<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CURTIS INTERNATIONAL LTD.
(Name of small business issuer as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
ONTARIO 5064 98-0154299
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. No.)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------
7 KODIAK CRESCENT
DOWNSVIEW, ONTARIO M3J 3E5
(416) 636-5553
(Address and telephone number of principal executive offices and principal place
of business)
------------------------------
AARON HERZOG, PRESIDENT
CURTIS INTERNATIONAL LTD.
7 KODIAK CRESCENT
DOWNSVIEW, ONTARIO M3J 3E5
(416) 636-5553
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. DALE S. BERGMAN, P.A.
ARTHUR S. MARCUS, ESQ. LINDA C. FRAZIER, ESQ.
GERSTEN, SAVAGE, KAPLOWITZ BROAD AND CASSEL
& FREDERICKS, LLP 201 SOUTH BISCAYNE BOULEVARD
101 EAST 52ND STREET, 9TH FLOOR SUITE 3000
NEW YORK, NEW YORK 10022 MIAMI, FLORIDA 33131
(212) 752-9700 (305) 373-9400
(212) 752-9713 (FAX) (305) 373-9493 (FAX)
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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
MAXIMUM PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE MAXIMUM REGISTRATION
SECURITIES BEING REGISTERED REGISTERED PER SECURITY OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, no par value................. 1,897,500(1) $5.00 $9,487,500 $2,798.81
Underwriters' Warrants..................... 165,000 $.0001 $100.00 (2)
Common Stock Issuable on Exercise of
Underwriters' Warrant.................... 165,000 $5.50 $907,500 $267.71
Total Registration Fee..................... $3,066.52
</TABLE>
(1) Includes up to 247,500 shares of Common Stock issuable upon exercise of the
Underwriters' over- allotment option.
(2) No fee due pursuant to Rule 457(g).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 12, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
CURTIS INTERNATIONAL LTD.
1,650,000 SHARES
This Prospectus relates to an offering (the "Offering") of 1,650,000 shares
(collectively, the "Shares") of common stock, no par value per share (the
"Common Stock"), of Curtis International Ltd., an Ontario corporation (the
"Company"), through Barber & Bronson Incorporated (the "Representative"), the
representative of the underwriters (the "Underwriters"). Of such Shares,
1,498,000 Shares are being sold by the Company and 152,000 Shares (the "Selling
Stockholder Shares") are being sold by Ranch Limited (the "Selling
Stockholder"). The Company will not receive any of the proceeds from the sale of
the Selling Stockholder Shares. The Shares and the Selling Stockholder Shares
shall hereinafter be referred to as the "Securities."
Prior to the Offering, there has been no market for the Common Stock, 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 on Nasdaq National Market
under the trading symbol "CURTF."
The public offering price of the Shares was determined by negotiation
between the Company and the Representative and does 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
9 AND "DILUTION" ON PAGE 16.
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>
<S> <C> <C> <C> <C>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
Per Share............................ $5.00 $.50 $4.50 $4.50
Total(3)............................. $8,250,000 $825,000 $6,741,000 $684,000
</TABLE>
(1) Excludes the value of warrants to be issued to the Underwriters (the
"Underwriters' Warrants") to purchase up to 165,000 shares of the Company's
Common Stock. In addition, the Company also agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting the Underwriters' non-accountable expense allowance,
financial consulting fee and other expenses of the Offering, estimated at
$607,200 payable by the Company. See "Underwriting."
(3) The Company has granted the Underwriters an option, exercisable for 45 days
after the date the Securities and Exchange Commission declares the Company's
registration statement effective (the "Effective Date") to purchase up to an
additional 247,500 shares of Common Stock 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 Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholder will be $9,487,500, $948,750, $7,854,750 and $684,000,
respectively. See "Underwriting."
The Shares 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 will be made against payment therefor at the offices of
Barber & Bronson Incorporated, 201 South Biscayne Boulevard, Suite 2950, Miami,
Florida 33131 on or about , 1998.
BARBER & BRONSON INCORPORATED
, 1998
<PAGE>
[PICTURES OF THE COMPANY'S PRODUCTS]
2
<PAGE>
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED FINANCIAL STATEMENTS AND TO MAKE AVAILABLE QUARTERLY REPORTS
FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR CONTAINING UNAUDITED INTERIM
FINANCIAL STATEMENTS.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET
PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN
THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR
SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
The Company and its officers, directors and auditors are residents of Canada
and consequently 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, 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 believes that a judgment of a United States court predicated solely upon
civil liability under the Securities Act would probably be enforceable in Canada
if the United States court in which the judgment was obtained 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 informed
by its Canadian legal counsel Grubner, Krauss 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
3
<PAGE>
exchange rates on the last day of each month during such periods. On February
28, 1998, the exchange rate was Cdn$1.00 per US$0.7024.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1994 1995 1996 1997
--------- --------- --------- ---------
RATE AT END OF PERIOD................................................. $ 0.7143 $ 0.7353 $ 0.7299 $ 0.6991
AVERAGE RATE DURING PERIOD............................................ 0.7299 0.7299 0.7353 0.7223
HIGH.................................................................. 0.7092 0.7009 0.7212 0.6945
LOW................................................................... 0.7642 0.7533 0.7526 0.7493
</TABLE>
The following discussion should be read in conjunction with the preceding
Selected Financial Data and the Company's Financial Statements and the Notes
thereto and the other financial data included elsewhere in this Prospectus. This
Prospectus contains forward-looking statements regarding the plans and
objectives of management for future operations. The forward-looking statements
included herein are based on current expectations and assumptions that involve
numerous risks and uncertainties. Although management believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate and, therefore, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
4
<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 "CURTIS" OR "COMPANY" REFERS TO CURTIS
INTERNATIONAL LTD. AS WELL AS ANY PREDECESSORS. ALL INFORMATION IN THIS
PROSPECTUS, UNLESS OTHERWISE NOTED, ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT
OPTION OR THE UNDERWRITERS' WARRANTS.
THE COMPANY
Curtis International Ltd. designs, distributes and markets quality,
value-priced consumer electronics products. The Company offers a broad line of
telecommunication, audio, video and computer products including, telephones,
answering machines, caller ID systems, CD and cassette systems, portable
televisions and computer accessories. The Company's products are primarily sold
under the brand names "Curtis" and "CTP Worx," as well as private labels. The
Company's strategy has been to build a portfolio of diverse consumer electronics
products which offers retailers flexible merchandising programs. The Company's
products are available in approximately 2,300 stores throughout Canada and
10,000 stores in the United States through approximately 30 retail chains in
Canada and the United States.
The Company's customers include mass merchandisers such as Wal-Mart
(Canada), Ames, Bradlees, Dollar General and Bi-Way Stores; drug store chains
such as Rite-Aid, London Drugs, Thrifty Payless, Jean Coutu and Ker Drugs;
specialty marketers such as QVC, the Home Shopping Network and Amway; consumer
electronic retailers such as Future Shop, Fry's and ABC Warehouse; and Appliance
and department stores such as Boscov and Fedco. The Company has consistently
operated profitably and has recently undergone a period of rapid sales growth.
For the nine month period ended February 28, 1998, the Company's sales increased
by $10,848,569, or 94.4%, from $11,493,389 to $22,341,958 from the comparable
period ended February 28, 1997. The Company only entered the United States
market in 1996 and has since opened accounts with 20 retail chains in the United
States. The Company's sales in the United States were $9,454,563 for the nine
months ended February 28, 1998 as compared to $1,463,064 for the nine months
ended February 28, 1997, an increase of 546%. The Company believes there is an
opportunity to significantly increase its business in the United States through
both its current customers and potential new customers.
THE CONSUMER ELECTRONICS INDUSTRY
The consumer electronics industry is large and diverse, encompassing a wide
variety of technologies and products, including televisions, VCRs, audio
systems, CD players, cassette players and telephones. The Consumer Electronics
Manufacturers Association ("CEMA") estimates that total factory sales of
consumer electronics products in 1997 were approximately $74 billion, an
increase of 8.9% from 1996. CEMA estimates that factory sales will grow to
approximately $86 billion by the year 2000 and believes that the consumer
electronics industry is one of the fastest growing sectors of the United States
economy. It is estimated that in 1998 the average United States household will
spend $825 on consumer electronics products and by the year 2000 that figure
will grow to approximately $1,100 per year.
GROWTH STRATEGY
Distributors have traditionally offered consumer electronics to retailers
using three principal branding strategies and corresponding price points: (i)
premium brands, such as Sony and Panasonic; (ii) mass-market brands, such as
General Electric and Magnavox; and (iii) value-priced brands, such as those of
the Company. The Company plans to continue to establish itself as a leading
supplier of quality, value-priced consumer electronics products. The Company
believes that its broad portfolio of products, superior design capabilities,
flexible and low-cost sourcing and superior service offered both prior to and
after-sale provide
5
<PAGE>
it with distinct competitive advantages. The Company plans to grow its business
using a strategy comprised of the following principal elements:
- CONTINUE TO OFFER VALUE-PRICED, QUALITY PRODUCTS. The Company designs and
markets products which are value-priced, yet fill a market void through
their design and up-to-date style. The Company's packaging further
distinguishes its products in the marketplace from those of its
competitors. The Company plans to continue to offer its customers quality
products at competitive prices.
- EXPAND CUSTOMER BASE. The Company believes that it has significant
opportunities to expand its customer base both in Canada and the United
States. The Company intends to use its existing relationships in Canada
with retailers such as Wal-Mart, Staples and Toys "R" Us, to penetrate the
United States market in such retailers' stores. In addition, the Company
continually seeks to expand its distribution channels through various
means. For example, the Company recently agreed to supply the Home
Shopping Network with its personal televisions.
- INCREASE PENETRATION AND SALES TO EXISTING UNITED STATES CUSTOMERS. In
the short period in which the Company has focused significant marketing
efforts in the United States, it has established relationships with
several major retailers. The Company plans to focus its efforts on
broadening its product selection being sold by these retailers and
substantially increasing the dollar volume of sales to these existing
customers.
- ACQUIRE AND LICENSE ADDITIONAL PRODUCTS. Discount retail chains and mass
merchants limit the number of vendors with which they deal, preferring to
deal with a limited number of vendors with a wide range of products. The
Company has an extensive line of products and strives to fill
substantially all of its customers' electronic requirements. The Company
believes it can add additional product lines, both through acquisition and
licensing, which will allow it to add to its already wide selection of
consumer electronics products.
- DEVELOP STRATEGIC ALLIANCES. The Company intends to develop strategic
alliances with large discount chain stores and mass merchants. Management
believes that many retailers whose primary business is not consumer
electronics look for a strategic alliance with a vendor who has the
experience, customer service and product selection to create a successful
consumer electronics program in their stores. Development of strategic
alliances whereby the Company provides these services in exchange for
commitments to stock and sell the Company's products will assist the
Company in the establishment of long-term relationships with such discount
chain stores and mass merchants.
Curtis International Ltd. was incorporated in the Province of Ontario on
December 12, 1990. The Company subsequently amalgamated (or merged) with Unique
Investments Limited and AEG Trading Limited on January 23, 1998 and Worldwide
Holdings Limited on May 29, 1998. The amalgamations were effectuated for the
purpose of transferring the Company's ownership from corporate entities to
individuals and to reduce the Company's outstanding shares to 4,000,000. In both
cases, the Company was the surviving entity. The Company's principal executive
offices are located at 7 Kodiak Crescent, Downsview, Ontario M3J 3E5 Canada and
its telephone number is (416) 636-5553.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered:.......... 1,498,000 Shares of Common Stock by the Company and 152,000
Shares of Common Stock by the Selling Stockholder. See
"Description of Securities" and "Underwriting."
Common Stock Outstanding
Prior to the
Offering(1):............... 4,000,000
Common Stock Outstanding
After the
Offering(1)(2):............ 5,498,000
Use of Proceeds:............. The Company intends to use the net proceeds of this Offering
to purchase inventory, repay indebtedness, increase sales
and marketing efforts, improve its management information
system, relocate its existing facilities and for working
capital and general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National
Market Symbol (3):......... CURTF
</TABLE>
- ------------------------
(1) Does not include an aggregate of 400,000 shares of Common Stock reserved for
issuance upon the exercise of options available for future grant under the
Company's 1998 Stock Option Plan (the "Plan"), none of which have been
granted. See "Management-Stock Option Plan."
(2) Assumes no exercise of the Over-Allotment Option or Underwriters' Warrants.
(3) The proposed symbol does not imply that a liquid and active market will
develop or be sustained for the Shares upon completion of the Offering.
7
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION
The following summary financial information has been derived from the
financial statements of the Company. The summary financial information set forth
below is qualified by and should be read in conjunction with the financial
statements, including the notes thereto and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MAY 31, FEBRUARY 28,
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
------------- ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA
Sales............................................... $ 14,627,378 $ 14,914,142 $ 11,493,389 $ 22,341,958
Gross profit........................................ 2,714,451 2,740,394 2,098,812 3,999,330
Income from operations.............................. 133,677 123,379 122,170 1,245,772
Net income.......................................... 100,347 93,001 96,440 745,364
Earnings per share(1)............................... .03 .02 .02 .19
</TABLE>
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1998
----------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(2)
------------ --------------
BALANCE SHEET DATA
Working capital..................................................................... $ 1,545,073 $ 6,686,873
Total assets........................................................................ 9,696,437 14,830,237
Long-term debt...................................................................... 371,134 371,134
Total liabilities................................................................... 8,275,096 7,275,096
Stockholders' equity................................................................ 1,421,341 7,555,141
</TABLE>
- ------------------------
(1) Based on a weighted average number of shares outstanding of 4,000,000 shares
in each of the applicable periods.
(2) As adjusted to reflect the sale by the Company of the 1,498,000 Shares
offered hereby and the application of the net proceeds therefrom. See "Use
of Proceeds."
8
<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 SHARES 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 SHARES
OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS AND MARKET ACCEPTANCE. The
Company's continued success is dependent upon its ability to continue to
identify, obtain and develop products that can be successfully sold to retail
chains and other mass merchants at acceptable profit margins. There can be no
assurance that the Company will be able to successfully develop and introduce
new products under its own brand names, that any such products will meet with
consumer acceptance in the marketplace or that any such products will be sold at
acceptable profit margins.
DEPENDENCE ON KEY CUSTOMERS. During the nine months ended February 28,
1998, the year ended May 31, 1997 ("Fiscal 1997") and the year ended May 31,
1996 ("Fiscal 1996"), approximately 50%, 63%, and 74% of revenues, respectively,
were derived from sales to the Company's ten largest customers. The Company
believes that it has good relationships with its customers. However, the Company
has no long-term contracts with any of its customers, all of which purchase
products from the Company pursuant to individually placed purchase orders. There
can be no assurance that the Company's customers, including any of its largest
customers, will continue to purchase merchandise from the Company. A loss of one
or more of these customers could have a material adverse effect on the Company's
business and results of operations. See "Business--Sales and Distribution" and
"Business--Marketing."
DEPENDENCE ON THIRD PARTY MANUFACTURERS AND SUPPLIERS. To date, most of the
merchandise sold by the Company has been purchased by the Company from
third-party manufacturers and distributors, primarily located in Asia. The
Company does not enter into long-term contracts with such third parties but
instead purchases merchandise pursuant to individually placed purchase orders.
There can be no assurance that the Company's manufacturers will dedicate
sufficient production capacity to meet the Company's scheduled delivery
requirements or that the Company's manufacturers will have sufficient production
capacity to satisfy the Company's requirements. Typically, the Company helps
develop the design of a particular product and the manufacturer meets such
specifications. Accordingly, the Company is dependent on the ability of its
manufacturers to, among other things, meet the Company's design, performance and
quality specifications, as well as the quality and delivery requirements of its
customers.
Although the Company believes that its relationships with its suppliers are
good and that it would be able to locate other sources of merchandise in the
event of the loss of one or more of such suppliers, there can be no assurance
that the Company will not experience delays or other difficulties in obtaining
merchandise. Such delays or difficulties would have a material adverse effect on
the Company's business and results of operations. See "Business--Manufacturing."
INVENTORY MANAGEMENT RISKS. The Company is subject to significant risks in
connection with its inventory management. In order to assure an adequate supply
of products to meet the relatively high demand during the third and fourth
quarters of each year, the Company must commit to acquire products three months
in advance of delivery. If the Company underestimates its need for inventory or
experiences delays in production, the Company may have to pay a significant
premium to obtain the necessary contract-manufacturing capacity or ship products
by air rather than less expensive ground or sea transportation in order to meet
customer orders. In such event, profit margins, sales and/or customer
relationships could be materially adversely affected. Similarly, if the Company
overestimates its inventory needs, the Company will be required to reduce prices
in order to dispose of such inventory or increase borrowings to finance the
carrying costs of such inventory, thereby adversely affecting its profitability
and cash flows. There can be no
9
<PAGE>
assurance that the Company will be able to borrow such amounts on reasonable
terms, if at all. To the extent that the Company is unable to adequately plan,
time and budget its sourcing and manufacturing operations, incurs delays in
delivery, fails to adequately forecast prices and demand or reduce costs when
necessary, a material adverse effect on the Company's business, financial
condition and results of operations could result.
The Company incurs expenses as a result of product returns and warranty
claims. Such returns and warranty claims may result from defective goods,
inadequate performance relative to customer expectations, improper packaging,
liberal retailer return policies and other causes which may be outside the
Company's control. During the nine months ended February 28, 1998, approximately
15% of the Company's gross sales were made under net sale arrangements, whereby
the Company's customers are responsible for product returns, which cannot be
returned to the Company. While the Company plans to maintain or increase the
percentage of sales that are on a net basis, there can be no assurance that the
Company will be successful in maintaining or increasing such percentage. Any
significant increase in product returns and warranty claims could have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION. The Company's market segment is highly competitive. The mass
merchandise and discount retail market is divided among a large number of
foreign-based manufacturers and distributors. Many of the Company's competitors
have or may obtain significantly greater financial and marketing strength and
resources than the Company, enabling them to compete more effectively than the
Company. In addition, the Company's products compete at the retail store level
for shelf space, which has an impact on the Company's established and proposed
distribution channels. Competition, or failure of consumers to accept existing
or new products, may result in reduced sales, reduced profit margins, or both,
for the Company. There can be no assurance that the Company will not encounter
increased competition in the future, which could have a material adverse effect
on the ability of the Company to successfully market existing products, develop
new products or expand its business. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend to a
significant extent on the efforts of key management personnel, particularly
Aaron Herzog, the Company's President, and Jacob Herzog, the Company's Vice
President. The loss of either of these key employees could have a material
adverse effect on the Company's business. 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 (including a Chief Financial
Officer), as well as technical and sales personnel. The Company maintains
key-man life insurance policies in an amount of Cdn $1 million on each of the
lives of Aaron Herzog and Jacob Herzog, under which the Company's bank, Canadian
Imperial Bank of Commerce, is the beneficiary. The Company intends to increase
such insurance to $2 million on each of Messrs. Aaron and Jacob Herzog prior to
the Effective Date. Upon the Effective Date the Company will enter into two-year
employment agreements with each of Aaron Herzog and Jacob Herzog. There can be
no assurance that the Company will be able to attract and retain the qualified
personnel necessary for its business. See "Management."
CONTROL BY EXISTING STOCKHOLDERS. Upon the completion of this Offering, the
Company's management will beneficially own 70.0% (67.0% if the Over-Allotment
Option is exercised in full) of the Company's outstanding Common Stock. In
addition, Aaron and Jacob Herzog are parties to a voting trust agreement which
provides that they will vote their shares together. As a result, management will
continue to elect a majority of the members of the Board of Directors and decide
matters requiring stockholder approval. See "Principal and Selling
Stockholders."
RETAIL INDUSTRY. The retail industry is significantly affected by many
factors, including changes in the national economy and in regional and local
economies, confidence in the overall economy, changes in consumer preferences
and increases in the number of retail operations. Factors such as inflation may
have a greater effect on the retail industry than on other industries. As a
result of these and other pressures,
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<PAGE>
several retail firms have filed for bankruptcy protection. Although, during the
past three years, the Company has written off only insignificant amounts as a
result of such bankruptcies, the loss of a significant number of the Company's
customers could have a material adverse effect on the business and results of
operations of the Company.
PRODUCT LIABILITY. Any defects in the Company's products that result in
personal injury might result in consequences that could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company maintains insurance to cover such risks; however, the coverage in
certain events may not be adequate to insure against all product liability
claims.
RISK OF DOING BUSINESS IN FOREIGN COUNTRIES; RISK OF IMPORT
LIMITATIONS. The Company's products are principally manufactured by independent
manufacturers in Indonesia, Malaysia, Thailand, the Philippines and other Asian
countries. The Company has also engaged independent manufacturers in Mexico. The
Company does not have long-term contracts with any of its independent
manufacturers. Manufacturing in Asian and other foreign countries is subject to
a number of risks including, but not limited to, transportation delays and
interruptions, political and economic disruptions, the imposition of tariffs and
import and export controls and quotas, loss of property or revenue from
expropriation or political demands, and changes in governmental policies. While
the Company to date has not experienced any material adverse effects due to such
risks, there can be no assurance that such events will not occur in the future
and possibly result in increases in costs and delays of, or interference with,
product deliveries resulting in losses of sales and damage to customer
relationships.
Generally, Asian and other countries in which the Company does business may
not offer legal mechanisms to redress an unfair trade practice, contract breach
or other problem requiring the enforcement of contractual provisions or other
redress. In particular, Asian countries generally do not have a well-developed,
consolidated body of law governing foreign investment enterprises, and the
administration of laws and regulations by government agencies may be subject to
considerable discretion and variation and administrative review and approval by
various national and local agencies of Asian governments. As a result, in the
event of any damage to the Company resulting from the breach of a contract, the
failure to fulfill manufacturing commitments, the taking of Company property, or
other similar event creating a loss for the Company or interruption of its
business, there may not be an adequate avenue of recourse against the parties
responsible for such damages.
MOST FAVORED NATION RISK. Presently, products imported into the United
States from Asian countries are subject to favorable duty rates based on the
"Most Favored Nation" status of such countries ("MFN Status"). MFN Status is
reviewed on an annual basis by the United States President and Congress and was
renewed for such countries in June 1997.
If MFN Status for goods produced in Asian countries was removed, there would
be a substantial increase in tariffs imposed on goods of Asian origin entering
the United States, including those sold by the Company, which could have a
material adverse effect on the supply and cost of products manufactured in such
countries, and consequently on the Company's business, financial condition and
results of operations. Although the Company produces products in other
locations, at the present time, the Company plans to continue its production
primarily in Asia.
CURRENCY RISKS. Although the Company currently effects substantially all of
its transactions in United States dollars and approximately 50% of its sales are
made in the United States, in those situations in which transactions are in
foreign currencies, the Company is exposed to risks such as currency
instability, currency exchange losses and the ability to repatriate earnings
under existing exchange control laws. The Company does not currently engage in
hedging, and no assurance can be given that an effective currency hedging policy
could offset these currency risks.
GOVERNMENT REGULATION. Most of the Company's customers (as well as several
state and local authorities) require that the Company's products meet the
electrical safety standards of the Underwriters'
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<PAGE>
Laboratories, Inc. Certain of the Company's products sold for use in the United
States must be registered with and approved by the United States Federal
Communications Commission (the "FCC"). Products sold in Canada must comply with
the standards of the Canadian Standards Association. In addition, the Company's
products must meet the applicable safety standards imposed by any other
countries in which it intends to sell its products. The Company is subject to
numerous tariffs, duties, charges and assessments on the import of its products.
The Company retains import agencies and expediters to facilitate the import of
its products and the payment of these charges and duties. Although these duties
and charges have not substantially affected the Company's ability to market its
products for delivery in the United States and elsewhere, regulations affecting
these charges and duties are subject to change, which could have the effect of
increasing the cost of goods imported and sold by the Company. See
"Business--Regulation."
SEASONALITY. The Company generally experiences stronger demand for its
products in the quarter ending November 30. Accordingly, to accommodate such
increased demand, the Company is generally required to place higher orders with
its vendors during the quarter ending August 31, thereby affecting the Company's
need for working capital during such period. On a corresponding basis, the
Company also is subject to increased returns during the quarters ending February
28 and May 31, which adversely affects the Company's collection activities
during such periods, also affecting its liquidity. Operating results may
fluctuate due to other factors such as the timing of the introduction of new
products, price reductions by the Company and its competitors, demand for the
Company's products, product mix, delay, available inventory levels, fluctuation
in foreign currency exchange rates relative to the United States dollar,
seasonal cost increases and general economic conditions. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
RISKS INVOLVED WITH PRODUCT EXPANSION AND EXPANSION INTO UNITED STATES AND
OTHER MARKETS. As part of its business strategy, the Company intends to acquire
related and complementary businesses and product lines. There can be no
assurance that the Company will be able to acquire such businesses and/or
product lines or, if acquired, be able to manage the expanded operations
effectively. Moreover, failure to implement financial and other systems and to
add resources in connection with such acquisitions could have a material adverse
impact on the Company's results of operations and financial condition. The
Company's acquisitions, if any, could involve a number of risks including the
diversion of management's attention to the assimilation of the product lines to
be acquired, unforeseen difficulties in the acquired intangible assets and
dilution in the ownership interest of stockholders as a result of the issuance
of additional Common Stock or shares of preferred stock (the "Preferred Stock")
in connection with an acquisition. The Company has no present commitments,
understandings or agreements for any acquisitions, and there can be no assurance
that any such acquisitions will occur. See "Business--Growth Strategy."
FREIGHT AND TRANSPORTATION. 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 transportation and freight expenses is a
significant factor in the Company's gross profit margin. There is no assurance
that the Company will be able to maintain acceptable freight and transportation
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.
NO PRIOR PUBLIC MARKET. Prior to this Offering, there has been no public
market for the Common Stock. 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 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
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<PAGE>
respect to the purchase or sale of the Common Stock on the Nasdaq National
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 Common Stock. 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 the Common
Stock.
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 $3.63 per Share in the net tangible book value of
their investment from the initial public offering price, which dilution amounts
to approximately 73% of the initial public offering price per Share. Investors
in the Offering will pay $5.00 per Share, as compared to an average cash price
of $0.36 per share paid by existing stockholders. See "Dilution."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED
ACQUISITIONS. Approximately 42% of the net proceeds of this Offering will be
applied to working capital and general corporate purposes. Accordingly,
management of the Company will have broad discretion over the use of the
proceeds. Although the Company may utilize a portion of the net proceeds for
potential acquisitions of complementary businesses and of product lines through
licensing or other arrangements, as of the date hereof, 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. In addition, although as of the date hereof
the Company has no agreements, understandings or commitments and is not engaged
in any negotiations relating thereto, the Company may seek to acquire rights to
additional proprietary product lines through licensing or other arrangements,
and intends to use a portion of the proceeds of this Offering for one or more of
such acquisitions in the event opportunities become available on terms
acceptable to the Company. Moreover, there can be no assurance that any such
acquisition opportunities will become available, that the Company would be
successful in acquiring any such rights on favorable terms, or that the Company
would be successful in marketing and selling any product lines so acquired by
it. See "Use of Proceeds" and "Business--Growth Strategy."
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. However, a part of the
Company's strategy is to acquire related and complementary businesses and/or
individual product lines, although the Company has not presently identified any
specific acquisitions. The Company's 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
achieve all of its business plans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 5,498,000 shares of Common Stock of
the Company to be outstanding upon completion of this Offering, 3,848,000 shares
shall be "restricted securities," which are owned by "affiliates" of the
Company, as those terms are defined in Rule 144 promulgated under the Securities
Act. Absent registration under the Securities Act, the sale of such shares is
subject to Rule 144, as promulgated under the Securities Act. All of the
"restricted securities" will be 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 The Nasdaq Stock Market or
a stock exchange, the average weekly trading volume during the four calendar
weeks preceding the sale. Rule 144 also permits a person
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<PAGE>
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 described above. Holders of all of such
shares of Common Stock are affiliates of the Company. All of the Company's
post-offering stockholders 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. 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 Common Stock 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
could impair the Company's ability to raise capital in the future through the
sale of equity securities. See "Shares Eligible for Future Sale."
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. See "Dividend Policy."
NASDAQ ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
COMMON STOCK FROM NASDAQ NATIONAL MARKET SYSTEM. Prior to this Offering, there
has been no established public trading market for the Company's Common Stock and
there is no assurance that a public trading market for the Company's Common
Stock will develop after the completion of this Offering. If a trading market
does in fact develop for the Common Stock offered hereby, there can be no
assurance that it will be sustained.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market upon the Effective Date. The Commission has recently approved
new rules imposing criteria for listing of securities on the Nasdaq National
Market, including standards for maintenance of such listing. In order to qualify
for initial quotation of securities on the Nasdaq National Market, an issuer,
among other things, must have at least $6,000,000 in net tangible assets,
$8,000,000 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
$4,000,000 in net tangible assets, $5,000,000 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 National Market's maintenance criteria in the
future, its Common Stock may be delisted from the Nasdaq National Market. In
such event, the Company would seek to list its securities on The Nasdaq SmallCap
Market, however, if it was unsuccessful, trading, if any, in the Company's
Common Stock, would thereafter be conducted in the over-the-counter market in
the so-called "pink sheets" or The OTC 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 .
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the maintenance requirements for the Nasdaq National Market and its Common Stock
falls below the minimum bid price of $5.00 per share for the initial quotation,
the Company would seek to list its securities on The Nasdaq SmallCap Market. If
it was unsuccessful, trading would be conducted on the "pink sheets" or The OTC
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.
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<PAGE>
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 ability of broker-dealers to sell the Common
Stock and the ability of purchasers in this Offering to sell their Common Stock
in the secondary market would be limited thereby severely affecting the market
liquidity of the Common Stock. There is no assurance that trading in the Common
Stock will not be subject to these or other regulations that would adversely
affect the market for such securities.
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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 February 28, 1998, the net tangible book value of the Company's Common
Stock was $1,421,341 or $0.36 per share. Consequently, there will be an
immediate increase in net tangible book value of $1.01 per share to the existing
stockholders 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 $3.63 or 73% to new investors purchasing the Shares
offered hereby.
The following table illustrates, as of February 28, 1998, this per share
dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per Share.............................................. $ 5.00
Net tangible book value per share before Offering(1)......................... $ 0.36
Increase per share attributable to new investors............................. 1.01
---------
Pro forma net tangible book value per share after Offering(1)................ 1.37
---------
Dilution per Share to new investors(1)....................................... $ 3.63
---------
---------
</TABLE>
The following table summarizes, as of February 28, 1998, 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 stockholders and by new
investors who purchase shares of Common Stock pursuant to this Offering.
<TABLE>
<CAPTION>
AVERAGE
SHARES PERCENTAGE PRICE
PURCHASED OF TOTAL AGGREGATE % OF TOTAL PER
(1) SHARES CONSIDERATION CONSIDERATION SHARE
---------- ----------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders........ 4,000,000 72.8% $ 1,440,000 16.1% $ 0.36
New Investors................ 1,498,000 27.2% $ 7,490,000 83.9% $ 5.00
---------- ----- ------------- -----
Total........................ 5,498,000 100.0% $ 8,930,000 100.0%
</TABLE>
- ------------------------
(1) This information does not include (i) 165,000 shares issuable upon the
exercise of the Underwriters' Warrants; (ii) 400,000 shares that may be
issued under the Plan; or (iii) 247,500 shares available pursuant to the
Over-Allotment Option.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 28, 1998 and as adjusted to reflect the sale of 1,498,000 Shares
offered hereby. The information provided below should be read in conjunction
with the other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
Long-term debt, less current maturities............................. $ 371,134 $ 371,134
---------- -----------
Stockholders' equity:
Common Stock, no par value, 15,000,000 shares authorized: 4,000,000
issued and outstanding; and 5,498,000 issued and outstanding as
adjusted(1)....................................................... 80 6,133,880
Foreign currency transaction adjustment............................. 9,510 9,510
Retained earnings................................................... 1,411,751 1,411,751
---------- -----------
Total stockholders' equity.......................................... 1,421,341 7,555,141
---------- -----------
Total capitalization................................................ 1,792,475 7,926,275
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Reflects the issuance of 1,498,000 Shares offered hereby. Assumes no
exercise of the Underwriters' Warrants or the Over-Allotment Option.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Shares
offered by the Company at a public offering price of $5.00 per Share, after
deducting underwriting commissions and offering expenses to be paid by the
Company, is estimated to be $6,133,800. 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>
Acquisition of Inventory.............................................................. $ 1,800,000 29.4%
Repayment of Indebtedness(1).......................................................... 1,000,000 16.3%
Sales and Marketing(2)................................................................ 400,000 6.5%
Management Information System(3)...................................................... 250,000 4.1%
Relocation of Warehouse and Principal Executive Offices(4)............................ 100,000 1.6%
Working Capital and General Corporate Purposes(5)..................................... 2,583,800 42.1%
------------ -----
Total................................................................................. $ 6,133,800 100.0%
</TABLE>
- ------------------------
(1) The Company intends to repay a $1,000,000 bank loan which it intends to
secure in June 1998 for interim financing. The Company estimates that such
loan will bear interest at 9.5%.
(2) Includes costs associated with hiring a national sales manager, a regional
sales manager and opening a sales office in the United States.
(3) Represents the cost to upgrade the Company's current computer networking
system.
(4) Includes moving costs and certain one time capital expenditures to be
incurred in preparing its new warehouse space. The Company believes that the
rental costs associated with the new warehouse will be commensurate with its
current rental costs.
(5) The net proceeds allocated to working capital include funds for general
corporate purposes including the financing of the Company's accounts
receivables and possible strategic acquisitions. The Company has not
currently identified any acquisition candidates.
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 $1,076,625) 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 at least 12 months from the completion of this Offering. In the
event that the Company acquires any additional product lines, 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.
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.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE PRECEDING
SELECTED FINANCIAL DATA AND THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES
THERETO AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE PLANS AND
OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS. THE FORWARD-LOOKING STATEMENTS
INCLUDED HEREIN ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS THAT INVOLVE
NUMEROUS RISKS AND UNCERTAINTIES. ALTHOUGH MANAGEMENT BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE
ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE
THAT THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN WILL PROVE TO BE ACCURATE.
IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD-LOOKING
STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE
REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE
OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
GENERAL
The Company designs, distributes and markets quality, value-priced consumer
electronics products. The Company offers a broad line of telecommunication,
audio, video and computer products, including telephones, answering machines,
caller ID systems, CD and cassette systems, portable televisions and computer
accessories. The Company's products are primarily sold under the brand names
"Curtis" and "CTP Worx," as well as private labels. The Company's strategy has
been to build a portfolio of diverse consumer electronics products which offers
retailers flexible merchandising programs. The Company's products are available
in approximately 2,300 stores throughout Canada and 10,000 stores in the United
States through approximately 30 retailers.
Curtis International Ltd. was incorporated in the Province of Ontario on
December 12, 1990. The Company subsequently amalgamated (or merged) with Unique
Investments Limited and AEG Trading Limited on January 23, 1998 and Worldwide
Holdings Limited on May 29, 1998. In both cases, the Company was the surviving
entity. The Company's principal executive officers are located at 7 Kodiak
Crescent, Downsview, Ontario M3J 3E5 Canada and its telephone number is (416)
626-5553.
RESULTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO NINE MONTHS ENDED FEBRUARY
28, 1997.
Sales for the nine months ended February 28, 1998 were $22,341,958, a 94.4%
increase over sales of $11,493,389 for the corresponding period in the prior
year. This increase was primarily due to an increase of approximately 546% in
sales in the United States and to a lesser degree, a 28% increase in sales in
Canada. The Company's strategy is to continue to increase sales in the United
States, while maintaining and maximizing sales in Canada.
As a result of the 94.4% increase in sales, cost of sales for the nine
months ended February 28, 1998 were $18,342,628, a 95.3% increase over cost of
sales of $9,394,577 for the corresponding period in the prior year.
Gross profit margin for the nine months ended February 28, 1998 was 17.9% of
net revenues as compared to 18.3% in the same period one year ago. The Company's
increased purchasing power which resulted in slightly lower per item costs was
largely offset by lower prices charged to customers who purchased items in large
quantities. The Company expects that its increased buying power and broadened
customer base will lead to a slight increase in gross profit in the coming
periods.
As a result of the Company's increased marketing efforts and certain
one-time charges, expenses increased from $1,976,642 in the nine months ended
February 28, 1997 to $2,753,558 in the nine months ended February 28, 1998.
Selling expenses increased by $399,440 (82.0%) in the nine months ended February
28, 1998 over the comparable prior period as a result of increased sales efforts
particularly in the
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<PAGE>
United States. These expenses include salaries and commissions, delivery charges
and advertising costs. The Company expects to further increase its marketing
efforts in the United States, but expects increased sales to offset such costs.
As a percentage of sales, selling expenses remained relatively stable at
approximately 4.0% of sales. Administrative expenses of $1,353,191 were $41,700
higher than the comparable prior period. However, as a percentage of sales,
administrative expenses were significantly reduced, as a result of relatively
stable expenses coupled with the Company's sales growth. The Company believes
that it can continue to increase sales with only a minor increase in
administrative expenses. Financial expenses rose from $178,253 to $356,758, a
100.1% increase which was the result of higher interest expense, from $124,910
to $211,282 as a result of increased borrowing to sustain the Company's growth
and an increase of $92,133 in the Company's reserve for bad debts. Management
believes that the proceeds of the Offering will allow the Company to increase
sales without increasing borrowing expenses as the Company has historically
incurred in order to fund its growth. In the nine months ended February 28,
1998, the Company also incurred a one-time lease cancellation fee of $157,271.
Income before income taxes ("IBIT") increased $1,123,602 to $1,245,772
(919.7%) for the nine months ended February 28, 1998 versus the comparable
period for the prior year. As a percent of sales, IBIT for the nine months of
1998 was 5.6% compared to 1.2% in the corresponding period of the prior year. As
a result of the Company's increased income, the provision for income taxes
increased from $25,730 to $500,408. Net income increased from $96,440 for the
nine months ended February 28, 1997 to $745,364 for the nine months ended
February 28, 1998. This increase in net income is directly a result of continued
sales growth with stable administrative costs, which more than offset the
increase in selling expenses. Management believes, although there can be no
assurance, that the Company can continue this trend in the future.
FISCAL YEAR ENDED MAY 31, 1997 ("FISCAL 1997") COMPARED TO FISCAL YEAR ENDED
MAY 31, 1996 ("FISCAL 1996").
Sales for Fiscal 1997 were $14,914,142, a 2.0% increase over the prior year
sales of $14,627,378. Sales in the United States increased by $960,952 (76.5%)
as a result of increased sales efforts during the later part of Fiscal 1997.
This increase offset slightly lower sales in Canada.
Gross profit for Fiscal 1997 was 18.5% of sales, compared to 18.6% in the
prior year.
Expenses increased from $2,580,774 in Fiscal 1996 to $2,617,015 in Fiscal
1997. The primary difference in expenses was an increase of $416,615 (31.7%) in
administrative expenses which resulted from an increase in management fees and
bonus of $321,485 and an increase in insurance expenses of $52,478. These
increases in administrative expenses were partially offset by a decrease in
selling expenses of $246,242 which was a result of a decrease of $283,305 in
advertising, rebate and promotional expenses. Financial expense decreased by
$134,132 in Fiscal 1997, from $365,577 to $231,445. This change was a result of
the reduction in reserves for bad debts from $257,427 to $70,404 which were only
partially offset by a $52,891 increase in interest and bank charges.
Net income decreased $7,346 in Fiscal 1997, from $100,347 to $93,001. In
addition, income was fairly constant as a percentage of net sales.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its operations from cash flow, its
credit line with Canadian Imperial Bank of Commerce ("CIBC") and advances from
affiliates. The line of credit bears interest at .375% plus prime, has a limit
of $5,800,000 and is personally guaranteed by the Company's President and
Executive Vice President and affiliated companies. The line of credit is secured
by a first lien on substantially all of the Company's assets. In addition, an
affiliated company has agreed to a post-ponement of the Company's indebtedness
to it until the amount due under the line of credit is paid. Moreover, CIBC is
the beneficiary of the key man life insurance policies maintained by the Company
on the lives of Aaron
20
<PAGE>
Herzog and Jacob Herzog. As of February 28, 1998, the line of credit had an
outstanding balance of $4,967,150. The Company's executive officers, either
directly or through their affiliated corporations, loaned the Company an
aggregate of $742,268 in order to finance the Company's expansion. In May 1998,
these loans were memorialized into notes which bear interest at 8% and are
repayable quarterly over the 18 months following the Offering, provided the
Company is profitable on a post tax basis during each quarter and CIBC gives its
consent to such repayment.
The Company's cash flow is affected by a number of factors. During the nine
months ended February 28, 1998, the Company experienced a significant increase
in its business which has resulted in a strain on its cash flow. While net
income increased from $96,449 for the nine months ended February 28, 1998 to
$745,364 for the nine months ended February 28, 1998, the Company's accounts
receivable rose from $155,715 to $3,687,226 and inventory increased by $590,263.
The Company used $2,556,359 in its operating activities as compared to
generating $1,289,078 for the nine months ended February 28, 1997. As a result
of the Company's increased business, the Company's bank indebtedness increased
by $3,421,494 for the nine months ended February 28, 1998. The Company had cash
on hand of $2,015,874 at February 28, 1998, as compared to $277,798 at February
28, 1997. The Company had current assets of $9,449,053 at February 28, 1998,
compared to $3,338,107 at February 28, 1997. The Company had current liabilities
of $7,903,362 at February 28, 1998, as compared to current liabilities of
$2,247,547 at February 28, 1997.
The Company will receive net proceeds from this Offering of approximately
$6,133,800. 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 12 months. There can be no assurance that the Company will
realize cash flow from operations or that such cash flow will be sufficient, in
which case the Company may require additional financing. In addition, the
Company may seek to acquire rights to additional proprietary product lines
through licensing or other arrangements or make acquisitions of other companies.
Thus, the Company may seek to raise funds through subsequent equity or debt
financings, or through other sources. No assurances can be given that additional
funds will be available to the Company to finance its development. Moreover, the
line of credit places restrictions on the Company's ability to obtain financing
through the issuance of additional debt. Additional financings may result in
dilution to existing stockholders. If funds are needed but are not available in
adequate amounts from additional financing sources or from operations, the
Company's business may be adversely affected. See "Use of Proceeds."
YEAR 2000 PREPARATION
Many computer systems and software products worldwide and throughout all
industries will not function properly as the year 2000 approaches unless
changed, due to a once-common programming standard that represents years using
two-digits. This is the "Year 2000 problem" that has received considerable media
coverage. The Company is in the process of upgrading its management information
systems. As part of this program, the Company will identify those systems and
applications that require modification, redevelopment or replacement. The
Company expects to be Year 2000 compliant by December 31, 1998 with respect to
its internal systems. Management of the Company does not believe that failure of
the Company's vendors or other third-party providers' systems to be Year 2000
compliant will have a material adverse effect upon the Company.
21
<PAGE>
BUSINESS
SUMMARY
Curtis International Ltd. designs, distributes and markets quality,
value-priced consumer electronics products. The Company offers a broad line of
telecommunication, audio, video and computer products including, telephones,
answering machines, caller ID systems, CD and cassette systems, portable
televisions and computer accessories. The Company's products are primarily sold
under the brand names "Curtis" and "CTP Worx," as well as private labels. The
Company's strategy has been to build a portfolio of diverse consumer electronics
products which offers retailers flexible merchandising programs. The Company's
products are available in approximately 2,300 stores throughout Canada and
10,000 stores in the United States through approximately 30 retail chains in
Canada and the United States.
The Company's customers include mass merchandisers such as Wal-Mart
(Canada), Ames, Bradlees, Dollar General and Bi-Way Stores; drug store chains
such as Rite-Aid, London Drugs, Thrifty Payless, Jean Coutu and Ker Drugs;
specialty marketers such as QVC, the Home Shopping Network and Amway; consumer
electronic retailers such as Future Shop, Fry's and ABC Warehouse; and Appliance
and department stores such as Boscov and Fedco. The Company has consistently
operated profitably and has recently undergone a period of rapid sales growth.
