As filed with the Securities and Exchange Commission on February
19, 2008
SEC File No. 333-147292
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM F-3/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT
OF 1933
CLEARLY CANADIAN BEVERAGE
CORPORATION
(Name of Registrant as specified in its
charter)
| British Columbia, Canada | 98-0121238 |
| (State or jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
2267 10th Avenue West
Vancouver, British Columbia, Canada
V6K 2J1
(800) 663-5658
(Address and telephone number of
Registrant’s principal executive offices)
Cairncross & Hempelmann, P.S.
524 Second Ave., Suite
500
Seattle, Washington 98104
(206)
587-0700
(Address and telephone number of agent for service of
process)
Copies of all communications to:
Timothy M. Woodland, Esq.
Cairncross & Hempelmann, P.S.
524 Second Avenue, Suite 500
Seattle, Washington 98104
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If the Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If this Form is a registration statement pursuant to General Instruction I.C. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. [ ]
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.C. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. [ ]
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 hereafter 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.
The information in this prospectus is not complete and may be changed. The selling security holders shareholders named in this prospectus may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and the selling security holders shareholders named in this prospectus are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS DATED FEBRUARY 19, 2008
SUBJECT TO COMPLETION
Clearly Canadian Beverage Corporation
6,397,043 Common Shares
This prospectus relates to the offer and sale from time to time of up to 6,397,043 common shares of Clearly Canadian Beverage Corporation by the selling security holders, who are listed in the section beginning on page 19 of this prospectus. The shares being offered for sale by the selling security holders include 62,253 shares that are currently issued and outstanding, 5,222,318 shares that are issuable upon conversion of outstanding convertible notes, 43,772 shares that are issuable as payment of interest upon outstanding convertible notes, and 1,068,700 shares that are issuable upon exercise of outstanding share purchase warrants.
The selling security holders may from time to time sell any or all of their the common shares on any stock exchange, market or trading facility on which the shares are traded or in privately negotiated transactions at fixed prices that may be changed, at market prices prevailing at the time of sale or at negotiated prices.
Our common shares are quoted on the OTC Bulletin Board under the symbol “CCBEF”. On February 8, 2008, the closing price of our common shares on the OTC Bulletin Board was $ 0.66 per share.
We are not selling any securities under this prospectus and we will not receive any proceeds from the sale of the common shares by the selling security holders. However, to the extent the selling security holders exercise any share purchase warrants for cash, we will receive proceeds from such exercises. We will pay for the expenses of this offering.
_______________
Investment in our common shares involves a high degree
of risk.
See “Risk Factors” beginning on page 6 of this prospectus.
_______________
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is _____________
.
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TABLE OF CONTENTS
You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or incorporated herein by reference. Unless otherwise indicated, the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common shares.
Market data and certain industry forecasts used throughout this prospectus and the documents incorporated by reference herein were obtained from market research, publicly available information and industry publications. We believe that these sources are generally reliable, but the accuracy and completeness of such information is not guaranteed. We have not independently verified this information, and we do not make any representation as to the accuracy of such information.
Your ability to enforce civil liabilities under U.S. federal securities laws may be affected adversely by the fact that Clearly Canadian Beverage Corporation is organized under the laws of Canada, most of our officers and directors and some of the experts named in this prospectus are residents of Canada, and a substantial portion of our assets are located outside the United States.
In this prospectus, unless the context otherwise requires, references to “we,” “us,” “our”, “Clearly Canadian” or similar terms refers to Clearly Canadian Beverage Corporation either alone or together with our subsidiaries. In this prospectus, unless otherwise indicated, all dollar amounts and references to “$” and “dollars” are to U.S. dollars.
We have numerous trademark registrations in the United States, Canada and in other countries worldwide in connection with our Clearly Canadian® beverage product lines. We also have trademark registrations in Canada in connection with Simply by Nature and Naturalife. We have also applied for trademark registrations in Canada and/or the United States in connection with dailyEnergy, dailyVitamin, dailyHydration, My Organic Baby, My Organic Toddler and Glengrove Organics. All other trademarks, product names and company names used in this prospectus are the property of their respective owner.
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PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this prospectus or incorporated by reference. While we have included what we believe to be the most important information about our company and this offering, the following summary may not contain all the information that may be important to you. You should read this entire prospectus carefully, including the risks of investing discussed under “Risk Factors” beginning on page 4, the financial statements and related notes, and the information to which we refer you and the information incorporated into this prospectus by reference, for a complete understanding of our business and this offering. References in this prospectus to “our company,” “we,” “our,” and “us” refer to Clearly Canadian Beverage Corporation and our subsidiaries. References to “selling security holders” refer to those security holders listed herein under “SELLING SECURITY HOLDERS”, who may sell shares from time to time as described in this prospectus.
Our Business
Clearly Canadian Brands markets, distributes and sells premium alternative beverages, including Clearly Canadian® sparkling flavoured waters and Clearly Canadian dailyEnergy, dailyVitamin and dailyHydration Natural Enhanced Waters which are distributed in the United States, Canada and various other countries. Clearly Canadian’s recent acquisition of My Organic Baby Inc. and DMR Food Corporation marks the Company’s debut into organic and natural products with a full line of organic baby and toddler foods under the brand names My Organic Baby and My Organic Toddler, and a wide range of dried fruit and nut snacks offerings under many brand names including SunRidge Farms, Naturalife, Sweet Selections, SSG, Simply by Nature and Glengrove Organics.
Our products are marketed and sold to all classes of retail trade, including national supermarkets, national and independent convenience stores, drug stores, mass-market stores and specialty natural food stores. We primarily rely on distributors and brokers to sell our products to retail customers.
All of our beverage and organic baby food products are manufactured and produced by independent food and beverage manufacturers (“co-packers”) using proprietary specifications controlled by us. We package our dried fruit and nut snack products at our own facilities.
Our brand names are, or are becoming, well recognized in the marketplace in which they are sold. In particular, the brand name Clearly Canadian, which is the cornerstone of our company, has sold over 2 billion bottles worldwide since its inception in 1988 and is widely regarded as being at the forefront of the creation of the alternative beverage market.
Our mission is to be a leader in providing consumers with healthy and environmentally friendly product choices through continued innovation and strategic acquisitions. Our business strategy is to leverage our Clearly Canadian brand name and our strong management team to integrate all of our brands into one sales and marketing strategy in order to lower our costs and increase our market share.
Clearly Canadian Beverage Corporation was incorporated under the Company Act (British Columbia) by registration of its memorandum and articles under the name of Cambridge Development Corporation on March 18, 1981. We subsequently changed our name to Bridgewest Development Corporation on October 28, 1983, to BDC Industries Corp. on November 15, 1984 and to The Jolt Beverage Company, Ltd. on September 3, 1986. On December 14, 1987, The Jolt Beverage Company, Ltd. amalgamated with Interbev Packaging Corp. and Brewmaster Systems Ltd. and on May 13, 1988 we changed our name to The International Beverage Corporation. We adopted our current name on May 14, 1990. We are now governed by the Business Corporations Act (British Columbia).
Our principal executive offices are located at 2267 10th Avenue W., Vancouver, British Columbia, Canada V6K 2J1. Our telephone number is (604) 742-5300 and our website address is www.clearly.ca . The information contained on our web site does not constitute part of, nor is it incorporated by reference into, this prospectus.
We have five wholly-owned subsidiaries:
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Blue Mountain Springs Ltd., an Ontario corporation that owns certain property in Ontario containing a potential future source of water for our products;
Clearly Canadian Beverage (International) Corporation, a Barbados corporation that has no current operations;
DMR Food Corporation, an Ontario corporation that operates our dried fruit and nut snack business; and
My Organic Baby Inc., an Ontario corporation that operates our organic baby products business.
Senior Convertible Debt Financing
On September 26, 2007, we completed a $9.36 million senior debt financing (the “Financing”) from institutional investors through the sale of senior convertible notes (the “Senior Convertible Notes”) and the issuance of five-year share purchase warrants to purchase 4,017,162 common shares (the “Series E Warrants” and the “Series F Warrants”). The 2,008,581 Series E Warrants are exercisable at an initial exercise price of $2.33 per share (subject to future adjustment) and the 2,008,581 Series F warrants are exercisable at an initial exercise price of $2.56 per share (subject to future adjustment). See “ADDITIONAL INFORMATION REGARDING THE SELLING SECURITY HOLDERS – Anti-Dilution Dispute” below.
We received net proceeds from the Financing of approximately $9 million, after payment of a 4% fee paid to Lane Capital Markets as placement agent in the Financing (this fee of $360,000 was re-invested into the Financing). In addition, we issued to Lane Capital Markets 500,000 share purchase warrants exercisable at an initial exercise price of $2.33 per share on the same terms as the Series E Warrants (the “Lane Warrants”).
The primary features of the Senior Convertible Notes are (i) interest at 9% per annum for years 1-3 and at 18% per annum for years 4 and after, payable monthly in cash or, subject to volume and ownership limitations and in our discretion, common shares based on a 10% discount to the then-market price, (ii) convertible at any time by the holders at the conversion price (initially $2.33 per share, subject to future adjustment), (iii) during years 1-2, provided the market price of our common shares is double the conversion price, we can, subject to volume and ownership limitations, call the Senior Convertible Notes (iv) in year 3 and beyond, we can, subject to volume and ownership limitations, force conversion of the Senior Convertible Notes at the lower of the initial conversion price or at a 15% discount to the then-market price and so long as we are converting the Senior Convertible Notes, the interest rate remains at 9% and (v) in year 4 and beyond the Senior Convertible Notes can be called by the note holders.
In connection with the Financing, we entered into a Registration Rights Agreement in which we agreed to register for resale all of the common shares that are issuable upon conversion of the Senior Convertible Notes, as payment of interest on the Senior Convertible Notes and upon exercise of the Series E and Series F Warrants. Pursuant to SEC rules, we are limited in the number of shares that we may register for resale for selling security holders on any one registration statement. Accordingly, the common shares that are included in the registration statement covered by this prospectus represent only a portion of the total number of common shares issuable in connection with the Financing, and we have agreed to file additional registration statements in the future until all of such issuable common shares are registered. See “THE OFFERING,” “SELLING SECURITY HOLDERS” and “ADDITIONAL INFORMATION REGARDING THE SELLING SECURITY HOLDERS – Anti-Dilution Dispute” below.
Acquisitions During 2007
On May 24, 2007, we acquired all of the outstanding shares of My Organic Baby Inc. (“MOB”), which markets Canada’s first full nation wide line of organic baby food. On September 25, 2007, we agreed with MOB to restructure the consideration owing to the MOB vendors pursuant to the share purchase agreement. As restructured, the consideration for the acquisition consisted of $3,076,470 CDN in cash, 215,000 common shares (provided, that we agreed that if a gain of $600,000 CDN is not realized from a sale of these shares by March 18, 2009, we will pay any shortfall) and convertible notes in the amount of $1,673,530 on terms comparable to the Senior Convertible
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Notes. Our consolidated financial statements for the second quarter of 2007 included the results of operations of MOB beginning on March 24, 2007.
On February 7, 2007, we acquired all of the outstanding shares of DMR Food Corporation (“DMR”), a leading packager and marketer of natural and organic snack foods in Canada. On September 25, 2007, we also agreed with DMR to restructure the consideration owing to the DMR vendors pursuant to the share purchase agreement. As restructured, the consideration for the acquisition consisted of $1,773,530 CDN in cash, an additional $450,000 CDN payable over three years, the equivalent of $450,000 CDN in common shares issued on August 6, 2007 (provided that we agreed that if a gain of $450,000 CDN is not realized from a sale of these shares by March 18, 2009 we will pay any shortfall) and convertible notes in the amount of $776,470 on terms comparable to the Senior Convertible Notes. Our consolidated financial statements for the first quarter of 2007 include the results of operations of DMR beginning on February 7, 2007.
The features of the convertible notes issued to the MOB and DMR vendors as described above (the “Acquisition Notes”) are comparable to the Senior Convertible Notes.
Our agreement on September 25, 2007 to restructure the consideration payable to the MOB and DMR vendors resulted in elimination of some of our original obligations to MOB and DMR. The original liabilities in connection with the DMR acquisition related to our obligation to pay any shortfall if the vendors did not realize a gain of $2,100,000 CDN from the exercise and sale of our common shares issuable under 3,000,000 warrants received by the vendors. The original liabilities in connection with the MOB acquisition related to our obligation to pay any shortfall if the vendors did not realize a gain of $4,350,000 CDN from the exercise and sale of common shares issuable under 3,750,000 warrants received by the vendors and 215,000 shares. These liabilities were restructured by (i) the DMR and MOB vendors surrendering for cancellation the said warrants and shares, (ii) us paying to the vendors $4 million CDN in cash, (iii) us issuing the Convertible Notes to the vendors in the amount of $2,450,000 CDN on terms comparable to the Senior Convertible Notes, and (iv) us agreeing to a reset, 18 months from the closing of the Financing, on 370,279 common shares owned by the vendors. In addition, the vendors have agreed not to sell any common shares they own, other than interest shares in connection with each of their Acquisition Notes, for one year from the closing of the Financing.
Pursuant to the Registration Rights Agreement, we are permitted to register up to 234,375 common shares that are issuable as payment of interest on the Acquisition Notes. This prospectus covers only 43,772 shares issuable as interest on the Acquisition Notes, and we intend to include the remaining balance of the interest shares on future registration statements until all of such issuable common shares are registered. We are not registering the common shares that are issuable upon conversion of the Acquisition Notes. See “SELLING SECURITY HOLDERS” below.
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RISK FACTORS
Investing in our common shares involves a high degree of risk. In addition to the other information included or incorporated by reference in this prospectus, you should carefully consider the risks described below before purchasing our common shares. If any of the following risks actually occur, our business, financial condition and results of operations could materially suffer. As a result, the trading price of our common shares could decline, and you might lose all or part of your investment.
Risks Related to Our Business
There is a risk to our operating as a going-concern. If we cannot fund our operations from revenues or financing efforts, we may have to change our business plan, significantly reduce or suspend our operations, sell or merge our business.
Our financial statements have been prepared on the assumption that we are a going concern and will be able to realize our assets and discharge our liabilities in the normal course of business; however, certain events and conditions cast substantial doubt on this assumption. We had a loss of $8,247,000 for the year ended December 31, 2006 and had a working capital of $5,245,000, an accumulated deficit of $77,055,000 and a shareholders’ equity of $7,464,000 at year-end. For the year ended December 31, 2005, we also had a loss of $6,069,000 and had a working capital deficit of $446,000, an accumulated deficit of $68,714,000 and a shareholders’ equity of $1,724,000. Operations for the years ended December 31, 2006 and December 31, 2005 have been funded primarily from the issuance of capital stock and the continued support of creditors.
Management has continued to take steps to try to improve our financial results and cash flows. These steps include liquidation of non-core investments and pursuing equity financing to fund working capital requirements. Since January 2006, we have raised approximately $17,091,000 million of debt and equity financing to fund working capital requirements. Nonetheless, we may need to seek additional sources of debt and/or equity financing in the future to fund our operations, liabilities and working capital requirements.
The financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported revenues and expenses and balance sheet classifications used that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material.
We have a history of operating losses which are likely to continue unless we significantly increase sales volume and maintain fixed and variable costs.
