<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997
REGISTRATION STATEMENT NO. 333-7202
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTERCORP EXCELLE INC.
(Name of small business issuer as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
ONTARIO, CANADA N/A 2030
(State or other jurisdiction of (IRS Employer I.D. No.) (Primary Standard Industrial
Incorporation or Organization) Classification Code No.)
</TABLE>
1880 ORMONT DRIVE
TORONTO, ONTARIO
CANADA M9L 2V4
(416) 744-2124
(Address and Telephone Number of Registrant's Principal Executive Offices)
------------------------------
ARNOLD UNGER, CHIEF EXECUTIVE OFFICER
INTERCORP EXCELLE INC.
1880 ORMONT DRIVE
TORONTO, ONTARIO
CANADA M9L 2V4
(416) 744-2124
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. GREGORY SICHENZIA, ESQ.
ARTHUR S. MARCUS, ESQ. SINGER ZAMANSKY, LLP
GERSTEN, SAVAGE, KAPLOWITZ, 40 Exchange Place
FREDERICKS & CURTIN, LLP 20th Floor
101 East 52nd Street New York, New York 10005
New York, New York 10022 (212) 809-8550
(212) 752-9700
</TABLE>
------------------------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.
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, check the following box: /X/
----------------------------------------
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
----------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT BEING PRICE PER OFFERING REGISTRATION
SECURITIES BEING REGISTERED REGISTERED SECURITY(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, no par value................................................ 1,224,750(2) $ 5.00 $6,123,750 $1,855.68
Redeemable Common Stock Purchase Warrants................................. 1,224,750(3)(4) .10 122,475 37.11
Common Stock, no par value................................................ 1,224,750(3)(4)(5) 6.00 7,348,500 2,226.82
Underwriters' Warrant..................................................... 106,500 .0001 10 0.00
Common Stock, no par value................................................ 106,500 8.25 878,625 266.25
Redeemable Common Stock Purchase Warrants................................. 106,500(6) .165 17,573 5.33
Common Stock, no par value................................................ 106,500(6)(7) 6.00 639,000 193.64
Total..................................................................... $4,584.83
Previously paid........................................................... $4,333.94
Total owed................................................................ $250.89
</TABLE>
- ------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes up to 159,750 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(3) Includes up to 159,750 Redeemable Common Stock Purchase Warrants (the
"Warrants") issuable upon the exercise of the Underwriters' over-allotment
option.
(4) This Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilutive provisions of
the Warrants and the Underwriters' Warrant. No additional registration fee
is included for these shares.
(5) Represents shares of Common Stock issuable upon exercise of the Warrants
offered pursuant to this Registration Statement.
(6) Reserved for issuance upon exercise of the Underwriters' Warrant together
with such indeterminate number of Warrants and/or Common Stock as may be
issuable pursuant to anti-dilution provisions under the Underwriters'
Warrant or the Warrants.
(7) Reserved for issuance upon exercise of the Warrants obtained upon exercise
of the Underwriters' Warrant.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION
- ----------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus............................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors.................. Prospectus Summary; Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Cover Page; Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. Principal Stockholders and Selling Securityholders
8. Plan of Distribution.................................. Cover Page; Underwriting
9. Legal Proceedings..................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................. Management
11. Security Ownership of Certain Beneficial Owners and
Management.......................................... Principal Stockholders and Selling Securityholders
12. Description of Securities............................. Description of Securities
13. Interest of Named Experts and Counsel................. Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Management
15. Organization Within Last 5 Years...................... Prospectus Summary; Business
16. Description of Business............................... Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of
Operations.......................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property............................... Business
19. Certain Relationships and Related Transactions........ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................. Description of Securities; Risk Factors
21. Executive Compensation................................ Management
22. Financial Statements.................................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
<PAGE>
PRELIMINARY PROSPECTUS DATED , 1997
SUBJECT TO COMPLETION
INTERCORP EXCELLE INC.
1,065,000 SHARES OF COMMON STOCK
1,065,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to an offering by Intercorp Excelle Inc., a Canadian
corporation (the "Company") of 1,000,000 shares of common stock, no par value
(the "Common Stock") and 1,065,000 redeemable common stock purchase warrants
(the "Warrants"), through Sharpe Capital, Inc. the representative (the
"Representative") and Aegis Capital Corporation (who, with the Representative,
are collectively the "Underwriters"). This Prospectus also relates to the
offering through the Underwriters of 65,000 shares of Common Stock by certain
Selling Securityholders who are officers and directors of the Company (the
"Selling Securityholders"). The Company will not receive any of the proceeds
from the offering of the shares by the Selling Securityholders. The shares of
Common Stock offered hereby are sometimes referred to as "Shares" herein. The
offering of the Shares and Warrants hereby is sometimes referred to as the
"Offering" herein. The Shares and Warrants are being offered and sold separately
and will be separately transferable immediately upon issuance.
Each Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of $6.00 per share, subject to adjustment in certain events,
during the four year period commencing on the date of this Prospectus (the
"Effective Date"). The Warrants are subject to redemption by the Company at $.10
per Warrant, at any time commencing one year from the Effective Date (or earlier
with the consent of the Representative) and prior to their expiration, on not
less than 30 days' written notice to the holders of the Warrants, provided the
closing bid price per share of Common Stock if traded on The Nasdaq SmallCap
Market, or the last sales price per share if listed on the Nasdaq National
Market or a national exchange, has been at least 150% ($9.00 per share) of the
current Warrant exercise price, for a period of 20 consecutive business days
ending on the third day prior to the date upon which the notice of redemption is
given. The Warrants shall be exercisable until the close of the business date
preceding the date fixed for redemption. See "Description of
Securities--Warrants".
Prior to the Offering, there has been no market for the Common Stock or
Warrants, and there can be no assurance that a market will develop for the
Company's securities in the future or that if developed, it will be sustained.
The Company is applying for quotation of the Common Stock and Warrants on The
Nasdaq SmallCap Market under the trading symbols "INEX" and "INEXW",
respectively, and for the listing on the Boston Stock Exchange under the symbols
"INX" and "INXW", respectively.
The per share public offering price of the Shares and the Warrants and the
exercise price and the other terms of the Warrants offered hereby were
determined by negotiation between the Company and the Underwriters and do not
necessarily bear any direct relationship to the Company's assets, earnings, book
value per share or other generally accepted criteria of value. See
"Underwriting".
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 8
AND "DILUTION" ON PAGE 19.
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 COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) SECURITYHOLDERS(3)
<S> <C> <C> <C> <C>
Per Share..................... $5.00 $.50 $4.50 $4.50
Per Warrant................... $.10 $.01 $0.09 --
Total(4).................... $5,431,500 $543,150 $4,595,850 $292,500
</TABLE>
(1) Does not include additional consideration to be received by the Underwriters
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross offering proceeds (of which $50,000 has been paid), (ii) any value
attributable to the Underwriters' Warrant ("Underwriters' Warrant")
entitling the Underwriters to purchase up to 106,500 shares of Common Stock
and/or 106,500 Warrants at a price per share equal to 165% of the initial
public offering price per Share and per Warrant, and (iii) a financial
consulting agreement with the Representative for a period of thirty-six
months for an aggregate consideration of $88,000 payable in full on the
closing of the Offering. In addition, the Company has agreed to indemnify
the Underwriters against certain liabilities under the Securities Act of
1933, as amended (the "Act"). See "Underwriting".
(2) After deducting discounts and commission payable to the Underwriters, but
before payment of the Underwriters' non-accountable expense allowance of
$153,195 (or $176,174 if the Over-Allotment Option, defined below, is
exercised in full) or the other expenses of the Offering, estimated at
$321,805 payable by the Company. See "Underwriting".
(3) Before deducting the 3% nonaccountable expense allowance being paid by the
Selling Securityholders to the Underwriters of $9,750 ($11,213 if the
Over-Allotment Option is exercised in full).
(4) The Company and the Selling Securityholders have granted the Underwriters an
option, exercisable for 45 days after the Effective Date to purchase up to
an additional 150,000 shares of Common Stock and/or 159,750 Warrants from
the Company and 9,750 shares of Common Stock from the Selling
Securityholders upon the same terms and conditions set forth above, solely
for the purpose of covering over-allotments, if any (the "Over-Allotment
Option"). If the Over-Allotment Option is exercised in full, the total Price
to the Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to the Selling Securityholders will be $6,246,225, $624,623,
$5,285,227 and $336,375, respectively. See "Underwriting".
The Common Stock and Warrants being sold by the Company and the Selling
Securityholders are being offered by the Underwriters on a "firm commitment"
basis, when, as and if delivered to and accepted by the Underwriters, subject to
prior sale, and other conditions and legal matters. The Underwriters reserve the
right to withdraw, cancel or modify the Offering and to reject orders, in whole
or in part, for the purchase of any of the securities offered notwithstanding
tender by check or otherwise. It is expected that delivery of the certificates
representing the Shares and Warrants will be made against payment therefor at
the offices of the Representative, 120 Broadway, 28th Floor, New York, New York
10005 on or about , 1997.
SHARPE CAPITAL, INC. AEGIS CAPITAL CORP.
The date of this Prospectus is , 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR WARRANTS TO
STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK OR WARRANTS TO COVER
SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR WARRANTS MAINTAINED BY
THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
The Company and its officers, directors and auditors are residents of Canada
and subsequently all of the assets of the Company are or may be located outside
the United States. As a result, service of process may be effected upon the
Company through the offices of Gersten, Savage, Kaplowitz, Fredericks & Curtin,
LLP in New York, but it may be difficult for investors to effect service of
process within the United States upon non-resident officers and directors, or to
enforce against them judgments obtained in the United States courts predicated
upon the civil liability provision of the Securities Act or state securities
laws. The Company has been advised by its Canadian legal counsel, Wildeboer Rand
Thomson Apps & Dellelce, that a judgment of a United States court predicated
solely upon civil liability under the Securities Act would probably be
enforceable in Canada if the United States court in which the judgment was
obtained had a basis for jurisdiction in the matter that was recognized by a
Canadian court for such purposes. However, there is substantial doubt whether an
action could be brought in Canada in the first instance on the basis of
liability predicated solely upon such laws. If investors have questions with
regard to these issues, they should seek the advice of their individual counsel.
The Company has also been advised by its Canadian legal counsel Wildeboer Rand
Thomson Apps & Dellelce that, pursuant to the Currency Act (Canada), a judgment
by a court in any Province of Canada may only be awarded in Canadian currency.
Pursuant to the provision of the Courts of Justice Act (Ontario), however, a
court in the Province of Ontario shall give effect to the manner of conversion
to Canadian currency of an amount in a foreign currency, where such manner of
conversion is provided for in an obligation enforceable in Ontario.
EXCHANGE RATE DATA
The Company maintains its books of account in Canadian dollars, but has
provided the financial data in this Prospectus in United States dollars with its
audit conducted in accordance with generally accepted auditing standards in the
United States of America. All references to dollar amounts in this Prospectus,
unless otherwise indicated, are in United States dollars.
The following table sets forth, for the periods indicated, certain exchange
rates based on the noon buying rate in New York City for cable transfers in
Canadian dollars. Such rates are the number of United States dollars per one
Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank
of New York for Canadian dollars per US$1.00. The average exchange rate is based
on the average of the exchange rates on the last day of each month during such
periods. On June 30, 1997, the exchange rate was US$1.00 per Cdn$.7241.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1993 1994 1995 1996
--------- --------- --------- ---------
RATE AT END OF PERIOD.................................................. $ 0.7576 $ 0.7143 $ .7353 $ 0.7299
AVERAGE RATE DURING PERIOD............................................. 0.7752 0.7299 0.7299 0.7353
HIGH................................................................... 0.7519 0.7092 0.7299 0.7299
LOW.................................................................... 0.7576 0.7143 0.7353 0.7299
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO INTERCORP EXCELLE INC.
AND ITS WHOLLY-OWNED SUBSIDIARIES KALMATH INVESTMENTS LIMITED ("KALMATH") A
HOLDING COMPANY, EXCELLE BRAND FOODS CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF
KALMATH, AND INTERCORP FOODS LTD. ALL INFORMATION IN THIS PROSPECTUS, UNLESS
OTHERWISE NOTED, ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT OPTION OR THE
UNDERWRITERS' WARRANT.
THE COMPANY
The Company is in the business of developing, manufacturing, marketing, and
distributing salad dressings, sauces, dips, marinades and mayonnaise. The
Company distributes a line of gourmet salad dressings to supermarkets, gourmet
stores and specialty shops, primarily in Canada, under the name "Renee's
Gourmet-TM-." Salad dressings, dips, sauces, marinades and mayonnaise are also
distributed under the brand name "Excelle" and under private labels for both
retail and food service establishments, including supermarkets, restaurants,
hotels, hospitals, schools and other institutional cafeterias throughout Canada
and the United States. The Company markets over 200 products. Management
believes, based on the number of grocery store chains and gourmet stores that
carry the Company's products, that its products are sold in over 1,500 retail
outlets. Renee's has the largest market share of any refrigerated salad dressing
in Canada according to a recent A.C. Nielsen report.
The "Renee's Gourmet-TM-" line is distributed in most supermarkets in
Canada, including but not limited to, A&P, National Grocers, Oshawa Foods and
Provigo. The "Excelle" line is primarily distributed to food service
establishments, including, but not limited to, Scott's Hospitality/KFC and Prime
Restaurants. The Company's private labels include Shaw's, Grisanti's, Sobey's,
President's Choice, Master Choice and Wegman's. The private labels are sold
under one of such names or the supermarkets' own name to most supermarkets that
sell the "Renee's Gourmet-TM-" line.
All of the products in the "Renee's Gourmet-TM-" line are primarily made
from natural ingredients and are preservative and MSG free, as well as being low
in sodium. Certain of the Company's products are also designed to serve certain
specific health conscience markets. For example, the Company markets products
which are made without milk, sugars or oils for consumers who are lactose
intolerant, diabetics, or allergy-prone. The Company recently introduced its
"Renee's Gourmet Naturally Light-TM-" line which is low in fat and intended for
the growing diet and health conscience market. Management intends to introduce
an extension of the "Renee's Gourmet-TM-" line which would include low-fat
marinades and sauces, as well as exploring a line of its products to a kosher
designation.
The Company's products are sold to supermarkets in a variety of bottle sizes
and in one gallon containers and individual portion cups and pouches for food
service establishments. The Renee's Gourmet-TM- salad dressings are sold in the
produce section of supermarkets and require refrigeration. Management believes
that it is an advantage to sell its products in the produce section because
fewer competing products are generally sold in the produce section and because
such products naturally complement lettuce and other vegetables sold in the
produce section. Where possible, the Company seeks to display its sauces and
marinades in the meat and poultry sections of supermarkets. The dressings have a
four to six month refrigerated shelf life depending on the particular product.
The Company's strategy is to continue to capitalize on the significant brand
name recognition of its Renee's line by increasing the amount of supermarkets
carrying its products, increasing the amount of products carried by such stores
and to penetrate other geographic markets including the United States. The
Company also intends to acquire or license other existing sauces and marinades
products for marketing through its established distribution network. In
addition, the Company intends to continue to
4
<PAGE>
expand its food service distribution business by entering into agreements with
large restaurant and hotel chains.
Intercorp Excelle Inc. was formed in Canada in April 1997 to consolidate the
business of its three wholly-owned subsidiaries, Excelle Brand Foods
Corporation, a Canadian company, established in 1987 to produce and distribute
products under the Excelle brand name, as well as private label products,
Kalmath Investments Limited, and Intercorp Foods Ltd., a Canadian company,
established in 1986 to distribute products under the Renee's Gourmet-TM- line.
The Company's principal offices are located at 1880 Ormont Drive, Toronto,
Ontario, Canada M9L 2V4 and its telephone number is (416) 744-2124.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 1,000,000 Shares of Common Stock and 1,065,000 Warrants
by the Company and 65,000 Shares by the Selling
Securityholders. The Shares and the Warrants (sometimes
hereinafter collectively referred to as the
"Securities") may be purchased separately and will be
transferable separately upon issuance. Each Warrant is
exercisable at an exercise price of $6.00 per share. The
exercise price of the Warrants is subject to adjustment
in certain circumstances. The Warrants are exercisable
during the four year period commencing on the Effective
Date. The Warrants are redeemable by the Company
commencing one year from the Effective Date (or earlier
with the consent of the Representative) at a price of
$.10 per Warrant on 30 days' prior written notice
provided the last sales price of the Common Stock for 20
consecutive business days equals or exceeds 150% of the
current Warrant exercise price. See "Description of
Securities", "Principal Stockholders and Selling
Securityholders" and "Underwriting".
Common Stock Outstanding
Prior to Offering(1)............ 3,075,000
Common Stock to be
Outstanding After the
Offering(1)..................... 4,075,000
Warrants Outstanding Prior to
Offering(2)..................... 175,000
Warrants to be Outstanding After
the Offering(2)................. 1,240,000
Use of Proceeds................... The net proceeds to the Company from the sale of the
Securities are estimated to be approximately $4,120,850,
after deducting commissions and expenses of the Offering
estimated at $475,000. The Company intends to use the
net proceeds of this Offering for improvements in its
manufacturing capabilities, selling and marketing, the
repayment of certain indebtedness, and for working
capital and general corporate purposes including
potential synergistic acquisitions. See "Use of
Proceeds".
Risk Factors...................... The Securities offered hereby are speculative and
involve a high degree of risk and should not be
purchased by anyone who cannot afford the loss of his or
her entire investment. See "Risk Factors" and
"Dilution".
Proposed Nasdaq SmallCap Market
Symbols(3) Common Stock--INEX
Warrants--INEXW
Proposed Boston Stock Exchange
Symbols(3)...................... Common Stock--INX
Warrants--INXW
</TABLE>
- ------------------------
(1) Does not include an aggregate of 500,000 shares of Common Stock reserved for
issuance upon the exercise of options available for future grant under the
Company's Stock Option Plan (the "Plan"), 200,000 of which have been
granted. See "Management-Stock Option Plan".
(2) Includes 175,000 warrants (the "Bridge Warrants") issued in connection with
the Company's May 1997 bridge financing. The holders of the Bridge Warrants
have the right to exchange such warrants into warrants identical to the
Warrants offered hereby. See "Description of Securities-Bridge Warrants".
(3) The proposed symbols do not imply that a liquid and active market will
develop or be sustained for the Securities upon completion of the Offering.
6
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
The summary financial information set forth below is qualified by and should
be read in conjunction with the Combined Financial Statements, including the
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDEDE
YEAR ENDED JANUARY 31, APRIL 30,
--------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
------------ ------------- ------------ ------------
STATEMENT OF INCOME DATA
Revenues................................................ $ 8,457,288 $ 10,459,655 $ 2,309,733 $ 2,780,557
Gross profit............................................ 2,070,404 2,859,721 604,231 847,999
Income from operations.................................. 182,218 484,452 135,224 116,630
Net income.............................................. 421,431 293,961 73,836 79,153
Earnings per share...................................... 0.03 0.10 0.02 0.03
Weighted average number of shares outstanding........... 3,075,000 3,075,000 3,075,000 3,075,000
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31, AT APRIL 30, 1997
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
1996 1997 ACTUAL AS ADJUSTED(1)
------------ ------------ ------------ --------------
BALANCE SHEET DATA
Working capital................................. $ 52,003 $ 367,300 $ 295,235 $ 4,416,085
Total assets.................................... 2,832,856 2,882,630 3,731,867 7,852,717
Long-term debt.................................. 680,735 746,195 698,926 630,926
Total liabilities............................... 2,328,091 2,070,388 2,849,536 2,781,536
Stockholders' equity............................ 504,765 812,242 882,331 5,071,181
</TABLE>
- ------------------------
(1) Reflects the issuance of the 1,000,000 Shares and 1,065,000 Warrants offered
hereby and the application of the net proceeds therefrom.
7
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH INVESTMENTS IN THE SECURITIES OFFERED HEREBY. THIS PROSPECTUS CONTAINS
CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
1. INTENSE COMPETITION IN DRESSING MARKET. The Company's business is
subject to significant competition. The refrigerated salad dressing market is
highly competitive. Outside the refrigerated sector of the industry, Kraft,
Select, Hidden Valley and Weight Watcher's are large competitors in the retail
sector. The Company is not a significant competitor in the shelf-stable sector
of the industry. The primary food service sector competitors that the Company
faces are also Kraft, Select, Hellmann's and Richardson's.
The Company's Renee's Gourmet-TM- brand products compete with other larger
and better capitalized food companies that manufacture refrigerated dressings.
The larger competitors who also place their products in the refrigerated produce
or dairy sections in the United States include Dean's Foods which distributes
Marie's brand salad dressings, T. Marzetti's, an independent manufacturer, and
Naturally Fresh, which three companies comprise approximately 85% of the United
States market. Another significant competitor in the refrigerated section in the
United States includes Walden's.
The private label industry is also highly competitive. Manufacturers compete
on price, quality and taste and contracts are awarded based primarily on these
criterion. The Company has been successful in competing for private label
agreements with several supermarket chains and food service institutions. There
are no assurances that the Company will continue to be able to provide prices
acceptable to its customers.
There are also regional competitors that the Company competes with. Certain
of the Company's competitors have greater financial and other resources than the
Company. See "Business--Competition".
2. SECURED LOANS; EXISTENCE OF LIENS ON SIGNIFICANT PORTION OF ASSETS. A
substantial portion of the Company's assets have been pledged as security for a
credit facility with National Bank of Canada. The credit facility includes a
Cdn$900,000 revolving demand loan, Cdn$1,332,536 in non-revolving demand loans,
Cdn$350,000 U.S. currency forward contract and a Cdn$30,000 business MasterCard.
The credit facility is secured by assets of the Company including assignment of
the Cdn$200,000 life insurance policy on Arnold Unger, the Cdn$150,000 life
insurance policy on Renee Unger, and the Company's accounts receivable,
inventory, and all intangible property. The credit facilty is further secured by
pledges of the outstanding shares of the Company's subsidiaries, however, under
the terms of the credit facility, voting control must remain with the Company's
Chief Executive Officer, Arnold Unger and President, Renee Unger. The credit
facility has been additionally guaranteed by the Company's officers, Renee Unger
and Arnold Unger, in the amount of $250,000 each and by a collateral mortgage on
the personal residence of Renee Unger located in Ontario. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions".
There are certain restrictions on debt to equity ratios along with other
negative and affirmative covenants. The aforementioned pledge of security makes
such assets unavailable to secure additional debt financing, which may affect
the Company's ability to borrow further in the future.
3. UNCERTAINTIES OF GOVERNMENT REGULATION. The Company is subject to
various Canadian and United States regulations relating to health and safety
standards. The Company is also responsible for adhering to environmental
standards for manufacturing facilities. Regulations in new markets and future
changes in existing regulations may adversely impact the Company by raising the
cost of production and delivery of dressings and sauces and/or by affecting the
perceived healthfulness of the Company's products. A failure to comply with one
or more regulatory requirements could result in a variety of sanctions,
8
<PAGE>
including fines and the withdrawal of the Company's products from store shelves.
Because the Company sells a portion of its products in the United States, the
Company must comply with federal regulations administered by the United States
Food and Drug Administration (the "FDA") and the United States Department of
Agriculture. Food labeling regulations administered by the Secretary of Health
and Human Services through the FDA subject the Company to uniform labeling and
certain other labeling requirements for its products. See "Business--Government
Regulation".
4. UNCERTAINTY OF NEW PRODUCT DEVELOPMENT AND NO ASSURANCE OF MARKET
ACCEPTANCE. The perpetuation of the Company's success is dependent upon
continued name recognition and acceptance of the Company's existing and new
products. No assurances can be made that any or all products will achieve or
maintain consumer acceptance. The Company has been developing new flavors and
types of sauces for Renee's Gourmet-TM- brand products along with the Excelle
brand and private labels. The Company has especially focused on increasing its
low-fat and fat-free line of dressing products since low-fat food production is
the fastest growing sector of the refrigerated industry. There are no assurances
that this trend will persist or that the Company will have the ability to
successfully introduce or market any of its new products. Continued product
development and commercialization efforts are subject to all of the risks
inherent in the development of new products including achieving market
acceptance, competition, compliance with labeling and other government
regulations and access to limited shelf space. There is no assurance that the
Company will be able to develop, manufacture and distribute new products which
achieve market acceptance. See "Business".
5. UNCERTAINTY AS TO COMPANY'S ABILITY TO EXPAND INTO UNITED STATES AND
OTHER MARKETS. The Company's sales in the United States have been limited to
private label products. The Company's brand products do not have name
recognition in the United States market. The Company's strategy is to penetrate
into the U.S. market and to introduce its brand products into other markets. The
U.S. market for refrigerated dressings is highly competitive. In order to
penetrate the U.S. and other markets, the Company will have to devote
significant resources to advertising and marketing in such countries in order to
develop consumer awareness of its products and to procure sufficient shelf space
for its products. There can be no assurance that the Company will be successful
in its efforts. The Company intends to devote a portion of the net proceeds of
this Offering toward the expansion into the U.S. market and other markets. See
"Business".
6. LIMITED SHELF-SPACE. The Company's products require refrigeration and
are primarily marketed in the produce section where there is substantial
competition for limited shelf-space. There is no assurance that the Company will
be able to acquire additional shelf-space for its products or maintain its
current space. In order to receive shelf-space, the Company often offers
discounted initial product shipments, advertising allowances or cash. No
assurances may be given that the Company will be able to continue to pay these
expenses.
7. RAW MATERIAL SHORTAGE. The availability and favorable pricing of fresh
ingredients for the manufacture of salad dressings, dips, marinades and
mayonnaise are factors that the Company cannot control. The Company experienced
a decrease in the price of vegetable oil and sugar that was offset by an
increase in the price of eggs and cheeses in the past year. If the Company
cannot be supplied with the raw materials necessary and at favorable prices, the
Company could be adversely affected by having to discontinue certain flavors,
substitute traditional ingredients for others and/or raise prices. Alteration of
products may affect consumer choices and sales and may have a materially adverse
effect on the Company's business. See "Business--Manufacturing".
8. LACK OF PATENT PROTECTION FOR MANUFACTURING PROCESSES OR RECIPES. The
Company holds no patents on either its manufacturing processes or recipes.
Management believes that it provides better protection of its recipes from
competitors by not patenting them, thereby keeping them secret. No assurances
can be made that any of the recipes or the manufacturing process would satisfy
the requirements for a patent, or if a patent were issued, that it would be
enforceable. See "Business--Patents and Trademarks".
9
<PAGE>
9. SEASONAL FLUCTUATION IN COMPANY'S BRANDED SALAD DRESSING SALES. The
Company's business, particularly its retail branded dressing segment, is subject
to the seasonal variations of the refrigerated salad dressing industry that
revolve around the prime produce season in the spring and summer months.
Beginning in March through May, the Company increases its production and sales
of goods. The Company also experiences surges in sales during November and
December. The seasonality of its business has been substantially decreased as a
result of the Company's increase in the food service segment, private label
business and non-salad dressing products such as sauces, which is consistent
throughout the year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
10. DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend
to a significant extent on the efforts of key management personnel, including
Renee Unger, its President, Arnie Unger, its Chief Executive Officer, and other
key personnel. The Company is in the process of entering into employment
agreements with Arnold Unger and Renee Unger and other key employees. The loss
of one or more of these key employees could have a material adverse effect on
the Company's business. The Company maintains key-man life insurance policies in
an amount of $240,000 for Arnold Unger and Renee Unger and may acquire it for
other key employees. In addition, the Company believes that its future success
will depend in large part upon its continued ability to attract and retain
highly qualified management, technical and sales personnel. There can be no
assurance that the Company will be able to attract and retain the qualified
personnel necessary for its business. See "Management".
11. CONTROL BY EXISTING STOCKHOLDERS. Upon the completion of this
Offering, the Company's management will collectively beneficially own 70% (67%
if the Underwriters' Over-Allotment Option is exercised in full) of the
Company's outstanding Common Stock. Because of their beneficial stock ownership,
these stockholders will be in a position to continue to elect the majority
members of the Board of Directors and decide matters requiring stockholder
approval. See "Principal Stockholders and Selling Securityholders".
12. PRODUCT LIABILITY CLAIMS. Although the Company has not been subject to
future any claims for product liability, the Company could be subject to future
product liability claims in connection with the food products that it sells. As
the Company expands its food products lines and distributes more products into
the marketplace, the Company's exposure to such potential liability will also
increase. The Company currently maintains product liability insurance in the
amount of Cdn$2,000,000 (Cdn$50,000 limit for product recall), however, this
policy only covers certain claims and the cost of legal fees involved in the
defense of such claims which are either covered under the policy or alleged in
such manner as to invoke the insurer's duty to defend the Company. There is no
assurance that such coverage would be adequate in terms and scope to protect the
Company in the event of a successful product liability claim. No assurance can
be given that the Company will be able to maintain the existing coverage or
obtain additional coverage at commercially reasonable rates. To the extent
product liability losses are beyond the limits or scope of the Company's
insurance coverage, the Company could experience a materially adverse effect
upon its business, operations, profitability, and assets.
13. DEPENDENCE ON THIRD PARTY FREIGHT HAULERS. The Company is dependent on
independent freight haulers to ship the Company's products to distribution
facilities. The ability of the Company to control its freight expenses is a
significant factor in the Company's gross profit margin. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations". There
is no assurance that the Company will be able to maintain acceptable freight
pricing and arrangements. Furthermore, a labor slowdown, strike or other matters
beyond management's control may adversely affect the Company's ability to ship
its products on a timely basis or at all. See "Business".
14. DEPENDENCE ON MAJOR CUSTOMER. Approximately 11% of the Company's
revenues is derived from sales to Scott Hospitality/KFC. Although the Company
has entered into a written agreement with Scott Hospitality/KFC, either party
may elect not to renew the agreement when it terminates on December 31, 1997.
There is no assurance that the Company will maintain its relationship with Scott
Hospitality/KFC, or that Scott Hospitality/KFC will renew the agreement with the
Company. In the event
10
<PAGE>
Scott Hospitality/KFC does not renew the agreement or otherwise continues
acquiring product from the Company, the Company's business and results of
operations would be materially adversely effected.
15. POTENTIAL REINSTATEMENT OF SETTLED CLAIMS. In 1996, the Company
entered into written agreements with several of its trade creditors, with
respect to claims of past due trade payables. The agreements provided for
foregiveness of those claims in the amount of approximately $557,415, net of
related expenses. Some of these agreements provide that if the Company defaults
on payments to a trade creditor for the amount remaining owed under such
agreement then the Company would be liable for the entire claimed amount owed to
such creditor. Default by the Company on such agreements would have a material
adverse effect on the Company's financial condition and results of operation.
16. NO PRIOR PUBLIC MARKET. Prior to this Offering, there has been no
public market for the Common Stock and/or Warrants. Accordingly, there can be no
assurance that an active trading market will develop and be sustained upon the
completion of this Offering. The initial public offering price of the Common
Stock and/or Warrants has been determined by negotiations between the Company
and the Representative and does not necessarily bear any relation to the
Company's asset value, earnings or other objective criteria. See "Underwriting".
The stock market has, from time to time, experienced extreme price and volume
fluctuations which often have been unrelated to the operating performance of
particular companies. Although it has no obligation to do so, the Representative
intends to engage in market-making activities or solicited brokerage activities
with respect to the purchase or sale of the Common Stock and Warrants in the
Nasdaq SmallCap Market. However, no assurance can be given that the
Representative will continue to participate as a market-maker in the securities
of the Company or that other broker/ dealers will make a market in such
securities which may adversely impact the liquidity of the securities.
Regulatory developments and economic and other external factors, as well as
period-to-period fluctuations in financial results, may also have a significant
impact on the market price of such securities. See "Description of Securities".
17. IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves an
immediate and substantial dilution to investors. Purchasers of Shares in the
Offering will incur an immediate dilution of $3.79 per Share in the net tangible
book value of their investment from the initial public offering price, which
dilution amounts to approximately 76% of the initial public offering price per
Share. Investors in the Offering will pay $5.00 per Share, as compared with an
average cash price of $.29 per share of Common Stock paid by existing
stockholders. See "Dilution".
18. BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED ACQUISITIONS;
SUBSTANTIAL PROCEEDS TO REPAY DEBT. Approximately 52% of the net proceeds of
this Offering will be applied to working capital and general corporate purposes.
This includes a portion of the net proceeds of this Offering currently allocated
to working capital for potential acquisitions. As of the Effective Date, the
Company has not identified any particular acquisition targets. Stockholders of
the Company may have no opportunity to approve specified acquisitions or to
review the financial condition of any potential target. Accordingly, management
of the Company will have broad discretion over the use of proceeds.
Approximately 18% of the net proceeds of this Offering will be used to repay
Company indebtedness, including $681,250, or 16% of the net proceeds, to repay
the bridge financing incurred in May 1997. See "Use of Proceeds".
19. NEED FOR ADDITIONAL FINANCING. The Company believes that the proceeds
of the Offering will, together with revenues from operations, be sufficient to
finance the Company's working capital requirements for a period of at least 12
months following the completion of this Offering. In addition, a part of the
Company's strategy is to acquire companies with related and complementary
businesses, although the Company has not presently identified any specific
acquisitions. The continued expansion and operation of the Company's business
beyond such 12 month period and its ability to make acquisitions may be
dependent upon its ability to obtain additional financing. There can be no
assurance that additional financing will be available on terms acceptable to the
Company, or at all. In the event that the Company is unable to obtain such
additional financing as it becomes necessary, the Company may not be able to
11
<PAGE>
achieve all of its business plans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
20. SHARES ELIGIBLE FOR FUTURE SALE. Of the 4,075,000 shares of Common
Stock of the Company to be outstanding upon completion of this Offering, 65,000
are being registered and resold by the Underwriters for the Selling
Securityholders and 2,835,000 shares shall be "restricted securities," which are
owned by "affiliates" of the Company, as those terms are defined in Rule 144
promulgated under the Act. Absent registration under the Act, the sale of such
shares is subject to Rule 144, as promulgated under the Act. All of the
"restricted securities" are eligible for resale under Rule 144. In general,
under Rule 144, subject to the satisfaction of certain other conditions, a
person, including an affiliate of the Company, who has beneficially owned
restricted shares of Common Stock for at least one year is permitted to sell in
a brokerage transaction, within any three-month period, a number of shares that
does not exceed the greater of 1% of the total number of outstanding shares of
the same class, or if the Common Stock is quoted on Nasdaq or a stock exchange,
the average weekly trading volume during the four calendar weeks preceding the
sale. Rule 144 also permits a person who presently is not and who has not been
an affiliate of the Company for at least three months immediately preceding the
sale and who has beneficially owned the shares of Common Stock for at least two
years to sell such shares without regard to any of the volume limitations as
described above. Holders of 2,900,000 shares of Common Stock are affiliates of
the Company. All of the Company's shareholders who are affiliates have agreed
not to sell or otherwise dispose of any of their shares of Common Stock now
owned or issuable upon the exercise of any option for a period of 18 months from
the Effective Date, without the prior written consent of the Representative. The
remaining 175,000 shares or Common Stock outstanding are eligible for resale
under Rule 144 on May 22, 1998, subject to a 12 month lock up during which such
shares may not be sold without the prior written consent of the Representative
who has agreed not to release such lock-up. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or the availability of such
shares for sale will have on the market prices of the Company's securities
prevailing from time to time. The possibility that substantial amounts of Common
Stock may be sold under Rule 144 into the public market may adversely affect
prevailing market prices for the Common Stock and Warrants and could impair the
Company's ability to raise capital in the future through the sale of equity
securities. See "Shares Eligible for Future Sale".
21. NO DIVIDENDS AND NONE ANTICIPATED. To date, no dividends have been
declared or paid on the Common Stock, and the Company does not anticipate
declaring or paying any dividends in the foreseeable future, but rather intends
to reinvest profits, if any, in its business. Investors should, therefore, be
aware that it is unlikely that any dividends will be paid on the Common Stock in
the foreseeable future. The Company is also restricted from declaring dividends
under certain covenants with debt holders. See "Dividends".
22. NASDAQ ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
COMMON STOCK FROM NASDAQ SMALLCAP MARKET. Prior to this Offering, there has
been no established public trading market for the Company's Common Stock or
Warrants and there is no assurance that a public trading market for the
Company's securities will develop after the completion of this Offering. If a
trading market does in fact develop for the securities offered hereby, there can
be no assurance that it will be sustained.
The Company has applied for listing of the Common Stock and Warrants on
Nasdaq SmallCap Market upon the Effective Date. The Commission has recently
approved new rules imposing criteria for listing of securities on the Nasdaq
SmallCap Market, including standards for maintenance of such listing. In order
to qualify for initial quotation of securities on the Nasdaq SmallCap Market, an
issuer, among other things, must have at least $4,000,000 in net tangible
assets, $3,000,000 in market value of the public float and a minimum bid price
of $5.00 per share. For continued listing, an issuer, among other things, must
have $1,000,000 in net tangible assets, $1,000,000 in market value of securities
in the public float and a minimum bid price of $1.00 per share. If the Company
is unable to satisfy the Nasdaq SmallCap Market's maintenance criteria in the
future, its Common Stock and Warrants may be delisted from the Nasdaq
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<PAGE>
SmallCap Market. In such event, trading, if any, in the Company's Common Stock
or Warrants, would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." As a
consequence of such delisting, an investor would likely find it more difficult
to dispose of, or to obtain quotations as to, the price of the Company's Common
Stock or Warrants.
23. PENNY STOCK REGULATION. In the event that the Company is unable to
satisfy the maintenance requirements for the Nasdaq SmallCap Market and its
Common Stock falls below the minimum bid price of $5.00 per share for the
initial quotation, trading would be conducted on the "pink sheets" or the NASD's
Electronic Bulletin Board. In the absence of the Common Stock being quoted on
Nasdaq, or listed on an exchange, trading in the Common Stock would be covered
by Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") if the Common Stock is a "penny stock." Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq, and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's Common Stock were to become subject to the regulations
applicable to penny stocks, the market liquidity for the Common Stock and
Warrants would be severely affected, limiting the ability of broker-dealers to
sell the Common Stock and Warrants and the ability of purchasers in this
Offering to sell their Common Stock and Warrants in the secondary market. There
is no assurance that trading in the Common Stock and Warrants will not be
subject to these or other regulations that would adversely affect the market for
such securities.
24. POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants
offered hereby are redeemable, in whole or in part, at a price of $.10 per
Warrant, commencing one year after the Effective Date (or earlier with the
consent of the Underwriters) and prior to their expiration; provided that (i)
prior notice of not less than 30 days is given to the Warrantholders; (ii) the
closing bid price of the Common Stock on each of the 20 consecutive business
days ending on the third business day prior to the date on which the Company
gives notice of redemption has been at least $9.00; and (iii) Warrantholders
shall have exercise rights until the close of the business day preceding the
date fixed for redemption. Notice of redemption of the Warrants could force the
holders to exercise the Warrants and pay the Exercise Price at a time when it
may be disadvantageous for them to do so, or to sell the Warrants at the current
market price when they might otherwise wish to hold them, or to accept the
redemption price, which may be substantially less then the market value of the
Warrants at the time of redemption. See "Description of Securities--Warrants".
25. REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE WARRANTS. The Warrants offered hereby are
not exercisable unless, at the time of exercise, (i) there is a current
prospectus relating to the Common Stock issuable upon the exercise of the
Warrants under an effective registration statement filed with the Securities and
Exchange Commission, and (ii) such Common Stock is then qualified for sale or
exempt therefrom under applicable state securities laws in the jurisdictions in
which the various holders of Warrants reside. There can be no assurance,
however, that the Company will be successful in maintaining a current
registration statement. After a registration statement becomes effective, it may
require updating by the filing of a post-effective amendment. A post-effective
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<PAGE>
amendment is required (i) any time after nine months subsequent to the effective
date when any information contained in the prospectus is over sixteen months
old, (ii) when facts or events have occurred which represent a fundamental
change in the information contained in the registration statement, or (iii) when
any material change occurs in the information relating to the plan or
distribution of the securities registered by such registration statement. The
Company anticipates that this Registration Statement will remain effective for
at least nine months following the date of this Prospectus or until ,
1998 assuming a post effective amendment is not filed by the Company. The
Warrants will be separately tradeable and separately transferable from the
Common Stock offered hereby immediately commencing on the Effective Date. The
Company intends to qualify the Warrants and the shares of Common Stock issuable
upon exercise of the Warrants in a limited number of states, although certain
exemptions under state securities ("blue sky") laws may permit the Warrants to
be transferred to purchasers in states other than those in which the Warrants
were initially qualified. The Company will be prevented, however, from issuing
shares of Common Stock upon exercise of the Warrants in those states where
exemptions are unavailable and the Company has failed to qualify the Common
Stock issuable upon exercise of the Warrants. The Company may decide not to
seek, or may not be able to obtain qualification of the issuance of such Common
Stock in all of the states in which the holders of the Warrants reside. In such
a case, the Warrants of those holders will expire and have no value if such
Warrants cannot be exercised or sold. See "Description of Securities".
26. NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING THE
WARRANTS. Although the Common Stock and the Warrants will not knowingly be sold
to purchasers in jurisdictions in which they are not registered or otherwise
qualified for sale, purchasers may buy the Common Stock or Warrants in the
aftermarket or may move to jurisdictions in which the shares of Common Stock
issuable upon exercise of the Warrants are not so registered or qualified during
the period that the Warrants are exercisable. In such event, the Company could
be unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in the
jurisdiction in which such purchasers reside, or an exemption to such
qualification exists or is granted in such jurisdiction. If the Company was
unable to register or qualify the shares in a particular state and no exemption
to such registration or qualification was available in such jurisdiction, in
order to realize any economic benefit from the purchase of the Warrants, a
holder might have to sell the Warrants rather than exercising them. No assurance
can be given, however, as to the ability of the Company to effect any required
registration or qualification of the Common Stock or Warrants in any
jurisdiction in which registration or qualification has not already been
completed. See "Description of Securities--Warrants".
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<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Securities
offered hereby at public offering prices of $5.00 per Share and $.10 per
Warrant, after deducting underwriting commissions and offering expenses to be
paid by the Company, is estimated to be $4,120,850. The Company expects to apply
the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS AMOUNT NET PROCEEDS
- ------------------------------------------------------------------ ------------ -------------
<S> <C> <C>
Repayment of Bridge Notes (1)..................................... $ 681,250 16%
Sales and Marketing(2)............................................ $ 627,000 15%
Hire Additional Sales and Operations Personnel(3)................. $ 200,000 4%
Property and Equipment(4)......................................... $ 150,000 4%
Research and Development.......................................... $ 150,000 4%
Payment of Financial Advisory Fee(5).............................. $ 88,000 2%
Repayment of Long Term Debt(6).................................... $ 68,000 2%
Working Capital(7)................................................ $ 2,156,600 53%
------------ -----
Total............................................................. $ 4,120,850 100%
-----
-----
</TABLE>
- ------------------------
(1) On the consummation of this Offering, the Company is obligated to repay the
principal of the Bridge Notes in the aggregate principal amount of $625,000,
plus accrued and unpaid interest of approximately $56,250. The Bridge Notes
accrue interest on the principal amount at the rate of 12% per annum. The
proceeds from the Bridge Notes were used for working capital purposes and to
repay certain debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
(2) The net proceeds allocated to marketing and sales are expected to be applied
towards the promotion of the Company's main brands in their respective key
markets, including the United States, over the next 18 months. The proceeds
are intended to be applied to product development, market research, point of
sale materials, event participation and sponsorships, paid media
advertising, distributor incentive programs and sales person incentive
programs.
(3) The Company anticipates hiring additional sales and operations employees and
has allocated these net proceeds to fund certain incremental costs over the
next 18 months.
(4) The net proceeds allocated to property and equipment purchases in the next
18 months are expected to be applied towards the expansion and improvement
of the Company's production capacity.
(5) $88,000 will be paid to the Underwriters pursuant to a three-year financial
advisory agreement, all of which is payable upon consummation of the
Offering.
(6) The net proceeds allocated to repayment of long term debt is to pay in full
the outstanding principal balance and accrued and unpaid interest of the
Business Development Bank of Canada loan due August 2001. The loan is
repayable in blended monthly payments of $1,650 principal and interest at a
floating commercial and industrial loan rate, plus 2.5% per annum. The loan
is secured by personal guarantees by Arnold Unger and Renee Unger in the
amount of Cdn$50,000 each and a lien on the Company's assets. See "Certain
Transactions".
(7) The net proceeds allocated to working capital includes funds for general
corporate purposes including possible strategic acquisitions, although the
Company has not identified any definite acquisition candidate.
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<PAGE>
The foregoing represents the Company's estimate of the allocation of the net
proceeds of the Offering, based upon the current status of its operations and
anticipated business needs. It is possible, however, that the application of
funds will differ considerably from the estimates set forth herein due to
changes in the economic climate and/or the Company's planned business operations
or unanticipated complications, delays and expenses, as well as any potential
acquisitions that the Company may consummate, although no specific acquisition
has been identified. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Any reallocation of the net proceeds will
be at the discretion of the Board of Directors of the Company.
Any additional net proceeds realized from the exercise of the Over-Allotment
Option (up to approximately $689,377) will be added to the Company's working
capital.
Pending application, the net proceeds will be invested principally in
short-term certificates of deposit, money market funds or other short-term
interest-bearing investments.
The Company estimates that the net proceeds from this Offering will be
sufficient to meet the Company's liquidity and working capital requirements for
a period of 18 months from the completion of this Offering. In the event that
the Company consummates any acquisition, although no specific acquisition has
been identified, such funds will be derived from the funds currently allocated
to working capital or from revenues generated from the Company's operations.
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<PAGE>
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common Stock. The
payment of cash dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company
intends, for the foreseeable future, to retain future earnings for use in the
Company's business. The Company is restricted from declaring dividends under
loan agreements between the Company and certain lenders. Unless the Company
obtains the lenders' consent, or the Company repays or refinances the loan
agreements, the Company may not declare or pay dividends.
17
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of April
30, 1997 and as adjusted to reflect the sale of 1,000,000 Shares and 1,065,000
Warrants offered hereby and the estimated net proceeds therefrom and the Bridge
Financing of up to $625,000 12% promissory notes and 175,000 shares of Common
Stock and 175,000 Common Stock purchase Warrants and the estimated net proceeds
therefrom. The information provided below should be read in conjunction with the
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 30, 1997
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ --------------
Long-term debt, less current maturities............................................. $ 698,926 $ 630,926
------------ --------------
Shareholders' equity:
Capital Stock, unlimited shares authorized: 2,900,000 issued and outstanding 380 4,189,230
(1); and 4,075,000 issued and outstanding as adjusted (2).....................
Foreign currency transaction adjustment............................................. -41,213 -41,213
Retained earnings................................................................... 923,164 923,164
------------ --------------
Total shareholders' equity...................................................... 882,331 5,071,181
------------ --------------
Total capitalization............................................................ $ 1,581,257 $ 5,702,107
------------ --------------
------------ --------------
</TABLE>
- ------------------------
(1) Represents the rollover of the 200 Shares in the existing companies into
2,900,000 shares of Common Stock of the Company. Does not include 500,000
shares of Common Stock provided for issuance under the Company's Stock
Option Plan of which options to purchase up to 200,000 shares have been
granted.
(2) Reflects issuance of the 1,000,000 Shares by the Company. Assumes no
exercise of the Warrants, the Underwriters' Warrant or the Over-Allotment
Option.
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<PAGE>
DILUTION
Dilution represents the difference between the initial public offering price
paid by the purchasers in the Offering and the net tangible book value per share
immediately after completion of the Offering. Net tangible book value per Share
represents the amount of the Company's total assets minus the amount of its
liabilities and intangible assets divided by the number of shares outstanding.
As of April 30, 1997, after giving effect to the Bridge Financing of $625,000
12% promissory notes, 175,000 shares of Common Stock and 175,000 common stock
purchase warrants, the net tangible book value of the Company's Common Stock was
$801,081 or $0.26 per share. Without taking into account any changes in net
tangible book value after April 30, 1997, other than to give effect to the
Bridge Financing, and other than to give effect to the sale of the Shares and
Warrants offered hereby and the receipt of the net proceeds of this Offering,
the pro forma net tangible book value of the Company as of April 30, 1997 would
have been $4,921,931 or $1.21 per Share. Consequently, there will be an
immediate increase in net tangible book value of $0.95 per Share to the existing
shareholders and an immediate substantial dilution (i.e. the difference between
the offering price of $5.00 and the pro forma net tangible book value per Share
after the Offering) of $3.79 or 76% to new investors purchasing the Shares
offered hereby.
The following table illustrates, as of April 30, 1997, this per share
dilution:
<TABLE>
<S> <C> <C>
Public offering price per Share................................. 5.00
Net tangible book value before Offering(1).................. 0.26
Increase per Share attributable to new investors............ 0.95
---
Pro forma net tangible book value per Share after Offering(1)... 1.21
---
Dilution per Share to new investors(1).......................... 3.79
---
---
</TABLE>
The following table summarizes, as of April 30, 1997, the total number of
shares of Common Stock purchased from the Company, the total consideration paid,
and the average price per share paid by the existing shareholders, after giving
effect to the Bridge Financing, and by new investors who purchase shares of
Common Stock pursuant to this Offering. The computation excludes any value
ascribed to or proceeds relating to the Warrants.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE AVERAGE
SHARES OF TOTAL AGGREGATE OF TOTAL PRICE
PURCHASED (1) SHARES CONSIDERATION CONSIDERATION PER SHARE
------------- ----------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........................ 3,075,000 75% 896,421 15% $ 0.29
New Investors................................ 1,000,000 25% 5,000,000 85% 5.00
------------- ----- ------------- ----- -----
Total........................................ 4,075,000 100% 5,896,421 100%
------------- ----- ------------- -----
------------- ----- ------------- -----
</TABLE>
- ------------------------
(1) This information does not include (i) 106,500 Shares issuable upon the
exercise of the Underwriters' Warrant; (ii) 500,000 Shares that may be
issued under the Company's Stock Option Plan or (iii) 150,000 Shares
available from the Company under the Over-Allotment Option.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The statements contained in this Prospectus that are not historical are
forward looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future. Forward
looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward looking statements included in this Prospectus are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward looking statements. Among the factors that could cause actual results to
differ materially are the factors detailed in the risks discussed in the "Risk
Factors" section included in this Prospectus at page 7.
The salad dressing market is highly competitive, in both the refrigerated
and non-refrigerated dressing markets, and consists of foreign manufacturers
most of whom are larger with greater resources. The diverse distribution
channels in which the Company markets its products involve different competitive
factors. The ability to provide specialized services is important to mass
merchandisers and discount stores. Product availability and the ability to offer
consistent product quality at competitive prices is a key competitive factor.
See "Business--Competition".
The Company's future success as a manufacturer and merchandiser of
high-quality salad dressings, sauces, dips and marinades will be influenced by
several factors including the ability of the Company to efficiently meet the
production, quality and taste requirements of its customers, management's
ability to evaluate the public's quality and taste requirements and to achieve
market acceptance of its dressings. Further factors impacting the Company's
operations are increases in expenses associated with continued sales growth, the
ability of the Company to control costs, to develop products with satisfactory
profit margins and the ability to develop and manage the introduction of new
products and competition. Quality control as well as use of natural ingredients
are also essential to the Company's success.
The Company's customer base is divided among retail and private label
customers, and food service establishments. Scott Hospitality, a food service
establishment, accounts for approximately 11% of the Company's sales. No other
customer accounts for more than 10% of the Company's sales. Approximately 31% of
the Company's sales are to major retail customers, 18% are to major private
label customers, 16% are to food service establishments and the remaining 34%
are to smaller customers.
The Company is not dependent upon any major customer for a significant
portion of its revenues. However, there are customers which do represent between
5-11% of the Company's revenues. These include National Grocer's, Oshawa Foods,
Provigo, A&P and Scotts Hospitality/KFC in Canada and Shaws Supermarkets in the
United States. The Company has contracts with a number of private label
accounts, including Scotts Hospitality/KFC, Shaws, Horizons and Sobey's.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1997 COMPARED TO THREE MONTHS ENDED APRIL 30,
1996.
Revenues for three months ended April 30, 1997 were $2,780,557, a 24.7%
increase over prior year revenues of $2,309,733. This increase was due to growth
in Renee's branded business (launch of incrementally new Renee's Gourmet
Naturally Light-TM- dressings in May 1996), food service (incremental Scotts
Hospitality/KFC business) and private label (Shaw's, Wegman's in the United
States and Horizon's launch across Canada in April 1997).
Gross profit for three months ended April 30, 1997 was 32.6% of net
revenues, a substantial improvement as compared to the same quarter one year
ago, which was 29.0%. This positive change can be attributed to improvements in
operational efficiency and cost of goods. Lower contracted prices for oil,
cheese and other primary ingredients have contributed as well as lower than
planned factory overhead and
20
<PAGE>
direct labor expenses (attributable to reduced overtime and temporary help).
Gross margins were not affected by price changes, which, for the most part,
remained unchanged, as compared to the prior year.
Selling and marketing expenses increased by $171,686 in the three months
ended April 30, 1997 over 1996. A percentage of the increase over the prior year
reflects a continuation of incremental support costs against the launch of
Renee's Gourmet Naturally Light-TM- and a focused strategy to invest in the
growth of branded business through increased advertising and consumer
promotions. General and Administrative expenses of $204,784 were 28.2% higher
than prior year, reflecting both timing differences and increased spending to
support sales growth.
Income from operations increased $18,594, to $135,224 for the three months
ended April 30, 1997 versus the prior year. As a percent of net revenues, income
for the first quarter of 1997 was in line with the first quarter of the prior
year at 5.2%. This increase in income from operations is directly a result of
continued sales growth and improved gross margins, which more than offset the
investment in consumer promotions and advertising.
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1996.
Revenues for fiscal year January 31, 1997 were $10,459,655, a 23.7% increase
over the prior year revenues of $8,457,288. This increase was due to double
digit growth in each primary business segment (Retail Branded, Food Service and
Private Label). Renee's branded business growth was impacted by the launch of a
new line of Renee's Gourmet Naturally Light-TM- dressings and three new Renee's
regular line extensions (Mighty Caesar, Light Poppy and Mandarin Orange). Food
Service growth came from incremental Scotts Hospitality/KFC business across
Canada and the private label business was impacted by the launch of a number of
new products under the Shaws label.
Gross Profit for fiscal year ended January 31, 1997 was 29.8% of net
revenues, a substantial improvement as compared to the prior year, which was
26.7%. From the total Gross Profit in the last fiscal year of $2,859,721,
approximately $297,000 can be attributed to improvements in the operational
efficiency and costs of goods, (versus the prior year). The remaining increase
in Gross Profit ($393,000), traces to the mix of goods and incremental volume of
business. Manufacturing efficiencies were impacted by average yield improvements
of 6.0%, aided by capital additions, reduced downtime, improved fill levels, and
increased minimum batch sizes. Lower primary ingredient costs were negotiated
(oil, cheeses, and sugar) which contributed to improved margins. Gross margins
were not affected by price changes, which, for the most part, remained
unchanged, as compared to the prior year.
Selling and Marketing expenses increased by $390,451 in fiscal 1997 over
1996. As a percentage of net revenues, these expenses increased from 12.0% to
13.8%. The increase over the prior year reflects incremental support costs
against the launch of Renee's Naturally Light and a focused strategy to invest
in the growth of branded business through increased advertising and consumer
promotions (demonstrations and couponing).
General and Administrative expenses increased by $120,893 in fiscal 1997
over 1996, however, as a percentage of net revenues, they decreased marginally
from 8.1% to 7.8%. The increase is a result of costs necessitated by sales
growth, however, continued efforts at internal cost controls have ensured
spending is effective.
Income from operations increased $302,234 in fiscal 1997, from $182,218 to
$484,452 an increase of 166%. As a percentage of net revenues, income improved
to 4.6%, as compared to 2.2% for 1996. This increase is a direct result of sales
growth, and improved gross margins, which more than offset the investment in
consumer promotions and advertising.
Interest expense decreased by $9,109 in fiscal 1997, from $86,233 to
$77,124. This change reflects the Company's decision to refinance operating and
term loans, and negotiate a substantially improved banking facility with the
National Bank in the first half of fiscal 1997.
21
<PAGE>
Net income after including extraordinary items decreased in fiscal 1997 from
$421,431 in fiscal year 1996 to $293,961 in fiscal year 1997 due to the
settlement of past due trade account payables of $557,415 less $156,329 write
off of deferred financing costs in fiscal year 1996.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1996, the Company had a net decrease in cash of $130,839 from
operations. The principal source of cash was from net income of $421,431, a
decrease in inventory of $138,595, prepaid expenses of $29,800 and an addback of
amortization which totaled $230,776. The Company's long term debt borrowing
increased by $314,317 which was used to purchase capital equipment. Accounts
payable and accrued liabilities decreased by $850,110, primarily reflecting
negotiations with certain unsecured creditors to forgive a substantial portion
of amounts owing, and to reclassify an agreed amount of the debt as long term.
Cash flow from investing activities was reduced by $112,555 as a result of the
purchase of capital equipment, primarily for the production process. In
addition, cash was used for an increase in accounts receivable by $221,540,
directly as a result of increased sales volumes.
In 1997, the Company had a net increase in cash of $416,043. The principal
source of cash was from net income of $293,961, a decrease in accounts
receivable of $151,567 and an addback of amortization which totaled $285,320.
Accounts payable and accrued liabilities decreased by $190,191, reflecting
improved internal controls, and cash management, which reduced aged payables in
the range of 30-45 days. Cash flow from investing activities was reduced by
$284,710 as a result of the purchase of capital equipment, primarily for the
production process. (The additional capital spent ultimately had a direct impact
on improved margins during fiscal 1997).
The Company's net increase in cash flow from operations for the quarter
ending April 30, 1997 was $123,953, an increase of $72,342, or 140% over the
quarter ending April 30, 1996. Cash flows from investing activities decreased
during the quarter ended April 30, 1997 to $186,202 compared to a decrease of
$16,273 for the quarter ended April 30, 1996. This was due to the Company's
continuing acquisition of capital equipment.
In June of fiscal 1997, the Company entered into a secured credit
arrangement with National Bank of Canada. This new facility included a credit
line of Cdn$750,000, that is due on demand and bears interest at prime plus
1.5%. All borrowings are collateralized by the assets of the Company.
In May 1997, the Company completed a private placement of its securities
("Bridge Financing") in which it sold 12% promissory notes in the aggregate
principal amount of $625,000 ("Bridge Notes"), an aggregate 175,000 shares of
Common Stock and 175,000 redeemable common stock purchase warrants and raised
aggregate gross proceeds of $625,000. The net proceeds of $543,750 were
initially applied to pay bank loans and trade payables as well as expenses of
the Company. The principal and accrued interest on the Bridge Notes are due and
payable upon the earlier of 18 months from the close of the private placement, a
public equity or debt offering by the Company, or the exchange of the majority
of the Company's securities with the securities of another company.
The Company will receive net proceeds of this Offering in an amount
estimated to be $4,120,850. The Company believes that the net proceeds of the
Offering, coupled with income from operations will fulfill the Company's working
capital needs for at least the next two years. It is the Company's intention to
utilize a significant portion of the net proceeds to aggressively seek
synergistic acquisitions which would utilize currently available capacity. The
Company also intends to support its branded Renee's business through increased
marketing, advertising and distribution throughout North America. As the Company
continues to grow, bank borrowings, other debt placements and equity offerings
may be considered, in part, or in combination, as the situation warrants.
22
<PAGE>
BUSINESS
PRODUCTS
The Company manufactures, markets and distributes over 200 products
including salad dressings, dips, sauces, marinades and mayonnaise. The salad
dressings are marketed throughout Canada and to a lesser degree in the United
States. The Company distributes a line of gourmet salad dressings to
supermarkets, gourmet stores and specialty shops, primarily in Canada, under the
name "Renee's Gourmet-TM-." Salad dressings, dips, sauces, marinades and
mayonnaise are also distributed under the brand name "Excelle-TM-" and under
private labels for both retail and food service establishments, including
supermarkets, restaurants, hotels, hospitals, schools and other institutional
cafeterias throughout Canada and the United States. The private labels are sold
under one of such names or the supermarkets' own name. The Company's private
labels include Shaw's, Grisanti's, Sobey's, President's Choice for Loblaw
Companies, Master Choice for A&P and Wegman's.
All of the products in the Renee's Gourmet-TM- line are made primarily from
natural ingredients and are preservative and MSG free, as well as being low in
sodium. Certain of the Company's products are also designed to serve certain
specific health conscience markets. For example, the Company markets products
which are made without milk, sugars or vegetable oils for consumers who are
lactose intolerant, diabetics, or allergy-prone. The Renee's line includes
Ranch, Caesar, Chunky Blue Cheese and Coleslaw, as well as more exotic flavors
such as Poppy Seed, Greek Feta and Mandarin Orange. Renee's has the largest
market share of any refrigerated salad dressing in Canada, according to a recent
AC Nielsen report.
The Company recently introduced its "Renee's Gourmet Naturally Light-TM-"
line which is low in fat and intended for the growing diet and health conscience
market. The low-fat line includes, Mandarin Orange, Country Ranch, Ravin'
Raspberry Vinegrette, Mediterranean Vinegrette, Roasted Red Pepper and Garlic,
Spring Herb Garlic Vinegrette and Jazzy Blue Cheese. Management intends to
introduce an extension of the Renee's Gourmet-TM- line which would include
low-fat marinades and sauces, as well as exploring the possibility of converting
a line of its products to a kosher designation.
Excelle products are made from premium ingredients. The Company produces
many salad dressings, dips, sauces, marinades and mayonnaise, including sauces
such as Peanut Sauce, Hickory Sauce and Wing Sauces. In addition, the Company
products include other more exotic sauces such as Key Lime Sauce & Marinade,
Thai and spicy sauces. The Company markets these products to supermarkets under
the Excelle label as well as the supermarkets' own brand under private label
arrangements.
The Company also makes exclusive specialty dressings for restaurants under
their own names. Such dressings are made for Kentucky Fried Chicken, East Side
Mario's, Grisanti's Casual Italian Restaurant's, Cultures Restaurant's, and
other restaurants.
The Company's products are sold to supermarkets in a variety of bottle sizes
and in one gallon containers and individual portion cups and pouches for food
service establishments. The salad dressings are sold in the produce section of
supermarkets and require refrigeration. Management believes that it is an
advantage to sell its products in the produce section because fewer competing
products are generally sold in the produce section and because such products
naturally complement lettuce and other vegetables sold in the produce section.
Where possible, the Company seeks to display its sauces and marinades in the
meat and poultry sections of supermarkets. The dressings have a four to six
month refrigerated shelf life.
The Company adheres to strict quality standards and uses fresh, natural
ingredients. The Company attracts customers by providing salad dressings, sauces
and other products which have unusual combinations of flavors and taste ranges,
which are not offered by competitors, and because of its focus on healthy
products.
23
<PAGE>
MANUFACTURING
The Company manufacturers its salad dressings and other products at its
Toronto, Ontario facility. The Company utilizes an integrated assembly process
and packaging line for its products which mixes the ingredients, bottles the
dressings, adds the appropriate labels and seals the bottles for consumer
protection. Because no preservatives are added to the salad dressings, they are
refrigerated on-site immediately and remain refrigerated through their shipping
and storage, until they are disseminated to various supermarkets, gourmet stores
or food service providers. The Company believes that new processing techniques
and other food science methods will increase shelf lives of the products by as
much as 25%, thereby increasing the profitability of the products.
The Company has made significant changes in its operations over the last
four years since moving to the new facility. These improvements have
significantly improved product yields and line speed while at the same time
improving product quality. The Company currently produces 400,000 to 500,000
pounds of its products per week while utilizing only 33% of its manufacturing
capacity. There are two complete production lines that run all of the bottled
products. In addition, the Company has a one gallon line for food service and
the capability to produce one and two quart pouches, one to three ounce portion
packs, and drums and large totes. As demand for the Company's products
increases, the Company intends to add an additional shift to meet the increased
demands.
The Company purchases the ingredients for its products from a variety of
sources, focusing on the freshest possible sources. These ingredients include
vegetables, milk, eggs and a variety of seasonings. The availability of
vegetables and other raw materials necessary for the manufacture of the
Company's products and the price of many of such materials are factors over
which the Company has little or no control except that the Company purchases
certain ingredients such as canola oil and sugar on a fixed price basis over a
set time period to avoid extreme price increases.
ADVERTISING, MARKETING AND DISTRIBUTION
Management believes, based on the number of grocery stores chains and
gourmet stores that carry its products, that the Renee's Gourmet-TM- line and
the Excelle line are available in over 1,500 retail outlets.
The Company utilizes its own marketing department under the direction of its
Chief Executive Officer, Arnold Unger, as well as independent marketing agencies
and brokers. The independent brokers generally are individuals and/or companies
with well established connections to grocery and gourmet food stores, as well as
other food service establishments including restaurants, hotels, hospitals, etc.
These brokers sell a variety of products produced by other manufacturers,
although they do not sell competing products. The brokers receive a commission
that ranges between 2% for sales of private label products and 5% for sales of
products from the Renee's Gourmet-TM- Line and the Excelle line. The brokers
each receive a territory and are responsible to ensure that each product is
properly code-dated and shelved. The Company's primary brokers are A.S. May and
Belmount for retail sales and C.W. Shasky for food service sales.
The Company's customer base is divided among retail and private label
customers, and food service establishments. Scott Hospitality, a food service
establishment, accounts for approximately 11% of the Company's sales. No other
customer accounts for more than 10% of the Company's sales. Approximately 31% of
the Company's sales are to major retail customers, 18% are to major private
label customers, 16% are to food service establishments and the remaining 34%
are to smaller customers.
The Company markets and advertises all of its products through a combination
of in-store demonstrations and promotional ads on racks, signs, and inside
displays, national magazine ads, radio commercials, coupon circulars and food
shows. The Company believes that the key to merchandising is providing quality
products at reasonable prices to a variety of retail establishments to reach the
maximum amount of customers. The Company uses outside agencies in addition to
its in-house marketing department. The
24
<PAGE>
Company's employees and its outside agencies conduct sales demonstrations and
distribute point of sale materials, develop custom labels and designs for new
Renee's Gourmet-TM- product launches and handle customer relations and special
events. The outside agencies include Act Media, which conducts both sales
demonstrations and point of sale materials for the Company, Dollery Rudman,
which focuses on label development and design for new Renee's Gourmet-TM-
product launches, and McBlain and Associates, which handles customer and public
relations and special events.
The Company has been very successful marketing its products including those
sold under private label agreements, and hopes to continue to meet the
reputation that it believes it has gained in the industry for its quality
private label products and services. The Company has recently expanded into the
"club" business and has distributed its products to wholesaler stores, among
which are Price Club and Costco. The Company intends to aggressively pursue the
U.S. market, as well as other markets for marketing private label dressings. The
Company, which entered the United States market in 1992, currently markets
private label dressings in the United States. The Company estimates it has less
than one percent of the United States dressing market. The Company intends to
use a portion of the net proceeds of the Offering to increase its advertising
and marketing efforts. See "Use of Proceeds".
COMPETITION
The salad dressing market is highly competitive. The Company competes with
refrigerated dressings as well as shelf-stable products. Outside the
refrigerated sector of the industry, Kraft, Select, Hidden Valley and Weight
Watcher's remain large competitors in the retail section. While the Company does
produce shelf-stable products under the Excelle label and for private labels, it
is not a significant competitor in this area.
The Company's Renee's Gourmet-TM- brand products and Excelle products
compete with other larger and better capitalized food companies that manufacture
refrigerated dressings. The larger competitors who also place their products in
the refrigerated produce or dairy sections in the United States include Dean's
Foods which distributes Marie's brand salad dressings, T. Marzetti's, an
independent manufacturer, and Naturally Fresh, which three comprise
approximately 85% of the United States Market. The Company believes that its
competitive standing in the refrigerated section in Canada is maintained by its
ability to respond quicker and more individually to customers' needs than its
larger competitors.
The primary food service section competitors that the Company faces in
Canada are Kraft, Select, Hellmann's and Richardson's. These companies also
produce specialty dressings for restaurants.
The Company believes that it holds a competitive advantage because its
products are made utilizing primarily natural ingredients and are beneficial to
those who have health concerns, including those who are lactose intolerant,
diabetic, weight conscious or allergy-prone. The Company also believes that its
products are attractive to those who desire a flavorful variety of tastes and
enjoy different and unusual blends of ingredients. The Company believes that
these qualities will enable it to penetrate the United States market. Management
emphasizes the versatility of each product as a dressing, dip, sauce, spread or
marinade.
The private label industry is also highly competitive. Manufacturers compete
on price, quality and taste, and contracts are awarded based primarily on that
criterion. The Company has been successful in competing for private label
agreements with several supermarket chains and food service institutions.
There are also regional competitors that compete with the Company. The
Company endeavors to compete in the premium segment of the industry, by selling
high quality, innovative products with flavor and appearance which it believes
compare favorably with its competitors' products. Management intends to increase
its presence by increasing the variety of products offered, increasing its
advertising efforts, as well as its production capability, thereby increasing
name recognition of the Company's products.
25
<PAGE>
NEW PRODUCT DEVELOPMENT
The Company is constantly evaluating potential new products in order to
expand its line of products. The Company is reformulating recipes to develop new
flavors. The Company recently developed the Renee's Gourmet Naturally Light-TM-
line which is low in fat and calories to appeal to the growing weight and health
conscious market. The Company intends to introduce Renee's Gourmet-TM- brand
marinades and sauces for meat and seafood in the coming year. The Company is
currently investigating the possibility of converting many of its products to
the kosher designation. In addition, the Company may make acquisitions of
complementary companies or purchase the rights to distribute or manufacture a
particular product.
EMPLOYEES
As of May 31, 1997, the Company employs 52 persons, which includes 3 senior
executives, 11 managers, 13 support staff and 25 full-time non-unionized hourly
laborers. The Company has no unionized employees and believes that its
relationship with its employees is satisfactory.
PROPERTIES AND FACILITIES
The Company leases the Excelle plant, a 75,000 square foot facility located
in Toronto, Ontario. The lease was amended July 1, 1995 for a five-year term,
with an annual base rent of Cdn$105,000. The plant houses the Company's complete
production facilities, warehouse and gymnasium-sized cooler for storage, a
research and development department which includes a full lab, a shipping and
receiving department, order desk, customer service department and executive
offices. Management believes that this space is adequate for its production
needs in the foreseeable future as this facility operates at only 33% of its
capacity. Management also believes that there is ample room for expansion in the
future. The Company currently sublets certain unused space for approximately
Cdn$35,000 in rent per year. The Company has an option to purchase the building
and land for Cdn$2,300,000 (plus CPI increases since 1993) until March 1, 1998.
PATENTS AND TRADEMARKS
The Company holds trademarks in Canada on both "Renee's Gourmet-TM-" and
"Renee's Gourmet Naturally Light-TM-." The Company believes that its trademarks
have significant value and are an important factor in the marketing of its
products. Although the Company has not sought trademark protection in the United
States, the Company does not anticipate entering its branded products into the
United States market in the short term. If the Company desires to market its
branded products in the United States in the future, the Company will seek
trademark protection in the United States. The Company does not hold any patents
on its recipes or manufacturing processes. Management believes that it provides
better protection of its recipes and its market position from competitors by not
patenting them, thereby keeping them secret. Management also believes that its
unique modifications and improvements of its manufacturing processes are more
appropriately protected by remaining a trade secret rather than applying for a
patent. The Company requires all of its employees to execute confidentiality
agreements. The Company cannot guarantee that any of its recipes or processes
would be protectable under a patent.
GOVERNMENT REGULATION
The Company is subject to various Canadian and United States regulations
relating to health and safety standards. The Company is also responsible for
adhering to environmental standards for manufacturing facilities. Because the
Company sells a portion of its products in the United States, the Company must
comply with federal regulations administered by the United States Food and Drug
Administration (the "FDA") and the United States Department of Agriculture. Food
labeling regulations administered by the Secretary of Health and Human Services
through the FDA subject the Company to uniform labeling
26
<PAGE>
and certain other labeling requirements for its products. Although the cost of
compliance with such regulations is not material, changes to existing
regulations may have a material adverse effect on the Company's business and
result of operations.
LEGAL PROCEEDINGS
The Company has one claim against it from a former employee that was filed
in March, 1997 alleging wrongful termination. The suit which has been brought in
the Ontario Court (General Division) seeks total damages of $115,000, plus
interest. The Company believes that it has a meritorious defense and intends to
vigorously contest the action. The Company is not aware of any other material
legal proceedings now pending or threatened against the Company.
27
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Directors
and Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Arnold Unger......................................... 59 Chief Executive Officer and Co-Chairman
Renee Unger.......................................... 54 President and Co-Chairman
Frederick Burke...................................... 39 Chief Operating Officer, Chief Financial Officer
Secretary, and Director
Lori Gutmann......................................... 28 Manager of Retail Marketing and Sales and Director
Alysse Unger......................................... 30 Manager of Private Label Marketing and Sales and
Director
John Rothschild...................................... 47 Director
Taketo Murata........................................ 59 Director
</TABLE>
Set forth below is a biographical description of each director and executive
officer of the Company based on information supplied by each of them.
Arnold Unger is a co-founder of the Company and has been its Chief Executive
Officer since the Company's inception in 1986. Prior to founding the Company, he
worked in the sales and marketing industry since 1970 for Global Incentives and
Aztec Building Company. He has lectured extensively at the University of Western
Ontario, Ryerson University, and York University on sales and marketing skills.
Arnold Unger has received several awards of industry distinction, including a
Gold Award at the Canadian Awards for Business Excellence.
Renee Unger is a co-founder of the Company and has been its President since
1986. She is the creator of all of the Company's original recipes. She has
received many awards of industry distinction including Entrepreneur of the Year,
and Gold Medal at the Canadian Business Excellence Awards in 1988, North York
Chamber of Commerce Business Woman of the Year, and Ontario Chamber of Commerce
Award of Merit. Renee Unger has been the keynote speaker at several business and
industry dinners and conferences, and has made television appearances on cooking
and daytime programs. She continues to head the Company's Research and
Development department, and Quality Control departments, as well as
participation in the administration of the Company as a manager.
Fred Burke joined the Company in 1994 as the Chief Operating Officer. He is
a Certified General Accountant, and is currently a member of the Board of
Governors and Certified General Accountants of Ontario. From 1987 until he
joined the Company, He was the Corporate Planning Director of Effem Foods, Ltd.
Prior to that he was the Manager of cost accounting for Robinhood Multifoods,
Inc. and an accountant for Canadian General Electric Company beginning in 1980.
Fred Burke presents seminars on personal and business strategic planning. He
holds positions on the Certified General Accountant board committees and
lectures on accounting and business development to business groups and local
universities.
Lori Gutmann has been with the Company since 1990 and is Manager of Retail
Marketing and Sales. In 1993, she earned a degree in Business Management from
Ryerson University.
Alysse Unger has been with the Company since 1986 and has been Manager of
Private Label Marketing and Sales since 1994. From 1988 to 1997 she was Research
and Development Director and Private Label Sales Manager for Excelle Brands Food
Corporation. In 1988, she graduated from York University in Toronto.
28
<PAGE>
John Rothschild has been a director of the Company since June 1997. Since
1994, he has been the President and Chief Executive Officer of Prime Restaurant
Group, Inc., a holding company of restaurant chains. From 1984 to 1994, he was
President of Rothschild Holding Limited. From 1980 to 1984, he was Assistant
Vice President of Kemp Investments, Ltd. From 1978 to 1980, he was a partner at
Rothschild & Muskat. From 1973 to 1977, he was a senior field auditor for Price
Waterhouse in Toronto and Milan, Italy. John Rothschild, who is also a chartered
accountant, earned a Bachelor of Arts degree from University of Toronto in 1971
and a Master of Business Administration Degree from University of Westen Ontario
in 1973.
Taketo Murata has been a director of the Company since August 1997. Since
1992, he has been President International of ConAgra Grocery Products
Companies/Hunt-Wesson, Inc. Other senior executive positions with
ConAgra/Hunt-Wesson include Vice President International since 1990, Chairman of
V - H Foods since 1985 and President of Hunt-Wesson Canada since 1973. Taketo
Murata earned a Bachelor of Science in Psychology from McGill University in 1958
and earned Masters Degrees in Psychology and Sociology from Yale University in
1960 and 1962, respectively.
Lori Gutmann and Alysse Unger are daughters of Arnold Unger and Renee Unger.
The term of office of each Director is until the next annual meeting of
shareholders and until a successor is elected and qualified or until the
Director's earlier death, resignation or removal from office. Executive officers
hold office until their successors are chosen and qualified, subject to earlier
removal by the Board of Directors.
For the period of three years after the effective date of this registration
statement, the Company has agreed to invite a designee of the Representative to
attend all meetings of the board of directors, but such designee will not be
entitled to vote or be compensated. See "Underwriting".
