 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. 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.
-3-
<PAGE>
Section 6. 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) Subject to Section 5, the covenants, terms and conditions
contained in this Note apply to and bind the heirs, successors, executors,
administrators and assigns of the parties.
(c) This Note constitutes a final written expression of all
the terms of the agreement between the parties regarding the subject matter
hereof, are a complete and exclusive statement of those terms, and supersedes
all prior and contemporaneous agreements, understandings, and representations
between the parties. 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.
-4-
<PAGE>
(d) 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: Manuel M. Arvesu, Esq.
100 Southeast 2nd Street, 37th Floor
Miami, Florida 33131
Fax: (305) 371-8319
Maker: InnoPet Brands Corp.
One East Broward Blvd., Suite 1100
Fort Lauderdale, Florida 33301
Attention: CEO
Fax: (954) 543-2500
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 no later than three (3) business days following the date of sending.
-5-
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note effective as
of the date first set forth above.
INNOPET BRANDS CORP.
By: /S/ MARC DUKE
-------------------------
Name: Marc Duke
Title: CEO
-6-
<PAGE>
AMENDED SECURED PROMISSORY NOTE
January __, 1998 $762,500
FOR VALUE RECEIVED, the undersigned, INNOPET BRANDS CORP., a Delaware
corporation ("Maker"), hereby promises to pay to the order of INTERBANK SPECIAL
PURPOSE CORPORATION II ("Payee") the principal sum of Seven Hundred Sixty-Two
Thousand Five Hundred Dollars ($762,500) with interest on the unpaid principal
amount at the rate of 1 1/2% per month (18% per annum), and with the principal
balance and all accrued interest being due and payable on the earlier of 90 days
from the date hereof, or at such time as a closing is consummated in the
Company's private placement of its securities undertaken by Coleman and Company
Securities, Inc. (the "Maturity Date"), all as hereinafter provided.
1. Payments of Interest and Principal
(a) Interest. Maker shall pay interest to Payee on the unpaid
outstanding principal balance owed to Payee hereunder at a rate of 1 1/2% per
month (18% per annum). Interest shall be paid monthly on the date of each
consecutive month commencing February 28, 1998 and through maturity of this Note
or upon time of redemption or prepayment as hereinafter provided.
(b) Principal. Maker shall have no duty or obligation to pay
any portion of the outstanding principal owed hereunder, except as hereinafter
provided, until 90 days from the date hereof, or at such time as a closing is
consummated in the Company's private placement of its securities undertaken by
Coleman and Company Securities, Inc., whichever is earlier. On the Maturity
Date, all accrued interest and outstanding principal shall be due and payable,
and shall be paid, to Payee.
(c) Payments. All payments made hereunder shall be applied as
made first to the payment of interest then due, and the balance of said payment
shall be applied to the payment of the principal sum.
2. Place of Payment. So long as Payee shall hold this Note, all
payments of principal and interest shall be made at the address of Maker as
specified herein upon presentment of this Note.
3. Prepayments. From and after the date hereof, Maker shall have the
option to prepay any portion or all of the remaining principal balance of this
Note without penalty or premium. All optional or mandatory prepayments of
principal made pursuant to this Note shall be accompanied by the payment of all
accrued interest on such principal through the date of the payment.
<PAGE>
4. Security Interest.
(a) Security Interest. As collateral security for the payment
of this Note, Maker hereby pledges, transfers, assigns, sets over and grants to
Payee a security interest in the Collateral (as hereinafter defined) wherever
located.
(b) Continuation of Security Interest. The security interest
granted in this Note shall continue in full force and effect until the payment
in full of this Note.
(c) Collateral. The term "Collateral" shall mean the assets
and rights listed on Schedule A hereto including all replacements,
modifications, alterations, additions, all substitutions and replacements
therefor, and all proceeds and products of the foregoing now owned or hereafter
acquired by Maker.
(d) Further Assurances. Maker shall take such steps and
execute and deliver such financing statements and other documents relating to
the creation, validity or perfection of the security interests provided for
herein, under the Uniform Commercial Code or other laws.
(e) Representations and Warranties. Maker hereby represents
and warrants that Maker has good and marketable title to and owns all of the
Collateral free and clear of any and all liens, encumbrances or security
interests whatsoever, except as described on Schedule B attached hereto.
(f) Covenants of Maker. Until payment in full of the Note,
Maker hereby covenants and agrees as follows:
(1) Observe Covenants, etc. Maker shall observe,
perform and comply with the covenants, terms and conditions of this Note.
(2) Payments of Proceeds. After the occurrence of an
"Event of Default", as hereinafter defined, and for so long as such default is
continuing, Maker shall forthwith upon receipt of any proceeds of Collateral,
pay such proceeds over the benefit of Payee, and such proceeds shall
thereupon be used to the full extent available to satisfy Maker's obligations to
Payee, the balance (if any) to be refunded to Maker.
(3) Payment of Expenses. After the occurrence of an
"Event of Default", Maker shall pay to Payee, upon demand, together with
interest at the rate of 1 1/2% per month, from the date when incurred or
advanced by Payee until repaid by Maker, all costs, attorney's fees, expenses
and other sums incurred or advanced by Payee to preserve, collect, protect its
interest in or realize on the Collateral, and to enforce Payees' rights as
against Maker.
(4) Name Changes; Location Changes.
2
<PAGE>
(a) Maker shall notify Payee if Maker is known by
or conducting business under any names other than those set forth in this Note;
and
(b) Maker shall notify Payee if Maker is using the
Collateral at locations other than those set forth above, or if it changes the
location of its chief executive office.
(5) Other Liens. Maker shall not incur, create or permit to
exist any mortgage, assignment, pledge, hypothecation, security interest, lien
or other encumbrance on any of the Collateral, except (i) the liens referred to
in Paragraph 4(e) above; (ii) liens for taxes not delinquent; (iii) those liens
in favor of Payee created by the Note; and (iv) liens created in the ordinary
course of business.