We incurred net losses of $8,247,000 (including a write down of property, plant and equipment of $137,000) during the year ended December 31, 2006 compared to net loss during the year ended December 31, 2005 of $6,069,000 (including a write down of property, plant and equipment of $382,000) and a net loss of $5,531,000 during the year ended December 31, 2004 (including write down of property, plant and equipment of $721,000 and distribution rights of $1,536,000). Operating losses (gross profit less selling, general and administrative expenses) were $4,966,000 during the year ended December 31, 2006 compared to $2,800,000 during the year ended December 31, 2005, and $2,049,000 during the year ended December 31, 2004. We will likely incur additional losses during the year ending December 31, 2007. We believe that to operate at a profit we must significantly increase the sales volume for our 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 levels will depend primarily on success in maintaining and/or increasing market share and availability for our Clearly Canadian® sparkling flavoured water and expanding distribution of our other beverage product lines into new geographic distribution areas, particularly in the United States and Canada. Our ability to significantly increase sales from current levels will also depend on success in maintaining and/or increasing market share and availability of our snack food and organic baby food lines of products recently acquired as part of our recent corporate acquisitions. 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 for our current brands and products in target markets, the ability to price our products at levels competitive
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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 new brands and products.
We have experienced a trend of declining revenue and may never be profitable.
We have experienced a declining revenue trend for the past several years. During the year ended December 31, 2006, we had sales revenues of $7,462,000, compared to revenues of $8,712,000 in 2005, $11,064,000 in 2004, $13,270,000 in 2003, and $20,205,000 in 2002. From 2001 to 2006, our revenues declined 68%. This declining revenue trend occurred while the industry for the alternative beverage category, according to Beverage Marketing Corporation of New York, has grown in market size in the United States from $3.8 billion in wholesale dollar sales in 1992 to over $14 billion. Competition has intensified in the alternative beverage category and we compete for market share against some companies with substantially greater marketing, personnel, distribution and production resources. In an effort to compete over the past five years, we spent substantial resources marketing and repositioning our Clearly Canadian® sparkling flavoured water brand and introducing new brands, including Clearly Canadian O+2®, Tré Limone®, Reebok Fitness Water, reformulated Clearly Canadian® sparkling flavoured and Clearly Canadian® Natural Enhanced Water beverage products. Despite such marketing efforts, we had only limited success with the Clearly Canadian O+2®, Tré Limone® and Reebok Fitness Water and we no longer market these products. We may not be successful in reversing the declining revenue trend, and we may not be able to generate sufficient revenues from sales to return to profitability.
Our acquisition strategy exposes us to risk.
We intend to continue to grow our business in part through the acquisition of new brands, both in Canada and the United States. Our acquisition strategy is based on identifying and acquiring brands with products that complement our existing product mix. We cannot be certain that we will be able to successfully:
We may encounter increased competition for acquisitions in the future, which could result in acquisition prices we do not consider acceptable. We are unable to predict whether or when any prospective acquisition candidate will become available or the likelihood that any acquisition will be completed.
Our future success may be dependent on our ability to integrate brands that we acquire.
Our future success may be dependent upon our ability to effectively integrate new brands that we acquire, including our ability to realize potentially available marketing opportunities and cost savings, some of which may involve operational changes. We cannot be certain:
In addition, we cannot be certain that we will be successful in:
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Additionally, integrating an acquired brand into our existing operations will require management resources and may divert our management from our day-to-day operations. If we are not successful in integrating the operations of acquired brands, our business could be harmed.
We depend on key management employees.
Our business is dependent upon the continued support of existing senior management, including our Chief Executive Officer, Brent Lokash, and our President, David Reingold. Mr. Lokash was appointed as our President on September 29, 2005 following the resignation of Douglas Mason as President, and he has been responsible for our business planning, corporate and brand initiatives and financings. Mr. Lokash resigned as President of the Company on May 29, 2007 and was appointed Chief Executive Officer on the same day. Mr. Reingold was appointed our President on May 29, 2007. The loss of Mr. Lokash or Mr. Reingold, or any other key members of our existing management, could adversely affect our business and prospects.
Our operations may be adversely affected by exchange controls, currency fluctuations, taxation laws and other laws or policies of Canada, the United States or other countries.
Our operations are carried out primarily in Canada and in the U.S., with less significant operations in other countries. Such operations and the associated capital investments could be adversely affected by exchange controls, currency fluctuations, taxation laws and other laws or policies of Canada, the United States and other countries affecting foreign trade, investment and taxation, which, in turn, could affect our current or future foreign operations.
Our future operating results are subject to a number of uncertainties.
Our future operating results are subject to a number of uncertainties, including our ability to market our products and to develop and introduce new products, our ability to penetrate new markets, the marketing efforts of distributors and retailers of our products, most of which also distribute or sell products that are competitive with our products, the number, quantity and marketing forces behind products introduced by competitors and laws and regulations and any changes thereto, especially those that may affect the way in which our products are marketed and produced, as well as laws or regulations that are enforceable by such regulatory authorities as the U.S. Food and Drug Administration.
Our results of operations have fluctuated and are likely to continue to fluctuate.
Our results of operations have fluctuated in the past and are likely to continue to fluctuate from period to period depending on a number of factors, including the timing and receipt of significant product orders, increased cost in the completion of product orders, increased competition, regulatory and other developments in our markets, changes in the demand for our products, the cancellation of product orders, difficulties in collection of receivables, the timing of new product introductions, changes in pricing policies by us and our competitors, delays in the introduction of products by us, expenses associated with the acquisition of production resources and raw materials from third parties, the mix of sales of our products, seasonality of customer purchases, personnel changes, political and economic uncertainty, the mix of international and North American revenue, tax policies, foreign currency exchange rates and general economic and political conditions.
We believe that economic developments and trends have adversely affected and may continue to affect levels of consumer spending in the markets that we serve. We believe that these and other factors have adversely affected demand for our products. While we believe that economic conditions in certain of our markets show signs of improvement, we also believe that economic conditions and general trends are likely to continue to affect demand for premium priced beverage products such as we produce and sell. Such factors may also increase the amount of doubtful accounts or adversely affect the likelihood of collection of such accounts with third parties, such as distributors and retailers, to whom we sells products.
Because we are unable to forecast with certainty the receipt of orders for products and our expense levels are relatively fixed and are based, in part, upon our expectation of future revenue, if revenue levels fall below
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expectations, operating results are likely to be adversely affected. As a result, net income may be disproportionately affected because a relatively small amount of our expenses vary with our revenue.
Based on all of the foregoing factors, we believe that our quarterly and annual revenue, direct expenses and operating results are likely to vary significantly in the future, that period-to-period comparisons of the results of operations may not necessarily be meaningful and that such comparisons should not be relied upon as an indication of future performance.
Our intellectual property rights are critical to our success, and the loss of such rights could materially and adversely affect our business.
We regard our trademarks, trade dress, copyrights, trade secrets and similar intellectual property as critical to our success and we attempt to protect such property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to forestall infringement. We rely on a combination of trademark and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property rights. In the past, we have licensed elements of our distinctive trademarks, trade dress and similar proprietary rights to third parties, and we anticipate that we may license such elements in the future as well. While we attempt to ensure that the quality of our brand is maintained by such licensees, no assurances can be given that such licensees will not take actions that might materially and adversely affect the value of our proprietary rights or the reputation of our products, either of which could have a material adverse effect on our business. Furthermore, there can be no assurance that third parties will not infringe or misappropriate our trademarks, trade dress and similar proprietary rights. Despite our precautions, some or all of the trade secrets and other know-how that we consider proprietary could be independently developed, could otherwise become known by others or could be deemed to be in the public domain. If we lose some or all of our intellectual property rights, our business may be materially and adversely affected.
Increases in the cost of packaging and raw materials could reduce profits.
We spend significant amounts on packaging for our products. We consider packaging to be an important component in the sale of our products. Packaging has been very important to our success and helps to distinguish our products from those of our competitors. We, and our co-packers from whom we buy products, purchase primary packaging supplies, including bottles, caps, preforms, plastic sleeves, labels, trays, jars, lids, tins and bags from outside vendors. In addition, we, and our co-packers, purchase a significant portion of the ingredients needed to produce our products, including sweeteners, flavors, dried fruits, nuts, vegetable products, rice, grains, milk and egg products and carbon dioxide from outside vendors. We rely on our ongoing relationships with key suppliers and co-packers to support our operations. If the cost of our packaging or raw materials increases significantly, the total cost of our products would increase significantly, which could adversely affect the sales of our products, as well as our financial performance.
We have made estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our financial statements.
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our financial statements in conformity with Canadian GAAP. Actual results could differ significantly from anticipated results should such estimates and/or assumptions prove to be materially incorrect or inaccurate. We believe that the information herein (see “Item 5. Operating and Financial Review and Prospects – Application of Critical Accounting Policies” and “Note 2” to financial statements) addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and beyond our control.
Our directors, officers, promoters and other members of management may serve as directors, officers, promoters and other members of management of other companies; therefore it is possible that a conflict of interest may arise.
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Certain of our directors, officers, and other members of management, including Brent Lokash, Edwin Fok, Andrew Strang, David Reingold George Reznik and Marco Markin, presently serve as directors, officers, promoters and members of management of other companies and therefore it is possible that a conflict may arise between their duties as a director, officer, promoter or member of management of Clearly Canadian and their duties as a director, officer, promoter or member of management of such other companies.
Our directors and officers are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and we will rely upon such laws in respect of any directors’ and officers’ conflicts of interest or in respect of any breaches of duty by any of our directors or officers. All such conflicts will be disclosed in accordance with the provisions of applicable corporate legislation and directors or officers will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
We are incorporated in British Columbia, Canada, some of our directors and officers live in Canada, and most of our assets are in Canada, and as such investors may have difficulty initiating legal claims and enforcing judgments against us and our directors and officers.
We are a corporation existing under the laws of British Columbia and the majority of our assets and operations are located, and the majority of our revenues are derived, outside the United States. We have appointed an agent to receive service of process in the United States. It may not be possible for shareholders to enforce outside the United States judgments against us obtained in the United States in any such actions, including actions predicated upon the civil liability provisions of the United States federal securities laws. In addition, most of our directors and officers are citizens and residents of Canada, and all or a substantial portion of the assets of those directors and officers are or may be located outside the United States. As a result, it may not be possible for shareholders to effect service of process within the United States upon those persons, or to enforce against them judgments obtained in the United States courts, including judgments predicated upon the civil liability provisions of the United States federal and state securities laws. While reciprocal enforcement of judgment legislation exists between Canada and the U.S., we and our insiders may have defences available to avoid in Canada the effect of U.S. judgments under Canadian law, making enforcement difficult or impossible, and as such there is uncertainty as to whether Canadian courts would enforce (a) judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the United States federal and state securities laws or (b) in original actions brought in Canada, liabilities against us or such persons predicated upon the United States federal and state securities laws. Therefore, our shareholders in the United States may have to avail themselves of remedies under Canadian corporate and securities laws for perceived oppression, breach of fiduciary duty and like legal complaints. Canadian law may not provide for remedies equivalent to those available under U.S. law.
Risks Related to Our Industries
Our markets are highly competitive.
We operate in highly competitive geographic and product markets, and most of our markets are dominated by competitors with greater resources. We cannot be certain that we could successfully compete for sales to distributors or stores that purchase from larger, more established companies that have greater financial, managerial, sales and technical resources. In addition, we compete for limited retailer shelf space for our products. Larger competitors, such as mainstream food and beverage companies including but not limited to Coca-Cola, PepsiCo, Cadbury, Hain-Celestial, Heinz, Nestle, and Johnvince Foods, also may be able to benefit from economies of scale, pricing advantages or the introduction of new products that compete with our products. Retailers also market competitive products under their own private labels.
In the future, competitors may introduce other products that compete with our products and these competitive products may have an adverse effect on our business, results of operations and financial condition.
We also compete with other manufacturers in the procurement of natural and organic product ingredients, which may be less plentiful in the open market than conventional product ingredients. This competition may increase in the future along with increasing public demand for natural and organic products. This could cause our expenses to increase or could limit the amount of product that we can manufacture and sell.
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Consumer preferences for our products are difficult to predict and may change.
A significant shift in consumer demand away from our products or our failure to maintain our current market position could reduce our sales or the prestige of our brands in our markets, which could harm our business. While we continue to diversify our product offerings, we cannot be certain that demand for our products will continue at current levels or increase in the future.
We are dependent on the distribution services of independent distributors and independent food/beverage brokers in order to distribute and sell our products to retailers and consumers.
We rely, in addition to our own sales organization, upon sales efforts made by or through distributors and brokers to sell our products. The loss of, or business disruption at, one or more of these distributors or brokers may harm our business. If we were required to obtain additional or alternative distribution and food brokerage agreements or arrangements in the future, we cannot be certain that we will be able to do so on satisfactory terms or in a timely manner.
For our beverages, we rely, to a significant extent, on the distribution services of distributors in order to distribute and sell our beverage products to retailers and consumers. Over recent years, we have observed an increased consolidation of distribution services within the alternative beverage industry. Traditional soft drink companies, which also own or operate distribution companies that provide distribution services to alternative beverage companies, have acquired or developed alternative beverage products. As a result of these developments, these distribution companies that are associated with traditional soft drink beverage companies are less willing to distribute and sell other companies’ alternative beverage products, especially if such products compete with the products that the traditional soft drink companies have within their portfolio of beverages. In view of these developments, we are attempting to diversify our distribution network to align ourselves with distribution companies that are not affiliated only with traditional soft drink beverage companies. Our recent efforts include a transition from our largest distributor, the Dr. Pepper/Seven-Up Bottling Group, which has been distributing our products in the Mid West, South Central and South West of the United States, to a network of these other types of distributors who distribute a variety of alternative beverages. There is no assurance that the volume of sales from these new distributors will match or exceed the volume of sales which in the past was generated by the Dr. Pepper/Seven-Up Bottling Group, and this shift in distribution strategy may have an adverse impact on our sales and results of operations.
For fiscal year 2006, over 20% of our beverage sales were to one distributor; approximately 50% of our organic and natural snack food sales were to one distributor and over 90% of our organic baby food sales was to one distributor. There is no assurance that the volume of sales to any of these distributors will match or exceed the volume of sales which in the past was generated by these customers and lower sales to these customers may have an adverse impact on our sales and results of operations.
Loss of one or more of our independent co-packers could harm our business.
Our revenue is derived from products manufactured by independent co-packers. The loss of one or more co-packers, or our failure to retain co-packers for newly acquired products or brands, could delay or postpone production of our products, which could have a material adverse effect on our business, results of operations and financial condition until such time as an alternate source could be secured, which may be on less favorable terms.
Our future results of operations may be adversely affected by escalating fuel costs.
Many aspects of our business have been, and continue to be, directly affected by the continuously rising cost of fuel. Increased fuel costs have translated into increased costs for the products and services we receive from our third party providers including, but not limited to, increased production and distribution costs for our products. As the cost of doing business increases, we may not be able to pass these higher costs on to our customers and, therefore, any such increase may adversely affect our earnings.
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Our inability to use our trademarks could have a material adverse effect on our business.
We believe that brand awareness is a significant component in a consumer’s decision to purchase one product over another in the highly competitive food, beverage and personal care industry. Although we endeavour to protect our trademarks and trade names, there can be no assurance that these efforts will be successful, or that third parties will not challenge our right to use one or more of our trademarks or trade names. We believe that our trademarks and trade names are significant to the marketing and sale of our products and that the inability to utilize certain of these names could have a material adverse effect on our business, results of operations and financial condition.