COMMITTEES OF THE BOARD
The Company's Board of Directors will have an Audit Committee, comprised of
John Rothschild and Fred Burke and an independent director to be named later,
and a Compensation Committee, comprised of John Rothschild and Renee Unger and
an independent director to been named later.
COMPENSATION OF DIRECTORS
The Company has not paid compensation to any director for acting in such
capacity. The Company is currently reviewing its policy on compensation of
outside directors and may pay outside directors in the future.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last two fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
earned in excess of $100,000.
29
<PAGE>
SUMMARY COMPENSATION TABLE
(FIGURES IN TABLE ARE $CDN)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION
- -------------------------------------------------------------------- --------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Arnold Unger........................................................ 1997 $ 135,000 $ 20,000 $ 20,000
Chief Executive Officer and Co-Chairman 1996 70,000 11,500 20,000
1995 65,000 0 18,500
Renee Unger......................................................... 1997 $ 135,000 $ 20,000 $ 20,000
President and Co-Chairman 1996 70,000 11,500 20,000
1995 65,000 0 15,000
Fred Burke.......................................................... 1997 $ 85,000 $ 20,000 $ 15,000
Chief Operating Officer and Chief Financial Officer 1996 70,000 11,500 15,000
1995 61,500 0 10,000
</TABLE>
EMPLOYMENT AGREEMENTS
On the Effective Date, Arnold Unger and Renee Unger, will both have
three-year employment agreements with the Company. Arnold Unger will be retained
as Chief Executive Officer and Vice president of Sales and Marketing at an
annual salary of $135,000. Renee Unger will be retained as President at an
annual salary of $135,000.
The employment agreements with Arnold Unger and Renee Unger provide that
upon the death of any of the two employees that two years full salary will be
paid to a designee of the employee. They also provide for reimbursement of
reasonable business expenses and 70% of their respective salaries for the
remainder of the term of the agreement in the event of disability. The agreement
also provides for the Company to maintain approximately Cdn$240,000 in key-man
insurance on the life of Arnold Unger. Currently, the Company owns and is
beneficiary of "key-man" term policy on Arnold Unger and Renee Unger for
Cdn$240,000 which has been assigned to secure the Company's financing facilities
with the National Bank of Canada.
Each of the above officers are entitled to bonuses based on achieving sales
and profitability as predetermined by the Board or compensation committee and
other subjective criteria as determined by the Board or compensation committee.
Arnold Unger and Renee Unger shall each receive $20,000 per year additional
compensation including a car allowance, insurance, retirement savings matched
contributions, and other perquisites.
Based upon any wrongful termination, which includes changes in control of
the Company (through an acquisition where any person acquires or announces a
tender offer or exchange for 25% of the Company, a sale of substantially all of
the assets or merger, acquisition of the Company or its consolidation with
another, or certain types of board changes), the Company shall pay the above, a
lump sum payment, based upon his or her then compensation, including benefits
and perquisites, from such termination. Such payment shall be the balance of
their respective compensation for the remainder of the term. If the payment is
in excess of $100,000, then such excess shall be payable in equal quarterly
payments with interest at the legal rate. The employment agreements will contain
non-compete provisions.
STOCK OPTION PLAN
In May 1997, the board of directors and shareholders adopted the Intercorp
Excelle Inc. Stock Option Plan (the "1997 Plan"), pursuant to which 500,000
shares of Common Stock are reserved for issuance.
30
<PAGE>
The 1997 Plan will be administered by the compensation committee or the
board of directors, who determine among other things, those individuals who
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of Common Stock issuable upon the
exercise of the options and the option exercise price.
The 1997 Plan is for a period for ten years, expiring in May, 2007. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the Company. Options
granted under the 1997 Plan may be exercisable for up to ten years, may require
vesting, and shall be at an exercise price all as determined by the board.
Options are non-transferable except by the laws of descent and distribution or a
change in control of the Company, as defined in the 1997 Plan, and are
exercisable only by the participant during his or her lifetime. Change in
control includes (i) the sale of substantially all of the assets of the Company
and merger or consolidation with another, or (ii) a majority of the board
changes other than by election by the shareholders pursuant to board
solicitation or by vacancies filled by the board caused by death or resignation
of such person.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 70, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other termination gives the participant three months to
exercise, except for termination for cause which results in immediate
termination of the option.
Options granted under the 1997 Plan, at the discretion of the compensation
committee or the board, may be exercised either with cash, Common Stock having a
fair market equal to the cash exercise price, the participant's personal
recourse note, or with an assignment to the Company of sufficient proceeds from
the sale of the Common Stock acquired upon exercise of the Options with an
authorization to the broker or selling agent to pay that amount to the Company,
or any combination of the above.
The exercise price of an option may not be less than the fair market value
per share of Common Stock on the date that the option is granted in order to
receive certain tax benefits under the Income Tax Act of Canada (the "ITA"). The
exercise price of all future options will be at least 85% of the fair market
value of the Common Stock on the date of grant of the options. A benefit equal
to the amount by which the fair market value of the shares at the time the
employee acquires them exceeds the total of the amount paid for the shares or
the amount paid for the right to acquire the shares shall be deemed to be
received by the employee in the year the shares are acquired pursuant to
paragraph 7(1) of the ITA. Where the exercise price of the option is equal to
the fair market value of the shares at the time the option is granted, paragraph
110(1)(d) of the ITA allows a deduction from income equal to one quarter of the
benefit as calculated above. If the exercise price of the option is less than
the fair market value at the time it is granted, no deduction under paragraph
110(1)(d) is permitted. Options granted to any non-employees, whether directors
or consultants or otherwise will confer a tax benefit in contemplation of the
person becoming a shareholder pursuant to subsection 15(1) of the ITA.
Options may not be transferred by an optionee other than by will or the laws
of descent and distribution, and, during the lifetime of an optionee, the option
will be exercisable only the optionee.
Options under the 1997 Plan must be issued within ten years from the
effective date of the 1997 Plan.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the 1997 Plan.
The 1997 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1997 Plan may not be
increased without the consent of the shareholders of the Company.
In May 1997, the Board granted 200,000 Options under the 1997 Plan to five
individuals, including officers, directors and key employees. The Options are
exercisable at $3.50 per share for ten years expiring
31
<PAGE>
May 1, 2007. 40% of the Options are immediately exercisable, an additional 30%
become exercisable in May 1998 and all of the Options are exercisable in
November 1998. See the Options Grant Table below.
OPTION GRANTS
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/ EXERCISE
OPTIONS SARS GRANTED PRICE EXPIRATION
NAME GRANTED (#) TO EMPLOYEES ($/SH) DATE
- ---------------------------------------------------------- ------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C>
Arnold Unger.............................................. 50,000 25.0% $ 3.50 May 1, 2007
Renee Unger............................................... 50,000 25.0% $ 3.50 May 1, 2007
Fred Burke................................................ 50,000 25.0% $ 3.50 May 1, 2007
Alysse Unger.............................................. 25,000 12.5% $ 3.50 May 1, 2007
Lori Gutmann.............................................. 25,000 12.5% $ 3.50 May 1, 2007
</TABLE>
32
<PAGE>
PRINCIPAL STOCKHOLDERS AND SELLING SECURITYHOLDERS
The following table sets forth certain information, as of the date hereof,
and as adjusted to give effect to the sale of 1,000,000 Shares and 1,065,000
Warrants by the Company and 65,000 Shares of Common Stock by the Selling
Securityholders, with respect to the beneficial ownership of the Common Stock by
each beneficial owner of more than 5% of the outstanding shares thereof, by each
director, each nominee to become a director and each executive named in the
Summary Compensation Table and by all executive officers, directors and nominees
to become directors of the Company as a group, both before and after giving
effect to the Offering. Each of the Selling Securityholders are executive
officers or directors of the Company or are related to such executive officers
or directors. Arnold Unger is the Chief Executive Officer and Co-Chairman of the
Board, Renee Unger is the President and Co-Chairman of the Board, Lori Gutmann
is Manager of Retail Marketing and Sales and a Director, and Alysse Unger is
Manager of Private Label Marketing and a Director. Lori Gutmann, Alysse Unger
and Karen Unger are daughters of Arnold Unger and Renee Unger.
PERCENTAGE OF OUTSTANDING COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
SHARES
NUMBER OF BENEFICIALLY
SHARES OF SHARES OWNED
COMMON STOCK OFFERED BY AFTER THE
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER SELLING OFFERING
BENEFICIAL OWNER(1) OWNED OFFERING OFFERING SECURITYHOLDERS NUMBER
----------------------- -------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Arnold Unger(2)................................... 1,170,000 37.1% 28.2% 25,000 1,145,000
Renee Unger(2).................................... 1,170,000 37.1% 28.2% 25,000 1,145,000
Fred Burke(2)..................................... 20,000 * * 0 20,000
Lori Gutmann(3)................................... 210,000 6.7% 5.1% 5,000 205,000
Alysse Unger(3)................................... 210,000 6.7% 5.1% 5,000 205,000
Karen Unger....................................... 200,000 6.3% 4.8% 5,000 195,000
John Rothschild................................... 0 0 0
All Executive Officers and Directors as a Group... 2,980,000 95.7% 72.4%
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER(1) PERCENT
----------------------- ---------
<S> <C>
Arnold Unger(2)................................... 27.7%
Renee Unger(2).................................... 27.7%
Fred Burke(2)..................................... *
Lori Gutmann(3)................................... 5.0%
Alysse Unger(3)................................... 5.0%
Karen Unger....................................... 4.7%
John Rothschild...................................
All Executive Officers and Directors as a Group...
</TABLE>
- ------------------------
* Less than 1%
(1) Unless otherwise indicated, the address is c/o Intercorp Excelle Inc., 1880
Ormont Drive, Toronto, Ontario, Canada M9L 2V4.
(2) Includes 20,000 shares of Common Stock issuable upon exercise of the stock
options granted under the 1997 Stock Option Plan which are immediately
exercisable. See "Management--Stock Option Plan".
(3) Includes 10,000 shares of Common Stock issuable upon exercise of the stock
options granted under the 1997 Stock Option Plan which are immediately
exercisable. See "Management--Stock Option Plan".
33
<PAGE>
CERTAIN TRANSACTIONS
Arnold Unger, Chief Executive Officer and Co-Chairman of the Board and Renee
Unger, President and Co-Chairwoman of the Board, each have loaned to Excelle
Brands Food Corporation, a subsidiary of the Company $76,200 in March and July,
1994. These loans bear interest at the prime interest rate and are without any
specific repayment terms. The Company believes that the loans were made on terms
no less favorable to the Company than terms for similar loans from unaffiliated
parties. All future transactions and loans between the Company and its officers,
directors and 5% shareholders will be on terms no less favorable than could be
obtained from unaffiliated third parties and will be approved by a majority of
the independent, disinterested directors of the Company. All future transactions
and loans between the Company and its officers, directors and 5% Shareholders
will be on terms no less favourable than could be obtained from unaffiliated
third parties and will be approved by a majority of the independent,
disinterested directors of the Company.
The loans are also subordinated to credit facilities which Excelle Brand
Foods Corporation ("Excelle"), a wholly-owned subsidiary of the Company, has
with National Bank of Canada ("NBC"). The NBC credit facility consists of a
Cdn$900,000 revolving demand loan, Cdn$1,332,536 in non-revolving demand loans,
all bearing interest at the banks prime rate plus 1% to 1.5% which at April 30,
1997 was 5.75% and a Cdn$350,000 U.S. currency forward contract. The NBC credit
facility is secured with the assets of the Company subject only to prior
encumbrances on specific fixed assets which are senior to NBC. See "Managements'
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" . Arnold Unger and Renee Unger have
each personally guaranteed the NBC credit facility to the extent of Cdn$250,000,
which is to be released if Excelle's debt to equity ratio is no greater than 2
to 1. The loans are additionally secured by a collateral mortgage on Renee
Unger's personal residence. In addition, the term life insurance of Cdn$200,000
on the life of Arnold Unger and for Cdn$150,000 on the life of Renee Unger, each
of whom are the beneficiaries of their respective insurance policy which
premiums are paid for by the Company, have been assigned to NBC as further
security. NBC also holds all the voting equity of the subsidiary companies of
the Company. Voting control of the Company must remain with the Ungers,
including their family trusts and children, absent NBC's prior written consent.
See "Principal Shareholders and Selling Securityholders".
The Company has a loan with Business Development Bank of Canada ("BDC"). The
principal amount owed as of June 30, 1997 is approximately $68,000 bearing
interest at 2.5% above the bank's floating base interest rate. The loan is
secured by the assets of Excelle and Intercorp Foods Ltd., wholly-owned
subsidiaries of the Company. The loan is further secured by personal guarantees
by Arnold Unger and Renee Unger in the amount of $50,000 each, and assignment of
loans owed to Arnold Unger and Renee Unger. A portion of the proceeds of this
Offering is allocated to repayment of the BDC loan.
34
<PAGE>
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consist of an unlimited
number of shares of Common Stock, with no par value, and unlimited number of
Preferred Stock, with no par value per share. The following descriptions contain
all material terms and features of the Securities of the Company, are qualified
in all respects by reference to the Certificate of Incorporation and By laws of
the Company, copies of which are filed as Exhibits to the Registration Statement
of which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue an unlimited number of shares of Common
Stock, no par value per share, of which as of the date of this Prospectus
3,075,000 shares of Common Stock are outstanding, not including the Shares
offered herein.
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. Holders of Common
Stock are entitled to receive ratably dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining, if any, after
payment of liabilities. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities.
Pursuant to the Business Corporation Act, Ontario ("BCA"), a shareholder of
an Ontario Corporation has the right to have the corporation pay the shareholder
the fair market value for his shares of the corporation in the event such
shareholder dissents to certain actions taken by the corporation such as
amalgamation or the sale of all or substantially all of the assets of the
corporation and such shareholder follows the procedures set forth in the BCA.
WARRANTS
Warrants will be issued pursuant to a Warrant Agreement between the Company
and Continental Stock Transfer & Trust Company (the "Transfer and Warrant
Agent") and will be in registered form. Each Warrant entitles its holder to
purchase, during the four year period commencing on the date of this Prospectus,
one share of Common Stock at an exercise price of $6.00 per share, subject to
adjustment in accordance with the anti-dilution and other provision referred to
below.
The Warrants may be redeemed by the Company at any time commencing one year
from the date of this Prospectus (or earlier with the consent of the
Representative) and prior to their expiration, at a redemption price of $.10 per
Warrant, on not less than 30 days' prior written notice to the holders of such
Warrants, provided that the closing bid price of the Common Stock if traded on
the Nasdaq SmallCap Market, or the last sale price per share of the Common
Stock, if listed on the Nasdaq National Market or on a national exchange, is at
least 150% ($9.00 per share, subject to adjustment) of the exercise price of the
Warrants for a period of 20 consecutive business days ending on the third day
prior to the date the notice of redemption is given. Holders of Warrants shall
have exercise rights until the close of the business day preceding the date
fixed for redemption.
The exercise price and the number of shares of Common Stock purchasable upon
the exercise of the Warrants are subject to adjustment upon the occurrence of
certain events, including stock dividends, stock splits, combinations or
classification of the Common Stock. The Warrants do not confer upon holders any
voting or any other rights of shareholders of the Company.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Commission a current prospectus covering the issuance of
Common Stock issuable upon the exercise of the Warrant and the issuance of
shares has been registered or qualified or is deemed to be exempt form
registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the
35
<PAGE>
issuance of shares of Common Stock upon the exercise of the Warrants until the
expiration of the Warrants, subject to the terms of the Warrant Agreement. While
it is the Company's intention to maintain a current prospectus, there is no
assurance that it will be able to do so. See "Risk Factors-Requirements of
Current Prospectus and State Blue Sky Registration in Connection with the
Exercise Warrants".
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of an
unlimited number of shares of Preferred Stock with designations, rights and
preferences determined from time to time by its Board of Directors. Accordingly,
the Company's Board of Directors is empowered, without stockholder approval, to
issue Preferred Stock with dividend, liquidation, conversion, or other rights
that could adversely affect the rights of the holders of the Common Stock.
Although the Company has no present intention to issue any shares of its
Preferred Stock, there can be no assurance that it will not do so in the future.
BRIDGE WARRANTS
In May 1997 the Company issued an aggregate of 175,000 Warrants (the "Bridge
Warrants"). The Bridge Warrants entitle the holder to purchase one share of
Common Stock for $3.75 per share for a period of four years. The Bridge Warrants
are redeemable by the Company at $.10 per Warrant in the event the Company does
not complete an initial public offering of its securities by December 31, 1997.
The Bridge Warrants are exchangeable at the option of the holder for a like
number of warrants with identical terms as the Warrants.
REGISTRATION RIGHTS
The Company has granted holders of the 175,000 shares of Common Stock
purchased in connection with the Bridge Financing piggyback registration rights
with respect to certain offerings of the Company registered under the Securities
Act following the Effective Date, to the extent the inclusion of such shares is
permitted by the managing underwriter for such offering. The Company has no
present plans to file any such additional or new registration statement. This
Common Stock is also redeemable at $.50 per share if the Company does not
complete a public offering of its securities by December 31, 1997.
Bridge Warrants, which are restricted from public sale for at least one year
through May 22, 1998, have piggyback registration rights and may be exchanged at
the option of the warrantholder, for Warrants that are being offered hereby,
which Warrants are exercisable at $6.00 per share and will be tradeable.
TRANSFER AGENT, REGISTRAR AND REDEEMABLE WARRANT AGENT
The transfer agent, registrar and warrant agent for the Common Stock and
Warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New York,
New York 10005.
36
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 4,075,000
shares of Common Stock outstanding. In addition, the Company has reserved for
issuance 500,000 shares upon the exercise of options eligible for grant under
the Company's Stock Option Plan, 200,000 of which have been granted. Of the
shares to be issued and outstanding after this Offering, the 1,000,000 Shares
offered hereby (plus any additional Shares sold upon exercise of the
Over-Allotment Option) will be freely tradeable without restriction or further
registration under the Act, except for any shares purchased or held by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company) which will be subject to the limitations of Rule 144 adopted
under the Act ("Rule 144"). In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who has beneficially owned restricted shares of Common Stock for at
least one year is permitted to sell in a brokerage transaction, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class, or if the Common Stock
is quoted on Nasdaq or a stock exchange, the average weekly trading volume
during the four calendar weeks preceding the sale. Rule 144 also permits a
person who presently is not and who has not been an affiliate of the Company for
at least three months immediately preceding the sale and who has beneficially
owned the shares of Common Stock for at least two years to sell such shares
without regard to any of the volume limitations as described above. 65,000
shares of Common Stock are being registered along with the securities being sold
in this Offering and are being sold by the Underwriters for the Selling
Securityholders. The remaining 3,010,000 shares of Common Stock are "restricted
securities" as that term is defined under Rule 144, and may not be sold unless
registered under the Act or exempted therefrom. Of the 3,010,000 restricted
shares, 2,835,000 are currently eligible to be sold in accordance with the
exemptive provisions and the volume limitations of Rule 144, however, the owners
of such shares have agreed with the Representative not to sell or otherwise
dispose their shares for 18 months from the Effective Date without the consent
of the Representative, except pursuant to gifts or pledges in which the donee or
pledgee agrees to be bound by such restrictions. The remaining 175,000 shares of
Common Stock outstanding are eligible for resale under Rule 144 on May 22, 1998,
subject to a 12 month lock up during which such shares may not be sold without
the prior written consent of the Representative. The Representative has agreed
not to release such lock-up earlier.
All of the Company's directors and executive officers, (who hold in the
aggregate 2,900,000 shares), have agreed not to sell, offer to sell or otherwise
dispose of the 2,835,000 shares of the Company's Common Stock not being sold to
the Underwriter until 18 months from the Effective Date, except pursuant to
gifts or pledges in which the donee or pledgee agrees to be bound by such
restrictions, without the prior written consent of the Representative. These
agreements are enforceable only by the parties thereto, and are subject to
rescission or amendment at any time without approval of other stockholders.
Sales of the Company's Common Stock by certain of the present stockholders
in the future, under Rule 144, may have a depressive effect on the price of the
Company's Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following describes the principal United States federal income tax
consequences of the purchase, ownership and disposition of the Common Stock and
the Warrants and upon the exercise, redemption or expiration of the Warrants by
a Warrant holder, that is a citizen or resident of the United States or a United
States domestic corporation or that otherwise will be subject to United States
federal income tax (a "U.S. Holder"). This summary is based on the United States
Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, changes to any of which subsequent to the date of this Prospectus
may affect the tax consequences described herein. This summary discusses only
the principal United States federal income tax consequences to those beneficial
owners holding the securities as capital assets within the meaning of Section
1221 of the Code and does not address the tax treatment of a beneficial owner
that owns 10% or
37
<PAGE>
more of the Common Stock. It does not address the consequences applicable to
certain specialized classes of taxpayers such as certain financial institutions,
insurance companies, dealers in securities or foreign currencies, or United
States persons whose functional currency (as defined in Section 985 of the Code)
is not the United States dollar persons considering the purchase of these
securities should consult their tax advisors with regard to the application of
the United States and other income tax laws to their particular situations. In
particular, a U.S. Holder should consult his tax advisor with regard to the
application of the United States federal income tax laws to his situation.
COMMON STOCK
A U.S. Holder generally will realize, to the extent of the Company's current
and accumulated earnings and profits, foreign source ordinary income on the
receipt of cash dividends, if any, on the Common Stock equal to the United
States dollar value of such dividends determined by reference to the exchange
rate in effect on the day they are received by the U.S. Holder (with the value
of such dividends computed before any reduction for any Canadian withholding
tax). U.S. Holders should consult their own tax advisors regarding the treatment
of foreign currency gain or loss, if any, on any dividends received which are
converted into United States dollars on a date subsequent to receipt. Subject to
the requirements and limitations imposed by the Code. a U.S. Holder may elect to
claim Canadian tax withheld or paid with respect to dividends on the Common
Stock as a foreign credit against the United States federal income tax liability
of such holder. Dividends on the Common Stock generally will constitute "passive
income" or, in the case of certain U.S. Holders, "financial services income" for
United States foreign tax credit purposes. U.S. Holders who do not elect to
claim any foreign tax credits may claim a deduction for Canadian income tax
withheld. Dividends paid on the Common Stock will not be eligible for the
dividends received deduction available in certain cases to United States
corporations.
Upon a sale or exchange of a share of Common Stock, a U.S. Holder will
recognize gain or loss equal to the difference between the amount realized on
such sale or exchange and the tax basis of such Common Stock. Any such gain or
loss will be capital gain or loss, and will be long term capital gain or loss if
at the time of sale or exchange the Common Stock has been held for more than one
year.
WARRANTS
No gain or loss will be recognized by the holder of a Warrant upon the
exercise of the Warrant. The cost basis of the Common Stock acquired upon such
exercise will be the cost basis of the Warrant plus any additional amount paid
upon the exercise of the Warrant. Gain or loss will be recognized upon the
subsequent sale or exchange of the Common Stock acquired by the exercise of the
Warrant, measured by the difference between the amount realized upon the sale or
exchange and the cost basis of the Common Stock so acquired.
If a Warrant is not exercised, but is sold or exchanged (whether pursuant to
redemption or otherwise), gain or loss will be recognized upon such event,
measured by the difference between the amount realized by the holder of the
Warrant as a result of sale, exchange or redemption and the cost basis of the
Warrant
If a Warrant is not exercised and is allowed to expire, the Warrants will be
deemed to be sold or exchanged on the date of expiration. In such event, the
holder of the Warrant will recognize a loss to the extent of the cost basis of'
the Warrant.
Generally, any gain or loss recognized as a result of the foregoing will be
a capital gain or loss and will either be long-term or short-term depending upon
the period of time the Common Stock sold or exchanged or the Warrant sold,
exchanged, redeemed, or allowed to expire, as the case may be, was held. A
holding period of more than one year results in long-term gain or loss
treatment. If a Warrant is exercised, the holding period of the Common Stock so
acquired will not include the period during which the Warrant was held.
38
<PAGE>
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD
NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR AND NO
REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR
IS MADE.
INVESTMENT CANADA ACT
The Investment Canada Act is a Federal Canadian statute which regulates the
acquisition of control of existing Canadian businesses and the establishment of
new Canadian businesses by an entity that is a "non-Canadian" as that term is
defined in the Investment Canada Act.
The Company believes that it is not currently a "non-Canadian" for purposes
of the Investment Canada Act. If the Company were to become a "non-Canadian" in
the future, acquisitions of control of Canadian businesses by the Company would
become subject to the Investment Canadian Act. Generally, the direct acquisition
by a "non-Canadian" of an existing Canadian business with gross assets of
$5,000,000 or more is reviewable under the Investment Canada Act, with a
threshold of $168 million for 1996 for "NAFTA investors" as defined under the
Investment Canada Act.
Indirect acquisitions of existing Canadian businesses (with gross assets
over certain threshold levels) as well as acquisitions of businesses related to
Canada's cultural heritage or national identity (regardless of the value of
assets involved) may also be reviewable under the Investment Canada Act. In
addition, acquisitions of control of existing investments to establish new,
unrelated businesses are not generally reviewable but do require that a notice
of the investment be given under the Investment Canada Act. An investment in a
new business that is related to the non-Canadian's existing business in Canada
is not notifiable under the Investment Canada Act unless such investment relates
to Canada's cultural heritage or national identity.
Investments which are reviewable under the Investment Canada Act are
reviewed by the Minister, designated as being responsible for the administration
of the Investment Canada Act. Reviewable investments may not be implemented
prior to the Minister determining that the investment is likely to be of "net
benefit to Canada" based on the criteria set out in the Investment Canada Act.
39
<PAGE>
UNDERWRITING
The Company and the Selling Securityholders have agreed to sell, and the
Underwriters have severally and not jointly agreed, subject to the time and
conditions of the Underwriting Agreement, to purchase from the Company and the
Selling Securityholders on a firm commitment basis, the respective number of
Shares and Warrants set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
--------------------------
<S> <C> <C>
UNDERWRITER COMMON STOCK WARRANTS
- ------------------------------------------------------------------------------------- -------------- ----------
Sharpe Capital, Inc.
Aegis Capital Corp.
-------------- ----------
Total............................................................................ 1,065,000 1,065,000
-------------- ----------
-------------- ----------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Shares and Warrants to the public at the public offering price set forth on the
cover page of this Prospectus and that they may allow to selected dealers who
are members of the NASD, concessions of not in excess of $.20 per Share and $0
per Warrant, of which not more than $.10 per Share and $0 per Warrant may be
re-allowed to certain other dealers who are members of the NASD. After the
public offering, the public prices, concessions and reallowances may be changed
by the Underwriters.
The Underwriting Agreement further provides that the Underwriters will
receive from the Company and Selling Securityholders a non-accountable expense
allowance of 3% of the aggregate public offering price of the Shares and
Warrants sold (including any Shares and Warrants sold pursuant to the
Underwriters' Over-Allotment Option), which allowance amounts to $153,195 and
$9,750, respectively (or $176,174 or $11,213, respectively, if the Underwriters'
Over-Allotment Option is exercised in full), of which $50,000 has been paid by
the Company to date.
The Company and the Selling Securityholders have granted to the Underwriters
the Over-Allotment Option, which is exercisable for a period of 45 days after
the Closing, to purchase up to an aggregate 159,750 additional Shares and
159,750 additional Warrants (up to 15% of the Shares and Warrants being offered)
at the public offering price, less underwriting discounts and commissions,
solely to cover over-allotments, if any.
The Representative has informed the Company that the Underwriters will not
make sales of the Shares and Warrants offered by this Prospectus to accounts
over which they exercise discretionary authority.
The Company has agreed to sell to the Underwriters for a nominal
consideration the Underwriters' Warrant to purchase 106,500 Shares and 106,500
Warrants, exclusive of the Over-Allotment Option. The Underwriters' Warrant will
be nonexercisable for one year after the date of this Prospectus. Thereafter,
for a period of four years, the Underwriters' Warrant will be exercisable at
$8.25 per Share of Common Stock and $.165 per Warrant. The Warrants underlying
the Underwriters' Warrant will be substantially identical to the Warrants
offered to the public except they are not subject to redemption by the Company
until the Underwriters' Warrant has been exercised and the underlying Warrants
are outstanding. The Underwriters' Warrant is not transferable for a period of
one year after the date of this Prospectus, except to officers and stockholders
of the Underwriters and to members of the selling group and their officers and
partners. The Company has agreed to file, during the four year period beginning
one year from the Effective Date of this Prospectus, on one occasion at the
Company's cost, at the request of the holders of a majority of the Underwriters'
Warrant and the underlying shares of Common Stock and Warrants, and to use its
best efforts to cause to become effective, a post-effective amendment to the
Registration Statement or a new registration statement under the Securities Act,
as required to permit the public sale of Common Stock and Warrants issued or
issuable upon exercise of the Underwriters' Warrant. In addition, the Company
has agreed to give advance notice to holders of the Underwriters' Warrant of its
intention to file certain
40
<PAGE>
registration statements commencing one year and ending four years after the
Effective Date, and in such case, holders of such Underwriters' Warrant or
underlying shares of Common Stock and Warrants shall have the right to require
the Company to include all or part of such shares of Common Stock and Warrants
underlying such Underwriters' Warrant in such registration statement at the
Company's expense.
For the life of the Underwriters' Warrant, the holders thereof are given, at
nominal costs, the opportunity to profit from a rise in the market price of the
Company's securities with a resulting dilution in the interest of other
shareholders. Further, the holders may be expected to exercise the Underwriters'
Warrant at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriters'
Warrant.
The Company has agreed that upon closing of this Offering, it will for a
period of not less than three years, invite a designee of the Representative to
attend all meetings of the board of directors. Such designee will be entitled to
the same notices and communications sent by the Company to its directors and to
attend directors meetings, but will not be entitled to vote or be compensated
therefor.
The Company has agreed to retain the Underwriters as financial consultants
for a period of three years to commence on the closing of this Offering, at a
monthly fee of $2,444.44 all of which ($88,000) shall be payable in advance on
the closing of the Offering. Pursuant to this agreement, the Underwriters will
be obligated to provide general financial advisory services to the Company on an
"as needed" basis with respect to possible future financing or acquisitions by
the Company and related matters. The agreement does not require the Underwriters
to provide any minimum number of hours of consulting services to the Company.
The public offering price of the Shares and Warrants offered hereby and the
exercise price and other terms of the Warrants have been determined by
negotiation between the Company and the Underwriters. Factors considered in
determining the offering price of the Shares and Warrants offered hereby and the
exercise price of the Warrants included the business in which the Company is
engaged, the Company's financial condition, an assessment of the Company's
management, the general condition of the securities markets and the demand for
similar securities of comparable companies.
The Company has agreed, for a period of one year from the date of this
Prospectus not to issue any shares of Common Stock, Warrants or any options or
other rights to purchase Common Stock without the prior written consent of the
Representative, except Warrants to be issued upon closing of this Offering, as
discussed herein. Notwithstanding the foregoing, the Company may issue shares
upon exercise or conversion of any options under the 1997 Plan up to 10% of the
Company's outstanding Common Stock immediately after the closing of this
Offering. Except for the 65,000 shares of Common Stock being offered by the
Underwriters on behalf of the Selling Securityholders, Arnold Unger, Renee
Unger, Lori Gutmann, Karen Unger, Alysse Unger and the Unger Family Trust, who
own in the aggregate 2,900,000 shares of Common Stock, have agreed not to
publicly sell or otherwise dispose of any of their Common Stock for a period of
18 months following the Effective date without the consent of the Underwriters
which most likely will not be granted earlier than three months from the date of
this Prospectus and would be subject to the nature of the market for the
Company's securities, the volume and price of the Common Stock, and the
operations and financial condition of the Company.
In connection with this Offering, the Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock and Warrants.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock or Warrants for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more shares of Common Stock or
Warrants in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase shares of Common Stock or
Warrants in the open market following completion of the Offering to cover all or
a portion of such short position. The Underwriters may also cover all or a
41
<PAGE>
portion of such short position by exercising the Over-Allotment Option. In
addition, the Underwriters may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of other Underwriters,
the selling concession with respect to shares of Common Stock and Warrants that
are distributed in the Offering but subsequently purchased for the account of
the Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock and
Warrants at a level above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph is required, and, if they
are undertaken they may be discontinued at any time.
Commencing one year after the date of this Prospectus, the Company will pay
the Underwriters a fee of 5% of the exercise price of each Warrant exercised,
provided (i) the market price of the Common Stock on the date the Warrant was
exercised was greater than the Warrant exercise price on that date; (ii) the
exercise price of the Warrant was solicited by a member of the NASD; (iii) the
Warrant was not held in discretionary account; (iv) the disclosure of
compensation arrangements was made both at the time of this Offering and at the
time of exercise of the Warrant; (v) the solicitation of the exercise of the
Warrant was not a violation of Regulation M promulgated under the Exchange Act;
and (vi) either Underwriter is designated in writing as the broker. The
Underwriters and any other soliciting broker-dealers may be prohibited from
engaging in any market-making activities or solicited brokerage activities with
regard to the Company's securities during the periods prescribed by Regulation
M, five business days (or other applicable period as Regulation M may provide)
before the solicitation of the exercise of any Warrant until the later of the
termination of such solicitation activity or the termination of any right the
Underwriters and any other soliciting broker/dealer may have to receive a fee
for the solicitation of the exercise of the Warrants.
The Underwriting Agreement provides for reciprocal indemnification between
the Selling Securityholders, the Company and the Underwriters against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act.
The foregoing is a summary of the material terms of the Underwriting
Agreement, the Underwriters' Warrant and the Consulting Agreement. Reference is
made to the copies of the Underwriting Agreement, the Underwriters' Warrant and
the Consulting Agreement, which are filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
42
<PAGE>
LEGAL OPINIONS
Certain legal matters relating to Canadian law, including the validity of
the issuance of the Common Stock and Warrants offered herein, will be passed
upon for the Company by Wildeboer Rand Thomson Apps & Dellelce. Certain legal
matters in connection with the Offering will be passed upon for the Company by
its United States counsel, Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP,
101 East 52nd Street, New York, New York 10022. Certain legal matters will be
passed upon for the Underwriters by Singer Zamansky LLP, 40 Exchange Place, New
York, New York 10005.
EXPERTS
The combined financial statements of Excelle Brand Foods Corporation and
Intercorp Foods Ltd. at January 31, 1997, and for each of the two fiscal years
in the period ended January 31, 1996 and 1995, and the balance sheet of
Intercorp Excelle Inc. at April 30, 1997, appearing in this Prospectus and
Registration Statement have been audited by Schwartz Levitsky Feldman, Chartered
accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
43
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Act with respect to the Securities offered hereby. This Prospectus omits certain
information contained in the Registration Statement and the exhibits thereto,
and references is made to the Registration Statement and the exhibits thereto
for further information with respect to the Company and the Securities offered
hereby. Each such statement is qualified in its entirety by such reference. The
Registration Statement, including exhibits and schedules filed therewith, may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and its public reference facilities in New York, New York and Chicago,
Illinois upon payment of the prescribed fees. Electronic registration statements
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's Website (http://www.sec.gov). At the
date hereof, the Company was not a reporting company under the Securities
Exchange Act of 1934, as amended.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The by-laws of the Company provide that the Company shall indemnify to the
fullest extent permitted by Canadian law directors and officers (and former
officers and directors) of the Company. Such indemnification includes all costs
and expenses and charges reasonably incurred in connection with the defense of
any civil, criminal or administrative action or proceeding to which such person
is made a party by reason of being or having been an officer or director of the
Company if such person was substantially successful on the merits in his or her
defense of the action and he or she acted honestly and in good faith with a view
to the best interests of the Company, and if a criminal or administrative action
that is enforced by a monetary penalty, such person had reasonable grounds to
believe his or her conduct was lawful.
The Underwriting Agreement provides for reciprocal indemnification between
the Selling Securityholders, the Company and the Underwriters against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
and the Underwriters pursuant to the foregoing provisions, 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. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses,
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person or by the Underwriters in connection
with the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
44
<PAGE>
INDEX TO
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Combined Financial Statements................................................ F-2
Report of Independent Auditors....................................................... F-3
Combined Balance Sheets.............................................................. F-4
Combined Statements of Income........................................................ F-5
Combined Statements of Cash Flows.................................................... F-6
Combined Statements of Stockholders' Equity.......................................... F-7
Notes to Combined Financial Statements............................................... F-8
Interim Combined Financial Statements................................................ F-16
Review Engagement Report............................................................. F-17
Interim Combined Balance Sheets...................................................... F-18
Interim Combined Statements of Income................................................ F-19
Interim Combined Statements of Cash Flow............................................. F-20
Interim Combined Statements of Stockholders' Equity.................................. F-21
Notes to Interim Combined Financial Statements....................................... F-22
Audited Financial Statement.......................................................... F-32
Report of Independent Auditors....................................................... F-33
Balance Sheet........................................................................ F-34
Notes to Financial Statement......................................................... F-35
</TABLE>
F-1
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/
INTERCORP FOODS LTD.
COMBINED FINANCIAL STATEMENTS
AS OF JANUARY 31, 1997, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Excelle Brands Food Corporation/Intercorp Foods Ltd.
We have audited the accompanying combined balance sheets of Excelle Brands
Food Corporation/ Intercorp Foods Ltd. (incorporated in Canada) as at January
31, 1997 and 1996 and the related combined statements of income, cash flows and
changes in stockholders' equity for the years ended January 31, 1997, 1996 and
1995. These combined financial statements are the responsibility of the
management of Excelle Brands Food Corporation and Intercorp Foods Ltd. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Excelle Brands Food
Corporation/Intercorp Foods Ltd. as at January 31, 1997 and 1996 and the results
of its operations and its cash flows for the years ended January 31, 1997, 1996
and 1995, in conformity with generally accepted accounting principles in the
United States of America.
