<PAGE>
As filed with the Securities and Exchange Commission on June 28, 1999.
Registration no. 333-75913
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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URBAN JUICE & SODA COMPANY LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER )
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WYOMING 5149 APPLIED FOR
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
1356 FRANCES STREET CT CORPORATIONS SYSTEM
VANCOUVER, B.C. V5L 1Y9 1720 CAREY AVENUE
CANADA CHEYENNE, WYOMING 82001
(800) 656-6050 (800) 362-1228
(ADDRESS AND TELEPHONE NUMBER OF (NAME, ADDRESS AND TELEPHONE NUMBER
REGISTRANT'S PRINCIPAL EXECUTIVE OF AGENT FOR SERVICE)
OFFICES)
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COPIES TO:
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WILLIAM E. VAN VALKENBERG, ESQ. JENNIFER CUE, CHIEF FINANCIAL OFFICER DAVID TOYODA, ESQ.
DAREN H. NITZ, ESQ. URBAN JUICE & SODA COMPANY LTD. CATALYST CORPORATE FINANCE LAWYERS
VAN VALKENBERG FURBER LAW 1356 FRANCES STREET 1100 - 1055 WEST HASTINGS STREET
GROUP P.L.L.C. VANCOUVER, B.C. V5L 1Y9 VANCOUVER, B.C. V6E 2E9
1325 FOURTH AVENUE, SUITE 1200 CANADA CANADA
SEATTLE, WA 98101-2509 U.S.A. TELEPHONE: (800) 656-6050 TELEPHONE: (604) 443-7016
TELEPHONE: (206) 464-0460 FACSIMILE: (604) 253-4501 FACSIMILE: (604) 443-7000
FACSIMILE: (206) 464-2857
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this registration statement which
relates to the continuation of Urban Juice & Soda Company Ltd. ("Urban Canada")
from the Province of British Columbia into Urban Juice & Soda Co., a Wyoming
corporation ("Urban Wyoming") pursuant to the articles of continuance described
herein.
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If any of these securities being registered in this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, check the following box. |X|
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(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. |_|
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.
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<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 28, 1999
URBAN JUICE & SODA COMPANY LTD.
PRELIMINARY INFORMATION CIRCULAR
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URBAN JUICE & SODA COMPANY LTD.
(A TO-BE-FORMED WYOMING CORPORATION)
PROSPECTUS
We are furnishing this information circular/prospectus to shareholders
of Urban Juice & Soda Company Ltd., a British Columbia corporation (Urban
Canada), in connection with our Board of Directors' solicitation of proxies
for use at an Extraordinary General Meeting of the shareholders of Urban
Canada (the "Meeting"). The Meeting will be held at 1356 Frances Street,
Vancouver, British Columbia, on August 27, 1999, at 10:00 a.m., local time
for the purposes set forth in this information circular/prospectus and in the
accompanying Notice of Extraordinary General Meeting of Shareholders of Urban
Canada. This information circular/prospectus is also a prospectus of Urban
Juice & Soda Company Ltd., a to-be-formed Wyoming corporation ("Urban
Wyoming"), with respect to common shares of Urban Canada that will become
common shares of Urban Wyoming upon effectiveness of the continuation of
Urban Canada into the State of Wyoming. We intend to accomplish the
continuation by filing Articles of Continuance in the State of Wyoming.
When we effect the continuation, we will continue our legal existence in
Wyoming as if we had been originally incorporated under the Wyoming Business
Corporation Act and each of our outstanding common shares will be converted from
a common share of Urban Canada into a common share of Urban Wyoming.
In order to become effective, our shareholders must approve the proposed
continuation by special resolution. We will accomplish the proposed continuation
as soon as we can following approval by our shareholders and once we and others
satisfy or waive the other conditions to the continuation.
This information circular/prospectus and the accompanying form of proxy
are first being mailed to our shareholders on or about July 23, 1999.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
INFORMATION CIRCULAR/PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This information circular/prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
This information circular/prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Such documents are
available upon request from Jennifer L. Cue, Urban Juice & Soda Company Ltd.,
1356 Frances Street, Vancouver, British Columbia, Canada V5L 1Y9, telephone
(604) 654-6050. In order to ensure timely delivery of the documents, you should
request them at least five business days prior to the Meeting.
THE DATE OF THIS INFORMATION CIRCULAR/PROSPECTUS IS JUNE 28, 1999.
2
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TABLE OF CONTENTS
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PAGE
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WHERE YOU CAN FIND MORE INFORMATION...............................................................................7
CONVENTION........................................................................................................7
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS............................................................7
SUMMARY ..........................................................................................................8
Urban Canada.............................................................................................8
Corporate Restructuring Prior to Continuation............................................................8
The Continuation.........................................................................................8
Introduction....................................................................................8
Continuation Special Resolution.................................................................8
Articles Of Continuance........................................................................10
Effect Of The Continuation.....................................................................10
Appraisal Rights...............................................................................11
Conversion Of Shares...........................................................................11
Continuing Disclosure Obligation...............................................................11
MARKETS AND MARKET PRICES........................................................................................11
Common Shares...........................................................................................11
Common Share Purchase Warrants..........................................................................12
THE EXTRAORDINARY GENERAL MEETING................................................................................12
Management Solicitation And Appointment Of Proxies......................................................12
Revocation Of Proxies...................................................................................13
Record Date; Shareholders Entitled To Vote At The Meeting...............................................13
Voting Of Shares And Proxies And Exercise Of Discretion By Proxyholders.................................13
Voting By Show Of Hands........................................................................13
Voting By Poll.................................................................................14
Approval Of Resolutions........................................................................14
Voting Of Proxies And Exercise Of Discretion By Proxyholders...................................14
Solicitation Of Proxies.................................................................................14
TAX CONSEQUENCES OF THE CONTINUATION.............................................................................14
United States Federal Income Tax Consequences...........................................................14
U.S. Holders...................................................................................15
Controlled Foreign Corporation Considerations.........................................16
Passive Foreign Investment Company Considerations.....................................16
Foreign Personal Holding Company......................................................16
Dissenting Shareholders...............................................................17
Urban Canada Warrants.................................................................17
United States Taxation of Income, Gains, and Losses............................................17
Canadian Holders...............................................................................18
Subsequent Sale of Urban Wyoming Shares..............................................18
Receipt of Dividends on Urban Wyoming Shares..........................................18
Federal Estate Tax Treatment..........................................................19
Canadian Income Tax Considerations......................................................................19
Nature of Shares of Urban Canada Held by Canadian Shareholders.................................19
Pre-Continuation Transaction...................................................................19
</TABLE>
3
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<TABLE>
<S> <C>
Shareholder Consequences of Continuation.......................................................20
Foreign Reporting.....................................................................20
Dissent Proceedings...................................................................20
Interest Expense......................................................................21
Company Consequences...........................................................................21
Tax-Exempt Shareholders........................................................................21
INTEREST OF MANAGEMENT IN THE CONTINUATION.......................................................................22
RIGHTS OF DISSENTING SHAREHOLDERS................................................................................22
Right Of Dissent........................................................................................22
Dissent Proceedings.....................................................................................23
RISK FACTORS.....................................................................................................23
Competition.............................................................................................23
Dependence on Independent Distributors..................................................................24
Lack of Profitability...................................................................................24
Substantial Dependence Upon Single Proprietary Brand....................................................24
Initial Consumer Acceptance.............................................................................25
Dependence Upon Key Personnel...........................................................................25
Limited Operating History as a Proprietary Brand Holder.................................................25
Risks Related to Expansion of Product Distribution......................................................26
Product Liability.......................................................................................26
Dependence on Third-Party or Contract Packers...........................................................26
Trademarks, Design Marks and Flavor Concentrate Trade Secrets...........................................27
Seasonality; Inclement Weather..........................................................................27
Currency Exchange Rate..................................................................................27
Regulatory Matters......................................................................................27
Our Information Technology And Computer Controlled Systems May Not Be Year 2000 Compliant...............27
SELECTED FINANCIAL DATA..........................................................................................27
URBAN CANADA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............30
Overview ...............................................................................................30
Three Months Ended March 31, 1999 Compared to the Three Months Ended March 31, 1998.....................30
Sales .........................................................................................30
Cost of Sales..................................................................................30
Gross Profit...................................................................................31
Expenses.......................................................................................31
Other Income (Expenses)........................................................................31
Net Loss.......................................................................................31
Liquidity and Capital Resources................................................................31
Impact Of The Year 2000 Computer Problem................................................................32
Results of Operations...................................................................................32
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997...................................32
Sales .........................................................................................32
Cost of Sales..................................................................................32
Gross Profit...................................................................................33
Expenses.......................................................................................33
Other Income (Expenses)........................................................................33
Net Loss.......................................................................................34
Liquidity and Capital Resources................................................................34
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Quarterly Operating Results; Seasonality................................................................34
U.S. GAAP Reconciliation................................................................................35
URBAN CANADA BUSINESS............................................................................................36
Urban Canada............................................................................................36
Corporate Structure............................................................................37
Company Background.............................................................................37
The Alternative or New Age Beverage Industry............................................................38
Business Strategy.......................................................................................39
Brand Franchise................................................................................39
Distributor Network and Key Accounts...........................................................39
Brand and Product Development...........................................................................40
Market Evaluation..............................................................................40
Distributor Evaluation.........................................................................40
Production Evaluation..........................................................................40
Image and Design...............................................................................40
Products................................................................................................41
Proprietary Brands.............................................................................41
Licensed Products..............................................................................42
Marketing, Sales and Distribution.......................................................................42
Seasonality.............................................................................................43
Production..............................................................................................43
Contract Packing Arrangements..................................................................43
Raw Materials..................................................................................43
Quality Control................................................................................43
Regulation.....................................................................................44
Trademarks, Design Marks and Flavor Concentrate Trade Secrets...........................................44
Competition.............................................................................................45
Employees...............................................................................................45
MANAGEMENT.......................................................................................................45
Executive Compensation..................................................................................47
Executive Officers.............................................................................47
Summary Compensation Table.....................................................................48
Compensation Of Directors......................................................................48
Direct Remuneration............................................................................48
Options, Stock Appreciation Rights And Other Rights To Purchase Securities.....................48
Directors' And Officers' Insurance.............................................................49
Long-Term Incentive Plans......................................................................49
Pension Benefits...............................................................................49
Other Benefits.................................................................................50
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS................................................50
MANAGEMENT CONTRACTS.............................................................................................50
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS.......................................................50
DESCRIPTION OF URBAN CANADA CAPITAL STOCK........................................................................50
Common Shares...........................................................................................50
Common Share Purchase Warrants..........................................................................51
TRANSFER AGENT AND REGISTRAR.....................................................................................51
</TABLE>
5
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<TABLE>
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SHAREHOLDER'S RIGHTS UNDER THE WYOMING BUSINESS CORPORATION ACT..................................................51
The Constating Documents................................................................................51
Amendments to Constating Documents.............................................................51
Share Capital...........................................................................................51
Appointment Of Directors................................................................................52
Management..............................................................................................52
Rights Of Shareholders..................................................................................52
Dissent Rights Under The WBCA...........................................................................53
LEGAL MATTERS....................................................................................................54
EXPERTS .........................................................................................................54
INSERT KPMG FINANCIAL STATEMENTS HERE............................................................................55
APPENDIX A.......................................................................................................56
ARTICLES OF CONTINUANCE..........................................................................................56
APPENDIX B.......................................................................................................57
COMPANY ACT OF BRITISH COLUMBIA..................................................................................57
DIVISION 2 -DISSENT PROCEEDINGS..................................................................................57
INFORMATION NOT REQUIRED IN PROSPECTUS...........................................................................59
Item 20. Indemnification Of Directors And Officers......................................................59
Item 21. Exhibits And Financial Statement Schedules.....................................................60
Item 22. Undertakings...................................................................................61
SIGNATURES.......................................................................................................63
POWER OF ATTORNEY................................................................................................63
EXHIBIT INDEX....................................................................................................65
</TABLE>
6
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This information circular/prospectus constitutes a part of a Registration
Statement on Form S-4 that we filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act. This information
circular/prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to our company and the shares of common stock
offered by this information circular/prospectus, please refer to the
Registration Statement. Any statements made in this information
circular/prospectus concerning the provisions of certain documents are not
necessarily complete and, in each instance, we urge you to refer to the copy of
such document filed as an exhibit to the Registration Statement otherwise filed
with the Commission. All of our statements concerning such documents are
qualified in their entirety by such reference.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 (United States), as amended (the "Exchange Act"), as
applicable to foreign private issuers, and we file reports and other information
with the Commission. You can inspect and copy such information, and the reports
and other information filed with the Commission at the Commission's public
reference facilities located at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 and at the following Regional Offices: 5670
Wilshire Boulevard, 11th Floor, Los Angeles, CA 90036-3648. You may also obtain
copies of such materials from the Commission at prescribed rates by mailing a
request to the Public Reference Section of the Commission, at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
----------
We have not authorized any dealer, salesperson or other individual to
give any information or to make any representations other than those contained
in this information circular/prospectus. You may not rely on any such
information or representations other than those set forth in this information
circular/prospectus. This information circular/prospectus is not an offer to
sell, or a solicitation of an offer to buy, the securities offered hereby to any
person in any state or other jurisdiction in which such offer or solicitation is
unlawful. The delivery of this information circular/prospectus at any time does
not imply that information contained herein is correct as of any time subsequent
to its date.
CONVENTION
Financial information presented is expressed in Canadian dollars ("$")
unless otherwise expressed in United States dollars ("US$"). Except as otherwise
noted, financial data in this information circular/prospectus are presented in
accordance with generally accepted accounting principles as applied in Canada
("Canadian GAAP").
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in this information circular/prospectus
are forward-looking. Such statements can be identified by the use of
forward-looking terminology such as "believe," "expect," "may," "will,"
"should," or "anticipate" or the negative thereof or comparable terminology, or
by discussions of strategy. We caution you that our business and operations are
subject to a variety of risks and uncertainties and, consequently, our actual
results may materially differ from those projected by the forward-looking
statements contained in this information circular/prospectus. Certain of such
risks and uncertainties are discussed under "Risk Factors," beginning on page **
of this information circular/prospectus, and we urge you to carefully consider
such factors.
7
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SUMMARY
The following is a summary of certain information contained elsewhere in
this information circular/ prospectus. This summary is not, and is not intended
to be, complete by itself. This information circular/prospectus contains
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "risk
factors" and elsewhere in this information circular/prospectus. This summary is
qualified in its entirety by reference to the more detailed information
contained elsewhere in this information circular/prospectus, the appendices
attached hereto and the documents referred to herein. We urge you to review
carefully all of the information contained in this information circular/
prospectus, the articles of continuance attached hereto as Appendix A and the
other appendices attached hereto. Unless the context otherwise requires, all
references to "we," "us" and "our" include Urban Canada and its subsidiaries
and, as the context requires, Urban Wyoming.
URBAN CANADA
We manufacture, market and distribute a broad selection of "alternative"
or "New Age" beverages. We created in 1994, and launched in 1995, two
proprietary brands, JONES SODA CO. "a traditional 90's soda," and WAZU, a
natural spring water.
We were incorporated on December 23, 1986 under the British Columbia
Company Act ("BCCA") under the name 2072 Investment Ltd. On September 25, 1987,
we changed our name to Republic Aircraft Manufacturing Corporation. On June 9,
1992, we changed our name to International Republic Aircraft Manufacturing
Corporation and finally to our present name on May 26, 1993.
CORPORATE RESTRUCTURING PRIOR TO CONTINUATION
In order to better align the business operations of Urban Canada and its
subsidiaries, prior to the effectiveness of the continuation, WAZU Products Ltd.
intends to sell the assets used in its U.S. operations to Urban Juice & Soda
(USA) Inc. for proceeds equal to the fair market value of the assets.
THE CONTINUATION
INTRODUCTION
Our management is proposing that our corporate existence be continued out
of British Columbia into the State of Wyoming, the result of which will be that
we will cease to be a British Columbia company governed by the provisions of the
BCCA and will become a Wyoming company governed by the provisions of the Wyoming
Business Corporations Act ("WBCA").
Our management believes that the continuation into a United States
jurisdiction will provide us with potential business and tax benefits.
To accomplish the continuation, we will adopt and file Articles of
Continuance (the "Articles of Continuance") prepared in accordance with the WBCA
with the Secretary of State of Wyoming that will replace our current Memorandum
and Articles (the "British Columbia Memorandum and Articles"). A copy of the
proposed Articles of Continuance, may be reviewed at our solicitors' office,
Catalyst Corporate Finance Lawyers, 1100 - 1055 West Hastings Street, Vancouver,
British Columbia, V6E 2E9 at any time during normal business hours.
CONTINUATION SPECIAL RESOLUTION
Under the BCCA, the approval of the shareholders must be by a special
resolution. At the Meeting of shareholders, our management will ask you to
approve the continuation by special resolution. We will also seek your consent
to not proceed with the continuation in the event that the special resolution is
passed by the shareholders at the Meeting and we subsequently conclude that it
would not be in our best interests to proceed. The
8
<PAGE>
following continuation special resolution will be presented at the Meeting for
approval.
The following "Continuation Special Resolution" authorizes us to proceed
with the continuation into the State of Wyoming.
"WHEREAS Urban Canada proposes to continue out of British Columbia and
the provisions of the British Columbia Company Act ("BCCA") and into the
State of Wyoming and the provisions of the Wyoming Business Corporations
Act ("WBCA");
AND WHEREAS the directors and officers wish to secure such general and
specific approvals for the continuation as may be required to comply with
the BCCA, the WBCA, the British Columbia and Ontario Securities Acts and
the policies of the Vancouver Stock Exchange (the "VSE");
AND WHEREAS management may subsequently decide that it is not in the best
interests of Urban Canada to proceed with such matters;
RESOLVED, as a Special Resolution, that:
(i) Urban Canada be authorized to make application to the British
Columbia Registrar, the Secretary of State of the State of
Wyoming (the "Secretary of State") and the VSE for consent and
approval of the proposed continuation of Urban Canada into
Wyoming;
(ii) Urban Canada be hereby authorized to make application to the
Secretary of State for a Certificate of Continuation
continuing Urban Canada as if it had been originally
incorporated under the WBCA;
(iii) Urban Canada adopt the Articles of Continuance (the "Articles
of Continuance") in the form approved by the directors of
Urban Canada, to become effective when the Secretary of State
issues a Certificate of Continuation continuing Urban Canada
as if it had been originally incorporated under WBCA;
(iv) upon the continuation of Urban Canada into the State of
Wyoming, Urban Canada be hereby authorized to file with the
British Columbia Registrar a certified copy of the Wyoming
Certificate of Continuation issued by the Secretary of State
and request that the British Columbia Registrar remove Urban
Canada from the register in British Columbia;
(v) the directors of Urban Canada be hereby authorized, in their
discretion, to abandon or amend the application for
continuation of Urban Canada under the WBCA without further
approval of the shareholders; and
(vi) the directors and officers of Urban Canada, or any one of
them, be hereby authorized and directed to perform all such
acts, deeds and things and execute, under the seal of Urban
Canada or otherwise, all such documents, agreements and other
writings as may be required to give effect to the true intent
of this resolution."
9
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ARTICLES OF CONTINUANCE
The Articles of Continuance filed by Urban Canada with the Wyoming
Secretary of State will contain:
(i) a certified copy of its original articles of incorporation and
all amendments thereto or its equivalent basic corporate
charter or other authorization;
(ii) the name of the corporation and the jurisdiction under the
laws of which it is incorporated;
(iii) the date of incorporation and the period of duration of the
corporation;
(iv) the address of the principal office of the corporation;
(v) the address of the proposed registered office of the
corporation in the state of Wyoming and the name of its
proposed registered agent in the state of Wyoming at the
address;
(vi) the purpose or purposes of the corporation which it proposes
to pursue in the transaction of business in the State of
Wyoming;
(vii) the name and respective business address of the directors and
officers of the corporation;
(viii) a statement of the aggregate number of shares or other
ownership units which the corporation has authority to issue,
itemized by classes, par value of shares, shares without par
value and series, if any, within a class;
(ix) a statement of the aggregate number of issued shares or other
ownership units itemized by classes, par value of shares,
shares without par value and series, if any, within a class;
(x) such additional information concerning capital structure or
financial status as the Secretary of State deems necessary to
establish fees;
(xi) a statement that the corporation accepts the condition of the
state of Wyoming in compliance with the requirements of
Article 10, Section 5 of the Wyoming Constitution;
(xii) any additional information necessary or appropriate to enable
the Secretary of State to determine whether the corporation is
entitled to a certificate of registration evidencing its
authority to transact business in the state of Wyoming and to
determine and to access any fees and taxes under the laws of
the State of Wyoming; and
(xiii) any additional information permitted in Articles of
Incorporation under W.S. 17-16-202.
EFFECT OF THE CONTINUATION
The continuation will not result in any change in our business or assets,
liabilities, net worth or management, nor will the continuation impair any of
our creditors' rights. A particular shareholder's holding will not change. The
continuation is not, in itself, a corporate reorganization, amalgamation or
merger.
10
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On the completion of the continuation, we will become Urban Wyoming
subject to the provisions of the WBCA. As Urban Wyoming we will establish a
registered office in Wyoming and upon consummation of the continuation, we will
file a Current Report on Form 8-K with the Commission to reflect the
continuation for the purposes of Section 15(d) of the Exchange Act.
APPRAISAL RIGHTS
The continuation gives rise to a right of dissent (see "Rights of
Dissenting Shareholders"). If the continuation is approved at the Meeting, and
we go forward with the continuation, shareholders who comply with the provisions
of Section 207 of the BCCA, a copy of which is attached as Appendix B to this
information circular/ prospectus, will be entitled to receive payment for their
shares in accordance with such section. This could have an adverse effect on our
cash flow. See "Rights of Dissenting Shareholders."
CONVERSION OF SHARES
The current share certificates representing our common shares will be
deemed to represent an equivalent number of shares of Urban Wyoming common stock
without further act on the part of our shareholders. You will not have to
exchange any share certificates. We will issue new certificates representing
shares of Urban Wyoming common stock upon transfers of common shares or at your
request.
CONTINUING DISCLOSURE OBLIGATION
Notwithstanding the continuation, we will remain a "reporting issuer" in
British Columbia and Ontario and as such we will continue to be obligated to
prepare and issue news releases in British Columbia and Ontario, file material
change reports with the British Columbia Securities Commission ("BCSC") and the
Ontario Securities Commission, prepare, file and provide to shareholders
unaudited quarterly and audited annual financial statements, and otherwise
comply with the British Columbia Securities Act and Ontario Securities Act,
where applicable. Our insiders (existing and future) will continue to be subject
to the insider trading and reporting requirements of the British Columbia
Securities Act and the Ontario Securities Act.
MARKETS AND MARKET PRICES
COMMON SHARES
Our common shares are currently traded on the Vancouver Stock Exchange
(the "VSE") under the symbol "UJS". Our common shares are also quoted on the OTC
Bulletin Board. We have not made any application to list the common shares on
any other exchange. The following table sets forth the high and low closing sale
prices, as reported by the VSE, of the common shares for the calendar quarters
indicated.
11
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<TABLE>
<CAPTION>
HIGH LOW
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<S> <C> <C>
1997:
First quarter...................................... 2.55 1.44
Second quarter..................................... 2.50 1.45
Third quarter...................................... 1.90 1.30
Fourth quarter..................................... 1.35 0.69
1998:
First quarter...................................... 1.10 .73
Second quarter..................................... 1.34 .83
Third quarter...................................... 1.15 0.42
Fourth quarter..................................... 0.56 0.40
1999:
First quarter...................................... 0.90 0.45
Second quarter through June 8...................... 1.35 0.76
</TABLE>
As of June 11, 1999, there were 18,660,914 common shares issued and
outstanding. At such date, there were 173 record holders of such common shares
within the United States who collectively held 6,141,326, or approximately 33%,
of the total number of issued and outstanding common shares.
COMMON SHARE PURCHASE WARRANTS
As of June 11, 1999 we had warrants outstanding to purchase an aggregate
of 2,610,567 of our common shares. We issued two-year warrants to purchase
40,000 common shares in connection with a bank loan that closed on June 18,
1998. The exercise price of these warrants was $1.00 per share until June 18,
1999 and is now$1.15 per share until June 18, 2000. We also issued two-year
warrants to purchase 914,000 common shares in connection with a private
placement of common shares that closed on December 9, 1998. The exercise price
of these warrants is $0.60 per share. Finally, in connection with a private
placement of our common shares that closed on May 4, 1999 we issued warrants to
purchase 1,755,377 common shares, with each two warrants exercisable for one of
our common shares, at an aggregate exercise price of $0.75 per share until May
4, 2000 and $0.90 per share until May 4, 2000. There is no trading market for
the warrants and we do not intend to request the listing of the warrants on any
exchange prior to or at the time of the continuation.
THE EXTRAORDINARY GENERAL MEETING
This information circular/prospectus is being furnished to our
shareholders in connection with the solicitation by our Board of Directors of
proxies for the Meeting. The Meeting will be held at 1356 Frances Street,
Vancouver, British Columbia, at 10:00 a.m. local time on August 27, 1999, and
at any adjournment or postponement thereof. The approximate date of mailing
this information circular/prospectus and the accompanying proxy card to our
shareholders is July 23, 1999.
MANAGEMENT SOLICITATION AND APPOINTMENT OF PROXIES
THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY ARE NOMINEES OF OUR
MANAGEMENT. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER) TO ATTEND AND ACT FOR AND ON THE SHAREHOLDER'S BEHALF AT THE
MEETING OTHER THAN THE PERSONS DESIGNATED AS PROXYHOLDERS IN THE ACCOMPANYING
FORM OF PROXY. TO EXERCISE THIS RIGHT, THE SHAREHOLDER MUST EITHER:
(a) ON THE ACCOMPANYING FORM OF PROXY, STRIKE OUT THE PRINTED NAMES
OF THE INDIVIDUALS SPECIFIED AS PROXYHOLDERS AND INSERT THE NAME
OF THE SHAREHOLDER'S NOMINEE IN THE BLANK SPACE PROVIDED; OR
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(b) COMPLETE ANOTHER PROPER FORM OF PROXY.
TO BE VALID, A PROXY MUST BE DATED AND SIGNED BY THE SHAREHOLDER OR BY
THE SHAREHOLDER'S ATTORNEY AUTHORIZED IN WRITING. IN THE CASE OF A CORPORATION,
THE PROXY MUST BE SIGNED BY A DULY AUTHORIZED OFFICER OF OR ATTORNEY FOR THE
CORPORATION.
THE COMPLETED PROXY, TOGETHER WITH THE POWER OF ATTORNEY OR OTHER
AUTHORITY, IF ANY, UNDER WHICH THE PROXY WAS SIGNED OR A NOTARIALLY CERTIFIED
COPY OF THE POWER OF ATTORNEY OR OTHER AUTHORITY, MUST BE DELIVERED TO PACIFIC
CORPORATE TRUST COMPANY, OF SUITE 830 - 625 HOWE STREET, VANCOUVER, BRITISH
COLUMBIA, V6C 3B8, AT LEAST 48 HOURS (EXCLUDING SATURDAYS, SUNDAYS AND HOLIDAYS)
BEFORE THE TIME THAT THE MEETING IS TO BE RECONVENED AFTER
ANY ADJOURNMENT OF THE MEETING.