Our products must comply with government regulation.
The USDA has adopted, and the Canadian Food Inspection Agency is soon to adopt regulations with respect to a national organic labelling and certification program. We currently manufacture organic products which are covered by these regulations. Future developments in the regulation of labelling of organic foods could require us to further modify the labelling of our products, which could affect the sales of our products and thus harm our business.
In addition, the Canadian Food Inspection Agency has recently adopted regulations with respect to natural health products (NHP) which require that all products sold as natural health products be NHP licensed. Some of our Clearly Canadian® Natural Enhanced Waters are natural health products and we have applied for an NHP license for these products but are able to sell them during the application process. If we do not obtain an NHP license for these products we may not be able to sell them in Canada which could harm our business.
We continually monitor and modify packaging to be in compliance with the rules of the various countries where we sell our products. Our ability to meet local packaging regulations impact our ability to sell products in these regions.
Furthermore, new government laws and regulations may be introduced in the future that could result in additional compliance costs, seizures, confiscations, recalls or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which could have a material adverse effect on our business, results of operations and financial condition.
Product recalls could have a material adverse effect on our business.
Manufacturers and distributors of products in our industry are sometimes subject to the recall of their products for a variety of reasons, including for product defects, such as ingredient contamination, packaging safety and inadequate labelling disclosure. If any of our products are recalled due to a product defect or for any other reason, we could be required to incur the expense of the recall or the expense of any resulting legal proceeding. Additionally, if one of our significant brands were subject to recall, the image of that brand and our image could be harmed, which could have a material adverse effect on our business.
Product liability suits, if brought, could have a material adverse effect on our business.
If a product liability claim exceeding our insurance coverage were to be successfully asserted against us, it could harm our business. We cannot assure you that such coverage will be sufficient to insure against claims which may be brought against us, or that we will be able to maintain such insurance or obtain additional insurance covering existing or new products. As a marketer of food, beverage and personal care products, we are subject to the risk of claims for product liability. We maintain product liability insurance and generally require that our co-packers maintain product liability insurance naming us as a co-insured.
We rely on independent certification for a number of our food products.
We rely on independent certification, such as certifications of our products as “organic” or “kosher,” to differentiate our products from others. The loss of any independent certifications could adversely affect our market position as a natural and organic food company, which could harm our business..
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We must comply with the requirements of independent organizations or certification authorities in order to label our products as certified. For example, we can lose our “organic” certification if a manufacturing plant becomes contaminated with non-organic materials, or if it is not properly cleaned after a production run. In addition, all raw materials must be certified organic. Similarly, we can lose our “kosher” certification if a manufacturing plant and raw materials do not meet the requirements of the appropriate kosher supervision organization.
Our industries are subject to seasonal variations in demand.
Sales of both beverage products and snack food products are subject to seasonal variations in demand. For example, consumers in North America typically consume fewer beverage products in the late fall, winter and early spring months and consume a higher amount of snack food around some holidays. As a result, our sales and results of operations vary seasonally and such variations may be significant. For these reasons you should not rely on quarterly operating results as indications of future performance.
Our growth is dependent on our ability to introduce new products and improve existing products.
Our growth depends in large part on our ability to generate and implement improvements to our existing products and to introduce new products to consumers. The innovation and product improvements are affected by the level of funding that can be made available, the technical capability of our team in developing and testing product prototypes, and the success of our management in rolling out the resulting improvements in a timely manner. If we are unsuccessful in implementing product improvements that satisfy the demands of consumers, our business could be harmed.
The profitability of our operations is dependent on our ability to manage our inventory.
Our profit margins depend on our ability to manage our inventory efficiently. A number of factors, such as changes in customers’ inventory levels, access to shelf space and changes in consumer preferences, may lengthen the number of days we carry certain inventories, hence impeding our effort to manage our inventory efficiently.
Risks Related to our Capital Stock
BG Capital Group beneficially owns a majority of the voting power and effectively controls our company, which could discourage or prevent a takeover, even if an acquisition would be beneficial to our shareholders.
As of February 8, 2008, BG Capital Group Ltd. was the holder of 2,673,651 of our common shares and holds warrants to acquire an additional 4,000,000 common shares at a price of $1.25 per share. In the event BG Capital were to exercise all of its rights to acquire stock on the exercise of warrants issued in connection with previous financings, as of February 8, 2008, it would own approximately 28.3% of our common shares. In addition, BG Capital has been issued 1,600,000 Variable Multiple Voting Shares on the conversion of 2,000,000 Class B Preferred shares. Based on 23,624,212 of the company’s common shares which are issued and outstanding as of February 8, 2008, the number of votes accruing by formula to each Variable Multiple Voting Share is approximately 21.3, for a total of 59.1% votes. The ownership of the Variable Multiple Voting Shares has the effect of increasing BG Capital’s outstanding voting power further. Accordingly, this single shareholder can influence the outcome of shareholder votes, involving the election of directors, the adoption or amendment of provisions in our articles of association and the approval of mergers or other similar transactions, such as a sale of substantially all of our assets. Such control by BG Capital could have the effect of delaying, deferring or preventing a change in control of our Company.
In addition, we have a shareholders’ rights plan and super majority approval requirements, each of which may prevent or delay a change of control.
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Future financings and exercise of the outstanding options and warrants could result in significant dilution to our shareholders.
During 2006 we completed several private placements, resulting in the issuance of common and preferred shares and common share warrants. Additionally, we may need to seek additional sources of debt or equity financings in the future to fund our operations and working capital requirements. As we issue stock or convertible securities in the future, including for any future financing, those issuances would also dilute our shareholders. If additional funds are raised through the issuance of equity or convertible debt securities, the newly-issued securities may have rights, preferences or privileges senior to those of existing shareholders. Furthermore, if additional shares are issued or if we acquire other businesses through the sale of equity securities, our shareholders will be diluted.
In addition, we have reserved, in aggregate, 1,750,000 common shares for issuance upon exercise of options under our 2005 Stock Option Plan, and 10,000,000 common shares for issuance upon exercise of options or other stock-based awards under our 2006 Equity Incentive Plan. As of February 8, 2008, we had granted options exercisable to acquire up to 3,705,045 common shares under these plans at exercise prices ranging from $1.00 to $12.26 per share. As of February 8, 2008, there are outstanding warrants to purchase up to 11,193,495 shares at exercise prices ranging from $1.25 to $3.25 per share. The issuance of shares under either of our stock plans or upon exercise of any of the outstanding share purchase warrants will also dilute our shareholders.
Our shares have experienced significant price volatility and continued volatility may adversely affect the price of our common shares.
Our common share price has experienced significant price volatility over the past several years, with closing trading prices on the OTC Bulletin Board ranging from $2.50 (high) to $1.10 (low) during the year ended December 31, 2005, from $4.41 (high) to $2.05 (low) during the year ended December 31, 2006, and from $3.18 (high) to $0.57 (low) during the year ended December 31, 2007. During fiscal 2008 through February 8, 2008, closing trading prices have ranged from a high of $0.71 to a low of $0.47 per share. There are many reasons for fluctuations in trading, including announcements of developments related to our business, fluctuations in operating results, failure to meet investor expectations, general conditions in the beverage industry and the worldwide economy, announcements of innovations, new products or product enhancements by us or our competitors, acquisitions and divestitures, changes in governmental regulations, developments in licensing arrangements and changes in relationships with trade partners and suppliers. In addition, in recent years the stock market in general, and the market for small capitalization stocks in particular, has experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Such fluctuations could adversely affect the market price of our common shares.
Trading on the OTC Bulletin Board may be volatile and sporadic, which could depress the market price of the common stock and make it difficult for shareholders to resell their shares.
Our common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on the OTC Bulletin Board is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin Board is not a stock exchange, and trading of securities on the OTC Bulletin Board is often more sporadic than the trading of securities listed on a national securities exchange. Accordingly, an investor in our common stock may have difficulty reselling his or her shares.
Because our common shares are considered a “penny stock,” our shareholders’ ability to sell or buy shares in the secondary trading market may be limited.
Our common stock is subject to certain rules and regulations relating to “penny stock.” A “penny stock” is generally defined as any equity security that has a price less than $5.00 per share and that is not traded on a national securities exchange. Being a penny stock generally means that any broker who wants to trade in our shares (other than with established clients and certain institutional investors) must comply with certain “sales practice requirements,” including delivery to the prospective purchaser of the penny stock a risk disclosure document describing the penny stock market and the risks associated therewith. In addition, broker-dealers must take certain steps prior to selling a “penny stock,” which steps include:
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obtaining financial and investment information from the investor;
obtaining a written suitability questionnaire and purchase agreement signed by the investor; and
providing the investor a written identification of the shares being offered and the quantity of the shares. If these penny stock rules are not followed by the broker-dealer, the investor has no obligation to purchase the shares. The application of these comprehensive rules will make it more difficult for broker- dealers to sell our common stock, and as a practical matter, these requirements may mean that brokers are less likely to make recommendations on our shares to its general clients.
As a result, for as long as our common stock is subject to these penny stock rules, our shareholders may have difficulty in selling their shares in the secondary trading market. In addition, prices for shares of our common stock may be lower than might otherwise prevail if our common stock were traded on a national securities exchange such as The New York Stock Exchange or American Stock Exchange. This lack of liquidity may also make it more difficult for us to raise capital in the future through the sale of equity securities information on the company requirements that apply to U.S. companies, and we would no longer be able to utilize certain of the forms available for registered offerings by Canadian companies in the U.S., which could limit our ability to access the capital markets in the future.
Risks Related to the Senior Convertible Notes and the Acquisition Notes (collectively, the “Notes”)
If an event of default occurs on the Notes our debt holders may require repayment of the debt which could have a material adverse effect on our business and operations.
On September 26, 2007, we closed on the Financing and restructured our obligations to the MOB and DMR vendors, and we issued Notes in principal amount totaling $11.8 million. See “PROSPECTUS SUMMARY – Senior Convertible Debt Financing” and “– Acquisitions During 2007” above. In the event that an event of default occurs under the terms of the Notes, each debt holder may require us to pay the greater of (i) 125% of the principal amount and any additional amounts owing under the Notes or (ii) 125% of the value of the common shares issuable upon conversion of the principal amount and any additional amounts owing under the Notes, as determined by the highest selling price of our common shares on or around the event of default.
The cash required to pay such accelerated amounts on the Notes following an event of default would most likely come out of our working capital. As we rely on our working capital for our day to day operations, such a default could have a material adverse effect on our business, operating results, or financial condition to such extent that we are forced to restructure, file for bankruptcy, sell assets or cease operations. In addition, upon an event of default, the holders of Notes may exercise any additional other remedies available to them. If we were forced to file for bankruptcy or cease operations, shareholders may not receive any proceeds from disposition of our assets and may lose their entire investment in our stock.
Our obligations under the Notes may adversely affect our ability to enter into significant transactions with other parties and take certain actions related to our business.
As a result of the issuance of the Notes, we agreed to certain restrictions and conditions with respect to significant transactions with third parties. Unless we obtain the consent of 70% of the aggregate principal amount of the outstanding Notes, we may not enter into a significant business transaction, such as a merger, sale of assets, a transaction in which a third party obtains voting control, or a material reorganization. Moreover, we may only enter into a significant transaction with a publicly traded corporation that is listed on a U.S. securities exchange and that agrees to assume all Notes. In connection with a significant transaction, each debt holder can require us to redeem a Note greater of (i) 130% of the outstanding principal balance and any additional amounts owing under the notes or (ii) 125% of an amount determined by multiplying the outstanding principal balance and any additional amounts owing under the Notes by a ratio of the consideration price paid per common share in the transaction to the conversion price of the Notes.
Additionally, for so long as any Notes are outstanding, we may not be able take certain actions related to the operation of our business, including the following:
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These provisions could have the practical effect of increasing the costs of any potential significant transaction, and restrict our ability to enter into any such transaction and our ability to operate aspects of our business.
The Notes provide full ratchet anti-dilution provisions that could further dilute the ownership of our shareholders.
The initial conversion price of the Notes is $2.33 per share. The number of shares to be issued upon conversion of the Notes will depend on the actual dollar amount of principal and interest being converted. We also issued 4,017,162 Series E and Series F Warrants and 500,000 Lane Warrants to purchase our common shares. The Series E Warrants and Lane Warrants are exercisable at an initial exercise price of $2.33 per common share and the Series F Warrants are exercisable at an initial exercise price of $2.56 per common share. See “PROSPECTUS SUMMARY –Senior Convertible Debt Financing” above. The conversion of the Notes and the exercise of the Series E and Series F Warrants and Lane Warrants will dilute our shareholders.
Each Note and Warrant carries a full ratchet anti-dilution provision. If we issue any convertible or equity securities at any time in the future (subject to certain exceptions including stock option grants and issuances in connection with certain acquisition transactions) at a price less than the applicable conversion price or exercise price, then the conversion price and exercise price will be automatically adjusted down to that lesser price. Any such adjustment will further dilute our shareholders..
We are currently involved in a dispute with the Selling Security Holders as to whether the full-ratchet anti-dilution provision has been triggered and whether we are obligated to adjust the conversion price of the Notes and the exercise price of the Series E Warrants, Series F Warrants and Lane Warrants to $0.46 per share. If the full-ratchet anti-dilution provision is determined to have been triggered, this will result in a significant additional number of shares issuable upon conversion of the Notes and upon exercise of the Warrants, which will significantly dilute our shareholders. Please see “ADDITIONAL INFORMATION REGARDING THE SELLING SECURITY HOLDERS – Anti-Dilution Dispute” below for additional information.
FORWARD-LOOKING STATEMENTS
This registration statement contains forward-looking statements. Forward-looking statements are statements which relate to future events or our future performance, including our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, or “potential” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks enumerated in this section entitled “Risk Factors”, that may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Registration Statement. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
THE OFFERING
This prospectus relates to the resale by the selling security holders of Clearly Canadian Beverage Corporation listed herein, of up to 6,397,043common shares. These shares consist of the following:
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5,222,318 common shares as our estimate of the number of shares that may be issued from time to time upon conversion of the $9.36 million principal amount of Senior Convertible Notes. Our estimate of common shares to be issued is 130% of the amount of common shares to be issued using the initial conversion price of $2.33 per share for conversion of principal. We issued the Senior Convertible Notes on September 26, 2007 pursuant to the Financing. See “PROSPECTUS SUMMARY – Senior Convertible Debt Financing” above;
975,320 common shares issuable upon partial exercise of the Series E and Series F Warrants. The Series E Warrants have an initial exercise price $2.33 per share and the Series F Warrants have an initial exercise price of $2.56 per share. The Series E and Series F Warrants are subject to full-ratchet anti- dilution adjustment in the event that we issue or sell common shares (including options or convertible securities) at a price less than the warrant exercise price (other than in connection with the issuance of common shares for acquisitions, to employees or, in a limited amount, to consultants) and will also be adjusted in the event of any stock splits, stock dividends, recapitalizations, exchanges or other similar events. The effect of this full-ratchet anti-dilution protection is that a downward adjustment to the warrant exercise price will result in an upward adjustment to the number of shares issuable upon exercise. We issued the Series E and Series F Warrants on September 26, 2007 pursuant to the Financing. See “PROSPECTUS SUMMARY – Senior Convertible Debt Financing” above.
93,380 common shares issuable upon partial exercise of the Lane Warrants. The Lane Warrants have an initial exercise price of $2.33 per share. We issued the Lane Warrants as placement agent warrants for the Financing completed on September 26, 2007. See “PROSPECTUS SUMMARY – Senior Convertible Debt Financing” above.
