SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
PURSUANT to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
Filing No. 2 for the month of June, 1999
Talisman Enterprises Inc.
--------------------------
(Exact name of Registrant)
2330 Southfield Road, Mississauga, Ontario, Canada L5N 2W8
-------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F
Form 20-F X Form 40-F __
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes __ No X
<PAGE>
TALISMAN ENTERPRISES INC.
On June 2, 1999, the Company filed its Notice of Annual Meeting and
Management Information Circular with the Ontario Securities Commission. The
Notice of Annual Meeting and Management Information Circular are filed as an
exhibit to this Form 6-K.
Exhibit 1. Notice of Annual Meeting and Management Information Circular
Appendix A. Consolidated Financial Statements for the fiscal
year ended December 31, 1998
Exhibit 1 1999 Senior Executive Stock Option Plan
Exhibit 2 1999 Directors Company Stock Plan
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TALISMAN ENTERPRISES INC.
By:/s/James Ogle
Date: June 7, 1999 James Ogle, President
<PAGE>
Exhibit 1. Notice of Annual Meeting and Management Information Circular
Appendix A. Consolidated Financial Statements for the fiscal
year ended December 31, 1998
Exhibit 1 1999 Senior Executive Stock Option Plan
Exhibit 2 1999 Directors Company Stock Plan
<PAGE>
TALISMAN ENTERPRISES INC.
2330 Southfield Road
Unit 3
Mississauga, Ontario
L5N 2W8
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that an annual and special meeting of shareholders
of TALISMAN ENTERPRISES INC. (the "Corporation") will be held at the offices of
Aird & Berlis, Barristers & Solicitors, Suite 1800, BCE Place, Bay Wellington
Tower, Toronto, Ontario M5J 2T9 on Wednesday, June 30, 1999 at the hour of 10:00
a.m. (Toronto time) for the following purposes:
1. to receive the financial statements of the Corporation for the fiscal
year ended December 31, 1998, together with the report of the auditors thereon;
2. to appoint the auditors and to authorize the directors to fix their
remuneration;
3. to elect directors;
4. to consider and, if thought fit, pass, with or without variation, a
resolution (the "Senior Executive Stock Option Plan Resolution") authorizing the
terms of a proposed stock incentive plan for senior executives and employees of
the Corporation;
5. to consider and, if thought fit, pass, with or without variation, a
resolution (the "Directors Stock Compensation Plan Resolution") authorizing the
terms of a proposed stock incentive plan for non-employee directors of the
Corporation; and
6. to transact such further and other business as may properly come before
the said meeting or any adjournment or adjournments thereof.
Particulars of the matters referred to in this Notice are set out in the
attached Management Information Circular.
This Notice is accompanied by a form of Proxy and a Management Information
Circular.
A shareholder wishing to be represented by proxy at the meeting or any
adjournment thereof must deposit his or her duly executed form of proxy with the
Corporation's transfer agent and registrar, Equity Transfer Services Inc., 120
Adelaide Street West, Suite 420, Toronto, Ontario M5H 4C3, on or before the
close of business on the last day preceding the day of the meeting or any
adjournment thereof at which the proxy is to be used, or deliver it to the
Chairman of the meeting on the day of the meeting or any adjournment thereof
prior to the time of voting.
DATED this 20th day of May, 1999.
BY ORDER OF THE BOARD
James A. Ogle,
President
As required by the Business Corporations Act (Ontario), a form of proxy
is enclosed. If you are unable to be present personally at the meeting, you are
requested to complete, sign and return, in the envelope provided for that
purpose, the enclosed form of proxy.
<PAGE>
May 20, 1999
Dear Shareholder:
You are invited to attend Talisman Enterprises Inc.'s 1998 Shareholders'
Meeting which is being held on Wednesday, June 30, 1999 at the offices of Aird &
Berlis, Barristers & Solicitors, BCE Place, Bay Wellington Tower, Suite 1800,
Toronto, Ontario M5J 2T9 at 10:00 a.m. The particulars of the meeting are found
in the accompanying material.
Following is a summary of a number of key developments and activities
involving your company that have occurred since the last Annual Report to the
Shareholders.
In October 1998, Talisman experienced a change in control when "Talisman
Partners", a New York-based investment group owned by certain employees of
Spencer Trask Securities, Inc. ("Spencer Trask") of New York, New York, invested
US $1.6 million, through two separate private placements, in consideration for
503,504 shares of common stock and an equal number of common stock purchase
warrants being issued to Talisman Partners. Among other things, the proceeds of
this financing were used to repay, in full, a senior lender to the Company.
At the time of Talisman Partners' first private placement, Norman R.
Proulx, a Managing Director of Spencer Trask, was made a Director of the
Company. Mr. Proulx later served as interim President and Chief Executive
Officer of Talisman from December 1, 1998 through January 21, 1999. Presently,
Mr. Proulx is Chairman of the Board of Directors.
Effective January 21, 1999, I joined Talisman as President and Chief
Executive Officer.
Christian Bunger was hired as Vice President of Sales, USA. This position
was created to better manage our efforts in the US market where we expect to
obtain 80% of the Company's future customer sales base. Chris concluded a very
successful 32-year sales career with Energizer, USA.
Thomas O'Dowd, who has been our acting Chief Financial Officer for the past
6 months, has now joined Talisman as our full-time Chief Financial Officer. Mr.
O'Dowd brings the added strengths required by the financial reporting standards
of the SEC for publicly traded companies.
Earlier this month, Randy Curtis assumed the dual positions of Vice
President of Sales, Canada and Mexico, and Vice President of Marketing, North
America. Randy was formerly the Vice President-Marketing and Sales for EverReady
Canada, and General Manager of Energizer de Mexico.
<PAGE>
From March to May 1999, Talisman successfully raised US $4.7 million
additional equity, again through the efforts of a Spencer Trask private
placement to "accredited investors" in the United States. The proceeds from this
significant financing have been used to broaden the Company's production
capabilities to include additional cell sizes.
In May 1999, Talisman received approval from the United States Securities
and Exchange Commission (SEC) to have the Company's registration statement, Form
20-F, declared "effective". Talisman management anticipates making an
application to have the Company's common shares eligible for quotation on the
OTC Bulletin Board (or other US-based securities exchange) in the near future.
In May 1999, long-standing litigation in which the Company, one of its
present executives, and a former senior executive were named defendants, was
settled out of court on terms that were very favorable to Talisman.
As you are probably aware, Talisman's business strategy is to penetrate the
undeveloped "private label" category within the alkaline battery market by
offering a high quality, low cost alternative to branded product. Not only are
we fortunate that the total alkaline battery market is growing at an approximate
annual rate of 4-5%, but the private label category within the total alkaline
market is, in our opinion, considerably underdeveloped as compared to other
private label commodities such as disposable cameras, light bulbs, etc.
Management believes such opportunity exists because branded manufacturers
do not want to dilute their sales base and related margins by producing a
competing and uniquely labeled product. The supply to the retailer is further
limited because, generally speaking, alternative vendors use "off shore"
manufacturers that require long lead times and extended cash commitments. With
an expanded supply chain, the retailer also has greater difficulty reacting
quickly to market fluctuations. Given Talisman's ideal location close to the US
border in Southern Ontario, we expect to be able to capitalize on our unique
position which allows Talisman, the only dedicated, full-line private label
disposable alkaline battery manufacturer in North America, to provide minimum
lead times to retailers. Minimum lead times means excellent in-stock positions
for retailers, while minimizing inventory investment.
In order to penetrate our niche market, we have established strategic
marketing and sales plans to accommodate the private label requirements of both
small and large retailers. In conjunction with this effort, we are developing a
broker/representative network that will serve the food, drug and mass
merchandiser retail channels in the United States. Our objective is to become
the dominant provider of private label disposable alkaline batteries.
Talisman currently produces alkaline batteries for the private label
programs of a number of customers throughout North America including Master
Choice (A&P - Canada), Drug Emporium, Discount Drug, and North Carolina Mutual
Drug. We recently obtained program
<PAGE>
commitments from Navarro Pharmacies, Wild Oats, AMCON, QDN, and Genco. The
Company is also in the final stages of launching product offerings for
Blockbuster Video, AWG, and McLane (a division of Wal-Mart).
This past year, the Company's mission was to provide a full line (AA, AAA,
C, D, and 9V) of high quality, low cost alkaline batteries to all retail
channels in North America. While we only manufacture AA cells at this time, we
have developed high-quality vendor sources for the other battery sizes until we
develop additional manufacturing capabilities. To ensure the quality of both our
sourced and manufactured product, we have spent more than CDN $140,000 to
upgrade our Quality Control/Assurance Lab with the latest computerized
electronic testing and lab equipment. To further demonstrate our commitment to
quality, the Company has applied for ISO 9002 Registration of our lab and
manufacturing facilities.
We are expanding our manufacturing base for 1999/2000 with the construction
of a AAA line that will be capable of producing 24 million batteries a year
using two shifts. This line is expected to be completed and operational by
November 1999. The construction of C and D size battery lines are expected to
begin in the fall and operational early next year. When these additional lines
are in full production, there will be a significantly positive impact to the
Company's gross profit margin. In addition, we have leased, on a short-term
basis, an additional 39,400 sq. ft. of manufacturing space adjacent to our
current 21,000 sq. ft. facility that will accommodate our immediate growth
objectives. Also, we are installing an integrated information systems package
this year, that is Y-2K compliant, to support accounting, materials planning,
manufacturing and sales.
As you will agree, 1998 and through the first quarter of fiscal 1999 has
been a very productive period for Talisman. We are confident that the successful
implementation of the Company's various business strategies will optimize
Talisman's position in the marketplace and, with time, enhance Shareholder
value. I look forward to reporting to you on our continued progress.
On behalf of the Board,
JAMES A. OGLE
President and Chief Executive Officer
<PAGE>
TALISMAN ENTERPRISES INC.
MANAGEMENT INFORMATION CIRCULAR
SOLICITATION OF PROXIES
This management information circular (the "Circular") is furnished in
connection with the solicitation of proxies by or on behalf of the management of
Talisman Enterprises Inc. (hereinafter referred to as the "Corporation" or
"Talisman") to be used at the annual and a special meeting (the "Meeting") of
the shareholders of the Corporation to be held at the offices of Aird & Berlis,
Barristers & Solicitors, Suite 1800, BCE Place, Bay Wellington Tower, Toronto,
Ontario M5J 2T9 on Wednesday, June 30, 1999 at the hour of 10:00 a.m. (Toronto
time) and at any adjournment or adjournments thereof for the purposes set forth
in the notice of meeting. It is expected that such solicitation will be
primarily by mail. Proxies may also be solicited by the directors or officers of
the Corporation at nominal cost. The cost of solicitation by or on behalf of the
management will be borne by the Corporation. All information set forth herein is
as at May 20, 1999.
APPOINTMENT, REVOCATION AND DEPOSIT OF PROXIES
The persons named in the enclosed form of proxy are officers and/or
directors or nominees of management of the Corporation. A SHAREHOLDER HAS THE
RIGHT TO APPOINT ANY OTHER PERSON TO REPRESENT HIM OR HER AT THE MEETING AND MAY
DO SO BY INSERTING IN THE BLANK SPACE PROVIDED IN THE FORM OF PROXY THE NAME OF
THE PERSON, WHO NEED NOT BE A SHAREHOLDER, WHO HE OR SHE WISHES TO APPOINT, OR
BY COMPLETING ANOTHER FORM OF PROXY AND IN EITHER CASE, DELIVERING THE COMPLETED
PROXY TO THE SECRETARY OF THE CORPORATION.
A shareholder executing the enclosed form of proxy has the power to revoke
it at any time before it is exercised. Section 110(4) of the Business
Corporations Act (Ontario) sets out a procedure for revoking proxies by the
deposit of an instrument in writing at the registered office of the Corporation
at any time up to and including the last business day preceding the day of the
Meeting or with the Chairman of such meeting on the day of the Meeting or any
adjournment thereof or in any other manner permitted by law.
MANNER OF VOTING AND EXERCISE OF DISCRETION BY PROXIES
On any ballot that may be called for with respect to the matters described
in the Notice of the Meeting, the shares represented by each properly executed
proxy appointing one of the persons named by management in the accompanying form
of proxy will be voted in the election of directors, in the appointment of
auditors and the authorization of the directors to fix the auditors'
remuneration and for the approval of the two items of special business described
in this Circular unless the specifications in the proxy direct the shares to be
withheld from voting.
The form of proxy confers discretionary authority in respect of amendments
or variations to matters identified in the Notice of Meeting and other matters
which may properly come before the Meeting.
All numbers in this Circular reflect a 1-for-25 reverse split of the
Corporation's outstanding common shares effective as of January 27, 1999.
<PAGE>
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VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
On May 20, 1999 the Corporation had outstanding 1,030,330 common shares.
