PROSPECTUS
LEADING BRANDS, INC.
5,117,002 Common Shares
The persons listed in the section of this prospectus titled
Selling Shareholders" are offering for sale 5,117,002 common shares, no par
value, of the Company, which includes 1,650,001 common shares issuable upon
exercise of warrants issued to certain institutional investors and 167,000
common shares issuable upon exercise of warrants issued to the placement agent.
The selling shareholders acquired the common shares offered by this prospectus
in a private placement in August 2007 in reliance on exemptions from
registration under the Securities Act of 1933, as amended (the Securities
Act). We are registering the offer and sale of the common shares to satisfy the
registration rights that we have granted.
The selling shareholders will receive all of the proceeds from
the sale of the common shares offered by this prospectus, less any brokerage
commissions or other expenses incurred by them. We will not receive any proceeds
from the sale of common shares by the selling shareholders. If any warrants are
exercised (excluding warrants exercised on a cashless basis), we will receive
the exercise price of the warrants after deducting any additional commissions
owed to the placement agent involved in the private placement in August 2007
related to warrant exercises by certain selling shareholders.
The selling shareholders may offer the common shares from time
to time, sell any or all of their common shares on any stock exchange, market or
trading facility on which the shares are traded or in privately negotiated
transactions at market prices prevailing at the time of sale, at negotiated
prices, or at fixed prices which may be changed. See Plan of Distribution"
beginning on page 20 in this prospectus.
Our common shares are traded on the NASDAQ Capital Market under
the symbol LBIX." On October 5, 2007, the last sale price of our common shares
as quoted on the NASDAQ Capital Market was U.S.$2.99 per share.
This investment involves a high degree of risk. You should
carefully consider the factors described under the caption Risk Factors"
beginning on page 2 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.
Our principal executive offices are located at 1500 West
Georgia Street, Suite 1800, Vancouver BC, Canada V6G 2Z6. Our telephone number
is (604) 685-5200.
The date of this prospectus is October 9, 2007.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed
with the United States Securities and Exchange Commission (the Commission).
You should rely only on the information provided in this prospectus. Neither we
nor the selling shareholders listed in this prospectus have authorized anyone to
provide you with information different from that contained in or incorporated by
reference in this prospectus. The selling shareholders are offering to sell and
seeking offers to buy common shares only in jurisdictions where offers and sales
are permitted. 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 of any sale of common shares. Applicable Commission rules may
require us to update this prospectus in the future.
Unless the context otherwise requires, throughout this
prospectus the words Leading Brands," the Company, we," us," and our"
refer to Leading Brands, Inc. and its subsidiaries.
Unless otherwise stated, all references to dollar amounts in
this prospectus are stated in United States dollars.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference
to the more detailed information and consolidated financial statements appearing
elsewhere or incorporated by reference in this prospectus.
Private Placement
On August 9, 2007, we completed a private placement transaction
in which we issued to certain institutional investors 3,300,001 common shares at
$3.00 per share and 1,817,001 warrants to purchase common shares that resulted
in aggregate gross proceeds to us of approximately $9.9 million before expenses.
Each of these warrants is exercisable for one common share, beginning at any
time on or after February 9, 2008 through February 9, 2013, at an exercise price
of $3.95. If all of the warrants are ultimately exercised for cash, Leading
Brands will receive additional proceeds of approximately $7.2 million, less any
expenses incurred. The common shares were issued in a private transaction under
Regulation D and were not registered under the Securities Act, or any state
securities laws. Unless the common shares are registered, they may not be
offered or sold in the United States except pursuant to an exemption from the
registration requirements of the Securities Act and applicable state laws. As
such, we agreed to register for public resale the common shares and the common
shares issuable upon exercise of the warrants issued to the purchasers in the
private placement as well as shares issuable upon exercise of certain warrants
that were issued to the placement agent involved in the private placement, all
of which are reflected in the aggregate number of common shares and warrants
listed above. All of the warrants issued to the placement agent possess the same
terms as the warrants issued in the private placement, except that each warrant
is exercisable beginning at any time on or after March 20, 2008. This prospectus
has been prepared and the registration statement of which this prospectus is a
part has been filed with the Commission to satisfy our obligations to the
purchasers of the common shares and warrants in the private placement and the
placement agent involved in the private placement. Accordingly, this prospectus
covers the resale by certain selling shareholders of the common shares and the
common shares issuable upon exercise of the warrants issued in the private
placement and the resale by the placement agent of the common shares issuable
upon exercise of the warrants that were issued to the placement agent involved
in the private placement.
About Leading Brands, Inc.
We are listed on the NASDAQ Capital Market under the symbol
LBIX."
Our principal executive offices are located at 1500 West
Georgia Street, Suite 1800, Vancouver BC, Canada V6G 2Z6. Our telephone number
is (604) 685-5200.
Leading Brands and its subsidiaries are engaged in beverage
brand development, bottling, food and beverage distribution, sales,
merchandising, brand licensing and brand management throughout Canada and the
United States. The Company is a fully integrated healthy beverage company with a
broad distribution network that supports company brands and a range of
complementary products from other brand owners. It is also a producer and
distributor of private label products and a co-packer for major branded beverage
items. Leading Brands creates, designs, bottles, distributes and markets its own
proprietary healthy beverage brands such as TrueBlue
®
Blueberry
Juice, LiteBlue
®
Blueberry Juice, TREK
®
Natural Sports
Drinks, NITRO
®
Energy Drinks, STOKED Energy Drinks, INFINITE Health
Water and Caesars
®
Cocktails via its unique Integrated Distribution
System (IDS) which involves the Company finding the most appropriate and
cost-effective route to market. The Company strives to use the best natural
ingredients hence its mantra: Better Ingredients Better Brands.
The Offering
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|
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Common shares offered by the selling shareholders
|
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5,117,002 common shares (of
which 1,650,001 common shares are issuable upon exercise of warrants
issued to certain institutional investors and 167,000 common shares
are issuable upon exercise of warrants issued to the placement agent
in the private placement).
|
|
|
|
Common shares outstanding prior to this offering as of August
31, 2007
|
|
19,934,424 common shares.
|
|
|
|
Common shares outstanding following this offering if all
shares are sold*
|
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21,751,425 common shares.
|
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Use of Proceeds
|
|
We will not receive any of
the proceeds from the sale of the common shares by the selling shareholders.
If any warrants are exercised (excluding warrants exercised on a cashless
basis), we will receive the exercise price of the warrants, which will
be used for working capital purposes.
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Risk Factors
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An investment in our securities
involves a high degree of risk and could result in a loss of your entire
investment. Prior to making an investment decision, you should carefully
consider all of the information in this prospectus and, in particular,
you should evaluate the risk factors set forth under the caption Risk
Factors" beginning on page 2.
|
NASDAQ Capital Market Symbol
|
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LBIX
|
* This figure is based on the number of common shares
outstanding as of August 31, 2007 and assumes all common shares are sold
including 1,817,001 common shares issuable upon the exercise of the 1,817,001
warrants included in this prospectus. The selling shareholders who hold the
warrants are not required to exercise their warrants. Further, the selling
shareholders are not required to sell their outstanding common shares or any
common shares issued upon exercise of their warrants.
RISK FACTORS
We operate in a rapidly changing environment that involves
numerous risks and uncertainties. Shareholders should carefully consider the
risks described below before purchasing our common shares. The occurrence of any
of the following events could harm us. If these events occur, the trading price
of our common shares could decline, and shareholders may lose all or part of
their investment.
RISKS RELATED TO OUR BUSINESS
Exchange rates
Our operations are carried out primarily in Canada and in the
United States. The Company purchases certain raw materials and goods priced in
U.S. dollars for resale in Canada and also sells certain products, manufactured
in Canada, into the U.S. As a result, the Company is vulnerable to exchange rate
fluctuations and it does not presently use any financial instruments to hedge
foreign currency fluctuations. Consequently, a significant increase in the value
of the U.S. dollar in relation to the Canadian dollar would negatively impact
our earnings.
Critical supply
The Company relies on a limited number of suppliers for certain
raw materials. While other sources of supply do exist, an unexpected disruption
in supply or an increase in pricing would have a negative impact on production
and our earnings.
Distribution contracts
The Company holds exclusive distribution contracts for Canada
with certain suppliers. If certain of these distribution contracts were
terminated, it would have a negative impact on our earnings.
Use of independent distributors
We rely on the distribution services of independent
distributors in order to distribute and sell some of our beverage products to
retailers and consumers. If certain of these distributors were to stop
distributing our products, it would have a negative impact on our earnings.
Competition
Increased consolidations of our competitors with and into
larger companies, market place competition, and competitive product and pricing
pressures could impact the Companys earnings, market share and volume growth.
Laws and regulations
Changes in laws and regulations could negatively affect our
operations. For example:
-
the Company has significant tax loss carry forwards available and a change
in legislation affecting these losses would negatively impact future earnings;
-
changes in environmental laws affecting beverage containers could add
costs to the Companys operations and/or could decrease consumer demand for
the Companys products; and
-
changes in laws and regulations, such as those of the Food and Drug
Administration, could affect the way in which our products are marketed and
produced.