43,772 common shares issuable as partial payment of interest pursuant to the Acquisition Notes. We issued the Acquisition Notes on September 26, 2007 pursuant to the restructuring of the consideration paid for the acquisitions of MOB and DMR. See “PROSPECTUS SUMMARY – Acquisitions During 2007” above. Pursuant to the Registration Rights Agreement we entered into with the purchasers of the Senior Convertible Notes in the Financing, we agreed to register a maximum of 234,375 common shares issuable as payment of interest on the Acquisition Notes, and not to include for registration any common shares that are issuable upon conversion of the Acquisition Notes; and
62,253 common shares that are currently issued and outstanding. We issued these shares pursuant to a private placement dated March 30, 2007.
In connection with the Financing, we entered into a Registration Rights Agreement in which we agreed to register for resale all of the common shares that are issuable upon conversion of the Senior Convertible Notes, as payment of interest on the Senior Convertible Notes and upon exercise of the Series E and Series F Warrants . We are also permitted to register up to 234,375 common shares issuable as payment of interest on the Acquisition Notes, 333,333 common shares that are currently issued and outstanding, and the common shares underlying the Lane Warrants. Pursuant to SEC rules, we are limited in the number of shares that we may register for resale for selling security holders on any one registration statement. Accordingly, the 6,397,043 common shares that are included in this offering represent only a portion of the total number of common shares issuable in connection with the Financing and the other registrable shares. We have agreed to file additional registration statements in the future until all of the issuable common shares are registered.
We estimate that the current number of common shares (i) issuable upon conversion of the Senior Convertible Notes, as payment of interest on the Senior Convertible Notes and upon exercise of the Series E Warrants, Series F Warrants and Lane Warrants, plus (ii) the 234,375 common shares issuable as payment of interest on the Acquisition Notes and the 333,333 common shares that are currently issued and outstanding will ultimately total 15,724,332 common shares. As contemplated by the Registration Rights Agreement, this estimate includes a calculation of 130% of the sum of (a) the number of common shares to be issued upon conversion of the Senior Convertible Notes using the initial conversion price of $2.33 per share for conversion of principal, (b) the number of common shares to be issued as payment of interest on the Senior Convertible Notes using the computed value of 90% of the ten day prior weighted average price of the common shares for conversion of interest, and (c) the number of common shares to be issued upon exercise of the Series E and Series F Warrants using their respective initial exercise prices of $2.33 and$2.56 per share.
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As described below (see “ADDITIONAL INFORMATION REGARDING THE SELLING SECURITY HOLDERS – Anti-Dilution Dispute”), we are currently in a dispute with the Selling Security Holders as to whether the full-ratchet anti-dilution provision has been triggered, requiring adjustment of the conversion price of the Notes and the exercise price of the Series E Warrants, Series F Warrants and Lane Warrants to $0.46 per share. If the full-ratchet anti-dilution provision is determined to have been triggered, this will result in a significant additional number of shares issuable upon conversion of the notes and upon exercise of the warrants, which will significantly dilute our shareholders.
CAPITALIZATION AND INDEBTEDNESS
The following table sets forth our capitalization and indebtedness as of September 30, 2007, and proforma to give effect to the issuance of the common shares issuable upon (a) conversion of the Notes, (b) exercise of certain share purchase warrants and (c) conversion of the Class B preferred shares in October 2007 and before deducting expenses of this offering. This table is presented in Canadian GAAP in U.S. Dollars and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus.
| As of September | ||||||
| 30, 2007 | Proforma | |||||
| (in Thousands) | (in | |||||
| Thousands) | ||||||
| Assets | $ | 23,515 | $ | 34,524 | ||
| Bank indebtedness | 266 | 266 | ||||
| Accounts payable and accrued liabilities | 2,652 | 2,652 | ||||
| Capital lease obligation, current portion | 36 | 36 | ||||
| Acquisition debt | 0 | 0 | ||||
| 0 | ||||||
| Capital lease obligation, long-term portion | 184 | 184 | ||||
| Long term – convertible debenture payable | 11,637 | 2,277 | ||||
| Discount on convertible debenture payable | (6,035 | ) | (808 | )) | ||
| Derivative convertible debt | (2 | ) | 0 | |||
| Long term – Acquisition debt | 0 | 0 | ||||
| 8,738 | 4,607 | |||||
| Capital Stock | ||||||
| Authorized | ||||||
| Unlimited common shares without par value |
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| Unlimited Multiple Voting Shares without par value | ||||||
| 2,000,000 Class A preferred shares | ||||||
| 2,000,000 Class B preferred shares | ||||||
| Outstanding as of September 30, 2007: 600,000 Class B preferred | ||||||
| shares. Proforma: Nil Class B Shares | 600 | 0 | ||||
| Issued as of September 30, 2007: 21,172,068 common shares without | ||||||
| par value. Proforma: 38,831,724 common shares without par value | ||||||
| Outstanding as of September 30, 2007: 21,134,768 common shares | ||||||
| without par value. Proforma: 38,794,424 common shares without | ||||||
| par value | 83,437 | 107,874 | ||||
| Contributed surplus | 17,871 | 12,642 | ||||
| Cumulative translation account | 288 | 288 | ||||
| Deficit | (87,419 | ) | (90,887 | ) | ||
| 14,777 | 29,917 | |||||
| 23,515 | 34,524 |
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of our common shares being offered for sale by the selling security holders, although we could receive proceeds of up to $2,602,233 if all of the share purchase warrants listed in “THE OFFERING” above (collectively, the “Warrants”) are exercised for cash. We will use the net proceeds from the exercise of the Warrants for general working capital.
SELLING SECURITY HOLDERS
The common shares being offered by the selling security holders include shares that are currently issued and outstanding, plus shares that are issuable upon conversion of the Senior Convertible Notes, upon exercise of the Warrants and in payment of interest on the Acquisition Notes. For additional information regarding the issuance of the Notes and the Warrants, see “PROSPECTUS SUMMARY – Senior Convertible Debt Financing”, “Acquisitions During 2007” and “THE OFFERING” above. We are registering the common shares in order to permit the selling security holders to offer the shares for resale from time to time. Except for the ownership of the Notes and the Warrants and except as described below, the selling security holders have not had any material relationship with us within the past three years.
The table below lists the selling security holders and other information regarding the beneficial ownership as of February 8, 2008 of the common shares held by each of the selling security holders. The second column lists the number of common shares being registered and offered for resale by each selling security holder pursuant to this prospectus. The fourth column lists the number of common shares beneficially owned by the selling security holders assuming the sale of all shares offered for sale pursuant to this prospectus.
On September 26, 2007, we entered into a Registration Rights Agreement with certain selling security holders in connection with the Financing. See “PROSPECTUS SUMMARY – Senior Convertible Debt Financing” above. In accordance with the terms of this Registration Rights Agreement, we agreed to register for resale a number of common shares equal to 130% of the sum of (i) the number of common shares issuable upon conversion of the Senior Convertible Notes, (ii) as interest shares pursuant to the terms of the Notes, and (iii) the number of common shares issuable upon exercise of the related Series E and Series F Warrants, in each case calculated as of the trading day immediately preceding the date the registration statement is initially filed with the SEC. We are also permitted to register up to 234,375 common shares issuable as payment of interest on the Acquisition Notes, 333,333 common shares that are currently issued and outstanding, and the common shares underlying the Lane Warrants.
However, pursuant to SEC rules, we are limited in the number of shares that we may register for resale for selling security holders on any one registration statement. Accordingly, the 6,397,043 common shares that are included in this offering represent only a portion of the total number of common shares issuable in connection with the Financing and the other registrable shares. We have agreed to file additional registration statements in the future until all of the issuable common shares are registered.
As described below (see “ADDITIONAL INFORMATION REGARDING THE SELLING SECURITY HOLDERS – Anti-Dilution Dispute”), we are currently in a dispute with the Selling Security Holders as to whether the full-ratchet anti-dilution provision has been triggered, requiring adjustment of the conversion price of the Notes and the
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exercise price of the Series E and Series F Warrants and the Lane Warrants to $0.46 per share. If the full-ratchet anti-dilution provision is determined to have been triggered, this will result in a significant additional number of shares issuable upon conversion of the Notes and upon exercise of the Warrants. The following table does not give effect to any anti-dilution adjustment to the Notes or Warrants.
Under the terms of the Senior Convertible Notes and the Series E and Series F Warrants, a selling security holder who is a note holder or warrant holder may not convert the notes or exercise the warrants to the extent such conversion or exercise would cause such selling security holder, together with its affiliates, to beneficially own a number of common shares which would exceed 4.99% of our then outstanding common shares following such conversion or exercise (excluding for purposes of such determination common shares issuable upon conversion of the notes which have not been converted and upon exercise of the warrants which have not been exercised). The selling security holders shareholders may sell all, some or none of their shares in this offering. See “PLAN OF DISTRIBUTION” below.
| Maximum | |||||||||||||||
| Number of | |||||||||||||||
| Common Shares | |||||||||||||||
| to be Sold | |||||||||||||||
| Number of Common Shares | Pursuant to this | Number of Common | |||||||||||||
| Shares | |||||||||||||||
| Owned Prior to Offering | Prospectus | Owned After Offering | |||||||||||||
| Name | Number | Percent | Number | Percent | |||||||||||
| Midsummer Investment, Ltd. (##) (1) | 1,240,762 | 4.99 | (##) | 1,986,423 | 1,573,470 | 4.99 | (##) | ||||||||
| 295 Madison Ave., 38th Floor | |||||||||||||||
| New York, NY 10014 | |||||||||||||||
| Hudson Bay Overseas Fund, Ltd. (##) (2) | 1,240,762 | 4.99 | (##) | 1,589,138 | 1,573,470 | 4.99 | (##) | ||||||||
| 120 Broadway, 40th Floor | |||||||||||||||
| New York, New York 10271 | |||||||||||||||
| Enable Growth Partners LP (##) (3) | 1,240,762 | 4.99 | (##) | 893,890 | 1,220,046 | 3.9 | |||||||||
| One Ferry Building, Suite 225 | |||||||||||||||
| San Francisco, CA 94111 | |||||||||||||||
| James Dines (4) | 1,756,666 | 7.20 | 62,253 | 1,694,413 | 5.4 | ||||||||||
| 2600 - 825 Third Avenue | |||||||||||||||
| New York, NY 10022 | |||||||||||||||
| CAMOFI Master LDC (##) (5) | 1,184,550 | 4.79 | 794,569 | 1,084,487 | 3.5 | ||||||||||
| 350 Madison Ave, 8th Floor | |||||||||||||||
| New York, NY 10017 | |||||||||||||||
| BridgePointe Master Fund Ltd. (6) | 592,273 | 2.46 | 397,284 | 542,243 | 1.8 | ||||||||||
| 1120 Sanctuary Parkway, Ste 325 | |||||||||||||||
| Alpharetta, GA 30004 | |||||||||||||||
| David Reingold (7). | 1,237,827 | 5.29 | 32,012 | 1,205,815 | 4.0 | ||||||||||
| 67 Gatcombe Circle | |||||||||||||||
| Thornhill, Ontario L4C 9P5 | |||||||||||||||
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| Ryan M. Lane (8) | 569,519 | 2.37 | 235,366 | 490,419 | 1.6 | ||||||||||
| 1034 Clinton Street | |||||||||||||||
| Hoboken NJ 07030 | |||||||||||||||
| CAMHZN Master LDC (9) | 296,138 | 1.25 | 198,642 | 271,122 | ** | ||||||||||
| 350 Madison Ave, 8 th Floor | |||||||||||||||
| New York, NY 10017 | |||||||||||||||
| John D. Lane (10) | 238,840 | 1.01 | 87,607 | 203,322 | ** | ||||||||||
| 263 Queens Grant Road | |||||||||||||||
| Fairfield, CT 06824 | |||||||||||||||
| Enable Opportunity Partners LP (11) | 148,066 | ** | 99,321 | 135,559 | ** | ||||||||||
| One Ferry Building, Suite 225 | |||||||||||||||
| San Francisco, CA 94111 | |||||||||||||||
| Scott Edwards (12) | 46,000 | ** | 8,404 | 37,596 | ** | ||||||||||
| 188 Avenue of the Americas, Apt. 5R | |||||||||||||||
| New York, New York 10013 | |||||||||||||||
| Lisa Reingold (13). | 105,848 | ** | 3,006 | 102,842 | ** | ||||||||||
| 67 Gatcombe Circle | |||||||||||||||
| Thornhill, Ontario L4C 9P5 | |||||||||||||||
| Jason Marin (14) | 2,000 | ** | 374 | 1,626 | ** | ||||||||||
| 4601 67th Street, Apt. 1A | |||||||||||||||
| Woodside, NY 11377 | |||||||||||||||
| Orlee Muroff (15) | 143,651 | -- | 5,980 | 137,671 | ** | ||||||||||
| 49 Park Hill Road | |||||||||||||||
| Toronto, Ontario M6C 3N1 | |||||||||||||||
| Mark Goodman (16) | 66,650 | -- | 2,775 | 63,875 | ** | ||||||||||
| 84 Markwood Lane | |||||||||||||||
| Thonhill, Ontario L4J 7A6 | |||||||||||||||
| TOTAL | 11,620,870 | 29.5% | 6,397,043 | 10,337,978 | 25.7% |
| _______________________ | |
| ** | Less than one percent. |
| (##) | The terms of the Senior Convertible Notes and Series E and Series F Warrants issued to investors in the Financing completed on September 26, 2007 prohibit conversion of the notes or exercise of the warrants to the extent that such conversion or exercise would result in any such investor, together with its affiliates, beneficially owning in excess of 4.99% of our outstanding common shares. The investors may increase or decrease this percentage, but not in excess of 9.99%, at any time upon 61 days’ prior written notice to us. As of the date of this prospectus, the investors have not changed the 4.99% percentage limitation. The number of common shares shown as beneficially owned prior to and after this offering reflect this limitation. |
|
| |
| (1) |
Midsummer Investment Ltd. participated in the Financing completed on September 26, 2007. Midsummer Capital, LLC is the investment advisor to Midsummer Investment, Ltd. By virtue of such relationship, Midsummer Capital, LLC may be deemed to have dispositive power over the shares owned by Midsummer Investment, Ltd. Midsummer Capital, LLC disclaims beneficial ownership of such shares. Mr. Michel Amsalem and Mr. Scott Kaufman have delegated authority from the members of Midsummer Capital, LLC with respect to the shares of common stock owned by Midsummer Investment, Ltd. Messrs. Amsalem and Kaufman may be deemed to share dispositive power over the shares of our common stock owned by Midsummer Investment, Ltd. Messrs. Amsalem and Kaufman disclaim beneficial ownership of such shares of our common stock and neither person has any legal right to maintain such delegated authority. |
|
| |
| (2) |
Hudson Bay Overseas Fund, Ltd. participated in the Financing completed on September 26, 2007. Sander Gerber, Yoav Roth and John Doscas share voting and investment power over the securities held by Hudson Bay Overseas Fund Ltd. Each of Sander Gerber, Yoav Roth and John Doscas disclaim beneficial ownership over the securities held by Hudson Bay Overseas Fund Ltd. The selling security |
-21-
|
holder acquired the securities offered for its own account in the ordinary course of business, and at the time it acquired the securities, it had no agreements, plans or understandings, directly or indirectly to distribute the securities. | |
| (3) |
Enable Growth Partners LP participated in the Financing completed on September 26, 2007. Mitch Levine is the managing partner of Enable Growth Partners LP and has voting and investment power over the securities held by Enable Growth Partners LP. |
| (4) |