Each common share carries the right to one vote. In accordance with National
Policy Statement No. 41 of the Canadian Securities Administrators, the
Corporation has fixed the close of business on May 14, 1999 as the record date
for the purpose of determining shareholders entitled to receive notice of the
Meeting. All shareholders of record as at the close of business on the record
date will be entitled to vote at the Meeting except to the extent that any such
shareholder has since the record date transferred any of his shares. In such
case, a transferee of those shares may produce properly endorsed share
certificates, or otherwise establish that he or she owns the shares and provided
that he or she has demanded no later than 10 days before the Meeting that the
Corporation recognize the transferee as the person entitled to vote the
transferred shares, such transferee will be entitled to vote his or her shares
at the Meeting.
To the knowledge of management, the only person or company that
beneficially owns, directly or indirectly, or exercises control or direction
over, voting securities carrying more than 5 per cent of the voting rights
attaching to the common shares of the Corporation is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Designation of class Number of Shares Owned Percentage of Class
Kevin Kimberlin Common 413,208 1 40.10%
New York, New York
</TABLE>
1 Mr. Kimberlin's shares are held indirectly through Kevin Kimberlin Partners LP
and Spencer Trask Securities, Inc.
ELECTION OF DIRECTORS
The number of directors on the board of directors of the Corporation (the
"Board") to be elected is 6. It is intended that each person whose name appears
below will be nominated at the Meeting for election as a director of the
Corporation to serve until the next meeting of shareholders or until a successor
is elected or appointed. In the event that prior to the Meeting any vacancies
occur in the slate of nominees appearing below, it is intended that
discretionary authority shall be granted to vote proxies solicited by or on
behalf of management for the election of any person or persons as directors.
The following table and the notes thereto state the names of all persons
proposed to be nominated by management for election as directors, their
principal occupations and the number of shares of the Corporation beneficially
owned, directly or indirectly, by each of them as of May 20, 1999.
<PAGE>
- 3 -
<TABLE>
<CAPTION>
Name and Position Held Date became a Common Shares Held
Occupation Director
<S> <C> <C>
Norman R. Proulx Chairman of the July 30, 1998 35,613
New York, New York Board of Directors
James A. Ogle President, CEO & January 21, 1999 Nil
Burlington, Ontario Director
James C. McGavin Director September 26, 1997 5,000
Burlington, Ontario
D. Graham Avery Director September 26, 1997 Nil
Palgrave, Ontario
Donald L. Matheson Director September 26, 1997 Nil
Etobicoke, Ontario
Thomas A. Fenton Director September 26, 1997 46
Mississauga, Ontario
</TABLE>
Norman R. Proulx, B.S., 51, is the Chairman of the Board of Talisman and has
been since January 21, 1999. Mr. Proulx was first appointed a director of the
Company in July 1998. From December 1, 1998 through January 21, 1999, Mr. Proulx
also served as the interim President and CEO of the Company. Since March 1998,
Mr. Proulx has been a managing director of Spencer Trask Securities,
Incorporated, a New York based venture capital investment firm that provides
financial and operational support to start-up and early-stage companies. In such
position, Mr. Proulx concentrates his efforts on consumer products and
retailing. In 1997, Mr. Proulx was a managing director of the Cortec Group
("Cortec"), a private New York equity investment firm which makes controlling
investments in middle-market manufacturing and distribution businesses. In
connection with same, Mr. Proulx was responsible for overseeing Cortec's
investment in Gemeinhardt, Inc., a US based company which is a market leader in
the manufacture and distribution of flutes and piccolos. Mr. Proulx was also
responsible for overseeing Cortec's investment in Manco Products, Inc., a US
based company which is a leading designer and manufacturer of fun karts. From
1990 to 1996, Mr. Proulx was President and CEO of Seymour Housewares Corporation
of Seymour, Indiana, a leading manufacturer of ironing boards. Prior thereto,
Mr. Proulx was, from 1984 to 1990, the President, North America of Wilkinson
Sword Limited. Prior thereto, Mr. Proulx held different positions from 1969 to
1984 with Scripto/Wilkinson Sword and The Gillette Company. Mr. Proulx obtained
his Bachelor of Science, Business Administration degree from Boston College in
1969.
James A. Ogle, MBA, 54, is the President, CEO and a director of the Company and
has been since January 21, 1999. Prior thereto, from January 1998 to January
1999, Mr. Ogle was Vice President of Operations for U.S. Industries, Inc., Elger
Plumbingware/U.S. Brass Division, a leading manufacturer of bath and kitchen
china and cast iron fixtures. From 1992 to 1997, Mr. Ogle was Senior Vice
President, Operations, for Tyco Toys, Inc., a leading international toy
manufacturer and distributor. From 1989 to 1992, Mr. Ogle was Vice President,
Operations for Wilkinson Sword, Inc., an international producer of shaving
products and disposable lighters. From 1978 to 1989, Mr. Ogle held various
positions with Bic Pen Corporation, a leading producer of disposable pens,
razors and disposable lighters. Prior thereto, Mr. Ogle held various positions
with General Motors Corporation.
<PAGE>
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James C. McGavin, C.A., 56, is the President and a major shareholder of
Burlington Stamping Inc. ("BSI") of Burlington, Ontario and has been since
December 1981. BSI manufacturers small deep drawn shells and stampings
principally sourcing the alkaline, rechargeable, military and OEM battery cell
markets. Prior to founding BSI, Mr. McGavin was a Partner in the public
accounting firm Ward Mallette (now BDO Dunwoody Ward Mallette) for approximately
10 years. Mr. McGavin obtained his Chartered Accountant designation in 1970.
D. Graham Avery, M.B.A., 51, is President of Anderson Advertising and has been
since September, 1996. Prior thereto, Mr. Avery was, from November 1995 to
September 1996, Vice President, Group Account Director of Anderson Advertising.
Prior thereto, Mr. Avery was, from May 1995 to November 1995, President of Avery
& Associates Limited. Prior thereto, Mr. Avery was, from November 1992 to May
1995, Director of Client Services at Bozell Palmer Bonner, a Toronto based
advertising agency. Prior thereto, Mr. Avery held various positions in Marketing
with Colgate-Palmolive Limited, Beecham Canada Limited and Pepsi-Cola Canada
Limited.
Donald L. Matheson, B.A., 48, is the President of Imark Corporation (a Toronto
Stock Exchange listed company) and has been since August 1997. Prior thereto,
Mr. Matheson was, from December 1994 to July 1997, Vice President Finance and
Chief Financial Officer of Durkin Hayes Publishing Ltd. Prior thereto, Mr.
Matheson was, from January 1992 to December 1994, the Director of Finance for a
heating and air-conditioning business operated through Clare Brothers of
Cambridge, Ontario. Mr. Matheson is also an officer and director of Animazing
Entertainment Inc., a children's entertainment company.
Thomas A. Fenton, 38, is a partner in the Toronto based law firm of Aird &
Berlis and has been since June, 1997. Prior thereto, Mr. Fenton was a partner in
another Toronto based law firm and prior thereto, an associate with such firm.
The information in respect of shareholdings has been provided by each of
the nominees respectively.
The Audit Committee currently consists of Donald L. Matheson (Chairman),
James C. McGavin and Thomas A. Fenton, all of whom are currently directors of
the Corporation.
The Corporation has no Executive Committee of its Board.
EXECUTIVE COMPENSATION
The Corporation currently has only one officer who qualifies as a "Named
Executive Officer" as defined in prevailing securities regulation. The following
summary table, prepared in accordance with securities regulations, sets forth
all annual and long term compensation provided by the Corporation and its
affiliates for the fiscal years ended December 31, 1998, 1997 and 1996. No other
persons earned in excess of $100,000 for the time periods indicated. Unless
otherwise stated, all dollar amounts stated in this Circular are expressed in
Canadian dollars.
<PAGE>
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<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
All Other Compensation
Name and Principal Position Year Salary Bonus Compensation Awards/Options
<S> <C> <C> <C> <C> <C> <C>
David R. Guy, President (1) 1998 104,000 Nil 9,351 (2) Nil
1997 33,333 Nil 2,245 (2) 20,000 (3)
1996 Nil Nil Nil Nil
Norman R. Proulx, Interim 1998 Nil Nil Nil Nil
President (4) 1997 Nil Nil Nil Nil
1996 Nil Nil Nil Nil
James W. Gemmell, President (5) 1998 13,000(6) Nil Nil Nil
1997 Nil Nil 100 (7) Nil
</TABLE>
Mr. Guy became the President, CEO and a director of the Corporation on
September 26, 1997. Effective December 1, 1998, Mr. Guy ceased to be the
President, CEO and director of the Corporation. The amounts indicated above for
Mr. Guy in 1997 are for the period September 26, 1997 to December 31, 1997. All
payments made to Mr. Guy were on account of consulting fees. Paid on account of
car allowance and other normal course benefits. Mr. Guy holds warrants to
acquire 20,000 common shares at an exercise price of $16.25 per share
exercisable until August 15, 2000. Mr. Proulx, now the Chairman of the Board of
Directors of the Corporation, served as the interim President and CEO of the
Corporation from December 1, 1998 to January 21, 1999. On January 21, 1999,
James A. Ogle succeeded Mr. Proulx as the Corporation's President and CEO. Mr.
Gemmell resigned as the President and a director of the Corporation on September
26, 1997 effective with the appointment of Mr. Guy as President and a director
of the Corporation. Received on account of management and consulting services
rendered to the Corporation. Received on account of director's fees.
OPTIONS
The following table summarizes the grants of options to purchase or acquire
securities of the Corporation or any of its subsidiaries made during the
financial year ended December 31, 1998 to the Named Executive Officer:
<TABLE>
<CAPTION>
Market Value of
Securities
Underlying
Securities % of Total Exercise Options/SARS
Under Options/SARS or Base on
Options/SARS Granted in Price the date of Grant Expiration
Name Granted Financial Year ($/Security) ($/Security) Date
(#)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David R. Guy Nil - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Norman R. Proulx Nil - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- 6 -
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FINANCIAL YEAR-END
OPTION VALUES
The following table discloses information concerning the exercise of
options during the financial year ended December 31, 1998 and value at December
31, 1998 of unexercised in-the-money options held by the President and Chief
Executive Officer. No Stock Appreciation Rights ("SAR's") are outstanding:
<TABLE>
<CAPTION>
Value of
Unexercised in-the-
money
Unexercised Options/SARs at
Options/SARs at FY-End (3)
Securities FY-End ($)
Acquired Aggregate Value
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David R. Guy (1) Nil Nil 20,000/Nil Nil/Nil
- ------------------------------------------------------------------------------------------------------------------------------
Norman R. Proulx (2) Nil Nil Nil/Nil Nil/Nil
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) David R. Guy ceased to be the President and CEO of the Corporation on
December 1, 1998.
(2) Norman R. Proulx served as the Corporation's interim President and
Chief Executive Officer from December 1, 1998 to January 21, 1999.
The closing price of the Corporation's shares on December 31, 1998 was
$6.50.
Compensation to Directors
During the fiscal year ended December 31, 1998, the directors received no
fees for meetings of the Board or a committee of the Board which they attended
nor for the signing of any resolution of directors or documents on behalf of the
Corporation.
No officer or director of the Corporation is indebted to the Corporation.
In addition, no benefits were paid, and no benefits are proposed to be paid to
any of the directors and officers of the Corporation under any pension or
retirement plan.
Stock Option Plan
On June 18, 1997, the shareholders of the Corporation approved the
establishment of a stock option plan (the "Plan") as an incentive for directors,
officers and key employees and other persons who provide ongoing services to the
Corporation and its subsidiaries whereby non-assignable options may be granted
by the board of directors of the Corporation enabling directors, officers, key
employees and other persons who provide ongoing services to the Corporation to
purchase shares of any class, type or series authorized by the Corporation for a
term not exceeding five (5) years (subject to earlier termination of the
optionee's employment, upon the optionee ceasing to be a director, officer or
other service provider, as applicable, or upon the optionee retiring, becoming
disabled or dying) at an exercise price not less than the market price for
common shares of the Corporation on the date of grant. The granting of options
is subject to the further conditions under the Plan that: (i) not more than 10%
of the number of shares issued and outstanding from
<PAGE>
- 7 -
time to time (the "Outstanding Issue") may be reserved for the granting of
options to insiders at any time or to insiders in any one-year period; (ii) that
no more than 5% of the Outstanding Issue may be issued to any one insider of the
Corporation in a one-year period, and (iii) the maximum number of common shares
issuable under the Plan is 31,200 shares. The options are non-transferrable,
except pursuant to the laws of descent and distribution.
For the fiscal year ended December 31, 1998, there were no options
exercised to acquire common shares under the Plan. As at December 31, 1998,
options were outstanding to acquire 10,760 common shares under the Plan, at
exercise prices ranging between $16.25 and $31.25.