REVOCATION OF PROXIES
A shareholder who has given a proxy may revoke it at any time before the
proxy is exercised:
(a) by an instrument in writing that is:
(i) signed by the shareholder, the shareholder's attorney
authorized in writing or, where the shareholder is a
corporation, a duly authorized officer or attorney of the
corporation; and
(ii) delivered to Pacific Corporate Trust Company of Suite 830 -
625 Howe Street, Vancouver, British Columbia V6C 3B8 or to the
registered office of Urban Canada at Suite 1100 - 1055 West
Hastings Street, Vancouver, British Columbia, V6E 2E9 at any
time up to and including the last business day preceding the
day of the Meeting or any adjournment of the Meeting, or
delivered to the Chairperson of the Meeting on the day of the
Meeting or any adjournment of the Meeting before any vote on a
matter in respect of which the proxy is to be used has been
taken; or
(b) in any other manner provided by law.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE AT THE MEETING
Holders of our common shares of record on or as of the close of
business on July 22, 1999, the Record Date, will be entitled to notice of
and to vote at the Meeting and any adjournment or postponement thereof. As of
the Record Date, there were outstanding _____________ of our common shares.
Shareholders should not forward any stock certificates with their proxy
cards. If the continuation is consummated, certificates representing our common
shares will be deemed to represent shares of Urban Wyoming common stock.
To the knowledge of our directors and senior officers, no person
beneficially owns, directly or indirectly, or exercises control or direction
over, shares carrying more than 10% of the voting rights attached to all
outstanding shares of Urban Canada.
VOTING OF SHARES AND PROXIES AND EXERCISE OF DISCRETION BY PROXYHOLDERS
VOTING BY SHOW OF HANDS
Voting at the Meeting generally will be by a show of hands, with each
shareholder present in person being entitled to one vote.
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VOTING BY POLL
On any poll, the persons named in the enclosed form of proxy will vote
the shares in respect of which they are appointed and, where directions are
given by the shareholder in respect of voting for or against any resolution,
will do so in accordance with such direction.
APPROVAL OF RESOLUTIONS
To approve a motion for an ordinary resolution, a simple majority of the
votes cast in person or by proxy will be required; to approve a motion for a
special resolution, a majority of not less than 75% of the votes cast in person
or by proxy will be required.
VOTING OF PROXIES AND EXERCISE OF DISCRETION BY PROXYHOLDERS
A shareholder may indicate the manner in which the persons named in the
accompanying form of proxy are to vote with respect to a matter to be acted upon
at the Meeting by marking the appropriate space. IF THE INSTRUCTIONS AS TO
VOTING INDICATED IN THE PROXY ARE CERTAIN, THE SHARES REPRESENTED BY THE PROXY
WILL BE VOTED OR WITHHELD FROM VOTING IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN
IN THE PROXY.
IF NO CHOICE IS SPECIFIED IN THE PROXY WITH RESPECT TO A MATTER TO BE
ACTED UPON, THE PROXY CONFERS DISCRETIONARY AUTHORITY WITH RESPECT TO THAT
MATTER UPON THE PROXYHOLDER NAMED IN THE ACCOMPANYING FORM OF PROXY. IT IS
INTENDED THAT THE PROXYHOLDER NAMED BY MANAGEMENT IN THE ACCOMPANYING FORM OF
PROXY WILL VOTE THE SHARES REPRESENTED BY THE PROXY IN FAVOR OF EACH MATTER
IDENTIFIED IN THE PROXY.
The accompanying form of proxy also confers discretionary authority upon
the named proxyholder with respect to amendments or variations to the matters
identified in the accompanying Notice of Meeting and with respect to any other
matters which may properly come before the Meeting. As of the date of this
information circular/prospectus, we are not aware of any such amendments or
variations, or any other matters, that will be presented for action at the
Meeting other than those referred to in the accompanying Notice of Meeting. If,
however, other matters that are not now known to management properly come before
the Meeting then the persons named in the accompanying form of proxy intend to
vote on them in accordance with their best judgment.
SOLICITATION OF PROXIES
It is expected that solicitations of proxies will be made primarily by
mail and possibly supplemented by telephone or other personal contact by our
directors, officers and employees without special compensation. We may reimburse
shareholders' nominees or agents (including brokers holding shares on behalf of
clients) for the costs incurred in obtaining authorization to execute forms of
proxy from their principals. We will bear any costs of solicitation of proxies.
TAX CONSEQUENCES OF THE CONTINUATION
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
This summary of the principal United States federal income tax
consequences of the continuation applies to U.S. persons (U.S citizens and
resident aliens, corporations and partnerships organized under the laws of the
United States or any state thereof, estates subject to the U.S. federal income
tax on their income regardless of source and trusts subject to the primary
supervision of a court within the United States and control by a U.S. fiduciary)
(hereinafter, "U.S. Holders") who own common shares of Urban Canada as capital
assets on the date of this information circular/prospectus. U.S. persons who own
interests in Urban Canada indirectly through one or more non-U.S. entities or in
carrying on business outside the United States through a permanent establishment
or fixed place of business or U.S. persons who hold an interest in Urban Canada
other than as a common shareholder should consult with their tax advisors.
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This summary also describes the U.S. federal income tax consequences of
the continuation to persons resident in Canada (hereinafter "Canadian Holders")
under the Canadian Income Tax Act ("the Act"). The discussion is limited to the
U.S. federal income tax consequences to Canadian Holders of their ownership and
disposition of the common shares of Urban Canada as a result of the continuation
and assumes the Canadian Holders have no other U.S. assets or activities.
This summary is based upon the facts set out in the information
circular/prospectus and upon certain additional information possessed by our
management and upon certain representations of our management. This discussion
is also based upon the United States Internal Revenue Code of 1986 ("the Code")
as amended, together with the Regulations thereunder, the Canada -United States
Income Tax Convention, 1980 and subsequent Protocols ("the Treaty") and judicial
and administrative interpretations as of the date of this information
circular/prospectus. This discussion does not consider the potential effects,
both adverse and beneficial, of any recently proposed legislation, which if
enacted, could be applied possibly on a retroactive basis at any time. There can
be no assurance that new legislation with retroactive effect will not be
introduced or that judicial or administrative interpretations may not change in
a way that will materially change the United States Federal income tax
consequences described in this summary. We have not requested an advance income
tax ruling from the Internal Revenue Service , nor have we sought a legal
opinion on any U.S. tax aspect of the continuation.
This summary is not intended to address all provisions of the Code that
may be relevant to a particular shareholder. No attempt has been made to address
the United States income tax consequences of the continuation to U.S. Holders
who have special status under the Code or the Act (for example, financial
institutions, insurance companies, tax exempt organizations, broker-dealers or
dual-residents of the U.S. and Canada), to U.S. citizens or U.S. resident aliens
resident in Canada or to non-U.S. persons who are not resident in Canada. This
summary does not address the U.S. federal income tax consequences to a person of
the ownership, exercise or disposition of any compensatory options. In addition,
this summary does not address the U.S. federal income tax consequences to a U.S.
Holder that owns or owned during a five-year lookback period, 10% or more of
Urban Canada's voting shares.
This summary does not comment on state and local income tax consequences
of the continuation because it is impractical to consider the state and local
tax rules of each jurisdiction in which a particular U.S. Holder may be
resident.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IT IS NOT INTENDED TO BE,
NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. U.S. HOLDERS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC UNITED STATES FEDERAL AND STATE INCOME TAX CONSEQUENCES
OF THE CONTINUATION TO THEIR OWN CIRCUMSTANCES.
U.S. HOLDERS
The continuation of Urban Canada to the United States into the
post-continuation company, Urban Wyoming, should be treated for U.S. federal
income tax purposes as a tax-free reorganization. Generally, no gain or loss
would be recognized to a U.S. Holder upon the continuation. A U.S. Holder's
adjusted basis in the shares of Urban Wyoming received in the exchange would be
equal to the U.S. Holders adjusted basis in the shares of Urban Canada
surrendered in the exchange.
A U.S. Holder who sells or exchanges shares of a foreign corporation,
such as the shares of Urban Canada, in transactions such as those undertaken in
the continuation that are otherwise tax-free for U.S. income tax purposes, may
be required to recognize gain , as provided in Regulations. However, Regulations
that uphold non-recognition treatment to U.S. Holders who own less than 10% of
the total voting power of the shares of the foreign corporation should be
applied to the continuation. Management has represented that no U.S. Holders of
Urban Canada own 10% or more of the total voting power of the shares of Urban
Canada. Non-recognition treatment is conditioned upon a U.S. Holder filing a
notice under Reg. 1.367(b)-1(c)(1) containing prescribed information on or
before the last day for filing a U.S. income tax return (taking timely
extensions into account) for the year of the exchange. This notice must be filed
with the district director with whom the U.S. Holder is required to file a U.S.
federal income tax return
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for the year of exchange.
U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE APPROPRIATE
FILING REQUIREMENT WITH RESPECT TO THE SALE OR EXCHANGE OF URBAN CANADA'S
SHARES.
CONTROLLED FOREIGN CORPORATION CONSIDERATIONS
If more than 50% of the voting power of all classes of shares or of the
total value of the shares of Urban Canada is owned, directly, indirectly, or
constructively, by citizens or residents of the United States, U.S. domestic
partnerships and corporations or estates or trusts other than foreign estates or
trusts, each of whom owns 10% or more of the total combined voting power of all
classes of shares of Urban Canada ("U.S. Shareholders"), Urban Canada will be
treated as a controlled foreign corporation under Subpart F of the Code. This
classification would have many complex results, including the required inclusion
by such U.S. Shareholders in income of their pro rata shares of the "Subpart F
income" (as specifically defined by the Code) of Urban Canada. Further, if Urban
Canada is deemed to be a controlled foreign corporation, U.S. Shareholders may
be subject to U.S. income tax on their pro rata shares of the increase in the
average amounts of U.S. property held by Urban Canada as of the close of each
quarter of the taxable year, provided there is non-previously taxed earnings and
profits to support the inclusion.
In addition, under Section 1248 of the Code, gain from the sale or
exchange of shares of Urban Canada by a holder who is or was a U.S. Shareholder
at any time during the five-year period ending with such sale or exchange would
be treated as dividend income and taxed at ordinary income rates to the extent
of earnings and profits of Urban Canada attributable to the stock sold or
exchanged.
If Urban Canada is both a passive foreign investment company (as defined
below) and a controlled foreign corporation, Urban Canada generally will not be
treated as a passive foreign investment company with respect to the U.S.
Shareholders.
We do not believe that Urban Canada is a controlled foreign corporation.
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
The Company would generally be classified as passive foreign investment
company ("PFIC") for any taxable year during which either 75 percent or more of
our gross income is passive income or the average quarterly value of our assets
which produce or are held for the production of passive income for such taxable
year equals or exceeds 50 percent of the average quarterly value of our total
assets for the year. Classification of Urban Canada as a PFIC at any time during
a particular U.S. Holder's holding period may result in a number of unfavorable
U.S. income tax consequences including recognition of gain on the disposition of
Urban Canada shares, including recognition of gain on the continuation of Urban
Canada to the United States, taxation of that gain at rates applicable to
ordinary income and an imposition of an interest charge on taxes apportioned to
prior years in the U.S. Holder's holding period for his Urban Canada shares.
We do not believe that Urban Canada satisfies either of the tests for
PFIC status in this year or that it has satisfied either test in any previous
year.
FOREIGN PERSONAL HOLDING COMPANY
Urban Canada may be classified as a foreign personal holding company ("a
FPHC") for U.S. federal income tax purposes if both of the following tests are
satisfied: (i) at any time during Urban Canada's taxable year, five or fewer
individuals who are U.S. citizens or residents own or are deemed to own (under
certain attribution rules) more than 50% of all classes of Urban Canada's shares
measured by voting power or value ("the FPHC Ownership Test") and (ii) Urban
Canada receives at least 60% (50% in subsequent years) of its gross income
(regardless of source), as specifically adjusted, from certain passive sources
("the FPHC Income Test").
If Urban Canada were to be classified as a FPHC, a portion of our
"undistributed foreign personal holding
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company income" (as defined for U.S. federal income tax purposes) would be
allocated to all of our U.S. shareholders who are U.S. Holders on the last day
on which Urban Canada is classified as a FPHC (or the last day of Urban Canada's
taxable year if earlier). Such income would be includable in a U.S. Holder's
gross income as a dividend for U.S. federal income tax purposes. U.S. Holders
who dispose of their common shares prior to such date (i.e., the last day of
Urban Canada's taxable year or the date on which Urban Canada is last classified
as a FPHC) would not be subject to tax under these rules.
We do not believe that Urban Canada satisfies either the FPHC Ownership
Test or the FPHC Income Test.
DISSENTING SHAREHOLDERS
U.S. Holders who exercise their right of dissent and who receive cash in
exchange for their common shares of Urban Canada would recognize gain or loss.
Gain or loss would ordinarily be treated as U.S. source capital gain or capital
loss and would be measured as the difference between the money and the fair
market value of other property received in exchange for the shares and the
adjusted basis of the shares surrendered.
URBAN CANADA WARRANTS
A U.S. Holder who holds warrants enabling such person to acquire common
shares of Urban Canada should not recognize gain or loss as a result of the
change in entitlement to acquire common shares of Urban Wyoming as a result of
the continuation. In addition, a U.S. Holder who purchases Urban Wyoming shares
pursuant to a warrant will not recognize any gain or loss on such a purchase and
will have an adjusted tax basis in Urban Wyoming shares equal to the aggregate
of the purchase price of the warrants and the purchase price of Urban Wyoming
shares acquired pursuant to the warrants.
UNITED STATES TAXATION OF INCOME, GAINS, AND LOSSES
Distributions made by Urban Wyoming to U.S. Holders of Urban Wyoming
shares would ordinarily be treated as dividends to the extent of Urban Wyoming's
current and accumulated earnings and profits. Dividend income is treated as
ordinary income. The maximum federal income tax rate on ordinary income of
individuals is currently 39.6 percent.
A corporate U.S. Holder who receives a dividend from Urban Wyoming will
be allowed a dividends received deduction from its taxable income in an amount
equal to 70% of the dividend received if the corporate U.S. Holder owns less
than 20% of the voting power and the value of the shares of Urban Wyoming. A
corporate U.S. Holder who has an ownership percentage of at least 20% but less
than 80% of the voting power and value of shares of Urban Wyoming will receive a
dividends received deduction in the amount of 80% of the dividends received. A
corporate U.S. Holder that owns 80% or more of the voting power and value of the
shares of Urban Wyoming will be allowed a dividends received deduction equal to
100% of the dividend received from Urban Wyoming.
Distributions in excess of Urban Wyoming's current and accumulated
earnings and profits would generally be tax-free to the extent of the U.S.
Holder's adjusted basis in their Urban Wyoming shares but would reduce the
adjusted basis by the same amount.
U.S. Holders who hold their Urban Wyoming shares as a capital asset and
who either dispose of their Urban Wyoming shares at a gain or who receive
distributions in excess of Urban Wyoming's earnings and profits and adjusted
basis would generally recognize a capital gain. Under current U.S. law, the net
long term capital gains (assets held in excess of 12 months) of individuals are
subject to a maximum federal income tax rate of 20 percent. Net short-term
capital gains are taxed at the marginal tax rates for ordinary income. (For
individuals the maximum marginal rate is 39.6% and for corporations the maximum
marginal rate is 35%.)
In order to determine the appropriate capital gains tax rate, U.S.
Holders, who are individuals, would need to determine the holding period of
their Urban Wyoming shares (i.e., the period of time that the U.S. Holder has
owned the Urban Wyoming shares). In determining the holding period of the Urban
Wyoming shares, the U.S.
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Holder would include the period during which the shares of Urban Canada were
held by the U.S. Holder.
For corporations, capital gains and ordinary income are taxed at the
maximum federal income tax rate of 35 percent.
Capital losses are generally deductible only to the extent of capital
gains. In the case of taxpayers other than corporations, $3,000 ($1,500 in the
case of a married person filing a separate return) of capital losses are
deductible against ordinary income annually. In the case of individuals and
other non-corporate taxpayers, capital losses that are not currently deductible
may be carried forward to other years, subject to certain limitations. In the
case of corporations, capital losses that are not currently deductible may
generally be carried back to each of the three years preceding the loss year and
forward to each of the five years succeeding the loss year, subject to certain
limitations.
CANADIAN HOLDERS
A Canadian Holder would not generally be subject to United States federal
income tax or reporting requirements on gain (if any) recognized as a result of
the continuation.
U.S. non-recognition treatment is mandatory rather than elective and
would result in the Canadian Holders receiving a U.S. federal income tax
adjusted cost basis in the Urban Wyoming shares acquired pursuant to the
exchange that is the same as the U.S. adjusted basis of their shares of Urban
Canada surrendered.
Canadian Holders will not be subject to U.S. income tax on account of
cash received on payments made pursuant to the dissent provisions of the
continuation.
SUBSEQUENT SALE OF URBAN WYOMING SHARES
A Canadian Holder would not generally be subject to United States federal
income tax on gain recognized on the sale or other disposition of Urban Wyoming
shares, unless the Urban Wyoming shares constitutes a United States real
property interest at the time of disposition and the Canadian Holder is a "5
percent shareholder". A Canadian Holder who beneficially owns or owned more than
five percent of the total fair market value of Urban Wyoming's regularly traded
shares, either at the time of disposition or at any time in the five-year period
ending on the disposition date would be a 5 percent shareholder. Gain recognized
by a 5 percent shareholder would ordinarily be subject to United States tax
unless the Canadian 5 percent shareholder establishes in a prescribed manner
that Urban Wyoming is not a United States real property interest, (i.e., that
the fair market value of Urban Wyoming's United States real property interests
is and was less than 50 percent of the fair market value of the sum of all of
its trade or business assets, its real properties located outside the United
States and its United States real property interests, both at the time of
disposition and at any time in the five year period ending on the disposition
date).
We believe that Urban Wyoming will not be a U.S. real property interest.
RECEIPT OF DIVIDENDS ON URBAN WYOMING SHARES
Distributions made by Urban Wyoming to Canadian Holders of Urban Wyoming
shares would ordinarily be treated as U.S. source dividends to the extent of
Urban Wyoming's current and accumulated earnings and profits. Canadian Holders
would generally be subject to 15 percent U.S. non-resident withholding tax (with
no allowance for deductions), except in the case of a Canadian corporation that
owns at least 10 percent of the Urban Wyoming voting shares, in which case the
U.S. non-resident withholding tax rate is reduced to 5 percent pursuant to the
Treaty.
Distributions in excess of Urban Wyoming's current and accumulated
earnings and profits would generally be tax-free to the extent of the Canadian
Holder's adjusted basis in their Urban Wyoming shares but would reduce the
adjusted basis by the same amount. Distributions in excess of Urban Wyoming's
earnings and profits and adjusted basis would generally give rise to a capital
gain, treated in the manner described in, "Subsequent Sale of Urban Wyoming
Shares", above.
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FEDERAL ESTATE TAX TREATMENT
Shares and warrants of Urban Wyoming held by an individual Canadian
Holder at the time of death are U.S. situs assets and are potentially subject to
United States federal estate tax. A non-resident of the United States is
eligible for an effective U.S.$60,000 exemption amount on U.S. situs assets.
Estates with U.S. situs assets in excess of U.S.$60,000 are subject to estate
tax rates ranging from 26% to 55%. A number of relieving provisions are
available under the Treaty, including a potentially enhanced effective exemption
amount, a limited marital credit and, depending upon the circumstances, a
Canadian foreign tax credit for all or a portion of any U.S. estate taxes paid.
As well, individual Canadian Holders whose world-wide gross estates (computed
under U.S. tax rules) are limited to U.S.$1.2 million or less are subject to
U.S. estate tax only on properties the disposition of which would be subject to
U.S. income tax under the provisions of the Treaty.
CANADIAN INCOME TAX CONSIDERATIONS
Thorsteinssons, our Canadian tax counsel, has advised that the following
general summary fairly describes the principal Canadian federal income tax
consequences of the proposed continuation of Urban Canada to Wyoming to our
shareholders who are resident in Canada, who own, either alone or together with
related persons, less than 10% of the shares of Urban Canada, and to whom shares
of Urban Canada constitute capital property for the purposes of the INCOME TAX
ACT (Canada) (the "Act"). Other shareholders of the Company should consult their
own tax advisors as the tax consequences to them of the proposed continuation
are beyond the scope of this summary.
This summary is based upon the current provisions of the Act, the
regulations therein (the "Regulations"), any proposed amendments to the Act or
Regulations (the "Proposed Amendments") previously announced by the Federal
Minister of Finance and counsel's understanding of the current administrative
and assessing policies of Revenue Canada, Customs, Excise and Taxation. This
description is not exhaustive of all possible Canadian federal income tax
consequences and does not take into account or anticipate any changes in law,
whether by legislative, governmental or judicial action other than the Proposed
Amendments, nor does it take into account provincial or foreign tax
considerations which may differ significantly from those discussed herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IT IS NOT INTENDED TO BE,
NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. ACCORDINGLY, SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR
ADVICE WITH RESPECT TO THE CANADIAN INCOME TAX CONSEQUENCES TO THEM OF THE
PROPOSED CONTINUATION.
NATURE OF SHARES OF URBAN CANADA HELD BY CANADIAN SHAREHOLDERS
The shares of Urban Canada will generally constitute "capital property"
to a Canadian shareholder, unless the shareholder is a trader or dealer in
securities or is engaged in an adventure in the nature of trade with respect to
the shares. Certain individual shareholders resident in Canada whose shares of
Urban Canada might not otherwise qualify as "capital property" may be entitled
to obtain such qualification by disposing of their shares before the time of the
continuation and making an irrevocable election under subsection 39(4) of the
Act. After the continuation, the shares of Urban Canada will no longer
constitute Canadian securities for purposes of the subsection 39(4) election.
ANY INDIVIDUALS CONTEMPLATING MAKING AN ELECTION UNDER SUBSECTION 39(4) OF THE
ACT SHOULD CONSULT THEIR TAX ADVISORS AS THE ELECTION WILL AFFECT THE CANADIAN
INCOME TAX TREATMENT OF THE DISPOSITION OF THE SHAREHOLDER'S OTHER CANADIAN
SECURITIES.
PRE-CONTINUATION TRANSACTION
Before the Continuation, WAZU Products Ltd. ("WAZU"), a subsidiary of
Urban Canada, will sell the assets used in its U.S. operations to Urban Juice
and Soda Company Ltd. for proceeds of disposition equal to the fair market value
of its assets. WAZU will realize a gain on the sale equal to the amount by which
the proceeds exceed the tax cost of its assets. WAZU may deduct any non-capital
losses available for carry-forward from the gain in
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computing its taxable income for the year in which the sale takes place.
As of the date of this information circular/prospectus, with respect to
the fair market value and the tax cost of the assets to be sold by WAZU, and the
non-capital losses available to be carried forward by WAZU, we do not believe
WAZU will incur tax liability as a result of the sale.
SHAREHOLDER CONSEQUENCES OF CONTINUATION
The continuation of Urban Canada into Wyoming will not constitute a
taxable event for our Canadian shareholders. Canadian shareholders will continue
to hold their shares at the same adjusted cost base as before the continuation.
Any dividends paid by us to our Canadian shareholders after Urban
Canada's continuation into Wyoming will no longer be eligible for the dividend
tax credit provided under the Act. Under the Canada-US Income Tax Convention
(the "Treaty") the US tax that may be withheld from dividends paid by us to our
Canadian shareholders after Urban Canada's continuation into Wyoming will be
limited to a maximum rate of 15%. Canadian shareholders may claim a foreign tax
credit or a deduction in computing their taxable income for US tax withheld on
dividends paid by Urban Canada.
FOREIGN REPORTING
A Canadian resident is required under the Act to report his or her
foreign property holdings if the aggregate cost amount of such holdings exceeds
$100,000. Following the continuation, the shares of Urban Canada will constitute
foreign property for the purposes of this rule and their "cost amount" will
count towards the calculation of the $100,000 threshold.
DISSENT PROCEEDINGS
If a shareholder initiates formal "dissent" proceedings in respect of the
proposed continuation, Urban Canada will be required to purchase the dissenting
shareholder's shares for a cash payment (the "Redemption Proceeds") equal to the
"fair value" of the shares. The Redemption Proceeds will generally be treated as
a dividend to the extent that such proceeds exceed the paid-up capital of the
purchased shares. The balance of the Redemption Proceeds (i.e., the amount equal
to the paid-up capital of the purchased shares) will be treated as proceeds of
disposition of the shares for the purpose of computing the shareholder's capital
gain or loss. Consequently, the dissenting shareholder will realize a capital
gain (or loss) to the extent that the paid-up capital of the shares exceeds (or
is exceeded by) the shareholder's adjusted cost base of the shares.
A dissenting shareholder that is a private corporation or a subject
corporation, as those expressions are defined in the Act, will be liable to pay
a 33 1/3% tax under Part IV of the Act on the Redemption Proceeds to the extent
that they are treated as a dividend. A private corporation is, generally, one
that is not public and is not controlled by one or more public companies and a
subject corporation is one that is not private and is controlled by or for the
benefit of one or more individuals.
If the dissenting shareholder is a public corporation resident in Canada,
the full amount of the Redemption Proceeds may be treated as proceeds of
disposition with the result that no dividend will be deemed to have been paid to
the shareholder and any gain or loss realized by the dissenting shareholder will
be determined by reference to the full amount of the Redemption Proceeds.
Any capital loss arising on the exercise of dissent rights by a corporate
shareholder of Urban Canada will be reduced by the amount of dividends received
or deemed to have been received, including any deemed dividend arising from the
exercise of dissent rights, on the purchased shares where the period of
ownership of such shares was less than 365 days or where the corporate holder
(together with persons with whom it did not deal at arm's length) held more than
5% of the issued shares of any class of Urban Canada at the time the dividends
were received or deemed to have been received.
20
<PAGE>
INTEREST EXPENSE
Interest incurred on money borrowed to purchase shares of Urban Canada
will continue to be deductible by the shareholder after its continuation to
Wyoming when paid or payable, depending on the method regularly followed by the
shareholder. Interest will remain deductible only as long as the shareholder
continues to own the shares of Urban Canada or uses the borrowed funds to earn
income from a business or property. Compound interest is deductible only when
paid.
COMPANY CONSEQUENCES
Once we have been granted a Certificate of Continuation (or similar
constitutional documents) from Wyoming, Urban Canada will be deemed to have been
incorporated in Wyoming at that time for purposes of the Act and will cease to
be a resident of Canada.
The "corporate emigration" rules under the Act will apply upon the
continuation of Urban Canada to Wyoming. Accordingly, we will be deemed to have
had a taxation year ended immediately before being granted a Certificate of
Continuation in Wyoming. Each property owned by us immediately before the deemed
year end will be deemed to have been disposed of for proceeds of disposition
equal to that property's fair market value. Any gains or losses derived from
this deemed disposition of property will be taken into account when determining
the amount of our taxable income for the fiscal period which ends immediately
before Urban Canada's continuation into Wyoming. The amount of any taxable
income so determined will be subject to tax in accordance with the provisions of
the Act.
As of the date of this information circular/prospectus, with respect to
the fair market value and tax cost of each property owned by us, we do not
believe that we will incur tax liability as a result of the deemed disposition
of each of our properties.
We will also be required to pay a special branch tax equal to 5% of the
amount by which the fair market value of our assets exceed the aggregate of our
liabilities, including any liabilities under the Act, and the paid-up capital of
issued and outstanding shares at the time of Urban Canada's continuation into
Wyoming.
As of the date of this information circular/prospectus, with respect to
the fair market value or our assets, liabilities and the paid-up capital of our
issued and outstanding shares, we do not believe that we will be liable to pay
the special branch tax.
After our continuation into Wyoming, Urban Canada will cease to be liable
for Canadian tax on our worldwide income. However, if we carry on business
through a permanent establishment located in Canada, as that expression is
defined in the Treaty, we will continue to be subject to Canadian tax on
business profits attributable to the permanent establishment.
TAX-EXEMPT SHAREHOLDERS
After the continuation takes effect, the shares of Urban Wyoming will
remain listed on the Vancouver Stock Exchange which is a prescribed stock
exchange for purposes of the Act. As such, the shares will be qualified
investments for a trust governed by a registered retirement savings plan, a
deferred profit sharing plan, a registered retirement income fund or a
registered pension plan, and certain other entities. However, such shares would
constitute "foreign property" to such trusts and entities for the purposes of
the Act.