Trademarks and copyrights
The Company holds a number of trademarks and copyrights
relating to certain significant products. We rely on trademark laws and
contractual provisions to protect these trademarks and copyrights and any
significant infringement could adversely affect our business.
Operating losses
Historically, the Company has had periods of unprofitable
operations. The Companys bottling operations are relatively capital intensive
and in periods of low volumes, such as during seasonal fluctuations, fixed costs
can result in operating losses.
Customers
The Company derives a substantial portion of its revenue from
several major customers with the ten largest customers comprising approximately
65% of revenue. The loss of certain major customers would have a negative impact
on earnings.
Dependence on key management employees
Our business is dependent upon the continued support of
existing senior management, including Ralph D. McRae who is the Chairman,
President and Chief Executive Officer and a director of the Company. Mr. McRae
has been with Leading Brands since March 1996, and he has been responsible for
our business planning, corporate and brand initiatives and financings. The loss
of Mr. McRae, or any key members of our existing management, could adversely
affect our business and prospects.
Possible conflicts of interest of directors, officers,
and other members of management
Certain of our directors, officers, and other members of
management presently serve as directors, officers, promoters or members of
management of other companies and therefore it is possible that a conflict may
arise between their duties to Leading Brands and their duties to such other
companies. All such conflicts will be disclosed in accordance with the
provisions of applicable corporate legislation and directors and officers will
govern themselves in respect thereof to the best of their ability in accordance
with the obligations imposed upon them by law.
Other risks related to our business
-
The effectiveness and success of the Companys marketing programs,
especially for newer brands such as
TrueBlue
®
,
Infinite Health
Water
and
TREK
®
;
-
Changes in consumer tastes and preferences and market demand for new and
existing products;
-
Changes in general economic and business conditions; and
-
Adverse weather conditions, which could reduce demand for the Companys
beverage products, sales of which are negatively affected by cooler
temperatures.
RISKS RELATED TO OUR INDUSTRY
Size and resources of competitors
Leading Brands competes, to some degree, with other larger
companies in the beverage industry. Some of these competitors have substantially
greater marketing, cash, distribution, production, technical and other resources
than the Company.
Our industry is subject to various regulations and we
must be in compliance with current and changing rules and regulations
The production and marketing of our beverages, including
contents, labels, caps and containers, are subject to the rules and regulations
of various federal, provincial, state and local health agencies. If a regulatory
authority finds that a current or future product or production run is not in
compliance with any of these regulations, we may be fined, or production may be
stopped, thus adversely affecting our financial condition and operations.
Similarly, any adverse publicity associated with any non-compliance may damage
our reputation and our ability to successfully market our products.
RISKS RELATED TO OUR CAPITAL STOCK
Our common shares have experienced significant price
volatility
Our common share price has experienced significant price
volatility, with closing trading prices on the NASDAQ Capital Market ranging
from a low of $0.71 to a high of $7.09 during the 30 months from March 1, 2005
to August 31, 2007. During this period, the stock market for other small
capitalization stocks has also experienced significant price fluctuations which
have often been unrelated to the operating performance of the affected
companies. Such future fluctuations could adversely affect the market price of
our common shares.
Sales of a substantial number of our common shares into
the public market could result in significant downward pressure on the price of
our common shares
Our common shares are traded on the NASDAQ Capital Market under
the symbol LBIX. As of August 31, 2007, there were 19,934,424 common shares
issued and outstanding. When this registration statement is declared effective,
the selling shareholders will be entitled to sell any or all of their 5,117,002
common shares. The concurrent sale of a substantial number of our common shares
in the public market could cause a reduction in the market price of our common
shares.
We may lose our foreign private issuer status in the
future, which could result in significant additional costs and expenses to
us
In order to maintain our current status as a foreign private
issuer" (as such term is defined in Rule 405 under the Securities Act of 1933,
as amended (the Securities Act")), where more than 50 percent of our
outstanding voting securities are directly or indirectly owned by residents of
the United States, we must not have any of the following: (i) a majority of our
executive officers or directors being U.S. citizens or residents, (ii) more than
50% of our assets being located in the U.S., or (iii) our business being
principally administered in the U.S. If we were to lose our foreign private
issuer status:
-
|
we would no longer be exempt from certain of the
provisions of U.S. securities laws such as, Regulation FD and the Section
16 short swing profit rules;
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we would be required to commence reporting on forms
required of U.S. companies, such as Forms l0-KSB, 10- QSB and 8-K, rather
than the forms currently available to us, such as Forms 20-F and 6-K.;
|
-
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we would be subject to additional restrictions on offers
and sales of securities outside the United States, including in Canada;
|
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we may lose the ability to rely upon exemptions from
NASDAQ corporate governance requirements that are available to foreign
private issuers; and
|
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if we engage in capital raising activities after losing
our foreign private issuer status, there is a higher likelihood that
investors may require us to file resale registration statements with the
Commission as a condition to any such financing.
|
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, most of our directors and officers are citizens of Canada and the
majority of our assets and operations are located outside of the United States.
It may not be possible for shareholders to enforce, in Canada, judgments against
us obtained in the United States, including actions predicated upon the civil
liability provisions of the United States federal securities laws.
While reciprocal enforcement of judgment legislation exists between Canada and the United States, we and our insiders may have defenses available to avoid, in Canada, the effect of U.S. judgments under Canadian law, making enforcement difficult or
impossible. 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 any 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.
We may be deemed to be a controlled foreign corporation or a passive foreign investment company under the Internal Revenue Code (the Code)
If more than 50% of the voting power of all of our classes of shares or total value of our shares is owned, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships and corporations or estates or
trusts other than foreign estates or trusts (U.S. Shareholders), each of which owns 10% or more of the total combined voting power of all of our classes of shares (10% U.S. Shareholders), we could be treated as a
controlled foreign corporation," as such term is defined under Subpart F of the Code. This classification would effect many complex results including the required inclusion by such United States shareholders in income of their pro rata shares
of our Subpart F income" (as specifically defined by the Code), if any, and the requirement that 10% U.S. Shareholders comply with certain additional U.S. tax reporting obligations. While we do believe that we are a controlled foreign
corporation, we have not made a determination as to whether we are a controlled foreign corporation under the Code, and cannot give any assurance that we would not be determined to be a controlled foreign corporation under the Code now or in the
future.
Even if we are not a controlled foreign corporation, we could be treated as a "passive foreign investment company" under the Code, depending upon the nature of our income and assets and those of our subsidiaries. Such a status would effect many
complex results to our U.S. Shareholders, including those who own less than 10% of the total combined voting power of our outstanding shares. These results might include imposition of higher rates of tax on certain dividends and on gains from sale
of our shares than would otherwise apply. While we do not believe that we are a passive foreign investment company nor ever have been, we have not made a determination as to whether we are or have ever been a passive foreign investment company and
so cannot give any assurance in this regard, whether now or in the future.
Implementing Section 404 of the Sarbanes-Oxley Act of 2002
We are currently implementing Section 404 of the Sarbanes-Oxley Act of 2002. Beginning with our annual report for our fiscal year ending February 29, 2008, we will be required to include a report by our management on our internal control over
financial reporting. Beginning with our annual report for our fiscal year ending February 28, 2009, the report must also contain a statement that our independent auditors have issued an attestation report on their assessment of such internal
control. Our efforts to comply with Section 404 are likely to result in significant costs, the commitment of time and operational resources and the diversion of managements attention. If we or our independent auditors are unable to assert that
our internal control over financial reporting is effective, market perception of our financial condition and the trading price of our stock may be adversely affected, customer perception of our business may suffer and we may face increased
difficulty raising capital, all of which could have a material adverse effect on our operations.
The common shares will be subject to restrictions on resales under the securities laws of the Province of British Columbia
If this registration statement is first declared effective by the Commission within 100 days of August 9, 2007 and the selling shareholders do not waive this requirement, then the Company will prepare and file with the British Columbia Securities
Commission a preliminary and final shelf prospectus prepared in accordance with the securities laws of the Province of British Columbia covering the resale of all of the common shares being registered pursuant to this registration
statement.
The common shares are subject to restrictions on resales under the securities laws of the Province of British Columbia until four months and one day after August 9, 2007, and the holders shall not be entitled to effect resales of the common shares
in Canada until December 10, 2007 even if a registration statement covering such resales becomes effective prior to that date, unless a discretionary order permitting the resale is granted by the British Columbia Securities Commission or such resale
is qualified by a prospectus for which a receipt has been issued by the British Columbia Securities Commission. Moreover, certificates evidencing the securities bear the following Canadian restrictive legend in substantially the following form,
until such time as it is not required:
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER
OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE DECEMBER 10, 2007.
ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of the Province of British
Columbia, Canada. Further, most of our assets are located outside of the United
States. Consequently, it may be difficult for United States investors to effect
service of process in the United States upon our directors or officers who are
not residents of the United States, or to realize in the United States upon
judgments of United States courts predicated upon civil liabilities under the
U.S. securities laws. A judgment of a U.S. court predicated solely upon such
civil liabilities would probably be enforceable in Canada by a Canadian court if
the U.S. court in which the judgment was obtained had jurisdiction, as
determined by the Canadian court, in the matter. There is substantial doubt
whether an original action could be brought successfully in Canada against any
of such persons or Leading Brands predicated solely upon such civil liabilities.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Statements under Prospectus Summary," Risk Factors" and
elsewhere in this prospectus about our future results, levels of activity,
performance, goals, or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in our forward-looking statements.