INDEBTEDNESS OF DIRECTORS AND OFFICERS OTHER
THAN UNDER SECURITIES PURCHASE PROGRAMS
During the fiscal year ended December 31, 1998 and for the period January
1, 1999 to May 20, 1999, none of the Corporation's directors or employees was
indebted to the Corporation except as described below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Name and Principal Involvement of Issuer Largest Amount Amount Outstanding
Position Outstanding during as of May 20, 1999
Fiscal 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
David R. Guy (1) Lender $185,000 Nil
President & CEO
Mississauga, Ontario
- ----------------------------------------------------------------------------------------------------------------------------
James A. Ogle (2) Lender Nil $20,864.58
President & CEO
Mississauga, Ontario
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pursuant to a settlement agreement, David R. Guy ceased to be the
Corporation's President, CEO and a director effective December 1, 1999. In
connection with such settlement agreement, Mr. Guy's indebtedness to the
Corporation was repaid. James A. Ogle became the Corporation's President & CEO
on January 21, 1999. On May 14, 1999, the Corporation advanced Mr. Ogle
$20,864.58 to assist in the purchase of his personal residence. The advance,
which is currently interest free, is due to be repaid on or before June 30,
1999. If such advance is not repaid by such date, it will accrue interest at a
rate of 6.5% per annum.
SPECIAL BUSINESS
At the Meeting, the shareholders of the Corporation will be asked to
approve two stock compensation plans - one for its senior executive officers and
employees and one for its non-employee directors. The details with respect to
such plans are set out below.
1999 Senior Executive Stock Option Plan
At the Meeting, the shareholders of the Corporation will be asked to pass a
resolution (the "Senior Executive Stock Option Plan Resolution") authorizing the
terms of a proposed stock incentive plan for the Corporation's senior executives
and employees (the "1999 Senior Executive Stock Option Plan").
<PAGE>
- 8 -
The 1999 Senior Executive Stock Option Plan, a copy of the full text of
which is attached as Exhibit 1 to this Circular, is intended to act as an
incentive to selected senior executives and employees of Talisman and any of its
subsidiary companies by enabling such individuals to acquire a proprietary
interest in the Corporation and thereby to increase their efforts on behalf of
the Corporation and to promote the success of the Corporation's business. The
maximum number of shares that may be granted under the Plan shall, initially,
not exceed 225,000. Under the terms of the Plan, options are non-transferrable,
except pursuant to the laws of descent and distribution.
Any options granted under the 1999 Senior Executive Stock Option Plan will
be subject to certain vesting and other requirements contained in the Plan.
Specifically, any options granted under the Plan will vest (and therefore become
exercisable): (i) with respect to one-third of all options granted, in sixty
(60) equal monthly installments (the "Time Vested Options"), (ii) with respect
to one-third of all options granted, upon the attainment of prescribed annual
performance targets over a five (5) year period as established by the Board of
Directors for the optionee(s) in question (the "Annual Target Options") and,
(iii) with respect to the remaining one-third of all options granted, only in
the event of an "Investor Sale" (as such term is defined in the Plan) (the
"Investor Sale Options").
The 1999 Senior Executive Stock Option Plan will be administered by a
committee (the "Committee") of the Board of Directors which shall consist of, at
least, two (2) members who are non-employee directors and thereby not entitled
to participate under the Plan.
The Committee shall have all powers necessary to administer the Plan
including, without limitation, the authority to grant options, to determine the
type and number of options to be granted, the number of shares of common stock
to which an option may relate and the exercise price, terms and conditions and
restrictions relating to any option.
Eligible participants under the 1999 Senior Executive Stock Option Plan
shall not be entitled to participate in any other share compensation arrangement
or other plan established by the Corporation.
Senior Executive Stock Option Plan Resolution
The Senior Executive Stock Option Plan Resolution is an ordinary
resolution. As such, it must be approved by the affirmative vote of a majority
of the votes cast at the Meeting, other than votes attaching to shares
beneficially owned by insiders to whom shares may be issued pursuant to such
Plan, or their associates. Accordingly, such insiders and their associates will
be required to abstain from voting in favour of the Senior Executive Stock
Option Plan Resolution. As of the date of this Circular, two senior officers and
employees of the Corporation have been granted options under the Plan in
connection with employment agreements entered into between the Corporation and
such individuals. Specifically, James A. Ogle (President and Chief Executive
Officer) and Garry J. Syme (Senior Vice President, Manufacturing) have been
granted, subject to shareholder ratification, 82,955 options and 33,182 options
respectively under the Plan. Accordingly, neither Mr. Ogle nor Mr. Syme will be
permitted to vote any shares beneficially owned by them, or their associates, in
favour of the approval of such Plan. As of the date of this Circular, neither
Mr. Ogle nor his associates own any shares of Talisman.
The text of such resolution reads as follows:
<PAGE>
- 9 -
"BE IT RESOLVED AS A ORDINARY RESOLUTION THAT:
The 1999 Senior Executive Stock Option Plan described within, and attached
as an exhibit to the Corporation's Proxy Circular dated May 20, 1999, be and
hereby is approved;
The Board of Directors of the Corporation be and the same is hereby
authorized to administer the 1999 Senior Executive Stock Option Plan in
accordance with the terms of such Plan."
1999 Directors Stock Compensation Plan
At the Meeting, the shareholders of the Corporation will also be asked to
pass a resolution (the "Directors Stock Compensation Plan Resolution")
authorizing the terms of a proposed stock incentive plan for non-employee
directors of the Corporation (the "1999 Directors Company Stock Plan").
The 1999 Directors Company Stock Plan, a copy of the full text of which is
attached as Exhibit 2 to this Circular, is intended to provide a compensation
program for non-employee directors of Talisman (currently five (5) in number)
that will allow the Corporation to attract and retain highly qualified
individuals to serve as non-employee members of the Corporation's Board of
Directors. The maximum number of shares that may be granted under the Plan
shall, initially, not exceed 100,000. Under the terms of the Plan, options are
non-transferrable, except pursuant to the laws of descent and distribution.
Under the 1999 Directors Stock Compensation Plan, each non-employee
director of Talisman who serves as such on the day the Plan is ratified by
shareholders of the Corporation (expected to occur on or about June 30, 1999)
will earn the right to receive, subject to certain conditions, 15,230 common
shares of the Corporation for no consideration. For each director, 3,046 of such
shares will be received upon shareholder ratification of the Plan while
additional installments of 3,046 shares will be granted to each non-employee
director upon the first, second, third and fourth anniversary dates of the date
of initial shareholder ratification. In order to earn the right to receive
subsequent installment grants on the aforesaid anniversary dates, each director
recipient must have continuously served as a director for the year ending on
such anniversary.
As of the date of this Circular, the candidates for participation under the
Plan are Norman R. Proulx, James C. McGavin, D. Graham Avery, Donald L. Matheson
and Thomas A. Fenton.
The 1999 Directors Company Stock Plan shall be administered by a committee
(the "Committee") of the Board of Directors which shall consist of, at least,
three (3) members, one of which shall be the President and Chief Executive
Officer of the Corporation. The Committee shall have responsibility for
interpreting the Plan and taking all other action necessary for the
administration of the Plan.
Eligible participants under the 1999 Directors Company Stock Plan shall not
be entitled to participate in any other share compensation arrangement or plan
established by the Corporation.
Directors Stock Compensation Plan Resolution
The Directors Stock Compensation Plan Resolution is an ordinary resolution.
As such, it must be approved by the affirmative vote of the majority of the
votes cast at the Meeting, other than votes attaching to shares beneficially
owned by insiders to whom shares may be issued pursuant to such Plan, or their
associates.
<PAGE>
- 10 -
Accordingly, Messrs. Proulx, McGavin and Fenton shall not be permitted to
vote any shares beneficially owned by them, or their affiliates, in favour of
the approval of such Plan. As of the date of this Circular, neither Mr. Matheson
nor Mr. Avery, or any of their associates, own any shares of the Corporation.
The text of such resolution reads as follows:
"BE IT RESOLVED AS A ORDINARY RESOLUTION THAT:
The 1999 Directors Stock Company Plan described within, and attached as an
exhibit to the Corporation's Proxy Circular dated May 20, 1999, be and hereby is
approved;
The Board of Directors of the Corporation be and the same is hereby
authorized to administer the 1999 Directors Stock Company Plan in accordance
with the terms of such Plan.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
On March 19, 1999 and April 16, 1999, the Corporation completed two private
placements to "accredited investors" in the United States (as such term is
defined in Regulation "D" under the Securities Act of 1934). In both private
placements, Spencer Trask Securities, Incorporated ("Spencer Trask") acted as
the exclusive placement agent. More specifically, on March 19, 1999, the
Corporation completed the sale of US$2,695,845 of units (the "Units"). Each Unit
consisted of an 8% subordinated promissory note (the "Notes") in the principal
amount of US$100,000 and 20,000 Class "A" common share purchase warrants (the
"Warrants") to purchase shares of common stock. The Notes will be automatically
convertible into common shares of the Corporation at an initial conversion rate
of one common share for each US$5.00 in Notes outstanding upon the Corporation's
common stock being listed on the OTC Bulletin Board (or any other U.S. based
securities exchange). On April 16, 1999, the Corporation completed the sale of
an additional US$2,052,138 of Units.
In connection with such private placements, the Corporation paid Spencer
Trask and its selected dealers (on account of a 10% placement fee and 3%
non-accountable expense allowance) US$617,232.55. In addition, Spencer Trask was
issued an option to acquire 9.3 additional Units at an exercise price of
US$122,400 per Unit. Furthermore, Spencer Trask was paid an investment banking
fee of US$125,000 in connection with ongoing consulting and advisory services to
be provided to Talisman. Norman R. Proulx, the Chairman of the Board of
Directors and past interim President and Chief Executive Officer of the
Corporation, is a managing director of Spencer Trask and, as such, has received
commission fees and other compensation from Spencer Trask in connection with
such offerings.
James C. McGavin, a director of the Corporation is the President and a
major shareholder of Burlington Stamping Inc., a supplier to the Corporation of
all of the Corporation's battery cans. In 1998, purchases by the Corporation
from BSI amounted to $50,790 (1997 -$108,836). Mr. McGavin also received a car
allowance of $6,480 (1997 -$4,320).
For the fiscal year ended December 31, 1998, fees for legal services of
$66,425 (1997 - $45,695) were paid and continue to be paid to a law firm in
which Thomas A. Fenton is a partner.
<PAGE>
- 11 -
APPOINTMENT OF AUDITORS
The persons designated in the enclosed form of proxy intend to vote for the
appointment of Ernst & Young, Chartered Accountants, 100 King Street West, 4th
Floor, Hamilton, Ontario L8P 1A2, as auditors of the Corporation and to
authorize the directors to fix the auditors' remuneration. Ernst & Young were
first appointed auditors in September, 1997.
FINANCIAL STATEMENTS AND ANNUAL REPORT
A copy of the financial statements of the Corporation for the fiscal year
ended December 31, 1998 and the auditors report thereon are attached as Appendix
"A" to this Circular.
The 1998 Annual Report will be presented at the Meeting.
REGISTRAR AND TRANSFER AGENT
Equity Transfer Services Inc. of Toronto, Ontario, is the Corporation's
registrar and transfer agent.
GENERAL
Management knows of no other matters to come before the Meeting other than
the matters referred to in the notice of Meeting. However, if any other matters
which are not now known to management should properly come before the Meeting,
the proxy will be voted on such matters in accordance with the best judgment of
the person or persons voting the proxy.
BOARD APPROVAL
The contents and sending of this Circular have been approved by the
directors of the Corporation.
BY ORDER OF THE BOARD
(signed) James A. Ogle, President
Mississauga, Ontario
May 20, 1999
<PAGE>
Appendix A
CONSOLIDATED FINANCIAL STATEMENTS
TALISMAN ENTERPRISES INC.
December 31, 1998 and 1997
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Talisman Enterprises Inc.
We have audited the consolidated balance sheets of Talisman Enterprises
Inc. as at December 31, 1998 and 1997 and the consolidated statements of loss
and deficit and cash flows for the year ended December 31, 1998 and the 7 months
ended December 1997. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1998 and 1997
and the results of its operations and the changes in its financial position for
the year ended December 31, 1998 and the 7 months ended December 31, 1997 in
accordance with accounting principles generally accepted in Canada.
Hamilton, Canada, /s/ ERNST & YOUNG LLP
March 29, 1999. Chartered Accountants
<PAGE>
Talisman Enterprises Inc.