For the nine month period ended February 28, 1998, the Company's sales increased
by $10,848,569, or 94.4%, from $11,493,389 to $22,341,958 from the comparable
period ended February 28, 1997. The Company only entered the United States
market in 1996 and has since opened accounts with 20 retail chains in the United
States. The Company's sales in the United States were $9,454,563 for the nine
months ended February 28, 1998 as compared to $1,463,064 for the nine month
ended February 28, 1997, an increase of 546%. The Company believes there is an
opportunity to significantly increase its business in the United States through
both its current customers and potential new customers.
THE CONSUMER ELECTRONICS INDUSTRY
The consumer electronics industry is large and diverse, encompassing a wide
variety of technologies and products, including televisions, VCRs, audio
systems, CD players, cassette players and telephones. The Consumer Electronics
Manufacturers Association ("CEMA") estimates that total factory sales of
consumer electronics products in 1997 were approximately $74 billion, an
increase of 8.9% from 1996. CEMA estimates that factory sales will grow to
approximately $86 billion by the year 2000 and believes that the consumer
electronics industry is one of the fastest growing sectors of the United States
economy. It is estimated that in 1998 the average United States household will
spend $825 on consumer electronics products and by the year 2000 that figure
will grow to approximately $1,100 per year.
GROWTH STRATEGY
The Company plans to establish itself as a leading supplier of quality,
value-priced consumer electronics products. The Company believes that its broad
portfolio of products, superior design capabilities, flexible and low-cost
sourcing and superior service offered both prior to and after-sale provide it
with distinct competitive advantages. The Company plans to continue to grow its
business using a strategy comprised of the following principal elements:
- CONTINUE TO OFFER VALUE-PRICED, QUALITY PRODUCTS. The Company designs and
markets products which are value-priced, yet fill a market void through
their design and up-to-date style. The Company's packaging further
distinguishes its products in the marketplace from those of its
competitors. In addition to increasing its product offering (as described
below), the Company plans to continue to offer its customers quality
products at competitive prices.
- EXPAND CUSTOMER BASE. The Company believes that it has significant
opportunities to expand its customer base both in Canada and the United
States. The Company intends to use its existing
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<PAGE>
relationships in Canada with retailers such as Wal-Mart, Staples and Toys
"R" Us, to penetrate the United States market in such retailers' stores.
The Company recently shipped its first order from Wal-Mart (Canada) and
intends to use the relationship to move into Wal-Mart stores in the United
States. In addition, the Company continually seeks to expand its
distribution channels through various means. For example, the Company
recently agreed to supply the Home Shopping Network with its personal
televisions. In addition, the Company will attempt to enter selected
international markets in Mexico, South America and Central America in the
year 2000. Management believes there are significant opportunities in such
markets. To date, the Company has not entered such markets due to limited
financial and human resources. With the increased growth of the middle
class in such countries, the Company believes that there are significant
opportunities in such markets. To gain entrance in such markets, the
Company intends to hire additional sales representatives to focus on such
markets and to utilize its contacts with existing customers who already
have a presence in such areas.
- INCREASE PENETRATION AND SALES TO EXISTING UNITED STATES CUSTOMERS. In
the short period in which the Company has focused significant marketing
efforts in the United States, it has established relationships with
several major retailers. The Company plans to focus its efforts on
broadening its product selection being sold by these retailers and
substantially increasing the dollar volume of sales to these existing
customers.
- ACQUIRE AND LICENSE ADDITIONAL PRODUCTS. Discount retail chains and mass
merchants limit the number of vendors with which they deal, preferring to
deal with a limited number of vendors with a wide range of products.
However, the Company has an extensive line of products and strives to fill
substantially all of its customers' electronic requirements. The Company
believes that there are a number of companies which have a superior niche
type product, but have a limited line of customer electronics products,
which makes it difficult to sell their product to mass merchants and
discount chain stores because of their reluctance to deal with a supplier
with a limited number of products. By entering into arrangements with or
acquiring these small companies, the Company can add to its already wide
selection of consumer electronic products.
- DEVELOP STRATEGIC ALLIANCES. The Company intends to develop strategic
alliances with large discount chain stores and mass merchants. Management
believes that many retailers whose primary business is not consumer
electronics look for a strategic alliance with a vendor who has the
experience, customer service and product selection to create a successful
consumer electronics program in their stores. Development of strategic
alliances whereby the Company provides these services in exchange for
commitments to stock and sell the Company's products will assist the
Company in the establishment of long-term relationships with such discount
chain stores and mass merchants.
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<PAGE>
PRODUCTS
The Company designs, distributes and markets quality value-priced consumer
electronics products, including telephones, audio equipment, personal
televisions, radios and computer accessories, to a wide variety of customers.
The Company currently offers over 150 models of consumer electronic products.
The Company's core business currently consists of the following consumer
electronic products:
<TABLE>
<S> <C>
TVS HOME AND PORTABLE AUDIO PRODUCTS
- - Portable black and white TVs - Home audio systems with single CD player
- - Portable combination TV/Audio products - Home audio systems with CD changer systems
TELEPHONE PRODUCTS - Portable AM/FM cassette systems
- - Corded and cordless telephones - Portable CD systems with detachable
- - "Feature" telephones speakers
- - Answering machines - Portable CD stereo systems
- - Combination telephone/answering machines - Portable CD changer stereo systems
- - Telephone clock radios - Personal CD players
- - Caller ID systems - Personal cassette players
COMPUTER ACCESSORIES - Personal sports electronics products
- - Ergonomically designed keyboards designed for use when exercising or traveling
- - Mouse attachments - Portable radios
- Electronic clock radios
- Electronic clock radios with CD players
- Electronic clock radios with cassette
players
- Hand-held micro cassette recorders
</TABLE>
PRODUCT DESIGN AND DEVELOPMENT
Value-priced consumer electronic products typically do not have unique or
innovative technical features. Competition in this segment is therefore more
dependent on product design, visual appeal and price. As such, the Company
recognizes that superior product design provides an important competitive
advantage. The Company believes that the superior design and style of its
products distinguish them from those of its competitors in the value-priced
category and help drive consumer purchasing decisions.
Management believes that the enhancement and extension of the Company's
existing products and the development of new product categories have contributed
significantly to the Company's growth to date and are necessary for the
Company's continued success and growth. The Company's product design and
engineering team, along with its outside graphic and design artists, evaluate
new ideas and seek to develop new products and improvements to existing products
to satisfy industry requirements and changing consumer preferences. The Company
selects design and manufacturing specifications that adapt and implement
available technology features to satisfy its customers' requirements for
quality, product mix and pricing. Company employees work closely with both
retailers and suppliers to identify trends in consumer preferences and to
generate new product ideas.
In addition, the Company highlights the design and style features of its
products with detailed descriptions and illustrations on packaging, which the
Company believes further distinguishes its products from those of its
competitors. The Company believes that this packaging strategy makes its
products more
24
<PAGE>
attractive to consumers and facilitates an understanding of the product features
in retail locations where salespersons may not be available to provide detailed
explanations and demonstrations.
SALES AND DISTRIBUTION
The Company sells its products in Canada and the United States to mass
merchandisers such as Wal-Mart (Canada), Ames and Bradlees; drug store chains
such as Rite-Aid and London Drugs; and specialty marketers such as QVC and the
Home Shopping Network. The Company does not have long-term contracts with any of
its customers, but rather receives orders on an ongoing basis. Products imported
by the Company are shipped by ocean freight and stored in the Company's
warehouse or contracted public warehouse facilities, for shipment to customers.
All merchandise received by the Company is automatically updated into the
Company's inventory system.
The Company has implemented an integrated system to coordinate purchasing,
sales and distribution segments of its operations. The Company is equipped to
receive orders from its major accounts electronically or by the conventional
modes of facsimile, telephone or mail. The Company is in the process of
upgrading its management information system ("MIS"), which management believes
will increase the efficiency of the Company's distribution efforts. The
Company's new MIS will allow the Company to track its customers inventory levels
and help its customers identify their more popular and profitable items. This
added service will allow the Company to take a more active role in its
customers' electronics business and will help them maintain sufficient inventory
levels. See "Use of Proceeds."
The Company also makes available to its customers a direct import program,
pursuant to which products are imported directly by the Company's customers. To
date, sales in such manner have been minimal. Sales under such plan are made at
a reduced cost but also result in savings to the Company. These savings result
from the customer opening its line of credit directly to the manufacturer,
allowing the manufacturer to ship the goods directly to the customer. Under such
arrangement the Company does not incur any interest cost under its line of
credit or for any shipping costs.
MARKETING
The Company's strategy is to initially gain entrance to new accounts with
one or two of its products, and thereafter develop such account. The Company's
goal is to ultimately become its customers' primary consumer electronics
supplier.
The Company does not undertake any direct advertising. However, the
Company's retail customers place advertisements that generally promote the
Company's brand names in newspapers and other publications, catalogs, flyers and
by displaying point-of-purchase advertising. Under such co-op advertising
arrangements, the Company generally pays the customer a small percentage of
sales by the retailer of the Company's products featured in such advertising.
The Company markets its products to retailers at trade shows, including the
Consumer Electronics Show held in Las Vegas, Nevada in January of each year.
Aaron Herzog, the Company's President, has established significant contacts
and is directly responsible for handling the accounts of the Company's primary
customers. The Company intends to utilize a portion of the Offering proceeds to
retain additional in-house sales personnel who can expand upon Mr. Herzog's
existing relationships.
A portion of the Company's sales are made through independent sales
representatives, which receive sales commissions and work closely with Company
sales personnel. The Company has 11 independent sales representatives based in
Canada and the United States. The outside sales representatives also sell, in
addition to the Company's products, allied, but generally non-competitive
products. In most instances, either party may terminate a sales representative
relationship on 30 days prior notice in accordance with customary industry
practice.
25
<PAGE>
MANUFACTURING
The Company is responsible for the final design and specifications of all of
its products. Actual assembly is performed by one of its independent
manufacturers in accordance with specifications mandated by the Company.
During both the nine months ended February 28, 1998, and Fiscal 1997, the
Company's three largest independent manufacturers, which are located in Hong
Kong, supplied approximately 17.0% of the Company's total products. The Company
changes suppliers from time to time as market conditions require. Substantially
all of these suppliers assemble products with components manufactured by third
parties. The Company believes that this is the standard method of operating and
contracting for the manufacture of products in the consumer electronics
industry. During production, the Company's employees coordinate with the
independent manufacturers' facilities to monitor and facilitate timely
manufacture and delivery of products produced to the Company's specifications.
The Company considers its relationships with its independent manufacturers
and component suppliers to be good and believes that, absent extreme
circumstances affecting the supply of materials or the demand on manufacturing
time, the supply of products will be available when needed. The Company does not
maintain long-term purchase contracts with manufacturers and operates
principally on a purchase order basis. The Company believes that it is not
currently dependent on any single manufacturer for any of its products, and that
the loss of any one manufacturer would not have a long-term material adverse
effect on the Company because other independent manufacturers with which the
Company does business would be able to increase production to fulfill the
Company's requirements. However, the loss of a significant supplier could, in
the short-term, materially and adversely affect the Company's business until
alternative supply arrangements could be secured. See "Risk Factors--Dependence
on Third Party Manufacturers and Suppliers."
QUALITY CONTROL
The Company employs a quality control inspector who inspects the Company's
products before each shipment is sent from its manufacturers to ensure that such
products meet both the Company's quality standards and industry standards.
Additionally, the Company's quality control team does a second quality control
inspection when its products arrive in either the United States or Canada. If
the Company's quality control team feels that the tested products do not meet
both the Company's standards and industry standards, such products are not
accepted by the Company for shipment to its customers and are returned to the
manufacturer, without any expense to the Company.
PRODUCT RETURNS AND WARRANTY CLAIMS
The Company offers its customers limited warranties comparable to those
offered to retailers by its competitors and accepts returns from its customers
in accordance with customary industry practices, on most of its products. If a
low priced item is returned, the Company generally does not repair the item, but
will generally return it to the manufacturer for either credit or exchange.
Higher priced items returned to the Company are generally repaired with parts
supplied by the manufacturer. The Company generally has the ability to return
all defective products to the manufacturer for either credit or exchange.
BACKLOG
From time-to-time, the Company has substantial orders from customers on
hand. Management believes, however, that backlog is not a significant factor in
its operations. As of April 30, 1998, the Company had a backlog of approximately
$4,500,000. Backlog consists of purchase orders and commitments which are to be
filled within the next two months. However, since orders and commitments may be
rescheduled or canceled, management believes that backlog is an inconclusive
indicator of future financial performance. Notwithstanding the foregoing, the
ability of management to correctly anticipate and provide
26
<PAGE>
for inventory requirements is essential to the successful operation of the
Company's business. The Company has historically funded its inventory by drawing
on its line of credit and by utilizing loans from its principal stockholders.
See "Management's Discussion and Analysis of Financial Condition" and "Certain
Transactions."
TRADEMARKS
The Company has trademarked the names "Curtis" and "CTP Worx" in Canada and
has applied for such trademarks in the United States and other countries. The
Company intends to renew all such trademarks before their expiration. The
Company does not consider the "Curtis" and "CTP Worx" trademarks to be of
material importance to its business.
REGULATION
Most of the Company's customers (as well as several state and local
authorities) require that the Company's products meet the electrical safety
standards of the Underwriters Laboratories, Inc. The Company ensures that all of
its products sold in Canada and the United States which require electrical
safety approval are registered with either the Underwriters Laboratories, Inc.,
Canadian Standards Association or Warnock Hersey. Certain of the Company's
products sold for use in the United States must be registered with and approved
by the FCC. Products sold in Canada must comply with the standards of the
Canadian Standards Association. The Company has not experienced difficulty in
satisfying such standards.
COMPETITION
The consumer electronics industry is extremely competitive and is dominated
by large well-capitalized companies. The Company competes with the entire
electronics industry for consumer dollars, shelf space and promotional displays
for products and sales support. The Company's competitors may not rely on
external financing or relationships with independent manufacturers to the same
extent as the Company. Furthermore, the Company's competitors may have cost
advantages depending on labor costs, currency exchange rates and other factors
in the countries where their manufacturing operations take place, relative to
the countries where the Company's products are manufactured. The Company has
adopted a marketing strategy that targets the value-priced segment of the
consumer electronics market, which is particularly price sensitive. There is
competition among a number of brands in this market, including Emerson, Newtech
and GPX, as well as foreign-based manufacturers and distributors. In addition,
although General Electric, Sony, Aiwa and Panasonic brand products are not
currently emphasized in the value-priced segment of the market, they do compete
with the Company's products for consumer dollars, shelf space and sales support.
To the extent that these brands compete directly with the Company's brands on
the basis of price, or their product prices were otherwise reduced, the
Company's ability to market and sell competitive products could be severely
affected, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of May 15, 1998, the Company employs 37 persons, which include two senior
executives, four administrative personnel, 17 support staff, and 14 full-time
non-unionized hourly laborers. The Company believes that its relationships with
its employees are good. The Company is not party to any collective bargaining
agreement, nor is the Company aware of any effort to organize employees of the
Company into any union or similar organization.
27
<PAGE>
PROPERTIES
The Company leases the following premises:
<TABLE>
<CAPTION>
CURRENT
LOCATION ADDRESS EXPIRATION DATE SQUARE FEET ANNUAL RENT
- -------------------- ------------------------------------------- ------------------- ----------- ------------
<S> <C> <C> <C> <C>
Toronto, Ontario 7 Kodiak Crescent (Principal Executive August 31, 1998 38,500 $ 148,225
Offices and Warehouse)
Toronto, Ontario 125 Martin Ross Road (Warehouse) Month to month 7,300 $ 32,100
Toronto,Ontario 66 Penn Drive (Warehouse) July 30, 1998 9,000 $ 57,780
Montreal,Quebec 8170 Montview (Sales and Marketing) October 31, 1998 2,500 $ 20,375
</TABLE>
All of the premises the Company presently occupies are leased. Management
believes its current facilities are adequate and suitable for its present
business, but is seeking larger space to consolidate its warehouses and
principal executive office into one facility in Toronto, Canada, to facilitate
its expected growth. Although no facility has yet been identified, the Company
intends to use a portion of the net proceeds of this Offering to pay the
expenses associated with such relocation. See "Use of Proceeds."
The Company also receives shipment of its products from its manufacturers at
100 Sonwil Drive, Buffalo, New York, an independently operated distribution
center which ships the Company's products to certain of the Company's customers.
The Company does not lease or own such facility but rather pays a usage charge
for each case of product shipped to such location. The Company owns a
condominium in Florida which it intends to sell prior to the completion of the
Offering.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
28
<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>
Aaron Herzog......................................... 37 President, Chief Executive Officer and Director
Jacob Herzog......................................... 46 Chairman, Treasurer, Secretary and Director
Aaron Grubner........................................ 50 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.
AARON HERZOG is a co-founder of Curtis International Ltd., and has served as
the Company's President, Chief Executive Officer and Director since its
formation in 1990. Mr. Herzog also acts as a sales representative for the
Company. Mr. Herzog earned a degree in Management from McGill College in 1981.
JACOB HERZOG is a co-founder of Curtis International Ltd., and has served as
the Company's Chairman, Treasurer, Secretary and Director since its formation in
1990. Mr. Herzog has been in the consumer electronics business since the early
1970's.
AARON GRUBNER has served as a Director of the Company since May 1998. Mr.
Grubner is a founding member of the law firm of Grubner, Krauss and represents
the Company with respect to corporate and commercial matters. See "Legal
Matters." Mr. Grubner is a lawyer admitted to practice before The Bar of the
Province of Ontario. He has been practicing law since 1973, primarily corporate
and commercial law in Toronto, Ontario.
Aaron Herzog and Jacob Herzog are brothers. There are no other family
relationships among the Company's directors and executive officers.
The term of office of each Director is until the next annual meeting of
stockholders 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, the Representative
shall have the right to designate a nominee to the Company's Board of Directors.
See "Underwriting." Immediately after the Effective Date, the Company intends to
appoint James S. Cassel as the nominee of the Representative. Mr. Cassel is a
shareholder, executive officer and director of the Representative. The Company
also intends to appoint an additional independent director.
COMMITTEES OF THE BOARD
The Company's Board of Directors will have an Audit Committee, comprised of
Jacob Herzog, Aaron Grubner and an independent director, and a Compensation
Committee, comprised of Aaron Herzog, Aaron Grubner and an independent director.
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.
29
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last three 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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------
<S> <C> <C> <C> <C>
OTHER
ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------------------------------------------------- --------- --------- ----------- ----------------
Aaron Herzog(2),President,........................................... 1997 $ 28,000 $ 0 $ 213,962
Chief Executive Officer............................................. 1996 30,000 0 53,220
and Director........................................................ 1995 55,000 0 54,000
Jacob Herzog(3),Chairman,............................................ 1997 $ 33,000 $ 0 $ 213,963
Treasurer, Secretary and............................................ 1996 36,000 0 53,220
Director............................................................ 1995 55,000 0 54,000
</TABLE>
- ------------------------
(1) Represents compensation paid to corporations controlled by such persons. See
"Certain Transactions."
(2) In addition, Aaron Herzog's wife received annual compensation of $35,000 in
each of the years 1995, 1996 and 1997 in her capacity as an administrative
assistant at the Company.
(3) In addition, Jacob Herzog's wife received annual compensation of $35,000 in
each of the years 1995, 1996 and 1997 in her capacity as an administrative
assistant at the Company.
EMPLOYMENT AGREEMENTS
Upon the Effective Date, the Company will enter into two year employment
agreements with each of Aaron Herzog and Jacob Herzog. Such employment
agreements will provide for annual salaries of $175,000 with an annual bonus of
$25,000 if the Company meets certain financial projections. In addition, each
will be entitled to a $1,000 per month car allowance.
STOCK OPTION PLAN
The 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 Plan is effective for a period for ten years, expiring in 2008. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the Company. The Plan
is designed to enable management to attract and retain qualified and competent
directors, employees, consultants and independent contractors. Options granted
under the Plan may be exercisable for up to ten years, require a minimum two
year vesting period, 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 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 Company, or (ii) a majority of the
Board changes other than by election by the stockholders pursuant to Board
solicitation or by vacancies filled by the Board caused by death or resignation
of such person.
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<PAGE>
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 types of termination allow the participant three months
to exercise, except for termination for cause which results in immediate
termination of the option.
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
ITA requires that 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 stockholder pursuant to subsection 15(1) of the ITA.
The Company, however, has agreed not to grant any options under the Plan at less
than 100% of the fair market value of the Common Stock. Additionally, the
Company has agreed not to issue any options pursuant to the Plan to either Aaron
Herzog or Jacob Herzog.
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 Plan must be issued within ten years from the effective
date of the 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 Plan.
The 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 Plan may not be increased without the
consent of the stockholders of the Company.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
and as adjusted to give effect to the Offering and the transactions contemplated
thereby, with respect to the beneficial ownership of the Common Stock by (i)
each person known to the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each executive officer and director of
the Company and (iii) all executive officers and directors of the Company as a
group:
PERCENTAGE OF OUTSTANDING COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
------------------------
<S> <C> <C> <C>
NUMBER OF SHARES OF
NAME AND ADDRESS OF COMMON STOCK BEFORE AFTER
BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------------------------------------------- ------------------- ----------- -----------
Aaron Herzog(2)(5)....................................................... 1,924,000 48.1% 35.0%
Jacob Herzog(3)(5)....................................................... 1,924,000 48.1% 35.0%
Ranch Limited(4)......................................................... 152,000 3.8% 0.0%
Aaron Grubner............................................................ 0 -- --
All Executive Officers and Directors as a Group (3 persons).............. 3,848,000 96.2% 70.0%
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the address is c/o Curtis International Ltd, 7
Kodiak Crescent, Downsview, Ontario M3J 3E5.
(2) Consists of 1,832,333 shares of Common Stock owned directly by Aaron Herzog
and 91,667 shares of Common Stock owned by the A&E Herzog Family Trust of
which Aaron Herzog and Evelyn Fisher Herzog are the Trustees.
(3) Consists of 1,804,953 shares of Common Stock owned by Jacob Herzog and
119,047 shares of Common Stock owned by the Herzog Family Trust of which
Jacob Herzog, Beatrice Herzog and Aaron Grubner are the Trustees.
(4) The beneficial owner of Ranch Limited, the Selling Stockholder, is Tzvi
Ralbag, the son-in-law of Jacob Herzog. Ranch Limited will sell 152,000
shares of its Common Stock in this Offering, which represents all of the
shares of Common Stock owned by Ranch Limited.
(5) Aaron and Jacob Herzog are parties to a voting trust agreement which
provides that they will vote their shares together.
CERTAIN TRANSACTIONS
Aaron Herzog and Jacob Herzog advanced monies to the Company, which advances
are evidenced by promissory notes which are non-interest bearing to November 30,
1997. Had such advances been valued at the current value of cash flows at the
Company's current rate of borrowing, the advances would have been valued at
$832,295 in 1997 and $761,575 in 1996. As of December 1, 1997 the advances bear
interest at the rate of 8% per annum and are repayable in six quarterly
installments in the 18 month period after the Offering. The repayment of such
loans on a quarterly basis is contingent on the Company reporting profitability
for such quarter on a post-tax basis and the Company obtaining the consent of
CIBC to such repayment. The loans were utilized for working capital to fund the
Company's expansion.
During the Fiscal 1997 and Fiscal 1996, the Company paid an aggregate of
$427,925 and $106,440, respectively, to companies controlled by Aaron Herzog and
Jacob Herzog. These fees were in consideration for the companies providing the
Company with the services of Messrs. Aaron and Jacob Herzog. See
"Management--Executive Compensation."
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<PAGE>
During 1996 and 1997, the Company occupied office and warehouse space which
was owned by Worldwide Holdings Limited ("Worldwide"), a company owned by Jacob
Herzog. The Company paid rent of $140,000 during 1996, $140,000 during 1997 and
$11,667 for the month of January 1998, to Worldwide. Additionally, the Company
guaranteed the mortgage payments due from Worldwide to a mortgage corporation in
the principal amount of $1,305,000. The guarantee was also secured by the issue
of a collateral debenture containing a fixed charge and a floating charge on the
assets of the Company. On January 30, 1998, Worldwide sold the office and
warehouse space to an independent third party. The Company paid Worldwide a
lease cancellation fee of $157,271. Thus, Worldwide no longer acts as landlord
to the Company. In addition, on May 29, 1998, Worldwide was amalgamated with and
into the Company.
The Company has secured a line of credit facility with Canadian Imperial
Bank of Commerce bank, which bears interest at the bank's prime lending rate
plus 0.375% per annum. As security, the Company has provided a general
assignment of accounts receivable, a general security agreement and an
assignment of fire insurance on the business assets, with personal guarantees by
Aaron Herzog and Jacob Herzog and companies they control. The Company's line of
credit extends to $5,800,000.
Aaron Grubner is a partner with the law firm of Grubner, Krauss, which
serves as counsel to the Company. The Company has paid legal fees to Grubner,
Krauss for services rendered. See "Legal Matters."
All future transactions between the Company and its officers, directors or
5% stockholders, and their affiliates, will be on terms no less favorable than
could be obtained from unaffiliated third parties.
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consist of 15,000,000
shares of Common Stock, with no par value, and 1,000,000 shares 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 Articles of Incorporation and Bylaws 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 up to 15,000,000 of shares of Common
Stock, no par value per share, of which as of the date of this Prospectus,
4,000,000 shares of Common Stock are outstanding, not including the Shares
offered herein. All outstanding Shares of common stock are, and all shares of
Common Stock to be outstanding upon the closing of this Offering will be validly
authorized and issued, fully paid, and non-assessable.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. 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 stockholder of
an Ontario Corporation has the right to have the corporation pay the stockholder
the fair market value for his shares of the corporation in the event such
stockholder 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 stockholder follows the procedures set forth in the BCA.
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<PAGE>
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of up to
1,000,000 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and warrant agent for the Common Stock is
Continental Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 5,498,000
shares of Common Stock outstanding. In addition, the Company has reserved for
issuance 400,000 shares upon the exercise of options eligible for grant under
the Plan, none of which have been granted. Of the shares to be issued and
outstanding after this Offering, the 1,650,000 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"). The
remaining 3,848,000 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. All of the 3,848,000 restricted shares 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 offer, sell or otherwise dispose of their shares until 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. 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 by a
stockholder, 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 more of the Common Stock. It is for general guidance only and
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
34
<PAGE>
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.
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, as the case may be, was
held.
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.
35
<PAGE>
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
Cdn$5,000,000 or more is reviewable under the Investment Canada Act, with a
threshold of Cdn$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.
36
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
each of the Underwriters named below, for whom Barber & Bronson Incorporated is
acting as Representative, has severally agreed to purchase from the Company and
the Selling Stockholder, and the Company and the Selling Stockholder have agreed
to sell to the Underwriters, on a firm commitment basis, the respective number
of shares of Common Stock set forth below opposite each such Underwriter's name:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Barber & Bronson Incorporated..............................................
Total...................................................................... 1,650,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company and
certain certificates from the Selling Stockholder. The nature of the
Underwriters' obligation is such that they are committed to purchase and pay for
all the Shares if any are purchased.
The Underwriters have advised the Company that they propose to offer the
Shares 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 $ per Share, of which not more
than $. per Share may be re-allowed to certain other dealers who are
members of the NASD. After the initial public offering, the public offering
prices, concessions and reallowances may be changed.
The Underwriting Agreement further provides that the Underwriters will
receive a non-accountable expense allowance of 3% of the aggregate public
offering price of the Shares sold hereunder (including any Shares sold pursuant
to the Over-Allotment Option), which allowance amounts to $247,500 (or $284,625
if the Over-Allotment Option is exercised in full), of which $25,000 has been
paid to date.
The Company has 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 247,500 additional shares (up to 15% of the shares being offered
hereby) at the public offering price, less underwriting discounts and
commissions, solely to cover over-allotments, if any.
The Company has agreed to sell to the Underwriters for a nominal
consideration, the Underwriters' Warrants to purchase up to 165,000 Shares,
exclusive of the Over-Allotment Option. The Underwriters' Warrants will be
nonexercisable for one year after the date of this Prospectus. Thereafter, for a
period of four years, the Underwriters' Warrants will be exercisable at $5.50
per Share of Common Stock (110% of the initial public offering price). 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' Warrants and the
underlying shares of Common Stock, 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 issued or issuable upon exercise of the
Underwriters' Warrants. In addition, the Company has agreed to give advance
notice to holders of the Underwriters' Warrants of its intention to file certain
registration statements commencing one year and ending four years after the
Effective Date, and in such case, holders of such Underwriters' Warrants or
underlying shares of Common Stock shall have the right to require the Company to
include all or part of such shares of Common Stock underlying such Underwriters'
Warrants in such registration statement at the Company's expense.
37
<PAGE>
For the life of the Underwriters' Warrants, 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
stockholders. Further, the holders may be expected to exercise the Underwriters'
Warrants 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'
Warrants.
The Company has agreed that upon closing of this Offering, that the
Representative shall have the right to designate a nominee to the Company's
Board of Directors for a period of three years from the Effective Date. In
addition, management of the Company will obtain agreements from each of the pre-
offering stockholders to vote all shares of the Company's securities owned by
him or her, whether directly or indirectly, in favor of such nominee.
The Company has agreed to retain Catalyst Financial Corp., an affiliate of
the Representative, as the Company's financial consultant for a period of two
years to commence on the closing of this Offering, at a monthly fee of
$3,437.50, an aggregate of $82,500 (1% of the gross proceeds of the Offering),
all of which shall be payable in advance on the closing of the Offering.
Pursuant to this agreement, Catalyst Financial Corp. shall provide advisory
services related to merger and acquisition activity, corporate finance and other
matters. Catalyst Financial Corp. will be paid a fee in the event a merger,
acquisition or similar activity is undertaken by the Company.
The public offering price of the Shares offered hereby has been determined
by negotiation between the Company and the Representative. Factors considered in
determining the offering price of the Shares offered hereby 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.
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. 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 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 in connection with the
Offering than they are committed to purchase from the Company, and in such case
may purchase shares of Common Stock 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 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 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 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.
The Underwriting Agreement provides for reciprocal indemnification between
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 Financial Consulting Agreement.
Reference is made to the copies of the Underwriting Agreement, the Underwriters'
Warrant and the Financial Consulting Agreement, which are filed as exhibits to
the Registration Statement of which this Prospectus forms a part.
38
<PAGE>
LEGAL MATTERS
Certain legal matters relating to Canadian law, including the validity of
the issuance of the Common Stock offered herein, will be passed upon for the
Company by Grubner, Krauss, 5140 Yonge Street, Suite 1540, North York, Ontario,
Canada M2N 6L7. Aaron Grubner, a partner of Grubner, Krauss, is a director of
the Company. Certain legal matters in connection with the Offering will be
passed upon for the Company by its United States counsel, Gersten, Savage,
Kaplowitz & Fredericks, LLP, 101 East 52nd Street, New York, New York 10022.
Certain legal matters will be passed upon for the Underwriters by Broad and
Cassel, a general partnership including professional associations, 201 South
Biscayne Boulevard, Suite 3000, Miami, Florida 33131.
EXPERTS
The financial statements of the Company for each of the two fiscal years in
the periods ended May 31, 1996 and 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.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Act with respect to the Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement and the exhibits
thereto, and references are made to the Registration Statement and the exhibits
thereto for further information with respect to the Company and the Common Stock
offered hereby. Statements contained herein concerning the provisions of any
documents are not necessarily complete, and in each instance reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
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 Exchange Act.
39
<PAGE>
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Bylaws 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 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.
40
<PAGE>
CURTIS INTERNATIONAL LTD.
FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
(UNAUDITED)
AS OF MAY 31, 1997 AND MAY 31, 1996
TOGETHER WITH AUDITORS' REPORT
F-1
<PAGE>
CURTIS INTERNATIONAL LTD.
FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
(UNAUDITED)
AS OF MAY 31, 1997 AND MAY 31, 1996
TOGETHER WITH AUDITORS' REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ 1
Balance Sheet......................................................................... 2
Statement of Income and Retained Earnings............................................. 3
Statement of Cash Flows............................................................... 4
Statement of Stockholders' Equity..................................................... 5
Notes to Financial Statements......................................................... 6-13
SUPPLEMENTARY SCHEDULES
Schedule of Cost of Sales............................................................. 14
Schedule of Expenses.................................................................. 15
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Curtis International Ltd.
We have audited the accompanying balance sheets of Curtis International Ltd.
(incorporated in Canada) and subsidiaries as of May 31, 1997 and 1996 and the
related statements of income, cash flows and changes in stockholders' equity for
the years ended May 31, 1997 and 1996. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Curtis International Ltd. as
of May 31, 1997 and 1996 and the results of their operations and their cash
flows for the years ended May 31, 1997 and 1996, in conformity with generally
accepted accounting principles in the United States of America.
Toronto, Ontario /s/ Schwartz Levitsky Feldman
July 31, 1997 Chartered Accountants
F-3
<PAGE>
CURTIS INTERNATIONAL LTD.
BALANCE SHEET
AS AT MAY 31 AND FEBRUARY 28
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
$ $ $ $
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
ASSETS
CURRENT ASSETS
Cash....................................................... 2,015,874 277,798 1,251,542 645,090
Accounts receivable (note 2)............................... 5,501,124 2,083,453 1,813,898 1,927,738
Inventory (note 3)......................................... 1,931,137 964,071 1,340,874 1,351,549
Prepaid expenses and sundry assets......................... -- -- 8,699 6,517
Current portion of mortgage receivable (note 4)............ 900 800 852 788
Income taxes recoverable................................... -- 11,985 11,690 4,577
----------- ----------- ---------- ----------
9,449,035 3,338,107 4,427,555 3,936,259
MORTGAGE RECEIVABLE (note 4)................................. 72,624 75,773 75,552 76,490
PROPERTY, PLANT AND EQUIPMENT (note 5)....................... 174,778 188,863 176,573 193,919
----------- ----------- ---------- ----------
9,696,437 3,602,743 4,679,680 4,206,668
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 6)................................. 4,967,150 495,747 1,545,656 2,009,405
Accounts payable (note 7).................................. 2,565,678 1,751,828 1,621,346 795,117
Current portion of advances from affiliated parties (notes
8 and 11)................................................ 371,134 -- -- --
----------- ----------- ---------- ----------
7,903,962 2,247,575 3,167,002 2,804,522
ADVANCES FROM AFFILIATED PARTIES
(notes 8 and 11)........................................... 371,134 705,427 861,425 845,153
----------- ----------- ---------- ----------
8,275,096 2,953,002 4,028,427 3,649,675
----------- ----------- ---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 9)....................................... 80 81 81 81
CUMULATIVE TRANSLATION ADJUSTMENT............................ 9,510 (20,166) (15,215) (16,474)
RETAINED EARNINGS............................................ 1,411,751 669,826 666,387 573,386
----------- ----------- ---------- ----------
1,421,341 649,741 651,253 556,993
----------- ----------- ---------- ----------
9,696,437 3,602,743 4,679,680 4,206,668
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CURTIS INTERNATIONAL LTD.
STATEMENT OF INCOME
FOR THE PERIODS ENDED MAY 31 AND FEBRUARY 28
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
$ $ $ $
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
SALES (note 14).......................................... 22,341,958 11,493,389 14,914,142 14,627,378
Cost of sales.......................................... 18,342,628 9,394,577 12,173,748 11,912,927
------------ ------------ ------------ ------------
GROSS PROFIT............................................. 3,999,330 2,098,812 2,740,394 2,714,451
------------ ------------ ------------ ------------
EXPENSES
Administrative......................................... 1,353,191 1,311,491 1,730,592 1,313,977
Selling................................................ 886,338 486,898 654,978 901,220
Financial.............................................. 356,758 178,253 231,445 365,577
Lease cancellation fee................................. 157,271 -- -- --
------------ ------------ ------------ ------------
2,753,558 1,976,642 2,617,015 2,580,774
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES............................... 1,245,772 122,170 123,379 133,677
Income taxes........................................... 500,408 25,730 30,378 33,330
------------ ------------ ------------ ------------
NET INCOME............................................... 745,364 96,440 93,001 100,347
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CURTIS INTERNATIONAL LTD.
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED MAY 31 AND FEBRUARY 28
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
$ $ $ $
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
Cash flows from operating activities:
Net income.................................................. 745,364 96,440 93,001 100,347
----------- ----------- ---------- ---------
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Amortization.............................................. 11,045 5,055 17,346 20,225
Decrease (increase) in accounts receivable................ (3,687,226) (155,715) 113,840 392,022
Decrease (increase) in inventory.......................... (590,263) 387,478 10,675 105,463
Decrease (increase) in income taxes recoverable........... 11,690 (7,408) (7,113) (4,577)
Decrease(increase) in prepaid expenses and sundry
assets.................................................. 8,699 6,517 (2,182) 1,481
Increase (decrease) in accounts payable and accrued
expenses................................................ 493,304 956,711 826,231 (53,397)
Decrease (increase) in income taxes payable............... 451,028 -- -- (4,843)
----------- ----------- ---------- ---------
Total adjustments....................................... (3,301,723) 1,192,638 958,797 456,374
----------- ----------- ---------- ---------
Net cash generated by operating activities.................. (2,556,359) 1,289,078 1,051,798 556,721
----------- ----------- ---------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment.................. (9,250) -- -- (2,162)
Payment of mortgage receivable.............................. 2,880 706 872 615
----------- ----------- ---------- ---------
Net cash used in investing activities....................... (6,370) 706 872 (1,547)
----------- ----------- ---------- ---------
Cash flows from financing activity:
Increase (decrease) in bank indebtedness.................... 3,421,494 (1,513,658) (463,749) 7,353
Increase (decrease) in advances from affiliated parties..... (119,157) (139,726) 16,271 89,113
Redemption of Class B share................................. (1) -- -- --
----------- ----------- ---------- ---------
3,302,336 (1,653,384) (447,478) 96,466
----------- ----------- ---------- ---------
Effect of foreign currency exchange rate changes.............. 24,725 (3,692) 1,260 (6,550)
----------- ----------- ---------- ---------
Net increase (decrease) in cash and cash equivalents.......... 764,332 (367,292) 606,452 645,090
Cash and cash equivalents
--Beginning of year......................................... 1,251,542 645,090 645,090 --
----------- ----------- ---------- ---------
--End of year............................................... 2,015,874 277,798 1,251,542 645,090
----------- ----------- ---------- ---------
----------- ----------- ---------- ---------
Interest paid............................................... 200,553 124,910 142,792 202,080
----------- ----------- ---------- ---------
----------- ----------- ---------- ---------
Income taxes paid........................................... -- -- 44,221 42,284
----------- ----------- ---------- ---------
----------- ----------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CURTIS INTERNATIONAL LTD.
STATEMENT OF STOCKHOLDERS' EQUITY
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON CUMULATIVE
STOCK RETAINED TRANSLATION
NUMBER OF AMOUNTS EARNINGS ADJUSTMENTS
SHARES $ $ $
---------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Balance as of May 31, 1995...................................... 100 81 473,039 (9,923)
Foreign currency translation.................................... -- -- -- (6,551)
Net income for the year......................................... -- -- 100,347 --
--
---------- ---------- -----------
Balance as of May 31, 1996...................................... 100 81 573,386 (16,474)
Foreign currency translation.................................... -- -- -- (3,692)
Net income for the period....................................... -- -- 96,440 --
--
---------- ---------- -----------
Balance as of February 28, 1997................................. 100 81 669,826 (20,166)
Foreign currency translation.................................... -- -- -- 4,951
Net loss for the period......................................... -- -- (3,439) --
--
---------- ---------- -----------
Balance as of May 31, 1997...................................... 100 81 666,387 (15,215)
Redemption of class B share..................................... (1)
Common shares issued on amalgamation (note 9)................... 4,799,900 -- -- --
Foreign currency translation.................................... -- -- -- 24,725
Net income for the period....................................... -- -- 745,364 --
--
---------- ---------- -----------
Balance as of February 28, 1998................................. 4,800,000 80 1,411,751 9,510
--
--
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CURTIS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998, FEBRUARY 28, 1997, MAY 31, 1997 AND MAY 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
I) BASIS OF PRESENTATION
The financial statements for the nine months ended February 28, 1998 and
1997 are unaudited. The interim results are not necessarily indicative of the
results for any future period. In the opinion of management, the data in the
financial statements reflects all adjustments necessary for a fair presentation
of the results of the interim periods disclosed. All adjustments are of a normal
and recurring nature.
II) PRINCIPAL ACTIVITIES
The company was incorporated in Canada on December 12, 1990. The company is
principally engaged in the distribution and sales of electronics, audio visual
products and computer accessories in Canada and the United States of America.
III) BANK INDEBTEDNESS AND CASH EQUIVALENTS
Bank indebtedness and cash equivalents include cash on hand, amounts due 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.
IV) OTHER FINANCIAL INSTRUMENTS
The carrying amount of the company's other financial instruments approximate
fair value because of the short maturity of these instruments or the current
nature of interest rates borne by these instruments.
V) LONG-TERM FINANCIAL INSTRUMENTS
The fair value of each of the company's long-term financial assets and debt
instruments is based on the amount of future cash flows associated with each
instrument discounted using an estimate of what the company's current borrowing
rate for similar instruments of comparable maturity would be.
VI) INVENTORY
Inventory is valued at the lower of cost and net realizable value. Cost is
determined on the average cost basis.
VII) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are depreciated on
the declining balance basis over their estimated useful lives.
Leasehold improvements are amortized on the straight-line basis over the
term of the lease.
VIII) SALES
Sales represent the invoiced value of goods supplied to customers. Sales are
recognized upon delivery of goods and passage of title to customers.
F-8
<PAGE>
CURTIS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1998, FEBRUARY 28, 1997, MAY 31, 1997 AND MAY 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IX) FOREIGN CURRENCY TRANSLATION
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 expense 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.
X) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals in the United States of America 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.
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
$ $ $ $
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
Accounts receivable...................... 5,937,654 2,956,409 2,748,696 2,800,120
Less: Allowance for doubtful accounts.... 436,530 872,956 934,798 872,382
----------- ----------- ---------- ----------
Accounts receivable, net................. 5,501,124 2,083,453 1,813,898 1,927,738
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
3. INVENTORY
Inventory is comprised entirely of finished goods.
F-9
<PAGE>
CURTIS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1998, FEBRUARY 28, 1997, MAY 31, 1997 AND MAY 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
4. MORTGAGE RECEIVABLE
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
$ $ $ $
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
First mortgage, secured by land and
building, due in 21 remaining monthly
instalments of $577.84 including
interest at the rate of 8% per annum
plus a final payment of $74,945.69 due
on February 10, 1999................... 73,524 76,573 76,404 77,278
Current portion.......................... 900 800 852 788
------------ ----------- ---------- ----------
Long-term portion........................ 72,624 75,773 75,552 76,490
------------ ----------- ---------- ----------
------------ ----------- ---------- ----------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MAY 31, 1997 MAY 31,
---------------------------------- 1996
ACCUMULATED ---------
COST AMORTIZATION NET NET
$ $ $ $
--------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Land........................................... 34,253 -- 34,253 34,253
Condominium.................................... 137,013 28,205 108,808 114,535
Furniture and equipment........................ 65,191 42,525 22,666 28,332
Automobile..................................... 39,345 33,724 5,621 8,030
Computer equipment............................. 25,200 21,327 3,873 5,532
Leasehold improvements......................... 9,422 8,070 1,352 3,237
--------- ------------ --------- ---------
310,424 133,851 176,573 193,919
--------- ------------ --------- ---------
--------- ------------ --------- ---------
</TABLE>
Amortization for the year ended May 31, 1997 amounted to $17,346; ($20,225
in May 31, 1996).