(g) Miscellaneous Rights and Duties of Payee.
-----------------------------------------
(1) Preservation of Collateral. After the occurrence of an
"Event of Default", for so long as such default is continuing, without prior
notice to Maker, Payee may take any and all action which in their sole
discretion is necessary and proper to preserve their interest in the Collateral,
including without limitation, the payment of debts of Maker which might, in
Payees' sole discretion, impair the Collateral or Payees' security interest
therein, purchasing insurance on the Collateral, repairing the Collateral, or
paying taxes or assessments thereon, and the sums so expended by Payee shall be
accrued by the Collateral, shall be added to the amount of the obligations due
Payees and shall be payable on demand with interest at the rate of 1 1/2% per
month from the date expended by Payee until repaid by Maker.
(2) Payees' Right to Cure. In the event Maker shall fail to
perform any of its obligations hereunder, then Payee, in addition to all of
their rights and remedies hereunder, may perform the same, but shall not be
obligated to do so, at the cost and expense of Maker. In any such event, Maker
shall promptly reimburse Payee together with interest at the rate of 1 1/2% per
month from the date such sums are expended until repaid by Maker.
(h) Default. The occurrence of any of the following shall constitute an
event of default ("Event of Default"):
(1) Failure to Pay. Maker fails to pay, when due, any of the
obligations provided for in this Note at their due date;
(2) Denominated Events. The occurrence of any event expressly
denominated as an Event of Default in this Note;
(3) Failure to Deliver. Maker fails to deliver any proceeds
collected from Accounts Receivable into Escrow Account;
3
<PAGE>
(4) Failure to Wire. Maker fails to promptly deliver to the
Escrow Account any funds received in connection with the private placement
transaction currently being undertaken by Maker;
(5) Failure to Perform. Maker fails to perform or observe any
material covenant, term or condition of this Note to be performed or observed by
Maker (other than the default covered in subsection (b)(1) above) and such
failure continues unremedied for a period of ten (10) days after written notice
from Payee to Maker of such failure;
(6) Petition by or against Maker. There is filed by or against
Maker any petition or complaint with respect to its own financial condition
under any state or federal bankruptcy law or any amendment thereto (including
without limitation a petition for reorganization, arrangement or extension of
debts) or under any other similar or insolvencey laws providing for the relief
of debtors and such petition or complaint is not set aside, stayed or terminated
within thirty (30) days after filing or such other period as provided by
applicable law;
(7) Appointment of Receiver. A receiver, trustee, conservator
or liquidator is appointed for Maker, or for all or a substantial part of its
assets; or Maker shall be adjudicated bankrupt, insolvent or in need of any
relief provided to debtors by any court and such appointment or adjudication is
not set aside, stayed or terminated within thirty (30) days after filing or such
other period as provided by applicable law.
(i) Remedies.
(1) Acceleration, Proceed Against Collateral. Upon the
occurrence of an Event of Default and for so long as such default is continuing:
a) The total amount of (i) this Note and all other
sums which are (A) then due and unpaid or (B) thereafter to become due and
payable; and (ii) interest on the foregoing sums, at the rate of 1 1/2% per
month from said occurrence until paid in full (the "Default Amount") shall, at
the option of Payee, become immediately due and payable without notice or
demand;
(b) Payee may forthwith give written notice to Maker,
whereupon Maker shall, at its expense, promptly deliver any and all Collateral
to such place as Payee may designate. In the event Payee obtains possession of
the Collateral, Payee may sell any or all of the Collateral at public or private
sale, at such price or prices as Payee may deem best, either for cash, on
credit, or for the future delivery, in bulk or in parcels and\or lease or retain
the Collateral repossessed using it or deeming it idle. Notice of any sale or
other disposition shall be given to Maker at lease twenty (20) days before the
time of any intended sale or disposition of the Collateral is to be made, which
the Maker hereby agrees shall be reasonable notice of such sale or other
disposition. The proceeds, if any, of any such sale or leasing by Payee shall be
applied: First, to the payment of all fees and expenses incurred by Payee as a
4
<PAGE>
result of such Event of Default, including without limitation any legal fees and
expenses incurred in repossessing the Collateral and selling and\or leasing it;
Second to pay the Default Amount to the extent not previously paid by Maker; and
Third to pay any excess remaining thereafter to Maker; and
(c) Maker shall notify all of its clients and
customers to make payments of any obligations to Maker directly to Payee.
(d) Payee may exercise any other remedies provided
under applicable laws.
(e) The foregoing notwithstanding, in the event of
default and the resort to any of the remedies herein provided to the Payee,
Maker shall retain a non-exclusive right to utilize the patents, trademark and
technology included as part of the "Collateral" provided as security hereunder.
(2) Set-off. Upon the occurrence of an Event of Default, Payee
shall have the right, immediately and without notice or other action, to set-off
against any of the Maker's liabilities to Payee any money owed by Maker in any
capacity to Payee, whether or not due, and Payee shall be deemed to have
exercised such right of set-off and to have made a charge against any such money
immediately upon the occurrence of such Event of Default even though the actual
book entries may be made at a time subsequent thereto.
(3) Cumulative Remedies; Waivers. No remedy referred to herein
is intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Payee of any default or
Event of Default hereunder shall in any way be, or be construed to be, a waiver
of any future or subsequent default or Event of Default. The failure or delay of
Payee in exercising any rights granted it hereunder under any occurrence of any
of the contingencies set forth herein shall not constitute a waiver of any such
right upon the continuation or recurrence of any such contingencies or similar
contingencies and any single or partial exercise of any particular right by
Payee shall not exhaust the same or constitute a waiver of any other right
provided herein.
(4) Costs and Expenses. Maker shall be liable for all costs,
charges and expenses incurred by Payee by reason of the occurrence of any Event
of Default or the exercise of Payees' remedies with respect thereto.