These factors include, among others, those listed under Risk Factors" or
described elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by
our use of words such as may," should," could," expects," plans,"
intends," anticipates," believes," estimates," predicts," potential" or
continue" or the negative or other variations of these words, or other
comparable words or phrases.
Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements or other future events.
Moreover, neither we nor anyone else assumes responsibility for the accuracy and
completeness of forward-looking statements. We are under no duty to update any
of our forward-looking statements after the date of this prospectus. You should
not place undue reliance on forward-looking statements.
CAPITALIZATION AND INDEBTEDNESS
The table below sets forth our capitalization on the following
basis:
|
A.
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on an actual basis as at May 31, 2007;
|
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B.
|
on a pro forma basis to reflect the private sale of
3,300,001 common shares at $3.00 per share for gross proceeds of
$9,900,003 as completed on August 9, 2007;
|
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|
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C.
|
on a pro forma basis to reflect:
|
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|
|
|
|
i
|
the issuance of common shares as noted in B above;
and
|
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|
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ii
|
the issuance of 1,817,001 common shares at $3.95 per
share for gross proceeds of $7,177,154 from the pro forma exercise of
warrants issued in connection with the issuance of common shares noted in
B above.
|
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A
|
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B
|
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C
|
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|
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Actual
as
at May 31, 2007
|
|
|
Pro forma
reflecting
the issuance of
common shares on
August 9,2007
(note)
|
|
|
Pro forma
reflecting
the issuance of
common shares on
August 9, 2007 and
the pro forma
exercise of
1,817,001 warrants(note)
|
|
Liabilities
:
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
9,924,421
|
|
$
|
9,924,421
|
|
$
|
9,924,421
|
|
Long-term liabilities
|
|
4,396,199
|
|
|
4,396,199
|
|
|
4,396,199
|
|
Total liabilities
|
|
14,320,620
|
|
|
14,320,620
|
|
|
14,320,620
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
:
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
10,691,671
|
|
|
20,591,674
|
|
|
27,768,828
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization:
|
$
|
25,012,291
|
|
$
|
34,912,294
|
|
$
|
42,089,448
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
16,545,011
|
|
|
19,845,012
|
|
|
21,662,013
|
|
Note: Excluding commissions and expenses relating to the share
issues.
HISTORY OF SHARE CAPITAL
History of our share capital for the last three years,
identifying events during such period which have changed the amount of our
issued capital, is incorporated hereby by reference to Note 10 to the
consolidated financial statements included in our Annual Report for the fiscal
year ended February 28, 2007 on Form 20-F filed with the Commission on May 31,
2007.
The following table sets forth the changes in share capital
since February 28, 2007:
Common shares without par value:
Outstanding at February 28, 2007
|
|
16,400,845
|
|
Issued March 1 to May 31, 2007
|
|
144,166
|
|
Outstanding at May 31, 2007
|
|
16,545,011
|
|
Issued June1 to August 31, 2007
|
|
3,389,413
|
|
Outstanding at August 31, 2007
|
|
19,934,424
|
|
DESCRIPTION OF SECURITIES
As of February 28, 2007 and as of August 31, 2007
,
we
were authorized to issue 500,000,000 common shares, no par value, and 20,000,000
preferred shares, without par value and in one or more series. The table below
sets forth the number of common shares and preferred shares issued and
outstanding as of the dates set forth below:
Date
|
Common shares
|
Preferred shares
|
August 31, 2007
|
19,934,424
|
0
|
February 28, 2007
|
16,400,845
|
0
|
March 1, 2006
|
15,084,068
|
0
|
The holders of common shares are entitled to receive notice of
and to attend all meetings of our shareholders and have one vote for each common
share held at all meetings of our shareholders, except for meetings at which
only holders of another specified class or series of shares are entitled to vote
separately as a class or series and subject to any special voting rights or
restrictions attached to any class of shares or restrictions on joint registered
holders of shares.
Subject to the prior rights of the holders of our preferred
shares, the holders of common shares are entitled to receive dividends if and
when declared by our board of directors.
In the event of our dissolution, liquidation or winding-up and
subject to the prior rights of the holders of preferred shares, the holders of
our common shares will be entitled to share equally in our remaining property
and assets.
All of the common shares are validly issued and fully paid and
the existing shareholders are not subject to any calls on the Shares. The shares
are not assessable and are not subject to the payment of any corporate debts.
Neither we nor any of our subsidiaries hold any shares.
At meetings of shareholders, one or more individuals who are
shareholders, proxyholders representing shareholders or duly authorized
representatives of corporation shareholders, present in person holding or
represented by proxy of 33 1/3% of our issued and outstanding common shares
shall constitute a quorum for purposes of a meeting of the holders of our common
shares.
WARRANTS AND RIGHTS
In connection with the private placement on August 9, 2007, we
issued 1,650,001 warrants to certain institutional investors. Each of these
warrants is exercisable for one common share, beginning at any time on or after
February 9, 2008 through February 9, 2013, at an exercise price of $3.95.
In connection with the private placement that took place in
August 2007, we issued 167,000 warrants to Merriman Curhan Ford & Co. for
their services acting as the placement agent for the private placement. Each of
these placement agent
warrants has the same rights and restrictions as those warrants
issued to the institutional investors and is exercisable for one common share,
beginning at any time on or after March 20, 2008 through February 9, 2013, at an
exercise price of $3.95.
The exercise price and number of common shares issuable upon
exercise of each warrant are subject to adjustment from time to time, subject to
certain limitations, in the event that certain actions or events occur while
such warrant is outstanding, including the following:
-
the Company pays a stock dividend on its common shares or otherwise makes a
distribution on any class of capital stock that is payable in common shares,
(ii) subdivides its outstanding common shares into a larger number of shares,
or (iii) combines its outstanding common shares into a smaller number of
shares;
-
the Company distributes to all holders of common shares (i) evidences of
its indebtedness, (ii) any security (other than a distribution of common
shares covered by the preceding paragraph) or (iii) any other asset;
-
the Company effects any merger or consolidation of the Company following
which the Company is not the survivor and the stockholders of the Company
immediately prior to such merger or consolidation do not own, directly or
indirectly, at least fifty percent (50%) of the voting securities of the
surviving entity;
-
the Company effects any sale of all or substantially all of its assets or a
majority of its common shares is acquired by a third party in one or a series
of related transactions;
-
any tender offer or exchange offer is completed pursuant to which all or
substantially all of the holders of common shares are permitted to tender or
exchange their shares for other securities, cash or property;
-
the Company effects any reclassification of the common shares or any
compulsory share exchange pursuant to which the common shares are effectively
converted into or exchanged for other securities, cash or property (other than
as a result of a subdivision or combination of common shares covered by the
first bullet point item above); or
-
the Company issues common shares or common share equivalents entitling any
person to acquire common shares (including rights to subscribe for or to
purchase, options for the purchase of common shares, any stock or security
convertible into or exchangeable for common shares), at a price per share less
than the exercise price of the warrant in effect immediately prior to the time
of such issuance.
The number of common shares that may be acquired by the holder
upon any exercise of a warrant shall be limited to the extent necessary to
ensure that, following such exercise, the total number of common shares then
beneficially owned by the holder and its affiliates does not exceed 4.99% of the
total number of issued and outstanding common shares of the Company. This 4.99%
limit may be waived by notice to the Company, which would not be effective until
the 61
st
day after such notice is delivered. If waived, the limit on
beneficial ownership would be a maximum of 9.99% of our outstanding shares.
MEMORANDUM AND ARTICLES OF ASSOCIATION
Key Provisions of our Notice of Articles and Articles and
the
Business Corporations Act
(British Columbia)
The following is a summary of certain key provisions of our
notice of articles and articles and certain related sections of the
Business
Corporations Act
(British Columbia) (the "BCBCA"). Please note that this is
only a summary and is not intended to be exhaustive. For further information
please refer to the full version of our notice of articles, and to our articles.
Stated Objects or Purposes
Our notice of articles and articles do not contain stated
objects or purposes and do not place any limitations on the business that we may
carry on.
Directors
Power to vote on matters in which the director is materially
interested
Our articles state that a director who is, in any way, directly
or indirectly interested in an existing or proposed contract or transaction with
the Company or who holds any office or possesses any property, directly or
indirectly, where a duty or interest might be created to conflict with his duty
or interest as
a director, shall declare the nature and extent of his interest
in the contract or transaction or of the conflict or potential conflict with his
duty and interest as a director in accordance with the provisions of the BCBCA.