F-10
<PAGE>
CURTIS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1998, FEBRUARY 28, 1997, MAY 31, 1997 AND MAY 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
5. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
FEBRUARY 28,
1998 FEBRUARY 28,
-------------------------------------- 1997
ACCUMULATED ------------
COST AMORTIZATION NET NET
$ $ $ $
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1) (NOTE 1) (NOTE 1)
Land................................... 34,253 -- 34,253 34,253
Condominium............................ 137,013 32,285 104,728 114,535
Furniture and equipment................ 65,191 46,094 19,097 23,278
Automobile............................. 39,345 34,988 4,357 8,030
Computer equipment..................... 34,450 23,255 11,195 5,532
Leasehold improvements................. 9,422 8,274 1,148 3,235
----------- ------------ ----------- ------------
319,674 144,896 174,778 188,863
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
Amortization for the period ended February 28, 1998 amounted to $11,045;
($5,055 in 1997).
6. BANK INDEBTEDNESS
The bank indebtedness bears interest at the bank's prime lending rate plus
0.375% per annum. As security, the company has provided a general assignment of
accounts receivable, a general security agreement and an assignment of fire
insurance on the business assets, with guarantees by the directors and
affiliated companies. An affiliated company has provided a postponement of its
loan to the company. The company's line of credit extends to $5,800,000 and is
limited based on a formula which relates to receivables and cashable instalments
held by the company.
7. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
$ $ $ $
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
Trade payables............................. 1,239,492 1,249,462 700,098 282,079
Accrued expenses........................... 1,326,186 502,366 921,248 513,038
----------- ----------- ---------- ---------
2,565,678 1,751,828 1,621,346 795,117
----------- ----------- ---------- ---------
----------- ----------- ---------- ---------
</TABLE>
8. ADVANCES FROM AFFILIATED PARTIES
The advances from affiliated parties are non-interest bearing to November
30, 1997. Had the advances been valued at the current value of cash flows at the
companies current rate of borrowing the advances would be valued at $832,295 in
1997 and $761,575 in 1996. Interest of 54,448 would have been imputed for 1997
and interest of $49,823 would have been imputed for 1996. As of December 1, 1997
the advances bear interest at the rate of 8% per annum and are repayable in six
quarterly instalments commencing after June 1998.
F-11
<PAGE>
CURTIS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1998, FEBRUARY 28, 1997, MAY 31, 1997 AND MAY 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
9. CAPITAL STOCK
AUTHORIZED
An unlimited number of Common shares
ISSUED
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, MAY 31, MAY 31,
1998 1997 1997 1996
$ $ $ $
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
100 Common shares (old)....................... -- 80 80 80
1 Class B share (old)......................... -- 1 1 1
4,800,000 Common shares (new)................. 80 -- -- --
--- --- --- ---
80 81 81 81
--- --- --- ---
--- --- --- ---
</TABLE>
On January 26, 1998 Curtis International Ltd. amalgamated with Unique
Investments Ltd. and AEG Trading Ltd. to form Curtis International Ltd. The
common shares previously outstanding were cancelled and 4,800,000 common shares
(new) were issued.
On May 31, 1998, the Company amalgamated with Worldwide Holdings Limited to
form Curtis International Limited. As part of this amalgamation, the common
shares previously were cancelled and 4,000,000 common shares (new) were issued.
10. TRANSACTIONS WITH AFFILIATED COMPANIES
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
$ $ $ $
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
Management fees.................................................. -- -- 427,925 106,440
Rent expense..................................................... 66,719 77,189 102,587 102,767
Occupancy costs.................................................. 55,796 41,520 71,132 78,203
Interest expense................................................. 15,000 -- -- --
</TABLE>
11. CONTINGENT LIABILITIES
The company was contingently liable to the bank for unaccepted letters of
credit of approximately $1,610,000 as at May 31, 1997.
F-12
<PAGE>
CURTIS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1998, FEBRUARY 28, 1997, MAY 31, 1997 AND MAY 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
12. SEGMENTED INFORMATION
A) SALES TO MAJOR CUSTOMERS
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
Sales to major customers............. $ 8,593,409 $ 4,798,013 $ 8,532,338 $ 8,282,508
Percentage of total sales............ 38% 42% 57% 57%
Accounts receivable due from major
customers.......................... $ 1,967,893 $ 974,241 $ 1,448,283 $ 1,354,947
Percentage of total accounts
receivable......................... 36% 47% 80% 70%
</TABLE>
Ongoing credit evaluations of each customer's financial condition are
performed and, generally, no collateral is required. The company maintains
reserves for potential credit losses and such losses, in the aggregate, have not
exceeded management's expectations.
B) SALES BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
Canada............................... 12,887,395 10,030,325 12,697,084 13,371,272
United States of America............. 9,454,563 1,463,064 2,217,058 1,256,106
------------ ------------ ------------ ------------
22,341,958 11,493,389 14,914,142 14,627,378
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
C) NET INCOME BY GEOGRAPHIC AREA
The company's accounting records do not readily provide information on net
income by geographic area. Management is of the opinion that the proportion of
net income based principally on sales, presented below, would fairly present the
results of operations by geographic area.
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, MAY 31, MAY 31,
1998 1997 1997 1996
$ $ $ $
------------ ------------- ---------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
Canada..................................... 429,944 84,164 80,860 91,730
United States of America................... 315,420 12,276 12,141 8,617
------------ ------ ---------- ---------
745,364 96,440 93,001 100,347
------------ ------ ---------- ---------
------------ ------ ---------- ---------
</TABLE>
D) IDENTIFIABLE ASSETS BY GEOGRAPHIC AREA
All identifiable assets were located in Canada for 1998, 1997 and 1996.
F-13
<PAGE>
CURTIS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1998, FEBRUARY 28, 1997, MAY 31, 1997 AND MAY 31, 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
12. SEGMENTED INFORMATION (CONTINUED)
E) PURCHASES FROM MAJOR SUPPLIERS
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY MAY MAY
1998 1997 1997 1996
------------- ------------- --------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
Purchases from major suppliers............... $ -- $ -- $ -- $ 2,275,563
Percentage of total purchases................ -- -- -- 19%
Accounts payable due to major suppliers...... $ -- $ -- $ -- $ --
Percentage of total accounts payable......... -- -- -- --
</TABLE>
F-14
<PAGE>
CURTIS INTERNATIONAL LTD.
SCHEDULE OF COST OF SALES
FOR THE PERIODS ENDED MAY 31 AND FEBRUARY 28
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, MAY 31, MAY 31,
1998 1997 1997 1996
$ $ $ $
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
INVENTORY, BEGINNING OF YEAR............................. 1,340,874 1,351,549 1,351,549 1,457,011
Purchases................................................ 18,932,891 9,007,099 12,163,073 11,807,465
------------ ------------ ------------ ------------
20,273,765 10,358,648 13,514,622 13,264,476
INVENTORY, END OF YEAR................................... 1,931,137 964,071 1,340,874 1,351,549
------------ ------------ ------------ ------------
18,342,628 9,394,577 12,173,748 11,912,927
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-15
<PAGE>
CURTIS INTERNATIONAL LTD.
SCHEDULE OF EXPENSES
FOR THE PERIODS ENDED MAY 31 AND FEBRUARY 28
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, MAY 31, MAY 31,
1998 1997 1997 1996
$ $ $ $
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
(NOTE 1) (NOTE 1)
ADMINISTRATIVE
Salaries.................................................. 476,086 538,860 685,754 675,890
Management fees and bonus................................. 250,767 312,431 427,925 106,440
Donations................................................. 179,261 44,337 73,594 29,689
Occupancy costs........................................... 145,737 122,538 164,161 166,738
Insurance................................................. 71,908 14,522 74,957 22,479
Professional fees......................................... 64,097 54,028 36,759 56,467
Municipal and capital taxes............................... 54,906 91,261 101,010 97,654
Office and general........................................ 52,199 65,324 73,164 62,173
Telephone and telex....................................... 40,759 46,140 54,448 46,983
Fees and dues............................................. 6,426 16,995 21,474 29,239
Amortization.............................................. 11,045 5,055 17,346 20,225
------------ ------------ ---------- ----------
1,353,191 1,311,491 1,730,592 1,313,977
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
SELLING
Delivery.................................................. 287,459 184,498 250,823 227,271
Salaries, commissions and benefits........................ 238,916 98,105 137,806 127,586
Advertising, rebate and promotion......................... 172,052 4,104 13,288 296,593
Supplies.................................................. 102,198 89,278 109,589 120,512
Travel.................................................... 54,190 54,689 76,279 49,742
Automobile................................................ 26,613 32,510 38,480 50,181
Outside service costs..................................... 4,910 23,714 28,713 29,335
------------ ------------ ---------- ----------
886,338 486,898 654,978 901,220
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
FINANCIAL
Interest and bank charges................................. 211,282 124,910 161,041 108,150
Bad debts................................................. 145,476 53,343 70,404 257,427
------------ ------------ ---------- ----------
356,758 178,253 231,445 365,577
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
</TABLE>
F-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR 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 COMMON STOCK 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..............................
The Offering....................................
Summary Combined Financial Information..........
Risk Factors....................................
Dilution........................................
Capitalization..................................
Use of Proceeds.................................
Dividend Policy.................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................
Business........................................
Management......................................
Principal and Selling Stockholder...............
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 of Securities Act Liabilities...
Financial Statements............................ F-1
</TABLE>
--------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMPANY'S SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CURTIS INTERNATIONAL LTD.
1,650,000 SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
BARBER & BRONSON
INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws 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
stockholder 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) INDEMNIFICATION--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 in 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) INDEMNIFICATION--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
(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
II-1
<PAGE>
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) INDEMNIFICATION--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........................................... $ 3,066.52
NASD Filing Fee................................................ 1,325.00
Nasdaq Listing Fees*........................................... 15,000.00
Printing Engraving Expenses*................................... 75,000.00
Legal Fees and Expenses*....................................... 85,000.00
Accounting Fees and Expenses*.................................. 70,000.00
Blue Sky Fees and Expenses*.................................... 17,500.00
Transfer Agent and Registrar Fees and Expenses*................ 3,500.00
Miscellaneous*................................................. 29,608.48
----------
Total...................................................... $300,000.00
</TABLE>
- ------------------------
* estimate
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years the Company has not sold any of its securities.
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement
*3.1 Bylaws of Registrant
*3.2 Articles of Amalgamation dated January 23, 1998
*3.3 Articles of Amalgamation dated May 29, 1998
*4.1 Form of Underwriters' Warrant
**4.3 Specimen Common Stock Certificate
**5.1 Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
*10.1 Form of Financial Consulting Agreement
**10.2 1998 Stock Option Plan
*10.3 Lease of Company's Facility at 7 Kodiak Crescent, Downsview, Ontario
**10.4 Form of Employment Agreement with Aaron Herzog
**10.5 Form of Employment Agreement with Jacob Herzog
**10.6 Credit Facility with Canadian Imperial Bank of Commerce
*23.1 Consent of Schwartz Levitsky Feldman, independent auditors
**23.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (incorporated into Exhibit
5.1)
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
II-2
<PAGE>
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 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-3
<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 Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Province of
Ontario, Canada on June 11, 1998.
<TABLE>
<S> <C> <C>
CURTIS INTERNATIONAL LTD.
By: /s/ AARON HERZOG
------------------------------------------
Aaron Herzog
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated. We, the undersigned officers and directors of CURTIS INTERNATIONAL
LTD. hereby severally constitute and appoint Aaron Herzog, 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/ AARON HERZOG
------------------------------------------- President, Chief Executive Officer and June 11, 1998
Aaron Herzog Director
/s/ JACOB HERZOG Chairman, Treasurer, Secretary,
------------------------------------------- Principal Accounting Officer and June 11, 1998
Jacob Herzog Director
------------------------------------------- Director June 11, 1998
Aaron Grubner
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement
*3.1 Bylaws of Registrant
*3.2 Articles of Amalgamation dated January 23, 1998
*3.3 Articles of Amalgamation dated May 29, 1998
*4.1 Form of Underwriters' Warrant
**4.3 Specimen Common Stock Certificate
**5.1 Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
*10.1 Form of Financial Consulting Agreement
**10.2 1998 Stock Option Plan
*10.3 Lease of Company's Facility at 7 Kodiak Crescent, Downsview, Ontario
**10.4 Form of Employment Agreement with Aaron Herzog
**10.5 Form of Employment Agreement with Jacob Herzog
**10.6 Credit Facility with Canadian Imperial Bank of Commerce
*23.1 Consent of Schwartz Levitsky Feldman, independent auditors
**23.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP (incorporated into Exhibit
5.1)
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
Exhibit 1.1
DRAFT
6/04/98
CURTIS INTERNATIONAL LTD.
1,650,000 Shares
of Common Stock, $_____ par value per share
Underwriting Agreement
As of ______________, 1998
James S. Cassel, Executive Vice President
Barber & Bronson Incorporated
201 South Biscayne Boulevard
Suite 2950
Miami, Florida 33131
Ladies and Gentlemen:
Curtis International Ltd., an Ontario corporation (the "Company"),
and Ranch Limited, an Ontario corporation (the "Selling Stockholder"),
propose to sell to Barber & Bronson Incorporated, a Florida corporation (the
"Representative"), and the several other underwriters named on Schedule 1
attached hereto (collectively, the "Underwriters"), and the Underwriters
severally propose to purchase from the Company and the Selling Stockholder,
an aggregate of 1,650,000 shares (the "Firm Shares") of the Company's common
stock, no par value per share (the "Common Stock"), 1,498,000 of which shall
be issued by the Company and 152,000 of which shall be transferred by the
Selling Stockholder, as more fully described in Section 1 hereinbelow.
In addition, the Company shall grant to the Underwriters the option
to purchase up to an additional 247,500 shares of Common Stock (the "Optional
Shares"), solely for the purpose of covering over-allotments (the
"Over-Allotment Option"), if any, in connection with the sale of the Firm
Shares and the Optional Shares (collectively, the "Securities").
1. Purchase, Sale, and Delivery of the Securities and Underwriters'
Warrants.
(a) Purchase and Sale of the Firm Shares. On the basis of the
representations, warranties, covenants, and agreements of the Company and
the Selling Stockholder herein contained, and subject to the terms and
conditions herein set forth, the Company agrees to sell to the several
Underwriters, and the Underwriters, severally and not jointly, agree to
purchase from the Company, the Firm Shares at a purchase price of $5.00 per
share.
The Underwriters plan to offer the Firm Shares for sale to the public at
the price (the "Public Offering Price") and upon the terms set forth in the
Prospectus (as defined below) (the "Public Offering") as soon as practicable
after the date the Registration Statement (as defined
<PAGE>
below) is declared effective (the "Effective Date") by the U.S. Securities and
Exchange Commission (the "Commission"). The Company and the Selling Stockholder
acknowledge that the Representative shall have the right to select and form a
syndicate of selected dealers and other Underwriters, reasonably acceptable to
the Company, to assist the Representative in the Public Offering.
(b) Purchase and Sale of the Optional Shares. The Company hereby
grants to the Underwriters an option to purchase from the Company solely
for the purpose of covering over-allotments in connection with the sale of
the Securities, all or any portion of the Optional Shares for a period of
45 days from the Effective Date at the same purchase price per security
payable by the Underwriters for each security as provided in Subsection
1(a) above.
The option to purchase Optional Shares granted in Subsection 1(b) hereof
may be exercised on such number of occasions as is determined by the
Representative during the term thereof by written notice to the Company from
the Representative. Such notice shall set forth the aggregate number of
Optional Shares as to which the option is being exercised and the time and
date of payment and delivery therefor. Such time and date of delivery shall
not be later than either the Closing Date (as defined below) or the second
business day after the day on which the option shall have been exercised (the
"Option Closing Date"). The Option Closing Date shall also refer to any
subsequent Option Closing Date in the event such option is exercised in part
on more than one occasion. Delivery and payment for such Optional Shares
shall be at the offices set forth below for delivery and payment for the Firm
Shares.
The obligation of the Underwriters to purchase and pay for any of the
Optional Shares is subject (as of the date hereof and as of the Closing Date
and/or the Option Closing Date) to the accuracy and completeness of and
compliance in all material respects with the representations and warranties
of the Company and the Selling Stockholder herein, to the accuracy and
completeness of the statements of the Company or its officers made in any
certificate or other documents to be delivered by the Company and/or the
Selling Stockholder pursuant to this Agreement, to the performance in all
material respects by the Company and/or the Selling Stockholder of their
respective obligations hereunder, to the satisfaction by the Company and/or
the Selling Stockholder of the conditions as of the date hereof and as of the
Closing Date and/or Option Closing Date, set forth in Subsection 1(c) hereof,
and to the delivery to the Representative of opinions, certificates and
letters dated the Closing Date and/or Option Closing Date substantially
similar in scope to those specified in Section 7, but with each reference to
the "Firm Shares" and the "Closing Date" being deemed to be the "Optional
Shares" and "Option Closing Date."
(c) Delivery of and Payment for the Securities. Delivery of the
certificates representing the Firm Shares shall be made to the Underwriters
at the offices of the Representative, or such other location as the
Representative shall determine and advise the Company upon at least two
full business days' notice in writing, against payment therefor by federal
wire transfer to the Company as appropriate at _______ A.M., Eastern Time,
on ________, 1998, or at such other time and business day (Saturdays,
Sundays,
2
<PAGE>
and legal holidays in Miami, Florida, not being considered business days
for the purposes of this Agreement), not later than the third business day
following the date the Underwriters began trading the Firm Shares, as shall
be agreed upon by the Representative and the Company, which time and date
are herein called the "Closing Date." If the Underwriters purchase any
Optional Shares pursuant to the Over-Allotment Option, delivery and payment
for the certificates representing the Optional Shares shall be made in the
same manner described herein on the Option Closing Date.
Delivery of the certificates representing the Securities shall be made
in registered form in such name or names and in such denominations as the
Representative shall specify to the Company upon at least two full business
days' notice in writing prior to the Closing Date or the Option Closing Date,
as the case may be. The Company will make the certificates available to the
Representative for examination at the offices of the Representative or at
such other location as the Representative shall specify to the Company, not
later than 2:00 P.M., Eastern Time, on the business day immediately preceding
the Closing Date or the Option Closing Date, as the case may be.
(d) Delivery and Payment of the Underwriters' Warrants. On the Closing
Date, the Company will sell to the Representative or its designee, and the
Representative or its designee shall purchase, the Underwriters' Warrants,
as more fully described in Section 6(a) herein. The Underwriters' Warrants
will be in the form of, and in accordance with, the provisions of the
Underwriters' Warrants attached as an exhibit to the amendment to the
Registration Statement (as defined below). Payment for the Underwriters'
Warrants will be made to the Company by check or checks payable to its
order on the Closing Date against delivery of the certificates representing
the Underwriters' Warrants. The certificates representing the Underwriters'
Warrants will be in such denominations and in such names as the
Representative may request at least two business days prior to the Closing
Date.
(e) Use of Prospectus. The Company and the Selling Stockholder hereby
confirm their authorization to the Underwriters to use, and to make
available for use by dealers, the Preliminary Prospectus and Prospectus (as
defined below), and the Company and the Selling Stockholder hereby
authorize the Underwriters, all selected dealers, and all other dealers to
whom any of the Securities may be sold by the Underwriters or selected
dealers, to use the Preliminary Prospectus and 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 Securities Act of 1933,
as amended (the "Securities Act"), the rules and regulations of the
Commission thereunder (the "Regulations"), and applicable state law until
completion of the Public Offering and for such longer period as the
Underwriters may request if the Prospectus is required to be delivered in
connection with sales of the Securities by the Underwriters or a dealer.
2. Representations and Warranties of the Company and the Selling
Stockholder.
3
<PAGE>
(a) Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with the Underwriters, that:
(1) Registration Statement on Form SB-2. The Company has
prepared in conformity with the requirements under the Securities Act
and the Regulations, and has filed with the Commission under the
Securities Act, a registration statement on Form SB-2, File No.
_________ (the "Registration Statement"), including the related
Prospectus, for the registration of the sale of the Securities and the
Underwriters' Warrants and the shares of Common Stock underlying the
Underwriters' Warrants (the "Warrant Shares"). The conditions for the
use of a registration statement on Form SB-2 set forth in the General
Instructions thereto have been satisfied with respect to the Company,
the transactions contemplated herein, and the Registration Statement.
As used in this Agreement, the term "Registration Statement" means such
registration statement of the Company, as amended (pre- or
post-effectiveness), on file with the Commission at the time the
registration statement or any post-effective amendment thereto becomes
effective under the Securities Act (including all financial statements
and financial schedules, exhibits, all other documents filed as a part
thereof or incorporated by reference therein, and all the information
contained in any final Prospectus filed with the Commission pursuant to
Rule 424(b) under the Securities Act or deemed by virtue of Rule 430A
under the Securities Act to be part of the Registration Statement). The
term "Prospectus" as used herein means the final Prospectus included as
part of the Registration Statement, including, if applicable, the
information contained in any final Prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act or deemed by virtue of
Rule 430A under the Securities Act to be part of the Registration
Statement. The term "Preliminary Prospectus" refers to and means any
prospectus included in the Registration Statement or any amendment
thereto prior to the Registration Statement becoming effective under
the Securities Act.
(2) Use and Accuracy of Prospectus. Neither the Commission nor
any state regulatory authority has issued any order preventing or
suspending the use of any Prospectus or any part thereof, and no
proceedings for that purpose have been instituted or, to the Company's
knowledge, are pending, threatened or contemplated. Each Prospectus
delivered to the Underwriters for dissemination in connection with the
Public Offering, at the time of filing thereof and delivery to the
Underwriters for such dissemination, did not contain any untrue
statement of a material fact, or omit to state a 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; the foregoing shall not apply, however, to statements in,
or omissions from, any Prospectus that are based upon and conform to
written information furnished to the Company with respect to any
Underwriter (or any affiliate or associate thereof) by or on behalf of
the Underwriters or such Underwriter specifically for use in the
preparation thereof.
(3) Effectiveness and Accuracy of Registration Statement. The
Registration Statement has or will become effective under the
Securities Act as of the Effective Date. The Registration Statement and
the Prospectus, from the Effective Date through the Closing Date and,
if Optional Shares are purchased, up to and including the Option
4
<PAGE>
Closing Date (and if there are multiple Option Closing Dates, up to and
including the last Option Closing Date), will comply in all respects
with the applicable requirements of the Securities Act and the
Regulations, and neither the Registration Statement nor the Prospectus
will, on such dates, 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, and, on such dates, no
event will have occurred that should have been set forth in an
amendment or supplement to the Registration Statement or the Prospectus
that has not then been set forth in such an amendment or supplement;
the foregoing shall not apply, however, to statements in, or omissions
from, the Registration Statement or the Prospectus that are based upon
and conform to written information furnished to the Company with
respect to any Underwriter (or any affiliate or associate thereof) by
or on behalf of the Underwriters or such Underwriter specifically for
use in the preparation thereof. The descriptions in the Registration
Statement and the Prospectus of contracts and other documents of the
Company are accurate and present fairly the information required to be
disclosed, and there are no contracts or other documents required to be
described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement under the Securities
Act or the Regulations which have not been so described or filed as
required. The Company has complied with all requests of the Commission
and any state securities commission in a state designated by the
Representative pursuant to Subsection 3(e) hereof for additional
information to be included in the Registration Statement and Prospectus
or otherwise.
(4) Independent Public Accountants. Schwartz Levitsky Feldman,
the accountants whose reports on the financial statements of the
Company are filed with the Commission as a part of the Registration
Statement, are, and were during the periods covered by their respective
reports, independent public accountants as required by the Securities
Act and the Regulations.
(5) Organization, Qualification, Etc. The Company does not
have any subsidiaries and the Company does not own, and at the Closing
Date and any Option Closing Date will not own, directly or indirectly,
any stock or other equity interest in, or control, directly or
indirectly, any other corporation, partnership or other entity. The
Company is (i) a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation,
with full power and authority to own or lease all of the assets owned
or leased by it and to conduct its business as described in the
Registration Statement and the Prospectus and (ii) duly qualified to do
business and in good standing as a foreign corporation in all
jurisdictions in which the nature of the activities conducted by it or
the character of the assets owned or leased by it makes such
qualification necessary, except where the failure to so qualify would
not have a material adverse effect on the condition (financial or
otherwise), earnings, business, assets, properties, results of
operations or prospects (financial or otherwise) of the Company
(hereinafter a "Material Adverse Effect"). Complete and correct copies
of the articles of incorporation and the by-laws of the Company in
effect on the date hereof have been delivered to the Representative,
and no changes therein will be made on or subsequent to the date hereof
and prior to the Closing Date and/or any Option Closing Date.
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(6) Permits and Licenses. The Company has all approvals,
licenses, franchises, authorizations and permits (collectively,
"Permits") necessary under all applicable statutes, codes, rules,
regulations, orders and decrees of governments or governmental bodies
(collectively, "Laws") to own, lease or use its assets and to conduct
its business as described in the Prospectus, except where the failure
to have any such Permits, singly or in the aggregate, will not have a
Material Adverse Effect. The Company has not received notice of any
proceedings relating to the revocation or modification of any such
Permits and the Company is in all respects in compliance with all of
its Permits, except where the failure to comply, either singly or in
the aggregate, will not have a Material Adverse Effect. The Company is
not aware of any breach, violation or default with respect to such
Permits.
(7) Capitalization and Legality of Securities. The authorized,
issued and outstanding capital stock of the Company is as set forth in
the Prospectus under the caption "Capitalization." The Company will
have the adjusted capitalization set forth therein on the Closing Date
and each Option Closing Date, if any, based on the assumptions set
forth therein. There are no preemptive rights with respect to any
outstanding securities of the Company. The authorized capital stock of
the Company conforms to the descriptions thereof contained in the
Prospectus under the caption "Description of Securities," and consists
of 15,000,000 shares of Common Stock and 1,000,000 shares of preferred
stock, no par value per share ("Preferred Stock"). As of the date
hereof, there are 4,000,000 shares of Common Stock issued and
outstanding. There are no shares of Preferred Stock outstanding. In
addition, the Company does not have any outstanding options or warrants
to purchase shares of Common Stock. The Company has sufficient
authorized (and neither issued nor outstanding) Common Stock to be
offered and sold as contemplated herein, and to be issued upon exercise
of the Underwriters' Warrants. Except as otherwise set forth in the
Prospectus, there are no outstanding options, warrants, or other rights
to purchase any shares of Common Stock or other capital stock of the
Company, or to purchase any other securities convertible into or
exchangeable for Common Stock or any other capital stock of the
Company. The outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
the shares of Common Stock to be offered by the Prospectus have been
duly authorized and, when issued and delivered against payment therefor
as provided in this Agreement, the Prospectus, and the Underwriters'
Warrants, as applicable, will be validly issued, fully paid and
nonassessable. The Underwriters' Warrants will constitute, when sold
and delivered as contemplated, a valid and binding obligation of the
Company enforceable in accordance with its terms, except to the extent
that enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and similar laws and
court decisions now or hereafter in effect relating to or affecting
creditors' rights and remedies generally and (ii) general principles of
equity (regardless of whether such enforcement is considered in a
proceeding at law or in equity). A sufficient number of shares of
Common Stock have been reserved for issuance upon sale and exercise of
the Underwriters' Warrants.
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(8) Registration of Securities, Underwriters' Warrants and
Warrant Securities. Upon the effectiveness of the Registration
Statement, the Securities shall have been listed on the Nasdaq National
Market System7. The Company has taken no action designed, or likely, to
have the effect of terminating the registration of the Securities under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor has the Company received any notification that the
Commission is contemplating terminating such registration. The
registration of the Securities, Underwriters' Warrants and Warrant
Shares under the Exchange Act was declared effective on the Effective
Date, and the Company has not received any notification that the
Commission is contemplating terminating such registration.
(9) Exchange Act Filings. As of the filing date, each report
or statement filed by the Company with the Commission pursuant to the
Exchange Act complied as to form in all respects with the requirements
of the Exchange Act and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements made therein, in the light of the circumstances
under which they were made, not misleading. From the Effective Date
thereafter, the Company shall comply with all periodic reporting and
proxy solicitation requirements imposed by the Commission pursuant to
the Exchange Act, and shall promptly furnish the Representative for a
period of five years from the Effective Date with copies of all
material filed with the Commission pursuant to the Exchange Act or
otherwise furnished to the shareholders of the Company.
(10) Taxes. No transfer tax, stamp duty or other similar tax
is payable by or on behalf of the Underwriters in connection with (i)
the issuance by the Company of the Securities, including the Warrant
Shares, (ii) the purchase by the Underwriters of the Securities from
the Company or the Selling Stockholder and the purchase by the
Representative of the Underwriters' Warrants from the Company, (iii)
the consummation by the Company of any of its obligations under this
Agreement, or (iv) resales of the Securities in connection with the
distribution contemplated hereby.
(11) Financial Statements. The financial statements (audited
and unaudited), and related financial schedules and notes
(collectively, the "Financial Statements"), filed with and as part of
the Registration Statement, comply in all respects with the applicable
accounting requirements of the Securities Act and the Regulations and
present fairly the financial position of the Company as of the dates
thereof and results of operations and changes in cash flows of the
Company for the periods to which they apply, and such Financial
Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the
periods involved. All adjustments that, in the opinion of management,
are necessary for a fair presentation of the results for all such
periods have been made. The Financial Statements included in the
Registration Statement and the Prospectus are the only financial
statements required under the Securities Act or the Regulations to be
included in the Registration Statement and the Prospectus. The other
financial and statistical information included in the Prospectus,
including, without limitation, "Prospectus Summary," "Summary
Consolidated Financial and Operating Data" and "Selected Consolidated
Financial Data"
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presents fairly the information shown therein, and has been compiled
on a basis consistent with that of the audited financial statements
included in the Registration Statement and the books and records of
the Company.
(12) Material Loss. The Company has not, since the date of the
latest financial statements included in the Prospectus or the
Registration Statement, sustained any material loss or interference
with its business from fire, explosion, flood, or other calamity,
whether or not covered by insurance, or from any labor dispute or court
or governmental action, order, or decree, other than as set forth in
the Prospectus. Since the respective dates as of which information is
set forth in the Prospectus, and except as otherwise set forth therein:
(i) there has not been any change in the capital stock, or material
increase in the short term or long-term debt, of the Company; (ii)
there has not been any material adverse change or any prospective
material adverse change in the condition (financial or otherwise),
business, prospects (financial or otherwise), results of operations,
general affairs, or management of the Company, whether or not arising
in the ordinary course of business; (iii) no event has occurred that
would result in a material write-down of assets of the Company; (iv)
the Company has not incurred any material liability or obligation,
direct or contingent, or entered into any material transaction, other
than those in the ordinary course of business; (v) the Company has not
purchased any of the Company's outstanding securities; (vi) there has
been no dividend or distribution of any kind declared, paid, or made by
the Company in respect of the Common Stock; and (vii) there has not
been any execution or imposition of any material lien, charge, or
encumbrance upon the respective property or assets of the Company.
(13) Insurance. The Company maintains such insurance,
including, but not limited to, general liability, product and property
insurance, as are necessary to insure the Company and its respective
employees, against such losses and risks generally insured against by
comparable businesses. The Company has (i) not failed to give notice or
present any insurance claim with respect to any matter, including but
not limited to such entity's business, property or employees, under any
insurance policy or surety bond in a due and timely manner, (ii) no
disputes or claims against any underwriter of such insurance policies
or surety bonds nor has it failed to pay any premiums due and payable
thereunder, and (iii) not failed to comply with all conditions
contained in such insurance policies and surety bonds. There are no
facts or circumstances under any such insurance policy or surety bond
which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company.
(14) Compliance with Documents and Laws. The Company is not in
violation of its articles of incorporation, by-laws, or other governing
documents. Except as set forth in the Registration Statement, the
Company is not in default in the due performance of any lease or other
contract, indenture, mortgage, deed of trust, note, loan, or other
agreement or instrument to which the Company is a party or it or any of
its properties or business is subject, or any applicable license,
franchise, certificate, permit, authorization, statute, rule or
regulation of or from any public, regulatory, or governmental agency or
authority having jurisdiction over the Company or any of its properties
or assets, or any approval, consent, order, judgment or decree. The
Company is in compliance with all
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laws, rules and regulations applicable to its business. The execution
and performance of this Agreement by the Company will not conflict
with or result in a breach or violation of, or default under, any
lease or other material contract, indenture, mortgage, deed of trust,
note, loan, or other material agreement or instrument to which the
Company is a party or by it or any of its properties or business is
subject and no consent, approval, authorization, or order of any court
or governmental authority or agency having jurisdiction over the
Company or any of its properties or assets is required to be obtained
by the Company for the consummation by the Company of the transactions
contemplated herein, except such as have been obtained or may be
required under the Securities Act or the Regulations or under state
securities laws or the applicable rules and regulations promulgated
thereunder.
(15) Authorization of Agreements. Each of this Agreement, the
Underwriters' Warrants and the Financial Consulting Agreement (as
described herein and in the Prospectus), has been duly authorized,
executed, and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable in accordance with its
terms. The execution, delivery and performance of this Agreement, the
Underwriters' Warrants and the Financial Consulting Agreement by the
Company, the consummation by the Company of the transactions herein and
therein contemplated, and the compliance by the Company with the terms
of this Agreement, the Underwriters' Warrants and the Financial
Consulting Agreement have been duly authorized by all necessary
corporate action and do not and will not, with or without the giving of
notice or the lapse of time, or both, (i) result in any violation of
the articles of incorporation or by-laws of the Company, (ii) result in
a breach of or conflict with any of the 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 agreement or instrument to which the
Company is a party or under which the Company or any of its properties
or assets is or may be bound or affected, (iii) violate any existing
applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction
over the Company, or any of its properties or business, or (iv) violate
any Permits of the Company except for any Permits, the violation of
which will not cause a Material Adverse Effect. The Agreement, the
Underwriters' Warrants and the Financial Consulting Agreement conform
to the descriptions thereof in the Prospectus.
(16) Title to Property. The Company has good and marketable
title to, and valid and enforceable leasehold estates in, all items of
property described in the Registration Statement or the Prospectus as
owned or leased by it, as the case may be, or that are material to the
conduct of their businesses free and clear of all liens, encumbrances,
claims, security interests, and other restrictions, other than those
described in the Registration Statement or Prospectus. The leases,
licenses or other contracts or instruments under which the Company
leases, holds or is entitled to use any property, real or personal, are
valid, subsisting and enforceable, and the Company is not in material
default thereunder and no event has occurred which, with the passage of
time or the giving of notice, or both, would constitute a default
thereunder. The Company has not
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<PAGE>
received notice of any violation of any applicable law, ordinance,
regulation, order or requirement relating to its owned or leased
properties. The Company has insured its properties against loss or
damage by fire or other casualty and maintains such other insurance as
management of the Company believes is adequate for the Company's
present business operations.
(17) Intellectual Property. Except as set forth in the
Prospectus, the Company owns or possesses the requisite licenses,
registrations or other evidences of adequate and full rights to use all
copyrights, patents, trademarks, service marks, trade names, trade
dress, logos, know-how, trade secrets, licenses, Internet domain names
and rights in any way thereof (collectively, the "Intellectual
Property") presently used in or necessary to conduct its business as
described in the Prospectus and the Registration Statement. The Company
has not knowingly infringed the rights of another with respect to any
item of Intellectual Property, and there is no outstanding claim of or
notice from others alleging any such infringement. There is no claim,
notice or action by any person pertaining to, or proceeding pending or,
to the Company's knowledge, threatened, which challenges the rights of
the Company with respect to any Intellectual Property used in the
conduct of its business.
(18) Litigation. There is no litigation or governmental or
other proceeding or investigation before any court or before or by any
public, regulatory, or governmental agency or authority (or any
judgment, decree, or order of such court, agency, or authority) pending
or, to the best knowledge of the Company, threatened to which the
Company is a party or to which its business or properties are subject
which is not disclosed in the Prospectus or Registration Statement as
required by the Securities Act or the Regulations. There are no
outstanding orders, judgments or decrees of any court, governmental
agency or other tribunal naming the Company or enjoining the Company
from taking, or requiring the Company to take, any action, or to which
it or its properties or business are bound or subject.
(19) Related Party Transactions. Except as set forth in the
Prospectus, no officer, director, shareholder or partner of the Company
or any "affiliate" or "associate" (as these terms are defined in Rule
405 of the Regulations) of any of the foregoing persons or entities has
or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products
which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company
any goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound
or affected. Except as set forth in the Prospectus under "Certain
Relationships and Related Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or
among the Company and any officer, director or 5% or greater
securityholder of the Company, or any partner, affiliate or associate
of any of the foregoing persons or entities.
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(20) Prohibited Payments. Neither the Company nor any of its
directors or officers acting in any capacity on its behalf, has used
any corporate funds for unlawful contributions, gifts, entertainment,
or other unlawful expenses relating to political activity; made any
unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment.
(21) Internal Accounting Controls. The Company maintains a
system of internal accounting controls which, taken as a whole, is
sufficient to cause it to comply with the Foreign Corrupt Practices Act
of 1977, as amended, and to meet the broad objectives of preventing and
detecting errors or irregularities in amounts that would be material to
the Company's financial statements. Except as specifically disclosed in
the Prospectus, neither the Company, nor any employee or agent of the
Company, has made any payment or transfer of any funds or assets of the
Company, conferred any personal benefit by the use of the assets of the
Company, or received any funds, assets, or personal benefit in each
case in violation of any law, rule, or regulation, which is required to
be disclosed in the Prospectus or necessary to make the statements
therein not misleading.
(22) Tax Returns. The Company (i) has paid all federal, state,
local and foreign taxes which are due and payable and has furnished all
information returns it is required to furnish pursuant to the [Internal
Revenue Code of 1986, as amended], (ii) has established adequate
reserves for such taxes which are not yet due and payable and (iii)
does not have any tax deficiency or claims outstanding, proposed or
assessed against it. The Company has not executed or filed with any
taxing authority, foreign or domestic, any agreement extending the
period for assessment or collection of any income taxes, nor is it a
party to any pending action or proceeding by any foreign or domestic
governmental agency for assessment or collection of taxes; and no
claims for assessment or collection of taxes have been asserted against
either of it. The Company has not been, nor is currently being, audited
by any taxing authority, nor has the Company entered into any agreement
to toll any applicable statute of limitations with respect to the
payment of any taxes.
(23) Employee Plans. Except as set forth in the Registration
Statement or the Prospectus, the Company does not have any employee
benefit plans (including, without limitation, pension, profit sharing,
and welfare benefit plans) or deferred compensation arrangements. In
the event the Company establishes an employee stock option plan in the
future, such plan shall reserve not more than 400,000 shares of Common
Stock for issuance upon exercise of options granted thereunder, and
options granted thereunder shall have a vesting period of not less than
two years. Additionally, Aaron Herzog and Jacob Herzog shall not be
eligible to participate in such a plan.
(24) Labor Disputes. The Company has generally enjoyed
satisfactory employer-employee relationships with its employees and is
in compliance with all federal, state, local, and foreign laws and
regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours. There
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are no pending investigations involving the Company by the [Department
of Labor], or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and
regulations. To the knowledge of the Company, there is no unfair labor
practice charge or complaint against the Company pending before the
National Labor Relations Board or any lockout, strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company, or any predecessor entity, and none has ever
occurred. No representation question exists respecting the employees of
the Company, no collective bargaining agreement or modification thereof
is currently being negotiated by the Company nor is the Company a party
to any such agreement. No grievance or arbitration proceeding is
pending under any expired or existing collective bargaining agreements
of the Company. No labor dispute exists or, to the knowledge of the
Company, is imminent with the employees of the Company.
(25) Registration Rights. No person, firm, or entity of any
nature whatsoever has any right to require the Company to register or
attempt to register under the Securities Act or any other securities
law any shares of capital stock, including Common Stock or securities
convertible into or exchangeable or exercisable for any shares of
capital stock including Common Stock, by reason of the filing of the
Registration Statement with the Commission or otherwise.
(26) Stabilization. Neither the Company, nor any person that
controls, is controlled by or is under common control with, the Company
has taken or will take, directly or indirectly, any action designed to,
or that might reasonably be expected to, cause or result in
stabilization or manipulation under the Exchange Act of the price of
any security in order to facilitate the sale or resale of any of the
Securities.
(27) Investment Company. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus under the caption "Use of Proceeds" will not be, an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(28) Finder or Broker. The Company has not retained or dealt
with any broker or finder with respect to the transactions contemplated
hereby, and the Company knows of no outstanding claims for services in
the nature of a finder's fee or origination fee with respect to the
sale of the Securities hereunder. The Company hereby agrees to
indemnify and hold harmless the Underwriters with respect to any claim
for a finder's fee by any party claiming to be owed such fee based on
contacts, conversations, or arrangements with the Company.
(29) Contracts. Each contract or other instrument to which the
Company is a party or by its properties or business are or may be bound
or affected and to which reference is made in the Registration
Statement or Prospectus has been duly and validly executed by the
Company, is in full force and effect in all material respects and,
based on the fact that each other party has full power, corporate or
otherwise, to execute, deliver
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and perform such contracts, is enforceable against the parties thereto
in accordance with its terms, except to the extent that enforcement
thereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and similar laws and court decisions
now or hereafter in effect relating to or affecting creditors' rights
and remedies generally and (ii) general principles of equity
(regardless of whether such enforcement is considered in a proceeding
at law or in equity). None of such contracts or instruments has been
assigned by the Company, nor is the Company in default thereunder and,
no event has occurred which, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder which
individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect. Additionally, none of the material provisions
of such contracts or instruments violates any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency
or court having jurisdiction over the Company or any of its assets or
business.
(30) NASD Information. All information provided by the Company
to the Representative or its counsel in connection with any filings
made with the National Association of Securities Dealers, Inc. ("NASD")
with respect to the Public Offering is true and correct.
(31) Compliance With Environmental Laws and Regulations. The
Company is in compliance in all material respects with all applicable
federal, state and local environmental laws and regulations, including,
without limitation, those applicable to emissions to the environment,
waste management and waste disposal (collectively, the "Environmental
Laws"), except for any such noncompliance as may be described in the
Registration Statement or Prospectus and, to the Company's knowledge,
there are no circumstances that would prevent, interfere with, or
materially increase the cost of such compliance in the future. Except
as set forth in the Registration Statement or Prospectus, there is no
claim under any Environmental Laws ("Environmental Claim"), pending or
threatened against or affecting the Company and, there are no past or
present actions, activities, circumstances, events or incidents,
including, without limitation, releases of any material into the
environment that could form the basis of any Environmental Claim
against or affecting the Company.
(32) Business with Cuba. The Company is not doing business
with the government of Cuba or with any person or affiliate located in
Cuba.
(33) Indebtedness. There are no outstanding loans, advances
(except normal advances for business expenses in the ordinary course of
business) or guarantees of indebtedness by the Company to or for the
benefit of any of the officers or directors of the Company or any of
the members of the families of any of them, except as disclosed in the
Registration Statement and the Prospectus.
(34) Acquisitions or Dispositions. Except as set forth in the
Registration Statement and Prospectus, the Company has not consummated
the acquisition or disposition of any business or property which is
"significant" to them within the meaning
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of Regulation S-X under the Securities Act, and no such acquisition or
disposition is probable.
(35) Changes. At any time during the period of five years from
the Effective Date, if there is any change in the information referred
to in this Subsection 2(a), the Company will immediately notify
Representative of such change.
(36) Representations and Warranties of the Selling
Stockholder. The Company is not aware, and has no reason to believe,
that any representation or warranty of the Selling Stockholder set
forth in Subsection 2(b) below is untrue or inaccurate in any material
respect.
(37) Additional Representations. To the Company's knowledge,
no director, officer, or key employee of the Company has been arrested
or convicted of any felony, experienced a personal bankruptcy, or been
an officer, director, or key employee of any company that during their
tenure with such company experienced any bankruptcy, or had any
trustee, receiver, or conservator appointed with respect to its
business or assets.