(5) No Marshalling. All Collateral heretofore, herein or
hereafter given to Payee shall secure payment of all obligations to Payee. Payee
shall be under no obligation to proceed against any or all of the Collateral
before proceeding directly against Maker. Payee shall be under no obligation
whatsoever to proceed first against any of the Collateral before proceeding
against any other of the Collateral. It is expressly understood and agreed that
all of the Collateral stands as equal security for all obligations, and that
Payee shall have the right to proceed against any or all of the Collateral in
any order, or simultaneously, as
5
<PAGE>
in their sole discretion they shall determine. It is further understood and
agreed that Payee shall have the right, as they in their sole discretion shall
determine to sell any or all of the Collateral in any order or simultaneously.
(6) Other Remedies. The remedies granted to Payee herein upon
an Event of Default are not restrictive of any and all other rights and remedies
of Payee provided for by this Note, and of the relevant documents and applicable
law.
5. Miscellaneous.
(a) Waivers. No waiver of any term or condition of this Note
shall be construed to be a waiver of any succeeding breach of the same term or
condition. No failure or delay of Payee to exercise any power hereunder, or to
insist upon strict compliance by Maker of any obligations hereunder, and no
custom or other practice at variance with the terms hereof shall constitute a
waiver of the right of Payee to demand exact compliance with such term.
(b) Invalid Terms. In the event any provision contained in
this Note shall, for any reason, be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceabiltiy shall not effect
any other provision of this Note, and this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
(c) Successors. This Note shall be binding upon Maker, its
legal representatives, successors and assigns, and inure to the benefit of
Payee, its legal representatives, successors and assigns.
(d) Controlling Law. This Note shall be governed and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State.
(c) Amendments. This Note may be amended only by an instrument
in writing executed by the party against which enforcement of the amendment is
sought.
(f) Notices. All notices, request, demands and other
communications required or permitted to be given hereunder shall be
sufficiently given if addressed to the Maker at One East Broward Blvd., Suite
1100, Fort Lauderdale, FL 33301, and to Payee at 1733 Connecticut Avenue, N.W.,
Washington, D.C. 20009, posted in the U.S. mail by certified or registered mail,
return receipt requested. Any party may change said address by giving the other
hereto notice of such change of address. Notice given as hereinabove prescribed
shall be deemed given on the date of its deposit in the United States mail and,
unless sooner received, shall be deemed received by the party to whom it is
addressed on the fifth calendar day following the date on which said notice is
deposited in the mail.
6
<PAGE>
(g) Construction of Terms. Whenever the context so requires,
any gender is deemed to include any other, and the singular is deemed to include
the plural, and conversely.
(h) Time of Essence. Time is of the essence in this Note and
each and every provision hereof.
(i) Headings. All section and subsection headings herein,
wherever they appear, are for convenience only and shall not affect the
construction of any terms herein.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its duly authorized officer and its seal affixed hereto, as of the day and
year first above written.
INNOPET BRANDS CORP.
By: ___________________________________
Name:
Title:
Attest:
By: ___________________________________
Name:
Title: Secretary
7
<PAGE>
SCHEDULE A
Collateral for Secured Promissory Note
--------------------------------------
The capitalized types of collateral used herein shall have the meaning
ascribed to them on the Uniform Commercial Code ("UCC") as of the date of this
filing. The term "Collateral" shall include the following, to wit:
A. 1. All "Inventory" in which Debtor now has any rights, all accessions
thereto and substitutions therefor, and all inventory in which Debtor hereafter
acquires any rights, wherever located whether in possession of a seller, in
transit from the seller to Debtor, in transit from Debtor's premises or
elsewhere, all contractual rights to purchase inventory, all shipping invoices,
bills of lading, and warehouse receipts covering such inventory and all products
and proceeds of such Collateral.
2. Inventory shall include all material and supplies used in Debtor's
business. Inventory as of the date hereof includes, but is not limited to,
machinery, products and supplies, as well as any such goods as are held for sale
or lease in Debtor's business.
B. All "Equipment" in which Debtor has any rights, and all accessions thereto
and substitutions therefor, and all Equipment in which Debtor hereafter acquires
any rights, whether in possession of a seller, in transit from seller to Debtor,
on Debtor's premises or elsewhere, all contractual rights to purchase
Accessions, all shipping invoices, bills of lading, and warehouse receipts
covering such Equipment, and all proceeds of such Collateral, whether the
Equipment be affixed to realty or not. It is expressly agreed that any Equipment
affixed to realty shall remain personal property. Debtor agrees not to affix any
equipment or realty or allow any Equipment to become accessions to goods
without prior written consent of secured party, and in no event in such a way
that removal would damage the realty or goods. Equipment, as of the date hereof,
includes any and all machinery, products and supplies not considered Inventory,
plus office furniture, fixtures and furnishings.
C. All "Accounts", "Contract Right", "Chattel Paper", "Goods", "Instruments"
"Documents", "General Intangibles", "Letters and Advices of Credit" and "Money"
in which Debtor now has any rights and hereafter acquires any rights, however
arising, including all bank accounts in which Debtor has deposited proceeds of
any Collateral, and all rights arising out of credit card charge slips deposited
or negotiated by Debtor, all accounts receivable and Chattel Paper, all
trademarks and trade names, trade secrets (including the Company's Commander
Technology) license and other occupational licenses and permits, files,
correspondence, advertising programs, customer lists, good will, all monies
becoming due Debtor from any sale of Collateral on account of rebates, warranty
service or bonuses, all amounts due under and all rights under any Letters of
Credit for the benefit of Debtor or in which Debtor has rights, and all books
and records of Debtor, including computer records and programs.
<PAGE>
D. All rents, royalties, revenues, increase, income, profits, insurance and
all other "Proceeds" of any and all of the foregoing Collateral.
E. All of Debtor's property, both real and personal, tangible and intangible,
now owned or hereafter acquired, wherever located, and all accessions and
accretions thereto, and all products, insurance and other proceeds of the
foregoing.