A director is not entitled to vote in respect of any contract
or transaction with us in which he or she holds a disclosable interest on any
directors' resolution to approve the contract or transaction, unless all the
directors have a disclosable interest in that contract or transaction, in which
case any or all of the directors may vote on such resolution. If he or she does
vote, the vote will not be counted but he or she shall be counted in the quorum
present at the meeting at which such vote is taken; a director does not hold a
disclosable interest in a contract or transaction merely because:
|
(i)
|
the contract or transaction is an arrangement by way of
security granted by us for money loaned to, or obligations undertaken by,
the director or a person in whom the director has a material interest, for
the benefit of us or an affiliate of ours;
|
|
(ii)
|
the contract or transaction relates to an indemnity or
insurance of officers and directors under the BCBCA;
|
|
(iii)
|
the contract or transaction relates to the remuneration
of the director in that person's capacity as director, officer, employee
or agent of the Company or an affiliate of ours;
|
|
(iv)
|
the contract or transaction relates to a loan to us, and
the director or a person in whom the director has a material interest is
or is to be a guarantor of some or all of the loan; or
|
|
(v)
|
the contract or transaction has been or will be made with
or for the benefit of a corporation that is affiliated with us and the
director is also a director or senior officer of that corporation or an
affiliate of that corporation.
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Director remuneration
Our articles provide that the
remuneration of the directors as such may from time to time be determined by the
directors or, if the directors shall decide, by the shareholders. The
remuneration may be in addition to any salary or other remuneration paid to any
officer or employee of the Company as such who is also a director.
The articles also provide that the directors shall be repaid
reasonable traveling, hotel and other expenses as they incur in and about the
business of the Company and if any director shall perform any professional or
other services for the Company that in the opinion of the directors are outside
the ordinary duties of a director or shall otherwise be specially occupied in or
about the Company's business, he may be paid a remuneration to be fixed by the
board, or, at the option of the director, by the Company in general meeting, and
the remuneration may be either in addition to, or in substitution for any other
remuneration that he may be entitled to receive. The directors on behalf of the
Company, unless otherwise determined by ordinary resolution, may pay a gratuity
or pension or allowance on retirement to any director who has held any salaried
office or place of profit with the Company or to his spouse or dependents and
may make contributions to any fund and pay premiums for the purchase or
provision of any gratuity, pension or allowance.
Borrowing powers of directors
Our articles provide
that the directors may from time to time on behalf of the Company:
|
(a)
|
borrow money in a manner and amount, on any security,
from any source and upon any terms and conditions;
|
|
(b)
|
issue bonds, debentures, and other debt obligations
either outright or as security for any liability or obligation of the
Company or any other person; and
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|
(c)
|
mortgage, charge, whether by way of specific or floating
charge, or give other security on the undertaking, or on the whole or any
part of the property and assets, of the Company (both present and
future).
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Variation of the foregoing borrowing powers requires an
amendment to the articles, which requires the approval of our shareholders by
way of a special resolution. A special resolution (a "Special Resolution") means
a resolution passed by a majority of not less than 3/4 of the votes
cast
by our shareholders who, being entitled to do so, vote in person or by proxy at
our general meeting, or a resolution consented to in writing by every
shareholder who would have been entitled to vote in person or by proxy at a
general meeting.
Retirement of directors under an age limit requirement
Our notice of articles and articles do not impose any mandatory age-related
retirement requirement for directors.
Share requirement for directors
Our notice of articles
and articles do not provide that a person must hold shares to be qualified to
act as a director.
Share Capitalization
The Company is authorized to issue 500,000,000 common shares
without par value and 20,000,000 preferred shares without par value of which
1,000,000 shares are designated as Series A Preferred Shares, 100 shares are
designated as Series B Preferred Shares, 1,000,000 shares are designated as
Series C Preferred Shares, 4,000,000 shares are designated as
Series D Preferred Shares and 4,000,000 shares are designated
as Series E Preferred Shares. As of September 15, 2007, there are a total of
19,952,591 common shares, and no preferred shares, outstanding.
Common Shares
Holders of common shares are entitled to
one vote for each common share held at all meetings of shareholders, except
meetings at which only a specified class or series of shares are entitled to
vote.
Subject to the rights of the holders of preferred shares, the
holders of common shares are entitled to receive dividends when declared by the
directors out of funds or assets properly available for the payment of
dividends, in such amount and in such form as the directors may from time to
time determine, provided however that such dividends shall not be paid if to do
so would reduce the value of the net assets of the Company to less than the
total redemption amount of all issued preferred shares.
In the event of our dissolution, liquidation or winding-up and
subject to the prior rights of the holders of the preferred shares, holders of
common shares will be entitled to share equally in our remaining property and
assets, subject to the right of the holders of preferred shares, as a class, to
receive, before any distribution of any part of the assets of the Company among
the holders of common shares, the redemption amount in respect of such preferred
shares, being that amount as determined by the directors of the Company at the
time of the issuance of such preferred shares.
The Company's board of directors is divided into three classes
designated as Class I, Class II and Class III, to provide for a rotation of
three year terms of office. Any director whose term has expired is eligible for
re-election.
Preferred Shares
We are authorized to issue preferred
shares in one or more series. The directors are authorized to fix the number of
preferred shares in each series and to determine the preferred rights as to
dividends, designation, convertibility, rights, restrictions, conditions and
limitations attached to each such series.
The holders of preferred shares shall, at the discretion of the
directors, be entitled to an annual preferential dividend at such rate or rates
as the directors may, in their sole discretion, determine from time to time at
any time. There are currently different annual rates of preferential dividends
attaching to each series of shares, however no preferred shares are currently
outstanding.
The holders of preferred shares may, on 21 days' notice to the
Company, require the Company to redeem, and the Company may elect, upon 21 days'
notice to such holders, to redeem, the whole or any part of any series of
preferred shares, on payment of the redemption amount of such shares.
The holders of preferred shares, as a class, will have
preference as to dividends or capital or both capital and dividends.
Except as required by law or the provisions of any designated
series of preferred shares, the holders of preferred shares are not entitled to
vote at any meeting of the shareholders and are not entitled to notice of and to
attend meetings of the shareholders.
Amendment of Rights
We may, by Special Resolution, alter our notice of articles or
articles to create or vary the special rights or restrictions attached to any
shares, but no right or special right attached to any issued shares may be
prejudiced or interfered with unless all shareholders holding shares of each
class or series whose right or special right is prejudiced or interfered with
consent by a separate Special Resolution.
Meeting
We must hold an annual general meeting of our shareholders at
least once every calendar year at a time and place determined by the directors,
provided that the meeting must not be held later than 13 months after the
preceding annual general meeting.
The directors may, whenever the directors determine, call a
meeting of the shareholders. A general meeting, if requisitioned in accordance
with the BCBCA, will be convened by the directors or, if not convened by the
directors, may be convened by the requisitionists as provided in the BCBCA.
A notice convening a general meeting, specifying the place, the
date, and the hour of the meeting, and, in case of special business, the general
nature of that business, must be given to shareholders not less than 21 days
prior to the meeting. Shareholders entitled to attend and vote at a general
meeting may, by unanimous written consent, reduce or waive the period of notice
for a meeting. The accidental omission to send notice of any meeting of
shareholders to, or the non-receipt of any notice by, any of the person entitled
to notice does not invalidate any proceedings at that meeting.
A quorum for a general meeting is one or more individuals who
are shareholders, proxyholders representing shareholders or duly authorized
representatives of corporate shareholders, personally present and representing
shares aggregating not less than 33 1/3% of the issued shares of the Company
entitled to be voted at that meeting.
If within one-half hour from the time appointed for a meeting a
quorum is not present, the meeting, if convened by requisition of the
shareholders, shall be dissolved. In any other case, it shall stand adjourned to
the same day in the next week at a time and place determined by the board of
directors. If at an adjourned meeting a quorum is not present within one-half
hour from the time appointed, the shareholders present shall be a quorum.
Limitations in Right to own Securities
Our articles do not provide for any limitations on the rights
to own securities (see also the section captioned "Exchange Controls" beginning
on page 14 of this prospectus).
Change of Control
Our articles do not contain any change in control limitations
with respect to a merger, acquisition or corporate restructuring involving us.
We do, however, have a Shareholder Rights Plan (see "- Shareholder Rights Plan"
below).
Shareholder Ownership Disclosure
Our articles do not contain any provision governing the
ownership threshold above which shareholder ownership must be disclosed.
Changes in the Capital
The Company may by either Special Resolution or ordinary
resolution amend its notice of articles to increase the share capital of the
Company by:
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(a)
|
creating shares with par value or shares without par
value, or both;
|
|
(b)
|
increasing the number of shares with par value or shares
without par value, or both; and
|
|
(c)
|
increasing the par value of a class of shares with par
value, if no shares of that class are issued.
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The Company may by Special Resolution alter its notice of
articles to subdivide, consolidate, change from shares with par value to shares
without par value, or from shares without par value to shares with par value, or
change the designation of, all or any of its shares but only to the extent, in
the manner and with the consent of shareholders holding a class of shares which
is the subject of or affected by the alteration, as the BCBCA provides.
In addition, the Company may alter its notice of articles and
articles:
|
(a)
|
by Special Resolution, to create, define and attach
special rights or restrictions to any shares, and
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|
(b)
|
by Special Resolution and by otherwise complying with any
applicable provision of its notice of articles and articles, to vary or
abrogate any special rights and restrictions attached to any shares but no
right or special right attached to any issued shares shall be prejudiced
or interfered with unless all shareholders holding shares of each class
whose right or special right is prejudiced or interfered with consent
thereto in writing, or unless a resolution consenting is passed at a
separate class meeting of the holders of the shares of each class by a
majority of three-fourths, or such greater majority as may be specified by
the special rights attached to the class of shares, of the issued shares
of the class.
