<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 1999
REGISTRATION FILE NO. 333-83123
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
TALISMAN ENTERPRISES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ONTARIO 3600 N/A
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No)
</TABLE>
------------------------------
2330 SOUTHFIELD ROAD
MISSISSAUGA, ONTARIO
CANADA L5N 2W8
(905) 826-3995
(Address and telephone number of
registrant's principal executive offices)
------------------------------
JAMES A. OGLE
PRESIDENT & CHIEF EXECUTIVE OFFICER
TALISMAN ENTERPRISES INC.
2330 SOUTHFIELD ROAD
MISSISSAUGA, ONTARIO
CANADA L5N 2W8
(905) 826-3995
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD A. FRIEDMAN, ESQ. BRUCE W. DAY, ESQ.
Sichenzia, Ross & Friedman LLP Day, Edwards, Federman,
135 West 50th Street, 20th Flr. Propester & Christensen, P.C.
New York, New York 10020 210 Park Avenue, Suite 2900
(212) 664-1200 Oklahoma City, OK 73102
Fax: (212) 664-7329 (405) 239-2121
Fax: (405) 236-1012
</TABLE>
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
MAXIMUM OFFERING
AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common stock, par value per share(2).............. 1,714,627 $5.00 $8,573,135.00 $2,956.25
Common stock underlying warrants(3)............... 1,014,627 $7.50 $7,609,702.50 $2,624.04
Underwriters' warrants(4)......................... 1 $10.00 $10.00 N/A(5)
Common stock underlying underwriter's
warrants(6)..................................... 60,000 $6.00 $360,000.00 $124.14
Total............................................. $16,542,847.50 $5,704.43
</TABLE>
(1) Total estimated solely for the purpose of determining the registration fee.
(2) Includes 690,000 shares being sold by Talisman, including underwriter's
over-allotment, and 1,024,627 shares being sold by selling shareholders.
(3) Represents shares of common stock issuable upon exercise of class A warrants
being sold by selling shareholders, together with such indeterminate number
of securities as may be issuable by reason of antidilution provisions
contained therein.
(4) Represent warrants to be issued to the underwriters to purchase 60,000
shares of common stock.
(5) No fee due pursuant to Rule 457(g).
(6) Represents shares of common stock issuable upon the exercise of the warrants
issued to underwriters, together with such indeterminate number of
securities as may be issuable by reason of anti-dilution provisions
contained therein.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TALISMAN ENTERPRISES INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION CAPTIONS IN PROSPECTUS
- ----------------------------------------------------------------- ------------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................... Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Cover Page, Inside Cover Page, Outside Back Page
3. Summary Information and Risk Factors.................. Prospectus Summary, Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Cover Page, Underwriting
6. Dilution.............................................. Dilution
7. Selling Security Holders.............................. Selling Stockholders
8. Plan of Distribution.................................. Prospectus Summary, Underwriting
9. Legal Proceedings..................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................... Management, Principal Stockholders
11. Security Ownership of Certain Beneficial Owners and
Management............................................ Principal Stockholders
12. Description of Securities............................. Description of Securities
13. Interest of Named Experts and Counsel................. Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act.................................... Liabilities Management
15. Organization Within Last Five Years................... Prospectus Summary, Business
16. Description of Business............................... Prospectus Summary, Business
17. Management's Discussion and Analysis or Plan of
Operation............................................. Management's Discussion and Analysis of
18. Description of Property............................... Business
19. Certain Relationships and Related Transactions........ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................... Front Cover Page, Description of Securities
21. Executive Compensation................................ Management
22. Financial Statements.................................. Financial Statements
23. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... Change in Auditors
</TABLE>
<PAGE>
Subject to Completion Preliminary Prospectus dated August 17, 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
, 1999
[LOGO]
1,624,627 SHARES OF COMMON STOCK
- ----------------------------------------------------------------------
TALISMAN ENTERPRISES INC.:
- - Talisman manufactures and distributes private label alkaline batteries.
- - Talisman Enterprises Inc.
2330 Southfield Road
Mississauga, Ontario
Canada L5N 2W8
(905) 826-3995
- - PROPOSED NASDAQ SMALLCAP MARKET SYMBOL: BATT
THE OFFERING:
- - Talisman is offering 600,000 shares of common stock through Capital West
Securities Inc. The selling stockholders are offering 1,024,627 shares of
common stock.
- - This prospectus also relates to an offering by the selling stockholders of
1,014,627 shares of common stock underlying class A common stock purchase
warrants.
- - There is no underwriter or coordinating broker acting in connection with the
offering of common shares by the selling stockholders.
- - The underwriter has an option to purchase an additional 90,000 shares from
Talisman to cover any over-allotments.
- - We intend to use the offering proceeds for expansion and development of
battery production lines, advertising and sales development, and for
providing working capital and other general corporate purposes.
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ---------------
<S> <C> <C>
Public offering price............................................ $ 5.00 $ 8,123,135.00
Underwriting discounts and commissions........................... $ 0.50 $ 300,000.00
Proceeds, before expenses, to Talisman........................... $ 4.50 $ 2,700,000.00
Gross Proceeds to selling stockholders........................... $ 5.00 $ 5,123,135.00
</TABLE>
------------------------------------------------------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------------------------------------------------------
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
------------------------------------------------------------------------
CAPITAL WEST SECURITIES, INC.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
BEFORE MAKING AN INVESTMENT DECISION, YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES, IN
ORDER TO UNDERSTAND OUR BUSINESS AND THIS OFFERING FULLY.
REFERENCES IN THIS PROSPECTUS TO "TALISMAN," "WE," "OUR," AND "US," REFER TO
TALISMAN ENTERPRISES INC., AN ONTARIO, CANADA CORPORATION, TOGETHER WITH ITS
SUBSIDIARY AND THEIR PREDECESSORS. UNLESS OTHERWISE INDICATED, ALL REFERENCES TO
DOLLAR ($) AMOUNTS ARE TO U.S. DOLLARS. REFERENCES TO CDN$ ARE TO CANADIAN
DOLLARS. ALL INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO REFLECT A
1-FOR-25 REVERSE STOCK SPLIT OF THE COMMON STOCK EFFECTED IN JANUARY 1999.
TALISMAN ENTERPRISES INC.
OUR BUSINESS
Talisman Enterprises Inc., through our wholly-owned operating subsidiary,
Talisman International Inc., manufactures and distributes high-quality
disposable alkaline batteries. These batteries are used in products such as
toys, flashlights and Walkmans(R), for private label sale by medium to large
retail chains. We are currently, to our knowledge, the only North American-based
battery manufacturer that focuses primarily on the private label market. Our
objective is to leverage our unique strategic position to capitalize on the
North American private label market and significantly increase the private label
share of the overall alkaline battery market.
OUR MARKET
Alkaline batteries are the most widely used type of battery in North America
with a greater than 65% share of the overall battery market. Industry analysts
estimate that the North American market for disposable alkaline batteries was
approximately $3 billion in 1997, representing consumption of approximately 4
billion batteries. An estimated 40% increase in battery-operated devices has
driven growth in the use of disposable batteries over the past 10 years.
According to industry data, within the North American battery market, the
alkaline segment is the fastest growing. Frost & Sullivan, Inc. estimates that
the consumption of alkaline batteries is expected to continue to grow at a rate
of 5-8% per year.
The market for private label products has grown significantly in recent
years. In order to generate greater customer loyalty, many retailers have sought
to develop private label or corporate brands in numerous consumer product
categories. Private label affords retailers an opportunity to enhance their
chains' identity by offering high quality products that are less expensive than
brand-name alternatives. According to information supplied by the Private Label
Manufacturers Association, in a number of product categories, including light
bulbs, disposable cameras and tape, private label items have achieved a market
share of 20-25%. The study also shows that, on average, retailers are projecting
a private label category growth rate of 24% over the next three years.
While private label batteries now comprise only approximately 9% of the
overall disposable alkaline battery market, batteries are one of the fastest
growing segments within the private label market. We believe, that despite a
limited supply of private label product, the battery segment has grown at nearly
double the rate of other private label categories. Currently, most private label
batteries are supplied either by offshore manufacturers or by brand-name battery
manufacturers such as Duracell, Inc., a subsidiary of The Gillette Company, and
Eveready Battery Co., a subsidiary of Ralston Purina Company. It is our belief
that offshore battery suppliers, however, have limited available alkaline
production capacities, suffer from high shipping and transportation costs, have
long lead times and large quantity purchase requirements, and often produce
carbon zinc technology batteries that have a much shorter life than alkaline
batteries.
<PAGE>
We believe companies such as Duracell and Eveready have participated in
private label manufacturing only when pressured by certain large retailers. This
is primarily because it is not in the best interest of current branded
manufacturers to produce private label products. The growth of private label
sales comes at the expense of higher margin branded product sales. Profit
margins are significantly reduced due to the lower retail price of private label
batteries, while advertising expenses remain high and line changeovers result in
substantial manufacturing inefficiencies. Consequently, brand-name manufacturers
do not actively solicit sales of private label batteries, but provide such
products reactively in order to satisfy demands by their large retail accounts.
Private label batteries are therefore generally sold to such accounts as a way
of improving the branded suppliers position.
OUR MARKET OPPORTUNITY
We believe we are the only dedicated private label alkaline battery
manufacturer in North America. Our manufacturing technology and expertise enable
us to produce batteries of comparable quality to leading brand-name batteries.
Our location allows us to streamline logistics costs and develop close marketing
and sales relationships with leading North American retailers. During 1998, we
supplied private label batteries to 15 customers, including A&P Canada, Drug
Emporium and Discount Drug Mart. Management estimates that we currently have the
capacity to ship in excess of 25 million batteries annually. Through the end of
1998, we manufactured approximately 5.4 million AA batteries. During the first
six months of 1999, we manufactured approximately an additional 3.2 million AA
batteries.
OUR GROWTH STRATEGY
We intend to utilize our unique market position and substantial
manufacturing capabilities to capitalize on the growth in private label alkaline
battery product sales. Talisman's mission is to be the predominate supplier of
high-quality, private-label alkaline batteries to all retail channels in North
America.
OUR HISTORY
We were incorporated under the laws of the Province of Ontario on July 28,
1978 under the name Firespur Explorations Ltd. In May 1989, we changed our name
to Firesand Explorations Ltd. and, in September 1997, our name changed to its
present name. Our offices are located at 2330 Southfield Road, Unit 3-4,
Mississauga, Ontario, Canada, L5N 2W8; our telephone number is (905) 826-3995.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities offered:
Common stock:
By Talisman............................ 600,000 shares through Capital West Securities,
Inc.
By selling stockholders................ 1,024,627 shares and 1,014,627 shares underlying
class A common stock purchase warrants.
Common stock outstanding before
offering............................... 1,055,560 shares
Common stock outstanding after
offering............................... 2,670,187 shares
Use of proceeds.......................... We intend to use the offering proceeds for
expansion and development of battery production
lines, advertising and sales development, and
for providing working capital and other general
corporate purposes.
Risk factors............................. Investing in these securities involves a high
degree of risk and immediate substantial
dilution of your investment. As an investor, you
should be able to bear a complete loss of your
investment. See "Risk Factors" and "Dilution"
for a more detailed discussion.
Proposed NASDAQ Symbol: BATT
</TABLE>
The 2,670,187 shares of common stock to be outstanding after this offering
is based on the 1,055,560 shares of common stock outstanding prior to the
offering, 600,000 shares of common stock being sold by us in this offering and
1,024,627 shares of common stock being sold by the selling shareholders. The
shares of common stock to be outstanding after this offering excludes:
- 90,000 shares of common stock subject to the underwriters' over-allotment
option
- 60,000 shares of common stock issuable upon the exercise of the
underwriters' warrants
- 31,200 shares of common stock reserved for issuance pursuant to our 1997
Stock Option Plan
- 225,000 shares of common stock reserved for issuance pursuant to our 1999
Senior Executive Stock Option Plan
- 84,770 shares of common stock reserved for issuance pursuant to our 1999
Directors Company Stock Plan
- 1,014,627 shares of common stock issuable upon the exercise of 1,014,627
class A warrants, all of which are currently exercisable
- 1,058,615 shares of common stock issuable upon the exercise of additional
warrants and options, all of which are currently exercisable
The proposed trading symbol does not imply that a liquid and active market
will be developed or sustained for the securities upon completion of this
offering.
3
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data set forth below for the years ended December 31,
1997 and 1998 and at December 31, 1997 and 1998 is derived from and should be
read in conjunction with Talisman's consolidated financial statements, including
the notes thereto, appearing elsewhere in this prospectus. The summary financial
data set forth below for the interim periods ended June 30, 1999 and 1998 has
been prepared from Talisman's books and records and reflects, in our opinion,
all adjustments necessary for a fair presentation of the financial position,
results of operations, and cash flows of Talisman, as at the periods indicated
therein. Results for interim periods are not necessarily indicative of results
which can be expected for the entire year.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR SEVEN MONTHS SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
------------- ------------- ----------------------------
1997 1998 1998 1999
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................. $ 139,646 $ 748,254 $ 348,605 $ 70,688
Operating Expenses................................... 180,582 1,487,052 628,527 639,566
Gross Profit......................................... (40,936) (738,798) (279,922) (568,878)
Expenses:
Selling, general and administrative................ 597,558 1,136,516 243,229 872,648
Amortization....................................... 27,670 304,182 187,234 370,003
Interest and bank charges.......................... 11,236 99,292 25,749 105,133
Total expenses................................... 636,464 1,539,990 456,212 1,347,784
Loss for the period.................................. (640,340) (2,274,202) (733,733) (1,887,672)
Deficit, beginning of period......................... (324,440) (964,780) (964,780) (3,238,982)
Deficit, end of period............................... (964,780) (3,238,982) (1,698,553) (5,126,654)
Loss per share....................................... (1.35) (3.69) (1.55) (1.83)
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS AT DECEMBER 31, AS AT JUNE 30, 1999
--------------------------- ---------------------------
1997 1998 ACTUAL ADJUSTED(1)
------------ ------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Working capital(2)...................................... $ (90,957) $ (1,063,387) $ (3,424,930) $ 3,260,528
Total current assets.................................... 354,591 839,659 3,234,415 4,846,738
Total current liabilities............................... 445,548 1,903,046 6,659,345 1,586,210
Total shareholder's equity.............................. 1,961,368 1,142,461 (586,708) 6,098,750
</TABLE>
- ------------------------
(1) As adjusted to reflect (i) the issuance of 1,014,297 shares of common stock
upon conversion of $5,073,135 principal amount of 8% convertible
subordinated promissory notes, and (ii) the issuance of the 600,000 shares
of common stock offered hereby and the application of the net proceeds
therefrom.
(2) Working capital represents current assets less current liabilities.
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER EACH OF THE FOLLOWING RISKS AND ALL OF THE
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN
SHARES OF OUR COMMON STOCK. SOME OF THE FOLLOWING RISKS RELATE PRINCIPALLY TO
OUR BUSINESS IN GENERAL AND THE INDUSTRY IN WHICH WE OPERATE. OTHER RISKS RELATE
PRINCIPALLY TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR STOCK. THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR COMPANY.
ADDITIONAL RISKS THAT GENERALLY APPLY TO PUBLICLY TRADED COMPANIES, THAT ARE NOT
YET IDENTIFIED OR THAT WE CURRENTLY THINK ARE IMMATERIAL, MAY ALSO IMPAIR OUR
BUSINESS OPERATIONS AND ADVERSELY AFFECT OUR BUSINESS.
IF ANY OF THE FOLLOWING RISKS AND UNCERTAINTIES DEVELOP INTO ACTUAL EVENTS,
OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED. IN SUCH A CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS RELATE TO:
- OUR FUTURE PLANS;
- OBJECTIVES;
- EXPECTATIONS AND INTENTIONS; AND
- THE ASSUMPTIONS UNDERLYING OR RELATING TO ANY OF THESE STATEMENTS.
WE USE WORDS SUCH AS "EXPECTS," "ANTICIPATES," "INTENDS," AND "PLANS" AND
SIMILAR EXPRESSIONS TO IDENTIFY FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THESE STATEMENTS AS A RESULT OF
CERTAIN FACTORS, AS MORE FULLY DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
WE BELIEVE THAT OUR FORWARD-LOOKING STATEMENTS ARE WITHIN THE MEANING OF THE
SAFE HARBOR PROVIDED BY THE SECURITIES EXCHANGE ACT OF 1934.
RISK FACTORS RELATING TO OUR BUSINESS
OUR BUSINESS IS SUBJECT TO THE FOLLOWING RISKS, WHICH INCLUDE RISKS RELATING
TO THE INDUSTRY IN WHICH WE OPERATE.
WE ARE IN AN EARLY STAGE OF DEVELOPMENT AND WE EXPECT TO ENCOUNTER RISKS
ASSOCIATED WITH EARLY-STAGE COMPANIES.
Our company was incorporated under the name Firesand Resources Ltd. on July
28, 1978, but has only been engaged in the manufacture and sale of private label
alkaline batteries since September 1997. Accordingly, we have a limited
operating history in the battery business. Our proposed business operations will
be subject to numerous risks associated with early stage enterprises that you
should consider. For example, there is no assurance that our operations will be
profitable, and that substantial losses will not be sustained or that the we
will be able to obtain additional financing when needed. If we fail to
adequately address these risks, our business, financial condition and results of
operations will be materially adversely affected and the trading price of our
common stock could decline, and you may lose all or part of your investment.
WE HAVE A HISTORY OF OPERATING LOSSES, AND OUR GROWTH PROGRAM AND FUTURE
PROFITABILITY REMAINS UNCERTAIN.
Our company generated revenues of $139,646 and $748,254 for the seven months
ended December 31, 1997, and the year ending December 31, 1998, and we incurred
net losses from our operations of $640,340 and $2,274,202 for such periods,
respectively. We expect our operating expenses to increase significantly in
connection with our proposed growth program and, accordingly, our future
5
<PAGE>
profitability may depend on corresponding increases in revenues from our
expanded business operations, of which there can be no assurance. We believe
that operating results will be adversely effected if start-up expenses
associated with our new product lines are incurred without sufficient offsetting
revenues. Moreover, future events, including unanticipated expenses or increased
competition could have an adverse effect on our long-term operating margins and
results of operations. There can be no assurance that our company's growth
program will result in an increase in the profitability of our operations.
WE DO NOT HAVE ADEQUATE CASH TO MEET OUR SHORT-TERM OR LONG-TERM NEEDS.
We do no presently have adequate cash from operations or financing
activities to meet either our short-term or long-term needs. In order to meet
our needs for cash to fund our operations, we must either generate cash from
operations or obtain additional financing. In the event that we are unable to
obtain sufficient cash to pay our obligations as they come due, our business,
financial condition and results of operations could be materially adversely
affected. In such case, you may lose all or part of your investment.
WE ARE DEPENDENT UPON THE CONTINUED SUPPORT OF OUR LENDERS AND SHAREHOLDERS
AND THE GENERATION OF PROFITABLE OPERATIONS.
The notes to our audited financial statements state that we are in the early
stages of our operations and have, therefore, not generated revenues on a
consistent basis. The notes further state that the recoverability of our assets
is, therefore, dependent on the continued support of our lenders and
shareholders and the generation of profitable operations. We may require
substantial additional funds in the future, and there can be no assurance that
our future financial statements will not include a similar explanatory paragraph
if we are unable to raise sufficient funds or generate sufficient cash flow from
operations to cover the cost of our operations. The existence of the explanatory
paragraph may materially adversely affect our relationship with prospective
customers and suppliers, and therefore could have a material adverse effect on
our business, financial condition and results of operations.
WE MAY HAVE DIFFICULTY DEVELOPING OUR EXPANDING BUSINESS OPERATIONS.
Our ability to complete the expansion of our operations into the production
and marketing of AAA batteries, increase the production capacity of our AA cell
size, and to commence the expansion of our operations into the production and
marketing of C and D battery cell sizes is dependent upon the receipt of the
proceeds of this offering. In addition, our ability to complete the proposed
expansion of our operations into the production and marketing of C and D battery
cell sizes is dependent upon obtaining additional financing. In the event that
this offering is not completed and additional financing is not obtained, we may
be unable to complete and/or implement our plans to expand our operations, and
our business, financial condition and results of operations may be materially
adversely affected.
OUR SUCCESS DEPENDS ON MAINTAINING RELATIONSHIPS WITH KEY CUSTOMERS.
Our company has several large customers upon which we depend on for the sale
of our battery products. Specifically, for the year ended December 31, 1998,
sales to Discount Drug Mart represented 28.6%, Drug Emporium represented 23.7%,
Zellers Inc. represented 9.1% and A&P Fireco represented 7.0% of our overall
sales. Further, no other retail customer accounted for more than 5% of our
overall sales. Customers' orders are dependent upon their markets and customers
and may vary significantly in the future based upon the demand for our products.
The loss of one or more of such customers, or a declining market in which such
customers reduce orders or request reduced prices, could have a material adverse
effect on our business.
6
<PAGE>
WE DO NOT HAVE ANY CUSTOMER AGREEMENTS
We do not have any agreements with our customers for any fixed or minimum
amount of sales or revenues. All of our customers order products from us by way
of purchase orders. Accordingly, there can be no assurance of a minimum amount
of sales which we may expect to achieve. In addition, although we have not, to
date, experienced any material cancellations, in the event of the cancellation
of a customer order, we may incur losses to the extent that we have produced but
not shipped such customer's private label branded batteries.
WE DEPEND UPON OUR SUPPLIERS FOR RAW MATERIALS AND MAY NOT BE ABLE TO
REPLACE THEM.
We rely on other companies to supply us with raw materials. Our company has
a number of key suppliers who are also shareholders of the company. They include
Burlington Stamping Inc. of Burlington, Ontario and Hibar Systems Limited of
Richmond Hill, Ontario. BSI supplies all of our battery cans while Hibar
supplies all of our battery pre-assemblies. If we lose one or more of such
suppliers or are unable to obtain the raw materials or products in the
quantities required by us, our business, financial condition and results of
operations may be materially adversely affected.
WE CANNOT PREDICT OUR SUCCESS BECAUSE WE HAVE A LIMITED MANUFACTURING
HISTORY.
We have a limited operating history upon which to evaluate our ability to
manufacture profitably alkaline batteries. Although we have two AA cell lines
capable of producing at a rate of 100 pieces per minute, or 24,000,000 pieces
per year, to date, our company has only manufactured approximately 8.6 million
AA batteries. Our existing manufacturing capabilities for AA alkaline cells
currently exceed the market for our AA battery products, however there can be no
assurance that we will be able to expand successfully our operations in response
to a rapid increase in market demand for our products. Following the offering,
we intend to introduce a third cell line in 1999, capable of producing 100 AAA
cells per minute. Subject to financing, our current plans include building a D
line in early 2000 followed by a C line in mid 2000. Our expanded manufacturing
facilities may be subject to risks of delay or difficulty in manufacturing and
may require substantial additional capital to establish the expanded facilities.
Accordingly, there can be no assurance that we will be successful in
implementing and expanding our manufacturing capabilities, or that, once
implemented, the expanded manufacturing capabilities will generate substantial
revenues or attain profitable operations.
BECAUSE WE HAVE LIMITED MARKETING AND SALES CAPACITY WE MAY HAVE TO RELY ON
THIRD PARTIES FOR SUCH SERVICES.
After completion of the development of our new battery cell lines, in order
to generate additional revenues, we will be required to market successfully our
alkaline batteries to customers. We currently have a full time sales
organization consisting of four qualified sales professionals who generate a
majority of business through a network of brokers. We have developed a
relationship with two out of the four major, national, private label brokers
dedicated to the food class of trade. In addition, we have established
relationships with twelve independent regional sales agencies, which handled a
myriad of non-food, and drug battery customers throughout Canada and the United
States. Our agreements with our independent sales representative groups and
brokers are on mutually cancelable terms. There can be no assurance that we will
be able to market successfully our alkaline batteries. Further, to the extent
that we arrange with third parties to market our proposed products, the success
of such products may depend on the efforts of such third parties.
7
<PAGE>
WE MAY BE UNABLE TO COMPETE FAVORABLY IN THE HIGHLY COMPETITIVE BATTERY
INDUSTRY.
The manufacture and sale of alkaline batteries is highly competitive and
there are no substantial barriers to entry into the market. We believe that the
principal competitive factors affecting the market for battery products are:
- the quality of the product
- price
- technological developments
- turn around time for production orders
- payment terms of customers
- marketing and sales
Most of our competitors are large, well-established companies with considerably
greater financial, marketing, sales and technical resources than those available
to us. Additionally, many of our present and potential competitors have research
and development capabilities that may allow such competitors to develop new or
improved products that may compete with our product lines. These companies may
succeed in developing proposed products that are more effective or less costly
than our proposed products or such companies may be more successful in
manufacturing and marketing their proposed products. An increase in competition
could result in a loss of market share.
OUR BATTERY PRODUCTS MAY HAVE A POTENTIAL FOR TECHNOLOGICAL OBSOLESCENCE.
The battery industry is characterized by intense competition. Our battery
products could be rendered obsolete or uneconomical by the development of new
products, technological advances affecting the cost of production, or marketing
or pricing actions by one or more of our competitors. Any one or more of the
foregoing developments or a fundamental shift in technology in our product
markets could have a material adverse effect on our business, financial
condition or results of operations.
WE MAY NOT BE ABLE TO RETAIN KEY PERSONNEL WE DEPEND ON TO SUCCEED.
We are highly dependent on the experience of our management in the
continuing development of our retail operations. The loss of the services of
certain of these individuals, particularly James Ogle, President, or Garry Syme,
Senior Vice President, may have a material adverse effect on the company's
business. We have employment agreements with Mr. Ogle and Mr. Syme, which expire
in December 2002 and January 2002, respectively. Further, we have purchased
key-man life insurance in the amount of CDN$1,500,000 on the lives of each of
Mr. Syme and Mr. Ogle, with our company as the named beneficiary.
WE MAY NOT BE ABLE TO RETAIN THE KEY PERSONNEL WE NEED TO SUCCEED.
Our future success will depend in part on our ability to attract and retain
qualified personnel to manage the development and future growth of our company.
There can be no assurance that we will be successful in attracting and retaining
such personnel. The failure to recruit additional key personnel could have a
material adverse effect on our business, financial condition and results of
operations.
MANAGEMENT HAS BROAD DISCRETION AS TO THE USE OF PROCEEDS OF THE OFFERING.
Our management may spend the proceeds from this offering in ways which
differ from the specific proposed uses described in this prospectus. We have
allocated a large portion of the proceeds from this offering to discretionary
uses. You will be relying on the judgement of our management regarding the
8
<PAGE>
application of the proceeds of this offering. As a stockholder, you may not
agree with management's spending decisions. Please see "Use of Proceeds."
CHANGES IN GOVERNMENT REGULATIONS MAY ADVERSELY AFFECT OUR BUSINESS.
Federal, state, provincial and local laws, particularly relating to the
protection of the environment, may materially affect our operations. We have
made every attempt to ensure that our manufacturing facilities do not contravene
any environmental laws. Although we believe that we are in compliance with
existing laws and regulations, there can be no assurance that substantial costs
for compliance will not be incurred if there are changes in government
regulations. Any substantial violations of these rules and regulations could
have an adverse affect upon our operations.
WE HAVE NO REGISTERED TRADEMARKS AND THERE MAY BE CLAIMS OF INFRINGEMENTS.
We are aware that the use or registration of trademarks entails the risk of
claims of infringement or opposition from third parties. Although there are no
pending lawsuits against us regarding claims of trademark infringement, there
can be no assurance that third parties will not initiate such litigation against
us or that any such litigation will be resolved in our favor.
WE HAVE A LIMITED AMOUNT OF INSURANCE COVERAGE AND MAY NOT BE ABLE TO COVER
LIABILITY CLAIMS.
Our company carries product liability insurance coverage on its battery
products in the amount of CDN$1,000,000, with an additional umbrella protection
of CDN$14,000,000. There can be no assurance that such insurance will be
adequate to cover potential product liability claims or that a loss of insurance
coverage or the assertion of a product liability claim or claims would not
materially adversely affect our business, financial condition and results of
operations. See "Business--Product Liability Insurance."
WE MAY BE ADVERSELY AFFECTED IF OUR YEAR 2000 REMEDIATION EFFORTS ARE NOT
SUCCESSFUL.
Our business could be adversely impacted by information technology issues
related to the Year 2000. We have been engaged in assessing this Year 2000 issue
as it relates to our business. This review covers information and
non-information technology systems of both our own operating systems and the
systems of our third party vendors and manufacturers. We have completed
surveying our suppliers and service providers for Year 2000 compliance.
We currently believe that the most reasonably likely worst case scenario is
that there will be some localized disruptions of systems that will affect
individual, process, facilities or suppliers for a short time rather than
systematic or long-term problems affecting our business operations as a whole.
There is still uncertainty about the broader scope of the Year 2000 issue as
it may affect our company and third parties, including our suppliers and
customers, that are critical to our operations. For example, lack of readiness
by electrical and water utilities, financial institutions, governmental agencies
or others, pose significant impediments to our ability to carry on our normal
operations. In the event that we are unable to complete our remedial actions and
are unable to implement adequate contingency plans in the event problems are
encountered, there could be a material adverse effect on our business, results
of operations or financial condition. For more information regarding our Year
2000 program see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000."
9
<PAGE>
RISK FACTORS RELATING TO SECURITIES MARKETS
THERE ARE RISKS RELATING TO THE SECURITIES MARKET THAT YOU SHOULD CONSIDER
IN CONNECTION WITH YOUR INVESTMENT IN AND OWNERSHIP OF OUR STOCK.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY NEGATIVELY IMPACT OUR
STOCK PRICE.
Our quarterly operating results have generally fluctuated, with the highest
results coinciding with increased production and sales in anticipation of peak
buying periods events such as back-to-school and holidays such as Christmas. The
Company has experienced a substantial increase in sales in these seasons as a
result of increases in sales of third party products requiring battery power
including battery-operated toys, appliances and audio/video equipment. Our
results of operations may vary significantly in the future depending on factors
which may include:
- the size, timing and recognition of revenue derived from customer's sales
of its products;
- increased competition;
- changes in our pricing policies or those of its competitors;
- the financial stability of major customers; new product introductions or
enhancements by competitors;
- the degree of success of new products;
- any changes in operating expenses; and
- general economic conditions.
As a result, there may be significant fluctuations in our revenues from period
to period. Our expense levels are based, in part, on our expectations for future
orders and sales, and if sales are below expectations, operating results are
likely to be adversely affected. Net income may be disproportionately affected
by a reduction of sales because a significant portion of our expenses do not
vary with revenues. We may also choose to reduce prices or increase spending in
response to competition or in order to pursue new market opportunities. These
issues could affect our operating margins in the future and our company may be
materially adversely affected.
OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN LOSSES OR
DIFFICULTIES IN LIQUIDATING SHARES FOR STOCKHOLDERS.
No assurance can be given that an active market will be available for our
common stock or as to the liquidity of the trading market for our common stock.
If a trading market is not maintained, holders of our common stock may
experience difficulty in reselling their shares or may be unable to resell them
at all. Any such market may be discontinued at any time. In addition, there is
no assurance that the price of our common stock in the market will be equal to
or greater than the offering price hereof. See "Description of Securities."
THE EXERCISE OF OUR CLASS A WARRANTS MAY ADVERSELY EFFECT THE MARKET PRICE
OF OUR SECURITIES.
We have an aggregate of approximately 1,055,560 shares of common stock
outstanding, an unlimited number of shares of common stock authorized but
unissued, 1,014,627 shares of common stock unissued but reserved for issuance
upon exercise of the class A warrants, and 1,014,627 shares of common stock
unissued but reserved for issuance upon conversion of promissory notes. The
exercise of the class A warrants and the sale of the underlying shares of common
stock may have a depressive effect on the market price of our securities.
Moreover, the terms upon which we will be able to obtain additional equity
capital may be adversely affected since the holders of outstanding warrants can
be expected to exercise them, to the extent they are able, at a time when we
would, in all likelihood, be
10
<PAGE>
able to obtain any needed capital on terms more favorable to us than those
provided in the class A warrants. For a complete description of the terms and
conditions of exercise of the class A warrants, see "Description of Securities."
WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS.
To date, we have paid no cash dividends. Payment of dividends is up to the
discretion of our board of directors. For the foreseeable future, the board of
directors intends to retain earnings generated from our operations for use in
our business and do not anticipate paying any dividends.
THE REDEMPTION OF OUR CLASS A WARRANTS HAS THE POTENTIAL TO ADVERSELY EFFECT
OUR COMPANY.
Our class A warrants are redeemable at a price of $0.10 provided that (A)
prior notice of not less than 30 days is given to the warrant holders, (B) the
last sale price of our common stock shall have been at least $9.00 per share for
a period not less than 30 consecutive days trading period ending on the third
day prior to the date on which the notice of redemption is given. Warrant
holders have these exercise rights until the close of the business day preceding
the date fixed for redemption. Notice of redemption of the class A warrants
could force the holders to exercise the class A warrants at the current market
price when they might otherwise wish to hold them, or to accept the redemption
price, which may be substantially less than the market value of the class A
warrants at the time of redemption. For a complete description of the terms and
conditions of redemption of the class A warrants, see "Description of
Securities--class A warrants."
WE WILL CONTINUE TO BE CONTROLLED BY PRESENT SHAREHOLDERS.
Our present shareholders of common stock have acquired a controlling
interest in Talisman at a cost of substantially less than that which the
investors pursuant to this offering may purchase their securities. Therefore,
the investors pursuant to this offering will bear a substantial portion of the
risk of loss, while control of Talisman will remain in the hands of the current
shareholders.
WE MAY ISSUE ADDITIONAL SECURITIES THEREBY DILUTING SHAREHOLDERS' INTERESTS.
The board of directors of Talisman will have authority to issue further
common stock or other securities without the consent or vote of the shareholders
of the company. The issuance of additional common stock by our management,
whether in respect of a transaction involving a business opportunity or
otherwise, may have the effect of further diluting the proportionate equity
interest and voting power of holders of our common stock, including investors
under this offering. Although, we are prohibited from issuing any additional
securities, except pursuant to our 1997 Stock Option Plan, 1999 Senior Executive
Stock Option Plan, and 1999 Directors Company Stock Plan, for a period of two
years from March 19, 1999 without the prior written consent of Spencer Trask
Securities, Inc.
11
<PAGE>
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
Talisman files reports, proxy statements and other information with the
Commission. Those reports, proxy statements and other information may be
obtained:
- At the public reference room of the Commission, Room 1024--Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
- At the public reference facilities at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048
or Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661;
- By writing to the Commission, Public Reference Section, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549;
- At the offices of The Nasdaq Stock Market, Reports Section, 1735 K Street,
N.W., Washington, D.C. 20006; or
- From the Internet site maintained by the Commission at http://www.sec.gov,
which contains reports, proxy and information statements and other
information regarding issuers that file electronically with the
Commission.
Talisman has filed with the Commission a registration statement under the
Securities Act of 1933, as amended, with respect to the common stock offered
hereby. This prospectus, which is a part of the registration statement, does not
contain all the information set forth in, or annexed as exhibits to, such
registration statement, certain portions of which have been omitted pursuant to
rules and regulations of the Commission. For further information with respect to
Talisman and the common stock, reference is made to such registration statement,
including the exhibits thereto, copies of which may be inspected and copied at
the aforementioned facilities of the Commission. Copies of such registration
statement, including the exhibits, may be obtained from the Public Reference
Section of the Commission at the aforementioned address upon payment of the fee
prescribed by the Commission. Information regarding the operation of the
Commission's public reference facilities may be obtained by calling the SEC at
1-800-SEC-0330.
Talisman intends to distribute to its stockholders annual reports containing
financial statements audited and reported upon by its independent public
accountants after the close of each fiscal year, and will make such other
periodic reports as the company may determine to be appropriate or as may be
required by law. Talisman's fiscal year ends December 31st of each year.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to Talisman from the sale of the 600,000
shares of common stock will be approximately $2,210,000 ($2,435,000 if the
underwriters' over-allotment option is exercised in full), based upon the public
offering price of $5.00 per share, and after deducting underwriting discounts
and estimated offering expenses. We intend to use the net proceeds of the
offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATION OF APPROXIMATE PERCENTAGE OF
NET PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ------------------------------------------------------------------------------------ -------------- ---------------
<S> <C> <C>
Expansion and development of battery production lines............................... 1,400,000 63.4%
Advertising and sales development................................................... 350,000 15.8%
Working capital and general corporate purposes...................................... 460,000 20.8%
-------------- -----
Total....................................................................... $ 2,210,000 100.0%
-------------- -----
-------------- -----
</TABLE>
Any money received by Talisman upon the exercise of the class A common stock
purchase warrants will be used for working capital and general corporate
purposes. The maximum amount of proceeds that Talisman will receive upon the
exercise of the class A common stock purchase warrants is $7,609,702.50
(assuming the current exercise price of $7.50 per share). There can be no
assurance that any or all of the class A common stock purchase warrants will be
exercised and that Talisman will receive any proceeds therefrom.