F. All vehicles, trailers, automobiles, trucks or other property evidenced by
a certificate of title or other title document.
G. All proceeds of Collateral of every kind and nature and in whatever form,
including, without limitation, both cash and non-cash proceeds resulting or
arising from the rendering of services by Borrower or the sale, lease or other
disposition by Debtor of the inventory or other Collateral.
<PAGE>
(4) Failure to Wire. Maker fails to promptly deliver to the Escrow Account
any funds received in connection with the private placement transaction
currently being undertaken by Coleman and Company Securities, Inc.;
(5) Failure to Perform. Maker fails to perform or observe any material
covenant, terms or condition of this Note to be performed or observed by Maker
(other than the default covered in subsection (h)(1) above) and such failure
continues unremedied for a period of ten (10) days after written notice from
Payee to Maker of such failure:
(6) Petition by or against Maker. There is filed by or against Maker any
petition or complaint with respect to its own financial condition under any
state or federal bankruptcy law or any amendment thereto (including without
limitation a petition for reorganization, arrangement or extension of debts) or
under any other similar or insolvency laws providing for the relief of debtors
and such petition or complaint is not set aside, stayed or terminated within
thirty (30) days after filing or such other period as provided by applicable
law; or
(7) Appointment of Receiver. A receiver, trustee, conservator, or
liquidator is appointed for Maker, or for all or a substantial part of its
assets; or Maker shall be adjudicated bankrupt, insolvent or in need of any
relief provided to debtors by any court and such appointment or adjudication is
not set aside, stayed or terminated within thirty (30) days after filing or such
other period as provided by applicable law.
(a) Remedies.
(i) Acceleration, Proceed Against Collateral. Upon the occurrence of
an Event of Default and for so long as such default is continuing:
(a) The total amount of (i) this Note and all other sums which are
(A) then due and unpaid or (B) thereafter to become due and payable; and (ii)
interest on the foregoing sums, at the rate of 1 1/2% per month from said
occurrence until paid in full (the "Default Amount") shall, at the option of
Payee, become immediately due and payable without notice or demand;
(b) Payee may forthwith give written notice to Maker, whereupon
Maker shall, at its expense, promptly deliver any and all Collateral to such
place as Payee may designate. In the event Payee obtains possession of the
Collateral, Payee may sell any or all of the Collateral at public or private
sale, at such price or prices as Payee may deem best, either for cash, on
credit, or for future delivery, in bulk or in parcels and/or lease or retain the
Collateral reposessed using it or keeping it idle. Notice of any sale or other
disposition shall be given to Maker at least twenty (20) days before the time of
any intended sale or disposition of the Collateral is to be made, which the
Maker hereby agrees shall be reasonable notice of such sale or other
disposition. The proceeds, if any, of any such sale or leasing by Payee shall be
applied: First, to the payment of all fees and expenses incurred by Payee as a
4
<PAGE>
Exhibit 4.14
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
OF INNOPET BRANDS CORP.
THIS SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
(the "Agreement") is made and entered into as of this 23rd day of March, 1998,
by and between INNOPET BRANDS CORP., a Delaware corporation ("Seller"), with
offices at One East Broward Boulevard, Suite 1100, Ft. Lauderdale, Florida 33301
and HSBC JAMES CAPEL CANADA, INC., an Ontario company ("HSBC"), with offices at
105 Adelaide Street West, Suite 1200, Toronto, Ontario M5H 1P9, Canada,
providing for the purchase and sale of shares of the common stock, par value
$.01 per share (the "Common Stock"), of Seller, by HSBC or its designated
affiliates (collectively with HSBC, the "Buyer"). Seller and Buyer hereby
represent and agree as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE; OPTION.
(i) For at least the twenty-four (24) month period beginning
on April 1, 1998, Buyer hereby subscribes for a total of Three Million,
Six Hundred Thousand Dollars ($3,600,000) of Common Stock, based upon
(a) the payment of One Hundred Fifty Thousand Dollars U.S. (US$150,000)
each month (the "Monthly Investment") and (b) a per share purchase
price equal to eighty percent (80%) of the lowest closing bid price for
a share of Common Stock for the twenty (20) trading days preceding each
respective Investment Date (as defined herein) (the "Purchase Price");
provided, however, that in the event the average closing bid price for
a share of Common Stock for the five (5) trading days preceding any
Investment Date falls below $2.00 per share, Buyer will forgo funding
the respective Monthly Investment; provided further, that in the event
that Buyer elects to fund any such Monthly Investment, Buyer shall
immediately notify Seller in writing of its election thereof. The
shares of Common Stock subscribed for by Buyer on each Investment Date
are referred to herein as the "Shares".
(ii) Buyer shall pay the Monthly Investment on the first
trading day of each month (the "Investment Date"), commencing on April
1, 1998, for a period of at least twenty-four (24) months thereafter
(each such monthly interval is referred to herein as the "Monthly
Period"), as the purchase price for the Shares subscribed for by it, in
exchange for such number of Shares as shall equal the Monthly
Investment divided by the Purchase Price for the respective Monthly
Period, as follows:
(a) On or before each Investment Date, Seller shall
deliver the Shares purchased by Buyer to The Depository Trust
Company ("DTC") on Buyer's behalf. Seller and Buyer shall
cause such Shares to be credited to the DTC
<PAGE>
account designated by Buyer upon receipt by Seller of payment
for the Monthly Investment into an account designated by
Seller. The delivery of the shares of Common Stock into
Buyer's DTC account in exchange for payment therefor shall be
referred to herein as "Settlement". Buyer shall coordinate
Settlement with Seller through DTC.
(b) If Settlement is not effected within three (3)
business days of the respective Investment Date, then Seller
shall pay to Buyer a cash penalty at the rate of two percent
(2%) of the Monthly Investment for each day that such Shares
have not been delivered to Buyer.