Toronto, Ontario /s/ SCHWARTZ LEVITSKY FELDMAN
March 12, 1997 Chartered Accountants
Except for note 9(b)
which is August 11, 1997
F-3
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
COMBINED BALANCE SHEETS
AS OF JANUARY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
ASSETS
CURRENT ASSETS
Accounts receivable (note 2).......................................................... 578,210 717,581
Investment tax credits recoverable.................................................... 184,755 136,413
Inventory (note 3).................................................................... 729,604 621,080
Income taxes recoverable.............................................................. -- 27,189
Prepaid expenses and sundry assets.................................................... 79,198 39,478
---------- ----------
Total current assets.................................................................. 1,571,767 1,541,741
PROPERTY, PLANT AND EQUIPMENT (note 4).................................................. 1,310,863 1,291,115
---------- ----------
Total assets.......................................................................... 2,882,630 2,832,856
---------- ----------
---------- ----------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 5)............................................................ 110,632 250,840
Accounts payable and accrued expenses (note 6)........................................ 834,255 1,007,052
Income taxes payable.................................................................. 5,864 --
Current portion of long-term debt..................................................... 253,716 231,846
---------- ----------
Total current liabilities............................................................. 1,204,467 1,489,738
LONG-TERM DEBT (note 7)................................................................. 591,205 599,023
DUE TO DIRECTORS (note 8)............................................................... 154,990 81,712
DUE TO PARENT COMPANY................................................................... -- 70,299
DEFERRED INCOME TAXES (note 12)......................................................... 119,726 87,319
---------- ----------
Total liabilities..................................................................... 2,070,388 2,328,091
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 9).................................................................. 160 160
RETAINED EARNINGS....................................................................... 844,011 550,050
CUMULATIVE TRANSLATION ADJUSTMENTS...................................................... (31,929) (45,445)
---------- ----------
Total stockholders' equity............................................................ 812,242 504,765
---------- ----------
Total liabilities and stockholders' equity............................................ 2,882,630 2,832,856
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
$ $ $
SALES.................................................................... 10,459,655 8,457,288 8,380,776
Trade expenditures................................................... 876,139 711,317 825,539
------------ ---------- ----------
NET SALES................................................................ 9,583,516 7,745,971 7,555,237
Cost of sales........................................................ 6,723,795 5,675,567 5,376,395
------------ ---------- ----------
GROSS PROFIT............................................................. 2,859,721 2,070,404 2,178,842
------------ ---------- ----------
OPERATING EXPENSES
Selling.............................................................. 1,327,760 937,309 1,253,972
General and administrative........................................... 749,366 628,473 611,090
Research and development cost (note 10).............................. 12,823 91,628 59,783
Amortization......................................................... 285,320 230,776 298,748
------------ ---------- ----------
Total operating expenses............................................. 2,375,269 1,888,186 2,223,593
------------ ---------- ----------
OPERATING INCOME (LOSS).................................................. 484,452 182,218 (44,751)
INTEREST EXPENSE......................................................... 77,124 86,233 78,181
------------ ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS................ 407,328 95,985 (122,932)
Income taxes (recoverable) (note 11)................................. 113,367 14,605 (5,600)
------------ ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS................................. 293,961 81,380 (117,332)
Extraordinary items (note 12)........................................ -- 340,051 --
------------ ---------- ----------
NET INCOME (LOSS)........................................................ 293,961 421,431 (117,332)
------------ ---------- ----------
------------ ---------- ----------
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE BEFORE EXTRAORDINARY
ITEMS.................................................................. 0.10 0.03 (0.04)
------------ ---------- ----------
------------ ---------- ----------
NET INCOME PER WEIGHTED AVERAGE COMMON SHARE............................. 0.10 0.03 (0.04)
------------ ---------- ----------
------------ ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (note 9(b))......... 3,075,000 3,075,000 3,075,000
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
$ $ $
Cash flows from operating activities:
Net Income (loss)........................................................... 293,961 421,431 (117,332)
---------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
Amortization.............................................................. 285,320 230,776 298,748
Gain on disposal property, plant and equipment............................ (9,350) -- --
Forgiveness of debt....................................................... -- (557,415) --
Loss on write off of deferred charge...................................... -- 76,606 --
Decrease/(increase) in accounts receivable................................ 151,567 (221,540) (38,014)
Increase in investment tax credits........................................ (45,112) (53,439) (83,461)
Decrease/(increase) in inventory.......................................... (95,178) 138,595 (171,249)
Decrease/(increase) in prepaid expenses................................... (38,473) 29,800 (22,756)
Increase/(decrease) in accounts payable and accrued expenses.............. (190,191) (292,695) 436,064
Increase in income taxes payable/recoverable.............................. 33,177 21,480 --
Increase/(decrease) in deferred income taxes.............................. 30,322 75,562 (5,600)
---------- ---------- ----------
Total adjustments......................................................... 122,082 (552,270) 413,732
---------- ---------- ----------
Net cash (used in)/provided by operating activities....................... 416,043 (130,839) 296,400
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from disposal of property, plant and equipment..................... 14,229 -- --
Purchases of property, plant and equipment.................................. (284,710) (112,555) (396,891)
---------- ---------- ----------
Net cash used in investing activities....................................... (270,481) (112,555) (396,891)
---------- ---------- ----------
Cash flows from financing activities:
Additions to deferred financing charges..................................... -- -- (76,982)
Proceeds from advances to directors......................................... 70,804 -- 108,274
Advances by (repayment to) advances by parent company....................... (70,804) -- 51,192
Long-term debt borrowings................................................... 181,455 376,354 189,448
Long-term debt repayments (183,659) (62,037) (81,145)
---------- ---------- ----------
Net cash (used in)/provided by financing activities......................... (2,204) 314,317 190,787
---------- ---------- ----------
Effect of foreign currency exchange rate changes............................ (3,150) (9,779) 20,705
---------- ---------- ----------
Net increase in cash and cash equivalents................................... 140,208 61,144 111,001
Cash and cash equivalents (bank indebtedness)
Beginning of year......................................................... (250,840) (311,984) (422,985)
---------- ---------- ----------
End of year............................................................... (110,632) (250,840) (311,984)
---------- ---------- ----------
---------- ---------- ----------
Income taxes paid (refunds received)........................................ (87,312) (18,241) 275
---------- ---------- ----------
---------- ---------- ----------
Interest paid............................................................... 77,124 86,233 78,181
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------
<S> <C> <C> <C> <C>
CUMULATIVE
NUMBER OF RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENTS
----------------- ----------- ----------- -----------
<CAPTION>
$ $ $
<S> <C> <C> <C> <C>
Balance as of January 31, 1994................................ 200 160 245,951 (39,226)
Foreign currency translation.............................. -- -- -- (7,981)
Net loss for the year..................................... -- -- (117,332) --
--- --- ----------- -----------
Balance as of January 31, 1995................................ 200 160 128,619 (47,207)
Foreign currency translation.............................. -- -- -- 1,762
Net income for the year................................... -- -- 421,431 --
--- --- ----------- -----------
Balance as of January 31, 1996................................ 200 160 550,050 (45,445)
Foreign currency translation.............................. -- -- -- 13,516
Net income for the year................................... -- -- 293,961 --
--- --- ----------- -----------
Balance as of January 31, 1997................................ 200 160 844,011 (31,929)
--- --- ----------- -----------
--- --- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
These financial statements combine the accounts of two affiliated companies
and Kalmath Investments Ltd., the parent company of Excelle Brands Food
Corporation. All material inter-company accounts and transactions have been
eliminated.
b) Principle Activities
The companies, Excelle Brands Foods Corporation and Intercorp Foods Ltd.,
were incorporated in Canada on February 7, 1987 and December 20, 1982,
respectively. The companies are principally engaged in the production of food
products in Canada and its distribution in Canada and the U.S. The activity of
Kalmath Investments Ltd. is immaterial in the aggregate, as its only activity is
to hold the invesment in Excelle Brands Food Corporation.
c) Cash and Cash Equivalents (Bank Indebtedness)
Cash and cash equivalents (bank indebtedness) include cash on hand, amounts
due from and to banks, and any other highly liquid investments purchased with a
maturity of three months or less. The carrying amount approximates fair value
because of the short maturity of those instruments.
d) Other Financial Instruments
The carrying amount of the companies' accounts receivables and payables
approximates fair value because of the short maturity of these instruments.
e) Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is
determined on the first-in, first-out basis.
f) Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are amortized on the
basis over their estimated useful lives at the undernoted rates and methods:
<TABLE>
<S> <C> <C>
Equipment.................................................. 20% Declining
balance
Leasehold improvements..................................... 10% Straight-line
Vehicle.................................................... 30% Declining
balance
Computer equipment......................................... 30% Declining
balance
Office furniture........................................... 20% Declining
balance
</TABLE>
Amortization for assets acquired during the year are recorded at one-half of
the indicated rates, which approximates when they were put into use.
g) Income Taxes
The companies account for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
h) Foreign Currency Translation
The companies maintain their books and records in Canadian dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the rate of
exchange prevailing at balance sheet date. Non-monetary items are
F-8
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
translated at historical rates. Income and expenses are translated at the rate
in effect on the transaction dates. Transaction gains and losses are included in
the determination of earnings for the year.
The translation of the financial statements from Canadian dollars ("CDN $")
into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using closing exchange rates in effect at
the balance sheet date and income and expenses accounts are translated using an
average exchange rate prevailing during each reporting period. No representation
is made that the Canadian dollar amounts could have been or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholders' equity.
i) Sales
Sales represent the invoiced value of goods supplied to customers. Sales are
recognized upon delivery of goods and passage of title to customers.
j) Government Assistance and Investment Tax Credits
Government assistance and investment tax credits are recorded on the accrual
basis and are accounted for as a reduction of the related current or capital
expenditures.
k) Net Income per Weighted Average Common Share
Net income per common share is computed by dividing net income for the year
by the weighted average number of common shares outstanding during the year.
l) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
m) Accounting Changes
On February 1, 1996, the company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. SFAS No. 121 requires that long-lived assets to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicates that the carrying amount of an asset may not be
recoverable. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995. Adoption of SFAS No. 121 did not have a
material impact on the company's results of operations.
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Accounts receivable......................................................................... 595,200 728,488
Less: Allowance for doubtful accounts....................................................... 16,990 10,907
--------- ---------
Accounts receivable, net.................................................................... 578,210 717,581
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
3. INVENTORY
Inventory comprised the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Raw materials....................................................................... 187,546 200,899
Finished goods...................................................................... 542,058 420,181
--------- ---------
729,604 621,080
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Equipment............................................................................... 2,293,607 2,016,295
Leasehold improvements.................................................................. 339,652 325,729
Vehicle................................................................................. 51,339 46,841
Computer equipment...................................................................... 86,887 66,595
Office furniture........................................................................ 90,390 82,850
---------- ----------
Cost............................................................................ 2,861,875 2,538,310
---------- ----------
Less: Accumulated amortization
Equipment......................................................................... 1,274,178 1,016,282
Leasehold improvements............................................................ 122,805 87,131
Vehicle........................................................................... 44,890 42,564
Computer equipment................................................................ 51,828 52,393
Office furniture.................................................................. 57,311 48,825
---------- ----------
1,551,012 1,247,195
---------- ----------
Net..................................................................................... 1,310,863 1,291,115
---------- ----------
---------- ----------
</TABLE>
5. BANK INDEBTEDNESS
Bank indebtedness bears interest at the bank's prime rate plus 1 1/2% per
annum and represents an operating loan which revolves in multiples of $18,500.
The bank indebtedness is secured by an assignment of book debts, a general
security agreement, guarantees of the shareholder and directors of Excelle
Brands Food Corporation, a fixed charge on equipment, a pledge of inventory,
assignment of fire insurance, assignment of life insurance on the lives of the
directors, a charge against property of a director and a postponement of amounts
due to directors.
The affiliated companies have a centralized banking transfer of funds
agreement wherein the companies maintain a number of operating current accounts
and overdraft facilities with a single bank in order to facilitate their banking
transactions. In determining the balance upon which interest is charged and
lending limits and covenants are measured the bank notionally consolidates all
cash and overdraft balances on a net basis.
F-10
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
$ $
Accounts payable and accrued expenses comprise the following:
Trade payables........................................................................ 420,656 750,319
Accrued expenses...................................................................... 413,599 256,733
--------- ----------
834,255 1,007,052
--------- ----------
--------- ----------
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C> <C> <C>
$ $
a) Ontario Development Corporation Loans
Ontario Development Corporation loan under the Food Industry Financial Assistance
Program. Effective on October 23, 1996 the loan is repayable in blended monthly
payments of $3,100 principal and interest at 8% per annum, due October, 1999....... 170,707 182,030
Ontario Development Corporation loan under the Food Industry Financial Assistance
Program. The loan is repayable in blended monthly payments of $1,600 principal and
interest at 6 1/2% per annum, due October, 1999.................................... 48,122 62,404
b) Business Development Bank Loan
Business Development Bank loan, repayable in blended monthly payments of $1,200
principal and interest at the floating commercial and industrial loan interest rate
plus 2 1/2% per annum, due August, 2001............................................ 67,372 --
c) Bank Term Loans
Commercial investment loan, repayable monthly, $1,000 principal plus interest at
the bank's prime rate plus 1 1/2% per annum, repaid in full during the year........ -- 910
Commercial investment loan, repayable monthly, $3,100 principal plus interest at
the bank's prime rate plus 1 1/2% per annum, due October, 1998..................... 68,043 100,110
d) Capital Loans
Capital loan, repayable monthly, $2,700 principal plus interest at the bank's prime
rate plus 1 1/2% per annum, due June, 2001......................................... 144,271 160,186
Capital loan, repayable monthly, $2,000 principal plus interest at the bank's prime
rate plus 1 1/2% per annum, due November, 2002..................................... 116,321 --
e) Accounts payable under settlement agreements, non-interest bearing, with monthly
payments of approximately $8,700 until January, 1999............................... 230,085 325,229
--------- ---------
844,921 830,869
Less: Current portion.............................................................. 253,716 231,846
--------- ---------
591,205 599,023
--------- ---------
--------- ---------
</TABLE>
f) Bank term loans are secured by the security as described in note 5.
F-11
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
7. LONG-TERM DEBT (CONTINUED)
g) Ontario Development Corporation loans are secured by a first and fixed
mortgage charge on specific equipment and a floating charge on all other assets.
h) Business Development Bank loan is secured by a general security
agreement, assignment of claims and an assignment of insurance on specific
assets.
i) Capital loan is secured by a second and fixed mortgage charge on specific
equipment and a postponement of amounts due to directors and an assignment of
life insurance on the life of a director.
j) Capital loan is secured by a first and fixed mortgage charge on specific
equipment and a floating charge on all other assets.
k) Future principal payment obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
1997.................................................................................. -- 231,846
1998.................................................................................. 253,716 321,169
1999.................................................................................. 231,510 200,074
2000.................................................................................. 246,431 45,743
2001.................................................................................. 71,566 32,037
2002.................................................................................. 41,698 --
--------- ---------
844,921 830,869
--------- ---------
--------- ---------
</TABLE>
8. DUE TO DIRECTORS
The amounts due to directors are unsecured, bear interest at the directors'
effective borrowing rate, are without any specific repayment terms, and are not
expected to be repaid prior to February 1, 1998.
The directors' effective borrowing rate is the same as the Canadian bank
prime rate, which at January 31, 1997 was 4.75%.
9. CAPITAL STOCK
A) AUTHORIZED
An unlimited number of the following classes of shares without par value
Class A Preference shares, 12% non-cumulative, non-participating,
non-voting, redeemable at the paid-up amount
Class B Special shares, non-cumulative, participating, non-voting,
redeemable at the paid-up amount
Common shares
ISSUED
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
$ $
200 Common shares........................................................................... 160 160
--- ---
--- ---
</TABLE>
B)WEIGHTED AVERAGED NUMBER OF COMMON SHARES
For the purpose of determining earnings per share, the weighted average
number of common shares has been presented on a pro-forma basis, giving
effect to the following subsequent events:
F-12
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
9. CAPITAL STOCK (CONTINUED)
i) In May 1997, a newly incorporated holding company, Intercorp Excelle
Inc. (the "Registrant") obtained bridge financing for the purpose of
funding the planned initial public offering. As part consideration for
this transaction, the Registrant issued 175,000 common shares to the
participants in the bridge financing, resulting in 175,300 issued and
outstanding common shares.
ii) Subsequent to the above noted bridge financing, the shareholders of the
companies transferred all the outstanding common shares of the
companies to the Registrant, in exchange for 2,899,700 common shares of
that company. The transfer was done in anticipation of an eventual
initial public offering by the Registrant.
Accordingly, the total weighted average number of common shares on a
pro-forma basis is 3,075,000 common shares.
10. RESEARCH AND DEVELOPMENT COSTS
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
$ $ $
Research and development costs are comprised of:
Expenses incurred.......................................................... 191,762 171,768 178,386
Less: Investment tax credits............................................... (178,939) (80,140) (118,603)
---------- --------- ----------
Net expense................................................................ 12,823 91,628 59,783
---------- --------- ----------
---------- --------- ----------
</TABLE>
11. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
$ $ $
a) Current 83,045 (60,957) --
Deferred................................................................... 30,322 75,562 (5,600)
--------- --------- ---------
113,367 14,605 (5,600)
--------- --------- ---------
--------- --------- ---------
b) Current income taxes consists of:
Amount calculated at basic Federal and Provincial rates.................... 96,621 21,625 (30,186)
Increase (decrease) resulting from:
Application of losses carried forward from prior year................ -- (22,585) --
Operating loss for which no current income tax benefit is
recognized........................................................... -- -- 24,586
Investment tax credits............................................... -- (16,757) --
Permanent and other differences...................................... 16,746 2,992 --
Portion of above adjustments allocable to extraordinary items........ -- 29,330 --
Timing differences................................................... (30,322) (75,562) 5,600
--------- --------- ---------
83,045 (60,957) --
--------- --------- ---------
--------- --------- ---------
</TABLE>
c) The companies have operating losses which can be used to reduce future
provincial taxable income. The potential tax benefits of the losses have been
recorded as a reduction of deferred taxes. The deductibility of these losses,
which amount to approximately $204,000, expires in 2002.
F-13
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
11. INCOME TAXES (CONTINUED)
d) Deferred income taxes represent the tax benefits derived from timing
differences between amortization of property, plant and equipment charged to
operations and amounts deducted from taxable income.
12. EXTRAORDINARY ITEMS
a) During the 1996 fiscal year, the companies settled certain past due
accounts payable with certain key suppliers resulting in a one time forgiveness
of those accounts, net of related expenses, in the amount of $557,415.
b) During the 1996 fiscal year, the companies aborted efforts at obtaining
new financing until settlement was reached with trade creditors. Accordingly,
deferred financing costs pertaining to these efforts, in the amount of $156,329,
of which $74,723 was incurred in 1995, were written off.
c) Income taxes on the forgiveness and the amounts written off during 1996
amounted to $61,035.
13. SALES TO MAJOR CUSTOMERS
The breakdown of sales by geographic area is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<CAPTION>
$ $ $
<S> <C> <C> <C>
Canada............................................................ 8,843,699 7,103,089 7,016,717
United States of America.......................................... 739,817 642,882 538,520
----------- ----------- -----------
9,583,516 7,745,971 7,555,237
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
14. MINIMUM LEASE COMMITMENTS
Minimum payments under an operating lease for premises amount to $81,000,
exclusive of insurance and other occupancy charges. The lease expires June 30,
2000. The future minimum lease payments over the next four years are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
$ $ $
Payable during the following periods:
Within one year.............................................................. 81,586 78,319 109,449
Over 1 year but not exceeding 2 years........................................ 77,002 81,051 109,449
Over 2 years but not exceeding 3 years....................................... 77,002 76,497 109,449
Over 3 years but not exceeding 4 years....................................... 32,084 76,497 141,371
Over 4 years but not exceeding 5 years....................................... -- 31,874 164,173
--------- --------- ---------
267,674 344,238 633,891
--------- --------- ---------
--------- --------- ---------
</TABLE>
The companies have sub-leased a portion of the premises for approximately
$24,000 per annum in renewable one year terms for a period of three years.
15. COMPARATIVE FIGURES
Certain figures in the 1996 and 1995 financial statements have been
reclassified to conform with the basis of presentation used in the current year.
F-14
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
16. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the statements of income:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
$ $ $
Amortization of property, plant and equipment............................ 285,320 230,776 254,576
Amortization of deferred charges......................................... -- -- 44,172
--------- --------- ---------
285,320 230,776 298,748
--------- --------- ---------
Operating lease rentals for rental premises (net of rent received)....... 51,141 89,247 77,360
Interest expense on Bank indebtedness.................................... 26,891 33,984 40,157
Stockholders' loans...................................................... 14,696 17,241 14,965
Long-term debt........................................................... 35,537 35,008 23,059
--------- --------- ---------
77,124 86,233 78,181
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-15
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/
INTERCORP FOODS LTD.
INTERIM COMBINED FINANCIAL STATEMENTS
AS OF APRIL 30, 1997 AND 1996
(UNAUDITED)
F-16
<PAGE>
REVIEW ENGAGEMENT REPORT
To the Board of Directors and Stockholders of
Excelle Brands Food Corporation/Intercorp Foods Ltd.
We have reviewed the interim combined balance sheet of Excelle Brands Food
Corporation/Intercorp Foods Ltd. (incorporated in Canada) as at April 30, 1997
and 1996 and the interim combined statements of earnings and retained earnings
and changes financial position for the three months ended April 30, 1997 and
1996. Our review was made in accordance with generally accepted standards for
review engagements and accordingly consisted primarily of enquiry, analytical
procedures and discussion related to information supplied to us by the
companies.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that these financial statements are not, in all material respects, in
accordance with generally accepted accounting principles.
Toronto, Ontario /s/ SCHWARTZ LEVITSKY FELDMAN
June 24, 1997 Chartered Accountants
Except for note 9(b)
which is dated August 11, 1997
F-17
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
INTERIM COMBINED BALANCE SHEETS
AS OF APRIL 30, 1997
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
ASSETS $ $
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Accounts receivable (note 2)....................................... 1,020,942 706,029
Investment tax credits recoverable................................. 201,320 157,746
Inventory (note 3)................................................. 967,187 743,789
Income taxes recoverable........................................... -- 15,062
Prepaid expenses and sundry assets................................. 136,450 69,172
--------- ---------
Total current assets............................................... 2,325,899 1,691,798
PROPERTY, PLANT AND EQUIPMENT (note 4)................................. 1,405,748 1,229,770
--------- ---------
Total assets........................................................... 3,731,647 2,921,568
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
$ $
---------- ----------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 5)............................................................ 211,655 277,531
Accounts payable and accrued expenses (note 6)........................................ 1,565,713 1,043,040
Income taxes payable.................................................................. 8,985 9,850
Current portion of long-term debt..................................................... 244,531 233,786
---------- ----------
Total current liabilities............................................................. 2,030,884 1,564,207
LONG-TERM DEBT (note 7)................................................................. 549,547 564,206
DUE TO DIRECTORS (note 8)............................................................... 149,379 82,395
DUE TO PARENT COMPANY................................................................... -- 70,888
DEFERRED INCOME TAXES (note 12)......................................................... 119,726 87,320
---------- ----------
Total liabilities..................................................................... 2,849,536 2,369,016
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 9).................................................................. 160 160
RETAINED EARNINGS....................................................................... 923,164 623,886
CUMULATIVE TRANSLATION ADJUSTMENTS...................................................... (41,213) (71,494)
---------- ----------
Total stockholders' equity............................................................ 882,111 552,552
---------- ----------
Total liabilities and stockholders' equity............................................ 3,731,647 2,921,568
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
INTERIM COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED APRIL 30
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
SALES................................................................................... 2,780,557 2,309,733
Trade expenditures.................................................................. 183,431 229,042
---------- ----------
NET SALES............................................................................... 2,597,126 2,080,691
Cost of sales....................................................................... 1,749,127 1,476,460
---------- ----------
GROSS PROFIT............................................................................ 847,999 604,231
---------- ----------
OPERATING EXPENSES
Selling............................................................................. 399,054 227,368
General and administrative.......................................................... 197,031 159,791
Research and development costs (note 10)............................................ 25,372 23,054
Amortization........................................................................ 91,318 77,388
Total operating expenses............................................................ 712,775 487,601
---------- ----------
OPERATING INCOME........................................................................ 135,224 116,630
INTEREST EXPENSE........................................................................ 19,926 20,739
---------- ----------
INCOME BEFORE INCOME TAXES.............................................................. 115,298 95,891
Income taxes (note 12).............................................................. 36,145 22,055
---------- ----------
NET INCOME.............................................................................. 79,153 73,836
---------- ----------
---------- ----------
NET INCOME PER WEIGHTED AVERAGE
COMMON SHARE............................................................................ 0.03 0.02
---------- ----------
---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING (note 9(b))................................................... 3,075,000 3,075,000
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
INTERIM COMBINED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED APRIL 30
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Cash flows from operating activities:
Net Income.............................................................................. 79,153 73,836
---------- ----------
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Amortization.......................................................................... 91,318 77,388
Loss on write off of deferred change.................................................. -- --
(Increase)/decrease in accounts receivable............................................ (468,459) 17,536
(Increase)/decrease in investment tax credits......................................... (23,495) (20,164)
(Increase)/decrease in inventory...................................................... (266,727) (117,356)
(Increase)/decrease in prepaid expenses............................................... (60,741) (29,326)
Increase in accounts payable and accrued expenses..................................... 769,536 27,522
Increase in income taxes payable/recoverable.......................................... 3,368 22,175
Increase/(decrease) in deferred income taxes.......................................... -- --
---------- ----------
Total adjustments..................................................................... 44,800 (22,225)
---------- ----------
Net cash provided by operating activities................................................. 123,953 51,611
---------- ----------
Cash flows from investing activities:
Cash used to acquire property, plant and equipment.................................... (186,202) (16,273)
---------- ----------
Cash flows from financing activities:
Cash used in long-term debt repayments.............................................. (20,463) (39,778)
---------- ----------
Effect of foreign currency exchange rate changes...................................... (18,311) (22,251)
---------- ----------
Net increase (decrease) in cash and cash equivalents.................................. (101,023) (26,691)
Cash and cash equivalents (bank indebtedness)
Beginning of period................................................................. (110,632) (250,840)
---------- ----------
End of period....................................................................... (211,655) (277,531)
---------- ----------
---------- ----------
Income taxes paid (refunds received).................................................. -- (18,358)
---------- ----------
Interest paid......................................................................... 19,926 20,739
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
INTERIM COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 30
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK RETAINED TRANSLATION
NUMBER OF AMOUNT EARNINGS ADJUSTMENTS
SHARES $ $ $
----------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance as of January 30, 1997................................. 200 160 844,011 (31,929)
Foreign currency translation................................. -- -- -- (9,284)
Net income for the period.................................... -- -- 79,153 --
--- --- --------- -----------
Balance as of April 30, 1997................................... 200 160 923,164 (41,213)
--- --- --------- -----------
--- --- --------- -----------
Balance as of January 30, 1996................................. 200 160 550,050 (45,445)
Foreign currency translation................................. -- -- -- (26,049)
Net income for the period.................................... -- -- 73,836 --
--- --- --------- -----------
Balance as of April 30, 1996................................... 200 160 623,886 (71,494)
--- --- --------- -----------
--- --- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
These interim financial statements combined the accounts of two affiliated
companies and Kalmath Investments Ltd., the parent company of Excelle Brands
Food Corporation. All material inter-company accounts and transactions have been
eliminated.
B) PRINCIPLE ACTIVITIES
The companies, Excelle Brands Foods Corporation and Intercorp Foods Ltd.,
were incorporated in Canada on February 7, 1987 and December 20, 1982,
respectively. The companies are principally engaged in the production of food
products in Canada and its distribution in Canada and the U.S. The activity of
Kalmath Investments Ltd. is immaterial in the aggregate, as its only activity is
to hold the investment in Excelle Brands Food Corporation.
C) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks, and
any other highly liquid investments purchased with a maturity of three months or
less. The carrying amount approximates fair value because of the short maturity
of those instruments.
D) OTHER FINANCIAL INSTRUMENTS
The carrying amount of the companies' accounts receivable and payable
approximates fair value because of the short maturity of these instruments.
E) INVENTORY
Inventory is valued at the lower of cost and net realizable value. Cost is
determined on the first-in, first-out basis.
F) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are amortized on the
basis over their estimated useful lives at the undernoted rates and methods:
<TABLE>
<S> <C> <C>
Equipment 20% Declining balance
Leasehold improvements 10% Straight-line
Vehicle 30% Declining balance
Computer equipment 30% Declining balance
Office furniture 20% Declining balance
</TABLE>
F-22
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Amortization for assets acquired during the period are recorded at one-half
of the indicated rates, which approximates when they were put into use.
G) INCOME TAXES
The companies account for income tax under the provisions of Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Deferred
income taxes are provided using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and
liabilities.
H) FOREIGN CURRENCY TRANSLATION
The companies maintain their books and records in Canadian dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian funds at the rate of
exchange prevailing at balance sheet date. Non-monetary items are translated at
historical rates. Income and expenses are translated at the rate in effect on
the transaction dates. Transaction gains and losses are included in the
determination of earnings for the period.
The translation of the financial statements from Canadian dollars ("CDN $")
into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using closing exchange rates in effect at
the balance sheet date and income and expenses accounts are translated using an
average exchange rate prevailing during each reporting period. No representation
is made that the Canadian dollar amounts could have been or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholders' equity.
I) SALES
Sales represent the invoiced value of goods supplied to customers. Sales are
recognized upon delivery of goods and passage of title to customers.
J) GOVERNMENT ASSISTANCE AND INVESTMENT TAX CREDITS
Government assistance and investment tax credits are recorded on the accrual
basis and are accounted for as a reduction of the related current or capital
expenditures.
K) NET INCOME PER WEIGHTED AVERAGE COMMON SHARE
Net income per common share is computed by dividing net income for the
period by the weighted average number of common shares outstanding during the
period.
F-23
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L) USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
M) ACCOUNTING CHANGES
On February 1, 1996, the company adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. SFAS No. 121 requires that long-lived assets to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicates that the carrying amount of an asset may not be
recoverable. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995. Adoption of SFAS No. 121 did not have a
material impact on the company's results of operations.
In December 1995, SFAS No. 123, Accounting for Stock-Based Compensation, was
issued. It introduces the use of a fair value-based method of accounting for
stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for stock-based compensation to employees based
on the new fair value accounting rules. Companies that choose not to adopt the
new rules will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. However, SFAS No. 123 requires companies that choose not to adopt the
new fair value accounting rules to disclose pro forma net income and earnings
per share under the new method. SFAS No. 123 is effective for financial
statements for fiscal years beginning after December 15, 1995. The Company has
adopted the disclosure provisions of SFAS No. 123 [see Note 15(b)].
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
$ $
Accounts receivable................................................... 1,037,099 713,491
Less: Allowance for doubtful accounts................................. 16,157 7,462
---------- ---------
Accounts receivable, net.............................................. 1,020,942 706,029
---------- ---------
---------- ---------
</TABLE>
F-24
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
3. INVENTORY
Inventory comprised the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Raw materials........................................................... 240,723 255,663
Finished goods.......................................................... 726,464 488,126
--------- ---------
967,187 743,789
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Equipment........................................................... 2,477,019 2,028,295
Leasehold improvements.............................................. 340,519 325,729
Vehicle............................................................. 51,339 46,865
Computer equipment.................................................. 88,525 66,938
Office furniture.................................................... 90,381 86,204
---------- ----------
Cost.............................................................. 3,047,780 2,554,201
---------- ----------
Less: Accumulated amortization
Equipment......................................................... 1,360,241 1,089,932
Leasehold improvements............................................ 122,805 93,138
Vehicle........................................................... 45,103 42,697
Computer equipment................................................ 52,055 53,128
Office furniture.................................................. 61,828 45,536
---------- ----------
1,642,032 1,324,431
---------- ----------
Net................................................................. 1,405,748 1,229,770
---------- ----------
---------- ----------
</TABLE>
5. BANK INDEBTEDNESS
Bank indebtedness bears interest at the bank's prime rate plus 1 1/2% per
annum and also comprises an operating loan which revolves in multiples of
$18,500. These are secured by an assignment of book debts, a general security
agreement, guarantees of the shareholder and directors of Excelle Brands Food
Corporation, a fixed charge on equipment, a pledge of inventory, assignment of
fire insurance, assignment of life insurance on the lives of the directors, a
charge against property of a director and a postponement of amounts due to
directors.
The affiliated companies have a centralized banking transfer of funds
agreement wherein the companies maintain a number of operating current accounts
and overdraft facilities with a single bank in order to facilitate their banking
transactions. In determining the balance upon which interest is charged and
lending limits and covenants are measured, the bank notionally consolidates all
cash and overdraft balances on a net basis.
F-25
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Accounts payable and accrued expenses comprised the following:
Trade payable..................................................... 519,440 640,403
Accrued expenses.................................................. 1,046,273 402,637
---------- ----------
1,565,713 1,043,040
---------- ----------
---------- ----------
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<C> <S> <C> <C>
$ $
a) Ontario Development Corporation Loans
Ontario Development Corporation loan under the Food Industry Financial Assistance
Program. Effective on October 23, 1996 the loan is repayable in blended monthly
payments of $3,100 principal and interest at 8% per annum, due October, 1999........ 160,731 180,996
Ontario Development Corporation loan under the Food Industry Financial Assistance
Program. The loan is repayable in blended monthly payments of $1,600 principal and
interest at 6 1/2% per annum, due October, 1999..................................... 40,576 61,647
b) Business Development Bank Loan
Business Development Bank loan, repayable in blended monthly payments of $1,200
principal and interest at the floating commercial and industrial loan interest rate
plus 2 1/2% per annum, due August, 2001............................................. 61,391 --
c) Bank Term Loans
Commercial Investment Loan, repayable monthly, $1,000 principal plus interest at the
bank's prime rate plus 1 1/2% per annum, repaid in full during the year............. -- 137
Commercial Investment Loan, repayable monthly, $3,100 principal plus interest at the
bank's prime rate plus 1 1/2% per annum, due October, 1998.......................... 53,653 91,769
d) Capital Loans
Capital loan, repayable monthly, $2,700 principal plus interest at the bank's prime
rate plus 1 1/2% per annum, due June, 2001.......................................... 134,159 161,527
Capital loan, repayable monthly, $2,000 principal plus interest at the bank's prime
rate plus 1 1/2% per annum, due November, 2002...................................... 149,161 --
</TABLE>
F-26
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
7. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
$ $
<C> <S> <C> <C>
e) Accounts payable under settlement agreements, non-interest bearing, with monthly
payments of approximately $8,700 until January, 1999................................ 194,408 301,916
--------- ---------
794,078 797,992
Less: Current portion............................................................... 244,531 233,786
--------- ---------
549,547 564,206
--------- ---------
--------- ---------
</TABLE>
f) Bank term loans are secured by the security as described in note 5.
g) Ontario Development Corporation loans are secured by a first and fixed
mortgage charge on specific equipment and a floating charge on all other assets.
h) Business Development Bank loan is secured by a general security
agreement, assignment of claims and an assignment of insurance on specific
assets.
i) Capital loan is secured by a second and fixed mortgage charge on
specific equipment and a postponement of amounts due to directors and an
assignment of life insurance on the life of a director.
j) Capital loan is secured by a first and fixed mortgage charge on specific
equipment and a floating charge on all other assets.
k) Future principal payment obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
1997............................................................. -- 233,786
1998............................................................. 244,531 311,287
1999............................................................. 238,875 161,492
2000............................................................. 202,715 67,399
2001............................................................. 93,957 24,028
2002............................................................. 14,000 --
---------- ----------
794,078 797,992
---------- ----------
---------- ----------
</TABLE>
8. DUE TO DIRECTORS
The amounts due to directors are unsecured, bear interest at the directors'
effective borrowing rate, are without any specific repayment terms, and are not
expected to be repaid prior to April 1, 1998. The directors' effective borrowing
rate is the same as the Canadian bank prime rate, which at April 30, 1997 was
4.75%
F-27
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
9. CAPITAL STOCK
a) Authorized
An unlimited number of the following classes of shares without par value
Class A Preference shares, 12% non-cumulative, non-participating,
non-voting, redeemable at the paid-up amount
Class B Special shares, non-cumulative, participating, non-voting,
redeemable at the paid-up amount
Common shares
Issued
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
$ $
200 Common shares............................................................... 160 160
--- ---
--- ---
</TABLE>
b) Weighted Average Number of Common Shares
On April 16, 1997, a newly incorporated holding company, Intercorp Excelle
Inc. (the "Registrant"), was formed by the shareholders of the companies for the
purpose of consolidating their 100% ownership interests in anticipation of an
initial public offering. The initial capitalization consisted of 300 common
shares.
For the purpose of determining earnings per share, the weighted average
number of common shares has been presented on a pro-forma basis, giving effect
to the following subsequent events:
i) In May 1997, the registrant completed a private placement of its
securities in which it sold 12% promissory bridge notes in the aggregate
principal amount of $625,000, 175,000 common shares and 175,000
redeemable common share bridge warrants for gross proceeds of $625,000.
The net proceeds of this private placement of $543,750 will be used to
pay bank loans and trade payables of the companies and a portion of the
initial expenses of the planned initial public offering.
ii) Subsequent to the above noted bridge financing, the shareholders of the
companies completed the transfer of all of the outstanding common
shares of the companies to the Registrant in exchange for 2,899,700
common shares of that company.
After giving effect to the above transactions, there are 3,075,000 issued
and outstanding common shares of the Registrant. Accordingly, the total weighted
average number of common shares as presented on a pro-forma basis is 3,075,000.
F-28
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
10. RESEARCH AND DEVELOPMENT COSTS
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Research and development costs are comprised of:
Expenses incurred........................................................ 47,258 43,218
Less: Investment tax credits............................................. (21,886) (20,164)
--------- ---------
Net expense.............................................................. 25,372 23,054
--------- ---------
--------- ---------
</TABLE>
11. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<C> <S> <C> <C>
$ $
a) Current............................................................ 36,145 16,156
Deferred........................................................... -- (5,899)
--------- ---------
36,145 22,055
--------- ---------
--------- ---------
b) Current income taxes consists of:
Amount calculated at basic Federal and Provincial rates............ 20,151 18,797
Increase (decrease) resulting from:
Application of losses carried forward from prior year............ -- --
Operating loss for which no current income tax benefit is
recognized....................................................... -- --
Investment tax credits........................................... -- --
Permanent and other differences.................................. 3,684 3,258
Timing differences............................................... 12,310 (5,899)
--------- ---------
36,145 16,156
--------- ---------
</TABLE>
c) Deferred income taxes represent the tax benefits derived from timing
differences between amortization of plant and equipment charged to
operations and amounts deducted from taxable income.