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Notwithstanding any consent in writing or resolution, no
alteration shall be valid as to any part of the issued shares of any class
unless the holders of all of the issued shares of the class either all consent
in writing or consent by a resolution passed by the votes of shareholders
holding three-fourths of the shares.
An ordinary resolution means a resolution passed at a general
meeting by a simple majority of the votes cast by shareholders voting shares
that carry the right to vote at general meetings or a resolution passed, after
being submitted to all of the shareholders holding shares that carry the right
to vote at general meetings, by being consented to in writing by shareholders
holding shares that carry the right to vote at general meetings who, in the
aggregate, hold shares carrying at least a special majority of the votes
entitled to be cast on the resolution.
Shareholder Rights Plan
At the Companys Annual Meeting on June 28, 2006, shareholders
approved the renewal of the Companys Shareholder Rights Plan (the Rights
Plan). A copy of the Rights Plan was filed with the Commission on July 11,
2006.
Purpose and Background of the Rights Plan
The Rights Plan is designed to protect shareholders of the Company from unfair, abusive or coercive take-over strategies, including the acquisition of control of the Company by a bidder in a transaction or series of transactions that does not treat
all shareholders equally or fairly or provide all shareholders an equal opportunity to share in the premium paid on an acquisition of control. The Rights Plan provides management and the board of directors with more than the 35 day statutory minimum
period to review the terms of a take-over bid and solicit alternative offers. The Rights Plan is not intended to prevent a take-over or deter fair offers for securities of the Company. Rather, it is designed to encourage anyone seeking to acquire
control of the Company to make an offer that represents fair value to all holders of Shares.
The Rights Plan will cause substantial dilution to a person or group who attempts to acquire control of the Company other than through a Permitted Bid (as defined below) or on terms approved by the board of directors. The Rights Plan provides that
take-over bids that meet pre-determined standards of fairness will be Permitted Bids and will proceed without triggering the dilutive effects of the plan. The Permitted Bid concept, which is found in most of the shareholder rights plans that have
been adopted in Canada, ensures that senior management of the Company and the board of directors do not impair the rights of shareholders to receive, review and accept or decline take-over bids. The Rights Plan is designed to afford the board of
directors the opportunity to present to the shareholders of the Company a detailed analysis of a bid and additional time to seek out and consider alternatives.
If a bidder does not wish to make a Permitted Bid, the bidder can negotiate with and obtain prior approval of the board of directors to make an offer on terms that the board of directors considers fair to all shareholders. In such circumstances, the
board of directors may waive the application of the Rights Plan, thereby allowing such offer to proceed without dilution to the bidder. The adoption of the Rights Plan does not relieve the board of directors of its fiduciary duties to act in the
best interests of all shareholders and does not prevent a take-over bid or merger or other business combination that the board of directors, in the exercise of its fiduciary duties, determines to be in the best interests of the Company and its
shareholders. Moreover, the Rights Plan does not inhibit the use of the proxy solicitation rules under applicable securities laws to promote a change in the management or direction of the Company.
The Rights Plan is designed not to interfere with the day-to-day operations of the Company. Prior to being activated, the Rights Plan does not affect the Companys balance sheet or income statement and its implementation should not result in a
taxable event for the Company or its shareholders. The implementation or renewal of the Rights Plan does not increase the level of debt of the Company or involve a sale, exchange or purchase of significant assets or the loss of earning power of the
Company. The issue of rights under the Rights Plan (Rights) does not dilute the equity or voting interests of existing shareholders and should not interfere with equity or debt financing by the Company.
The Rights Plan may discourage certain types of take-over bids that might be made for the Company and may render more difficult an attempt to gain control of the Company or remove incumbent management. The Rights Plan would cause substantial
dilution to a person or group that attempts to acquire the Company other than through a Permitted Bid or on terms approved by the board of directors. The Rights Plan is not intended to prevent all unsolicited take-over bids for the Company and will
not do so. It is designed to encourage potential bidders to make Permitted Bids or negotiate take-over proposals with the board of directors that the board of directors considers are in the best interests of the Company and to protect the
Companys shareholders against coercive bids that do not represent fair value.
Summary of the Rights Plan
The following is a summary of the principal terms of the Rights Plan, as renewed, which is qualified in its entirety by reference to the text of the Rights Plan agreement.
Effective Date.
The effective date of the Rights Plan is August 31, 2006 (the Effective Date) and it will remain in effect until the termination of the annual general meeting of the shareholders of the Company for 2011.
Issue of Rights.
One minute after the Effective Date, one Right was issued and attached to each Share of the Company outstanding and will attach to each Share subsequently issued.
Adjustment to Exercise Rights
. After a person acquires 20% or more of the Shares of the Company or commences a take-over bid to acquire Shares of the Company, or announces an intention to do so, other than by way of a Permitted Bid (the
Separation Time), the Rights will separate from the Shares and will be exercisable at an exercise price of Cdn$20 per Share. The acquisition by any person (an Acquiring Person) of 20% or more of the Shares, other than by
way of a Permitted Bid, is referred to as a Flip-in Event. Any Rights held by an Acquiring Person will become void upon the occurrence of a Flip-in Event. Eight trading days after the occurrence of a Flip-in Event, each Right (other than
those held by the Acquiring Person), will be adjusted so as to permit its holder to purchase Cdn$40 worth of Shares for Cdn$20 (i.e. at a 50% discount).
The issue of the Rights is not initially dilutive. However,
upon a Flip-in Event occurring and the Rights separating from the Shares,
reported earnings per share on a fully diluted or non-diluted basis may be
affected. Holders of Rights not exercising their Rights after the occurrence of
a Flip-in Event may suffer substantial dilution.
Certificates and Transferability
. Prior to the
Separation Time, the Rights will be evidenced by a legend imprinted on
certificates for Shares issued from and after the Effective Date and will not be
transferable separately from the Shares. Promptly following the Separation Time,
separate certificates evidencing the Rights (the Rights Certificates) will be
mailed to holders of record of Shares as of the Separation Time and the separate
Rights Certificates will evidence the Rights. From and after the Separation
Time, Rights Certificates, which will be transferable in accordance with
applicable securities laws, will evidence the Rights.
Permitted Bids
. The requirements for a Permitted Bid
include the following:
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(a)
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the take-over bid must be made by way of a take-over bid
circular;
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(b)
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the take-over bid must be made to all holders of Shares
(and voting shares issued on the exercise of warrants, options and other
securities convertible into voting shares);
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(c)
|
the take-over bid must be outstanding for a minimum of 60
days, during which time tendered Shares may not be taken up;
|
|
(d)
|
shareholders who tender their Shares to the take-over bid
must be permitted to withdraw their Shares prior the Shares being taken up
and paid for;
|
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(e)
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Shares tendered pursuant to the take-over bid may be
taken up only after the expiry of not less than 60 days and then only if
at such time more than 50% of the Shares held by shareholders other than
the bidder, its affiliates and persons acting jointly or in concert with
the bidder (the Independent Shareholders) have been tendered to the
take-over bid and not withdrawn; and
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|
(f)
|
if more than 50% of the Shares held by Independent
Shareholders are tendered to the take-over bid within the 60 day period,
the bidder must make a public announcement of that fact and the take-over
bid must remain open for deposits of Shares for an additional 10 business
days from the date of such public announcement.
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The Rights Plan allows for a competing Permitted Bid (a
Competing Permitted Bid) to be made while a Permitted Bid is pending. A
Competing Permitted Bid must satisfy all the requirements of the Permitted Bid
except that it may expire on the same date as the Permitted Bid, subject to the
statutory requirement that it be outstanding for a minimum period of 35 days.
Waiver and Redemption
. The board of directors may, prior
to a Flip-in Event occurring, waive the dilutive effects of the Rights Plan in
respect of a particular Flip-in Event resulting from a take-over bid made by way
of a take-over bid circular to all holders of Shares of the Company, in which
event such waiver would be deemed also to be a waiver in respect of any other
Flip-in Event occurring thereafter under a take-over bid made by way of a
take-over bid circular to all holders of Shares. The board of directors may also
waive the Rights Plan in respect of a particular Flip-in Event that has occurred
through inadvertence, provided that the Acquiring Person that inadvertently
triggered such Flip-in Event reduces its beneficial holdings to less than 20% of
the outstanding Shares of the Company within 14 days or such other period as may
be specified by the Board of Directors. With the majority consent of
shareholders or Rights holders at any time prior to a Flip-in Event causing an
adjustment to the Rights, the board of directors may redeem all, but not less
than all, of the outstanding Rights at a price of $0.0001 each.
Exemption for Investment Advisors
. Investment managers
(for client accounts), trust companies (acting in their capacities as trustees
and administrators), statutory bodies (managing investment funds for employee
benefit plans, pension plans, insurance plans or various public bodies),
administrators and trustees of pension funds, securities depositories and crown
agents, any of whom acquire greater than 20% of the Shares of the Company, are
exempted from triggering a Flip-in Event provided that they are not making, or
are not part of a group making, a take-over bid.