(iii) For at least the twenty-four (24) month period beginning
on April 1, 1998, Buyer and Seller agree that Buyer has been granted an
option (the "Option") to purchase up to Fifty Million Dollars U.S.
(US$50,000,000) of Common Stock (the "Option Shares"), based upon a per
share purchase price equal to eighty-five percent (85%) of the lowest
closing bid price for a share of Common Stock for the five (5) trading
days preceding the date of each respective Option Notice (as defined
herein) (the "Option Purchase Price"). Buyer may exercise the Option on
one or more occasion during such twenty-four (24) month period, in One
Hundred Thousand Dollar (US$100,000) increments, as follows:
(a) Buyer shall deliver a written notice (the "Option
Notice") by facsimile to Seller at (945) 453-2500,
Attention Chief Financial Officer, stating (i) that
Buyer desires to exercise its Option to purchase
Option Shares, (ii) the Option Purchase Price, (iv)
the total dollar amount to be paid by Buyer for such
Option Shares, (v) the aggregate number of Option
Shares to be purchased by Buyer, and (vi)
instructions for delivery of the Option Shares to
Buyer's DTC account.
(b) Upon receipt of the Option Notice, Seller shall
deliver the Option Shares purchased by Buyer to DTC
on Buyer's behalf. Seller and Buyer shall cause the
Shares to be credited to the DTC account designated
by Buyer upon payment by Buyer for such Option
Shares. Buyer shall pay the purchase price for the
Option Shares subscribed for by it by wire transfer
of immediately available, federal funds in United
States dollars to the account designated by Seller.
2
<PAGE>
(c) If the Option Shares are not delivered to Buyer
within three (3) business days of Seller's receipt of
payment therefor, then Seller shall pay to Buyer a
cash penalty at the rate of two percent (2%) of the
total dollar amount paid by Buyer for such Option
Shares for each day that such Option Shares have not
been delivered to Buyer.
(iv) Buyer and Seller may extend the term of this Agreement
upon the mutual written consent of both parties.
2. BUYER'S REPRESENTATIONS AND COVENANTS.
Buyer represents, warrants and covenants to Seller as follows:
(i) This Agreement has been duly authorized, validly executed
and delivered on behalf of Buyer and is a valid and binding agreement
of Buyer enforceable in accordance with its terms, subject to general
principles of equity and of bankruptcy or other laws affecting the
enforcement of creditors' rights;
(ii) Buyer understands that the offer and sale of the Shares
and Option Shares (sometimes collectively referred to herein as the
"Securities") are being made only by means of a prospectus, together
with the final prospectus supplement, if any, relating to the offering
of the Securities (collectively, the "Prospectus"), filed by Seller
with the Securities and Exchange Commission (the "Commission") pursuant
to Rule 424 under the Securities Act of 1933 (the "1933 Act"). The sale
of the Securities, which are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the 1933 Act, are to be made solely
pursuant to the Prospectus;
(iii) Buyer has received and carefully reviewed copies of the
Public Documents (as defined herein). No representations or warranties
have been made to Buyer by Seller, the officers or directors or Seller,
or any agent, employee or affiliate of any of them, except as
specifically set forth herein or as set forth in documents referenced
herein. Buyer understands that no federal or state governmental
authority has made any finding or determination relating to the
fairness of an investment in the Securities and that no federal or
state governmental authority has recommended or endorsed, or will
recommend or endorse, the investment herein. Buyer, in making the
decision to purchase the Securities subscribed for, has relied upon
independent investigation made by it and has not relied on any
information or representations made by third parties;
3
<PAGE>
(iv) Buyer understands that the Securities are being offered
and sold to it in reliance on specific provisions of federal and state
securities laws and that Seller is relying upon the truth and accuracy
of the representations, warranties, agreements, acknowledgements and
understandings of Buyer set forth herein;
(v) For as long as Buyer or any affiliate thereof is a holder
of securities of Seller, neither Buyer nor any affiliate shall,
directly or indirectly, bid for, purchase, contract to buy, acquire any
option to purchase or otherwise acquire any Common Stock, warrants or
other securities of the Company in the open market or otherwise, except
in accordance with this Agreement or directly from Seller;
(vi) Buyer is not a citizen or resident of the United States
of America, is not an entity organized under any laws of any state of
the United States of America and does not have offices in the United
States of America; and
(vii) Buyer is capable of evaluating the risks and merits of
this investment by virtue of its experience as an investor and its
knowledge, experience, and sophistication in financial and business
matters.