Such trusts and entities must pay a monthly tax under the Act equal to 1%
of the amount, if any, by which the cost amount of all the trust's foreign
property as determined at the end of such month (other than foreign property
that constitutes a qualified investment and property that was not foreign
property when acquired but became foreign property within the preceding two
years) exceeds the aggregate of:
21
<PAGE>
(a) 20% of the cost amount of all the trust's property; and,
(b) in certain circumstances, an additional amount in respect of the
trust's "small business investment amount".
SHAREHOLDERS THAT ARE ONE OF THE TYPES OF ENTITIES DESCRIBED ABOVE SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE CONSEQUENCES OF ACQUIRING AND
HOLDING SHARES OF URBAN WYOMING.
INTEREST OF MANAGEMENT IN THE CONTINUATION
Other than as disclosed under "Summary," no director or senior officer of
Urban Canada at any time since the beginning of our most recently completed
financial year, no proposed nominee for election as a director of Urban Canada
and no associate or affiliate of any person has any material interest, direct or
indirect, by way of beneficial ownership of securities or otherwise, in the
continuation, except for any interest arising from the ownership of shares of
Urban Canada where the shareholder will receive no extra or special benefit or
advantage not shared on a pro-rata basis by all holders of shares in the capital
of Urban Canada.
RIGHTS OF DISSENTING SHAREHOLDERS
RIGHT OF DISSENT
The BCCA provides that shareholders are entitled to dissent in respect of
certain actions proposed to be taken by a corporation. If a corporation proposes
to:
(i) amend its articles to add, change or remove any provisions
restricting or constraining the issue, transfer or ownership
of shares;
(ii) amend its articles to add, change or remove any restrictions
on the business the corporation may carry on;
(iii) amalgamate with another corporation;
(iv) continue out of the jurisdiction of the BCCA;
(v) sell, lease or exchange all or substantially all of its
property;
(vi) to offer financial assistance for the purpose of purchasing
shares or convertible debt obligations of Urban Canada or on
the security of a pledge of or charge on shares of Urban
Canada given by that person to Urban Canada, or in any other
case, unless there are reasonable grounds for believing that,
or the directors are of the opinion that, the giving of
financial assistance is in the best interests of Urban Canada;
(vii) to convert from a specially limited company (as defined in s.
243 of the BCCA); and
(viii) to transfer or sell the whole or part of its business or
property to another company when it is being wound-up and for
the transfer or sale, the shareholders of Urban Canada being
wound-up receive shares, debentures or other title interests
from the other company,
a shareholder may exercise a right of dissent and is entitled to be paid the
fair value of the shareholder's shares as determined by agreement of the parties
or failing which, by order of the court.
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<PAGE>
DISSENT PROCEEDINGS
Our shareholders may, under certain circumstances and by following the
procedure prescribed by the BCCA, exercise appraisal rights and receive cash for
their common shares of Urban Canada. The shareholders exercising appraisal
rights under the BCCA must follow the appropriate procedures under the BCCA or
suffer the termination or waiver of such rights.
A shareholder electing to exercise appraisal rights must, at least two
days prior to the Extraordinary General Meeting, perfect his, her or its
appraisal rights by demanding in writing from Urban Canada the appraisal of his,
her or its common shares of Urban Canada, as provided in Section 37 of the BCCA.
A holder who elects to exercise appraisal rights should mail or deliver his, her
or its written demand to Urban Canada at 1356 Frances Street, Vancouver, British
Columbia, Canada V6L 1Y9, Attn: Corporate Secretary. The demand should specify
the holder's name and mailing address, the number of common shares of Urban
Canada owned and that such holder is demanding appraisal of his, her or its
shares. Only a holder of record of common shares of Urban Canada (or his, her or
its duly appointed representative) is entitled to assert appraisal rights for
the shares registered in that holder's name.
Section 207 of the BCCA ("Section 207") applies after a holder of Urban
Canada common shares has given the above-mentioned notice of dissent. If a
holder exercises appraisal rights in connection with the continuation under
Section 207, any common shares of Urban Canada in respect of which such rights
have been exercised and perfected will not be converted into common shares of
Urban Wyoming but instead will be converted into the right to receive such
consideration as may be determined by the Supreme Court of British Columbia (the
"Court") to be due with respect to such shares pursuant to the laws of the
province of British Columbia.
A holder of Urban Canada common shares who has made a valid written
demand and who has not voted in favor of approval and adoption of the Articles
of Continuance and approval of the continuation will be entitled to have their
common shares of Urban Canada appraised by the Court and to receive payment of
the "fair value" of such shares as of the date before the date the Continuation
Special Resolution was passed, including any appreciation or depreciation in
anticipation of the vote on the Continuation Special Resolution.
If any holder of common shares of Urban Canada who demands appraisal
under Section 207 effectively withdraws or loses his, her or its right to
appraisal, the shares of such holder will be converted into a right to receive
that number of shares of Urban Wyoming common stock as is determined in
accordance with the Articles of Continuance. A holder will effectively lose his
right to appraisal if he, she or it votes in favor of approval and adoption of
the Articles of Continuance and approval of the continuation.
RISK FACTORS
COMPETITION
The beverage industry is highly competitive. Urban Canada competes with
other beverage companies not only for consumer acceptance but also for shelf
space in retail outlets and for marketing focus by our distributors, all of
which also distribute other beverage brands. Our products compete generally with
all non-alcoholic beverages, most of which are marketed by companies with
greater financial resources than Urban Canada and some of which are placing
severe pressure on independent distributors not to carry competitive alternative
or New Age beverage brands such as JONES SODA CO. We also compete with regional
beverage producers and "private label" soft drink suppliers. In order to compete
effectively, we must first convince independent distributors that one of our
brands has created a new category within the alternative or New Age beverage
industry. If, due to such pressure or other competitive threats, we are unable
to sufficiently develop our distribution channels, we may be unable to achieve
our current revenue and financial targets.
As a means of maintaining and expanding our distribution network, we
intend to introduce product extensions and additional brands. There can be no
assurance that we will be able to do so or that other companies
23
<PAGE>
will not be more successful in this regard over the long term. Competition,
particularly from companies with greater financial and marketing resources than
Urban Canada, could have a material adverse affect on our business, financial
condition, and results of operations.
DEPENDENCE ON INDEPENDENT DISTRIBUTORS
We generally rely on independent distributors for the distribution of
our proprietary brands and products in each of our geographic areas of
distribution. As is customary in the beverage industry, we generally have no
contractual commitments from our independent distributors. In order to reduce
inventory costs, independent distributors generally endeavor to order products
from us on a "just in time" basis in quantities, and at such times, based on the
demand for the products in a particular distribution area. Accordingly, there is
no assurance as to the timing or quantity of purchases by any of our independent
distributors or that any such distributors will continue to purchase products
from us in the same frequencies and/or volumes as they may have done in the
past.
For the year ended December 31, 1998, approximately 18.0% of the cases
of proprietary product sold by Urban Canada were sold through three
distributors. The ability to maintain our distribution system and to attract
additional distributors in new distribution areas will depend on a number of
factors, many of which are outside our control. Such factors include, but are
not limited to, the level of demand or pull for our brands and products in a
particular distribution area, our ability to price our products at levels
competitive with those offered by competing products, and our ability to deliver
products in the quantity and at the time ordered by distributors. There is no
assurance that we will be able to achieve all or any of the foregoing in any of
our current or prospective geographic areas of distribution. Our inability to
achieve any of these factors in a geographic distribution area will have a
material adverse affect on our relationships with our distributors in that
particular geographic area.
Our marketing and sales strategy presently, and in the future, will
rely on the availability and performance of our independent distributors. In
addition, we do not currently have, nor do we anticipate in the future that we
will be able to establish, long-term contractual commitments from many of our
distributors. Accordingly, there is no assurance that we will be able to
maintain our current distribution relationships or establish and maintain
successful relationships with distributors in new geographic distribution areas.
Moreover, there is the additional possibility that we may have to incur
additional expenditures to attract and/or maintain key distributors in one or
more of our geographic distribution areas.
LACK OF PROFITABILITY
Through December 31, 1998, Urban Canada had an accumulated deficit of
$10,616,388, most of which had resulted from our operations during the period in
which we transformed Urban Canada from being a regional distributor of licensed
and unlicensed beverage brands and products to a proprietary brand holder. We
believe that, to operate at a profit, we must significantly increase the sales
volume for our proprietary brands and products, achieve and maintain
efficiencies in operations, maintain fixed costs at or near current levels and
avoid significant increases in variable costs relating to production, marketing
and distribution. Our ability to significantly increase sales from current sales
levels will depend primarily on success in introducing current proprietary
brands and products, and possibly new proprietary brands and products, into new
geographic distribution areas, particularly in the United States. Our ability to
successfully enter new distribution areas will, in turn, depend on various
factors, many of which are beyond our control including, but not limited to, the
continued demand or pull for our brands and products in target markets, the
ability to price our products at levels competitive with competing products, the
ability to establish and maintain relationships with distributors in each
geographic area of distribution and the ability in the future to create, develop
and successfully introduce one or more new brands, products, and product
extensions. There is no assurance that we will successfully achieve all or any
of the foregoing, or that we will achieve profitable operations.
SUBSTANTIAL DEPENDENCE UPON SINGLE PROPRIETARY BRAND
Our business is substantially dependent upon acceptance by independent
distributors of the JONES SODA CO. brand as a beverage brand which may provide
incremental sales growth rather than cannibalization of such
24
<PAGE>
distributors' existing beverage sales. It is still too early in the product life
cycle of the JONES SODA CO. brand to determine whether it will achieve such
acceptance by independent distributors or, ultimately, retail consumers. Because
it is a complementary brand, we believe that the success of the WAZU brand will
also be substantially dependent upon such acceptance of, and market penetration
by, the JONES SODA CO. brand. Accordingly, any failure by the JONES SODA CO.
brand to achieve such acceptance or market penetration would likely have a
material adverse affect on our business, financial condition and results of
operations.
INITIAL CONSUMER ACCEPTANCE
The current JONES SODA CO. market distribution and penetration may be
limited with respect to the population as a whole to determine whether the brand
has achieved initial consumer acceptance, and there can be no assurance that
such acceptance will ultimately be achieved. Moreover, even if the brand does
achieve initial consumer acceptance, there can be no assurance that such
consumer acceptance can be sustained. Historically, alternative or New Age
beverage brands and products have experienced limited lifecycles in the
marketplace. Based on industry information and our own experience, we believe
typical life cycles for alternative or New Age beverage brands and products
range from five to nine years from the time the product is introduced in a
geographic distribution area. We are currently in the process of introducing the
JONES SODA CO. and WAZU brands in new geographic distribution areas and thus, we
believe that these brands are at the early stages of their respective product
life cycles. However, in order for us to continue our business over the long
term, we believe that it will be necessary to create, develop and successfully
introduce into the market new brands, products or product extensions at
appropriate intervals to allow us to, at all times, have one or more beverage
brands and product lines in the marketplace. The process of creating, developing
and introducing new beverage brands into the marketplace is a multi-step
process, in general requiring six to twelve months or more. This process
involves an evaluation of the market, existing and potential distributors,
production facilities, and brand image and design. After completion of this
process, we must then determine that the new brand and product line have
sufficient market and profitability potential. We must also devise and effect a
marketing campaign or program for each brand and product line. Each new brand
and product line must successfully complete each of the foregoing stages before
it is brought to market. There is no assurance that we will be able to
accurately determine when to introduce any new brands, products or product
extensions into the marketplace or that, if introduced, any of these brands,
products or product extensions will be successful. Also, there is no assurance
that we will in the future be able to conceive, create, develop and successfully
introduce new beverage brands, products and product extensions into the market.
In light of the limited product life cycle for alternative or New Age beverage
brands and products, a failure to introduce new brands, products or product
extensions into the marketplace as current ones mature would likely have a
material adverse affect on our business, financial condition and results of
operations.
DEPENDENCE UPON KEY PERSONNEL
We are dependent upon the creative skills and leadership of our
founder, Peter M. van Stolk, who serves Urban Canada as President and Chief
Executive Officer, as well as the management and operational skills of other
members of our senior management team. We have entered into an employment
agreement with Mr. van Stolk which expires, by its terms, in 2001. The loss of
Mr. van Stolk could have a material adverse affect on our business, financial
condition and results of operations.
Our management team consists of several key production, distribution,
sales and financial personnel who have been recruited within the past two years.
In order to manage and operate Urban Canada successfully in the future, it may
be necessary to further strengthen our management team; specifically, we
anticipate we will need to recruit a senior executive to be the Chief Operating
Officer of Urban Canada. The competition for such key personnel is intense, and
there can be no assurance that we will be successful in attracting, retaining or
motivating such individuals. The failure to attract, retain or motivate such key
personnel would likely have a material adverse affect on our business, financial
condition and results of operations.
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<PAGE>
LIMITED OPERATING HISTORY AS A PROPRIETARY BRAND HOLDER
We have limited operating experience as a proprietary brand holder
having launched our first proprietary brand, WAZU, in March 1995, and our second
proprietary brand, JONES SODA CO., in November 1995. In view of this limited
operating experience as a proprietary brand holder, we are vulnerable to a
variety of business risks generally associated with young companies or mature
companies entering a new line of business. There can be no assurance that we
will be able to operate successfully as an international manufacturer, marketer
and distributor of our proprietary beverage brands, and any failure to do so
would likely have a material adverse affect on our business, financial condition
and results of operations.
RISKS RELATED TO EXPANSION OF PRODUCT DISTRIBUTION
The ability to establish a market for our proprietary brands and
products in new geographic distribution areas, as well as the ability to
maintain our existing markets, will depend upon, among other things, our ability
to establish and maintain successful relationships with independent distributors
in our distribution areas, and to establish and maintain relationships with
reliable contract packers strategically located near such areas. Also, success
in any geographic market will depend on both specific consumer demands for our
brands and products relative to competing beverage brands and products and the
consumer demand for alternative or New Age beverages in general. The alternative
or New Age beverage category is relatively young and does not have a significant
history. There is no reliable basis on which we can predict the future of this
category of the beverage industry. Accordingly, there is no assurance that the
alternative or New Age beverage market will continue to expand at historical
rates, or at all. Failure of this category of the beverage industry to increase
or maintain its current levels will likely have a material adverse affect on our
ability to increase sales volumes and/or achieve profitable operations.
PRODUCT LIABILITY
As a food-related product line, our beverage brands require a high
degree of quality control to ensure uniformly stable, pleasant tasting, and
non-toxic contents. Should a situation arise whereby conditions could adversely
affect those contents, the brand's reputation and value could be materially
jeopardized. In addition, as a food-related business, we could be exposed to
product liability claims for personal injury or possibly death. Although we have
product liability insurance in the aggregate amount of $5 million, with an each
occurrence limit of $5 million, there can be no assurance that such coverage
will be sufficient to cover any or all such claims. To the extent such product
liability coverage is insufficient, a product liability claim would likely have
a material adverse affect upon our business, financial condition and results of
operations.
DEPENDENCE ON THIRD-PARTY OR CONTRACT PACKERS
We have no internal manufacturing or packing capabilities for our
beverage products and do not anticipate having such capabilities in the future.
As a consequence, we depend on third-party or contract packers to produce our
beverage products and to deliver them to distributors. Our ability to attract
and maintain effective relationships with contract packers for the production
and delivery of our beverage products in a particular geographic distribution
area is important to the achievement of successful operations within such
distribution area. Currently, the competition among contract packers for
business is such that we generally have the choice of two or more acceptable
contract packers in each of our geographic distribution areas. Under these
circumstances, we are currently able to establish and maintain competitive
arrangements with contract packers. However, there is no assurance that these
conditions will continue to exist in either our current geographic distribution
areas or in new areas we may enter. Accordingly, there is no assurance that we
will be able to maintain our economic relationships with current contract
packers or establish satisfactory relationships with contract packers in new
geographic distribution areas we may enter. The failure to establish and/or
maintain effective relationships with contract packers for a distribution area
would likely prevent us from successfully selling our products in that area or
materially reduce profits realized, if any, from the sale of our products in
that area.
26
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As is customary in the contract packing industry for comparably sized
companies, we are expected to arrange for our contract packing needs
sufficiently in advance of anticipated requirements. To the extent demand for
our proprietary products exceeds available inventory and the capacities produced
by contract packing arrangements, we will be unable to fulfill distributor
orders in full or in part, on a timely basis, or at all. Conversely, we may
produce more proprietary product than warranted by the actual demand for it,
resulting in higher storage costs, the potential unavailability of adequate
storage facilities to meet inventory levels, and the potential risk of inventory
spoilage. Over approximately the next six months, especially, it may be very
difficult for us to accurately predict contract packing requirements. Failure to
do so may impair relationships with our independent distributors and key
accounts, which, in turn, would likely have a material adverse affect on our
business, financial condition and results of operations.
TRADEMARKS, DESIGN MARKS AND FLAVOR CONCENTRATE TRADE SECRETS
We consider our trademarks, design marks and flavor concentrates to be
of considerable value and importance to our business. We are pursuing the
registration of our trademarks in the United States, Canada and (based upon
anticipated use) internationally. There can be no assurance that the steps taken
by us to protect our proprietary rights will be adequate or that third parties
will not infringe or misappropriate our trademarks, design marks, flavor
concentrates, trade dress and/or similar proprietary rights. In addition, there
can be no assurance that other parties will not assert infringement claims
against us. Any event that would jeopardize our proprietary rights or any claims
of infringement by third parties could have a material adverse affect on our
business, financial condition and results of operations.
SEASONALITY; INCLEMENT WEATHER
Our business has historically been seasonal in nature, with revenues
and operating income concentrated in the second and third fiscal quarters (April
through September). Such seasonality, or unusually inclement weather, could
adversely affect our ability to conduct business in a stable manner, which, in
turn, could have a material adverse affect on our business, financial condition
and results of operations.
CURRENCY EXCHANGE RATE
Because of our likely future dependence on the United States and other
foreign marketplaces, a markedly fluctuating exchange rate between the United
States dollar and other foreign currencies and the Canadian dollar could
adversely effect our operations.
REGULATORY MATTERS
The production and marketing of our proprietary beverages, including
without limitation, contents, labels, caps and containers, are subject to the
rules and regulations of various federal, provincial, state and local health
agencies. Should any current or future products or production runs be found to
be in noncompliance with any such regulatory authorities, there could be a
material adverse affect on our business, financial condition and results of
operations.
OUR INFORMATION TECHNOLOGY AND COMPUTER CONTROLLED SYSTEMS MAY NOT BE YEAR 2000
COMPLIANT
We may not accurately identify all potential Year 2000 problems within
our business, and the corrective measures that we implement may be ineffective
or incomplete. Any such problems could interrupt our ability to manufacture our
products, process orders, accurately report operating and financial data or
service our customers. Similar problems and consequences could result if any of
our key suppliers or customers experience Year 2000 problems. Our failure or the
failure of our significant suppliers and customers to adequately address the
"Year 2000" issue could adversely affect our business, operating results and
financial condition. For more information about our Year 2000 compliance
efforts, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of the Year 2000 Computer Problem."
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SELECTED FINANCIAL DATA
The selected financial data as of December 31, 1994, 1995, 1996, 1997,
1998, and as of March 31, 1999, for the nine months ended December 31, 1994 and
the years ended December 31, 1995, 1996, 1997 and 1998, are derived from the
audited consolidated financial statements of Urban Canada (the "Consolidated
Financial Statements"), and should be read in conjunction with the Consolidated
Financial Statements and the notes thereto, and Management's Discussion and
Analysis of Financial Condition and Results of Operations. The unaudited
selected financial data as of March 31, 1999 and comparative figures as of March
31, 1998 and for the three months ended March 31, 1999 and March 31, 1998,
respectively, have been prepared by management of Urban Canada. The Consolidated
Financial Statements are expressed in Canadian dollars and were prepared in
accordance with Canadian generally accepted accounting principles (the "Canadian
GAAP"), which do not materially differ from United States generally accepted
accounting principles (the "U.S. GAAP") except as explained in "Consolidated
Financial Statements - Note 14."
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS NINE MONTHS YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DATA ENDED 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales.................... $ 5,278,230 $ 4,412,338 $ 3,458,701 $ 3,265,317 $ 7,011,046
Cost of sales............ 4,422,241 3,750,758 3,006,924 2,689,897 5,123,016
------------ ----------- ----------- ----------- -----------
Gross margin............. 855,989 661,580 451,777 575,420 1,888,030
Operating expenses....... 1,031,338 2,218,028 2,874,977 4,263,456 4,051,235
------------ ----------- ----------- ----------- -----------
Total operating loss. $ 175,349 $ 1,556,448 $ 2,423,200 $ 3,688,036 $ 2,163,205
------------ ----------- ----------- ----------- -----------
OTHER INCOME/EXPENSES:...
Interest expense on
debentures............... $ 27,649 $ 21,703 $ -- $ -- $ --
Other interest expense... 10,436 31,578 26,527 10,002 16,347
Interest income.......... 3,314 401 29,055 57,146 27,725
Sundry income............ 4,264 113,875 1,341 5,167 3,028
Write-down of intangible
assets................... 102,871
Write-down of inventory
subject to legal claim... 353,797
Foreign exchange gain 6,361 72,224
Gain (loss) on disposal of
capital assets........... -- 18,823 (6,921) 12,584 17,813
------------ ----------- ----------- ----------- -----------
Net loss(2).......... $ 205,856 $ 1,476,630 $ 2,426,252 $ 3,970,577 $ 2,341,707
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
Net loss per common
share(3)................. $ 0.04 $ 0.23 $ 0.28 $ 0.33 $ 0.17
Weighted average number of
common shares
outstanding(4)(5)...... 5,544,200 6,345,285 8,779,905 11,868,160 14,037,202
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS THREE MONTHS THREE MONTHS
DATA ENDED 3/31/99 ENDED 3/31/98
------------- -------------
<S> <C> <C>
Sales.................... $ 2,849,720 $ 1,361,179
Cost of sales............ 2,042,295 913,057
------------ -----------
Gross margin............. 807,425 448,122
Operating expenses....... 1,240,993 824,690
------------ -----------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS THREE MONTHS THREE MONTHS
DATA ENDED 3/31/99 ENDED 3/31/98
------------- -------------
<S> <C> <C>
Total operating loss. $ 433,568 $ 376,568
------------ -----------
OTHER INCOME/EXPENSES:...
Interest on debentures... $ -- $ --
Other interest expense... $ 8,880 $ 1,435
Interest income.......... 2,824 13,535
Miscellaneous income..... 71 3,491
Write-down of intangible
assets................... -- --
Write-down of inventory
subject to legal claim... -- --
Foreign exchange gain.... 1,849 29,370
Loss on disposal of
capital assets........... -- 5,752
------------ -----------
Net loss(2).......... $ 437,704 $ 337,359
------------ -----------
------------ -----------
Net loss per Common
Share(3)................. $ 0.03 $ 0.02
Weighted average number of
common shares
outstanding(4)(5)...... 15,150,164 13,736,095
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA AS OF 12/31/94 AS OF 12/31/95 AS OF 12/31/96 AS OF 12/31/97 AS OF 12/31/98
<S> <C> <C> <C> <C> <C>
Current assets........... $ 1,356,012 $ 1,740,613 $ 4,046,920 $3,677,130 $ 2,766,317
Capital assets........... 378,790 321,149 229,552 667,764 834,975
Intangible assets........ 150,943 192,155 450,048 634,451 454,099
------------ ----------- ----------- ---------- -----------
Total assets......... $ 1,885,745 $ 2,253,917 $ 4,726,520 $4,979,345 $ 4,055,391
------------ ----------- ----------- ---------- -----------
------------ ----------- ----------- ---------- -----------
Current liabilities...... 431,636 869,394 681,237 1,204,941 1,696,929
Capital leases and long
term debt................ 126,233 121,803 54,641 -- 31,915
Debentures............... 520,000 248,302 -- -- --
Shares capital........... 1,209,098 2,892,270 8,294,746 12,049,085 12,942,935
Accumulated deficit...... (401,222) (1,877,852) (4,304,104) (8,274,681) (10,616,388)
------------ ----------- ----------- ---------- -----------
Shareholders' equity..... 807,876 1,014,418 3,990,642 3,774,404 2,326,547
common shares
outstanding(4)(5)........ 5,824,379 7,354,701 10,742,612 13,651,164 15,150,164
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA AS OF 3/31/99 AS OF 3/31/98
<S> <C> <C>
Current assets........... $ 3,552,796 $ 3,706,409
Capital assets........... 804,027 842,872
Intangible assets........ 434,125 666,887
------------ -----------
Total assets......... $ 4,790,948 $ 5,216,168
------------ -----------
------------ -----------
Current liabilities...... 2,873,667 1,719,123
Capital leases and long
term debt................ 28,438 --
Debentures............... -- --
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
Shares capital........... 12,942,935 12,109,085
Accumulated deficit...... (11,054,092) (8,612,040)
------------ -----------
Shareholders' equity..... 1,888,843 3,497,045
common shares
outstanding(4)(5)........ 15,150,164 13,751,164
</TABLE>
- ----------------------------
(1) The Company changed its fiscal year end to December 31, effective 1994.
As a result, amounts reported for fiscal 1994 are for nine months ended
December 31, 1994. Previously, Urban Canada had a fiscal year ending on
March 31.
(2) The amounts of the net losses are computed in accordance with Canadian
GAAP. The net loss in accordance with U.S. GAAP differs from the amount
in the Consolidated Financial Statements due to the expensing of
product development costs as incurred. Under U.S. GAAP, the net loss
for the years ended December 31, 1995, 1996, 1997 and 1998 were
$1,571,234, $2,699,731, $4,010,488 and $2,257,707, respectively.
(3) The amounts of net losses per share are computed in accordance with
Canadian GAAP. The net loss per share for U.S. GAAP is calculated
including the 1,500,000 common shares held in escrow. Under U.S. GAAP,
such Common Shares would not be included in the loss per share
calculation. Under U.S. GAAP, the net loss per share for the years
ended December 31, 1995, 1996, 1997 and 1998 were $0.30, $0.37, $0.39
and $0.18, respectively.
(4) Does not include 2,349,500 common shares reserved for issuance upon
exercise of outstanding stock options at exercise prices ranging from
$0.75 to $1.75 per share as at December 31, 1998 and 914,000 common
shares reserved for issuance upon exercise of outstanding Warrants at
an exercise price of $0.60.
(5) 1,500,000 escrow shares are eligible for release such that one escrow
share will be released pro rata for each $0.125 of cumulative cash flow
from operations of Urban Canada. Release of these shares from escrow is
subject to approval by the securities regulatory authorities.
URBAN CANADA MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We currently manufacture and market two proprietary New Age Beverages.
In 1994, we created, and in 1995 launched, two proprietary beverage brands,
JONES SODA CO., a "premium" soda, and WAZU, a natural spring water. Prior to the
launch of these two proprietary brands, we were solely a regional distributor of
licensed and unlicensed alternative or New Age beverage brands and products in
various territories located in Western Canada.
In connection with transforming our business focus from being solely a
regional distributor of licensed and unlicensed brands and products to being
solely a manufacturer, marketer and distributor of its proprietary brands and
products, we believe our short-term sales growth will be substantially dependent
on our ability to build the JONES SODA CO. brand franchise and expand our
distributor network. We believe that our long-term sales growth will be largely
dependent on the ability to continue to build the quality of our distributor
network for our proprietary brands, and to successfully launch new proprietary
beverage brands and products through such network when the lifecycle of our
existing proprietary brands and products warrant doing so.