(b) Representations and Warranties of the Selling Stockholder.
The Selling Stockholder represents and warrants to and agrees with
each Underwriter that:
(1) Organization, Qualification, Etc. The Selling Stockholder
is an Ontario corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, with
full power and authority to conduct its business.
(2) Authorization of Agreements. This Agreement has been duly
authorized, executed, and delivered by the Selling Stockholder and
constitutes a valid and binding obligation of the Selling Stockholder,
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by the Selling Stockholder, the
consummation by the Selling Stockholder of the transactions herein
contemplated, and the compliance by the Selling Stockholder with the
terms of this Agreement have been duly authorized by all necessary
action and do not and will not, with or without the giving of notice or
the lapse of time, or both, (i) result in a breach of or conflict with
any of the 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, change or encumbrance
upon any of the shares of Common Stock owned by the Selling Stockholder
pursuant to any indenture, mortgage, note, contract, commitment or
other agreement or instrument to which the Selling Stockholder is a
party or under which the Selling Stockholder or its properties or
assets are or may be bound or affected, or (ii) violate any existing
applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction
over the Selling Stockholder, or its properties or business.
(3) Transactions. No transaction has occurred between the
Selling Stockholder and the Company that is required to be described in
and is not described in the Registration Statement and the Prospectus.
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<PAGE>
(4) Ownership. The Selling Stockholder is the lawful owner of
the Securities to be sold by such Selling Stockholder pursuant to this
Agreement and has, and on any Option Closing Date will have, good and
clear title to such Securities, free of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever and has
legal right and full power to sell, transfer and deliver the Securities
and will transfer such title to the Underwriters.
(5) Title to Securities. Upon delivery of and payment for such
Securities pursuant to this Agreement, good and clear title to such
Securities will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests and claims
whatsoever.
(6) Delivery of Certificates. Certificates in negotiable form
for the Selling Stockholder's shares of Common Stock to be transferred
pursuant to Subsection 1(b) of this Agreement have been delivered to
the transfer agent for delivery pursuant to the terms of this
Agreement; the shares of Common Stock represented by the certificates
so held in custody for such Selling Stockholder are subject to the
interests hereunder of the Underwriters; the arrangements for custody
and delivery of such certificates made by such Selling Stockholder
hereunder are not subject to termination by any acts of such Selling
Stockholder, or by operation of law, and if any such event shall occur
before the delivery of such shares of Common Stock hereunder,
certificates for the shares of Common Stock will be delivered in
accordance with the terms and conditions of this Agreement as if such
event had not occurred, regardless of whether or not the custodian
shall have received notice of such event.
(7) Stabilization. The Selling Stockholder has not taken, and
will not take, directly or indirectly, any action designed to, or which
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the shares of Common Stock pursuant to the
distribution contemplated by this Agreement, and other than as
permitted by the Securities Act, the Selling Stockholder has not
distributed and will not distribute any prospectus or other offering
material in connection with the offering and sale of the Securities.
(8) Absence of Conflicts with Agreements. The execution,
delivery and performance of this Agreement by the Selling Stockholder,
compliance by the Selling Stockholder with all the provisions hereof
and the consummation of the transactions contemplated hereby will not
require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body (except as such may be required under the Securities Act or state
securities laws) and will not conflict with or constitute a breach of
any of the terms or provisions of any agreement, indenture or other
instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder or property of the Selling Stockholder is bound, or
violate or conflict with any law, administrative regulation or ruling
or court decree applicable to either the Selling Stockholder or
property of the Selling Stockholder.
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(9) Accuracy of Information. All information furnished to the
Company by or on behalf of the Selling Stockholder with respect to the
Selling Stockholder for use in connection with the preparation of the
Registration Statement is true, correct and complete in all material
respects as of the stated date of such information and the date hereof;
the Selling Stockholder has read the information appearing in the
Prospectus and, as it pertains to the Selling Stockholder, such
information does not contain an untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of circumstances under which they were made, not
misleading.
(10) Finder or Broker. The Selling Stockholder has not
retained or dealt with any broker or finder with respect to the
transaction contemplated hereby, and the Selling Stockholder does not
know of any outstanding claims for services in the nature of a finder's
fee or origination fee with respect to the sale of Securities by such
Selling Stockholder hereunder. The Selling Stockholder hereby agrees to
indemnify and hold harmless the Underwriters with respect to any claims
for a finder's fee by any party claiming to be owed such fee based on
contacts, conversations, or arrangements with the Company or the
Selling Stockholder.
(11) Reason for Sale. The sale of Securities by the Selling
Stockholder pursuant to this Agreement is not prompted by any
information concerning the Company which is not set forth in the
Registration Statement.
3. Covenants of the Company. The Company covenants to and agrees with the
Underwriters that:
(a) Effectiveness of Registration Statement. If the Effective
Date is not prior to the execution and delivery of this Agreement, the
Company will use its best efforts to cause the Registration Statement
and any subsequent amendments thereto to become effective as promptly
as possible. The Company will notify the Underwriters promptly (i)
when the Registration Statement or any subsequent amendment thereto
has become effective or any supplement to the Prospectus has been
filed and (ii) of the receipt of any requests, and the nature and
substance thereof, by the Commission for any amendment or supplement
to the Registration Statement or Prospectus or for any other
additional information. The Company will prepare and file with the
Commission, promptly upon the Representative's reasonable request, any
amendment or supplement to the Registration Statement or Prospectus
that may be necessary or advisable in connection with the sale or
distribution of the Securities, any of the Underwriters' Warrants or
the Warrant Shares to comply with the Regulations. The Company will
file no amendment or supplement to the Registration Statement or
Prospectus (other than any document required to be filed under the
Exchange Act that upon filing is deemed to be incorporated by
reference therein) to which the Representative shall reasonably object
by notice to the Company after having been furnished a copy within a
reasonable time, but no later than five business days, prior to the
proposed filing thereof, except in instances when the Company's
counsel advises such amendment or supplement is necessary pursuant to
the
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Regulations or the rules and regulations of the Exchange Act. The
Company will furnish to the Representative at or prior to the filing
thereof with the Commission a copy of any document that upon filing is
deemed to be incorporated by reference in whole or in part in the
Registration Statement or the Prospectus.
(b) Notice of Stop Order. The Company will advise the
Underwriters promptly, and confirm in writing, when and if it receives
notice or obtains knowledge of (i) the issuance by the Commission or
any state securities commission in a state designated by the
Representative pursuant to Subsection 3(e) hereof of any stop order or
other order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or the effectiveness of the Registration
Statement or (ii) the suspension of the qualification of any of the
Securities, the Underwriters' Warrants or the Warrant Shares for
offering or sale in any jurisdiction in which they were previously
qualified, or (iii) the initiation or threat of any proceeding for
that purpose. The Company will promptly use its reasonable best
efforts to prevent the issuance, and to obtain the withdrawal if such
issuance is not prevented, of any such stop order or other suspension.
(c) Compliance with the Securities Act and the Exchange Act.
Within the time during which a Prospectus relating to the Securities,
the Underwriters' Warrants, or the Warrant Shares is required to be
delivered under the Securities Act, the Company will use its best
efforts to comply with all requirements imposed upon it by the
Securities Act and the Exchange Act, as now in effect and as hereafter
amended, and by the Regulations, as from time to time in force, to
permit the continuance of sales of or dealings in the distribution of
the Securities or the Underwriters' Warrants or the Warrant Shares, as
contemplated by the provisions therein, herein, and in the
Registration Statement or Prospectus. If during such period any event
as to which the Company has knowledge occurs as a result of which the
Registration Statement or the Prospectus as then amended or
supplemented includes an untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein, in
the light of the circumstances then existing, not misleading, or if
during such period it is necessary to amend the Registration Statement
or supplement the Prospectus to comply with the Securities Act, the
Company will notify the Representative promptly, will amend the
Registration Statement or supplement the Prospectus so as to correct
such statement or omission or otherwise to effect such compliance, and
will furnish without charge to the Underwriters and to any dealer in
securities as many copies of such amended or supplemented Prospectus
as the Underwriters may from time to time reasonably request.
Furthermore, the Company will prepare and file with the Commission,
promptly upon the request of the Representative, any amendments or
supplements to the Registration Statement or the Prospectus, which in
the opinion of the Representative may be reasonably necessary to
enable the Underwriters to continue the distribution of the
Securities, and will use its best efforts to cause the same to become
effective as promptly as possible.
(d) Copies of Securities Act Documents. The Company will deliver
to the Representative and the Selling Stockholder, from time to time
without charge, such number of copies of the Registration Statement
(two of which delivered to the
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Representative shall be manually signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements thereto, in each case as soon as available
and in such quantities and to such persons as reasonably requested by
the Underwriters. The Company consents to the use of any Preliminary
Prospectus as originally filed, any amended Preliminary Prospectus,
the Prospectus and any amendments or supplements thereto by the
Underwriters and by any dealer for the purpose contemplated by the
Securities Act and the Regulations.
(e) State Securities Laws Qualifications. The Company will use
its best efforts, in cooperation with the Representative and the
Representative's counsel, to register or qualify the Securities, the
Underwriters' Warrants and the Warrant Shares for offer and sale under
the securities laws of such jurisdictions as the Representative may
reasonably designate, and will continue such qualifications in effect
for so long as may be necessary to complete the distribution and sale
of such securities.
(f) Section 11(a) Earnings Statement. The Company will make
generally available to its security holders (within the meaning of
Section 11(a) of the Securities Act) and deliver to the Representative
as soon as practicable an earnings statement that shall satisfy the
requirements of Section 11(a) and Rule 158 under the Securities Act,
covering a period of at least 12 consecutive months after the
Effective Date.
(g) Report SR to be Filed by Company. Within ten days after the
end of the first three-month period following the Effective Date, the
Company will prepare and file with the Commission a report on Form SR
as prescribed by Rule 463 of Regulation C under the 1933 Act.
(h) Information Provided to the Representative. After the Closing
Date and for a period of four years thereafter, the Company will
furnish or cause to be furnished to the Representative and the
Representative's counsel, with reasonable promptness, copies of (i)
quarterly balance sheets, statements of income of the Company (which
need not be audited) and all other reports prepared and issued to the
public. Additionally, for a period of three years after the Effective
date, the Company shall furnish to the Representative: (i) all
reports, if any, to its shareholders, (ii) all reports filed by the
Company with the Commission, any securities exchange and/or the NASD;
and (iii) such other material documents and information with respect
to the Company and its affairs as the Representative may from time to
time reasonably request and the Company can produce at reasonable
cost. The Company shall cause the Board of Directors to meet, at least
quarterly, upon proper notice, and shall also cause the agenda and
minutes of the last meeting to be mailed to each Director prior to
each meeting and a copy of such report to be sent to the
Representative. For a period of three years from the Closing Date, the
Company shall cause its transfer agent to provide the Representative
with copies of the Company's monthly transfer sheets and Depository
Trust Company transfer sheets. For a period of three years from the
Closing Date, upon request, the Company shall also provide the
Representative with current lists of its shareholders and warrant
holders, if any. The Representative will maintain the confidentiality
of any documents or
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information provided to it pursuant to this Subsection 3(h) and will
comply fully with federal and state securities laws regarding the use
of such documents or information.
(i) Listing in Securities Manual; After-Market Trading
Memorandum; Non-Issuer Transaction. In the event the Common Stock is
not listed for quotation on Nasdaq National Market or the American
Stock Exchange, the Company shall have become listed at or prior to
the Effective Date, and shall use its best efforts to maintain such
listing, for at least five years after the Effective Date in Standard
and Poor's Corporation Records Service and/or Moody's OTC Guide. For a
period of five years from the Effective Date, at the Company's sole
expense, the Company shall cause its counsel to provide to the
Representative a list of those states in which the Company's
securities may be traded in non-issuer transactions under the
securities laws of the 50 states.
(j) Listing on Nasdaq National Market or Exchanges. Prior to the
Effective Date, the Company, at its cost, shall use its best efforts
to have caused the Securities, and the Warrant Shares to be listed for
trading on Nasdaq National Market or the American Stock Exchange and,
if possible, on the Toronto Stock Exchange under symbols which are
acceptable to the Representative, and the Company shall use its best
efforts to have the Securities and the Warrant Shares remain listed
for at least five years from the Effective Date, and to ensure that
the Company otherwise complies with the prevailing requirements of The
Nasdaq Stock Market, Inc. or the American Stock Exchange, as the case
may be, and the requirements of the Toronto Stock Exchange if the
Common Stock is listed with such Exchange.
(k) Section 12(g) Registration. Upon the Effective Date, the
Common Stock will be registered with the Commission under the
provisions of Section 12(g) of the Exchange Act. The Company shall
comply with the Securities Act, the Regulations, the Exchange Act and
the rules and regulations promulgated thereunder, the applicable rules
and regulations of the NASD, and applicable state securities laws so
as to permit the continuance of sales of and dealings in the
Securities and the exercise of the Underwriters' Warrants and the
issuance and sale of the Warrant Shares upon such exercise in
compliance with applicable provisions of such laws, rules, and
regulations, including the filing with the Commission, NASD
Regulation, Inc. and state securities commissions in all states where
the Securities, including the Warrant Shares, have been issued or
sold, all reports required to be so filed, and the Company will
deliver to the holders of the Securities and/or Warrant Shares all
reports required to be provided to such holders pursuant to such laws,
rules, or regulations. The Company shall timely file with the
Commission and deliver to the Representative, from time to time as
required to make the same reasonably current, such statements and
reports as are required to be filed by a company registered under
Section 12(g) of the Exchange Act, as if the Company were a company
incorporated in the United States.
(l) Use of Proceeds. The Company shall apply the net proceeds
received from the sale of the Securities and the exercise of the
Underwriters' Warrants in the manner set forth under the caption "Use
of Proceeds" in the Registration Statement and
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<PAGE>
Prospectus, which shall state that the primary application of the
proceeds to be realized by the Company will be for expansion of
existing operations and for working capital.
(m) Board Meetings and Membership. For a period of three years
commencing on the Effective Date, the Representative shall have the
right to designate one nominee for election to the Company's Board of
Directors, which member shall be reasonably acceptable to the Company.
The Company shall, prior to the Effective Date, obtain from the
officers, directors and holders of 5% or more of the outstanding
Common Stock of the Company, agreements in writing to vote the shares
of Common Stock respectively owned by them, whether directly or
indirectly, during such three-year period in favor of the election of
such nominee. Following the election of such nominee as director, such
person shall receive the same compensation paid to other non-officer
directors of the Company for attendance at meetings of the Board of
Directors of the Company and shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such
meetings to the extent permitted under applicable law, and on the same
basis as all other directors of the Company. The Company agrees to
indemnify and hold such director harmless, to the maximum extent
permitted by law, against any and all claims, actions, awards and
judgments arising out of his or her service as director and, in the
event the Company maintains a liability insurance policy affording
coverage for the acts of its officers and directors, to include such
director as insured under such policy. The rights and benefits of such
indemnification and the benefits of such insurance shall, to the
extent possible, extend to the Representative insofar as it may be or
may be alleged to be responsible for such director, provided that the
extension of such rights and benefits to the Representative may be
done without additional cost to the Company.
In the event that the Representative does not elect to
designate one member to the Company's Board of Directors, the Representative
shall have the right during such three-year period to have one representative
attend all meetings of the Board of Directors of the Company, which meetings
shall be held at least quarterly, including any meetings of any committees of
the Board of Directors. All information received by such representative at such
meetings shall be kept confidential, shall not be disclosed by the
representative to any third party, and shall be dealt with in full compliance
with federal and state securities laws.
Additionally, the Company shall elect or cause to be elected,
a minimum of two (2) "outside" persons (i.e., excluding affiliates of the
Company and family members of the Company's existing directors, officers and
shareholders) to the Company's Board of Directors within 90 days after the
Effective Date, and shall designate an audit committee consisting of a majority
of such "outside" directors, which will generally supervise the financial
affairs of the Company, including, but not limited to, the application of the
proceeds of the Public Offering. The Company shall maintain (or establish if
necessary) any other such committees of the Board of Directors as are necessary
to comply with the corporate governance requirements imposed by the exchange(s)
or other organizations wherein the Common Stock is listed.
(n) Future Sales. The Company will not, during the period of the
Public Offering and for a period of twelve months from the Effective
Date, without the
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Representative's prior written consent, offer, sell, contract to sell,
or otherwise dispose of, any securities of the Company, except for the
issuance of shares of Common Stock to be issued (a) pursuant to the
exercise of options or options currently reserved for future grant and
disclosed in the Registration Statement and Prospectus, (b) pursuant
to and in order to consummate a merger with or acquisition from an
unaffiliated party in a transaction negotiated at arms' length and
approved by a majority of the Company's Board of Directors, (c) in a
public offering, at a price not less than 90% of the average of the
closing bid prices of the Common Stock as reported on Nasdaq National
Market or the American Stock Exchange (if the Common Stock is listed
therein) for the 21 consecutive trading day period immediately
preceding the date of sale (the "Exempt Price"), and (d) in a private
sale at a price not less than 80% of the Exempt Price.
(o) Undertakings. The Company will comply with the provisions of
all undertakings contained in the Registration Statement or made in
connection with any application to register or qualify any of the
Securities, including the Warrant Securities, under state securities
laws.
(p) Certain Deliveries to the Representative. The Company shall
obtain from its officers, counsel, and accountants those certificates,
opinions, and letters referred to in Section 7. The Company shall,
upon request of the Representative, furnish to the Representative as
early as practicable prior to each of the date hereof, the Closing
Date and any Option Closing Date, but not later than two full business
days prior thereto, a copy of the latest available unaudited interim
financial statements of the Company (which in no event shall be as of
a date more than 30 days prior to the date of the Registration
Statement) which have been read by the Company's independent public
accountants, as stated in the accountants' letter to be furnished
pursuant to Subsection 7(k) hereof.
(q) Redemption and Dividends. For a period of three years from
the Effective Date, the Company shall not redeem any of its securities
and shall not pay any dividends or make any other cash distribution in
respect of its securities in excess of the amount of the Company's
current and retained earnings after the Closing Date, without
obtaining the Representative's prior written consent. The
Representative shall either approve or disapprove such contemplated
redemption of securities or dividend payment or distribution within
five business days from the date the Representative receives written
notice of the Company's proposal with respect thereto; a failure of
the Representative to respond within such period of five business days
shall be deemed consent to the transaction.
(r) Restrictions on Sales, Options and Voting by Affiliates.
Except as provided in the Registration Statement or upon prior written
consent of the Representative, all directors, officers, and holders of
10% or more of the Company's capital stock issued and outstanding as
of the Effective Date, as well as options, warrants or rights thereto,
shall agree not to sell any shares of any class of capital stock owned
by them, privately or publicly (either pursuant to Rule 144 of the
Regulations or otherwise) for a period of not less than 18 months
following the Effective Date or such shorter period as set forth in
the Registration Statement. An appropriate restrictive legend shall
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be placed on the face of all stock certificates representing such
share of capital stock prior to the Effective Date. The Company will
cause its transfer agent to note such restriction on the transfer
books and records of the Company and will obtain "lock-up agreements"
from such directors, officers, and shareholders prior to the Effective
Date. This Subsection 3(r) shall not apply to the Selling Stockholder.
(s) Outstanding Warrants, Options and Other Rights. There shall
not be outstanding on the Closing Date any warrants, options, or other
rights to purchase any shares of Common Stock, except as otherwise set
forth in the Registration Statement or Prospectus.
(t) Accounting Firm. The Company shall retain a nationally
recognized, reputable independent public accounting firm reasonably
acceptable to the Representative for a period of five years from the
Effective Date. The Representative acknowledges that the accounting
firm of Schwartz Levitsky Feldman is acceptable.
(u) Business with Cuba. The Company will inform the Florida
Department of Banking and Finance (the "Department") if at any time it
commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba after the Effective Date. Such
information will be provided to the Department within 90 days after
the commencement of business in Cuba or within 90 days after the
change occurs with respect to previously reported information.
(v) Closing Binders. The Company shall, at its sole cost and
expense, supply and deliver to the Representative and the
Representative's counsel, within a reasonable period not to exceed 180
days after the Closing Date, three sets of hard-bound transaction
binders, each of which shall include the Registration Statement, as
amended or supplemented, all exhibits to the Registration Statement,
each Preliminary Prospectus, the Prospectus, the Preliminary Blue Sky
Memorandum and any supplement thereto, correspondence filed with or
received from the Commission or the NASD and all underwriting and
other closing documents.
(w) Annual Reports. Until the third anniversary of the Effective
Date, the Company shall distribute an annual report to all
shareholders setting forth clearly the financial position of the
Company.
(x) Repayment of Indebtedness. Prior to the Closing Date, and
except as may be set forth in the Registration Statement, the Company
shall not repay (or agree to repay) any indebtedness to any of its
shareholders (or incur any indebtedness to any of its shareholders)
unless the terms thereof are approved in advance by the
Representative. The loan made by certain insiders of the Company to
the Company in the approximate sum of $760,000 shall be repaid in
quarterly installments over an 18-month period following the Closing
Date, provided that the Company is profitable for the particular
quarter in which a quarterly installment is paid, and the Company will
have sufficient cash flow after any such payment is made to operate
its business in the ordinary course.
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(y) Transfer Agent. The Company will appoint transfer agent for
the Common Stock reasonably acceptable to the Representative.
(z) Insurance. The Company shall have, within 30 days from the
Closing Date, obtained directors and officers insurance and "key man"
life insurance in the amount of U.S. $2,000,000 on the life or lives
of its key officers, directors and employees as deemed necessary by
the mutual agreement of the Company and the Representative and on
terms acceptable to both the Company and the Representative. The
Company shall pay the premiums for such insurance and maintain such
insurance in force for a period of not less than five years from the
Effective Date; the Company shall be the named beneficiary on all such
insurance policies.
(aa) Employment Agreements. The Company shall have entered into
employment agreements with Aaron Herzog, Jacob Herzog and other key
employees on terms approved by the Representative. The annual salary
provided in such employment agreements with Aaron Herzog and Jacob
Herzog shall be $175,000 with $25,000 annual bonuses payable if the
Company achieves specified projected post-tax earnings.
4. Representations, Warranties and Covenants of the Representative.
The Representative represents and warrants to, and agrees with, the Company
and the Selling Stockholder that:
(a) Registration as Broker-Dealer and Member of NASD. The
Representative is registered as a broker-dealer with the Commission
and in all states in which it shall offer the Securities, and is a
member in good standing of the NASD. Additionally, any firm with which
the Representative associates to act as an Underwriter shall also be
registered as a broker-dealer with the Commission and a member in good
standing of the NASD or shall be a foreign broker-dealer and a member
of the national stock exchange of its country of residency.
(b) No Pending Proceedings. There is not now pending or
threatened against the Representative any action or proceeding of
which it has been advised, either in any court of competent
jurisdiction or before the Commission, or before any state securities
commission or the NASD, concerning its activities as a broker or
dealer, that could have a material adverse effect upon its ability to
perform its obligations under this Agreement.
(c) No Untrue Statements. No information furnished to the Company
in writing by or on behalf of the Representative for the express
purpose of use in or for preparation of the Registration Statement or
the Prospectus contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. For all
purposes under this Agreement, the only information which shall be
deemed to have been provided by or on behalf of the Representative for
the express purpose of use in or for preparation of the Registration
Statement or the Prospectus shall be the information contained in the
"Underwriting" section of the Prospectus.
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(d) Finder or Broker. Except as contemplated by this Agreement,
the Representative (i) has not retained or dealt with any broker or
finder or financial consultant with respect to the transactions
contemplated hereby, and (ii) does not know of any outstanding claims
for services in the nature of a finder's fee or origination fee with
respect to transactions contemplated hereby. The Representative agrees
to indemnify and hold harmless the Company with respect to any claims
for a finder's fee by any party claiming to be owed such fee based on
contacts, conversations, or arrangements with the Representative or
any Underwriter.
5. Offering Expenses and Related Matters.
(a) General. The Company agrees to pay or reimburse the
Representative, if paid by the Representative, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the issuance, sale and
delivery of the Securities, the Underwriters' Warrants and the Warrant
Shares and the performance of the obligations of the Company
hereunder, including without limiting the generality of the foregoing,
(i) the preparation, printing, filing, and copying of the Registration
Statement, Preliminary Prospectus, Prospectus, this Agreement, Blue
Sky memoranda, the Agreement Among Underwriters, if any, the Selected
Dealers Agreement, and other underwriting documents, if any, and any
drafts, amendments or supplements thereto, including the cost of all
copies thereof supplied to the Underwriter in such quantities as
reasonably requested by the Representative, the costs of mailing
Preliminary and Final Prospectuses to offerees and purchasers of the
Securities, excluding costs of mailing by the Representative or any
Underwriter; (ii)) the printing, engraving, issuance and delivery of
certificates representing the Securities, including any transfer or
other taxes payable thereon; (iii) the registration or qualification
of the Securities, including the Underwriters' Warrants and the
Warrant Shares, under state securities laws, including the reasonable
fees and disbursements of counsel (regardless of whether such counsel
is also counsel to the Representative, subject to the limitation set
forth in Subsection 5(d) below) and filing fees in connection
therewith; (iv) all fees and expenses of the Company's counsel,
accountants and all transfer or warrant agent fees; (v) all costs,
expenses and filing fees in connection with review of the terms of the
Public Offering by the NASD; (vi) all costs and expenses and filing
fees, including legal fees of the Company, of any listing of the
Securities on Nasdaq National Market and/or on a stock exchange and/or
in Standard and Poor's Corporate Reports and/or in any other
securities manuals; (vii) all costs and expenses of three bound
volumes provided to the Representative of all closing documents as set
forth in Section 3(v) hereof; (viii) the reasonable costs and
expenses, including travel expenses, of all pre-closing and
post-closing advertisements relating to the Public Offering (such as
tombstone advertisements) (ix) all costs of holding informational
meetings and "road shows"; and (x) all other costs and expenses
incurred or to be incurred by the Company in connection with the
transactions contemplated by this Agreement. The parties hereto
acknowledge that the Registration Statement and the exhibits thereto
have been prepared by counsel for the Company, and that the various
state securities and Blue Sky law applications and the survey
distributed by the Representative in connection therewith
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<PAGE>
have been prepared by the Representative's counsel, Broad and Cassel,
whose costs and expenses in connection with such state applications
and survey up to a maximum of $35,000 shall have been paid for by the
Company at the Closing, provided that if the Common Stock is listed on
the Nasdaq National Market or the American Stock Exchange, such costs
and expenses payable by the Company shall not be more than $15,000.
The obligations of the Company under this Subsection 5(a) shall
survive any termination or cancellation of this Agreement.
(b) Representative's Discount. The Representative shall be
entitled to, and the Company agrees to pay to Representative, an
underwriting discount equal to 10% of the Public Offering Price paid
on each sale of Securities in the Public Offering, payable at the
Closing Date and any Option Closing Date.
(c) Non-Accountable Expense Allowance. In addition to the
Company's payment of the foregoing expenses and Representative's
discount, upon the consummation of the Public Offering herein
contemplated, the Company shall pay to the Representative a
non-accountable expense allowance equal to 3% of the gross proceeds of
the Public Offering, including in the computation of such amount the
proceeds from any sale of Optional Securities, of which $___________
has been paid to date as set forth below. The balance of
non-accountable expense allowance due shall be paid on the Closing
Date and on each Option Closing Date, as applicable.
(d) Expenses if the Public Offering is Not Completed. The
Representative hereby acknowledges its prior receipt from the Company
of [$25,000], which amount shall be applied to the non-accountable
expense allowance. If the proposed Public Offering is not completed
because: (i) the Company unilaterally withdraws the proposed Public
Offering from the Representative at a time when the Representative is
ready, willing and able to proceed with the Public Offering; or (ii)
of any material discrepancy in any representation or warranty made to
the Representative or the failure of the Company to meet any of its
obligations hereunder, then the $25,000 paid shall be retained by the
Representative as and for its expenses and without any further
liability whatsoever on the part of the Company except in the case of
fraud or willful misconduct on the part of the Company, in which case
the Company shall be responsible for the greater of: (A) such $25,000
or (B) the Representative's actual costs, expenses, and legal fees
incurred without limitation in connection with the transaction
contemplated hereunder. If the Representative does not raise capital
on behalf of the Company because the Representative unilaterally
withdraws from the Public Offering for any reason other than those
reasons set forth in this Subsection 5(d) above, then 50% of the
payments made by the Company pursuant to this subsection (c) shall be
reimbursed by the Representative to the Company. It is understood and
agreed by the parties hereto that any expenses incurred by the
Representative will be deemed to be reasonable and unobjectionable
upon demonstration by the Representative that such expenses were
incurred directly or indirectly in connection with the proposed
transaction and/or relationship of the parties hereto, as described
herein.
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(e) Compliance with State Securities Laws. The Representative
shall determine in which states or jurisdictions the Securities,
including the Underwriters' Warrants and the Warrant Shares (as
described below), shall be registered or qualified for sale. Copies of
all applications and related documents for the registration or
qualification of securities (except for the Registration Statement and
Prospectus) filed with the various states shall be supplied to the
Company's counsel as soon as possible following their transmission to
the various states, and copies of all comments and orders received
from the various states shall be made available promptly to the
Company's counsel. Immediately prior to the Effective Date, counsel
for the Representative shall advise counsel for the Company in writing
of all states in which the offering has been registered or qualified
for sale or has been cancelled, withdrawn, or denied, the date of each
such event, and the number of Securities, including the Underwriters'
Warrants and the Warrant Shares, registered or qualified for sale in
each such state. Pursuant to Section 5(a) hereof, the Company shall be
responsible for the cost of state registration or qualification filing
fees and the legal fees of the Representative's counsel in connection
with such filings, which filing fees are payable to the
Representative's counsel in advance of such filings.
6. Underwriters' Warrants; Other Financial Arrangements.
(a) Underwriters' Warrants. On the Closing Date, the Company will
sell to the Underwriters the Underwriters' Warrants, for an aggregate
of $100, evidencing the Underwriter's right to purchase in the
aggregate the equivalent of 10% of the Securities sold in the Public
Offering, at an exercise price of $5.50 per share of Common Stock
(110% of the Public Offering Price per share of Common Stock). The
Underwriters' Warrants will be in the form of Exhibit A attached
hereto. The Underwriters' Warrants shall be non-exercisable and
non-transferable (other than to officers, consultants, partners or
directors of and members of the underwriting or selling group) for a
period of 12 months following the Effective Date. The Underwriters'
Warrants shall be exercisable, in whole or in part, commencing 12
months after the Effective Date and for a period of five years
thereafter (the "Term"). If the Underwriters' Warrants are not
exercised during the Term, they shall, by their terms, automatically
expire. The Underwriters' Warrants shall contain customary
anti-dilutive provisions relating to any recapitalization, stock
split, stock dividend or similar event involving the Company. The
Underwriters' Warrants shall also contain provisions providing for
demand and "piggyback" registration rights with respect to the
Underwriters' Warrants and the Warrant Shares, and shall not be
redeemable. The Underwriters' Warrants shall otherwise be transferable
after one year from the Effective Date pursuant to available
exemptions from registration under the Securities Act.
(b) Financial Consulting Agreement; Finder's Fee. On the Closing
Date, the Company shall enter into a financial consulting agreement
with Catalyst Financial Corp. ("Catalyst") in the form of Exhibit B
attached hereto, pursuant to which an affiliate of the Representative
will provide financial consulting services to the Company for a
two-year period beginning on the Closing Date (the "Financial
Consulting Agreement").
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The Company shall pay to Catalyst a consulting fee equal to 1% of the
gross proceeds generated from the Public Offering, which will be
payable in full on the Closing Date.
(c) Right of First Refusal; No Negotiations with Other
Underwriters. The Representative shall have the right, during the
three-year period following the Closing Date, to act as the Company's
exclusive managing underwriter or placement agent, as the case may be,
in any public offering(s) and/or private placement(s) to be
effectuated by or on behalf of the Company or any subsidiary or
affiliate provided that the material terms offered by the
Representative are no less favorable than those offered by any other
underwriter broker-dealer or placement agent. The Company and the
Selling Stockholder agree not to negotiate with any other underwriter
or other person relating to a possible public offering of the Shares
or any other securities pending the completion or withdrawal of the
Public Offering or a nine-month period, whichever is lesser.
7. Conditions Precedent to the Obligations of the Underwriters.
Notwithstanding the execution and delivery of this Agreement or the performance
of any part hereof, the Underwriters' obligations to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction of each of
the conditions set forth in this Section 7, except to the extent that such
satisfaction is waived in writing by the Representative.
(a) Effectiveness of Registration Statement.
(i) The Registration Statement shall have been
declared effective by the Commission not later than _________,
Eastern Time, on September 30, 1998, or such later time or
date as shall have been consented to by the Representative in
writing.
(ii) On the Closing Date, no stop order suspending
the effectiveness of the Registration Statement or the
qualification or registration of the Securities, the
Underwriters' Warrants and the Warrant Shares, under the
securities laws of any jurisdiction (whether or not a
jurisdiction specified by the Representative) shall have been
issued, and no proceeding for that purpose shall have been
initiated or shall be threatened or contemplated by the
Commission or the authorities of any such jurisdiction to the
best of the Company's or the Underwriter's knowledge.
(iii) Any request of the Commission or any such
authorities for additional information to be included in the
Registration Statement or Prospectus or otherwise shall have
been complied with to the reasonable satisfaction of counsel
for the Representative.
(b) Representations; Compliance with Agreement. The
representations and warranties of the Company in this Agreement shall
be true and correct on and as of the Closing Date, with the same
effect as if made on the Closing Date, and the Company shall have
complied with all the agreements and satisfied all the obligations
required to be performed or satisfied by it at or prior to the Closing
Date.
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(c) Sufficient Authorized Common Stock; Stock Split. The Company
shall have, as of the Effective Date, sufficient authorized (and
neither issued nor outstanding) Common Stock to be offered and sold in
the Public Offering, and to be issued and sold upon exercise of the
Warrants, Underwriters' Warrants and the Warrant Shares. The Company
shall have effectuated a split of its outstanding securities such
that, as of the Effective Date, the Company shall have, on a fully
diluted basis, 4,000,000 shares of Common Stock outstanding and no
shares of preferred stock outstanding. Neither the offer nor the sale
of the Shares shall be subject to any preemptive right of any kind.
(d) No Untrue Statements. The Registration Statement and the
Prospectus shall not contain any untrue statement of a material fact
or omit to state 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 and, since
the Effective Date, there shall not have occurred any event required
to be set forth in an amended or supplemented Prospectus that has not
been so set forth (except any such statement or omission based upon
information furnished in writing by or on behalf of the Underwriters
for inclusion in the Registration Statement).
(e) No Material Change. Subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus, and except as set forth or contemplated in the Prospectus,
(i) there shall have been no Material Adverse Effect, actual or
threatened, for whatever reason, with respect to the properties,
operations, business, financial condition, results of operations or
prospects of the Company, (ii) the Company shall not have entered into
any material transaction not in the ordinary course of business, (iii)
the Company shall not have paid or declared any dividends or other
distributions on its capital stock, (iv) the conduct of the business
and operations of the Company shall not have been materially
interfered with by strike, fire, flood, hurricane, accident or other
calamity (whether or not insured), or by any court or governmental
action, order or decree, and the properties of the Company shall not
have sustained any material loss or damage (whether or not insured) as
a result of any such occurrence.
(f) NASD. The Representative shall have the obligation to satisfy
the requirements set forth by the rules and regulations of the NASD as
to the amount of compensation allowable or payable by the
Representative and, accordingly, by the Effective Date the
Representative will have received clearance from the NASD as to the
amount of compensation allowable or payable to the Underwriters, as
described in the Registration Statement and this Agreement. The NASD
shall have indicated that it has no objection (i) to the underwriting
arrangements pertaining to the sale of the Securities by the
Underwriters and (ii) the participation by the Underwriters in the
sale of the Securities. No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at
any time prior to the Closing Date, for any member firm of the NASD to
execute transactions (as principal or as agent) in the Common Stock
and no proceedings for the purpose of taking such action shall have
been instituted or shall be pending, or, to the Underwriters' or the
Company's knowledge, shall be contemplated by the Commission or the
NASD. The Company and the Representative
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each represent at the date hereof, and shall represent as of the
Closing Date or Option Closing Date, as the case may be, that neither
has any knowledge that any such action is in fact contemplated by the
Commission or the NASD.
(g) Officers' Certificate. The Company shall have furnished to
the Underwriters a certificate of the President and of the Chief
Financial Officer of the Company, dated as of the Closing Date, to the
effect that each signer of such certificate has examined the
Registration Statement, the Prospectus, and this Agreement, and the
conditions set forth in Subsections 7(a) through 7(d) have been
satisfied.
(h) Opinion of Company Counsel. At the time this Agreement is
executed and as of the Closing Date and the Option Closing Date, as
applicable, the Company shall have furnished to the Underwriters the
opinion of counsel for the Company, dated the Closing Date, in form
and substance reasonably satisfactory to counsel for the
Representative and substantially in the form of Exhibit C attached
hereto.
(i) Additional Documents. On or prior to each of the Closing Date
and the Option Closing Date, if any, counsel for the Representative
shall have been furnished such documents, certificates and opinions as
they may reasonably require for the purpose of enabling them to review
or pass upon matters referred to in Subsection 7(h), or in order to
evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions of the Company, as herein
contained.
(j) Certificates, Bylaws and Proceedings. The Company's
Certificate of Incorporation and By-Laws, and all proceedings taken in
connection with the authorization, issuance, or sale of the
Securities, the Underwriters' Warrants and the Warrant Shares, as
herein contemplated, shall be reasonably satisfactory in form and
substance to counsel for the Representative.
(k) Accountants' Letter. At the time this Agreement is executed
and as of the Closing Date and each Option Closing Date, as
applicable, Schwartz Levitsky Feldman, the current independent public
accountants for the Company, shall have furnished to the Underwriters
a letter addressed to the Underwriters and dated the date of this
Agreement and/or the Closing Date, and each Option Closing Date, as
applicable, to within five business days of such dates, in form and
substance satisfactory to the Representative and counsel to the
Representative, confirming that it is the independent public
accountant with respect to the Company within the meaning of the
Securities Act and the Regulations and published instructions, and
stating to the effect that:
(i) In its opinion, the audited financial statements
included in the Registration Statement and Prospectus covered
by its report included therein, comply as to form in all
material respects with the applicable requirements of the
Securities Act and the Regulations and published instructions.
(ii) On the basis of a reading of the minutes of the
shareholders' and directors' meetings of the Company since
their respective inceptions, inquiries of
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officials of the Company responsible for financial and
accounting matters, and other specified procedures and
inquiries, nothing came to its attention causing it to believe
that:
(A) the unaudited financial information set
forth in the Prospectus does not comply as to form in
all material respects with the applicable
requirements of the Securities Act and the related
published instructions and Regulations and is not
fairly presented in accordance with generally
accepted accounting principles applied on a basis
consistent with the audited financial statements set
forth in the Prospectus, or
(B) with respect to the period subsequent to
March 31, 1998, there were, at a specified date not
more than three business days prior to the date of
such letter, any changes in the capital stock or
long-term debt obligations of the Company, or any
changes or decreases in shareholders' equity, net
assets, or current net assets of the Company, each as
compared with the amounts shown in the most recent
balance sheet of the Company included in the
Registration Statement or disclosed in such
Registration Statement, except as otherwise disclosed
in the letter.
It has compared specific dollar amounts, numbers of
shares of securities, percentages of revenues and earnings,
and statements about other financial or statistical
information pertaining to the Company set forth in the
Prospectus, in each case to the extent that such amounts,
numbers, percentages, statements, and information may be
derived from the general accounting records, which are subject
to the system of internal accounting controls, including
worksheets, of the Company (and excluding any questions
requiring an interpretation by legal counsel), with the
results obtained from the application of specific readings,
inquiries, and other appropriate procedures (which procedures
do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and
found them to be in agreement.
(l) Change in Capitalization. Subsequent to the respective dates
as of which information is given in the Registration Statement and the
Prospectus, there shall not have been any Material Adverse Effect on
or decrease in the capitalization of the Company that makes it
impractical or inadvisable in the reasonable judgment of the
Representative to proceed with the Public Offering or the delivery of
the Securities, as the case may be, as contemplated in the Prospectus.
(m) Nasdaq National Market. On or before the Closing Date, the
Securities shall have been approved for listing on Nasdaq National
Market, or the American Stock Exchange.
(n) "Market-Out" Provision. The Representative's obligations
hereunder shall be subject to, among other things, there being, in its
opinion: (i) no
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material adverse change in the conditions or obligations of the
Company or its present or proposed business and affairs; and (ii) no
market conditions which might render the offer and sale of the
Securities herein contemplated inadvisable.
(o) Certificate of Selling Stockholder. The Selling Stockholder
shall have furnished to the Underwriters a certificate, signed by the
duly Selling Stockholder, dated as of the Closing Date, to the effect
that the signer of such certificate has carefully examined the
Registration Statement, the Prospectus, any supplement to the
Prospectus and this Agreement and that the representations and
warranties of the Selling Stockholder in this Agreement are true and
correct in all material respects on and as of the Closing Date to the
same effect as if made on the Closing Date.
(p) Letter Agreements. The Company will obtain letter agreements
executed by each of its officers, directors and principal shareholders
with respect to those matters referred to in Subsection 3(m).
(q) Other Information. Prior to the Closing Date, the Company and
the Selling Stockholder shall have furnished to the Representative
such further information, certificates, and documents in connection
with the Company's and the Selling Stockholder's obligations set forth
herein as the Representative may reasonably request.
If any of the conditions specified in this Section 7 shall not
have been fulfilled when and as required by this Agreement or expressly waived
in writing by the Representative, this Agreement and all obligations of the
Representative hereunder may be terminated by the Representative at, or at any
time prior to, the Closing Date. Notice of such termination shall be given to
the Company and the Selling Stockholder in writing, or by telegraph, facsimile
transmission or telephone and confirmed in writing. In such event, the Company,
the Selling Stockholder and the Representative shall not be under any obligation
to each other except to the extent provided in Sections 5 and 8 hereof.
8. Indemnification.
(a) Indemnification by Company. The Company agrees to indemnify
and hold harmless the Representative, each of the other Underwriters
and each person, if any, who controls any of the foregoing within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, and each of them, from and against any and all loss,
liability, claim, damage, expense or action, joint or several
(including, but not limited to, any and all reasonable expenses
incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any
amount paid in settlement of any litigation), commenced or threatened,
or of any claim whatsoever, to which they or any of them may become
subject under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise, insofar
as such loss, liability, claim, damage, expense or action arises out
of or is based upon (i) any untrue statement or alleged untrue
statement or breach of any representation,
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warranty or covenant made by the Company in this Agreement, (ii) any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment thereto), or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary in order to make the statements
therein not misleading, (iii) any untrue statement or alleged untrue
statement of a material fact contained in a Preliminary Prospectus or
the Prospectus (or any amendment or supplement thereto), or any
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary in order to make the statements therein
not misleading, or (iv) any untrue statement or alleged untrue
statement of a material fact contained in any application or other
document executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in
order to qualify all or any of the Securities, the Underwriters'
Warrants or the Warrant Shares under the securities laws thereof or
filed with the Commission, the NASD or any securities exchange, or any
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary in order to make the statements therein
not misleading; provided, however, that the Company shall not be
liable in any such case to the extent that such untrue statement or
omission or such alleged untrue statement or omission was made in
reliance upon and in conformity with information furnished in writing
by or on behalf of any of the Underwriters to the Company expressly
for use in the Registration Statement (or any amendment thereto), any
such Preliminary Prospectus or the Prospectus (or any amendment or
supplement thereto) or any such application or document. The Company
acknowledges that the statements under the caption "Underwriting"
contained in any Preliminary Prospectus and the Prospectus constitute
the only information furnished in writing by the Underwriters
expressly for inclusion in the Registration Statement, any Preliminary
Prospectus or the Prospectus. The indemnity agreement contained in
this Subsection 8(a) is in addition to any liability which the Company
may otherwise have to the Underwriters or any controlling person of
the Underwriters. The Company agrees to pay any legal and other
expenses for which it is liable under this subsection (a) from time to
time (but not more frequently than monthly) within 30 days after its
receipt of a bill therefor.