Supplements and Amendments
. The Company is authorized to
make amendments to the Rights Plan to correct any typographical error or,
subject to subsequent confirmation by shareholders or Rights holders, to effect
a change requested by any stock exchange on which the Shares may be listed or to
maintain the validity of the Rights Plan as a result of changes in law. Other
amendments or supplements to the Rights Plan may be made with the prior approval
of shareholders or Rights holders and, if necessary, any stock exchange on which
the Shares may be listed.
Grandfathered Persons
. Holders of 20% or more of the
Shares at the time when the Rights are distributed are recognized for the
purposes of the Rights Plan as grandfathered persons and, as such, do not
constitute Acquiring Persons under the Rights Plan by virtue of their
shareholding exceeding the 20% Flip-in Event threshold.
Certain Canadian Federal Income Tax Considerations of the
Rights Plan
This statement is of a general nature only and is not
intended to constitute nor should it be construed to constitute legal or tax
advice to any particular holder of Shares. Shareholders are advised to consult
their own tax advisors regarding the consequences of acquiring, holding,
exercising or otherwise disposing of their Rights, taking into account their own
particular circumstances and any applicable federal, provincial, territorial or
foreign laws.
The Company will not earn any income for the purposes of the
Income Tax Act (Canada) (the ITA) as a result of the issuance of the Rights.
The ITA provides that the value of a right to acquire additional shares of a
corporation is not a taxable benefit which must be included in computing income,
and is not subject to non-resident withholding tax if the right is conferred on
all holders of shares of the corporation. Although the Rights are to be so
conferred, the Rights could become void in the hands of certain holders of
Shares upon certain triggering events occurring (i.e. a Flip-in Event), and,
consequently, whether or not the issuance of the Rights is a taxable event is
not entirely free from doubt. In any event, no amount must be included in
computing income if the Rights do not have a monetary value at the date of
issue. The Company considers that the Rights, when issued, will have negligible
monetary value, there being only a remote possibility that the Rights will ever
be exercised. A holder of Rights may have income or be subject to withholding
tax under the ITA if the Rights become exercisable or are exercised. A holder of
Rights may be subject to tax in respect of the proceeds of disposition of Rights
or common shares issued upon the exercise of Rights.
EXCHANGE CONTROLS
Incorporated by reference from our Annual Report filed on Form
20-F dated May 31, 2007.
TAXATION
A brief and general description is included below of Canadian
federal and U.S. federal income taxes, including withholding taxes, to which
United States security holders may be subject under the existing tax laws of
Canada and the United States.
Please note that the following information is a brief
summary only, and security holders should seek the advice of their own tax
advisors with respect to the applicability or effect on their own individual
circumstances of the matters referred to herein and of any Canadian income taxes
(federal or provincial) and of any United States federal, state, or local
taxes.
This discussion does not take into account the U.S. alternative
minimum tax or special rules applicable in special situations, such as shares
traded by a dealer in securities.
This discussion applies only to U.S. Shareholders who are
defined as U.S. persons under the U.S. federal Internal Revenue Code (the
Code), which generally include: (1) individuals who are citizens or resident
aliens of the United States, (2) corporations and other business entities
formed under the laws of the United States, (3) estates the income of which is
subject to U.S. federal income taxation regardless of its source, and (4) trusts
that are subject primarily to the jurisdiction of a U.S. court and if one or
more U.S. persons have the authority to control all substantial decisions of the
trust. The discussion also assumes that the shareholder qualifies for the
benefits of the income tax treaty currently in effect between the United States
and Canada (the tax treaty) and that the shareholder is holding our shares for
investment purposes only.
Taxation on Dividends
Generally, cash dividends paid or deemed to be paid by us to
U.S. Shareholders are subject to a Canadian federal withholding tax of 15%,
except that dividends paid to a U.S. corporation that owns 10% or more of our
outstanding voting shares are subject to a withholding tax of 5%. Such dividends
are also subject to U.S. federal income tax at ordinary rates, except that
dividends received by non-corporate U.S. Shareholders in taxable years beginning
on or before December 31, 2010 may qualify for taxation at lower rates
applicable to long-term capital gains (generally 15% currently), provided that
certain holding period and other requirements are satisfied. Any Canadian
withholding tax imposed on a dividend will generally qualify for the U.S.
foreign tax credit, which will offset the U.S. tax on the dividend partly or
entirely.
Taxation on Capital Gains
Generally, any gain on the disposition of our shares by a U.S.
shareholder is exempted by the tax treaty from Canadian income tax, unless the
shareholder has exceeded a certain threshold of residency in Canada during the
ten years preceding the sale of the shares. With respect to U.S. income tax, the
gain is generally taxable as capital gain, either short-term capital gain if the
shareholder has held the shares for one (1) year or less, or long-term capital
gain if the shareholder has held the shares for more than one (1) year.
Generally, short-term capital gains are taxed at ordinary rates, while long-term
capital gains are taxed to non-corporate shareholders at a rate no higher than
15% (currently).
MARKETS
Our common shares have been quoted on the NASDAQ Capital Market
(formerly called the NASDAQ Small-cap Market) since August 3, 1993. Our common
shares trade on the NASDAQ Capital Market under the symbol LBIX." On May 8,
2002 the Companys common shares were listed on the Toronto Stock Exchange
(TSX) under the ticker symbol LBI. On April 8, 2003 the Company voluntarily
delisted its shares from the TSX.
NASDAQ Capital Market
Our common shares traded during the periods and at the prices
set out below on the NASDAQ Capital Market.
The high and low market prices for the last five fiscal years
ended February 28:
Period
|
High
|
Low
|
March 1, 2006 to Feb. 28, 2007
|
$7.09
|
$1.45
|
March 1, 2005 to Feb. 28, 2006
|
$1.75
|
$0.71
|
March 1, 2004 to Feb. 28, 2005
|
$1.75
|
$0.78
|
March 1, 2003 to Feb. 29, 2004
|
$2.49
|
$0.91
|
March 1, 2002 to Feb. 28, 2003
|
$4.14
|
$1.52
|
The high and low market prices for each of the four quarters of
2006 and 2005 and the first two quarters of 2007:
Quarter Ending
|
High
|
Low
|
August 31, 2007
|
$4.67
|
$2.66
|
May 31, 2007
|
$4.13
|
$2.34
|
February 28, 2007
|
$4.41
|
$1.84
|
November 30, 2006
|
$5.98
|
$2.85
|
August 31, 2006
|
$7.09
|
$2.67
|
May 31, 2006
|
$4.18
|
$1.45
|
February 28, 2006
|
$1.60
|
$0.90
|
November 30, 2005
|
$1.42
|
$0.85
|
August 31, 2005
|
$1.75
|
$1.01
|
May 31, 2005
|
$1.24
|
$0.71
|
The high and low market prices for each of the last six months:
Month
|
High
|
Low
|
September 2007
|
$3.14
|
$2.22
|
August 2007
|
$4.50
|
$2.66
|
July 2007
|
$4.28
|
$3.49
|
June 2007
|
$4.67
|
$3.61
|
May 2007
|
$4.13
|
$2.65
|
April 2007
|
$3.09
|
$2.30
|
Toronto Stock Exchange
The Companys common shares were listed and first traded on the
TSX on May 8, 2002 and voluntarily delisted and last traded on the TSX on April
8, 2003. Our common shares traded on the TSX during the periods and at the
prices set out below.
The high and low market prices for the last five fiscal years
ended February 28:
Period
|
High
|
Low
|
March 1, 2006 to Feb. 28, 2007
|
n/a
|
n/a
|
March 1, 2005 to Feb. 28, 2006
|
n/a
|
n/a
|
March 1, 2004 to Feb. 28, 2005
|
n/a
|
n/a
|
March 1, 2003 to April 8, 2003
|
Cdn$6.40
|
Cdn$2.70
|
May 8, 2002 to Feb. 28, 2003
|
Cdn$3.12
|
Cdn$2.55
|
MATERIAL CHANGES
Except as otherwise described in the Companys Annual Report on
Form 20-F for the fiscal year ended February 28, 2007 and in its Reports on Form
6-K filed under the Exchange Act and incorporated by reference herein, no
reportable material changes have occurred.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the Exchange Act"), and file
reports and other information with the 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, and any
materials we filed with the Commission, may be inspected without charge at the
Commissions 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 Commission at 1-800-SEC-0330. Our Commission filings also are
available to the public from the Commissions 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 promptly as are certain 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.
Additional information relating to the Company can be found on
SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
INCORPORATION BY REFERENCE
The Commission allows us to incorporate by reference documents
we file with the Commission, which means that we can disclose information to
you by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus, and certain later information that
we file with the Commission will automatically update and supersede this information.
We incorporate by reference the following documents:
-
our report on Form 6-K furnished to the Commission on March 7, 2007;
-
our report on Form 6-K furnished to the Commission on March 30, 2007;
-
our report on Form 6-K furnished to the Commission on April 30, 2007;
-
our report on Form 6-K furnished to the Commission on May 11, 2007;
-
our latest annual report on Form 20-F for the fiscal year ended February
28, 2007 filed with the Commission on May 31, 2007;
-
our report on Form 6-K furnished to the Commission on May 31, 2007;
-
our report on Form 6-K furnished to the Commission on July 9, 2007;
-
our report on Form 6-K furnished to the Commission on August 2, 2007;
-
our reports on Forms 6-K furnished to the Commission on August 7, 2007;
-
our report on Form 6-K furnished to the Commission on August 9, 2007;
-
our report on Form 6-K furnished to the Commission on August 10, 2007;
-
our report on Form 6-K furnished to the Commission on August 14, 2007; and
-
our report on Form 6-K furnished to the Commission on September 10, 2007.