One of the main reasons for our change in strategic direction was the
potential to earn higher gross margins from the sale of proprietary beverage
brands. We anticipate that gross margins will improve as we increase the volume
of sales of our proprietary brands. This increase, we believe, will come from
falling marginal costs as we increases our sales volume.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
SALES
Total sales increased by $1,488,541, or 109%, from $1,361,179 for the
three months ended March 31, 1998 to $2,849,720 for the three months ended March
31, 1999. Sales of Jones Soda increased year over year due to increased case
sales by existing distributors as well as new distributors that were added in
late 1998 and early 1999. As of March 31, 1999, Jones Soda was sold in Western
Canada, Ontario, Nova Scotia, Newfoundland, California, the Pacific Northwest,
New York, New Jersey, Nevada, Arizona, Alaska, Yukon, select regions of New
England, Philidelphia, Ohio, Illinois, Indiana, Michigan, South Dakota,
Nebraska, Georgia, North Carolina, Florida and Hawaii.
30
<PAGE>
COST OF SALES
Cost of sales, which consists of product and delivery and storage
expenses, increased by $1,129,238, or 124%, from $913,057 for the three months
ended March 31, 1998 to $2,042,295 for the three months ended March 31, 1999.
The increase in cost of sales was attributable to the increase in sales year
over year as well as an increase in the cost of sales as a percent. Cost of
goods sold for the period ending March 31, 1998 did not include the "four pack"
packages of Jones Soda which increase the overall cost of goods sold and which
were included in cost of goods for March 31, 1999.
GROSS PROFIT
Gross profit increased by $359,303, or 80.2%, from $448,122 for the
three months ended March 31, 1998 to $807,425 for the three months ended March
31, 1999. The increase in gross profit reflects the increase in the sales
compared to the same period last year. Gross margin decreased from 32.9% for the
three months ended March 31, 1998 to 28.3% for the three months ended March 31,
1999. The decrease in gross margin reflects the higher cost of goods due to the
four packs included in sales.
EXPENSES
Total expenses increased by $416,303 or 50.5% from $824,690 for the
three months ended March 31, 1998 to $1,240,993 for the three months ended March
31, 1999. The increase in total expenses for the three month period ended March
31, 1999 compared to the same period last year is due primarily to an increase
in advertising and promotion expense related to promotions to open new
distribution and chain stores as well as an increase in professional fees
related to the costs incurred for valuation and legal costs associated with the
Tastemaker lawsuit being pursued.
Office and administration expenses increased by $52,953, or 44.4% from
$119,171 in 1998 to $172,124 in 1999. The increase is attributable to an
increase in office supplies and postage due to an increased number of consumer
mail-outs and promotion mail-outs to consumers visiting our website.
Promotion and selling expenses increased by $249,716 or 52.1% from
$479,607 for the three months ended March 31, 1998 to $729,323 for the three
months ended March 31, 1999. Promotion and selling increased year over year due
to the higher number of distributors that we are working with and providing
programs for.
Wages and commissions increased $26,854 or 25.1% from $106,810 for the
three months ended March 31, 1998 to $133,664 for the three months ended March
31, 1999 due to increased costs to serve a much larger sales force and
distributor base.
Professional fees increased $29,934 or 203% from $14,755 for the three
months ended March 31, 1998 to $44,689 for the three months ended March 31, 1999
due to increased legal and accounting fees associated with the lawsuit against
Tastemaker.
OTHER INCOME (EXPENSES)
Other expense was $4,136 for the three months ended March 31, 1999
compared to income of $39,209 for the three months ended March 31, 1998. Other
expense for the three months ended March 31, 1999 consisted mainly of interest
expense incurred on outstanding indebtedness on the Urban Canada operating line
of credit.
NET LOSS
Urban Canada's net loss increased by $100,345 or 30% from $337,359 for
the three months ended March 31, 1998 to $437,704 for the three months ended
March 31, 1999. As a percentage of total sales, the net loss decreased from
24.8% for the period ended March 31, 1998 to 15.4% for the period ended March
31, 1999. The improvement is due to a higher level of sales.
31
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our current ratio as at March 31, 1999 was 1.24 compared to 2.16 as at
March 31, 1998. Working capital as at March 31, 1999 was $679,129 compared to
$1,987,286 for the same time last year. Inventory was $1,221,998 as at March 31,
1999 compared to $1,782,444 for the same time last year, and for 1999 included
raw materials of appproximately $608,164, WAZU finished goods of $9,124 and
Jones Soda finished goods of approximately $554,198. Wearables and point of sale
materials of $50,512 made up the remaining inventory balance. The level of
inventory is lower in 1999 than in 1998 due to better management of the Jones
Soda inventory.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
In November 1998, we upgraded new billing, accounting and
administrative systems which are now fully operational and which have been
represented to be fully Year 2000 compliant. Failures of our internal systems
could temporarily prevent us from processing orders, issuing invoices,
manufacturing and developing products and could require us to devote significant
resources to correcting such problems. We have tested all of our desktop
computers for Year 2000 compliance with Year 2000 compliance testing software.
All of our desktop units are Year 2000 compliant. We have received written
assurances from the manufacturers of the computers used in our manufacturing
facility that all of the computers are Year 2000 compliant. We are addressing
our embedded systems on a prioritized piece-by-piece basis. We are currently
receiving questionnaires from our customers and suppliers regarding their Year
2000 compliance status. If our customers are not Year 2000 compliant, they may
experience material costs to remedy problems, may face litigation costs and may
delay purchases of our products. As a result, our business, financial condition
and results of operations could be seriously harmed. If our suppliers,
particularly our contract packers, are not Year 2000 compliant, they may
experience material costs to remedy problems, may face litigation costs and may
delay production of our products. As a result, our business, financial condition
and results of operations could be seriously harmed. We have funded our Year
2000 plan from cash balances. As of June 11, 1999, we have spent $60,000 to
address the Year 2000 problem, primarily on new computer software. We will incur
additional costs related to the Year 2000 plan for administrative personnel to
manage the project, outside contractor assistance and software. In addition, we
may experience material problems and costs with Year 2000 compliance that could
seriously harm our business, financial condition and results of operations. We
have begun to develop a contingency plan to address situations that may result
if we are unable to achieve Year 2000 readiness of our critical operations. The
cost of developing and implementing such a plan may itself be significant.
Finally, we are also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company interruptions
caused by Year 2000 compliance failures.
RESULTS OF OPERATIONS
By March 1995, Urban Canada made a strategic decision to focus time and
resources on our proprietary brands. This shift in business focus, combined with
changes in consumer trends, resulted in a decline in the sales of other
companies' beverage brands. By year-end 1998, we distributed only our own
internally-developed brands and did not distribute the licensed or unlicensed
brands of any third parties. The percentage of our total sales derived from the
distribution of licensed and unlicensed brands was .3% in 1997, 28% in 1996 and
86% in 1995. As we complete the shift from being a distributor of licensed and
unlicensed brands to a manufacturer, marketer and distributor of our proprietary
brands, our gross margins will continue to increase. Our gross margins increased
from 13.1% in 1996 to 17.6% in 1997 and 26.9% in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
SALES
Total sales increased by $3,745,729 or 115%, from $3,265,317 for the
year ended December 31, 1997 to $7,011,046 for the twelve months ended December
31, 1998. Sales of Jones Soda increased year over year due to increased case
sales by existing distributors as well as new distributors that have been added
in 1998. As of December 31, 1998, Jones Soda was sold in Western Canada,
Ontario, Nova Scotia, Newfoundland, California, the
32
<PAGE>
Pacific Northwest, New York, New Jersey, Nevada, Arizona, Alaska, Yukon, select
regions of New England, Philidelphia, Ohio, Illinois, Indiana, Michigan, South
Dakota, Nebraska, Georgia, North Carolina and Florida.
COST OF SALES
Cost of sales, which consists of product and delivery and storage
expenses, increased by $2,433,119, or 90%, from $2,689,897 for the twelve months
ended December 31, 1997 to $5,123,016 for the twelve months ended December 31,
1998. The increase in cost of sales was attributable to the increase in sales
for Urban Canada year over year.
GROSS PROFIT
Gross profit increased by $1,312,610, or 228%, from $575,420 for the
twelve months ended December 31, 1997 to $1,888,030 for the twelve months ended
December 31, 1998. The increase in gross profit reflects the increase in the
sales compared to the same period last year. Gross margin increased from 17.6%
for the twelve months ended December 31, 1997 to 26.9% for the twelve months
ended December 31, 1998. The increase in gross margin reflects the lower cost of
goods due to the volume increases and efficiencies incurred with the production
of the Jones Soda brand.
EXPENSES
Total expenses decreased by $212,221 or 5% from $4,263,456 for the
twelve months ended December 31, 1997 to $4,051,235 for the twelve months ended
December 31, 1998. The decrease in total expenses for the twelve month period
ended December 31, 1998 compared to the same period last year is due primarily
to a reduction in office, administration and bad debt expenses, partially offset
by a slight increase in promotion, selling and wage expenses.
Office and administration expenses decreased by $184,863, or 23.3% from
$794,204 in 1997 to $609,341 in 1998. The decrease is attributable to a strict
review of costs and consequent reduction in insurance costs, office supplies,
rent, and public company expenses.
Bad debt expense improved in 1998 by $379,905 from 1997. Bad debt
expense as a percent of sales was 1.2% in 1998, compared to 14.2% in 1997. The
improvement in bad debt experience is due to an increasingly stronger
distributor network, combined with strict controls put into place to manage the
credit risk.
Promotion and selling expenses increased by $110,421 or 5.2% from
$2,111,116 for the twelve months ended December 31, 1997 to $2,221,537 for the
twelve months ended December 31, 1998. Promotion and selling was relatively
consistent year over year, however the allocation in 1998 was directed more
heavily on building our sales team and initiating various marketing programs
with our distributor network.
Wages and commissions increased $82,671 or 22.5% from $366,137 for the
twelve months ended December 31, 1997 to $448,808 for the twelve months ended
December 31, due to increased costs to serve a much larger sales force and
distributor base.
OTHER INCOME (EXPENSES)
Other expense was $178,502 for the twelve months ended December 31,
1998 compared to $282,541 for the twelve months ended December 31, 1997. Other
expense for the twelve months ended December 31, 1998 consisted mainly of a
write-down of intangibles of $102,871 that related to marketing research and
development.
33
<PAGE>
NET LOSS
Our net loss decreased by $1,628,870 or 41% from $3,970,577 for the
twelve months ended December 31, 1997 to $2,341,707 for the twelve months ended
December 31, 1998. As a percentage of total sales, the net loss decreased from
121.5% for the year ended December 31, 1997 to 33.4% for the year ended December
31, 1998. The improvement is due to a higher gross margin based on a higher
level of sales and a relatively consistent level of expenses.
LIQUIDITY AND CAPITAL RESOURCES
The current ratio of our balance sheet as at December 31, 1998 was 1.63
compared to 3.05 as at December 31, 1997. Working capital as at December 31,
1998 was $1,069,388 compared to $2,472,189 for the same time last year.
Inventory was $823,514 as at December 31, 1998 compared to $1,090,699 for the
same time last year, and for 1998 included raw materials of appproximately
$383,280, WAZU finished goods of $8,813 and Jones Soda finished goods of
approximately $375,518. Wearables and point of sale materials of $55,903 made up
the remaining inventory balance. The level of inventory is lower in 1998 than in
1997 even with higher sales levels due to better management of the Jones Soda
inventory.
QUARTERLY OPERATING RESULTS; SEASONALITY
The following table sets forth the case sales of our proprietary brands
and licensed and unlicensed brands for the most recent thirteen quarters. The
quarterly case sales reflect, in our opinion, all adjustments (which include
only normal recurring adjustments) necessary to present the results of
operations for such periods. Results of any one or more quarters are not
necessarily indicative of annual results or continuing trends.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA (IN CASES SOLD):
JONES SODA CO. and WAZU brands.. 20,061 64,519(1) 73,786 31,653
Licensed brands................. 13,006 20,730 5,055 2,247
Unlicensed brands............... 4,509 3,035 1,618 15
------ ------ ------ ------
Total..................... 37,576 88,284 80,459 33,915
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA (IN CASES SOLD):
JONES SODA CO. and WAZU brands.. 17,783(2) 102,635 61,364 27,668
Licensed brands................. 30 20 9 9
Unlicensed brands............... -- -- -- --
------ ------- ------ ------
Total..................... 17,813 102,655 61,373 27,677
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA (IN CASES SOLD):
JONES SODA CO. and WAZU brands.. 86,218 125,358 128,762 97,129
Licensed brands................. -- -- -- --
Unlicensed brands............... -- -- -- --
------ ------- ------- ------
Total..................... 86,218 125,358 128,762 97,129
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
-------------
MARCH 31,
1999
(UNAUDITED)
-------------
<S> <C>
OPERATING DATA (IN CASES SOLD):
JONES SODA CO. and WAZU brands.. 170,143
Licensed brands................. --
Unlicensed brands............... --
-------
Total..................... 170,143
</TABLE>
- ------------------------
(1) Includes case sales of 15,229 which represent a recovery on account of
certain production deficiencies which we believe were in the normal course
of business.
(2) Case sales decreased during the first quarter of 1997 due to a production
delay in connection with the launch of five new JONES SODA CO. flavors. We
did not begin shipping such products until February when the new flavors
came off the production line. At this time, we also changed our concentrate
manufacturer from Tastemaker to Pro Liquitech due to Tastemaker's inability
to meet industry standards for flavor stability and performance.
We have experienced significant fluctuations in quarterly results that
have been the result of many factors, including the following: the addition or
deletion of certain licensed brands to our distribution portfolio; the shift in
our business focus from being solely a regional distributor of licensed and
unlicensed brands and products to being solely a manufacturer, marketer and
distributor of our proprietary brands and products; the seasonal demand for
beverages; and competition and general economic conditions. Due to these and
other factors, our results of operations have fluctuated from period to period.
As a result, we believe that period-to-period comparisons of our results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance.
Like many other companies in the beverage industry, we generate a
substantial percentage of our revenues during the warm weather months of April
through September. We believe that the demand for our proprietary products will
reflect such seasonal consumption patterns. While we expand our distribution
network and increase its market penetration, however, such seasonality may not
be easily discernible from our results of operations. Due to all of the
foregoing factors, our operating results in a particular quarter may fail to
meet market expectations. See Item 1. "Description of Business - Seasonality."
U.S. GAAP RECONCILIATION
Our Consolidated Financial Statements have been prepared by our
management in accordance with Canadian GAAP. Such Consolidated Financial
Statements vary in certain significant respects from accounting principles
generally accepted in the United States. Application of accounting principles
generally accepted in the
35
<PAGE>
United States would have affected net loss and net loss per share calculations
as disclosed in Note 14 to the Consolidated Financial Statements. The amounts of
net loss and net loss per share are computed in accordance with Canadian GAAP.
The net loss in accordance with U.S. GAAP differs from the amount in the
Consolidated Financial Statements due to the expensing of product development
costs as they are incurred. The net loss and net loss per share in accordance
with U.S. GAAP for the year ended December 31, 1998 were $2,257,707 and $0.18
per share, respectively.
URBAN CANADA BUSINESS
URBAN CANADA
Urban Canada manufactures, markets and distributes "alternative" or
"New Age" beverages. In 1994 we created, and in 1995 launched, two proprietary
beverage brands, JONES SODA CO., "a traditional 90's soda," and WAZU, a natural
spring water.
Our business strategy is to increase sales by expanding distribution of
proprietary brands in new and existing markets, stimulating consumer trial of
our products and increasing consumer awareness of, and brand loyalty to, our
proprietary brands and products. Key elements of our business strategy include:
- the creation of strong distributor relationships;
- stimulating strong consumer pull of our existing brands and
products throughout Canada and the United States; and
- ongoing development of unique alternative beverage brands and
products.
The premise underlying our business strategy is that the success of any
alternative or New Age beverage brand will, in large part, be determined by its
brand image. Moreover, due to the limited life cycle of beverages in the
alternative or New Age category of the beverage industry, we believe that the
ongoing process of creating new proprietary brands, products and product
extensions will be an important factor in our long-term success.
Beginning in March, 1995, our business has shifted from being solely a
regional distributor of licensed and unlicensed brands and products to being
solely a manufacturer, marketer and distributor of our proprietary brands and
products. During this period we have also reorganized and strengthened our
senior management team. Sales of our proprietary brands have increased from 1995
through 1998, as follows:
- from $634,625 for the year ended December 31, 1995 to
$2,492,557 for the year ended December 31, 1996, for an
increase of $1,857,932 or 293%;
- from $2,492,557 for the year ended December 31, 1996 to
$3,256,827 for the year ended December 31, 1997, for an
increase of $764,270, or 30.7%; and
- from $3,256,827 for the year ended December 31, 1997 to
$7,011,046 for the year ended December 31, 1998, for an
increase of $3,754,219 or 115.3%.
We use contract packers to prepare, bottle and package Urban Canada's
proprietary products, continually reviewing our contract packing needs in light
of regulatory compliance and logistical requirements. Currently, our primary
contract packers are located in Burnaby, British Columbia and Elizabethtown,
Kentucky. Substantially all of the raw materials used in the preparation,
bottling and packaging of our proprietary products are purchased by us or by our
contract packers in accordance with our specifications.
We arrange with independent trucking companies to have product shipped
from various contract packers to independent warehouses. From such independent
warehouses, we generally deliver our proprietary products through independent
trucking companies to our distributors. Distributors sell and deliver our
proprietary products either to sub-distributors or directly to retail outlets,
and such distributors or sub-distributors stock the retailers' shelves with our
proprietary products.
36
<PAGE>
CORPORATE STRUCTURE
The following outlines our current organizational structure:
<TABLE>
<S><C>
-----------------------------------
Urban Juice & Soda Company Ltd.
-----------------------------------
|
------------------------------------------------------------------------
| | |
------------------------------ --------------------------------- -----------------------------
100% 100% 100%
Wazu Products Ltd. Urban Juice & Soda (USA) Inc. Vancouver Island Beverage
(dba Urban Juice & Soda Co.) Company Ltd.
------------------------------ --------------------------------- -----------------------------
|
----------------------------
100%
Zip City Distribution Co.
Vancouver Ltd.
----------------------------
</TABLE>
WAZU Products Ltd. ("WAZU Products") is the entity through which Urban
Juice generates the majority of our revenues. WAZU Products was incorporated on
March 6, 1987 pursuant to the laws of Alberta under the name Urban Hand Limited.
On July 2, 1991, WAZU Products continued pursuant to the laws of British
Columbia under the name Urban Hand Enterprises Limited. On February 20, 1995,
WAZU Products changed its name to its current name.
Zip City Distribution Co. Vancouver Ltd. ("Zip City") previously
distributed licensed and unlicensed beverage products in the Vancouver, British
Columbia market. Zip City was incorporated in British Columbia on May 31, 1991
and was acquired by WAZU Products Ltd. in June 1993. In April 1995, Zip City
changed its name to its current name from its previous name, Southpines Juice &
Soda Company Inc. Zip City no longer distributes beverage products and is
currently inactive.
Vancouver Island Beverage Company Ltd. previously operated as
distribution arm for Urban Juice on Vancouver Island. By December 1994, the
operations of this company were reorganized in order to take advantage of
efficiencies at both Zip City and WAZU Products. This company was incorporated
in British Columbia on March 31, 1992 and is currently inactive.
Urban Juice & Soda (USA) Inc. was incorporated in the State of Washington
on August 3, 1995 and currently conducts minimal business activities.
COMPANY BACKGROUND
The genesis of our business dates back to March 1987 when Peter M. van
Stolk founded Urban Hand Limited ("Urban Hand") in Edmonton, Alberta. In
September 1987, Urban Hand began marketing and distributing Just Pik't Juices, a
patented line of fresh squeezed juices, for all of Western Canada. In 1989,
Urban Hand moved its principal place of business from Edmonton to Calgary,
Alberta and in 1990, it moved its principal place of business from Calgary to
Vancouver, British Columbia. By the end of 1991, Urban Hand had become the
leading distributor on a per capita basis for Just Pik't Juices in North
America. In 1992, Urban Hand began to implement an aggressive plan to acquire
the distribution rights to a full-line of complementary alternative or New Age
beverage brands.
In 1992, Urban Hand acquired the exclusive distribution rights to
Thomas Kemper Sodas, hand crafted brewed soda products, for all of Canada. In
May 1993, Urban Hand was acquired in a reverse take-over by International
Republic Aircraft Manufacturing Corporation, with a mandate to acquire
distribution companies,
37
<PAGE>
acquire rights to additional alternative or New Age beverages, and to create,
manufacture and distribute one or more proprietary beverage brands. In June
1993, we acquired Southpines Juice & Soda Company, Inc. (since renamed Zip
City), a beverage distribution company serving the greater Vancouver and
Whistler areas of British Columbia. In September 1993, we acquired Vancouver
Island Beverage Company Ltd., a full-line beverage distribution company serving
southern Vancouver Island. By acquiring our own distribution and our own trucks,
we gained more control over our distribution system and assured our access to
retailers for our line of licensed products. In September 1993, we acquired the
exclusive distribution rights to AriZona Iced Teas for Western Canada. By early
1994, we had also acquired the exclusive distribution rights to all of Canada
(except Quebec) for the West End Soda Brew line of products.
By the end of 1994, we had established our business as a full-line
beverage distribution company focusing on the distribution of alternative
beverage products in Western Canada. During 1994, we simultaneously completed
the creation of two proprietary products and began work on the creation of a
third proprietary product. In March 1995, coinciding with the accelerating
demand for bottled water, we launched our first proprietary brand, WAZU, a
natural spring water. In November 1995, we launched our second proprietary
brand, JONES SODA CO.
During this period, we had also been selling AriZona Iced Teas in the
Western Canadian market. By March 1995, however, we had made a strategic
decision to focus our time and resources on our own proprietary brands. Because
the AriZona Iced Tea relationship required a high degree of managerial time and
resources, and because of certain other factors, we sold our rights to
distribute AriZona Iced Teas to another independent Vancouver, British Columbia
based distributor. In April 1995, we acquired the rights to Lahaina Iced Teas
and Lemonades, ready-to-drink teas. In May 1995, we acquired the rights to
distribute Odwalla, all natural fresh fruit and vegetable-based beverages. In
order to increase our business focus on our own proprietary brands, however, we
discontinued the distribution of Odwalla in February 1996, Lahaina Iced Teas and
Lemonades in May 1996, Thomas Kemper Sodas in September 1996, West End Soda
Brews in October 1996, and Just Pik't Juices in December 1996. We no longer sell
licensed or unlicensed brands nor operate as a beverage distributor.
THE ALTERNATIVE OR NEW AGE BEVERAGE INDUSTRY
JONES SODA CO. and WAZU, which are classified as New Age or alternative
beverages, as well as other proprietary brand products that we may develop in
the future, compete generally with beverage products of all types, including
soft drinks, beer, fruit juices and drinks, bottled water, wine and spirits.
In its annual beverage market index for calendar year 1997, Beverage
World magazine (May 1998 issue) estimated the total United States sales of soft
drinks, beer, fruit beverages, bottled water, ready-to-drink teas, sports
drinks, wine and spirits were US$178.9 billion at the retail level. Of these
categories, soft drinks and beer continue to account for the majority of both
retail dollar sales and per capita consumption.
New Age or alternative beverages are distinguishable from mainstream
carbonated soft drinks in that they generally contain less sugar, less
carbonation, and natural ingredients. As a general rule, three criteria have
been established for such a classification: (1) relatively new introduction to
the market-place; (2) a perception by consumers that consumption is healthful
compared to mainstream carbonated soft drinks; and (3) the products use natural
ingredients and flavors. According to Beverage Aisle magazine (January 1998
issue), the New Age or alternative beverage category consists of the following
segments:
- Retail polyethylene terephthalate (PET) bottled waters
- Ready-to-drink (RTD) teas
- Single-serve fruit beverages
- Sports drinks
- Sparkling water
- Premium Sodas
- RTD Coffees
- All Others
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BUSINESS STRATEGY
After witnessing the proliferation of hundreds of new ready-to-drink
tea brands during the first half of 1995, we anticipated what we believed to be
a peak in the product life cycle for this segment of the New Age beverage
category and decided to launch our second proprietary brand, JONES SODA CO.,
which we believed was creating a new category and offering distributors
something new to sell. In its January 1998 issue, Beverage Aisle magazine
renamed the all-natural soda segment as the premium soda segment and cited JONES
SODA CO. as an example of a beverage in this category. Thus, we believe that the
JONES SODA CO. brand and product line have helped to create a new segment in the
New Age or alternative beverage industry.
Utilizing creative but relatively low cost marketing and brand
promotion techniques, we are currently focused on building a strong distributor
network for our lead proprietary brand, JONES SODA CO., and its complementary
proprietary brand, WAZU. We believe that our experience as a distributor of
licensed and non-licensed New Age beverage brands has given, and will continue
to give, our company credibility in connection with its efforts to build a
quality network of independent distributors. Moreover, we believe that our first
hand experience watching other companies' fortunes rise and fall with a single
New Age proprietary beverage brand has been incorporated into our business
strategy. Five New Age beverage brands, including Sundance, New York Seltzer,
Koala Springs, Clearly Canadian and Snapple, have each achieved a minimum of
$100,000,000 in revenues. Each of these brands were the first brands in a new
segment in the New Age beverage category and each brand had a certain fashion or
trend component. For instance, Koala Springs increased sales at a time when
Australia was popular as a travel destination. In developing the JONES SODA CO.
brand, we believe we have created a leading brand in the premium soda segment of
the New Age beverage category and have marketed the product with a distinct
fashion component. The fashion component includes black and white labels, which
is representative of current overall fashion trends. See "Products - Proprietary
Brands - JONES SODA CO." We believe we will be ready to launch new proprietary
brands, products and/or product extensions through our then-existing distributor
network if and when the consumer demand for JONES SODA CO. and/or WAZU brands or
products begins to decline.
Our business strategy is to attempt to increase sales by expanding
product distribution in new and existing markets, stimulating consumer trial of
our products and increasing consumer awareness of and brand loyalty to our
proprietary brands and products. We believe that products in the New Age
beverage category, much like certain fashion trends, generally have a limited
life cycle of approximately five to nine years. As part of our business
strategy, we intend to launch new proprietary brands, products and/or product
extensions at approximately eighteen to thirty month intervals. See "- Brand and
Product Development."
Key elements of our business strategy include the following:
BRAND FRANCHISE
We believe that the market for alternative beverages is dependent to a
large extent on image more than taste, and that this market is driven by trendy,
young consumers between the ages of 15 and 34. Accordingly, our strategy is to
develop eclectic proprietary brand names, slogans and trade dress. In addition
to eclectic labeling, we provide each of our distributors with point-of-sale
promotional materials and branded apparel items. We promote interaction with our
customers through the use of such point-of-sale items as posters, stickers,
table cards, shelf danglers, post cards, hats, pins, T-shirts, and our
proprietary lighted display box. In addition, through the labels on its bottles,
we invite consumers to access our website and to send in photographs to be
featured on the JONES SODA CO. labels. We believe that our labeling, marketing
and promotional materials increase distributor, retailer and consumer awareness
of our proprietary brands and products.
DISTRIBUTOR NETWORK AND KEY ACCOUNTS
We distribute our products through a network of independent
distributors. We have also obtained listings for the JONES SODA CO. brand with
certain key retail accounts. We have pursued this strategy both in an effort to
increase sales and to encourage distributors to distribute our brands and
products to our key accounts and other accounts of our distributors.
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We generally grant independent distributors the right to distribute
finished cases of one or more of our proprietary brands in a particular region,
province, state or local territory, subject to our overall management
directives. We select distributors who we believe will have the ability to get
our proprietary brands and products on the "street level" retail shelves in
convenience stores, delicatessens, sandwich shops and selected supermarkets.
Ultimately, we have chosen, and will continue to choose, our distributors based
upon their perceived ability to build our proprietary brand franchise.