(b) Indemnification by the Representative. The Representative
agrees that it will indemnify and hold harmless the Company, the
Selling Stockholder, each of the Company's officers who signs the
Registration Statement, each of its directors, and each person who
controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act against any and all
loss, liability, claim, damage, expense or action, joint or several,
to the same extent as the foregoing indemnity from the Company and the
Selling Stockholder to the Underwriters in Subsection 8(a), but only
with respect to statements or omissions made in the Registration
Statement (or any amendment thereto) or a Preliminary Prospectus or
the Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with information furnished in writing by the
Representative to the Company expressly for use in the Registration
Statement (or any amendment thereto). The indemnity agreement
contained in this Subsection 8(b) is in addition to any liability
which the Representative may otherwise have to the Company and the
Selling Stockholder or any of the Company's directors, officers, or
controlling persons. The Company and the Selling Stockholder
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<PAGE>
acknowledges that the statements in any Preliminary Prospectus and in
the Prospectus made under the caption "Underwriting" constitute the
only information furnished in writing by the Representative or its
counsel on behalf of the Representative expressly for inclusion in the
Registration Statement, any Preliminary Prospectus or the Prospectus.
The Representative agrees to pay any legal and other expenses for
which it is liable under this Subsection 8(b) from time to time (but
not more frequently than monthly) within 30 days of receipt of a bill
therefor.
(c) Indemnification by the Selling Stockholder. The Selling
Stockholder agrees to indemnify and hold harmless the Company, the
Representative, each of the other Underwriters and each person, if
any, who controls any of the foregoing within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, other than
the indemnifying party, and each of them, to the same extent as the
foregoing indemnity from the Company to the Underwriters in Section
8(a) above but only with respect to (i) statements or omissions of a
material fact, if any, made in any Preliminary Prospectus, any Rule
430A Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement
thereto, or in any application in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the
Selling Stockholder expressly for use in any Preliminary Prospectus,
any Rule 430A Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (ii) any breach of any
representation, warranty, covenant or agreement of the Selling
Stockholder contained in this Agreement. In case any action shall be
brought against the Company, any Underwriter or any other person so
indemnified based on any Preliminary Prospectus, any Rule 430A
Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or in any application, or with
respect to any such breach, and in respect of which indemnity may be
sought against any of the Selling Stockholder, the Selling Stockholder
shall have the rights and duties given to the indemnifying parties,
and the Company, the Underwriters and each other person so indemnified
shall have the rights and duties given to the indemnified parties
under the provisions of this Section 8.
(d) Claims. Promptly after receipt by an indemnified party under
this Section 8 of notice of any claim, threatened claim or the
commencement of any action, the indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the claim,
threatened claim or the commencement of that action; provided,
however, that the failure to notify an indemnifying party shall not
relieve such indemnifying party from any liability which it may have
to an indemnified party otherwise than under this Section 8. If any
such claim or action shall be brought against an indemnified party,
and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying
party, to assume the defense thereof with its counsel, who shall be
reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to
assume the defense of such claim, threatened claim or action, the
indemnifying party shall not be liable to the indemnified
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<PAGE>
party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation;
provided, however, that the Representative shall have the right to
employ counsel to represent it and its controlling persons who may be
subject to liability arising out of any claim in respect of which
indemnity may be sought by the Representative against the Company
and/or the Selling Stockholder under this Section 8 if, in the
Representative's reasonable judgment, it is necessary for the
Representative and its controlling persons to be represented by
separate counsel in order to avoid an actual or potential conflict of
interest or if the Representative shall have reasonably concluded that
there may be defenses available to the Representative and its
controlling persons different from or in addition to those available
to the Company or the Selling Stockholder, and in either such event
the reasonable fees and expenses of such separate counsel shall be
paid by the Company and the Selling Stockholder. An indemnifying party
shall not be liable for any settlement of any action or claims
effected without its written consent (which consent shall not
unreasonably be withheld).
Anything herein to the contrary notwithstanding, the indemnity
agreement of the Company in Subsection 8(a) hereof, the representations and
warranties in this Agreement and any representation or warranty as to the
accuracy of the Registration Statement or the Prospectus contained in any
certificate furnished by the Company pursuant to Section 7 hereof, insofar as
they may constitute a basis for indemnification for liabilities (other than
payment by the Company of expenses incurred or paid in the successful defense of
any action, suit or proceeding) arising under the Securities Act, shall not
extend to the extent of any interest therein of a controlling person or partner
of the Representative who is a director, officer or controlling person of the
Company when the Registration Statement has become effective, except in each
case to the extent that an interest of such person shall have been determined by
a court of appropriate jurisdiction as not against public policy as expressed in
the Securities Act. Unless in the opinion of counsel for the Company the matter
has been settled by a controlling precedent, the Company will, if a claim for
such indemnification is asserted, submit to a court of appropriate jurisdiction
the question whether such interest is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(e) Contribution. In order to provide for just and equitable
contribution in circumstances in which indemnification provided for in
Subsection 8(a), 8(b) or 8(c) is unavailable, the Company, the
Underwriters or the Selling Stockholder shall contribute to the
aggregate loss, claim, damage, expense and liability to which the
Company, the Underwriters or the Selling Stockholder may be subject
(and, in any case where the Company is seeking contribution, after
seeking contribution from persons who control the Company within the
meaning of the Securities Act, officers of the Company who signed the
Registration Statement and directors of the Company, who may be liable
for contribution and after deducting from such loss, claim, damage,
expense and liability the amount of contribution obtained from such
persons) in such proportions as are applicable to reflect the relative
benefits received by the Company, the Underwriters and the Selling
Stockholder from the offering of the Securities; provided, however,
that if such allocation is not permitted by applicable law or if the
indemnified party failed to give the notice
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required under Subsection 8(d), then the relative fault of the
Company, the Underwriters or the Selling Stockholder, in connection
with the statements or omissions which resulted in such losses,
claims, damages and liabilities and other relevant equitable
considerations will be considered together with such relative
benefits. The relative benefits received by the Company and the
Selling Stockholder, on the one hand, and the Underwriters, on the
other hand, shall be deemed to be in the same proportion as the total
net proceeds from the Public Offering (before deducting expenses)
received by the Company and the Selling Stockholder bear to the total
underwriting discounts and commissions received by the Underwriters
(the "Underwriters Portion"), in each case appearing on the cover page
of the Prospectus; provided, however, that (i) the provisions of the
Agreement Among Underwriters, if any, shall govern the contribution
among Underwriters, (ii) in no case shall the Underwriters (except as
may be provided in the Agreement Among Underwriters, if any) be
responsible for any amount in excess of their respective pro rata
shares, based on the number of Securities purchased by each of them,
of the amount of the Underwriters Portion, and (iii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) will be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
relative fault of the Company and the Selling Stockholder, on the one
hand, and of the Underwriters, on the other hand, shall be determined
by reference to, among other things, whether in the case of an untrue
statement or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact, such statement
or omission relates to information supplied by the Company or the
Selling Stockholder, on the one hand, or by the Underwriters, on the
other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue
statements or omission. The Company, the Selling Stockholder and the
Underwriters agree that it would not be just and equitable if
contribution pursuant to this Subsection 8(e) were determined by
pro-rata allocation (even if the Underwriters are treated as one
entity for such purpose) or by any other method of allocation that
does not take account of the equitable considerations referred to in
this Subsection 8(e). The amount paid or payable by the indemnified
party as a result of the losses, claims, damages or liabilities
referred to above in this Subsection 8(e) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending against or
appearing as a third-party witness in any such action or claim. For
purposes of this Subsection 8(e), each person, if any, who controls
any of the Underwriters within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as such Underwriter and each person, if any,
who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, each officer who
shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company,
subject in each case to clause (iii) of this Subsection 8(e). Each
party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought,
it will promptly give written notice of such service to the party or
parties from whom contribution may be sought, but the omission so to
notify such party or parties of any such service shall not relieve the
party from whom contribution may be sought from any obligations it may
have hereunder or otherwise
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<PAGE>
(except as specifically provided in Subsection 8(d)). No party shall
be liable for contribution with respect to any action or claim settled
without its consent (which consent shall not unreasonably be
withheld).
(f) Survival. The respective indemnity and contribution
agreements by the Underwriters, the Selling Stockholder and the
Company contained in this Section 8, and the covenants,
representations and warranties of the Selling Stockholder and the
Company set forth herein, shall remain operative and in full force and
effect regardless of (i) any investigation made by the Underwriters or
on their behalf or by or on behalf of any person who controls the
Underwriters, by the Company or any controlling person of the Company
or any director or any officer of the Company, (ii) acceptance and
delivery of the Securities, the Underwriters' Warrants and Warrant
Shares and payment therefor, or (iii) any termination of this
Agreement, and any successor to the Company or to the Underwriters or
any person who controls any of Underwriters or the Company, as the
case may be, shall be entitled to the benefit of such respective
indemnity and contribution agreements.
9. Effectiveness. This Agreement shall become effective
contemporaneously with the effectiveness of the Registration Statement;
provided, however, that the provisions of Sections 5, 8, and 9 hereof shall at
all times be in full force and effect from the date first written above.
10. Termination. This Agreement may be terminated, in the
Representative's sole and absolute discretion, by notice given to the Selling
Stockholder and the Company prior to the Closing Date if the Company or the
Selling Stockholder shall have failed, refused, or been unable, prior to the
Closing Date, to perform any material agreement required to be performed by it
hereunder, or if any other condition precedent to the Underwriters' obligations
hereunder determined to be material by the Representative required to be
fulfilled by the Company is not fulfilled. In addition, this Agreement may be
terminated, as set forth above, if, prior to the Closing Date, any of the
following shall have occurred: (i) material governmental restrictions (not in
force and effect on the date hereof) have been imposed on trading in securities
on The Nasdaq National Market System-Registered Trademark- (or the American
Stock Exchange if the Common Stock is listed thereon) or in the over-the-
counter market; (ii) a material adverse change, beyond normal fluctuations, in
general financial market or economic conditions from such conditions on the
date hereof; (iii) a material interruption in mail or telecommunications
service or other general means of communications within the United States after
the execution and delivery of this Agreement; (iv) a banking moratorium has
been declared by federal or New York or Florida state authorities; (v) an
outbreak of major international hostilities or other national or international
calamity has occurred; (vi) the passage by the Congress of the United States or
by any state legislative body of any act or measure, or the adoption of any
orders, rules, or regulations by any governmental body or executive or any
authoritative accounting institute or board, that the Underwriters believe will
have a material adverse effect on the business, financial condition, or
financial statements of the Company or the distribution of the Securities or
market for the Securities; or (vii) any Material Adverse Effect has occurred,
since the respective dates of which information is given in the Registration
Statement and Prospectus, in the condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business. Any such
termination shall
36
<PAGE>
be without liability of any party to any other party, except as provided in
Section 8 herein and except that the Company shall remain obligated to pay costs
and expenses pursuant to Section 5 herein. If the Representative elects to
prevent this Agreement from becoming effective, or to terminate this Agreement,
as provided in this Section 10, the Representative shall promptly notify the
Company and the Selling Stockholder by telegram or telephone, and confirm by
letter, and the Representative shall not be under any liability to the Company
or the Selling Stockholder.
11. Default by the Underwriters. If the Underwriters shall fail at the
Closing Date to purchase the Securities that they are respectively obligated to
purchase pursuant to this Agreement (the "Defaulted Securities"), the
Underwriters shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriter, to purchase all, but not less than all, of the Defaulted Securities
in such amounts as may be agreed upon and upon the terms herein set forth; if,
however, the Underwriters shall not have completed such arrangements within such
24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the total number of Securities, the non-defaulting Underwriters shall
be obligated to purchase the full amount thereof in the proportions
that their respective underwriting obligations bear to the
underwriting obligations of the non-defaulting Underwriters; and
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters.
In the event of any such default that does not result in a termination of this
Agreement, either the Underwriters or the Company shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. Nothing contained herein shall relieve a
defaulting Underwriter of any liability it may have for damages caused by its
default.
12. Survival of Representations, Warranties, and Indemnities. The
respective agreements, representations, warranties, and indemnities contained in
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the Company or the Underwriters or their
respective officers or directors or controlling persons, and will survive
delivery of and payment for the Securities and the Underwriters' Warrants and
the Warrant Shares.
13. Notices. All notices and other communications hereunder (unless
otherwise expressly provided for herein) shall be in writing and shall be deemed
given when delivered in person, on the business day (before 5:00 P.M.) sent by
facsimile transmission with confirmation of receipt, or on the date indicated on
the return receipt if sent by registered or certified mail (return receipt
requested) to the party to receive the same at the following addresses (or at
such other address for a party as shall be specified by like notice):
37
<PAGE>
If to the Company: Curtis International, Ltd.
Kodiak Crescent
Downsview, Ontario M3J 3E5
Attention: Mr. Aaron Herzog
with a copy to: Gersten, Savage, Kaplowitz &
Fredericks LLP
101 East 52nd Street
New York, New York 10022
Attention: Arthur Marcus, Esquire
If to the Selling Stockholder: Ranch Limited
[insert address and contact person]
If to the Representative: Barber & Bronson Incorporated
201 South Biscayne Boulevard.
Suite 2950
Miami, Florida 33131
Attention: Mr. James S. Cassel,
Executive Vice President
In each case with a copy to: Broad and Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attention: Linda C. Frazier,
Esquire
14. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors. Except as only
to the extent stated in Section 8 herein with respect to the officers, directors
and controlling persons referred to in such Section 8, no person other than the
parties hereto and their respective successors will have any right or obligation
hereunder. The terms "successor" and "successors and assigns" as used in this
Agreement shall not include any buyer, as such, of any of the Securities from
the Underwriters.
15. Consents and Prior Approvals. Any consent or approval by the
Underwriters required hereunder to any corporate action of the Company shall not
be unreasonably withheld, and, notwithstanding any other provision hereof, any
such consent or approval to any corporate action of the Company after the
Closing Date, shall not be required if the Company obtains an opinion from an
AV-rated law firm that the requirement of such consent or approval constitutes
an abrogation of the Board of Directors' duties under the corporate law of such
jurisdiction.
38
<PAGE>
16. Entire Understanding; Incorporation by Reference. This Agreement,
together with the Financial Consulting Agreement, the Underwriters' Warrant, and
the other documents, exhibits and schedules referred to herein, contains the
entire understanding between the parties hereto and supersedes any prior
understandings or oral or written agreements between them respecting the subject
matter hereof. The documents, exhibits and schedules referred to in this
Agreement are incorporated herein by reference.
17. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original but all of which taken together
shall constitute one and same agreement.
18. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Florida, without giving
effect to choice of law or conflict of laws principles thereof, and any
proceeding arising between the parties in any manner pertaining or related to
this Agreement shall, to the extent permitted by law, be held in Miami-Dade
County, Florida.
[This space intentionally left blank.]
39
<PAGE>
Please confirm, by signing and returning to the Company counterparts of
this Underwriting Agreement, that the foregoing correctly sets forth the
understanding between the Company, the Selling Stockholder and the
Representative, whereupon this Agreement will constitute a binding agreement
among us.
Very truly yours,
Company:
CURTIS INTERNATIONAL, LTD.,
an Ontario corporation
By
------------------------------------
Aaron Herzog, President
Selling Stockholder:
RANCH LIMITED, an Ontario corporation
By:
------------------------------------
Name:
---------------------------------
Title:
---------------------------------
Confirmed and Accepted as of the date
first above-written:
Representative:
BARBER & BRONSON INCORPORATED,
a Florida corporation
By:
---------------------------------------
James S. Cassel, Executive Vice President
40
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Barber & Bronson Incorporated
------------------
------------------
[Insert other Underwriters]
Total 1,650,000
</TABLE>
<PAGE>
EXHIBIT A
---------
UNDERWRITERS' WARRANT
---------------------
<PAGE>
EXHIBIT B
---------
FINANCIAL CONSULTING AGREEMENT
------------------------------
<PAGE>
EXHIBIT C
---------
OPINION OF COMPANY COUNSEL
--------------------------
1. The Company is duly organized and validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation, with all
requisite corporate power and authority to own or lease all of the assets owned
or leased by it and to conduct its business as described in the Registration
Statement and the Prospectus.
2. The Company is qualified to do business and in good standing as a
foreign corporation in all jurisdictions in which the nature of the activities
conducted by it or the character of the assets owned or leased by it makes such
qualification necessary, except for such jurisdictions where the failure, either
singly or in the aggregate, to do so or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
business, assets, properties, results of operations or prospects (financial or
otherwise) of the Company (hereinafter a "Material Adverse Effect"). The Company
does not own, directly or indirectly, any shares of stock or any other
securities of any corporation, or have any equity interest in any firm,
partnership, joint venture, association or other entity.
3. The Company has full corporate power and authority to execute and
deliver the Underwriting Agreement, the Underwriters' Warrant, and the Financial
Consulting Agreement (collectively, the "Transaction Documents"), to perform its
obligations thereunder and to consummate the transactions provided for therein.
The execution and delivery of the Transaction Documents by the Company, the
performance of its obligations thereunder, the consummation by the Company of
the transactions contemplated thereby and the Company's compliance with the
terms of the Transaction Documents have been duly authorized by all necessary
corporate action on the part of the Company. The Transaction Documents have been
duly executed and delivered by the Company and constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except to the extent that (i)
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, and general equitable principles or a requirement as to commercial
reasonableness, and (ii) enforceability of the indemnification and contribution
provisions set forth in the Underwriting Agreement may be limited by federal or
state securities laws or public policy underlying such laws.
4. The "lock-up" agreements described in Section 3(r) of the
Underwriting Agreement delivered to the Representative have been duly executed
and delivered by the shareholders who are parties thereto, and constitute legal,
valid and binding obligations of such shareholders, enforceable against each of
them in accordance with their respective terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general equitable principles.
C-1
<PAGE>
5. None of (i) the Company's issue and sale of the Securities, the
Underwriters' Warrant and Warrant Shares (collectively, the "Registered
Securities"), and (ii) the execution and delivery of the Transaction
Documents, performance of the Company's obligations thereunder, consummation
of the transactions contemplated therein or the conduct by the Company of its
business as described in the Prospectus, conflicts with, or will conflict
with, results in, or will result in, any breach or violation of any of the
terms or provisions of, constitutes, or will constitute, a default under, or
results in, or will result in, the creation of any lien, charge, claim,
encumbrance or security interest of any kind or nature whatsoever upon any
property or assets of the Company pursuant to (A) the articles of
incorporation or by-laws of the Company, (B) to such counsel's knowledge
after due inquiry, any note, contract, commitment, indenture, deed of trust,
mortgage, voting trust agreement, shareholders agreement, license or other
agreement or instrument to which the Company is a party, by which it is bound
or to which any of its properties may be subject, or (C) any federal, state
or local law, rule or regulation applicable to the Company or, to such
counsel's knowledge after due inquiry, any judgment, order or decree of any
federal or state court, arbitrator, regulatory administrative or other
governmental agency or body having jurisdiction over the Company or any of
its properties or businesses.
6. No consent, approval, authorization or order of, and no
registration or filing with, any third party or any court, regulatory body,
administrative agency or other governmental agency or official (other than
such as may be required under the Securities Act or the Exchange Act, by the
NASD or state securities laws, as to which such counsel need not express an
opinion) is required for the valid authorization, issuance, sale and delivery
of the Registered Securities pursuant to the Transaction Documents, for the
execution and delivery by the Company of, and the performance by the Company
of its obligations under, the Transaction Documents and for the consummation
by the Company of the transactions contemplated by the Transaction Documents.
7. The Registration Statement has become effective under the
Securities Act. To such counsel's knowledge after due inquiry, no stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus has been issued, and no proceedings for that purpose have been
instituted or are pending or threatened.
8. Each of the Registration Statement and the Prospectus, and each
amendment or supplement thereto, comply as to form in all material respects
with the requirements of the Securities Act (except for the financial
statements, notes and schedules, and other statistical or other financial
data included therein, as to which such counsel need not express an opinion).
The conditions to use Form SB-2 have been satisfied with respect to the
Registration Statement.
9. There are no laws, rules or regulations, judgments, orders or
decrees, required to be described in the Registration Statement and the
Prospectus other than those described in the Registration Statement and
Prospectus. The statements in the Prospectus, insofar as such statements
constitute a summary of laws, rules, regulations or legal conclusions, are
accurate summaries and fairly and correctly present in all material respects
the information called for in the Securities Act with respect to such laws,
rules, regulations or conclusions.
C-2
<PAGE>
10. To such counsel's knowledge after due inquiry, there are no
agreements, contracts or other documents or instruments required to be
described in the Registration Statement and the Prospectus or required to be
filed as an exhibit to the Registration Statement other than those described
in the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement.
11. The persons listed under the caption "Principal and Selling
Stockholders" in the Prospectus are the respective record owners and, to such
counsel's knowledge after due inquiry, "beneficial owners" (as such phrase is
defined in Regulation 13d-3 under the Exchange Act) of the Common Stock set
forth opposite their respective names as and to the extent set forth therein.
12. Except as described in the Prospectus, to such counsel's
knowledge after due inquiry, there are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the Registered Securities.
13. The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
14. No transfer tax, stamp duty or other tax, levy, impost,
deduction, charge or withholding is payable by or on behalf of the
Underwriters in connection with (i) the issuance by the Company of the
Registered Securities, (ii) the purchase by the Underwriters of the
Registered Securities, (iii) the purchase by the Representative of the
Underwriters' Warrants or the purchase of the Warrant Shares by the
Representative (or its permitted assignees) upon the exercise of the
Underwriters' Warrants, and (iv) the execution and delivery by the Company
of, or the performance by the Company of its obligations under, the
Transaction Documents or the issuance of the certificates and instruments
representing the Registered Securities.
15. All of the agreements of the Company described in, required to be
described in or attached as an exhibit to the Registration Statement have been
validly authorized, executed and delivered by the Company and constitute legal,
valid and binding agreements of the Company, enforceable against the Company and
in accordance with their respective terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and by general equitable principles. None of the provisions of any
such agreements, contracts, documents or instruments violates any judgment,
order, consent or decree or any federal or state governmental agency or court
having jurisdiction over the Company, or its properties or business, except
where such violation has not and will not have a Material Adverse Effect.
16. Except as described in the Prospectus, the Company is not in
violation of, or breach of, or in default under (i) their respective articles
of incorporation or bylaws, or (ii) to such counsel's knowledge after due
inquiry, any material license, contract, indenture, mortgage, installment
contract, deed of trust, lease, voting trust agreement, shareholders
agreement, note,
C-3
<PAGE>
loan or credit agreement, or other agreement or instrument to which the
Company is a party, by which the Company is bound or to which any of its
properties are subject.
17. The Company holds all licenses, permits, certifications,
registrations, approvals, consents and franchises from all governmental or
regulatory authorities, officials or agencies necessary to own or lease and
operate its properties and to conduct its business as described in the
Prospectus.
18. There are no claims, actions, suits, proceedings, arbitrations,
investigations or inquiries pending or, to such counsel's knowledge after due
inquiry, threatened against or involving the Company, or any of its
properties (i) that are required to be disclosed in the Registration
Statement in accordance with the Securities Act and are not so disclosed,
(ii) which question the validity of the capital stock of the Company, (iii)
which question the validity, performance or enforceability of any of the
Transaction Documents or any action taken or to be taken by the Company
pursuant thereto or in connection therewith, or (iv) which, in such counsel's
opinion, if adversely determined, would have a Material Adverse Effect.
19. Except as disclosed in the Prospectus, (i) there is no claim or
action by any person pertaining to, or proceeding pending or threatened, that
challenges the ownership or use by the Company of any copyright, trademark,
service mark, service name, and trade name used by the Company in the conduct
of its business; and (ii) the Company owns and has full right, title and
interest in and to, or has the valid and exclusive right to, all copyrights,
trademarks, service marks, service names and trade names necessary in the
conduct of its business as presently conducted, or as proposed to be
conducted as described in the Prospectus, except where such failure has not
and will not have a Material Adverse Effect.
20. The Company has the capitalization set forth in the Prospectus.
All of the issued and outstanding shares of Common Stock of the Company have
been duly authorized, validly issued and are fully paid and nonassessable.
The holders thereof have no rights of rescission with respect thereto and are
not subject to personal liability solely by reason of being such holders.
None of such securities were issued in violation of any preemptive or similar
right. Except as described in the Prospectus, to such counsel's knowledge
after due inquiry, the Company is not a party to or bound by any outstanding
options, warrants or similar rights to subscribe for, or contractual rights
or obligations to issue, sell, transfer or acquire, any of the capital stock
of the Company or any securities convertible into or exchangeable for any of
the capital stock of the Company. All issuances of capital stock by the
Company prior to the date hereof either complied with or were not subject to
the registration requirements of the Securities Act and were made in full
compliance with all applicable federal or state laws, rules and regulations.
21. The certificates representing the shares of Common Stock are in
due and proper form. The Securities conform to the descriptions thereof set
forth in the Prospectus.
22. Except as described in the Prospectus, no person (i) has the
right to include and/or register any securities of the Company in the
Registration Statement or to require the Company to
C-4
<PAGE>
file any registration statement or, if filed, to include any security in any
registration statement filed by the Company, or (ii) holds any anti-dilution
rights with respect to any securities of the Company.
23. The Securities to be sold by the Company under the Agreement,
the Underwriters' Warrants to be sold by the Company under the Agreement, and
the shares of Common Stock to be sold by the Company upon the exercise of the
Underwriters' Warrants have been duly authorized, are not and will not be in
violation of any preemptive rights or any similar rights and, when issued,
paid for and delivered in accordance with the terms of the Agreement will be
validly issued, fully paid and nonassessable. The holders thereof will not be
subject to any restriction on the voting or transfer thereof (other than in
accordance with their terms) or to any personal liability solely by reason of
being such holders, and the issuance thereof is not in violation of any
preemptive or similar right.
24. All corporate action required to be taken for the authorization,
issue and sale of (i) the Securities, (ii) the Underwriters' Warrants, and
(iii) the shares of Common Stock underlying the Underwriters' Warrants, and
for the reservation of the shares of Common Stock required to be reserved for
issuance upon the exercise of the Underwriters' Warrants, have been duly and
validly taken.
25. The Underwriters' Warrants constitute valid and binding
obligations of the Company to issue and sell, upon exercise thereof and
payment therefor, the number and type of securities of the Company called for
thereby. The shares of Common Stock issuable upon exercise of the
Underwriters' Warrants have been reserved for issuance at the exercise prices
and under the other terms and conditions provided for in the Underwriters'
Warrants.
26. When the certificates for the Securities being sold under the
Agreement by the Company are duly countersigned by the Company's transfer
agent and delivered to the Underwriters against payment therefor, as provided
in the Agreement, the Underwriters will acquire the Registered Securities
free and clear of any adverse claim that has been identified in a written
claim received by the Company, assuming the Underwriters acquired such shares
in good faith and without notice of any such adverse claim.
27. Counsel has participated in conferences with officers and other
representatives of the Company, representatives of the Company's accountants,
the Representative and counsel to the Representative, at which the contents
of the Registration Statement, the Prospectus and related matters were
discussed. Although counsel is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus, on the basis of
the foregoing, no facts or circumstances have come to their attention which
lead them to believe that, on the Effective Date and on the Closing Date, the
Registration Statement and the Prospectus contained or contains any untrue
statement of a material fact or omitted or omits to state 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
C-5
<PAGE>
misleading (other than the financial statements and other financial and
statistical data included therein, as to which such counsel need not express
an opinion).
C-6
<PAGE>
Exhibit 3.1
BY-LAW NO. 1A
A by-law relating generally to the conduct of the business and affairs of
CURTIS INTERNATIONAL LTD.
(herein called the "Corporation")
CONTENTS
1. Interpretation 8. Dividends
2. Directors 9. Financial Year
3. Meetings of Directors 10. Notices
4. Remuneration and Indemnification 11. Execution of Documents
5. Officers 12. Effective Date
6. Meetings of Shareholders 13. Repeal
7. Shares
BE IT ENACTED as a by-law of the Corporation as follows:
1. INTERPRETATION
1.01 In this by-law and all other by-laws and resolutions of the Corporation,
unless the context otherwise requires:
(a) "Act" means the Business Corporations Act, 1990
together with the Regulations made pursuant thereto
and any statute or regulations that may be
substituted therefor, as amended from time to time;
(b) "articles" means the articles of incorporation of the
Corporation as amended or restated from time to time;
(c) "board" means the board of directors of the
Corporation;
(d) "by-laws" means this by-law and all other by-laws of
the Corporation as amended from time to time, and
from time to time in force and effect;
(e) "Corporation" means this Corporation;
<PAGE>
2
(f) "meeting of shareholders" means any meeting of
shareholders, whether annual or special; and "special
meetings of shareholders" means a special meeting of
all shareholders entitled to vote at an annual
meeting of shareholders and a meeting of any class or
classes of shareholders entitled to vote on the
question at issue;
(g) "person" includes an individual, sole proprietorship,
partnership, unincorporated association,
unincorporated syndicate, unincorporated
organization, trust, body corporate, and a natural
person in his capacity as trustee, executor,
administrator or other legal representative;
(h) "recorded address" means, in the case of a
shareholder, his address as recorded in the
shareholders' register; and, in the case of joint
shareholders, the address appearing in the
shareholders' register in respect of such joint
holding or the first address so appearing if there
are more than one; and, in the case of a director,
officer, auditor or member of a committee of the
board, his latest address recorded in the records of
the Corporation; and
(i) "unanimous shareholder agreement" shall have the
meaning ascribed to such term under the Act.
1.02 In this by-law where the context requires, words importing the singular
include the plural and vice versa and words importing gender include the
masculine, feminine and neuter genders.
1.03 Save as aforesaid, all the words and terms appearing in this by-law shall
have the same definitions and applications as in the Act.
2. DIRECTORS
2.01 Powers - Subject to any unanimous shareholder agreement, the business and
affairs of the Corporation shall be managed or supervised by a board of
directors.
Until changed in accordance with the Act, the board shall consist of
not fewer than the minimum number and not more than the maximum number of
directors provided for in the articles.
2.02 Resident Canadians - Except where the Corporation is a non-resident
Corporation, a majority of the directors shall be resident Canadians but
where the Corporation has only one or two directors, that director or one of
the two directors, as the case may be shall be a resident Canadian.
<PAGE>
3
2.03 Qualifications - No person shall be qualified for election as a
director if he is less than 18 years of age; if he is of unsound mind and has
been so found by a court in Canada or elsewhere; if he is not an individual;
or if he has the status of a bankrupt.
2.04 Election and Term - The election of directors shall take place at the
first meeting of shareholders and at each succeeding annual meeting at which
an election of directors is required. The directors shall hold office for an
expressly stated term, which shall expire not later than the close of the
third annual meeting of shareholders following the election. A director not
elected for an expressly stated term ceases to hold office at the close of
the first annual meeting of shareholders following his election. Incumbent
directors, if qualified, shall be eligible for re-election. If an election of
directors is not held at the proper time, the incumbent directors shall
continue in office until their successors are elected.
2.05 Resignation - A director who is not named in the articles may resign
from office upon giving a written resignation to the Corporation and such
resignation becomes effective when received by the Corporation or at the time
specified in the resignation, whichever is later. Until the first meeting of
shareholders, a director named in the articles shall not be permitted to
resign his office unless at the time the resignation is to become effective a
successor is elected or appointed.
2.06 Removal - Subject to the provisions of the Act, the shareholders may,
by ordinary resolution passed at a meeting of shareholders, remove any
directors from office before the expiration of his or their respective terms
and may, by a majority of the votes cast at the meeting, elect any person in
his place for the remainder of his term.
2.07 Vacation of Office - A director ceases to hold office when he dies,
resigns, is removed from office by the shareholders, or becomes disqualified
to serve as a director.
2.08 Vacancies - Subject to the provisions of the Act, where as vacancy
occurs on the board, a quorum of the directors then in office may appoint a
person to fill the vacancy for the remainder of the term. If there is not a
quorum of directors or if there has been a failure to elect the number of
directors required by the articles or in the case of a variable board as
required by special resolution, the directors then in office shall forthwith
call a special meeting of shareholders to fill the vacancy and, if they fail
to call a meeting or if there are no directors then in office, the meeting
may be called by any shareholder.
3. MEETINGS OF DIRECTORS
3.01 Place of Meetings - Meetings of the board may be held at any place
within or outside Ontario and it shall not be necessary that, in any
financial year of the Corporation, a majority of the meetings of the board be
held at a place within Canada.
<PAGE>
4
3.02 Meetings by Telephone - Where all the directors present at or
participating in the meeting have consented thereto, any director may
participate in a meeting of the board or of a committee of the board by means
of conference telephone, electronic or other communication facilities as
permit all persons participating in the meeting to communicate with each
other simultaneously and instantaneously and a director participating in such
a meeting by such means is deemed for the purposes of the Act and these
by-laws to be present at the meeting. If a majority of the directors
participating in such a meeting are then in Canada, the meeting shall be
deemed to have been held in Canada.
3.03 Calling of Meeting - Meetings of the board shall be held from time to
time at such place, at such time and on such day as the president or
vice-president who is a director or any two directors may determine, and the
secretary shall call meetings when directed or authorized by the president or
by a vice-president who is a director or by any two directors. Notice of
every meeting so called shall be given to each director not less than 48
hours (excluding any part of a Sunday and of a holiday as defined by the
Interpretation Act (Ontario)) before the time when the meeting is to be held,
except that no notice of meeting shall be necessary if all the directors are
present or if those absent have waived notice of or otherwise signified their
consent to the holding of such meeting. A notice of a meeting of directors
need not specify the purpose of or the business to be transacted at the
meeting except where the Act requires such purpose or business to be
specified.
3.04 Regular Meetings - The Board may appoint a day or days in any month or
months for regular meetings at a place and hour to be named. A copy of any
resolution of the board fixing the place and time of regular meetings of the
board shall be sent to each director forthwith after being passed, but no
other notice shall be required for any such regular meetings except where the
Act requires the purpose thereof or the business to be transacted thereat to
be specified.
3.05 First Meeting of New Board - Each newly elected board may without
notice hold its first meeting immediately following a meeting of shareholders
at which such board is elected, provided that a quorum of directors is
present.
3.06 Quorum - Where the Corporation has fewer than three directors, all
directors must be present at any meeting of directors to constitute a quorum.
Subject to the articles or by-laws of the Corporation or any unanimous
shareholder agreement providing otherwise, a majority of the number of
directors or minimum number of directors required by the articles constitutes
a quorum at any meeting of directors but in no case shall a quorum be less
than two-fifths of the number of directors or less than the minimum number of
directors, as the case may be.
3.07 Resident Canadians - Directors shall not transact business at a
meeting of the board unless a majority of the directors present are resident
Canadians or, where the Corporation has fewer than three directors, one of
the directors present is a resident Canadian. However, directors may transact
business at a meeting of the board where a majority of resident Canadian
directors is not present if
<PAGE>
5
(a) a resident Canadian director who is unable to be
present approves in writing or by telephone or other
communications facilities the business transacted at
the meeting; and
(b) a majority of resident Canadian directors would have
been present had the director been present at the
meeting.
3.08 Chairman - The chairman of any meeting of the board shall be the first
mentioned of such of the following officers as have been appointed and who is
a director and is present at the meeting:
(a) Chairman of the Board;
(b) President; or
(c) a Vice-President.
If no such officer is present, the directors present shall choose one of
their number to be chairman.
3.09 Votes to Govern - At all meetings of the board, every question shall
be decided by a majority of the votes cast on the question, unless otherwise
provided in any unanimous shareholder agreement.
3.10 Casting Vote - In the case of an equality of votes on any question at
a meeting of the board, the chairman of the meeting shall not be entitled to
a second or casting vote.
3.11 Disclosure of Interests in Contracts - Every director or officer of
the Corporation who is a party to a material contract or transaction or
proposed material contract or transaction with the Corporation, or is a
director or officer of or has a material interest in any person who is a
party to a material contract or transaction or proposed material contract or
transaction with the Corporation, shall disclose in writing to the
Corporation or request to have entered in the minutes of the meeting of
directors the nature and extent of his interest at the time and in the manner
required by the Act. Any such contract or proposed contract shall be referred
to the board or shareholders for approval even if such contract is one that
in the ordinary course of the Corporation's business would not require
approval by the board or the shareholders, and a director interested in a
contract so referred to the board shall not vote on any resolution to approve
the same except as provided by the Act.
A general notice to the directors by a director or officer disclosing
that he or she is a director or officer of or has a material interest in a
person and is to be regarded as interested in any contract made or any
transaction entered into with that person, is a sufficient disclosure of
interest in relation to any contract so made or transaction so entered into.
<PAGE>
6
3.12 Resolution in Lieu of Meeting - A resolution in writing, signed by all
the directors entitled to vote on that resolution at a meeting of directors
or committee of directors, is as valid as if it had been passed at a meeting
of directors or committee of directors. A copy of every such resolution shall
be kept with the minutes of the proceedings of the directors or committee of
directors.
3.13 Delegation - Directors may appoint from their number a managing
director who is a resident Canadian or a committee of directors and delegate
to such managing director or committee any of the powers of the directors. If
the directors appoint a committee of directors, a majority of the members of
the committee must be resident Canadians. Unless otherwise determined by the
board and subject to the Act and any unanimous shareholder agreement, each
committee shall have the power to fix its quorum at not less than a majority
of its members, to elect its chairman and to regulate its procedure.
4. REMUNERATION AND INDEMNIFICATION
4.01 Remuneration - Subject to the provisions of the Act, the articles, and
the by-laws of the Corporation or any unanimous shareholder agreement, the
board may fix the remuneration of the directors. Nothing contained herein
shall preclude any director from serving the Corporation in any other
capacity and receiving remuneration therefor. In addition, directors shall be
paid such sums in respect of their out-of-pocket expenses incurred in
attending board, committee or shareholders' meetings or otherwise in respect
of the performance by them of their duties as the board may from time to time
determine.
4.02 Limitation of Liability - Every director and officer of the
Corporation, in exercising his powers and discharging his duties, shall act
honestly and in good faith with a view to the best interests of the
Corporation, and exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances. Subject to the
foregoing, no director or officer shall be liable for the acts, receipts,
neglects or defaults of any other director or officer or employee, or for
joining in any receipt or other act for conformity, or for any loss, damage
or expense happening to the Corporation through the insufficiency or
deficiency of title to any property acquired for or on behalf of the
Corporation, or for the insufficiency or deficiency of any security in or
upon which any of the monies of the Corporation shall be invested, or for any
loss or damage arising from the bankruptcy, insolvency or tortious acts of
any person with whom any of the monies, securities or effects of the
Corporation shall be deposited, or for any loss occasioned by any error of
judgment or oversight on his part, or for any other loss, damage or
misfortune whatever, which shall happen in the execution of the duties of his
office or in relation thereto, unless the same are occasioned by his own
willful neglect or default; provided that nothing herein shall relieve any
director or officer from the duty to act in accordance with the Act or from
liability for any breach thereof.
4.03 Indemnity of Directors and Officers - Subject to the provisions of the
Act, the Corporation shall 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
<PAGE>
7
as a director or officer of a body corporate of which the Corporation is or
was a shareholder or creditor, and his heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him in respect of any
civil, criminal or administrative action or proceeding to which he is made a
party by reason of being or having been a director or officer of such
Corporation or body corporate if
(a) he acted honestly and in good faith with a view to
the best interests of the Corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he
had reasonable grounds for believing that his conduct
was lawful.
4.04 Insurance - Subject to the limitations contained in the Act, the
Corporation may purchase and maintain such insurance for the benefit of its
directors and officers as such, as the board may from time to time determine.
5. OFFICERS
5.01 Appointment - Subject to the provisions of the Act, the articles or
any unanimous shareholder agreement, the board may from time to time appoint
a president, one or more vice-presidents (to which title may be added words
indicating seniority or function), a secretary, a treasurer and such other
officers as the board may determine, including one or more assistants to any
of the officers so appointed. The board may specify the duties of and, in
accordance with this by-law and subject to the provisions of the Act,
delegate to such officers powers to manage the business and affairs of the
Corporation. Save for the chairman of the board and the managing director, an
officer may but need not be a director and one person may hold more than one
office.
5.02 Term, Remuneration and Removal - The terms of employment and
remuneration of all officers elected or appointed by the board (including the
president) shall be determined from time to time by resolution of the board.
The fact that any officer or employee is a director or shareholder of the
Corporation shall not disqualify him from receiving such remuneration as may
be determined. All officers, in the absence of agreement to the contrary,
shall be subject to removal by resolution of the board at any time with or
without cause.
5.03 Chairman of the Board - The board may from time to time also appoint a
chairman of the board who shall be a director. If appointed, the board may
assign to him any of the powers and duties that are by any provisions of this
by-law capable of being assigned to the president; and he shall, subject to
the provisions of the Act, have such other powers and duties as the board may
specify. During the absence or disability of the chairman of the board, his
duties shall be performed and his powers exercised by the president.
<PAGE>
8
5.04 Managing Director - The board may from time to time appoint a managing
director who shall be a resident Canadian and a director. If appointed, he
shall be the chief executive officer and, subject to the authority of the
board, shall have general supervision of the business and affairs of the
Corporation; and he shall, subject to the provisions of the Act, have such
other powers and duties as the board may specify. During the absence or
disability of the president, or if no president has been appointed, the
managing director shall also have the powers and duties of that office.
5.05 President - The board may from time to time appoint a president. The
president shall be the chief operating officer of the Corporation and, if no
managing director has been appointed, and subject to the authority of the
board, shall have the general supervision of the business and affairs of the
Corporation and he shall have such other powers and duties as the board may
specify. During the absence or disability of the managing director, or if no
managing director has been appointed, the president shall also have the
powers and the duties of that office.
5.06 Vice-President - The board may from time to time appoint one or more
vice-presidents. A vice-president so appointed shall have such powers and
such duties as the board or the chief executive officer may prescribe.
5.07 Secretary - The board may from time to time appoint a secretary. The
secretary shall attend all meetings of the directors, shareholders and
committees of the board and shall enter or cause to be entered in books kept
for that purpose minutes of all proceedings at such meetings; he shall give,
or cause to be given, when instructed, notices required to be given to
shareholders, directors, auditors and members of committees; he shall be the
custodian of the stamp or mechanical device generally used for affixing the
corporate seal of the Corporation and of all books, papers, records,
documents and other instruments belonging to the Corporation; and he shall
perform such other duties as may from time to time be prescribed by the board.
5.08 Treasurer - The board may from time to time appoint a treasurer. The
treasurer shall keep, or cause to be kept, proper accounting records as
required by the Act; he shall deposit, or cause to be deposited, all monies
received by the Corporation in the Corporation's bank account; he shall,
under the direction of the board, supervise the safekeeping of securities and
the disbursement of funds of the Corporation; he shall render to the board,
whenever required, an account of all his transactions as treasurer and of the
financial position of the Corporation; and he shall perform such other duties
as may from time to time be prescribed by the board.
5.09 Other Officers - The duties of all other officers of the Corporation
shall be such as the terms of their engagement call for or the board requires
of them. Any of the powers and duties of an officer to whom an assistant has
been appointed may be exercised and performed by such assistant, unless the
board otherwise directs.
5.10 Variation of Duties - From time to time and subject to the provisions
of the Act, the board may vary, add to or limit the powers and duties of any
officer.
<PAGE>
9
5.11 Agents and Attorneys - The board shall have power from time to time to
appoint agents or attorneys for the Corporation in or outside of Ontario with
such powers of management or otherwise (including the power to sub-delegate)
as may be thought fit.