Incorporated under the laws of Ontario
CONSOLIDATED BALANCE SHEETS
[in Canadian dollars]
As at December 31
<TABLE>
<CAPTION>
1998 1997
$ $
ASSETS
Current
<S> <C> <C>
Cash ........................................... 25,561 38,250
Accounts receivable ............................ 553,774 78,720
Inventories [note 3] ........................... 626,252 370,124
Prepaid expenses ............................... 79,513 20,148
Total current assets ........................... 1,285,100 507,242
Capital assets [note 4] ........................ 3,414,591 3,249,988
Other assets [note 5] .......................... 900,000 1,000,000
Goodwill ....................................... 178,000 198,000
5,777,691 4,955,230
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank operating line ............................ 648,406 --
Accounts payable and accrued liabilities ....... 1,385,361 422,815
Note payable [note 6] .......................... -- 114,545
Current portion of long-term debt [note 7] ..... 878,846 99,996
Total current liabilities ...................... 2,912,613 637,356
Long-term debt [note 7] ........................ -- 358,337
Shareholders' equity
Share capital [note 8] ......................... 7,198,369 5,341,321
Contributed surplus ............................ 458,623 --
Deficit ........................................ (4,791,914) (1,381,784)
Total shareholders' equity ..................... 2,865,078 3,959,537
5,777,691 4,955,230
</TABLE>
Commitments and contingencies [note 11]
See accompanying notes
On behalf of the Board:
"James A. Ogle" "Norman R. Proulx"
Director Director
<PAGE>
Talisman Enterprises Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
[in Canadian dollars]
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
<S> <C> <C>
Revenues ....................................... 1,109,736 194,806
Operating expenses [exclusive of
amortization shown separately below] ........ 2,205,447 251,913
Gross profit ................................... (1,095,711) (57,107)
Expenses
Selling, general and administrative ............ 1,685,567 833,593
Amortization ................................... 481,592 33,100
Interest and bank charges [note 7] ............. 147,260 15,674
2,314,419 882,367
Loss for the period ............................ (3,410,130) (939,474)
Deficit, beginning of period ................... (1,381,784) (442,310)
Deficit, end of period ......................... (4,791,914) (1,381,784)
Loss per share ................................. (5.54) (1.98)
</TABLE>
See accompanying notes
<PAGE>
Talisman Enterprises Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[in Canadian dollars]
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
OPERATING ACTIVITIES
<S> <C> <C>
Loss for the period ............................ (3,410,130) (939,474)
Charges to income not affecting cash
Amortization of capital assets .............. 361,592 31,100
Amortization of other assets ................ 100,000 --
Amortization of goodwill .................... 20,000 2,000
Change in non-cash working capital items
Accounts receivable ......................... (475,054) (22,545)
Inventories ................................. (256,128) (293,958)
Prepaid expenses ............................ (59,365) (9,312)
Accounts payable and accrued liabilities .... 962,546 231,113
Cash used in operating activities .............. (2,756,539) (1,001,076)
INVESTING ACTIVITY
Purchase of capital assets ..................... (526,195) 18,586
FINANCING ACTIVITIES
Issuance of long-term debt ..................... 903,846 500,000
Repayment of long-term debt .................... (483,333) (41,667)
Repayment of note payable ...................... -- (85,000)
Reduction in note payable ...................... (114,545) (145,455)
Contribution of capital ........................ 458,623 --
Issue of common shares ......................... 1,857,048 721,140
Bank operating line ............................ 648,406 --
Cash provided by financing activities .......... 3,270,045 949,018
Decrease in cash during the period ............. (12,689) (33,472)
Cash, beginning of period ...................... 38,250 71,722
Cash, end of period ............................ 25,561 38,250
</TABLE>
See accompanying notes
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Talisman Enterprises Inc. is a company incorporated to primarily produce
premium private label alkaline batteries. The company is in the early stages of
its operations and has, therefore, not generated revenues on a consistent basis.
The recoverability of the company's assets is, therefore, dependent on the
continued support of its lenders and shareholders and the generation of
profitable operations.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada and include certain estimates
based on management's judgments. These estimates affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the period. Actual results may differ
from those estimates. The accounting policies followed by the company also
conform in all material respects with accounting principles generally accepted
in the United States except as described in note 15.
Principles of consolidation
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiary, Talisman International Inc.
Inventories
Inventories are valued at the lower of average cost and net realizable
value.
Capital assets
Capital assets are stated at cost. Amortization is provided at rates
designed to write-off the assets over their estimated useful lives at the
following rates:
Production and warehouse equipment 10 years straight-line basis
Dies and molds 5 years straight-line basis
Furniture and fixtures 5 years straight-line basis
Computer equipment 3 years straight-line basis
Leasehold improvements Straight-line basis over the
term of the lease
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
Goodwill
Goodwill is being amortized over a period of 10 years. On an ongoing basis,
management reviews the valuation and amortization of goodwill, taking into
consideration any events or circumstances which might have impaired the carrying
value. The amount of goodwill impairment, if any, is measured on undiscounted
projected future cash flows.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated
using the temporal method, whereby monetary assets are converted into Canadian
dollars at exchange rates in effect at the balance sheet date. Non-monetary
assets are translated at historical rates. Revenue and expenses are translated
at the exchange rate in effect on the date of the transaction except for
amortization which is translated at historical rates. Any gains or losses during
the period have been included in the consolidated statements of loss.
Revenue recognition
Revenue from the sales of products is recognized at the time title
transfers, which is generally when the goods are shipped.
Loss per share
The calculation of loss per common share is based on the reported net loss
divided by the weighted average number of shares outstanding during the period.
The weighted average number of common shares outstanding for the year ended
December 31, 1998 was 615,581 and 474,446 for the 7 months ended December 31,
1997.
Financial instruments
The carrying amount of cash, accounts receivable, inventories, bank
operating line and accounts payable and accrued liabilities are considered to be
representative of their respective fair values.
The company has no derivative financial instruments or any financial
instruments that potentially subject the company to concentrations of credit
risk. The company is exposed to credit risk on the accounts receivable from its
customers. Management has adopted credit policies in an effort to minimize those
risks. The company does not have a significant exposure to any individual
customer or counter-party.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
2. ACQUISITION
On September 26, 1997, Firesand Resources Ltd. ["Firesand"] which was a
public company with a year-end of December 31, trading on the Canadian Dealer
Network, acquired 100% of Talisman International Inc., which was incorporated on
September 26, 1996 and had a year-end of May 31, through the issuance of 478,371
common shares. The transaction was accounted for as a reverse takeover, with the
results of Firesand being included from the date of acquisition. For periods
prior to the date of acquisition, the information presented is that of Talisman
International Inc. The following is a summary of the net assets acquired and
values assigned thereto based on an allocation of the purchase price to
Firesand's assets and liabilities:
$
Working capital 28,057
Goodwill 200,000
Common shares issued (228,057)
Contemporaneously with the transaction, Firesand changed its name to
Talisman Enterprises Inc. ["Talisman"].
3. INVENTORIES
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Raw materials and packaging .................. 373,138 288,915
Finished goods ............................... 253,114 81,209
-------- --------
626,252 370,124
-------- --------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998
Accumulated Net book
Cost amortization value
$ $ $
<S> <C> <C> <C>
Production equipment 3,300,966 351,258 2,949,708
Warehouse equipment 49,846 4,891 44,955
Computer equipment 18,003 6,165 11,838
Dies and molds 39,965 4,543 35,422
Furniture and fixtures 31,615 6,926 24,689
Leasehold improvements 91,399 18,910 72,489
Construction in progress 275,490 -- 275,490
--------- ------- ---------
3,807,284 392,693 3,414,591
--------- ------- ---------
1997
Accumulated Net book
Cost amortization value
$ $ $
Production equipment 3,105,404 27,700 3,077,704
Warehouse equipment 36,564 300 36,264
Computer equipment 14,439 400 14,039
Dies and molds 13,440 200 13,240
Furniture and fixtures 30,541 800 29,741
Leasehold improvements 80,700 1,700 79,000
--------- ------- ---------
3,281,088 31,100 3,249,988
--------- ------- ---------
</TABLE>
Certain of the above production equipment was acquired pursuant to a s.85
rollover. Although the equipment was recorded in the financial statements based
on its fair value, it has no tax basis to the company.
In total, the above capital assets have an estimated tax value at December
31, 1998 of $1,064,000.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
5. OTHER ASSETS
Other assets, consisting of technology and intellectual property, are
recorded at cost. The assets are being amortized to income on an annual basis in
proportion to actual revenues derived from licensing arrangements and revenue on
turn-key production facilities over projected revenues derived from these
sources, or on a straight-line basis over 10 years, whichever is greater.
On an ongoing basis, management reviews the valuation and amortization of
other assets taking into consideration any events or circumstances which might
have impaired the carrying value. The amount of impairment, if any, is measured
based on non-discounted projected future cash flows.
The other assets have a tax basis of $1.
6. NOTE PAYABLE
The non-interest bearing note payable to a shareholder was repaid during
1998.
7. LONG-TERM DEBT AND LINES OF CREDIT
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Demand loan, bearing interest at prime plus 1 1/4%
[8% at December 31, 1998]
with monthly principal repayments of $12,500, maturing
October 23, 2003 725,000 --
Term demand loan, bearing interest at prime plus 1 1/4%
[8% at December 31,
1998] with monthly principal repayments of $8,333, maturing
March 31, 2001, repaid during 1998 -- 458,333
Convertible promissory note [$100,000 U.S.], bearing interest
at 8%, interest and principal on the note shall be paid in
cash on the earlier of [i] one year from the date of issuance
of the note, or [ii] the conversion of the note into securities
of the company 153,846 --
------- --------
878,846 458,333
Less current portion 878,846 99,996
------- --------
Long-term debt -- 358,337
------- --------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
7. LONG-TERM DEBT AND LINES OF CREDIT [continued]
The company has available an operating line of $750,000 [$101,594 was
available at December 31, 1998] which bears interest at prime plus 1 1/4%. In
addition, the company may draw down an additional $1,000,000 term facility, for
the purchase of battery manufacturing equipment up to 75% of cost, payable over
5 years, at prime plus 1 1/4% provided the company has an additional equity
injection of a minimum of $4,500,000. All indebtedness of the company is
collaterialized by the company's assets.
Under the operating line of credit and term loan facility, the company has
undertaken to maintain certain financial covenants. As at December 31, 1998, the
company was not in compliance with certain of the financial covenants and
accordingly, the demand loan has been reflected as a current liability.
Pursuant to a confidential private placement memorandum prepared by the
company dated January 28, 1999, a minimum of 25 units and a maximum of 50 units
may be sold to accredited investors for net proceeds, after deducting agents fee
and placement allowance but before the expenses of the offering, of $2,118,500
U.S. and $4,337,000 U.S. The units will be offered for a period of 90 days,
which period may be extended for up to an additional 90 days. Each unit consists
of an 8% convertible subordinated promissory note in the principal amount of
$100,000 U.S. and 20,000 Class "A" common stock purchase warrants to purchase
common shares of the company until 2004. The notes are convertible into common
shares at a conversion rate of one common share for every $5 U.S. in principal
amount of note, and the warrants are exercisable at a price of $7.50 U.S. per
share, subject to adjustments in certain events. In addition, the notes shall be
automatically converted into common shares of the company upon the company's
common shares becoming traded on the OTC Bulletin Board in the United States or
any other U.S. based securities exchange.
Subsequent to the year-end, the company completed a first closing in which
it sold an aggregate of 26 units for net proceeds of $2,345,384 U.S., after
deducting agents fee and placement allowance [such proceeds being inclusive of
the $100,000 U.S. convertible debenture outstanding at December 31, 1998].
The fair value of the long-term debt has been calculated on the contractual
cash flows of the financial instruments discounted using market rates currently
available to the company. At December 31, 1998, the fair value of the long-term
debt approximated the carrying value. During the year, interest on long-term
debt amounted to $39,200 [$12,200 for the 7 months ended December 31, 1997].
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
8. SHARE CAPITAL
Authorized
Unlimited 6% non-cumulative, non-voting Class "A" special shares,
redeemable at the company's option, with a redemption value of $1,000 each.
Unlimited common shares without nominal par value
Details of shares issued
<TABLE>
<CAPTION>
Number Value
$
<S> <C> <C>
Class "A" special shares ................................. 3,300 3,300,000
--------- ---------
Common shares
Balance May 31, 1997 ..................................... 452,600 1,092,124
Issuance of Firesand shares on the acquisition of Talisman 478,371 228,057
Elimination of prior number of shares of Talisman ........ (478,371) --
Prior common shares of Firesand .......................... 34,970 --
Issued for cash and exercise of warrants ................. 28,386 721,140
--------- ---------
Balance December 31, 1997 ................................ 515,956 2,041,321
Issued for exercise of warrants .......................... 10,893 177,068
Issued for cash, net of expenses ......................... 505,504 1,679,980
--------- ---------
Balance December 31, 1998 ................................ 1,032,353 3,898,369
--------- ---------
Class "A" special shares ................................. 3,300,000 3,300,000
Common shares ............................................ 3,898,369 2,041,321
--------- ---------
Total share capital ...................................... 7,198,369 5,341,321
--------- ---------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
8. SHARE CAPITAL [continued]
On January 27, 1999, the company implemented a consolidation of the
outstanding common shares on the basis of exchanging 1 new common share for each
25 common shares previously held.