12. SALES TO MAJOR CUSTOMERS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Sales to major customers............................................ 597,750 247,873
% of total sales.................................................... 26.9% 13.9%
</TABLE>
F-29
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
12. SALES TO MAJOR CUSTOMERS (CONTINUED)
The breakdown of sales by geographic area is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$ $
Canada.............................................................. 2,013,157 1,596,656
United States of America............................................ 209,468 187,160
---------- ----------
2,222,625 1,783,816
---------- ----------
---------- ----------
</TABLE>
13. MINIMUM LEASE COMMITMENTS
Minimum payments under an operating lease for premises amount to keep
$81,000, exclusive of insurance and other occupancy charges. The lease expires
June 30, 2000. The future minimum lease payments over the next four years are as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Payable during the following periods:
Within one year......................................................... 76,918 84,435
Over 1 year but not exceeding 2 years................................... 75,129 78,928
Over 2 years but not exceeding 3 years.................................. 75,129 77,093
Over 3 years but not exceeding 4 years.................................. 12,521 77,093
Over 4 years but not exceeding 5 years.................................. -- 12,849
--------- ---------
239,697 330,398
--------- ---------
--------- ---------
</TABLE>
The companies have sub-leased a portion of the premises for approximately
$24,000 per annum in renewable one year terms for a period of three years.
14. OTHER SUPPLEMENTAL INFORMATION
The following items were included in the statements of income:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$ $
Amortization of property, plant and equipment.............................. 91,318 77,388
Amortization of deferred charges........................................... -- --
--------- ---------
91,318 77,388
--------- ---------
--------- ---------
Operating lease rentals for rental premises (net of rent received)......... 12,785 22,312
--------- ---------
--------- ---------
Interest expense on
Bank indebtedness........................................................ 4,094 6,422
Stockholders' loans...................................................... 3,674 4,310
Long-term debt........................................................... 12,158 10,007
--------- ---------
19,926 20,739
--------- ---------
</TABLE>
F-30
<PAGE>
EXCELLE BRANDS FOOD CORPORATION/INTERCORP FOODS LTD.
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN US DOLLARS)
(UNAUDITED)
15. STOCK OPTION PLAN
A) DESCRIPTION OF PLAN
In May 1997, the board of directors and shareholders adopted the Intercorp
Excelle Inc. Stock Option Plan (the "1997 Plan"), pursuant to which 500,000
shares of Common Stock are reserved for issuance.
The 1997 Plan will be administered by the compensation committee or the
board of directors, who determine among other things, those individuals who
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of Common Stock issuable upon the
exercise of the options and the option exercise price.
The 1997 Plan is for a period of ten years, expiring in May, 2007. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the Company. Options
granted under the 1997 Plan may be exercisable for up to ten years, may require
vesting, and shall be at an exercise price all as determined by the board.
Options are non-transferable except by the laws of descent and distribution or a
change in control of the Company, as defined in the 1997 Plan, and are
exercisable only by the participant during his or her lifetime. Change in
control includes (i) the sale of substantially all of the assets of the Company
and merger or consolidation with another, or (ii) a majority of the board
changes other than by election by the shareholders pursuant to board
solicitation or by vacancies filled by the board caused by death or resignation
of such person.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 70, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other termination gives the participant three months to
exercise, except for termination for cause which results in immediate
termination of the option.
Options granted under the 1997 Plan, at the discretion of the compensation
committee or the board, may be exercised either with cash, Common Stock having a
fair market equal to the cash exercise price, the participant's personal
recourse note, or with an assignment to the Company of sufficient proceeds from
the sale of the Common Stock acquired upon exercise of the Options with an
authorization to the broker or selling agent to pay that amount to the Company,
or any combination of the above.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the 1997 Plan.
The 1997 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1997 Plan may not be
increased without the consent of the shareholders of the Company.
In May 1997, the Board granted 200,000 Options under the 1997 Plan to five
individuals, including officers, directors and key employees. The options are
exercisable at $3.50 per share for ten years expiring May 1, 2007. 40% of the
Options are immediately exercisable, an additional 30% become exercisable in May
1998 and all of the Options are exercisable in November 1998.
B) APPLICATION OF SFAS 123: ACCOUNTING FOR STOCK-BASED COMPENSATION
No pro-forma calculation of compensation cost has been performed as of the
date of these financial statements as the options were granted subsequent to the
period end of these financial statements and there is no public market for the
company's shares at this time. A proforma calculation is not considered
meaningful or practical to provide at this time.
F-31
<PAGE>
INTERCORP EXCELLE INC.
FINANCIAL STATEMENT
AS OF APRIL 30, 1997
TOGETHER WITH AUDITORS' REPORT
F-32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Intercorp Excelle Inc.
We have audited the accompanying balance sheet of Intercorp Excelle Inc.
(incorporated in Canada) as at April 30, 1997. This financial statement is the
responsibility of the management of Intercorp Excelle Inc. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Intercorp Excelle Inc. as at
April 30, 1997, in conformity with generally accepted accounting principles in
the United States of America.
Toronto, Ontario
August 18, 1997
/s/ SCHWARTZ LEVITSKY FELDMAN
Chartered Accountants
F-33
<PAGE>
INTERCORP EXCELLE INC.
BALANCE SHEET
AS AT APRIL 30, 1997
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash............................................................................... $ 220
---------
---------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 3)............................................................... $ 220
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-34
<PAGE>
INTERCORP EXCELLE INC.
NOTES TO FINANCIAL STATEMENT
AS AT APRIL 30, 1997
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
1. INCORPORATION AND ACTIVITY
The company was incorporated under the laws of the Province of Ontario,
Canada on April 16, 1997. The company was formed by the shareholders for the
purpose of consolidating their 100% ownership interests in Intercorp Foods Ltd.
and Kalmath Investments Limited, the parent of Excelle Brands Food Corporation,
in anticipation of an initial public offering [see note 4(b)]. The principal
activity of the companies to be acquired is to engage in the production of food
products in Canada and the distribution of these food products in Canada and the
U.S.
The company is inactive up to the date of this financial statement.
It is expected that the fiscal year end will be January 31, in order to
coincide with the fiscal year end of the operating entities to be acquired.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from and to
banks, and any other highly liquid investments purchased with a maturity period
of three months or less. The carrying amount approximates fair value because of
the short maturity of those instruments.
b) Foreign Currency Translation
The company maintains its books and records in Canadian dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated into Canadian dollars at the rate of
exchange prevailing at balance sheet date. Non-monetary items are translated at
historical rates. Income and expenses are translated at the rate in effect on
the transaction dates. Translation gains and losses are included in the
determination of earnings for the year.
The translation of the financial statement from Canadian dollars ("CDN $")
into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using the closing exchange rate in effect
at the balance sheet date and income and expenses accounts are translated using
an average exchange rate prevailing during each reporting period. No
representation is made that the Canadian dollar amounts could have been or could
be, converted into United States dollars at the rates on the respective dates
and/or at any other certain rates. Adjustments resulting from the translation
are included in the cumulative translation adjustments in stockholders' equity.
c) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
d) Accounting Charges
The company has adopted the provisions of SFAS No. 121,--"Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS No. 121 requires that long-lived assets to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
F-35
<PAGE>
INTERCORP EXCELLE INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
AS AT APRIL 30, 1997
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
indicates that the carrying amount of an asset may not be recoverable. This
statement is effective for financial statements for fiscal years beginning after
December 15, 1995.
In December 1995, SFAS No. 123,--"Accounting for Stock-Based Compensation",
was issued. It introduced the use of a fair value-based method of accounting for
stock-based compensation. It encourages, but does not require, companies to
recognize compensation expense for stock-based compensation to employees based
on the new fair value accounting rules. Companies that choose not to adopt the
new rules will continue to apply the existing accounting rules contained in
Accounting Principles Board Opinion No. 25,--"Accounting for Stock Issued to
Employees". However, SFAS No. 123 requires companies that choose not to adopt
the new fair value accounting rules to disclose pro forma net income and
earnings per share under the new method. SFAS No. 123 is effective for financial
statements for fiscal years beginning after December 15, 1995. The company has
adopted the disclosure provisions of SFAS No. 123 [see Note 4(d)].
3. CAPITAL STOCK
AUTHORIZED
An unlimited number of common and preference shares
The preference shares are issuable in series upon approval by the directors
with the appropriate designation, rights, privileges and conditions attaching to
each shares of such series.
ISSUED
<TABLE>
<S> <C>
300 Common shares.................................................... $ 220
---------
---------
</TABLE>
4. SUBSEQUENT EVENTS
a) Private Placement Bridge Financing
In May 1997, the company completed a private placement of its securities in
which it sold 12% promissory bridge notes in the aggregate principal amount of
$625,000, 175,000 common shares and 175,000 redeemable common share bridge
warrants for gross proceeds of $625,000. The net proceeds of this private
placement of $543,750 will be used to pay bank loans and trade payables of
Excelle Brands Food Corporation and Intercorp Foods Ltd. and a portion of the
initial expenses of the initial planned offering.
The principal and accrued interest on the promissory bridge notes are due
and payable upon the earlier of 18 months from the issue or a public equity or
debt offering by the company.
Each of the 175,000 common share bridge warrants entitle the holder to
purchase one common share for $3.75 per share for a period of four years. The
warrants are redeemable by the company at $0.10 per warrant in the event the
company does not complete an initial public offering of its securities by
December 31, 1997.
F-36
<PAGE>
INTERCORP EXCELLE INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
AS AT APRIL 30, 1997
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
4. SUBSEQUENT EVENTS (CONTINUED)
The 175,000 common shares are also redeemable at $0.50 per share if the
company does not complete a public offering of its securities by December 31,
1997.
The combined redemption price for the 175,000 common shares and 175,000
warrants issued in conjunction with the private placement is $105,000, in the
event that a public offering is not completed. This amount will be accounted for
as a financing expense during the company's fiscal year. In the event that a
public offering is completed, the difference between the then offering price and
the redemption price will be accounted for as a share issuance cost and deducted
from the share capital raised from such an offering.
b) Share Purchase Acquisition
On May 22, 1997, the shareholders transferred their 100% ownership interests
in Kalmath Investments Limited and Intercorp Foods Ltd. to the company in
exchange for the issuance of 2,899,700 common shares, resulting in a total of
3,075,000 issued common shares.
c) Stock Option Plan
In May, 1997, the board of directors and shareholders adopted the Intercorp
Excelle Inc. Stock Option Plan (the "1997 Plan"), pursuant to which 500,000
shares of Common Stock are reserved for issuance.
The 1997 Plan will be administered by the compensation committee or the
board of directors, who will determine, those individuals who shall receive
options, the time period during which the options may be partially or fully
exercised, the number of shares of Common Stock issuable upon the exercise of
the options and the option exercise price.
The 1997 Plan is for a period for ten years, expiring in May, 2007. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the Company. Options
granted under the 1997 Plan may be exercisable for up to ten years, may require
vesting, and shall be at an exercise price as determined by the board. Options
are non-transferable except by the laws of descent and distribution or a change
in control of the Company, as defined in the 1997 Plan, and are exercisable only
by the participant during his or her lifetime. Change in control includes (i)
the sale of substantially all of the assets of the Company and merger or
consolidation with another, or (ii) a majority of the board changes other than
by election by the shareholders pursuant to board solicitation or by vacancies
filled by the board caused by death or resignation of such person.
If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 70, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other termination gives the participant three months to
exercise, except for termination for cause which results in immediate
termination of the option.
Options granted under the 1997 Plan, at the discretion of the compensation
committee or the board, may be exercised either with cash, Common Stock having a
fair market equal to the cash exercise price, the participant's personal
recourse note, or with an assignment to the Company of sufficient proceeds from
the sale of the Common Stock acquired upon exercise of the Options with an
authorization to the broker or selling agent to pay that amount to the Company,
or any combination of the above.
F-37
<PAGE>
INTERCORP EXCELLE INC.
NOTES TO FINANCIAL STATEMENT (CONTINUED)
AS AT APRIL 30, 1997
(AMOUNTS EXPRESSED IN U.S. DOLLARS)
4. SUBSEQUENT EVENTS (CONTINUED)
Any unexercised options that expire or terminate upon an employee's ceasing
to be employed by the Company become available again for issuance under the 1997
Plan.
The 1997 Plan may be terminated or amended at any time by the board of
directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the 1997 Plan may not be
increased without the consent of the shareholders of the Company.
In May 1997, the Board granted 200,000 Options under the 1997 Plan to five
individuals, including officers, directors and key employees. The options are
exercisable at $3.50 per share for ten years expiring May 1, 2007. 40% of the
Options are immediately exercisable, an additional 30% become exercisable in May
1998 and all the Options are exercisable in November 1998.
d) Application of SFAS 123: Accounting for Stock-Based Compensation
As of the date of this financial statement, there is no public market for
the company's shares. As such, a pro-forma calculation of compensation cost
relating to the stock options granted subsequent to the period end is not
considered meaningful or practical to provide at this time.
5. PRO-FORMA INFORMATION
The pro-forma combined balance sheet as of April 30, 1997 for Intercorp
Excelle Inc. giving retroactive effect to the acquisitions referred to in note
4(b) is as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
------------
<S> <C>
ASSETS
Current assets...................................................................................... $ 2,326,119
Property, plant and equipment....................................................................... 1,405,748
Total Assets.................................................................................... $ 3,731,867
LIABILITIES
Current liabilities................................................................................. $ 2,030,884
Long-term debt...................................................................................... 549,547
Due to directors.................................................................................... 149,379
Deferred income taxes............................................................................... 119,726
Total Liabilities............................................................................... 2,849,536
STOCKHOLDERS' EQUITY
Capital stock....................................................................................... 380
Retained earnings................................................................................... 923,164
Cumulative translation adjustments.................................................................. (41,213)
Total Stockholders' Equity...................................................................... 882,331
Total Liabilities and Stockholders' Equity...................................................... $ 3,731,867
</TABLE>
F-38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE AND REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary...............................
Risk Factors.....................................
Use of Proceeds..................................
Dividend Policy..................................
Capitalization...................................
Dilution.........................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations............
Business.........................................
Management.......................................
Principal Stockholders and Selling
Securityholders................................
Certain Transactions.............................
Description of Securities........................
Shares Eligible for Future Sale..................
Certain United States Federal Income Tax
Considerations.................................
Investment Canada Act............................
Underwriting.....................................
Legal Opinions...................................
Experts..........................................
Additional Information...........................
Indemnification for Securities Act Liabilities...
Financial Statements............................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS AFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. IN
ADDITION, DEALERS ARE OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
INTERCORP EXCELLE INC.
1,065,000 SHARES OF COMMON STOCK
1,065,000 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS
SHARPE CAPITAL, INC.
AEGIS CAPITAL CORP.
---------------------
PROSPECTUS
---------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The by-laws of the Company provide that the Company shall indemnify
directors and officers of the Company. The pertinent section of Canadian law is
set forth below in full. In addition, upon effectiveness of this registration
statement, management intends to obtain officers and directors liability
insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission (the
"Commission") with respect to the effect of any indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
Section 136 of the Canadian Business Corporation Act provides as follows:
(1) INDEMNIFICATION OF DIRECTORS-A corporation may indemnify a director
or officer of the corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request as a
director or officer of a body corporate of which the corporation is or was a
shareholder or creditor, and his or her heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him or her in
respect of any civil, criminal or administrative action or proceeding to
which he or she is a party by reason of being or having been a director or
officer of such corporation or body corporate, if,
(a) he or she acted honestly and in good faith with a view to the
best interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he or she has reasonable grounds
for believing that his or her conduct was lawful.
(2) INDEM.-A corporation may, with the approval of the court, indemnify
a person referred to in subsection (1) in respect of an action by or behalf
of the corporation or body corporate to procure a judgment n its favor, to
which the person is made a party by reason of being or having been a
director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by the person in connection
with such action if he or she fulfills the conditions set out in clauses
(1)(a) and (b).
(3) IDEM.-Despite anything in this section, a person referred to in
subsection (1) is entitled to indemnity from the corporation in respect of
all costs, charges and expenses reasonably incurred by him in connection
with the defense of any civil, criminal or administrative action or
proceeding to which he or she is made a party by reason of being or having
been a director or officer of the corporation or body corporate, if the
person seeking indemnity;
(a) was substantially successful on the merits in his or her defense
of the action or proceeding; and
(b) fulfills the conditions set out in clauses (1)(a) and (b).
(4) LIABILITY INSURANCE-A corporation may purchase and maintain
insurance for the benefit of any person referred to in subsection (1)
against any liability incurred by the person,
(a) in his or her capacity as a director or officer of the
corporation, except where the liability relates to the person's failure
to act honestly and in good faith with a view to the best interests of
the corporation; or
II-1
<PAGE>
(b) in his or her capacity as a director or officer of another body
corporate where the person acts or acted in that capacity at the
corporation's request, except where the liability relates to the person's
failure to act honestly and in good faith with a view to the best
interests of the body corporate.
(5) APPLICATION TO COURT-A Corporation or a person referred to in
subsection 91) may apply to the court for an order approving an indemnity
under this section and the court may so order and make any further order it
thinks fit.
(6) IDEM-Upon application under subsection (5), the court may order
notice to be given to any interested person and such person is entitled to
appear and be heard in person or by counsel.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by the
Company in connection with the issuance and distribution of the securities being
registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................................... $ 4,333.94
NASD Filing Fee................................................................ 1,897.70
Nasdaq Listing Fees*........................................................... 15,000.00
BSE Listing Fees*.............................................................. 10,000.00
Printing Engraving Expenses*................................................... 75,000.00
Legal Fees and Expenses*....................................................... 125,000.00
Accounting Fees and Expenses*.................................................. 60,000.00
Blue Sky Fees and Expenses*.................................................... 17,500.00
Transfer Agent and Registrar Fees and Expenses*................................ 3,500.00
Non-accountable Expense Allowance.............................................. 153,195.00
Miscellaneous*................................................................. 9,573.36
Total.................................................................... $475,000.00
</TABLE>
- ------------------------
*estimate
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years the Company has issued securities to a limited
number of persons as described below. Except as indicated, there were no
underwriters involved in the transactions and there were no underwriting
discounts or commissions paid in connection therewith.
In April 1997, the Company issued an aggregate of 2,900,000 shares of its
Common stock to Arnold Unger, Renee Unger, Lori Gutmann, Alysee Unger and Karen
Unger in exchange for all of the outstanding capital stock of Kalmath
Investments Limited and Intercorp Foods Ltd. The issuance was exempt from
registration under Section 4(2) of the Act.
In May 1997, the Company sold to 26 investors an aggregate of $625,000 12%
promissory notes, 175,000 shares of Common Stock and 175,000 redeemable common
stock purchase warrants. The warrants are exercisable to purchase 175,000 shares
of Common Stock at $3.75 per share or are exchangeable for warrants identical to
the warrants being offered by the Company in the Offering. The Underwriters
placed the securities and received 10% placement agent fees. The sale of
securities was exempt from registration pursuant to Rule 506 under Section 4(2)
of the Act.
In May 1997, the Company granted options to purchase an aggregate 200,000
shares of Common Stock under its 1997 Stock Option Plan to five of its officers
and directors. The transaction was exempt from registration under Section 4(2)
of the Act.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement(1)
1.2 Form of Selected Dealers Agreement(1)
1.3 Form of Agreement Among Underwriters(1)
3.1 Articles of Incorporation of the Registrant*
3.2 By-laws of Registrant*
4.1 Form of Underwriters' Warrant(1)
4.2 Form of Warrant Agreement(1)
4.3 Specimen Common Stock Certificate*
4.4 Specimen Redeemable Common Stock Purchase Warrant Certificate*
5.1 Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP*
5.2 Opinion of Wildeboer Rand Thomson Apps & Dellelce*
10.1 Form of Consulting Agreement with Underwriters(1)
10.2 1997 Stock Option Plan*
10.3 Lease of Company's Facilities*
10.4 Employment Agreement with Arnold Unger*
10.5 Employment Agreement with Renee Unger*
10.6 Business Development Bank of Canada Note*
10.7 National Bank of Canada Revolving Demand Credit Facility*
21.1 List of Subsidiaries of Registrant(1)
23.1 Consent of Schwartz Levitsky Feldman, independent auditors(1)
23.2 Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP (incorporated into
Exhibit 5.1)*
23.3 Consent of Wildeboer Rand Thomson Apps & Dellelce*
</TABLE>
- ------------------------
(1) Filed with Amendment No. 1
* to be filed by amendment.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law, contract arrangements,
statute, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i)To include any
Prospectus required by section 10(a)(3) of the Act; (ii)To reflect in the
Prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement; (iii)To include any
material information with respect to the plan of distribution not
II-3
<PAGE>
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the Offering of
such securities at that time shall be deemed to be the initial bona fide
Offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(4) For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of Prospectus
filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h),
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(5) For determining any liability under the Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement at that time as the initial bona fide Offering of
those securities.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Amendment No. 1 to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Province of Ontario, Canada on August 21, 1997.
<TABLE>
<S> <C>
INTERCORP EXCELLE INC.
By: /s/ ARNOLD UNGER
----------------------------------------
Arnold Unger
EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Act, this Amendment No. 1 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned officers and directors of INTERCORP EXCELLE INC. hereby
severally constitute and appoint Arnold Unger, our true and lawful
attorney-in-fact and agent with full power of substitution for us and in our
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and all documents
relating thereto, and to file the same, with all 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 and
perform each and every act and thing necessary or advisable to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
/s/ ARNOLD UNGER Co-Chairman, Chief Executive Officer
------------------------------------------- August 21, 1997
Arnold Unger
/s/ RENEE UNGER Co-Chairman, President
------------------------------------------- August 21, 1997
Renee Unger
/s/ FRED BURKE Director, Chief Operating Officer, Chief Financial
------------------------------------------- Officer/Principal Accounting Officer, Secretary August 21, 1997
Fred Burke
/s/ LORI GUTMANN Director
------------------------------------------- August 21, 1997
Lori Gutmann
/s/ ALYSSE UNGER Director
------------------------------------------- August 21, 1997
Alysse Unger
Director
-------------------------------------------
John Rothschild
Director
-------------------------------------------
Taketo Murata
</TABLE>
* Executed by Arnold Unger as attorney-in-fact pursuant to the power of
attorney executed on July 2, 1997.
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement(1)
1.2 Form of Selected Dealers Agreement(1)
1.3 Form of Agreement Among Underwriters(1)
3.1 Articles of Incorporation of the Registrant*
3.2 By-laws of Registrant*
4.1 Form of Underwriters' Warrant(1)
4.2 Form of Warrant Agreement(1)
4.3 Specimen Common Stock Certificate*
4.4 Specimen Redeemable Common Stock Purchase Warrant Certificate*
5.1 Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP*
5.2 Opinion of Wildeboer Rand Thomson Apps & Dellelce*
10.1 Form of Consulting Agreement with Underwriters(1)
10.2..... 1997 Stock Option Plan*
10.3 Lease of Company's Facilities*
10.4 Employment Agreement with Arnold Unger*
10.5 Employment Agreement with Renee Unger*
10.6 Business Development Bank of Canada Note*
10.7 National Bank of Canada Revolving Demand Credit Facility*
21.1 List of Subsidiaries of Registrant(1)
23.1 Consent of Schwartz Levitsky Feldman, independent auditors(1)
23.2 Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP (incorporated into
Exhibit 5.1)*
23.3 Consent of Wildeboer Rand Thomson Apps & Dellelce*
</TABLE>
- ------------------------
(1) Filed with Amendment No. 1
* to be filed by amendment.
<PAGE>
Exhibit 1.1
INTERCORP EXCELLE INC.
1,000,000 Shares of Common Stock and
1,000,000 Redeemable
Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
June __, 1997
Sharpe Capital, Inc.
120 Broadway, 28th Floor
New York, New York 10005
Dear Sirs:
Intercorp Excelle Inc., a Canadian corporation (the "Company"),
hereby confirms its agreement with Sharpe Capital, Inc. (the
"Representative") and Aegis Capital Corporation. ("Aegis" and collectively
with the Representative, the "Underwriters") as follows:
1. Description of the Securities.
The Company proposes to issue and sell to the Underwriters 1,000,000
shares of common stock, no par value per share (the "Common Stock"), and
1,000,000 redeemable Common Stock purchase warrants (the "Warrants," and
collectively with the Common Stock, the "Securities") in the amounts set
forth on Schedule A hereto. Each Warrant shall entitle to the holder to
purchase one share of Common Stock for $6.00, subject to adjustment. The
Company proposes to grant to the Underwriters an option to purchase up to
150,000 additional shares of Common Stock and up to an additional 150,000
Warrants (the "Additional Securities"). The offering of Securities and
Additional Securities contemplated hereby may sometimes be referred to as the
"Offering."
(a) The Warrants.
The Warrants are exercisable from the effective date of the
Registration Statement, as defined in Paragraph 2(a) (the "Effective Date"),
until expiration four years thereafter, subject to prior redemption by the
Company. The Warrants will be exercisable at $6.00 per share and expire on
_______, 2001. The shares of Common Stock issuable upon the exercise of the
Warrants are hereinafter referred to as the "Warrant Shares."
<PAGE>
The Warrants will be redeemable at a price of $.10 per Warrant,
commencing 12 months after the Effective Date ( or earlier with the consent
of the Representative) and prior to their expiration upon written notice
given within 30 days after 20 consecutive business days ending on the third
day prior to the date the notice of redemption is given during which the
Common Stock maintains a per share closing bid price (or closing sales price
if listed on an exchange or on a reporting system that provides last sales
prices) at least equal to 150% of the then current Warrant exercise price
(initially $9.00 per share, subject to adjustment), subject to the right of
the holder to exercise his purchase rights thereunder until redemption.
(b) Underwriters' Securities.
The Company will sell to the Underwriters, for $10.00, a
warrant to purchase an amount equal to ten percent 10% of the Common Stock
and Warrants sold in this Offering excluding the Additional Securities (a
maximum of 100,000 shares of Common Stock and Warrants) (the" Underwriters'
Warrants," and collectively with the Securities underlying the Underwriters'
Warrants, the "Underwriters' Securities"). The Warrants underlying the
Underwriters' Warrants shall be exercisable at a price of $6.00 per Warrant.
The Underwriters' Securities shall be non-exercisable and non-transferable
(other than to (i) officers of the Underwriters, and (ii) members of the
selling group and their officers or partners) for a period of 12 months
following the Effective Date. Thereafter, they are exercisable and
transferable for a period of four years. If the Underwriters' Securities are
not exercised during their term, they shall, by their terms, automatically
expire. The Underwriters' Securities shall be registered for sale to the
public and shall be included in the Registration Statement filed in
connection with the Offering.
2. Representations and Warranties of the Company.
The Company represents and warrants to the Underwriters that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement on Form SB-2 (File
No. 333-_____), including any related preliminary prospectus ("Preliminary
Prospectus"), for the registration of the Securities under the Securities Act
of 1933 (the "Act"). The Company will file further amendments to said
registration statement in the form to be delivered to you and will not,
before the registration statement becomes effective, file any other amendment
thereto to which you shall have objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the
time the registration statement becomes effective (including the prospectus,
financial statements, exhibits and all other documents filed as a part
thereof or incorporated therein), is hereinafter called the "Registration
Statement", and the prospectus, in the form filed with the Commission
pursuant to Rule 424(b) of the General Rules and Regulations of the
Commission under the Act (the "Regulations") or, if no such filing is made,
the definitive prospectus used in the Offering, is hereinafter called the
"Prospectus." The Company has delivered to you copies of each Preliminary
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Prospectus as filed with the Commission and has consented to the use of such
copies for purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects with the requirements of
the Act and has not included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading, subject to the provisions set forth below and
to except as such untrue statement or omission has been cured in the a
subsequent preliminary prospectus or in the final prospectus.
(c) When the Registration Statement becomes effective under
the Act and at all times subsequent thereto including the Closing Date
(hereinafter defined) and the Option Closing Date (hereinafter defined) and
for such longer periods as in the opinion of counsel for the Underwriters, a
Prospectus is required to be delivered in connection with the sale of the
Securities by the Underwriters, the Registration Statement and Prospectus,
and any amendment thereof or supplement thereto, will contain all material
statements which are required to be stated therein in accordance with the Act
and the Regulations, and will in all material respects conform to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty does not
apply to statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by you, or by any of the Selling
Shareholders, for use in connection with the preparation of the Registration
Statement or Prospectus, or in any amendment thereof or supplement thereto.
It is understood that the statements set forth under the heading
"Underwriting" in the Prospectus with respect to (i) the amounts of the
selling concession and reallowance; (ii) the identity of counsel to the
Underwriters under the heading "Legal Matters"; and (iii) the information
concerning the NASD affiliation of the Underwriters, constitute the only
information supplied by you for use in the Registration Statement or
Prospectus.
(d) The Company is, and at the Closing Date and the Option
Closing Date will be, a corporation duly organized, validly existing and in
good standing under the laws of the Province of Ontario, Canada. The Company
is duly qualified or licensed and in good standing as a foreign corporation
in each jurisdiction in which its ownership or leasing of any properties or
the character of its operations requires such qualification or licensing,
except those jurisdictions in which the failure to so qualify would not have
a material adverse effect. The Company has all requisite corporate powers
and authority, and except as set forth in the Registration Statement the
Company and its employees have all material and necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory officials and bodies to own or lease the Company's
properties and conduct its business as described in the Prospectus and the
Company is doing business and has been doing business during the period
described in the Registration
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Statement in compliance with all such material authorizations, approvals,
orders, licenses, certificates and permits and all material federal, state
and local laws, rules and regulations concerning the business in which the
Company is engaged. The disclosures in the Registration Statement concerning
the effects of federal, state and local regulation on the Company's business
as currently conducted and as contemplated are correct in all material
respects and do not omit to state a material fact. The Company has all
corporate power and authority to enter into this Agreement and carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained or will have
been obtained prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and
executed by the Company. The Securities (including the Common Stock and the
Warrants), the Warrant Shares, the Underwriters' Warrants to be issued and
sold by the Company pursuant to this Agreement, the Securities issuable upon
exercise of the Underwriters' Warrants and payment therefor, and the Common
Stock and Warrant Shares underlying such Underwriters' Warrants, have been
duly authorized (and, in the case of the Common Stock and the Warrant Shares,
have been duly reserved for issuance) and, when issued and paid for in
accordance with this Agreement (and, in the case of the Warrant Shares, upon
exercise of the Warrants and payment to the Company of the exercise price
therefor), the Common Stock and Warrant Shares will be validly issued, fully
paid and non-assessable; the Common Stock, Warrants, Warrant Shares,
Underwriters' Warrants, Additional Securities and Underwriters' Warrants
Shares are not and will not be subject to the preemptive rights of any
stockholder of the Company and conform and at all times up to and including
their issuance will conform in all material respects to all statements with
regard thereto contained in the Registration Statement and Prospectus; and
all corporate action required to be taken for the authorization, issuance and
sale of the Common Stock, Warrants, Warrant Shares and Underwriters' Warrants
has been taken, and this Agreement constitutes a valid and binding obligation
of the Company, enforceable in accordance with its terms, to issue and sell,
upon exercise in accordance with the terms thereof, the number and kind of
securities called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, the Articles of Incorporation, as amended, or bylaws of the Company or
of any evidence of indebtedness, lease, contract or other agreement or
instrument to which the Company is a party or by which the Company or any of
its properties is bound, or under any applicable law, rule, regulation,
judgment, order or decree of any government, professional advisory body,
administrative agency or court, domestic or foreign, having jurisdiction over
the Company or its properties, or result in the creation or imposition of any
lien, charge or encumbrance upon any of the properties or assets of the
Company; and no consent, approval, authorization or order of any court or
governmental or other regulatory agency or body is required for the
consummation by the Company of the transactions on its part herein
contemplated, except as such as may be required under the Act or under state
securities or blue sky laws, except where a breach, violation or failure to
obtain such consent would not have a material adverse effect upon the
business or operation of the Company.
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(g) Subsequent to the date hereof, and prior to the Closing
Date and the Option Closing Date, the Company will not issue or acquire any
equity securities except that the Company may make short-term investments as
contemplated in the "Use of Proceeds" section of the Prospectus. Except as
described in the Registration Statement, the Company does not have, and at
the Closing Date and at the Option Closing Date will not have, outstanding
any options to purchase or rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments
to issue or sell shares of its Preferred Stock, Common Stock or any such
options, warrants, convertible securities or obligations.
(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial
position and the results of operations of the Company at the respective dates
and for the respective periods to which they apply; and such financial
statements have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods involved.
(i) Except as set forth in the Registration Statement, the
Company is not, and at the Closing Date and at the Option Closing Date will
not be, in violation or breach of, or default in, the due performance and
observance of any term, covenant or condition of any indenture, mortgage,
deed of trust, note, loan or credit agreement, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets of the Company
is subject, which violations, breaches, default or defaults, singularly or in
the aggregate, would have a material adverse effect on the Company. The
Company has not and will not have taken any action in material violation of
the provisions of the Articles of Incorporation, as amended, or the Bylaws of
the Company or any statute or any order, rule or regulation of any court or
regulatory authority or governmental body having jurisdiction over or
application to the Company, its business or properties.
(j) The Company has, and at the Closing Date and at the Option
Closing Date will have, good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all
liens, charges, encumbrances, claims, security interests, restrictions and
defects of any material nature whatsoever, except such as are described or
referred to in the Prospectus and liens for taxes not yet due and payable.
All of the material leases and subleases under which the Company is the
lessor or sublessor of properties or assets or under which the Company holds
properties or assets as lessee as described in the Prospectus are, and will
on the Closing Date and the Option Closing Date be, in full force and effect,
and except as described in the Prospectus, the Company is not and will not be
in default in respect to any of the terms or provisions of any of such leases
or subleases (which would have a material adverse effect on the business,
business prospects or operations of the Company taken as a whole), and no
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continue
possession of the leased or subleased premises or assets under any such lease
or sublease except as described or referred to in the Prospectus, and the
Company owns or leases all such properties as are necessary to its
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operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted set forth in the Prospectus (which
would have a material adverse effect on the business, business prospects or
operations of the Company taken as a whole).
(k) The authorized, issued and outstanding capital stock of
the Company as of _____________________ and as of the date of the Prospectus
is as set forth in the Prospectus under "Capitalization"; the shares of
issued and outstanding capital stock of the Company set forth thereunder have
been duly authorized, validly issued and are fully paid and non-assessable;
except as set forth in the Prospectus, no options, warrants or other rights
to purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company; and the Common
Stock, the Warrants and all such options and warrants conform in all material
respects, to all statements relating thereto contained in the Registration
Statement and Prospectus.
(l) Except as described in the Prospectus, the Company does
not own or control any capital stock or securities of, or have any
proprietary interest in, or otherwise participate in any other corporation,
partnership, joint venture, firm, association or business organization;
provided, however, that this provision shall not be applicable to the
investment, if any, of the net proceeds from the sale of the Securities sold
by the Company in certificates of deposits, savings deposits, short-term
obligations of the United States Government, money market instruments or
other short-term investments.
(m) Schwartz Levitsky Feldman, who have given their reports on
certain financial statements filed and to be filed with the Commission as a
part of the Registration Statement, which are incorporated in the Prospectus,
are with respect to the Company, independent public accountants as required
by the Act and the Rules and Regulations.
(n) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money; or (ii) entered into any transaction other
than in the ordinary course of business; or (iii) declared or paid any
dividend or made any other distribution on or in respect to its capital stock.
(o) There is no litigation or governmental proceeding pending
or to the knowledge of the Company threatened against, or involving the
properties or business of the Company which might materially adversely affect
the value, assets or the operation of the properties or the business of the
Company, except as referred to in the Prospectus. Further, except as
referred to in the Prospectus, there are no pending actions, suits or
proceedings related to environmental matters or related to discrimination on
the basis of age, sex, religion or race, nor is the Company charged with or,
to its knowledge, under investigation with respect to any violation of any
statutes or regulations of any regulatory authority having jurisdiction over
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its business or operations, and no labor disturbances by the employees of the
Company exist or, to the knowledge of the Company, have been threatened.
(p) The Company has, and at the Closing Date and at the Option
Closing Date will have, filed all necessary federal, state and foreign income
and franchise tax returns or has requested extensions thereof (except in any
case where the failure to so file would not have a material adverse effect on
the Company), and has paid all taxes which it believes in good faith were
required to be paid by it except for any such tax that currently is being
contested in good faith or as described in the Prospectus.
(q) The Company has not at any time (i) made any contribution
to any candidate for political office, or failed to disclose fully any such
contribution, in violation of law, or (ii) made any payment to any state,
federal, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required
or allowed by applicable law.
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any officer, director,
employee or agent of the Company has made any payment or transfer of any
funds or assets of the Company or conferred any personal benefit by use of
the Company's assets or received any funds, assets or personal benefit in
violation of any law, rule or regulation, which is required to be stated in
the Registration Statement or necessary to make the statements therein not
misleading.
(s) On the Closing Date and on the Option Closing Date, all
transfer or other taxes, if any (other than income tax) which are required to
be paid, and are due and payable, in connection with the sale and transfer of
the Securities by the Company to the Underwriters will have been fully paid
or provided for by the Company as the case may be, and all laws imposing such
taxes will have been fully complied with in all material respects.
(t) There are no contracts or other documents of the Company
which are of a character required to be described in the Registration
Statement or Prospectus or filed as exhibits to the Registration Statement
which have not been so described or filed.
(u) The Company will apply the net proceeds from the sale of
the Securities sold by it for the purposes and in the manner set forth in the
Registration Statement and Prospectus under the heading "Use of Proceeds."
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specified authorizations;
(2) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (3) access to assets is permitted only in
accordance with management's general or specific authorizations; and (4) the
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recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) Except as set forth in the Prospectus, no holder of any
securities of the Company has the right to require registration of any
securities because of the filing or effectiveness of the Registration
Statement.
(x) The Company has not taken and at the Closing Date will not
have taken, directly or indirectly, any action designed to cause or result
in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the Common
Stock or the Warrants to facilitate the sale or resale of such securities.
(y) To the Company's knowledge, there are no claims for
services in the nature of a finder's origination fee with respect to the sale
of the Securities hereunder, except as set forth in the Prospectus.
(z) No right of first refusal exists with respect to any sale
of securities by the Company.
(aa) No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document required
by this Agreement to be delivered to Underwriters was, when made, or as of
the Closing Date or as of the Option Closing Date will be materially
inaccurate, untrue or incorrect.
3. Covenants of the Company.
The Company covenants and agrees that:
(a) It will deliver to the Representative, without charge, two
conformed copies of each Registration Statement and of each amendment or
supplement thereto, including all financial statements and exhibits.