We currently maintain a network of approximately 100 distributors in
select markets of the Western, Central and Eastern regions of North America. In
the Western region, distributors are located in Alaska, Yukon, Western Canada,
Pacific Northwest, California, Nevada, Arizona and New Mexico. In the Central
region, distributors are located in Illinois, Wisconsin, Ohio, Indiana,
Missouri, Minnesota, Michigan and Ontario. In the Eastern region, distributors
are located in New England, New York, New Jersey, Pennsylvania, Maryland,
Georgia, Nebraska, North Carolina and Florida.
We have also pursued distribution to "alternative" or "non-traditional"
beverage retailers. We have also entered into exclusive distribution agreements
with approximately 200 independent non-traditional beverage retailers, including
music stores, skateboard shops, comic book stores and clothing stores in San
Diego, Seattle and Vancouver, British Columbia. We intend to selectively pursue
distribution to these national and independent non-traditional beverage accounts
as part of our distribution and marketing strategy.
BRAND AND PRODUCT DEVELOPMENT
We have developed and intend to continue to develop our proprietary brands
and products in-house. We used a similar process to create the WAZU and JONES
SODA CO. brands, and generally intend to continue utilizing this process in
connection with the creation of our future proprietary brands. This process
generally consists of the following steps:
MARKET EVALUATION
First we perform a complete review of the beverage industry in general,
including a review of existing beverage categories and segments, and the product
life cycle stages of such categories and segments. In addition, we review the
fashion industry and the consumer products industry to determine the general
trends in such industries. Based on these findings, we also review, and attempt
to determine the direction of, future fashion and consumer product trends.
Finally, we evaluate the strengths and weaknesses of certain categories and
segments of the beverage industry with a view to pinpointing potential
opportunities.
DISTRIBUTOR EVALUATION
We prepare a thorough analysis of existing and potential distribution
channels. This analysis addresses, among other things, which companies will
distribute particular beverage brands and products, where such companies may
distribute such brands and products, and what will motivate these distributors
to distribute such brands and products.
PRODUCTION EVALUATION
We review all aspects of production in the beverage industry, including
current contract packing capacity, strategic production locations, and quality
control, and prepare a cost analysis of the various considerations that will be
critical to producing our proprietary brands and products.
IMAGE AND DESIGN
In light of our market, distribution and production evaluations, we
then create and develop the concept for a proprietary beverage brand or product
extension. Although we control all aspects of the creation of each brand or
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product extension, we contract with outside creative artists to help design our
brands. We have used, and intend to continue to use, a different artist, or
group of artists, whose portfolio of work best suits Urban Juice with respect to
the creation of a particular new brand. Such artists work closely with us to
finalize the creation of a new brand image and design. Our technical services
department then works with various flavor concentrate houses to test, choose and
develop product flavors for the brand.
In addition to the WAZU and JONES SODA CO. brands and products, we have
developed the concept for a third proprietary brand in a third segment of the
alternative or New Age beverage category. However, we currently anticipate that
we will not launch this proprietary brand until the life cycle of its existing
brands or products warrant doing so. Due to the limited life cycle of beverages
in the alternative or New Age category, we believe that the ongoing process of
creating new proprietary brands, products and product extensions will be an
important factor in our long-term success.
PRODUCTS
PROPRIETARY BRANDS
JONES SODA CO. We believe that our proprietary JONES SODA CO. brand and
product line is a leader in the new segment of the New Age beverage category
called premium sodas. The JONES SODA CO. product line currently consists of the
following twelve flavors:
- Orange - Strawberry lime - Fufu berry
- Grape - Vanilla cola - Blue bubble gum
- Cherry - Root beer - Green apple
- Lemon lime - Cream soda - Pineapple upside-down
Each of the current JONES SODA CO. products is made from natural and artificial
flavors. Some flavors distributed in the U.S. market may contain caffeine. Each
flavor has a different color profile which, management believes, is readily
distinguishable on a retail shelf. Most JONES SODA CO. beverage products come in
twelve ounce (355 ml.) clear long-neck bottles with primarily black and white
labels displaying a variety of urban American 1990s images. We also encourage
consumers of JONES SODA CO., through the labels on our bottles, to send in
photographs that may potentially be used on one of the JONES SODA CO. labels.
In June of 1998, we launched three flavors of NATURAL JONES SODA:
- Passion - Lemon ginger - Peach ginseng
In January of 1999, we launched four flavors of SLIM JONES.
- Orange - Lime cola - Fufu berry - Cream soda
WAZU. We also seek to distinguish our proprietary WAZU brand and
product line from other competitive brands and product lines in the now
well-developed PET bottled water segment of the alternative or New Age beverage
category. Each of the WAZU products contains water currently sourced from
springwater in Burnaby, British Columbia. We have positioned the WAZU brand and
product line in the middle price point of the PET bottled water category. In
doing so, we offer WAZU to distributors as a brand that will offer incremental
sales without cannibalizing their current brands.
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The WAZU product line currently consists of the following stock keeping
units:
- wee WAZU: (16.9 fluid ounces or 500ml) (with or without sport-cap)
- TRUE WAZU: (33.8 fluid ounces or 1L) (with or without sport-cap)
- BIG WAZU: (50.7 fluid ounces or 1.5L) (with or without sport-cap)
LICENSED PRODUCTS
In order to increase our business focus on our proprietary brands, we
discontinued the distribution of Odwalla in February 1996, Lahaina Iced Teas and
Lemonades in May 1996, Thomas Kemper Sodas in September 1996, West End Soda
Brews in October 1996, and Just Pik't Juices in December 1996. We no longer hold
marketing and distribution rights to any licensed brands. See "The Company -
Company Background."
MARKETING, SALES AND DISTRIBUTION
Our proprietary products are sold in six provinces and 25 states,
primarily in convenience stores, delicatessens, sandwich shops and selected
supermarkets. Our products are sold by approximately 100 independent
distributors. Our policy is to grant our distributors rights to sell particular
proprietary brands within a defined territory. The majority of our distributors
carry other beverage products. Agreements with our distributors vary, but are
generally oral, terminable by either party at will, as is common in the beverage
industry.
During 1998 the three primary distributors of our proprietary products
purchased approximately 6.9%, 5.7% and 5.4%, respectively, of the total number
of cases sold by Urban Juice. We believe that, concurrent with the expected
increase in consumer awareness of our proprietary brands, we will upgrade and
expand our distributor network which may result in a decreased dependence on any
one or more of our independent distributors.
It is our business practice to require our independent distributors to
place their purchase orders for our proprietary products at least 10 days in
advance of shipping. To the extent we have additional product available in
inventory, it will fulfill other purchase orders when and as received. We
generally contract with outside trucking companies to deliver our proprietary
products from our independent warehouses to our independent distributors. After
an independent distributor receives delivery of our products it will generally,
in turn, resell and deliver those products directly to a retail outlet and stock
the retailer's shelves with our products.
Our pricing policies for the JONES SODA CO. and WAZU brands take into
consideration competitors' prices and our perception of what a consumer is
willing to pay for the particular brand and product. The goal is to
competitively price our proprietary products with the other New Age beverages.
Since we can control our production costs, we work back through the distribution
chain so that our suggested retail prices are proportional with respect to the
anticipated profit margins of each chain in the distribution process. The
suggested retail price for JONES SODA CO. products is $0.99 - $1.29 in Canada
and US$0.79 - US$1.09 in the United States. The suggested retail price for a wee
WAZU (500ml bottle) is $0.89 - $0.99 in Canada and US$0.59 - US$0.79 in the
United States.
During 1997, our sales force was organized into four regional groups
(U.S. Northeast, California, Pacific Northwest and Ontario), as well as certain
second tier markets. In 1998, this expanded to include Central and Southeast
U.S. and with Peter Strahm, the Vice President of Sales and Distribution
ultimately responsible for each region. All of our sales personnel have had
prior industry experience. Senior sales personnel are responsible for large
retail accounts located in their regions, the management of existing independent
distributor relationships and the selection of new independent distributors as
may be required. Junior sales personnel work closely with the sales
representatives of our independent distributors to help them open street level
retail accounts and train them in our sales and marketing techniques.
We primarily use point-of-sale materials such as posters, stickers,
table cards, shelf danglers, post cards, hats, pins, T-shirts and jackets to
increase consumer awareness of our proprietary brands. In response to demand for
our wearables, we sell our wearables on our web site HTTP://WWW.JONESSODA.COM.
Through cooperative advertising, certain of our independent distributors fund a
portion of our marketing budget, based upon case sales. In selected
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cities, we have planned, or are planning, to sponsor or participate on a "grass
roots" level at certain events in an attempt to increase brand awareness and
loyalty. We have also devised a number of other low cost techniques which
involve all Urban Juice personnel (and which we treat as trade secrets) to
create distinct personalities for each of our brands. We have also begun a
program of signing up extreme sport athletes to promote JONES SODA CO. Pursuant
to the program, we have signed up several athletes in the skateboard, snowboard
and mountain bike industries. We also use a leased recreational vehicle painted
with the JONES SODA CO. colors and logos to create consumer awareness and
enthusiasm to assist distributors as they open new markets. In addition to these
marketing techniques, we also initiated a campaign of cross-promotions with
other companies. Such cross promotions in 1998 were with BMG Entertainment,
Armani A/X, Namco Limited and Diesel Stores.
SEASONALITY
Typically, the beverage industry as a whole generates a substantial
percentage of its revenues during the warm weather months of April through
September. We believe that the demand for our proprietary products will reflect
such seasonal consumption patterns. As we expand our distribution network and
increase our market penetration, such seasonality may not be easily discernible
from our results of operations. We use independent contract packers, truckers
and distributors to increase the amount of product available during peak
seasonal periods without incurring expenses for personnel or equipment during
our slower periods.
PRODUCTION
CONTRACT PACKING ARRANGEMENTS
We currently use two main independent contract packers known as
"co-packers" to prepare and bottle our proprietary products. As is customary in
the contract packing industry, we are expected to arrange for our contract
packing needs sufficiently in advance of anticipated requirements. Accordingly,
it is our business practice to require our independent distributors to place
their purchase orders for our proprietary products at least 10 days in advance
of shipping. Other than minimum case volume requirements per production run, we
do not have any minimum production requirements, except as detailed below.
During 1998, we used several contract packing facilities to produce all
requirements of both JONES SODA CO. and WAZU. We have made arrangements with
another contract packing facility to produce NATURAL JONES, our upscale
pasteurized version of JONES SODA CO.
RAW MATERIALS
The raw materials used in the preparation and packaging of our products
(consisting primarily of concentrate, glass, labels, caps and packaging) are
purchased from suppliers selected either directly by our contract packers or by
us which, in turn, supply such raw materials to our contract packers.
We believe that we have adequate sources of raw materials which are
available from multiple suppliers. Currently, we purchase all of our flavor
concentrate for JONES SODA CO. products from Pro-Liquitech, Inc., a flavor
concentrate company, on an exclusive basis. We intend to purchase flavor
concentrate from multiple flavor houses for future JONES SODA CO. flavors and/or
additional proprietary products, with the intention of developing secondary
sources of flavor concentrate for each of our proprietary products. The water
used to produce JONES SODA CO. is filtered and is also treated to reduce
alkalinity.
QUALITY CONTROL
Our products are made from high quality ingredients and natural and
artificial flavors. We seek to ensure that all of our products satisfy our
quality standards. Contract packers are selected and monitored by our own
quality control representatives in an effort to assure adherence to our
production procedures and quality standards. We analyze samples of our products
from each production run undertaken by each of our contract packers.
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For every run of product, extensive on-line testing of product quality
and packaging is completed. This includes testing levels of sweetness,
carbonation, taste, product integrity, packaging and various regulatory cross
checks. For each product, the contract packer must transmit all quality control
test results to us on a daily basis. These test results are reviewed by
technical staff for compliance with our standards. In addition, samples from
every production run are forwarded to our Quality Control Department. These
samples are then re-tested by us to double check the production facilities'
quality control. Based on our experience, we believe this cross check on product
meets or exceeds standard procedures established in the industry.
Testing at both the Urban Juice facility and the contract production
facilities includes microbiological checks and other tests to ensure the
production facilities meet the standards and specifications of our quality
assurance program. This information is then logged into a database for rapid
statistical analysis and followed up with each contract packer. We believe our
production facilities inspection program meets or exceeds industry standards.
Water quality is monitored during production and at scheduled testing times to
ensure compliance with applicable government regulatory requirements. Flavors
are pre-tested before shipment to contract packers from the flavor manufacturer.
We are committed to an on-going program of product improvement with a view
toward ensuring high quality of our product.
We believe we source and select only those suppliers that use only
quality components. We also inspect packaging suppliers' production facilities
and monitor their product quality.
REGULATION
The production and marketing of our licensed and proprietary beverages
are subject to the rules and regulations of various federal, provincial, state
and local health agencies, including without limitation, Health Canada,
Agriculture and Agri-Food Canada and the United States Food and Drug
Administration (the "FDA"). The FDA and Agriculture and Agri Food Canada also
regulate labeling of our products. From time to time, we may receive
notifications of various technical labeling and/or ingredient infractions with
respect to its licensed products. We believe that we have a compliance program
in place to ensure compliance with production, marketing and labeling
regulations on a going-forward basis, and that none of the foregoing
notifications or actions would have a material adverse affect on our business,
financial condition or results of operations. There are no potential
notifications or actions currently outstanding.
TRADEMARKS, DESIGN MARKS AND FLAVOR CONCENTRATE TRADE SECRETS
We own a number of different trademarks, including the following which
are registered in Canada and the United States: "JONES SODA CO.," "I'VE GOT A
JONES FOR A JONES," "URBAN JUICE & SODA CO.," Urban Juice & Soda & Design, Urban
Juice & Soda Co. & Design and Wazu & Design. In Canada the trademarks expire 15
years from the registration date and in the United States 10 years from the
registration date, although in the U.S., they may be renewed for a nominal fee.
In addition, we have applied for trademark protection in Canada and the United
States for a number of other trademarks for slogans and product design,
including "WET YOURSELF," "I'VE GOT A JONES FOR SODA," "IT MAY NOT BE YOUR
THING" and "FUFU BERRY SODA." In addition, trademark protection for the marks
JONES SODA CO. and WAZU have also been applied for in the United Kingdom,
Germany, Japan, and other foreign jurisdictions.
To date, we have the exclusive rights to nineteen flavor concentrates
developed with Pro-Liquitech, Inc., which we protect as trade secrets. We will
continue to take appropriate measures, such as entering into confidentiality
agreements with our contract packers and exclusivity agreements with our flavor
houses, to maintain the secrecy and proprietary nature of our flavor
concentrates.
We consider our trademarks, design marks and flavor concentrates to be
of considerable value and importance to our business. No challenges to our
trademarks or design marks have arisen and we have no reason to believe that any
such challenges will arise in the future.
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COMPETITION
The beverage industry is highly competitive. The principal methods of
competition in the beverage industry include brand name, brand image, price,
labeling and packaging, product quality and taste, trade and consumer promotions
and the development of new brands, products and product extensions. We compete
with other beverage companies not only for consumer acceptance but also for
shelf space in retail outlets and for marketing focus by our distributors, all
of which also distribute other beverage brands. Our products compete generally
with all non-alcoholic beverages, most of which are marketed by companies with
substantially greater financial resources than Urban Juice. We also compete with
regional beverage producers and "private label" soft drink suppliers.
In order to compete effectively in the beverage industry, we believe
that we must first convince independent distributors that JONES SODA CO. is a
leading brand in the newly created premium soda segment of the alternative or
New Age beverage industry. As such, JONES SODA CO. provides distributors with
the opportunity for incremental beverage sales growth rather than cannibalizing
existing beverage sales. In connection with or as a follow-up to the
establishment of an independent distributor relationship for the JONES SODA CO.
brand, we generally sell WAZU as a complementary brand which may replace
competitive PET bottled water products carried by such distributors. As a means
of maintaining and expanding our distribution network, we intend to introduce
new products and product extensions, and when warranted, new proprietary brands.
Although we believe that we will be able to continue to create unique, exciting
and fashionable brands, there can be no assurance that we will be able to do so
or that other companies will not be more successful in this regard over the long
term.
Pricing of the products is also important. The JONES SODA CO. products
are priced in the same price range as competitive New Age beverage brands and
products. WAZU products are priced in the middle of the pricing range for PET
bottled water products.
EMPLOYEES
As of December 31, 1998, we had 25 full-time employees, of whom 15 were
employed in sales and marketing capacities, five were employed in administrative
capacities, and five were employed in manufacturing and quality control
capacities. None of our employees are represented by labor unions. We believe
that our relationships with our employees are good.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to our
directors, executive officers and key employees, as of June 11, 1999.
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DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
CONTRACTUAL
NAME TITLE WITH URBAN CANADA SINCE ARRANGEMENT
---- ----- ----------------------- -----------
<S> <C> <C> <C>
Peter M. van Stolk President, Chief Executive Officer Officer and Director since 5-year Employment
and Director May 1993 Agreement(1)
Jennifer L. Cue Chief Financial Officer, Secretary Director since March 1995 3-year Employment
and Director Officer since October 1995 Agreement(1)
Peter Strahm Vice President of Sales - North Officer since April 1998 N/A
America
Ron B. Anderson Director Director since July 1994 N/A
Michael M. Fleming Director Director since April 1997 N/A
Roly Morris Director Director since May 1998 N/A
Matthew Kellogg Director Director since May 1999 N/A
Peter Cooper Director Director since May 1999 N/A
</TABLE>
PETER M. VAN STOLK has served as our President, Chief Executive Officer
and a director since May 1993. Mr. van Stolk began his career in the beverage
industry in 1987 when he founded Urban Hand. He served in a similar capacity
with Urban Hand prior to it being acquired by Urban Canada in a reverse takeover
in 1993. Mr. van Stolk is also a member of the Social Venture Network. Since
1987, Mr. van Stolk has worked in virtually all aspects of the beverage
distributor business. He attended Grant McKewan College in Edmonton, Alberta.
JENNIFER L. CUE has served as our Corporate Secretary since August
1997, Chief Financial Officer since February 1997, Vice President, Corporate and
Financial Development, between October 1995 and January 1997, and a director
since March 1995. Prior to October 1995, Ms. Cue served as Vice President
Investment Research of D. Grant Macdonald Capital Corporation from February
1994, and prior to that served as Vice President, Investments at Penfund
Management in Toronto, Ontario from November 1990. From 1986 to 1988, Ms. Cue
worked in Commercial Banking for Lloyds Bank Canada. Ms. Cue holds an MBA from
McGill University in Montreal and a Bachelor of Commerce from the University of
British Columbia in Vancouver, British Columbia.
PETER STRAHM has served as our Vice President of Sales - North America
since April 1998. Prior to April 1998, Mr. Strahm served as Vice President,
Eastern Region for R.J. Groux Corporation, a beverage distribution company based
in New York. From 1989 to 1996 Mr. Strahm served in various positions at Snapple
Beverage Corporation. From 1989 to 1992, Mr. Strahm was the New York State Area
Manager for Snapple. From 1992 to 1993, Mr. Strahm served as Midwest Regional
Manager for Snapple where he oversaw the newly formed Midwest regional office.
From 1993-96, Mr. Strahm was President & CEO of Mr. Natural Inc., the company
owned distributor for Snapple in the New York area. Prior to Snapple, Mr. Strahm
was with the Pepsi organization for five years. Mr. Strahm holds a Bachelor of
Science degree and an M.B.A.
RON B. ANDERSON has served as one of our directors since July 1994. Mr.
Anderson is currently the Vice President, Corporate Development of ParkSide
Developments L.P., a private partnership involved in real estate development.
From July 1995 to December 1995, Mr. Anderson was a full-time consultant to The
Loewen Group Inc., a funeral service company. From August 1993 to June 1995, he
was President of D. Grant MacDonald Capital Corporation, a private merchant
bank. From September 1987 to July 1993, he was Senior Manager, British Columbia
District for National Bank of Canada. Mr. Anderson is a Certified General
Accountant and holds a B. Comm. from the University of British Columbia in
Vancouver, British Columbia.
MICHAEL M. FLEMING has served as one of our directors since April 1997.
Mr. Fleming is currently a Partner with the law firm of Ryan, Swanson &
Cleveland, Seattle, Washington, and specializes in real estate, dispute
resolution, securities and environmental matters. He is also the President and
owner of Kidcentre, Inc., a company in the business of providing child care
services in Seattle, Washington. Since April 1985, he has also been the
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President and owner of Fleming Investment Co., an investment company. Mr.
Fleming is currently a board member of several entities, including Caring
Products International, Inc., the Washington Chapter of the Cystic Fibrosis
Foundation and the Seattle Children's Museum.
ROLY MORRIS was appointed as one of our directors on May 6, 1998. From
November 1991 to November 1997, Mr. Morris was employed in several executive
capacities with Starbucks Coffee Company, most recently as the Zone Vice
President for Canada and the Pacific Northwest. At Starbucks, Mr. Morris
essentially established that company in Canada by identifying, recruiting and
developing its Canadian management team. Prior to his employment with Starbucks,
Mr. Morris was employed by a number of retail food chains including McGavin
Foods Limited, where he was responsible for retail operations, The Kitchen Table
Group, where he was the General Manager of Operations, and Miracle Food Mart,
where he was the Regional Manager, Grocery Field Specialist and Store Manager.
Mr. Morris holds a Bachelor of Commerce from the University of Windsor in
Windsor, Ontario.
MATTHEW KELLOGG was appointed as one of our directors on May 28, 1999.
Mr. Kellogg is currently the Managing Member of Kingfisher Capital, LLC. From
1995 to 1999, Mr. Kellogg served as the Managing Member of MTC, LLC, a
restaurant management firm. From 1997 to1998, Mr. Kellogg was the Business
Development Director for Playnetwork, Inc. following his position at Enviros
Inc. as Business Development Manager from 1993 through 1995.
PETER COOPER was appointed as one of our directors on May 28, 1999. Mr.
Cooper is currently the owner of Cooper & Company, a U.S. based investment
company with interests in real estate and private companies. Mr. Cooper is also
a founding partner of Cooper & LeVasseur, a "special situation" investment
parnership. From 1986 through 1994, Mr. Cooper served as Chief Executive of L.D.
Nathan & Co., Ltd, a New Zealand based retail and consumer brand company and
following the merger with Lion Breweries as an Executive Director of Lion Nathan
Limited. Mr. Cooper received an Honors Degree in Law from Auckland University
and was admitted as a Barrister and Solicitor in New Zealand in 1977.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
For purposes of this information circular/prospectus, "executive officer"
of Urban Canada means an individual who at any time during the year was the
Chair or a Vice-Chair of Urban Canada where the person performed the functions
of such office on a full-time basis; the President of Urban Canada; any
Vice-President of Urban Canada in charge of a principal business unit such as
sales, finance or production; any officer of Urban Canada or of a subsidiary of
Urban Canada; or any other person who performed a policy-making function in
respect of Urban Canada.
The summary compensation table below discloses compensation paid to the
following individuals:
(a) our chief executive officer ("CEO");
(b) each of our four most highly compensated executive officers,
other than the CEO, who were serving as executive officers as
at the end of the most recently completed financial year and
whose total salary and bonus exceeds $100,000 per year; and
(c) any additional individuals for whom disclosure would have been
provided under (b) but for the fact that the individual was
not serving as an executive officer of Urban Canada at the end
of the most recently completed financial year
(each, a "Named Executive Officer").
47
<PAGE>
We currently have two Named Executive Officers, Peter van Stolk (Chief
Executive Officer and President) and Peter Strahm (Vice President of Sales).
SUMMARY COMPENSATION TABLE
The following table contains a summary of the compensation paid to the
Named Executive Officer during the three most recently completed financial
years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
SECURITIES RESTRICTED
OTHER UNDER SHARES OR
ANNUAL OPTIONS/ RESTRICTED ALL OTHER
COMPEN- SARS(1) SHARE LTIP(2) COMPEN-
NAME AND PRINCIPAL YEAR ENDED SALARY BONUS SATION GRANTED UNITS PAYOUTS SATION
POSITION ($) ($) ($) (#) ($) ($) ($)
- --------------------- ------------ ---------- ---------- ------------ ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter van Stolk, Dec. 31/96 $50,000 Nil 61,760 70,000 Nil Nil Nil
CHIEF EXECUTIVE
OFFICER
Dec. 31/97 $54,885 Nil Nil 295,000 Nil Nil Nil
Dec. 31/98 $83,400 Nil $10,210 320,000 Nil Nil Nil
- --------------------- ------------ ---------- ---------- ------------ ------------ ------------ --------- -----------
Peter Strahm, VICE Dec. 31/96 Nil Nil Nil Nil Nil Nil Nil
PRESIDENT, SALES
Dec. 31/97 Nil Nil Nil Nil Nil Nil Nil
Dec. 31/98 $114,742 Nil Nil 100,000 Nil Nil Nil
- --------------------- ------------ ---------- ---------- ------------ ------------ ------------ --------- -----------
</TABLE>
(1) "SAR" or "stock appreciation right" means a right granted by Urban
Canada, as compensation for services rendered, to receive a payment of
cash or an issue or transfer of securities based wholly or in part on
changes in the trading price of publicly traded securities of Urban
Canada.
(2) "LTIP" or "long term incentive plan" means any plan that provides
compensation intended to serve as incentive for performance to occur
over a period longer than one financial year, but does not include
option or stock appreciation right plans or plans for compensation
through restricted shares or restricted share units.
COMPENSATION OF DIRECTORS
None of our directors has received any remuneration for acting as
director of Urban Canada except for the incentive stock options as disclosed
below. In addition, directors are paid out of pocket expenses incurred in
attending Board of Directors and committee meetings of the Board.
DIRECT REMUNERATION
The aggregate direct remuneration paid or payable by Urban Canada whose
financial statements are consolidated with those of Urban Canada to the
directors and senior officers of Urban Canada was $-.
OPTIONS, STOCK APPRECIATION RIGHTS AND OTHER RIGHTS TO PURCHASE SECURITIES
The following table sets out the incentive stock options and stock
appreciation rights granted to the Named Executive Officer during our most
recently completed financial year.
48
<PAGE>
<TABLE>
<CAPTION>
MARKET VALUE OF
% OF TOTAL SECURITIES
OPTIONS/SARS UNDERLYING
SECURITIES UNDER GRANTED TO EXERCISE OR OPTIONS/SARS ON
OPTIONS/SARS EMPLOYEES IN BASE PRICE THE DATE OF GRANT EXPIRATION
NAME GRANTED (#) FINANCIAL YEAR ($/SECURITY) ($/SECURITY) DATE
- ------------------------- ---------------------- ---------------- --------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Peter van Stolk 100,000 4.15% $1.15 Nil May 22, 2003
100,000 4.15% $1.15 Nil June 1, 2003
20,000 0.008% $1.00 Nil July 24, 2003
100,000 4.15% $0.75 Nil Feb. 8, 2003
- ------------------------- ---------------------- ---------------- --------------- ------------------ ----------------
Peter Strahm 100,000 4.15% $1.00 Nil Mar. 24, 2003
- ------------------------- ---------------------- ---------------- --------------- ------------------ ----------------
</TABLE>
Since the beginning of our most recently completed financial year, the
following options and other rights to purchase securities of Urban Canada were
granted to the directors and senior officers of Urban Canada, as a group:
<TABLE>
<CAPTION>
CONSIDERATION RECEIVED FOR
SECURITIES UNDER OPTION EXERCISE PRICE PER SHARE DATE OF GRANT/EXPIRY DATE THE GRANT
----------------------------- ------------------------- ----------------------------- ------------------------------
<S> <C> <C> <C>
180,000 $0.75 Feb 8, 1999/Feb 8, 2004 Nil
115,000 $0.80 Feb. 9, 1999/Feb. 2, 2004 Nil
150,000 $0.85 Mar. 5, 1999/Mar. 5, 2004 Nil
----------------------------- ------------------------- ----------------------------- ------------------------------
</TABLE>
Since the beginning of our most recently completed financial year, no
options and other rights to purchase securities of Urban Canada were exercised
by the directors and senior officers of Urban Canada.