We reserve the right to reallocate proceeds to different uses if, in
management's view, the needs of the business so require. In addition, a large
portion of the proceeds is allocated to discretionary purposes. Investors may
not agree with any such allocation or reallocation. Based on our operating plan,
we believe that the net proceeds of this offering, together with available funds
on hand and cash flow from future operations, will be sufficient to satisfy our
working capital requirements for at least 12 months following this offering.
Such belief is based upon certain assumptions (including assumptions as to our
contemplated operations and business plan and economic and industry conditions).
We cannot be certain that such resources will be sufficient for such purpose.
Furthermore, if we were to make significant acquisitions for cash consideration,
we would require additional capital. In addition, contingencies may arise that
may require us to obtain additional capital. We cannot be certain that we will
be able to obtain such capital on favorable terms or at all. Pending use of the
net proceeds of this offering, we intend to invest the net proceeds in
short-term, interest-bearing, investment grade securities. Please see
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
13
<PAGE>
DILUTION
At June 30, 1999, the net tangible deficit attributable to exchange of
indebtedness and additional share issuance of Talisman was $(2,871,468), or
approximately $(2.79) per share. After giving effect to conversion of all the
outstanding promissory notes into an aggregate of 1,014,627 shares of common
stock upon listing of Talisman's common stock on the Nasdaq SmallCap Market, our
net tangible book value as of June 30, 1999, was approximately $2,201,667, or
$1.08 per share of common stock. After giving effect to the sale by Talisman of
the 600,000 shares of common stock offered hereby, at the public offering price
of $5.00 per share, the net tangible book value of Talisman is $4,411,667, or
$1.67 per share. This represents an immediate increase in the pro forma net
tangible book value of $4.46 per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $3.33 per share to new
investors. Please see "Certain Transactions" and "Description of Securities."
The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $ 5.00
Net tangible book value per share as of June 30, 1999..... $ (2.79)
Increase in net tangible book value attributable to
exchange of indebtedness and additional share
issuance................................................ 3.87
Increase in net tangible book value per share attributable
to new investors........................................ 0.59
---------
Net tangible book value per share after the offering........ 1.67
Dilution per share to new investors......................... $ 3.33
---------
---------
</TABLE>
The following table summarizes, as of June 30, 1999, the differences between
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid by existing stockholders and by new
investors at the offering price of $5.00 per share and before deducting
estimated underwriting discounts and commissions and estimated offering expenses
for new investors:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE AVERAGE
OF TOTAL AGGREGATE OF TOTAL PRICE
SHARES PURCHASED SHARES CONSIDERATION CONSIDERATION PER SHARE
---------------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Existing Shareholders................ 1,030,330 63% $ 2,590,287 46% $ 2.51
New Investors........................ 600,000 37% $ 3,000,000 54% $ 5.00
---------------- ------- ------------- -------------
Total................................ 1,630,330 100.0% $ 5,590,287 100.0%
---------------- ------- ------------- -------------
---------------- ------- ------------- -------------
</TABLE>
The foregoing discussion and table does not give effect to:
- 25,230 shares of common stock issued subsequent to June 30, 1999, of which
15,230 shares were issued under our 1999 Directors Company Stock Plan, and
10,000 shares were issued in connection with legal services rendered.
- 90,000 shares of common stock subject to the underwriters' over-allotment
option
- 60,000 shares of common stock issuable upon the exercise of the
underwriters' warrants
- 31,200 shares of common stock reserved for issuance pursuant to our 1997
Stock Option Plan
- 225,000 shares of common stock reserved for issuance pursuant to our 1999
Senior Executive Stock Option Plan
- 84,770 shares of common stock reserved for issuance pursuant to our 1999
Directors Company Stock Plan
14
<PAGE>
- 1,014,627 shares of common stock issuable upon the exercise of 1,014,627
class A warrants, all of which are currently exercisable
- 1,058,615 shares of common stock issuable upon the exercise of additional
warrants and options, all of which are currently exercisable
- the automatic conversion of $5,073,135 principal amount of 8% convertible
subordinated promissory notes into 1,014,627 shares of common stock upon
listing of Talisman's common stock on a U.S. based exchange
15
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of Talisman as of
June 30, 1999, and as adjusted to reflect the sale of 600,000 shares of common
stock offered hereby at an initial public offering price of $5.00 per share,
after deducting the underwriting discounts and estimated offering expenses
payable by Talisman, and the application of the net proceeds from this offering
and the automatic conversion of all outstanding 8% convertible subordinated
promissory notes into 1,014,627 shares of common stock upon listing of
Talisman's common stock on the Nasdaq SmallCap Market.
This table should be read in conjunction with the consolidated financial
statements and the notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ ------------
Total current liabilities............................................................. $ 6,659,345 $ 1,586,210
Total long-term liabilities........................................................... 539,198 539,198
Shareholders equity:
Common stock, an unlimited number of shares authorized; 1,030,330 shares issued and
outstanding on an actual basis; 2,644,957 shares issued and outstanding as
adjusted............................................................................ 2,590,287 9,377,208
Class A special shares, an unlimited number of shares authorized; 3,300 shares issued
and outstanding on an actual and as adjusted basis.................................. 1,687,083 1,687,083
Class A warrants, 1,014,627 outstanding............................................... 101,463 --
Retained earnings (accumulated deficit)............................................... (5,126,654) (5,126,654)
Accumulated other comprehensive loss.................................................. (148,120) (148,120)
Contributed surplus................................................................... 309,233 309,233
Total shareholders' equity............................................................ (586,708) 6,098,750
Total capitalization.................................................................. 6,611,835 8,224,158
</TABLE>
The 2,644,957 shares as adjusted for this offering excludes:
- 25,230 shares of common stock issued subsequent to June 30, 1999, of which
15,230 shares were issued under our 1999 Directors Company Stock Plan, and
10,000 shares were issued in connection with legal services rendered.
- 90,000 shares of common stock subject to the underwriters' over-allotment
option
- 60,000 shares of common stock issuable upon the exercise of the
underwriters' warrants
- 31,200 shares of common stock reserved for issuance pursuant to our 1997
Stock Option Plan
- 225,000 shares of common stock reserved for issuance pursuant to our 1999
Senior Executive Stock Option Plan
- 84,770 shares of common stock reserved for issuance pursuant to our 1999
Directors Company Stock Plan
- 1,014,627 shares of common stock issuable upon the exercise of 1,014,627
class A warrants, all of which are currently exercisable
- 1,058,615 shares of common stock issuable upon the exercise of additional
warrants and options, all of which are currently exercisable
16
<PAGE>
EXCHANGE RATE DATA
We maintain our books of account in Canadian dollars, but have provided the
financial data in this prospectus in United States dollars with our audit
conducted in accordance with generally accepted auditing standards in the United
States of America.
The following table sets forth, for the periods indicated, certain exchange
rates based on the noon buying rate in New York City for cable transfers in
Canadian dollars. Such rates are the number of United States dollars per one
Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank
of New York for Canadian dollars per US$1.00. The average exchange rate is based
on the average of the daily exchange rates during such periods. On July 31,
1999, the exchange rate was approximately CDN.$1.00 per US$.6716.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
Rate at end of period............................................ $ .7128 $ .7323 $ .7301 $ .6999 $ .6505
Average rate during period....................................... .7320 .7288 .7333 .7222 .6740
High............................................................. .7632 .7527 .7513 .7487 .7104
Low.............................................................. .7103 .7023 .7235 .6945 .6422
</TABLE>
PRICE RANGE FOR COMMON STOCK AND DIVIDEND POLICY
On December 30, 1997, Talisman's common stock began trading on the Canadian
Dealing Network Inc., a subsidiary of The Toronto Stock Exchange, under the
symbol "TALS." The Canadian Dealing Network is a trade reporting and quotation
system for over-the-counter trading in the Province of Ontario, Canada. On
January 27, 1999, Talisman effected a 1-for-25 reverse split of our common
stock, which upon consummation, Talisman requested the Canadian Dealing Network
to formally halt public quotation of the shares of Talisman. This requested
suspension does not affect the ability of market makers and other dealers to
report trades of the common shares of Talisman through the facilities of the
Canadian Dealing Network. We have applied for quotation of our common stock on
the Nasdaq SmallCap Market under the symbols "BATT" and "BATTW." The following
table sets forth, for the periods indicated, the high and low closing trading
prices of the common stock as reported by the Canadian Dealing Network.
<TABLE>
<CAPTION>
MONTH HIGH LOW
- ------------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
December, 1997................................................................................... 34.03 34.03
January, 1998.................................................................................... 34.03 22.12
February, 1998................................................................................... 23.65 14.46
March, 1998...................................................................................... 12.76 8.50
April, 1998...................................................................................... 13.61 7.66
May, 1998........................................................................................ 11.06 7.66
June, 1998....................................................................................... 7.66 5.96
July, 1998....................................................................................... 6.81 3.40
August, 1998..................................................................................... 6.47 4.25
September, 1998.................................................................................. 4.25 3.06
October, 1998.................................................................................... 3.91 2.70
November, 1998................................................................................... 3.40 2.21
December, 1998................................................................................... 5.10 2.04
January, 1999.................................................................................... 5.10 3.40
</TABLE>
17
<PAGE>
The closing trading prices set forth above have been stated in dollars, and
have been calculated based upon the Exchange Rate in effect as of July 31, 1999,
which was approximately CDN.$1.00 per US$.6716.
As of August 1, 1999, there were 1,055,560 shares of common stock
outstanding, there were approximately 2,000 registered holders of Talisman's
common stock.
DIVIDEND POLICY
To date, Talisman has paid no dividends on any shares of its common stock
and Talisman's board of directors has no present intention of paying any
dividends on its common stock in the foreseeable future, as we intend to use our
earnings, if any, to generate increased growth. The payment by Talisman of
dividends in the future, if any, rests solely within the discretion of the board
of directors and will depend upon, among other things, Talisman's earnings,
capital requirements and financial condition, as well as other factors deemed
relevant by Talisman's board of directors. Although dividends are not limited
currently by any agreements, it is anticipated that future agreements, if any,
with institutional lenders or others may also limit Talisman's ability to pay
dividends.
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the years ended December 31,
1997 and 1998 and at December 31, 1997 and 1998 is derived from and should be
read in conjunction with Talisman's consolidated financial statements, including
the notes thereto, appearing elsewhere in this prospectus. The summary financial
data set forth below for the interim periods ended June 30, 1999 and 1998 has
been prepared from Talisman's books and records and reflects, in our opinion,
all adjustments necessary for a fair presentation of the financial position,
results of operations, and cash flows of Talisman, as at the periods indicated
therein. Results for interim periods are not necessarily indicative of results
which can be expected for the entire year.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED
SEVEN MONTHS ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------------
1997 1998 1998 1999
------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Revenues....................................... $ 139,646 $ 748,254 $ 348,605 $ 70,688
Operating Expenses............................. 180,582 1,487,052 628,527 639,566
Gross Profit................................... (40,936) (738,798) (279,922) (568,878)
Expenses:
Selling, general and administrative........ 597,558 1,136,516 243,229 872,648
Amortization............................... 27,670 304,182 187,234 370,003
Interest and bank charges.................. 11,236 99,292 25,749 105,133
Total expenses......................... 636,464 1,539,990 456,212 1,347,784
Loss for the period............................ (640,340) (2,274,202) (733,773) (1,887,672)
Deficit, beginning of period................... (324,440) (964,780) (964,780) (3,238,982)
Deficit, end of period......................... (964,780) (3,238,982) (1,698,553) (5,126,654)
Loss per share................................. (1.35) (3.69) (1.55) (1.83)
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS AT DECEMBER 31, AS AT JUNE 30, 1999
------------------------- ---------------------------
<S> <C> <C> <C> <C>
1997 1998 ACTUAL ADJUSTED(1)
---------- ------------- ------------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Working capita1(2)....................................... $ (90,957) $ (1,063,387) $ (3,424,930) $ 3,260,528
Total current assets..................................... 354,591 839,659 3,234,415 4,846,738
Total current liabilities................................ 445,548 1,903,046 6,659,345 1,586,210
Total shareholder's equity............................... 1,961,368 1,142,461 (586,708) 6,098,750
</TABLE>
- ------------------------
(1) As adjusted to reflect (i) the issuance of 1,014,297 shares of common stock
upon conversion of $5,073,135 principal amount of 8% convertible
subordinated promissory notes, and (ii) the issuance of the 600,000 shares
of common stock offered hereby and the application of the net proceeds
therefrom.
(2) Working capital represents current assets less current liabilities.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this prospectus that are not historical are
forward looking statements, including statements regarding our expectations,
intentions, beliefs or strategies regarding the future. Forward looking
statements include statements regarding liquidity, anticipated cash needs and
availability and anticipated expense levels. All forward looking statements
included in this prospectus are based on information available to us on the date
hereof and we assume no obligation to update any such forward looking
statements. It is important to note that our actual results could differ
materially from those in such forward looking statements. Among the factors that
could cause actual results to differ materially are the factors detailed in the
risks discussed in the "Risk Factors" section included in this prospectus
beginning at page 6.
GENERAL
Talisman was incorporated in July 1978 and for almost 20 years carried on
business as a junior mineral exploration company in the Province of Ontario,
Canada. In September 1997, Talisman (then known as Firesand Resources Ltd.)
entered into a share exchange agreement with Talisman International Inc.
pursuant to which Talisman acquired all of the issued and outstanding shares of
common stock of Talisman International in exchange for shares of Talisman. Upon
completion of the share exchange, Talisman changed its name to its current name,
Talisman Enterprises Inc. The share exchange was accounted for as a reverse
takeover and accordingly, the results of Talisman (formerly constituted as
Firesand) have been included with those of Talisman International from the date
of the share exchange.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES. Total revenues for the six months ended June 30, 1999 decreased
80% to $70,688 from $348,605 for the six months ended June 30, 1998. This
decrease was primarily attributable to the timing of sales orders placed by Drug
Emporium as a result of a start-up program.
OPERATING EXPENSES AND GROSS MARGINS. Operating expenses increased slightly
to $639,566 for the six months ended June 30, 1999, from $628,527 for the six
month period ended June 30, 1998. The increase was caused by continued spending
in direct material costs in anticipation of future sales.
Gross margins, as a percentage of revenues, decreased (805%) for the six
months ended June 30, 1999, from (81%) for the six month period ended June 30,
1998. The decline in gross margin percentage resulted from a decrease in sales
without a decrease in fixed operating costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the six months ended June 30, 1999 increased 259% to
$872,648 from $243,229 for the six months ended June 30, 1998. This increase was
primarily attributable to the hiring of two key employees, specifically James A.
Ogle, President and Chief Executive Officer, and Christian H. Bunger, Vice
President of Sales-U.S., along with accruing for a management bonus program.
AMORTIZATION EXPENSE. Amortization expense for the six months ended June
30, 1999 increased 98% to $370,003 from $187,234 for the six months ended June
30, 1998.
INTEREST EXPENSE AND BANK CHARGES. Interest expense and bank charges for
the six months ended June 30, 1999 increased 309% to $105,133 from $25,749 for
the six months ended June 30, 1998. This increase was primarily attributable to
higher term loan principal balance in 1999 due to replacing credit institutions
from the Bank of Hongkong to Canadian Imperial Bank of Commerce, in addition to
commencement fees paid to General Electric Capital Canada Inc. in regards to the
loan agreement.
20
<PAGE>
YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE SEVEN MONTHS ENDED DECEMBER 31,
1997
REVENUES. Revenues increased to $748,254 for the year ended December 31,
1998, from $139,646 for the seven month period ended December 31, 1997. This
increase in sales was attributable to a growth in Talisman's customer base from
11 to 34 customers, as a result of the increased ability of Talisman to supply
our customers.
For the year ended December 31, 1998, approximately 77% of Talisman's sales
(representing an aggregate of approximately $576,159 of revenues) were made to
customers located in the United States, including sales to Drug Emporium,
Discount Drug Mart, and Save-On. For the seven month period ended December 31,
1997, Talisman had only minimal sales to customers located in the United States
(representing an aggregate of approximately $6,204 of revenues).
OPERATING EXPENSES AND GROSS MARGINS. Operating expenses increased to
$1,487,052 for the year ended December 31, 1998, from $180,582 for the seven
month period ended December 31, 1997. Gross margins, as a percentage of
revenues, decreased to (99%) for the year ended December 31, 1998, from (29%)
for the seven month period ended December 31, 1997.
The gross margin percentage (99%) is in a negative position because these
expenses were incurred in advance of the increase in the customers sales base
(approximately 50% of sales occurred during the last 2 months of the period).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased to $1,136,516 for the year ended December 31,
1998, as compared to $597,558 for the seven month period ended December 31,
1997. The increase reflects the impact of 10 months of selling, general and
administrative expense compared to seven months manufacturing overhead and
selling, general and administrative expense for the prior period.
AMORTIZATION EXPENSE. Amortization expense consisting exclusively of
equipment depreciation, was $304,182 for the year ended December 31, 1998, as
compared to amortization expense of $27,670 for the seven month period ended
December 31, 1997. This increase is attributable to the fact that manufacturing
did not begin until the last quarter of 1997. Therefore, only a small amount of
equipment depreciation was recognized for the period ended December 31, 1997.
INTEREST EXPENSE AND BANK CHARGES. Interest expense and bank charges
increased to $99,292 for the year ended December 31, 1998 from $11,236 for the
seven month period ended December 31, 1997. For the year ended December 31,
1998, two loans were outstanding namely a term loan and an operating loan. The
term loan had an average principal balance for the period of $386,536 bearing
interest at a rate of 7.75% per annum. The operating loan had an average
principal balance for the period of $221,563 bearing interest at a rate of 7.75%
per annum. Both loans were outstanding for the entire period consequently
interest expense totaled $47,137. The remaining $52,155 includes service charges
of $8,877, short term bridge loans of $12,415 and financing charges of $30,863.
The only interest charge relative to the seven month period ending December 31,
1997 is the term loan with a principal balance of $320,401 at December 31, 1997
bearing interest at a rate of 7.75%, which was outstanding from August 1997
through December 1997.
FOREIGN EXCHANGE
Historically, Talisman had minimal sales (approximately $6,204 of revenues)
to United States customers for the period ended December 31, 1997. Accordingly,
Talisman did not experience any material foreign exchange gains or losses in its
operations in the period ended December 31, 1997. For the year ended December
31, 1998, Talisman had a foreign exchange gain of approximately $500, which was
included in Talisman's earnings. This amount consisted of foreign exchange gains
on sales/ receivables to/from U.S. customers offset by losses on U.S.
purchases/payables from U.S. suppliers.
21
<PAGE>
As Talisman's sales to foreign customers grow, Talisman may be subjected to
increased risks of foreign currency gains or losses. Currently, a majority of
the revenues from sales are received in US dollars and a majority of expenses
from goods purchased for resale are purchased in US dollars. Since Talisman is
based in Ontario, Canada, approximately 75% of Talisman's combined operational
and selling, general and administrative expenses for the period ended December
31, 1998 were incurred in Canadian dollars. Upward variations in the value of
the Canadian dollar, as compared to the value of the US dollar, could adversely
effect Talisman's results.
STOCK BASED COMPENSATION
We account for our stock options and warrants under APB Opinion 25. If
Talisman was required to account for the stock options and warrants using the
fair value method, the net loss for the seven months ended December 31, 1997
would have increased by $497,706. Such amounts represent the fair value of
options and warrants at the time they vested. Since these options and warrants
vested at the time they were granted, there will be no future charge to income
with respect to these options and warrants.
INFLATION
Talisman has experienced minimal impact from inflation and changing prices
on its net sales and on its income from continuing operations for the periods it
has been engaged in business.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the completion of the share exchange with Talisman International,
Talisman had limited working capital and its prospects were severely limited.
Upon completion of the share exchange, Talisman International became a
wholly-owned subsidiary of Talisman. Up until the completion of the share
exchange, Talisman International had sustained its operations from its inception
(September 26, 1996) primarily from the sale of equity. Specifically, from
September 1996 to immediately prior to the share exchange (September 1997),
Talisman International sold (i) 428,371 shares of common stock for an aggregate
of CDN$1,518,264 in cash, (ii) 50,000 shares of common stock for machinery and
equipment having a fair market value of CDN$200,000 and inventory having a fair
market value of CDN$50,000 and (iii) 3,300 Class A Special shares for machinery
and equipment having a fair market value of CDN$2,300,000 and technological and
intellectual property having a fair market value of CDN$1,000,000 for Canadian
GAAP purposes. It should be noted, however, that no value has been ascribed to
the technological and intellectual property assets for U.S. GAAP purposes.
International also had operating credit facilities (both term and revolving)
from the Hongkong Bank of Canada, such facilities being secured by all the
assets of International.
Subsequent to the completion of the share exchange, Talisman sold an
additional 542,787 shares of common stock for an aggregate of CDN$3,293,208 in
cash. Of this new equity, CDN$2,395,000 was provided by Talisman Partners, a
private investment partnership, through the completion of two separate private
placements. For a complete description of the private placement completed with
Talisman Partners, see "CERTAIN TRANSACTIONS." The proceeds of such financings
were used by Talisman (i) to pay approximately CDN$670,000 owing to a prior
short term secured lender to Talisman, (ii) to expand Talisman's battery
manufacturing capabilities and (iii) for general working capital purposes.
From December 1998 through March 1999, Talisman completed a CDN$700,000
convertible note financing. The notes were converted into securities of Talisman
in connection with the first closing of Talisman's private placement offering
which was completed in March 1999. For a complete description of the private
placement completed in March 1999, see "CERTAIN TRANSACTIONS."The holders of the
notes also received warrants to acquire an aggregate of 72,465 shares of common
stock of Talisman exercisable at CDN$7.50 per share.
22
<PAGE>
In June 1999, Talisman established new financing arrangements with General
Electric Capital Canada Inc. In connection with the implementation of such new
facilities, Talisman paid out, in full, its previous secured lender, Canadian
Imperial Bank of Commerce. The financing facilities provided by General Electric
Capital currently consist of a CDN$705,000 term loan. The term loan is due and
payable on or before June 30, 2002. Interest charged on the General Electric
Capital facilities is, (i) with respect to funds advanced in Canadian dollars,
calculated at the average rate per annum established by the Royal Bank of Canada
as its discount rate for 30-day Canadian bankers acceptances plus 4.0% per year,
and (ii) with respect to funds advanced in U.S. dollars, the latest rate for
30-day dealer placed commercial paper, which normally is published in the "Money
Rates" section of the Wall Street Journal. Furthermore, all indebtedness of
Talisman under the General Electric Capital facilities is secured by Talisman's
assets.
In addition to the term loan with General Electric Capital and upon
satisfaction of certain conditions precedent, including (i) the entering into of
a Factoring Agreement to be entered into between Red Cell Canada Inc. and
Talisman International Inc., in form and substance satisfactory to General
Electric Capital Canada Inc.; (ii) updated personal property security searches;
(iii) a financial due diligence review of Talisman by General Electric Capital
Canada Inc. to ensure that their net borrowing availability will not be less
than CDN$150,000 after giving effect to the initial revolving credit advance;
and (iv) an assignment by Talisman to General Electric Capital Canada Inc. for
all future payments from the Canadian Economic Development Corp., the General
Electric Capital financing arrangement will be expanded to include (1) a
revolving credit line of up to CDN$7,500,000, and (2) a "capex" loan of up to
CDN$2,059,200. As of the date of this prospectus, a draft of the Factoring
Agreement is being reviewed by General Electric Capital and its counsel. While
we believe that we will be able to satisfy these conditions, there can be no
assurances that these conditions to the additional General Electric Capital
financing will be satisfied.
Talisman's working capital deficit at June 30, 1999 was ($3,424,930). The
negative working capital represents the indebtedness incurred in connection with
the closing of a recently completed private placement offering. The private
placement offering, which was completed with Spencer Trask Securities, Inc. as
placement agent, resulted in the sale of an aggregate of 50.72985 units solely
to U.S. investors for gross proceeds to Talisman of $5,174,472.70 (such proceeds
being inclusive of the $700,000 raised from December 1998 through March 1999
described above). The units consisted of an aggregate of (1) $5,073,135
principal amount of 8% convertible promissory notes, and (2) 1,014,627 warrants
to purchase shares of common stock, which warrants are exercisable at $7.50 per
share. In connection with such closings, Spencer Trask received a placement fee
equal to 10% of the aggregate purchase price of the securities sold by it, plus
a non-accountable expense allowance equal to three percent of the aggregate
purchase price of the securities sold and a warrant, granted by Talisman for
$1.00 consideration, to purchase an amount of common stock equal to 20% of the
common stock sold in the offering at an exercise price equal to 120% of the
price of the common stock sold. Additionally, upon the first closing of the
offering, Talisman entered into (1) an agreement whereby Spencer Trask was
granted a right of first refusal to act as underwriter or agent for any proposed
private or public offering of Talisman's securities by Talisman or by any of its
principal stockholders, and (2) a non-exclusive finder's agreement pursuant to
which Spencer Trask is entitled to receive a fee based upon a percentage of the
value of any business combination or financing arrangement, including but not
limited to a merger or purchase of assets, which is introduced to Talisman by
Spencer Trask. For a complete description of the agreements entered into between
Talisman and Spencer Trask, see "CERTAIN TRANSACTIONS."
We have, with the proceeds of the recently completed private placement
offering, commenced expanding our operations into the production and marketing
of AAA batteries. We intend to use a portion of the proceeds from this offering
to complete the expansion of our operations into the production and marketing of
AAA batteries, to increase the production capacity of our AA cell size,
23
<PAGE>
and to commence the expansion of our operations into the production and
marketing of C and D battery cell sizes. Our ability to complete the proposed
expansion of our operations into the production and marketing of C and D battery
cell sizes is dependent upon obtaining additional financing.
Except for this offering and the existing CDN$705,000 term loan facility
with General Electric Capital Canada Inc., which is due and payable on or before
June 30, 2002, Talisman has no other current arrangements in place with respect
to financing. As stated above, Talisman recently established new financing
arrangements with General Electric Capital Canada Inc. which may, subject to
satisfaction of certain conditions, be expanded to include (i) a revolving
credit line of up to CDN$7,500,000, and (ii) a "capex" loan of up to
CDN$2,059,200. There can be no assurances that the conditions to the additional
General Electric Capital financing will be satisfied or that additional
financing will be available on acceptable terms, if at all. Moreover, no
assurance can be given that this offering will be achieved. If this offering is
not successfully completed and additional financing arrangements are not
obtained, we may be unable to fully fund our operations, pursue our business
strategy, take advantage of new opportunities, develop or enhance our products,
or respond to competitive pressures and financial or marketing hurdles. Such
inability could have a materially adverse effect on Talisman's business,
operating results and financial condition. Moreover, the estimated cost of the
proposed expansion of our production and marketing activities is subject to
numerous uncertainties, including the problems, expenses, difficulties,
complications and delays, many of which are beyond our control, frequently
encountered in connection with the establishment and development of new business
activities, and may be affected by the competitive environment in which we are
operating. Accordingly, there can be no assurance that we will complete the
proposed expansion of our production and marketing activities described herein.
Talisman's management believes that upon full implementation of Talisman's
business plan, sufficient revenues will be generated to meet operating
requirements. However, no assurance can be given that such goal will be obtained
or that any expected revenues will be realized.
YEAR 2000
Our business could be adversely impacted by information technology issues
related to Year 2000. We have been engaged in assessing this Year 2000 issue as
it relates to our business. This review covers information and non-information
technology systems of both Talisman's own operating systems and the systems of
Talisman's third party vendors and manufacturers.
Talisman does not currently utilize any equipment in our battery assembly
process which utilizes programmable logic controllers (PLC). Accordingly, such
systems do not require any Year 2000 solutions. In addition, we have replaced
our phone system in the summer of 1999; therefore, any Year 2000 issues relating
to our phone system are now covered. Finally, Talisman currently utilizes only
several personal computers and individualized software programs which, in the
event some are not Year 2000 compliant, are easily replaceable without any
significant delay or cost to Talisman. Talisman estimates that the cost
associated with replacing nine personal computers will not exceed an aggregate
of $50,000.
We do not expect to encounter any long-term Year 2000 problems from our
customers, most of which are major retail corporations. Any loss of information
or data by such customers can be easily replaced by Talisman manually providing
them with relevant information. Except for three single sourced vendors,
Talisman utilizes multiple suppliers from whom we obtain the raw materials which
are used in the manufacturing process. Talisman intends to monitor carefully
these sources and carry additional inventory until the end of the first quarter
of Year 2000.
With the exception of the cost which we expect to incur for replacing nine
personal computers, we do not believe that we will incur any additional costs in
connection with implementing solutions to year 2000 issues which could have a
material impact on our financial results or position.
24
<PAGE>
OUR HISTORY
Talisman was incorporated under the laws of the Province of Ontario on July
28, 1978 under the name Firespur Explorations Ltd. In May 1989, we changed our
name to Firesand Explorations Ltd. and, in September 1997, our name changed to
our present name.
From 1978 to early 1997, Talisman operated as a mineral exploration company
in the Province of Ontario, Canada. During such period, Talisman conducted
various exploration programs on patented mining claims held by us on lands
situated in Esquega Township, Province of Ontario, Canada. In spite of our
exploration efforts, no significant ore deposit or other mineralized targets
were identified which justified additional exploration expenditures. Effective
January 1997, Talisman wrote-off the value of all mineral exploration assets
then held and, as a result of such actions, Talisman now has no mining assets or
other mineral related interests.
In August 1997, Talisman entered into a share exchange agreement with the
shareholders of Talisman International pursuant to which the shareholders of
Talisman International exchanged 11,959,265 common shares of Talisman
International for 478,371 of Talisman's common shares. Prior to the share
exchange, there was no affiliation between Firesand and Talisman International.
As a result of the share exchange, Talisman International became a wholly-owned
subsidiary of Talisman. Upon completion of such transaction in September 1997,
we changed our name from Firesand to our present name--Talisman Enterprises Inc.
25
<PAGE>
BUSINESS
OVERVIEW
Talisman, through our wholly-owned operating subsidiary, Talisman
International Inc., manufacturers high-quality AA size disposable alkaline
batteries for private label sale by retailers. We are currently, to our
knowledge, the only North American-based battery manufacturer that focuses
primarily on the private label market. Our objective is to leverage our unique
strategic position to build market share in the private label battery market and
capitalize on the significant growth in private label battery sales in North
America.
INDUSTRY BACKGROUND
The worldwide battery market is predominately comprised of four major
chemical systems:
1. Alkaline
2. Heavy Duty--Zinc Chloride
3. General Purpose--Zinc Carbon
4. Rechargeable--Nickel Cadmium
Alkaline batteries offer the best performance and are the most widely used type
of battery in North America with a greater than 65% market share. Industry
analysts estimate the North American market for disposable alkaline batteries
was approximately $3 billion in 1997, representing consumption of an estimated 4
billion batteries. An estimated 40% increase in battery-operated devices has
driven growth in the use of disposable batteries over the past 10 years.
Furthermore, industry data reveals that within the North American market, the
alkaline segment is the fastest growing. Consumption of alkaline batteries is
expected to continue to grow at a rate of 5-8% per year.
The consumer battery market consists primarily of five major cell sizes--AA,
AAA, C, D and 9 volt. The AA cell accounts for approximately 65% of the total
unit sales, the AAA cell accounts for approximately 15% and the C, D and 9 volt
cell sizes account for approximately 7% each. We believe branded manufacturer
gross margins on the AA and AAA (80%) are approximately double that of the C, D
and 9 volt (40%). We believe that, upon implementation of our business plan, our
gross margin for our AA batteries will be approximately 33%, compared to an
approximately 80% gross margin for branded manufacturers.
Duracell Inc. and Eveready Battery Co., Inc. are the major manufacturers of
alkaline batteries and currently supply approximately 83% of the alkaline
batteries sold in the North American market.
PRIVATE LABEL BATTERY MARKET OPPORTUNITY
The market for private label consumer products has grown significantly in
recent years. In order to generate greater customer loyalty, many retailers have
sought to develop private label or corporate brands in numerous consumer product
categories. Private label affords retailers an opportunity to enhance their
store's identity by offering high quality products that are significantly less
expensive than brand-name alternatives. According to information supplied by the
Private Label Manufacturers Association, in a number of product categories,
including light bulbs, disposable cameras and tape, private label items have
achieved a market share of 20-25%. On average, the study also shows retailers
are projecting a private label category growth rate of 24% over the next three
years across all major product categories.
While private label batteries only comprise approximately 9% of the overall
disposable alkaline battery market, batteries are the fastest growing segment
within the private label market (source: PLMA). We believe, that despite a
limited supply of private label product, the battery segment has grown at almost
double the rate of other private label products. Currently, most private label
batteries
26
<PAGE>
are supplied either by offshore manufacturers or by brand-name battery
manufacturers such as Duracell and Eveready. It is our belief that offshore
battery suppliers, however, have limited available alkaline production
capacities, suffer from higher logistics costs, and typically produce batteries
with less than 25% of the life of alkaline batteries because of their use of
carbon zinc technology. Offshore manufacturers are those manufacturers not
located in the three North American Free Trade Agreement countries (USA, Mexico,
Canada). While there are several manufacturers in Europe, most are located in
Asia. Among the large number of manufacturers in Asia, a large majority,
particularly those located in the Peoples Republic of China, only produce old
technology general purpose or heavy duty batteries, or produce alkaline
batteries with mercury added to the formula. Testing done by Talisman identified
fewer than ten mercury-free producers.
Management of Talisman believes that, for brand-name manufacturers,
supplying private label batteries represents a significant conflict of interest:
the growth of private label sales comes at the expense of higher margin branded
product sales. To date, major companies such as Duracell and Eveready have, in
our opinion, participated in private label manufacturing only when pressured by
certain large retailers. This is primarily because it is not in the best
interests of current branded manufacturers to provide a private label product.
Due to the lower retail prices of private label batteries, profit margins are
lowered significantly and line changeovers result in manufacturing
inefficiencies. Accordingly, Talisman believes that brand-name manufacturers do
not actively solicit private label sales, but serve demand reactively in order
to maintain or secure large retail accounts for branded products. Accounts
requesting private label product from a major branded supplier are therefore
generally sold with the understanding that their branded product be carried as a
preferred or exclusive product line.
Given the general reluctance of major suppliers to provide private label
product to their customers, Talisman believes that a tremendous growth
opportunity exists.
OUR STRATEGY
Our objective is to become the industry leader in the marketing, sale and
manufacture of private label alkaline batteries in North America. We believe we
are the first and only dedicated private label alkaline battery manufacturer in
North America. We intend to utilize our unique market position to capitalize on
the growth in private label product sales.
Our manufacturing technology and expertise enables us to produce batteries
of comparable quality to leading brand-name batteries. In addition, our location
in Southern Ontario allows us to streamline logistics costs and develop close
working marketing and sales relationships with leading North American retailers.
We currently supply private label batteries to 15 customers. Management
estimates that we have the capacity to ship in excess of 25 million batteries
during 1999.
The key elements of our strategy include plans to:
- Focus exclusively on alkaline batteries;
- Manufacture batteries that are equivalent in performance to brand-name
batteries;
- Sell batteries exclusively for private label purposes at a lower cost than
brand-name alternatives;
- Initially manufacture AA size batteries, which comprise the largest
percentage of the market and provide high gross margins;
- Expand into the production and marketing of AAA, C and D battery cell
sizes and increase production capacity of the AA cell size. We believe
that the addition of other cell sizes (i.e. AAA, C and D) will allow us to
expand existing customer sales and enhance sales opportunities with new
customers that require all cell sizes;
27
<PAGE>
- Further develop an already established North American sales broker
network;
- Focus on private label retail customers with sales potential that will
optimize production run costs and thereby maximize margins.
In addition to selling high-quality products with the name of our customers on
them, it is our belief that our retail customers typically improve their
profitability from 30-35% on the sale of a branded equivalent product to 50-60%
for private label. This also typically results in more profit per unit measured
in dollars and cents than typically realized from the sale of a branded
equivalent.
PRIVATE LABEL MANUFACTURING
We currently manufacture a high quality AA alkaline cell for sale to an
established and growing customer base.
We currently have two (2) cell lines capable of producing AA alkaline cells
at the rate of 100 pieces per minute per cell line. Subject to financing, our
current plans include building a D line in early 2000 followed by a C line in
mid 2000.
We believe that our AA cell is:
- Comparable in performance to the competition on a majority of applications
(source: ACTS Testing Labs Ltd.);
- Advantageously priced compared to branded products, resulting in prices
which are approximately 20-25% lower in retail price;
- Environmentally friendly because we do not add mercury or cadmium.