(b) The Company has delivered to each of the Underwriters, and
each of the Selected Dealers (as hereinafter defined) without charge, as many
copies as have been requested of each Preliminary Prospectus heretofore filed
with the Commission in accordance with and pursuant to the Commission's Rule
430 under the Act and will deliver to the Underwriters and to others whose
names and addresses are furnished by the Underwriters or a Selected Dealer,
without charge, on the Effective Date of the Registration Statement, and
thereafter from time to time during such reasonable period as you may request
if, in the opinion of counsel for the Underwriters, the Prospectus is
required by law to be delivered in connection with sales by the Underwriters
or a dealer, as many copies of the Prospectus (and, in the event of any
amendment of or supplement to the Prospectus, of such amended or supplemented
Prospectus) as the Underwriters may request for the purposes contemplated by
the Act. The Company will take all necessary actions to furnish to whomever
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directed by the Underwriters, when and as requested by the Underwriters, all
necessary documents, exhibits, information, applications, instruments and
papers as may be reasonably required or, in the opinion of counsel to the
Underwriters desirable, in order to permit or facilitate the sale of the
Securities.
(c) The Company has authorized the Underwriters to use, and
make available for use by prospective dealers, the Preliminary Prospectus,
and authorizes the Underwriters, all dealers selected by you in connection
with the distribution of the Securities (the "Selected Dealers") to be
purchased by the Underwriters and all dealers to whom any of such Securities
may be sold by the Underwriters or by any Selected Dealer, to use the
Prospectus, as from time to time amended or supplemented, in connection with
the sale of the Securities in accordance with the applicable provisions of
the Act, the applicable Regulations and applicable state law, until
completion of the distribution of the Securities and for such longer period
as you may request if the Prospectus is required under the Act, the
applicable Regulations or applicable state law to be delivered in connection
with sales of the Securities by the Underwriters or the Selected Dealers.
(d) The Company will use its best efforts to cause the
Registration Statement to become effective and will notify the Representative
immediately, and confirm the notice in writing: (i) when the Registration
Statement or any post-effective amendment thereto becomes effective; (ii) of
the issuance by the Commission of any stop order or of the initiation, or to
the best of the Company's knowledge, the threatening, of any proceedings for
that purpose; (iii) the suspension of the qualification of the Securities and
the Underwriters' Warrants, or underlying securities, for offering or sale in
any jurisdiction or of the initiating, or to the best of the Company's
knowledge the threatening, of any proceeding for that purpose; and (iv) of
the receipt of any comments from the Commission. If the Commission shall
enter a stop order at any time, the Company will make every reasonable effort
to obtain the lifting of such order at the earliest possible moment.
(e) During the time when a prospectus is required to be
delivered under the Act, the Company will comply with all requirements
imposed upon it by the Act and the Securities Exchange Act of 1934 (the
"Exchange Act"), as now and hereafter amended and by the Regulations, as from
time to time in force, as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus. If at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or counsel for the
Underwriters, the Prospectus as then amended or supplemented includes 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
the light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend the Prospectus to comply with the
Act, the Company will notify you promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section
10 of the Act and will furnish to you copies thereof.
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(f) The Company will endeavor in good faith, in cooperation
with you, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the
securities laws or blue sky laws of such jurisdictions as you may reasonably
designate. In each jurisdiction where such qualification shall be effected,
the Company will, unless you agree that such action is not at the time
necessary or advisable, file and make such statements or reports at such
times as are or may reasonably be required by the laws of such jurisdiction.
(g) The Company will make generally available to its security
holders, as soon as practicable, but in no event later than the first day of
the fifteenth full calendar month following the Effective Date of the
Registration Statement, an earnings statement of the Company, which will be
in reasonable detail but which need not be audited, covering a period of at
least twelve months beginning after the Effective Date of the Registration
Statement, which earnings statements shall satisfy the requirements of
Section 11(a) of the Act and the Regulations as then in effect. The Company
may discharge this obligation in accordance with Rule 158 of the Regulations.
(h) During the period of five years commencing on the
Effective Date of the Registration Statement, the Company will furnish to its
stockholders an annual report (including financial statements audited by its
independent public accountants), in reasonable detail, and, at its expense,
furnish each of the Underwriters (i) within the time frame of the
jurisdiction of the Company's domicile and as otherwise required by the
federal securities laws, a consolidated balance sheet of the Company and its
consolidated subsidiaries and a separate balance sheet of each subsidiary of
the Company the accounts of which are not included in such consolidated
balance sheet as of the end of such fiscal year, and consolidated statements
of operations, stockholder's equity and cash flows of the Company and its
consolidated subsidiaries and separate statements of operations,
stockholder's equity and cash flows of each of the subsidiaries of the
Company the accounts of which are not included in such consolidated
statements, for the fiscal year then ended all in reasonable detail and all
certified by independent accountants (within the meaning of the Act and the
Regulations), (ii) only at such time that the Company becomes subject to the
filing of such, within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, similar balance sheets as of the end of
such fiscal quarter and similar statements of operations, stockholder's
equity and cash flows for the fiscal quarter then ended, all in reasonable
detail, and subject to year end adjustment, all certified by the Company's
principal financial officer or the Company's principal accounting officer as
having been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, (iii) as soon as available, each
report furnished to or filed with the Commission or any securities exchange
and each report and financial statement furnished to the Company's
shareholders generally and (iv) as soon as available, such other material as
the Representative may from time to time reasonably request regarding the
financial condition and operations of the Company. Other than the annual
report, the filing of such reports and other material with the Commissions
shall be deemed furnishing the same to its stockholders.
(i) Prior to the Closing Date or the Option Closing Date, the
Company will not issue, directly or indirectly, without your prior written
consent and that of counsel for the Representative, any press release or other
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public announcement or hold any press conference with respect to the Company
or its activities with respect to this Offering.
(j) The Company will deliver to you prior to filing, any
amendment or supplement to the Registration Statement or Prospectus proposed
to be filed after the Effective Date of the Registration Statement and will
not file any such amendment or supplement to which you shall reasonably
object after being furnished such copy.
(k) During the period of 120 days commencing on the date
hereof, the Company will not at any time take, directly or indirectly, any
action designed to, or which will constitute or which might reasonably be
expected to cause or result in stabilization or manipulation of the price of
the Securities to facilitate the sale or resale of any of the Securities.
(l) The Company will apply the net proceeds from the Offering
received by it in the manner set forth under "Use of Proceeds" in the
Prospectus.
(m) Counsel for the Company, the Company's accountants, and
the officers and directors of the Company will, respectively, furnish the
opinions, the letters and the certificates referred to in subsections of
Paragraph 9 hereof, and, in the event that the Company shall file any
amendment to the Registration Statement relating to the offering of the
Securities or any amendment or supplement to the Prospectus relating to the
offering of the Securities subsequent to the Effective Date of the
Registration Statement, such counsel, such accountants, such officers and
directors, respectively, will, at the time of such filing or at such
subsequent time as you shall specify, so long as securities being registered
by such amendment or supplement are being underwritten by the Underwriters,
furnish to you such opinions, letters and certificates, each dated the date
of its delivery, of the same nature as the opinions, the letters and the
certificates referred to in said Paragraph 9, as you may reasonably request,
or, if any such opinion or letter or certificate cannot be furnished by
reason of the fact that such counsel or such accountants or any such officer
or director believes that the same would be inaccurate, such counsel or such
accountants or such officer or director will furnish an accurate opinion or
letter or certificate with respect to the same subject matter.
(n) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement in all material respects.
(o) The Company will reserve and keep available for issuance
that maximum number of its authorized but unissued shares of Common Stock
which are issuable upon exercise of the Warrants and issuable upon exercise
of the Underwriters' Warrants (including the underlying securities)
outstanding from time to time.
(p) Following the Effective Date and from time to time
thereafter, so long as the Warrants are outstanding, the Company will timely
prepare and file at its sole cost and expense one or more post-effective
amendments to the Registration Statement or a new registration statement as
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required by law as will permit Warrant holders to be furnished with a current
prospectus in the event Warrants are exercised, and to use its best efforts
and due diligence to have same be declared effective. The Company will
deliver a draft of each such post-effective amendment or new registration
statement to the Underwriter at least ten days prior to the filing of such
post-effective amendment or registration statement.
(q) Following the Effective Date and from time to time
thereafter so long as any of the Warrants remain outstanding, the Company
will timely deliver and supply to its warrant agent sufficient copies of the
Company's current Prospectus, as will enable such Warrant Agent to deliver a
copy of such Prospectus to any Warrant or other holder where such Prospectus
delivery is by law required to be made.
(r) So long as any of the Warrants remain outstanding, the
Company shall continue to employ the services of a firm of independent
certified public accountants reasonably acceptable to the Representative in
connection with the preparation of the financial statements to be included in
any registration statement to be filed by the Company hereunder, or any
amendment or supplement thereto (it being understood that Schwartz Levitsky
Feldman is acceptable to the Representative). During the same period, the
Company shall employ the services of a law firm(s) acceptable to the
Representative in connection with all legal work of the Company, including
the preparation of a registration statement to be filed by the Company
hereunder, or any amendment or supplement thereto.
(s) So long as any of the Warrants remain outstanding, the
Company shall continue to appoint a Warrant Agent for the Warrants, who shall
be reasonably acceptable to the Representative.
(t) The Company agrees that it will, upon the Effective Date,
for a period of no less than three (3) years, engage a designee of the
Representative as an advisor (the "Advisor") to its Board of Directors where
such Advisor shall attend meetings of the Board, receive all notices and
other correspondence and communications sent by the Company to members of its
Board of Directors and will not receive compensation therefor. However, such
Advisor shall be entitled to receive reimbursement for all reasonable costs
incurred in attending such meetings including, but not limited to, food,
lodging, and transportation. The Company further agrees that, during said
three (3) year period, it shall schedule no less than four (4) formal and "in
person" meetings of its Board of Directors in each such year. Further,
during such three (3) year period, the Company shall give notice to the
Representative with respect to any proposed acquisitions, mergers,
reorganizations or other similar transactions.
The Company agrees to indemnify and hold the Underwriters and
such Advisor or Director harmless against any and all claims, actions,
damages, costs and expenses, and judgments arising solely out of the
attendance and participation of your designee at any such meeting described
herein. In the event the Company maintains a liability insurance policy
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affording coverage for the acts of its officers and directors, it agrees, if
possible, to include the Representative's designee as an insured under such
policy.
(u) Upon the Closing Date, the Company shall have entered into
an agreement with the Underwriters in form reasonably satisfactory to the
Underwriters (the "Consulting Agreement"), pursuant to which the Underwriters
will be retained as management and financial consultants and will be paid a
fee of $2,444.44 a month for a term of thirty-six months, all of which shall
be paid upon the Closing Date.
(v) The Company's Common Stock and Warrants shall be listed on
the Nasdaq SmallCap Market ("Nasdaq") not later than the Effective Date.
Prior to the Effective Date, the Company will make all filings required,
including registration under the Exchange Act, to obtain the listing of the
Common Stock and Warrants on Nasdaq and will effect and use its best efforts
to maintain such listing (unless the Company is acquired) for at least five
years from the date of this Agreement.
(w) The Company will apply for listing in Standard and Poor's
Corporation Reports or Moodys OTC Guide and shall use its best efforts to
have the Company included in such publications for at least five years from
the Closing Date.
(x) Except as contemplated in the Registration Statement, no
person who is currently an officer or director of the Company nor any
stockholder, warrant holder or option holder of the Company shall, without
your written consent, offer for sale, pledge, contract to sell, or sell or
otherwise dispose of directly or indirectly, any shares of the Common Stock
of the Company owned by such stockholder (including shares issuable upon
exercise of existing options and shares saleable pursuant to Rule 144 under
the Act), on the date of this Agreement for a period of two years from the
Closing Date. The Company has caused Arnold Unger and Renee Unger, its
principal stockholders and any other Unger family interests and other
presently existing stockholders (excluding the Bridge Investors), to deliver
to you, on or before the date of this Agreement, an agreement to this effect,
in form and substance reasonably satisfactory to the Representative and to
counsel for the Representative.
(y) The Company will not, without the prior written consent of
the Representative, issue or sell, or contract to sell or otherwise dispose
of any of its securities, except sales of the Securities (and the Warrant
Shares) pursuant to this Agreement and except for the issuance of options to
purchase up to 10% of the Company's Common Stock outstanding immediately
after the Closing Date, which may be granted under the Company's stock option
plan, outstanding warrants and other shares issuable upon the exercise or
conversion of currently outstanding securities, or as otherwise described in
the Prospectus, for a period of one year from the Effective Date. The
Company agrees not to file any registration statement on Form S-8 for a
period of one year from the Effective Date, without the prior written
approval of the Representative.
(z) For so long as any of the Warrants remain outstanding, the
Company shall maintain key person life insurance payable to the Company on
the lives of Renee Unger, President of the Company, and Arnold Unger, Chief
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Executive Officer of the Company, in the amounts of Cdn$240,000 respectively,
unless their employment with the Company is earlier terminated. In such
event, the Company will obtain a comparable policies on the lives of their
successors for the balance of such period.
(aa) The Company will use its best efforts to obtain, as soon
after the Closing Date as is reasonably possible, liability insurance
covering its officers and directors.
(bb) The Company agrees that any conflict of interest arising
between a member of the Company's Board of Directors and the Company in
connection with such Director's dealing with, or obligations to, the Company,
shall be resolved by a vote of the majority of the independent members of the
Board of Directors.
4. Sale, Purchase and Delivery of Securities; Closing Date.
(a) The Company agrees to sell to the Underwriters, and the
Underwriters, on the basis of the warranties, representations and agreements
of the Company herein, and subject to the terms and conditions herein, agree
to purchase the Securities from the Company at a price of $5.00 per share of
Common Stock and $.10 per Warrant, less an underwriting discount of ten
percent (10%) of the offering price for each security. The Underwriter may
allow a concession not exceeding $.__ per share of Common Stock and $.__ per
Warrant to Selected Dealers who are members of the National Association of
Securities Dealers, Inc ("NASD"), and to certain foreign dealers, and such
dealers may reallow to NASD members and to certain foreign dealers a
concession not exceeding $.__ per share of Common Stock and $.__ per Warrant.
(b) Delivery of the Securities and payment therefor shall be
made at 10:00 A.M., New York time on the Closing Date, as hereinafter
defined, at the offices of the Representative or such other location as may
be agreed upon by you and the Company. Delivery of certificates for the
Common Stock and Warrants (in definitive form and registered in such names
and in such denominations as you shall request by written notice to the
Company delivered at least four business days' prior to the Closing Date),
shall be made to you for the account of the Underwriters against payment of
the purchase price therefor by certified or bank check or wire transfer
payable in New York Clearing House funds to the order of the Company. The
Company will make such certificates available for inspection at least two
business days prior to the Closing Date at such place as you shall designate.
(c) The "Closing Date" shall be ______ __, 1997, or such other
date not later than the sixth business day following the effective date of
the Registration Statement as you shall determine and advise the Company by
at least three full business days' notice, confirmed in writing.
(d) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Securities by the Company to
the Underwriters shall be borne by the Company. The Company will pay and
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hold the Underwriters, and any subsequent holder of the Securities, harmless
from any and all liabilities with respect to or resulting from any failure or
delay in paying federal and state stamp taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale
to the Underwriters of the Securities or any portions thereof.
5. Sale, Purchase and Delivery of Additional Securities; Option
Closing Date.
(a) The Company agrees to sell to the Underwriters, and upon
the basis of the representations, warranties and agreements of the Company
herein contained, subject to the satisfaction of all the terms and conditions
of this Agreement, the Underwriters shall have the option (the "Option") to
purchase the Additional Securities from the Company, at the same price per
Security as set forth in Paragraph 4(a) above. Additional Securities may be
purchased solely for the purpose of covering over-allotments made in
connection with the distribution and sale of the Securities.
(b) The Option to purchase all or part of the Additional
Securities covered thereby is exercisable by you at any time and from time to
time before the expiration of a period of 45 calendar days from the date of
the Effective Date of the Registration Statement (the "Option Period") by
written notice to the Company setting forth the number of Additional
Securities for which the Option is being exercised, the name or names in
which the certificates for such Additional Securities are to be registered
and the denominations of such certificates. Upon each exercise of the
Option, the Company shall sell to the Underwriters the aggregate number of
Additional Securities specified in the notice exercising such Option.
(c) Delivery of the Additional Securities with respect to
which Options shall have been exercised and payment therefor shall be made at
10:00 A.M., New York time on the Option Closing Date, as hereinafter defined,
at the offices of the Representative or at such other locations as may be
agreed upon by you and the Company. Delivery of certificates for Additional
Securities shall be made to you for the account of the Underwriters against
payment of the purchase price therefor by certified or bank check or wire
transfer in New York Clearing House Funds to the order of the Company. The
Company will make certificates for Additional Securities to be purchased at
the Option Closing Date available for inspection at least two business days
prior to such Option Closing Date at such place as you shall designate.
(d) The "Option Closing Date" shall be the date not later than
five business days after the end of the Option Period as you shall determine
and advise the Company by at least three full business days' notice, unless
some other time is agreed upon between you and the Company.
(e) The obligations of the Underwriters to purchase and pay
for Additional Securities at such Option Closing Date shall be subject to
compliance as of such date with all the conditions specified in Paragraph 2
herein and the delivery to you of opinions, certificates and letters,
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<PAGE>
each dated such Option Closing Date, substantially similar in scope to those
specified in Paragraph 9 herein.
(f) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Additional Securities by the
Company to the Underwriters shall be borne by the Company. The Company will
pay and hold the Underwriters, and any subsequent holder of Additional
Securities, harmless from any and all liabilities with respect to or
resulting from any failure or delay in paying federal and state stamp taxes,
if any, which may be payable or determined to be payable in connection with
the original issuance or sale to the Underwriters of the Additional
Securities or any portion thereof.
6. Warrant Solicitation Fee.
The Company agrees to pay the Underwriters a fee of five percent
(5%) of the aggregate exercise price of the Warrants if: (i) the market price
of the Common Stock is greater than the exercise price of the Warrants on the
date of exercise; (ii) the exercise of the Warrants are solicited by a member
of the NASD; (iii) the Warrants are not held in a discretionary account; (iv)
the disclosure of compensation arrangements was made both at the time of the
Offering and at the time of the exercise of the Warrant; and (v) the
solicitation of the Warrant is not in violation of Regulation M promulgated
under the Exchange Act. The Company agrees not to solicit the exercise of
any Warrants other than through the Underwriters and will not authorize any
other dealer to engage in such solicitation without the prior written consent
of the Representative which will not be unreasonably withheld. The Warrant
solicitation fee will not be paid in a non-solicited transaction. No Warrant
solicitation by the Underwriters will occur for a period of 12 months from
the Effective Date.
7. Representations and Warranties of the Underwriters.
The Underwriters represent and warrant to the Company that:
(a) The Underwriters are each members in good standing of the
National Association of Securities Dealers, Inc., and have complied with all
NASD requirements concerning net capital and compensation to be received in
connection with the Offering.
(b) To the Underwriters' knowledge, there are no claims for
services in the nature of a finder's origination fee with respect to the sale
of the Securities hereunder to which the Company is, or may become, obligated
to pay.
8. Payment of Expenses.
(a) The Company will pay and bear all costs, fees, taxes and
expenses incident to and in connection with: (i) the issuance, offer, sale
and delivery of the Securities, including all expenses and fees incident to
the preparation, printing, filing and mailing (including the payment of
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<PAGE>
postage with respect to such mailing) of the Registration Statement
(including all exhibits thereto), each Preliminary Prospectus, the
Prospectus, and amendments and post-effective amendments thereof and
supplements thereto, and this Agreement and related documents, Preliminary
and Final Blue Sky Memoranda, including the cost of preparing and copying all
copies thereof in quantities deemed necessary by the Underwriters; (ii) the
printing, engraving, issuance and delivery of the Common Stock, Warrants,
Warrant Shares, Additional Securities, Underwriters' Warrants and the
securities underlying the Underwriters' Warrant, including any transfer or
other taxes payable thereon in connection with the original issuance thereof;
(iii) the qualification of the Common Stock and Warrants under the state or
foreign securities or "Blue Sky" laws selected by the Underwriters and the
Company, and disbursements and reasonable fees of counsel for the
Underwriters in connection therewith (not to exceed $35,000) plus the filing
fees for such states; (iv) fees and disbursements of counsel and accountants
for the Company; (v) other expenses and disbursements incurred on behalf of
the Company; (vi) the filing fees payable to the Commission and the National
Association of Securities Dealers, Inc. ("NASD"); (vii) any listing of the
Common Stock and Warrants on a securities exchange or on NASDAQ.
(b) In addition to the expenses to be paid and borne by the
Company referred to in Paragraph 8(a) above, the Company shall reimburse you
at closing for expenses incurred by you in connection with the Offering (for
which you need not make any accounting), in the amount of 3% of the price to
the public of the Securities and Additional Securities sold in the Offering.
This 3% non-accountable expense allowance shall cover the fees of your legal
counsel, but shall not include any expenses for which the Company is
responsible under Paragraph 8(a) above, including the reasonable fees and
disbursements of your legal counsel with respect to Blue Sky matters. As of
the date hereof, $50,000 has been advanced by the Company to the Underwriters
with respect to such non-accountable expense allowance.
(c) In the event that the Company does not or cannot, for any
reason whatsoever other than a default by the Underwriters, expeditiously
proceed with the Offering, or if any of the representations, warranties or
covenants contained in this Agreement are not materially correct or cannot be
complied with by the Company, or business prospects or obligations of the
Company are adversely affected and the Company does not commence or continue
with the Offering at any time or terminates the proposed transaction prior to
the Closing Date, the Company shall reimburse the Underwriters on an
accountable basis for all out-of-pocket expenses actually incurred in
connection with the Underwriting, this Agreement and all of the transactions
hereby contemplated, including, without limitation, your legal fees and
expenses, up to an aggregate total of $100,000 less such sums which have
already been paid.
9. Conditions of Underwriters' Obligations.
The obligations of the Underwriters to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of the Closing Date, the accuracy of the statements of the
Company and its officers and directors made pursuant to the provisions hereof,
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<PAGE>
and to the performance by the Company of its covenants and agreements hereunder
and under each certificate, opinion and document contemplated hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date following the date of this
Agreement, or such later date and time as shall be consented to in writing by
you and, on or prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Securities under the securities laws of any jurisdiction
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission or any such authorities of
any jurisdiction and any request on the part of the Commission or any such
authorities for additional information shall have been complied with to the
reasonable satisfaction of the Commission or such authorities and counsel to
the Underwriters and after the date hereof no amendment or supplement shall
have been filed to the Registration Statement or Prospectus without your
prior consent.
(b) The Registration Statement or the Prospectus or any
amendment thereof or supplement thereto shall not contain an untrue statement
of a fact which is material, or omit to state a fact which is material and is
required to be stated therein or is necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(c) Between the time of the execution and delivery of this
Agreement and the Closing Date, there shall be no litigation instituted
against the Company or any of its officers or directors and between such
dates there shall be no proceeding instituted or, to the Company's knowledge,
threatened against the Company or any of its officers or directors before or
by any federal, state or county commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, in which litigation
or proceeding an unfavorable ruling, decision or finding would have a
material adverse effect on the Company or its business, business prospects or
properties, or have a material adverse effect on the financial condition or
results of operation of the Company.
(d) Each of the representations and warranties of the Company
contained herein and each certificate and document contemplated under this
Agreement to be delivered to you shall be true and correct in all material
respects at the Closing Date as if made at the Closing Date, and all
covenants and agreements contained herein and in each such certificate and
document to be performed on the part of the Company, and all conditions
contained herein and in each such certificate and document to be fulfilled or
complied with by the Company at or prior to the Closing Date shall be
fulfilled or complied with.
(e) At the Closing Date, you shall have received the opinion
of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel to the
Company, dated as of such Closing Date, addressed to the Underwriters and in
form and substance satisfactory to counsel to the Underwriters, to the effect
that:
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(i) The Registration Statement was declared
effective under the Act on ______ __, 1997; to the best of our knowledge, no
stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for that purpose have been instituted or are
pending, threatened or contemplated under the Act or applicable state
securities laws;
(ii) The Registration Statement and the Prospectus,
as of the Effective Date (except for the financial statements and other
financial data included therein or omitted therefrom, as to which we express
no opinion), comply as to form in all material respects with the requirements
of the Act and Regulations and the conditions for use of a registration
statement on Form SB-2 have been satisfied by the Company;
(iii) The description in the Registration Statement
and the Prospectus of statutes, regulations, contracts and other documents
have been reviewed by us, and, based upon such review, are accurate in all
material respects and present fairly the information required to be
disclosed, and to the best of our knowledge, there are no material statutes
or regulations, or, to the best of our knowledge, material contracts or
documents, of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not so described or filed as required.
To the best of our knowledge, none of the
material provisions of the contracts or instruments described above violates
any existing applicable law, rule or regulation or judgment, order or decree
known to us of any United States governmental agency or court having
jurisdiction over the Company or any of its assets or businesses;
(vi) To the best of our knowledge, except as set
forth in the Prospectus, no holders of any of the Company's securities has
any rights, "demand," "piggyback" or otherwise, to have such securities
registered under the Act;
(v) We have participated in reviews and discussions
in connection with the preparation of the Registration Statement and the
Prospectus. Although we are not passing upon and do not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, no facts came to our attention which
lead us to believe that (A) the Registration Statement (except as to the
financial statements and other financial data contained therein, as to which
we express no opinion), on the Effective Date, contained any untrue statement
of a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or that (B) the Prospectus (except as to the financial
statements and other financial data contained therein, as to which we express
no opinion) contains any untrue statement or a material fact or omits to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
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(f) At the Closing Date, you shall have received the opinion
of Wildeboer Rand Thomson Apps & Dellelce, special counsel to the Company
with respect to Canadian law, dated as of such Closing Date, addressed to the
Underwriters and in form and substance satisfactory to counsel to the
Underwriters, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the Province of
Ontario, Canada, with full corporate power and authority, and all licenses,
permits, certifications, registrations, approvals, consents and franchises to
own or lease and operate its properties and to conduct its business as
described in the Registration Statement. The Company is duly qualified to do
business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and failure so to
qualify could have a material adverse effect on the financial condition,
results of operations, business or properties of the Company;
(ii) The Company has full corporate power and
authority to execute, deliver and perform the Underwriting Agreement, the
Consulting Agreement, the Warrant Agreement and the Underwriters' Warrants
and to consummate the transactions contemplated thereby. The execution,
delivery and performance of the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement and the Underwriters' Warrants by the
Company, the consummation by the Company of the transactions therein
contemplated and the compliance by the Company with the terms of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreements and
the Underwriters' Warrants have been duly authorized by all necessary
corporate action, and each of the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement and the Underwriters' Warrant has been duly
executed and delivered by the Company. Each of the Underwriting Agreement,
the Consulting Agreement, the Warrant Agreements and the Underwriters'
Warrants is a valid and binding obligation of the Company, enforceable in
accordance with their respective terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, reorganization, moratorium
and other laws affecting the rights of creditors generally and the discretion
of courts in granting equitable remedies and except that enforceability of
the indemnification provisions and the contribution provisions set forth in
the Underwriting Agreement may be limited by the federal securities laws or
public policy underlying such laws;
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and
the Underwriters' Warrants by the Company, the consummation by the Company of
the transactions therein contemplated and the compliance by the Company with
the terms of the Underwriting Agreement, the Consulting Agreement, the
Warrant Agreement and the Underwriters' Warrants do not, and will not, with
or without the giving of notice or the lapse of time, or both, (A) result in
a violation of the Articles of Incorporation, as the same may be amended, or
by-laws of the Company, (B) to the best of our knowledge, result in a breach
of, or conflict with, any terms or provisions of or constitute a default
under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company pursuant to, any
indenture, mortgage, note, contract, commitment or other material agreement
20
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or instrument to which the Company is a party or by which the Company or any
of its properties or assets are or may be bound or affected, except where any
of the foregoing would not result in a material adverse effect upon the
Company's business or operations; (C) to the best of our knowledge, violate
any existing applicable law, rule or regulation or judgment, order or decree
known to us of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its properties or business; or (D) to
the best of our knowledge, have any effect on any permit, certification,
registration, approval, consent, license or franchise necessary for the
Company to own or lease and operate its properties and to conduct its
business or the ability of the Company to make use thereof;
(iv) No authorization, approval, consent or license
of any Canadian governmental or regulatory body, agency or instrumentality is
required in connection with the conduct of the business of the Company as
described in the Prospectus, except with respect to compliance with
government environmental rules and regulations relating to the use of
chemicals and other hazardous materials in the Company's production process;
(v) The Company has obtained, or is in the process
of obtaining, all licenses, permits and other governmental authorizations
necessary to conduct its business as described in the Prospectus, and such
licenses, permits and other governmental authorizations obtained are in full
force and effect, and the Company is in all material respects complying
therewith;
(vi) To the best of our knowledge, no authorization,
approval, consent, order, registration, license or permit of any court or
governmental agency or body (other than under the Act, the Regulations and
applicable state securities or Blue Sky laws) is required for the valid
authorization, issuance, sale and delivery of the Securities, the Additional
Securities, the Common Stock, the Warrants, the Warrant Shares, or the
Underwriters' Warrants, and the consummation by the Company of the
transactions contemplated by the Underwriting Agreement, the Consulting
Agreement, the Warrant Agreement or the Underwriters' Warrants;
(vii) The outstanding Common Stock and Warrants have
been duly authorized and validly issued. The outstanding Common stock is
fully paid an nonassessable. To the best of our knowledge, none of the
outstanding Common Stock has been issued in violation of the preemptive
rights of any shareholder of the Company. None of the holders of the
outstanding Common Stock is subject to personal liability solely by reason of
being such a holder. The authorized Common Stock conforms to the description
thereof contained in the Registration Statement and Prospectus.
(viii) The issuance and sale of the Securities, the
Additional Securities, the Common Stock, the Warrants, the Warrant Shares and
the Underwriters' Warrants have been duly authorized and when issued will be
validly issued, fully paid and nonassessable, and the holders thereof will
not be subject to personal liability solely by reason of being such holders.
Neither the Securities, the Additional Securities, nor the Common Stock are
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subject to preemptive rights of any stockholder of the Company. The
certificates representing the Securities are in proper legal form;
(ix) The issuance and sale of the Warrant Shares and
the Underwriters' Warrants have been duly authorized and, when paid for,
issued and delivered pursuant to the terms of the Underwriters' Agreement or
the Underwriters' Warrants, as the case may be, the Warrants, the Warrant
Shares and the Underwriters' Warrants will constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms, to
issue and sell the Warrants, the Warrant Shares and/or Underwriters'
Warrants. All corporate action required to be taken for the authorization,
issuance and sale of the securities has been duly, validly and sufficiently
taken. The Common Stock and the Warrants have been duly authorized by the
Company to be offered in the form of the Securities. The Warrants, the
Warrant Shares and the Underwriters' Warrants conform to the descriptions
thereof contained in the Registration Statement and Prospectus;
(x) The Underwriters have acquired good title to the
Securities, free and clear of all liens, encumbrances, equities, security
interests and claims;
(xi) Assuming that the Underwriters exercise the
over-allotment option to purchase the Additional Securities and make payments
therefor in accordance with the terms of the Underwriting Agreement, upon
delivery of the Additional Securities to the Underwriters thereunder, the
Underwriters will acquire good title to the Additional Securities, free and
clear of any liens, encumbrances, equities, security interests and claims;
(xii) To the best of our knowledge, there are no
claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or involving its properties or business, other than as
described in the Prospectus, such description being accurate, and other than
litigation incident to the kind of business conducted by the Company which,
individually and in the aggregate, is not material, and, except as otherwise
disclosed in the Prospectus and the Registration Statement, the Company has
complied with all federal and state laws, statutes and regulations concerning
its business;
(xiii) Such counsel is familiar with all contracts or
other agreements entered into by the Company with other Canadian companies,
entities, banking institutions or individuals referred to in the Registration
Statement and Prospectus, including the employment agreements with Renee
Unger, its President and Arnold Unger, its Chief Executive Officer
(collectively, the "Canadian Agreements"), and all such Canadian Agreements
are valid, binding and enforceable under Canadian law, and to the knowledge
of such counsel, the Company is not in default under any of the Canadian
Agreements;
(xiv) The description in the Registration Statement
and the Prospectus of statutes, regulations, contracts and other documents
have been reviewed by us, and, based upon such review, are accurate in all
material respects and present fairly the information required to be
22
<PAGE>
disclosed, and to the best of our knowledge, there are no material statutes
or regulations, or, to the best of our knowledge, material contracts or
documents, of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not so described or filed as required.
(xv) The Company is not in violation of or in default
under its Articles of Incorporation or by-laws, or to the knowledge of such
counsel, in the performance or observance of any material obligation,
agreement, covenant or condition contained in any bond, debenture, note or
other evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement or instrument to which the Company is a party or by which it or any
of its properties may be bound, or in violation of any material order, rule,
regulation, writ, injunction or decree of any government or governmental
instrumentality or court; and
(xvi) We have participated in reviews and discussions
in connection with the preparation of the Registration Statement and the
Prospectus. Although we are not passing upon and do not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, no facts came to our attention which
lead us to believe that (A) the Registration Statement (except as to the
financial statements and other financial data contained therein, as to which
we express no opinion), on the Effective Date, contained any untrue statement
of a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or that (B) the Prospectus (except as to the financial
statements and other financial data contained therein, as to which we express
no opinion) contains any untrue statement or a material fact or omits to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(g) On or prior to the Closing Date, counsel for the
Underwriters shall have been furnished such documents, certificates and
opinions as they may reasonably require for the purpose of enabling them to
review the matters referred to in subparagraphs (e) and (f) of this Paragraph
9, or in order to evidence the accuracy, completeness or satisfaction of any
of the representations, warranties or conditions herein contained.
(h) Prior to the Closing Date:
(i) There shall have been no material adverse change
in the condition or prospects or the business activities, financial or
otherwise, of the Company from the latest dates as of which such condition is
set forth in the Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside
the ordinary course of business, entered into by the Company from the latest
date as of which the financial condition of the Company is set forth in the
Registration Statement and Prospectus which is material to the Company, which
23
<PAGE>
is either (x) required to be disclosed in the Prospectus or Registration
Statement and is not so disclosed, or (y) likely to have material adverse
effect on the Company's business or financial condition;
(iii) The Company shall not be in default under any
material provision of any instrument relating to any outstanding
indebtedness, except as described in the Prospectus;
(iv) No material amount of the assets of the Company
shall have been pledged, mortgaged or otherwise encumbered, except as set
forth in the Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in
equity, shall have been pending or to its knowledge threatened against the
Company or affecting any of its properties or businesses before or by any
court or federal or state commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding would materially and
adversely affect the business, operations, prospects or financial condition
or income of the Company, taken as a whole, except as set forth in the
Registration Statement and Prospectus; and
(vi) No stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or, to the
Company's knowledge, threatened by the Commission.
(vii) Each of the representations and warranties of
the Company contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when originally
made and is at the time such certificate is dated, true and correct in all
material respects.
(i) Concurrently with the execution and delivery of this
Agreement and at the Closing Date, you shall have received a certificate of
the Company signed by the Chief Executive Officer of the Company and the
principal financial officer of the Company, dated as of the Closing Date, to
the effect that the conditions set forth in subparagraph (h) above have been
satisfied and that, as of the Closing Date, the representations and
warranties of the Company set forth in Paragraph 2 herein and the statements
in the Registration Statement and Prospectus were and are true and correct.
Any certificate signed by any officer of the Company and delivered to you or
for counsel for the Underwriters shall be deemed a representation and
warranty by the Company to the Underwriters as to the statements made therein.
(j) At the time this Agreement is executed, and at the Closing
Date, you shall have received a letter, addressed to the Underwriters and in
form and substance satisfactory in all respects to you and counsel for the
Underwriters, and including estimates of the Company's revenues and results
of operations for the period ending at the end of the month immediately
preceding the Effective Date and results of the comparable period during the
prior fiscal year, from ___________________, dated as of the date of this
Agreement and as of the Closing Date.
24
<PAGE>
(k) All proceedings taken in connection with the
authorization, issuance or sale of the Common Stock, Warrants, Warrant
Shares, Additional Securities, the Underwriters' Warrants and the
Underwriters' Warrants Shares as herein contemplated shall be satisfactory in
form and substance to you and to counsel to the Underwriters, and the
Underwriters shall have received from such counsel an opinion, dated as the
Closing Date with respect to such of these proceedings as you may reasonably
require.
(l) The Company shall have furnished to you such certificates,
additional to those specifically mentioned herein, as you may have reasonably
requested in a timely manner as to the accuracy and completeness, at the
Closing Date, of any statement in the Registration Statement or the
Prospectus, as to the accuracy, at the Closing Date, of the representations
and warranties of the Company herein and in each certificate and document
contemplated under this Agreement to be delivered to you, as to the
performance by the Company of its obligations hereunder and under each such
certificate and document or as to the fulfillment of the conditions
concurrent and precedent to your obligations hereunder.
(m) The obligation of the Underwriters to purchase Additional
Securities hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Option Closing
Date and to the satisfaction on and as of the Option Closing Date of the
conditions set forth herein.
(n) On the Closing Date there shall have been duly tendered to
you for your account the appropriate number of shares of Common Stock and
Warrants constituting the Securities.
10. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriters and each person, if
any, who controls the Underwriters ("controlling person") within the meaning
of either Section 15 of the Act or Section 20 of the Exchange Act, against
any and all losses, liabilities, claims, damages, actions and expenses or
liability, joint or several, whatsoever (including but not limited to any and
all expense whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever), joint or several, to which it or such controlling persons may
become subject under the Act, the Exchange Act or under any other statute or
at common law or otherwise or under the laws of foreign countries, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any Preliminary
Prospectus or the Prospectus (as from time to time amended and supplemented);
in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included the Warrant Shares of the
Company issued or issuable upon exercise of the Warrants, or Underwriters'
Warrant Shares upon exercise of the Underwriters' Warrants; or in any
application or other document or written communication (in this Paragraph 10
collectively called "application") executed by the Company or based upon
written information furnished by the Company filed in any
25
<PAGE>
jurisdiction in order to qualify the Common Stock, Warrants, Warrant Shares,
Additional Securities, Underwriters' Warrants and Underwriters' Warrant
Shares (including the Shares issuable upon exercise of the Warrants
underlying the Underwriters' Warrants) under the securities laws thereof or
filed with the Commission or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading (in the case of
the Prospectus, in the light of the circumstances under which they were
made), unless such statement or omission was made in reliance upon or in
conformity with written information furnished to the Company with respect to
the Underwriters or to the Selling Shareholders, by or on behalf of the
Underwriters or the Selling Shareholders expressly for use in any Preliminary
Prospectus, the Registration Statement or Prospectus, or any amendment or
supplement thereof, or in application, as the case may be. Notwithstanding
the foregoing, the Company shall have no liability under this Paragraph 10(a)
if any such untrue statement or omission made in a Preliminary Prospectus, is
cured in the Prospectus and the Underwriters failed to deliver to the person
or persons alleging the liability upon which indemnification is being sought,
at or prior to the written confirmation of such sale, a copy of the
Prospectus. This indemnity will be in addition to any liability which the
Company may otherwise have.