James Dines was a former member of our Advisory Board, serving from March 17, 2006 until he resigned on May 24, 2007. Mr. Dines also beneficially owns 333,333 common shares underlying a share purchase warrant at an exercise price of $3.25 per share, expiring March 29, 2009 and share purchase warrants to purchase 1,000,000 common shares at an exercise price of $2.00 per share, expiring on October 31, 2010, both of which were issued to him for advisory services. |
| (5) |
CAMOFI Master LDC participated in the Financing completed on September 26, 2007. Richard Smithline is a director of CAMOFI Master LDC and has voting and investment power over the securities held by CAMOFI Master LDC. |
| (6) |
BridgePointe Master Fund Ltd. participated in the Financing completed on September 26, 2007. Eric S. Swartz is the “natural person” associated with this fund who exercises sole or shares voting and/or dispositive power over the securities held by BridgePointe Master Fund Ltd. |
| (7) |
David Reingold is the former President and majority shareholder of our wholly-owned subsidiaries, My Organic Baby Inc. and DMR Food Corporation. On May 29, 2007 Mr. Reingold was appointed our President and a member of our Board of Directors. Mr. Reingold also beneficially owns 768,998 common shares that are issuable upon conversion of his $1,791,765 Acquisition Note and 50,000 common shares issuable to him upon exercise of vested options. This does not include shares beneficially owned by his wife, Lisa Reingold, described below. |
| (8) |
Ryan M. Lane is a principal with Lane Capital Markets which assisted in the placement of the Financing completed on September 26, 2007. The Notes, Series E and Series F Warrants held by Mr. Lane represent his allocation of the 4% fee paid to Lane Capital Markets as placement agent in the Financing, which was re- invested into the Financing. The shares beneficially owned also include 303,000 common shares issuable upon exercise of his Lane Warrants with an initial exercise price of $2.33. The Lane Warrants expire on September 26, 2012. We issued the Lane Warrants to him as a portion of his placement agent fee for the Financing. |
| (9) |
CAMHZN Master LDC participated in the Financing completed on September 26, 2007. Richard Smithline is a director of CAMHZN Master LDC and has voting and investment power over the securities held by CAMHZN Master LDC. |
| (10) |
John D. Lane is a principal with Lane Capital Markets which assisted in the placement of the Financing completed on September 26, 2007. The Notes, Series E and Series F Warrants held by Mr. Lane represent his allocation of the 4% fee paid to Lane Capital Markets as placement agent in the Financing, which was re- invested into the Financing. The shares beneficially owned also include 150,000 common shares issuable upon exercise of his Lane Warrants with an initial exercise price of $2.33. The Lane Warrants expire on September 26, 2012. We issued the Lane Warrants to him as a portion of his placement agent fee for the Financing. |
| (11) |
Enable Opportunity Partners LP participated in the Financing completed on September 26, 2007. Mitch Levine is the managing partner of Enable Growth Partners LP and has voting and investment power over the securities held by Enable Growth Partners LP. |
| (12) |
Scott Edwards is associated with Lane Capital Markets which assisted in the placement of the Financing completed on September 26, 2007. The shares beneficially owned include 45,000 common shares issuable upon exercise of his Lane Warrants with an initial exercise price of $2.33. The Lane Warrants expire on September 26, 2012. We issued the Lane Warrants to him as a portion of his placement agent fee for the Financing. Mr. Edwards also beneficially owns 1,000 common shares. |
| (13) |
Lisa Reingold is the spouse of David Reingold, our President and a member of our Board of Directors, and is a former shareholder of our wholly-owned subsidiary DMR Food Corporation. The number of shares owned prior to the offering does not include any shares issuable as payment of interest on the Senior Convertible Note. Ms. Reingold also beneficially owns 72,204 common shares that are issuable upon conversion of her $168,235 Convertible Note. This does not include shares beneficially owned by her husband, David Reingold, described above. |
| (14) |
Jason Marin is associated with Lane Capital Markets which assisted in the placement of the Financing completed on September 26, 2007. The shares beneficially owned include 2,000 common shares issuable upon exercise of his Lane Warrants with an initial exercise price of $2.33. The Lane Warrants expire on September 26, 2012. We issued the Lane Warrants to him as a portion of his placement agent fee for the Financing. |
| (15) |
Orlee Muroff is a former shareholder of our wholly-owned subsidiary My Organic Baby Inc. Ms. Muroff also beneficially owns 143,651 common shares that are issuable upon conversion of her $334,706 Convertible Note. |
| (16) |
Mark Goodman is a former shareholder of our wholly-owned subsidiary, DMR Food Corporation. Mr. Goodman also beneficially owns |
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66,650 common shares that are issuable upon conversion of his $155,294 Convertible Note.
-23-
ADDITIONAL INFORMATION REGARDING THE SELLING SECURITY HOLDERS
Value of Common Stock underlying Senior Convertible Notes
The following table sets forth the total dollar value of the common stock underlying the Senior Convertible Notes sold in the Financing (which closed on September 26, 2007) that we are obligated to register for resale pursuant to the Registration Rights Agreement. The following table does not include any calculations for the common stock underlying the Acquisition Notes, as we have not registered those shares for resale. In addition, the following table does not include any calculations for any anti-dilution adjustments. See “—Anti-Dilution Dispute” below.
| 130% of the Number of Common | Market Price per Common Share at | Total Dollar Value of Common |
| Shares Underlying | Close of OTCBB Market | Shares Underlying |
| Senior Convertible Notes (1) | on September 26, 2007 | Senior Convertible Notes |
| 5,222,318 | $2.15 | $11,227,984 |
| (1) |
This number is calculated at 130% of the number of common shares that are issuable upon conversion of principal under the Senior Convertible Notes, using the initial conversion price of $2.33 per share. |
Payments to Selling Security Holders
The following tables set forth the dollar amount of each payment we have made or may be required to make to any selling security holder, affiliate of a selling security holder, or person with whom any selling security holder has a contractual relationship regarding the Senior Convertible Notes or the Acquisition Notes. The following information excludes any repayment of principal on the Senior Convertible Notes or the Acquisition Notes, but includes interest payments, liquidated damages, payments made to “finders” or “placement agents,” and other payments or potential payments.
| Payments | ||||||||||||||||||||||||
| Interest Payments (1) | Liquidated | Other | Contingent | Total | ||||||||||||||||||||
| Selling Security Holder | Year 1 | Year 2 | Year 3 | Years 4-20 | Damages (2) | Payments | Payments (4) | Payments | ||||||||||||||||
| (3) | ||||||||||||||||||||||||
| Midsummer Investment, Ltd. | 270,000 | 270,000 | 270,000 | 9,180,000 | 150,000 | -- | (4 | ) | $ | 10,140,000 | ||||||||||||||
| Hudson Bay Overseas Fund, Ltd | 216,000 | 216,000 | 216,000 | 7,344,000 | 120,000 | 98,000 | (4 | ) | 8,210,000 | |||||||||||||||
| Enable Growth Partners LP | 121,500 | 121,500 | 121,500 | 4,131,000 | 67,500 | -- | (4 | ) | 4,563,000 | |||||||||||||||
| James Dines | -- | -- | -- | -- | -- | -- | (4 | ) | -- | |||||||||||||||
| CAMOFI Master LDC | 108,000 | 108,000 | 108,000 | 3,672,000 | 60,000 | -- | (4 | ) | 4,056,000 | |||||||||||||||
| BridgePointe Master Fund Ltd. | 54,000 | 54,000 | 54,000 | 1,836,000 | 30,000 | -- | (4 | ) | 2,028,000 | |||||||||||||||
| David Reingold | 161,259 | 161,259 | 161,259 | 5,482,801 | -- | -- | (4 | ) | 5,966,578 | |||||||||||||||
| Ryan M. Lane | 24,300 | 24,300 | 24,300 | 826,200 | 13,500 | (3 | ) | (4 | ) | 912,600 | ||||||||||||||
| CAMHZN Master LDC | 27,000 | 27,000 | 27,000 | 918,000 | 15,000 | -- | (4 | ) | 1,014,000 | |||||||||||||||
| John D. Lane | 8,100 | 8,100 | 8,100 | 275,400 | 4,500 | (3 | ) | (4 | ) | 304,200 | ||||||||||||||
| Enable Opportunity Partners LP | 13,500 | 13,500 | 13,500 | 459,000 | 7,500 | -- | (4 | ) | 507,000 | |||||||||||||||
| Scott Edwards | -- | -- | -- | -- | -- | -- | (4 | ) | -- | |||||||||||||||
| Lisa Reingold | 15,141 | 15,141 | 15,141 | 514,799 | -- | -- | 560,222 | |||||||||||||||||
| Jason Marin | -- | -- | -- | -- | -- | -- | (4 | ) | -- | |||||||||||||||
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| Orlee Muroff | 30,124 | 30,124 | 30,124 | 1,024,200 | -- | -- | (4 | ) | 1,114,572 | |||||||||||||||
| Mark Goodman | 13,976 | 13,976 | 13,976 | 475,200 | -- | -- | (4 | ) | 517,128 | |||||||||||||||
| Lane Capital Markets, LLC | -- | -- | -- | -- | -- | 75,499 | (3) | -- | 75,499 | |||||||||||||||
| Schulte Roth & Zabel LLP | -- | -- | -- | -- | -- | 15,000 | (3) | -- | 15,000 | |||||||||||||||
| Goodmans LLP | -- | -- | -- | -- | -- | 24,000 | (3) | -- | 24,000 | |||||||||||||||
| Aird & Berlis LLP | -- | -- | -- | -- | -- | 32,000 | (3) | -- | 32,000 | |||||||||||||||
| TOTAL | $ | 1,062,900 | $ | 1,062,900 | $ | 1,062,900 | $ | 36,138,600 | $ | 468,000 | $ | 244,499 | (4 | ) | $ | 40,039,79 | ||||||||
| 9 |
| (1) |
The Notes have a stated term of 20 years, with a maturity date of September 26, 2027. The interest rate on the Notes is 9.00% per annum for the first three years, and 18.00% per annum thereafter, calculated on the basis of a 360-day year. Interest is payable monthly in arrears, beginning on the earlier to occur of (a) January 23, 2007 and (b) the effective date of the registration statement of which this prospectus is a part. We will pay interest by the issuance of common shares, assuming satisfaction of certain conditions, or at our election by payment of cash. |
|
At any time after September 26, 2009 (the two-year anniversary of the issuance date), we have the right under the Notes to require conversion or redemption in cash of all or any portion of the Notes. The amount we may require to convert, at any one period of time, is limited to 85% of the arithmetic average of the daily dollar trading volume of our common shares for a 10- trading day period. The conversion rate for any amounts being converted into common shares will be at the lower of (i) the then- conversion price and (ii) 85% of the arithmetic average of the weighted average price of our common shares for a 10-trading day period prior to conversion. Any amounts we redeem in cash will be at 100% of the principal being redeemed, accrued and unpaid interest and late fees, plus the amount of interest that would have been payable on such principal through September 26, 2010 (the three-year anniversary of the issuance date), discounted to present value. | |
|
At any time after September 26, 2010 (the three-year anniversary of the issuance date), the holder of a Note has the right under the Note to require conversion or, at our election, redemption in cash of all or any portion of the Note. The amount we may be required to convert, at any one period of time, is limited to 85% of the arithmetic average of the daily dollar trading volume of our common shares for a 20-trading day period (provided that such average of the daily dollar trading volume exceeds $250,000). The conversion rate for any amounts being converted into common shares will be the lower of (i) the then-conversion price and (ii) 85% of the arithmetic average of the weighted average price of our common shares for a 10-trading day period prior to conversion. Any amounts we redeem in cash will be at 100% of the principal being redeemed, accrued and unpaid interest and late fees. | |
| (2) |
We are currently paying liquidated damages in cash to the selling security holders because our registration statement was not declared effective by the Commission before the effectiveness deadline of January 23, 2008 (120 days after the closing date of the Financing) (an “Effectiveness Failure”). Additionally, we will be required to pay liquidated damages if, after a registration statement has been declared effective by the Commission, sales of “registrable securities” cannot be made by a selling security holder pursuant to such registration statement or otherwise (including because of a failure to keep such registration statement effective, to disclose such information as is necessary for sales to be made pursuant to such registration statement, to register a sufficient number of common shares or to maintain the listing of the common shares) (a “Maintenance Failure”). The amount of liquidated damages is calculated as follows: (A) 2% of the aggregate purchase price paid for the Senior Convertible Notes and Warrants on each of the following dates: (i) the day of an Effectiveness Failure; (ii) the initial day of a Maintenance Failure; (iii) on the 30th day after the day of an Effectiveness Failure (pro rated for periods totaling less than 30 days); and (vi) on the 30th day after the initial day of a Maintenance Failure (pro rated for periods totaling less than 30 days) and (B) 1% of the aggregate purchase price paid for the Senior Convertible Notes and Warrants on each of the following dates: (i) on every 30th day following the 31st first day following such Effectiveness Failure (pro rated for periods totaling less than 30 days) until such Effectiveness Failure is cured; and (ii) on every 30th day following the 31st day following |
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|
such Maintenance Failure (pro rated for periods totaling less than 30 days) until such Maintenance Failure is cured. In the event we fail to timely make these liquidated damages payments, these amounts will bear interest at the rate of 1.0% per month (prorated for partial months) until paid in full. | |
|
Our estimate of the liquidated damages payments assumes that the registration statement is not declared effective by the SEC until 60 days after the registration deadline of January 23, 2008. The actual amount of liquidated damages payments, if any, will depend on the actual effective date of the registration statement and may be more or less than our estimated amount. | |
| (3) |
“Other Payments” include transaction fees, attorneys fees and placement agent fees, as follows: (a) We have reimbursed Hudson Bay Overseas Fund, Ltd. its costs and expenses in connection with the Financing, including U.S. attorneys’ fees, in an amount of $98,000; (b) we have agreed to pay Goodmans LLP, Canadian legal counsel for Hudson Bay Overseas Fund, Ltd,, an amount of $24,000 for its fees in connection with the Financing; (c) we have paid Aird & Berlis LLP, legal counsel to James Dines and David Reingold, an amount of $32,000 for its fees in connection with the Financing; (d) under the terms of the Registration Rights Agreement, we agreed to pay the fees and disbursements of legal counsel for the Note holders, Schulte Roth & Zabel LLP, not to exceed $15,000 for each registration statement; and (e) under our engagement agreement, we agreed to pay our placement agent for the Financing, Lane Capital Markets LLC, a fee equal to 4% of the gross proceeds in the Financing (which was re-invested in the Financing), a cash fee of $75,499, and the Lane Warrants to purchase 500,000 common shares at an exercise price of $2.33 per share. |
| (4) |
The terms of the Registration Rights Agreement, Securities Purchase Agreement, Notes and Series E Warrants, Series F Warrants and Lane Warrants include provisions which may require payments by us to the Selling Security Holders in the future under certain contingent circumstances. These potential payments include indemnification obligations, payments for late fees, buy-in payments, event of default premiums and change of control premiums. Amounts that may be payable under these contingent provisions depend on future facts and circumstances and cannot be readily quantified. |
Net Proceeds from Financing
The following table sets forth the net proceeds to us from the sale of the Senior Convertible Notes, less the total possible payments we have made or may be required to make to any Selling Security Holder in the first year following the sale of the Senior Convertible Notes.