Supply of the AAA, C, D and 9 volt is currently "out sourced" by Talisman
for certain accounts that desire to carry all five cell sizes. Such sourced
product is labeled, packaged and shipped by us. We have, with the proceeds of
the recently completed private placement offering, commenced expanding our
operations into the production and marketing of AAA batteries. We intend to use
a portion of the proceeds from this offering to complete the expansion of our
operations into the production and marketing of AAA batteries, to increase the
production capacity of our AA batteries, and to commence the expansion of our
operations into the production and marketing of C and D battery cell sizes. Our
ability to complete the proposed expansion of our operations into the production
and marketing of C and D battery cell sizes is dependent upon obtaining
additional financing. We intend to continue to out source our need for 9 volt
battery cells from other manufacturers as the volume requirements for the 9 volt
cell size are not sufficient to justify the expense of producing the product in
house.
Our strategy is to manufacture bare cell batteries in bulk in anticipation
of receipt of customer orders. Such bare cell batteries are kept on hand and
make up a substantial portion of our inventory. We are then in a position to
prepare finished goods upon receipt of customer orders. Further, after such
goods are packaged and labeled they are shipped to customers. To date, we have
been able to fill orders as they are received, and we have not experienced any
delays due to lack of manufacturing capacity or otherwise. Moreover, as
previously stated, we intend to expand our production capacity with the proceeds
from our financing activities. Accordingly, we do not expect that we will
encounter any delays due to lack of manufacturing capacity or otherwise.
28
<PAGE>
BATTERY CUSTOMERS
The following is a list of 1998 customer accounts:
<TABLE>
<S> <C>
A&PFireco--Canada Drug Emporium--U.S.
Robert & James--U.S. RedCell--Canada
Cash Convertors--Canada Save-On--U.S.
Win--Leader--Canada Pirate Wholesale--U.S.
Daisytek--U.S. Discount Drug Mart--U.S.
Food Basics--Canada Best Buy--Canada
Murphy Distributor--Canada North Carolina Mutual Drug--U.S.
Zellers--Canada
</TABLE>
All of our sales are made to our customers pursuant to purchase orders. Our
company has several large customers upon which we depend on for the sale of our
battery products. For the year ended December 31, 1998, sales to Discount Drug
Mart represented 28.6%, Drug Emporium represented 23.6%, Zellers Inc.
represented 9.1% and A&P Fireco represented 7.0% of our overall sales. No other
retail customer accounted for more than 5% of our overall sales.
COMPETITION
The manufacture and sale of alkaline batteries is highly competitive and there
are no substantial barriers to entry into the market. We believe that the
principal competitive factors affecting the market for battery products are the
quality of the product, price, environmental issues, turn around time for
production orders, payment terms for customers, and marketing and sales.
The private label AA alkaline battery products which we currently produce
compete with products imported from the Pacific Rim countries of Indonesia,
China, Hongkong, Japan and South Korea. We believe we offer to our customers key
advantages over offshore suppliers. Such advantages include:
- PROVIDING SUPERIOR AND CONSISTENT PRODUCT PERFORMANCE. It is our
observation that some Pacific Rim producers utilize domestic raw materials
which result in sub-standard performance.
- PRICE. Our private label batteries offer our customers an attractively
priced alternative to the batteries sold by their competitors.
- WE DO NOT ADD MERCURY TO OUR BATTERIES. Mercury is considered to be
environmentally hazardous and, accordingly, the disposal of used batteries
to which mercury has been added is problematic.
- EFFICIENT TURN AROUND TIME. It is our experience that offshore suppliers
generally require a minimum of 30 to 60 days notice prior to producing an
order. Delivery time is a minimum of 30 days beyond that and full
container loads are required. In contrast, we inventory "bare" cells and
can package required orders within a 2-10 day period, depending on the
order size.
- CONSUMER PRODUCTS' INDUSTRY STANDARD PAYMENT TERMS. We provide
creditworthy customers with terms calling for payment within 30-45 days of
shipment of its product to retailers. By comparison, it is our experience
that off-shore suppliers require either a deposit in advance of shipping
or full payment prior to shipping in the form of a letter of credit or
bank transfer.
- MARKETING AND SALES SUPPORT. We provide retailers with on-going sales
expertise and promotional concepts in order to maximize sales and profits.
Various pack sizes are available to meet the needs of retailers and
product displays are supplied to ensure greater in-store visibility and
product movement. In contrast, offshore suppliers, generally speaking,
only supply product and do not offer any on-going marketing support.
29
<PAGE>
We believe that approximately two-thirds (66.6%) of the private label
battery market is controlled by our three major competitors (Duracell, Eveready
and Ray-O-Vac), while the remaining one-third (33.3%) is controlled by offshore
manufacturers.
At present, we do not directly compete (nor do we seek to) with any major
North American battery manufacturer (such as Duracell, Eveready and Ray-O-Vac)
to supply private label batteries to large retail chains. This is because we
have, at present, limited production capability and limited marketing resources
compared to the significant and dominant market capabilities of the established
branded manufacturers. We believe that the overall private label market is
sufficiently large enough that we have an opportunity to penetrate significantly
into this market, and thereby gain significant market share.
STRATEGIC PARTNERS AND KEY SUPPLIERS
Our battery manufacturing lines have been custom made by Pragmatek Inc. of
Mississauga, Ontario, Turning Point Inc. of Oakville, Ontario and Gwinnett
Industrial Machine Inc. of Norcross, Georgia. These companies have over 25 years
of combined experience in the manufacture of reliable battery equipment to
numerous established battery manufacturers. Pragmatek, Turning Point and
Gwinnett are all shareholders of Talisman.
We have a number of key suppliers of raw materials who are also shareholders
in Talisman. They include Burlington Stamping Inc. of Burlington, Ontario and
Hibar Systems Limited of Richmond Hill, Ontario. Burlington Stamping supplies
all of our battery cans while Hibar supplies all of our battery pre-assemblies.
James C. McGavin, a director of Talisman, is also a director, officer and
shareholder of Burlington Stamping. In September 1996, we purchased certain
equipment from Burlington Stamping, consisting of battery can molds, in exchange
for shares of common stock of Talisman. The equipment purchased by us from
Burlington Stamping has been provided to Burlington Stamping by us for the
purpose of having Burlington Stamping manufacture additional battery cans from
dies.
PERSONNEL
As of August 1, 1999, we employed a total of 34 full time employees and one
part time employee. Twelve of such persons are engaged in the areas of
administration, finance, production planning, marketing and sales. In addition,
18 of our 34 employees have prior battery industry experience. None of our
employees are represented by a union. Management considers its relations with
its employees to be satisfactory.
MARKETING, SALES AND DISTRIBUTION
Talisman currently has an established North American sales network that is
directed by individuals with considerable experience in selling private label
batteries to established customers. With the exception of Randy O. Curtis and
Christian H. Bunger, all sales agents and brokers are compensated on a
commission basis only (generally 5%). We currently have a full time sales
organization consisting of four qualified sales professionals who generate a
majority of business through a network of brokers. We have developed a
relationship with two out of the four major, national, private label brokers
dedicated to the food class of trade. In addition, we have established
relationships with twelve independent regional sales agencies, which handled a
myriad of non-food, and drug battery customers throughout Canada and the United
States.
In addition, we support our product merchandised in retail outlets with a
variety of packaging designs and displays intended to create consumer interest
in retail customers' private label disposable alkaline battery product line. We
also develop special pack sizes and styles intended to coincide with peak buying
periods such as back-to-school and Christmas.
30
<PAGE>
We have made every effort to ensure that key positions at Talisman are
filled by qualified individuals with previous battery or private label
experience. These individuals include:
<TABLE>
<S> <C>
Garry J. Syme, Sr. Vice President Former Project Manager Duracell
Duncan C. MacFadyen, VP Finance Former Controller Bossman
Randy O. Curtis, VP Mktg. Canada Former Managing Director--Eveready de Mexico
Sales
Christian H. Bunger, VP Sales--US Former South East Regional Mgr.--Eveready
Dennis Hughey, Bus. Dev. Consultant Former President--Beatrice Private Label
David J. Trudel, VP Mkt. Dev. Former VP Business Dev. BTI
Billie Burke, Purchasing Mgr. Former Purchasing Dept. Duracell
Stan Jackson, Whrhse. Mgr. Former Whrhse. Mgr. Bossman
</TABLE>
For a more detailed description of the professional backgrounds of many of the
above noted persons, see "Management."
PRODUCT LIABILITY INSURANCE
We carry product liability insurance coverage on our battery products in the
amount of CDN$1,000,000, with an additional umbrella protection of
CDN$14,000,000. We believe that the amount of insurance which we maintain is
adequate.
ENVIRONMENTAL AND SAFETY ISSUES
We have made every attempt to ensure that our manufacturing facilities do
not contravene any environmental laws. Our AA battery cell is mercury free and
currently meets North American standards. Certain materials used in our battery
products, as well as one product used in the manufacturing process, are
considered hazardous under the Occupational Safety and Health Act hazard
communication standards as to workplace care and employee notification.
Employees handling these chemicals are required to wear appropriate over
protective gear. Once the product is assembled, chemicals are sealed within a
metal container that seals the chemicals from both the environment and the
atmosphere. All product designated for "waste disposal," including defective
goods, are neutralized immediately and stored in an isolated location at our
premises prior to final disposal. As required by provincial regulations, we have
adopted a procedure of registering all hazardous waste products requiring
disposal. We receive a registration number for all such products and communicate
such registration number to the approved waste disposal company before the
product is transported to a certified landfill waste site. We have factored into
our budgeting process an average cost per battery of CDN$0.001 for waste
disposal purposes.
TECHNOLOGICAL ISSUES/SCIENTIFIC ADVISORS
We constantly test our product to ensure consistent quality of production.
Qualified Talisman employees test samples of each production run and additional
samples are sent to an independent consultant for evaluation. Our batteries also
meet the standard as set by the National Electronic Distributors Association and
the American National Standards Institute, which are European and North American
standardization groups that are comprised of representatives of battery
manufacturers around the world.
Product improvement is on-going through in-house quality control protocols
and through independent consulting contracted to Dr. Klaus Tomantschger,
President, Rosecreek Technologies Inc., of Mississauga, Ontario. Dr.
Tomantschger was the co-inventor of the rechargeable alkaline battery and has a
wealth of knowledge in the area of battery performance improvements.
31
<PAGE>
FACILITIES
We are currently housed in a 21,000 square foot leased head office and
production facility located at 2330 Southfield Road, Units 3-4, Mississauga,
Ontario, Canada. The location is situated close to major highways and is only 15
minutes from Toronto's Pearson International Airport. Significant leasehold
improvements have been undertaken to accommodate state-of-the-art quality
control facilities, manufacturing facilities, and sales and marketing offices.
Our current lease expires July 31, 2002; however, an understanding has been
reached with our landlord that should additional space be required, then a new
facility would be made available to us without penalty. In addition, we have
leased an additional 39,400 sq. ft. of manufacturing space adjacent to our
current facility. The extra space was considered necessary to accommodate the
planned addition of the AAA, C and D cell lines into our manufacturing
operations. We pay approximately CDN$43,000 rent per month.
LEGAL PROCEEDINGS
We are not a party to any material legal proceeding.
ENFORCEABILITY OF CIVIL LIABILITY AGAINST FOREIGN PERSONS
Talisman's headquarters are located in, and its officers, directors and
auditors are residents of, Canada and a substantial portion of Talisman's assets
are, or may be, located outside the United States. Accordingly, it may be
difficult for investors to effect service of process within the United States
upon non-resident officers and directors, or to enforce against them judgments
obtained in the United States courts predicated upon the civil liability
provision of the Securities Act or state securities laws. Talisman has been
advised by its Canadian legal counsel, Aird & Berlis, that there is doubt as to
the enforceability in Canada against Talisman or against any of its directors,
controlling persons, officers or the experts named herein, who are not residents
of the United States, in original actions or in actions for enforcement of
judgments of U.S. courts, of liabilities predicated solely upon U.S. federal
securities laws. Service of process may be effected, however, upon Talisman's
duly appointed agent for service of process, Sichenzia, Ross & Friedman LLP, New
York, New York. If investors have questions with regard to these issues, they
should seek the advice of their individual counsel. Talisman has also been
informed by its legal counsel, Aird & Berlis, that pursuant to the Currency Act
(Canada), a judgment by a court in any Province of Canada may only be awarded in
Canadian currency. Pursuant to the provision of the Courts of Justice Act
(Ontario), however, a court in the Province of Ontario shall give effect to the
manner of conversion to Canadian currency of an amount in a foreign currency,
where such manner of conversion is provided for in an obligation enforceable in
Ontario.
32
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the directors
and executive Officers of Talisman:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ----------------------------------------------------------
<S> <C> <C>
James A. Ogle 52 President, Chief Executive Officer & Director
Norman R. Proulx 51 Chairman of the Board
Garry J. Syme 47 Senior Vice-President, Manufacturing
Thomas O'Dowd 40 Vice-President & Chief Financial Officer
Duncan C. MacFadyen 47 Vice-President, Finance & Controller
Randy O. Curtis 43 Vice-President, Global Marketing & Canada Sales
Christian H. Bunger 54 Vice-President, Sales--U.S.
David J. Trudel 45 Vice-President, Market Development
James C. McGavin 57 Director
Donald L. Matheson 49 Director
Thomas A. Fenton 39 Director
D. Graham Avery 51 Director
</TABLE>
Set forth below is a biographical description of each director and senior
executive officer of Talisman based on information supplied by each of them.
JAMES A. OGLE, 52, has been the President, CEO, and a director of Talisman
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 Corporation, a leading producer of disposable pens, razors
and disposable lighters. Prior thereto, Mr. Ogle held various positions with
General Motors Corporation. Mr. Ogle obtained an Executive MBA from the
University of New Haven.
NORMAN R. PROULX, 51, is the Chairman of the Board of Talisman. Mr. Proulx
was first appointed a director of Talisman in August 1998. From December 1998
through January 1999, Mr. Proulx was the interim President and CEO of Talisman
replacing the former President and CEO, David R. Guy. 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 n 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.
33
<PAGE>
GARRY J. SYME, 47, is the Senior Vice President, Manufacturing of Talisman
and has been since September 1997. Between August 1996 and September 1997, Mr.
Syme was the Senior Vice President Operations for International, Talisman's
wholly-owned subsidiary. Prior thereto, Mr. Syme was the Vice President
Operations, from January 1996 to August 1996, at Infinity Plus Battery
Corporation of Mississauga, Ontario. Prior thereto, from 1992 to 1995, Mr. Syme
was President of GJS International Inc., a company providing consulting advice
to major battery manufacturers. In such capacity, Mr. Syme was responsible for
the development of manufacturing facilities for Cegasa (Spain), Power Plus
Battery Corporation (United States), Euram (Europe), Infinity Plus (Canada) and
two facilities in the Peoples Republic of China. In addition, Mr. Syme was
retained as President of Power Plus of America Inc. to implement a 100,000 sq.
ft. $20 U.S. million dollar manufacturing plant in Georgia, USA. Mr. Syme has
also spent approximately 20 years with Duracell, 8 years of which were with the
Duracell U.S. R&D Centre and 12 of which were with Duracell Canada Inc. of
Mississauga, Ontario.
THOMAS O'DOWD, 40, is Vice President and Chief Financial Officer of Talisman
and has been since July 1999. From August 1992 to June 1998, Mr. O'Dowd was a
Financial Analyst for Seymour Housewares Corporation, the world's largest
manufacturer of ironing boards and covers and pads. From October 1990 to August
1991, Mr. O'Dowd was a Senior Auditor for Forstman Little & Co. From April 1986
to September 1990, Mr. O'Dowd held senior level accounting positions for two
subsidiaries of GenCorp, a $3 billion Fortune 100 conglomerate. From June 1981
to March 1986, Mr. O'Dowd was a Corporate Audit Supervisor for AMF Incorporated.
Mr. O'Dowd obtained a B.S. in Accounting from Marist College.
DUNCAN C. MACFADYEN, 47, is Vice President Finance of Talisman and has been
since October 1, 1997. Prior thereto, Mr. MacFadyen was, from September 1996 to
September 1997, a financial planer with Investors Group, a Canadian based
financial planner and mutual fund company. Prior thereto, from May 1991 to
September 1996, Mr. MacFadyen was comptroller for Glen Oak Inc., a wholesale
supplier of various consumer products including "Bossman" batteries and
flashlights. Mr. MacFadyen obtained a C.M.A. and B.A. from the University of
Waterloo.
RANDY O. CURTIS, 43, is Vice President of Global Marketing and Canadian
Sales of Talisman, since May 1999. From January 1997 to April 1998, Mr. Curtis
was a Principal at R.O. Curtis Associates Inc. From February 1992 to December
1997, Mr. Curtis was Managing Director for Eveready de Mexico. From November
1979 to January 1992, Mr. Curtis held senior level positions at Eveready Canada.
Mr. Curtis obtained a degree in Industrial Engineering Technology from Ryerson
Polytechnical Institute.
CHRISTIAN H. BUNGER, 54, has been the Vice President of Sales--U.S., since
January 1999. Since 1992, Mr. Bunger has been the Southeast Regional Manager
(Atlanta, Georgia) for the Eveready Battery Company, a subsidiary of the Ralston
Purina Corporation. From 1986 through 1992, Mr. Bunger was the South East
Division Manager (Atlanta, Georgia) of the Eveready Battery Company and from
1980 through 1986 he had held the title of South Central Division
Manager(Atlanta, Georgia). Mr. Bunger joined the Eveready Battery Company in
1974 as a Manager of National Accounts (New York, New York) and has also held
positions of Product Manager as well as District Manager and merchandising
positions in Portland Oregon, Boston Massachusetts and Providence Rhode Island.
Mr. Bunger obtained a B.B.A. from Tulane University.
DAVID J. TRUDEL, 45, is Vice President Market Development for Talisman,
currently responsible for the marketing, sales and administration of alkaline
equipment turnkey systems. Prior thereto, Mr. Trudel was, from May 1995 to
August 1997, Vice President Market Development with Battery Technologies Inc.
responsible for licensing RAM (Rechargeable Alkaline Manganese) Technology,
equipment sales and development of industrial markets for RAM batteries. Prior
thereto, Mr. Trudel was, from November 1993 to April 1995, President of RMI
International Inc., a private battery
34
<PAGE>
marketing consulting company. Prior thereto, Mr. Trudel was Vice President of
Operations and Sales of a division of Indal Limited.
JAMES C. MCGAVIN, 56, is the President and a major shareholder of Burlington
Stamping Inc. 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
Burlington, 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.
DONALD L. MATHESON, 48, a director of Talisman, 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 Imark Corporation. 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 childrens entertainment company.
THOMAS A. FENTON, 39, a director of Talisman, 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. His practice encompasses corporate and securities law.
Mr. Fenton acquired his LL.B. degree from the University of Western Ontario in
1986 and was called to the Bar in Ontario in 1988. Mr. Fenton is a director of a
number of public and private companies.
D. GRAHAM AVERY, 51, has been a director of Talisman since September 1997.
From September 1997 to January 1998, Mr. Avery also served as the Chairman of
the Board of Talisman. Mr. Avery 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.
The term of office of each Director is until the next annual meeting of
stockholders and until a successor is elected and qualified or until the
Director's earlier death, resignation or removal from office. Executive Officers
hold office until their successors are chosen and qualified, subject to earlier
removal by the board of directors.
35
<PAGE>
EMPLOYMENT AGREEMENTS
On January 4, 1999, James Ogle entered into an employment agreement with
Talisman pursuant to which Mr. Ogle has been retained as the President and Chief
Executive Officer of Talisman. The term of the employment agreement commenced on
January 21, 1999 and continues until December 31, 2002; provided, however, that
the termination date may be extended for an additional one year period at each
anniversary of Mr. Ogle's employment agreement dated January 21, 1999. Pursuant
to the employment agreement, Mr. Ogle will receive an annual salary of $182,000
based on the exchange rate in effect on January 21, 1999. The exchange rate upon
which Mr. Ogle's annual salary is based shall be adjusted as of June 14 and
December 14 of each year during Mr. Ogle's employment by Talisman. Mr. Ogle will
also receive a bonus of a maximum of 50% of one year's base salary, which bonus
shall be payable within 30 days of the completion of the audit of Talisman's
financial statements, provided Talisman achieves financial objectives as
determined by the Talisman's board of directors. The employment agreement also
provides for additional compensation and/or benefits to be paid or provided to
Mr. Ogle as follows:
- On the first anniversary of January 21, 1999, Mr. Ogle shall receive an
additional bonus, to be paid in the form of shares of the Talisman's
common stock, in an amount equal to $45,000. The shares are to be valued
at the price per share at the close of the January 20, 1999 trading day.
- On the first anniversary of January 21, 1999, Mr. Ogle shall also be
obligated to purchase from Talisman shares of common stock having a total
market value on January 21, 1999 equal to $55,000 and Talisman has agreed
to loan Mr. Ogle the necessary funds to purchase such shares.
- Talisman shall pay Mr. Ogle a tax adjustment in an amount equal to the
amount by which the actual income taxes to be paid by Mr. Ogle exceed his
hypothetical United States income tax (assuming certain deductions to
which he would be entitled to) if he were living in Texas.
- Mr. Ogle shall be granted options to purchase shares of Talisman's common
stock equal to 5% of Talisman's total outstanding shares as of January 21,
1999 (on a fully diluted basis), which options shall be exercisable at a
price equal to 25% of the average of the high bid and low asked prices per
share on the Canadian Dealing Network on January 21, 1999. The
exercisability and vesting of such options are subject to certain
conditions, including, but not limited to (i) Mr. Ogle's continued
employment by Talisman, (ii) the achievement of specified levels of annual
performance to be established by the board of directors, and (iii) the
achievement of specified levels of investor returns. The employment
agreement also provides that in the event that Mr. Ogle exercises any of
the options while he is employed by Talisman, Talisman shall loan him the
amount of the exercise price for the options at an interest rate equal to
the applicable federal rate, such loan to be repaid within six months of
the exercise of the options. The note shall be forgiven in the event that
Mr. Ogle remains in the employment of Talisman for a period of at least
six months following the exercise of the options or his employment is
terminated as a result of death, disability or other termination entitling
Mr. Ogle to severance under the terms of the employment agreement.
- Mr. Ogle is entitled to participate in any benefit plans extended to
Talisman's employees or executives.
- Mr. Ogle is entitled to receive reimbursement for all reasonable expenses
incurred by him in the course of his employment by Talisman.
The Employment Agreement may be terminated (i) by Talisman for cause; (ii)
at any time by Talisman, without cause, by paying to the employee up to a
maximum of his then current base salary and the annual bonus to be paid in an
amount pro-rated through the date of termination calculated as if all
performance goals for the year have been achieved; or (iii) at any time by the
employee upon written notice. The employment agreement also contains a
prohibition against competing with Talisman
36
<PAGE>
for a period of one year after the termination of the agreement and soliciting
customers or employees from Talisman for a period of two years after the
termination of the agreement.
On January 6, 1999, Garry J. Syme entered into an employment agreement with
Talisman. Mr. Syme has been retained as the Senior Vice President, Manufacturing
of Talisman. The term of his employment agreement is until January 4, 2002, and
thereafter, is renewable for successive one year terms. Pursuant to the
employment agreement, Mr. Syme will receive an annual salary of $150,000, which
shall be reviewed annually, and Mr. Syme shall be entitled to receive a bonus up
to a maximum of 40% of his annual base salary, payable within 30 days of the
completion of the audit of Talisman's financial statements, provided Talisman
achieves financial objectives as determined by Talisman's board of directors.
The employment agreement also provides for additional compensation and/or
benefits to be paid or provided to Mr. Syme as follows:
- Mr. Syme shall be granted options to purchase shares of Talisman's common
stock equal to 2% of Talisman's total outstanding shares as of January 21,
1999 (on a fully diluted basis), which options shall be exercisable at a
price equal to 25% of the average of the high bid and low asked prices per
share on the Canadian Dealing Network on January 21, 1999. The
exercisability and vesting of such options are subject to certain
conditions, including, but not limited to (i) Mr. Syme's continued
employment by Talisman, (ii) the achievement of specified levels of annual
performance to be established by the board of directors, and (iii) the
achievement of specified levels of investor returns. The employment
agreement also provides that in the event that Mr. Syme exercises any of
the options while he is employed by Talisman, Talisman shall loan him the
amount of the exercise price for the options at an interest rate equal to
the applicable federal rate, such loan to be repaid within six months of
the exercise of the options. The note shall be forgiven in the event that
Mr. Syme remains in the employment of Talisman for a period of at least
six months following the exercise of the options or his employment is
terminated as a result of death, disability or other termination entitling
Mr. Syme to severance under the terms of the employment agreement.
- Mr. Syme is entitled to participate in any benefit plans extended to
Talisman's employees or executives.
The employment agreement may be terminated (i) by Talisman for cause; (ii)
at any time by Talisman, without cause, by paying to the employee a maximum of
one year's current annual salary; or (iii) at any time by the employee upon
written notice. The employment agreement also contains a prohibition against
competing with Talisman for a period of one year after the termination of the
agreement.
On January 7, 1999, Christian H. Bunger entered into an employment agreement
with Talisman. Mr. Bunger has been retained as Vice President, Sales--U.S. of
Talisman. The term of the employment agreement commenced on January 25, 1999.
Pursuant to the employment agreement, Mr. Bunger will receive an annual salary
of $75,000, which shall be reviewed annually, and Mr. Bunger shall be entitled
to receive a bonus up to a maximum of 35% of his annual base salary at the end
of each calendar year. The bonus award will be based on the attainment of
profitability targets and other objectives approved by the board of directors.
The employment agreement also provides for additional compensation and/or
benefits to be paid or provided to Mr. Bunger as follows:
- Mr. Bunger shall be granted options to purchase shares of Talisman's
common stock equal to 1.5% of Talisman's total outstanding shares as of
January 21, 1999 (on a fully diluted basis), which options shall be
exercisable at a price equal to 25% of the average of the high bid and low
asked prices per share on the Canadian Dealing Network on January 21,
1999. The exercisability and vesting of such options are subject to
certain conditions, including, but not limited to (i) Mr. Bunger's
continued employment by Talisman, (ii) the achievement of specified levels
of annual performance to be established by the board of directors, and
(iii) the
37
<PAGE>
achievement of specified levels of investor returns. The employment
agreement also provides that in the event that Mr. Bunger exercises any of
the options while he is employed by Talisman, Talisman shall loan him the
amount of the exercise price for the options at an interest rate equal to
the applicable federal rate, such loan to be repaid within six months of
the exercise of the options. The note shall be forgiven in the event that
Mr. Bunger remains in the employment of Talisman for a period of at least
six months following the exercise of the options or his employment is
terminated as a result of death, disability or other termination entitling
Mr. Bunger to severance under the terms of the employment agreement.
- Mr. Bunger is entitled to receive a car allowance of $600 payable on the
first day of each month.
The employment agreement may be terminated (i) by Talisman for cause; (ii)
at any time by Talisman, without cause, by paying to the employee a maximum of
six months severance pay; or (iii) at any time by the employee upon written
notice. The employment agreement also contains a prohibition against competing
with Talisman for a period of six months after the termination of the agreement.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning all cash and
non-cash compensation for the years ended December 31, 1998 and 1997 paid by
Talisman to our chief executive officer and all other executive officers whose
total cash compensation exceeded $100,000 in the year ended December 31, 1998
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ALL OTHER COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION* AWARDS/OPTIONS
- ------------------------------------------------------- --------- --------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
David R. Guy, President(1)............................. 1998 94,000 Nil 8,213(5) Nil
1997 33,333 Nil 2,245(5) 500,000(6)
Norman R. Proulx, Interim President(7)................. 1998 Nil Nil Nil Nil
James W. Gemmell, President(2)......................... 1997 13,000(3) Nil Nil Nil
1996 Nil Nil 100(4) Nil
</TABLE>
- ------------------------
* Talisman does not have any pension, retirement or similar benefits for
directors and officers. The benefit plans which Talisman currently has for
its employees consist of health and disability insurance plans, which
benefits are included in the dollar amounts set forth hereunder.
(1) Mr. Guy became the President and a director of Talisman on September 26,
1997. Effective December 1, 1998, Mr. Guy ceased to be the interim
President and CEO of Talisman. The amounts indicated above for Mr. Guy in
1997 are for the period September 26, 1997 to December 31, 1997. All
payments made to date to Mr. Guy have been on account of consulting fees.
For full particulars of the settlement agreement reached with Mr. Guy,
see "CERTAIN TRANSACTIONS."
(2) Mr. Gemmell resigned as the President and a director of Talisman on
September 26, 1997.
(3) Received on account of management and consulting services rendered to
Talisman.
(4) Received on account of director's fees.
(5) Paid on account of car allowance and other normal course benefits.
(6) Mr. Guy also holds warrants to acquire 20,000 common shares at an
exercise price of $16.25 per share exercisable until August 15, 2000.
(7) Mr. Proulx, a director of Talisman, served as the interim President and
Chief Executive Officer of Talisman from December 1998 to January 1999.
To date, Mr. Proulx has not been paid any remuneration by Talisman for
acting in such capacity.
38
<PAGE>
The following table shows the value at December 31, 1998, of unexercised
options held by the named executive officer:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)
-------------------- ---------------------
SHARES ACQUIRED VALUE REALIZED EXERCISABLE / EXERCISABLE /
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------------- ----------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
David R. Guy(1).................... Nil Nil 20,000/Nil Nil/Nil
</TABLE>
- ------------------------
(1) Mr. Guy ceased to be the President, Chief Executive Officer and director of
Talisman effective December 1, 1998.
COMPENSATION OF DIRECTORS
To date, no amount has been paid to a director for the services of such
individual on the board of directors except for Mr. Gemmell. In 1996 and 1997,
Mr. Gemmell received $100 on account for director's fees. Talisman has a Stock
Option Plan (more particularly described below) for which directors may
participate. To date, options under the Talisman's Stock Option Plan have been
awarded to three (3) directors. They are Donald L. Matheson, D. Graham Avery and
Thomas A. Fenton. Each director holds options to acquire 1,000 shares at
Cdn.$16.25 per share until November 13, 2002.
STOCK OPTION PLANS
1997 STOCK OPTION PLAN
Talisman has in place a stock option plan as an incentive for directors,
officers and key employees and other persons who provide ongoing services to
Talisman and its subsidiaries. Under the stock option plan, non-assignable
options may be granted by the board of directors of Talisman, to directors,
officers, key employees and other persons who provide ongoing services to
Talisman to purchase common shares of Talisman 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 Talisman. 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 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 Talisman 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.
As of August 1, 1999, options were outstanding to acquire 10,760 common
shares under the stock option plan, at exercise prices ranging between $16.25
and $31.25.
1999 SENIOR EXECUTIVE STOCK OPTION PLAN
The 1999 Senior Executive Stock Option Plan acts 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 Talisman and
thereby to increase their efforts on behalf of Talisman and to promote the
success of Talisman's business. The maximum number of shares that may be granted
under the 1999 Senior Executive Stock Option Plan is, initially, not to exceed
225,000. Under the terms of the 1999 Senior Executive Stock Option Plan, options
are non-transferrable, except pursuant to the laws of descent and distribution.
39
<PAGE>
Any options granted under the 1999 Senior Executive Stock Option Plan is
subject to certain vesting and other requirements contained in the 1999 Senior
Executive Stock Option Plan. Specifically, any options granted under the 1999
Senior Executive Stock Option Plan will vest (and therefore become exercisable):
(i) with respect to one-third of all options granted, in sixty (60) equal
monthly installments, (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 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 1999 Senior Executive Stock Option Plan is administered by a committee
of the board of directors which consists of two (2) members who are non-employee
directors and thereby not entitled to participate under the 1999 Senior
Executive Stock Option Plan.
The committee shall have all powers necessary to administer the 1999 Senior
Executive Stock Option 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 Talisman.
To date, three senior officers and employees of Talisman have been granted
options under the 1999 Senior Executive Stock Option Plan in connection with
employment agreements entered into between Talisman and such individuals.
Specifically, James A Ogle, President and Chief Executive Officer, Garry J.
Syme, Senior Vice President of Manufacturing, and Christian H. Bunger, Vise
President of Sales-- U.S., have been granted 82,955, 44,477 and 24,886 options,
respectively under the 1999 Senior Executive Stock Option Plan. Such options
vest incrementally over a period of five years commencing on the date of their
employment agreements.
1999 DIRECTORS COMPANY STOCK PLAN
The 1999 Directors Stock Plan provides a compensation program for
non-employee directors of Talisman (currently five (5) in number) that will
allow Talisman to attract and retain highly qualified individuals to serve as
non-employee members of Talisman's board of directors. The maximum number of
shares that may be granted under the directors stock plan is, initially, not to
exceed 100,000. Under the terms of the directors stock plan, options are
non-transferrable, except pursuant to the laws of descent and distribution.
Under the 1999 Directors Stock Plan, each non-employee director of Talisman
who served as such on June 30, 1999 has the right to receive, subject to certain
conditions, 15,230 common shares of Talisman for no consideration. For each
director, 3,046 of such shares (or a total of 15,230) were issued 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 June
30, 1999 date. 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 prospectus, the candidates for participation under
the directors stock plan are Norman R. Proulx, James C. McGavin, D. Graham
Avery, Donald L. Matheson and Thomas A. Fenton.
The directors stock plan is administered by a committee of the board of
directors which consists of three (3) members, one of which is the President and
Chief Executive Officer of Talisman. The Committee shall have
40
<PAGE>
responsibility for interpreting the directors stock plan and taking all
other action necessary for the administration of the directors stock plan.
Eligible participants under the 1999 Directors Stock Plan shall not be
entitled to participate in any other share compensation arrangement or plan
established by Talisman.
SHAREHOLDERS RIGHTS PROTECTION PLAN
On September 26, 1997, the shareholders of Talisman approved a shareholders
rights protection plan. The plan applies to all common shares and all future
issues of common shares. The term of the plan is five (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 Talisman, 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 Talisman's common shares, 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 Talisman's
voting shares other than as described in (i) and (ii) above, then the rights
become exercisable and will automatically allow all holders except the acquiring
person to purchase, upon payment of the exercise price, shares of common stock
with a total market value of two times (x) the exercise price (i.e., at a 50%
discount from the then current market price of the common stock).
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning beneficial
ownership of Talisman common stock as of August 1, 1999 and as adjusted to
reflect the sale of the shares offered hereby (1) by each person owning 5% or
more of the outstanding shares of common stock, (2) each director, (3) each
executive officer named in the Summary Compensation Table under "Management",
and (4) all directors and officers as a group:
The applicable percentage is based on 1,055,560 shares outstanding on August
1, 1999 and 2,670,187 to be outstanding upon consummation of this offering. The
percentage calculations do not include shares to be issued if the over-allotment
option is exercised.
OUTSTANDING COMMON STOCK BENEFICIALLY OWNED
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
OWNED*
NUMBER OF ------------------------
SHARES OF PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OFFERING OFFERING
- ------------------------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C>
Kevin Kimberlin.......................................................... 826,416(1) 56.3% 26.7%
New York, New York
Norman R. Proulx......................................................... 74,272(2) 6.8% 2.7%
New York, New York
James A. Ogle............................................................ 2,688(3) ** **
Mississuaga, Ontario
Garry J. Syme............................................................ 41,246(4) 3.9% 1.5%
Mississauga, Ontario
D. Graham Avery.......................................................... 4,046(5) ** **
Palgrave, Ontario
James C. McGavin......................................................... 28,046(6) 2.7% **
Burlington, Ontario
Donald L. Matheson....................................................... 4,046(7) ** **
Toronto, Ontario
Thomas A. Fenton......................................................... 4,092(8) ** **
Mississauga, Ontario
John E. Aderhold......................................................... 400,000(9) ** 13.9%
Atlanta, Georgia
Directors and Officers as a Group (9 persons)............................ 163,321(10) 14.5% 5.9%
</TABLE>
- ------------------------
* Percentages are based upon the assumption that the named shareholder has
exercised all of the currently exercisable options he or she owns which are
currently exercisable or exercisable within 60 days and that no other
shareholder has exercised any options he or she owns. The information with
respect to shares owned beneficially by those named above not being within
the knowledge of Talisman, has been furnished by each shareholder
respectively.
Unless otherwise provided herein, Talisman believes that all persons named
in the table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them.
42
<PAGE>
* * Less than One Percent.
(1) Includes (i) 362,332 shares owned by Kimberlin Family Partners LP and 50,876
shares owned by Spencer Trask Securities, Inc.; and (ii) 362,333 shares and
50,875 shares which may be issued pursuant to options owned by Kimberlin
Family Partners LP and Spencer Trask Securities, Inc., respectively, which
options are currently exercisable.
(2) Includes 35,613 shares which may be issued pursuant to options owned by Mr.
Proulx, which options are currently exercisable.
(3) Includes 2,688 shares which may be issued pursuant to options issued to Mr.
Ogle under the 1999 Senior Executive Stock Option Plan, which options are
currently exercisable. Does not include an additional 80,267 shares which
may be issued pursuant to options issued to Mr. Ogle under the 1999 Senior
Executive Stock Option Plan, which options are not currently exercisable.