3. SELLER'S REPRESENTATIONS AND COVENANTS.
Seller represents, warrants and covenants to Buyer as follows:
(i) Seller has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties
and to conduct its business as currently conducted, and is duly
registered and qualified to conduct its business and is in good
standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure to register or qualify is not
reasonably anticipated to have a material adverse effect on the
condition (financial or otherwise), business, properties, net worth or
results of operations of Seller;
(ii) Seller has registered shares of its Common Stock pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and is in full compliance with all reporting
requirements of the Exchange Act;
(iii) Seller has filed with the Commission a registration
statement (the "Registration Statement") including the Prospectus. The
sale of the Securities are to be made solely pursuant to the
Prospectus;
4
<PAGE>
(iv) Seller has furnished Buyer with copies of Seller's most
recent Annual Report on Form 10-KSB (the "Form 10-KSB") filed with the
Commission, its Form 10- QSB for the quarterly period ended September
30, 1997 (the "Form 10-QSB") and the Prospectus (collectively with the
Form 10-KSB and the Form 10-QSB, the "Public Documents"). The Public
Documents at the time of their filing did not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not misleading;
(v) The Shares and Option Shares shall be duly authorized and
validly issued and when issued and delivered, each of them shall be
enforceable in accordance with their terms (subject to general
principles of equity and bankruptcy, fraudulent conveyance, preference
and other laws affecting creditors' rights generally);
(vi) Seller shall not issue a fractional share of Common Stock
upon the issuance of any Shares or Option Shares. Instead, Seller shall
round any fractional share to the next whole share of such security;
(vii) This Agreement has been duly authorized, validly
executed and delivered on behalf of Seller and is a valid and binding
agreement of Seller enforceable in accordance with its terms, subject
to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally, and Seller
has full power and authority to execute and deliver this Agreement and
the other agreements and documents contemplated hereby and to perform
its obligations hereunder and thereunder;
(viii) The execution and delivery of this Agreement, the
issuance of the Shares and the shares of Common Stock issuable upon
exercise of the Options and the consummation of the transactions
contemplated by this Agreement by Seller, will not conflict with or
result in a breach of or a default under any of the terms or provisions
of, Seller's certificate of incorporation or By-laws, or of any
material provision of any indenture, mortgage, deed of trust or other
material agreement or instrument to which Seller is a party or by which
it or any of its properties or assets is bound, any material provision
of any law, statute, rule, regulation, or any existing applicable
decree, judgment or order by any court, federal or state regulatory
body, administrative agency, or other governmental body having
jurisdiction over Seller, or any of its properties or assets or will
result in the creation or imposition of any material lien, charge or
encumbrance upon any property or assets of Seller or any of its
subsidiaries pursuant to the terms of any agreement or instrument to
which any of them is a party or by which any of them may be bound or to
which any of their property or any of them is subject;
5
<PAGE>
(ix) Except as disclosed herein, no authorization, approval,
filing with or consent of any governmental body is required for the
issuance and sale of the Shares;
(x) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending
against or affecting Seller, or any of its properties, which would
reasonably be anticipated to result in any material adverse change in
the condition (financial or otherwise) or in the earnings, business
affairs, business prospects, properties or assets of Seller, except as
set forth in the Public Documents;
(xi) Subsequent to the dates as of which information is given
in the Public Documents, except as contemplated herein, Seller has not
incurred any material liabilities or material obligations, direct or
contingent, or entered into any material transactions not in the
ordinary course of business, and there has not been any change in its
capitalization or any material adverse change in its condition
(financially or other), net worth, results of operations or prospectus;
(xii) Seller has conducted, is conducting and will conduct its
business so as to comply in all material respects with all applicable
statutes and regulations, and Seller is not charged with and, to the
knowledge of Seller, is not under investigation with respect to any
violation of any statutes or regulations nor is it the subject of any
pending or threatened adverse proceedings by any regulatory authority
having jurisdiction over its business or operations except as disclosed
in the Public Documents;
(xiii) Except as set forth in the Public Documents, Seller has
good and marketable title to all properties and assets described
therein as owned by it, free and clear of all liens, charges,
encumbrances, or restrictions;
(xiv) Seller has filed all necessary federal and state income
and franchise tax returns and has paid all taxes shown as due thereon;
(xv) Seller has no knowledge of any tax deficiency that might
be asserted against it that might materially and adversely affect its
business or properties;
(xvi) Seller maintains insurance of the types and in amounts
generally deemed adequate for its business and consistent with
insurance coverage maintained by similar companies and businesses,
including, but not limited to, insurance covering all real and personal
property owned or leased by Seller against theft, damage, destruction,
acts of vandalism, products liability and all other risks customarily
insured against, all of which insurance is in full force and effect;
6
<PAGE>
(xvii) No labor disturbance by the employees of Seller exists
or is imminent that could reasonably be expected to have a material
adverse affect on the conduct of the business, operations, financial
condition or income of Seller;
(xviii) To the best of the knowledge of Seller's management,
neither Seller nor any employee or agent of Seller has made any payment
of funds of Seller or received or retained any funds in violation of
law;
(xix) Seller has sufficient title and ownership of all
trademarks, service marks, trade names, copyrights, patents, trade
secrets and other proprietary rights necessary for its business as now
conducted and as proposed to be conducted as described in the Public
Documents without any conflict with or infringement of the rights of
others. Except as set forth in the Public Documents, there are no
material outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is Seller bound by or party to any
material options, licenses or agreements of any kind with respect to
the trademarks, service marks, trade names, copyrights, patents, trade
secrets, licenses and other proprietary rights of any other person or
entity. Seller is not aware that any of its executive officers is
obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency that
would interfere with the use of his or her best efforts to promote the
interest of Seller or that would conflict with Seller's business as
proposed to be conducted; and
(xx) Except for agreements explicitly contemplated hereby or
set forth in the Public Documents, there are no other agreements
between Seller and any of its officers, directors, affiliates or any
affiliate thereof.
4. INDEMNIFICATION.
(i) Seller hereby agrees to indemnify and hold harmless Buyer
and its officers, directors, shareholders, employees, agents and
attorneys against any and all losses, claims, damages, liabilities and
expenses incurred by each such person in connection with defending or
investigating any such claims or liabilities, whether or not resulting
in any liability to such person, to which any such indemnified party
may become subject under the 1933 Act, or under any other statute, at
common law or otherwise, insofar as such losses, claims, demands,
liabilities and expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact made by
Seller, (ii) any omission or alleged omission of a material fact with
respect to Seller or (iii) any breach of any representation, warranty
or agreement made by Seller in this Agreement.
7
<PAGE>
(ii) Buyer hereby agrees to indemnify and hold harmless Seller
and its officers, directors, shareholders, employees, agents and
attorneys against any and all losses, claims, damages, liabilities and
expenses incurred by each such person in connection with defending or
investigating any such claims or liabilities, whether or not resulting
in any liability to such person, to which any such indemnified party
may become subject under the 1933 Act, or under any other statute, at
common law or otherwise, insofar as such losses, claims, demands,
liabilities and expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact made by Buyer,
(ii) any omission or alleged omission of a material fact with respect
to Buyer or (iii) any breach of any representation, warranty or
agreement made by Buyer in this Agreement.
5. MISCELLANEOUS.
(i) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without giving effect
to the rules governing the conflicts of laws.