5.12 Fidelity Bonds - The board may require such officers, employees and
agents of the Corporation, as it deems advisable, to furnish bonds for the
faithful performance of their duties, in such form and with such surety as
the board may from time to time prescribe.
5.13 Conflict of Interest - An officer shall disclose his interest in any
material contract or transaction or proposed material contract or transaction
with the Corporation in accordance with Section 3.11 herein.
6. MEETINGS OF SHAREHOLDERS
6.01 Annual Meetings - Subject to Section 6.16 herein, the directors shall
call the first annual meeting of shareholders not later than eighteen months
after the Corporation comes into existence and, subsequently, not later than
fifteen months after holding the last preceding annual meeting. The annual
meeting of shareholders of the Corporation shall be held at such time and on
such day in each year as the board may from time to time determine, for the
purposes of receiving the reports and statements required by the Act to be
laid before the annual meeting, electing directors, appointing auditors and
fixing or authorizing the board to fix their remuneration, and for the
transaction of such other business as may properly be brought before the
meeting.
6.02 Special Meetings - The board may at any time call a special meeting of
shareholders for the transaction of any business which may properly be
brought before such meeting of shareholders. All business transacted at an
annual meeting of shareholders, except consideration of the financial
statements, auditor's report, election of directors and reappointment of the
incumbent auditor, is deemed to be special business.
6.03 Place of Meetings - Meetings of shareholders shall be held at the
registered office of the Corporation, or at such other place within or
outside of Ontario as the board from time to time determines.
6.04 Notice of Meetings - Notice of the time and place of each meeting of
shareholders shall be sent not less than 10 days and not more than 50 days
before the date of the meeting to the auditor of the Corporation, to each
director, and to each person whose name appears on the records of the
Corporation at the close of business on the day next preceding the giving of
the notice as a shareholder entitled to vote at the meeting. Notice of a
special meeting of shareholders shall state:
(a) the nature of the business to be transacted at the
meeting in sufficient detail to permit the
shareholders to form a reasoned judgment thereon; and
<PAGE>
10
(b) the text of any special resolution or by-law to be
submitted to the meeting.
A shareholder and any other person entitled to attend a meeting of shareholders
may in any manner and at any time waive notice of or otherwise consent to a
meeting of shareholders.
6.05 Persons Entitled To Be Present - The only persons entitled to attend a
meeting of shareholders shall be those entitled to vote thereat, the
directors and the auditor of the Corporation and others who although not
entitled to vote are entitled or required under any provision of the Act or
by-laws of the Corporation to be present at the meeting. Any other persons
may be admitted only on the invitation of the chairman of the meeting or with
the consent of the meeting.
6.06 Quorum - Subject to the provisions of the Act, and any unanimous
shareholder agreement providing otherwise, the holders of a majority of the
shares entitled to vote at a meeting of shareholders present in person or by
proxy constitute a quorum for the transaction of business at any meeting of
shareholders.
6.07 One-Shareholder Meeting - If the Corporation has only one shareholder,
or only one holder of any class or series of shares, the shareholder present
in person or by proxy constitutes a meeting.
6.08 Right to Vote - At any meeting of shareholders, unless the articles
otherwise provide, each share of the Corporation entitles the holder thereof
to one vote at a meeting of shareholder, subject to the provisions of the Act.
6.09 Joint Shareholders - Where two or more persons hold the same share or
shares jointly, any one of such persons present at a meeting of shareholders
may in the absence of the others vote the shares but, if two or more of such
persons who are present in person or by proxy, vote, they shall vote as one
on the shares jointly held by them.
6.10 Proxies - Every shareholder entitled to vote at a meeting of
shareholders may, by means of a proxy, appoint a proxy holder or one or more
alternate proxy holders who are not required to be shareholders to attend and
act at the meeting in the manner and to the extent authorized by the proxy
and with the authority conferred by the proxy. A proxy shall be in writing
and executed by the shareholder or by his attorney authorized in writing and
shall conform with the requirements of the Act. The board may by resolution
fix a time not exceeding 48 hours, excluding Saturdays and holidays,
preceding any meeting or adjourned meeting of shareholders, before which time
proxies to be used at that meeting must be deposited with the Corporation or
an agent thereof, and any period of time so fixed shall be specified in the
notice calling the meeting. A proxy shall be acted upon only if, prior to the
time so specified, it shall have been deposited with the Corporation or an
agent thereof specified in such notice or, where no time is specified in such
notice, the proxy has been received by the secretary of the Corporation or by
the chairman of the meeting or any adjournment thereof prior to the time of
voting.
<PAGE>
11
6.11 Scrutineers - At each meeting of shareholders one or more scrutineers
may be appointed by a resolution of the meeting or by the chairman with the
consent of the meeting to serve at the meeting. Such scrutineers need not be
shareholders of the Corporation.
6.12 Votes to Govern - Subject to the provisions of the Act, the articles
and the by-laws of the Corporation or any unanimous shareholder agreement,
all questions proposed for the consideration of the shareholders at a meeting
shall be decided by a majority of the votes cast thereon. In case of an
equality of votes either on a show of hands or on a poll, the chairman of the
meeting shall not be entitled to a second or casting vote.
6.13 Show of Hands - Subject to the provisions of the Act, at all meetings
of shareholders every question shall be decided by a show of hands unless a
ballot thereon be required by the chairman or be demanded by a shareholder or
proxyholder present and entitled to vote. Upon a show of hands, every person
present and entitled to vote has one vote regardless of the number of shares
he represents. After a show of hands has been taken upon any question, the
chairman may require, or any shareholder or proxyholder present and entitled
to vote may demand, a ballot thereon. Whenever a vote by show of hands shall
have been taken upon a question, unless a ballot thereon be so required or
demanded, a declaration by the chairman that the vote upon the question has
been carried or carried by a particular majority or not carried and an entry
to that effect in the minutes of the meeting shall be prima facie evidence of
the fact without proof of the number or proportion of the votes recorded in
favour of or against the question. The result of the vote so taken and
declared shall be the decision of the Corporation on the question. A demand
for a ballot may be withdrawn at any time prior to the taking of the ballot.
6.14 Ballots - If a ballot is required by the chairman of the meeting or is
demanded and the demand is not withdrawn, a ballot upon the question shall be
taken in such manner as the chairman of the meetings directs.
6.15 Adjournment - The chairman of a meeting of shareholders may, with the
consent of the meeting and subject to such conditions as the meeting may
decide, adjourn the meeting from time to time and from place to place.
6.16 Resolution in Lieu of Meeting - Except where a written statement with
respect to the subject matter of the resolution is submitted by a director or
the auditors in accordance with the Act,
(a) a resolution in writing signed by all the
shareholders entitled to vote on that resolution at a
meeting of shareholders is as valid as if it had been
passed at a meeting of the shareholders; and
(b) a resolution in writing dealing with any matter
required by the Act to be dealt with at a meeting of
shareholders, and signed by all the shareholders
entitled to vote at that meeting, satisfies all the
requirements of the Act relating to that meeting of
shareholders.
<PAGE>
12
7. SHARES
7.01 Allotment - Subject to the provisions of the Act, the articles and any
unanimous shareholder agreement, the board may from time to time allot or
grant options to purchase the whole or any part of the authorized and
unissued shares of the Corporation at such time and to such persons and for
such consideration as the board shall determine, provided that no share shall
be issued until it is fully paid as provided by the Act.
7.02 Lien for Indebtedness - Subject to the provisions of the Act, the
Corporation shall have a lien on shares registered in the name of a
shareholder indebted to the Corporation. Such lien may be enforced, subject
to any other provision of the articles and to any unanimous shareholder
agreement, by the sale of the shares thereby affected or by any other action,
suit, remedy or proceeding authorized or permitted by law or by equity and,
pending such enforcement, the Corporation may refuse to register a transfer
of the whole or any part of such shares.
7.03 Share Certificates - Every holder of one or more shares of the
Corporation is entitled, at his option, to a share certificate, or to a
non-transferable written acknowledgment of his right to obtain a share
certificate, stating the number and class or a series of shares held by him
as shown on the records of the Corporation. Share certificates and
acknowledgments of a shareholder's right to a share certificate shall be in
such form as the board shall from time to time approve. Any share certificate
shall be signed in accordance with Section 11.01 herein and need not be under
the corporate seal.
7.04 Replacement of Share Certificates - Subject to the provisions of the
Act, the directors may by resolution prescribe, either generally or in a
particular case, the conditions upon which a new share certificate may be
issued to replace a share certificate which has been defaced, lost, stolen or
destroyed.
7.05 Transfer Agent and Registrar - The board may from time to time appoint
a registrar to maintain the securities register and a transfer agent to
maintain the register of transfers and may also appoint one or more branch
registrars to maintain branch security registers and one or more branch
transfer agents to maintain branch registers of transfers, but one person may
be appointed both registrar and transfer agent. The board may at any time
terminate any such appointment.
7.06 Joint Shareholders - If two or more persons are registered as joint
holders of any share, the Corporation shall not be bound to issue more than
one certificate in respect thereof, and delivery of such certificate to one
of such persons shall be sufficient delivery to all of them. Any one of such
persons may give effectual receipts for the certificate issued in respect
thereof or for any dividends, bonus, return of capital or other money payable
or warrant issuable in respect of such share.
<PAGE>
13
8. DIVIDENDS
8.01 Declaration - Subject to the provisions of the Act, the articles and
to any unanimous shareholder agreement, the board may declare and the
Corporation may pay dividends to the shareholders according to their
respective rights and interests in the Corporation. Dividends may be paid by
issuing fully paid shares of the Corporation or options or rights to acquire
fully paid shares of the Corporation or, subject to the provisions of the
Act, may be paid in money or property.
8.02 Payment - A dividend payable in cash shall be paid by cheque drawn on
the Corporation's bankers or one of them to the order of each registered
holder of shares of the class in respect of which it has been declared, and
mailed by ordinary mail postage prepaid to such registered holder at his
recorded address, unless such holder otherwise directs. In the case of joint
holders, the cheque shall, unless such joint holders otherwise direct, be
made payable to the order of all of such joint holders and mailed to them at
their recorded addresses. The mailing of such cheque as aforesaid shall
satisfy and discharge all liability for the dividend to the extent of the sum
represented thereby plus the amount of any tax which the Corporation is
required to and does withhold, unless such cheque be not paid on due
presentation.
8.03 Non-Receipt of Cheque - In the event of the non-receipt of any cheque
for a dividend by the person to whom it is so sent as aforesaid, the
Corporation shall issue to such person a replacement cheque for a like amount
on such terms as to indemnity reimbursement of expenses and evidence of non-
receipt and of title as the board may from time to time prescribe, whether
generally or in a particular case.
9. FINANCIAL YEAR
9.01 Financial Year - The financial year of the Corporation shall end on
the day of in each year, until changed by a resolution of the board.
10. NOTICES
10.01 Method of Giving Notice - Subject to any unanimous shareholder
agreement providing otherwise, any notice, communication or other document
required by the Act, the regulations, the articles or the by-laws to be given
by the Corporation to a shareholder, director, officer, or auditor or member
of a committee of the board of the Corporation under any provision of the
Act, the articles or by-laws or otherwise shall be sufficiently given if
delivered personally to the person to whom it is to be given if delivered to
his recorded address or if mailed to him at his recorded address by prepaid
ordinary mail or if sent to him at his recorded address by any means of any
prepaid transmitted or recorded
<PAGE>
14
communication. A notice so delivered shall be deemed to have been given when
it is delivered personally or delivered to the recorded address as aforesaid;
a notice so mailed shall be deemed to have been received on the fifth day
after mailing; and a notice so sent by any means of transmitted or recorded
communication shall be deemed to have been given when dispatched or delivered
to the appropriate communication company or agency or its representative for
dispatch. The secretary may change or cause to be changed the recorded
address of any shareholder, director, officer or auditor of the Corporation
in accordance with any information believed by him to be reliable. The
recorded address of a director shall be his latest address as shown in the
records of the Corporation or in the most recent notice filed under the
Corporations Information Act (Ontario), whichever is the more current.
10.02 Computation of Time - In computing the date when notice must be given
under any provision requiring a specified number of days' notice of any
meeting or other event, "day" means a clear day and a period of days shall be
deemed to commence on the day following the event that began the period and
shall be deemed to terminate at midnight of the last day of the period except
that if the last day of the period falls on a Sunday or holiday the period
shall terminate at midnight of the day next following that is not a Sunday or
holiday.
10.03 Omissions and Errors - The accidental omission to give any notice to
any shareholder, director, officer or auditor, or the non-receipt of any
notice by any shareholder, director, officer or auditor or any error in any
notice not affecting the substance thereof shall not invalidate any action
taken at any meeting held pursuant to such notice or otherwise founded
thereon.
10.04 Notice to Joint Shareholders - All notices with respect to any shares
registered in more than one name may, if more than one address appears on the
records of the Corporation in respect of such joint holding, be given to such
joint shareholders at the first address so appearing, and notice so given
shall be sufficient notice to all the holders of such shares.
10.05 Persons Entitled by Death or Operation of Law - Every person who by
operation of law, by transfer or the death of a shareholder or otherwise
becomes entitled to shares is bound by every notice in respect of such shares
which has been duly given to the registered holder from who he derives title
prior to his name and address being entered on the records of the Corporation
(whether such notice was given before or after the happening of the event
upon which he became so entitled) and prior to his furnishing to the
Corporation the proof of authority or evidence of his entitlement prescribed
by the Act.
10.06 Waiver of Notice - Any shareholder (or his duly appointed proxy),
director, officer or auditor may waive any notice or abridge the time
required for any notice required to be given under any provision of the Act,
the articles or by-laws of the Corporation or otherwise, and such waiver or
abridgement, whether given before or after the meeting or
<PAGE>
15
other event of which notice is required to be given, shall cure any default
in the giving or in the time of such notice, as the case may be. Any such
waiver or abridgement shall be in writing except a waiver of notice of a
meeting of shareholders or of the board or a committee of the board which may
be given in any manner.
10.07 Signatures to Notices - The signatures to any notice to be given by
the Corporation may be written, stamped, typewritten or printed or partly
written, stamped, typewritten or printed.
11. EXECUTION OF DOCUMENTS
11.01 Signing Officers - Deeds, transfers, assignments, contracts and
obligations of the Corporation may be signed by the President or Secretary.
Notwithstanding this, the board may at any time and from time to time direct
the manner in which and the person or persons by whom any particular deed,
transfer, contract or obligation or any class of deeds, transfers, contracts
or obligations may be signed.
11.02 Seal - Any person authorized to sign any document may affix the
corporate seal thereto.
12. EFFECTIVE DATE
12.01 Effective Date - This by-law shall come into force when enacted by the
directors, subject to the provisions of the Act.
13. REPEAL
13.01 Repeal - Upon this by-law coming into force, By-law Number of the
Corporation is repealed provided that such repeal shall not affect the
previous operation of such by-law so repealed or affect the validity of any
act done or right, privilege, obligation or liability acquired or incurred
under the validity of any contract or agreement made pursuant to any such
by-law prior to its repeal.
ENACTED by the board the 26th day of January, 1998.
/s/ Aaron Herzog
-----------------------------------
Aaron Herzog - President
/s/ Jacob Herzog
-----------------------------------
Jacob Herzog - Secretary
(Corporate Seal)
<PAGE>
16
Resolved that the foregoing by-law is hereby enacted by the directors
of the Corporation, pursuant to the Business Corporations Act, 1990 as
evidenced by the respective signatures hereto of all the directors.
DATED the 26th day of January, 1998.
/s/ Aaron Herzog /s/ Jacob Herzog
- --------------------------------- ------------------------------------
Aaron Herzog Jacob Herzog
In lieu of confirmation at a meeting of the shareholders, we the
undersigned, being all of the shareholders of the Corporation entitled to
vote at a meeting of shareholders, hereby confirm in writing the above by-law
in accordance with the Business Corporations Act, 1990.
DATED the 26th day of January, 1998.
Ranch Limited
/s/ Tzvi Ralbag /s/ Aaron Herzog
Per: ------------------------- ------------------------------------
A.S.O. Aaron Herzog
Worldwide Holdings Limited
/s/ Jacob Herzog
Per: -------------------------
A.S.O.
<PAGE>
BY-LAW NO. 2A
A by-law respecting the borrowing of money and the issuing of
securities by:
CURTIS INTERNATIONAL LTD.
(herein called the "Corporation")
BE IT ENACTED as a by-law of the Corporation as follows:
1. Without limiting the borrowing powers of the Corporation as set forth
in the Business Corporations Act, 1990 (the "Act"), the Directors of the
Corporation may, from time to time without the authorization of the
Shareholders:
(a) borrow money upon the credit of the Corporation;
(b) issue, re-issue, sell or pledge debt obligations of the
Corporation;
(c) subject to Section 20 of the Act, give a guarantee on behalf
of the Corporation to secure performance of an obligation of
any person; and
(d) charge, mortgage, hypothecate, pledge or otherwise create a
security interest in all or any property of the Corporation,
owned or subsequently acquired, to secure any obligation of
the Corporation.
2. The Directors may, from time to time, by resolution delegate any or
all of the powers referred to in paragraph 1 of this by-law to a director, a
committee of directors or one or more officers of the Corporation.
ENACTED by the Director and sealed with the Corporation's seal the
26th day of January, 1998.
/s/ Aaron Herzog
-------------------------------
Aaron Herzog - President
/s/ Jacob Herzog
-------------------------------
Jacob Herzog - Secretary
(Corporate Seal)
<PAGE>
2
Resolved that the foregoing by-law is hereby enacted by the directors
of the Corporation, pursuant to the Business Corporations Act, 1990 as
evidenced by the respective signatures hereto of all the directors.
DATED the 26th day of January, 1998.
/s/ Aaron Herzog /s/ Jacob Herzog
- ------------------------------ --------------------------------
Aaron Herzog Jacob Herzog
In lieu of confirmation at a meeting of the shareholders, we the
undersigned, being all of the shareholders of the Corporation entitled to
vote at a meeting of shareholders, hereby confirm in writing the above by-law
in accordance with the Business Corporations Act, 1990.
DATED the 26th day of January, 1998.
Ranch Limited
/s/ Aaron Herzog
/s/ Tzvi Ralbag ---------------------------------
Per: ------------------------ Aaron Herzog
A.S.O.
Worldwide Holdings Limited
/s/ Jacob Herzog
Per: ------------------------
A.S.O.
<PAGE>
Exhibit 3.2
For Ministry Use Only Ontario Corporation Number
A l'usage exclusif du ministere Numero de la societe en
Ontario
Form 4
Business
Corporations
Act
Formule 4
Loi sur les
societes par
actions
FORM 4 (B.C.A.)
CAKEware Inc. (10/96)
ARTICLES OF AMALGAMATION
STATUTS DE FUSION
1. The name of the amalgamated Denomination sociale de la societe
corporation is: issue de la fusion:
CURTIS INTERNATIONAL LTD.
2. The address of the registered office is: Adresse du siege social:
5140 Yonge Street, Suite 1540
- -------------------------------------------------------------------------------
(Street & Number or R.R. Number & if Multi-Office Building give Room No.)
(Rue et numero, ou numero de la R.R. et, s'il s'agit d'un edifice a bureaux,
numero du bureau)
Toronto, Ontario, CanadaM2N 6L7 M2N6L7
- -------------------------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code)
(Nom de la municipalite ou du bureau de poste) (Code postal)
3. Number (or minimum and maximum number) of Nombre (ou nombres minimal et
directors is: maximal) d'administrateurs:
Minimum: 1, Maximum: 10
<TABLE>
<S> <C> <C>
4. The director(s) is/are: Administrateur(s): Resident
First name, initials and surname Residence address, giving Street & No. or R.R. No., Canadian
Prenom, initiales et nom de municipality and postal code. State
famille Adresse personnelle, y compris la rue et le numero, le Yes or No
numero de la R.R., le nom de la municipalite et le code Resident
postal canadien Oui/Non
Aaron Herzog 40 Kelvin Avenue, Yes
Outermount, Quebec
H2V 1T3
Jacob Herzog 91 Hillmount Avenue, Yes
Toronto, Ontario,
M6B 1X5
</TABLE>
1.
<PAGE>
5. A) The amalgamation agreement A) Les actionnaires de chaque
has been duly adopted by the societe qui fusionne ont dument
shareholders of each of adopte la convention de fusion
the amalgamating corporations conformement au paragraphe
176 (4) of the Business /X/ 176 (4) de la Loi sur les
as required by subsection societes par actions a la date
Corporations Act on the date mentionnee ci-dessous.
set out below.
Check Cocher
A or B A ou B
B) The amalgamation has been B) Les administrateurs de chaque
approved by the directors of societe qui fusionne ont
each amalgamating corporation approuve la fusion par voie
by a resolution as required by / / de resolution conformement
section 177 of the Business a l'article 177 de la Loi
Corporations Act on the date sur les societes par actions
set out below. a la date mentionnee
ci-dessous.
The articles of amalgamation Les statuts de fusion
in substance contain the reprennent essentiellement
provisions of the articles of les dispositions des
incorporation of statuts constitutifs de
and are more particularly set out et sont enonces textuellement
in these articles. aux presents statuts.
<TABLE>
<CAPTION>
Names of amalgamating Ontario Corporation Number Date of Adoption/Approval
corporations Numero de la societe en Date d'adoption ou d'approbation
Denomination sociale des Ontario
societes qui fusionnent
<S> <C> <C>
CURTIS
INTERNATIONAL LTD. 923500 January 23, 1998
UNIQUE INVESTMENTS 586448 January 23, 1998
LIMITED
AEG TRADING
LIMITED 586447 January 23, 1998
</TABLE>
2.
<PAGE>
6. Restrictions, if any, on Limites, s'il y a lieu,
business the corporation may imposees aux activites commerciales
carry on or on powers the ou aux pouvoirs de la societe.
corporation may exercise.
Nil
7. The classes and any maximum Categories et nombre maximal,
number of shares that the s'il y a lieu, d'actions que la
corporation is authorized to issue: societe est autorisee a emettre:
Class of Shares Maximum Number
- --------------- --------------
Common Shares Unlimited
3.
<PAGE>
8. Rights, privileges, restrictions Droits, privileges, restrictions
and conditions (if any) attaching to et conditions, s'il y a lieu,
each class of shares and directors rattaches a chaque categorie
authority with respect to any class d'actions et pouvoirs des
of shares which is to be issued in administrateurs relatifs a
series: chaque categorie d'actions qui
peut etre emise en serie:
N O N E
4.
<PAGE>
9. The issue, transfer or ownership L'emission, le transfert ou la
of shares is/is not restricted and propriete d'actions est/n'est
the restrictions (if any) are as follows: pas restreint. Les
restrictions, s'il y a lieu,
sont les suivantes:
N I L
10. Other provisions, if any, are: Autres dispositions, s'il y a
lieu:
(a) The Corporation may purchase any of its issued common shares and
warrants.
11. The statements required by subsection Les declarations exigees aux
178(2) of the Business Corporations Act termes du paragraphe 178(2) de
are attached as Schedule "A". la Loi sur les societes par
actions constituent l'annexe
"A".
12. A copy of the amalgamation agreement or Une copie de la convention de
directors resolutions (as the case may fusion ou les resolutions des
be) is/are attached as Schedule "B". administrateurs (selon le cas)
constitute(nt) l'annexe "B".
5.
<PAGE>
These articles are signed in duplicate. Les presents statuts sont
signes en double exemplaire.
Names of the amalgamating corporations Denomination sociale des
and signatures and descriptions of societes qui fusionnent,
office of their proper officers. signature et fonction de leurs
dirigeants regulierement
designes.
CURTIS INTERNATIONAL LTD.
Per: /s/ Aaron Herzog
-----------------------------------
Aaron Herzog - President
UNIQUE INVESTMENTS LIMITED
Per: /s/ Aaron Herzog
-----------------------------------
Aaron Herzog - President
AEG TRADING LIMITED
Per: /s/ Aaron Herzog
-----------------------------------
Aaron Herzog - President
6.
<PAGE>
SCHEDULE "A"
IN THE MATTER OF THE BUSINESS CORPORATIONS ACT, 1990
AND IN THE MATTER OF PROPOSED AMALGAMATION OF
CURTIS INTERNATIONAL LTD., UNIQUE INVESTMENTS LIMITED
AND AEG TRADING LIMITED
I, Aaron Herzog, hereby make the following statement in support of the
above-mentioned amalgamation pursuant to subsection 178(2) of the Business
Corporations Act, 1990 (the "Act"):
1. I am the President of Curtis International Ltd. and as such have
personal knowledge of the following matters;
2. There are reasonable grounds for believing that Curtis International
Ltd. is and the amalgamated corporation resulting from the amalgamation of
Curtis International Ltd., Unique Investments Limited and AEG Trading Limited
will be able to pay their respective liabilities as they become due and that the
realizable value of the said amalgamated corporation's assets will not be less
than the aggregate of its liabilities and stated capital of all classes;
3. There are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation;
4. No creditors have notified Curtis International Ltd. that they object to
the amalgamation and accordingly, clause (c) of subsection 178(2) of the Act has
no application;
5. Since Curtis International Ltd. has not received any notices pursuant to
clause (c) of subsection 178(2) of the Act clause (d) of subsection 178(2) of
the Act has no application in the present circumstances.
DATED this 23rd day of January, 1998.
/s/ Aaron Herzog
------------------------------
Aaron Herzog - President
<PAGE>
SCHEDULE "A"
IN THE MATTER OF THE BUSINESS CORPORATIONS ACT, 1990
AND IN THE MATTER OF PROPOSED AMALGAMATION OF
AEG TRADING LIMITED, UNIQUE INVESTMENTS LIMITED
AND CURTIS INTERNATIONAL LTD.
I, Aaron Herzog, hereby make the following statement in support of the
above-mentioned amalgamation pursuant to subsection 178(2) of the Business
Corporations Act, 1990 (the "Act"):
1. I am the President of AEG Trading Limited and as such have personal
knowledge of the following matters;
2. There are reasonable grounds for believing that AEG Trading Limited is
and the amalgamated corporation resulting from the amalgamation of AEG Trading
Limited, Curtis International Ltd. and Unique Investments Limited will be able
to pay their respective liabilities as they become due and that the realizable
value of the said amalgamated corporation's assets will not be less than the
aggregate of its liabilities and stated capital of all classes;
3. There are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation;
4. No creditors have notified AEG Trading Limited that they object to the
amalgamation and accordingly, clause (c) of subsection 178(2) of the Act has no
application;
5. Since AEG Trading Limited has not received any notices pursuant to
clause (c) of subsection 178(2) of the Act clause (d) of subsection 178(2) of
the Act has no application in the present circumstances.
DATED this 23rd day of January, 1998.
/s/ Aaron Herzog
------------------------------
Aaron Herzog - President
<PAGE>
SCHEDULE "A"
IN THE MATTER OF THE BUSINESS CORPORATIONS ACT, 1990
AND IN THE MATTER OF PROPOSED AMALGAMATION OF
UNIQUE INVESTMENTS LIMITED, CURTIS INTERNATIONAL LTD.
AND AEG TRADING LIMITED
I, Aaron Herzog, hereby make the following statement in support of the
above-mentioned amalgamation pursuant to subsection 178(2) of the Business
Corporations Act, 1990 (the "Act"):
1. I am the President of Unique Investments Limited and as such have
personal knowledge of the following matters;
2. There are reasonable grounds for believing that Unique Investments
Limited is and the amalgamated corporation resulting from the amalgamation of
Unique Investments Limited, Curtis International Ltd. and AEG Trading Limited
will be able to pay their respective liabilities as they become due and that the
realizable value of the said amalgamated corporation's assets will not be less
than the aggregate of its liabilities and stated capital of all classes;
3. There are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation;
4. No creditors have notified Unique Investments Limited that they object
to the amalgamation and accordingly, clause (c) of subsection 178(2) of the Act
has no application;
5. Since Unique Investments Limited has not received any notices pursuant
to clause (c) of subsection 178(2) of the Act clause (d) of subsection 178(2) of
the Act has no application in the present circumstances.
DATED this 23rd day of January, 1998.
/s/ Aaron Herzog
------------------------------
Aaron Herzog - President
<PAGE>
SCHEDULE "B"
MEMORANDUM OF AGREEMENT made the 23rd day of January, 1998.
B E T W E E N:
CURTIS INTERNATIONAL LTD., a corporation incorporated
under the laws of the Province of Ontario,
(hereinafter called "Curtis"),
OF THE FIRST PART;
- and -
UNIQUE INVESTMENTS LIMITED, a corporation incorporated
under the laws of the Province of Ontario,
(hereinafter called "Unique"),
OF THE SECOND PART;
- and -
AEG TRADING LIMITED, a corporation incorporated
under the laws of the Province of Ontario,
(hereinafter called "AEG"),
OF THE THIRD PART.
WHEREAS Curtis was incorporated under the laws of the Province of Ontario
by Certificate of Incorporation dated December 12, 1990;
AND WHEREAS the authorized capital of Curtis consists of an unlimited
number of Class A Special Shares, Class B Special Shares, Class C Special Shares
and Common Shares of which One Hundred (100) Common Shares have been issued and
are outstanding as fully paid and non-assessable;
AND WHEREAS Unique was incorporated under the laws of the Province of
Ontario by Certificate of Incorporation dated May 15, 1984;
<PAGE>
AND WHEREAS the authorized capital of Unique consists of an unlimited
number of Class A Special Shares, Class B Special Shares, Class C Special Shares
and Common Shares of which One Hundred (100) Common Shares have been issued and
are outstanding as fully paid and non-assessable;
AND WHEREAS AEG was incorporated under the laws of the Province of Ontario
by Certificate of Incorporation dated May 15, 1984;
AND WHEREAS the authorized capital of AEG consists of an unlimited number
of Class A Special Shares, Class B Special Shares, Class C Special Shares and
Common Shares of which One Hundred (100) Common Shares have been issued and are
outstanding as fully paid and non-assessable;
AND WHEREAS each party has made full and complete disclosure to the other
party hereto of its known assets and liabilities;
AND WHEREAS under the authority conferred by the Business Corporations Act,
1990, the parties hereto desire and have agreed to amalgamate upon the terms and
conditions hereinafter set forth:
NOW THEREFORE THIS AGREEMENT WITNESSETH as follows:
1. In this agreement the term "Amalgamated Corporation" shall mean the
corporation continuing from the amalgamation of Curtis, Unique and AEG.
2. Curtis, Unique and AEG do hereby agree to amalgamate under the provisions of
The Business Corporations Act and to continue as one corporation upon the terms
and conditions hereinafter set out.
3. The name of the Amalgamated Corporation shall be CURTIS INTERNATIONAL LTD.
4. There are no restrictions on the business the Amalgamated Corporation may
carry on or on the powers the Amalgamated Corporation may exercise.
5. The registered office of the Amalgamated Corporation shall be located at
5140 Yonge Street, Suite 1540, Toronto, Ontario M2N 6L7, in the Municipality of
Metropolitan Toronto.
6. The authorized capital of the Amalgamated Corporation shall consist of an
unlimited number of Common Shares;
7. There shall be no restrictions on the transfer of shares in the Amalgamated
Corporation.
8. Special provisions governing the Amalgamated Corporation shall be as
follows:
(a) The Amalgamated Corporation may purchase any of its issued common
shares
2
<PAGE>
and warrants.
9. The issued and outstanding shares of the parties hereto, on and from the
date of the Certificate of Amalgamation shall be converted into shares of the
Amalgamated Corporation as follows:
(a) The issued One Hundred (100) Common Shares held by Unique
in AEG shall be cancelled without any repayment of capital
in respect thereof.
(b) The issued One Hundred (100) Common shares held in Unique
shall be converted, on the basis of Twenty Four Thousand
(24,000) shares of the Amalgamated Corporation for each
share of Unique, into Two Million, Four Hundred Thousand
(2,400,000) Common shares of the Amalgamated Corporation.
(c) The issued Fifty (50) Common Shares held by AEG in Curtis
shall be cancelled without any repayment of capital in
respect thereof.
(d) The remaining issued Fifty (50) Common Shares held in
Curtis shall be converted, on the basis of Forty Eight
Thousand (48,000) shares of the Amalgated Corporation for
each share of Curtis, into Two Million, Four Hundred
Thousand (2,400,000) Common Shares of the Amalgamated
Corporation.
10. After the filing of Articles of Amalgamation and the issue of the
Certificate of Amalgamation confirming this agreement the shareholders of the
parties hereto, when requested by the Amalgamated Corporation to do so, shall
surrender the certificates representing the shares held by them respectively for
cancellation and in return shall, except where shares represented by the
certificates so surrendered have been cancelled be entitled to receive
certificates for shares of the Amalgamated Corporation on the basis set out in
paragraph 10 hereof.
11. The minimum number of directors of the Amalgamated Corporation shall be One
(1) and the maximum number of directors of the Amalgamated Corporation shall be
ten (10). The name, address and resident Canadian status of the first directors
of the Amalgamated Corporation are as follows:
<TABLE>
<CAPTION>
Name Residence Address Resident Canadian
- ---- ----------------- -----------------
<S> <C> <C>
Aaron Herzog 40 Kelvin Avenue, Yes
Outermount, Quebec
H2V 1T3
Jacob Herzog 91 Hillmount Avenue, Yes
Toronto, Ontario
M6B 1X5
</TABLE>
3
<PAGE>
The said first directors shall hold office until the first annual meeting
of the shareholders of the Amalgamated Corporation or until their successors are
elected or appointed in accordance
4
<PAGE>
with the provisions of The Business Corporations Act, 1990. No such first
director shall be permitted to resign unless at the time the resignation is to
become effective a successor is elected or appointed.
12. The by-laws of the Amalgamated Corporation shall be in the same form as
those of Curtis.
13. Each of the parties hereto shall contribute to the Amalgamated Corporation
all its assets, subject to its liabilities, as such exist, immediately before
the date of the certificate of amalgamation.
14. The Amalgamated Corporation shall possess all the property, rights,
privileges and franchises and shall be subject to all the liabilities,
contracts, disabilities and debts of each of the parties hereto as such exist
immediately before the date of the certificate of amalgamation.
IN WITNESS WHEREOF this agreement has been executed by the parties hereto
under their respective corporate seals.
Curtis International Ltd.
Per:
/s/ Aaron Herzog
-----------------------------------
A.S.O.
Unique Investments Limited
Per:
/s/ Aaron Herzog
-----------------------------------
A.S.O.
AEG Trading Limited
Per:
/s/ Aaron Herzog
-----------------------------------
A.S.O.
5
<PAGE>
DATED THIS 23RD DAY OF JANUARY, 1998.
-------------------------------------
-------------------------------------
B E T W E E N:
CURTIS INTERNATIONAL LTD.
A N D
UNIQUE INVESTMENTS LIMITED
A N D
AEG TRADING LIMITED
-------------------------------------
-------------------------------------
AMALGAMATION AGREEMENT
-------------------------------------
-------------------------------------
GRUBNER, KRAUSS
BARRISTERS AND SOLICITORS
5140 YONGE STREET, SUITE 1540,
WILLOWDALE, ONTARIO
M2N 6L7
<PAGE>
Exhibit 3.3
For Ministry Use Only Ontario Corporation Number 1.
l'usage exclusif du ministSre Numero de la societe en Ontario
Form 4
Business
Corporations
Act
Formule 4
Loi sur les
societes par
actions
ARTICLES OF AMALGAMATION
STATUTS DE FUSION
1. The name of the amalgamated Denomination sociale de la societe
corporation is: issue de la fusion:
CURTIS INTERNATIONAL LTD.
2. The address of the registered Adresse du siege social:
office is:
5140 Yonge Street, Suite 1540
(Street & Number or R.R. Number & if Multi-Office Building give Room No.)
(Rue et numero, ou numero de la R.R. et, s'il s'agit d'un edifice a bureaux,
numero du bureau)
Toronto, Ontario, Canada M2N 6L7
(Name of Municipality or Post Office) (Postal Code)
(Nom de la municipalit, ou du bureau de poste) (Code postal)
3. Number (or minimum and maximum Nombre (ou nombres minimal et maximal)
number) of directors is: d'administrateurs:
Minimum: 1, Maximum: 10
<TABLE>
<CAPTION>
4. The director(s) is/are: Administrateur(s): Resident
Canadian
State
First name, initials and Residence address, giving Yes
surname Prenom, initiales Street & No. or R.R. No., or
et nom de famille municipality and postal No
code. Adresse Resident
personnelle, y compris la canadien
rue et le numero, le Oui/Non
num,ro de la R.R., le nom
de la municipalite et le
code postal
- --------------------------------------------------------------------------------
<S> <C> <C>
Aaron Herzog 40 Kelvin Avenue, Yes
Outermount, Quebec
H2V 1T3
Jacob Herzog 91 Hillmount Avenue, Yes
Toronto, Ontario,
M6B 1X5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2.
<S> <C>
5. A) The amalgamation agreement A) Les actionnaires de chaque
has been duly adopted by the societe qui fusionne ont dument
shareholders of each of the adopte la convention de fusion
amalgamating corporations as conformement au paragraphe 176
required by subsection 176 (4) (4) de la Loi sur les societes
of the Business Corporations par actions a la date
Act on the date set out below. mentionnee ci-dessous.
Check Cocher
A or B A ou B
B) The amalgamation has been B) Les administrateurs de chaque
approved by the directors of societe qui fusionne ont
each amalgamating corporation approuve la fusion par voie de
by a resolution as required by resolution conformement a
section 177 of the Business l'article 177 de la Loi sur les
Corporations Act on the date societes par actions a la
set out below. The articles of date mentionnee ci-dessous. Les
amalgamation in substance statuts de fusion reprennent
contain the provisions of the essentiellement les
articles of incorporation of dispositions des statuts
constitutifs de
- -------------------------------------------------------------------------------
and are more particularly set et sont enonces textuellement
out in these articles. aux presents statuts.
</TABLE>
<TABLE>
<CAPTION>
Names of amalgamating Ontario Corporation Number Date of Adoption/Approval
corporations Denomination Numero de la societe en Ontario Date d'adoption ou d'approbation
sociale des societes qui
fusionnent
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CURTIS 1277601 May 29, 1998
INTERNATIONAL LTD.
WORLDWIDE 551117 May 29, 1998
HOLDINGS LIMITED
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
3.
<S> <C>
6. Restrictions, if any, on Limites, s'il y a lieu,
business the corporation may imposees aux activites
carry on or on powers the commerciales ou aux pouvoirs de
corporation may exercise. la societe.
None
7. The classes and any maximum Categories et nombre maximal,
number of shares that the s'il y a lieu, d'actions que la
corporation is authorized to societe est autorisee a
issue: emettre:
Class of Shares Maximum Number
--------------- --------------
<S> <C>
Common Shares 15,000,000
Preferred Shares 1,000,000
</TABLE>
<PAGE>
4.
8. Rights, privileges, Droits, privileges,
restrictions and conditions (if restrictions et conditions,
any) attaching to each class of s'il y a lieu, rattaches a
shares and directors authority chaque categorie d'actions et
with respect to any class of pouvoirs des administrateurs
shares which is to be issued in relatifs a chaque categorie
series: d'actions qui peut etre emise
en serie:
(1) Preferred Shares may at any time or from time to time be approved
for issuance and be issued by the directors in one or more series. Prior
to the issue of the shares of any such series, the directors shall,
subject to the limitations set out below, fix the number of shares in,
and determine the designation, rights, privileges, restrictions and
conditions attaching to the shares of such series including, without
limitation:
(a) the rate, amount or method of calculation of
dividends, if any, and whether the same are subject
to adjustments;
(b) whether such dividends are cumulative, partly
cumulative or non-cumulative;
(c) the dates, manner and currency of payments of
dividends and the dates from which dividends accrue
or become payable;
(d) if redeemable, retractable or purchasable, the
redemption, retraction, or purchase prices and the
terms and conditions of redemption, retraction or
purchase, with or without provision for sinking or
similar funds.
(e) any conversion, exchange or reclassification rights;
and
(f) any other rights, privileges, restrictions and
conditions not consistent with these provisions;
the whole being subject to the receipt by the Director under the
Business Corporations Act (Ontario), or any successor legislation thereto
(the "Act"), of articles of amendment designating and fixing the number
of Preferred Shares in such series and setting forth the rights,
privileges, restrictions and conditions attaching to such series of
Preferred Shares and the issue by the Director of a certificate of
amendment with respect to the articles of amendment so filed.
(2) The Preferred Shares of each series shall with respect to the
payment of dividends and the distribution of assets in the event of the
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding-up its
affairs, rank and be entitled to a preference over the Common Shares and
the shares of any other class ranking junior to the Preferred Shares.
(3) Except as provided in the Act or otherwise at law, the holders of
Preferred Shares shall not be entitled as such to receive notice of, or
to attend or vote at, any meeting of the shareholders of
the Corporation.
<PAGE>
(4) The holders of shares of a class or of a series of the Corporation
are not entitled to vote separately as a class or series and are not
entitled to dissent, upon a proposal to amend the Articles to:
(a) increase or decrease any maximum number of authorized
shares of such class or series, or increase any
maximum number of authorized shares of a class or
series having rights or privileges equal or superior
to the shares of such class or series;
(b) effect an exchange, reclassification or cancellation
of the shares of such class or series; or
(c) subject to the exceptions contained in the Act,
create a new class or series of shares equal or
superior to the shares of such class or series.
(5) The holders of Preferred Shares shall not, as such, have any
pre-emptive right to subscribe for, purchase or receive any part of any
issue of securities of the Corporation now or hereafter authorized.
<PAGE>
5.
9. The issue, transfer or ownership of L'emission, le transfert ou la
shares is/is not restricted and the propriete d'actions est/n'est pas
restrictions (if any) are as restreint. Les restrictions, s'il y
follows: a lieu, sont les suivantes:
N O N E
10. Other provisions, if any, are: Autres dispositions, s'il y a lieu:
(a) The Corporation may purchase any of its issued shares and warrants.
11. The statements required by Les declarations exigees aux termes
subsection 178(2) of the Business du paragraphe 178(2) de la Loi sur
Corporations Act are attached as les societes par actions
Schedule "A". constituent l'annexe "A".
12. A copy of the amalgamation Une copie de la convention de
agreement or directors resolutions fusion ou les resolutions des
(as the case may be) is/are administrateurs (selon le cas)
attached as Schedule "B". constitute(nt) l'annexe "B".
<PAGE>
6.
These articles are signed in Les presents statuts sont signes en
duplicate. double exemplaire.
Names of the amalgamating Denomination sociale des societes
corporations and signatures and qui fusionnent, signature et
descriptions of office of their fonction de leurs dirigeants
proper officers. regulierement designes.
CURTIS INTERNATIONAL LTD.
Per: /s/ Aaron Herzog
-----------------------------
Aaron Herzog - President
WORLDWIDE HOLDINGS LIMITED
Per: /s/ Jacob Herzog
-----------------------------
Jacob Herzog - President
<PAGE>
SCHEDULE "A"
------------
IN THE MATTER OF THE BUSINESS CORPORATIONS ACT, 1990
AND IN THE MATTER OF PROPOSED AMALGAMATION OF
CURTIS INTERNATIONAL LTD. AND WORLDWIDE HOLDINGS LIMITED
I, Aaron Herzog, hereby make the following statement in support
of the above-mentioned amalgamation pursuant to subsection 178(2) of the
Business Corporations Act, 1990 (the "Act"):
1. I am the President of Curtis International Ltd. and as such
have personal knowledge of the following matters;
2. There are reasonable grounds for believing that Curtis
International Ltd. is and the amalgamated corporation resulting from
the amalgamation of Curtis International Ltd. and Worldwide Holdings
Limited will be able to pay their respective liabilities as they
become due and that the realizable value of the said amalgamated
corporation's assets will not be less than the aggregate of its
liabilities and stated capital of all classes;
3. There are reasonable grounds for believing that no creditor
will be prejudiced by the amalgamation;
4. No creditors have notified Curtis International Ltd. that they
object to the amalgamation and accordingly, clause (c) of subsection
178(2) of the Act has no application;
5. Since Curtis International Ltd. has not received any notices
pursuant to clause (c) of subsection 178(2) of the Act clause (d) of
subsection 178(2) of the Act has no application in the present
circumstances.