Reverse takeover accounting requires that the amount shown as the issued
capital in the consolidated balance sheet be calculated by adding to the issued
capital of the legal subsidiary company, Talisman International Inc., the amount
of the cost of the purchase. However, the number of common shares reflect that
of the legal parent company, Talisman Enterprises Inc.
During 1998, shareholders transferred 45,000 common shares to individuals
in exchange for machinery and professional services [in connection with the
issuance of shares], the value of which [$458,623] was contributed to capital.
The company has in place a stock option plan [the "Stock Option Plan"] as
an incentive for directors, officers and key employees and other persons who
provide ongoing services to the company and its subsidiaries. Under the Stock
Option Plan, non-assignable options may be granted by the board of directors of
the company, to directors, officers, key employees and other persons who provide
ongoing services to the company to purchase common shares of the company for a
term not exceeding 5 years [subject to earlier termination of the optionee's
employment, upon the optionee ceasing to be a director, officer of other service
provider, as applicable, or upon the optionee retiring, becoming disabled or
dying] at an exercise price not less than the market price for common shares of
the company. The granting of options is subject to the further conditions under
the Stock Option Plan that: [i] not more than 10% of the number of shares issued
and outstanding from time to time [the "Outstanding Issue"] may be reserved for
the granting of options to insiders at any time or to insiders in any one-year
period; [ii] that no more than 5% of the outstanding issue may be issued to any
one insider of the company in a one-year period; and, [iii] the maximum number
of common shares issuable under the Stock Option Plan is 31,200 shares. The
options are non-transferrable.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
8. SHARE CAPITAL [continued]
In connection with the private placements during the year, the company
granted warrants of 263,504 and 240,000 to acquire common shares of the company.
In connection with its financing activities, the company issued warrants to
acquire a total of 114,502 common shares of the company.
The company options and warrants to acquire common shares at various
exercise prices are summarized below:
<TABLE>
<CAPTION>
Exercise Expiration
Number price date
$
<S> <C> <C> <C>
Options 10,000 16.25 Nov. 13, 2001
760 31.25 Nov. 13, 2001
Warrants 4,600 62.50 Sept. 15, 1999
2,000 12.50 Apr. 15, 2000
2,000 20.00 Apr. 15, 2000
93,902 16.25 Aug. 15, 2000
12,000 12.50 June 7, 2001
263,504 7.50 July 31, 2001
240,000 5.00 Oct. 14, 2001
-------
Total options and warrants 628,766
-------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
9. SHAREHOLDERS RIGHTS PLAN
On September 26, 1997, the shareholders approved a shareholders rights
protection plan [the "Plan"]. The Plan applies to all common shares and all
future issues of common shares. The term of the Plan is for 5 years, subject to
reconfirmation by the shareholders at the first annual meeting of shareholders
called after September 26, 2000. The Plan is intended to ensure that, in the
event of a bid which could affect control of the company, holders of common
shares will receive full and fair value for their shares and that there will be
sufficient time for the fairness of the bid to be properly assessed, to
negotiate with the bidder and to explore, develop and evaluate alternatives to
maximize shareholder value.
Under the terms of the Plan, one Right has been granted for each common
share. Each Right entitles the registered holder to purchase additional shares
of common stock for $1,500 but is not exercisable until certain events occur. If
a person or group wishes to acquire 20% or more of the company's common shares
[an "acquiring person"], the Plan effectively requires the acquiring person to
[i] negotiate terms which the Directors approve as being fair to the
shareholders or, alternatively, [ii] without Board approval, make a "permitted
bid" which must contain certain provisions and which must be accepted by more
than 50% of the common shares not held by the acquiring person.
In the event that an acquiring person acquires 20% or more of the company's
voting shares other than as described in [i] and [ii] above, then the Rights
become exercisable and will automatically change to allow all holders except the
acquiring person to purchase, upon payment of exercise price, shares of common
stock with a total market value of two times the exercise price [ie. at a 50%
discount from the then current market price of the common stock].
10. INCOME TAXES
The operating company has a tax year-end of May 31st which differs from its
reporting year of December 31st. As at May 31, 1998, the company has available
non-capital loss carryovers of approximately $2,285,000 available to offset
future taxable income. These non-capital loss carryovers expire as follows:
$
May 31, 2004 522,000
May 31, 2005 1,733,000
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
11. COMMITMENTS AND CONTINGENCIES
The minimum lease payments for building and equipment leases over the next
5 years are as follows:
$
1999 134,603
2000 128,542
2001 111,815
2002 53,837
2003 --
-------
428,797
-------
In the ordinary course of business activities, the company may be
contingently liable for litigation and claims with third parties. Management
believes that adequate provisions have been recorded in the accounts where
required. Although it is not possible to estimate the potential costs and
losses, if any, management believes that the ultimate resolution of such
contingencies will not have a material adverse effect on the consolidated
financial statements or financial position of the company.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
12. SEGMENTED INFORMATION
In addition to the production of batteries, the company has the capacity of
designing "turn-key" battery manufacturing systems for customers in developing
countries. The company's turn-key business has, to date, incurred minimal
expenses and generated nominal revenues.
The geographic sources of the company's revenues is as follows:
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
<S> <C> <C>
Canada 255,239 187,014
United States 854,497 7,792
--------- -------
1,109,736 194,806
--------- -------
</TABLE>
13. RELATED PARTY TRANSACTIONS
During the year, the company had $185,000 of loans due from a former senior
executive officer bearing interest at 8% per annum. The amount was repaid by
December 31, 1998.
14. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information using
Year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
effect the company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 issue affecting the
company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada [Canadian GAAP] which conform
in all material respects with accounting principles generally accepted in the
United States [U.S. GAAP] except as set forth below:
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
Income adjustments
Loss for the period in accordance
<S> <C> <C>
with Canadian GAAP ....................... (3,410,130) (939,474)
Amortization of goodwill and other assets [1] 120,000 2,000
Additional amortization of assets [3] ....... (89,540) (7,500)
Income tax provision [2] .................... 6,800 51,700
----------- ---------
Loss for the period in accordance with
U.S. GAAP ................................ (3,372,870) (893,274)
----------- ---------
Loss per share in accordance
with U.S. GAAP ........................... (5.48) (1.88)
----------- ---------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
Balance sheet adjustments
<S> <C> <C>
Total assets under Canadian GAAP ........... 5,777,691 4,955,230
Adjustment to assets [3] ................... 798,360 887,900
Elimination of goodwill and other assets [1] (1,081,620) (1,198,000)
----------- -----------
Total assets under U.S. GAAP ............... 5,494,431 4,645,130
----------- -----------
Total liabilities under Canadian GAAP ...... 2,912,613 995,693
Deferred income tax liability [2 and 3] .... 837,000 843,800
----------- -----------
Total liabilities under U.S. GAAP .......... 3,749,613 1,839,493
----------- -----------
Shareholders' equity under
Canadian GAAP ........................... 2,865,078 3,959,537
Adjustment to assets ....................... 798,360 887,900
Elimination of goodwill and other assets ... (1,081,620) (1,198,000)
Deferred income tax ........................ (837,000) (843,800)
----------- -----------
Shareholders' equity under U.S. GAAP ....... 1,744,818 2,805,637
----------- -----------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
Statements of cash flow adjustments
<S> <C> <C>
Investing activities under Canadian GAAP (526,195) 18,586
Reduction of capital asset purchases
to eliminate contributions of capital 100,750 --
--------- --------
Investing activities under U.S. GAAP ... (425,445) 18,586
--------- --------
Financing activities under
Canadian GAAP ....................... 3,270,045 949,018
To eliminate contribution of capital ... (458,623) --
To reflect contribution by shareholders
of professional services as issuance
of common shares .................... 357,873 --
--------- --------
Financing activities under U.S. GAAP 3,169,295 949,018
--------- --------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
(1) Under Canadian GAAP, the acquisition of Talisman International Inc.
gave rise to $200,000 of goodwill. Under U.S. GAAP, no goodwill would have been
recorded.
In addition, under U.S. GAAP, no value would have been ascribed to the
other assets on the tax free rollover as the transferor is a substantial
shareholder of the company and the transferor's historical cost basis of the
asset was nil. These transactions would be treated as a dividend under U.S.
GAAP.
(2) The company follows the deferral method of income tax allocation. Under
U.S. GAAP, the company is required to use the liability method. Under the
liability method, deferred income taxes are recognized for the future income tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis.
The tax effects of significant temporary differences are as follows:
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31,
1998 1997
$ $
Deferred tax assets
Income tax losses available for
<S> <C> <C>
carryforward ............. 1,643,400 570,300
Share issue costs ............ 293,000 45,900
--------- ---------
1,936,400 616,200
Less valuation allowance ..... 1,936,400 616,200
--------- ---------
Net deferred tax assets ...... -- --
--------- ---------
Deferred tax liabilities
Temporary differences on
capital assets ........... 837,000 843,800
--------- ---------
Total deferred tax liabilities 837,000 843,800
--------- ---------
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
(3) Under U.S. GAAP, capital assets would be increased by $895,400 and to
provide for deferred income taxes on the differences between the book values and
tax values of certain capital assets acquired by the company in a tax-free
rollover. This amount represents the deferred taxes that arose at the time of
the s.85 rollover. As a result, amortization of such assets increased by a total
of $7,500 for the 7 months ended December 31, 1997 and $89,540 for the year
ended December 31, 1998. U.S. GAAP requires that capital assets be recorded at
acquisition costs which is the fair market value of the assets, whereas under
Canadian GAAP, capital assets are recorded at acquisition cost less associated
deferred income taxes.
(4) Consolidated statements of cash flows
During the year ended December 31, 1998, shareholders transferred common
shares to individuals in exchange for capital assets and professional services
relating to the issue of common shares. Under U.S. GAAP non-cash transactions
are excluded from the consolidated statements of cash flows. Accordingly, cash
used by investing activities and cash provided by financing activities were each
decreased by a net $100,750.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
(5) The following additional disclosures are required under U.S. GAAP.
Stock-based compensation
Pro-forma information regarding net loss and loss per share is required by
FAS123, and has been determined as if the company had accounted for its employee
stock options and warrants under the fair value method. The fair value was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1998 and 1997, respectively;
risk-free interest rates of 6%, dividend yields of 0%, volatility factors of the
expected market price of the company's common stock of 30% and weighted average
expected life per option and warrant of 4 years.
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the company's employee stock options and warrants have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's options, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options and warrants.
For purposes of the pro-forma disclosures, the estimated fair value of the
options and warrants is amortized to expense over their vesting period. The
company's pro-forma net loss under U.S. GAAP would be increased by $694,300 for
the 7 months ended December 31, 1997. The company's pro-forma loss per share
under U.S. GAAP would be [$3.35] for the 7 months ended December 31, 1997. There
were no employee stock options and warrants issued or which vested during 1998.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
A summary of the company's stock option and warrant activity and related
information is as follows:
<TABLE>
<CAPTION>
Year ended 7 months ended Weighted Weighted
December 31, December 31, -average -average
1998 1997 exercise exercise
$ $ price price
Employee options
<S> <C> <C> <C> <C>
Outstanding, beginning of period ......... 10,760 17.25 -- --
Granted .................................. -- -- 10,760 17.25
------- ----- ------- -----
Outstanding and exercisable, end of period 10,760 17.25 10,760 17.25
------- ----- ------- -----
Employee warrants
Outstanding, beginning of period ......... 44,798 16.25 -- --
Granted .................................. -- -- 50,000 16.25
Exercised ................................ 10,896 16.25 5,202 16.25
------- ----- ------- -----
Outstanding and exercisable, end of period 33,902 16.25 44,798 16.25
------- ----- ------- -----
Total employee options and
warrants outstanding and
exercisable, end of period ............ 44,662 16.50 55,558 16.50
------- ----- ------- -----
Weighted - average fair value
of employee options and warrants
granted during the period ............. -- -- 10,760 12.25
------- ----- ------- -----
Other warrants
Outstanding, beginning of period ......... 68,600 -- 68,600 --
Granted .................................. 515,504 -- -- --
------- ----- ------- -----
584,104 -- 68,600 --
------- ----- ------- -----
Total options and warrants, end of period 628,766 -- 124,158 --
------- ----- ------- -----
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
(6) Comprehensive income
The Financial Accounting Standards Board has issued FAS130, Reporting
Comprehensive Income, which establishes new standards for the reporting and
display of comprehensive income. Under the provisions of this standard, the
company is required to display items of other comprehensive income in the
financial statements for each year in which a statement of earnings is presented
and to disclose the accumulated balance of other comprehensive income separately
from retained earnings and additional paid in capital in the equity section of
the balance sheet. The company has no comprehensive income items other than its
loss for the year.