(ii) This Agreement may be executed by facsimile signature and
in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(iii) Each of the parties agrees to pay its own expenses
incident to this Agreement and the performance of its obligations
hereunder, including, but not limited to, the fees and expenses of each
such Party's legal counsel.
(iv) All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, express
overnight courier, registered first class mail, overnight courier, or
telecopier, initially to the address set forth below, and thereafter at
such other address, notice of which is given in accordance with the
provisions of this Section 6.
if to Seller:
InnoPet Brands Corp.
One East Broward Boulevard, Suite 1100
Fort Lauderdale, Florida 33301
Attn: CEO
Telephone: 954-453-2400
Telecopier: 954-453-2500
8
<PAGE>
if to Buyer:
HSBC James Capel Canada, Inc.
105 Adelaide Street West
Suite 1200
Toronto, Ontario M5H 1P9
Canada
Attn: Mr. Isser Elishis
Telephone: 416-369-6952
Telecopier: 416-947-0142
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally
delivered; three (3) business days after being deposited in
the mail, postage prepaid, if mailed; the next business day
after being deposited with an overnight courier, if deposited
with a nationally recognized, overnight courier service; when
receipt is acknowledged, if telecopied.
(v) This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and
supersedes all prior oral or written proposals or agreements
relating thereto. This Agreement may not be amended or any
provision hereof waived in whole or in part, except by a
written amendment signed by both of the parties.
9
<PAGE>
IN WITNESS WHEREOF, this Agreement was duly executed on the
date first written above.
INNOPET BRANDS CORP.
By: _________________________________
Name: Marc Duke
Title: Chief Executive Officer
HSBC JAMES CAPEL CANADA, INC.
By: _________________________________
Name: S. Rider
Title:
By: _________________________________
Name: S. Rider
Title:
10
<PAGE>
March 26, 1998
[LETTERHEAD OF CAMHY KARLINSKY & STEIN LLP]
Board of Directors
InnoPet Brands Corp.
One East Broward Blvd., Suite 1100
Fort Lauderdale, Florida 33301
Re: InnoPet Brands Corp. -- Registration Statement on Form SB-2
------------------------------------------------------------
Dear Sirs:
You have requested our opinion as counsel for InnoPet Brands
Corp., a Delaware corporation (the "Company"), in connection with the
registration statement (the "Registration Statement") on Form SB-2 filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), with respect to the issuance by
the Company of: (i) 8,062,441 shares (the "Shares") of common stock, par value
$.01 per share, (the "Common Stock") which includes certain shares of Common
Stock being registered for offer by the Company to HSBC James Capel Canada, Inc.
("HSBC") pursuant to the terms of a subscription agreement between the Company
and HSBC (the "Subscription Agreement") in connection with a proposed financing
whereby the Company will issue a total of $3.6 million of Common Stock over a
twenty-four month period based upon the payment of $150,000 each month at a per
share purchase price equal to 80% of the lowest closing bid price for the Common
Stock for the twenty trading days preceding each investment date (the
"Investment Shares") certain shares of Common Stock being registered for
offer by the Company to HSBC pursuant to the terms of the Subscription Agreement
in connection with the grant by the Company to HSBC of an option to purchase up
to a total of $50 million of Common Stock over a twenty four-month period based
upon a per share purchase price equal to 85% of the lowest closing bid price
for the Common Stock for the five trading days preceding each investment date
(the "HSBC Option Shares") certain shares of Common Stock underlying the Series
A 4% Cumulative Convertible Preferred Stock (the "Series A Preferred Stock")
issued in connection with a private placement (the "Series A Private Placement")
with Entrepreneurial Investors, Ltd. ("EIL") (the "Series A Private Placement
Common Shares"), certain
<PAGE>
Board of Directors
InnoPet Brands Corp.
March 26, 1998
Page 2
shares of Common Stock which may be issued in the future as a dividend on the
Series A Preferred Stock (the "Series A Dividend Shares"), certain shares of
Common Stock (the "Series A Option Shares") underlying an option, granted to the
placement agent in the Series A Private Placement, to purchase 62,500 shares of
Series A Preferred Stock which may be issued in the future upon the proper
exercise of the option, certain shares of Common Stock underlying the Series
B 8% Cumulative Convertible Preferred Stock (the "Series B Preferred Stock," and
together with the Series A Preferred Stock, the "Preferred Stock") issued in
connection with three private placements (the "Series B Private Placement") with
Explorer Partners, LLC (the "Series B Private Placement Common Shares," and
together with the Series A Private Placement Common Shares, the "Private
Placement Common Shares"), certain shares of Common Stock which may be
issued in the future as a dividend on the Series B Preferred Stock (the "Series
B Dividend Shares," and together with the Series A Dividend Shares, the
"Dividend Shares"), certain shares of Common Stock (the "Warrant Shares") to
be issued upon the proper exercise of an outstanding common stock purchase
warrants (the "Warrant"), certain shares of Common Stock being registered on
behalf of EIL in connection with a senior convertible promissory note (the
"Note") delivered by the Company to EIL and a pledge agreement (the "Pledge
Agreement") by and between the Company and EIL (the "Collateral Shares") and
certain shares of Common Stock which may be issued to EIL in the future as
payment of interest on the Note (the "Interest Shares"); and (k) certain shares
to be issued to various other investors (the "Investor Shares") and certain
Warrants issued to investors.
In rendering the opinions hereafter we have relied upon such
documents and instruments as we have deemed appropriate.
In conducting our examination, we have assumed, without
investigation, the genuineness of all signatures, the correctness of all
certificates, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
copies, and the accuracy and completeness of all records made available to us by
the Company.
The opinions hereafter expressed are subject to the following
qualifications:
<PAGE>
Board of Directors
InnoPet Brands Corp.
March 26, 1998
Page 3
A. Our opinion in paragraph 1 below as to the good
standing of the Company is based solely upon a certificate from public
officials.
B. Our opinions below are limited to the matters expressly
set forth in this opinion letter, and no opinion is to be implied or may be
inferred beyond the matters expressly so stated.