(4) Includes (i) 3,902 shares which may be issued pursuant to options issued to
Mr. Syme under the 1997 Stock Option Plan, and (ii) 1,344 shares which may
be issued pursuant to options issued to Mr. Syme under the 1999 Senior
Executive Stock Option Plan, all of which options are currently exercisable.
Does not include an additional 43,133 shares which may be issued pursuant to
options issued to Mr. Syme under the 1999 Senior Executive Stock Option
Plan, which options are not currently exercisable.
(5) Includes 1,000 shares which may be issued pursuant to options owned by Mr.
Avery, which options are currently exercisable.
(6) Includes 20,000 shares which may be issued pursuant to options owned by Mr.
McGavin, which options are currently exercisable.
(7) Includes 1,000 shares which may be issued pursuant to options owned by Mr.
Matheson, which options are currently exercisable.
(8) Includes (i) 3,046 shares of common stock own by Aird & Berlis, Barristers &
Solicitors, in which Mr. Fenton is a member, and (ii) 1,000 shares which may
be issued pursuant to options owned by Mr. Fenton, which options are
currently exercisable.
(9) Includes 200,000 shares to be issued upon the automatic conversion of
$1,000,000 principal amount of 8% convertible subordinated promissory note
and 200,000 shares to be issued upon the exercise of outstanding class A
common stock purchase warrants held by Mr. Aderhold.
(10) Includes 35,613 shares which may be issued pursuant to options beneficially
owned by Norman R. Proulx, which options are currently exercisable, (ii)
3,902 shares which may be issued pursuant to options owned by Garry Syme,
which options are currently exercisable, (iii) 1,000 shares which may be
issued pursuant to options owned by D. Graham Avery, which options are
currently exercisable, (iv) 20,000 shares which may be issued pursuant to
options owned by James C. McGavin, which options are currently exercisable,
(v) 1,000 shares which may be issued pursuant to options owned by Donald L.
Matheson, which options are currently exercisable, (vi) 1,000 shares which
may be issued pursuant to options owned by Thomas A. Fenton, and (vii) 2,688
shares which may be issued pursuant to options owned by Duncan C. MacFadyen,
(viii) 2,304 shares which may be issued pursuant to options owned by James
A. Ogle, which options are currently exercisable, and (ix) 1,344 shares
which may be issued pursuant to options owned by Garry J. Syme, which
options are currently exercisable and (x) 805 shares which may be issued
pursuant to options owned by Christian H. Bunger, which options are
currently exercisable. Does not include (i) an additional 80,267 shares
which may be issued pursuant to options issued to Mr. Ogle, which options
are not currently exercisable,(ii) an additional 43,133 shares which may be
issued pursuant to options issued to Mr. Syme, which options are not
currently exercisable, and (iii) an additional 24,081 shares which may be
issued pursuant to options issued to Mr. Bunger, which options are not
currently exercisable.
43
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of Talisman at August 1, 1999 on a pro forma basis adjusted to reflect
the automatic conversion of $5,073,135 of 8% convertible subordinated promissory
notes into 1,014,627 shares of common stock upon listing of Talisman's common
stock on a U.S. based exchange and the issuance of 1,014,627 shares upon the
exercise of outstanding class A common stock purchase warrants. It should be
noted that 25% of 1,014,627 shares are currently subject to lock-up which
expires three months after the date of this prospectus and 50% of 1,014,627
shares are currently subject to a nine month lock-up which expires on March 21,
2000. It also should be noted that all the shares to be issued upon exercise of
the outstanding class A common stock purchase warrants are currently subject to
a nine month lock-up, which expires on March 21, 2000.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED OWNED
PRIOR TO AFTER
THE SHARES THE
SELLING STOCKHOLDERS OFFERING OFFERED OFFERING
- ------------------------------------------------------------------------------ ----------- --------- -----------
<S> <C> <C> <C>
Bloom JT/WROS, Lee & Lisa..................................................... 10,000 10,000 --
Bloom, Roslyn................................................................. 10,000 10,000 --
Frischling, Carl.............................................................. 20,000 20,000 --
Hurwitz--Tenants by the Entirety, Robert & Connie............................. 10,000 10,000 --
Lerner, Lawrence.............................................................. 10,000 10,000 --
Bel Air Associates LLC........................................................ 40,000 40,000 --
Grohowski,Frank............................................................... 10,000 10,000 --
Gross,Donald.................................................................. 20,000 20,000 --
Persson Tenants in Common, Stig & Anita....................................... 10,000 10,000 --
Francis, Baylus M............................................................. 80,000 80,000 --
Peed, Wayne L................................................................. 4,000 4,000 --
Pou, James W.................................................................. 10,000 10,000 --
Rolinski, Sylvia J............................................................ 5,000 5,000 --
Walker, Thomas E.............................................................. 4,000 4,000 --
Wooten III, John E............................................................ 4,000 4,000 --
Badgett IRA, DCG&T FBO of Jack T.............................................. 5,000 5,000 --
Baroni, Philip................................................................ 10,000 10,000 --
Kessel MD, Daniel............................................................. 5,000 5,000 --
Keys, Shirley................................................................. 5,000 5,000 --
Mandell JT/WROS,Richard & Audrey.............................................. 20,000 20,000 --
Schrodt, Joseph............................................................... 20,000 20,000 --
Advent Fund LLC............................................................... 40,000 40,000 --
Bernard Oleyar Trust--UAD 2/1/96--Bernard Oleyar, TTEE........................ 10,000 10,000 --
Butler,Marshall............................................................... 20,000 20,000 --
Estate of Mary Goodman........................................................ 5,000 5,000 --
Mennie, Hubert J.............................................................. 5,000 5,000 --
Weir, Paul J.................................................................. 20,000 20,000 --
Arnett, Dr. Jan............................................................... 40,000 40,000 --
De Nigris IRA, Bear Stearns Custodian for Peter............................... 40,000 40,000 --
Gruverman, Irwin.............................................................. 10,000 10,000 --
Humphrey, Layton.............................................................. 5,000 5,000 --
Low, Nathan................................................................... 20,000 20,000 --
Rusbasan JT/WROS, CharlesJ. & Susan H......................................... 20,000 20,000 --
Sanders, Arthur D............................................................. 15,000 15,000 --
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED OWNED
PRIOR TO AFTER
THE SHARES THE
SELLING STOCKHOLDERS OFFERING OFFERED OFFERING
- ------------------------------------------------------------------------------ ----------- --------- -----------
<S> <C> <C> <C>
Schantz, Philip L............................................................. 10,000 10,000 --
Weinberger, Mark S............................................................ 10,000 10,000 --
Windsor Partners.............................................................. 40,000 40,000 --
Bain II, Travis W............................................................. 5,000 5,000 --
Cardwell Jr. J.A.............................................................. 20,000 20,000 --
Cardwell, Jack A.............................................................. 40,000 40,000 --
Karpoff IRA, DCG&T c/f Marilyn................................................ 10,000 10,000 --
Karpoff, Marilyn.............................................................. 10,000 10,000 --
Katzenstein Community Property Trust, The Henry S. Katzenstein & Constance
A........................................................................... 20,000 20,000 --
Koehler, Roger L. & Susan E................................................... 10,000 10,000 --
Terral, W. Timothy............................................................ 9,802 9,802 --
Ward, David A................................................................. 20,000 20,000 --
Brensilver JT/WROS, Howard & Marcia........................................... 5,000 5,000 --
Investment Fund, LLC.......................................................... 19,606 19,606 --
Martelli Jr,Vincent A......................................................... 5,882 5,882 --
Rego, Richard................................................................. 5,000 5,000 --
Garfield Associates LLC....................................................... 19,608 19,608 --
Bel Air Associates LLC........................................................ 19,608 19,608 --
Dacus, Lanny.................................................................. 19,608 19,608 --
Egan, George.................................................................. 19,608 19,608 --
Elkin, Richard................................................................ 9,804 9,804 --
Farley, Don F................................................................. 19,608 19,608 --
Jansen, Vic................................................................... 19,608 19,608 --
Greenbaum Doll & McDonald PLLC (Carmin D. Grandinetti)........................ 9,804 9,804 --
Greenbaum Doll & (McDonald PLLC (Patrick J. Welsh)............................ 9,804 9,804 --
Greenebaum Doll & McDonald PLLC (Edwin Perry)................................. 9,804 9,804 --
Greenebaum Doll & McDonald PLLC (Ivan M. Diamond)............................. 9,804 9,804 --
Greenebaum Doll & McDonald PLLC (Lawrence K. Banks)........................... 9,804 9,804 --
Greenebaum Doll & McDonald PLLC (Mark S. Ament)............................... 9,804 9,804 --
Greenbaum Doll & McDonald PLLC (P. Richard Anderson).......................... 9,804 9,804 --
Raesly JT/ WROS, Lee H. & Janet............................................... 9,804 9,804 --
Sura, Dr. Steven M............................................................ 9,804 9,804 --
Black Trust, The George L..................................................... 9,804 9,804 --
Family Revocable Trust, The ABR............................................... 19,608 19,608 --
Garnick, Michael.............................................................. 29,412 29,412 --
John & Janet Morse JT/WROSZ................................................... 20,000 20,000 --
Bernardet, Sophie............................................................. 3,920 3,920 --
Doyle, William................................................................ 3,920 3,920 --
Joyce Kramer TTEE Joyce Kramer Rev Trust dtd 6/15/89.......................... 3,920 3,920 --
Wiesenberg, James H........................................................... 10,000 10,000 --
Zelman, Martin................................................................ 20,000 20,000 --
Mazurosky, Rudolph............................................................ 10,000 10,000 --
Moran, John A................................................................. 100,000 100,000 --
Fischhoff, Brian & Andrea..................................................... 4,000 4,000 --
Holmes, Donnie & Donna........................................................ 5,000 5,000 --
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED OWNED
PRIOR TO AFTER
THE SHARES THE
SELLING STOCKHOLDERS OFFERING OFFERED OFFERING
- ------------------------------------------------------------------------------ ----------- --------- -----------
<S> <C> <C> <C>
Krueger Trust, John D......................................................... 10,000 10,000 --
Shrawder, J. Edward........................................................... 15,000 15,000 --
Millison, David R............................................................. 4,000 4,000 --
Aderhold, John E.............................................................. 400,000 400,000 --
KL Rabinoff-Goldman, DC, PC Defined Benefit Pension Trust..................... 5,000 5,000 --
Benefit Pension Plan.......................................................... 80,000 80,000 --
Haboush, Howard............................................................... 10,000 10,000 --
Johnson Jr. C. Gordon......................................................... 10,000 10,000 --
Quick, Carl J................................................................. 10,000 10,000 --
Seplowitz, Sheldon............................................................ 10,000 10,000 --
Stollwerk JT/WROS............................................................. 10,000 10,000 --
Winoker, Sidney............................................................... 5,000 5,000 --
Incontro IRA. DCG&T fbo Richard............................................... 5,000 5,000 --
Koplan Henry.................................................................. 5,000 5,000 --
Sango, Jason A & Brenda L..................................................... 40,000 40,000 --
Donald B. Shackelford Trust................................................... 5,000 5,000 --
Watts Jr., James.............................................................. 5,000 5,000 --
Dean L. Patrick Revocable Trust............................................... 5,000 5,000 --
Mathis L. Becker, MD, P.A. Profit Sharing Trust FBO Mathis L. Becker, M.D..... 10,000 10,000 --
McInerney, Timothy............................................................ 10,000 10,000 --
Reilly, K.L................................................................... 10,000 10,000 --
Schreiber, Joel M............................................................. 5,000 5,000 --
Domino, Carl J................................................................ 40,000 40,000 --
Jutta & Peter Scholla JT/ WROS................................................ 5,000 5,000 --
R & S Limited Partnership..................................................... 2,500 2,500 --
Richard S. Incandela Trust dtd 9/15/91........................................ 4,900 4,900 --
Fifth Third Bank Custodian for Stephen Bachelder IRA.......................... 10,000 10,000 --
Karnofsky, Neil............................................................... 5,000 5,000 --
Paul M. Brown & Annette J. Brown Family Trust................................. 4,900 4,900 --
Reardon, Robert............................................................... 20,000 20,000 --
Toombs, Walter F.............................................................. 10,000 10,000 --
Schulte IRA, DCG&T FBO Scott F................................................ 5,000 5,000 --
Williams, John................................................................ 20,000 20,000 --
Sichenzia, Ross & Friedman LLP................................................ 10,000 10,000 --
</TABLE>
46
<PAGE>
PLAN OF DISTRIBUTION
Sales of the shares may be effected by or for the account of the selling
stockholders from time to time in transactions (which may include block
transactions) on the Nasdaq SmallCap Market, in negotiated transactions, through
a combination of such methods of sale, or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale or at negotiated
prices. The selling stockholders may effect such transactions by selling the
shares directly to purchasers, through broker-dealers acting as agents of the
selling stockholders, or to broker-dealers acting as agents for the selling
stockholders, or to broker-dealers who may purchase shares as principals and
thereafter sell the shares from time to time in transactions (which may include
block transactions) on the Nasdaq SmallCap Market, in negotiated transactions,
through a combination of such methods of sale, or otherwise. In effecting sales,
broker-dealers engaged by a selling stockholder may arrange for other
broker-dealers to participate. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders and/or the purchasers of the shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
The selling stockholders and any broker-dealers or agents that participate
with the selling stockholders in the distribution of the shares may be deemed to
be "underwriters" within the meaning of the Securities Act of 1933. Any
commissions paid or any discounts or concessions allowed to any such persons,
and any profits received on the resale of the shares purchased by them may be
deemed to be underwriting commission or discounts under the Securities Act of
1933.
We have agreed to bear all expenses of registration of the shares other than
legal fees and expenses, if any, of counsel or other advisors of the selling
stockholders. The selling stockholders will bear any commissions, discounts,
concessions or other fees, if any, payable to broker-dealers in connection with
any sale of their shares.
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act of 1933 or to contribute to payments the selling stockholders or
their respective pledgees, donees, transferees or other successors in interest,
may be required to make in respect thereof.
CERTAIN TRANSACTIONS
Thomas A. Fenton, LL.B., a director of Talisman, is a partner of the Toronto
based law firm Aird & Berlis, Barristers and Solicitors, which is Canadian legal
counsel to Talisman. During the fiscal period ended December 31, 1997, Talisman
paid to Aird & Berlis CDN$45,695 in consideration of legal services performed,
and during fiscal period ended December 31, 1998, Talisman paid to Aird & Berlis
CDN$66,425 in consideration of legal services performed.
James C. McGavin, a director of Talisman, is a director, officer and
shareholder of Burlington Stamping Inc., a key supplier to Talisman. During
fiscal period ended December 31, 1997, Talisman paid to Burlington Stamping an
aggregate of approximately CDN$108,836 in consideration of battery cans
manufactured and sold by Burlington Stamping to Talisman, and during fiscal
period ended December 31, 1998, Talisman paid to Burlington Stamping an
aggregate of approximately CDN$50,790 in consideration of battery cans
manufactured and sold by Burlington Stamping to Talisman. In addition, during
fiscal period ended December 31, 1997, Talisman paid to James C. McGavin an
aggregate of approximately CDN$4,320 in consideration of a car allowance, and
during fiscal period ended December 31, 1998, Talisman paid to James C. McGavin
an aggregate of approximately CDN$6,480 in consideration of a car allowance.
47
<PAGE>
On January and March 1998, Garry J. Syme exercised warrants to acquire
16,098 common shares, in aggregate, for gross cash consideration of CDN$104,098
and CDN$160,500 in property and equipment.
On August 5, 1998, Talisman raised CDN$1,495,000 in connection with a
private offering of 263,504 shares of Talisman's common stock and warrants to
purchase an additional 263,504 shares of common stock at an exercise price of
$7.50 per share, with Talisman Partners. Prior to the private offering with
Talisman Partners, there was no affiliation between Talisman and Talisman
Partners. Talisman Partners is a private investment partnership located in New
York, New York. Effective with the completion of the private offering, Norman R.
Proulx, the appointed nominee of Talisman Partners, became a director of
Talisman. Effective December 4, 1998, Mr. Proulx was appointed Talisman's
interim President and Chief Executive Officer. Mr. Proulx was a partner with a
minority interest in Talisman Partners and an employee of Spencer Trask
Securities Inc., a securities dealer based in New York, New York. Talisman
Partners was majority owned by the Kevin Kimberlin Partnership, L.P., a New York
limited partnership, which was controlled by Kevin Kimberlin, Chairman of
Spencer Trask, and minority owned by certain other Spencer Trask employees.
On October 19, 1998, Talisman raised a further CDN$900,000 in connection
with a private offering of 240,000 shares of Talisman's Common stock and
warrants to purchase an additional 240,000 shares of Common stock at an exercise
price of $5.00 per share, with Talisman Partners.
From December 1998 to March 1999, Talisman sold an aggregate of $700,000 of
8% convertible promissory notes to nineteen persons. The principal amount of the
notes were converted into securities of Talisman in connection with the
completion of the first closing of Talisman's private placement offering with
Spencer Trask in March 1999. The holders of the notes also received warrants to
acquire an aggregate of 72,465 shares of common stock of Talisman exercisable at
$7.50 per share.
On December 22, 1998, Talisman entered into a severance agreement with David
R. Guy. Pursuant to the terms of the severance agreement, Mr. Guy agreed to
resign as a director and officer of Talisman and Talisman International
effective December 1, 1998. The severance agreement provides that Talisman will
pay to Mr. Guy $144,000 over a 12 month period commencing December 1, 1998.
Talisman will also continue to underwrite the costs of certain benefits to be
provided to Mr. Guy over the severance period. In return, Mr. Guy has agreed not
to compete, directly or indirectly, in any business involving the manufacture or
sale of private label disposable alkaline batteries, until May 1, 1999, subject
to certain exceptions. Furthermore, until December 1, 1999, Mr. Guy has agreed
not to solicit or attempt to solicit any employee or customer of Talisman away
from Talisman.
In June 1999, David R. Guy, a former officer and director of Talisman, and
Garry J. Syme each contributed 15,000 shares of common stock to the settlement
of a lawsuit involving Talisman, Talisman International, and Messrs. Guy and
Syme.
On January 4, 1999, Talisman entered into an employment agreement with James
A. Ogle, a senior officer of Talisman. For a complete description of the terms
and conditions of the employment agreement between Talisman and Mr. Ogle, see
"Management--Employment Contracts."
On January 6, 1999, Talisman entered into an employment agreement with Garry
J. Syme, a senior officer of Talisman. For a complete description of the terms
and conditions of the employment agreement between Talisman and Mr. Syme, see
"Management--Employment Contracts."
On January 7, 1999, Talisman entered into an employment agreement with
Christian H. Bunger, an officer of Talisman. For a complete description of the
terms and conditions of the employment agreement between Talisman and Mr.
Bunger, see "Management--Employment Contracts."
In March, April and June 1999, Talisman completed three closings of a
private placement offering, with Spencer Trask Securities, Inc., as placement
agent, in which it sold an aggregate of 50.72985 units
48
<PAGE>
solely to U.S. investors for gross proceeds to Talisman of $5,174,472.70 (such
proceeds being inclusive of the $700,000 raised from December 1998 through March
1999 described above). The units consisted of an aggregate of (1) $5,073,135
principal amount of 8% convertible promissory notes, and (2) 1,014,627 warrants
to purchase shares of common stock, which warrants are exercisable at $7.50 per
share. In connection with such closings, Spencer Trask received a placement fee
equal to 10% of the aggregate purchase price of the securities sold by it, plus
a non-accountable expense allowance equal to three percent of the aggregate
purchase price of the securities sold and a warrant, granted by Talisman for
$1.00 consideration, to purchase an amount of common stock equal to 20% of the
common stock sold in the offering at an exercise price equal to 120% of the
price of the common stock sold. Additionally, upon the first closing of the
offering, Talisman entered into (1) an agreement whereby Spencer Trask has the
right of first refusal to act as underwriter or agent for any proposed private
or public offering of Talisman's securities by Talisman or by any of its
principal stockholders, and (2) a non-exclusive finder's agreement pursuant to
which Spencer Trask is entitled to receive a fee based upon a percentage of the
value of any business combination or financing arrangement, including but not
limited to a merger or purchase of assets, which is introduced to Talisman by
Spencer Trask.
None of the transactions with officers or shareholders of Talisman and their
affiliates were made on terms less favorable to Talisman than those available
from unaffiliated parties. In future transactions of this nature, Talisman will
ensure that more favorable terms are not available to it from unaffiliated third
parties before engaging officers or shareholders of Talisman or their
affiliates.
49
<PAGE>
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of an unlimited number of shares of
common stock, with no par value. The following descriptions contain all material
terms and features of our securities, are qualified in all respects by reference
to our Certificate of Incorporation and Bylaws, copies of which have been filed
with the Securities and Exchange Commission.
COMMON STOCK
We are authorized to issue an unlimited number of shares of common stock, no
par value per share, of which as of the date of this prospectus, 1,055,560
shares of common stock are outstanding, not including the 600,000 shares offered
in this offering by Talisman or 1,014,627 of the shares offered by the selling
stockholders.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Holders of common
stock are entitled to receive ratably dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Talisman, holders of the common stock
are entitled to share ratably in all assets remaining, if any, after payment of
liabilities. Holders of common stock have no preemptive rights and have no
rights to convert their common stock into any other securities.
Pursuant to the Business Corporation Act (Ontario), a shareholder of an
Ontario Corporation has the right to have the corporation pay the shareholder
the fair market value for his shares of the corporation in the event such
shareholder dissents to certain actions taken by the corporation such as
amalgamation or the sale of all or substantially all of the assets of the
corporation and such shareholder follows the procedures set forth in the
Business Corporation Act (Ontario).
CLASS A WARRANTS
Each class A warrant entitles the holder to purchase one share of common
stock from Talisman at the exercise price of $7.50 per share. The number of
shares of common stock issuable upon exercise of the warrants and the exercise
price will be adjusted in the event of stock splits, stock dividends or
recapitalization. The warrants are exercisable at any time within five years
after March 19, 1999. Warrants not exercised by that time will expire. The
warrants do not confer upon the holder any voting rights, preemptive rights or
any other rights as Talisman stockholder. Upon notice to the holders of the
warrants, Talisman has the right to reduce the exercise price or extend the
expiration date of the warrants.
The warrants are redeemable by Talisman commencing on June 21, 2000 (or
sooner with the consent of Spencer Trask Securities, Inc.) at a redemption price
of $0.10 per warrant on not less that 30 days written notice, provided that the
last sale price per share of common stock, for 20 consecutive trading days
ending on the third business day prior to the date of redemption notice, is at
least $9.00 (subject to adjustment for certain events). The warrants shall be
exercisable until the close of the business day preceding the date fixed for
redemption.
No warrant will be exercisable unless at the time of exercise Talisman has
filed with the Securities and Exchange Commission a current prospectus covering
the issuance of common stock issuable upon the exercise of the warrant and the
issuance of shares has been registered or qualified or is deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of the warrant. This prospectus covers the proposed
offering by the selling stockholders of the 1,024,627 shares of common stock
underlying the outstanding class A common stock purchase warrants. Talisman has
undertaken to use its best efforts to maintain a current prospectus relating to
the issuance of the shares of common stock upon the exercise of the warrants
until the expiration of the warrants.
50
<PAGE>
While it is Talisman's intention to maintain a current prospectus, there is no
assurance that it will be able to do so.
CLASS A SPECIAL SHARES
Talisman's subsidiary, Talisman International, has class A special shares,
which shares are without par value and are entitled to receive if, as and when
declared by the board of directors of Talisman International, a fixed
preferential 6% non-cumulative cash dividend. The class A special shares are not
retractable by the holders, but rather are redeemable only by Talisman
International at $1,000 per Class "A" share plus all declared and unpaid
preferential dividends. The class A special shares are non-voting, non
convertible and, in the event of the liquidation, dissolution or winding up of
Talisman International, are entitled to receive a sum equivalent to the
redemption amount (plus all accrued and unpaid dividends) attaching to such
shares in priority to any payment on the common stock. No dividends on the class
A special shares have ever been declared by the board of directors of Talisman
International, and no dividends are anticipated to be declared in the future. At
present, there are 3,300 Class "A" special shares outstanding.
OTHER WARRANTS AND OPTIONS
As of August 1, 1999, the Company had outstanding options to acquire 10,760
shares of common stock, exercisable at prices ranging between CDN$16.25 and
CDN$31.25, and warrants to acquire approximately 642,005 shares of common stock,
exercisable at prices ranging between CDN$5.00 and CDN$62.50. All of such
options and warrants are currently exercisable and are fully vested. In
addition, Spencer Trask Securities, Inc. received warrants to purchase an
aggregate of 405,850 shares and 405,850 class A warrants, which warrants are
exercisable at $6.00 per share and $.12 per warrant. The class A warrants
issuable to Spencer Trask upon exercise of the warrant issued to Spencer Trask
are identical to the class A warrants described above. See "Certain
Transactions".
TRANSFER AGENT
The transfer agent for the common stock is Equity Transfer Services, Inc.,
Toronto, Ontario.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, Talisman will have 2,670,187 shares
of common stock outstanding. In addition, Talisman has reserved for issuance the
following shares:
- 31,200 shares upon the exercise of options eligible for grant under
Talisman's 1997 Stock option plan;
- 225,000 shares upon the exercise of options eligible for grant under
Talisman's 1999 Senior Executive Stock Option Plan;
- 84,770 shares upon the exercise of options eligible for grant under
Talisman's 1999 Directors Company Stock Plan;
- 1,014,627 shares upon the exercise of 1,014,627 class A warrants; and
- 1,058,615 shares upon the exercise of additional warrants and options.
All the shares to be issued and outstanding after this offering (plus any
additional shares sold upon exercise of the over-allotment option and any shares
to be issued upon exercise of the class A warrants) will be freely tradeable
without restriction or further registration under the Act, except for any shares
purchased or held by an "affiliate" of Talisman (in general, a person who has a
control relationship with Talisman) which will be subject to the limitations of
Rule 144 adopted under the Act ("Rule 144"). In general, under Rule 144, subject
to the satisfaction of certain other conditions, a person, including
51
<PAGE>
an affiliate of Talisman, who has beneficially owned restricted shares of common
stock for at least one year is permitted to sell in a brokerage transaction,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class, or if
the common stock is quoted on Nasdaq or a stock exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. Rule 144 also
permits a person who presently is not and who has not been an affiliate of
Talisman for at least three months immediately preceding the sale and who has
beneficially owned the shares of common stock for at least two years to sell
such shares without regard to any of the volume limitations as described above.
Notwithstanding the foregoing, the owners of 1,014,627 shares and 1,014,627
class A warrants have agreed not to sell or otherwise dispose their securities
except as follows:
- 25% of 1,014,627 shares are currently subject to lock-up which expires
three months after the date of this prospectus;
- 50% of 1,014,627 shares are currently subject to a nine month lock-up
which expires on March 21, 2000; and
- all the shares to be issued upon exercise of the outstanding class A
common stock purchase warrants are currently subject to a nine month
lock-up, which expires on March 21, 2000.
In addition to the foregoing, in connection with our recently completed
private placement offering, we entered into a Stockholders' Agreement with the
Spencer Trask Securities, Inc., Talisman Partners, and Messrs. Garry J. Syme, D.
Graham Avery, James C. McGavin, Donald L. Matheson, Thomas A. Fenton, James A.
Ogle, Christian Bunger and Norman R. Proulx pursuant to which the parties to the
Stockholders' Agreement, who own an aggregate of 544,550 shares and 532,553
options or warrants, agreed not to sell, transfer, or otherwise dispose of any
shares of our common stock owned by them or issuable to them pursuant to the
exercise of options or warrants for a 24 month period ending on March 19, 2001
(and Talisman Partners and Norman Proulx agreed under the Stockholders'
Agreement not to sell, transfer, or otherwise dispose of any shares of the
Company's Common Stock owned by them or issuable to them pursuant to the
exercise of options or warrants for a 12 month period ending on March 19, 2000)
without the prior written consent of Spencer Trask, not to be unreasonably
withheld or delayed, provided that Spencer Trask may require that any such
permitted transferees be made subject to a voting agreement pursuant to which
the transferring stockholder retains the right to vote transferred shares until
March 19, 2001.
Sales of Talisman's common stock by certain of the present stockholders in
the future, under Rule 144, may have a depressive effect on the price of
Talisman's common stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following describes the principal United States federal income tax
consequences of the purchase, ownership and disposition of the common stock and
the warrants and upon the exercise, redemption or expiration of the warrants by
a warrant holder, that is a citizen or resident of the United States or a United
States domestic corporation or that otherwise will be subject to United States
federal income tax. This summary is based on the United States Internal Revenue
Code of 1986, as amended, administrative pronouncements, judicial decisions and
existing and proposed treasury regulations, changes to any of which subsequent
to the date of this prospectus may affect the tax consequences described herein.
This summary discusses only the principal United States federal income tax
consequences to those beneficial owners holding the securities as capital assets
within the meaning of Section 1221 of the Code and does not address the tax
treatment of a beneficial owner that owns 10% or more of the common stock. It
does not address the consequences applicable to certain specialized classes of
taxpayers such as certain financial institutions, insurance companies, dealers
in securities or foreign currencies, or United States persons whose functional
currency (as defined in Section 985 of the Code) is not the United States
dollar. Persons considering the purchase of these
52
<PAGE>
securities should consult their tax advisors with regard to the application of
the United States and other income tax laws to their particular situations. In
particular, a U.S. Holder should consult his tax advisor with regard to the
application of the United States federal income tax laws to his situation.
COMMON STOCK
A U.S. Holder generally will realize, to the extent of Talisman's current
and accumulated earnings and profits, foreign source ordinary income on the
receipt of cash dividends, if any, on the common stock equal to the United
States dollar value of such dividends determined by reference to the exchange
rate in effect on the day they are received by the U.S. Holder (with the value
of such dividends computed before any reduction for any Canadian withholding
tax). U.S. Holders should consult their own tax advisors regarding the treatment
of foreign currency gain or loss, if any, on any dividends received which are
converted into United States dollars on a date subsequent to receipt. Subject to
the requirements and limitations imposed by the Code, a U.S. Holder may elect to
claim Canadian tax withheld or paid with respect to dividends on the common
stock as a foreign credit against the United States federal income tax liability
of such holder. Dividends on the common stock generally will constitute "passive
income" or, in the case of certain U.S. Holders, "financial services income" for
United States foreign tax credit purposes. U.S. Holders who do not elect to
claim any foreign tax credits may claim a deduction for Canadian income tax
withheld. Dividends paid on the common stock will not be eligible for the
dividends received deduction available in certain cases to United States
corporations.
Upon a sale or exchange of a share of common stock, a U.S. Holder will
recognize gain or loss equal to the difference between the amount realized on
such sale or exchange and the tax basis of such common stock. Any such gain or
loss will be capital gain or loss, and will be long term capital gain or loss if
at the time of sale or exchange the common stock has been held for more than one
year.
WARRANTS
No gain or loss will be recognized by the holder of a warrant upon the
exercise of the warrant. The cost basis of the common stock acquired upon such
exercise will be the cost basis of the warrant plus any additional amount paid
upon the exercise of the warrant. Gain or loss will be recognized upon the
subsequent sale or exchange of the common stock acquired by the exercise of the
warrant, measured by the difference between the amount realized upon the sale or
exchange and the cost basis of the common stock so acquired.
If a warrant is not exercised, but is sold or exchanged (whether pursuant to
redemption or otherwise), gain or loss will be recognized upon such event,
measured by the difference between the amount realized by the holder of the
warrant as a result of sale, exchange or redemption and the cost basis of the
warrant.
If a warrant is not exercised and is allowed to expire, the warrants will be
deemed to be sold or exchanged on the date of expiration. In such event, the
holder of the warrant will recognize a loss to the extent of the cost basis of
the warrant.
Generally, any gain or loss recognized as a result of the foregoing will be
a capital gain or loss and will either be long-term or short-term depending upon
the period of time the common stock sold or exchanged or the warrant sold,
exchanged, redeemed, or allowed to expire, as the case may be, was held. A
holding period of more than one year results in long-term gain or loss
treatment. If a warrant is exercised, the holding period of the common stock so
acquired will not include the period during which the warrant was held.
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD NOT
BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE
53
<PAGE>
INVESTOR AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY
PARTICULAR INVESTOR IS MADE.
INVESTMENT CANADA ACT
The Investment Canada Act is a federal Canadian statute which regulates the
acquisition of control of existing Canadian businesses and the establishment of
new Canadian businesses by an individual, a government or entity that is a
"non-Canadian" as that term is defined in the Investment Canada Act.
Talisman believes that it is not currently a "non-Canadian" for purposes of
the Investment Canada Act. If Talisman were to become a "non-Canadian" in the
future, acquisitions of control of Canadian businesses by Talisman would become
subject to the Investment Canada Act. Generally, the direct acquisition by a
"non-Canadian" of an existing Canadian business with gross assets of
CDN$5,000,000 or more is reviewable under the Investment Canada Act, with a
threshold of CDN$184 million for transactions closing in 1999 for "WTO
investors" as defined under the Investment Canada Act. If Talisman were to
become a "non-Canadian" in the future, Talisman believes that it would likely
become a "non-Canadian" which is a "WTO investor." Generally, indirect
acquisitions of existing Canadian businesses (with gross assets over certain
threshold levels) are reviewable under the Investment Canada Act, except in
situations involving "WTO investors" where indirect acquisitions are generally
not reviewable. In transactions involving Canadian businesses engaged in the
production of uranium, providing financial services, providing transportation
services or which are cultural businesses, the benefit of the higher "WTO
investor" thresholds do not apply.
Acquisitions of businesses related to Canada's cultural heritage or national
identity (regardless of the value of assets involved) may also be reviewable
under the Investment Canada Act. In addition, investments to establish new,
unrelated businesses are not generally reviewable. An investment to establish a
new business that is related to the non-Canadian's existing business in Canada
is not notifiable under the Investment Canada Act unless such investment relates
to Canada's cultural heritage or national identity.
Investments which are reviewable under the Investment Canada Act are
reviewed by the Minister, designated as being responsible for the administration
of the Investment Canada Act. Reviewable investments, generally, may not be
implemented prior to the Minister's determining that the investment is likely to
be of "net benefit to Canada" based on the criteria set out in the Investment
Canada Act. Generally investments by non-Canadians consisting of the acquisition
of control of Canadian businesses which acquisitions are otherwise
non-reviewable or the establishment of new Canadian businesses require that a
notice be given under the Investment Canada Act in the prescribed form and
manner.
To date, the Investment Canada Act has had no practical affect on Talisman's
operations and/or financial condition. Moreover the Investment Canada Act has
not and will not create an impediment to an unsolicited take-over of Talisman as
Talisman's asset base is approximately CDN$6,900,000 as at March 31, 1999.
Accordingly any proposed take-over of Talisman by a "non-Canadian" would likely
be subject only to the simple "notification" requirements of the Investment
Canada Act as in all likelihood that non-Canadian would be a "WTO investor" for
purposes of the Investment Canada Act. Generally, a "WTO investor" is an
individual, other than a Canadian, who is a national of a country which is a
member of the World Trade Organization. In the case of a person which is not an
individual, a WTO investor is a person which, generally, is ultimately
controlled by individuals, other than Canadians, who are nationals of a WTO
member. Currently there are 134 countries which are members of the WTO,
including virtually all countries of the Western world. Talisman would have to
have an asset base of at least CDN$184 million before the "reviewable"
transaction provisions of the Investment Canada Act became relevant for
consideration by a third party non-Canadian acquiror, which is not a WTO
investor.
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among us and the underwriters, each of the underwriters named below, for whom
Capital West Securities, Inc. is acting as a representative, has severally
agreed to purchase from us the number of shares of common stock set forth
opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Capital West Securities, Inc...................................................................
-----------------
Total..................................................................................
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions. The nature of the underwriters' obligations
is that they are committed to purchase and pay for all of the above shares of
common stock if any are purchased.
PUBLIC OFFERING PRICE AND DEALERS CONCESSION
The underwriters propose initially to offer the shares of common stock
offered by this prospectus to the public at the public offering price per share
set forth on the cover page of this prospectus and to certain dealers, who are
members of the National Association of Securities Dealers, Inc., at that price
less a concession not in excess of $ per share. The underwriters may allow,
and these dealers may reallow, a discount not in excess of $ per share on
sales to certain other NASD member dealers. After commencement of this offering,
the offering price, discount price and reallowance may be changed by the
underwriters. No such change will alter the amount of proceeds to be received by
us as set forth on the cover page of this prospectus.
OVER-ALLOTMENT OPTION
We have granted the underwriters an option, which may be exercised within 45
days after the date of this prospectus, to purchase up to 90,000 additional
shares of common stock to cover over-allotments, if any, at the initial public
offering price, less the underwriting discount set forth on the cover page of
this prospectus. If the underwriters exercise their over-allotment option to
purchase any of these additional 90,000 shares of common stock, these additional
shares will be sold by the underwriters on the same terms as those on which the
shares offered by this prospectus are being sold. We will be obligated, pursuant
to the over-allotment option, to sell shares to the underwriters if the
underwriters exercise their over-allotment option. The underwriters may exercise
their over-allotment option only to cover over-allotments made in connection
with the sale of the shares of common stock offered by this prospectus.