Year ended 7 Months ended
December 31, December 31,
1998 1997
$ $
Cash interest paid 39,200 12,200
Cash income taxes paid -- --
Rental expense 186,100 80,900
[d] Recent Developments
The Financial Accounting Standards Board has issued FAS129, Disclosure of
Information About Capital Structure. The company must adopt this standard in the
first quarter of fiscal 1999. Implementation of this disclosure standard will
not affect the company's financial position, results of operations or future
disclosures.
The Financial Accounting Standards Board has issued FAS132, Empoyers'
Disclosures about Pensions and Other Post-retirement Benefits. The company must
adopt this standard in the first quarter of fiscal 1999. Implementation of this
disclosure standard will not affect the company's financial position, results of
operations or future disclosures.
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in Canadian dollars]
December 31, 1998 and 1997
15. UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES [continued]
The Financial Accounting Standards Board has issued FAS133, Accounting for
Derivative Instruments and Hedging Activities which introduces revised standards
for the recognition and measurement of derivatives and hedging activities. The
company must adopt this standard in the first quarter of fiscal 2000.
Implementation of this standard is currently expected to have no impact on the
company's financial position or results of operation since the company has no
derivative financial instruments or hedging activities.
[e] Related party transactions
FAS 57 requires disclosure of the following transactions with a company
that is a shareholder, key supplier and whose president is also a director and
officer of the company:
<TABLE>
<CAPTION>
Year ended 7 months ended
December 31, December 31
1998 1997
$ $
<S> <C> <C>
Acquisition of raw materials 50,790 --
</TABLE>
In addition, in 1996 the company purchased capital assets [$100,000] which
remain in the possession of the related party who uses them to produce raw
materials for the company.
<PAGE>
Exhibit 1
TALISMAN ENTERPRISES INC.
1999 SENIOR EXECUTIVE STOCK OPTION PLAN
1. Purpose.
The Talisman Enterprises Inc. 1999 Senior Executive Stock Option Plan (the
"Plan"), effective this 17th day of May, 1999, is intended to afford an
incentive to selected employees of Talisman Enterprises Inc. (the "Company") and
of any Subsidiary, as defined in Section 2 below (collectively, the "Group"), to
acquire a proprietary interest in the Company, to continue to perform services
for the Company, to increase their efforts on behalf of the Company and to
promote the success of the Company's business.
2. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean:
(i) fraud, embezzlement or gross insubordination on the part of
the Optionee;
(ii) conviction or the entry of a plea of nolo contendere by the
Optionee for any felony or indictable offence;
(iii) a material breach of, or the willful failure or refusal by
the Optionee to perform and discharge, his duties, responsibilities or
obligations under any agreement with the Company or Subsidiary that is
related to the Optionee's employment with the Employer (other than by
reason of disability or death) that is not corrected within thirty
(30) days immediately following written notice to the Optionee by the
Employer, such notice to state with specificity the nature of the
breach, failure or refusal; provided that if such breach, failure or
refusal cannot reasonably be corrected within thirty (30) days of
written notice thereof, correction shall be commenced by the Optionee
within such thirty (30) day period and completed within a reasonable
period thereafter; or
(iv) any act of willful misconduct by the Optionee which (A) is
intended to result in substantial personal enrichment of the Optionee
at the expense of the Company or any of its Subsidiaries or
affiliates, or (B) has a material adverse impact on the business or
reputation of the Company or any of its Subsidiaries or affiliates
(such determination to be made by the Board in its reasonable
judgment).
(c) "Disability" shall mean a physical or mental disability that
prevents or is reasonably expected to prevent the performance by the Optionee of
his duties hereunder for a continuous period of six (6) months or longer. The
determination of the Optionee's Disability shall (i) be made by an independent
physician chosen by the Committee (as defined in Section 3 hereof) and
reasonably
<PAGE>
-2-
acceptable to the Optionee (or his or her representative), (ii) be final and
binding on the parties hereto, and (iii) be made taking into account such
competent medical evidence as shall be presented to such independent physician
by the Optionee and/or the Company or by any physician or group of physicians or
other competent medical experts employed by the Optionee and/or the Company to
advise such independent physician.
(d) "Employer" shall mean, with respect to an Optionee, the member of
the Group with which the Optionee has an Employment Agreement.
(e) "Employment Agreement", with respect to an Optionee, shall mean the
employment agreement between the Optionee and the Employer in effect on the
Grant Date; provided however, that for purposes of Section 6(d)(vi) hereof,
"Employment Agreement", with respect to an Optionee, shall mean the employment
agreement between the Optionee and the Employer in effect as of the date such
Optionee's employment with the Company terminates.
(f) "Fair Market Value" shall mean, if the Common Stock is traded on
the Canadian Dealing Network or other Canadian public market, is listed on a
national securities exchange or quoted on the automated quotation system of the
National Association of Securities Dealers, Inc., the average of high and low
selling prices of the Common Stock on the date such value is to be determined,
or, if the Common Stock is not traded on such date, then the average of high and
low selling prices of the Common Stock on the next preceding day on which such
stock was traded; otherwise the Fair Market Value shall be determined by the
Board in its reasonable discretion.
(g) "Former Talisman Partners" means the following persons: (i)
Kimberlin Family Partners, LP; (ii) Spencer Trask Securities, Incorporated;
(iii) William Dioguardi; (iv) Norman Proulx; and (v) Ray Rivers and Amy Rivers,
jointly.
(h) "Good Reason" shall mean: (i) the Employer's failure or refusal to
perform its obligations under, or its breach of the Employment Agreement in any
material respect; (ii) a termination of his employment other than in connection
with death, Disability or Cause or (iii) loss of the Optionee's title, position,
or overall responsibilities for the Employer unless such loss is incurred in
connection with a transfer of the Optionee to the Employer's parent or any
Subsidiary which transfer amounts to a promotion or an increase in overall
responsibilities and, as a consequence of which, Optionee's Base Salary (as
defined in the Employment Agreement), benefits, reimbursements and other
compensation remain at least as favorable as in effect immediately before such
transfer.
(i) "Internal Revenue Code" shall mean the US Internal Revenue Code of
1986, as amended.
(j) "Option" shall mean the right to acquire one or more shares of
Common Stock under the terms and conditions of an Option Agreement and the Plan.
(k) "Option Agreement" shall mean the written agreement, contract or
other document
<PAGE>
-3-
between the Company (or a Subsidiary, as the case may be) and an Optionee
evidencing an Option granted hereunder.
(l) "Optionee" shall mean an officer or employee of the Group who is
selected to participate in the Plan.
(m) "Securities Laws" shall mean the US Securities Exchange Act of
1934, as amended, or the Securities Act (Ontario), as applicable.
(n) "Subsidiary" shall mean any person in which, at the applicable
time, the Company owns a controlling interest, directly or indirectly.
(o) "Tax Law" shall mean the Internal Revenue Code or the Income Tax
Act (Canada), as applicable.
3. Administration.
(a) Unless otherwise determined by the Board, the Plan shall be
administered by a committee of the Board which shall consist of two (2) or more
members of the Board who are non-employee directors. Such committee may, in its
discretion, delegate to a subcommittee its duties hereunder, including the grant
of Options. Any entity that administers the Plan pursuant to this Section 3
shall be referred to as the "Committee".
(b) The Committee shall have all powers necessary to administer this
Plan including, without limitation, the authority: to grant Options; to
determine the type and number of Options to be granted, the number of shares of
Common Stock to which an Option may relate and the exercise price, terms,
conditions and restrictions relating to any Option; to determine whether, to
what extent and under what circumstances an Option may be settled, canceled,
forfeited, exchanged or surrendered; to construe and interpret the Plan and any
Option; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of Option Agreements; to accelerate
the exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate; and to make all
other determinations necessary or advisable for the administration of the Plan.
(c) Amendment and Termination of the Plan. The Board or the Committee
may at any time and from time to time alter, amend, suspend or terminate the
Plan, provided that, no amendment which requires stockholder approval under
applicable law or in order for the Plan to continue to comply with applicable
Tax Law, including, if applicable, Section 162(m) of the Internal Revenue Code,
shall be effective unless the same shall be approved by the vote of the
stockholders of the Company. Notwithstanding the foregoing, no amendment shall
affect adversely any of the rights of any Optionee, without such Optionee's
consent, under any Option previously granted. The power to grant Options under
the Plan will automatically terminate ten (10) years after the adoption of the
Plan by the Board. If the Plan is terminated, any unexercised Option shall
continue to be exercisable in accordance with its terms and the terms of the
Plan in effect immediately prior to such
<PAGE>
-4-
termination.
(d) No member of the Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan.
4. Eligibility.
Options may be granted to employees of the Group as selected by the
Committee.
5. Stock.
The stock subject to Options hereunder shall be shares of the Company's
common stock, no par value ("Common Stock"). Such shares may be authorized but
unissued shares or shares that shall have been or that may be reacquired by the
Company. The aggregate number of shares of Common Stock as to which Options may
be granted from time to time under the Plan shall not exceed Two Hundred
Twenty-five Thousand (225,000). The limitations established by the preceding two
sentences shall be subject to adjustment as provided in Section 9 below.
6. Stock Options.
The Committee shall have authority to grant Options on the following
terms and conditions:
(a) Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates ("Option Shares").
(b) Type of Option. No Option granted pursuant to this Plan shall be an
"Incentive Stock Option" within the meaning of Section 422 of the Internal
Revenue Code.
(c) Exercise Price. The exercise price per share of Common Stock
purchasable under an Option (the "Exercise Price") shall be determined by the
Committee, subject to compliance with all applicable Securities Laws and
regulations. The date as of which the Committee adopts a resolution expressly
granting an Option shall be deemed to be the day which such Option is granted
(the "Grant Date").
(d) Vesting. The Option shall vest and become exercisable as provided
in this Section 6. Once a portion of the Option becomes exercisable, that
portion shall remain exercisable through the tenth (10th) anniversary of the
Grant Date (the "Expiration Date"), except as otherwise provided in Section
6(d)(vi) below.
(i) Time Vesting Options. The Option shall become exercisable
with respect to one-third (1/3) of the Option Shares (the "Time Vested Option
Shares") in sixty (60) equal monthly installments commencing on the first day of
the first month following the Grant Date.
(ii) Annual Target Options.
<PAGE>
-5-
(A) Generally. The Option shall become exercisable with
respect to one- third (1/3) of the Option Shares (the "Annual
Target Option Shares") according to the terms of this Subsection
6(d)(ii). With respect to the first five (5) fiscal years of the
Company ending after the Grant Date, the Board, in consultation
with the Chief Executive Officer of the Company, shall establish
annual performance targets (the "Performance Targets") applicable
to the Optionee, such targets for any such fiscal year being
consistent with similar targets established for other senior
executives of the Company for the same fiscal year. Subject to
the provisions of Subsections 6(d)(ii)(B), (C) and (D) below, on
the last day of each applicable fiscal year, twenty percent (20%)
of the Annual Target Option Shares shall become exercisable
provided that the Performance Targets with respect to such fiscal
year are met. Except as otherwise provided in this Subsection
6(d)(ii), if the Performance Targets for such fiscal year are not
met, the portion that would have become exercisable (the "Missed
Portion") shall not, then or in the future, become exercisable.
(B) Catch-Up Vesting. If, for any applicable fiscal year
(the "Shortfall Year"), the Optionee fails to meet the
Performance Targets (the amount of the difference between the
Performance Targets and the actual performance being the
"Shortfall") and, for the immediately following fiscal year (the
"Catch-Up Year"), the Optionee exceeds the Performance Targets
for the Catch-Up Year by an amount equal to or greater than the
Shortfall, then forty percent (40%) of the Annual Target Option
Shares (being the portion from the Shortfall Year plus the
portion for the Catch-Up Year) shall become exercisable on the
last day of the Catch-Up Year.
(C) Investor Sale Vesting.
(I) Subject to Clauses (II) and (III) below, all Annual
Target Option Shares that have not yet become exercisable
may become exercisable under this Subsection 6(d)(ii)(C)
upon an Investor Sale (as defined below) occurring during
the period commencing on the first anniversary of the Grant
Date and terminating on the fifth (5th) anniversary of the
Grant Date (the "Investor Sale Period").
(II) If the Performance Targets with respect to the
fiscal year immediately preceding the fiscal year in which
the Investor Sale occurs (the fiscal year in which such sale
occurs, the "Investor Sale Year") have not been met, then,
subject to Subsection 6(d)(ii)(D) below, no Annual Target
Option Shares shall become exercisable on account of the
Investor Sale.
(III) If the Performance Targets for the fiscal year
immediately preceding the Investor Sale Year are met, but
Performance Targets for any other fiscal year during the
Investor Sale Period have not been met, then, subject to
Subsection 6(d)(ii)(D) below, only a portion of the
unexercisable Annual Target Option Shares shall become
exercisable. Such portion shall equal the product of (x) the
total number of unexercisable Annual Target Option Shares
multiplied by (y) a fraction, the numerator of which is the
total number of Annual Target Option Shares which have
previously become exercisable and the denominator of which
is the total number of Annual Target Option Shares that
would have become exercisable if Performance Targets for all
fiscal years preceding the Investor Sale Year had been met.