C. We disclaim any obligation to update this opinion
letter for events occurring after the date of this opinion.
D. We are members of the Bar of the State of New York. Our
opinions below are limited to the effect of the laws of the State of New York
and of the federal laws of the United States.
Based upon and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware.
2. The Investment Shares are duly authorized, and when
issued, and in accordance with the terms of the
Subscription Agreement, will be legally issued, fully paid
and non-assessable.
3. The HSBC Option Shares are duly authorized, and when
issued, upon proper exercise of the option and in
accordance with the terms of the Subscription Agreement,
will be legally issued, fully paid and non-assessable.
4. The Private Placement Common Shares are duly authorized,
and when issued, upon proper conversion and in accordance
with the terms of the Preferred Stock, will be legally
issued, fully paid and non-assessable.
<PAGE>
Board of Directors
InnoPet Brands Corp.
March 26, 1998
Page 4
5. The Dividend Shares are duly authorized and when issued,
upon proper declaration of a dividend and in accordance
with the terms of the Preferred Stock, will be legally
issued, fully paid and non-assessable.
6. The Option Shares are duly authorized and when issued,
upon proper exercise of the option and in accordance with
the terms thereof and the terms of the Series A Preferred
Stock, will be legally issued, fully paid and
non-assessable.
7. The Warrant Shares are duly authorized and when issued,
against payment therefor in accordance with the terms of
the Warrant, will be legally issued, fully paid and
non-assessable.
8. The Collateral Shares are duly authorized and when issued,
in accordance with the terms of the Note and the Pledge
Agreement, will be legally issued, fully paid and
non-assessable.
9. The Interest Shares are duly authorized and when issued,
in accordance with the terms of the Note, will be legally
issued, fully paid and non-assessable.
10. The Investor Shares are duly authorized and when issued,
against payment therefore, will be legally issued fully
paid and non-assessable
11. The Warrants are duly authorized, legally issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. In giving this consent, we do not thereby admit
that we are in the category of persons whose consent is required pursuant to
Section 7 of the Act or the rules and regulations of the Commission promulgated
thereunder.
<PAGE>
Board of Directors
InnoPet Brands Corp.
March 26, 1998
Page 5
This opinion letter is rendered solely for the benefit of the
addressee. Without our prior written consent, this opinion letter may not be:
(i) relied upon by any other party or for any other purpose; (ii) quoted in
whole or in part or otherwise referred to in any report or document; or (iii)
furnished (the original or copies thereof) to any other party.
Very truly yours,
/s/ Camhy Karlinsky & Stein
------------------------------------
CAMHY KARLINSKY & STEIN LLP
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is being made as of this 14th day of
October, 1997 between InnoPet Brands Corp., a Delaware corporation (the
"Company"), having its principal offices at One East Broward Boulevard, Ft.
Lauderdale, Florida, and Michael L. Winer (the "Employee"), an individual
residing at 8641 North West 53rd Court, Coral Springs, Florida 33067.
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee as its Vice President and
Chief Financial Officer and Employee desires to be employed by the Company in
such positions 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 October 14, 1997 and continuing until the close of
business on December 31, 2000 (the "Employment Term"). This Agreement will
automatically renew for an additional term of one (1) 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 of Employee; Primary Place of Employment.
(a) 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 public corporation including, without limitation,
the supervision of all matters of finance relating to or involving the Company.
In performance of his duties, Employee shall be subject to the direction of the
Chief Executive Officer of the Company or such other person or persons as the
Chief Executive Officer shall designate.
(b) Employee shall perform his duties and obligations primarily from
the Company's offices, located in South East Florida, except for required travel
on Company Business. Employee shall be available to travel as the needs of the
Company 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 (the "Base Salary"). 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's Base Salary shall increase by $25,000 when, commencing
in November, 1997, the Company reports net income after taxes, in accordance
with generally accepted accounting principles consistently applied, for three
(3) consecutive calendar months.
(c) 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 Chief
Executive Officer.
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<PAGE>
(d) The Employee shall be granted options (the "Options") to purchase
35,000 shares of Common Stock. The exercise price of the Options shall be the
closing bid price of the Company's Common Stock as reported on the NASDAQ
SmallCap Market for the date of the grant (which date shall be the date the
grant of said Options are approved by the Company's Board of Directors). The
Options shall vest as follows so long as the Employee is employed by the Company
on the following dates:
5,000 on December 31, 1998
10,000 on December 31, 1999
20,000 on December 31, 2000
The Options shall be subject to all of the terms of the Company's 1996 Stock
Option Plan and shall be evidenced by a stock option grant certificate that
shall be issued by the Company.
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. During the first year of this Agreement, Employee shall be entitled to
ten (10) 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. After the first year of the Agreement, Employee
shall be entitled to fifteen (15) days paid vacation time per year.
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<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 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)
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<PAGE>
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.
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.
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<PAGE>
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 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.
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<PAGE>
(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.
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 the Company.
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<PAGE>
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 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
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<PAGE>
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.
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.
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<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
--------------------------
Michael L. Winer
10
<PAGE>
EXHIBIT 11.1
INNOPET BRANDS CORP.
(A Development Stage Enterprise)
STATEMENT RE: COMPUTATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Inception
Year (January 11,
Ended 1996) to
December 31, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
Net Loss $10,011,743 $6,518,304
Preferred stock dividends 20,000 --
----------- ----------
Loss applicable to common stockholders $10,031,743 $6,518,304
=========== ==========
Weighted average common shares outstanding 4,474,000 1,705,490
Adjustments to reflect requirements of the Securities and Exchange
Commission SAB 83:
Common stock issued to Parent and officers and employees
within the period -- 388,510
----------- ----------
Total weighted average number of common shares and equivalents 4,474,000 2,094,000
=========== ==========
Net loss per common share $ (2.24) $ (3.11)
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated March 23, 1998 (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
March 26, 1998