NON-ACCOUNTABLE EXPENSE ALLOWANCE
We have agreed to pay the underwriters a non-accountable expense allowance
of 3% of the gross proceeds derived from the sale of the shares of common stock
underwritten (including the sale of any
55
<PAGE>
shares of common stock that the underwriters' may sell to cover over-allotments,
if any, pursuant to the over-allotment option), $ of which has been paid as
of the date of this prospectus. We have also agreed to pay all expenses in
connection with qualifying the common stock offered hereby for sale under the
laws of such states as we and the underwriters may designate and registering the
offering with the NASD, including filing fees and fees and expenses of counsel
retained for these purposes.
UNDERWRITING COMPENSATION
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
TOTAL
------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
---------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts paid by us....................................
Underwriting discounts paid by the selling shareholders..............
</TABLE>
INDEMNIFICATION OF UNDERWRITERS
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments the underwriters may be required to make in connection with these
liabilities.
UNDERWRITERS' WARRANTS
Upon completion of this offering, we will sell to the underwriters, for
their own accounts, warrants covering an aggregate of up to 60,000 shares of
common stock exercisable at a price of $6.00 per share. The underwriters will
pay a price of $0.001 per warrant. The underwriters may exercise these warrants
as to all or any lesser number of the underlying shares of common stock
commencing on the first anniversary of the date of this offering until the fifth
anniversary of the date of this offering. The terms of these warrants require us
to register the common stock for which these warrants are exercisable within one
year from the date of the prospectus. These underwriters' warrants are not
transferable by the warrant holders other than to officers and partners of the
underwriters. The exercise price of these underwriters' warrants and the number
of shares of common stock for which these warrants are exercisable are subject
to adjustment to protect the warrant holders against dilution in certain events.
LOCK-UP AGREEMENTS
In connection with our recently completed private placement offering, we
entered into a Stockholders' Agreement with the Spencer Trask Securities, Inc.,
Talisman Partners, and Messrs. Garry J. Syme, D. Graham Avery, James C. McGavin,
Donald L. Matheson, Thomas A. Fenton, James A. Ogle, Christian Bunger and Norman
R. Proulx. The parties to the Stockholders' Agreement agreed not to sell,
transfer, or otherwise dispose of any shares of our common stock owned by them
or issuable to them pursuant to the exercise of options or warrants for a 24
month period ending on March 19, 2001 (except that with respect to Talisman
Partners and Norman Proulx, such parties agreed under the Stockholders'
Agreement not to sell, transfer, or otherwise dispose of any shares of the
Company's Common Stock owned by them or issuable to them pursuant to the
exercise of options or warrants for a 12 month period ending on March 19, 2000)
without the prior written consent of Spencer Trask, not to be unreasonably
withheld or delayed, provided that Spencer Trask may require that any such
permitted transferees be made subject to a voting agreement pursuant to which
the transferring stockholder retains the right to vote transferred shares until
March 19, 2001.
56
<PAGE>
In addition, owners of 1,014,627 shares and 1,014,627 class A warrants have
agreed not to sell or otherwise dispose their securities except as follows:
- 25% of 1,014,627 shares are currently subject to lock-up which expires
three months after the date of this prospectus;
- 50% of 1,014,627 shares are currently subject to a nine month lock-up
which expires on March 21, 2000; and
- moreover, all the shares to be issued upon exercise of the outstanding
class A common stock purchase warrants are currently subject to a nine
month lock-up, which expires on March 21, 2000.
Further, the holders of the securities purchased in the private placement have
the right to cause the Company to (i) offer to redeem their securities, or (ii)
give such holders the ability to elect a majority of Talisman's board of
directors in the event that Talisman failed to prepare and file a registration
under the Securities Act of 1933 for the resale of all shares of common stock
issued or issuable upon conversion of the notes and upon exercise of the class A
warrants sold in the private placement offering by August 20, 1999.
STABILIZATION AND OTHER TRANSACTIONS
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the common stock. These transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M under the Exchange Act,
pursuant to which the underwriters may bid for, or purchase, common stock for
the purpose of stabilizing the market price. The underwriters also may create a
short position by selling more common stock in connection with this offering
than they are committed to purchase from us, and in such case may purchase
common stock in the open market following completion of this offering to cover
all or a portion of such short position. In addition, the underwriters may
impose "penalty bids" whereby they may reclaim from a dealer participating in
this offering, the selling concession with respect to the common stock that it
distributed in this offering, but which was subsequently purchased for the
accounts of the underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
common stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in the paragraph is required, and, if
they are undertaken, they may be discontinued at any time.
DISCRETIONARY ACCOUNTS
The underwriters have informed us that they do not intend to confirm sales
to any account over which they exercise discretionary authority.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no market for our common stock.
Accordingly, the initial public offering price for the common stock was
determined by negotiation between us and the underwriters. Among the factors
considered in determining the initial public offering price were our results of
operations, our current financial condition, our future prospects, the state of
the markets for our services, the experience of our management, the economics of
the online information industry in general, the general condition of the equity
securities market and the demand for similar securities of companies considered
comparable to us.
57
<PAGE>
LEGAL MATTERS
Certain legal matters relating to Ontario law, including the validity of the
issuance of the shares offered hereby, will be passed upon for Talisman by Aird
& Berlis, Barristers and Solicitors, Ontario Canada. Members of the firm of Aird
& Berlis, Barristers and Solicitors own 3,092 shares of common stock of
Talisman, and Mr. Fenton, a member of the firm, owns 1,000 options to purchase
shares of common stock of Talisman. The validity of the issuance of the shares
offered hereby will be passed upon for Talisman by its United States Counsel,
Sichenzia, Ross & Friedman LLP, New York, New York. Sichenzia, Ross & Friedman
LLP owns 10,000 shares of common stock of Talisman. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Day,
Edwards, Federman, Propester & Christensen, P.C., Oklahoma City, Oklahoma.
EXPERTS
The consolidated financial statements of Talisman Enterprises Inc. at
December 31, 1998 and 1997, and for each of the two years in the period ended
December 31, 1997, appearing in this prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein.
58
<PAGE>
TALISMAN ENTERPRISES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets--As at December 31, 1997 and December 31, 1998................................. F-3
Consolidated Statements of Loss and Deficit--For the seven months period ended December 31, 1997 and year
ended December 31, 1998.................................................................................. F-4
Consolidated Statements of Shareholders' Equity............................................................ F-5
Consolidated Statement of Cash Flows--For the seven months period ended December 31, 1997 and year ended
December 31, 1998........................................................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
Notice to Reader........................................................................................... F-19
Consolidated Balance Sheets--As at June 30, 1998 and June 30, 1999......................................... F-20
Consolidated Statement of Loss and Deficit--For the six months period ended June 30, 1998 and June 30,
1999..................................................................................................... F-21
Consolidated Statement of Cash Flows--For the six months period ended June 30, 1998 and June 30, 1999...... F-22
Notes to Consolidated Financial Statements................................................................. F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
TALISMAN ENTERPRISES INC.
We have audited the accompanying consolidated balance sheets of Talisman
Enterprises Inc. as of December 31, 1998 and 1997 and the related consolidated
statements of loss and deficit, shareholders' equity and cash flows for the year
ended December 31, 1998 and the seven months ended December 31, 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of Talisman
Enterprises Inc. as at December 31, 1998 and 1997 and the consolidated results
of its operations and cash flows for the year ended December 31, 1998 and the
seven months ended December 31, 1997, in conformity with accounting principles
generally accepted in the United States.
On March 29, 1999, we reported separately to the Shareholders of Talisman
Enterprises Inc. on the consolidated financial statements for the same periods,
prepared in Canadian dollars and in accordance with accounting principles
generally accepted in Canada.
[LOGO]
Hamilton, Canada, Chartered Accountants
March 29, 1999 [except as to NOTE 16
which is as at August 16, 1999].
F-2
<PAGE>
TALISMAN ENTERPRISES INC.
INCORPORATED UNDER THE LAWS OF ONTARIO
CONSOLIDATED BALANCE SHEETS
[IN U.S. DOLLARS]
AS AT DECEMBER 31
<TABLE>
<CAPTION>
1998 1997
$ $
----------- ----------
<S> <C> <C>
ASSETS
CURRENT
Cash.................................................................................... 16,701 26,739
Accounts receivable..................................................................... 361,826 55,030
Inventories [NOTE 3].................................................................... 409,180 258,737
Prepaid expenses........................................................................ 51,952 14,085
----------- ----------
Total current assets.................................................................... 839,659 354,591
----------- ----------
Capital assets [NOTE 4]................................................................. 2,752,663 2,892,617
----------- ----------
3,592,322 3,247,208
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank operating line..................................................................... 423,656 --
Accounts payable and accrued liabilities................................................ 905,169 295,572
Note payable [NOTE 5]................................................................... -- 80,073
Current portion of long-term debt [NOTE 6].............................................. 574,221 69,903
----------- ----------
TOTAL CURRENT LIABILITIES............................................................... 1,903,046 445,548
----------- ----------
Long-term debt [NOTE 6]................................................................. -- 250,498
Deferred income tax liability........................................................... 546,815 589,794
Shareholders' equity [STATEMENT]........................................................
Share capital [NOTE 7].................................................................. 4,277,370 3,025,230
Contributed surplus..................................................................... 309,233 --
Deficit................................................................................. (3,238,982) (964,780)
Accumulated other comprehensive loss.................................................... (205,160) (99,082)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY.............................................................. 1,142,461 1,961,368
----------- ----------
3,592,322 3,247,208
----------- ----------
----------- ----------
</TABLE>
Commitments and contingencies [NOTE 11]
SEE ACCOMPANYING NOTES
On behalf of the Board:
Director Director
F-3
<PAGE>
TALISMAN ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
[IN U.S. DOLLARS]
<TABLE>
<CAPTION>
YEAR ENDED 7 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ --------------
<S> <C> <C>
REVENUES........................................................................... 748,254 139,646
Operating expenses [exclusive of amortization shown separately below].............. 1,487,052 180,582
------------ --------------
Gross profit....................................................................... (738,798) (40,936)
------------ --------------
EXPENSES
Selling, general and administrative................................................ 1,136,516 597,558
Amortization....................................................................... 304,182 27,670
Interest and bank charges [NOTE 6]................................................. 99,292 11,236
------------ --------------
1,539,990 636,464
------------ --------------
Loss before income taxes........................................................... (2,278,788) (677,400)
Income taxes--deferred............................................................. (4,586) (37,060)
------------ --------------
LOSS FOR THE PERIOD................................................................ (2,274,202) (640,340)
Deficit, beginning of period....................................................... (964,780) (324,440)
------------ --------------
DEFICIT, END OF PERIOD............................................................. (3,238,982) (964,780)
------------ --------------
------------ --------------
Loss per share..................................................................... (3.69) (1.35)
------------ --------------
------------ --------------
</TABLE>
SEE ACCOMPANYING NOTES
F-4
<PAGE>
TALISMAN ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
[IN U.S. DOLLARS]
<TABLE>
<CAPTION>
ACCUMULATED
CLASS "A" OTHER
COMMON NUMBER OF SPECIAL CONTRIBUTED COMPREHENSIVE
NUMBER OF SHARES CLASS "A" SHARES SURPLUS DEFICIT LOSS
COMMON SHARES $ SPECIAL SHARES $ $ $ $
-------------- --------- --------------- ------------- ------------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE MAY 31, 1997... 452,600 801,089 3,300 1,687,083 -- (324,440) (159,108)
Issuance of Firesand
shares on acquisition
of Talisman.......... 478,371 20,112 -- -- -- -- --
Elimination of prior
number of shares of
Talisman............. (478,371) -- -- -- -- -- --
Prior common shares of
Firesand............. 34,970 -- -- -- -- -- --
Issued for cash and
exercise of
warrants............. 28,386 516,946 -- -- -- -- --
Cumulative translation
adjustment........... -- -- -- -- -- -- 60,026
Net loss............... -- -- -- -- -- (640,340) --
-------------- --------- ----- ------------- ------------- --------- --------
BALANCE DECEMBER 31,
1997................. 515,956 1,338,147 3,300 1,687,083 -- (964,780) (99,082)
-------------- --------- ----- ------------- ------------- --------- --------
Issued for exercise of
warrants............. 10,893 119,391 -- -- -- -- --
Issued for cash [net of
expenses] services
and capital assets... 503,481 1,132,749 -- -- 309,233 -- --
Cumulative translation
adjustment........... -- -- -- -- -- -- (106,078)
Net loss............... -- -- -- -- -- (2,274,202) --
-------------- --------- ----- ------------- ------------- --------- --------
BALANCE DECEMBER 31,
1998................. 1,030,330 2,590,287 3,300 1,687,083 309,233 (3,238,982) (205,160)
-------------- --------- ----- ------------- ------------- --------- --------
-------------- --------- ----- ------------- ------------- --------- --------
<CAPTION>
TOTAL
$
---------
<S> <C>
BALANCE MAY 31, 1997... 2,004,624
Issuance of Firesand
shares on acquisition
of Talisman.......... 20,112
Elimination of prior
number of shares of
Talisman............. --
Prior common shares of
Firesand............. --
Issued for cash and
exercise of
warrants............. 516,946
Cumulative translation
adjustment........... 60,026
Net loss............... (640,340)
---------
BALANCE DECEMBER 31,
1997................. 1,961,368
---------
Issued for exercise of
warrants............. 119,391
Issued for cash [net of
expenses] services
and capital assets... 1,441,982
Cumulative translation
adjustment........... (106,078)
Net loss............... (2,274,202)
---------
BALANCE DECEMBER 31,
1998................. 1,142,461
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES
F-5
<PAGE>
TALISMAN ENTERPRISES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[IN U.S. DOLLARS]
<TABLE>
<CAPTION>
YEAR ENDED 7 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ --------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the period................................................................ (2,274,202) (640,340)
Charges to income not affecting cash
Amortization of capital assets..................................................... 304,182 27,670
Deferred income taxes.............................................................. (4,586) (37,060)
Change in non-cash working capital items........................................... 114,490 (89,304)
------------ --------------
CASH USED IN OPERATING ACTIVITIES.................................................. (1,860,116) (739,034)
------------ --------------
INVESTING ACTIVITY
Purchase of capital assets......................................................... (286,862) 13,324
------------ --------------
FINANCING ACTIVITIES
Issuance of long-term debt......................................................... 609,430 358,423
Repayment of long-term debt........................................................ (325,894) (29,869)
Repayment of note payable.......................................................... -- (60,932)
Reduction in note payable.......................................................... (77,233) (104,269)
Issue of common shares............................................................. 1,493,441 537,059
Bank operating line................................................................ 437,196 --
------------ --------------
CASH PROVIDED BY FINANCING ACTIVITIES.............................................. 2,136,940 700,412
------------ --------------
DECREASE IN CASH DURING THE PERIOD................................................. (10,038) (25,298)
Cash, beginning of period.......................................................... 26,739 52,037
------------ --------------
CASH, END OF PERIOD................................................................ 16,701 26,739
------------ --------------
------------ --------------
NON-CASH INVESTING ACTIVITY
Contribution by shareholders of capital assets..................................... 68,000 --
------------ --------------
------------ --------------
NON-CASH FINANCING ACTIVITY
Contribution by shareholders of professional services.............................. 241,233 --
------------ --------------
------------ --------------
SUPPLEMENTARY INFORMATION
Cash interest paid................................................................. 26,431 8,746
Cash income taxes paid............................................................. -- --
------------ --------------
------------ --------------
</TABLE>
SEE ACCOMPANYING NOTES
F-6
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
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.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in United States
dollars and in accordance with accounting principles generally accepted in the
United States and include certain estimates based on management's judgments.
These estimates affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amount of
revenues and expenses during the period. Actual results may differ from those
estimates.
Consolidated financial statements prepared in Canadian dollars and in
accordance with accounting principles generally accepted in Canada were
previously made available to shareholders and filed with various securities
regulatory authorities.
For purposes of these consolidated financial statements, the company has
adopted the U.S. dollar as the reporting currency. This improves investors'
ability to compare the company's results with those of most other publicly
traded businesses in the industry. These consolidated financial statements have
been translated from Canadian dollars to U.S. dollars by translating assets and
liabilities at the rate in effect at the respective balance sheet date and
revenues and expenses at the average rate for the period. Any resulting foreign
exchange gains or losses are recorded in accumulated other comprehensive income
(loss).
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:
<TABLE>
<S> <C>
Production and warehouse equipment basis 10 years straight-line
Dies and molds basis 5 years straight-line
Furniture and fixtures basis 5 years straight-line
Computer equipment basis 3 years straight-line
Leasehold improvements Straight-line basis over the term of the
lease
</TABLE>
F-7
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 [474,446 for the seven months ended December 31,
1997].
FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable, bank operating line and
accounts payable and accrued liabilities are considered to be representative of
their respective fair values due to their short maturities.
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.
INCOME TAXES
The company follows the liability method of accounting for income taxes.
Under this method, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
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
F-8
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
2. ACQUISITION (CONTINUED)
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:
<TABLE>
<CAPTION>
$
---------
<S> <C>
Working capital......................................................................................... 20,112
Common shares issued.................................................................................... (20,112)
---------
--
---------
---------
</TABLE>
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................................................................. 243,801 201,968
Finished goods.............................................................................. 165,379 56,769
--------- ---------
409,180 258,737
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998
------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
---------- ------------ ----------
Production equipment...................................................... 2,741,827 292,910 2,448,917
Warehouse equipment....................................................... 32,568 3,196 29,372
Computer equipment........................................................ 11,763 4,028 7,735
Dies and molds............................................................ 26,112 2,968 23,144
Furniture and fixtures.................................................... 20,657 4,525 16,132
Leasehold improvements.................................................... 59,718 12,355 47,363
Construction in progress.................................................. 180,000 -- 180,000
---------- ------------ ----------
3,072,645 319,982 2,752,663
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
1997
-------------------------------------
<S> <C> <C> <C>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
---------- ------------- ----------
Production equipment...................................................... 2,796,787 24,607 2,772,180
Warehouse equipment....................................................... 25,560 210 25,350
Computer equipment........................................................ 10,095 280 9,815
Dies and molds............................................................ 9,396 140 9,256
Furniture and fixtures.................................................... 21,350 560 20,790
Leasehold improvements.................................................... 56,414 1,188 55,226
---------- ------ ----------
2,919,602 26,985 2,892,617
---------- ------ ----------
---------- ------ ----------
</TABLE>
Certain of the above production equipment was acquired pursuant to a s.85
rollover under the Canadian tax laws. 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 $695,200.
5. NOTE PAYABLE
The non-interest bearing note payable to a shareholder was repaid during
1998.
F-10
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
6. LONG-TERM DEBT AND LINES OF CREDIT
<TABLE>
<CAPTION>
1998 1997
$ $
--------- ---------
<S> <C> <C>
Term loan, bearing interest at prime plus 1 1/4% [8% at December 31, 1998] with monthly
principal repayments of $12,500 Cdn., maturing October 23, 2003........................... 474,221 --
Term demand loan, bearing interest at prime plus 1 1/4% [8% at December 31, 1998] with
monthly principal repayments of $8,333 Cdn., maturing March 31, 2001, repaid during
1998...................................................................................... -- 320,401
Convertible U.S. dollar promissory note bearing interest at 8%, interest and principal on
the note shall be paid in cash one year from the date of issuance of the note, or interest
on the conversion of the note into securities of the company.............................. 100,000 --
--------- ---------
574,221 320,401
Less current portion........................................................................ 574,221 69,903
--------- ---------
Long-term debt.............................................................................. -- 250,498
--------- ---------
--------- ---------
</TABLE>
The company has available operating line of credit of $490,000 [$66,344 was
available at December 31, 1998] which bears interest at prime plus 1 1/4%. In
addition, the company may draw down an additional $653,400 term loan 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 $2,940,200. 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 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 agent fees
and placement allowance but before the expenses of the offering of $2,118,500
and $4,337,000. 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 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 in principal amount of note, and the
warrants are exercisable at a price of $7.50 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 $2,220,390, after deducting
agents fee and placement allowance [such proceeds being inclusive of the
$100,000 convertible debenture outstanding at December 31, 1998].
F-11
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
6. LONG-TERM DEBT AND LINES OF CREDIT (CONTINUED)
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 $26,431 [$8,746 for the seven months ended December 31, 1997].
7. 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
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, the value of which [$309,233]
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.
In connection with the private placements during the year, the company
granted 618,006 warrants to acquire common shares of the company.
F-12
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
7. SHARE CAPITAL (CONTINUED)
The company options and warrants to acquire common shares at various
exercise prices are summarized below:
<TABLE>
<CAPTION>
EXERCISE
PRICE EXPIRATION
NUMBER $ DATE
--------- ----------- ----------------
<S> <C> <C> <C>
[CANADIAN]
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>
8. 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 Cdn. 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 the 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].
F-13
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
9. STOCK BASED COMPENSATION
The company applies APB Opinion 25 in accounting for its employee stock
options and warrants.
The exercise price of all employee stock options and warrants is equal to
the market price of the stock at the time of granting. Accordingly, no
compensation cost has been recognized in the financial statements for its
employee stock options and warrants.
For purposes of meeting requirements of FASB Statement No. 123, 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%, 6%, dividend yields of 0%, 0%,
volatility factors of the expected market price of the company's common stock of
30%, 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 would be increased by $497,706 for the 7 months
ended December 31, 1997. The company's pro-forma loss per share would be [$2.03]
for the 7 months ended December 31, 1997. There were no employee stock options
and warrants issued or which vested during 1998.
F-14
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
9. STOCK BASED COMPENSATION (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
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
[CANADIAN] [CANADIAN]
----------------------------- -----------------------------
WEIGHTED WEIGHTED
-AVERAGE -AVERAGE
EXERCISE PRICE EXERCISE PRICE
--------------- ---------------
<S> <C> <C> <C> <C>
EMPLOYEE OPTIONS
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>
10. INCOME TAXES
The significant components of the company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED 7 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ --------------
<S> <C> <C>
DEFERRED TAX ASSETS
Income tax losses available for carryforward....................................... 537,500 122,800
Share issue costs.................................................................. 191,441 32,087
------------ -------
728,941 154,887
</TABLE>
F-15
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
10. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED 7 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ --------------
<S> <C> <C>
Less valuation allowance........................................................... 728,941 154,887
------------ -------
NET DEFERRED TAX ASSETS............................................................ -- --
------------ -------
------------ -------
DEFERRED TAX LIABILITIES
Temporary differences on capital assets............................................ 546,815 589,794
------------ -------
TOTAL DEFERRED TAX LIABILITIES..................................................... 546,815 589,794
------------ -------
------------ -------
</TABLE>
The operating company has a tax year-end of May 31(st) which differs from
its reporting year of December 31(st). As at May 31, 1998, the company has
available non-capital loss carryovers of approximately $1,493,000 [$2,285,000
Cdn.] available to offset future taxable income. These non-capital loss
carryovers expire as follows:
<TABLE>
<CAPTION>
$
----------
<S> <C>
May 31, 2004......................................................................................... 341,000
May 31, 2005......................................................................................... 1,152,000
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The minimum lease payments for building and equipment leases over the next 5
years are as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C>
1999................................................................................................... 87,947
2000................................................................................................... 83,987
2001................................................................................................... 73,058
2002................................................................................................... 35,176
2003................................................................................................... --
---------
280,168
---------
---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 7 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ ---------------
<S> <C> <C>
Rent expense....................................................................... 125,480 57,993
------------ ------
------------ ------
</TABLE>
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,
F-16
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
12. SEGMENTED INFORMATION
The company is organized and managed as a single business segment being the
production of batteries and the company is viewed as a single operating segment
by the chief operating decision maker for the purposes of resource allocations
and assessing performance.
The geographic sources of the company's revenues based on location of
customers is as follows:
<TABLE>
<CAPTION>
YEAR ENDED 7 MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
------------ --------------
<S> <C> <C>
Canada............................................................................. 172,098 134,060
United States...................................................................... 576,156 5,586
------------ -------
748,254 139,646
------------ -------
------------ -------
</TABLE>
In addition, sales to two of the company's largest customers accounted for
28.6%, and 23.7% of revenues for the year ended December 31, 1998.
13. RELATED PARTY TRANSACTIONS
During the year, the company had $120,900 of loans due from a former senior
executive officer bearing interest at 8% per annum. The amount was repaid by
December 31, 1998.
The company had 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....................................................... 34,246 --
</TABLE>
In addition, in 1996 the company purchased capital assets [$73,400] which
remain in the possession of the related party who uses them to produce raw
materials for the company.
14. RECENT REPORTING DEVELOPMENTS
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 2001.
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.
F-17
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
[IN U.S. DOLLARS]
DECEMBER 31, 1998 AND 1997
15. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE [UNAUDITED]
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by, or at, the Year
2000. Management has assessed the Year 2000 issue and has determined that the
company may have to replace nine personal computers for proper functioning in
the Year 2000 and thereafter. As at December 31, 1998, no amounts had been
expensed relating to becoming Year 2000 compliant. The estimated future costs to
become Year 2000 compliant will not exceed an aggregate of $50,000.
Management has determined that it has no exposure to contingencies related
to Year 2000 issues for the products it has sold. Management has used its best
estimate of the Year 2000 issues, and there is no guarantee that these estimates
will be achieved and actual results could differ from those anticipated. In
addition, disruptions in the economy generally resulting from the Year 2000
could also materially adversely affect the company.
16. SUBSEQUENT EVENTS
On July 16, 1999, the company filed a registration statement with the SEC
for the issue of 1,774,627 common shares and 1,014,627 common stock purchase
warrants.
F-18
<PAGE>
NOTICE TO READER
We have compiled the consolidated balance sheet of TALISMAN ENTERPRISES INC. as
at June 30, 1999 and the consolidated statements of loss and deficit and cash
flows for the period then ended from information provided by management. We have
not audited, reviewed or otherwise attempted to verify the accuracy or
completeness of such information. Readers are cautioned that these statements
may not be appropriate for their purposes.
[LOGO]
Hamilton, Canada,
August 16, 1999. Chartered Accountants
F-19
<PAGE>
TALISMAN ENTERPRISES INC.
INCORPORATED UNDER THE LAWS OF ONTARIO
CONSOLIDATED BALANCE SHEET
[IN U.S. DOLLARS]
AS AT JUNE 30
Unaudited--See Notice to Reader
<TABLE>
<CAPTION>
1999 1998
$ $
----------- -----------
<S> <C> <C>
ASSETS
CURRENT
Cash................................................................................... 662,224 20,228
Accounts receivable.................................................................... 175,228 195,858
Inventories [note 2]................................................................... 1,326,939 301,230
Prepaid expenses....................................................................... 472,347 191,946
Deferred financing costs............................................................... 597,677 --
----------- -----------
TOTAL CURRENT ASSETS................................................................... 3,234,415 709,262
----------- -----------
Capital assets......................................................................... 3,377,420 2,617,654
----------- -----------
6,611,835 3,326,916
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank operating line.................................................................... 100,548 374,627
Accounts payable and accrued liabilities............................................... 1,044,086 527,892
Note payable........................................................................... -- 292,199
Convertible promissory note............................................................ 5,073,135 --
Current portion of long-term debt...................................................... 441,576 283,139
----------- -----------
TOTAL CURRENT LIABILITIES.............................................................. 6,659,345 1,477,857
----------- -----------
Deferred income tax liability.......................................................... 539,198 571,011
Shareholders' equity
Share capital.......................................................................... 4,277,370 3,116,668
Warrants............................................................................... 101,463 --
Contributed surplus.................................................................... 309,233 --
Deficit................................................................................ (5,126,654) (1,698,553)
Accumulated other comprehensive loss................................................... (148,120) (140,067)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY............................................................. (586,708) 1,278,048
----------- -----------
6,611,835 3,326,916
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES
On behalf of the Board:
Director Director
F-20
<PAGE>
TALISMAN ENTERPRISES INC.
CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
[IN U.S. DOLLARS]
FOR THE SIX MONTHS ENDED JUNE 30
Unaudited--See Notice to Reader
<TABLE>
<CAPTION>
1999 1998
$ $
----------- -----------
<S> <C> <C>
Revenues............................................................................... 70,688 348,605
Operating expenses [exclusive of amortization shown separately below].................. 639,566 628,527
----------- -----------
Gross profit........................................................................... (568,878) (279,922)
----------- -----------
EXPENSES
Selling, general and administrative.................................................... 872,648 243,229
Amortization........................................................................... 370,003 187,234
Interest and bank charges.............................................................. 105,133 25,749
----------- -----------
1,347,784 456,212
----------- -----------
Loss before income taxes............................................................... (1,916,662) (736,134)
Income taxes--deferred................................................................. (28,990) (2,361)
----------- -----------
LOSS FOR THE PERIOD.................................................................... (1,887,672) (733,773)
Deficit, beginning of period........................................................... (3,238,982) (964,780)
----------- -----------
DEFICIT, END OF PERIOD................................................................. (5,126,654) (1,698,553)
----------- -----------
LOSS PER SHARE......................................................................... (1.83) (1.55)
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES
F-21
<PAGE>
TALISMAN ENTERPRISES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
[IN U.S. DOLLARS]
FOR THE SIX MONTHS ENDED JUNE 30
Unaudited--See Notice to Reader
<TABLE>
<CAPTION>
1999 1998
$ $
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the period..................................................................... (1,887,672) (733,773)
Charges to income not affecting cash
Amortization of capital assets........................................................ 370,003 187,234
Deferred income taxes................................................................. (28,990) (2,361)
Change in non-cash working capital items................................................ (1,031,593) (124,986)
----------- ----------
CASH USED IN OPERATING ACTIVITIES....................................................... (2,578,252) (673,886)
----------- ----------
INVESTING ACTIVITY
Purchase of capital assets.............................................................. (676,325) 11,221
----------- ----------
FINANCING ACTIVITIES
Issue of convertible promissory note.................................................... 5,174,473 --
Deferred financing costs................................................................ (797,677) --
Repayment of long-term debt............................................................. (153,588) (28,977)
Increase in note payable................................................................ -- 219,066
Issue of common shares.................................................................. -- 91,438
Bank operating line..................................................................... (323,108) 374,627
----------- ----------
Cash provided by financing activities................................................... 3,900,100 656,154
----------- ----------
Increase (decrease) in cash during the period........................................... 645,523 (6,511)
Cash, beginning of period............................................................... 16,701 26,739
----------- ----------
CASH, END OF PERIOD..................................................................... 662,224 20,228
----------- ----------
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES
F-22
<PAGE>
TALISMAN ENTERPRISES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
JUNE 30, 1999
Unaudited-See Notice to Reader
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
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.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in United States
dollars and in accordance with accounting principles generally accepted in the
United States and include certain estimates based on management's judgments.
These estimates affect the reported amounts of assets and liabilities at the
date of the consolidated financial statements and the reported amount of
revenues and expenses during the period. Actual results may differ from those
estimates.
Consolidated financial statements prepared in Canadian dollars and in
accordance with accounting principles generally accepted in Canada were
previously made available to shareholders and filed with various securities
regulatory authorities.
For purposes of these consolidated financial statements, the company has
adopted the U.S. dollar as the reporting currency. This improves investors'
ability to compare the company's results with those of most other publicly
traded businesses in the industry. These consolidated financial statements have
been translated from Canadian dollars to U.S. dollars by translating assets and
liabilities at the rate in effect at the respective balance sheet date and
revenues and expenses at the average rate for the period. Any resulting foreign
exchange gains or losses are recorded in accumulated other comprehensive income
(loss).
2. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
$ $
---------- ---------
<S> <C> <C>
Raw materials and packaging............................................................... 470,395 138,290
Finished goods............................................................................ 856,544 162,940
---------- ---------
1,326,939 301,230
---------- ---------
---------- ---------
</TABLE>
3. SUBSEQUENT EVENTS
On July 16, 1999, the company filed a registration statement with the SEC
for the issue of 1,774,627 common shares and 1,014,627 common stock purchase
warrants.
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR ANY OTHER PERSON
TO PROVIDE PROSPECTIVE INVESTORS WITH INFORMATION OR REPRESENTATIONS DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD NOT RELY ON
ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL ANY
SECURITY OTHER THAN THE COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS OFFERED
BY THIS PROSPECTUS, NOR DOES THIS PROSPECTUS OFFER TO BUY OR SELL ANY SECURITIES
IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS
CURRENT AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 5
Use of Proceeds................................. 13
Dilution........................................ 14
Capitalization.................................. 16
Exchange Rate Data.............................. 17
Dividend Policy................................. 18
Selected Financial Data......................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 20
Our History..................................... 25
Business........................................ 26
Management...................................... 33
Principal Stockholders.......................... 42
Selling Stockholders............................ 44
Plan of Distribution............................ 47
Certain Transactions............................ 47
Description of Securities....................... 50
Investment Canada Act........................... 54
Underwriting.................................... 55
Legal Matters................................... 58
Experts......................................... 58
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT O THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
1,624,627 SHARES
OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
CAPITAL WEST SECURITIES, INC.
,1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The by-laws of Talisman provide that Talisman shall indemnify directors and
officers of Talisman. The pertinent section of Canadian law is set forth below
in full. In addition, upon effectiveness of this registration statement,
management intends to obtain officers and directors liability insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission (the
"Commission") with respect to the effect of any indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
Section 136 of the Business Corporation Act (Ontario) provides as follows:
(1) INDEMNIFICATION OF DIRECTORS--A corporation may indemnify a director
or officer of the corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request as a
director or officer of a body corporate of which the corporation is or was a
shareholder or creditor, and his or her heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him or her in
respect of any civil, criminal or administrative action or proceeding to
which he or she is a party by reason of being or having been a director or
officer of such corporation or body corporate, if,
(a) he or she acted honestly and in good faith with a view to the
best interests of the corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he or she has reasonable grounds
for believing that his or her conduct was lawful.
(2) IDEM.--A corporation may, with the approval of the court, indemnify
a person referred to in subsection (1) in respect of an action by or behalf
of the corporation or body corporate to procure a judgment n its favor, to
which the person is made a party by reason of being or having been a
director or an officer of the corporation or body corporate, against all
costs, charges and expenses reasonably incurred by the person in connection
with such action if he or she fulfills the conditions set out in clauses
(1)(a) and (b).
(3) IDEM.--Despite anything in this section, a person referred to in
subsection (1) is entitled to indemnity from the corporation in respect of
all costs, charges and expenses reasonably incurred by him in connection
with the defense of any civil, criminal or administrative action or
proceeding to which he or she is made a party by reason of being or having
been a director or officer of the corporation or body corporate, if the
person seeking indemnity;
(a) was substantially successful on the merits in his or her defense
of the action or proceeding; and
(b) fulfills the conditions set out in clauses (1)(a) and (b).
(4) LIABILITY INSURANCE-A corporation may purchase and maintain
insurance for the benefit of any person referred to in subsection (1)
against any liability incurred by the person,
(a) in his or her capacity as a director or officer of the
corporation, except where the liability relates to the person's failure
to act honestly and in good faith with a view to the best interests of
the corporation; or
II-1
<PAGE>
(b) in his or her capacity as a director or officer of another body
corporate where the person acts or acted in that capacity at the
corporation's request, except where the liability relates to the person's
failure to act honestly and in good faith with a view to the best
interests of the body corporate.
(5) APPLICATION TO COURT--A Corporation or a person referred to in
subsection (1) may apply to the court for an order approving an indemnity
under this section and the court may so order and make any further order it
thinks fit.
(6) IDEM--Upon application under subsection (5), the court may order
notice to be given to any interested person and such person is entitled to
appear and be heard in person or by counsel.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of this offering, all of which are to be paid by the
Registrant, in connection with the issuance and distribution of the securities
being registered are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................... $ 5,704.43*
NASD filing fee................................................ 2,149.28*
NASDAQ listing and filing fee.................................. 10,000.00*
Printing and engraving expenses................................ 100,000.00*
Accounting fees and expenses................................... 125,000.00*
Legal fees and expenses........................................ 100,000.00*
Blue sky fees and expenses..................................... 25,000.00*
Non-accountable expense allowance.............................. 90,000.00*
Transfer agent fees............................................ 5,000.00*
Miscellaneous expenses......................................... 27,155.29*
----------
Total...................................................... $490,000.00
----------
----------
</TABLE>
- ------------------------
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Except as set forth below, there were no sales of unregistered securities by
the Registrant during the past three (3) years:
In January and March 1998, Garry J. Syme exercised warrants to acquire
16,098 common shares, in aggregate, for gross cash consideration of $86,628
and $177,970 in property and equipment. These transactions were exempt from
registration under the Act, under Section 4(2) and Rule 506 of Regulation D
of the Act as not involving a public offering. The recipient of the
foregoing securities represented that such securities were being acquired
for investment and not with a view to the distribution thereof. In addition,
restrictive legends were placed on the certificates evidencing such
securities.