DIRECTORS' AND OFFICERS' INSURANCE
We maintain directors' and officers' insurance for our directors and
officers as well as those of our subsidiaries as a group. The yearly coverage
limit of such insurance is US$3,000,000 per occurrence and US$3,000,000 in the
aggregate, subject to a corporate deductible of US$50,000 per loss on
non-securities claims and US$150,000 per loss on securities claims. We paid a
premium of US$41,200 in the last completed fiscal year with respect to the
period October 9, 1998 to October 9, 1999.
LONG-TERM INCENTIVE PLANS
During the financial year ended December 31, 1998, there were no payments
made to directors or senior officers pursuant to the long-term incentive plan.
PENSION BENEFITS
We currently have no pension benefits arrangement under which we have
made payments to the directors and senior officers of Urban Canada during our
most recently completed financial year or intend to make payments to our
directors and senior officers upon their retirement (other than the payments set
out above and those made, if any, pursuant to the Canada Pension Plan or any
government plan similar to it).
49
<PAGE>
OTHER BENEFITS
We did not pay any remuneration (other than the payments set out above
and those made pursuant to the Canada Pension Plan or any government plan
similar to it and payments to be made for, or benefits to be received from,
group life or accident insurance, group hospitalization or similar group
benefits or payments) pursuant to any existing plan or arrangement during our
most recently completed financial year to the directors and senior officers of
Urban Canada, as a group, directly or indirectly. We do not propose to make any
payments, directly or indirectly, in the future to the directors and senior
officers of Urban Canada, as a group, pursuant to such a plan or arrangement.
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
Other than routine indebtedness, no director or senior officer of Urban
Canada, or any proposed nominee for election as a director of the Company, or
any associate or affiliate of any such director, senior officer or proposed
nominee, is or has been indebted to Urban Canada, or to any other entity that
was provided a guarantee or similar arrangement by Urban Canada in connection
with the indebtedness, at any time since the beginning of our most recently
completed financial year.
MANAGEMENT CONTRACTS
Management functions of Urban Canada are not, to any substantial degree,
performed by a person other than the directors or senior officers of Urban
Canada.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Other than as set forth in this information circular, no insider of Urban
Canada, no proposed nominee for election as a director and no associate or
affiliate of any such insider or proposed nominee has had any material interest,
direct or indirect, in any transaction since the beginning of our most recently
completed financial year or in any proposed transaction that, in either case,
has materially affected or will materially affect Urban Canada.
DESCRIPTION OF URBAN CANADA CAPITAL STOCK
The authorized capital of Urban Canada consists of 100,000,000 common
shares. The following summary description of Urban Canada capital stock is
qualified in its entirety by reference to the Memorandum and Articles of Urban
Canada, copies of which are filed as exhibits to the Registration Statement on
Form 8-A, filed with the Commission on October 3, 1996, as amended, and Urban
Canada's Form 6-K Report of Foreign Private Issuer containing unaudited
financial statements for the three months ended March 31, 1999.
COMMON SHARES
Urban Canada is authorized to issue 100,000,000 common shares without par
value of which 18,660,914 common shares are issued and outstanding as of June
11, 1999. The common shares are all of the same class and rank equally as to
dividends, voting powers and participation in assets. No common shares are
subject to call or assessment. There are no pre-emptive or conversion rights and
no provisions for redemption, retraction, purchase for cancellation, surrender
or sinking or purchase funds. Provisions as to the modification, amendment or
variation of such rights or such provisions are contained in the Company Act
(British Columbia).
50
<PAGE>
COMMON SHARE PURCHASE WARRANTS
As of June 11, 1999 we had warrants outstanding to purchase an aggregate
of 2,610,567 of our common shares. We issued two-year warrants to purchase
40,000 common shares in connection with a bank loan that closed on June 18,
1999. The exercise price of these warrants is $1.00 per share until June 18,
1999 and $1.15 per share until June 18, 2000. We also issued two-year warrants
to purchase 914,000 common shares in connection with a private placement of
common shares that closed on December 9, 1998. The exercise price of these
warrants is $0.60 per share. Finally, in connection with a private placement of
our common shares that closed on May 4, 1999 we issued warrants to purchase
1,755,377 common shares, with each two warrants exercisable for one of our
common shares, at an aggregate exercise price of $0.75 per share until May 4,
2000 and $0.90 per share until May 4, 2000. There is no trading market for the
warrants and we do not intend to request the listing of the warrants on any
exchange prior to or at the time of the continuation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Urban Canada common shares is
Pacific Corporate Trust Company, whose address is 830 - 625 Howe Street,
Vancouver, British Columbia, V6C 3B8.
SHAREHOLDER'S RIGHTS UNDER THE WYOMING BUSINESS CORPORATION ACT
The following is a discussion of the material provisions of the WBCA.
This discussion includes, where relevant, a summary of certain differences
between the WBCA and the BCCA, However, the following summary is not intended to
be exhaustive and its focus is primarily upon shareholder rights and safeguards.
Nothing that follows should be construed as legal advice to any particular
shareholder of Urban Canada and shareholders should consult with their own legal
advisors respecting all of the implications of the continuation.
THE CONSTATING DOCUMENTS
Under the BCCA, a British Columbia company is required to have constating
documents made up of a Memorandum and Articles. Under the WBCA, a Wyoming
company which has continued from another jurisdiction is required to have
constating documents made up of Articles of Continuance. The Articles of
Continuance will set forth Urban Canada's name and authorized share capital and
take the place of Urban Canada's current Memorandum.
AMENDMENTS TO CONSTATING DOCUMENTS
Both the WBCA and the BCCA require shareholders to approve substantive
changes to the constating documents of a company. However, the requisite
majority of votes necessary to approve substantive changes to the constating
documents under the BCCA is 75% (3/4) of the votes cast whereas under the WBCA a
simple majority of 50% of shareholders entitled to vote on the proposed
resolution is required. In the case of certain fundamental changes, such as the
alteration of special rights and restrictions attached to issued shares or a
proposed amalgamation or continuation to another jurisdiction, a resolution
similarly approved by each class of shares is also required. Unlike the BCCA,
the WBCA does not require certain significant corporate actions to be approved
by a Special Resolution.
SHARE CAPITAL
Upon the completion of the continuation and the adoption of the proposed
new Articles of Continuance, the authorized share capital of Urban Wyoming will
consist of 100,000,000 common shares without par value. Urban Wyoming will have
only one kind and class of shares and there will be no unusual rights or
restrictions attached to that class. All of the current issued common shares of
Urban Canada will be converted into shares of this class automatically without
any further action by the shareholders.
51
<PAGE>
All of the common shares of Urban Canada in this new class will rank
equally as to voting rights, participation in a distribution of the assets of
Urban Wyoming on a liquidation, dissolution or winding-up of Urban Canada and
the entitlement to dividends. The holders of the common shares will be entitled
to receive notice of all meetings of shareholders and to attend and vote the
shares at the meetings. Each common share will carry with it the right to one
vote.
In the event of the liquidation, dissolution or winding-up of Urban
Wyoming or other distribution of its assets, the holders of the common shares
will be entitled to receive, on a pro rata basis, all of the assets remaining
after Urban Wyoming has paid out its liabilities. Distribution in the form of
dividends, if any, will be set by the Board of Directors.
Provision as to the modification, amendment or variation of the rights
attached to the common shares of Urban Wyoming will be contained in Urban
Wyoming's Articles of Continuance and the WBCA. Generally speaking, substantive
changes to the share capital require the approval of the shareholders by
majority resolution.
APPOINTMENT OF DIRECTORS
Under the WBCA, the directors of Urban Wyoming will be elected by the
shareholders at each annual general meeting and typically hold office until the
next annual general meeting at which time they may be re-elected or replaced.
Individuals appointed as directors to fill vacancies on the Board or added as
additional directors hold office like any other director until the next annual
general meeting at which time they may be re-elected or replaced. A director may
be removed between annual meetings by way of a shareholder resolution passed in
that regard at a meeting of the shareholders called for that purpose.
MANAGEMENT
The Board of Directors will be responsible for the overall management of
Urban Wyoming. However, they are permitted to delegate much of their
responsibility to the officers and employees of Urban Wyoming and to committees
formed by the board. As a "reporting issuer" in British Columbia, Urban Wyoming
will continue to be required to have an audit committee.
The directors and senior officers are required, under the WBCA, to act
honestly, in good faith and with a view to the best interests of Urban Wyoming.
The directors have a fiduciary responsibility to Urban Wyoming and they are
required to disclose conflicts of interests.
RIGHTS OF SHAREHOLDERS
In addition to the voting, dividend and liquidation rights attached to
the common shares as described under "Share Capital" above, the WBCA affords
shareholders certain rights such as the right to call a shareholders' meeting or
cause a derivative action to be brought on behalf of Urban Wyoming, as well as
certain rights to review the minute books of Urban Wyoming.
The WBCA provides that a shareholder or a director may commence or defend
a legal action on behalf of a company (a derivative action) to enforce a right,
duty or obligation owed to Urban Wyoming by another party or to obtain damages
for any breach of that right, duty or obligation. A shareholder is entitled to
commence a derivative action if:
(i) the shareholder was a shareholder of Urban Wyoming at the time of
the act or omission complained of, or became a shareholder through
transfer by operation of law from one who was a shareholder at the
time; and
(ii) the shareholder fairly and adequately represents the interests of
Urban Wyoming in enforcing the rights of Urban Wyoming.
52
<PAGE>
Court approval is also required to discontinue, settle or dismiss any
action brought under any of these provisions.
Under the BCCA, a shareholder of a company has the right to apply to
court on the grounds that Urban Canada is acting or proposes to act in a way
that is prejudicial to the shareholder (this is referred to as an oppression
action). On such an application, the court may make such order as it sees fit,
including an order to prohibit any act proposed by Urban Canada. The WBCA does
not contain a comparable provision and, accordingly, this remedy is not
available to the shareholders of a Wyoming company.
DISSENT RIGHTS UNDER THE WBCA
The WBCA provides that shareholders are entitled to dissent in respect of
certain actions proposed to be taken by a Wyoming company.
The WBCA provides that a shareholder is entitled to dissent from any of
the following corporate actions:
(a) consummation of a plan of merger or consolidation to which Urban
Wyoming is a party if:
(i) shareholder approval is required for the merger or the
consolidation by the WBCA or the articles of incorporation
and the shareholder is entitled to vote on the merger or
consolidation; or
(ii) Urban Wyoming is a subsidiary that is merged with its parent
under the WBCA;
(b) consummation of a plan of share exchange to which Urban Wyoming is
a party as Urban Wyoming whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) consummation of a sale or exchange of all, or substantially all,
of the property of Urban Wyoming other than in the usual and
regular course of business, if the shareholder is entitled to vote
on the sale or exchange, including a sale in dissolution, but not
including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders
within one year after the date of sale;
(d) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares
because it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters or abolishes a right in respect of
redemption, including a provision respecting a sinking fund
for the redemption or repurchase, of the shares;
(iii) alters or abolishes a pre-emptive right of the holder of the
shares to acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights; or
(v) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to
be acquired for cash under the WBCA.
A shareholder who exercises a right of dissent is entitled to be paid the
fair value of his or her shares as determined by agreement of the parties or
failing which, by order of the court.
53
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the legality of the issuance of the
common shares offered by this information circular/prospectus will be passed
upon for Urban Canada by Catalyst Corporate Finance Lawyers, Vancouver, British
Columbia. Certain legal matters will be passed upon for Urban Wyoming by Bagley
Law Office, Cheyenne, Wyoming, and Van Valkenberg Furber Law Group P.L.L.C.,
Seattle, Washington, special United States counsel to Urban Canada. Van
Valkenberg Furber Law Group P.L.L.C. will rely on the opinions of Catalyst
Corporate Finance Lawyers as to certain matters of Canadian law.
EXPERTS
The financial statements of Urban Canada as of December 31, 1997 and
1998, and for each of the years in the three-year period ended December 31,
1998, have been included in this Proxy Statement/Prospectus and elsewhere in the
registration statement in reliance upon the report of KPMG LLP, independent
chartered accountants, appearing elsewhere herein and upon the authority of said
firm as experts in accounting and auditing.
54
<PAGE>
INSERT KPMG FINANCIAL STATEMENTS HERE
55
<PAGE>
APPENDIX A
ARTICLES OF CONTINUANCE
OF
URBAN JUICE & SODA COMPANY LTD.
(i) A certified copy of the Memorandum and Articles of Urban Juice & Soda
Company Ltd. ("Urban Canada"), including all amendments thereto, are
attached hereto as EXHIBIT A.
(ii) The name of the corporation is "Urban Juice & Soda Company Ltd."
(iii) Urban Canada was incorporated on December 23, 1986 under the British
Columbia Company Act ("BCCA") under the name 2072 Investment Ltd. On
September 25, 1987, Urban Canada changed its name to Republic Aircraft
Manufacturing Corporation. On June 9, 1992, Urban Canada changed its name
to International Republic Aircraft Manufacturing Corporation and finally
to its present name on May 26, 1993. It has perpetual existence.
(iv) The address of Urban Canada's principle place of business is 1356 Frances
Street, Vancouver, B.C. V5L 1Y9, Canada.
(v) The address of the proposed registered office of Urban Juice & Soda
Company, Ltd. in Wyoming is 1720 Carey Avenue, Cheyenne, Wyoming 82001
and the name of the registered agent at that address is CT Corporations
System.
(vi) The purpose of Urban Juice & Soda Company, Ltd. is to conduct any lawful
business.
(vii) The names and respective business addresses of the directors and officers
of Urban Canada that will become officers and directors of Urban Juice &
Soda Company, Ltd., a Wyoming corporation, upon effectiveness of the
continuation are Peter M. van Stolk, President, Chief Executive Officer
and Director, Jennifer L. Cue, Chief Financial Officer, Secretary and
Director, Peter Strahm, Vice President of Sales-North America, Ron B.
Anderson, Director, Michael M. Fleming, Director, Roly Morris, Director,
Matthew Kellogg, Director and Peter Cooper, Director. Their business
addresses are all 1356 Frances Street, Vancouver, B.C. V5L 1Y9, Canada.
(viii) The aggregate number of shares that Urban Canada is authorized to issue
is 100,000,000 common shares without par value. The common shares are all
of the same class and rank equally as to dividends, voting powers and
participation in assets. No common shares are subject to call or
assessment. There are no pre-emptive or conversion rights and no
provisions for redemption, retraction, purchase for cancellation,
surrender or sinking or purchase funds.
(ix) As of June 11, 1999, Urban Canada has 18,660,914 common shares issued and
outstanding.
(x) Urban Canada accepts the constitution of the State of Wyoming in
compliance with the requirements of Article 10, Section 5 of the Wyoming
constitution.
Executed as of the ___ day of June, 1999.
- ----------------------------
Peter van Stolk, President
56
<PAGE>
APPENDIX B
COMPANY ACT OF BRITISH COLUMBIA
DIVISION 2 - DISSENT PROCEEDINGS
SECTION 207 DISSENT PROCEDURE
(1) If,
(a) being entitled to give notice of dissent to a resolution as provided
in section 37, 103, 126, 222, 244, 249 or 289, a member of a company
(a "dissenting member") gives notice of dissent,
(b) the resolution referred to in paragraph (a) is passed, and
(c) The company or its liquidator proposes to act on the authority of the
resolution referred to in paragraph (a),
The company or the liquidator must first give to the dissenting member
notice of the intention to act and advise the dissenting member of the
rights of dissenting members under this section.
(2) On receiving a notice of intention to act in accordance with subsection (1),
a dissenting member is entitled to require the company to purchase all of the
dissenting member's shares in respect of which the notice of dissent was given.
(3) The dissenting member must exercise the right given by subsection (2) by
delivering to the registered office of the Company, within 14 days after the
company, or the liquidator, gives the notice of intention to act,
(a) a notice that the dissenting shareholder requires the company to
purchase all of the dissenting member's shares referred to in
subsection (2), and
(b) the share certificates representing all of those shares, and, on
delivery of that notice and those share certificates, the dissenting
member is bound to sell those shares to the company and the company
is bound to purchase them.
(4) A dissenting member who has complied with subsection (3), the company, or,
if there has been an amalgamation, the amalgamated company, may apply to the
court, and the court may
(a) require the dissenting member to sell, and the company or the
amalgamated company to purchase, the shares in respect of which the
notice of dissent has been given,
(b) set the price and terms of the purchase and sale, or order that the
price and terms be established by arbitration, in either case having
due regard for the rights of creditors,
(c) join in the application any other dissenting member who has complied
with subsection (3), and
(d) make consequential orders and give directions it considers
appropriate.
(5) The price that must be paid to a dissenting shareholder for the shares
referred to in subsection (2) is their fair value as of the day before the date
on which the resolution referred to in subsection (1) was passed, including any
appreciation or depreciation in anticipation of the vote on the resolution, and
every dissenting member who has complied with subsection (3) must be paid the
same price.
57
<PAGE>
(6) The amalgamation or winding up of the company, or any change in its capital,
assets or liabilities resulting from the company acting on the authority of the
resolution referred to in subsection (1), does not affect the right of the
dissenting member and the company under this section or the price to be paid for
the shares.
(7) Every dissenting member who has complied with subsection (3)
(a) may not vote, or exercise or assert any rights of a member, in
respect of the shares for which notice of dissent has been given,
other than under this section,
(b) may not withdraw the requirement to purchase the shares, unless the
company consents, and
(c) until the dissenting member is paid in full, may exercise and assert
all the rights of a creditor of the company.
(8) If the court determines that a person is not a dissenting member, or is not
otherwise entitled to the right provided by subsection (2), the court, without
prejudice to any acts or proceedings that the company, its members, or any class
of members may have taken during the intervening period, may make the order it
considers appropriate to remove the limitations imposed on the person by
subsection (7).
(9) The relief provided by this section is not available if, subsequent to
giving notice of dissent, the dissenting member acts inconsistently with the
dissent, but a request to withdraw the requirement to purchase the dissenting
member's shares is not an act inconsistent with the dissent.
(10) A notice of dissent ceases to be effective if the dissenting member
consents to or votes in favor of the resolution of the company to which the
dissent relates, unless the consent or vote is given solely as a proxy holder
for a person whose proxy required an affirmative vote.
58
<PAGE>
Consolidated Financial Statements of
URBAN JUICE & SODA COMPANY LTD.
Years ended December 31, 1998 and 1997
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS........................................ F-2
CONSOLIDATED BALANCE SHEETS.............................................. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT........................ F-4
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION................. F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... F-6
SCHEDULE OF OFFICE AND ADMINISTRATION EXPENSES........................... F-21
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
To the Directors
Urban Juice & Soda Company Ltd.
We have audited the consolidated balance sheets of Urban Juice & Soda Company
Ltd. as at December 31, 1998 and 1997 and the consolidated statements of
operations and deficit and changes in financial position for each of the years
in the three year period ended December 31, 1998. 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 Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997, and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1998
in accordance with generally accepted accounting principles in Canada.
Significant measurement differences between Canadian and United States
accounting principles as they affect these consolidated financial statements are
explained and quantified in note 14.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
February 12, 1999, except
as to note 2(a) which is as
of April 12, 1999
F-2
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and term deposits $ 336,983 $ 1,666,086
Accounts receivable (note 3) 1,271,470 809,418
Inventory (note 4) 823,514 1,090,699
Prepaid expenses 334,350 110,927
- --------------------------------------------------------------------------------
2,766,317 3,677,130
Capital assets (note 5) 834,975 667,764
Intangible assets (note 6) 454,099 634,451
- --------------------------------------------------------------------------------
$ 4,055,391 $ 4,979,345
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (note 7) $ 309,600 $ --
Accounts payable and accrued liabilities 1,363,684 1,139,850
Current portion of long-term debt (note 8) 23,645 65,091
- --------------------------------------------------------------------------------
1,696,929 1,204,941
Long-term debt (note 8) 31,915 --
Shareholders' equity:
Share capital (note 9) 12,942,935 12,049,085
Deficit (10,616,388) (8,274,681)
- --------------------------------------------------------------------------------
2,326,547 3,774,404
Operations (note 2(a))
Commitments and contingencies (note 10)
- --------------------------------------------------------------------------------
$ 4,055,391 $ 4,979,345
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Consolidated Statements of Operations and Deficit
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 7,011,046 $ 3,265,317 $ 3,458,701
Cost of sales 5,123,016 2,689,897 3,006,924
- ---------------------------------------------------------------------------------------------
1,888,030 575,420 451,777
Expenses:
Amortization 317,449 197,754 199,446
Bad debts 83,566 463,471 139,301
Consulting fees 167,664 166,426 72,006
Filing fees and transfer agent 23,925 16,340 25,957
Office and administration (schedule) 609,341 794,204 485,068
Professional fees 178,945 148,008 53,869
Promotion and selling 2,221,537 2,111,116 1,307,676
Wages 448,808 366,137 591,654
- ---------------------------------------------------------------------------------------------
4,051,235 4,263,456 2,874,977
- ---------------------------------------------------------------------------------------------
Loss from operations (2,163,205) (3,688,036) (2,423,200)
Other income (expense):
Foreign exchange gain (loss) (72,224) 6,361 --
Other interest expense (16,347) (10,002) (26,527)
Interest income 27,725 57,146 29,055
Write-down of inventory -- (353,797) --
Write-down of intangible assets (102,871) -- --
Miscellaneous income 3,028 5,167 1,341
Gain (loss) on disposal of capital assets (17,813) 12,584 (6,921)
- ---------------------------------------------------------------------------------------------
(178,502) (282,541) (3,052)
- ---------------------------------------------------------------------------------------------
Loss for the year (2,341,707) (3,970,577) (2,426,252)
Deficit, beginning of year (8,274,681) (4,304,104) (1,877,852)
- ---------------------------------------------------------------------------------------------
Deficit, end of year $(10,616,388) $ (8,274,681) $ (4,304,104)
- ---------------------------------------------------------------------------------------------
Loss per share (note 2(g)) $ (0.17) $ (0.33) $ (0.28)
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Consolidated Statements of Changes in Financial Position
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Loss for the year $(2,341,707) $(3,970,577) $(2,426,252)
Items not involving cash:
Amortization 317,449 197,754 199,446
Loss (gain) on disposal of capital assets 17,813 (12,584) 6,921
Write-down of inventory subject to
legal claim -- 353,797 --
Write-down of intangible assets 102,871 -- --
Changes in non-cash operating working capital:
Accounts receivable (462,052) (271,545) (34,884)
Inventory 267,185 (545,394) 289,730
Prepaid expenses (223,423) 651,514 (713,649)
Accounts payable and accrued liabilities 223,834 536,319 (192,528)
- ------------------------------------------------------------------------------------------------
(2,098,030) (3,060,716) (2,871,216)
Financing:
Increase in long-term debt 46,982 -- --
Repayment of long-term debt (56,513) (67,256) (59,071)
Convertible debenture -- -- (248,302)
Issuance of share capital, net 893,850 3,754,339 5,402,476
- ------------------------------------------------------------------------------------------------
884,319 3,687,083 5,095,103
Investments:
Proceeds on disposal of capital assets 11,200 18,084 52,062
Purchase of capital assets (401,352) (545,178) (73,581)
Purchase of intangible assets (34,840) (280,691) (351,144)
- ------------------------------------------------------------------------------------------------
(424,992) (807,785) (372,663)
- ------------------------------------------------------------------------------------------------
Increase (decrease) in cash (bank indebtedness) (1,638,703) (181,418) 1,851,224
Cash (bank indebtedness), beginning of year 1,666,086 1,847,504 (3,720)
- ------------------------------------------------------------------------------------------------
Cash, end of year $ 27,383 $ 1,666,086 $ 1,847,504
- ------------------------------------------------------------------------------------------------
</TABLE>
Cash is defined as cash and term deposits less bank indebtedness.
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS:
The Company develops and distributes sodas and water which are bottled
under contract by third parties.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Operations:
These consolidated financial statements have been prepared on a basis
which assumes the realization of assets and settlement of liabilities
in the normal course of business. During the years ended December 31,
1998, and 1997, the Company incurred losses of $2,341,707 and
$3,970,577, respectively. The Company's ability to continue with its
planned course of expansion and to recover its investment in capital
and intangible assets is dependent upon raising additional financing
and generating future profitable operations. Subsequent to year end,
the Company entered into private placements to raise $2,000,000 in
equity financing.
(b) Basis of consolidation:
The consolidated financial statements include the assets, liabilities,
revenues and expenses of Urban Juice & Soda Company Ltd. (the parent)
and its wholly-owned subsidiaries, Wazu Products Ltd., Zip City
Distribution Co. (Vancouver) Ltd., Vancouver Island Beverage Company
Ltd., and Urban Juice and Soda (USA) Inc. All material intercompany
transactions and balances have been eliminated.
(c) Inventory:
Inventory has been valued at the lower of cost and net realizable value
with cost being determined on a First In - First Out basis. Cost
includes laid-down cost that is cost of material plus the cost of
direct labour applied to the product and applicable overhead chargeable
to production plus delivery and storage costs plus applicable
overheads.
(d) Capital assets:
Capital assets are recorded at cost and are amortized on the declining
balance basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Equipment 20% to 50%
Automobile and computers 30%
Leasehold improvements 20%
Equipment under capital lease lease term
</TABLE>
F-6
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 2
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Intangible assets:
(i) The Company follows the policy of capitalizing development costs,
including artwork and design, marketing and production, and
consulting and licencing relating to new projects. Deferred
development costs are amortized on a straight-line basis over five
years from the date of commercial production. When a project is
abandoned, the related development costs are written off.
(ii) Trademarks and patents are amortized over their estimated useful
lives of five years.
(f) Revenue recognition:
Sales are recorded upon shipment of products, and represent amounts
realized net of sales returns, discounts and allowances.
(g) Loss per share:
Basic loss per share is based upon the weighted average number of
common shares outstanding of 14,037,202 (1997 - 11,868,160; 1996 -
8,779,905). Fully diluted loss per share has not been presented as all
outstanding options and warrants are anti-dilutive.
(h) Foreign currency:
The Company's foreign operations are considered to be integrated and
accordingly the Company uses the temporal method of translation.
Monetary items denominated in foreign currency are translated to
Canadian dollars at exchange rates in effect at the balance sheet date
and non-monetary items are translated at rates of exchange in effect
when the assets were acquired or obligations incurred. Revenues and
expenses are translated at rates in effect at the time of the
transactions. Foreign exchange gains and losses are included in income.
(i) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Items involving the
significant use of management estimates include the carrying value of
intangible assets, collectibility of accounts receivable, useful lives
of capital assets, and valuation of inventory. Actual results could
differ from those estimates.
F-7
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 3
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Trade $ 1,543,110 $ 986,832
Other 36,584 108,195
Allowance for doubtful accounts (308,224) (285,609)
- --------------------------------------------------------------------------------
$ 1,271,470 $ 809,418
- --------------------------------------------------------------------------------
</TABLE>
4. INVENTORY:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 440,234 $ 733,319
Raw materials 383,280 357,380
- --------------------------------------------------------------------------------
$ 823,514 $ 1,090,699
- --------------------------------------------------------------------------------
</TABLE>
5. CAPITAL ASSETS:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Accumulated Net book
1998 Cost amortization value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment $1,249,669 $ 462,737 $ 786,932
Equipment under capital lease 49,455 7,418 42,037
Automotive 40,408 35,343 5,065
Leasehold improvements 1,306 365 941
- ------------------------------------------------------------------------------------
$1,340,838 $ 505,863 $ 834,975
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Accumulated Net book
1997 Cost amortization value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment $927,545 $267,227 $660,318
Automotive 40,048 33,328 6,720
Leasehold improvements 906 180 726
- ------------------------------------------------------------------------------------
$968,499 $300,735 $667,764
- ------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 4
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
6. INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Artwork and design $ 164,867 $ 164,867
Marketing and production, consulting and licensing 418,318 521,189
Trademarks and patents 176,314 141,474
- ----------------------------------------------------------------------------------------
759,499 827,530
Less amortization (305,400) (193,079)
- ----------------------------------------------------------------------------------------
$ 454,099 $ 634,451
- ----------------------------------------------------------------------------------------
</TABLE>
7. BANK INDEBTEDNESS:
Operating line of credit up to an amount of U.S. $1,000,000 bearing
interest at prime plus 1.5% (9.25%), secured by assignment of all assets.