| Amount of Financing | $ | 9,360,000 | |
| Re-invested Placement Agent Fees (1) | 360,000 | ||
| Gross Proceeds from Financing | 9,000,000 | ||
| Interest Payments through September 26, 2008 | 810,000 | ||
| Potential Liquidated Damages Payments through | 450,000 | ||
| September 26, 2008 (2) | |||
| Cash Placement Agent Fees | 75,499 | ||
| Other Payments (3) | 169,000 | ||
| Net Proceeds from Financing | $ | 7,495,501 |
| (1) |
Lane Capital Markets re-invested its placement agent fee of $360,000 (representing 4% of the gross proceeds) in the Financing. |
| (2) |
Our estimate of the liquidated damages payments assumes that the registration statement is not declared effective by the SEC until 2 months after the registration deadline of January 23, 2008. The actual amount of liquidated damages payments, if any, will depend on the actual effective date of the registration statement. |
| (3) |
Consists of costs and attorneys fees of the Selling Security Holders that have been paid or are payable by us in connection with the Financing and the registration statement. |
-26-
Potential Profit to Selling Security Holders
Potential Profit due to any Note Conversion Discount
The following table sets forth the total possible profit the Selling Security Holders could realize as a result of any conversion discount for the common shares underlying the Senior Convertible Notes based on:
| Combined Closing | Combined | ||||
| Total Shares | Market Price of the | Conversion Price of | |||
| Underlying Senior | Total Number of | the Total Number of | Discount to | ||
| Convertible Notes | Shares Underlying | Shares Underlying | Closing | ||
| Closing Market Price Per | Conversion Price | (Assuming No | Senior Convertible | Senior Convertible | Market |
| Share | Per Share | Interest Payments) | Notes | Notes | Price |
| $2.15 | $2.33 | 4,017,164 | $8,636,903 | $9,359,992 | $(723,090) |
The initial conversion price for the Senior Convertible Notes is $2.33. The conversion price is subject to full-ratchet anti-dilution adjustment in the event that we issue or sell common shares, including options or convertible securities, (other than in connection with the issuance of common shares for acquisitions, to employees or, in a limited amount, to consultants) at a price less than the Note conversion price, and will also be adjusted in the event of any stock splits, stock dividends, recapitalizations, exchanges or other similar events. The above table does not take into account any anti-dilution adjustments. See “ADDITIONAL INFORMATION REGARDING THE SELLING SECURITY HOLDERS – Anti-Dilution Dispute” below. Except as set forth below, the Note conversion price is not a floating rate in relationship to the market price of the common shares.
Under the terms of the Senior Convertible Notes, we have the right to require redemption or conversion, at our election, of all or any portion of the Notes at any time after September 26, 2009 (the two-year anniversary of the issuance date). In the event that we convert any portion of a Note by the exercise of this right, we will make such conversion at a conversion rate equal to the lower of (i) the initial conversion price (as adjusted as for anti-dilution or for stock splits, stock dividends or other similar events) or (ii) 85% of the arithmetic average of weighted average price of our common shares on each of the ten days prior to the applicable measuring date.
Additionally, the Note holders have the right to require conversion or, at our election, redemption of all or any portion of the Note at any time after September 26, 2010 (the three-year anniversary of the issuance date). In the event that a Note holder exercises this right and we do not elect to redeem the applicable portion of the Note for
-27-
cash, we will make such conversion at a conversion rate equal to the lower of (i) the initial conversion price (as adjusted as for anti-dilution or for stock splits, stock dividends or other similar events) or (ii) 85% of the arithmetic average of weighted average price of our common shares on each of the ten days prior to the applicable measuring date.
Because any potential conversion rate discounts under these provisions are contingent upon future events, we cannot quantify any potential profits to the Selling Security Holders as a result of these provisions.
Potential Profit due to any Warrant Exercise Discount
The following table sets forth the total possible profit to be realized as a result of any exercise discounts for the common shares underlying the Series E Warrants, Series F Warrants and Lane Warrants held by the Selling Security Holders and any affiliates of the Selling Security Holders based on:
| Combined | Combined | ||||
| Closing Market | Exercise Price | ||||
| Closing | Price of the Total | of the Total | |||
| Market | Exercise | Total Shares | Number of Shares | Number of Shares | Discount to |
| Price Per | Price Per | Underlying | Underlying | Underlying | Closing |
| Share | Share | Warrants | Warrants | Warrants | Market |
| Price | |||||
| $2.15 | $2.33 (1) | 2,508,581 | $5,393,449 | $5,844,994 | $(451,545) |
| $2.15 | $2.56 (2) | 2,008,581 | $4,318,449 | $5,141,967 | $(823,518) |
| (1) |
The Series E Warrants and Lane Warrants have an initial exercise price of $2.33 per share. |
| (2) |
The Series F Warrants have an initial exercise price of $2.56 per share. |
The Series E and Series F Warrants and Lane Warrants are subject to full-ratchet anti-dilution adjustment in the event that we issue or sell common shares, including options or convertible securities, (other than in connection with the issuance of common shares for acquisitions, to employees or, in a limited amount, to consultants) at a price less than the warrant exercise price, and will also be adjusted in the event of any stock splits, stock dividends, recapitalizations, exchanges or other similar events. The effect of this full-ratchet anti-dilution protection is that a downward adjustment to the warrant exercise price will result in an upward adjustment to the number of shares issuable upon exercise. The above table does not take into account any anti-dilution adjustments. See “ADDITIONAL INFORMATION REGARDING THE SELLING SECURITY HOLDERS – Anti-Dilution Dispute” below. The warrant exercise prices are not a floating price in relationship to the market price of the common shares.
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Percentage of Potential Payments to Selling Security Holders against our Net Proceeds
The following table sets forth:
| Gross proceeds paid to us in the Senior Convertible Note Financing: | $ | 9,000,000 | |
| All interest payments that have been made,
and all interest and liquidated damage payments
that we may be required to make over the 20-year term of the Notes: |
$ | 39,915,799 | |
| Resulting net proceeds | $ | (30,915,799 | ) |
| Combined total possible profit to be
realized as a result of conversion discounts regarding
the common shares underlying the Senior Convertible Notes and Series E and Series F Warrants and Lane Warrants based on the closing market price of our common shares on September 26, 2007, the date of the Financing |
$ | (1,998,153 | ) |
| Percent of the total amount of all possible
payments and the total possible discount to
the closing market price of the shares underlying the Senior Convertible Notes divided by the net proceeds from the Financing |
N/A% | ||
| Percent of the total amount of all possible
payments and the total possible discount to the
closing market price of the shares underlying the Senior Convertible Notes divided by the net proceeds from the Financing averaged over the term of the notes |
N/A% |
Prior Securities Transactions with Selling Security Holders
The following table sets forth certain information regarding all prior securities transactions between us and the Selling Security Holders, any affiliates of the Selling Security Holders, or any person with whom any Selling Security Holder has a contractual relationship regarding the transaction, including:
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| Number of | |||||||||||||||||||||
| shares of the | |||||||||||||||||||||
| class of | |||||||||||||||||||||
| securities | |||||||||||||||||||||
| subject to the | |||||||||||||||||||||
| transaction | |||||||||||||||||||||
| that were | |||||||||||||||||||||
| outstanding | |||||||||||||||||||||
| prior to the | |||||||||||||||||||||
| transaction | |||||||||||||||||||||
| and held by | Number of | ||||||||||||||||||||
| persons other | shares of the | ||||||||||||||||||||
| Number of | than the | class of | Percentage of | Current | |||||||||||||||||
| shares of the | Selling | securities | total issued | Market price | market | ||||||||||||||||
| class of | Security | subject to the | and | per share of | price per | ||||||||||||||||
| securities | Holders, | transaction | outstanding | the class of | share of | ||||||||||||||||
| subject to the | affiliates of | that were | securities that | securities | the class of | ||||||||||||||||
| transaction | the company, | issued or | were issued or | subject to the | securities | ||||||||||||||||
| that were | or affiliates of | issuable in | issuable in the | transaction | subject to | ||||||||||||||||
| Date of prior | outstanding | the Selling | connection | transaction | immediately | the | |||||||||||||||
| securities | prior to the | Security | with the | (assuming full | prior to the | transactio | |||||||||||||||
| Name of Selling Security Holder | transaction | transaction | Holders | transaction | issuance) | transaction | n (1) | ||||||||||||||
| James Dines – Warrants issued as compensation under a Consulting Agreement dated November 1, 2005 |
November 1, 2005 |
5,698,827 | 5,698,827 | 1,000,000 | 14.93 % $ | 1.93 | $ | 0.66 | |||||||||||||
| James Dines – Finders Fees | June 7, 2007 | 20,443,820 | 20,110,487 | 90,000 | 0.45 | 2.72 | 0.66 | ||||||||||||||
| David Reingold – Employment Agreement |
June 8, 2007 | 20,423,820 | 20,423,820 | 192,000 | 0.94 | 2.66 | 0.66 | ||||||||||||||
| Orlee Muroff – Employment Agreement |
June 8, 2007 | 20,423,820 | 20,423,820 | 23,000 | 0.11 | 2.66 | 0.66 | ||||||||||||||
| David Reingold – Acquisition Liability 90,579 shrs @ $2.898Cdn |
Aug 13, 2007 | 20,816,497 | 20,624,497 | 90,579 | 0.44 | 2.72 | 0.66 | ||||||||||||||
| Lisa Reingold – Acquisition Liability 33,644 shrs @ $2.898Cdn |
Aug 13, 2007 | 20,816,497 | 20,816,497 | 33,644 | 0.16 | 2.72 | 0.66 | ||||||||||||||
| Mark Goodman – Acquisition Liability 31,056 shrs @ $2.898Cdn |
Aug 13, 2007 | 20,816,497 | 20,816,497 | 31,056 | 0.15 | 2.72 | 0.66 | ||||||||||||||
| Lane Capital Markets LLC | Sept 28, 2007 | 21,172,068 | 21,172,068 | 228,310 | 1.08 | 2.09 | 0.66 | ||||||||||||||
| David Reingold / Orlee Muroff | Oct 9, 2007 | 20,980,725 | 20,765,725 | (200,000 | ) | (0.96 | ) | 2.01 | 0.66 | ||||||||||||
| Lane Capital Markets LLC | Oct 2, 2007 | 21,180,725 | 20,952,415 | 8,657 | 0.04 | 2.06 | 0.66 |
| (1) |
Current market price per share is based on the closing price of our common shares on February 8, 2008, as reported on the Over-the-Counter Bulleting Board. |
Prior Registration Statements with Selling Security Holders
The following table sets forth:
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| Common Shares Outstanding Prior to the Senior Convertible Note Financing Held by Persons Other Than Our Affiliates, the Selling Security Holders and Affiliates of the Selling Security Holders (1) |
Number of Common Shares Previously Registered for Resale by the Selling Security Holders or Affiliates of the Selling Security Holders |
Number of Common Shares Previously Registered for Resale by the Selling Security Holders or Affiliates of the Selling Security Holders and Presently Held (2) |
Number of Common Shares Sold in Registered Resale Transactions by the Selling Security Holders or Affiliates of the Selling Security Holders |
Number of Common Shares Registered for Resale on Behalf of the Selling Security Holders or Affiliates of the Selling Security Holders (3) |
| 19,191,131 | 1,267,000 | 1,267,000 | -- | 6,397,043 |
| (1) |
Based on the number of shares outstanding as of September 26, 2007. |
| (2) |
Consists of the following: (a) 1,000,000 shares underlying stock purchase warrants held by James Dines, registered on Form F- 3 (File No. 333-136245); and (b) 267,000 shares underlying stock options held by David Reingold, registered on Form S-8 (File No. 333-131713). |
| (3) |
The 6,397,043 common shares that are included in this offering represent only a portion of the total number of common shares issuable in connection with the Financing and the other registrable shares. We have agreed to file additional registration statements in the future until all of the issuable common shares are registered. See “THE OFFERING” above. |
Our Financial Ability to Make Payments on the Notes
We currently expect to be able to make all interest payments on the Notes in cash for at least the initial three years of the term using cash flow from operations and from current assets. Although the Notes have a stated term of 20 years, we have analyzed our financial abilities to make payments for the initial three years, which we currently believe to be the practical term of the Notes. Under the terms of the Notes, after two years we have the right to force redemption or conversion (if certain conditions are satisfied) and after three years the holders of the Notes have the right to force redemption or conversion (if certain conditions are satisfied). We may make interest payments by issuing additional common shares, if certain conditions in the Notes are satisfied. Any payments of interest in common shares will preserve our cash assets, but will be dilutive of our shareholders. If we are required to make interest payments in cash for the full 20-year term of the Notes, we will be required to seek further financing.
Based on our current operations, we do not expect to be able to repay the principal on the Notes, whether in three years when the holders of the Notes can force repayment or at the stated maturity date. We expect that we will have to seek further financing to repay the principal in cash if the business does not change. However, we may make payments on the principal by issuing additional common shares, if certain conditions in the Notes are satisfied. Any payments in common shares will preserve our cash assets, but will be dilutive of our shareholders.
Short Positions by Selling Security Holders
Each of the Selling Security Holders, other than Hudson Bay Overseas Fund Ltd., has confirmed to us that it does not have an existing short position in our common shares. Hudson Bay Overseas Fund Ltd. has advised us that it may enter into short sales in the ordinary course of its businesses of investing in and trading securities positions, but
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that it considers its trading information confidential and proprietary and consequently does not disclose such information except to the extent required by law. However, Hudson Bay has advised us that no short sales were entered into during the period beginning when it obtained knowledge that we were contemplating the Senior Convertible Note Financing and ending upon the public announcement of such financing. Further, Hudson Bay has acknowledged to us that it is aware of and adheres to the position of the Staff set forth in Item A.65 of the SEC Telephone Interpretations Manual.
In addition, each holder of Senior Convertible Notes has agreed in the Securities Purchase Agreement that for so long as such holder owns any Notes, such holder will not maintain a “Net Short Position.” As defined in the Securities Purchase Agreement, a Net Short Position means a position whereby such holder has executed one or more sales of common shares that is marked as a short sale and that is executed at a time when such holder has no equivalent offsetting long position in the common shares or contract for the foregoing. Notwithstanding the foregoing, the Securities Purchase Agreement provides that the holders may engage in hedging activities at various times during the period following the public announcement of the execution of the Agreement and during the period that the Notes are outstanding.