(b) The Underwriters agree to indemnify and hold harmless the
Company and each of the officers and directors of the Company who have signed
the Registration Statement and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company
to the Underwriters in Paragraph 10(a), but only with respect to any untrue
statement or alleged untrue statement of any material fact contained in or
any omission or alleged omission to state a material fact required to be
stated in any Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment or supplement thereof or necessary to make the
statements therein not misleading or in any application made solely in
reliance upon, and in conformity with, written information furnished to the
Company by you specifically expressly for use in the preparation of such
Preliminary Prospectus, the Registration Statement or Prospectus directly
relating to the transactions effected by the Underwriters in connection with
this Offering. This indemnity agreement will be in addition to any liability
which the Underwriters may otherwise have. Notwithstanding the foregoing, the
Underwriters shall have no liability under this Paragraph 10(b) if any such
untrue statement or omission made in a Preliminary Prospectus is cured in the
Prospectus, and the Prospectus is delivered to the person or persons alleging
the liability upon which indemnification is being sought.
(c) If any action is brought against any indemnified party
(the "Indemnitee") in respect of which indemnity may be sought against
another party pursuant to the foregoing (the "Indemnitor"), the Indemnitor
shall assume the defense of the action, including the employment and fees of
counsel (reasonably satisfactory to the Indemnitee) and payment of expenses.
Any Indemnitee shall have the right to employ its or their own counsel in any
such case, but the fees and expenses of such counsel shall be at the expense
of such Indemnitee unless the employment of such counsel shall have been
authorized in writing by the Indemnitor in connection with the defense of
such action. If the Indemnitor shall have employed counsel to have charge of
26
<PAGE>
the defense or shall previously have assumed the defense of any such action
or claim, the Indemnitor shall not thereafter be liable to any Indemnitee in
investigating, preparing or defending any such action or claim. Each
Indemnitee shall promptly notify the Indemnitor of the commencement of any
litigation or proceedings against the Indemnitee in connection with the issue
and sale of the Common Stock, Warrants, Warrants Shares, Additional
Securities, Underwriters' Securities or in connection with the Registration
Statement or Prospectus.
(d) In order to provide for just and equitable contribution
under the Act in any case in which: (i) the Underwriters make a claim for
indemnification pursuant to Paragraph 10 hereof, but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the time to appeal has expired or the last right
of appeal has been denied) that such indemnification may not be enforced in
such case notwithstanding the fact that this Paragraph 10 provides for
indemnification of such case; or (ii) contribution under the Act may be
required on the part of the Underwriters in circumstances for which
indemnification is provided under this Paragraph 10, then, and in each such
case, the Company and the Underwriters shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
any contribution from others) in such proportion so that the Underwriters are
responsible for the portion represented by dividing the total compensation
received by the Underwriters herein by the total purchase price of all
Securities sold in the public offering and the Company is responsible for the
remaining portion; provided, that in any such case, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of
the Act other than the Company and the Underwriters. As used in this
Paragraph 10, the term "Underwriters" includes any officer, director, or
other person who controls the Underwriters within the meaning of Section 15
of the Act, and the word "Company" includes any officer, director or person
who controls the Company within the meaning of Section 15 of the Act. If the
full amount of the contribution specified in this paragraph is not permitted
by law, then the Underwriters and each person who controls the Underwriters
shall be entitled to contribution from the Company to the full extent
permitted by law. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement.
(e) Within fifteen (15) days after receipt by any party to
this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is made against another party (the "contributing party"),
notify the contributing party of the commencement thereof, but the omission
so to notify the contributing party will not relieve it from any liability it
may have to any other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any
party, and such party notifies a contributing party or his or its
representative of the commencement thereof within the aforesaid fifteen (15)
27
<PAGE>
days, the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any
such contributing party shall not be liable to any party seeking contribution
on account of any settlement of any claim, action or proceeding effected by
such party seeking contribution without the written consent of such
contributing party. The indemnification provisions contained in this
Paragraph 10 are in addition to any other rights or remedies which either
party hereto may have with respect to the other or hereunder.
11. Representations, Warranties, Agreements to Survive Delivery.
The respective indemnity and contribution agreements by the
Underwriters and the Company contained in Paragraph 10 hereof, and the
covenants, representations and warranties of the Company and the Underwriters
set forth in this Agreement, shall remain operative and in full force and
effect for a period of one (1) year regardless of (i) any investigation made
by the Underwriters or on its behalf or by or on behalf of any person who
controls the Underwriters, or by the Company or any controlling person of the
Company or any director or any officer of the Company, (ii) acceptance of any
of the Securities and payment therefor, or (iii) any termination of this
Agreement, and shall survive the delivery of the Securities; and any
successor of the Underwriters or the Company, or of any person who controls
you or the Company or any other indemnified party, as the case may be, shall
be entitled to the benefit of such respective indemnity and contribution
agreements. The respective indemnity and contribution agreements by the
Underwriters and the Company contained in this Paragraph 11 shall be in
addition to any liability which the Underwriters and the Company may
otherwise have.
12. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 10:00 A.M., New
York time, on the first full business day following the day on which you and
the Company receive notification that the Registration Statement became
effective.
(b) This Agreement may be terminated by the Representative by
notifying the Company at any time on or before the Closing Date, if (i)
material governmental restrictions have been imposed on trading in securities
generally (not in force and effect on the date hereof) ; (ii) trading in
securities on the New York Stock Exchange, the American Stock Exchange, or in
the over-the-counter market shall have been suspended or limited; (iii) a
banking moratorium has been declared by Federal or New York State
authorities; (iv) an outbreak of international hostilities or other national
or international calamity or crisis or change in economic or political
conditions shall have occurred; (v) the Company shall have sustained a loss
material or substantial to the Company, whether or not insured, taken as a
whole by fire, flood, accident, hurricane, earthquake, theft, sabotage or
other calamity or malicious act, or from any labor dispute or court or
government action, order or decree; (vi) a pending or threatened legal or
governmental proceeding or action relating generally to the Company's
business, or a notification having been received by the Company of the threat
of any such proceeding or action, which could materially adversely affect
28
<PAGE>
the Company; (vii) except as contemplated by the Prospectus, the Company is
merged or consolidated into or acquired by another company or group or there
exists a binding legal commitment for the foregoing or any other material
change of ownership or control occurs; (viii) the passage by the Congress of
the United States or by any state legislative body or federal or state agency
or other authority of any act, rule or regulation, measure, or the adoption
of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Underwriter to have a material
impact on the business, financial condition or financial statements of the
Company or the market for the securities offered pursuant to the Prospectus;
(ix) any adverse change in the financial or securities markets beyond normal
market fluctuations having occurred since the date of this Agreement, or (x)
any material adverse change having occurred, since the respective dates of
which information is given in the Registration Statement and Prospectus, in
the earnings, business prospects or general condition of the Company,
financial or otherwise, whether or not arising in the ordinary course of
business.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Paragraph 12,
the Company shall be notified promptly by you by telephone or facsimile,
confirmed by letter.
(d) If this Agreement shall not become effective by reason of
an election of the Representative pursuant to this Paragraph 12 or if this
Agreement shall not be carried out within the time specified herein by reason
of any failure on the part of the Company to perform any material
undertaking, or to satisfy any material condition of this Agreement by it to
be performed or satisfied, the sole liability of the Company to the
Underwriters, in addition to the obligations assumed by the Company pursuant
to Paragraph 8 herein, will be to reimburse the Underwriters for the
following: (i) Blue Sky counsel fees and expenses to the extent set forth in
Paragraph 8(a)(iv); (ii) Blue Sky filing fees; and (iii) such reasonable
out-of-pocket expenses of the Underwriters (including the fees and
disbursements of their counsel), to the extent set forth in Paragraph 8(c),
in connection with this Agreement and the proposed offering of the
Securities, but in no event to exceed the sum of $100,000 less such amounts
already paid.
Notwithstanding any contrary provision contained in this Agreement,
any election hereunder or any termination of this Agreement, and whether or
not this Agreement is otherwise carried out, the provisions of Paragraph 8
and 10 hereof shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
13. Notices.
All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to the Underwriters,
shall be mailed, delivered or telegraphed and confirmed to the Representative
at Sharpe Capital, Inc., 120 Broadway, 28th Floor, New York, New York 10005,
Attention: Lawrence Hoes, with a copy thereof to Gregory Sichenzia, Esq.,
Singer Zamansky LLP, 40 Exchange Place, New York, New York 10005, and, if
sent to the Company, shall be mailed, delivered or telegraphed and confirmed
to the Company at 1880 Ormont Drive, Weston, Ontario, Canada M9L 2W7,
29
<PAGE>
Attention: Arnold Unger, Chief Executive Officer, with a copy thereof to
Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP 101 East 52nd Street,
New York, New York 10022, Attention: Arthur S. Marcus.
14. Parties.
This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Paragraph 10 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
15. Construction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York and shall supersede any
agreement or understanding, oral or in writing, express or implied, between
the Company and you relating to the sale of any of the Securities.
16. Jurisdiction and Venue.
The Company agrees that the courts of the State of New York shall
have jurisdiction over any litigation arising from this Agreement, and venue
shall be proper in the Southern District of New York.
17. Counterparts.
This agreement may be executed in counterparts.
30
<PAGE>
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
INTERCORP EXCELLE INC.
By:
-------------------------------------
Arnold Unger, Chief Executive Officer
Accepted as of the date first above
written:
SHARPE CAPITAL, INC.
By:
-----------------------------------
Lawrence Hoes, Chief Executive Officer
AEGIS CAPITAL CORPORATION
By:
-----------------------------------
Robert Eide, Chairman
31
<PAGE>
SCHEDULE A
Number of Number of
Shares to be Warrants to
Underwriter Purchased be Purchased
- ----------- ------------ ------------
Sharpe Capital, Inc. 500,000 500,000
Aegis Capital Corp. 500,000 500,000
--------- --------
Total: 1,000,000 1,000,000
--------- ---------
--------- ---------
32
<PAGE>
Exhibit 1.2
INTERCORP EXCELLE, INC.
1,000,000 shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants
SELECTED DEALER'S AGREEMENT
June __, 1997
Dear Sirs:
Sharpe Capital, Inc. ("Sharpe") is the representative (the
"Representative") of the several underwriters, which include Aegis Capital Corp.
("Aegis" and collectively with the Representative, the "Underwriters") named in
the Prospectus dated June __, 1997. The Underwriters have agreed to purchase,
subject to the terms and conditions set forth in the Underwriting Agreement
referred to in the Prospectus, an aggregate of 1,000,000 shares of common stock,
no par value per share (the "Common Stock") and 1,000,000 redeemable Common
Stock purchase warrants (the "Warrants") of Intercorp Excelle Inc. (the
"Company"), from the Company, and up to 150,000 additional shares of Common
Stock and 150,000 additional Warrants (the "Additional Securities"), pursuant to
an option for the purpose of covering over-allotments (said 1,000,000 shares of
Common Stock and 1,000,000 Warrants plus any of said Additional Securities
purchased upon exercise of the option being herein collectively called the
"Securities"). The Securities and the terms upon which they are to be offered
for sale by the Underwriter are more particularly described in the Prospectus.
1. The Securities are to be offered to the public by the Underwriters at a
price of $5.00 per share of Common Stock and $.10 per Warrant (herein
called the "Public Offering Price") and in accordance with the terms of the
offering set forth in the Prospectus.
2. The Underwriters are offering, subject to the terms and conditions hereof,
a portion of the Securities for sale to certain dealers which are members
of the National Association of Securities Dealers, Inc. ("NASD") and agree
to comply with the provisions of NASD Conduct Rule 2740 of such Association
and to foreign dealers or institutions ineligible for membership in said
Association which agree (a) not to resell Securities (i) to purchasers
located in, or to persons who are nationals of, the United States of
America or (ii) when there is a public demand for the Securities to persons
specified as those to whom members of said Association participating in a
distribution may not sell and (b) to comply, as though such foreign dealer
or institution were a member of such Association, with Rules 2730, 2740,
2420 (to the extent applicable to foreign nonmember brokers or dealers) and
Rule 2750 of such Rules (such dealers and institutions agreeing to purchase
Common Stock and/or Warrants hereunder being hereinafter referred to as
"Selected Dealers") at the Public Offering Price less a selling concession
of $.__ per share of Common Stock and $.__ per Warrant, payable as
hereinafter provided, out of which concession an amount not exceeding
<PAGE>
$.__ per share of Common Stock and $.__ per Warrant may be reallowed by
Selected Dealers to members of the National Association of Securities
Dealers, Inc. or to foreign dealers or institutions ineligible for
membership therein which agree as aforesaid. The Underwriters may be
included among the Selected Dealers.
3. The Representative shall act as your representative under this Agreement
and shall have full authority to take such action as the Representative may
deem advisable in respect to all matters pertaining to the public offering
of the Securities.
4. If you desire to purchase any of the Securities, your application should
reach us promptly by telephone or facsimile at the office of the
Underwriter, and we will use our best efforts to fill the same. We reserve
the right to reject all subscriptions in whole or in part, to make
allotments and to close the subscription books at any time without notice.
The shares of Common Stock and the Warrants allotted to you will be
confirmed, subject to the terms and conditions of this Agreement.
5. The privilege of purchasing the shares of Common Stock and the Warrants is
extended to you by the Representative only if they may lawfully sell the
Securities to dealers in your state.
6. Any of the shares of Common Stock and Warrants purchased by you under the
terms of this Agreement may be immediately reoffered to the public in
accordance with the terms of the offering set forth herein and in the
Prospectus, subject to the securities laws of the various states. Neither
you nor any other person is or has been authorized to give any information
or to make any representations in connection with the sale of Securities
other than as contained in the Prospectus.
7. This Agreement will terminate when we shall have determined that the public
offering of the Securities has been completed and upon telegraphic notice
to you of such termination, but, if not previously terminated, this
Agreement will terminate at the close of business on the 20th full business
day after the date hereof; provided, however, that we shall have the right
to extend this Agreement for an additional period or periods not exceeding
20 full business days in the aggregate upon telegraphic notice to you.
Promptly after the termination of this Agreement there shall become payable
to you the selling concession on all shares of Common Stock and Warrants
which you shall have purchased hereunder and which shall not have been
purchased or contracted for (including certificates issued upon transfer)
by us, in the open market or otherwise (except pursuant to Section 10
hereof), during the terms of this Agreement for the account of the
Underwriter.
8. For the purpose of stabilizing the market in the Common Stock and Warrants
of the Company, we have been authorized to make purchases and sales
thereof, in the open market or otherwise, and, in arranging for sale of the
Securities, to over-allot.
2
<PAGE>
9. You agree to advise us from time to time, upon request, prior to the
termination of this Agreement, of the number of Securities purchased by you
hereunder and remaining unsold at the time of such request, and, if in our
opinion any such Securities shall be needed to make delivery of the
Securities sold or over-allotted for the account of the Underwriters, you
will, forthwith upon our request, grant to us, or such party as we
determine for, our account the right, exercisable promptly after receipt of
notice from you that such right has been granted, to purchase, at the
Public Offering Price less the selling concession as we shall determine,
such number of Securities owned by you as shall have been specified in our
request.
10. On becoming a Selected Dealer and in offering and selling the Securities,
you agree to comply with all applicable requirements of the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934 and the NASD
Conduct Rules.
11. Upon application, you will be informed as to the jurisdictions in which we
have been advised that the Securities have been qualified for sale under
the respective securities or blue sky laws of such jurisdictions, but we
assume no obligation or responsibility as to the right of any Selected
Dealer to sell the Securities in any jurisdiction or as to any sale
therein.
12. Additional copies of the Prospectus will be supplied to you in reasonable
quantities upon request.
13. It is expected that public advertisement of the Securities will be made on
the first day after the effective date of the Registration Statement.
Twenty-four hours after such advertisement shall have appeared but not
before, you will be free to advertise at your own expense, over your own
name, subject to any restrictions of local laws, but your advertisement
must conform in all respects to the requirements of the Securities Act of
1933, as amended, and we will not be under any obligation or liability in
respect of your advertisement.
14. No Selected Dealer is authorized to act as our agent or to make any
representation as to the existence of an agency relationship otherwise to
act on our behalf in offering or selling the Securities to the public or
otherwise.
15. We shall not be under any liability for or in respect of the value,
validity or form of the certificates for the shares of Common Stock and
Warrants, or delivery of the certificates for the Common Stock or Warrants,
or the performance by anyone of any agreement on his part, or the
qualification of the Securities for sale under the laws of any
jurisdiction, or for or in respect of any matter connected with this
Agreement, except for lack of good faith and for obligations expressly
assumed by us in this Agreement. The foregoing provisions shall be deemed
a waiver of any liability imposed under the Securities Act of 1933.
16. Payment for the Securities sold to you hereunder is to be made at the
Public Offering Price, less the above mentioned selling concession at such
time and date as we may advise, at the office of Sharpe Capital, Inc., 120
Broadway, 28th Floor, New York, NY 10005, by certified
3
<PAGE>
or official bank check payable to the order of Sharpe Capital, Inc., in
current New York Clearing House funds at such place as we shall specify on
one day's notice to you against delivery of certificates for the Common
Stock and Warrants.
17. Notice to us should be addressed to us at the office of Sharpe Capital,
Inc., 120 Broadway, 28th Floor, New York, NY 10005. Notices to you shall
be deemed to have been duly given if telefaxed or mailed to you at the
address to which this letter is addressed.
18. If you desire to purchase any of the Securities, please confirm your
application by signing and returning to us your confirmation on the
duplicate copy of this letter enclosed herewith even though you have
previously advised us thereof by telephone or facsimile.
Dated: June __, 1997
SHARPE CAPITAL, INC.
By: ___________________________________
Accepted and agreed:
as to _________ shares of Common Stock and ___________ Warrants
this ____ day of , 1997.
By: ___________________________________
4
<PAGE>
Exhibit 1.3
AGREEMENT AMONG UNDERWRITERS
Agreement dated as of June __, 1997 between Sharpe Capital, Inc.
("Sharpe") and Aegis Capital Corporation. ("Aegis") (Sharpe and Aegis are
herein collectively referred to as the "Underwriters").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Intercorp Excelle Inc. (the "Company") has filed with the
Securities and Exchange Commission ("Commission"), a registration statement
on Form SB-2 (Registration No. 333-____) and one or more amendments thereto
(collectively, the "Registration Statement") for the public sale ("Offering")
through the Underwriters, severally and not jointly, of 1,000,000 shares of
common stock, no par value per share (the "Common Stock"), and 1,000,000
common stock purchase warrants (the "Warrants"), 500,000 shares of Common
Stock and 500,000 Warrants to be underwritten by Sharpe, and 500,000 shares
of Common Stock and 500,000 Warrants to be underwritten by Aegis, plus an
option, exercisable for a period of 45 days from the effective date of the
Registration Statement, to purchase up to an additional 150,000 shares of
Common Stock and up to 150,000 Warrants to cover over-allotments, if any (the
"Over-allotment Option"); and
WHEREAS, the Company and the Underwriters are, on the date hereof,
entering into an underwriting agreement (the "Underwriting Agreement") which
provides that the Underwriters will (a) purchase the Common Stock and
Warrants (collectively, the "Securities"), severally and not jointly, at a
price that reflects a 10% discount, (b) receive an expense allowance equal to
3% of the gross proceeds of the offering the ("Expense Allowance"), and (c)
be sold, for nominal consideration, five-year warrants to purchase up to an
aggregate of 100,000 shares of Common Stock and up to 100,000 Warrants (the
"Underwriters' Warrants").
NOW, THEREFORE, in consideration of the mutual covenants and 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. UNDERWRITING FEES AND EXPENSES. Of the 10% underwriting discount per
share of Common Stock and Warrant, each Underwriter shall receive 2% with
respect to underwritten Securities and an additional 8% with respect to
Securities actually sold. Each Underwriter shall bear its own expenses in
connection with the transactions contemplated herein, provided that the
following expenses shall be deducted from the Expense Allowance prior to
distribution: fees and disbursements of Singer Zamansky LLP, counsel to the
Underwriters in connection with the transaction (other than for blue sky matters
which, pursuant to the Underwriting Agreement, shall be borne by the Company).
It is understood amount the Underwriters that Singer Zamansky LLP is acting as
legal counsel for both the Underwriters and that the interests of one
Underwriter is not
<PAGE>
superior to the other. After such deductions, the balance of the Expense
Allowance shall be divided equally among the Underwriters. However, any
reduction in compensation payable to the Underwriters in connection with the
Offering as a result of the determination of the National Association of
Securities Dealers, Inc. that compensation had previously accrued to one, but
not both Underwriters, shall be deducted in its entirety from the compensation
otherwise payable to such Underwriter pursuant to the terms of this Agreement
2. PURCHASE OF COMMON STOCK AND WARRANTS AND OVER-ALLOTMENT OPTION. Each
Underwriter shall underwrite, severally and not jointly, the Common Stock and
Warrants set forth in the first Whereas clause hereof. Sharpe shall retain
500,000 shares of Common Stock and 500,000 Warrants; and Aegis shall retain
500,000 shares of Common Stock and 500,000 Warrants. Sharpe and Aegis shall
have the mutual right to exercise the Over-allotment Option on a pro-rata basis.
3. UNDERWRITERS' WARRANTS. Each Underwriter shall be entitled to
purchase a pro rata portion of the Underwriters' Warrants.
4. NOMINEE TO BOARD OF DIRECTORS. Sharpe and Aegis shall be entitled to
designate one mutually agreed upon nonvoting advisor to the Company's Board of
Directors as set forth in the Underwriting Agreement.
5. INDEMNITY AND CONTRIBUTION.
5.1. Each Underwriter agrees to indemnify and hold harmless the other
Underwriter, its officers, directors, partners, employees, agents, and counsel
and each person, if any, who controls any such Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act ("Control Persons"),
with respect to written information provided to the Company by such Underwriter
as stated in Section 2(c) of the Underwriting Agreement, to the extent and upon
the terms which the Underwriters agree to indemnify and hold harmless the
Company as set forth in the Underwriting Agreement.
5.2. Each Underwriter will pay as contribution, its ratable share
(based upon the number of shares of Common Stock or Warrants underwritten by
each) of any losses, liabilities, claims, or damages, joint or several, paid or
incurred by any Underwriter to any person other than an Underwriter, arising out
of, based upon, or in connection with any untrue statement or alleged untrue
statement of any material fact contained in any preliminary prospectus, the
Registration Statement, the Prospectus (as from time to time amended or
supplemented), any amendment or supplement thereto, or in any application or
other document or communication executed by or on behalf of the Company or based
upon written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Units under the "blue sky" or securities
laws thereof or filed with the Commission or any securities exchange, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (other
than a statement or omission made in reliance upon and
2
<PAGE>
in conformity with written information furnished to the Company as stated in
Section 2(c) of the Underwriting Agreement with respect to any Underwriter by or
on behalf of such Underwriter
expressly for inclusion therein); and will pay its pro rata portion of all
attorney's fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing, or defending against any such loss, liability, claim,
or damage, or any action in respect thereof and any amounts paid in settlement
of any claim or litigation. In determining the amount of each of the
Underwriters' obligation under this Section 5, appropriate adjustment will be
made to reflect any amounts received by any Underwriter in respect of such
untrue statement, alleged untrue statement, omission, or alleged omission from
the Company pursuant to Section 10 of the Underwriting Agreement or otherwise.
There shall be credited against any amount paid or payable by the Underwriters
pursuant to this Section 5.2 any loss, liability, claim, damage, or expense
which is reasonably incurred as a result of any such claim asserted against the
Underwriters (other than fees and disbursements of an Underwriter's separate
counsel if such counsel is not jointly approved by the Underwriters as provided
in the next sentence), and if such loss, liability, claim, damage, or expense is
incurred by the Underwriters subsequent to any payment by the Underwriters
pursuant to this Section 5.2, appropriate provision shall made to effect such
credit, by refund or otherwise. If any such claim is asserted or any action in
connection therewith as we jointly deem necessary or desirable, including
retaining counsel for the Underwriters, and in the Underwriters' joint
discretion separate counsel for any particular Underwriter and the fees and
disbursements of any counsel so retained shall be included in the amounts
payable pursuant to this Section 5.2.
5.3. The indemnity and contribution contained in this Section 5 shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of such other Underwriter or its officers, directors,
partners, employees, agents, counsel, or Control Persons (if any) and shall
survive the delivery of the Units to the Underwriters and the termination of
this Agreement. In determining amounts payable pursuant to Section 5.2 hereof,
any loss, liability, claim, damage or expense incurred by any person who
controls any Underwriter within the meaning of Section 15 of the Act or any
Underwriter which has been incurred by reason of such control or other
relationship shall be deemed to have been incurred by such Underwriter. Any
Underwriter shall have the right to employ its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Underwriter. No
Underwriter may settle any such claim or action without the prior written
consent of the other. Whenever an Underwriter receives notice of the assertion
of any claim or the commencement of any action to which the provisions of
Section 5.2 hereof would be applicable, such Underwriter will give prompt notice
thereof to the other Underwriter.
6. REDEMPTION OF WARRANTS. It is hereby agreed that during such period
as the redemption of the Warrants requires the mutual consent of the
Underwriters pursuant to the Underwriting Agreement.
7. BOARD OF DIRECTOR DESIGNEE. Pursuant to the provisions of the
Underwriting
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<PAGE>
Agreement, a mutually agreed upon designee of Sharpe and Aegis will be invited
to attend meetings of the Board of Directors of the Company. Subject to
obligations of confidentiality, upon the request of any other Underwriter, the
designee will inform such Underwriter on a timely basis of any material
information regarding the Company or its business or operations. Provided,
however, that nothing contained herein shall obligate such designee to attend
any meeting or meetings of the Board of Directors.
8. MISCELLANEOUS. This Agreement is made solely for the benefit of the
Underwriters and their respective officers, partners, agents, counsel and
Control Persons and their respective successors and assigns, and not other
person shall acquire or have any rights by virtue of this Agreement. The
validity, interpretation and construction of this Agreement and of each part
hereof will be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to conflicts of laws. This Agreement
constitutes the parties' full agreement and may not be modified by anything
other than a writing signed by the parties. This Agreement may be executed in
any number of counterparts, each of which may be deemed an original and all of
which together will constitute one and the same instrument.
All notices, requests, demands and other communications which are required
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given upon the delivery or mailing thereof, as the case
may be, if delivered personally or sent by registered or certified mail, return
receipt requested, postage prepaid:
(a) If to Sharpe, to:
Sharpe Capital, Inc.
120 Broadway
28th Floor
New York, NY 10005
If to Aegis, to:
Aegis Capital Corporation
70 East Sunrise Highway
Suite 415
Valley Stream, NY 11581
Attn.: Mr. Robert Eide, Chairman
(b) With a copy of all notices to either Sharpe or Aegis to:
Singer Zamansky LLP
40 Exchange Place, 20th Floor
New York, New York 10005
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<PAGE>
Attention: Gregory Sichenzia, Esq.
or to such other addresses as any party shall have specified by notice in
writing to the others.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
SHARPE CAPITAL, INC.
By: _______________________________
AEGIS CAPITAL CORPORATION
By:_______________________________
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<PAGE>
Exhibit 4.1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR TRANSFER IS IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS.
NOT EXERCISABLE PRIOR TO ___________ __, 1998. VOID AFTER 5:00 P.M., NEW YORK
TIME, __________ __, 2002.
UW-002 One Hundred Thousand (100,000) WARRANTS
UNDERWRITER'S WARRANT
Dated: , 1997
THIS CERTIFIES THAT in consideration of $10.00 duly paid Sharpe
Capital, Inc. ("Sharpe") and Aegis Capital Corp. ("Aegis") (collectively Sharpe
and Aegis referred to as the "Underwriter") or its registered assigns
(_____________ being such a registered assign, a "Holder") is the owner of this
Warrant (the "Underwriter's Warrant") to purchase from INTERCORP EXCELLE INC., a
Canadian corporation (the "Company"), during the period and at the prices
hereinafter specified, up to 100,000 shares (the "Shares"), of the Company's
common stock, no par value per share (the "Common Stock") and up to 100,000
Common Stock purchase warrants (the "Warrants" and collectively the Warrants and
the Shares are hereinafter referred to as the "Securities"). This Underwriter's
Warrant is issued pursuant to an Underwriting Agreement dated __________ __,
1997, between the Company and the Underwriter in connection with a public
offering (the "Public Offering") through the Underwriter of (i) 1,000,000 shares
of Common Stock and 1,000,000 Warrants and (ii) pursuant to the Underwriter's
Over Allotment Option (the "Over-Allotment Option") up to an additional 150,000
shares of Common Stock and 150,000 Warrants (the "Public Securities"). The
Shares and Warrants issuable pursuant to the Underwriter's Warrant shall have
the same terms and conditions as the shares of Common Stock and the Warrants
making up the
1
<PAGE>
Public Securities, as described under the caption "Description of
Securities" in the Company's Registration Statement on Form SB-2, File No.
333-____, as amended, (the "Registration Statement"), except that the Holder
shall have registration rights under the Securities Act of 1933 (the "Act"), for
the Underwriter's Warrant, the Shares and Warrants.
1. The rights represented by this Underwriter's Warrant shall be
exercisable at the prices and during the period specified below, upon the terms
and subject to the conditions set forth herein:
(a) During the period from the date hereof to ________ ___, 1997, 12
months from the effective date of the Registration Statement (the
"Effective Date") inclusive, the Holder shall have no right to
purchase any Securities hereunder.
(b) Between __________ __, 1998 and __________ __, 2002, four years
from the effective date (the "Expiration Date") inclusive, the
Holder shall have the option to purchase the Shares and the
Warrants hereunder at a price of $8.25 per Share and $0.165 per
Warrant, respectively, the purchase price of the Shares and the
Warrants being 165% above the public offering prices of the
Public Securities, subject to adjustment as provided in paragraph
8 hereof.
(c) After the Expiration Date, the Holder shall have no right to
purchase any Securities hereunder and this Underwriter's Warrant
shall expire at 5:00 P.M. on such date.
2. (a) The rights represented by this Underwriter's Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of this Underwriter's Warrant (with the purchase form at
the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then in
effect for the number of Securities specified in the above-mentioned purchase
form together with applicable stock transfer taxes, if any; and (iii) delivery
to the Company of a duly executed agreement signed by the person(s) designated
in the purchase form to the effect that such person(s) agree(s) to be bound by
the provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. This Underwriter's Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Underwriter's Warrant is surrendered and payment is
made in accordance with the foregoing provisions of this paragraph 2, and the
person or persons in whose name or names the certificates for the Securities
shall be issuable upon such exercise shall become the holder or holders of
record of such Securities at that time and date. Certificates representing the
Securities so purchased shall be delivered to the Holder within a reasonable
time, not exceeding ten (10) days, after the rights represented by this
Underwriter's Warrant shall have been so exercised.
2
<PAGE>
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) of paragraph 2, the Holder may elect to exercise this
Underwriter's Warrant in whole or in part by receiving Shares and/or Warrants
equal to the value (as determined below) of this Underwriter's Warrant at the
principal office of the Company together with notice of such election in which
event the Company shall issue to the Holder a number of Shares and/or Warrants
computed using the following formula:
X = Y(A-B)
----------
A
Where: X = the number of Shares and/or Warrants to be issued to the
Holder;
Y = the number of Shares and/or Warrants to be exercised under
this Underwriter's Warrant;
A = the current fair market value of one share of Common Stock
and/or one Warrant (calculated as described below); and
B = the Share Exercise Price and/or the Warrant Exercise Price,
as the case may be.
As used herein, the current fair market value of one share of Common
Stock shall mean the greater of (x) the average of the closing prices of the
Company's Common Stock sold on all securities exchanges on which the Common
Stock may at the time be listed and the NASDAQ National Market, or, if there
have been no sales on any such exchange or the NASDAQ National Market on such
day, the average of the highest bid and lowest asked price on such day on The
Nasdaq Stock Market or otherwise in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization (the "Market Price"), on the trading day immediately
preceding the date notice of exercise of this Underwriter's Warrant is given or
(y) the average of the Market Price per share of Common Stock for the five
trading days immediately preceding the date notice of exercise of this
Underwriter's Warrant is given. If on any date for which the Market Price per
share of Common Stock is to be determined the Common Stock is not listed on any
securities exchange or quoted on the NASDAQ National Market or on The Nasdaq
Stock Market or otherwise in the over-the-counter market, the Market Price per
share of Common Stock shall be the highest price per share which the Company
could then obtain from a willing buyer (not a current employee or director) for
shares of Common Stock sold by the Company, from authorized but unissued shares,
as determined in good faith by the Board of Directors of the Company, unless
prior to such date the Company has become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the surviving party, in
which case the Market Price per share of Common Stock shall be deemed to be the
value received by the holders of the Company's Common Stock for each share
thereof pursuant to the Company's acquisition.
3
<PAGE>
The current fair market value of one Warrant shall be determined in a like
manner, with reference to the prices per Warrant.
3. The Underwriter's Warrant shall not be transferred, sold, assigned,
pledged or hypothecated (other than by will or pursuant to the laws of descent
and distribution) for a period of one year commencing on __________ ___, 1997,
except that it may be transferred to successors of the Holder, and may be
assigned in whole or in part to any person who is an officer, director,
shareholder, employee or partner of the Underwriter or to any member of the
selling group and/or the officers, directors, shareholders, employees or
partners thereof during such period. Any such assignment shall be effected by
the Holder by (i) executing the form of assignment at the end hereof and (ii)
surrendering this Underwriter's Warrant for cancellation, together with the duly
executed form of assignment, at the office or agency of the Company referred to
in paragraph 2 hereof, accompanied by a certificate (signed by a duly authorized
officer, agent, member or other representative, as the case may be, of the
Holder), stating that each transferee is a permitted transferee under this
paragraph 3; whereupon the Company shall issue, in the name or names specified
by the Holder a new Underwriter's Warrant or Underwriter's Warrants of like
tenor and representing in the aggregate rights to purchase the same number of
Securities as are purchasable hereunder.
4. The Company covenants and agrees that all Shares issuable upon
exercise of this Underwriter's Warrants and all Common Stock issuable upon
exercise of the Warrants underlying this Underwriter's Warrants (the "Warrant
Shares") will, upon issuance thereof and receipt by the Company of payment of
the purchase price therefor in accordance with the terms hereof, be duly and
validly issued, fully paid and nonassessable and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that
during the period within which the Underwriter's Warrant may be exercised, the
Company will at all times have authorized and reserved a sufficient number of
shares of its Common Stock to provide for the exercise of the Underwriter's
Warrant and the Warrants included therein.
5. The Underwriter's Warrant shall not entitle the Holder to any voting
rights or other rights as stockholders of the Company.
6. (a)(i) During the period of seven years from the Effective Date the
Company shall advise the Holder, whether the Holder holds this Underwriter's
Warrant or has exercised this Underwriter's Warrant and holds Shares, Warrants
or Warrant Shares, by written notice at least thirty days prior to the filing of
any post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Act,
covering any securities of the Company, for its own account or for the account
of others, except for any registration statement filed on Form S-4 or S-8
(including a Form S-3 related to a Form S-8) and will, for a period of seven
years from the Effective Date, upon the request of the Holder made during such
seven year period, and subject to subparagraph 6(a)(ii), include in any such
post-effective amendment or new registration statement such information as may
be required to permit a public offering of this Underwriter's Warrant, the
Shares, the Warrant Shares and the Warrants (collectively, the
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<PAGE>
"Registerable Securities"); provided that this paragraph 6(a) shall not apply
to any registration statement filed pursuant to paragraph 6(b) hereof; and
provided, further, that, notwithstanding the foregoing, the Holder shall have
no right to include any Registerable Securities in any new registration
statement or post-effective amendment thereto unless as of the effective date
thereof, the Registration Statement (as it may hereafter be amended or
supplemented) or any new registration statement under which the Registerable
Securities are registered shall have ceased to be effective or as the
prospectus contained therein shall have ceased to be current. The Company
shall supply prospectuses and such other documents as the Holder may
reasonably request in order to facilitate the public sale or other
disposition of the Registerable Securities, use its best efforts to register
and qualify any of the Registerable Securities for sale in such states as the
Holder designates, and do any and all other acts and things which may be
necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Registerable Securities, all at no expense to the
Holder or the Underwriter, and furnish indemnification in the manner provided
in paragraph 7 hereof; provided, that, without limiting the foregoing, the
Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction. The Holder shall furnish
information and indemnification as set forth in Paragraph 7. The Company
shall continue to advise the Holders of the Registerable Securities of its
intention to file a registration statement or amendment pursuant to this
Paragraph 5(a) until the earliest of (i) seven years from the Effective Date;
(ii) such time as all of the Registerable Securities have been registered and
publicly sold under the Act; or (iii) such time as in the opinion of legal
counsel to the Company, which counsel shall be reasonably acceptable to the
Holder, the Registerable Securities may be offered and sold by the holders
thereof without being registered under the Act and any applicable state
securities laws and such securities, upon receipt by the purchasers thereof
pursuant to such sale, will not constitute "restricted securities" as such
term is defined in Rule 144 under the Act.
(ii) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to subparagraph
6(a)(i). If the underwriters or managing underwriter thereof determines that a
limitation of the number of shares to be underwritten is required, the
underwriter may exclude some or all of the Registerable Securities from such
registration (the "Excluded Registerable Securities"); provided, however, that
no other security-holder may include any such securities in such Registration
Statement if any of the Registerable Securities have been excluded from such
registration; and further provided that the Company will file a new Registration
Statement covering the Excluded Registerable Securities, at the Company's
expense, within six months after the completion of such underwritten offering.