DATED this 29th day of May, 1998.
/s/ Aaron Herzog
-----------------------------------
Aaron Herzog President
<PAGE>
SCHEDULE "A"
------------
IN THE MATTER OF THE BUSINESS CORPORATIONS ACT, 1990
AND IN THE MATTER OF PROPOSED AMALGAMATION OF
CURTIS INTERNATIONAL LTD. AND WORLDWIDE HOLDINGS LIMITED
I, Jacob Herzog, hereby make the following statement in support
of the above-mentioned amalgamation pursuant to subsection 178(2) of the
Business Corporations Act, 1990 (the "Act"):
1. I am the President of Worldwide Holdings Limited and as such
have personal knowledge of the following matters;
2. There are reasonable grounds for believing that Worldwide
Holdings Limited is and the amalgamated corporation resulting from the
amalgamation of Worldwide Holdings Limited and Curtis International
Ltd. will be able to pay their respective liabilities as they become
due and that the realizable value of the said amalgamated
corporation's assets will not be less than the aggregate of its
liabilities and stated capital of all classes;
3. There are reasonable grounds for believing that no creditor
will be prejudiced by the amalgamation;
4. No creditors have notified Worldwide Holdings Limited that
they object to the amalgamation and accordingly, clause (c) of
subsection 178(2) of the Act has no application;
5. Since Worldwide Holdings Limited has not received any notices
pursuant to clause (c) of subsection 178(2) of the Act clause (d) of
subsection 178(2) of the Act has no application in the present
circumstances.
DATED this 29th day of May, 1998.
/s/ Jacob Herzog
-------------------------------------
Jacob Herzog, President
<PAGE>
SCHEDULE "B"
------------
MEMORANDUM OF AGREEMENT made the 29th day of May , 1998.
B E T W E E N:
CURTIS INTERNATIONAL LTD., a corporation amalgamated
under the laws of the Province of Ontario,
(hereinafter called "Curtis"),
OF THE FIRST PART;
- and -
WORLDWIDE HOLDINGS LIMITED, a corporation incorporated
under the laws of the Province of Ontario,
(hereinafter called "Worldwide"),
OF THE SECOND PART;
WHEREAS Curtis was amalgamated under the laws of the Province of Ontario
by Certificate of Amalgamation dated January 26, 1998;
AND WHEREAS the authorized capital of Curtis consists of an unlimited
number of Common Shares of which Four Million, Eight Hundred Thousand
(4,800,000) Common Shares have been issued and are outstanding as fully paid and
non-assessable;
AND WHEREAS Worldwide was incorporated under the laws of the Province of
Ontario by Certificate of Incorporation dated May 9, 1983;
AND WHEREAS the authorized capital of Worldwide consists of Fifty Two
Thousand, Five Hundred (52,500) Class A Special Shares, Eight Hundred and Fifty
Thousand (850,000) Class B Special Shares, Fifty Thousand (50,000) Class C
Special Shares and Forty Seven Thousand, Five Hundred (47,500) Common Shares of
which Sixteen (16) Common Shares have been issued and are outstanding as fully
paid and non-assessable;
AND WHEREAS each party has made full and complete disclosure to the other
party hereto of its known assets and liabilities;
AND WHEREAS under the authority conferred by the Business Corporations
Act, 1990, the parties hereto desire and have agreed to amalgamate upon the
terms and conditions hereinafter set forth:
NOW THEREFORE THIS AGREEMENT WITNESSETH as follows:
1. In this agreement the term "Amalgamated Corporation" shall mean the
corporation continuing from the amalgamation of Curtis and Worldwide.
<PAGE>
2
2. Curtis and Worldwide do hereby agree to amalgamate under the provisions of
The Business Corporations Act and to continue as one corporation upon the terms
and conditions hereinafter set out.
3. The name of the Amalgamated Corporation shall be CURTIS INTERNATIONAL LTD.
4. There are no restrictions on the business the Amalgamated Corporation may
carry on or on the powers the Amalgamated Corporation may exercise.
5. The registered office of the Amalgamated Corporation shall be located at 5140
Yonge Street, Suite 1540, Toronto, Ontario M2N 6L7, in the Municipality of
Metropolitan Toronto.
6. The authorized capital of the Amalgamated Corporation shall consist of
Fifteen Million (15,000,000) Common Shares and One Million (1,000,000) Preferred
Shares;
7. The Preferred Shares shall have the following preferences, rights,
conditions, restrictions, limitations and prohibitions (any reference to
Corporation herein meaning the Amalgamated Corporation):
(1) Preferred Shares may at any time or from time to time be approved for
issuance and be issued by the directors in one or more series. Prior to the
issue of the shares of any such series, the directors shall, subject to the
limitations set out below, fix the number of shares in, and determine the
designation, rights, privileges, restrictions and conditions attaching to the
shares of such series including, without limitation:
(a) the rate, amount or method of calculation of dividends, if any,
and whether the same are subject to adjustments;
(b) whether such dividends are cumulative, partly cumulative or
non-cumulative;
(c) the dates, manner and currency of payments of dividends and the
dates from which dividends accrue or become payable;
(d) if redeemable, retractable or purchasable, the redemption,
retraction, or purchase prices and the terms and conditions of
redemption, retraction or purchase, with or without provision for
sinking or similar funds.
(e) any conversion, exchange or reclassification rights; and
(f) any other rights, privileges, restrictions and conditions not
consistent with these provisions; the whole being subject to the
receipt by the Director under the Business Corporations
Act (Ontario), or any successor legislation thereto (the "Act"), of articles of
amendment designating and fixing the number of Preferred Shares in such series
and setting forth the rights, privileges, restrictions and conditions attaching
to such series of Preferred Shares and the issue by the Director of a
certificate of amendment with respect to the articles of amendment so filed.
(2) The Preferred Shares of each series shall with respect to the payment
of dividends and the distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation,
<PAGE>
3
whether
<PAGE>
4
voluntary or involuntary, or any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding-up its affairs,
rank and be entitled to a preference over the Common Shares and the shares of
any other class ranking junior to the Preferred Shares.
(3) Except as provided in the Act or otherwise at law, the holders of
Preferred Shares shall not be entitled as such to receive notice of, or to
attend or vote at, any meeting of the shareholders of the Corporation.
(4) The holders of shares of a class or of a series of the Corporation are
not entitled to vote separately as a class or series and are not entitled to
dissent, upon a proposal to amend the Articles to:
(a) increase or decrease any maximum number of authorized shares of
such class or series, or increase any maximum number of
authorized shares of a class or series having rights or
privileges equal or superior to the shares of such class or
series;
(b) effect an exchange, reclassification or cancellation of the
shares of such class or series; or
(c) subject to the exceptions contained in the Act, create a new
class or series of shares equal or superior to the shares of such
class or series.
(5) The holders of Preferred Shares shall not, as such, have any
pre-emptive right to subscribe for, purchase or receive any part of any issue of
securities of the Corporation now or hereafter authorized.
8. There shall be no restrictions on the transfer of shares in the Amalgamated
Corporation.
9. Special provisions governing the Amalgamated Corporation shall be as follows:
(a) The Amalgamated Corporation may purchase any of its issued shares
and warrants.
10. The issued and outstanding shares of the parties hereto, on and from the
date of the Certificate of Amalgamation shall be converted into shares of the
Amalgamated Corporation as follows:
(a) The issued Two Million, Three Hundred and Eight Thousand Eight
Hundred (2,308,800) Common Shares held by Worldwide in Curtis
shall be cancelled without any repayment of capital in respect
thereof.
(b) The remaining issued Two Million, Four Hundred and Ninety One
Thousand, Two Hundred (2,491,200) Common Shares held in Curtis
shall be converted , on the basis of .833333 of a share of the
Amalgamated Corporation for each share of Curtis, into Two
Million, Seventy Six Thousand (2,076,000) Common Shares of the
Amalgamated Corporation.
(c) The issued Sixteen (16) Common Shares held in Worldwide shall be
converted, on the basis of One Hundred and Twenty Thousand, Two
Hundred and Fifty (120,250) Common Shares of the Amalgamated
Corporation for each share of Worldwide, into One Million, Nine
Hundred and Twenty Four Thousand (1,924,000) Common Shares of the
Amalgamated Corporation.
<PAGE>
5
11. After the filing of Articles of Amalgamation and the issue of the
Certificate of Amalgamation confirming this agreement the shareholders of the
parties hereto, when requested by the Amalgamated Corporation to do so, shall
surrender the certificates representing the shares held by them respectively for
cancellation and in return shall, except where shares represented by the
certificates so surrendered have been cancelled be entitled to receive
certificates for shares of the Amalgamated Corporation on the basis set out in
paragraph 10 hereof.
12. The minimum number of directors of the Amalgamated Corporation shall be One
(1) and the maximum number of directors of the Amalgamated Corporation shall be
ten (10). The name, address and resident Canadian status of the first directors
of the Amalgamated Corporation are as follows:
<TABLE>
<CAPTION>
Name Residence Address Resident Canadian
- ---- ----------------- -----------------
<S> <C> <C>
Aaron Herzog 40 Kelvin Avenue, Yes
Outermount, Quebec
H2V 1T3
Jacob Herzog 91 Hillmount Avenue, Yes
Toronto, Ontario
M6B 1X5
</TABLE>
The said first directors shall hold office until the first annual meeting
of the shareholders of the Amalgamated Corporation or until their successors are
elected or appointed in accordance with the provisions of The Business
Corporations Act, 1990. No such first director shall be permitted to resign
unless at the time the resignation is to become effective a successor is elected
or appointed.
13. The by-laws of the Amalgamated Corporation shall be in the same form as
those of Curtis.
14. Each of the parties hereto shall contribute to the Amalgamated Corporation
all its assets, subject to its liabilities, as such exist, immediately before
the date of the certificate of amalgamation.
15. The Amalgamated Corporation shall possess all the property, rights,
privileges and franchises and shall be subject to all the liabilities,
contracts, disabilities and debts of each of the parties hereto as such exist
immediately before the date of the certificate of amalgamation.
IN WITNESS WHEREOF this agreement has been executed by the parties hereto
under their respective corporate seals.
Curtis International Ltd.
Per:
/s/ Aaron Herzog
---------------------------------
A.S.O.
Worldwide Holdings Limited
Per:
<PAGE>
6
/s/ Jacob Herzog
----------------------------------
A.S.O.
<PAGE>
DATED THIS 29TH DAY OF MAY, 1998.
-------------------------------------------
-------------------------------------------
B E T W E E N:
CURTIS INTERNATIONAL LTD.
A N D
WORLDWIDE HOLDINGS LIMITED
-------------------------------------------
-------------------------------------------
AMALGAMATION AGREEMENT
-------------------------------------------
-------------------------------------------
GRUBNER, KRAUSS
BARRISTERS AND SOLICITORS
5140 YONGE STREET, SUITE 1540,
TORONTO, ONTARIO
M2N 6L7
<PAGE>
Draft
06/04/98
Exhibit 4.1
Curtis International Ltd.
7 Kodiak Crescent
Pawnsview, Ontario M3J 3E5
UNDERWRITERS' WARRANT
Warrant No. Cert__No_
Date of Issuance: As of __________ __, 1998 Right to Purchase ____ Shares
FOR VALUE RECEIVED, Curtis International Ltd., an Ontario corporation
(the "Company"), promises to issue in the name of, and sell and deliver to,
Holder (the "Holder") a certificate or certificates for an aggregate of ____
shares (the "Warrant Shares") of the Company's common stock, no par value per
share (the "Common Stock"), upon payment by the Holder of the exercise price of
$5.50 per share for the Warrant Shares (the "Exercise Price") in lawful funds of
the United States of America, with the Exercise Price being subject to
adjustment in the circumstances set forth hereinbelow. This Warrant expires in
its entirety at 5:00 p.m. Eastern Time on ______________, 2003 (the "Expiration
Date"). This Warrant is one of a series of Underwriters' Warrants dated
_____________, 1998 issued pursuant to the Underwriting Agreement dated as of
______________, 1998 between the Company and Barber & Bronson Incorporated, as
representative (the "Representative") of the several underwriters named in the
Underwriting Agreement (the "Underwriters"). This Warrant may not be sold,
transferred, assigned or hypothecated until ______________, 1998, except that it
may be transferred, in whole or in part, to one or more officers or partners of
the Holder (or the officers or partners of such partner); any other Underwriter
or member of the selling group which participated in the Company's public
offering which commenced on ________________, 1998; a successor to the Holder,
or other officers or partners of such Holder; or by operation of law. The terms
and conditions of the Underwriters' Warrants shall be identical in all material
respects except that the number of Warrant Shares to which the Holder is
entitled to purchase may differ.
Section 1.
Certain Definitions
As used in this Warrant, the following terms have the meanings set
forth below:
"Common Stock Deemed Outstanding" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Section 4 of this
Warrant.
"Date of Issuance" is the date set forth on the front page of this
Warrant, and the terms "date hereof," "date of this Warrant," and similar
expressions shall be deemed to refer to the Date of Issuance, as specified in
Section 10 of this Warrant.
<PAGE>
"Effective Date" means the date the Company's Registration Statement
(as defined below) is declared effective by the U.S. Securities and Exchange
Commission.
"Exercise Period" means the period of time commencing at 12:01 A.M.,
Eastern Time, on the first anniversary of the Effective Date and ending at 5:00
p.m., Eastern Time, on the fifth anniversary of the Effective Date.
"Market Price" means, as to any security, the average of the closing
prices of such security's sales on the principal domestic securities exchange on
which such security may at the time be listed, or, if there have been no sales
on any such exchange on any day, the average of the highest bid and lowest asked
prices on all such exchanges at the end of such day, or, if on any day such
security is not so listed, the average of the representative bid and asked
prices listed on the Nasdaq NMS as of the close of trading in New York City on
such day, or, if on any day such security is not listed on the Nasdaq NMS, the
average of the high and low bid and asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 20 consecutive business days consisting of the business day
immediately preceding the day as of which "Market Price" is being determined and
the 19 consecutive business days prior to such day; provided that if such
security is listed on any domestic securities exchange or listed on the Nasdaq
NMS, the term "business day" or "business days" as used in this sentence means a
day or days, as applicable, on which such exchange or the Nasdaq NMS is open for
trading or quotation, as the case may be. If at any time such security is not
listed on any domestic securities exchange or listed on the Nasdaq NMS or the
domestic over-the-counter market, the "Market Price" will be the fair value
thereof determined jointly by the Company and the Holders of Warrants
representing at least 50% of the Common Stock purchasable upon the exercise of
all the Warrants then outstanding; provided that if such parties are unable to
reach agreement, such fair value will be determined by an appraiser jointly
selected by the Company and the Holders of Warrants representing at least 25% of
the Common Stock purchasable upon the exercise of all the Warrants then
outstanding.
"Nasdaq NMS" means the Nasdaq National Market System (Registered
Trademark) or such other
similar quotation system as may in the future be used generally by members of
the Nasdaq Stock Market, Inc. for transactions in securities.
"Person" means an individual, a partnership, a corporation, a limited
liability company, a trust, a joint venture, an unincorporated organization, or
a government or any department or agency thereof.
"Registration Statement" means the Company's Registration Statement on
Form SB-2, File No. ____________.
"Warrants" mean this Warrant and all other Warrants issued in exchange
or substitution for this Warrant or any such other Warrants issued pursuant to
the terms hereof or thereof, as the case may be.
-2-
<PAGE>
Section 2.
Exercise of Warrant
2.1 Exercise Period. The Holder may exercise this Warrant, in whole or
in part (but not as to a fractional share), at any time and from time to
time, during the Exercise Period.
2.2 Exercise Procedure.
(a) This Warrant will be deemed to have been exercised at such
time as the Company has received all of the following items (the "Exercise
Date"):
(i) a completed Exercise Agreement, in the form set forth as
Exhibit I hereto, executed by the Person exercising all or part of the purchase
rights represented by this Warrant (the "Purchaser");
(ii) this Warrant (subject to delivery by
the Company of a new Warrant with respect to any unexercised portion, as
provided in Subsection 2.2(b));
(iii) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth as Exhibit II
hereto, evidencing the assignment of this Warrant to the Purchaser; and
(iv) a cashier's or official bank check or other immediately
available funds payable to the Company in an amount equal to the sum of the
product of the Exercise Price multiplied by the number of Warrant Shares being
purchased upon such exercise. Notwithstanding anything contained herein to the
contrary, the Exercise Price for the Warrant may be satisfied by the delivery
of an unexercised portion of this Warrant to the Company or the Transfer Agent
for cancellation having a market value, as determined by the spread as of the
date of surrender equal to the difference between the then Exercise Price and
the market price of the shares of Common Stock underlying this Warrant, equal
to the aggregate Exercise Price of the portion of this Warrant desired to be
then exercised.
(b) Certificates for Warrant Shares purchased upon exercise of
this Warrant will be delivered by the Company to the Purchaser within five
calendar days after the Exercise Date. Unless this Warrant has expired or all of
the purchase rights represented hereby have been exercised, the Company will
prepare a new Warrant representing the rights formerly represented by this
Warrant that have not expired or been exercised. The Company will, within such
five-day period, deliver such new Warrant to the Person designated for delivery
in the Exercise Agreement.
(c) The Warrant Shares issuable upon the exercise of this
Warrant will be deemed to have been transferred to the Purchaser on the Exercise
Date, and the Purchaser will be deemed for all purposes to have become the
record holder of such Common Stock on the Exercise Date.
(d) The issuance of certificates for Warrant Shares upon
exercise of this Warrant will be made without charge to the Holder or the
Purchaser for any issuance tax in
-3-
<PAGE>
respect thereof or any other cost incurred by the Company in connection with
such exercise and the related transfer; provided, however, that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any certificate or instrument
in a name other than that of the Holder of this Warrant, and the Company shall
not be required to issue or deliver any such certificate or instrument unless
and until the Person or Persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
(e) The Company will not close its books for the transfer of
this Warrant or of any of the Warrant Shares in any manner that interferes with
the timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Common Stock acquirable upon exercise of this Warrant is at all times
equal to or less than the Warrant Share Exercise Price then in effect.
2.3 Exercise Agreement. The Exercise Agreement will be substantially in
the form set forth as Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Holder of this Warrant, the Exercise
Agreement will also state the name of the Person to whom the certificates or
instrument for the Warrant Shares are to be issued, and if the number of
Warrant Shares purchasable does not include all of such securities
purchasable hereunder, it will also state the name of the Person to whom a
new Warrant for the unexercised portion of the rights hereunder is to be
delivered.
2.4 .Fractional Shares. If a fractional share of Common Stock would, but
for the provisions of Subsection 2.1, be issuable upon exercise of the rights
represented by this Warrant, the Company will, within 20 days after the
Exercise Date, deliver to the Purchaser a check payable to the Purchaser, in
lieu of such fractional share, in an amount equal to the Market Price of such
fractional share as of the close of business on the Exercise Date.
Section 3.
Exercise Price
3.1 General.
(a) The Holder of this Warrant shall be entitled to purchase
such numbers of Warrant Shares at the Exercise Price.
3.2 Subdivision or Combination of Common Stock and Stock
Dividends. If the Company shall at any time after the date hereof (a) issue any
shares of Common Stock or Convertible Securities, or any rights to purchase
Common Stock or Convertible Securities, as a dividend upon Common Stock, (b)
issue any shares of Common Stock, in subdivision of outstanding shares of Common
Stock by reclassification or otherwise, or (c) combine outstanding shares of
Common Stock, by reclassification or otherwise, then the Exercise Price that
would apply if purchase rights hereunder were being exercised immediately prior
to such action by the Company shall be adjusted by multiplying it by a fraction,
the numerator of which
-4-
<PAGE>
shall be the number of shares of Common Stock Deemed Outstanding immediately
prior to such dividend, subdivision, or combination and the denominator of which
shall be the number of shares of Common Stock Deemed Outstanding immediately
after such dividend, subdivision, or combination.
3.3 Certain Dividends or Distributions. If the Company shall declare a
dividend or distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus and otherwise than in Common Stock, Rights or
Convertible Securities, the Exercise Price that would apply if purchase
rights hereunder were being exercised immediately prior to the declaration of
such dividend or distribution shall be reduced by an amount equal, in the
case of a dividend or distribution in cash, to the amount thereof payable per
share of the Common Stock or, in the case of any other dividend or
distribution, to the fair value of such dividend or distribution per share of
the Common Stock as determined in good faith by the Board of Directors of the
Company. For purposes of the foregoing, a dividend or distribution other than
in cash shall be considered payable out of earnings or earned surplus only to
the extent that such earnings or earned surplus are charged an amount equal
to the fair value of such dividend or distribution as determined in good
faith by the Board of Directors of the Company. Such reductions shall take
effect as of the date on which a record is taken for the purpose of such
dividend or distribution or, if a record is not taken, the date as of which
the holders of Common Stock of record entitled to such dividend or
distribution are to be determined.
3.4 No De Minimis Adjustments. No adjustment of the Exercise Price shall
be made if the amount of such adjustment would be less than one cent per
share, but in such case any adjustment that otherwise would be required to be
made shall be carried forward and shall be made at the time and together with
the next subsequent adjustment that, together with any adjustment or
adjustments so carried forward, shall amount to not less than one cent per
share.
Section 4.
Adjustment of Number of
Shares Issuable upon Exercise
Upon each adjustment of the Exercise Price pursuant to Section 3, the
Holder of this Warrant shall thereafter (until another such adjustment) be
entitled to purchase, (i) at the adjusted Exercise Price in effect on the
date purchase rights for Warrant Shares under this Warrant are exercised, the
number of Warrant Shares, calculated to the nearest whole number, determined
by (a) multiplying the number of Warrant Shares purchasable hereunder
immediately prior to the adjustment of the Exercise Price by the Exercise
Price in effect immediately prior to such adjustment, and (b) dividing the
product so obtained by the adjusted Exercise Price in effect on the date of
such exercise. The provisions of Subsection 2.4 shall apply, however, so that
no fractional Warrant Share shall be issued upon exercise of this Warrant.
-5-
<PAGE>
Section 5.
Effect of Reorganization,
Reclassification, Consolidation, Merger, or Sale
If at any time while this Warrant is outstanding there shall be any
reorganization or reclassification of the capital stock of the Company (other
than a subdivision or combination of shares provided for in Subsection 3.3
hereof), any consolidation or merger of the Company with another corporation
(other than a consolidation or merger in which the Company is the surviving
entity and which does not result in any change in the Common Stock), or any
sale or other disposition by the Company of all or substantially all of its
assets to any other corporation, then the Holder of this Warrant shall
thereafter upon exercise of this Warrant be entitled to receive the number of
Warrant Shares or other securities or property of the Company, or of the
successor corporation resulting from such consolidation or merger, as the
case may be, to which the Holders of the Warrant Shares (and any other
securities and property) of the Company, deliverable upon the exercise of
this Warrant, would have been entitled upon such reorganization,
reclassification of capital stock, consolidation, merger, sale, or other
disposition if this Warrant had been exercised immediately prior to such
reorganization, reclassification of capital stock, consolidation, merger,
sale, or other disposition. In any such case, appropriate adjustment (as
determined in good faith by the Board of Directors of the Company) shall be
made in the application of the provisions set forth in this Warrant with
respect to the rights and interests thereafter of the Holder of this Warrant
to the end that the provisions set forth in this Warrant (including those
relating to adjustments of the Exercise Price and the number of Warrant
Shares issuable upon the exercise of this Warrant) shall thereafter be
applicable, as near as reasonably may be, in relation to any shares or other
property thereafter deliverable upon the exercise hereof as if this Warrant
had been exercised immediately prior to such reorganization, reclassification
of capital stock, consolidation, merger, sale, or other disposition and the
Holder hereof had carried out the terms of the exchange as provided for by
such reorganization, reclassification of capital stock, consolidation, or
merger. The Company shall not effect any such reorganization, consolidation,
or merger unless, upon or prior to the consummation thereof, the successor
corporation shall assume by written instrument the obligation to deliver to
the Holder hereof such shares of stock or other securities, cash, or property
as such Holder shall be entitled to purchase in accordance with the foregoing
provisions. Notwithstanding any other provisions of this Warrant, in the
event of sale or other disposition of all or substantially all of the assets
of the Company as a part of a plan for liquidation of the Company, all rights
to exercise the Warrant shall terminate upon the earlier of the expiration of
the Exercise Period and 60 days after the Company gives written notice to the
Holder of this Warrant that such sale or other disposition has been
consummated.
Section 6.
Notice of Adjustment
Immediately upon any adjustment of the Exercise Price or increase or
decrease in the number of Warrant Shares, the Company will send written
notice thereof to all Holders, stating the adjusted Exercise Price, and the
increased or decreased number of Warrant Shares and setting forth in
reasonable detail the method of calculation for such adjustment and increase
or decrease. When
-6-
<PAGE>
appropriate, such notice may be given in advance and included as part of any
notice required to be given pursuant to Section 7 below. Notwithstanding
anything herein to the contrary, if any adjustment under this Warrant of the
Exercise Price or the number of shares of Common Stock issuable upon exercise of
this Warrant, shall be determined by NASD Regulation, Inc. (the "NASD") to
violate the Rules of Fair Practice of the NASD, and such determination shall not
be subject to further appeal or review, the violative provisions shall be deemed
to be amended to the minimum extent necessary to cause each such provision to
comply with the applicable violated section of the NASD Rules of Fair Practice.
Section 7.
Prior Notice of Certain Events
If at any time:
(a) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends) to the holders
of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or any
other rights;
(c) there shall be any reorganization or reclassification of the
capital stock of the Company, any consolidation or merger of the Company with
another corporation, or a sale or disposition of all or substantially all its
assets; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company,
then, in each such case, the Company shall give prior written notice, by hand
delivery or by certified mail, postage prepaid, addressed to the Holder of this
Warrant at the address of such holder as shown on the books of the Company, of
the date on which (i) the books of the Company shall close or a record shall be
taken for such stock dividend, distribution, or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up shall take place, as the case may be. A copy of each
such notice shall be sent simultaneously to each transfer agent of the Company's
Common Stock. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in said dividend, distribution, or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up, as the case may be. Such written notice shall be given at least 30
days prior to the record date or the effective date, whichever is earlier, of
the subject action or other event.
If any other event (not listed above) would require adjustment to the
Exercise Price, then the Company shall give prior written notice thereof (in
substance as set forth above) to the Holders, at their addresses and in the
manner provided in Subsection 13.3. Notwithstanding the foregoing, the Company
shall not be required to give prior written notice where it is not reasonably
possible.
-7-
<PAGE>
Section 8.
Reservation of Common Stock
The Company will at all times reserve and keep available such number of
shares of Common Stock as will be sufficient to permit the exercise in full of
all outstanding Warrants. Upon exercise of this Warrant, the Holder will acquire
fully paid and non-assessable ownership rights of the Common Stock, free and
clear of any liens, claims or encumbrances.
Section 9.
No Shareholder Rights or Obligation
This Warrant will not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company. Until the shares of Common Stock
issuable upon exercise of this Warrant are recorded as issued on the books and
records of the Company's transfer agent, the Holder shall not be entitled to any
voting rights or other rights as a shareholder; provided, however, the Company
uses its best efforts to ensure that, upon receipt of an Exercise Agreement, the
appropriate documentation necessary to effectuate the exercise of the Warrant
and issuance of the Common Stock is accomplished as expeditiously as possible.
No provision of this Warrant, in the absence of affirmative action by the Holder
to purchase Common Stock, and no enumeration in this Warrant of the rights or
privileges of the Holder, will give rise to any obligation of such Holder for
the Exercise Price of the Warrant Shares acquirable by exercise hereof or as a
shareholder of the Company.
Section 10.
Exchangeable for Different Denominations
This Warrant is exchangeable, upon the surrender hereof by the Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants,
as set forth on the front page hereof, will represent such portion of such
rights as is designated by the Holder at the time of such surrender. The date
the Company initially issued this Warrant, which is set forth on the front page
hereof, will be deemed to be the "Date of Issuance" of this Warrant and any
purchase warrant exchanged or substituted herefor, regardless of the number of
times (and dates on which) new certificates representing the unexpired and
unexercised rights formerly represented by this Warrant are issued.
-8-
<PAGE>
Section 11.
Transferability
Subject to the transfer conditions referred to in Section 2 or in the
remaining provisions or this Section 11, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Holder, upon
surrender of this Warrant with a properly executed Assignment (in the form of
Exhibit II hereto) at the principal office of the Company. This Warrant and the
Warrant Shares may not be offered, sold, or transferred except in compliance
with the Securities Act of 1933, as amended (the "Act"), and any applicable
state securities laws; and then only against receipt of an agreement of the
Person to whom such offer or sale is made to comply with the provisions of this
Section 11 with respect to any resale or other disposition of such securities;
provided that no such agreement shall be required from any Person purchasing
this Warrant or any Warrant Shares pursuant to a registration statement
effective under the Act. The Holder of this Warrant agrees that, prior to the
disposition of any security purchased on the exercise hereof under circumstances
that might require registration of such security under the Act, or any similar
statute then in effect, the Holder shall give written notice to the Company,
expressing his intention as to such disposition. Promptly upon receiving such
notice, the Company shall present a copy thereof to its securities counsel. If,
in the opinion of such counsel, the proposed disposition does not require
registration of such security under the Act, or any similar statute then in
effect, the Company shall, as promptly as practicable, notify the Holder of such
opinion, whereupon the Holder shall be entitled to dispose of such security in
accordance with the terms of the notice delivered by the Holder to the Company.
The above agreement by the Holder of this Warrant shall not be deemed to limit
or restrict in any respect the exercise of rights set forth in Section 12
hereof.
Section 12.
Registration Rights
12.1 Demand Registration Right. At any time during the Exercise Period,
the Holders of Warrants whose holdings thereof comprise a majority of the
Warrant Shares issuable upon exercise of said Warrants shall have the right
to require the Company (a) to prepare and file with the Commission up to one
new registration statement under the Act (or, in lieu thereof, a
post-effective amendment or amendments to the Registration Statement, if then
permitted under the Act), covering all or any portion of the Warrant Shares
and to use its best efforts to obtain promptly and maintain the effectiveness
thereof for at least 120 days and (b) to register or qualify the subject
Warrant Shares for sale in up to ten states identified by such holders. The
Company shall bear all fees and expenses other than the fees and expenses of
Holders' counsel incurred in the preparation and filing of such registration
statement or post-effective amendments (and related state registrations, to
the extent permitted by applicable law) and the furnishing of copies of the
preliminary and final prospectus thereof to such Holders of Warrant Shares.
12.2 Piggy Back Registration Rights. In addition, if at any time
commencing after the date hereof and expiring seven years after the date
hereof, the Company shall prepare and file one or more registration
statements under the Act, with respect to a public offering of equity or debt
securities of the Company, or of any such securities of the Company held by
its security
-9-
<PAGE>
holders, the Company will include in any such registration statement such
information as is required, and such number of shares of Common Stock held by,
or shares of Common Stock underlying outstanding Warrants held by, the Holders
hereof or their respective designees or transferees as may be requested by them,
to permit a public offering of the Shares so requested; provided, however, that
if, in the written opinion of the Company's managing underwriter, if any, for
such offering, the inclusion of the shares requested to be registered, when
added to the securities being registered by the Company or the selling security
holder(s), would exceed the maximum amount of the Company's securities that can
be marketed without otherwise materially and adversely affecting the entire
offering, then the Company may exclude from such offering that portion of the
shares requested to be so registered, so that the total number of securities to
be registered is within the maximum number of shares that, in the opinion of the
managing underwriter, may be marketed without otherwise materially and adversely
affecting the entire offering, provided that the Company shall be required to
include in the offering and in the following order: first, the pro rata number
of securities requested by the Holder of Warrants along with all other holders
of securities requesting registration pursuant to registration rights which were
granted on or prior to the date hereof and are described in the Company's
Registration Statement; and, second, the pro rata number of securities requested
by all other holders of securities requesting registration pursuant to other
registration rights. In the event of such a proposed registration, the Company
shall furnish the then Holders with not less than 30 days' written notice prior
to the proposed date of filing of such registration statement. The Company shall
use its best efforts to ensure that such registration statement is declared
effective and remains effective until such time as all of the shares have been
registered or may be sold without registration under the Act or applicable state
securities laws and regulations, and without limitation as to volume, pursuant
to Rule 144 of the Act. The Holders shall be entitled to exercise the rights
provided for in this Subsection 12.2 on two separate occasions by giving written
notice to the Company, within 20 days of receipt of the Company's notice of its
intention to file a registration statement. The Company shall bear all fees and
expenses incurred by it in connection with the preparation and filing of such
registration statement other than fees and expenses of Holder's counsel.
Section 13.
Miscellaneous
13.1 Original Issue Taxes. The Company will pay all United States, state
and local (but not foreign) original issue taxes, if any, upon the issuance
of this Warrant and the Warrant Shares.
13.2 Amendment and Waiver. Except as otherwise provided herein, the
provisions of this Warrant may be amended, and the Company may take any
action herein prohibited or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Holders of the Warrants representing at least 50% of the shares of Common
Stock obtainable upon the exercise of the Warrants outstanding at the time of
such consent.
-10-
<PAGE>
13.3 Notices. Any notices required to be sent to a Holder of this
Warrant or of any Warrant Shares purchased upon the exercise hereof will be
delivered to the address of such Holder shown on the books of the Company.
All notices referred to herein will be delivered in person or sent by
registered or certified mail, postage prepaid, and will be deemed to have
been given when so delivered in person or on the third business day following
the date so sent by mail.
If to the Holder: Barber & Bronson Incorporated
201 South Biscayne Boulevard
Suite 2950
Miami, Florida 33131
Attention: James S. Cassel
Executive Vice President
With a copy to: Broad and Cassel
Miami Center
201 S. Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Attention: Linda C. Frazier, Esquire
If to the Company: Curtis International Ltd.
7 Kodiak Crescent
Pawnsview, Ontario M3J 3E5
Attention: Aaron Herzog,
President
With a copy to: Gersten, Savage, Kaplowitz &
Fredericks LLP
101 East 52nd Street
New York, New York 10022
Attention: Arthur S. Marcus, Esquire
13.4 Descriptive Headings. The descriptive headings of the sections and
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
13.5 Governing Law; Arbitration. This Warrant is governed by,
interpreted under and construed in all respects in accordance with the
substantive laws of the State of Florida, without regard to the conflicts of
law provisions thereof, and irrespective of the place of domicile or
residence of the party. In the event of a controversy arising out of the
interpretation, construction, performance or breach of this Warrant, the
parties hereby agree and consent to the jurisdiction and venue of the courts
of the State of Florida, or the United States District Court for the Southern
District of Florida that are located in Miami-Dade County, Florida; and
further agree and consent that personal service of process in any such action
or proceeding outside the State of Florida shall be tantamount to service in
person in Florida.
-11-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
and attested by its duly authorized officer.
Curtis International Ltd., an Ontario corporation
By:
---------------------------------------------
Aaron Herzog, President
Attest:
- --------------------------------------
-12-
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned Record Holder, pursuant to the provisions set forth in
the within Warrant, hereby subscribes for and purchases ________ Warrant Shares
covered by such Warrant and herewith makes full cash payment of $______________
for such Warrant Shares at the Exercise Price provided by such Warrant.
-------------------------------------------
(Signature)
-------------------------------------------
(Print or type name)
-------------------------------------------
(Address)
-------------------------------------------
-------------------------------------------
NOTICE: The signature on this Exercise Agreement must correspond with the
name as written upon the face of the within Warrant, or upon the Assignment
thereof if applicable, in every particular, without alteration, enlargement, or
any change whatsoever, and must be medallion guaranteed by a bank, other than a
saving bank, having an office or correspondent in New York, New York, or Fort
Lauderdale or Miami, Florida, or by a firm having membership on a registered
national securities exchange and an office in New York, New York, or Fort
Lauderdale or Miami, Florida.
MEDALLION SIGNATURE GUARANTEE
Authorized Signature:
-------------------------------------------------------
Name of Bank or Firm:
-------------------------------------------------------
Dated:
----------------------------------------------------------------------
-13-
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, __________________________________________, the
undersigned Holder hereby sells, assigns, and transfers all of the rights of the
undersigned under the within Warrant with respect to the number of Warrant
Shares covered thereby set forth below, unto the Assignee identified below, and
does hereby irrevocably constitute and appoint________________________________
to effect such transfer of rights on the books of the Company, with full power
of substitution:
Name of Assignee Address of Assignee No. of Warrant Shares
- ---------------- ------------------- ---------------------
Dated:
---------------------------- ---------------------------------
(Signature of Holder)
---------------------------------
(Print or type name)
NOTICE: The signature on this Assignment must correspond with the name
as written upon the face of the within Warrant, in every particular, without
alteration, enlargement, or any change whatsoever, and must be medallion
guaranteed by a bank, other than a savings bank, having an office or
correspondent in New York, New York, or Fort Lauderdale or Miami, Florida, or by
a firm having membership on a registered national securities exchange and an
office in New York, New York, or Fort Lauderdale or Miami, Florida.
MEDALLION SIGNATURE GUARANTEE
Authorized Signature:
---------------------------------------------------
Name of Bank or Firm:
---------------------------------------------------
Dated:
------------------------------------------------------------------
-14-
<PAGE>
Exhibit 10.1
CATALYST FINANCIAL CORP.
201 S. Biscayne Blvd.
Suite 2950
Miami, FL 33131
THIS FINANCIAL CONSULTING AGREEMENT, made as of the ___ day of ____,
1998, is by and between Curtis International Ltd., an Ontario, Canada
corporation (the "Company"), with its principal place of business at 7 Kodiak
Crescent, Downsview, Ontario M3J 3E5 and Catalyst Financial Corp., a Florida
corporation ("Catalyst"), having its principal place of business at 201 S.
Biscayne Blvd., Suite 2950, Miami, Florida 33131.
R E C I T A L S:
A. The Company is a public company with a class of equity securities
publicly traded, and desires to retain Catalyst to provide certain financial
consulting services.
B. Catalyst desires to provide certain financial consulting services to
the Company in accordance with the terms and conditions contained hereinafter.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereto hereby agree as follows:
1. Consulting Services. During the term of this Agreement, Catalyst is
hereby retained by the Company to provide financial consulting services to the
Company, to include, among other things, services related to merger &
acquisition activities, strategic planning and general corporate finance
matters. Nothing hereunder shall require Catalyst to devote a minimum number of
hours per calendar month toward the performance of services hereunder. Unless
otherwise agreed to by Catalyst, all services hereunder shall be performed by
Catalyst, in its sole discretion, at its principal place of business or other
offices. Notwithstanding anything contained herein to the contrary, the services
to be performed by Catalyst hereunder may be performed by any employee of or
consultant to Catalyst.
2. Term. The term of this Agreement shall be for two years commencing
as of the date first written above and terminating one day prior to the second
anniversary hereof. Thereafter, this Agreement shall be renewed for subsequent
one year terms upon mutual agreement of the parties. This Agreement shall be
terminable by either party upon 30 days notice.
3. Compensation; Reimbursement of Expenses. In consideration for the
performance of services hereunder, the Company hereby agrees to pay Catalyst the
aggregate sum of $________, representing the full payment due, which will be
paid as of the date first written above. The Company further hereby agrees to
pay the reasonable out-of-pocket expenses incurred by Catalyst in connection
with such services to be rendered hereunder. Catalyst may, from time to time,
deem it to be in the best interests of the Company to retain an outside
consultant in connection with certain specific acquisitions or proposed
transactions. Catalyst agrees to obtain
<PAGE>
-2-
the written consent of the Company prior to retaining such consultant. In
such event, the Company agrees to pay any and all fees and expenses of such
consultant.
4. Finder's Fee. In the event the Company effectuates a financial
reorganization, strategic alliance, merger, joint venture, acquisition of a
specific product line or brand name or similar transaction subsequent to the
date hereof and on or prior to one year from the date of termination of this
Agreement, irrespective of any reason for such termination (the "Term"), and
such financial reorganization, strategic alliance, merger, joint venture,
acquisition or similar transaction is effectuated as a result or consequence of
any introduction made directly or indirectly by Catalyst, including, without
limitation, any introduction made by any third party to whom the Company was
originally introduced, then the Company hereby agrees to pay Catalyst the
following cash consideration, which payment shall be due and payable in cash on
the date of any such closing with respect thereto:
5% of the consideration from $1 and up to $5,000,000, plus
4% of the consideration in excess of $5,000,000 and up to
$10,000,000, plus
3% of the consideration in excess of $10,000,000 and up to
$15,000,000, plus
2% of the consideration in excess of $15,000,000 and up to
$20,000,000, plus
1% of the consideration in excess of $20,000,000.
In addition, if during the Term of the Agreement, the Company
effectuates a financial reorganization, strategic alliance, merger, joint
venture, acquisition of a specific product line or brand name or similar
transaction not arranged, directly or indirectly, by Catalyst, the Company
hereby agrees to retain Catalyst to act as its financial advisor in connection
with such financial reorganization, strategic alliance, merger, joint venture,
acquisition or similar transaction and shall pay Catalyst a fee equal to the
following percentages based upon the value of the transaction:
2% of the consideration from $1 and up to $5,000,000, plus
1% of the consideration in excess of $5,000,000.
For purposes of this Agreement, "consideration" shall mean the value of
the transaction described herein and shall include the aggregate value of all
cash, securities, and other property and consideration of every kind, including
but not limited to assumption and forgiveness of indebtedness, the maximum gross
amount realizable under the terms of an "earn-out" provision, rights to receive
periodic payments and all other rights that may be at any time either (i)
transferred or contributed to the Company, its affiliates or shareholders in
connection with an acquisition of equity or assets thereof, or (ii) transferred
or contributed by the Company, its affiliates or shareholders in any transaction
involving an investment in or acquisition of any third party, or acquisition of
the equity or assets thereof, by the Company or any affiliate thereof, or (iii)
transferred or contributed by the Company, its affiliates or shareholders and
any other parties entering into any joint venture or similar joint enterprise or
undertaking with the Company or any affiliate thereof. The aggregate value of
all such cash, securities and other property shall be the aggregate fair market
value thereof as determined by Catalyst and the Company, or by an
CATALYST FINANCIAL CORP.
<PAGE>
-3-
independent appraiser jointly selected by Catalyst and the Company, the cost of
which shall be borne entirely by the Company.
5. Representations of the Company. The Company hereby represents and
warrants that any and all information supplied hereunder to Catalyst in
connection with any and all services to be performed hereunder by Catalyst for
and on behalf of the Company shall be true, complete and correct as of the date
of such dissemination and shall not fail to state a material fact necessary to
make any of such information not misleading. The Company hereby acknowledges
that the ability of Catalyst to adequately provide financial consulting services
hereunder is dependent upon the prompt dissemination of accurate, correct and
complete information to Catalyst. The Company further represents and warrants
hereunder that this Agreement and the transactions contemplated hereunder have
been duly and validly authorized by all requisite corporate action; that the
Company has the full right, power and capacity to execute, deliver and perform
its obligations hereunder; and that this Agreement, upon execution and delivery
of the same by the Company, will represent the valid and binding obligation of
the Company enforceable in accordance with its terms. The representations and
warranties set forth herein shall survive the termination of this Agreement.
6. Indemnification. See Exhibit A attached hereto.
7. Confidentiality. See Exhibit A attached hereto.
8. Independent Contractor. See Exhibit A attached hereto.
9. Amendment. No modification, waiver, amendment, discharge or change
of this Agreement shall be valid unless the same is evidenced by a written
instrument, executed by the party against which such modification, waiver,
amendment, discharge, or change is sought.
10. Notices. All notices, demands or other communications given
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person or transmitted by facsimile transmission or on the third
calendar day after being mailed by registered or certified mail, return receipt
requested, postage prepaid, to the addresses herein above first mentioned or to
such other address as any party hereto shall designate to the other for such
purpose in the manner hereinafter set forth.