Certain Relationships with Selling Security Holders
Set forth below is a description of any other relationships or arrangements in the past three years (other than the Financing and the Acquisitions, described herein) or to be performed in the future between us and the Selling Security Holders, any affiliates of the Selling Security Holders, or any person with whom any selling shareholder has a contractual relationship regarding the transactions described herein.
| James Dines |
James Dines was a former member of our Advisory Board, serving from March 17, 2006 until he resigned on May 24, 2007. James Dines also previously had a consulting agreement with us, dated November 5, 2005 for a term of 5 years for general business management, administration, development and marketing services. As compensation for the services, we granted Mr. Dines 1,000,000 share purchase warrants exercisable at $2.00 a share expiring on October 31, 2010. The consulting agreement was terminated on May 24, 2007, however the warrants remain outstanding. We have no other relationships or arrangements with Mr. Dines other than those described above. |
|
| |
| David Reingold |
David Reingold is the former President and majority shareholder of our wholly-owned subsidiaries, My Organic Baby Inc. and DMR Food Corporation. See “PROSPECTUS SUMMARY – Acquisitions During 2007” above. On May 29, 2007, Mr. Reingold was appointed our President and a member of our Board of Directors. Mr. Reingold currently has a three-year consulting contract and a three-year employment agreement with us under which he receives incentive options and $40,000 per year in base compensation. In addition, Mr. Reingold is entitled to certain monthly payments and earn-out payments under the share purchase agreement pursuant to which we acquired DMR Food Corporation. We have no other relationships or arrangements with Mr. Reingold other than those described herein. |
|
| |
| Lane Capital Markets LLC |
Ryan M. Lane and John D. Lane are principals with, and Scott Edwards and Jason Marin are associates with, Lane Capital Markets LLC. Lane Capital Markets assisted in the placement of the Financing completed on September 26, 2007 and received a placement fee of $360,000 (which was re-invested into the Financing) and a placement fee of $75,499. In addition, Lane Capital Markets serves are our exclusive financing placement agent for six months from September 26, 2007. We also entered into a one year consulting agreement with Lane Capital Markets on September 26, 2007, under which Lane Capital Markets will provide financial and acquisition advisory services to us. In consideration for this contract, we issued 228,310 common shares to Lane Capital Markets. We have no other relationships or arrangements with Lane Capital Markets, Ryan Lane, John Lane, Mr. Edwards or Mr. Marin other than those described herein. |
|
| |
| Orlee Muroff |
Orlee Muroff is a former shareholder of our wholly-owned subsidiary My Organic Baby Inc. See “PROSPECTUS SUMMARY – Acquisitions During 2007” above. Ms. Muroff is |
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currently an employee of the Company and is president of My Organic Baby, Inc. We have no other relationships or arrangements with Ms. Muroff other than those described herein.
Calculation of Number of Shares Being Registered
Under the terms of the Registration Rights Agreement, we are required to register an amount of common shares equal to 130% of the sum of (a) the number of common shares to be issued upon conversion of the Senior Convertible Notes, (b) the number of common shares to be issued as payment of interest on the Senior Convertible Notes using the computed value of 90% of the ten day prior weighted average price of the common shares for conversion of interest, and (c) the number of common shares to be issued upon exercise of the Series E and Series F Warrants. We are also permitted to register 234,375 common shares issuable as payment of interest on the Acquisition Notes, 333,333 common shares that are currently issued and outstanding, and the common shares underlying the Lane Warrants. We currently estimate that we will ultimately register 15,724,332 common shares in accordance with the Registration Rights Agreement.
With respect to the registration statement of which this prospectus forms a part, we are required to register the lesser of (i) the entire amount of common shares (as calculated above) or (ii) such other amount as may be required by the SEC pursuant to Rule 415 of the Securities Act. In accordance with the SEC’s interpretive guidance under Rule 415, the total amount that we may register on a registration statement is an amount of common shares equal to one-third of our non-affiliate public float on the date of the Financing. On September 26, 2007, our non-affiliate public float consisted of 19,191,131 common shares. Accordingly, this prospectus covers the resale of 6,397,043 common shares.
Under the terms of the Registration Rights Agreement, any reduction in the amount of common shares made in order to comply Rule 415 shall be applied first to those common shares to be issued as payment of interest on the Senior Convertible Notes and then to those common shares to be issued upon exercise of the Series E Warrants and Series F Warrants. We are also making pro-rata reductions to those common shares issuable as payment of interest on the Acquisition Notes and those that are currently issued and outstanding.
The following table sets forth the number of common shares we are seeking to register in this registration statement.
| Number of | |||
| Shares | |||
| Allocation of Common Shares | Registered | ||
| Common shares issuable upon the conversion of the Senior | 5,222,318 | ||
| Convertible Notes (1) | |||
| Common shares to be issued as payment of interest on the Senior Convertible Notes (2) | 0 | ||
| Common shares issuable upon the exercise of the Series E | 1,068,700 | ||
| Warrants, Series F Warrants and Lane Warrants(2) | |||
| Common shares issuable as payment of interest on the Acquisition Notes | 43,772 | ||
| Common shares held by a selling security holder that are currently issued and outstanding | 62,253 | ||
| TOTAL | 6,397,043 |
| (1) |
Equal to 130% of the common shares issuable under the Senior Convertible Notes at the initial conversion price of $2.33 per share. |
| (2) |
Reduced in accordance with the Registration Rights Agreement. |
Because the amount of common shares we are seeking to register in this registration statement represent only a portion of the total number of common shares we are required to register under the Registration Rights Agreement, we are obligated to file additional registration statements in the future until all of the issuable common shares have been registered. Additionally, the Senior Convertible Notes and the Series E Warrants, Series F Warrants and Lane
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Warrants are subject to full-ratchet anti-dilution adjustment in the event that we issue or sell common shares, including options or convertible securities, (other than in connection with the issuance of common shares for acquisitions, to employees or, in a limited amount, to consultants) at a price less than the warrant exercise price, and will also be adjusted in the event of any stock splits, stock dividends, recapitalizations, exchanges or other similar events. The effect of this full-ratchet anti-dilution protection is that a downward adjustment to the warrant exercise price will result in an upward adjustment to the number of shares issuable upon exercise. See “– Anti-Dilution Dispute” below. .
Anti-Dilution Dispute
On January 28, 2008, we issued 156,125 shares as payment of interest on the Acquisition Notes at a value of $0.46 per share. Subsequently, on February 1, 2008, one of the Selling Security Holders notified us that it believes such issuance of shares triggered the full-ratchet anti-dilution provisions on its Senior Convertible Note and the Series E and Series F Warrants, requiring adjustment of the conversion price of the Notes and the exercise price of the Series E and Series F Warrants to $0.46 per share. On February 4, 2008, the Selling Security Holder tendered to us a conversion notice for $15,000 of its Note, at a conversion price of $0.46 per share. We disagree with the Selling Security Holders that the full-ratchet anti-dilution provision has been triggered and we have rejected the conversion notice. We are attempting to resolve this dispute with the Selling Security Holders.
In the event that the full-ratchet anti-dilution provision is determined to have been triggered, this will result in a significant additional number of shares issuable upon conversion of the Notes and upon exercise of the Warrants. The foregoing tables in this section “ADDITIONAL INFORMATION REGARDING THE SELLING SECURITY HOLDERS” do not give effect to the disputed full-ratchet anti-dilution adjustment to $0.46. The following are selected tables from the foregoing tables that have been revised to show the potential effect of the full-ratchet anti-dilution adjustment.
Value of Common Stock underlying Senior Convertible Notes Following Anti-Dilution Adjustment
The following table sets forth the total dollar value of the common stock underlying the Senior Convertible Notes sold in the Financing (which closed on September 26, 2007) that we are obligated to register for resale pursuant to the Registration Rights Agreement, giving effect to the disputed full-ratchet anti-dilution adjustment to $0.46. The following table does not include any calculations for the common stock underlying the Acquisition Notes, as we have not registered those shares for resale.
| 130% of the Number of Common | Market Price per Common Share at | Total Dollar Value of Common |
| Shares Underlying | Close of OTCBB Market | Shares Underlying |
| Senior Convertible Notes (1) | on September 26, 2007 | Senior Convertible Notes |
| 26,452,174 | $2.15 | $56,872,174 |
| (1) |
This number is calculated at 130% of the number of common shares that are issuable upon conversion of principal under the Senior Convertible Notes, using the adjusted conversion price of $0.46 per share. |
Potential Profit due to any Note Conversion Discount Following Anti-Dilution Adjustment
The following table sets forth the total possible profit the selling security holders could realize as a result of the anti-dilution adjustment to the conversion price of the common shares underlying the Senior Convertible Notes based on:
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| Combined Closing | Combined | ||||
| Total Shares | Market Price of the | Conversion Price of | |||
| Underlying Senior | Total Number of | the Total Number of | Discount to | ||
| Adjusted | Convertible Notes | Shares Underlying | Shares Underlying | Closing | |
| Closing Market | Conversion Price | (Assuming No | Senior Convertible | Senior Convertible | Market |
| Price Per Share | Per Share | Interest Payments) | Notes | Notes | Price |
| $2.15 | $0.46 | 20,347,826 | $43,747,826 | $9,360,000 | $34,387,826 |
Potential Profit due to any Warrant Exercise Discount Following Anti-Dilution Adjustment
The following table sets forth the total possible profit to be realized as a result of the anti-dilution adjustment to the exercise price for the common shares underlying the Series E Warrants, Series F Warrants and Lane Warrants held by the selling security holders and any affiliates of the selling security holders based on:
| Combined | Combined | ||||
| Closing Market | Exercise Price | ||||
| Closing | Adjusted | Price of the Total | of the Total | Discount to | |
| Market | Exercise | Total Shares | Number of Shares | Number of Shares | Closing |
| Price Per | Price Per | Underlying | Underlying | Underlying | Market |
| Share | Share | Series E Warrants | Series E Warrants | Series E Warrants | Price |
| and Lane Warrants | and Lane Warrants | and Lane Warrants | |||
| $2.15 | $0.46 | 12,706,508 | $21,873,883 | $5,844,994 | $21,473,999 |
| Combined | Combined | ||||
| Closing Market | Exercise Price | ||||
| Closing | Adjusted | Price of the Total | of the Total | Discount to | |
| Market | Exercise | Total Shares | Number of Shares | Number of Shares | Closing |
| Price Per | Price Per | Underlying | Underlying | Underlying | Market |
| Share | Share | Series F Warrants | Series F Warrants | Series F Warrants | Price |
| $2.15 | $0.46 | 11,178,190 | $24,033,109 | $5,141,967 | $18,891,141 |
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Percentage of Potential Payments to Selling Security Holders against our Net Proceeds Following Anti-Dilution Adjustment
The following table sets forth:
| Gross proceeds paid to us in the Senior Convertible Note Financing: | $ | 9,000,000 | |
| All interest payments that have been made,
and all interest and liquidated damage payments
that we may be required to make over the 20-year term of the Notes: |
$ |
39,915,799 |
|
| Resulting net proceeds | $ | (30,915,799 | ) |
| Combined total possible profit to be
realized as a result of conversion discounts regarding
the common shares underlying the Senior Convertible Notes and exercise discounts regarding the Series E and Series F Warrants and Lane Warrants, based on the closing market price of our common shares on September 26, 2007, the date of the Financing |
$ |
74,752,966 |
|
| Percent of the total amount of all possible
payments and the total possible discount to
the closing market price of the shares underlying the Senior Convertible Notes divided by the net proceeds from the Financing |
N/A% |
||
| Percent of the total amount of all possible
payments and the total possible discount to
the closing market price of the shares underlying the Senior Convertible Notes divided by the net proceeds from the Financing averaged over the term of the notes |
N/A% |
PLAN OF DISTRIBUTION
We are registering outstanding common shares, plus shares that are issuable upon conversion of the Senior Convertible Notes, upon exercise of the Warrants and in payment of interest on the Acquisition Notes (see “PROSPECTUS SUMMARY – Senior Convertible Debt Financing”, “– Acquisitions During 2007” and “THE OFFERING” above) to permit the resale of these common shares by the selling security holders from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling security holders of the common shares. We will bear all fees and expenses incident to our obligation to register the common shares.
The selling security holders may sell all or a portion of the common shares beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the common shares are sold through underwriters or broker-dealers, the selling security holders shareholders will be responsible for underwriting discounts or commissions or agent’s commissions. The common shares may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the
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time of sale, or at negotiated prices. These sales may be affected in transactions, which may involve crosses or block transactions,
on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
in the over-the-counter market;
in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
through the writing of options, whether such options are listed on an options exchange or otherwise;
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
an exchange distribution in accordance with the rules of the applicable exchange;
privately negotiated transactions;
short sales;
sales pursuant to Rule 144;
broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;
a combination of any such methods of sale; and
any other method permitted pursuant to applicable law.
If the selling security holders effect such transactions by selling common shares to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling security holders or commissions from purchasers of the common shares for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the common shares or otherwise, the selling security holders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the common shares in the course of hedging in positions they assume. The selling security holders may also sell common shares short and deliver common shares covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling security holders may also loan or pledge common shares to broker-dealers that in turn may sell such shares.
The selling security holders may pledge or grant a security interest in some or all of the Notes, Warrants or common shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the common shares from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling security holders to include the pledgee, transferee or other successors in interest as selling security holders shareholders under this prospectus. The selling security holders also may transfer and donate the common shares in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
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The selling security holders and any broker-dealer participating in the distribution of the common shares may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the common shares is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of common shares being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling security holders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
Under the securities laws of some states, the common shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the common shares may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling security holder will sell any or all of the common shares registered pursuant to the registration statement, of which this prospectus forms a part.
The selling security holders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the common shares by the selling security holders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the common shares to engage in market-making activities with respect to the common shares. All of the foregoing may affect the marketability of the common shares and the ability of any person or entity to engage in market-making activities with respect to the common shares.
We will pay all expenses of the registration of the common shares pursuant to the Registration Rights Agreement, estimated to be $151,045 in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that a selling security holder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling security holder against liabilities, including some liabilities under the Securities Act, in accordance with the Registration Rights Agreement, or the selling security holders will be entitled to contribution. We may be indemnified by the selling security holders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling security holders specifically for use in this prospectus, in accordance with the related Registration Rights Agreement, or we may be entitled to contribution.
Once sold under the registration statement, of which this prospectus forms a part, the common shares will be freely tradable in the hands of persons other than our affiliates.
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DESCRIPTION OF SHARE CAPITAL
As of February 8, 2008, our issued and authorized share capital consisted of the following:
In addition, as of February 8, 2008, there were 3,705,045 common shares issuable upon exercise of outstanding stock options at exercise prices ranging from $1.00 to $13.50 per share, and 11,193,495 common shares issuable upon exercise of outstanding share purchase warrants at exercise prices ranging from $1.25 to $3.25 per share.
On March 16, 2006, we held a special general meeting of shareholders, at which the shareholders approved (a) the re-designation of the common shares as “Limited Voting Shares” and (b) the creation of a class of “Variable Multiple Voting Shares.” Holders of Variable Multiple Voting Shares are entitled to multiple votes at all meetings of common shareholders, and the number of votes attached to each Variable Multiple Voting Share is equal to the greater of (i) ten and (ii) ten times a fraction the numerator of which is the number of issued common shares (other than the common shares issued from time to time on conversion of the Class B Preferred shares) and the denominator of which is the number of issued common shares on March 16, 2006.
Common Shares (Limited Voting Shares)
Each common share entitles the holder to one vote at any meeting of our shareholders, to receive, as and when declared by the Board of Directors, dividends in such amounts as shall be determined by the Board of Directors; and to receive any remaining property in the event of liquidation, dissolution or winding-up of our company.
Class A Preferred Shares
As of February 8, 2008, there were no Class A Preferred Shares issued and outstanding.