All annual reports we file with the Commission pursuant to the
Exchange Act on Form 20-F after the date of this prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference into
this prospectus and to be part hereof from the date of filing of such documents.
We may incorporate by reference any Form 6-K subsequently submitted to the
Commission by identifying in such Form 6-K that it is being incorporated by
reference into this prospectus.
We shall undertake to provide without charge to each person to
whom a copy of this prospectus has been delivered, upon the written or oral
request of any such person to us, a copy of any or all of the documents referred
to above that have been or may be incorporated into this prospectus by
reference, including exhibits that are specifically incorporated by reference to
such documents. Requests for such copies should be directed to c/o Marilyn
Kerzner, Director of Corporate Affairs, Leading Brands, Inc., 1500 West Georgia
Street, Suite 1800, Vancouver BC, Canada V6G 2Z6. Our telephone number is (604)
685-5200.
You should rely only on the information incorporated by
reference or provided in this prospectus or any prospectus supplement. We have
not authorized anyone else to provide you with different information. This
prospectus is an offer to sell or to buy only the securities referred to in this
prospectus, and only under the circumstances and in jurisdictions where it is
lawful to do so. The information contained in this prospectus or any prospectus
supplement is current only as of the date on the front page of those documents.
Also, you should not assume that there has been no change in our affairs since
the date of this prospectus or any applicable prospectus supplement.
USE OF PROCEEDS
The selling shareholders are selling all of the common shares
covered by this prospectus for their own account. Accordingly, we will not
receive any proceeds from the sale of the common shares. If any warrants are
exercised (excluding warrants exercised on a cashless basis), we will receive
the exercise price of the warrants, which will be used for working capital
purposes. The maximum aggregate proceeds to us related to the exercise of the
warrants, including the warrants issued to the placement agent, approximately
$7,177,154. The selling shareholders are under no obligation to exercise the
warrants or exercise the warrants using cash, and there can be no assurance that
the selling shareholders will do so.
EXPENSES
We are required to pay all fees and expenses incident to the
registration of the common shares, including the registration fees. Selling
shareholders will pay any underwriting commissions and expenses, brokerage fees,
transfer taxes and the fees and expenses of their attorneys and other experts.
Set forth below are expenses to be paid by us in connection with the
distribution of the common shares being registered on behalf of the selling
shareholders. All amounts are estimates except for the Securities and Exchange
Commission registration fees.
Registration fee
|
$
|
459.43
|
Fees and expenses of accountants
|
|
50,000
|
Fees and expenses of legal counsel
|
|
73,000
|
Printing and engraving expenses
|
|
|
Federal taxes
|
|
|
State taxes and fees
|
|
|
Miscellaneous expenses
|
|
1,700
|
Total
|
$
|
125,159.43
|
DIVIDEND POLICY
To date, we have not paid any dividends on common shares, and
do not anticipate doing so in the foreseeable future. The declaration of
dividends on our common shares is within the discretion of our board of
directors and will depend upon, among other factors, earnings, capital
requirements, our operating and financial condition and applicable laws. The
Company will consider dividend distributions when it determines that it cannot
realize better returns to investors by investing internally.
Our board of directors may or may not declare dividends in the
foreseeable future; however, to the extent that our board of directors may decide
to pay cash dividends in the future, these dividends may be paid out of funds
legally available for the payment of dividends.
SELLING SHAREHOLDERS
The common shares being offered by the selling shareholders are
those previously issued to the selling shareholders. We are registering the
common shares in order to permit the selling shareholders to offer the shares
for resale from time to time.
The following table sets forth information about the number of
shares beneficially owned by each selling shareholder that may be offered from
time to time under this prospectus. Beneficial ownership is determined in
accordance with the rules of the Commission, and includes voting and investment
power with respect to our common shares. Common shares subject to warrants that
are currently exercisable or exercisable within 60 days after August 9, 2007 are
deemed to be beneficially owned by the person holding those securities for the
purpose of computing the percentage ownership of that person but are not treated
as outstanding for the purpose of computing the percentage ownership of any
other shareholder.
Certain selling shareholders may be deemed to be underwriters"
as defined in the Securities Act. Any profits realized by any such selling
shareholders may be deemed to be underwriting commissions.
The table below has been prepared based upon the information
furnished to us by the selling shareholders as of August 9, 2007. Information
concerning the selling shareholders may change from time to time and, if
necessary, we will supplement this prospectus accordingly.
The second and third columns in the table below lists the
number and percentage, respectively, of common shares beneficially owned by each
selling shareholder prior to the offering based on its ownership of the common
shares as of August 8, 2007. The fourth column lists the common shares being
offered by this prospectus by the selling shareholders. The fifth and sixth
columns assume the sale of all of the shares offered by the selling shareholders
pursuant to this prospectus.
None of the selling shareholders are broker-dealers or
affiliates of a broker-dealer except for the selling shareholders specified in
the table below. We have been advised that each of such selling shareholders
purchased our common shares in the ordinary course of business, not for resale,
and that none of such selling shareholders had, at the time of purchase, any
agreements or understandings, directly or indirectly, with any person to
distribute the common shares. If the shares are to be sold by transferees of the
selling shareholders under this prospectus and the shares are not sold pursuant
to the Plan of Distribution" in this prospectus, we must file a post-effective
amendment to the registration statement that includes this prospectus or a
prospectus supplement, amending the list of selling shareholders to include the
transferee as a selling shareholder. Upon being notified by a selling
shareholder that it intends to use an agent or principal to sell their shares, a
post-effective amendment to the registration statement that includes this
prospectus will be filed, naming the agent or principal as an underwriter and
disclosing the compensation arrangement.
To our knowledge and except as noted below, none of the selling
shareholders has, or has had within the past three years, any position, office
or other material relationship with us or any of our predecessors or affiliates,
other than their ownership of shares described below.
|
Shares Beneficially Owned
Prior to the Offering
|
|
Number of
Shares Being
Offered
|
|
Shares Beneficially
Owned After the Offering
|
Name
|
Number
|
|
Percent
(1)
|
|
|
Number
|
|
Percent
|
Fort Mason Master, LP
c/o Fort Mason Capital, LLC
580 California St., Suite 1925
San Francisco, CA 94104
|
1,252,134
(2), (3), (4)
|
|
6.3%
|
|
1,878,201 (5)
|
|
0
|
|
0%
|
Fort Mason Partners, LP
c/o Fort Mason Capital, LLC
580 California St., Suite 1925
San Francisco, CA 94104
|
81,200
(3), (4), (6)
|
|
0.4%
|
|
121,800 (7)
|
|
0
|
|
0%
|
Freestone Capital Qualified Partners
LP
c/o Freestone Investments
1191 Second Avenue, Suite 2100
Seattle, WA 98101
|
240,000
(3), (8), (9)
|
|
1.2%
|
|
360,000 (10)
|
|
0
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
Freestone Capital Partners LP
c/o Freestone Investments
1191 Second Avenue, Suite 2100
Seattle, WA 98101
|
160,000
(3), (9), (11)
|
|
0.8%
|
|
240,000 (12)
|
|
0
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
Investcorp Interlachen Multi-Strategy
Master Fund Limited
c/o Interlachen Capital Group LP
800 Nicollet Mall, Suite 2500
Minneapolis, MN 55402
|
1,000,000
(3), (13),
(14)
|
|
5.0%
|
|
1,500,000 (15)
|
|
0
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
Vision Opportunity Master Fund, Ltd.
c/o Vision Capital Advisors, LLC
20 W. 55th Street, 5th Floor
New York, NY 10019
|
566,667
(3), (16)
|
|
2.8%
|
|
850,001 (17)
|
|
0
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
Merriman Curhan Ford & Co. (18)
600 California Street, 9
th
Floor
San Francisco, CA 94108
|
0
(3), (19)
|
|
0%
|
|
167,000 (20)
|
|
0
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
Total
|
3,300,001
|
|
16.5%
|
|
5,117,002
(21)
|
|
0
|
|
0%
|
______________
* Represents less than one percent (1%)
(1)
Shares beneficially owned prior to the offering is based on total outstanding
shares of 19,934,424.
(2)
Does not include 626,067 common shares underlying warrants.
(3)
Unless waived by notice to the Company, which would not be effective until the
61
st
day after such notice is delivered, the number of shares
beneficially owned is subject to certain provisions in the warrants which limit
beneficial ownership to a maximum of 4.99% of our outstanding shares. If waived,
the limit on beneficial ownership would be a maximum of 9.99% of our outstanding
shares.