8. LONG-TERM DEBT:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank term loans, repayable in various monthly instalments with interest at
prime plus 1.75% (8.5%), secured by chattel mortgages over equipment of
the Company $ 8,578 $ 65,091
Capital lease obligations payable in monthly instalments of $1,605
including principal and interest at 10.4%, maturing October 2001 46,982 --
- ---------------------------------------------------------------------------------------------------------
55,560 65,091
Less current portion (23,645) (65,091)
- ---------------------------------------------------------------------------------------------------------
$ 31,915 $ --
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Principal portion of long-term debt due within each of the next three years
are as follows:
<TABLE>
<S> <C>
1999 $23,645
2000 16,712
2001 15,203
---------------------------------------------------
$55,560
---------------------------------------------------
</TABLE>
F-9
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 5
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
9. SHARE CAPITAL:
(a) Authorized:
100,000,000 common shares without par value.
(b) Issued:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Number
of shares Amount
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1995 7,354,701 $ 2,892,270
Issued for cash:
Exercise of share purchase options 429,872 547,252
Exercise of share purchase warrants 300,000 303,000
Private placement 186,000 427,320
Conversion of debentures 160,191 248,296
Public offering (net of issue costs of $1,324,014) 2,281,700 3,793,647
Issued for debt 30,148 82,825
Underwriters' unit warrants -- 136
- --------------------------------------------------------------------------------------------
3,387,911 5,402,476
- --------------------------------------------------------------------------------------------
Balance, December 31, 1996 10,742,612 8,294,746
Issued for cash:
Exercise of share purchase options 214,974 271,637
Exercise of share purchase warrants 400,000 368,000
Private placement (net of issue costs of $271,505) 2,293,578 3,168,862
Share issue costs -- (54,160)
- --------------------------------------------------------------------------------------------
2,908,552 3,754,339
- --------------------------------------------------------------------------------------------
Balance, December 31, 1997 13,651,164 12,049,085
Return of shares to treasury (20,000) (21,400)
Issued for cash:
Exercise of share purchase options 605,000 490,250
Private placement (net of issue costs of $32,000) 914,000 425,000
- --------------------------------------------------------------------------------------------
1,519,000 915,250
- --------------------------------------------------------------------------------------------
Balance, December 31, 1998 15,150,164 $ 12,942,935
- --------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 6
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
9. SHARE CAPITAL (CONTINUED):
(c) Share purchase options:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Outstanding Outstanding
December 31, December 31,
Expiry dates Price 1995 Issued Exercised Expired 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1997 $0.95 37,500 -- 22,500 -- 15,000
July 21, 1997 0.84 15,000 -- 10,000 -- 5,000
August 14, 1997 0.86 249,568 -- 237,068 -- 12,500
August 26, 1997 1.07 125,000 -- 5,000 -- 100,000
August 29, 1997 1.13 25,000 -- 25,000 -- --
October 3, 1997 1.64 10,000 -- 304 -- 9,696
November 29, 1997 2.15 200,000 -- 130,000 -- 70,000
February 14, 1998 2.50 -- 90,000 -- -- 90,000
February 22, 1998 3.05 -- 60,000 -- -- 60,000
April 22, 1998 3.25 -- 41,500 -- -- 41,500
November 5, 1998 2.00 -- 165,000 -- -- 165,000
December 13, 1998 1.50 -- 210,000 -- -- 210,000
December 13, 1999 1.50 -- 25,000 -- -- 25,000
December 19, 1998 1.60 -- 320,000 -- -- 320,000
- ------------------------------------------------------------------------------------------------------------------
662,068 911,500 429,872 1,123,696
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Outstanding Outstanding
December 31, December 31,
Expiry dates Price 1996 Issued Exercised Expired 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
May 1, 1997 $0.95 15,000 -- 4,000 11,000 --
July 21, 1997 0.84 5,000 -- 5,000 -- --
August 14, 1997 0.86 12,500 -- 12,500 -- --
August 26, 1997 1.07 100,000 -- 86,800 13,200 --
August 29, 1997 1.64 9,696 -- -- 9,696 --
October 3, 1997 2.15 70,000 -- -- 70,000 --
November 29, 1997 2.50 90,000 -- -- 90,000 --
February 14, 1998 3.05 60,000 -- -- 55,000 5,000
February 22, 1998 3.25 41,500 -- -- 11,500 30,000
April 22, 1998 3.25 -- 6,500 -- -- 6,500
November 5, 1998 2.00 165,000 30,000 -- -- 195,000
December 13, 1998 1.50 210,000 -- 106,674 103,326 --
December 13, 1999 1.50 25,000 -- -- -- 25,000
December 19, 1998 1.60 320,000 -- -- 26,174 293,826
February 7, 1999 1.50 -- 122,000 -- 56,750 65,250
November 10, 1999 1.60 -- 87,500 -- -- 87,500
April 29, 1999 1.75 -- 191,000 -- -- 191,000
September 17, 1999 1.50 -- 155,000 -- -- 155,000
- ------------------------------------------------------------------------------------------------------------------
1,123,696 592,000 214,974 446,646 1,054,076
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 7
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
9. SHARE CAPITAL (CONTINUED):
(c) Share purchase options (continued):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Outstanding Outstanding
December 31, December 31,
Expiry dates Price 1997 Issued Exercised Expired 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
February 14, 1998 $2.00 5,000 -- -- 5,000 --
February 22, 1998 3.05 30,000 -- -- 30,000 --
April 22, 1998 3.25 6,500 -- -- 6,500 --
November 5, 1998 2.00 195,000 -- -- 195,000 --
December 13, 1999 1.50 25,000 -- -- -- 25,000
February 7, 1999 1.50 65,250 -- -- -- 65,250
December 19, 1998 1.60 293,826 -- -- 293,826 --
March 10, 2002 1.60 87,500 -- -- -- 87,500
April 29, 1999 1.75 191,000 -- -- 99,000 92,000
September 17, 1999 1.50 155,000 -- -- 75,000 80,000
January 19, 2003 0.85 -- 350,000 285,000 6,000 59,000
February 13, 2003 1.00 -- 350,000 320,000 -- 30,000
February 23, 2003 1.00 -- 295,000 -- -- 295,000
March 24, 2003 1.00 -- 100,000 -- -- 100,000
May 22, 2003 1.15 -- 125,000 -- -- 125,000
September 17, 1999 1.15 -- 5,000 -- -- 5,000
May 22, 2000 1.15 -- 11,000 -- -- 11,000
June 1, 2003 1.15 -- 232,000 -- -- 232,000
July 24, 2003 1.00 -- 270,000 -- -- 270,000
October 9, 2003 1.00 -- 10,000 -- -- 10,000
June 1, 2000 1.15 -- 8,000 -- -- 8,000
- ------------------------------------------------------------------------------------------------------------------
1,054,076 1,756,000 605,000 710,326 1,494,750
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) Share purchase warrants:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Outstanding Outstanding
December 31, December 31,
Expiry dates Price 1995 Issued Exercised 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
On or before June 9, 1996 $ 1.01 300,000 -- 300,000 --
On or before August 14, 1997 0.92 400,000 -- -- 400,000
On or before November 14, 1997 1.96 300,000 -- -- 300,000
On or before February 26, 1997/98 2.50/2.88 -- 350,000 -- 350,000
On or before January 17, 1997/98 1.52/1.75 -- 66,000 -- 66,000
On or before September 17, 1997/98 2.70/3.375 -- 2,281,700 -- 2,281,700
- -------------------------------------------------------------------------------------------------------------------
1,000,000 2,697,700 300,000 3,397,700
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 8
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
9. SHARE CAPITAL (CONTINUED):
(d) Share purchase warrants (continued):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Outstanding Outstanding
December 31, December 31,
Expiry dates Price 1996 Exercised Expired 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
August 14, 1997 $0.92 400,000 400,000 -- --
November 14, 1997 $1.96 300,000 -- 300,000 --
February 26, 1997/98 $2.50/2.88 350,000 -- -- 350,000
January 17, 1997/98 $1.52/$1.75 66,000 -- 66,000 --
September 17, 1997/98 $2.70/$3.75 2,281,700 -- -- 2,281,700
- -------------------------------------------------------------------------------------------------------------------
3,397,700 400,000 366,000 2,631,700
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Outstanding Outstanding
December 31, December 31,
Expiry dates Price 1997 Issued Expired 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
February 26, 1997/98 $2.50/$2.88 350,000 -- 350,000 --
September 17, 1997/98 $2.57/$3.75 2,281,700 -- 2,281,700 --
December 9, 2000/2001 $0.60 -- 850,000 -- 850,000
- -------------------------------------------------------------------------------------------------------------------
2,631,700 850,000 2,631,700 850,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(e) Brokers' unit warrants:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Outstanding Outstanding
December 31, December 31,
Expiry dates Price 1997 Issued Exercised Expired 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 9, 2000/2001 $ 0.60 -- 64,000 -- -- 64,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 9
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES:
(a) Lease commitments:
The Company has lease commitments for office and warehouse premises
expiring at various dates. The agreements require base rental payments
over the next five years as follows:
<TABLE>
<S> <C>
1999 $ 52,534
2000 52,744
2001 53,623
2002 55,380
2003 55,380
------------------------------------------------
$269,661
------------------------------------------------
</TABLE>
(b) Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 Issue may be experienced before, on, or after January 1, 2000,
and, if not addressed, the impact on operations and financial reporting
may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
11. INCOME TAXES:
The Company, through its subsidiaries, has tax losses carried forward of
approximately $10,000,000 which may be applied against future earnings.
These losses expire between 1999 and 2005. The future income tax benefits
which may result from these losses have not been recognized in the
financial statements.
12. SEGMENTED INFORMATION AND EXPORT SALES:
The Company operates in one industry segment and substantially all of its
operations are based in Canada. During the year ended December 31, 1998,
export sales to the United States were approximately $5,460,000 (1997 -
$2,143,000).
F-14
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 10
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
13. FINANCIAL INSTRUMENTS:
(a) Fair values:
As at December 31, 1998, the carrying amounts reported in the balance
sheets for cash and term deposits, accounts receivable, accounts
payable and accrued liabilities and long-term debt approximate fair
values, due to short term to maturity of these instruments.
(b) Concentration of credit risk:
The Company mainly sells its products to customers in the United States
and Canada. Customers in the United States represent 78% (1997 - 76%),
while customers in Canada represent 22% (1997 - 24%) of year end
accounts receivable balances.
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP):
(a) The following table sets forth a reconciliation of loss determined
under Canadian GAAP with that determined under United States GAAP
adjusted to expense product development costs as period costs:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss determined under Canadian GAAP $(2,341,707) $(3,970,577) $(2,426,252)
Income (expense) relating to product
development costs 84,000 (39,911) (273,479)
------------------------------------------------------------------------------------------
Loss determined under United
States GAAP $(2,257,707) $(4,010,488) $(2,699,731)
------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 11
Years ended December 31, 1998, 1997 and 1996
- -------------------------------------------------------------------------------
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (CONTINUED):
(b) Loss per share:
The Company has adopted Statement of Financial Accounting Standard
No. 128 ("SFAS 128") "Loss Per Share".
The loss per share computed in accordance with Canadian GAAP includes
1,500,000 common shares held in escrow. Under U.S. GAAP, such common
shares would not be included in loss per share calculations and, upon
eligibility for release from escrow, the fair value of these shares
would be charged against income as compensation expense. Loss per share
calculated in accordance with U.S. GAAP would be as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average number of
common shares 14,037,202 11,868,160 8,779,905
Less common shares held in escrow 1,500,000 1,500,000 1,500,000
- -----------------------------------------------------------------------------------------------
Weighted average number of shares
for purposes of loss per share
calculation 12,537,202 10,368,160 7,279,905
- -----------------------------------------------------------------------------------------------
Loss per share $ (0.18) $ (0.39) $ (0.37)
- -----------------------------------------------------------------------------------------------
</TABLE>
(c) The following sets forth the effect of adjusting for expenditures
relating to product development costs, which are expensed as period
costs under U.S. GAAP, on the assets and shareholders' equity of the
Company:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Artwork and design expenditure $ 164,867 $ 164,867
Marketing, production consulting and licensing expenditures 418,318 418,318
Amortization (259,191) (175,191)
- -----------------------------------------------------------------------------------------------
Decrease in intangible asset 323,994 407,994
Increase in deficit 323,994 407,994
- -----------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 12
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (CONTINUED):
(d) Statements of cash flows:
Cash flows from operating, financing and investing activities would be
presented as follows under United States accounting principles:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $6,552,022 $3,210,648 $2,710,460
Cash paid to suppliers and employees (8,567,763) (6,340,832) (5,506,717)
Interest received 27,725 57,146 --
Interest paid (16,347) (9,479) (61,611)
- -----------------------------------------------------------------------------------------------
Net cash used in operating activities (2,004,363) (3,082,517) (2,857,868)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in bank indebtedness 309,600 -- --
Proceeds on issuance of share capital 893,850 3,754,339 4,867,347
Payments of bank loan (56,513) (67,256) (33,784)
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,146,937 3,687,083 4,833,563
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of capital assets (354,370) (545,178) (98,868)
Purchase of intangibles (56,283) (265,251) (77,665)
Proceeds from capital assets 11,200 18,084 52,062
- ------------------------------------------------------------------------------------------------
Net cash provided by investing activities (399,453) (792,345) (124,471)
- ------------------------------------------------------------------------------------------------
Foreign exchange loss on cash held in
foreign currency (72,224) 6,361 --
- ------------------------------------------------------------------------------------------------
Increase (decrease) in cash (1,329,103) (181,418) 1,851,224
Cash (bank indebtedness),
beginning of year 1,666,086 1,847,504 (3,720)
- ------------------------------------------------------------------------------------------------
Cash, end of year $ 336,983 $1,666,086 $1,847,504
- ------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 13
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (CONTINUED):
(d) Statements of cash flows (continued):
The following non-cash transactions have not been reflected in the
above statement:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Conversion of debt to shares $ -- $ -- $ (82,825)
Conversion of debentures -- -- (286,825)
Capital lease obligations 46,982 -- --
- ------------------------------------------------------------------------------------------------------
</TABLE>
(e) Accounting for income taxes:
Under the asset and liability method of Statement of Financial
Accounting Standard No. 109 ("FAS 109"), deferred income tax assets and
liabilities are measured using enacted tax rates to reflect the future
income tax consequences attributable to differences between the
financial statement carrying amount of existing assets and liabilities
and their respective tax losses. There is no effect of adopting the
provisions of FAS 109 on the Company's financial statements, since the
Company's deferred tax assets under U.S. GAAP as at December 31, 1998
and 1997 were offset by a valuation allowance.
The Company's deferred tax asset consists of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carry forwards $ 4,500,616 $ 2,856,051
Capital assets 234,869 112,965
Intangible assets (204,345) (285,503)
- -------------------------------------------------------------------------
Total gross deferred tax assets 4,531,140 2,683,513
Less valuation allowance (4,531,140) (2,683,513)
- -------------------------------------------------------------------------
Net deferred tax assets $ -- $ --
- -------------------------------------------------------------------------
</TABLE>
(f) Comprehensive income:
Net income for the Company is the same as comprehensive income.
F-18
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
Notes to Consolidated Financial Statements, page 14
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
14. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (CONTINUED):
(g) Stock based compensation:
For United States GAAP purposes the Company has adopted the disclosure
provisions of Statement of Financial Accounting Standard No. 123 ("FAS
123"), Accounting for Stock-Based Compensation. The Company continues
to record compensation expense following the intrinsic value principles
of APB 25 for Accounting Stock Issued to Employees, under which no
compensation expense has been recognized in 1998.
Had compensation cost been determined based on fair value at grant
dates for awards under those plans consistent with the measurement
provisions of FAS 123 net loss under United States GAAP would have been
$3,042,018 for the year ended December 31, 1998 (1997 - $4,285,876;
1996 - $3,197,908) and basic loss per share would have been $0.24 (1997
- $0.32; 1996 - $0.44). For these purposes, the fair value of each
option is estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted average assumptions;
dividend yield 0% (1997 - 0%; 1996 - 0%), Canadian risk-free interest
rates 4.84% (1997 - 5.22%; 1996 4.24%) and expected option term of
between one to five years. The weighted average fair value of the
options granted was $0.45 (1997 - $0.51; 1996 - $0.55) per option.
15. COMPARATIVE FIGURES:
Certain of the 1996 and 1997 comparative figures have been reclassified to
conform with the financial presentation adopted in 1998.
F-19
<PAGE>
URBAN JUICE & SODA COMPANY LTD.
SCHEDULE OF OFFICE AND ADMINISTRATION EXPENSES
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Automobile $ 62,326 $ 54,955 $ 16,072
Bank charges 18,532 12,054 26,502
Insurance, taxes and licences 96,144 176,100 52,646
Office supplies, printing and postage 201,190 225,599 125,367
Public company expense 19,656 101,025 26,013
Rent 91,869 105,816 114,358
Repairs and maintenance 5,842 10,513 18,428
Telephone 113,782 108,142 105,682
- -------------------------------------------------------------------------------------------------------------------
$ 609,341 $ 794,204 $ 485,068
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subject to the provisions of the WBCA the directors shall cause Urban
Wyoming to indemnify a director or former director of Urban Wyoming and the
directors may cause Urban Wyoming to indemnify a director or former director of
a corporation of which Urban Wyoming is or was a shareholder and the heirs and
personal representatives of any former director against all costs, charges and
expenses, including an amount to settle an action or satisfy a judgment,
actually and reasonably incurred by him or them including an amount paid to
settle an action or satisfy a judgment in a civil, criminal or administrative
action or proceeding to which he is or they are made a party by reason of his
being or having been a director including any action brought by Urban Wyoming.
Each director of Urban Wyoming on being elected or appointed shall be deemed to
have contracted with Urban Wyoming on the terms of this indemnity.
Subject to the provisions of the WBCA, the directors may cause Urban
Wyoming to indemnify any officer, employee or agent of Urban Wyoming or of a
corporation of which Urban Wyoming is or was a shareholder (notwithstanding that
he is also a director) and his heirs and personal representatives against all
costs, charges and expenses whatsoever incurred by him or them and resulting
from his acting as an officer, employee or agent of Urban Wyoming or the
corporation.
The failure of a director or officer of Urban Wyoming to comply with the
provisions of the WBCA or of the Articles of Continuance shall invalidate any
indemnity to which he is entitled under this Part.
The directors may cause Urban Wyoming to purchase and maintain insurance
for the benefit of any person who is or was serving as a director, officer,
employee or agent of Urban Wyoming or as a director, officer, employee or agent
of any corporation of which Urban Wyoming is or was a shareholder and his heirs
or personal representatives against any liability incurred by him as a director,
officer, employee or agent.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
3.1* Articles of Continuance of Urban Juice & Soda Company Ltd.
3.2** Memorandum of Urban Juice & Soda Company Ltd.
3.3** Articles of Urban Juice & Soda Company Ltd.
4.1*** Form of Common Share Purchase Warrant
5.1*** Form of Opinion of Bagley Law Office
10.1**** Bottling Agreement between Urban Juice & Soda and World Choice
Bottling Corp.
10.2**** Bottle Supply Agreement between Urban Juice & Soda and
Zuckerman-Honickman, Inc.
23.1*** Consent of Bagley Law Office (included in Exhibit 5.1)
23.2 Consent of KPMG
24.1 Power of Attorney (included in the Signature Page to this
Registration Statement)
99.1 Letter to Shareholders
99.2 Notice of Extraordinary General Meeting of Shareholders
- -------------------
(*) Included as Appendix A to the information circular/prospectus.
(**) Filed as an exhibit to the SB-2 Registration Statement
(No. 333-5156-LA), as amended through the date hereof and incorporated
herein by reference.
(***) To be filed by amendment.
(****) Confidential treatment requested.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned 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:
(i) To include any prospectus required by section 10(a)(3)of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the 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) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes
that such reoffering prospectus will contain the information called for
by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(5) That every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will
not be used until such amendment is effective, and that, for purposes
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.
(6) To respond to requests for information that is incorporated by
reference into the information circular/prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and Urban Canada being acquired involved
therein, that was not the subject of and included in the Registration
Statement when it became effective.
Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 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 Securities Act of 1933 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
II-3
<PAGE>
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 whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Vancouver, British
Columbia, on June ___, 1999.
URBAN JUICE & SODA CO.
By /s/ Peter van Stolk
--------------------------------------
Peter van Stolk
President and Chief Executive Officer
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Peter M. van Stolk President, Chief June ___, 1999
- ------------------------------------ Executive Officer and
Peter M. van Stolk Director (Principal
Executive Officer)
/s/ Jennifer L. Cue Chief Financial June ___, 1999
- ------------------------------------ Officer, Secretary and
Jennifer L. Cue Director (Principal Financial
and Accounting Officer)
* Director June ___, 1999
- ------------------------------------
Ron B. Anderson
* Director June ___, 1999
- ------------------------------------
Michael M. Fleming
* Director June ___, 1999
- ------------------------------------
Roly Morris
*/s/ Jennifer Cue Attorney-in-Fact June ___, 1999
- ------------------------------------
Jennifer Cue
</TABLE>
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Peter M. van Stolk and Jennifer L. Cue,
or either of them, such person's true and lawful attorneys-in-fact and agents,
such person's name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done as fully
to all intents and purposes as such person might or could do in person, hereby
ratify and confirming all that said attorneys-in-fact and agents, or any
substitute or substitutes of any of them, may lawfully do or cause to be done by
virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Matthew Kellogg Director June ___, 1999
- -------------------------------
Matthew Kellogg
/s/ Peter Cooper Director June ___, 1999
- -------------------------------
Peter Cooper
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1* Articles of Continuance of Urban Juice & Soda Company Ltd.
3.2** Memorandum of Urban Juice & Soda Company Ltd.
3.3** Articles of Urban Juice & Soda Company Ltd.
4.1*** Form of Common Share Purchase Warrant
5.1 Form of Opinion of Bagley Law Office.
10.1**** Bottling Agreement between Urban Juice & Soda and World Choice
Bottling Corp.
10.2**** Bottle Supply Agreement between Urban Juice & Soda and Zuckerman-
Honickman, Inc.
23.1*** Consent of Bagley Law Office.
(included in Exhibit 5.1)
24.1 Power of Attorney (included in the Signature Page to this
Registration Statement)
99.1 Letter to Shareholders
99.2 Notice of Extraordinary General Meeting of Shareholders
</TABLE>
- -------------------
(*) Included as Appendix A to information circular/prospectus.
(**) Filed as an exhibit to the SB-2 Registration Statement
(No. 333-5156-LA), as amended through the date hereof and incorporated
herein by reference.
(***) To be filed by amendment.
(****) Confidential treatment requested.
II-7
<PAGE>
[LETTERHEAD]
June 28, 1999
Urban Juice & Soda Company Ltd.
1256 Frances Street
Vancouver, B.C. V5L 1Y9
CANADA
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
You have asked my opinion with respect to certain matters concerning the
Wyoming Business Corporations Act in connection with the filing by Urban
Juice & Soda Company Ltd., a proposed Wyoming corporation (the "Company")
of a Registration Statement on Form S-4 (the "Registration Statement") with
the Securities and Exchange Commission relating to the continuation of the
Company from the Province of British Columbia (Canada) into Wyoming (USA),
and the issuance of shares of common stock of the Company (the "Shares"), and
warrants to purchase Shares (the "Warrants"), in connection therewith. The
Shares may be exchanged for existing common shares of Urban Juice & Soda
Company Ltd., a British Columbia corporation ("Urban Canada"), as described
in the Registration Statement, and pursuant to the filing of Articles of
Continuance in the State of Wyoming filed as an exhibit thereto.
In rendering the opinion set forth below, I have examined the Wyoming
Business Corporation Act ("WBCA") and the seventy-two page Registration
Statement identifying the Shares.
It is my opinion that: (1) upon completion of an Application for a
Certificate of Registration in Wyoming supported by Articles of Continuance,
withdrawal of the entity from British Columbia and completion of the
proceedings being taken or contemplated prior to the issuance of the Shares;
<PAGE>
Urban Juice & Soda Company Ltd.
Page 2
June 28, 1999
and (2) upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states, where required, the Shares when issued and sold in the
manner referred to in the Registration Statement will be legally and validly
issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto, including any and all post
effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act, and to the reference to our firm in the Prospectus of the
Registration Statement under the heading "Legal Matters." In giving such
consent, I do not thereby admit that we are in the category of person whose
consent is required under Section 7 of the Securities Act.
Yours,
William D. Bagley
WDB:alf
<PAGE>
CERTAIN INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT 10.1, AS INDICATED BY
"***", PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS BEEN FILED
SEPARATELY WITH THE COMMISSION.
[logo of Urban Juice & Soda]
[letterhead of Urban Juice & Soda]
Bottling Agreement:
World Choice Bottling Corp.
1. PERIOD AND TERM
This Agreement between Urban Juice & Soda and World Choice Bottling
commences on February 24, 1999 and extends for a period of three
years, expiring on February 23, 2002. At the termination of this three
year term, this contract between Urban Juice & Soda and World Choice
Bottling may be renewed for a second term of three years, subject to
the mutual Agreement of both Urban Juice & Soda and World Choice
Bottling.
2. VOLUME GUARANTEE
Urban Juice & Soda agrees to produce a minimum of 1,600,000 cases
during the three (3) year term of this Agreement. If, at the end of
this (3) year Agreement, Urban Juice & Soda has not purchased the
required number of cases, Urban Juice & Soda will pay $***/case for
every case short of 1,600,000 cases.
3. PACKAGE AND PRODUCTS
This Agreement covers the following package and products produced in
12 oz. N.R. Flint Soda Glass in trays or Tab-Lock RSC cartons and 28
mm R.O.P.P. closures, with a full wrap-around paper label (dim: 8" x
3 1/4").
<TABLE>
<CAPTION>
Brand Size Products Case Pack
------------------------------------------------------------
<S> <C> <C> <C>
Jones Soda 12 oz. (355 ml) 16 SKUs 24 (bottles) per case
Jones Soda 4 x 12 oz. (355 ml) 6 SKUs 6 (4-packs) per case
</TABLE>
Flavors, packages and/or SKUs may be changed or added at any time
without notice from Urban Juice & Soda.
4. QUALITY ASSURANCE PROCEDURES
World Choice agrees to abide by all Standards and Procedures as set in
the Urban Copacker Manual. World Choice will not be held liable, or be
required to incur any additional production cost over and above
industry standards, in complying with the Standards and Procedures as
set out by Urban Juice & Soda. Inability to reasonably comply with all
of Urban's Standards and Procedures may result in immediate
termination of this Agreement and as such, World Choice will not be
entitled to compensation as outlined in Section 2.
Page 1 of 6
<PAGE>
[logo of Urban Juice & Soda]
5. SUPPLY AND MANAGEMENT OF INGREDIENTS AND PACKAGING MATERIALS
World Choice Bottling will purchase all ingredients as listed in
Schedule "A" (sweetener, acidulates, and preservatives) with the
exclusion of Concentrates, and then calculate a per case price back
(in addition to the $*** copack fee) to Urban based on the Jones Soda
Formulations provided by Urban and with costs according to Schedule
"A". The costs set forth in Schedule "A" may change with 30 days prior
written notice and only as a direct result of a supplier price
increase or decrease to World Choice Bottling.