If Annual Target Option Shares become exercisable pursuant
to Subsection 6(d)(ii)(B), then Performance Targets with
respect to which such
<PAGE>
-6-
Annual Target Option Shares relate will be deemed to have
been met in the applicable Shortfall Year.
(IV) For purposes of this Subsection 6(d), an Investor
Sale shall mean, as applicable,
(1) any transaction or series of related transactions
by which any "Person" (as defined in Section 3(a)(9) of the
US Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or "Group" of persons (as provided under
Section 13(d)(3) of the Exchange Act), other than Spencer
Trask Securities, Incorporated, is or becomes the
"Beneficial Owner" (as defined in Rule 13d-3 or otherwise
under the Exchange Act), directly or indirectly (including
as provided in Rule 13d-3(d)(1) under the Exchange Act), of
voting stock of the Company ("Voting Stock"), giving effect
to the deemed ownership of securities by such person or
group, as provided in Rule 13d-3(d)(1) under the Exchange
Act, but not giving effect to any such deemed ownership of
securities by another person or group, greater than fifty
percent (50%) of all such Voting Stock, or
(2) a sale, transfer or other disposition by one or
more of the "Former Talisman Partners" (as defined), in one
or a series of related transactions, if, taking into account
such sale, transfer or other disposition, the Former
Talisman Partners, whether or not acting in concert, have
sold in the aggregate more than fifty percent (50%) of the
shares of Common Stock owned by the Former Talisman Partners
on January 21, 1999. For purposes of determining share
ownership hereunder, options, warrants, obligations
convertible into shares of Common Stock, and other similar
interests shall be treated as being exercised, converted, or
otherwise exchanged for Common Stock according to their
terms, provided that the exercise price, conversion ratio,
or other exchange measurement expresses or implies a price
for such Common Stock of no more than the Fair Market Value
of the Common Stock determined as of January 21, 1999.
(D) Notwithstanding anything to the contrary herein, if
there is an Investor Sale during the Investor Sale Period, and
the Cumulative Compounded Return (as defined in Section
6(d)(iii)) is more than thirty percent (30%), then the Annual
Target Option Shares shall become exercisable to the extent
necessary to raise the number of exercisable Annual Target Option
Shares to fifty percent (50%) of all Annual Target Option Shares.
Annual Target Option Shares shall become exercisable under this
Section 6(d)(ii)(D) only after taking into account all other
acceleration of exercisability that would occur under this
Section 6(d)(ii).
(E) Notwithstanding anything to the contrary herein, all
unexercisable Annual Target Option Shares shall become
exercisable on the seventh (7th) anniversary of the Employment
Date.
(iii) Investor Return Options. Following an Investor Sale, the
Option shall become exercisable with respect to one-third of the
Option Shares (the "Investor Return Option Shares") according to the
following schedule:
<PAGE>
-7-
<TABLE>
<CAPTION>
Cumulative Compounded Return
on Account of the Investor Sale Amount Becoming Exercisable
- --------------------------------------------- ------------------------------------------------
<S> <C>
Thirty percent or more All Investor Return Option Shares
shall become exercisable
At least 29%, but less than 30% Two-thirds (2/3) of all Investor
Return Option Shares shall
become exercisable
At least 28%, but less than 29% One-third (1/3) of all Investor
Return Option Shares shall
become exercisable
Less than 28% No Investor Return Option Shares
shall become exercisable
</TABLE>
The Cumulative Compounded Return shall be the annualized internal rate of
return (assuming monthly compounding) achieved on realizing, on the date of the
Investor Sale, the Fair Market Value of a share of Common Stock as of such date
on an investment, made on the Grant Date of the Fair Market Value of a share of
Common Stock as of such date. Algebraically, the formula for determining the
Cumulative Compounded Return is as follows:
A = B x (1 + C)(D/12)
Where:
A = The Fair Market Value of a share of Common Stock on the date of an
Investor Sale
B = The Fair Market Value of a share of Common Stock on the Grant Date
C = The Cumulative Compounded Return
D = The number of whole months from the Grant Date through and including
the date of the Investor Sale.
Notwithstanding anything to the contrary herein, all unexercisable Investor
Return Option Shares shall become exercisable on the seventh (7th) anniversary
of the Grant Date.
(iv) Acceleration of Vesting on Going Private. Notwithstanding
the provisions of Sections 6(d)(i) through (iii) above, the Option
shall become exercisable with respect to all Option Shares immediately
before any transaction, including, but not limited to any transaction
described in Section 6(d)(ii) above, if, after and on account of such
transaction, the Common Stock of the Company is (or will be) no longer
traded on an established securities market.
(v) Exercise Procedure. The Optionee shall deliver written notice
of his intention to exercise all or any part of the Option, such
notice to describe the number of shares of Common Stock to be acquired
(the "Shares"). The Company shall then schedule a closing date as soon
as practicable, but no later than three (3) business days following
receipt of such notice. Payment of the purchase price for Shares
purchased upon exercise of the Option (the "Option Price") shall be
<PAGE>
-8-
paid in full at the time of exercise in cash or certified or bank
check to the order of the Company. The Company shall, upon payment of
the Option Price for the number of Shares purchased, and delivery of a
subscription agreement in form satisfactory to the Committee, make
prompt delivery of such Shares to the Optionee, provided that if any
law or regulation requires the Company to take any action with respect
to such Shares before they are issued, then the date of delivery of
such Shares shall be extended for the period necessary to complete
such action. Issuance of Shares is subject to the provisions of
Section 10 below, and no Shares shall be issued and delivered upon
exercise of the Option unless and until, in the opinion of counsel for
the Company, any requirements of law or of any regulatory bodies
having jurisdiction over such issuance and delivery shall have been
fully complied with. The Optionee may purchase less than the entire
number of Shares subject to the Option, provided that no partial
exercise of this Option may be for any fractional share unless the
Committee determines otherwise.
(vi) Effect of Termination of Employment. Except as otherwise
provided in this Section 6(d)(vi), the Option, to the extent otherwise
unexercisable, shall expire on the termination of employment:
(A) If the Optionee's employment is terminated for any
reason other than those described in Clause (B) below, the then
exercisable portion of the Option shall remain exercisable until
the earlier of the ninetieth (90th) day following the date of
termination of employment or the Expiration Date.
(B) If the Optionee's employment is terminated either
voluntarily, other than for Good Reason, by the Optionee or by
the Employer for Cause, the entire Option shall expire
immediately.
(C) Notwithstanding the provisions of Section 6(d)(vi)(A),
the Option shall become fully exercisable with respect to all
Time-Vesting Option Shares in the event of a termination of
employment entitling the Optionee to severance under the terms of
the applicable Employment Agreement, including (1) a termination
for Good Reason, or (2) if applicable, if the Company has elected
against renewal of the Employment Agreement. That portion of the
Option which has become exercisable under this Section
6(d)(vi)(C) or otherwise, shall continue to be exercisable until
the earlier of ninety (90) days following termination of
employment or the Expiration Date, and shall thereafter
automatically expire to the extent not then exercised, provided
that the Company shall have the right (the "Close-out Right") to
cancel such remaining portion in return for a cash payment equal
to the product of (x) the Fair Market Value per share of the
Common Stock as of the date of termination, multiplied by (y) the
number of shares of Common Stock subject to such remaining
portion.
7. Nontransferability of Option.
Any Option granted pursuant to the terms hereunder is personal and no
rights granted under it may be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise) except by the laws of descent
and distribution, nor shall any such rights be subject to
<PAGE>
-9-
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of an Option or of such rights contrary
to the provisions of this Plan, or upon the levy of any attachment or similar
process upon an Option or such rights, such Option and such rights shall, unless
otherwise determined by the Committee, expire and become null and void.
8. No Special Rights.
The Optionee shall have no rights as a shareholder with respect to any
Shares which may be purchased by exercise of an Option unless and until a
certificate representing such shares is duly issued and delivered to the
Optionee or a correlative entry is made in the Company's stock ledger with
respect to the Optionee's shares. No adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is issued. Nothing contained in the Plan or in any Option shall be
construed or deemed by any person under any circumstances to bind the Company or
any parent corporation or Subsidiary to continue the employment of the Optionee
for the period within which an Option may be exercised.
9. Effect of Certain Changes.
If there is any change in the number of outstanding shares of Common
Stock by reason of: (a) any stock dividend, stock split, recapitalization,
combination, exchange of shares, merger, consolidation, liquidation, split-up,
spin-off or other similar change in capitalization, (b) any distribution to
common shareholders, including a rights offering, other than cash dividends
which are not extraordinary in frequency or amount, or (c) any like change, then
the number of shares of Common Stock available for Options, the number of such
shares covered by outstanding Options and the exercise price of such Options
shall be proportionately adjusted by the Committee to reflect such change or
distribution with the intent of preserving the rights granted by, and value and
economic benefits of, such Options; provided, however, that any fractional
shares resulting from any such change shall be deemed to be Common Stock within
the meaning of the Plan. To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive.
10. Investment Representations; Legend.
(a) Representations. The Optionee represents, warrants and covenants
(to the extent such representations, warranties and covenants are applicable to
the Optionee under applicable Securities Law, as determined by the Company)
that:
(i) Any shares of Common Stock purchased upon exercise of an
Option shall be acquired for the Optionee's account for investment
only and not with the view to, or for sale in connection with, any
distribution of shares in violation of or any rule or regulation of
the Securities Act (Ontario), or the US Securities Act of 1933 (the
"Securities Act") or any rule or regulation thereof.
<PAGE>
-10-
(ii) The Optionee has had such opportunity as he has deemed
adequate to obtain from representatives of the Company such
information as is necessary to permit the Optionee to evaluate the
merits and risks of his investment in the Company.
(iii) The Optionee is able to bear the economic risk of holding
shares of Common Stock acquired pursuant to the exercise of any and
all Options granted under this Plan for an indefinite period.
(iv) The Optionee understands that: (A) the shares acquired
pursuant to the exercise of any and all Options will not be registered
under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act; (B) such shares cannot
be sold, transferred or otherwise disposed of unless they are
subsequently registered under the Securities Act or an exemption from
registration is then available; (C) in any event, the exemption from
registration under Rule 144 will not be available for at least one (1)
year, and even then will not be available unless a public market then
exists for the Common Stock, adequate information concerning the
Company is then available to the public and other terms and conditions
of Rule 144 are complied with; and (D) there is now no registration
statement on file with the United States Securities and Exchange
Commission with respect to any stock of the Company and the Company
has no obligation or current intention to register any shares acquired
pursuant to the exercise of any Option under the Securities Act.
(v) The Optionee's participation in this Plan is voluntary. By
making payment upon exercise of an Option, the Optionee shall be
deemed to have affirmed or reaffirmed, as the case may be, as of the
date of such payment, the representations made in this Section 10.
(b) Legend on Stock Certificates. If required by applicable Securities
Law (as determined in the discretion of the Company), stock certificates
representing shares of Common Stock issued to the Optionee upon exercise of an
Option shall have affixed thereto a legend substantially in the following form,
in addition to any other legends required by applicable state or provincial law:
The shares of stock represented by this certificate have not been registered
under the Securities Act of 1933 and may not be transferred, sold or otherwise
disposed of in the absence of an effective registration statement with respect
to the shares evidenced by this certificate, filed and made effective under the
Securities Act of 1933, or an opinion of counsel satisfactory to the Company to
the effect that registration under such Act is not required.
(c) Restrictions on Delivery of Shares. Each Option granted under the
Plan is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares of Common Stock covered by such Option upon any securities exchange
or under state, provincial, or federal law is necessary as a condition of or
<PAGE>
-11-
in connection with the purchase or delivery of shares, the delivery of any or
all shares acquired pursuant to such Option may be withheld unless and until
such listing, registration or qualification shall have been effected, and the
Company shall use its reasonable best efforts to effectuate such listing,
registration or qualification as promptly as reasonably practicable.
11. Management Shareholders Agreement.
The Optionee understands that all shares acquired pursuant to the
exercise of an Option shall also be subject to a management shareholders
agreement dated as of the 19th day of March, 1999, a copy which is attached
hereto as Exhibit A (the "Management Shareholders Agreement"), the terms of
which have been reviewed by the Optionee. Issuance of Shares hereunder shall be
contingent upon the Optionee's execution of the Management Shareholders
Agreement.
12. Miscellaneous.
(a) Except as provided herein, this Plan may not be amended or
otherwise modified unless evidenced in writing and signed by the Company and the
Optionee.
(b) All notices under this Plan shall be mailed or delivered by hand to
the parties at their respective addresses set forth below, or at such other
address as may be designated in writing by either of the parties to one another:
If to the Company: Talisman Enterprises Inc.