(4)
Fort Mason Capital, LLC, a Delaware limited liability company (Fort Mason
Capital), serves as the investment manager of Fort Mason Master, LP and Fort
Mason Partners, LP (together, the Fort Mason Funds) and possesses the sole
power to vote and the sole power to direct the disposition of all securities of
the Company held by the Fort Mason Funds, which, as of the date hereof,
constitute an aggregate of 1,333,334 common shares and, without giving effect to
the 4.99% or 9.99% limitation on beneficial ownership discussed in note (3)
above, the right to acquire 666,667 shares upon exercise of warrants. Mr. Daniel
German serves as the sole managing member of Fort Mason Capital. Fort Mason
Capital and Mr. German each disclaim beneficial ownership of such shares, except
to the extent of its or his pecuniary interest therein, if any.
(5)
Includes 626,067 common shares underlying warrants.
(6)
Does not include 40,600 common shares underlying warrants.
(7)
Includes 40,600 common shares underlying warrants.
(8)
Does not include 120,000 common shares underlying warrants.
(9)
Freestone Capital Management, Inc., a Washington corporation, serves as the
investment manager of Freestone Capital Qualified Partners LP and Freestone
Capital Partners LP (the Freestone Funds) and possesses the sole power to vote
and the sole power to direct the disposition of all securities of the Company
held by the Freestone Funds, which constitutes an aggregate of 400,000 common
shares and, without giving effect to the 4.99% or 9.99% limitation on beneficial
ownership, the right to acquire 200,000 shares upon exercise of warrants.
(10) Includes
120,000 common shares underlying warrants.
(11) Does
not include 80,000 common shares underlying warrants.
(12)
Includes 80,000 common shares underlying warrants.
(13) Does
not include 500,000 common shares underlying warrants.
(14)
Interlachen Capital Group LP is the trading manager of Investcorp Interlachen
Multi-Strategy Master Fund Limited and has voting and investment discretion over
securities held by Investcorp Interlachen Multi-Strategy Master Fund Limited.
Andrew Fraley, in his role as Chief Investment Officer of Interlachen Capital
Group LP, has voting control and investment discretion over securities held by
Investcorp Interlachen Multi-Strategy Master Fund Limited. Andrew Fraley
disclaims beneficial ownership of the securities held by Investcorp Interlachen
Multi-Strategy Master Fund Limited.
(15)
Includes 500,000 common shares underlying warrants.
(16) Does
not include 283,334 common shares underlying warrants.
(17) Includes
283,334 common shares underlying warrants.
(18) The
placement agent for the transaction is Merriman Curhan Ford & Co., a
publicly held securities broker-dealer and investment bank. Jonathan Merriman is
the Chairman and CEO of Merriman Curhan Ford & Co. and has been a director
of Leading Brands, Inc. since January 1999. As of March 30, 2007, as disclosed
in Merriman Curhan Ford & Co.'s 2007 proxy statement, Mr. Merriman
beneficially owned 13.3% of the voting securities of Merriman Curhan Ford &
Co. Mr. Merriman also beneficially owns 260,792 common shares and 100,000 stock
options, or 1.66%of the voting securities, of Leading Brands, Inc.
(19) Does
not include 167,000 common shares underlying warrants.
(20)
Includes 167,000 common shares underlying warrants.
(21)
Includes an aggregate of 1,817,001 common shares underlying warrants.
PLAN OF DISTRIBUTION
We are registering the common shares issued to the selling
shareholders and issuable upon exercise of the warrants issued to the selling
shareholders to permit the resale of these common shares by the holders of the
common shares and warrants from time to time after the date of this prospectus.
We will not receive any of the proceeds from the sale by the selling
shareholders of the common shares. We will bear all fees and expenses incident
to our obligation to register the common shares.
The selling shareholders 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
shareholders will be responsible for underwriting discounts or commissions or
agent's commissions. The common shares may be sold 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 or in transactions otherwise
than on these exchanges or systems or in the over-the-counter market and in one
or more transactions at fixed prices, at prevailing market prices at the time of
the sale, at varying prices determined at the time of sale, or at negotiated
prices. These sales may be effected in transactions, which may involve crosses
or block transactions. The selling shareholders may use any one or more of the
following methods when selling shares:
-
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;
-
settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part;
-
broker-dealers may agree with the selling shareholders to sell a specified
number of such shares at a stipulated price per share;
-
through the writing or settlement of options or other hedging transactions,
whether such options are listed on an options exchange or otherwise;
-
a combination of any such methods of sale; and
-
any other method permitted pursuant to applicable law.
The selling shareholders also may resell all or a portion of
the shares in open market transactions in reliance upon Rule 144 under the
Securities Act, as permitted by that rule, or Section 4(1) under the Securities
Act, if available, rather than under this prospectus, provided that they meet
the criteria and conform to the requirements of those provisions.
Broker-dealers engaged by the selling shareholders may arrange
for other broker-dealers to participate in sales. If the selling shareholders
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 shareholders or commissions from purchasers of the common shares for
whom they may act as agent or to whom they may sell as principal. Such
commissions will be in amounts to be negotiated, but, except as set forth in a
supplement to this Prospectus, in the case of an agency transaction will not be
in excess of a customary brokerage commission in compliance with NASD Rule 2440;
and in the case of a principal transaction a markup or markdown in compliance
with NASD IM-2440.
In connection with sales of the common shares or otherwise, the
selling shareholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common shares in the course
of hedging in positions they assume. The selling shareholders may also sell common shares short and if such short sale shall take place after the date that this Registration Statement is declared effective by the Commission, the selling shareholders
may 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 shareholders may also loan or pledge common shares to broker-dealers that in turn may
sell such shares, to the extent permitted by applicable law. The selling shareholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which
require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to
reflect such transaction). Notwithstanding the foregoing, the selling shareholders have been advised that they may not use shares registered on this registration statement to cover short sales of our common shares made prior to the date the
registration statement, of which this prospectus forms a part, has been declared effective by the Securities and Exchange Commission.
The selling shareholders may, from time to time, pledge or grant a security interest in some or all of the 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 amending, if necessary, the list of selling shareholders
to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus. The selling shareholders 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.
The selling shareholders and any broker-dealer or agents participating in the distribution of the common shares may be deemed to be underwriters within the meaning of Section 2(11) of the Securities Act in connection with such sales. In
such event, any commissions paid, or any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities
Act. Selling Shareholders who are "underwriters" within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act and may be subject to certain statutory liabilities of,
including but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Each selling stockholder has informed the Company that it is not a registered broker-dealer and does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the common shares. Upon the Company
being notified in writing by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common shares through a block trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such selling stockholder and of the participating broker-dealer(s), (ii)
the number of shares involved, (iii) the price at which such the common shares were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In no event shall any broker-dealer receive fees, commissions and markups, which, in the aggregate,
would exceed eight percent (8%).
Under the securities laws of some states or provinces, the common shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states or provinces, the common shares may not be sold unless such
shares have been registered or qualified for sale in such state or province or an exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling stockholder will sell any or all of the common shares registered pursuant to the shelf registration statement, of which this prospectus forms a part.
Each selling stockholder 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 stockholder 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, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or
blue sky laws;
provided
,
however
, that each selling stockholder will pay all underwriting discounts and selling commissions, if any and any related legal expenses incurred by it. We will indemnify the selling shareholders
against certain liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreements, or the selling shareholders will
be entitled to contribution. We may be indemnified by the
selling shareholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to us by
the selling shareholders specifically for use in this prospectus, in accordance
with the related registration rights agreements, or we may be entitled to
contribution.
If this registration statement is first declared effective by
the Commission within 100 days of August 9, 2007 and the selling shareholders do
not waive this requirement, then the Company will prepare and file with the
British Columbia Securities Commission a preliminary and final shelf
prospectus prepared in accordance with the securities laws of the Province of
British Columbia covering the resale of all of the common shares being
registered pursuant to this registration statement.
The common shares are subject to restrictions on resales under
the securities laws of the Province of British Columbia until four months and
one day after August 9, 2007, and the holders shall not be entitled to effect
resales of the common shares in Canada until December 10, 2007 even if a
registration statement covering such resales becomes effective prior to that
date, unless a discretionary order permitting the resale is granted by the
British Columbia Securities Commission or such resale is qualified by a
prospectus for which a receipt has been issued by the British Columbia
Securities Commission. Moreover, certificates evidencing the securities bear the
following Canadian restrictive legend in substantially the following form, until
such time as it is not required:
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER
OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE DECEMBER 10, 2007.
LEGAL MATTERS
The validity of the issuance of the common shares offered
hereby will be passed upon for us by DuMoulin Black LLP, Vancouver, British
Columbia, Canada.
EXPERTS
The financial statements incorporated by reference in this
prospectus have been audited by BDO Dunwoody LLP, independent registered public
accountants, to the extent and for the periods set forth in their report
incorporated herein by reference, and are incorporated herein in reliance upon
such report given upon the authority of said firm as experts in auditing and
accounting.
INDEMNIFICATION
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
us, pursuant to the applicable provisions, we have been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
We currently maintain directors and officers insurance as
permitted under our articles.
We have not authorized any dealer, salesperson or
other person to give any information or to represent
anything not contained in this prospectus. You must
not rely
on any unauthorized information.
This
prospectus does not
offer to sell or buy any shares in a
jurisdiction where it is
unlawful. The information in this
prospectus is current as of the
date hereof.
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LEADING BRANDS,
INC.
5,117,002 COMMON SHARES
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PROSPECTUS
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