On August 5, 1998, Talisman raised CDN$1,495,000 in connection with a
private offering of 263,504 shares of Talisman's common stock and warrants
to purchase an additional 263,504 shares of common stock at an exercise
price of $7.50 per share, with Talisman Partners. These transactions were
exempt from registration under the Act, under Section 4(2) of the Act as not
involving a public offering. The recipient of the foregoing securities
represented that such securities were being acquired for investment and not
with a view to the distribution thereof. In addition, restrictive legends
were placed on the certificates evidencing such securities.
II-2
<PAGE>
On October 19, 1998, Talisman raised a further CDN$900,000 in connection
with a private offering of 240,000 shares of Talisman's Common stock and
warrants to purchase an additional 240,000 shares of Common stock at an
exercise price of $5.00 per share, with Talisman Partners. These
transactions were exempt from registration under the Act, under Section 4(2)
of the Act as not involving a public offering. The recipient of the
foregoing securities represented that such securities were being acquired
for investment and not with a view to the distribution thereof. In addition,
restrictive legends were placed on the certificates evidencing such
securities.
From December 1998 to March 1999, Talisman sold an aggregate of $700,000
of 8% convertible promissory notes to nineteen persons. The holders of the
Notes also received warrants to acquire an aggregate of 72,465 shares of
common stock of Talisman exercisable at $7.50 per share. These transactions
were exempt from registration under the Act, under Section 4(2) and Rule 506
of Regulation D of the Act as not involving a public offering. The recipient
of the foregoing securities represented that such securities were being
acquired for investment and not with a view to the distribution thereof. In
addition, restrictive legends were placed on the certificates evidencing
such securities.
In March, April, and June 1999, Talisman completed three closings of a
private placement offering, with Spencer Trask Securities, Inc. as placement
agent, in which it sold an aggregate of approximately 50.72985 units solely
to U.S. investors for gross proceeds to Talisman of approximately
$5,174,472.70 (such proceeds being inclusive of the $700,000 raised from
December 1998 through March 1999 described above). The units consisted of an
aggregate of (1) $5,073,135 principal amount of 8% convertible promissory
notes, and (2) 1,014,627 warrants to purchase shares of common stock, which
warrants are exercisable at $7.50 per share. In connection with such
closings, Spencer Trask received a placement fee equal to 10% of the
aggregate purchase price of the securities sold by it, plus a
non-accountable expense allowance equal to three percent of the aggregate
purchase price of the securities sold and a warrant, granted by Talisman for
$1.00 consideration, to purchase an amount of common stock equal to 20% of
the common stock sold in the offering at an exercise price equal to 120% of
the price of the common stock sold. Additionally, upon the first closing of
the offering, Talisman entered into (1) an agreement whereby Spencer Trask
shall have the right of first refusal to act as underwriter or agent for any
proposed private or public offering of Talisman's securities by Talisman or
by any of its principal stockholders, and (2) a non-exclusive finder's
agreement pursuant to which Spencer Trask shall be entitled to receive a fee
based upon a percentage of the value of any business combination or
financing arrangement, including but not limited to a merger or purchase of
assets, which is introduced to Talisman by Spencer Trask.
In July 1999, Talisman issued an aggregate of 25,230 shares of common
stock to six persons. These transactions were exempt from registration under
the Act, under Section 4(2) and Rule 506 of Regulation D of the Act as not
involving a public offering. The recipient of the foregoing securities
represented that such securities were being acquired for investment and not
with a view to the distribution thereof. In addition, restrictive legends
were placed on the certificates evidencing such securities.
II-3
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
3.1 Articles of Incorporation, as amended*
3.2 By-Laws*
4.1 Form of Underwriter's Warrants
4.2 Form of Common Stock Certificate*
5.1 Opinion of Aird & Berlis
10.1 Registrant's 1997 Stock Option Plan *
10.2 1999 Senior Executive Stock Option Plan***
10.3 1999 Directors Company Stock Plan***
10.4 Employment Agreement with Gary J. Syme*
10.5 Employment Agreement with James A. Ogle*
10.5 Employment Agreement with Christian H. Bunger
21.1 List of Subsidiaries of the Registrant**
23.1 Consent of Sichenzia, Ross & Friedman LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Aird & Berlis (to be included in Exhibit 5.1)
27.1 Financial Data Schedule--Year Ended December 31, 1998**
27.2 Financial Data Schedule--Six Months Ended June 30, 1999
</TABLE>
- ------------------------
* Incorporated by reference to the Form 20-F filed by the Registrant with the
Commission on January 19, 1999 under SEC File No. 0-29972.
** Previously filed.
*** Incorporated by reference to the Form 6-K filed by the Registrant with the
commission on June 7, 1999 under SEC File No. 0-29972.
All other schedules are omitted, as the required information is either
inapplicable or presented in the financial statements or related notes.
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-4
<PAGE>
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(5) The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing, specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement on Form SB-2 to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Mississauga, Ontario, on the 17th day of August, 1999.
TALISMAN ENTERPRISES INC.
BY: /S/ JAMES A. OGLE
-----------------------------------------
James A. Ogle,
PRESIDENT & CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement on Form SB-2 has been signed below by the
following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ JAMES A. OGLE President, Chief Executive
- ------------------------------ Officer & Director August 17, 1999
James A. Ogle
/s/ NORMAN R. PROULX Chairman of the Board
- ------------------------------ August 17, 1999
Norman R. Proulx
/s/ THOMAS O'DOWD Vice President & Chief
- ------------------------------ Financial Officer August 17, 1999
Thomas O'Dowd
/s/ JAMES C. MCGAVIN Director
- ------------------------------ August , 1999
James C. McGavin
/s/ DONALD L. MATHESON Director
- ------------------------------ August , 1999
Donald L. Matheson
/s/ THOMAS A. FENTON Director
- ------------------------------ August 17, 1999
Thomas A. Fenton
Director
- ------------------------------ August , 1999
D. Graham Avery
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
3.1 Articles of Incorporation, as amended*
3.2 By-Laws*
4.1 Form of Underwriter's Warrants
4.2 Form of Common Stock Certificate*
5.1 Opinion of Aird & Berlis
10.1 Registrant's 1997 Stock Option Plan *
10.2 1999 Senior Executive Stock Option Plan***
10.3 1999 Directors Company Stock Plan***
10.4 Employment Agreement with Gary J. Syme*
10.5 Employment Agreement with James A. Ogle*
10.6 Employment Agreement with Christian H. Bunger
21.1 List of Subsidiaries of the Registrant**
23.1 Consent of Sichenzia, Ross & Friedman LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Aird & Berlis (to be included in Exhibit 5.1)
27.1 Financial Data Index--Year Ended December 31, 1998**
27.2 Financial Data Index--Six Months Ended June 30, 1999
</TABLE>
- ------------------------
* Incorporated by reference to the Form 20-F filed by the Registrant with the
Commission on January 19, 1999 under SEC File No. 0-29972.
** Previously filed.
*** Incorporated by reference to the Form 6-K filed by the Registrant with the
Commission on June 7, 1999 under SEC File No. 0-29972.
<PAGE>
600,000 Shares
TALISMAN ENTERPRISES INC.
(an Ontario, Canada corporation)
(No Par Value Per Share)
UNDERWRITING AGREEMENT
October __, 1999
CAPITAL WEST SECURITIES, INC.
211 N. Robinson
2nd Floor, One Leadership Square
Oklahoma City, Oklahoma 73102
Ladies/Gentlemen:
Talisman Enterprises Inc., an Ontario, Canada corporation (the
"Company"), hereby confirms its agreement with Capital West Securities, Inc.
("Capital West") and additional underwriters (along with Capital West, each an
"Underwriter and, collectively, the "Underwriters") as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell 600,000
shares of its authorized and unissued common stock, no par value, to the several
Underwriters. The Company also proposes to grant to the Underwriters an option
as provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Shares, the Option Shares, as defined in Section 7 and, if the
Company has filed or is required pursuant to the terms hereof to file a
registration statement pursuant to Rule 462(b) under the Act registering
additional shares of common stock, no par value, such shares of common stock.
All shares of common stock of the Company, no par value per share, including the
Shares, shall hereinafter be referred to as "Common Stock."
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. Unless
otherwise indicated or the context otherwise requires, references to the
"Company" in this Section 2 are references to Talisman Enterprises Inc., an
Ontario, Canada corporation. The Company represents and warrants to and agrees
with each Underwriter, as follows:
(a) A registration statement on Form SB-2 (File No. 333-[________])
with respect to the Shares, including a prospectus subject to completion, has
been carefully and accurately prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Act and has been filed with
the Commission; such amendments to such registration statement and such amended
prospectuses subject to completion, as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses
-1-
<PAGE>
subject to completion, as may hereafter be required. Copies of such registration
statement and any amendments and of each related prospectus subject to
completion have been delivered to the Company.
If requested by Capital West, the Company shall file a Rule 462(b)
Registration Statement with the Commission registering shares of Common Stock in
compliance with Rule 462(b) by 5:30 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
If the registration statement has been declared effective under the
Act by the Commission, the Company will prepare and promptly file with the
Commission the information omitted from the registration statement pursuant to
Rule 430A(a) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement has not been declared effective under the Act by
the Commission, the Company will prepare and promptly file a further amendment
to the registration statement, including a final form of prospectus. The term
"Registration Statement" as used in this Agreement shall mean such registration
statement, including financial statements, schedules and exhibits, in the form
in which it became or becomes, as the case may be, effective (including, if the
Company omitted information from the registration statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations) and, in the event of any amendment thereto after
the effective date of such registration statement, shall also mean (from and
after the effectiveness of such amendment) such registration statement as so
amended and if the Company has filed or is required pursuant to the terms hereof
to file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "Rule 462(b) Registration
Statement"), then, unless otherwise specified, any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations), except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the Prospectus on file with the Commission at the time
the Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use.
-2-
<PAGE>
(b) The Commission has not issued any order preventing or suspending
the use of any preliminary prospectus or instituted proceedings for that
purpose, and each such preliminary prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; if the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such Rule
462(b) Registration Statement and any amendments thereto, when they become
effective (i) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) will comply in all material respects
with the Act; and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up, to and on the
Closing Date (hereinafter defined) and on any later date on which Option Shares
are to be purchased, (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained and will contain all material
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of the
Act and the Rules and Regulations, and (ii) neither the Registration Statement
nor the Prospectus, nor any amendments or supplements thereto, will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(c) Each of the Company and Talisman International Inc., its sole
Subsidiary (as such term is defined in Rule 405 under the Act) has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its organization, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement; each of the Company and its
Subsidiary is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification except
where the failure to be so qualified or to be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its Subsidiary
considered as a whole; each of the Company and its Subsidiary is in possession
of and operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal, foreign and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect; neither the Company nor its Subsidiary is in
violation of its charter or bylaws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, or any
material lease, contract, joint venture, or other agreement or instrument to
which it is a party or by which its property is bound or in violation of any
law, order, rule, regulation, writ, injunction, judgment or decree of any
government, governmental agency or body or court, domestic or foreign, except
such failures to comply as would not, individually or in the aggregate, have a
material adverse effect on the Company and its Subsidiary considered as a whole.
-3-
<PAGE>
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement and the Warrant Agreement dated of even date herewith by and between
the Company and the Underwriters (the "Warrant Agreement") have been duly
authorized, executed and delivered by the Company and are valid and binding
agreements on the part of the Company, enforceable in accordance with their
respective terms, except as rights to indemnification and contribution hereunder
may be limited by applicable law and except as the enforcement hereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally, or by
general equitable principles; the performance of this Agreement and the Warrant
Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any material indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness, or any material lease, contract, joint venture
or other agreement or instrument to which the Company is a party or by which the
property of the Company is bound including any licenses from third parties, or
(ii) the charter and bylaws of the Company or its Subsidiary, or (iii) any law,
order, rule, regulation, writ, injunction, judgment or decree of any government
or governmental agency or body or court, domestic or foreign, having
jurisdiction over the Company or its Subsidiary or over the properties of the
Company or its Subsidiary, except for breaches, violations or defaults that
individually or in the aggregate, would not have a material adverse effect on
the Company; and no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
herein contemplated, except such as may be required under the Act, the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or under
state or other securities or Blue Sky laws, all of which requirements have been
satisfied in all material respects.
(e) Except as disclosed in the Registration Statement or the
Prospectus, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or threatened,
against or affecting the Company or its Subsidiary which (i) is required to be
disclosed in the Registration Statement or the Prospectus or which might result
in any material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and its
Subsidiary considered as one enterprise, or which might materially and adversely
affect the properties or assets thereof; or (ii) which might be expected to
materially and adversely affect the consummation of the transactions
contemplated by this Agreement; all pending legal or governmental proceedings to
which the Company or its Subsidiary is a party or of which any of their
respective properties or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental to the
Company's business, could not reasonably be expected to result in a material
adverse change in the condition, financial or otherwise, or the earnings,
business affairs or business properties of the Company and its Subsidiary
considered as one enterprise; and there are no contracts or documents of the
Company or its Subsidiary which are required to be described in the Registration
Statement or the Prospectus, or to be filed as exhibits thereto, by the Act or
by the Rules and Regulations which have not been accurately described in all
material respects and filed as exhibits to the Registration
-4-
<PAGE>
Statement. The contracts so described in the Prospectus are in full force and
effect on the date hereof, and neither the Company nor its Subsidiary is in
breach of or default under, and, to the Company's knowledge, no other party is
in material breach of or material default under, any of such contracts.
(f) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal, state and
foreign securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities (other
than such preemptive rights or other rights to subscribe for or purchase
securities as were fully complied with or expressly waived or with respect to
the violation of which the right to make claim is barred by the applicable
statute of limitations), and the authorized and outstanding capital stock of the
Company conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company); the Shares and the Option Shares to be purchased from the Company
hereunder have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of this Agreement, will be duly
and validly issued and fully paid and nonassessable; the shares of Common Stock
issuable under the warrant to be granted to the Underwriters under the Warrant
Agreement (the "Underwriters' Warrant") have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of the Warrant Agreement, will be duly and validly issued and fully paid and
nonassessable; and no preemptive right, co-sale right, registration right, right
of first refusal or other similar right of stockholders exists with respect to
any of the Shares, Option Shares or shares of Common Stock issuable under the
Underwriters' Warrant or the issuance and sale thereof other than those that
have been expressly waived prior to the date hereof and those that will
automatically expire upon the consummation of the transactions contemplated on
the Closing Date. No further approval or authorization of any stockholder, the
Board of Directors or others is required for the issuance and sale or transfer
of the Shares except as may be required under the Act, the Exchange Act or under
state or other securities or Blue Sky laws. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company
(including the notes thereto) included in the Prospectus, the Company has no
outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights. The shares of Common Stock reserved for issuance upon exercise of the
Company's outstanding options and warrants have been duly and validly authorized
and are sufficient in number to meet the exercise requirements of such options.
-5-
<PAGE>
(g) Ernst & Young LLP, which has examined the financial statements
(together with related schedules and notes) of the Company filed with the
Commission as a part of the Registration Statement and which are included in the
Prospectus, are independent accountants within the meaning of the Act and the
Rules and Regulations; the audited and pro forma financial statements of the
Company, together with the related schedules and notes, and the unaudited
financial information, forming part of the Registration Statement and
Prospectus, fairly present the financial position and the results of operations
of the Company at the respective dates and for the respective periods to which
they apply; and all audited and pro forma financial statements, together with
the related schedules and notes, and the unaudited and pro forma financial
information, filed with the Commission as part of the Registration Statement,
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved except as may be otherwise
stated therein. The selected and summary financial and statistical data included
in the Registration Statement present fairly the information shown therein and
have been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required to be
included in the Registration Statement.
(h) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (i) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company, whether or not arising in the ordinary course of
business, (ii) there have been no transactions entered into by the Company other
than those in the ordinary course of business, which are material with respect
to the Company, (iii) there has been no obligation that is material to the
Company, direct or contingent, incurred by the Company or any Subsidiary, except
obligations incurred in the ordinary course of business, (iv) there has been no
change in the capital stock of the Company, (v) there has been no change in the
outstanding indebtedness of the Company which is material to the Company, (vi)
there has been no dividend or distribution of any kind declared, paid or made by
the Company on behalf of any class of its respective capital stock, or (vii)
there has been no change in any federal, state, foreign or other laws, rules, or
regulations (or interpretations thereof) applicable to the business of the
Company that would have a material adverse effect on the Company, and, to the
knowledge of the Company, no such change is pending other than as described in
the Prospectus.
(i) Except as described in the Prospectus, (i) the Company and its
Subsidiary have good and marketable title to all properties and assets described
in the Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions of any kind or those not material, singly or in the
aggregate, to the business of the Company and its Subsidiary considered as a
whole, (ii) the agreements to which the Company is a party described in the
Prospectus are valid agreements, enforceable by the Company, except as the
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or by general equitable principles, and (iii) the Company has valid
and enforceable leases for the properties described in the Prospectus as leased
by it except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or
-6-
<PAGE>
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(j) All federal, state, local and foreign tax returns required to be
filed by the Company or its Subsidiary in any jurisdiction have been filed, and
all material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such entities
have been paid other than those being contested in good faith and for which
adequate reserves have been provided or those currently payable without penalty
or interest; and adequate charges, accruals and reserves have been provided for
in the financial statements referred to in Section 2(g) above in respect of all
federal, state, local and foreign taxes for all periods as to which the tax
liability of the Company or its Subsidiary has not been finally determined or
remains open to examination by applicable taxing authorities.
(k) No labor dispute with the employees of the Company or its
Subsidiary exists or is imminent; and the Company is not aware of any existing
or imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers, contractors or customers which might be expected to
result in any material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company and
its Subsidiary considered as one enterprise. No collective bargaining agreement
exists with any of the Company's employees and, to the Company's knowledge, no
such agreement is imminent.
(l) The Company and its Subsidiary own or possess, or can acquire on
reasonable terms, the patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names presently employed by them in connection with the
business now operated by them and neither the Company nor its Subsidiary has
received any notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any patent or proprietary rights
or of any facts or circumstances which would render any patent and proprietary
rights invalid or inadequate to protect the interest of the Company or its
Subsidiary therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inadequacy singly or
in the aggregate, would result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its Subsidiary considered as one enterprise.
(m) Except as set forth in the Prospectus, the Company and its
Subsidiary are in compliance in all material respects with all applicable laws,
statutes, ordinances, rules or regulations, the enforcement of which,
individually or in the aggregate, would be reasonably expected to have a
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
Subsidiary considered as one enterprise.
(n) The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market.
-7-
<PAGE>
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the Closing Date or on any date on which Option Shares are to be purchased, as
the case may be, any offering material in connection with the offering and sale
of the Shares other than the Prospectus, the Registration Statement and other
materials permitted by the Act.
(q) The Company has not at any time during the last five years (i)
made any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any foreign, federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares. The Company has not effected any
sales of securities required to be disclosed in Item 26 of Form SB-2 under the
Act, other than as disclosed in the Registration Statement.
(s) Each officer and director of the Company, each beneficial owner
of at least 5% of the outstanding shares of Common Stock and options and
warrants to purchase Common Stock outstanding prior to the effective date of the
Registration Statement have agreed in writing that such persons will not, for a
period expiring 12 months after the effective date of the Registration
Statement, offer to sell, contract to sell, sell short, or otherwise sell or
dispose of any shares of Common Stock of the Company, any options or warrants to
purchase any shares of Common Stock of the Company, or any securities
convertible into or exchangeable for shares of the Common Stock owned directly
by such person or with respect to which such person has the power of disposition
otherwise than (i) as a gift or gifts, provided the donee or donees thereof
agree to be bound by this restriction or (ii) with the prior written consent of
Capital West.
(t) Except as described in the Registration Statement, (i) neither
the Company nor its Subsidiary is in violation of any federal, state, local or
foreign laws or regulations relating to pollution or protection of human health,
the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened release
of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Environmental
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Environmental Materials
(collectively, the "Environmental Laws"), except such violations as would not,
singly or in the aggregate, have a
-8-
<PAGE>
material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
Subsidiary considered as one enterprise, and (ii) there are no events or
circumstances that could form the basis of an order for clean-up or remediation,
or an action, suit or proceeding by any private party or governmental body or
agency, against or affecting the Company or its Subsidiary relating to any
Environmental Materials or the violation of any Environmental Laws, which,
singly or in the aggregate, could reasonably be expected to have a material
adverse effect on the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its Subsidiary
considered as one enterprise.
(u) The Company and its Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles as in effect in the United States and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus. Neither
the Company nor any employee or agent of the Company has made any payment or
transfer of any funds or assets of the Company or conferred any personal benefit
by use of the Company's assets, or received any funds, assets or personal
benefit in violation of any law, rule or regulation.
(w) On the Closing Date and upon delivery of the Option Shares, as
applicable, all transfer and other taxes (other than income taxes) that are
required to be paid in connection with the sale and transfer of the Shares to
the Underwriters will have been paid.
(x) The Company does not currently have and has never had any pension
plan subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended, including the regulations and published interpretations
thereunder and/or the equivalent of such legislation in Canada ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would have any
liability, the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal from,
any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company would
have any liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
-9-
<PAGE>
(y) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 517.075, Florida Statutes (Chapter
92-198, Laws of Florida) AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH
CUBA (the "Cuba Act"), and the Company further agrees that if it commences
engaging in business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or has become
effective with the Commission or the Florida Department of Banking and Finance
(the "Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's
business in Cuba or with any person or affiliate located in Cuba changes in any
material way, the Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
(z) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be deemed
a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter,
severally, and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Company, respectively, at a purchase price per share
of [$_____] per Share, the number of Shares set forth in SCHEDULE A hereto
(subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check in next day funds, payable to the order of the Company at the offices
of Capital West Securities, Inc., 211 N. Robinson, 2nd Floor, One Leadership
Square, Oklahoma City, Oklahoma 73102, or at such other place as shall be agreed
upon by the Underwriters and the Company, at 9:30 a.m. on the fourth business
day following the first day that Shares are traded (or at such time and date to
which payments and delivery shall have been postponed pursuant to Section 10
hereof), such time and date of payment and delivery being herein called the
"Closing Date." The certificates for the Shares to be so delivered will be made
available to Capital West at such office or at such other location as Capital
West may reasonably request for checking at least one business day prior to the
Closing Date and will be in such names and denominations as Capital West may
request. If the Underwriters so elect, delivery of the Shares may be made by
credit through full fast transfer to the accounts at Depository Trust Company
designated by the Underwriters.
It is understood that Capital West, individually and not as
representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by Capital West prior to the
Closing Date for the Shares to be purchased by such Underwriter or Underwriters.
Any such payment by Capital West shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
-10-
<PAGE>
After the Registration Statement becomes effective, the several
Underwriters intend to offer the Shares to the public as set forth in the
Prospectus.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters) and under
"Underwriting" in any preliminary prospectus and in the final form of Prospectus
filed pursuant to Rule 424(b) constitutes the only information furnished by the
Underwriters to the Company for inclusion in any preliminary prospectus, the
Prospectus or the Registration Statement, and Capital West, on behalf of the
respective Underwriters, represent and warrant to the Company that the
statements made therein do not include any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make such statements, in the light of the circumstances in which they were made,
not misleading.
4. FURTHER COVENANTS OF THE COMPANY. The Company covenants with the
several Underwriters as follows:
(a) The Company will cause the Registration Statement and any
amendment thereof, if not effective at the time and date that this Agreement is
executed and delivered by the parties hereto, to become effective as promptly as
possible (other than any Rule 462(b) Registration Statement to be filed by the
Company, which if filed after the effectiveness of this Agreement will become
effective no later than 5:30 P.M., New York City time, on the date of this
Agreement); it will notify Capital West, promptly after it shall receive notice
thereof, of the time when the Registration Statement or any subsequent amendment
to the Registration Statement has become effective or any supplement to the
Prospectus has been filed and if the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, when the Rule
462(b) Registration Statement has become effective; if the Company omitted
information from the Registration Statement at the time it was originally
declared effective in reliance upon Rule 430A(a) of the Rules and Regulations,
the Company will provide evidence satisfactory to Capital West that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if for any reason the filing of the final form of
Prospectus is required under Rule 424(b)(3) of the Rules and Regulations, it
will provide evidence satisfactory to Capital West that the Prospectus contains
such information and has been filed with the Commission within the time period
prescribed; it will notify Capital West promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; promptly upon Capital West request, it
will prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters, may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify Capital West of the filing of,
any amendments or supplements to the Registration Statement or Prospectus
which may be necessary
-11-
<PAGE>
to correct any statements or omissions, if, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine months or more
after the effective date of the Registration Statement in connection with the
sale of the Shares, it will prepare promptly upon request, but at the expense
of such Underwriter, such amendment or amendments to the Registration
Statement and such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus
which shall not previously have been submitted to Capital West a reasonable
time prior to the proposed filing thereof or to which Capital West shall
reasonably object in writing, subject, however, to compliance with the Act,
the Rules and Regulations thereunder and the provisions of this Agreement.
(b) The Company will advise Capital West, promptly after it shall
receive notice or obtain knowledge thereof of the issuance of any stop order by
the Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as Capital
West may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish Capital West, as soon as available,
copies of the Registration Statement (three of which will be signed and which
will include all exhibits), each preliminary prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the Act, all in such quantities as
Capital West may from time to time reasonably request.
(e) The Company will make generally available to its stockholders as
soon as practicable, but in any event not later than the 45th day following the
end of the fiscal quarter first occurring after the first anniversary of the
effective date of the Registration Statement, an earnings statement (which will
be in reasonable detail but need not be audited) complying with the provisions
of Section 11(a) of the Act and covering a twelve-month period beginning after
the effective date of the Registration Statement.
(f) The Company will furnish to its stockholders, as soon as
practicable after the end of each respective period, annual reports (including
financial statements audited by independent
-12-
<PAGE>
certified public accountants) and unaudited quarterly reports of operations for
each of the first three quarters of the fiscal year, and for a period of five
years after the effective date of the Registration Statement, the Company will
furnish to the several Underwriters hereunder, upon request (i) concurrently
with furnishing such reports to its stockholders, statements of operations of
the Company for each of the first three quarters in the form furnished to the
Company's stockholders; (ii) concurrently with furnishing to its stockholders, a
balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity, and of cash flows of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of independent accountants; (iii) as soon as they are available, copies
of all reports and financial statements furnished to or filed with the
Commission, any securities exchange or the National Association of Securities
Dealers, Inc. ("NASD"); (iv) every material press release and every material
news item or article in respect of the Company or its affairs which was released
or prepared by the Company (excluding, in each case customary product-related
press releases and articles); and (v) any additional information of a public
nature concerning the Company, or its business which Capital West may reasonably
request. During such five-year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its Subsidiary are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated. For a period of five years
from the date of the Registration Statement, the Company will furnish to Capital
West and, upon request, to each of the other Underwriters, as soon as available,
a copy of each report of the Company mailed to holders of the Common Stock or
publicly filed with the Commission or any automated quotation system or national
securities exchange on which any class of securities of the Company is listed.
Regardless of whether the Company is a reporting company under the Exchange Act,
the Company shall in a timely manner file reports with the Commission pursuant
to and as required by the Exchange Act as if the Company is a reporting company
under the Exchange Act, including without limitation the filing as appropriate
of Form 10-K's, Form 10-Q's, Form 8-K's, Form 4's, and Form 3's.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file Form SR in conformity with the requirements
of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement under Section 11(a), the Company will reimburse the
several Underwriters for all out-of-pocket accountable expenses (including fees
and disbursements
-13-
<PAGE>
of counsel for the several Underwriters) actually incurred by the Underwriters
in investigating, preparing to market or marketing the Shares.
(k) If at any time during the 90-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in Capital West's opinion
the market price of the Common Stock has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from Capital West advising the Company to the effect set forth above,
forthwith prepare, consult with Capital West concerning the substance of, and
disseminate a press release or other public statement, reasonably satisfactory
to Capital West, responding to or commenting on such rumor, publication or
event.
(l) During a period of 90 days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under any employee benefit plan.
(m) On the Closing Date, the Company will sell to Capital West, for
$.001 per share of Common Stock covered by each warrant, the Underwriters'
Warrants to purchase one share of Common Stock of the Company for each ten
shares of the Company's Common Stock which have been sold (or purchased by the
Underwriters), excluding any over-allotment shares, as set forth in the
Prospectus. The Underwriters' Warrants shall have the terms and be in the form
filed as an exhibit to the Registration Statement. At any time during the period
commencing 12 months and ending five years after the effective date of the
offering and at the written request of the then-holders of 51% of the
Underwriters' Warrants and the Common Stock of the Company issued upon the
exercise of the Underwriters' Warrants, and the Company will file with the
Commission and process to effectiveness a registration statement covering not
less than 51% of the shares of the Common Stock of the Company issuable and/or
issued upon the exercise of the Underwriters' Warrants. The Company agrees to
use its commercially reasonable best efforts to cause the filing to become
effective. The costs of the filing of such registration statement, including but
not limited to, legal (including legal fees relating to clearance in the various
states, limited however to such states as may be reasonably requested),
accounting and printing fees, shall be borne by the Company, but the Company
shall not be responsible for the cost of any separate counsel to review the
registration statement on behalf of or to advise the selling stockholders and
shall not be responsible for the payment of any underwriting discount or
commissions with respect to such sale. Such registration statement shall comply
with any undertaking applicable to such shares. If the Company, otherwise than
upon the request of the owners of the Underwriters' Warrants or the shares of
Common Stock issuable upon the exercise thereof, files a registration statement
under the Act with respect to any of its securities at any time (other than on
Form S-4, S-8, or any other form that does not provide for resales by selling
security holders), the Company will give Capital West 30 days' notice of its
intention to do so, and at Capital West's written request given within 10 days
of the receipt of such notice, will include in such registration statement such
number of such Shares as Capital West may specify, all at no cost to Capital
West or the other Underwriters. In connection with any such
-14-
<PAGE>
registration statement covering all or a part of such shares, the Company agrees
that it will covenant with the owners of such shares with respect to such shares
and the offering thereof, in customary form substantially to the effect
contained in this Section 4. If the offering pursuant to any registration
statement provided for herein is made through underwriters, the Company agrees
to enter into an underwriting agreement in customary form with such underwriters
in which the Company and the underwriters and each person who controls such
underwriters within the meaning of the Act grant to each other customary
reciprocal indemnities against liabilities under the Act.
(n) The Company will, as if the Company were a reporting company
under the Exchange Act, comply with the Act, the Exchange Act, the rules and
regulations of the NASD and applicable state securities or Blue Sky laws so as
to permit the continuance of sales and dealings in the Common Stock under the
Act, the Exchange Act, the rules and regulations of the NASD, and applicable
state securities or Blue Sky laws, including the filing with the NASD and the
Commission of all reports required to be filed pursuant to the applicable
provisions of the rules and regulations of the NASD, the Act, and the Exchange
Act, and will deliver to the holders of the Common Stock all reports required to
be provided to such holders pursuant to the applicable provisions of the rules
and regulations of the NASD, the Act, the Exchange Act, and applicable state
securities or Blue Sky laws.
(o) The Company has and will, with respect to the Selling
Shareholders as defined in the Registration Statement, instruct the Company's
transfer agent to issue to the Selling Shareholders three (3) stock certificates
for the shares of common stock of the Company held by such Selling Shareholder
as follows: (i) 25% of such shares shall contain no restrictive legend and shall
be tradeable in the manner described in the Propectus; (ii) an additional 25% of
such shares shall contain the following restrictive legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE RESTRICTED UNDER THE TERMS OF
THAT CERTAIN LOCK-UP DESCRIBED IN THE PROSPECTUS DATED [ ], AS MAY BE
AMENDED FROM TIME TO TIME, THE PROVISIONS OF WHICH ARE HEREIN INCORPORATED
BY REFERENCE. SUCH PROSPECTUS PROVIDES, AMONG OTHER THINGS, THAT THE SHARES
EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED UNTIL
[ ]. A COPY OF THE PROSPECTUS IS ON FILE AT THE PRINCIPAL OFFICE
OF THE COMPANY. UPON THE WRITTEN REQUEST OF THE HOLDER HEREOF, THE
COMPANY SHALL FURNISH A COPY WITHOUT CHARGE.
and (iii) an additional 50% of such shares shall contain the following
restrictive legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE RESTRICTED UNDER THE TERMS OF
THAT CERTAIN LOCK-UP DESCRIBED IN THE PROSPECTUS DATED [ ], AS MAY BE
AMENDED FROM TIME TO TIME, THE PROVISIONS OF WHICH ARE HEREIN INCORPORATED
BY REFERENCE. SUCH PROSPECTUS PROVIDES, AMONG OTHER THINGS, THAT THE SHARES
EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED UNTIL
[ ]. A COPY OF THE PROSPECTUS IS ON FILE AT THE PRINCIPAL OFFICE
OF THE COMPANY. UPON THE WRITTEN REQUEST OF THE HOLDER HEREOF, THE
COMPANY SHALL FURNISH A COPY WITHOUT CHARGE.
-15-
<PAGE>
5. EXPENSES.
(a) The Company agrees with each Underwriter that the Company will
pay and bear all costs and expenses in connection with the preparation,
printing and filing of the Registration Statement (including financial
statements, schedules and exhibits), preliminary prospectuses and the
Prospectus and any amendments or supplements thereto; the printing of this
Agreement, the preliminary blue sky survey and any supplemental blue sky
survey, the Underwriters' Questionnaire and Power of Attorney and any
instruments related to any of the foregoing; the issuance and delivery of
the Shares hereunder to the several Underwriters, including transfer taxes,
if any, and the cost of all certificates representing the Shares and
transfer agents' and registrars' fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's
independent public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), preliminary prospectus and the Prospectus, and any amendments or
supplements to any of the foregoing; NASD filing fees (including filing
fees, expenses and disbursements of counsel to the Underwriters in
connection with such NASD filings), and all postage costs incurred in
connection with the qualification of the Shares under the laws of such
jurisdictions as Capital West may designate; and all other expenses
directly incurred by the Company in connection with the performance of its
obligations hereunder.
(b) Capital West shall be entitled to receive from the Company, for
itself and not as representative of the Underwriters, a nonaccountable
expense allowance equal to three percent of the aggregate public offering
price of Shares sold to the Underwriters in connection with the Offering,
reduced by any amounts advanced by the Company to Capital West pursuant to
the terms of the Letter of Intent dated June 1, 1999. The Company shall pay
to Capital West the balance of the nonaccountable expense allowance on the
Closing Date.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for Shares as provided herein shall be subject
to the accuracy, as of the date hereof and the Closing Date and any later date
on which Option Shares are to be purchased (the "Option Closing Date"), as the
case may be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m. on the date hereof, or with the consent of the Underwriters, at a
later time and date, not later, however, than 5:30 p.m. on the first business
day following the date hereof, or at such later time and date as may be approved
by a majority in interest of the Underwriters; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or proceedings therefor initiated or threatened by the Commission and any
request on the part of the Commission for additional information (to be included
in the Registration Statement or the Prospectus or
-16-
<PAGE>
otherwise) shall have been complied with to the reasonable satisfaction of
counsel to the Underwriters. If the Company has elected to rely upon Rule 430A
of the Rules and Regulations, the price of the Shares and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period, and prior to the Closing Date the Company shall have
provided evidence satisfactory to the Underwriters of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Rules and Regulations. Qualification under the securities laws of such
states as Capital West may deem necessary to the success of the underwriting of
the issue and sale of the Shares upon the terms and conditions set forth in this
Agreement or contemplated by this Agreement and containing no provisions
unacceptable to Capital West will have been secured, and no stop order (or the
equivalent thereof) will be in effect denying or suspending effectiveness of
such qualification, nor will any stop order proceedings (or the equivalent
thereof) with respect thereto be instituted or pending or threatened under such
laws.
(b) At the Closing Date and the Option Closing Date, if any, counsel
for the Underwriters shall have been furnished with such documents and opinions
as they may require for the purpose of enabling them to pass upon the issuance
and sale of the Shares as contemplated herein and related proceedings or in
order to evidence the accuracy of any of the representations and warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Shares as
herein contemplated shall be satisfactory in form and substance to the
Underwriters and counsel for the Underwriters
(c) There shall not have been, since the date hereof or since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, any change in the condition (financial or otherwise),
earnings, operations, business affairs or business prospects of the Company and
its Subsidiary considered as one enterprise, whether or not arising in the
ordinary course of business which, in Capital West's sole judgment, is material
and adverse and that makes it, in Capital West's sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus, and the Underwriters shall have received a certificate of the
President or Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of the Closing Date, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 2 hereof are true and correct with the
same force and effect as though expressly made at and as of the Closing Date,
(iii) the Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to the Closing Date, and
(iv) no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been initiated or
threatened by the Commission or any Blue Sky jurisdiction.