(b) On any one occasion only, if any 50.1% Holder (as defined below)
shall give notice to the Company at any time during the three year period
beginning one year from the Effective Date to the effect that such Holder
desires to register under the Act any or all of the Registerable Securities,
under such circumstances that a public distribution (within the meaning of the
Act) of any such Registerable Securities will be involved (and the Registration
Statement or any new registration statement under which such Registerable
Securities are registered shall have ceased
5
<PAGE>
to be effective or the Prospectus contained therein shall have ceased to be
current), then the Company will promptly, but no later than 60 days after
receipt of such notice at the Company's option , file a post-effective
amendment to the current Registration Statement or a new registration
statement pursuant to the Act, so that such designated Registerable
Securities may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such
registration to become and remain effective as provided herein (including the
taking of such steps as are necessary to obtain the removal of any stop
order), provided, that such 50.1% Holder shall furnish the Company with
appropriate information in connection therewith as the Company may reasonably
request in writing. Inclusive of this demand right shall be that the 50.1%
Holder may, at its option, request the filing of a post-effective amendment
to the current Registration Statement or a new registration statement under
the Act, inclusive of the right granted by subparagraph 6(a) on one occasion
only during the six-year period beginning one year from the effective date of
the Registration Statement (the "Effective Date"). The 50.1% Holder may, at
its option, request the registration of the Underwriter's Warrant and/or any
of the securities underlying the Underwriter's Warrant in a registration
statement made by the Company as contemplated by subparagraph 6(a) or in
connection with a request made pursuant to this subparagraph 6(b) prior to
acquisition of the shares of Common Stock and/or Redeemable Warrants issuable
upon exercise of the Underwriter's Warrant. The 50.1% Holder may, at its
option, request such post-effective amendment or new registration statement
during the described period with respect to the Underwriter's Warrant, or
separately as to the Common Stock and/or Warrants issuable upon the exercise
of the Underwriter's Warrant, and such registration rights may be exercised
by the 50.1% Holder prior to or subsequent to the exercise of this
Underwriter's Warrant.
Within ten days after receiving any such notice pursuant to this
subparagraph 6(b), the Company shall give notice to any other Holder of the
Underwriter's Warrant or Registerable Securities, advising that the Company is
proceeding with such post-effective amendment or registration statement and
offering to include therein the Registerable Securities held by the other
Holder, provided that they shall furnish the Company with such appropriate
information (relating to the intentions of such Holder) in connection therewith
as the Company shall reasonably request in writing. All costs and expenses of
the post-effective amendment or new registration statement shall be borne by the
Company, except that the Holder(s) shall bear the fees of their own counsel and
any underwriting discounts or commissions applicable to any of the Registerable
Securities sold by them. The Company will maintain such registration statement
or post-effective amendment current under the Act for a period of at least nine
months (and for up to an additional three months if requested by the Holder(s))
from the effective date thereof. The Company shall provide the Holder(s) with
(x) prospectuses, in such quantities as the Holder(s) may request in order to
facilitate the public sale or other disposition of the Registerable Securities,
(y) use its best efforts to register and qualify any of the Registerable
Securities for sale in such states as Holder(s) designate (z), indemnification
in the manner provided in paragraph 7 hereof. The Company shall also deliver
promptly to the Holder, if requested, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit the Holder to do such investigation, upon reasonable
6
<PAGE>
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times as the Holder shall reasonably
request.
(c) The term "50.1% Holder" as used in this paragraph 6 shall mean
the Holder(s) of at least 50.1% of this Underwriter's Warrant, the Shares,
Warrants or Warrant Shares and shall include any owner or combination of owners
of such securities, which ownership shall be calculated by determining the
number of Shares held by such owner or owners as well as the number of shares of
Common Stock then issuable upon exercise of the Underwriter's Warrant and the
Warrants.
(d) If at any time prior to the effectiveness of the registration
statement filed in connection with an offering pursuant to this paragraph 6(b)
the 50.1% Holder shall determine not to proceed with the registration, upon
notice to the Company and the payment to the Company by the 50.1% Holder of the
Company's expenses, if any, theretofore incurred in connection with the
registration statement, the 50.1% Holder may terminate its participation in the
offering, and the registration statement previously filed shall not be counted
against the number of demand registrations permitted under this paragraph 6(b).
(e) Notwithstanding the foregoing, if the Company shall furnish to
such 50.1% Holder a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed in the near future containing the disclosure of material information
required to be included therein by reason of the federal securities laws, then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period during which such disclosure would be
seriously detrimental, provided that this period will not exceed 30 days and
provided further, that the Company shall not defer its obligation in this matter
more than once in any 12 month period.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to any Registerable Securities is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
Registerable Securities covered by such registration statement, amendment or
supplement (such Holder being hereinafter called the "Distributing Holder"), and
each person, if any, who controls (within the meaning of the Act) the
Distributing Holder, and each underwriter (within the meaning of the Act) of
such securities and each person, if any, who controls (within the meaning of the
Act) any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling person
or any such underwriter may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
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amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and will
reimburse the Distributing Holder and such controlling person or underwriter in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case, to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made (i) in such registration statement, such
preliminary prospectus, such final prospectus or such amendment or supplement in
reliance upon and in conformity with written information furnished by such
Distributing Holder or any other Distributing Holder for use in the preparation
thereof or (ii) made in any preliminary prospectus, but corrected in the final
prospectus, as amended or supplemented.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed such
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in such
registration statement or any preliminary prospectus, or final prospectus
constituting a part thereof, or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, such preliminary prospectus, such final prospectus
or such amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its
8
<PAGE>
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this paragraph 7 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation.
8. (a) The Share Exercise Price in effect at any time and the number and
kind of securities purchasable upon the exercise of the Underwriter's Warrant
shall be subject to adjustment from time to time upon the happening of certain
events hereinafter described; provided, however, that no adjustment shall be
required in respect of the shares issuable upon exercise of the Warrants.
(i) (x) If after the date hereof the Company shall subdivide or
combine the outstanding shares of Common Stock, the Share Exercise Price shall
forthwith be proportionately deceased in the case of subdivision or increased in
the case of combination. (y) In case of any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or in the case of any consolidation of the Company with, or merger
of the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holder shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consideration, merger, sale or
conveyance as if the Holder were the owner of the shares of Common Stock
underlying the Underwriters' Warrant immediately prior to any such events (but
not the Warrant Shares) at a price equal to the product of (A) the number of
shares issuable upon exercise of the Underwriters' Warrant (but not the Warrant
Shares) and (B) the Share Exercise Price in effect immediately prior to the
record date for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holder had exercised the Underwriters' Warrant. (z) If
after the date hereof and prior to the exercise and expiration of the
Underwriters' Warrant the Company shall declare a dividend (other than a
dividend consisting solely of shares of Common Stock or a cash dividend or
distribution payable out of current or retained earnings) or otherwise
distribute to the holders of Common Stock any monies, assets, property, rights,
evidences of indebtedness, securities (other than such a cash dividend or
distribution or dividend consisting solely of shares of Common Stock), whether
issued by the Company or by another person or entity, or any other thing of
value, the Holders of the unexercised Underwriters' Warrant shall thereafter be
entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise thereof, to receive, upon the exercise of such
Underwriters' Warrant, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution as if the
Holders were the owners of the shares of Common Stock underlying the
Underwriters' Warrant (but not the Warrant Shares). As the time of any such
dividend or distribution, the Company shall make appropriate reserves to ensure
the timely performance of the provisions of this Paragraph 8 (a)(i)(z).
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(ii) Whenever the Share Exercise Price is adjusted pursuant to
subparagraph 8(a)(i), or the Warrant Exercise Price is adjusted pursuant to
paragraph 8(b), the number of shares of Common Stock or Warrants, as the case
may be, issuable upon exercise of this Underwriter's Warrant shall
simultaneously be adjusted to the nearest full whole number by multiplying the
number of shares of Common Stock or Warrants, as the case may be, issuable upon
exercise of this Underwriter's Warrant by the Share Exercise Price or Warrant
Exercise Price, as the case may be, in effect on the date hereof and dividing
the product so obtained by the Share Exercise Price or Warrant Exercise Price,
as adjusted.
(iii) Notwithstanding anything to the contrary no adjustment in
the Share Exercise Price or Warrant Exercise Price shall be required (a) in the
event of the sale of the Company's securities in a future bona fide underwritten
public offering; or (b) if the amount of such adjustment shall be less than five
cents ($0.05) in the Share Exercise Price; provided, however, that any
adjustments which by reason of this subparagraph (iii)(b) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this paragraph
8(a) shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Anything in this Section 8(a) to the contrary
notwithstanding, the Company shall be entitled, but shall not be required, to
make such changes in the Share Exercise Price or Warrant Exercise Price, in
addition to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock or Warrants, or any subdivision, reclassification or combination
thereof, hereafter made by the Company shall not result in any federal income
tax liability to the holders of Common Stock or securities convertible into
Common Stock (including the Warrants issuable upon exercise of the Underwriter's
Warrant).
(iv) Whenever the Exercise Prices are adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the adjusted
Exercise Prices and the adjusted number of shares of Common Stock, Warrants or
other securities purchasable upon exercise of the Underwriter's Warrant to be
mailed to the Holder, at the addresses listed on the books of the Company, and
shall cause a certified copy thereof to be mailed to the Company's transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
paragraph 8, and a certificate signed by such firm shall be conclusive evidence
of the correctness of such adjustment.
(v) If after the date hereof, as a result of an adjustment made
pursuant to the provisions of this paragraph 8, the Holder shall become entitled
to receive any securities of the Company, other than Common Stock and the
Warrants, the exercise price and number of such other securities so receivable
upon exercise of the Underwriter's Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in subparagraphs 8(a),
inclusive of this paragraph (v).
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8. (b) In the event of an adjustment in the Share Exercise Price and the
number of Shares of Common Stock issuable upon the exercise of the Underwriter's
Warrant, pursuant to paragraph 8(a), then there shall be a proportional
adjustment in the Warrant Exercise Price and the number of Warrants issuable
upon the exercise of the Underwriter's Warrant.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, INTERCORP EXCELLE INC. has caused this Underwriter's
Warrant to be signed by its duly authorized officers, and this Underwriter's
Warrant to be dated as of the date first above written.
INTERCORP EXCELLE INC.
By: ---------------------------
Name:
Title:
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PURCHASE FORM
(To be signed only upon exercise of Underwriter's Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, ____________ Shares of INTERCORP
EXCELLE INC., no par value per share, and/or ____________ Common Stock Purchase
Warrants to purchase one (1) share of Common Stock, and herewith makes payment
of $_______________ therefor (or hereby surrenders and delivers that portion
of the Underwriter's Warrant having equivalent value (as determined in
accordance with the provisions of subparagraph (d) of paragraph 2 of the
Underwriter's Warrant)), and requests that the certificates for shares of Common
Stock and/or Warrants be issued in the name(s) of, and delivered to __________,
whose address(es) is (are):
Dated:________________, 19___
-------------------------
Signature
--------------------------
(Print name under signature)
(Signature must conform in all respects to the name of
Holder as specified on the face of the Underwriter's
Warrant).
--------------------------
(Insert Social Security or Other Identifying Number of
Holder)
12
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant)
FOR VALUE RECEIVED
----------------------------------------
hereby sells, assigns and transfers unto
------------------------------------
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _____________ Attorney, to transfer
the within Warrant on the books of INTERCORP EXCELLE INC., with full power of
substitution.
Dated:
---------------------
-----------------------------
Signature
-----------------------------
(Print name under signature)
(Signature must conform in all respects to the
name of Holder as specified on the face of the
Underwriter's Warrant.)
-----------------------------
(Insert Social Security or Other Identifying
Number of Holder)
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<PAGE>
Exhibit 4.2
INTERCORP EXCELLE, INC.
a Canadian corporation
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
Warrant Agent
and
SHARPE CAPITAL, INC.
and
AEGIS CAPITAL CORP.
WARRANT AGREEMENT
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
1. Definitions................................................................1
2. Warrants and Issuance of Warrant Certificates..............................2
3. Form and Execution of Warrant Certificates.................................3
4. Exercise...................................................................4
5. Reservation of Shares; Listing; Payment of Taxes; etc......................4
6. Exchange and Registration of Transfer......................................5
7. Loss or Mutilation.........................................................6
8. Redemption.................................................................6
9. Adjustment of Exercise Price and Number of Shares of Common Stock or
Warrants...................................................................7
10. Fractional Warrants and Fractional Shares................................13
11. Warrant Holders Not Deemed Stockholders..................................13
12. Rights of Action.........................................................13
13. Agreement of Warrant Holders.............................................14
14. Cancellation of Warrant Certificates.....................................14
15. Concerning the Warrant Agent.............................................14
16. Modification of Agreement................................................16
17. Notices..................................................................16
18. Governing Law............................................................16
19. Binding Effect...........................................................16
20. Termination..............................................................16
21. Counterparts.............................................................17
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WARRANT AGREEMENT
AGREEMENT, dated as of __________________, 1997, by and among
INTERCORP EXCELLE INC., a Canadian corporation (the "Company"), CONTINENTAL
STOCK TRANSFER & TRUST COMPANY, a New York corporation, as Warrant Agent (the
"Warrant Agent"), SHARPE CAPITAL, INC., a New York corporation ("Sharpe"), and
AEGIS CAPITAL CORP., a New York corporation ("Aegis") (collectively Sharpe and
Aegis referred to as the "Underwriter").
W I T N E S S E T H
WHEREAS, in connection with a public offering pursuant to a
registration statement (the "Registration Statement") on Form SB-2 declared
effective by the Securities and Exchange Commission on ___________________,
1997, of up to 1,000,000 shares of common stock, no par value, (the "Common
Stock") and 1,000,000 Common Stock purchase warrants (the "Warrants") (and up to
150,000 additional shares of Common Stock and Warrants covered by an
over-allotment option granted by the Company to the Underwriter), pursuant to an
underwriting agreement (the "Underwriting Agreement") dated _________________,
1997 between the Company and the Underwriter, the issuance to the Underwriter or
its designees of warrants to purchase up to an aggregate of 100,000 additional
shares of Common Stock and/or 100,000 Warrants, dated as of ___________________,
1997 (the "Underwriter's Warrants"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the authorized stock of the
Company of any class, whether now or hereafter authorized, which has the right
to participate in the distribution of earnings and assets of the Company without
limit as to amount or percentage, which at the date hereof consists of
__________ shares of Common Stock, no par value per share.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located on the date hereof at 2 Broadway,
19th Floor, New York, New York 10004.
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(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Warrant Agent, of an amount in lawful money of the United States of America
equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean, as to each
Warrant, ____________________, 1997 or earlier with the prior written consent of
the Underwriter.
(e) "Purchase Price" shall mean the price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be $6.00 per share, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right to reduce the
Purchase Price upon notice to all Warrant Holders.
(f) "Redemption Price" shall mean the price at which the Company
may, at its option, redeem the Warrants, in accordance with the terms hereof,
which price shall be $.10 per Warrant, subject to adjustment from time to time
pursuant to the provisions of Section 9.
(g) "Registered Holder" shall mean the person in whose name any
certificate representing Warrants shall be registered on the books maintained by
the Warrant Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Expiration Date" shall mean, with respect to each
Warrant, 5:00 p.m. (Eastern time) on ________________, 2001, or the Redemption
Date as defined in Section 8, whichever is earlier; provided that if such date
shall in the State of New York be a holiday or a day on which banks are
authorized to close, then 5:00 p.m. (Eastern time) on the next following day
which in the State of New York is not a holiday nor a day on which banks are
authorized to close. Upon notice to all Warrant Holders, the Company shall have
the right to extend the Warrant Expiration Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) Each Warrant shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one (1) share
of Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to
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an aggregate of 1,250,000 shares of Common Stock, subject to adjustment as
described herein, upon the exercise of Warrants in accordance with this
Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except to (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the
Underwriter's Warrant; (vi) those issued to the investors who provided bridge
loans to the Company as a result of the automatic conversion of the Bridge
Warrants; and (vi) at the option of the Company, in such form as may be approved
by its Board of Directors, to reflect any adjustment or change in the Purchase
Price, the number of shares of Common Stock purchasable upon exercise of the
Warrants or the Redemption Price therefor made pursuant to Section 9.
(e) Pursuant to the terms of the Underwriter's Warrant, the
Underwriter and its designees may purchase up to an aggregate of 100,000 shares
of Common Stock and/or 100,000 Warrants.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A, and may have such letters, numbers or other marks
of identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered
serially with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by mutual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be such officer of the Company. After countersignature by the Warrant
Agent, Warrant Certificates shall be delivered by the Warrant Agent to the
Registered Holder without further action by the Company, except as otherwise
provided by Section 4(a).
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<PAGE>
SECTION 4. EXERCISE
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder upon exercise
thereof as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date, the Warrant Agent shall deposit the
proceeds received from the exercise of a Warrant and shall notify the Company in
writing of the exercise of the Warrants. Promptly following, and in any event
within five (5) days after the date of such notice from the Warrant Agent, the
Warrant Agent, on behalf of the Company, shall cause to be issued and delivered
by the Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise
(plus a Warrant Certificate for any remaining unexercised Warrants of the
Registered Holder) unless prior to the date of issuance of such certificates the
Company shall instruct the Warrant Agent to refrain from causing such issuance
of certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of Sharpe Capital, Inc.
or such other investment banks and brokerage houses as the Company shall approve
in writing to the Warrant Agent, certificates shall immediately be issued
without prior notice to the Company or any delay. Upon the exercise of any
Warrant and clearance of the funds received, the Warrant Agent shall promptly
remit the payment received for the Warrant to the Company or as the Company may
direct in writing.
(b) If, on the Exercise Date in respect of the exercise of any
Warrant at any time on or after the first anniversary of the date hereof (i) the
market price of the Company's Common Stock is greater than the then Purchase
Price of the Warrant, (ii) the exercise of the Warrant was solicited by a member
of the National Association of Securities Dealers, Inc. ("NASD"), (iii) the
Warrant was not held in a discretionary account, (iv) disclosure of compensation
arrangements was made both at the time of the original offering and at the time
of exercise; and (v) the solicitation of the exercise of the Warrant was not in
violation of Rule 10b-6 (as such rule or any successor rule as may be in effect
as of such time of exercise) promulgated under the Securities Exchange Act of
1934, then the Warrant Agent, simultaneously with the distribution of proceeds
to the Company received upon exercise of the Warrant(s) so exercised shall, on
behalf of the Company, pay from the proceeds received upon exercise of the
Warrant(s), a fee of five percent (5%) of the Purchase Price to the Underwriter
(of which a percentage may be reallowed to the dealer who solicited the
exercise, which dealer may also be Sharpe Capital, Inc.). Within five days
after the exercise, the Warrant Agent shall send to the Underwriter a copy of
the reverse side of each Warrant exercised. The Underwriter shall reimburse the
Warrant Agent, upon request, for its reasonable expenses relating to compliance
with this Section 4(b). In addition, the Underwriter and the Company may at any
time during business hours, examine the records of the Warrant Agent, including
its ledger of original Warrant certificates returned to the Warrant Agent upon
exercise of Warrants. The provisions of this paragraph may not be modified,
amended or deleted without the prior written consent of the Underwriter and the
Company.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon exercise of Warrants, such
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<PAGE>
number of shares of Common Stock as shall then be issuable upon the exercise of
all outstanding Warrants. The Company covenants that all shares of Common Stock
which shall be issuable upon exercise of the Warrants shall, at the time of
delivery, be duly and validly issued, fully paid, nonassessable and free from
all taxes, liens and charges with respect to the issuance thereof (other than
those which the Company shall promptly pay or discharge) and that upon issuance
such shares shall be listed on each national securities exchange, if any, on
which the other shares of outstanding Common Stock of the Company are then
listed.
(b) The Company covenants that if any securities to be reserved
for the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable effort
to obtain appropriate approvals or registrations under state "blue sky"
securities laws with respect to any such securities. However, Warrants may not
be exercised by, or shares of Common Stock issued to, any Registered Holder in
any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares upon exercise of
the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requiring the same had paid to the Warrant Agent
the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock required upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants, unless the Warrant Agent
and the Transfer Agent are the same entity.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of all the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
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(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or, with the prior written
consent of the Underwriter, disposed of or destroyed, at the direction of the
Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants, which are being publicly offered with
shares of Common Stock pursuant to the Underwriting Agreement, may be purchased
separately for the shares and will be transferable separately from the Common
Stock immediately.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. REDEMPTION
(a) Commencing 12 months from the effective date of the
Registration Statement (or earlier, with the prior written consent of the
Underwriter) on not less than thirty (30) days prior written notice, the
Warrants may be redeemed, at the option of the Company, at a redemption price of
$0.10 per Warrant, provided the closing bid price of the Company's Common Stock
on The Nasdaq Stock Market, or the last sale price, if listed on the Nasdaq
National Market or a national exchange, as reported by the National Quotation
Bureau, Incorporated has been at least 150% of the then exercise price of the
Warrant to be called, for a period of 20 consecutive trading days ending on the
third day prior to the day on which notice is given during the period in which
the Warrants are exercisable. Any redemption in part shall be made pro rata to
all Warrant holders. The redemption notice shall be mailed to the holders of
the Warrants
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at their respective addresses appearing in the Warrant register. Holders of the
Warrants will have exercise rights until the close of business on the date fixed
for redemption.
(b) In case the Company shall desire to exercise its right to so
redeem the Warrants, it shall request the Warrant Agent, or the Underwriter, if
the date fixed for redemption is on or after the first anniversary of the date
hereof, to mail a notice of redemption to each of the Registered Holders of the
Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth (30th) day before the date fixed for redemption, at their last address
as shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the Redemption
Price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, (iv) that Sharpe
Capital, Inc. will assist each Registered Holder of a Warrant in connection with
the exercise thereof (if Sharpe Capital, Inc. has conducted, or caused to be
conducted, the mailing) and (v) that the right to exercise the Warrant shall
terminate at 5:00 p.m. (Eastern time) on the business day immediately preceding
the date fixed for redemption shall be the Redemption Date. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Warrant Agent or of the Secretary or an Assistant Secretary of Sharpe
Capital, Inc. or the Company that notice of redemption has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant that has been called for
redemption shall terminate at 5:00 p.m. (Eastern time) on the business day
immediately preceding the Redemption Date. On and after the Redemption Date,
Holders of the redeemed Warrants shall have no further rights except to receive,
upon surrender of the redeemed Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
Redemption Price of each such Warrant. From and after the date fixed for
redemption and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF
COMMON STOCK OR WARRANTS.
(a) Subject to the exceptions referred to in Section 9(g), in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the current Purchase Price or issue any shares of Common Stock as a stock
dividend to the holders of Common Stock, or subdivides or combines the
outstanding shares of
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Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision or combination being herein called a "Change or Shares"), then, and
thereafter upon each further Change of Shares, the applicable Purchase Price in
effect immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent) determined by multiplying the
Purchase Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares and (b) the number of
shares of Common Stock which the aggregate consideration received by the Company
upon such sale, issuance, subdivision or combination (determined in accordance
with subsection f(vi) below) could have purchased at the then current Purchase
Price, and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately after such Change of Shares.
Upon each adjustment of the applicable Purchase Price pursuant to
this Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b)) be such number of shares (calculated to the nearest tenth) purchasable at
the applicable Purchase Price immediately prior to such adjustment multiplied by
a fraction, the numerator of which shall be the applicable Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the applicable Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the applicable
Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu
of adjusting the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the applicable Purchase Price in effect immediately prior to such
adjustment and the denominator of which shall be the applicable Purchase Price
in effect immediately after such adjustment. Upon each such adjustment of the
number of Warrants, the Redemption Price in effect immediately prior to such
adjustment also shall be adjusted by multiplying such Redemption Price by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately after such adjustment and the denominator of which shall be the
Purchase Price in effect immediately prior to such adjustment. Upon each
adjustment of the number of Warrants pursuant to this Section 9, the Company
shall, as promptly as practicable, cause to be distributed to each Registered
Holder of Warrant Certificates on the date of such adjustment Warrant
Certificates evidencing, subject to Section 10, the number of additional
Warrants, if any, to which such Holder shall be entitled as a result of such
adjustment or, at the option of the Company, cause to be distributed to such
Holder in substitution and replacement for the Warrant Certificates held by him
prior to the date of adjustment (and upon surrender thereof, if required by the
Company) new Warrant Certificates evidencing the number of Warrants to which
such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind
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and number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant,
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(f), continue to express the applicable Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
thereunder and the Redemption Price therefor as were expressed in the Warrant
Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
applicable Purchase Price as so adjusted, (ii) the number of shares of Common
Stock purchasable upon exercise of each Warrant after such adjustment, and, if
the Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to the Underwriter and to each
registered holder of Warrants at his last address as it shall appear on the
registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
of the Warrant Agent or the Secretary or an Assistant Secretary of the Company
that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vi) shall also be applicable:
(i) The number of shares of Common Stock outstanding at
any given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No Adjustment of the Purchase Price shall be made
unless such adjustment would require an increase or decrease of at least $0.05
in such price; provided that any adjustments which by reason of this clause (ii)
are not required to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment which, together with
any adjustment(s) so carried forward, shall require an increase or decrease of
at least $0.05 in the Purchase Price then in effect hereunder.
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(iii) In case of (1) the sale by the Company solely for cash
of any rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or any securities convertible into or exchangeable for
Common Stock without the payment of any further consideration other than cash,
if any (such convertible or exchangeable securities being herein called
"Convertible Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, in each case, if (and only if) the consideration
payable to the Company upon the exercise of such rights, warrants or options
shall consist solely of cash, whether or not such rights, warrants or options,
or the right to convert or exchange such Convertible Securities, are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than the then current Purchase Price
immediately prior to the date of the issuance or sale of such rights, warrants
or options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed
to have been sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company solely for cash of
any Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the then Purchase Price
immediately prior to the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(v) If the exercise or purchase price provided for in any
right, warrant or option referred to in clause (iii) above, or the rate at which
any Convertible Securities referred to in clause (iii) or (iv) above are
convertible into or exchangeable for Common Stock, shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have been obtained (1) had the
adjustments made upon the issuance or sale of such rights, warrants, options or
Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities, (2)
had adjustments been made on the
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basis of the Purchase Price as adjusted under clause (1) for all transactions
(which would have affected such adjusted Purchase Price) made after the issuance
or sale of such rights, warrants, options or Convertible Securities, and (3) had
any such rights, warrants, options or Convertible Securities then still
outstanding been originally issued or sold at the time of such change. On the
expiration of any such right, warrant or option or the termination of any such
right to convert or exchange any such Convertible Securities, the Purchase Price
then in effect hereunder shall forthwith be readjusted to such Purchase Price as
would have been obtained (a) had the adjustments made upon the issuance or sale
of such rights, warrants, options or Convertible Securities been made upon the
basis of the issuance of only the number of shares of Common Stock theretofore
actually delivered (and the total consideration received therefor) upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities and (b) had adjustments been made on the basis of
the Purchase Price as adjusted under clause (a) for all transactions (which
would have affected such adjusted Purchase Price) made after the issuance or
sale of such rights, warrants, options or Convertible Securities.
(vi) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price or to the number of
shares of Common Stock purchasable upon the exercise of each Warrant will be
made, however:
(i) upon the grant or exercise of any other options which
may hereafter be granted or exercised under any employee benefit plan of the
Company as described in the Registration Statement; or
(ii) upon the sale or exercise of the Warrants, including
without limitation the sale or exercise of any of the Warrants underlying the
Underwriter's Warrants; or
(iii) upon the sale of any shares of Common Stock in the
public offering pursuant to the Registration Statement, including, without
limitation, shares sold upon the exercise of any over-allotment option granted
to the Underwriter in connection with such offering; or
(iv) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, outstanding on the date of the original sale of the Warrants;
(v) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities outstanding on the date of
the original sale of the Warrants, whether or not any adjustment in the Purchase
Price was made or required to be made upon the issuance or sale of such
Convertible Securities; or
(vi) upon any amendment to or change in the terms of any
rights or warrants to subscribe for or purchase, or options for the purchase of,
Common Stock or Convertible
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Securities or in the terms of any Convertible Securities, including, but not
limited to, any extension of any expiration date of any such right, warrant or
option, any change in any exercise or purchase price provided for in any such
right, warrant or option, any extension of any date through which any
Convertible Securities are convertible into or exchangeable for Common Stock or
any change in the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock (other than rights, warrants, options or
Convertible Securities issued or sold after the close of business on the date of
the original issuance of the Units (i) for which an adjustment in the Purchase
Price then in effect was theretofore made or required to be made, upon the
issuance or sale thereof, or (ii) for which such an adjustment would have been
required had the exercise or purchase price of such rights, warrants or options
at the time of the issuance or sale thereof or the rate of conversion or
exchange of such Convertible Securities, at the time of the sale of such
Convertible Securities, or the issuance or sale of rights or warrants to
subscribe for or purchase, or options for the purchase of, such Convertible
Securities, been the price or rate as changed, in which case the provisions of
Section 9(f)(v) hereof shall be applicable if, but only if, the exercise or
purchase price thereof, as changed, or the rate of conversion or exchange
thereof, as changed, consists solely of cash or requires the payment of
additional consideration, if any, consisting solely of cash or requires the
payment of additional consideration, if any, consisting solely of cash and the
Company did not receive any consideration other than cash, if any, in connection
with such change).
(h) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issuance of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issuance of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each of the then
Registered Holders of the Warrants all of such rights, warrants or options to
which each such holder would have been entitled if, on the date of determination
of stockholders entitled to the rights, warrants or options being granted by the
Company, such holder were the holder of record of the number of whole shares of
Common Stock then issuable upon exercise (assuming, for purposes of this Section
9(j), that the exercise of Warrants is permissible during periods prior to the
Initial Warrant Exercise Date) of his Warrants. Such grant by the
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Company to the holders of the Warrants shall be in lieu of any adjustment which
otherwise might be called for pursuant to this Section 9.
SECTION 10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
shall nevertheless not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq National Market, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of the Warrant, or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to
unlisted trading privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of the Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. RIGHTS OF ACTION. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificates and this Agreement.
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SECTION 13. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant,
by his acceptance thereof, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the Warrant
Agent and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 14. CANCELLATION OF WARRANT CERTIFICATES. If the Company
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be delivered to the
Warrant Agent and canceled by it and retired. The Warrant Agent shall also
cancel Common Stock following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, split-up, combination or exchange.
SECTION 15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make many representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company or for the Underwriter) and shall incur
no liability or responsibility for any action taken, suffered or omitted by it
in good faith in accordance with the opinion or advice of such counsel.
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Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or willful
misconduct.
In the event of a dispute under this Agreement between the Company and
the Underwriter regarding proceeds received by the Warrant Agent from the
exercise of the Warrants, the Warrant Agent shall have the right, but not the
obligation, to bring an interpleader action to resolve such dispute.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability
of the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court shall be a bank or trust company having a capital
and surplus as shown by its last published report to its stockholders, of not
less than Ten Million ($10,000,000.00) Dollars, or a stock transfer company.
After acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
15
<PAGE>
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. MODIFICATION OF AGREEMENT. Subject to the provisions of
Section 4(b), the Warrant Agent and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; or (ii) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the holders of Warrant Certificates; PROVIDED, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Holders of Warrant Certificates
representing not less than 50% of the Warrants then outstanding; and PROVIDED,
FURTHER, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed.
SECTION 17. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at
the address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company, at 1880 Ormont Drive, Weston, Ontario, Canada
M9L 2V4, Attention: Arnold Unger, or at such other address as may have been
furnished to the Warrant Agreement in writing by the Company; if to the Warrant
Agent, at Continental Stock Transfer & Trust Company, 2 Broadway, 19th Floor,
New York, New York 10004; if to Sharpe Capital, Inc., at 120 Broadway, 28th
Floor, New York, New York 10005, Attention: President.
SECTION 18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent and the Underwriter, and
their respective successors and assigns, and the holders from time to time of
the Warrant Certificates. Nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or claim, in equity
or at law, or to impose upon any other person any duty, liability or obligation.
SECTION 20. TERMINATION. This Agreement shall terminate at the close
of business on the Expiration Date of all the Warrants of such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
16
<PAGE>
SECTION 21. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed as of the date first above written.
INTERCORP EXCELLE INC.
By: ______________________________________
Authorized Officer
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By: ______________________________________
Authorized Officer
SHARPE CAPITAL, INC.
By: ______________________________________
Authorized Officer
AEGIS CAPITAL CORP.
By: ______________________________________
Authorized Officer
17
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ________ (_____) Warrants
VOID AFTER ___________, 2001
REDEEMABLE WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
INTERCORP EXCELLE INC.
This certifies that FOR VALUE RECEIVED _______________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, no par value,
of Intercorp Excelle Inc., a Canadian corporation (the "Company"), at any time
between ______________, 1997 (or earlier with the prior written consent of
Sharpe Capital, Inc. and the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of Continental
Stock Transfer & Trust Company as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $5.00 per share (the "Purchase Price") in
lawful money of the United States of America in cash or by official bank or
certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
______________, 1997, by and among the Company, the Warrant Agent, Sharpe
Capital, Inc., and Aegis Capital Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (Eastern time) on
_______________, 2001, or such earlier date as the Warrants shall be redeemed.
If such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall be 5:00 p.m.
(Eastern time) the next day which in the State of New York is not a holiday nor
a day in which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration statement and
will use its best efforts
18
<PAGE>
to cause the same to become effective and to keep such registration statement
current while any of the Warrants are outstanding. This Warrant shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment together with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing ________________, 1997 (or earlier, with the prior written
consent of Sharpe Capital, Inc. and Aegis Capital Corp.), this Warrant may be
redeemed at the option of the Company, at a Redemption Price of $0.10 per
Warrant, provided the closing bid price of the Company's Common Stock on the
Nasdaq SmallCap Market as reported by the National Quotation Bureau,
Incorporated (or the last sale price, if quoted on a national securities
exchange) exceeds 150% of the then exercise price of the Warrant to be called
for a period of 20 consecutive trading days ending on the third day prior to the
day on which notice is given during the period in which the Warrants are
exercisable. Notice of redemption shall be given not later than the thirtieth
(30th) day before the date fixed for redemption, all as provided in the Warrant
Agreement. On and after the date fixed for redemption, the Registered Holder
shall have no rights with respect to this Warrant except to receive the $0.10
per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of five percent (5%) of the Purchase
Price upon certain conditions as specified in the Warrant Agreement upon the
exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
19
<PAGE>
Dated: _______________
INTERCORP EXCELLE, INC.
__________________________ By: _______________________________
Chairman
__________________________ By:_________________________________
Secretary
[seal]
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By: ___________________________
Authorized Officer
20
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
__________________ (________________) Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and be delivered to
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"). If not solicited by an NASD member, please write "unsolicited" in the
space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by Sharpe
Capital, Inc. or Aegis Capital Corp.
________________________________
21
<PAGE>
Name of NASD Member if other than Sharpe
Capital, Inc. or Aegis Capital Corp.
Dated: _________________________ ________________________________
Signature
________________________________
Street Address
________________________________
City, State and Zip Code
________________________________
Taxpayer ID Number
Signature Guaranteed:
________________________________
22
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________________
_________________________________
_________________________________
_________________________________
[please print or type name and address]
___________________ (_____________) of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: ______________________ ________________________________
Signature Guaranteed:
________________________________
THE SIGNATURE MUST BE GUARANTEED BY A MEDALLION BANK.
23
<PAGE>
Exhibit 10.1
CONSULTING AGREEMENT
June __, 1997
Intercorp Excelle, Inc.
1880 Ormont Drive
Weston, Ontario M9L2W7
Attention: Arnold Unger, CEO
Gentlemen:
This will confirm the arrangements, terms and conditions pursuant to
which Sharpe Capital, Inc. ("Sharpe") and Aegis Capital Corp. ("Aegis") (Sharpe
and Aegis collectively referred to as the "Consultants") have been retained to
serve as consultants and advisors to Intercorp Excelle Inc., a Canadian
corporation (the "Company"), on a non-exclusive basis for the term set forth in
Section 2 below. The undersigned hereby agree to the following terms and
conditions:
1. DUTIES OF CONSULTANT.
(a) CONSULTING SERVICES. Consultants will provide such financial
consulting services and advice pertaining to the Company's business affairs as
the Company may from time to time reasonably request. Without limiting the
generality of the foregoing, Consultants will assist the Company in developing,
studying and evaluating financing, merger and acquisition proposals, prepare
reports and studies thereon when advisable, and assist in negotiations and
discussions pertaining thereto.
(b) FINANCING. Consultants will assist and represent the Company in
obtaining both short and long-term financing, when so requested by the Company.
The Consultants will be entitled to additional compensation under such terms as
may be agreed to by the parties.
(c) WALL STREET LIAISON. Consultants will, when appropriate, arrange
meetings between representatives of the Company and individuals and financial
institutions in the investment community, such as security analysts, portfolio
managers and market makers.
The services described in this Section 1 shall be rendered by
Consultants without any direct supervision by the Company and at such time and
place and in such manner (whether by conference, telephone, letter or otherwise)
as Consultants may determine.
<PAGE>
2. TERM.
This Agreement shall continue for a period of thirty-six months from
the date hereof (the "Term").
3. COMPENSATION.
(a) As compensation for Consultants' services hereunder, the Company
shall pay to Consultants the sum of $88,000 (an aggregate of three thousand
($2,444.44) dollars per month), all of which shall be due and payable as of the
date hereof.
4. RELATIONSHIP. Nothing herein shall constitute Consultants as
employees or agents of the Company, except to such extent as might hereinafter
be agreed upon for a particular purpose. Except as might hereinafter be
expressly agreed, Consultants shall not have the authority to obligate or commit
the Company in any manner whatsoever.
5. CONFIDENTIALITY. Except in the course of the performance of its
duties hereunder, Consultants agree that they shall not disclose any trade
secrets, know-how, or other proprietary information not in the public domain
learned as a result of this Agreement unless and until such information becomes
generally known.
6. ASSIGNMENT AND TERMINATION. This Agreement shall not be assignable by
any party except to successors to all or substantially all of the business of
either party for any reason whatsoever without the prior written consent of the
other party, which consent may be arbitrarily withheld by the party whose
consent is required.
Very truly yours,
Sharpe Capital, Inc.
By:
-----------------------
Lawrence Hoes, CEO
Aegis Capital Corp.
By:
-----------------------
Robert Eide, Chairman
AGREED AND ACCEPTED:
Intercorp Excelle, Inc.
By:
-------------------------
Arnold Unger, CEO
2
<PAGE>
Exhibit 21.1
SUBSIDIARIES
Excelle Brand Foods Corporation, an Ontario corporation
Kalmath Investments Limited, an Ontario corporation
Intercorp Foods Ltd., an Ontario corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 12, 1997, June 24, 1997 and August 18, 1997
in the Amendment No. 1 to the Registration Statement (Form SB-2) and related
Prospectus of Intercorp Excelle Inc. for the registration of 1,065,000 shares of
its common stock and 1,065,000 redeemable common stock purchase warrants.
/s/ SCHWARTZ LEVITSKY FELDMAN
--------------------------------------
Schwartz Levitsky Feldman
August 21, 1997
Toronto, Ontario