The rights attached to the Class A Preferred Shares include the right to dividends in the amount of 10% per annum payable quarterly in advance (payable by the issuance of common shares calculated at a share price equal to the ten day average closing price of our common shares on the OTC Bulletin Board market preceding the date of issuance of such dividend shares), the right to one vote for each Class A Preferred Share on any vote of the common shares, and the right of conversion into common shares at a conversion price equal to the ten day average trading price of common shares on the OTC Bulletin Board market preceding the date of conversion. The Class A Preferred Shares rank, as to dividends, redemptions, and the distribution of assets upon liquidation, prior to (i) the common shares and (ii) any class or series of shares of our capital stock created subsequent to these Class A Preferred Shares which by their terms ranks junior to the Class A Preferred Shares and junior to the Class B Preferred Shares; and junior to (iii) the Class B Preferred Shares and (iv) any class or series of shares of our capital stock created subsequent to the Class A Preferred Shares which by their terms ranks senior to the Class A Preferred Shares (the “Senior Securities”); and pari passu with (v) any class or series of shares of our capital stock created subsequent to the Class A Preferred Shares by their terms ranks on a parity with the Class A Preferred Shares.
Class B Preferred Shares
As of February 8, 2008, all of the previously issued Class B Preferred Shares had been converted into common shares and were no longer issued and outstanding.
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Variable Multiple Voting Shares
The Variable Multiple Voting Shares rank equally with the common shares with respect to dividends and rights on liquidation. With regard to voting, each Variable Multiple Voting Share entitles the holder thereof to such number of votes for each Variable Multiple Voting Share as may be determined in accordance with the following formula:
| V = LVS x 10 |
| CS |
Where:
| V | = |
the number of votes attaching to each issued Variable Multiple Voting Share |
| LVS | = |
the number of issued common shares, redesignated as Limited Voting Shares (other than the common shares issued from time to time on conversion of the Class B Preferred shares) |
| CS | = |
7,229,912 (which represents the number of issued common shares as at March 16, 2006, which number shall be increased upon any subdivision and decrease upon any consolidation of the Limited Voting Shares after March 16, 2006 on the same basis as that subdivision or consolidation) |
Based on the above formula, as of February 8, 2008, there were 23,624,212 shares of common stock issued and outstanding, other than common shares issued on Conversion of the Class B Preferred Shares, resulting in 21.33 votes for each Variable Multiple Voting Share. As of February 8, 2008, there were 1,600,000 Variable Multiple Voting Shares issued, entitling the holder of these shares to a total of 34,134,128 votes.
EXPENSES
The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered hereunder. No expenses shall be borne by the selling security holders. All of the amounts shown are estimates, except for the SEC Registration Fees.
| SEC registration fees | $ | 545 | |
| Printing and filing expenses | 7,500 | ||
| Accounting fees and expenses | 70,000 | ||
| Legal fees and expenses | 70,000 | ||
| Transfer agent and registrar fees | 1,000 | ||
| Miscellaneous | 2,000 | ||
| Total | $ | (151,045 | ) |
LEGAL MATTERS
The validity of the issuance of common shares which are offered in this prospectus will be passed on by Max Pinsky Personal Law Corporation.
EXPERTS
The consolidated financial statements of Clearly Canadian Beverage Corporation as of December 31, 2006, and for the year then ended have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The report dated March 9, 2007 contains an explanatory paragraph that states that the Company has suffered recurring losses from operations and has insufficient working capital to meets its planned business objectives which raise substantial doubt about the ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. The consolidated financial statements of Clearly Canadian Beverage Corporation as of December 31, 2005 and 2004, and for the years then
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ended have been audited by UHY LDMB Advisors Inc., our prior independent public accounting firm, as set forth in their reports thereon, included therein, and incorporated herein by reference. The consolidated financial statements are incorporated herein by reference in reliance upon such reports given on the authority of UHY LDMB Advisors Inc. as experts in accounting and auditing.
The audit reports covering each of the years ended December 31, 2005 and 2004 consolidated financial statements contain an explanatory paragraph that states that our recurring losses from operations, accumulated deficit and working capital deficit raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The audit report for the year ended December 31, 2006 consolidated financial statements did not include such a going concern paragraph.
The financial statements of DMR Food Corporation as of September 30, 2006 and 2005, and for the years then ended, have been incorporated by reference herein and in the registration statement in reliance upon the report of Fruitman Kates LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The report dated April 18, 2007 contains an explanatory paragraph that states that such independent registered public accounting firm was not appointed auditors until after September 30, 2006 and thus did not observe the taking of physical inventories at neither the beginning of the year nor the end of the year and were not able to satisfy itself concerning inventory quantities by alternative means. Since opening and ending inventories enter into the determination of the results of operations, cash flows, and valuation of assets, Fruitman Kates LLP was unable to determine whether adjustments to cost of sales, income taxes, net income for the year, inventory, opening retained earnings and cash provided from operations might be necessary.
The financial statements of My Organic Baby, Inc. as of January 31, 2007 and for the year then ended have been incorporated by reference herein and in the registration statement in reliance upon the report of Fruitman Kates LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of 1934, or Exchange Act, and file reports and other information with the Securities and Exchange Commission. We have filed with the Commission a registration statement on Form F-3 to register the securities offered in this prospectus. This prospectus, which forms a part of the registration statement, does not contain all of the information included in the registration statement and its exhibits and schedules. References in this prospectus to any contract or other document are not necessarily complete and, if we filed the contract or document as an exhibit to the registration statement, you should refer to the exhibit for more information.
The registration statement, including all exhibits, may be inspected without charge at the Commission’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. Our Securities and Exchange Commission filings also are available to the public from the Commission’s website at www.sec.gov.
As a foreign private issuer, we are exempt from the rules under the Exchange Act that prescribe the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. We are not currently required under the Exchange Act to publish financial statements as frequently or as promptly as are United States companies subject to the Exchange Act. We will, however, continue to furnish our shareholders with annual reports containing audited financial statements and will issue quarterly press releases containing unaudited results of operations as well as such other reports as may from time to time be authorized by our board of directors or as may be otherwise required.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, including all subsequent annual reports on Form 20-F, Form 40-F, or Form 10-KSB and all subsequent filings by us on Form 10-QSB, or 8-K, prior to termination of this offering. In addition we may incorporate by reference any Form 6-K subsequently filed by us by identifying in such Forms 6-K that they are being incorporated by reference into this prospectus.
| 1. | Annual Report on Form 20-F/A for the year ended December 31, 2006, filed with the Securities and Exchange Commission on August 3, 2007, as amended on January 15, 2008 and February 19, 2008; |
| 2. | Current Reports on Form 6-K filed on July 25, 2006, July 27, 2006, August 31, 2006, September 5, 2006, November 2, 2006, November 29, 2006, January 18, 2007, February 8, 2007, March 1, 2007, April 4, 2007, May 25, 2007, May 29, 2007, June 28, 2007, July 26, 2007, August 30, 2007, September 28, 2007, November 9, 2007, January 15, 2008, January 22, 2008 and February 19, 2008; |
| 3. |
The description of our common shares contained in our Annual Report on Form 20-F/A filed with the Securities and Exchange Commission on August 3, 2007, including all amendments and reports for the purpose of updating such description. |
You may request a copy of any of the documents incorporated by reference in this prospectus at no cost. We will not include exhibits to the documents that you request unless the exhibits are specifically incorporated by reference into those documents. You may make your request for any of the documents incorporated by reference in this prospectus by writing or telephoning us at the following address: Clearly Canadian Beverage Corporation, 2267 10th Avenue W., Vancouver, British Columbia, Canada V6K 2J1. Our telephone number is (800) 663-5658.
Any statement contained herein or in a document incorporated or deemed to be incorporated by reference into this document will be deemed to be modified or superseded for purposes of the document to the extent that a statement contained in this document or any other subsequently filed document that is deemed to be incorporated by reference into this document modifies or supersedes the statement.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the U.S. Securities Act of 1933, as amended, may be permitted for directors, officers and controlling persons of our company under British Columbia law or otherwise, we have been informed that the opinion of the Securities and Exchange Commission is that such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 8. Indemnification of Directors and Officers
Our Articles provide that, subject to the Business Corporations Act (British Columbia), our directors shall cause our company to indemnify a director or former director of our company, or a director or former director of a corporation of which our company is or was a shareholder, and in either case the heirs and personal representatives of any such person, against all costs, charges and expenses, 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 being or having been a director of our company or a director of such corporation, including any action brought by our company or any such corporation.
Our Articles also provide that, subject to the provision of the Business Corporations Act (British Columbia), the directors may cause our company to indemnify any officer of our company or of a corporation of which our company 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 acting as an officer, employee or agent of our company or such corporation.
Under the Business Corporations Act (British Columbia), we may indemnify: (a) a present or former director or officer of our company; (b) a present or former director or officer of another corporation at a time when the corporation is or was an affiliate of our company or in which the person was acting at the request of our company; or (c) a person who, at the request of our company, holds or held a position equivalent to that of a director or officer of a partnership, trust, joint venture or other unincorporated entity, against all judgments, penalties or fines awarded or imposed in, or an amount paid in settlement of, a proceeding involving such person, or any of the heirs and personal or other legal representatives of the person or pursuant to which such person may be liable for a judgment, penalty or fine or expenses of the proceeding. We may also, and must if the person is successful in the proceeding, pay the expenses of the person in respect of such proceeding. Notwithstanding the foregoing, the Business Corporations Act (British Columbia) provides that the we must not indemnify, or pay the expenses of, the person if: (a) the person did not act honestly and in good faith the a view to the best interests of our company or other entity; (b) in a proceeding other than a civil proceeding, the person did not have reasonable grounds for believing that the persons’ conduct was lawful; or (c) if the proceeding is brought by our company or other entity.
We maintain directors’ and officers’ liability insurance for our directors.
Item 9. Exhibits
| Exhibit | ||
| Number | Description | |
| 4.1 | (1) |
Form of Securities Purchase Agreement, dated September 25, 2007, between the Registrant and the Buyers listed therein |
| 4.2 | (1) |
Form of Registration Rights Agreement, dated September 25, 2007, between the Registrant and the Buyers listed therein |
| 4.3 | (1) |
Form of Senior Convertible Note |
| 4.4 | (1) |
Form of Warrant to Purchase Common Shares at an Exercise Price of $2.33 per Common Share (Series E Warrant) |
| 4.5 | (1) |
Form of Warrant to Purchase Common Shares at an Exercise Price of $2.56 per Common Share (Series F Warrant) |
| 4.6 | (1) |
Form of Securities Purchase Agreement, dated September 25, 2007, between the Registrant and the DMR Buyers and MOB Buyers listed therein |
| 4.7 | (1) |
Form of Senior Convertible Note for DMR and MOB Vendors |
| 4.8 | (2) |
Form of Registrant’s Common Share Certificate |
| 4.9 | (3) |
Articles of Clearly Canadian Beverage Corporation, as amended |
| 5.1 | (4) |
Legal Opinion of Max Pinsky Personal Law Corporation |
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| Exhibit | ||
| Number | Description | |
| 23.1 | ** | Consent of UHY LDMB Advisors Inc. |
| 23.2 | ** | Consent of KPMG LLP |
| 23.3 | ** | Consent of Fruitman Kates LLP |
| 23.4 | (4) | Consent of Max Pinsky Personal Law Corporation (contained in the opinion filed as Exhibit 5.1 hereto) |
| ________________ | |
|
** |
Filed herewith |
| (1) |
Previously filed as an exhibit to and incorporated by reference from our Current Report on Form 6-K filed on September 28, 2007. |
| (2) |
Previously filed as an exhibit to and incorporated by reference from our Registration Statement on Form F-3 (File No. 333- 136245), filed on August 2, 2006. |
| (3) |
Previously filed as an exhibit to and incorporated by reference from our Annual Report on Form 20-F for the year ended December 31, 2005, filed on June 30, 2006. |
| (4) |
Previously filed as an exhibit to and incorporated by reference from our Registration Statement on Form F-3 (File No. 333- 147292), filed on November 9, 2007. |
Item 10. Undertakings
(a) We hereby undertake:
(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. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective 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;
Provided, however , that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission pursuant to filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of this 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) To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A of Form 20-F at the start of any delayed offering or throughout a continuous offering; provided that , with respect to a registration statement on Form F-3, a post-effective amendment need not be filed to include
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financial statements and information required by Section 10(a)(3) of the Securities Act or Rule 3-19 if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by us pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Form F-3.
(5) For purposes of determining any liability under the Securities Act of 1933, each filing of our annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement related to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by any of our directors, officers of controlling persons 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, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form F-3 and authorized this Amendment No. 2 to the registration statement to be signed on its behalf by the undersigned, in the City of Vancouver, British Columbia, Canada, on February 15, 2008.
| CLEARLY CANADIAN BEVERAGE | ||
| CORPORATION | ||
| By: | /s/ Brent Lokash | |
| Brent Lokash, Chief Executive Officer | ||
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities indicated below on the dates indicated.
| Signature | Capacities | Date | |
| /s/ Robert Genovese | Chairman of the Board of Directors | February 15, 2008 | |
| Robert Genovese | |||
| /s/ Brent Lokash | Chief Executive Officer and Director | February 15, 2008 | |
| Brent Lokash | ( Principal Executive Officer ) | ||
| /s/ David Reingold | President and Director | February 15, 2008 | |
| David Reingold | |||
| /s/ Edwin Fok | Chief Financial Officer | February 15, 2008 | |
| Edwin Fok | ( Principal Financial Officer and | ||
| Principal Accounting Officer ) | |||
| /s/ George Reznik | Director | February 15, 2008 | |
| George Reznik |
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EXHIBIT INDEX
| Exhibit | ||
| Number | Description | |
| 4.1 | (1) | Form of Securities Purchase Agreement, dated September 25, 2007, between the Registrant and the Buyers listed therein |
| 4.2 | (1) | Form of Registration Rights Agreement, dated September 25, 2007, between the Registrant and the Buyers listed therein |
| 4.3 | (1) | Form of Senior Convertible Note |
| 4.4 | (1) | Form of Warrant to Purchase Common Shares at an Exercise Price of $2.33 per Common Share (Series E Warrant) |
| 4.5 | (1) | Form of Warrant to Purchase Common Shares at an Exercise Price of $2.56 per Common Share (Series F Warrant) |
| 4.6 | (1) | Form of Securities Purchase Agreement, dated September 25, 2007, between the Registrant and the DMR Buyers and MOB Buyers listed therein |
| 4.7 | (1) | Form of Senior Convertible Note for DMR and MOB Vendors |
| 4.8 | (2) | Form of Registrant’s Common Share Certificate |
| 4.9 | (3) | Articles of Clearly Canadian Beverage Corporation, as amended |
| 5.1 | (4) | Legal Opinion of Max Pinsky Personal Law Corporation |
| 23.1 | ** | Consent of UHY LDMB Advisors Inc. |
| 23.2 | ** | Consent of KPMG LLP |
| 23.3 | ** | Consent of Fruitman Kates LLP |
| 23.4 | (4) | Consent of Max Pinsky Personal Law Corporation (contained in the opinion filed as Exhibit 5.1 hereto) |
| ____________________ | |
|
** |
Filed herewith |
| (1) |
Previously filed as an exhibit to and incorporated by reference from our Current Report on Form 6-K filed on September 28, 2007. |
| (2) |
Previously filed as an exhibit to and incorporated by reference from our Registration Statement on Form F-3 (File No. 333- 136245), filed on August 2, 2006. |
| (3) |
Previously filed as an exhibit to and incorporated by reference from our Annual Report on Form 20-F for the year ended December 31, 2005, filed on June 30, 2006. |
| (4) |
Previously filed as an exhibit to and incorporated by reference from our Registration Statement on Form F-3 (File No. 333- 147292), filed on November 9, 2007. |
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