(d) At the Closing Date, the Underwriters shall have received:
-17-
<PAGE>
(1) The opinion, dated as of the Closing Date of Sichenzia,
Ross & Friedman, LLP, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
Province of Ontario, Canada.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus and to enter into and perform its
obligations under this Agreement and to issue, sell and deliver to the
Underwriters the Shares or the Option Shares, as the case may be, to be issued
and sold by it hereunder.
(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in the jurisdictions where such
qualification is required, and is not required to be qualified to do business as
a foreign corporation in any other jurisdiction.
(iv) At the Closing Date, after giving effect to the sale of the
Shares, the authorized capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" as of the dates stated therein;
the issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and have not been issued in
violation of any preemptive right contained in the charter or bylaws of the
Company or any co-sale right, registration right, right of first refusal or
other similar right (other than such preemptive rights or other rights to
subscribe for or purchase securities as were fully complied with or expressly
waived or with respect to the violation of which the right to make a claim is
barred by the applicable statute of limitation).
(v) The Shares and the Option Shares, as the case may be, to be
purchased from the Company hereunder have been duly authorized for issuance and
sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement against payment therefor in
accordance with the terms hereof, will be validly issued and fully paid and
nonassessable, and will not be issued in violation of any preemptive right under
the charter or bylaws of the Company or any co-sale right, right of first
refusal or other similar right and the stockholders of the Company have no
preemptive right under the charter or bylaws of the Company or other rights to
purchase any of the Shares; the shares of Common Stock reserved for issuance
upon the exercise of the Underwriters' Warrants have been duly and validly
authorized and are sufficient in number to meet the exercise requirements
thereof, and such shares of Common Stock, when issued upon exercise, will be
duly and validly issued, fully paid (assuming exercise in accordance with the
Warrant Agreement and receipt by the Company of the exercise price thereof) and
nonassessable; the stockholders of the Company have no preemptive right under
the charter or bylaws of the Company or other rights to purchase any of the
Shares; and the shares of Common Stock reserved for issuance upon the exercise
of the Company's outstanding options have been duly and validly authorized and
are sufficient in number to meet the exercise requirements of such
-18-
<PAGE>
options, and such shares of Common Stock, when issued upon exercise, will be
duly and validly issued, fully paid (assuming exercise in accordance with the
governing instruments therefor and receipt by the Company of the exercise price
thereof) and nonassessable.
(vi) The issuance of the Shares to be purchased hereunder is not
subject to preemptive or other similar rights arising by operation of law or
otherwise.
(vii) The Subsidiary has been duly incorporated and is validly
existing as a corporation and is in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority to
own, lease and operate its properties and to conduct it business as described in
the Registration Statement, and is duly qualified as a foreign corporation to
transact business and is in good standing in every jurisdiction in which the
Company's business requires such qualification and the Subsidiary is not
required to be qualified to do business as a foreign corporation in any other
jurisdiction; all of the issued and outstanding capital stock of such Subsidiary
have been duly authorized and validly issued, is fully paid and nonassessable
and is owned by the Company directly free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity.
(viii) This Agreement and the Warrant Agreement have been duly
authorized by all necessary corporate action on the part of the Company and have
been duly executed and delivered by the Company and assuming due authorization,
execution and delivery by the Underwriters, are valid and binding agreements of
the Company, except insofar as indemnification and contribution provisions may
be limited by applicable law or equitable principles, and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally or any general
equitable principles.
(ix) The Registration Statement has been declared effective
under the Act; any required filing of the Prospectus pursuant to Rule 424(b) has
been made in the manner and within the time period required by Rule 424(b) and
no stop order suspending the effectiveness of the Registration Statement has
been issued under the Act or proceedings therefor have been initiated or are
pending or threatened by the Commission.
(x) The Registration Statement, Prospectus and each amendment
or supplement to the Registration Statement and Prospectus, as of their
respective effective or issue dates (other than the financial statements and
supporting schedules included therein, as to which no opinion need be rendered)
complied as to form in all material respects with the requirements of the Act
and the applicable Rules and Regulations.
(xi) The terms and provisions of the capital stock of the
Company conform in all material respects to the description thereof contained in
the Prospectus under the caption "Description of Securities."
(xii) The information in the Prospectus under the caption
"Description of Securities" to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by
-19-
<PAGE>
such counsel and accurately and fairly summarizes in such counsel's opinion the
matters described therein and there are no outstanding options, warrants,
convertible securities, or other rights to acquire from the Company any capital
stock, except as described in the Registration Statement.
(xiii) Except as set forth in the Prospectus, there is not pending
or threatened any action, suit, proceeding, inquiry or investigation, to which
the Company or its Subsidiary is a party, or to which the property of the
Company or its Subsidiary is subject, before or brought by any court or
government agency or body, which might reasonably be expected to result in any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiary considered as one enterprise, or which might reasonably be expected
to materially and adversely affect the properties or assets thereof or the
consummation of this Agreement or the performance by the Company of its
obligations hereunder; and all pending legal or governmental proceedings to
which the Company or its Subsidiary is a party or that affect any of their
respective properties that are not described in the Prospectus, including
ordinary routine litigation incidental to the business, could not reasonably be
expected to result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its Subsidiary considered as one enterprise.
(xiv) The information in the Prospectus under the captions
["Business and Properties - Legal Proceedings," "- Governmental Regulation" and
"- Properties," "Certain Transactions" and "Description of Capital Stock" in the
Prospectus and Items 24 and 26 of Part II] of the Registration Statement to the
extent that such items constitute matter of law, summaries of legal matters,
documents or proceedings, or legal conclusions, has been reviewed by such
counsel and is correct in all material respects, and there are no legal or
governmental actions, suits or proceedings pending or threatened against the
Company or its Subsidiary that are required to be described in the Prospectus
are not described as required by the Act or the applicable Rules and
Regulations.
(xv) All descriptions in the Prospectus of contracts and other
documents are accurate in all material respects; to the best of their knowledge
and information, there are no agreements, no contracts, indentures, mortgages,
loan agreements, notes, leases or other instrument required to be described or
referred to in the Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed as exhibits thereto,
the descriptions thereof or references thereto are correct in all material
respects, and the Company is not in default, and no other party is in default in
the due performance or observance of any material obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument so described, referred to or filed as
exhibits thereto.
(xvi) No authorization, approval, consent or order of any court
or governmental authority or agency (other than under the Act or the Rules and
Regulations, which have been obtained, or as may be required under the
securities or Blue Sky laws of the various states) is required in connection
with the due authorization, execution and delivery of this Agreement or for
-20-
<PAGE>
the offering, issuance or sale of the Shares to the Underwriters; and the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein and compliance by the Company with its
obligations hereunder will not, whether with or without the giving of notice or
lapse of time or both, conflict with or constitute a breach or violation of, or
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or its Subsidiary
pursuant to any material contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or its Subsidiary is a party or
by which it or any of them may be bound, or to which any of the property or
assets of the Company or its Subsidiary is subject, nor will such action result
in any violation of the provisions of the charter or bylaws of the Company, or
any applicable law, administrative regulation or court decree.
(xvii) With the exception of the Underwriters' Warrants, no holder
of any security of the Company has any right to require registration of any
shares of Common Stock or any other security of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of securities of
the Company having rights to registration of such shares of Common Stock, or
other securities, because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement, or have
included securities in the Registration Statement pursuant to the exercise of
such rights.
(xviii) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the 1940
Act.
(xix) Neither the Company nor its Subsidiary are in violation of
their charter or bylaws.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including with limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
In giving its opinion required by subsection (d)(1) of this Section,
Sichenzia, Ross & Friedman, LLP, shall additionally state that nothing has come
to their attention that would lead them to believe that the Registration
Statement, at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the
Prospectus, at the effective date of the Registration Statement (unless the term
"Prospectus" refers to a prospectus which has been provided to the Underwriters
by the Company for use in connection with the offering of the Shares which
differs from the Prospectus declared effective by the Commission, in which case
at the time
-21-
<PAGE>
it is first provided to the Underwriters for such use) or at the Closing Date,
included an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such opinion may state
that such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus except as otherwise expressly provided in such
opinion, and such counsel need express no opinion or belief as to the financial
statements, schedules, and other financial or statistical data included in the
Registration Statement or Prospectus.
(2) The opinion, dated as of Closing Date, of Day, Edwards,
Federman, Propester & Christensen, P.C., counsel for the Underwriters, in form
and substance satisfactory to Capital West, with respect to the sufficiency of
all such corporate proceedings and other legal matters relating to this
Agreement and the transactions contemplated hereby as Capital West may
reasonably require, and the Company shall have furnished to such counsel such
papers, opinions and information as they request to enable them to pass upon
such matters.
(e) At the time of the execution of this Agreement, the Underwriters
shall have received from Ernst & Young LLP a letter dated such date, in form and
substance satisfactory to the Underwriters, to the effect that:
(1) they are independent public accountants with respect to the
Company and its Subsidiary within the meaning of the Act and the Rules and
Regulations;
(2) it is their opinion that the consolidated balance sheet
included in the Registration Statement and covered by their opinion therein
complies as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations;
(3) based upon limited procedures set forth in detail in such
letter, nothing has come to their attention which causes them to believe that,
at a specified date not more than three days prior to the date of this
Agreement, (A) the audited consolidated balance sheet of the Company and its
Subsidiary included in the Registration Statement does not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Rules and Regulations or is not presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the other audited financial statements included in the Registration
Statement, or (B) at a specified date not more than three days prior to the date
of this Agreement, there has been any change in the capital stock of the Company
or any increase in the combined long term debt of the Company and its Subsidiary
or any decrease in combined net current assets or net assets as compared with
the amounts shown in the [ ] balance sheet included in the Registration
Statement or, during the period from [ ] to a specified date not more
than three days prior to the date of this Agreement, there were any decreases,
as compared with the corresponding period in the preceding year, in combined
revenues, net income or net income per share of the Company and its Subsidiary,
except in all instances for changes,
-22-
<PAGE>
increases or decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur;
(4) in addition to the examination referred to in their opinion
and the limited procedures referred to in clause (3) above, they have carried
out certain specified procedures, not constituting an audit, with respect to
certain amounts, percentages and financial information which are included in the
Registration Statement and Prospectus and which are specified by the
Underwriters, and have found such amounts, percentages and financial information
to be in agreement with the relevant accounting, financial and other records of
the Company and its Subsidiary identified in such letter; and
(5) they have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-B and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Regulation S-B.
(f) At the Closing Date, the Underwriters shall have received from
Ernst & Young LLP a letter, dated as of the Closing Date, to the effect that
they reaffirm the statements made in the letter furnished pursuant to subsection
(e) of this Section 6, except that the specified date referred to shall be a
date not more than three days prior to the Closing Date and, if the Company has
elected to rely on Rule 430A of the 1933 Act Regulations, to the further effect
that they have carried out procedures as specified in clause (4) of subsection
(e) of this Section 6 with respect to certain amounts, percentages and financial
information specified by the Underwriters and deemed to be a part of the
Registration Statement pursuant to Rule 430(A)(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (4).
(g) At the Closing Date, the Common Stock shall have been approved
for listing on the Nasdaq SmallCap Market.
(h) In the event that the Underwriters exercise their option provided
in Section 7 hereof to purchase all or any portion of the Option Shares, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company hereunder shall be true
and correct as of the Option Closing Date and, at the Option Closing Date, the
Underwriters shall have received:
(1) A certificate, dated the Option Closing Date, of the
President or a Vice President of the Company and of the Chief Financial or Chief
Accounting Officer of the Company confirming that the certificate delivered at
the Closing Date pursuant to Section 6(c) hereof remains true and correct as of
the Option Closing Date (except that all references in such Section to "Closing
Date" shall be deemed to refer to the "Option Closing Date").
-23-
<PAGE>
(2) The opinions of Sichenzia, Ross & Friedman LLP, counsel for
the Company, in form and substance satisfactory to counsel for the Underwriters,
dated the Option Closing Date, relating to the Option Shares and otherwise to
the same effect as the opinion required by Section 6(d)(1) hereof (except that
all references in such Section to "Closing Date" shall be deemed to refer to the
"Option Closing Date").
(3) The opinion of Day, Edwards, Federman, Propester &
Christensen, P.C., counsel for the Underwriters, dated the Option Closing Date,
relating to the Option Shares to be purchased on the Option Closing Date and
otherwise to the same effect as the opinion required by Section 6(b)(2) hereof
(except that all references in such Section to "Closing Date" shall be deemed to
refer to the "Option Closing Date").
(4) A letter from Ernst & Young LLP, in form and substance
satisfactory to the Underwriters and dated the Option Closing Date,
substantially the same in form and substance as the letter furnished to the
Underwriters pursuant to Section 6(e) hereof, except that the "specified date"
in the letter furnished pursuant to this Section 6(h)(4) shall be a date not
more than three days prior to the Option Closing Date.
(i) The Company and the Underwriters shall have entered into the
Warrant Agreement and the Company shall have sold to the Underwriters the
Underwriters' Warrants, which shall be in the form attached as an exhibit to the
Warrant Agreement.
(j) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 5:30 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by Capital West by notice to the Company at any time at or prior to Closing
Date, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 4(j) and 8 shall
survive any such termination and remain in full force and effect.
7. OPTION SHARES.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Company
hereby grants to the Underwriters, for the purpose of covering over-allotments
in connection with the distribution and sale of the Shares only, a
non-transferable option to purchase up to an aggregate 90,000 option shares at
the purchase price per share for the Shares set forth in Section 3 hereof (the
"Option Shares"). Such option may be exercised by the Underwriters on behalf of
the several Underwriters on one occasion in whole or
-24-
<PAGE>
in part during the period of 45 days from and after the date on which the Shares
are initially offered to the public, by giving notice to the Company. At the
discretion of Capital West, the number of Option Shares to be purchased by each
Underwriter upon the exercise of such option shall be the same proportion of the
total number of Option Shares to be purchased by the several Underwriters
pursuant to the exercise of such option as the number of Shares purchased by
such Underwriter (set forth in SCHEDULE A hereto) bears to the total number of
Shares purchased by the several Underwriters (set forth in SCHEDULE A hereto),
adjusted by the Underwriters in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the Underwriters pursuant to the exercise of the option granted by
this Section 7 shall be made against payment of the purchase price therefor by
the Underwriters by certified or official bank check or checks drawn in same day
funds, payable to the order of the Company. Such delivery and payment shall take
place at the offices of Capital West, 211 N. Robinson, 2nd Floor, Oklahoma City,
Oklahoma 73102 or at such other place as may be agreed upon between the
Underwriters and the Company on the Closing Date, if written notice of the
exercise of such option is received by the Company not later than three full
business days prior to the Closing Date.
The certificates for the Options Shares so to be delivered will be
made available to Capital West at such office or other location including,
without limitation, in Oklahoma City, as Capital West may reasonably request for
checking at least two full business days prior to the date of payment and
delivery and will be in such names and denominations as Capital West may
request, such request to be made at least three full days prior to such date of
payment and delivery. If Capital West so elects, delivery of the Shares may be
made by credit through full fast transfer to the accounts at Depository Trust
Company by the Underwriters.
It is understood that Capital West, individually, and not as the
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price on behalf of any Underwriter or Underwriters whose
check or checks shall not have been received by Capital West prior to the date
of payment and delivery for the Option Shares to be purchased by such
Underwriter or Underwriters. Any such payment by Capital West shall not relieve
any Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment for such Option
Shares) to the accuracy of and compliance with the representations and
warranties of the Company herein, to the accuracy of the statements of the
Company and officers of the Company made pursuant to the provisions hereof, to
the performance by the Company of their respective obligations hereunder, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to Capital West and to Underwriters' counsel,
and Capital West shall have been furnished with all such documents, certificates
and opinions as Capital West may reasonably request in order to evidence the
accuracy and completeness of any of the
-25-
<PAGE>
representations, warranties or statements, the performance of any of the
covenants of the Company or the compliance with any of the conditions herein
contained.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, as incurred, to which such Underwriter may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any breach of any
representation, warranty, agreement or covenant of the Company herein contained,
or (ii) any untrue statement or alleged untrue statement made by the Company in
Section 2 hereof, or (iv) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendment or supplement thereto, or (B) in any
blue sky application or other document executed by the Company specifically for
that purpose or based upon written information furnished by the Company filed in
any state or other jurisdiction in order to qualify any or all of the Shares
under the securities laws thereof (any such application, documents or
information being hereinafter called a "Blue Sky Application"), or (iii) the
omission or alleged omission to state in the Registration Statement or any
amendment thereto a material fact required to be stated therein or necessary to
make the statements therein not misleading, or the omission or alleged omission
to state in any preliminary prospectus, the Prospectus or any supplement thereto
or in any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and shall reimburse each Underwriter
on a monthly basis for any legal or other reasonable expenses as incurred by
such Underwriter in connection with investigating or defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action, notwithstanding the possibility that payments for
such expenses might later be held to be improper, in which case the person
receiving them shall promptly refund them; except that the Company shall not be
liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such preliminary prospectus or the Prospectus, or
any amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
specifically for use in the preparation thereof and, provided further, that the
indemnity agreement provided in this Section 8(a) with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, charges, liabilities or litigation
based upon any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased Shares,
if a copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected has not been sent or
given to such person within the time required by the Act and the Rules and
Regulations thereunder, unless such failure is the result of noncompliance by
the Company with Section 4(c) hereof.
-26-
<PAGE>
(b) Each Underwriter severally, but not jointly, shall indemnify and
hold harmless the Company against any losses, claims, damages or liabilities,
joint or several, as incurred, to which the Company may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in the
Registration Statement, preliminary prospectus, the Prospectus or any amendment
or supplement thereto, or (B) in any Blue Sky Application, or (ii) the omission
or alleged omission to state in the Registration Statement or any amendment
thereto a material fact required to be stated therein or necessary to make the
statements therein not misleading, or the omission or alleged omission to state
in any preliminary prospectus, the Prospectus or any supplement thereto or in
any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; except that such indemnification
shall be available in each such case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company through the Underwriters by or on behalf of such
Underwriter specifically for use in the preparation thereof; and shall reimburse
any legal or other expenses reasonably incurred by the Company in connection
with investigation or defending against any such loss, claim, damage, liability
or action.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the claim or the commencement of that action; the failure to notify
the indemnifying party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under such subsection. If any such claim
or action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party; provided, however, if
the defendants in any such action include both the indemnified parties and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under such subsection for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel (together with
appropriate local counsel) approved by the indemnifying party, representing all
the indemnified parties under Section 8(a) and 8(b) hereof who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to
-27-
<PAGE>
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided, however, that
such consent shall not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
for which it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company is responsible for the remaining portion; provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter,
and (ii) no person guilty of a fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to a contribution from any person
who is not guilty of such fraudulent misrepresentation. This subsection (d)
shall not be operative as to any Underwriter to the extent that the Company has
received indemnity under this Section 8.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have, and shall
extend, upon the same terms and conditions, to each officer and director of each
Underwriter and to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability that the respective Underwriters may
otherwise have, and shall extend, upon the same terms and conditions, to each
director of the Company (including any person who, with his consent, is named in
the Registration Statement as about to become a director of the Company), to
each officer of the Company who has signed the Registration Statement and to
each person, if any, who controls the Company within the meaning of the
Securities Act, in either case, whether or not such person is a party to any
action or proceeding.
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including without limitation the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that federal or state public policy, as interpreted
by the courts in certain jurisdictions, may be contrary to certain of the
provisions of this Section 8, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert
-28-
<PAGE>
such public policy as a defense to a claim under this Section 8 and further
agree not to attempt to assert any such defense.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants and agreements of the Company contained
in this Agreement (including, without limitation, the agreements of the Company
set forth in Sections 4(i)-(l)), or contained in certificates of officers of the
Company submitted pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof, shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or controlling person, or by or on behalf of the Company, or any of its
officers, controlling persons or directors and shall survive delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
fail to take up and pay for the number of Shares agreed by such Underwriter or
Underwriters to be purchased hereunder upon tender of such Shares in accordance
with the terms hereof, and if the aggregate number of Shares which such
defaulting Underwriter or Underwriters so agreed but failed to purchase does not
exceed 10% of the Shares, the remaining Underwriters shall be obligated,
severally in proportion to their respective commitments hereunder, to take up
and pay for the Shares of such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of
Shares which such defaulting Underwriter or Underwriters agreed but failed to
take up and pay for exceeds 10% of the Shares, the remaining Underwriters shall
have the right, but shall not be obligated, to take up and pay for (in such
proportions as may be agreed upon among them) the Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If such remaining
Underwriters do not, at the Closing Date, take up and pay for the Shares which
the defaulting Underwriter or Underwriters so agreed but failed to purchase, the
Closing Date shall be postponed for twenty-four hours to allow the several
Underwriters the privilege of substituting within twenty-four hours (including
non-business hours) another underwriter or underwriters (which may include any
nondefaulting Underwriter) satisfactory to the Company. If no such underwriter
or underwriters shall have been substituted as aforesaid by such postponed
Closing Date, the Closing Date may, at the option of the Company, be postponed
for a further twenty-four hours, if necessary to allow the Company the privilege
of finding another underwriter or underwriters, satisfactory to Capital West, to
purchase the Shares which the defaulting Underwriter or Underwriters so agreed
but failed to purchase. If it shall be arranged for the remaining Underwriters
or substituted underwriters to take up the Shares of the defaulting Underwriter
or Underwriters as provided in this Section, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven full
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective number of Shares to be purchased by the
remaining Underwriters and substitute underwriters shall be taken as the basis
-29-
<PAGE>
of their underwriting obligation. If the remaining Underwriters shall not take
up and pay for all such Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters as
aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Shares as aforesaid, then this Agreement
shall terminate.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section, neither the Company shall be liable to any
Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Shares
agreed by such Underwriter to be purchased hereunder, which Underwriter shall
remain liable to the Company and the other Underwriters for damages, if any,
resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the later of (i)
execution of this Agreement, or (ii) when notification of the effectiveness of
the Registration Statement has been released by the Commission.
-30-
<PAGE>
(b) Capital West shall have the right to terminate this Agreement by
giving notice as hereinafter specified at any time at or prior to the Closing
Date (i) if the Company shall have failed, refused or been unable, to perform
any agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled including, without limitation, any change in the financial
condition, earnings, operations, business, management, technical staff, or
business prospects of the Company from that set forth in the Registration
Statement or Prospectus which, in Capital West's sole judgment, is material and
adverse, or (ii) if trading on the New York Stock Exchange or the Nasdaq Stock
Market or the Nasdaq Stock Market SmallCap shall have been suspended, or minimum
or maximum prices for trading shall have been fixed, or maximum ranges for
prices for securities shall have been required on the New York Stock Exchange or
the Nasdaq Stock Market or the Nasdaq Stock Market SmallCap, by the New York
Stock Exchange, the Nasdaq Stock Market, or the Nasdaq Stock Market SmallCap or
by order of the Commission or any other governmental authority having
jurisdiction, or if a banking moratorium shall have been declared by federal,
Canadian, provincial, New York, or Oklahoma authorities, or (iii) if on or prior
to the Closing Date, or on or prior to any later date on which Option Shares are
to be purchased, as the case may be, the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
to interfere materially and adversely with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets in the United
States as in Capital West's reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Shares, or
(v) if on or prior to the Closing Date, or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, there shall have
been an outbreak or escalation of hostilities or other international or domestic
calamity, crises or material adverse change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it in Capital West's reasonable judgment, inadvisable to proceed
with the marketing of the Shares. In the event of termination pursuant to this
Section 11(b), the Company shall remain obligated to pay costs and expenses
pursuant to Section 4(j), 5 and 8 hereof.
If Capital West elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 11, Capital
West shall promptly notify the Company by telephone or telecopy, in each case
confirmed by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify Capital West by telephone
or telecopy, in each case, confirmed by letter.
12. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if mailed or transmitted by any
standard form of telecommunication. Notices to the Underwriters shall be
directed to the Underwriters in care of Capital West Securities, Inc., 211 N.
Robinson, 2nd Floor, One Leadership Square, Oklahoma City, Oklahoma 73102,
attention of Robert O. McDonald; notices to the Company shall be directed to it
at 2330 Southfield Road, Mississauga, Ontario, Canada, L5N2W8, attention of
Chief Executive Officer.
-31-
<PAGE>
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors, and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective executors, administrators,
successors, and assigns and the controlling persons and officers and directors
referred to in Section 8 hereof any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors, and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of the Shares from any Underwriter shall be construed to be a
successor by reason merely of such purchase.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oklahoma applicable to agreements made
and to be performed in said State, without regard to conflict of laws
principles. Specified times of day refer to Central Daylight Time.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
16. BINDING ARBITRATION. Each party to this Agreement agrees that any
dispute or controversy arising between any of the parties to this agreement, or
any person or entity in privity therewith, out of the transactions effected and
relationships created pursuant to this Agreement and each other agreement
created in connection herewith, including any dispute or controversy regarding
the formation, terms, or construction of this Agreement, regardless of kind or
character, must be resolved through binding arbitration. Each party to this
Agreement agrees to submit such dispute or controversy to arbitration before the
American Arbitration Association (the "Association") in Oklahoma City, Oklahoma,
and further agrees to be bound by the determination of an arbitration panel
consisting of three (3) persons. If demand for arbitration is made, each party
will have the right to select one independent arbitrator. If the party upon whom
the demand for arbitration is served fails to select an arbitrator within twenty
days, then the Association may select a second arbitrator upon application by
either party. The two arbitrators shall select a third arbitrator. If the two
arbitrators fail to select a third arbitrator within twenty days, the third
arbitrator may be selected and appointed by the Association upon application by
either party. The arbitrators' decision concerning the claim, controversy or
dispute, including allocation among the parties of costs and expenses associated
with the arbitration, shall be final and binding on the parties and judgment on
the award may be entered in any court of competent jurisdiction. Any party to
this Agreement may bring an action, including a summary or expedited proceeding,
to compel arbitration of any such dispute or controversy in a court of competent
jurisdiction and, further, may seek provisional or ancillary remedies including
temporary or injunctive relief in connection with such dispute or controversy in
a court of competent jurisdiction, provided that the dispute or controversy is
-32-
<PAGE>
ultimately resolved through binding arbitration conducted in accordance with the
terms and conditions of this section.
If the foregoing correctly sets forth your understanding of our
agreement, please sign in the space provided below for that purpose, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the several Underwriters and the Company in accordance with its terms.
Very truly yours,
TALISMAN ENTERPRISES INC.
By:_______________________________________
Norman R. Proulx, Chairman
CONFIRMED AND ACCEPTED, as of the date first above written:
CAPITAL WEST SECURITIES, INC.
as Representative of the several Underwriters
By:___________________________________
Robert O. McDonald, Chairman
-33-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITER SHARES PURCHASED
----------- ----------------
<S> <C>
Capital West Securities, Inc. ---------------
[ ] ---------------
[ ] ---------------
Total 600,000
</TABLE>
<PAGE>
Exhibit 1.2
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO OFFER TO
BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE
RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH
OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND,
AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE.
YOUR EXECUTION HEREOF WILL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY KIND UNTIL
THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
TALISMAN ENTERPRISES INC.
SELECTED DEALERS AGREEMENT
September __, 1999
Dear Ladies/Gentlemen:
1. Capital West Securities, Inc. named as the Underwriter
("Underwriter") in the enclosed preliminary Prospectus, proposes to offer on a
firm commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement, 600,000 Shares of Common Stock at [$ ] per share (the
"Securities") of the above Company. The Securities are more particularly
described in the enclosed preliminary Prospectus, additional copies of which
will be supplied in reasonable quantities upon request. Copies of the definitive
Prospectus will be supplied after the effective date of the Registration
Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including you
who are to act as principal and who are (i) registered with the Securities and
Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing with
the National Association of Securities Dealers, Inc. ("NASD"), or (ii) dealers
or institutions with their principal place of business located outside the
United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's Interpretation
with Respect to FreeRiding and Withholding and with Rules 2730, 2740 and 2420,
to the extent applicable to foreign nonmember brokers or dealers, and Rule 2750
of the NASD's Conduct Rules. The Securities are to be offered at a public price
of [$ ] per share of Common Stock. Selected Dealers will be allowed a concession
of not less than [$ ] per share, except as provided below. You will be notified
of the precise amount of such concession prior to the effective date of the
Registration Statement. You may reallow not in excess of [$ ] per share to
dealers who meet the requirements set forth in this paragraph 2. This offer is
solicited subject to the issuance and delivery of the Securities and their
acceptance by the Underwriter, to the approval of legal matters by counsel and
to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you and any time prior to acceptance and
no offer may be accepted by us and no sale can be made until after the
registration statement covering the Securities has become effective with the
Commission. Subject to the foregoing, upon execution by you of the Offer to
Purchase below and the return of same to us, you shall be deemed to have offered
to purchase the number of Securities set forth in your offer on the basis set
forth in paragraph 2 above. Any oral notice by us of acceptance of your offer
shall be immediately followed by written or telegraphic confirmation preceded or
accompanied by a copy of the Prospectus. If a contractual commitment arises
hereunder, all the terms of this Selected Dealers Agreement shall be applicable.
We may also make available to you an allotment to purchase
Talisman Enterprises Inc.
Selected Dealers Agreement
Page 1
<PAGE>
Securities, but such allotment shall be subject to modification or termination
upon notice from us any time prior to an exchange of confirmations reflecting
completed transactions. All references hereafter in this Agreement to the
purchase and sale of Securities assume and are applicable only if contractual
commitments to purchase are completed in accordance with the foregoing.
4. You agree that in reoffering said Securities, if your offer is
accepted after the effective date, you will make a bona fide public distribution
of same. You will advise us upon request of Securities purchased by you
remaining unsold and we shall have the right to repurchase such Securities upon
demand at the public offering price without paying the concession with respect
to any Securities so repurchased. Any of the Securities purchased by you
pursuant to this Agreement are to be subject to the terms hereof. Securities
shall not be offered or sold by you below the public offering price before the
termination of this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by
you on or before five (5) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with
the Securities and Exchange Commission in respect to the Securities. You will be
promptly advised when the registration statement becomes effective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under said
Acts. No person is authorized by the Company or by the Underwriter to give any
information or to make any representations other than those contained in the
Prospectus in connection with the sale of the Securities. Nothing contained
herein shall render the Selected Dealers a member of the Underwriting Group or
partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Securities have been qualified for sale or are exempt
under the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Securities in any state. You agree not to sell
Securities in any other state or jurisdiction and to not sell Securities in any
state or jurisdiction unless you are qualified or licensed to sell securities in
such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD
and registered as a broker-dealer with the Commission, or that you are a foreign
broker-dealer not eligible for membership under Article III, Section 1 of the
Bylaws of the NASD who agrees to make no sales within the United States, its
territories or possessions or to persons who are nationals thereof or residents
therein and, in
Talisman Enterprises Inc.
Selected Dealers Agreement
Page 2
<PAGE>
making sales, to comply with the NASD's interpretation with Respect to
FreeRiding and Withholding and with Rules 2730, 2740 and 2420 to the extent
applicable to foreign nonmember brokers and dealers, and Rule 2750 of the NASD's
Conduct Rules. Your attention is called to and you agree to comply with the
following: (a) Article III, Section 1 of the Bylaws of the NASD and the
interpretations of said Section promulgated by the Board of Governors of the
NASD including Rule 2740 and the interpretation with respect to "Free-Riding and
Withholding;" (b) Section 10(b) of the 1934 Act, Rule 10b-10 and Regulation M of
the general rules and regulations promulgated under the 1934 Act; and (c) Rule
15c2-8 of the general rules and regulations promulgated under the 1934 Act
requiring the distribution of a preliminary Prospectus to all persons reasonably
expected to be purchasers of the Securities from you at least 48 hours prior to
the time you expect to mail confirmations. You, as a member of the NASD, by
signing this Agreement, acknowledge that you are familiar with the cited laws
and rules and agree that you will not directly and/or indirectly violate any
provisions of applicable law in connection with your participation in the
distribution of the Securities.
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase Securities in the
open market or otherwise make a market in the Securities or otherwise attempt to
induce others to purchase the Securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 15c-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
14. All communications from you should be directed to us at Capital
West Securities, Inc., One Leadership Square, Suite 200, 211 North Robinson,
Oklahoma City, OK 73102, Attention: Bob Rader, Vice President ((405) 235-5700
and fax (405) 231-0664). All communications from us to you shall be directed to
the address to which this letter is mailed.
Very truly yours,
Capital West Securities, Inc.
By: ________________________________
(Authorized Officer)
Talisman Enterprises Inc.
Selected Dealers Agreement
Page 3
<PAGE>
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) ____________________* Securities in
accordance with the terms and conditions set forth above. We hereby acknowledge
receipt of the Prospectus referred to in paragraph 1 hereof relating to such
Securities. We further state that in purchasing such Securities we have relied
upon such Prospectus and upon no other statement whatsoever, written or oral.
_________________________________
By ______________________________
(Authorized Officer)
*If a number appears here which does not correspond with what you wish to offer
to purchase, you may change the number by crossing out the number, inserting a
different number and initializing the change.
Talisman Enterprises Inc.
Selected Dealers Agreement
Page 4
<PAGE>
TALISMAN ENTERPRISES INC.
WARRANT AGREEMENT
September ___, 1999
CAPITAL WEST SECURITIES, INC.
211 N. Robinson
2nd Floor, One Leadership Square
Oklahoma City, Oklahoma 73102
Ladies and Gentlemen:
Talisman Enterprises Inc., an Ontario, Canada corporation (the "Company"),
agrees to issue and sell to you warrants (the "Warrants") to purchase the number
of shares of common stock, no par value per share, of the Company (the "Common
Stock") set forth herein, subject to the terms and conditions contained herein.
1. ISSUANCE OF WARRANTS; EXERCISE PRICE. The Warrants, which shall be in
the form attached hereto as EXHIBIT "A," shall be issued to you concurrently
with the execution hereof in consideration of the payment by you to the Company
of the sum of $0.001 cash per share of Common Stock subject to the Warrants, the
receipt and sufficiency of which are hereby acknowledged. The Warrant shall
provide that you, or such other holder or holders of the Warrants to whom
transfer is authorized in accordance with the terms of this Agreement, shall
have the right to purchase an aggregate of 60,000 shares of Common Stock for an
exercise price equal to $6.00 per share (the "Exercise Price") or $360,000 in
the aggregate. The number, character and Exercise Price of such shares of Common
Stock are subject to adjustment as hereinafter provided, and the term "Common
Stock" shall mean, unless the context otherwise requires, the stock and other
securities and property receivable upon exercise of the Warrants. The term
"Exercise Price" shall mean, unless the context otherwise requires, the price
per share of the Common Stock purchasable under the Warrants as set forth in
this Section 1, as adjusted from time to time pursuant to Section 6.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to
you and to each subsequent holder of Warrants and agrees that:
(a) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms; and neither the issuance of the
Warrants nor the issuance of the shares of Common Stock issuable upon exercise
of the Warrants will result in a breach or violation of any terms or provisions
of, or constitute a default under, any contract, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound, the charter or bylaws of the Company, or
any law, order, rule, regulation or decree of any government, governmental
instrumentality or court, domestic or foreign, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company.
(b) No consent, approval, authorization or order of any court or
governmental agency or body is required for the sale and issuance of the
Warrants or the sale and issuance of the shares of Common Stock issuable upon
exercise of the Warrants, except such as have been obtained or may be
Talisman Enterprises Inc.
Warrant Agreement
Page 1
<PAGE>
required under the Securities Act of 1933, as amended (the "Act"), and such as
may be required under state securities or blue sky laws in connection with the
issuance of the Warrants and the shares of Common Stock issuable upon exercise
of the Warrants. Upon exercise of the Warrants by the holder thereof, the shares
of Common Stock with respect to which the Warrants are exercised will be validly
issued, fully paid, and nonassessable, and good and marketable title to such
shares of Common Stock shall be delivered to such holder free and clear of all
liens, encumbrances, equities, claims or preemptive or similar rights.
(c) As if the Company were a United States issuer of securities,
during the term of this Agreement, the Company shall make timely filings of all
periodic and other reports and forms and other materials required (but only to
the extent required) to be filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Act or the Securities Exchange Act of 1934,
as amended, and with any national securities exchange or quotation system upon
which any of the securities of the Company may be listed, including by way of
example, but not limited to, Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, Initial Statement of Beneficial
Ownership of Securities on Form 3, and Statement of Changes of Beneficial
Ownership of Securities on Form 4.
3. NOTICES OF RECORD DATE; ETC. In the event of (a) any taking by the
Company of a record date with respect to the holders of any class of securities
of the Company for purposes of determining which of such holders are entitled to
dividends or other distributions (other than regular quarterly dividends), or
any right to subscribe for, purchase or otherwise acquire shares of stock of any
class or any other securities or property, or to receive any other right, (b)
any capital reorganization of the Company, or reclassification or
recapitalization of capital stock of the Company or any transfer in one or more
related transactions of all or a majority of the assets or revenue or income
generating capacity of the Company to, or consolidation or merger of the Company
with or into, any other entity or person, or (c) any voluntary or involuntary
dissolution or winding up of the Company, then and in each such event the
Company will mail or cause to be mailed to each holder of a Warrant at the time
outstanding a notice specifying, as the case may be, (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right; or (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, conveyance, dissolution,
liquidation or winding-up is to take place and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or any other class of stock
or securities of the Company, or another issuer pursuant to Section 6,
receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such event. Any such notice shall be
deposited in the United States mail, postage prepaid, at least ten (10) days
prior to the date therein specified, and the holders(s) of the Warrant(s) may
exercise the Warrant(s) and participate in such event as a registered holder of
Common Stock, upon exercise of the Warrant(s) so held, within the ten (10) day
period from the date of mailing of such notice.