2330 Southfield Rd.
Unit 3
Mississauga, Ontario L5N 2W8
Attn: Chairman
If to the Optionee: At the address set forth in the most current payroll
records of the Company.
(c) Withholding Taxes. Where an Optionee or other person is entitled to
receive shares of Common Stock pursuant to an Option, the Company shall have the
right to require the Optionee or such other person to pay to the Company the
amount of any taxes which the Company may be required to withhold before
delivery to such Optionee or other person of cash or a certificate or
certificates representing such shares. Unless otherwise prohibited by applicable
law, an Optionee may satisfy any such withholding tax obligation by either of
the following methods, or by a combination of such methods: (i) tendering a cash
payment; or (ii) delivering to the Company previously acquired shares of Common
Stock, or (iii) having the Company withhold shares of Common Stock otherwise
deliverable upon exercise of an Option, in either case having an aggregate Fair
Market Value, determined as of the date the withholding tax obligation arises,
less than or equal to the amount of the total withholding tax obligation.
<PAGE>
-12-
(d) No Fractional Shares. The Committee shall determine (in its sole
discretion) whether cash, other Options or other property shall be issued or
paid in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(e) Governing Law. The Plan, all determinations made and actions taken
pursuant to it, shall be governed by the laws of the Province of Ontario,
without giving effect to the principles of the conflicts of laws.
(f) Headings. The section and subsection headings contained herein are for
convenience only.
(g) Conflict. In the event of a conflict between the terms of this Plan and
the terms of an Option Agreement, the terms of this Plan shall prevail.
13. Effective Date.
The Plan shall take effect upon its adoption by the Board and the
approval or ratification of the stockholders of the Company.
<PAGE>
Exhibit 2
TALISMAN ENTERPRISES INC.
1999 DIRECTORS COMPANY STOCK PLAN
1. Purpose.
The name of the Plan shall be the Talisman Enterprises Inc. 1999
Directors Company Stock Plan (the "Plan"). The purpose of the Plan is to provide
a compensation program for non-employee Directors (the "Directors") of Talisman
Enterprises Inc. (the "Company") that will attract and retain highly qualified
individuals to serve as non-employee members of the Company's Board of Directors
(the "Board"). The Plan awards Directors shares of Company common stock, no par
value per share ("Common Stock") as provided below.
2. Administration.
Subject to Section 6, the Plan shall be administered by a management
committee (the "Management Committee") consisting of at least three (3) members
of the Board, one of whom shall include the Company's President and Chief
Executive Officer. The Management Committee shall interpret the Plan, shall
prescribe, amend and rescind rules relating to it from time to time as it deems
proper and in the best interests of the Company, and shall take any other action
necessary for the administration of the Plan. Any decision or interpretation
adopted by the Management Committee shall be final.
3. Participation.
Each Director who serves as such on the first day of an Award Year (as
defined below) may receive Company Shares (as defined below) with respect to
such Award Year under the terms hereof.
4. Company Shares.
(a) Maximum Number of Shares. Subject to Subsection (b) below, the
maximum number of shares of Common Stock that may be awarded under the Plan is
One Hundred Thousand (100,000) shares of Common Stock (such shares, as adjusted
under Section 4(b) hereof, the "Company Shares"). Awards of Company Shares may
be made from shares held in the Company's treasury or out of authorized but
unissued shares of the Company, or partly out of each, as shall be determined by
the Management Committee.
(b) Adjustment to Number of Shares. In the event of a recapitalization,
stock split, stock dividend, exchange of shares, merger, reorganization, change
in corporate structure or shares of the Company, or similar event, the Board,
upon recommendation of the Management Committee, may make appropriate
adjustments to the number of shares authorized for the Plan and to the number of
shares that may be awarded with respect to an Award Year (as defined below).
<PAGE>
-2-
5. Grants of Company Shares.
(a) Award Year Defined. For purposes hereof, each one (1) year period
commencing on the Effective Date or on any of the four (4) following
anniversaries thereof shall be an "Award Year".
(b) Annual Awards. With respect to each Award Year, each Director shall
receive Three Thousand Forty-six Company Shares (such shares, as adjusted, if
necessary, according to Section 4(b), the "Award Year Shares") if such Director
serves as such for the entire applicable Award Year. The Award Year Shares shall
be granted, if at all, at the end of the applicable Award Year.
(c) Restrictions. Upon awarding Company Shares, the Company shall
deliver certificates therefor to the applicable Director. All Company Shares
shall be subject to all the terms and conditions of the stockholders agreement
dated 19 March 1999 by and among Talisman Enterprises Inc., Spencer Trask
Securities, Incorporated, and various other persons (the "Stockholders
Agreement") and, as a condition to receipt of Company Shares, each Director
shall be required to sign the Stockholders Agreement.
(d) Payment. Directors shall not be required to pay for Company Shares.
6. Amendments to the Plan.
The Board may amend, alter, suspend, discontinue or terminate the Plan
or any portion thereof at any time; provided that no such amendment, alteration,
suspension, discontinuation or termination shall be made without stockholder
approval if such approval is (i) necessary to comply with any tax or regulatory
requirement for which or with which the Board deems it necessary or desirable to
qualify or comply, including for these purposes (if applicable) any approval
requirement that is a prerequisite for exemptive relief from Section 16(b) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or (ii)
otherwise required by applicable law.
7. General Provisions.
(a) Nontransferability. Except as otherwise specifically determined by
the Management Committee in writing, no rights hereunder shall be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Director, except by will or the laws of descent and distribution.
(b) Share Certificates. All certificates for Company Shares delivered
under the Plan pursuant to any award thereof shall be subject to such stop
transfer orders and other restrictions as the Management Committee may deem
advisable under (i) the Plan (ii) the applicable rules, regulations and other
requirements of the Securities Act (Ontario) and/or
<PAGE>
-3-
the United States Securities and Exchange Commission, (iii) the rules and
regulations of any stock exchange or national market quotation system upon which
Company Shares are then listed or quoted, and (iv) any applicable Federal,
provincial, or state laws. The Management Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
(c) Withholding. A participant may be required to pay to the Company
and the Company shall have the right and is hereby authorized to withhold from
any award or payment under any award or other amount owing to a Director the
amount (as determined by the Company in its sole discretion) of any applicable
withholding tax in respect of any award or payment under the Plan, or to require
the Director to make other suitable arrangements to satisfy such withholding
arrangements, and to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for the payment of such taxes.
(d) Governing Law. The validity, construction and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the Province of Ontario.
(e) Severability. If any provision of the Plan is or becomes or is
deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any
person or award, or would disqualify the Plan or any award under any law deemed
applicable by the Management Committee, such provision shall be construed or
deemed amended to conform to the applicable laws, or if it cannot be construed
or deemed amended without, in the determination of the Management Committee,
materially altering the intent of the Plan or award, such provision shall be
stricken as to such jurisdiction, person or award and the remainder of the Plan
and any such award shall remain in full force and effect.
(f) Other Laws. The Management Committee may refuse to issue or
transfer any Company Shares if, acting in its sole discretion, it determines
that the issuance or transfer of such shares or such other consideration might
violate any applicable law or regulation or entitle the Company to recover the
same under the Securities Act (Ontario) and/or, if applicable, Section 16(b) of
the Exchange Act, and any payment tendered to the Company by a Director, other
holder or beneficiary in connection with such award shall be promptly refunded
to the relevant Director, holder or beneficiary. Without limiting the generality
of the foregoing, no award granted hereunder shall be construed as an offer to
sell securities of the Company, and no such offer shall be outstanding, unless
and until the Management Committee in its sole discretion has determined that
any such offer, if made, would be in compliance with all applicable requirements
of the Securities Act (Ontario), U.S. federal securities laws, and any other
laws to which such offer, if made, would be subject.
<PAGE>
-4-
(g) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
(h) Successors and Assigns. The Plan shall be binding upon the
successors and assigns of the Company and upon each Director and such Director's
heirs, executors, administrators, personal representatives, permitted assignees
and successors in interest.
8. Effective Date; Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date on which
the Plan is ratified or approved by the stockholders of the Company.
(b) Term of the Plan. Unless sooner terminated, the Plan shall remain
in effect for the sixty-one (61) month period commencing on the Effective Date.
Termination of the Plan shall not affect any awards previously granted and such
awards shall remain valid and in effect. Termination of this Plan shall have no
effect on the validity or enforceability of the Stockholder's Agreement with
respect to any party thereto.
C:\WINDOWS\TEMP\CIS9201.WPD
<PAGE>
TALISMAN ENTERPRISES INC.
2330 Southfield Road
Unit 3
Mississauga, Ontario
L5N 2W8
INSTRUMENT OF PROXY
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
The undersigned shareholder of Talisman Enterprises Inc. hereby appoints
James A. Ogle, Director, failing whom Thomas A. Fenton, Director, or instead of
either of the foregoing, .............................., as the proxy holder of
the undersigned, to attend and act for and on behalf of the undersigned at an
annual and special meeting of the shareholders of Talisman Enterprises Inc. to
be held on Wednesday, the 30th day of June, 1999 at the hour of 10:00 a.m.
(Toronto time) and at any adjournment(s) thereof, in the same manner, and to the
same extent and with the same power as if the undersigned were present at the
said meeting or such adjournment(s) thereof; provided however, that without
otherwise limiting the generality of the authorization and power hereby
conferred, the proxy holder is specifically directed to vote or to withhold from
voting, the shares registered in the name of the undersigned as specified below:
VOTE WITHHOLD FROM VOTING in respect of the appointment
of the auditors and authorization
of the directors to fix the
remuneration of the auditors (Item
2, Notice of Meeting)
VOTE WITHHOLD FROM VOTING in respect of the election of
directors (Item 3, Notice of
Meeting)
TO VOTE FOR AGAINST the approval of the Senior Executive
Stock Option Plan Resolution
(Item 4, Notice of Meeting)
TO VOTE FOR AGAINST the approval of the Directors Stock
Compensation Plan Resolution
(Item 5, Notice of Meeting)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED OR WITHHELD FROM VOTING
IN ACCORDANCE WITH THE FOREGOING DIRECTIONS ON ANY BALLOT THAT MAY BE CALLED
FOR; HOWEVER, IN THE EVENT THAT NO SPECIFICATION IS MADE ABOVE WITH RESPECT TO
EITHER MATTER, THE NOMINEE IS INSTRUCTED TO VOTE SUCH SHARES IN FAVOUR OF SUCH
MATTER(S) IN RESPECT OF WHICH NO CHOICE IS SPECIFIED.
<PAGE>
- 2 -
THIS PROXY CONFERS DISCRETIONARY AUTHORITY UPON THE NOMINEE WITH RESPECT TO
ANY OTHER MATTER OR MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING.
Dated this day of , 1999.
(Signature of Shareholder)
(Please print name)
NOTES:
1. A SHAREHOLDER HAS THE RIGHT TO APPOINT AS HIS OR HER PROXY HOLDER A
PERSON OTHER THAN THOSE DESIGNATED ABOVE. A shareholder may do so by
inserting the name of such other person in the blank space provided and
striking out the other names or by completing another proper form of
proxy and in either case delivering the completed form of proxy by
postal or other delivery to the Secretary of the Corporation, not later
than the day preceding the day of the meeting or by depositing it with
the Chairman of the meeting prior to the commencement of the meeting.
2. This form of proxy must be dated and signed by the shareholder or
his/her attorney authorized in writing or, if the shareholder is a
corporation, by an officer or attorney thereof fully authorized.
3. If this form of proxy is not dated in the space provided above, it is
deemed to bear the date on which it was mailed by the management of the
Corporation.
4. If it is desired that the shares represented by this proxy are to be
voted or withheld from voting on any matters referred to above or for
or against any or all of the resolutions referred to above, the
appropriate boxes above providing for voting or withholding from voting
or voting for or against should be marked with an X or a tick (x/).
5. THIS PROXY IS SOLICITED BY OR ON BEHALF OF THE MANAGEMENT OF THE
CORPORATION.
6. THIS PROXY IS FOR USE AT THE ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
OF THE CORPORATION TO BE HELD ON JUNE 30, 1999 AND AT ANY ADJOURNMENTS
THEREOF.
<PAGE>
TALISMAN ENTERPRISES INC.
Supplemental Mailing List Request Form
If you wish to have your name added to the Supplemental Mailing List of
Talisman Enterprises Inc. so that you may receive the Corporation's quarterly
financial statements and other information, please fill in your name and address
in the space provided below and return to Talisman Enterprises Inc., 2330
Southfield Road, Unit 3, Mississauga, Ontario, L5N 2W8.
[Please P R I N T your name and address.]
Mr.
Miss
Mrs.
Ms.
[First Name] [Last Name]
[Apt. No.] [Street Number] [Street]
[City] [Province/State]
[Postal/ZIP Code] [Country]