Urban Juice will supply required amounts of packaging materials for
the manufacturing and packing of the products as set out in Schedule
"A". World Choice Bottling will schedule delivery of packaging
materials as required (with the exclusion of labels & concentrate)
from the supply as ordered and/or purchased by Urban. Each material
supplier will invoice Urban directly for all such materials.
At the conclusion of each production run, World Choice Bottling will
provide receipt documentation of all materials received and a full
inventory of left-over materials. World Choice Bottling will be held
responsible for all materials received to World Choice's Bottling
facility in accordance with wastage allowances and costs as in
Schedule "A".
6. PACKAGING FEES
World Choice Bottling will charge $*** CAD per case inclusive of
water, labour and all incidental packaging materials (glue, stretch
wrap, shrink-wrap, ink, etc.) for the manufacture of Jones Soda.
7. LABEL CHANGES
World Choice Bottling will allow one (1) extra label change (first
label is not considered a change) per SKU at no extra charge. Urban
Juice & Soda will pay $*** for every change on the same SKU thereafter.
8. MINIMUM RUNS
Urban Juice & Soda agrees to schedule minimum total production runs of
20,000 total cases. In addition, the minimum run per package (single
serve or 4-packs) must be no less than 15,000 cases.
9. ADDITIONAL LABOUR COSTS
In the event that 4-packs must be erected by hand, Urban Juice & Soda
agrees to pay (for 4-pack production only) either $***/cs or World
Choice labour cost, whichever is less.
Page 2 of 6
<PAGE>
[logo of Urban Juice & Soda]
10. WAREHOUSING STORAGE AND HANDLING (RAW MATERIALS/FINISHED GOODS)
World Choice Bottling will store all required raw materials to a
maximum of 2000 square feet at no additional cost to Urban Juice &
Soda Co. In addition, World Choice will store all Jones Soda finished
product produced at World Choice for a flat fee of $***/case including
all storage and handling. Urban Juice & Soda will pay an additional
order picking charge of $***/case for shipments other than 60 cases (1
pallet) per flavor. Urban Juice & Soda will require storage space for
a maximum of 75,000 cases stacked two pallets high (or approximately
11,000 square feet) at any given time. Urban Juice & Soda will also
have right of first refusal to any space available in addition to the
allowed maximum. If at any such time during the course of this
Agreement World Choice does not have sufficient space to store product
produced at its own facility under the allowed maximum, arrangements
may be made by World Choice to store the extra product, at World
Choice's cost, at an outside facility with prior written approval by
Urban Juice & Soda. Conversely, the same such arrangements will be the
responsibility of Urban Juice & Soda if there is not sufficient space
to store any product produced at World Choice over the allowed maximum.
11. INSURANCE
World Choice Bottling will maintain product liability insurance of CDN
$10,000,000 for all Urban Juice & Soda products produced at World
Choice Bottling.
12. VOLUME DISCOUNT
The following earned credit program is based on annual case volumes
and is discounted off aggregate Packaging Fees. During the course of
this agreement, the Annual Volume for the previous year will be
calculated and immediately payable to Urban Juice & Soda upon
completion of World Choice Bottling annual independent audit, but not
later than February 15. Should audit completion occur after February
15, the Volume Discount shall be subject to verification and
correction by said audit.
<TABLE>
<CAPTION>
Annual Volume Discount
-------------------------------------
<S> <C>
200,000 - 500,000 cases $***/case
500,000 - 1,000,000 cases $***/case
> 1,000,000 cases $***/case
</TABLE>
13. EQUIPMENT
World Choice will purchase and install equipment to facilitate the
following: receipt of glass bottles in bulk configuration, form trays
3-1/4" in height), and shrink-wrap the finished product. In addition,
World Choice is receptive to further negotiation for any additional
equipment that may be required.
Page 3 of 6
<PAGE>
14. ASSIGNMENT
This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Neither party shall assign this Agreement without
the prior written consent of the other party, assign to anyone including
a subsidiary or affiliate, or such party's rights, but not obligations, to
any lender of such party. Subject to obtaining the written consent of
World Choice, Urban Juice & Soda agrees that in the event Urban Juice &
Soda conveys the bulk of its business to a third party (whether pursuant
to an asset sale, stock sale or otherwise) during the term of this
Agreement, Urban Juice & Soda shall cause the purchaser of such assets,
stock or otherwise, as the case may be, to assume the obligations of
Urban Juice & Soda under this Agreement.
15. TERMS
Net 30 days from the final date of finished goods production. In the event
that any monetary obligations of any nature owed by the Company to World
Choice hereunder are not paid by the Company when due, the Company shall,
in addition to the unpaid monetary obligations, pay to World Choice
hereunder interest on such unpaid amount at a rate equal to ***(***%)
per cent per annum in excess of the prime interest rate charged by The
Royal Bank of Canada at Vancouver, British Columbia until such monies are
totally paid. In addition, after thirty (30) days from the due date of any
unpaid monetary obligations by the Company, World Choice may withhold
shipments of any kind until all invoices are paid current, or unless it
has been mutually agreed upon to extend. Further, after sixty (60) days
from the due date of any unpaid monetary obligations by the Company, World
Choice as a partial recourse may sell or otherwise dispose of any
Ingredients, Packaging and Products in the ordinary course of business but
must express, in writing to Urban Juice & Soda, its intentions to exercise
that recourse thirty (30) days prior to such action.
16. ARBITRATION
World Choice Bottling and Urban Juice & Soda agree to use their best
efforts to settle any controversy, dispute or claim arising out of or in
connection with this Agreement quickly, amicably and in the most cost
effective manner. Each party agrees before taking any other action to
notify the other party in writing of any dispute or claim arising out of
or relating to this Agreement. The parties agree to use their best efforts
to communicate with each other to attempt to resolve the dispute or claim.
If the dispute or claim has not been resolved within 30 days after receipt
of written notification of the dispute or claim, the parties then agree to
submit the matter to arbitration, in accordance with the provisions of the
Commercial Arbitration Act of British Columbia. Arbitration shall be
Page 4 of 6
<PAGE>
before a single arbitrator. If the parties cannot agree on a single
arbitrator, then the arbitrator shall be appointed by a Justice of the
Supreme Court of British Columbia. The decision of the arbitrator shall be
final and binding upon the parties.
This agreement is governed by the laws of British Columbia, Canada. The
undersigned hereby agree that jurisdiction and venue for any litigation
arising out of this Agreement shall be in Vancouver, British Columbia,
Canada. In the event of such litigation the prevailing party shall be
entitled to its reasonable attorney's fees and costs of suit.
17. FORCE MAJEURE
Neither party shall be held liable for its failure to perform any of its
obligations under this Agreement due to a cause beyond its reasonable
control including, but not limited to, acts of God, fire, storm, flood,
explosion, equipment failure (other than failure due to negligence on
behalf of World Choice), strike, lockout or other industrial disturbance,
act of public enemy, war, riot, laws, rules and regulations or orders of
any duly constituted government authority, or non-availability of
materials or transportation (each an "Intervening Event"). Each party
shall take all reasonable steps to eliminate any Intervening Event and
will perform all its obligations under this Agreement as far as
practicable, but nothing herein will require either party to complete its
obligations under this Agreement if the Intervening Event renders
completion impossible. The inability of World Choice to produce Jones
Soda for a period of more than 30 days due to any Intervening Event,
including those due to negligence, may result in the immediate
termination of this Agreement and as such, World Choice will not be
entitled to compensation as outlined in Section 2.
18. AGREEMENT
This Agreement contains the entire understanding between the parties with
respect to the subject matter hereof, superseding all prior written or
oral understandings or agreements. This Agreement may only be amended in
writing, signed by both parties.
Accepted and Approved: Sincerely,
WORLD CHOICE BOTTLING CO. URBAN JOICE & SODA CO.
By: /s/ Brian Hart /s/ Jennifer Cue
----------------------------- Jennifer Cue,
Brian Hart Chief Financial Officer
Title: Vice President
-------------------------- /s/ Paul Weinstein
Paul Weinstein,
Operations Manager
Date: February 26, 1999
---------------------------
Page 5 of 6
<PAGE>
SCHEDULE "A"
LIST OF INGREDIENTS, PACKAGING MATERIALS,
WASTE ALLOWANCE AND PRICES
<TABLE>
<CAPTION>
ITEM PRICE (Cdn) LOSS ALLOWANCE
- -----------------------------------------------------------------------------------
<S> <C> <C>
INGREDIENTS (PURCHASED BY WORLD CHOICE)
Fructose "55" $***/kg 3.0%
Citric Acid $***/kg 3.0%
Malic Acid $***/kg 3.0%
Phosphoric Acid $***/kg 3.0%
Sodium Benzoate $***/kg 3.0%
Potassium Sorbate $***/kg 3.0%
CO2 $***/kg 3.0%
PACKAGING MATERIALS & CONCENTRATES (PURCHASED BY URBAN JUICE & SODA)
Concentrate *** 3.0%
Color & Caffeine *** 3.0%
Bottles (12 oz.) $***/gross 2.0%
Labels $***/1000 2.0%
Closures (R.O.P.P.) $***/1000 1.0%
Trays $***/1000 1.0%
Pallets $*** each 0.0%
</TABLE>
**Loss allowance factors may be changed by mutual consent.**
Page 6 of 6
<PAGE>
Exhibit 10.2
CERTAIN INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT 10.2, AS INDICATED BY
"***", PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS BEEN FILED
SEPARATELY WITH THE COMMISSION.
[ZUCKERMAN-HONICKMAN LETTERHEAD]
URBAN JUICE AND SODA COMPANY
BOTTLE SUPPLY AGREEMENT
This bottle supply agreement is made this 10th day of December, 1998 by
and between Zuckerman-Honickman, Inc. ("Z-H") and Urban Juice & Soda Company
("Urban Juice"). In consideration of the mutual promises herein contained and
intending to be legally bound, both parties agree as follows:
1. REQUIREMENTS: Urban Juice agrees to purchase 100% of their glass soda
bottle requirements from Z-H. Z-H will have the right of first refusal to
supply existing and new business upon the terms and conditions specified
hereinafter. If Z-H is unable to fulfill the request, then Urban will have
the right to seek supply or quotes from additional suppliers. The required
minimum annual purchases will be a total of 750,000 cases (24 bottles per
case) of bottles annually for the term of the contract.
A. BOTTLE PRICING:
OWENS ILLINOIS BOTTLES
<TABLE>
<CAPTION>
BOTTLE PACKING PRICE SHIP TO LOCATION
- ------ ------- ----- ----------------
<S> <C> <C> <C>
12 oz. Flint Long Neck Glass Bulk ***/Gross Lawrenceburg, Indiana
Bottle w/ROPP Finish
12 oz. Flint Long Neck Glass Bulk ***/Gross Vancouver, BC. and
Bottle w/ROPP Finish Southern California
12 oz. Flint Long Neck Glass RSC, White, 1 Color, ***/Gross Vancouver, BC. and
Bottle w/ROPP Finish 4 Packs Inserted Southern California
12 oz. Flint Long Neck Glass RSC, White, 1 Color, ***/Gross Vancouver, BC. and
Bottle w/ROPP Finish Glass-to-Glass Southern California
</TABLE>
B. FREIGHT: All pricing is delivered to Lawrenceburg, IN, Vancouver, BC
and Southern California from the chosen plant of manufacture. Presently,
bottles are scheduled for production in Zanesville, OH and Portland, OR.
<PAGE>
C. PRICE INCREASES AND DECREASES: Prices hereunder will be those charged
by Owens Illinois effective December 1, 1998, and will remain the same
throughout 1999. Prices are subject to change thereafter with OIGS (Owens
Illinois Global Sourcing) announced industry pricing changes restricted to
increases no more than 4% during either of the second or third twelve month
periods. Notices of increases or decreases will be provided within 48 hours
of receipt of notice of such changes by Z-H. Pricing will be effective a
minimum of 30 days after notice of increase or decrease. During the term of
this agreement, Owens and Z-H will provide Urban with competitive pricing, as
compared to that of the other major glass manufacturers. Industry increases
are defined as an increase announced by more than one major North American
glass manufacturer.
D. DUNNAGE: All pallets, frames and tier sheets will be memo billed to
Urban Juice and rectified on a quarterly basis. Urban Juice shall be
responsible for the replacement of those pallets, frames and tier sheets lost
or damaged due to Urban Juice's negligence. Bulk pallets, tier sheets and
frames are returnable and cost *** each. These costs will be memo billed as
they are released and reconciled on a quarterly basis. The cost of *** will
remain as it is for the effectiveness of this agreement.
2. STORAGE: Urban Juice will be granted six months of free storage at an
Owens Illinois warehouse. However, the storage charge for ware still
remaining after six months will be $0.61 per gross per month. Urban Juice
shall be required to purchase from Z-H all existing glass bottle inventory
produced for Urban Juice at any of the Owens Illinois plants at the end of
said contract term. The cost of *** per gross per month for storage will
remain as it is for the effectiveness of this agreement.
3. QUALITY: Z-H agrees to supply Urban Juice quality bottles that are
consistent with industry standards. If Z-H fails to supply Urban Juice with
quality bottles, Urban Juice will give Z-H notice in writing, detailing the
precise nature of the alleged lack of quality. Z-H will then have a thirty
(30) day period in which to cure the alleged lack of quality. If the bottles
still fail to meet industry standards at the conclusion of thirty (30) days,
Urban Juice will be free to purchase replacement bottles from an alternative
supplier for any bottles that do not meet industry standards. Urban retains
the right to receive compensation for damages incurred by lower than industry
standard bottles according to the conditions described above and based on the
following claim procedure: 1. All claims must be submitted by Urban to Z-H in
writing at the time the damages occurred. 2. All claims must be processed
through Owens and Z-H within thirty (30) days. 3. Z-H will issue a credit to
Urban's account in which Urban will then have the right to apply the credit
to the invoice in question. If the above quality problem is not cured, then
the agreement will be considered canceled and Urban will therefore not be
responsible for the balance of the mold costs.
4. MOLD COSTS: Blow mold equipment cost corresponding to Owens-Brockway
drawing #BEI36368, 12 oz. Urban Juice, is *** for both sets of molds, each
set to be run in Zanesville, OH and Portland, OR, respectively. At the end of
the term of this
<PAGE>
agreement (3 years), commencing with the date of the initial shipment
(or the date the molds are completed if the initial shipment is not within
six months of the mold completion date), Urban Juice has not purchased and
paid for a total of a minimum of 180,000 gross of this item (30,000 gross per
year per location). Urban Juice shall pay for any remaining unamortized
balance. Z-H will invoice Urban Juice for any remaining unamortized balance
on a pro rata basis at *** per gross covering the difference between the
quantity actually purchased during the contract period and the minimum
purchase required. This new mold equipment and any additional or replacement
equipment built under this job shall at all times be, and remain the property
of Owens-Brockway Glass. So long as the equipment is active in production or
commercial quantities, we will retain it for your exclusive use. If, however,
no orders for commercial quantities are received or accepted for any 24-month
period, Owens-Brockway shall have the right to scrap, sell, refuse to run, or
otherwise dispose of all equipment.
5. SERVICE: Urban Juice agrees to supply in writing to Z-H an annual
projection of bottle usage broken down by month. Urban Juice also agrees to
supply in writing to Z-H a 90-day rolling forecast of its requirements,
updated the first week of each month. Z-H agrees to supply Urban Juice
bottles on a timely basis consistent with Urban Juice's requirements as
reflected in the 90-day forecast. Z-H will use its best efforts to meet
requests for additional bottles in excess of the 90-day forecast, but cannot
guarantee supply of the excess bottle. Z-H will utilize any and all locations
necessary to meet Urban Juice's needs at no additional expense to Urban Juice.
6. EFFECTIVENESS AND TERM: This agreement will be effective for the
purchase of 375,000 gross of bottles or three (3) years commencing from the
date of the first shipment from Owens Illinois, whichever comes first. At
the end of the term, Urban Juice shall give Z-H the right to match any bona
fide written proposal involving Urban Juice and their glass requirements. Z-H
shall have thirty (30) days to match the bona fide written proposal. If Z-H
is able to match the proposal, Z-H shall continue to be the exclusive
supplier of glass bottles, consistent with such terms.
7. PAYMENT: Payment terms will be 1. 10 Net 60 days. Interest will be
charged at Wall Street Journal "prime rate of interest" plus *** (***%)
percent per annum on all invoices over sixty (60) days. Shipments from Z-H
will stop on the 61st day until all invoices are paid current, or unless it
has been mutually agreed upon to extend.
8. CONFIDENTIALITY: The parties shall use reasonable efforts to cause their
respective employees, agents and other representatives to hold, in
confidence, all confidential information (as hereinafter defined), and the
parties shall use their best efforts to ensure that any other person having
access to the Confidential Information shall not disclose the same to any
person except in connection with this Agreement and otherwise as may be
reasonably necessary to carry out this Agreement and the transactions
contemplated hereby or to comply with applicable law. For purposes hereof,
"Confidential Information" means all information of any kind (including,
without limitation, sales and promotional results) obtained directly or
indirectly from either party's business, except information
<PAGE>
which constitutes readily ascertainable public information. "Confidential
Information"" shall not include any information which (i) is generally
available to the public as of the date of this Agreement, or (ii) becomes
generally available to the public after the date of this Agreement, provided
that such public disclosure did not result, directly or indirectly, from any
act, omission or fault of either of the parties to this agreement or any of
their agents with respect to such information.
9. ASSIGNMENT: This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither party shall assign this
Agreement without the prior written consent of the other party, assign to
anyone including a subsidiary or affiliate, or such party's rights, but not
obligations, to any lender of such party. Subject to obtaining the written
consent of Z-H, Urban Juice agrees that in the event Urban Juice conveys the
bulk of its business to a third party (whether pursuant to an asset sale,
stock sale or otherwise) during the term of this Agreement, Urban Juice shall
cause the purchaser of such assets, stock or otherwise, as the case may be,
to assume the obligations of Urban Juice under this Agreement.
10. NOTICES: Any notice or written communication regarding this agreement
should be sent by certified mail, returned receipt requested to: Urban
Juice & Soda Company, 1356 Frances Street, Vancouver, British Columbia,
Canada V5L 1Y9, Attention: Peter Van Stolk, or Zuckerman-Honickman, Inc., 191
South Gulph Road, King of Prussia, PA 19406, Attention: President, or to such
other locations as the parties subsequently direct. All notices shall be
deemed to have been received three (3) business days after mailing.
11. ENTIRE UNDERSTANDING AMENDMENT: This agreement contains the entire
understanding between the parties with respect to the subject matter hereof,
superseding all prior written oral understandings or agreements. This
Agreement may only be amended by a writing signed by both parties.
12. ARBITRATION: All parties to this Agreement agree to attempt to
resolve any dispute, controversy or claim arising out of or relating to this
Agreement by mediation. The contents of all discussions of such mediation
shall be privileged, confidential and inadmissible in any later proceedings
unless such information was obtained independent of the mediation. If
mediation fails to resolve such dispute, any controversy or dispute arising
relating to the Agreement or the breach, termination, enforcement,
interpretation or validity of any provision hereof, shall be settled by
binding arbitration in Seattle, Washington. Either party to this Agreement
can initiate arbitration pursuant to this Agreement by serving notice on the
other party of the intent to arbitrate. The notice shall specify with
particularity the claims or issues that are to be arbitrated. Within ten (10)
days of receipt of the notice, the parties shall obtain a list of at least
five (5) available arbitrators from the local office of Judicial Dispute
Resolution, LLC ("JDR") and select a mutually acceptable arbitrator. If the
parties are unable to agree on an arbitrator within ten (10) days, either
party may petition the Presiding Judge of the Superior Court of King County
to select a single arbitrator from the JDR list. The parties shall have the
discovery
<PAGE>
rights available under Washington's Civil Rules, subject to the limitation
that each side shall be limited to no more than twenty-five (25)
interrogatories and five (5) depositions unless, upon a showing of good
cause, the party can convince the arbitrator that more interrogatories or
depositions should be permitted. All discovery must be concluded within sixty
(60) days of the selection of an arbitrator. The arbitration hearing must be
concluded within thirty (30) days of the close of discovery and it will be
conducted in accordance with Washington Rules of Evidence. The arbitrator's
final decision shall be rendered within ten (10) days of the final hearing
day. Judgment upon the arbitrator's final award may be entered in any court
having jurisdiction thereof. Each party shall bear in equal shares the
arbitrator's fees and costs. The prevailing party in the arbitration shall be
awarded its reasonable attorneys' fees and all costs, other than the
arbitrator's fees and costs. For the purposes of determining who is the
prevailing party, each party shall submit to the other a single written offer
of settlement ten (10) days prior to the start of the arbitration hearing and
the party whose offer most closely approximates the the arbitrator's award
shall be deemed the prevailing party for the purpose of awarding attorneys'
fees. Any disputes about attorney's fees shall be decided by an arbitrator.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
ZUCKERMAN-HONICKMAN, INC. URBAN JUICE & SODA COMPANY
/s/ Benjamin R. Zuckerman /s/ Peter van Stolk
- ---------------------------- -----------------------------
BENJAMIN R. ZUCKERMAN PETER VAN STOLK
President President/CEO
- ---------------------------- -----------------------------
TITLE TITLE
12/10/98 Dec/10/1998
- ---------------------------- -----------------------------
DATE DATE
<PAGE>
EXHIBIT 99.1
PRELIMINARY PROXY MATERIALS FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION
URBAN JUICE & SODA COMPANY LTD.
July 23, 1999
Dear Shareholder:
You are cordially invited to attend an Extraordinary General Meeting
of Shareholders of Urban Juice & Soda Company Ltd. ("Urban Canada"), to be
held at 1356 Frances Street, Vancouver, British Columbia, on August 27, 1999,
at 10:00 a.m., local time. At this meeting, you will be asked to consider a
proposal to approve the Articles of Continuance ("Articles of Continuance")
which relates to the continuation of Urban Canada from the province of
British Columbia into the state of Wyoming. The attached information
circular/prospectus describes the proposed continuation in detail. YOU ARE
URGED TO READ CAREFULLY THE FULL TEXT OF THE INFORMATION CIRCULAR/PROSPECTUS.
If the continuation is approved by the shareholders and it is effected,
Urban Canada will cease to be a British Columbia company governed by the
provisions of British Columbia Company Act ("BCCA") and will become a Wyoming
corporation governed by the Wyoming Business Corporations Act ("WBCA"). To
effect the continuation, Urban Canada will adopt and file Articles of
Continuance prepared in accordance with the WBCA with the Secretary of State of
Wyoming that will replace its current Memorandum and Articles (the "British
Columbia Memorandum and Articles"). A copy of the proposed Articles of
Continuance, may be reviewed at the offices of Urban Canada's solicitors,
Catalyst Corporate Finance Lawyers, 1100-1055 West Hastings Street, Vancouver,
British Columbia, V6E 2E9 at any time during normal business hours.
It is important that you vote your shares by completing, dating and
returning the accompanying proxy card, whether or not you plan to attend the
Extraordinary General Meeting. Please sign, date and return the accompanying
proxy card in the enclosed postage-paid envelope.
Sincerely,
Peter van Stolk
President,
Chief Executive Officer and
Director
66
<PAGE>
EXHIBIT 99.2
URBAN JUICE & SODA COMPANY LTD.
1356 Frances Street
Vancouver, British Columbia
Canada V5L 1Y9
NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS
ON AUGUST 27, 1999
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of
Shareholders (the "Extraordinary General Meeting" or the "Meeting") of Urban
Juice & Soda Company Ltd. ("Urban Canada") will be held at 1356 Frances
Street, Vancouver, British Columbia, on August 27, 1999, at 10:00 a.m., local
time, for the following purposes:
1. to consider and, if thought fit, pass a special resolution, with or
without amendment that:
a) Urban Canada be authorized to make application to the British Columbia
Registrar, the Secretary of State of the State of Wyoming (the "Secretary
of State") and the Vancouver Stock Exchange for consent and approval of
the continuation of Urban Canada into the state of Wyoming;
b) Urban Canada be hereby authorized to make application to the Secretary
of State for a Certificate of Continuation continuing Urban Canada as if
it had been originally incorporated under the WBCA;
c) Urban Canada adopt the Articles of Continuance (the "Articles of
Continuance") in the form approved by the directors of Urban Canada, to
become effective when the Secretary of State issues a Certificate of
Continuation continuing Urban Canada as if it had been originally
incorporated under WBCA;
d) upon the continuation of Urban Canada into the State of Wyoming, Urban
Canada be hereby authorized to file with the British Columbia Registrar a
certified copy of the Wyoming Certificate of Continuation issued by the
Secretary of State and request that the British Columbia Registrar remove
Urban Canada from the register in British Columbia;
e) the directors of Urban Canada be hereby authorized, in their
discretion, to abandon or amend the application for continuation of Urban
Canada under the WBCA without further approval of the shareholders; and
f) the directors and officers of Urban Canada, or any one of them, be
hereby authorized and directed to perform all such acts, deeds and things
and execute, under the seal of Urban Canada or otherwise, all such
documents, agreements and other writings as may be required to give
effect to the true intent of this resolution. and
2. to consider such other matters as may properly be brought before the
Meeting or any adjournment thereof.
The accompanying information circular/prospectus provides additional
information relating to the matters to be dealt with at the Meeting and is
supplemental to and expressly made a part of this Notice of Meeting.
If you are a registered shareholder of Urban Canada and are unable to
attend the Meeting in person, please complete, date and execute the accompanying
form of proxy and deposit it with Pacific Corporate Trust Company, Suite 830 -
625 Howe Street, Vancouver, British Columbia, V6C 3B8, not less than 48 hours
(excluding Saturdays, Sundays and holidays) prior to the Meeting.
If you are a non-registered shareholder of Urban Canada and received
these materials through a broker, a
67
<PAGE>
financial institution, a participant, a trustee or administrator of a
self-administered retirement savings plan, retirement income fund, education
savings plan, or other similar self-administered savings or investment plan
registered under the INCOME TAX ACT (Canada), or a nominee of any of the
foregoing that holds your security on your behalf (the "Intermediary"), please
complete and return the materials in accordance with the instructions provided
to you by your Intermediary.
Take notice that pursuant to the British Columbia COMPANY ACT ("Company
Act") you may until any time up to 2 days prior to the date of the Meeting give
Urban Canada a notice of dissent by registered mail addressed to the company at
1356 Frances Street, Vancouver, British Columbia, Canada V5L 1Y9, with respect
to resolution numbered 1 above. As a result of giving a notice of dissent you
may, on receiving a notice of intention to act under s. 207 of the Company Act,
require Urban Canada to purchase all your shares in respect of which the notice
of dissent was given. Shareholders are advised to consult with their own legal
advisors respecting the dissent procedures set out in the Company Act.
DATED at Vancouver, British Columbia as of the 23rd of July, 1999.
By Order of the Board of Directors of
URBAN JUICE & SODA COMPANY LTD.
Secretary
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. EACH
SHAREHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE EXTRAORDINARY GENERAL
MEETING, IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE. ANY PROXY GIVEN BY A
SHAREHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED. ANY SHAREHOLDER
PRESENT AT THE EXTRAORDINARY GENERAL MEETING MAY REVOKE HIS OR HER PROXY AND
VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE EXTRAORDINARY GENERAL MEETING.
IF YOU ARE A SHAREHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME,
HOWEVER, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE
PERSONALLY AT THE EXTRAORDINARY GENERAL MEETING. PLEASE DO NOT SEND ANY
CERTIFICATES FOR YOUR SHARES AT THIS TIME.
68