4. NO IMPAIRMENT. The Company shall not, by amendment of its
organizational documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Agreement or of the Warrants, but will at all times in good faith take
any and all action as may be necessary in order to protect the rights of the
holders of the Warrants against impairment. Without limiting the generality of
the foregoing, the Company (a) will at all times reserve and keep available,
solely for issuance and delivery upon exercise of the Warrants, shares of Common
Stock issuable from time to time upon exercise of the Warrants, (b) will not
increase the par value of any shares of stock receivable upon exercise of the
Warrants above the amount payable in respect thereof upon such exercise, and (c)
will take
Talisman Enterprises Inc.
Warrant Agreement
Page 2
<PAGE>
all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable stock upon
the exercise of the Warrants, or any of them.
5. EXERCISE OF WARRANTS. At any time and from time to time on and after
the first anniversary of the date hereof and expiring on the fifth anniversary
of the effective date of the registration statement filed by the Company with
the Securities and Exchange Commission on Form SB-2 (File No. 333-[_______]),
September __, 1999, at 5:00 p.m., Oklahoma City, Oklahoma time, Warrants may be
exercised as to all or any portion of the whole number of shares of Common Stock
covered by the Warrants by the holder thereof by surrender of the Warrants,
accompanied by a subscription for shares to be purchased as marked on the form
attached hereto as EXHIBIT "B" and by a check payable to the order of the
Company in the amount required for purchase of the shares as to which the
Warrant is being exercised, delivered to the Company at its principal office at
2330 Southfield Road, Mississauga, Ontario, Canada, L5N2W8, Attention:
President. Warrants may also be exercised from time to time, without any payment
required for the purchase of the shares as to which the Warrant is being
exercised, as to all or any portion of the number of shares of Common Stock
covered by the Warrant(s) by the holder thereof by surrender of the Warrants,
accompanied by a subscription for shares as marked on the form attached as
EXHIBIT "B," pursuant to which the holder thereof will be entitled to receive
upon such surrender of the Warrant(s) (and without any further payment) that
number of shares of Common Stock equal to the product of the number of shares of
Common Stock obtainable upon exercise of the Warrant(s) (or the portion thereof
as to which the exercise relates) multiplied by a fraction: (i) the numerator of
which shall be the difference between the then Current Value (as defined in this
Section 5 and Section 7(d)) of one full share of Common Stock on the date of
exercise and the Exercise Price, and (ii) the denominator of which shall be the
Current Value of one full share of Common Stock on the date of exercise. Upon
the exercise of a Warrant in whole or in part, the Company will within five (5)
days thereafter, at its expense (including the payment by the Company of any
applicable issue or transfer taxes), cause to be issued in the name of and
delivered to the Warrant holder a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock to which such holder is
entitled upon exercise of the Warrant. In the event such holder is entitled to a
fractional share, in lieu thereof such holder shall be paid a cash amount equal
to such fraction, multiplied by the Current Value of one full share of Common
Stock on the date of exercise. Certificates for shares of Common Stock issuable
by reason of the exercise of the Warrant or Warrants shall be dated and shall be
effective as of the date of the surrendering of the Warrant for exercise,
notwithstanding any delays in the actual execution, issuance or delivery of the
certificates for the shares so purchased. In the event a Warrant (or Warrants)
is exercised as to less than the aggregate amount of all shares of Common Stock
issuable upon exercise of all Warrants held by such person, the Company shall
issue a new Warrant to the holder of the Warrant so exercised covering the
aggregate number of shares of Common Stock as to which Warrants remain
unexercised.
For purposes of this section, Current Value is defined (i) in the case for
which a public market exists for the Common Stock at the time of such exercise,
according to Section 7(d), and (ii) in the case no public market exists at the
time of such exercise, at the Appraised Value. For the purposes of this
Agreement, "Appraised Value" is the value determined in accordance with the
following procedures. For a period of five (5) days after the date of an event
(a "Valuation Event") requiring determination of Current Value at a time when no
public market exists for the Common Stock (the "Negotiation Period"), each party
to this Agreement agrees to negotiate in good faith to reach agreement upon the
Appraised Value of the securities or property at issue, as of the date of the
Valuation Event, which will be the fair market value of such securities or
property, without premium for control or discount for minority interests,
illiquidity or restrictions on transfer. In the event that the parties are
unable to agree upon the Appraised Value of such securities or other property by
the end of the Negotiation Period, then the Appraised Value of such securities
Talisman Enterprises Inc.
Warrant Agreement
Page 3
<PAGE>
or property will be determined for purposes of this Agreement by a recognized
appraisal or investment banking firm mutually agreeable to the holders of the
Warrants and the Company (the "Appraiser"). If the holders of the Warrants and
the Company cannot agree on an Appraiser within two (2) business days after the
end of the Negotiation Period, the Company, on the one hand, and the holders of
the Warrants, on the other hand, will each select an Appraiser within ten (10)
business days after the end of the Negotiation Period and those two Appraisers
will select, ten (10) days after the end of the Negotiation Period, an
independent Appraiser to determine the fair market value of such securities or
property, without premium for control or discount for minority interests. Such
independent Appraiser will be directed to determine fair market value of such
securities or property as soon as practicable, but in no event later than thirty
(30) days from the date of its selection. The determination by an Appraiser of
the fair market value will be conclusive and binding on all parties to this
Agreement. Appraised Value of each share of Common Stock at a time when (i) the
Company is not a reporting company under the Exchange Act and (ii) the Common
Stock is not traded in the organized securities markets, will, in all cases, be
calculated by determining the Appraised Value of the entire Company taken as a
whole and dividing that value by the number of shares of Common Stock then
outstanding, without premium for control or discount for minority interests,
illiquidity or restrictions on transfer. The costs of the Appraiser will be
borne by the Company. In no event will the Appraised Value of the Common Stock
be less than the per share consideration received or receivable with respect to
the Common Stock or securities or property of the same class in connection with
a pending transaction involving a sale, merger, recapitalization,
reorganization, consolidation, or share exchange, dissolution of the Company,
sale or transfer of all or a majority of its assets or revenue or income
generating capacity, or similar transaction.
6. PROTECTION AGAINST DILUTION. The Exercise Price for the shares of
Common Stock and number of shares of Common Stock issuable upon exercise of the
Warrants is subject to adjustment from time to time as follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS, ETC.. In case
at any time or from time to time after the date of execution of this Agreement,
the Company shall (i) take a record of the holders of Common Stock for the
purpose of entitling them to receive a dividend or a distribution on shares of
Common Stock payable in shares of Common Stock or other class of securities,
(ii) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (iii) combine or reclassify its outstanding Common
Stock into a smaller number of shares, then, and in each such case, the Exercise
Price in effect at the time of the record date for such dividend or distribution
or the effective date of such subdivision, combination or reclassification shall
be adjusted in such a manner that the Exercise Price for the shares issuable
upon exercise of the Warrants immediately after such event shall bear the same
ratio to the Exercise Price in effect immediately prior to any such event as the
total number of shares of Common Stock outstanding immediately prior to such
event shall bear to the total number of shares of Common Stock outstanding
immediately after such event.
(b) ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. When any adjustment
is required to be made in the Exercise Price under this Section 6, (i) the
number of shares of Common Stock issuable upon exercise of the Warrants shall be
changed (upward to the nearest full share) to the number of shares determined by
dividing (x) an amount equal to the number of shares issuable pursuant to the
exercise of the Warrants immediately prior to the adjustment, multiplied by the
Exercise Price in effect immediately prior to the adjustment, by (y) the
Exercise Price in effect immediately after such adjustment, and (ii) upon
exercise of the Warrant, the holder will be entitled to receive the number of
shares of other securities referred
Talisman Enterprises Inc.
Warrant Agreement
Page 4
<PAGE>
to in Section 6(a) that such holder would have received had the Warrant been
exercised prior to the events referred to in Section 6(a).
(c) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.. In
case of any reorganization or consolidation of the Company with, or any merger
of the Company with or into, another entity (other than a consolidation or
merger in which the Company is the surviving corporation) or in case of any sale
or transfer to another entity of the majority of assets of the Company, the
entity resulting from such reorganization or consolidation or surviving such
merger or to which such sale or transfer shall be made, as the case may be,
shall make suitable provision (which shall be fair and equitable to the holders
of Warrants) and shall assume the obligations of the Company hereunder (by
written instrument executed and mailed to each holder of the Warrants then
outstanding) pursuant to which, upon exercise of the Warrants, at any time after
the consummation of such reorganization, consolidation, merger or conveyance,
the holder shall be entitled to receive the stock or other securities or
property that such holder would have been entitled to upon consummation if such
holder had exercised the Warrants immediately prior thereto, all subject to
further adjustment as provided in this Section 6.
(d) CERTIFICATE AS TO ADJUSTMENTS. In the event of adjustment as
herein provided in the subparagraphs of this Section 6, the Company shall
promptly mail to each Warrant holder a certificate setting forth the Exercise
Price and number of shares of Common Stock issuable upon exercise after such
adjustment and setting forth a brief statement of facts requiring such
adjustment. Such certificate shall also set forth a brief statement of facts
requiring such adjustment. Such certificate shall also set forth the kind and
amount of stock or other securities or property into which the Warrants shall be
exercisable after any adjustment of the Exercise Price as provided in this
Agreement.
(e) MINIMUM ADJUSTMENT. Notwithstanding the foregoing, no certificate
as to adjustment of the Exercise Price hereunder shall be made if such
adjustment results in a change in the Exercise Price then in effect of less than
five cents ($0.05) and any adjustment of less than five cents ($0.05) of any
Exercise Price shall be carried forward and shall be made at the time of and
together with any subsequent adjustment that, together with the adjustment or
adjustments so carried forward, amounts to five cents ($0.05) or more; provided
however, that upon the exercise of a Warrant, the Company shall have made all
necessary adjustments (to the nearest cent) not theretofore made to the Exercise
Price up to and including the date upon which such Warrant is exercised.
7. INDEMNIFICATION; CONTRIBUTION.
(a) The Company will indemnify and hold harmless each holder and each
affiliate thereof of Common Stock registered pursuant to this Agreement with the
Commission, or under any Blue Sky Law or regulation against any losses, claims,
damages, or liabilities, joint or several, to which such holder may become
subject under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, registration statement, prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such holder and affiliate for any legal or other expenses reasonably incurred by
such holder in connection with investigating or defending any such action or
claim regardless of the negligence of any such holder or affiliate; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, or liability arises out of or is based upon
Talisman Enterprises Inc.
Warrant Agreement
Page 5
<PAGE>
an untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus, registration statement or prospectus, or any
such amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by any such holder expressly for
use therein.
(b) Each holder of Common Stock registered pursuant to this Agreement
will indemnify and hold harmless the Company against any losses, claims,
damages, or liabilities to which the Company may become subject, under the Act
or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus, registration statement or prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any preliminary prospectus, registration
statement or prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by such
holder expressly for use therein.
(c) Promptly after receipt by an indemnified party under Sections
7(a) or (b) above of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under either such subsection, notify the indemnifying party in writing of
the commencement thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability that it may otherwise have to any
indemnified party. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof the indemnifying party shall be entitled to assume the defense thereof
by notice in writing to the indemnified party. After notice from the
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under either of such subsections for any legal expenses of other counsel
or any other expense, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation incurred prior to the assumption by the indemnifying party, unless
such expenses have been specifically authorized in writing by the indemnifying
party, the indemnifying party has failed to assume the defense and employ
counsel, or the named parties to any such action include both the indemnified
party and the indemnifying party, as appropriate, and such indemnified party has
been advised by counsel that the representation of such indemnified party and
the indemnifying party by the same counsel would be inappropriate due to actual
or potential differing interests between them, in each of which cases the fees
of counsel for the indemnified party will be paid by the indemnifying party.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under Section
7(a) or 7(b) in respect of any losses, claims, damages, or liabilities (or
action in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the holder or holders from this Agreement and from
the offering of the shares of Common Stock. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable law, then
each indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the holders in
connection with the statement or omissions that resulted in such losses, claims,
damages, or liabilities (or actions in respect thereof), as well as any other
Talisman Enterprises Inc.
Warrant Agreement
Page 6
<PAGE>
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the holder and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the holders agree that it
would not be just and equitable if contribution pursuant to this Section 7(d)
were determined by pro rata allocation (even if the holders were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to above in this subsection
(d). Except as provided in Section 7(c), the amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or liabilities (or
actions in respect thereof) referred to above in this Section 7(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigation or defending any such action
or claim. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Notwithstanding any
provision in this Section 7(d) to the contrary, no holder shall be liable for
any amount, in the aggregate, in excess of the net proceeds to such holder from
the sale of such holder's shares (obtained upon exercise of Warrants) giving
rise to such losses, claims, damages, or liabilities.
(e) The obligations of the Company under this Section 7 shall be in
addition to any liability that the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
holder of Warrants within the meaning of the Act. The obligations of the holders
of Common Stock under this Section 7 shall be in addition to any liability that
such holders may otherwise have and shall extend, upon the same terms and
conditions to each person, if any, who controls the Company within the meaning
of the Act.
8. STOCK EXCHANGE LISTING. In the event the Company lists its Common
Stock on any national securities exchange, the Company will, at its expense,
also list on such exchange, upon exercise of a Warrant, all shares of Common
Stock issuable pursuant to such Warrant.
9. SPECIFIC PERFORMANCE. The Company stipulates that remedies at law, in
money damages, available to the holder of a Warrant, or of a holder of Common
Stock issued pursuant to exercise of a Warrant, in the event of any default or
threatened default by the Company in the performance of or compliance with any
of the terms of this Agreement are not and will not be adequate. Therefore, the
Company agrees that the terms of this Agreement may be specifically enforced by
a decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
10. SUCCESSORS AND ASSIGNS; BINDING EFFECT. This Agreement shall be
binding upon and inure to the benefit of you and the Company and their
respective successors and permitted assigns.
11. NOTICES. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office referred to in
Section 5 and, if to the holders, to their respective addresses shown in the
Warrant ledger of the Company, provided that any holder may at any time on three
(3) days' written notice to the Company designate or substitute another address
where notice is to be given. Notice shall be deemed given and received after a
certified or registered letter, properly addressed with postage prepaid, is
deposited in the U.S. mail.
Talisman Enterprises Inc.
Warrant Agreement
Page 7
<PAGE>
12. SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the remainder of this
Agreement.
13. ASSIGNMENT; REPLACEMENT OF WARRANTS. If the Warrant or Warrants are
assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of any Warrant and appropriate bond or indemnification protection,
the Company shall issue a new Warrant of like tenor. Except as contemplated by
Section 7 of this Agreement, the Warrants will not be transferred, sold, or
otherwise hypothecated by you or any other person and the Warrants will be
nontransferable, except to (i) one or more persons, each of which on the date of
transfer is an officer, shareholder, or employee of you; (ii) a partnership or
partnerships, the partners of which are you and one or more persons, each of
whom on the date of transfer is an officer of you; (iii) a successor to you in
merger or consolidation; (iv) a purchaser of all or substantially all of your
assets; or (v) a person that receives a Warrant upon death of a Holder pursuant
to will, trust, or the laws of intestate succession.
14. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Oklahoma without giving effect to the
principles of choice of laws thereof.
15. DEFINITION. All references to the word "you," and to "Capital West
Securities, Inc." in this Agreement shall be deemed to apply with equal effect
to any persons or entities to whom Warrants have been transferred in accordance
with the terms hereof, and, where appropriate, to any persons or entities
holding shares of Common Stock issuable upon exercise of Warrants.
16. HEADINGS. The headings herein are for purposes of reference only and
shall not limit or otherwise affect the meaning of any of the provisions hereof.
17. BINDING ARBITRATION. Each party to this Agreement agrees that any
dispute or controversy arising between any of the parties to this agreement, or
any person or entity in privity therewith, out of the transactions effected and
relationships created pursuant to this Agreement and each other agreement
created in connection herewith, including any dispute or controversy regarding
the formation, terms, or construction of this Agreement, regardless of kind or
character, must be resolved through binding arbitration. Each party to this
Agreement agrees to submit such dispute or controversy to arbitration before the
American Arbitration Association (the "Association") in Oklahoma City, Oklahoma,
and further agrees to be bound by the determination of an arbitration panel
consisting of three (3) persons. If demand for arbitration is made, each party
will have the right to select one independent arbitrator. If the party upon whom
the demand for arbitration is served fails to select an arbitrator within twenty
days, then the Association may select a second arbitrator upon application by
either party. The two arbitrators shall select a third arbitrator. If the two
arbitrators fail to select a third arbitrator within twenty days, the third
arbitrator may be selected and appointed by the Association upon application by
either party. The arbitrators' decision concerning the claim, controversy or
dispute, including allocation among the parties of costs and expenses associated
with the arbitration, shall be final and binding on the parties and judgment on
the award may be entered in any court of competent jurisdiction. Any party to
this Agreement may bring an action, including a summary or expedited proceeding,
to compel arbitration of any such dispute or controversy in a court of competent
jurisdiction and, further, may seek provisional or ancillary remedies including
temporary or injunctive relief
Talisman Enterprises Inc.
Warrant Agreement
Page 8
<PAGE>
in connection with such dispute or controversy in a court of competent
jurisdiction, provided that the dispute or controversy is ultimately resolved
through binding arbitration conducted in accordance with the terms and
conditions of this section.
Very truly yours,
TALISMAN ENTERPRISES INC.
By:____________________________________
Norman R. Proulx, Chairman
CONFIRMED AND ACCEPTED, as of the date first above written:
CAPITAL WEST SECURITIES, INC.
By:___________________________________
Robert O. McDonald, Chairman
Talisman Enterprises Inc.
Warrant Agreement
Page 9
<PAGE>
EXHIBIT A
WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
TERMS AND PROVISIONS OF A WARRANT AGREEMENT DATED AS OF SEPTEMBER __, 1999 (THE
"AGREEMENT"), AS SUCH AGREEMENT MAY BE SUPPLEMENTED, MODIFIED, AMENDED OR
RESTATED FROM TIME TO TIME. COPIES OF THE AGREEMENT ARE AVAILABLE AT THE
EXECUTIVE OFFICES OF THE COMPANY. TRANSFER OF THIS WARRANT IS RESTRICTED AS
PROVIDED IN SECTION 14 OF THE AGREEMENT.
60,000 SHARES WARRANT NO. 99-001
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
TALISMAN ENTERPRISES INC.
THIS IS TO CERTIFY that _________________________________ or its assigns as
permitted in that certain Warrant Agreement dated September __, 1999, between
the Company (as hereinafter defined) and Capital West Securities, Inc., [ ] and
[ ] is entitled to purchase at any time or from time to time on or after
September __, 2000 until 5:00 p.m., Oklahoma City, Oklahoma time on September
__, 2004, an aggregate of 60,000 shares of Common Stock, no par value per share,
of Talisman Enterprises Inc., an Ontario, Canada corporation (the "Company"),
for an exercise price per share as set forth in the Warrant Agreement referred
to herein. This Warrant is issued pursuant to the Warrant Agreement, and all
rights of the holder of this Warrant are further governed by, and subject to the
terms and provisions of such Warrant Agreement, copies of which are available
upon request to the Company. The holder of this Warrant and the shares issuable
upon the exercise hereof shall be entitled to the benefits, rights and
privileges and subject to the obligations, duties and liabilities provided in
the Warrant Agreement.
Subject to the provisions of the Act, of the Warrant Agreement and of this
Warrant, this Warrant and all rights hereunder are transferable, in whole or in
part, only to the extent expressly permitted in such documents and then only at
the office of the Company at 2330 Southfield Road, Mississauga, Ontario, Canada
L5N2W8, by the holder hereof or by a duly authorized attorney-in-fact, upon
surrender of this Warrant duly endorsed, together with the Assignment hereof
duly endorsed. Until transfer hereof on the books of the Company, the Company
may treat the registered holder hereof as the owner hereof for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and
its corporate seal to be hereunto affixed by its proper corporate officers
thereunto duly authorized.
TALISMAN ENTERPRISES INC.
By:_________________________________
Norman Proulx, Chairman
(SEAL)
Attest:
- -------------------------------
Name:
Title: Secretary
<PAGE>
EXHIBIT B
SUBSCRIPTION
TO BE SIGNED ONLY UPON EXERCISE (IN WHOLE OR IN PART) OF THE WARRANTS
TO: TALISMAN ENTERPRISES INC.
2330 Southfield Road
Mississauga, Ontario
Canada L5N2W8
1. The undersigned, _______________________________, pursuant to the
provisions of that certain Warrant Agreement dated September __, 1999 (the
"Warrant Agreement"), and the attached Warrant Certificate, hereby agrees
to subscribe for the purchase of ___________ shares of common stock of
TALISMAN ENTERPRISES INC., no par value per share (the "Common Stock"),
covered by the attached Warrant Certificate, and makes payment therefor in
full at the price per share provided by the Warrant Agreement.
2. The undersigned Holder (check one):
___ a. elects to pay the aggregate purchase price for such shares
of Common Stock (i) by lawful money of the United States or
the enclosed certified or official bank check payable in
United States dollars to the order of the Company in the
amount of $______________, or (ii) by wire transfer of
United States funds to the account of the Company in the
amount of $___________, which transfer has been made before
or simultaneously with the delivery of this Subscription
pursuant to the instructions of the Company; or
___ b. elects to pay the aggregate purchase price by implementing
the cashless exercise procedure pursuant to Section 5 of the
Warrant Agreement.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned
or in such other name(s) as is specified below:
Name:
Address:
Certificates shall be issued in such name and delivered to such address
unless otherwise specified by written instructions, signed by the
undersigned and accompanying this subscription.
If exercised in part, the balance of the shares of Common Stock subject to
the Warrant, as constituted at the date of the Warrant, shall be covered by
a new Warrant Certificate, which shall be issued in the name of the Holder
and delivered to the address for the Holder on the books of the Company.
Dated: ___________________________ Signature: ___________________________
Name: ___________________________ Address: _____________________________
Soc. Sec. # or Fed. ID #: ____________________________________________
<PAGE>
Exhibit 5.1
[Letterhead of Aird & Berlis, Barristers and Solicitors]
August __, 1999
Talisman Enterprises Inc.
2330 Southfield Road
Mississauga, Ontario
Canada L5N 2W8
Dear Sirs:
RE: REGISTRATION STATEMENT ON FORM SB-2/REGISTRATION NO. 333-83123
We act as Canadian corporate counsel to Talisman Enterprises Inc. (the
"Company") which is incorporated pursuant to the laws of the Province of Ontario
and which has retained legal counsel in the United States of America in
connection with the registration of certain securities of the Company pursuant
to the SECURITIES ACT OF 1933, as amended (the "Securities Act"). In that
regard, the above captioned registration statement on Form SB-2 (the
"Registration Statement") is being filed under the Securities Act by the Company
with the Securities and Exchange Commission (the "Commission") for the purpose
of registering the proposed public offering of:
a. 1,714,627 common shares in the capital of the Company with no par
value (the "Common Stock") being offered for sale by the Company
inclusive of securities issuable on the exercise of the
over-allotment option described in the Registration Statement (the
"Over-allotment Option");
b. 1,014,627 common shares in the capital of the Company reserved for
issuance upon exercise of the certain warrants;
c. An Underwriters' Warrant exercisable for 60,000 common shares in the
capital of the Company, with no par value and 1 Warrant (the
"Underwriters' Warrant");
d. 60,000 shares in the capital of the Company with no par value
underlying the Underwriters' Warrant;
In rendering this opinion, we have examined a copy of the Registration
Statement, coupled with the Articles of Incorporation, By-laws of the Company,
as amended, minutes and resolutions of the
<PAGE>
Page 2
board of directors, of the Company and such other documents as we have deemed
relevant and necessary as a basis for this opinion.
In our examination we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us, the conformity to original
documents of all documents submitted to us as certified or photostatic copies,
and the authenticity of the originals of such latter documents. As to our
opinion expressed in paragraph (1) below, we have relied solely upon a
Certificate of Status issued by the Ministry of Consumer and Commercial
Relations of the Province of Ontario dated August __, 1999 as to the existence
of the Company. Capitalized terms used in the context of the opinion not
otherwise herein defined, shall have the same meaning ascribed thereto within
the Registration Statement.
We are qualified to practise law only in the Province of Ontario, Canada and
accordingly express no opinion as to the laws of any other jurisdiction other
than the federal laws of Canada applicable in said Province.
Based upon the foregoing, we are of the opinion that:
(1) The Company is a corporation duly incorporated and validly subsisting under
the laws of the Province of Ontario with corporate power to conduct the business
which it conducts as described in the Registration Statement;
(2) Under the laws of the Province of Ontario, shareholders of the Company are
not personally liable for debts of the Company arising solely from their
ownership of the common shares in the capital of the Company; and
(3) The Common Stock and Warrants, and the common shares in the capital of the
Company issuable upon exercise of the Warrants have been duly and validly
authorized for issuance by the Company, and when issued, delivered and paid for,
by purchasers thereof, such securities will be fully paid and non-assessable and
conform to the description contained in the section "Description of Securities"
in the Registration Statement.
We consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to this firm under the section entitled "Legal
Matters" in the Registration Statement.
Yours truly,
Aird & Berlis, Barristers and Solicitors
<PAGE>
[TALISMAN LETTERHEAD]
7 January 1999
Mr. Christian H. Bunger
9800 Huntcliff Trace
Atlanta, GA 30350
Re: EMPLOYMENT AGREEMENT
Dear Chris:
This letter defines our agreement regarding your appointment to the position
of Vice President, Sales - USA for Talisman Enterprises, Inc., and outlines
your compensation plan. We have agreed that you will join the company on
January 25, 1999.
1. SALARY - US $75,000 per year, payable twice monthly in arrears. You will
receive an annual performance evaluation and, based on both personal and
Company performance, an increase in base salary will be considered.
2. You will be included in the senior management bonus plan allowing you to
earn up to 35% of your base salary that is in effect at the end of each
calendar year. Bonus awards will be based on the attainment of
board-approved company profitability targets, as well as results from two
measurable personal objectives.
3. You will participate in the senior management earned equity plan, a copy
of which is attached to this letter.
4. You will be provided with a car allowance of US $600 per month. This
amount will be paid on the first day of each month starting February 1,
1999. All expenses related to your automobile, including insurance, will
be paid by you.
5. You are eligible for three weeks paid vacation per year after six months
of employment. No carry over of unused vacation is permitted.
6. In the event of your termination from the Company without cause, you will
be given six months' severance pay on the condition that you agree not to
compete or solicit Company employees or customers for a like period.
7. You are currently covered by a full benefits program from a previous
employer, and are therefore ineligible for Company-paid benefits.
<PAGE>
Christian H. Bunger 7 January 1999
Re: EMPLOYMENT AGREEMENT Page 2
In your new position, you will have overall responsibility for the development
of the private label primary alkaline battery market in the United States.
Chris, we are very pleased to have you join Talisman and look forward to a
long and prosperous relationship.
If you accept the terms of this Agreement, including the attachment, please
sign in the space provided below and return one original to me.
Regards,
/s/ Norman R. Proulx
NORMAN R. PROULX
Acting President & CEO
NRP/j
Attachment
I hereby accept the terms of this Employment Agreement:
/s/ Christian H. Bunger 1-8-99
- ------------------------ ---------
Christian H. Bunger Date
<PAGE>
EXHIBIT I
EQUITY ARRANGEMENT:
GENERAL. The Executive shall be granted options ("Options") on shares
of the common stock of the Company ("Shares") equal to two percent (1 1/2%)
fully diluted as of the Trigger Date, at an exercise price per Share equal
to 25% of the mean between the high bid and low asked prices per Share on the
Canadian Dealing Network (the "Market Price") on that date. Capitalized terms
not defined herein are as defined in the Attachment.
1. TIME VESTING OPTIONS. One third of the options (the "Time Vested
Options") shall become exercisable in equal monthly increments over a period
of 60 months beginning with the month in which the Trigger Date occurs. The
Time Vesting Options shall accelerate in the event of a Change of Control or
a Purchase of the Company.
2. ANNUAL TARGET OPTIONS. One third of the options (the "Annual Target
Options") shall become exercisable upon the achievement of specified levels
of annual performance to be established by the Board, in consultation with
the Executive, which levels shall be consistent with the levels applicable to
other senior managers of the Company (the "Annual Targets") over a five-year
period beginning with the Trigger Date. The following special rules shall
apply to exercisability of the Annual Target Options:
- ONE YEAR CATCH-UP. If an Annual Target is not achieved for a
particular year (the difference between the Annual Target and actual
performance being the "Shortfall"), but in the next following year the
Annual Target is exceeded by an amount equal to or
1
<PAGE>
greater than the Shortfall, the Annual Target Options that would have
become exercisable in the Shortfall year shall become exercisable.
- EARLY TRANSFER BY INVESTOR. If, after the first year, but on or
before the fifth anniversary of the Trigger Date, there is (i) a
Purchase, or (ii) a sale, transfer or other disposition of Shares by
Talisman Partners as a result of which Talisman Partners has sold,
transferred or otherwise disposed of more than half of the Shares it
held on the Trigger Date, taking into account Shares which were then
acquirable by Talisman Partners on exercise of conversion (or other
acquisition) rights then held by Talisman Partners, but only to the
extent that the conversion (or other acquisition) price per Share was
then equal to or less than the Market Price per Share on that Date
(either of the above being referred to as an "Investor Sale"), all or
a portion of the unexercisable Annual Target Options may become
exercisable in one of the following two ways:
(1) If the Annual Targets have been achieved for each of the years
ending prior to such "Measurement Date", as defined below, then all
unexercisable Annual Target Options will become exercisable.
(2) If the immediately prior year's Annual Target has been
achieved, but one or more previous periods' Annual Targets have not
been achieved, then a portion of the unexercisable Options shall
become exercisable. The percentage of unexercisable Annual Target
Options which will become exercisable is determined by dividing
(x) the number of Annual Target Options which have already become
exercisable by (y) the total number of Annual Target Options
2
<PAGE>
which would have been exercisable if all the Annual Targets had
been achieved. For example, if two out of three years' Targets were
achieved, 66.66% of the unexercisable Annual Target Options would
become exercisable.
- MINIMUM 50% VESTING FOR INVESTOR RETURN OF 30%. If there is an
Investor Sale, and the "Cumulative Compounded Return" is 30% or more,
then an additional number of Annual Target Options shall become
exercisable, if necessary, so that the total number of exercisable
Annual Target Options (including previously exercised Annual Target
Options) is at least equal to 50% of the original number of Annual
Target Options.
The Annual Target Options shall become exercisable upon the 7th
anniversary of the Trigger Date, so long as the Executive remains in
employment with the Company.
3. INVESTOR RETURN VESTING OPTIONS. One third of the options shall vest
and become exercisable based on achievement of investor returns as determined
by per share market price of the Company's stock on the date of an Investor
Sale compared with the market price per share on the Trigger Date.
Specifically, on the date of the Investor Sale (the "Measurement Date") the
Measurement Date Price, as defined below, will be measured against the
Trigger Date market price to calculate a cumulative return as per the
following formula:
A = B + ((1 + C) ^ (D/12))
WHERE:
A = THE MEASUREMENT DATE PRICE
B = THE EMPLOYMENT DATE MARKET PRICE
3
<PAGE>
C = THE CUMULATIVE COMPOUNDED RETURN
D = THE NUMBER OF WHOLE MONTHS FROM THE
EMPLOYMENT DATE THROUGH THE MEASUREMENT
DATE.
If the Cumulative Compounded Return is less that 28%, none of the
Investor Return Options shall become exercisable.
If the Cumulative Compounded Return is at least 28% but less than 29%,
one third of the Investor Return Options will become exercisable.
If the Cumulative Compounded Return is at least 29% but less than 30%,
two thirds of the Investor Return Options will become exercisable.
If the Cumulative Compounded Return is greater than 30%, all of the
Investor Return Options will become exercisable.
The "Measurement Date Price" is the price paid by the purchaser in
either transaction described immediately above. Provisions for valuation of
non-cash consideration will be reasonably agreed.
The Investor Return Options shall become exercisable upon the 7th
anniversary of the Trigger Date, so long as the Executive remains in
employment with the Company.
4. SPECIAL LOAN/BONUS PROVISION: If the Executive exercises the Option
while he is employed by the Company, the Company shall loan the Executive the
amount of the exercise price for the Option at an interest rate determined by
the Company to be reasonably favorable to the Executive, such loan to be
repaid six months and a day following exercise of the Option. If the
Executive remains in employment for six months following the exercise of the
Option or if the
4
<PAGE>
Executive's employment is terminated on account of death or disability, the
note shall be forgiven. If the Option is exercised on or after a Change of
Control or Purchase or otherwise on the occurrence of a Measurement Date, the
Company shall pay the Executive a bonus in an amount equal to the exercise
price.
5. TIMING OF ACCELERATED EXERCISABILITY UPON GOING PRIVATE TRANSACTION:
Notwithstanding the above, all Options which are exercisable as of, or
otherwise become exercisable (as provided above) upon, any transaction by
which the Shares cease to be publicly tradable shall be deemed to have become
exercisable immediately prior to such transaction.
6. GENERAL PROVISIONS: All options which are not exercisable, and do
not become exercisable, shall expire upon the termination of the employment
of the Executive with the Company, except as specified in Section 4 of this
Agreement. Options which are or become exercisable as of the date of
termination of employment shall remain exercisable for a period of ninety
(30) days following termination of employment. Exercise shall be by cash or
cash equivalent, unless the Board, in its sole discretion permits a form of
cashless exercise. Options are not transferable or assignable except for
estate planning purposes.
5
<PAGE>
ATTACHMENT
1. Company: Talisman Enterprises, Inc., an Ontario corporation.
2. Trigger Date: January 21, 1999.
3. Change of Control: any "Person" (as defined under Section 3(a)(9) of the
(United States) Securities Exchange Act of 1934, as amended (the "Exchange
Act")) or "Group" of persons (as provided under Rule 13d-3 of the Exchange
Act), other than Spencer-Trask is or becomes the "Beneficial Owners" (as
defined in Rule 13d-3 or otherwise under the Exchange Act), directly or
indirectly (including as provided in Rule 13d-3(d)(1) of 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) of the Exchange Act (but not giving effect to any such deemed
ownership of securities by another person or group), equal to or greater
than the aggregate percentage of Voting Stock owned by (A) Spencer-Trask,
(B) any Affiliate of Spencer-Trask, (C) Talisman Partners, and (D) Kevin
Kimberlin (collectively the "Spencer-Trask Investment Group") as determined
at the time of such acquisition on a fully diluted basis.
4. Purchase: any "Person" (as defined under Section 3(a)(9) of the Exchange
Act) or "Group" of persons (as provided under Rule 13d-3 of the Exchange
Act), other than Spencer-Trask, is or
1
<PAGE>
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) of 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) of 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.
5. Board: The Board of Directors of the Company.
2
<PAGE>
Exhibit 23.1
CONSENT OF COUNSEL
We hereby consent to the reference to our firm under "Legal Matters" in the
Prospectus forming a part of the Registration Statement. In giving the foregoing
consent, we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Securities and Exchange Commission.
Very truly yours,
/s/ Sichenzia, Ross & Friedman LLP
SICHENZIA, ROSS & FRIEDMAN LLP
August 16, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 29, 1999 (except as to note 16 which is as at
August 16, 1999), in the Amendment No. 1 to the Registration Statement on Form
SB-2 and related prospectus of Talisman Enterprises Inc. dated August 16, 1999.
/s/ Ernst & Young LLP
Hamilton, Canada Ernst & Young LLP
August 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Talisman
Enterprises, Inc. December 31, 1998 and June 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 662
<SECURITIES> 0
<RECEIVABLES> 175
<ALLOWANCES> 0
<INVENTORY> 1327
<CURRENT-ASSETS> 3234
<PP&E> 3879
<DEPRECIATION> (502)
<TOTAL-ASSETS> 6612
<CURRENT-LIABILITIES> 6659
<BONDS> 0
0
1687
<COMMON> 2590
<OTHER-SE> (4864)
<TOTAL-LIABILITY-AND-EQUITY> 6612
<SALES> 71
<TOTAL-REVENUES> 71
<CGS> 640
<TOTAL-COSTS> 1243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> (1917)
<INCOME-TAX> (29)
<INCOME-CONTINUING> (1888)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1888)
<EPS-BASIC> (0.002)
<EPS-DILUTED> (0.002)
</TABLE>