11. Entire Agreement. This Agreement contains all of the understandings
and agreements of the parties with respect to the subject matter discussed
herein. All prior agreements, whether written or oral, are merged herein and
shall be of no force or effect.
12. Severability. The invalidity, illegality or unenforceability of any
provision or provisions of this Agreement will not affect any other provision of
this Agreement, which will remain in full force and effect, nor will the
invalidity, illegality or unenforceability of a portion of any provision of this
Agreement affect the balance of such provision. In the event that any one or
more of the provisions contained in this Agreement or any portion thereof shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be reformed,
CATALYST FINANCIAL CORP.
<PAGE>
-4-
construed and enforced as if such invalid, illegal or unenforceable provision
had never been contained herein.
13. Construction and Enforcement. This Agreement shall be construed in
accordance with the laws of the State of Florida, without application of the
principles of conflicts of laws. If it becomes necessary for any party to
institute legal action to enforce the terms and conditions of this Agreement,
the successful party will be awarded reasonable attorneys' fees at all trial and
appellate levels, expenses and costs.
14. Binding Nature. The terms and provisions of this Agreement shall be
binding upon and inure to the benefit of the parties, and their respective
successors and assigns.
15. Counterparts. This Agreement may be executed in any number of
counterparts, including facsimile signatures which shall be deemed as original
signatures. All executed counter parts shall constitute one Agreement,
notwithstanding that all signatories are not signatories to the original or the
same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CURTIS INTERNATIONAL LTD., an
Ontario, Canada corporation
By:
---------------------------------------
Aaron Herzog, President
CATALYST FINANCIAL CORP., a Florida
corporation
By:
---------------------------------------
James S. Cassel, President
CATALYST FINANCIAL CORP.
<PAGE>
EXHIBIT A
Indemnification; Confidentiality; and Independent Contractor Status
1. (a) The Company hereby agrees to indemnify, defend and hold harmless
Catalyst, its officers, directors, principals, employees, affiliates, and
shareholders, and their successors and assigns from and against any and all
claims, damages, losses, liability, deficiencies, actions, suits, proceedings,
costs or legal expenses (collectively the "Losses") arising out of or resulting
from: (i) any breach of a representation, or warranty by the Company contained
in the attached Agreement; or (ii) any activities or services performed
hereunder by Catalyst, unless such Losses were the result of the gross
negligence, intentional misconduct or gross misconduct of Catalyst or were the
result of any information supplied by Catalyst; or (iii) any and all costs and
expenses (including reasonable attorneys' and paralegals' fees) related to the
foregoing, and as more fully described below.
(b) If Catalyst receives written notice of the commencement of any
legal action, suit or proceeding with respect to which the Company is or may be
obligated to provide indemnification pursuant to this Paragraph, Catalyst shall,
within thirty (30) days of the receipt of such written notice, give the Company
written notice thereof (a "Claim Notice"). Failure to give such Claim Notice
within such thirty (30) day period shall not constitute a waiver by Catalyst of
its right to indemnity hereunder with respect to such action, suit or
proceeding, unless the defense thereof is prejudiced thereby. Upon receipt by
the Company of a Claim Notice from Catalyst with respect to any claim for
indemnification which is based upon a claim made by a third party ("Third Party
Claim"), the Company may assume the defense of the Third Party Claim with
counsel of its own choosing, as described below. Catalyst shall cooperate in the
defense of the Third Party Claim and shall furnish such records, information and
testimony and attend all such conferences, discovery proceedings, hearings,
trial and appeals as may be reasonably required in connection therewith.
Catalyst shall have the right to employ its own counsel in any such action, but
the fees and expenses of such counsel shall be at the expense of Catalyst unless
the Company shall not have with reasonable promptness employed counsel to assume
the defense of the Third Party Claim, in which event such fees and expenses
shall be borne solely by the Company. The Company shall not satisfy or settle
any Third Party Claim for which indemnification has been sought and is available
hereunder, without the prior written consent of Catalyst, which consent shall
not be unreasonably withheld or delayed and which shall not be required if
Catalyst is granted a release in connection therewith. If the Company shall fail
with reasonable promptness to defend such Third Party Claim, Catalyst may
defend, satisfy or settle the Third Party Claim at the expense of the Company
(but subject to its consent which shall not be unreasonably withheld) and the
Company shall pay to Catalyst the amount of any such Loss within ten (10) days
after written demand therefor. The indemnification provisions hereunder shall
survive the termination of the attached Agreement.
2. Catalyst agrees that all non-public information pertaining to the
prior, current or contemplated business of the Company is a valuable and
confidential asset of the Company. Such information shall include, without
limitation, information relating to products, customer lists, patents,
trademarks, trade secrets, financing techniques and sources and such financial
statements of the Company as are not available to the public. Catalyst, its
officers, directors,
CATALYST FINANCIAL CORP.
<PAGE>
employees, agents and shareholders shall hold all such information in trust and
confidence for the Company and shall not use such information for any purpose
other than the discharge of Catalyst's duties under the attached Agreement or
disclose any such information other than as expressly authorized by the Company,
and shall be liable for damages incurred by the Company as a result of the
unauthorized use or disclosure of such information by Catalyst, its officers,
directors, employees, agents or shareholders for any purpose, except (i) where
such information is publicly available or becomes publicly available other than
through or as a result of a breach of this Section 2 of Exhibit A or the
attached Agreement, or (ii) where such information is subsequently lawfully
obtained by Catalyst from a third party or parties, or (iii) if such information
is known to Catalyst prior to the execution of the attached Agreement, or (iv)
where Catalyst is required to convey by law. The terms of this Section 2 of
Exhibit A shall survive the termination of the attached Agreement.
3. It is expressly understood and agreed that Catalyst shall, at all
times, act as an independent contractor with respect to the Company and not as
an employee or agent of the Company, and nothing contained in the attached
Agreement shall be construed to create a joint venture, partnership, association
or other affiliation, or like relationship, between the parties. It is
specifically agreed that the relationship is and shall remain that of
independent parties to a contractual relationship and that Catalyst shall have
no right to bind the Company in any manner. In no event shall either party be
liable for the debts or obligations of the other except as otherwise
specifically provided in the attached Agreement.
CATALYST FINANCIAL CORP.
<PAGE>
Exhibit 10.3
THIS INDENTURE made as of the 1st day of January, 1996.
IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT
B E T W E E N :
TEL-E CONNECT INVESTMENTS LTD.
(hereinafter referred to as the "Lessor")
OF THE FIRST PART,
- - and -
CURTIS INTERNATIONAL LTD.
(hereinafter referred to as the "Lessee")
OF THE SECOND PART.
WITNESSETH in consideration of the rents, covenants and
agreements hereinafter reserved and contained on the part of the Lessee to be
respectively paid, reserved and performed, the Lessor has demised and leased and
by these presents does demise and lease to the Lessee that designated portion
containing approximately thirty-eight thousand, five hundred (38,500) square
feet more or less (subject to adjustment as hereinafter provided) and as more
particularly shown outlined in red on a sketch attached hereto as Schedule "A",
of the building erected on the lands and premises located at 5, 7 and 9 Kodiak
Crescent, North York, Ontario and more particularly described in Schedule "B"
attached hereto, together with rights in common with others entitled thereto at
all times, to the common use of the driveways and the parking areas appurtenant
thereto, the said premises and rights of way being hereinafter sometimes
collectively referred to as the "demised premises".
TO HAVE AND TO HOLD the demised premises for and during a
term of seven (7) months computed from the 30th day of January, 1998 and from
thenceforth ensuing and to be fully completed and ended on the 31st day of
August, 1998.
THE LESSEE shall pay from and after the Commencement Date
and throughout the term of the Lease, to the Lessor, in lawful money of Canada
as annual minimum rent the sum of Three Dollars and Eighty-Five Cents ($3.85)
per square foot per annum, being One Hundred and Forty-Eight Thousand, Two
Hundred and Twenty-Five ($148,225.00) Dollars per annum, and shall be payable in
equal monthly installments of Twelve Thousand, Three Hundred and Fifty-Two
Dollars and Eight Cents ($12,352.08) each in advance on the first day of each
calendar month of the term of the Lease.
THE DEMISED PREMISES are leased to the Lessee to be used
only for office and warehouse use, provided that such use at all times is to be
carried on in accordance with the legal requirements of the Municipality and
Province and of any other body, governmental or otherwise, having jurisdiction
thereover.
1. THE LESSEE COVENANTS WITH THE LESSOR:
(a) To pay rent,
(b) To pay to the Lessor as additional rent, monthly on the same
date as the rent is due, one-twelfth of all the taxes
(including local improvement rates), rates, duties,
assessments whatsoever, whether municipal, parliamentary, or
otherwise, now charged, levied, rated or assessed or hereafter
to be charged, levied, rated or assessed against the demised
premises or any part thereof, or any equipment, machinery or
other facilities now or at any time during the term hereof,
brought in or upon the demised premises, or against or upon
the Lessor on account thereof, and including realty taxes and
municipal taxes for local improvements or works assessed
against the property benefited thereby, or any similar taxes
not now in existence or contemplated, but levied at any time
during the term hereof by any competent governmental or
municipal body, in addition to or in lieu of the taxes, rates,
duties, or assessments hereinbefore referred to, except the
Lessor's income taxes, such taxes, rates, duties and
assessments to be estimated by the Lessor and paid by the
Lessee to the Lessor monthly. In the event that any taxes,
rates, duties or assessments are not charged, levied, rated or
assessed separately against the demised premises, then the
Lessee
<PAGE>
Page 2
shall pay its proportionate share of all such taxes, rates,
duties and assessments in the manner hereinbefore set forth,
and for the purposes of this lease the Lessee's proportionate
share shall be that proportion which the area of the demised
premises bears to the total rentable area in the building of
which the demised premises form a part. Provided that the
Lessor and the Lessee shall at the end of each calendar year
herein adjust the payments so made by the Lessee with the
Lessee's portion of the actual taxes, rates, duties and
assessments, and forthwith reimburse the other party for any
overpayment or deficiency with respect thereto; the Lessee
shall have the right to contest by appropriate legal
proceedings, the validity of any tax, rate (including local
improvement rates), assessment or other charge referred to in
this paragraph; if meanwhile such contestation will involve no
forfeiture, escheat, sale or termination of the Lessor's title
to the demised premises or any part thereof, and provided
further that all such proceedings shall be prosecuted with all
due diligence and dispatch, but upon final termination of any
such contest, the Lessee shall immediately pay and satisfy the
amount of any such tax, rate, assessment or public charge
declared or found to be due, together with all proper costs,
penalties, interest or other charges payable in connection
therewith.
(c) To pay all business taxes from time to time levied against or
payable by the Lessee in respect of the Lessee's occupancy of
the demised premises and to pay all taxes, charges and licence
fees assessed levied or imposed in respect of the personal
property, business or income of the Lessee as and when the
same become due and payable.
(d) To pay all water rates, gas and electric light rates, or other
similar charges against the demised premises, including rental
charges for gas or electrically operated machinery or
equipment, and the cost of heating the demised premises, all
of which form part of the operating costs referred to in
paragraph 9 of this Lease.
(e) Without restricting the generality of the foregoing, it shall
be the obligation of the Lessee to pay any and all liens
resulting from an obligation of the Lessee and the Lessee's
proportionate share of any and all costs, charges, levies,
special or otherwise, and taxes of every nature and
description, and whether imposed or levied or assessed against
the demised premises by any municipal, provincial or federal
authority whatsoever, or due to any person or persons,
including all costs of exterior maintenance, snow removal,
maintenance of the plumbing, heating and electrical and
sprinkler systems, hydro, air-conditioning, water, heat,
electricity, and any and all necessary repairs, and also
including any insurance premiums as herein provided and the
Lessor shall be indemnified and saved harmless by the Lessee
from and against the same, and any and all penalties, losses
and expenses incurred or occasioned thereby.
(f) In the event that the Lessee should fail to make any payment
or payments on any such liens, taxes, duties, assessments,
charges, licence fees, costs, or other rates as hereinbefore
set out, for a period of Fifteen (15) days after written
notice by the Lessor to the Lessee of default on the part of
the Lessee to make the same, then the Lessor shall be entitled
to pay any such accounts and shall be entitled to collect the
amount thereof from the Lessee in the same manner as is herein
provided for the collection of rent in arrears.
(g) Notwithstanding any other provision contained in this Lease,
the Tenant shall pay to the Landlord an amount equal to any
and all single or multi-stage national, provincial or
municipal sales taxes, goods and services taxes, sales taxes,
value added taxes, business transfer taxes, or any other taxes
howsoever characterized imposed on the Landlord and/or the
Tenant with respect to any rental payable by the Tenant to the
Landlord under this Lease, or in respect of the rental of
space under this Lease (herein called "Sales Taxes"), it being
the intention of the parties that the Landlord shall be fully
reimbursed by the Tenant with respect to any and all Sales
Taxes payable by the Landlord on its own behalf or as an agent
of the federal or any provincial or municipal government to
collect and remit Sales Taxes legally imposed upon the Tenant.
The amount of the Sales Taxes so payable by the Tenant shall
be calculated by the Landlord in accordance with the
applicable legislation and shall be paid to the Landlord at
the same time as the amounts to which such Sales Taxes apply
are payable to the Landlord under the terms of this Lease or
upon demand at such other time or times as the Landlord from
time to time determines. Despite any other section in this
Lease, the amount payable by the Tenant under this paragraph
shall be deemed not to be rent, but the Landlord shall have
all of the same remedies for and rights of recovery of such
amount as it has for recovery of rent under this Lease.
2. THE LESSEE acknowledges and agrees that it is intended that
this lease shall be a completely carefree net lease for the Lessor, that the
Lessor shall not be responsible during the term of the lease for any costs,
charges, expenses and outlays of any nature whatsoever in respect of the
lands, building
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Page 3
or improvements thereon, or the contents thereof, excepting only the Lessor's
income tax in respect of income received from leasing the demised premises,
Corporation tax and principal and interest payments to be made in connection
with any mortgage or mortgages placed on the lands and premises by the Lessor.
3. (a) THE LESSEE covenants and agrees to operate, maintain and keep
the demised premises in such good order and condition, both
inside and out, as they would be kept by a reasonably careful
owner and promptly to make all needed repairs and replacements
as shall be reasonably necessary, including without
limitation, to heating, electricity, drainage, plumbing,
air-conditioning, cooling and sprinkler systems, if any, and
all other fixtures, machinery, facilities and equipment
belonging to and forming part of the demised premises.
(b) THE LESSOR may enter and view the state of repair and the
Lessee will repair as provided in the herein preceding
provisions during the currency of this lease and/or any
renewals thereof according to notice in writing, subject only
to the exceptions in the aforesaid provisions. Provided
further that if the Lessee shall neglect with reasonable
promptness after such notice in writing or shall refuse to
make or cause such repairs to be made the Lessor may make or
cause such repairs to be made. All reasonable and proper
expenses incurred and expenditures made by or on behalf of the
Lessor under this provision shall be forthwith paid by the
Lessee and if the Lessee fails to pay the same then the Lessor
may add the same to the Lessee's rent and recover the same by
all remedies available to the Lessor for the recovery of rent
in arrears.
4. THE LESSEE will at the expiration or sooner termination of
the said term, and/or any renewals thereof peaceably surrender and yield up
to the Lessor the demised premises together with all the buildings,
structures and improvements thereon in good and substantial repair and
condition as they would be kept by a reasonably careful owner.
5. (a) THE LESSEE shall indemnify and save harmless the Lessor of and
from all manner of actions, causes of actions, suits, debts,
loss, costs, dues, covenants, contracts, claims and demands of
any nature whatsoever arising or which may arise in respect of
any injury to any person or for any loss or damage to any
property belonging to the employees, invitees, or licencees of
the Lessee or any other person while such person or property
is in or about the building or any other part of the demised
premises, and the Lessor shall in no way be responsible for
any injury to or loss or damage to any property of the Lessee
or the Lessee's business including, without limiting the
generality of the foregoing, any loss of or damage to any such
property caused by theft, breakage, or by steam, water, rain
or snow which may leak into, issue or flow from any part of
the said building or any adjacent or neighbouring lands or
premises; or from water, steam or drainage pipes or plumbing
works of the same, or from any other place or quarter or for
any damage caused by or attributable to the condition or
arrangement of any electric or other wiring or from any damage
caused by anything done or omitted to be done.
(b) THE LESSEE shall further indemnify and save harmless the
Lessor from any and all liabilities, fines, suits, claims,
demands, costs and actions of any kind or nature whatsoever to
which the Lessor shall or may become liable for or suffer by
reason of any breach, violation or non- performance by the
Lessee of any covenant, term or provision hereof or by reason
of any injury, loss, damage or death resulting from,
occasioned to or suffered by any person or persons or any
property by reason of any act, neglect or default on the part
of the Lessee or any of its agents, customers, employees,
servants, contractors, licencees or invitees, in or about the
demised premises or any part thereof; such indemnification
with respect to any such breach, violation, non-performance,
damage to property, loss, injury or death occurring during the
term of this lease shall survive any termination of this
lease, anything to the contrary notwithstanding.
6. (a) THE LESSEE shall maintain in respect of its property on
the demised premises, fire insurance with extended coverage
and water damage insurance, including sprinkler leakage or
discharge, and where applicable, boiler and pressure vessel
insurance to cover all of its improvements, furniture,
fittings, fixtures and stock in trade, in amounts adequate
to cover fully any loss that the Lessee could sustain.
(b) THE LESSEE shall further maintain a policy or policies of
insurance against loss of rental income and taxes payable
under this lease to the full amount of such rental income and
taxes with loss payable to the Lessor.
(c) Unless other provision satisfactory to the Lessor is made to
cover loss in regard thereto, the Lessee shall maintain
insurance upon all glass and plate glass in or forming part of
the demised premises including the store front, if applicable,
against breakage or damage from
<PAGE>
Page 4
any cause including the elements, war and riots and civil
commotion.
(d) THE LESSEE shall maintain for the mutual benefit of the Lessor
and the Lessee, liability insurance against claims for
personal injury, death or property damage occurring upon, in
or about the demised premises, such insurance to afford
protection to the limit of not less than Two Million Dollars
($2,000,000.00) for all deaths, injuries or loss of or damage
to property.
(e) All such policies shall waive recourse and any other rights of
subrogation against the Lessor, shall be on terms and
conditions and with insurers satisfactory to the Lessor and
shall provide (or the insurer shall agree) that no policy
shall be cancelled or its coverage reduced without Thirty (30)
days prior written notice to the Lessor. The Lessee agrees to
maintain all such insurance in good standing at all times and
to pay premiums thereon as and when same become due. The
Lessor shall at all times be supplied with proper evidence of
such insurance being in force and the Lessee shall supply to
the Lessor evidence of the continuation of such insurance
coverage at least Thirty (30) days prior to the expiry of such
policy or policies of insurance. In the event that the Lessee
shall fail to make payments on any such premium as and when
the same becomes due, then the Lessor shall be entitled to pay
such premium and shall be entitled to collect the amount
thereof from the Lessee in the same manner as herein provided
for the collection of rent in arrears.
7. THE LESSOR will insure and keep insured during the term
hereof, the building in which the demised premises are situate and all
property and interest of the Lessor therein against loss under fire and
extended coverage and supplemental risk insurance and boiler and pressure
vessel insurance, to the extent as would a prudent owner from time to time;
provided that nothing herein contained shall prevent the Lessor insuring with
broader coverage. In addition to the Lessee's proportionate share of
insurance costs payable pursuant to paragraph 9 hereof, the Lessee shall pay
the full amount of any increase in insurance rates arising from the use of
the premises made by the Lessee.
8. If any insurance policy upon the building in which the
demised premises are situate or the demised premises shall be cancelled by
the insurer by reason of the use and occupation of the demised premises or
any part thereof by the Lessee or by any subtenant or by any one permitted by
the Lessee to be upon the demised premises, the Lessor may, at its option,
terminate this lease forthwith by notice in writing to the Lessee of its
intention to do so, and thereupon rent and any other payment for which the
Lessee is liable under this lease shall be paid in full to the date of such
termination of the lease and the Lessee shall immediately deliver up vacant
possession of the demised premises to the Lessor.
9. (a) THE LESSEE covenants to pay to the Lessor by monthly
installments to be fixed from time to time by the Lessor and
as additional rent, its proportionate share of all costs
during the term hereby granted which may occur including,
without limitation, insurance to be maintained by the Lessor
pursuant to paragraph 7 hereof, maintenance, replacements and
repairs of and to the building, water, drainage, plumbing,
air-conditioning, cooling and sprinkler systems, if any, and
all other fixtures, machinery, facilities, equipment and
systems, to the extent that the same are not required to be
repaired by any individual tenant, parking area and other
common areas used in conjunction with the demised premises,
including lighting, cleaning, painting, snow removal,
insurance against claims, repairs and replacements of curbs,
walkways, paving and landscaping, and any and all other costs,
charges and expenses payable by the Lessor which are directly
attributable to the operation and maintenance of the building
in which the demised premises are situate as allocated by the
Lessor's accountants in accordance with generally accepted
accounting principles, plus an allowance equal to the Lessee's
proportionate share of fifteen (15%) percent of the aggregate
of all such costs referred to above and the taxes, rates,
duties and assessments payable pursuant to paragraph 1(b)
hereof in respect of the Lessor's management and
administrative costs, all of which are hereinafter
collectively referred to as the "operating costs".
(b) THE LESSEE's portion of the operating costs shall be that
proportion which the area of the demised premises bears to the
total rentable area in the building of which the demised
premises form a part.
(c) THE LESSOR and the Lessee agree that in lieu of the Lessor
determining the actual amount of the operating costs, it is
acknowledged and agreed that the operating costs are fixed at
the rate of One Dollar and Twenty-Five Cents ($1.25) per
square foot per annum during the term of this Lease and any
renewal thereof payable in monthly installments of Four
Thousand and Ten Dollars and Forty-Two Cents ($4,010.42). The
Lessor and the Lessee further acknowledge and agree that such
amount of One Dollar and Twenty-Five Cents ($1.25) per square
foot per annum includes the Lessee's proportionate share of
utility
<PAGE>
Page 5
charges (water rates, gas and electric and heating charges).
It is further expressly acknowledged and agreed that in
addition to the fixed operating costs of One Dollar and
Twenty-Five Cents ($1.25) per square foot per annum payable by
the Lessee, the Lessee is obligated to pay its proportionate
share of realty taxes and its business taxes as set in
paragraphs 1(b) and (c) of this Lease.
10. THE LESSEE shall not allow any ashes, refuse, garbage or
any other loose or objectionable material to accumulate on or about the
demised premises or common areas, washrooms, elevators, hallways, stairways,
driveways, sidewalks, parking or delivery areas, and will at all times keep
the demised premises in clean and wholesome conditions and shall be
responsible for the removal of all garbage or loose or other objectionable
material which shall be deposited and dealt with in such manner as the Lessor
may from time to time require.
11. THE LESSEE agrees that it will not do or omit or permit to
be done or omitted upon the demised premises anything which shall be or
result in a nuisance. The Lessee shall not bring upon the demised premises or
any part thereof any machinery, equipment, article or thing that by reason of
its weight, size or use might damage the floors of the demised premises and
that if any damage is caused to the demised premises by any machinery,
equipment, article or thing or by overloading or by any act, neglect or
misuse on the part of the Lessee or any of its servants, agents or employees
or any person having business with the Lessee, the Lessee shall forthwith
repair the same or pay to the Lessor the cost of making good the same.
12. (a) THE LESSEE shall not assign this lease, sublet, part with, or
share the occupation of, the demised premises or any portion
thereof without the written consent of the Lessor first had
and obtained, such consent not to be unreasonably or
arbitrarily withheld. The Lessee shall furnish to the Lessor
copies of any assignment, sub-lease, licence or other
agreement herein contemplated, provided that no assignment,
sub-letting, licensing or parting with or sharing possession
of the demised premises shall in any way release or be deemed
to release the Lessee (or any guarantor hereof) from its or
their obligations under the terms of this lease.
(b) If the Lessee is a corporation, the Lessee further shall not
permit the change of effective management or control, directly
or indirectly, of the Lessee without the written consent of
the Lessor first had and obtained, such consent not to be
unreasonably or arbitrarily withheld; provided that the
Lessor's consent shall not be required for any corporate
Lessee whose shares are listed on any recognized stock
exchange or for any sale or other disposition of shares by the
present shareholders to and between themselves or for any
transmission of shares on death or by operation of law.
13. THE LESSEE shall not sell, dispose of or remove any of its
goods and chattels from the demised premises except in the ordinary course of
the Lessee's business.
14. THE LESSEE shall not, without the prior written consent of
the Lessor, erect, instal, or maintain any exterior sign of whatsoever
nature, or any window or door sign, lettering, placard or other advertising
matter of whatsoever nature, if all or any part of such sign, lettering,
placard or other advertising matter is painted upon or posted or otherwise
affixed to the exterior of the building of which the demised premises form a
part, or to the exterior of the demised premises, or to the interior or
exterior of or is visible through any window or door. The Lessee shall not
use or maintain or permit any signs or advertising media whatsoever upon or
in or about the demised premises that is not of good professional quality or
that the Lessor in its sole discretion deems objectionable or unsuitable to
it or to the other tenants in the building of which the demised premises form
a part. The Lessee shall not install any exterior lighting, plumbing
fixtures, shades, awnings, exterior decorations or painting or marking or
erect or permit any insignia barrier, aerial mast, or like device or
installation, without the prior written consent of the Lessor. Prior to the
termination of this lease for any reason, the Lessee shall, at its sole cost,
if required to do so by the Lessor, remove all signs or other installations
of the kind herein referred to, making good and fully repairing any damage
occasioned by such installation or removal.
15. (a) In the event that the Lessee shall, during the term of the
within lease and/or any renewal thereof, desire to affix or
erect partitions, counters or fixtures in any part of the
walls, floors or ceilings of the demised premises, it may do
so at its own expense at any time and from time to time
provided that the Lessee's rights to make such alterations to
the demised premises shall be subject to the following
conditions:
i) That before undertaking any such alterations, the
Lessee shall submit to the Lessor a plan showing
the proposed alterations, and shall obtain the
approval and consent of the Lessor to the same.
ii) That all such alterations shall conform to all
building and zoning by-laws and regulations, if
any, then in force affecting the demised
premises.
<PAGE>
Page 6
iii) That such alterations shall not be of such kind
or expense as to in any manner weaken the
structure of the building after the alterations
are completed or reduce the value of the
building,
and except as herein provided the Lessee will not erect or
affix or remove or change the location or style of any
partitions or fixtures without the written consent of the
Lessor being first had and obtained.
(b) THE LESSEE may at the expiration of the term hereof, or any
renewals thereof, if it shall not then be in default
hereunder and shall have performed all covenants on the
part of the Lessee hereunder to be performed, remove from
the premises all the Lessee's trade fixtures, but the
Lessee shall in such removal do no damage which may be
occasioned thereto and restore the same to their condition
prior to such removal. Provided further that the Lessor may
require the Lessee to restore the demised premises to the
same condition as they were at the commencement of this
lease and before any alterations, additions or improvements
had been made by the Lessee.
(c) On any termination of this lease by reason of default on the
part of the Lessee, all fixtures, tenant's improvements or
other installations in the demised premises, which in law are
fixtures or a part of the realty or are attached, affixed to
or incorporated into the immoveable properties situated in or
upon the demised premises or any portion of the building and
lands of which the demised premises form a part, and which are
not the property of the Lessor, shall at the Lessor's option
forthwith become the property of the Lessor, and whether or
not such fixtures are in the nature of tenant's trade fixtures
and whether or not they would be removable by the Lessee at
the expiry of the term of this lease if there had been no
default.
(d) THE LESSEE agrees to pay the cost of any installations,
additions or alterations to the said premises that the Lessor
may be required to make by any municipal, provincial or other
governmental authority or requested by any private protective
system used by the Lessee for the security and protection of
the Lessee and its employees and its or their effects
including but not so as to limit the foregoing, installations,
additions and alterations for fire and theft protection and
all such installations, additions or alterations shall
forthwith become the property of the Lessor.
(e) THE LESSEE agrees to comply with and conform to the
requirements of all applicable statutes, laws, by-laws,
regulations, ordinances and orders from time to time or at any
time in force during the term hereof and affecting the
condition, equipment, maintenance, use or occupation of the
demised premises, and with every applicable regulation, order
and requirement of the Canadian Fire Underwriters'
Association, or any body having a similar function, or of any
liability or fire insurer by which the Lessor and Lessee or
either of them may be insured at any time during the term
hereof pertaining to the demised premises.
16. ANY AND ALL additional rents or payments to be paid by the
Lessee and not separately assessed or charged to the demised premises shall
be paid by the Lessee in the proportion in which the area of the demised
premises bears to the total rentable area in the building of which the
demised premises form a part.
17. EXCEPT as otherwise expressly provided herein this lease
shall not be terminable by the Lessee for any reason, nor shall the Lessee
for any reason be entitled to any abatement of, or reduction in, the rent
payable by the Lessee hereunder, it being expressly understood and agreed
that except as otherwise provided herein the Lessee shall, throughout the
term of this lease, in every event and under all circumstances continue to
pay to the Lessor in the manner hereinbefore provided the full rental payable
under the terms hereof without deduction, abatement or set-off.
18. THE LESSOR covenants with the Lessee for quiet enjoyment,
subject to the Lessee complying with all of the Lessee's covenants and
obligations contained in this lease.
19. THE LESSOR shall have the right during the term of this
lease, at any reasonable time, during the Lessee's normal business hours to
show the demised premises to any prospective purchaser and shall further have
the right during a period of Six (6) months prior to the termination of this
lease and/or any renewal thereof, at any reasonable time, during the Lessee's
normal business hours, to show the demised premises to any prospective tenant.
20. If and whenever the rents or other payments set out in this
lease, or any part thereof, shall be in arrears or unpaid for fifteen (15)
days after any of the days on which the same ought to have been paid,
although no formal or other demand shall have been made therefor; or in case
there be default or breach or
<PAGE>
Page 7
non-performance of any of the other covenants or agreements in this lease
contained on the part of the Lessee, and such default shall continue for a
period of fifteen (15) days after written notice thereof to the Lessee, (or such
longer period as may be reasonably necessary in case of a default which cannot
with due diligence be cured in a period of fifteen (15) days) except in case of
a default which cannot with due diligence be cured in a period of fifteen (15)
days, or if the Lessee fails to proceed with all due diligence to cure the same,
this lease shall at the option of the Lessor be and become forfeited and void
and the Lessor shall have the right to enter into and take immediate possession
of the demised premises or any part thereof in the name of the whole and enjoy
as of the Lessor's former estate, anything herein contained to the contrary
notwithstanding; no acceptance of rent subsequent to any default or breach,
other than non- payment of rent, and no condoning, excusing or overlooking by
the Lessor on previous occasions of any breach or default similar to that for
which re-entry is made shall be taken to operate as a waiver of this condition,
or in any way to defeat or affect the right of the Lessor hereunder.
21. IN CONSIDERATION of the premises and of the leasing and
renting by the Lessor to the Lessee of the said premises herein before and
hereinafter referred to for the term hereby created, notwithstanding anything
contained in The Landlord and Tenant Act or in any other Statute which
hereafter be passed to take the Place of the said Act or to amend the same,
none of the goods or chattels of the said Lessee at any time during the
continuance of the term created and/or any renewals hereof on the said
demised premises shall be exempt from levy by distress for rent in arrears by
the said Lessee as provided for by the said section or sections of the Act
above named or any amendments or amendment thereto. Upon any claim being made
by the said Lessor this covenant and agreement may be pleaded as an estoppel
against the said Lessee in any action brought to test the right to the
levying upon any such goods as are named as exempt in the said section or
sections, the said Lessee waiving as it hereby does all and every benefit
that could or might have accrued to it under and by virtue of the said
section or sections of the said Act or any amendment or amendments thereto
but for the above covenant.
22. PROVIDED and it is hereby expressly agreed that in case,
without the written consent of the Lessor, the demised premises shall become
and remain vacant or not used for a period of fifteen (15) days while the
same are suitable for use by the Lessee, or be used by any other person than
the Lessee, or in case the terms hereby granted and/or any renewal thereof,
or any of the goods and chattels of the Lessee shall be at any time ceased or
taken in execution or in attachment by any creditor of the Lessee, or the
Lessee shall make any assignment for the benefit of creditors or give any
Bill of Sale without complying with The Bulk Sales Act (Ontario) or become
bankrupt or insolvent or make a proposal to its creditors or take the benefit
of any act now or hereafter enforced for bankrupt or insolvent debtors or any
order shall be made for the winding up of the Lessee, then and in every such
case the then current month's rent and the next ensuing three months' rent
shall immediately become due and payable, and, at the option of the Lessor
this lease shall cease and the said term shall immediately become forfeited
and void, in which event the Lessor may re- enter and take possession of the
demised premises as though the Lessee or any occupant or occupants of the
demised premises was or were holding over after the expiration of the term
without any right whatever.
23. THE LESSEE further covenants and agrees that on the Lessor
becoming entitled to re-enter upon the demised premises under any of the
provisions of this lease, the Lessor in addition to all other rights, shall
have the right to enter the demised premises as the agent of the Lessee,
either by force or otherwise, without being liable for any prosecution
therefor, and to re-let the demised premises as the agent of the Lessee and
to receive the rent therefor, and as the agent of the Lessee, to take
possession of any and all chattels or other property of the Lessee on the
demised premises and to sell the same at public or private sale without
notice and to apply the proceeds of such sale and any rent thereof from
re-letting the demised premises upon account of the rent under this lease and
the Lessee shall be liable to the Lessor for the deficiency, if any.
24. (a) PROVIDED THAT if during the term of this lease and/or any
renewals thereof the demised premises are destroyed by
explosion, fire, lightning, tempest, acts of God or the
Queen's enemies, or are partially destroyed so as to render
the demised premises wholly unfit for occupation for the
purposes of the Lessee and if they shall be so badly damaged
that in the reasonable opinion of the Lessor they cannot with
reasonable diligence be repaired or rebuilt within one hundred
and eighty (180) days of the happening of such damage, or if
Fifty (50%) percent or more of the building in which the
demised premises are situate is so damaged or destroyed, then
this lease shall at the Lessor's or Lessee's option (to be
exercised within thirty (30) days of the date of such damage
or destruction or partial destruction) cease and become null
and void from the date of such damage or destruction or
partial destruction and in the event of such termination as
above mentioned the Lessor may re-enter or repossess the
premises discharged of this lease.
(b) In the event that neither party hereto shall elect to
terminate this lease by reason of the damage, destruction or
partial destruction as above mentioned, or if the premises
shall be repairable as aforesaid within one hundred and eighty
days (180) from the happening of such injury, in the
reasonable opinion of the Lessor, or if the demised premises
are only
<PAGE>
Page 8
partially destroyed so as to render a portion of the demised
premises fit for occupation for the purposes of the Lessee,
the rent payable hereunder shall be reduced or abated
proportionate to the nature and extent of the damage sustained
until the said demised premises shall have been fully repaired
and made fit for the purposes of the Lessee, and the Lessor
covenants and agrees with the Lessee to forthwith proceed and
carry on with all diligence and completion of such repairs and
replacements as shall be necessary to repair or replace and
make the demised premises in as good a state, plight and
condition as they were immediately prior to the happening of
such damage save and except for any of the Lessee's additions,
alterations, improvements, furniture, fittings, fixtures and
stock in trade.
(c) PROVIDED that even if the premises are repairable within one
hundred and eighty (180) days but the unexpired portion of the
term of this lease is less than two (2) years at the time of
such damage or destruction or partial destruction then the
Lessor and the Lessee shall have the option, to be exercised
within thirty (30) days of the date of such damage or
destruction or partial destruction, of declaring this lease
null and void from the date of such damage or destruction or
partial destruction.
25. IN THE EVENT that an action shall be commenced by the
Lessor for recovery of possession of the demised premises, for the recovery
of rent or by other amount due under the provisions of this lease, or because
of the breach of any other covenants herein contained on the part of the
Lessee to be kept or performed and a breach shall be established, the Lessee
shall pay to the Lessor all expenses incurred by the Lessor therefor,
including all solicitor's fees in respect thereof on a solicitor-client basis.
26. IF THE LESSEE continues to occupy the demised premises with
the consent of the Lessor after the expiration of this lease and/or any
renewal thereof without any further written agreement, the Lessee shall be a
monthly tenant at a monthly rental equal to the agreed monthly rental
hereinbefore or hereinafter provided for and upon the same terms and
conditions as herein set out.
27. FAILURE of the Lessor to insist upon the strict compliance
with and performance of all the terms, conditions, obligations and agreements
contained herein in any one or more instances shall not be construed as a
waiver or relinquishment in respect thereof thereafter. The prompt and
punctual performance of all such terms, conditions, obligations, covenants
and agreements contained herein is of the essence of this lease. No surrender
of this lease shall be valid unless accepted by the Lessor in writing. The
subsequent acceptance of rent hereunder by the Lessor, whether for any prior,
present or future period of the term, shall not be deemed to be a waiver of
any preceding breach by the Lessee of any term, covenant or condition of this
lease including, without limitation, non-payment of rent, additional rent or
any other monies required to be paid by the Lessee pursuant to this lease,
regardless of the Lessor's knowledge of such preceding breach at the time of
acceptance of such rent, and the Lessor shall be entitled to pursue any
remedy available to it under this lease or at law as if there were no
subsequent acceptance of rent (except to the extent of the Lessee being
credited with the amount of any subsequent payment of rent against any
payments due to the Lessor, which may be allocated as the Lessor in the
Lessor's sole discretion determines). No covenant, term or condition of this
lease shall be deemed to have been waived by the Lessor unless such waiver is
in writing and signed by the Lessor.
28. THIS LEASE is subject and subordinate to all mortgages
which may now or hereafter affect the herein lands and premises and to all
renewals, modifications, consolidations, replacements and extensions thereof.
The Lessee agrees to execute promptly any certificate in confirmation of such
subordination as the Lessor may request from time to time and hereby
constitutes the Lessor the agent or attorney of the Lessee for the purpose of
executing any such certificate and of making application at any time and from
time to time to register postponements of this lease in favour of any such
mortgage in order to give effect to the foregoing provisions of this
paragraph.
29. THE LESSEE covenants that it will, if and whenever
reasonably required by the Lessor, if necessary, consent to and become a
party to any reasonable instrument relating to this lease, including the
delivery of statements as to the status of this lease, which may be required
by or on behalf of any purchaser, mortgagee, insurer or other person, firm or
corporation which may have an interest in the demised premises. The Lessee
shall further submit to the Lessor, from time to time, forthwith upon written
request therefor, the last properly audited financial statements of the
Lessee, for the purpose of assisting the Lessor in arranging loans or
mortgages or in connection with any prospective sale of the demised premises.
30. THE LESSEE shall supply the Lessor annually on each
anniversary date of this lease with a series of twelve (12) post-dated
cheques, each in the amount required to cover the monthly payments of rent
and additional rent for each year of the term of this lease. Failure on the
part of the Lessee to supply post-dated cheques as aforesaid within fifteen
(15) days of each anniversary date of this lease shall render the Lessee in
default hereunder and the Lessor may thereupon exercise all of its remedies
available to it hereunder or by law.
<PAGE>
Page 9
31. THE LESSEE hereby acknowledges having inspected the demised
premises and accepts the demised premises in an "as is" condition, it being
acknowledged that the Lessor shall not be required to perform any work or
services whatsoever in preparing the demised premises for the use and
occupation of the Lessee.
32. IF THE LESSEE fails to pay, when the same is due and
payable, any rent or additional rent payable under this lease, such arrears
shall bear interest at the rate of Four (4%) percent per annum above the
prime rate charged from time to time by the Lessor's bank from the date any
such payment is due and until paid to the Lessor, calculated daily and
compounded monthly until all arrears and interest are paid.
33. ALL notices, elections and requests which may be required
to be given by either the Lessor or the Lessee herein shall be in writing and
either served personally or sent by postage prepaid registered mail
addressed, if to the Lessor - ______________________________________________
_______________________________________and if to the Lessee at the demised
premises, or to such other address as the Lessor and the Lessee may from time
to time respectively designate by notice in writing given pursuant to this
paragraph. Any such notice election or request shall, if mailed as aforesaid,
be deemed to have been received on the 3rd business day following the date of
mailing, except in the case of a postal strike, when delivery by personal
service will be required.
34. WHENEVER in this lease reference is made to the demised
premises, it shall include all structures, improvements and erections in and
upon the demised premises or any part thereof from time to time.
35. THIS Indenture and everything herein contained shall be
binding upon and enure to the benefit of the parties hereto, their heirs,
executors, administrators, successors and assigns, subject to the consent of
the Lessor being obtained as hereinbefore provided to any assignment or
sublease by the Lessee.
36. THE words importing the singular number only shall include
the plural and vice versa and words importing the masculine gender shall
include the feminine gender and words importing persons shall include firms
and corporations and vice versa. Unless the context otherwise requires, the
word "Lessor" and the word "Lessee" wherever used herein shall be construed
to include and shall mean the executors, administrators, successors and/or
assigns of the said Lessor and Lessee respectively, and when there are two or
more Lessees bound by the same covenants herein contained, their obligations
shall be joint and several.
37. If two or more individual corporations, partnerships or
other entities sign this Lease as Lessee:
(a) the liability of each such individual, corporation,
partnership or other entity to pay all rents and perform all
other obligations hereunder shall be joint and several; and,
(b) each such individual, corporation, partnership and other
entity hereby agrees with the Lessor that the Lessor may
wholly or partially discharge one or more of them by release
or by accord and satisfaction from its obligations hereunder
and such of them as are not so discharged shall remain as
fully liable for the performance of the obligations of the
Lessee hereunder as if such of them not so discharged were
the only persons originally comprising the Lessee hereunder,
and that the foregoing shall be applicable notwithstanding
any rule or principle of law to the contrary.
38. THE LESSEE if not then in default, shall have the option to
renew the term of this lease for a further period of three (3) months to
November 30, 1998, upon notice in writing at least sixty (60) days prior to
August 31, 1998, upon the same terms and conditions except for any further
right of renewal and except that the annual minimum rent during the renewal
term shall be at the rate of Four ($4.00) Dollars per square foot per annum.
39. NOTWITHSTANDING anything herein contained to the contrary,
the Lessor shall have the right to enter the demised premises upon reasonable
notice during business hours, for the purpose of permitting the Lessor and
its professional consultants to take measurements and make plans for proposed
work and renovations to be performed to the demised premises.
40. IT IS EXPRESSLY agreed that the Lessor shall have the
right, exercisable upon sixty (60) days notice in writing, to occupy the
existing reception area of the demised premises and to provide to the Lessee
a suitable alternative reception area for the remainder of the lease term and
any renewal thereof, in which event appropriate adjustment shall be made to
the rent payable by the Lessee, if applicable.
IN WITNESS WHEREOF the parties hereto have executed these
presents.
<PAGE>
Page 10
SIGNED, SEALED AND DELIVERED )
in the presence of: ) TEL-E CONNECT INVESTMENTS LTD.
)
)
) Per: /s/ President c/s
) ------------------------------
) Name:
) Title:
)
)
) CURTIS INTERNATIONAL LTD.
)
)
) Per: /s/ Jacob Herzog c/s
) -----------------------------
) Name: Jacob Herzog
) Title: Chairman
)
)
<PAGE>
EXHIBIT 23.1
CONSENT OF SCHWARTZ LEVITSKY FELDMAN
The Undersigned, Schwartz Levitsky Feldman, Chartered Accountants hereby
consents to the use of our name and the use of our opinion dated July 31, 1997
for Curtis International Ltd. (the "Company") as filed with its Registration
Statement on Form SB-2 being filed by the Company.
Date: June 9, 1998
Schwartz Levitsky Feldman, Chartered
Accountants
/s/ Schwartz Levitsky Feldman
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